BIG CITY RADIO INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR FISCAL YEAR ENDED DECEMBER 31, 2001

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER 001-13715

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BIG CITY RADIO, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 13-3790661
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)

110 EAST 42ND STREET, SUITE 1305, NEW YORK, NY 10532
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 599-3510

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: 11 1/4% Senior
Discount Notes Due 2005, Series B

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

Indicate by check mark 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 the 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. [ ]

On March 22, 2002 the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the Registrant, using the closing price
of the Registrant's Class A Common Stock, as reported by the American Stock
Exchange on such date, was $4,504,965.

The number of shares of the Registrant's Class A Common Stock and Class B
Common Stock outstanding as of March 22, 2002 was 6,226,817 and 8,250,458
respectively.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement to be used in connection with the
Registrant's Annual Meeting of Stockholders to be held on June 5, 2002 are
incorporated by reference into Part III of this report.

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BIG CITY RADIO, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

GENERAL

Big City Radio, Inc. ("Big City Radio" or the "Company") was formed in 1994
to acquire radio broadcast properties in or adjacent to major metropolitan
markets and utilize innovative engineering techniques and low-cost,
ratings-driven operating strategies to develop these properties into successful
metropolitan radio stations. In order to accomplish this objective, the Company
applies a variety of innovative broadcast engineering techniques to the radio
broadcast properties it acquires, including Synchronized Total Market Coverage
("STMC-TM-"). STMC-TM- consists of acquiring two or more stations which
broadcast on the same frequency and simulcasting their signals to achieve broad
coverage of a targeted metropolitan market. In addition to STMC-TM-, the Company
may employ other broadcast engineering techniques. These engineering techniques
include acquiring suburban radio stations and moving the station's broadcast
antenna closer to the metropolitan market ("move-ins") and acquiring high-power
stations adjacent to major metropolitan markets and focusing such stations'
broadcast signal into the metropolitan area.

The Company's acquisition and engineering strategies enable it to provide
near seamless coverage of major metropolitan markets at a significantly lower
acquisition cost than is typically required to acquire a major market Class B
station. Class B radio stations are defined by the Federal Communications
Commission (the "FCC") as those facilities whose signal is predicted to cover a
regional urban area. The Company currently owns and operates one STMC-TM-
station combination in each of New York, Los Angeles, and two STMC-TM- station
combinations in Chicago. New York, Los Angeles, and Chicago, are the three
largest radio markets in the United States in aggregate advertising revenues.

The Company's first targeted market was Los Angeles where the Company
operates a three-station combination, which broadcasts as Viva 107.1, featuring
a Hispanic contemporary hit radio format on the 107.1-FM frequency (the "Los
Angeles Stations"). Viva 107.1 covers approximately 90% of the Arbitron diaries
in the Los Angeles Arbitron Metro Survey Area ("MSA") as a result of an increase
in its transmission power pursuant to the FCC Power Increase (as defined herein)
which the Company implemented in the first quarter of 1998. The Company debuted
Viva 107.1 in December 1999 as its first Hispanic station, and it earned a 1.0%
share in the 12+ category as of the Fall 2001 Arbitron book. The Company
acquired the Los Angeles Stations in May 1996 for a combined purchase price
significantly lower than the reported purchase prices of Class B stations in the
Los Angeles MSA prior to such acquisition, as evidenced by reported transactions
consummated after the deregulation initiated by the passage of the Telecom Act
of 1996. See "Business Strategy" below.

The Company's four stations in the New York MSA collectively broadcast as
New CountryY107 ("Y-107 NY") on the 107.1-FM frequency (the "New York
Stations"). Y-107 NY commenced operations in December 1996 as the only country
music station covering the New York City market. Y-107 NY earned a 0.8% share in
the 12+ category as of the Fall 2001 Arbitron book. Y-107 NY currently covers
approximately 90% of the Arbitron diaries in the New York MSA as a result of an
increase in its transmission power pursuant to the FCC Power Increase and
implementation of other technical improvements, which the Company implemented
during the third quarter of 1998. The Company acquired the four New York
Stations for a combined purchase price significantly lower than the reported
purchase prices of Class B stations in the New York MSA prior to such
acquisition, as evidenced by reported transactions consummated after the passage
of the Telecom Act. See "Business Strategy" below.

The Company owns two groups of stations in the Chicago MSA, forming its
first duopoly (the "Chicago Stations"). Two stations collectively broadcast as
Viva 103.1 on the 103.1-FM frequency. Viva

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103.1 commenced operations in January 2001, broadcasting a Hispanic contemporary
hit radio format. Throughout 2000, it operated as "The EightiesChannel." Viva
103.1 earned a 0.5% share in the 12+ category as of the Fall 2001 Arbitron book.
Viva 103.1 currently covers approximately 85% of the Arbitron diaries in the
Chicago MSA as a result of an increase in its transmission power pursuant to the
FCC Power Increase and implementation of other technical improvements, which the
Company implemented during the third quarter of 1999. This coverage is
anticipated to approach 90% when further engineering enhancements that would be
permitted by certain rule changes under consideration by the FCC take effect.
The Company acquired the two stations comprising FM 103.1 for a combined
purchase price which is significantly less than the reported purchase prices of
Class B stations in the Chicago MSA, as evidenced by transactions consummated
since the passage of the Telecom Act. See "Business Strategy" below.

The second group of stations in the Chicago area currently comprises three
stations, collectively broadcasting as Energy 92.7 and 5 ("Energy92") on the
92.7 and 92.5 FM frequencies. Energy92 commenced operations in January 2001
broadcasting a contemporary dance hit radio format. Energy 92 earned a 1.2%
share in the 12+ category as of the Fall 2001 Arbitron book. Throughout 2000, it
operated as 92 KISS FM, broadcasting a contemporary hit radio format. In
April 1998, the Company signed a definitive asset purchase agreement to acquire
substantially all the assets of WDEK-FM and WLBK-AM, DeKalb, Illinois. The
Company completed the acquisition in February 1999. The Company added WDEK-FM,
which broadcasts on the 92.5 FM frequency, to the 92.7 stations. Together with
the 92.7 FM frequency stations, WDEK-FM forms Energy92 in the Chicago area.
Through use of the Company's STMC-TM- technology, WDEK-FM 92.5 was engineered to
form part of the Energy92 synchronized station group. Energy92 currently covers
approximately 90% of the Arbitron diaries in the Chicago MSA and is expected to
increase its coverage to above this as a result of further engineering
enhancements, subject to FCC approval.

On November 1, 1999, the Company entered into a merger and registration
rights agreement (the "Agreement") in which the Company acquired, in an all
stock transaction, all the issued and outstanding stock of Hispanic Internet
Holdings, Inc. ("The Internet Company"), a privately held bilingual web site.
The transaction was accounted for as a purchase. The Company issued 400,000
shares of its Class A Common Stock at a value of $4.00 per share. During
December 2001, the Company decided to cease the development and operation of its
Internet portal, TodoAhora.com. The decision was based upon management's
evaluation of future revenue generation potential and the current resources
needed to continue to develop and operate the portal. In December 2001, the
Company wrote-off goodwill of $897,000 related to its internet operations. On
November 8, 2000 the Company consummated a transaction in which the Company
acquired substantially all of the assets and properties of (i) United Publishers
of Florida, Inc., which owned and operated a Hispanic music trade magazine,
"Disco", (ii) a graphic design business and (iii) the LatinMusicTrends.com
website ((i), (ii), and (iii) are collectively referred to herein as "the
acquired businesses"). This acquisition was accounted for as a purchase. The
Company paid $250,000 at closing.

In November 2000, the Company formed Independent Radio Reps, LLC, a
wholly-owned subsidiary. This in-house agency was formed to compete for Hispanic
National radio advertising business.

The Company is controlled by Stuart Subotnick, a general partner of
Metromedia Company, a Delaware general partnership ("Metromedia"), who, through
the beneficial ownership of 100% of the Company's Class B Common Stock, par
value $.01 per share (the "Class B Common Stock"), owns approximately 57% of the
Company's outstanding common stock, representing 93% of the voting power of the
Company's outstanding common stock (without giving effect to the exercise of any
options to acquire shares of the Company's Class A Common Stock, par value $.01
per share (the "Class A Common Stock") or the conversion of the Class B Common
Stock which is convertible into shares of Class A common Stock on a one for one
basis).

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MANAGEMENT

Mr. Stuart Subotnick, Chairman, is a founder of the Company. Mr. Subotnick
contributes his financial, strategic and operational expertise gained through
the development and operation of the numerous media and communications
businesses that he and longtime partner John W. Kluge have controlled through
Metromedia and its predecessor. Charles M. Fernandez is the President and Chief
Executive Officer of the Company. Mr. Fernandez has also served as a director of
the Company since November 1999. Previously, Mr. Fernandez served as Chairman of
Hispanic Internet Holdings, Inc. from 1998 until its merger with Big City
Radio, Inc. Mr. Fernandez served as Executive Vice President and Director of
Heftel Broadcasting Corp, up until its purchase by Clear Channel in late 1995.
In addition to Mr. Subotnick and Mr. Fernandez, the Company has other
experienced radio executives involved in all aspects of its operations,
including engineering, sales, marketing, programming and finance. The Company
believes that its quality management team will be instrumental in successfully
implementing its business strategy.

The principal executive offices of the Company are located at 110 East 42nd
Street, Suite 1305, New York 10017. Its telephone number is (212) 599-3510.

STATIONS OPERATIONS

The Company currently owns station groups in Los Angeles, New York, and
Chicago, the three largest markets in the United States in terms of aggregate
radio revenues. The Company chooses formats for its radio station properties,
which it believes, offer the greatest ratings and revenue potential, and which
have a strong competitive position. Los Angeles is one of the top U.S. Hispanic
markets, and in December 1999 the Company commenced operations of Viva 107.1, a
Hispanic contemporary hit radio format. In New York, the Company's station group
operates as New Country Y107, the City's only country radio station. In
January 2001, the Company changed the format of both its Chicago station groups
in response to market competition and strategic opportunities.

LOS ANGELES

The Los Angeles market is the second largest Arbitron market in terms of
population and the largest in terms of aggregate radio market revenues in the
United States, with 2001 revenues of $794 million. From 1997 to 2001, radio
advertising revenue in the Los Angeles MSA grew from $553 million to
$794 million, a compound annual growth rate of 9.5%. Los Angeles is the first
market in which the Company implemented STMC-TM-, with its acquisitions of three
radio stations for an aggregate purchase price of $26.8 million. Viva 107.1
initially covered approximately 75% of the Arbitron diaries in the Los Angeles
MSA and, as a result of an increase in its transmission power, which the Company
implemented in the first quarter of 1998, Viva 107.1 increased its coverage to
approximately 90%. The Company believes that this coverage is substantially
similar to the Arbitron diary coverage of many of the highest-ranked Los Angeles
Class B stations. In addition to its coverage of the Los Angeles market, Viva
107.1 covers parts of the Ventura, Orange, Riverside-San Bernardino and San
Diego markets.

The Company believes that identifying the appropriate format in a particular
market is crucial to the station's ability to achieve meaningful penetration of
the market's listening audience and aggregate advertising revenues. After an
extensive updated research study of the Los Angeles market in 1999, the Company
launched a Hispanic contemporary hit radio format.

The Company believes that to achieve Class B station equivalent Arbitron
coverage and broadcast quality, extensive engineering expertise is required. In
Los Angeles, the Company uses several advanced techniques to achieve what the
Company believes to be substantially full coverage. In addition to the three
stations, the Company uses a booster located in the San Fernando Valley to
enhance its coverage

5

of the market. The Company believes these engineering solutions have resulted in
significantly broader coverage than traditional simulcasting.

NEW YORK

The New York MSA is the largest Arbitron market in terms of population and
the second largest in terms of aggregate radio market revenues in the United
States, with 2001 revenues of $685 million. From 1997 to 2001, radio advertising
revenue in the New York MSA grew from $524 million to $685 million, a compound
annual growth rate of 6.9%. New York is the second market which the Company
entered with its acquisitions of four radio stations for an aggregate purchase
price of approximately $25 million. The Company has implemented STMC-TM- in New
York as well and believes that it has created the equivalent of a New York
Class B station. Subsequent to the implementation of the planned power increase
of the New York Stations and implementation of other technical improvements,
which the Company completed by the end of the third quarter of 1998, the
Arbitron diary coverage of Y-107 NY increased to approximately 90%. The Company
believes that this coverage is substantially similar to the Arbitron diary
coverage of many of the highest-ranked New York Class B stations.

Y-107 NY has an exclusive format presence in New York, as the Company
believes there are no other country music stations covering substantially all of
the New York MSA. Country music is traditionally a very strong 25-54 demographic
format.

CHICAGO

The Chicago MSA is the third largest Arbitron market in terms of population
and aggregate radio market revenues in the United States with 2001 revenues of
$503 million. From 1997 to 2001, radio advertising revenue in the Chicago MSA
grew from $389 million to $503 million, a compound annual growth rate of 6.6%.
The Company has acquired five radio stations in the Chicago MSA for an aggregate
purchase price of $34.2 million. Viva 103.1 broadcast throughout the year 2000
as The EightiesChannel, an Eighties music format. Viva 103.1 began broadcasting
its contemporary Spanish music format in January 2001. Energy92 broadcast
throughout the year 2000 as 92Kiss FM, a contemporary hit radio format on two
92.7 frequencies and one 92.5 frequency. In January 2001, the Company changed
92Kiss to a contemporary dance hit format, Energy92. Subsequent to certain
technical improvements, subject to FCC approval, the Company expects both
Chicago Stations to cover approximately 90% of the Arbitron diaries in the
Chicago MSA.

ADVERTISING SALES

The advertising rates a station can charge are in large part dictated by the
station's ability to attract audiences in the demographic groups targeted by its
advertisers, as measured principally by Arbitron Radio Market Reports. The
Company believes that identifying the appropriate format in a particular market
is crucial to the station's ability to achieve meaningful penetration of the
listening audience of the market. In each market entered by the Company, the
Company performs an extensive competitive analysis to select the format with the
greatest audience and revenue potential.

The Company generates virtually all of its revenues from the sale of local
and national advertising for broadcast on its radio stations. The Company
believes that radio is one of the most efficient and cost-effective means for
advertisers to reach specific demographic groups. Advertising rates charged by
radio stations depend primarily on (i) a station's share of the audience in the
demographic groups targeted by advertisers, (ii) the number of stations in the
market competing for the same demographic groups, and (iii) the supply of and
demand for radio advertising time. Rates are generally highest during morning
and afternoon commuting hours.

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The format of a particular station limits, in part, the number of
advertisements that the station can broadcast without jeopardizing listening
levels (and the resulting ratings). The Company's stations strive to maximize
revenue by constantly managing the number of commercials available for sale and
adjusting prices based upon local market conditions. In the broadcasting
industry, radio stations often utilize trade (or barter) agreements to generate
advertising time sales in exchange for goods or services (such as travel and
lodging) instead of for cash. The Company minimizes its use of trade agreements.
The Company determines the number of advertisements broadcast hourly so as to
maximize available revenue dollars without jeopardizing listening levels.
Although the number of advertisements broadcast during a given time period
varies, the total number of advertisements broadcast on a particular station
generally does not vary significantly from year to year. As is typical of the
radio broadcasting industry, the Company's stations respond to changing demand
for advertising inventory by varying prices rather than by varying the target
inventory level for a particular station.

Most advertising contracts are short-term and run only for a few weeks. The
Company generates approximately 83% of its gross revenue from local advertising,
which is sold primarily by a station's sales staff. To achieve greater control
over advertising dollars, the Company's sales force focuses on establishing
direct relationships with local advertisers. The Company has formed Independent
Radio Reps, LLC in November 2000, and uses this in-house rep firm to represent
it in generating national business in the largest national sales markets of Los
Angeles, New York City, Boston, Philadelphia, Chicago, Atlanta, Dallas, Detroit
and San Francisco.

INTERNET AND PUBLISHING REVENUES

Internet revenues are derived principally from the sale of various forms of
advertisements, including sponsorships, endorsements and product placements, and
from electronic commerce activities related to its programming on pages
delivered to users of our Internet channel. Advertising programs are generally
delivered on either an "impression" based program or a "performance" based
program. An impression based program earns revenues when an advertisement is
delivered to a user of our internet network. A performance based program earns
revenues when a user of our internet network responds to an advertisement by
linking to an advertiser's internet network. Advertising revenues are recognized
in the period in which the advertisements are delivered. TodoAhora.com was
formally launched on May 5, 2000, however, during 2001, the Company decided to
cease the development and operation of this Internet portal. The decision was
based upon management's evaluation of future revenue generation potential and
the current resources needed to continue to develop and operate the portal.

Publishing revenues are derived principally from the sale of advertising
announcements. Furthermore, the magazine company derives revenues from contract
graphic design projects. Publishing revenues, both from advertisements and
design projects, are recognized in the period in which the advertisements are
published, or when the design project is rendered. The magazine publishing
business was acquired on November 8, 2000. Total internet and publishing revenue
for the year 2001 was $463,000.

COMPETITION

RADIO BROADCASTING

Radio broadcasting is a highly competitive business. Within their respective
markets, each of the Company's radio stations competes for audience share and
advertising revenue directly with other radio stations, as well as with other
media such as television, print media, billboards, compact discs and music
videos. Several better-capitalized companies, including Clear Channel
Communications, Inc., Infinity Broadcasting Corporation, and Hispanic
Broadcasting Corporation compete in the same geographic markets as the Company,
many of which have greater financial resources. In addition, recently the

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radio industry has experienced significant consolidation which has resulted in
several radio station groups that have a large number of radio stations
throughout the United States and vastly greater financial resources and access
to capital than the Company.

The financial success of each of the Company's radio stations depends
principally upon its share of the overall radio advertising revenue within its
geographic market, its promotion and other expenses incurred to obtain that
revenue and the economic health of the geographic market. Radio advertising
revenues are, in turn, highly dependent upon audience share. Radio station
operators are subject to the possibility of another station changing programming
formats to compete directly for listeners and advertisers or launching an
aggressive promotional campaign in support of an already existing competitive
format. If a competitor, particularly one with substantial financial resources,
were to attempt to compete in either of these fashions, the broadcast cash flow
of the Company's affected station could decrease due to increased promotional
and other expenses and/or lower advertising revenues resulting from lower
ratings. There can be no assurance that any one of the Company's radio stations
will be able to maintain or increase its current audience ratings and radio
advertising revenue market share.

The Company will also face competition from other radio stations that
attempt to replicate the engineering techniques of the Company to cover a
metropolitan area and from stations that simply simulcast on the same or first
adjacent frequencies. While simulcasting has been employed by other broadcast
radio operators in the past, the primary purpose has been to reduce programming
costs for the individual stations. The Company believes that most broadcast
radio operators that have employed simulcasting have done so on different
frequencies. The Company believes that few operators have successfully used
simulcasting to effectively cover an entire MSA.

Radio broadcasting is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems or the introduction of a new
technology known as Digital Audio Broadcasting ("DAB"). DAB may deliver by
satellite or terrestrial means multi-channel, multi-format digital radio
services with sound quality equivalent to compact discs to nationwide and
regional audiences. The Company cannot predict the effect, if any, that any such
new technologies may have on the radio broadcasting industry.

INTERNET AND PUBLISHING

The market for Internet and publishing products and services is highly
competitive. There are no substantial barriers to entry in these markets, and
Disco, TodoAhora.com, and LatinMusicTrends.com expect that competition will
continue to intensify. Disco magazine competes with other magazine and print
products that feature, news and information on the Latin music industry. These
include a Spanish language version of "Billboard" magazine which is produced by
a competitor with greater financial resources. LatinMusicTrends.com is designed
to complement the information provided to Latin music industry professionals.

TodoAhora.com was launched in May 2000. During the second half of 2000, and
continuing throughout 2001, there has been a severe contraction in the Internet
sector as many actual and potential advertisers have reduced Internet spending.
In general, portal sites do not have alternative sources of revenue to
advertisers. Many of TodoAhora.com's existing competitors, as well as a number
of potential new competitors, have significantly greater financial, technical,
marketing and distribution resources. As a result of the economic environment
affecting the Internet sector, and the existence of many competitors with
greater resources, during 2001 the Company decided to cease the development and
operation of TodoAhora.com. The decision was based upon management's evaluation
of future revenue generation potential and the current resources needed to
continue to develop and operate the portal.

8

ACQUISITIONS

Since its incorporation in August 1994, the Company has acquired the assets
of twenty radio stations, an internet company, and related internet and
publishing businesses. It has disposed of eight stations and ceased Internet
operations. The following is a summary of the acquisitions and dispositions of
radio stations which the Company has consummated since its incorporation. All of
these transactions were with non-affiliated persons.

NEW YORK

In December 1994, the Company acquired the assets of radio station WRGX-FM
(now WYNY-FM), Briarcliff Manor, New York, from West-Land Communicators, Inc.
("West-Land") for a purchase price of $2.5 million and the issuance of a
promissory note in the amount of $1.0 million to West-Land. In April 1997, the
Company acquired the assets of radio station WWHB-FM (now WWXY-FM), Hampton
Bays, New York, from South Fork Broadcasting Corporation ("South Fork") for a
purchase price of $4.0 million. In June 1997, the Company acquired the assets of
radio station WZVU-FM (now WWZY-FM), Long Branch, New Jersey, including a radio
tower, a radio antenna and a building from K&K Radio Broadcasting L.L.C. and K&K
Tower, L.L.C. for an aggregate purchase price of $12.0 million and certain
payments under existing leases of the building facilities. K&K Radio
Broadcasting, L.L.C., K&K Tower, L.L.C. and each of their controlling members
and the general manager of WZVU-FM entered into a covenant not to compete with
the Company for a period of three years. In August 1998, the Company acquired
all of the stock of Radio New Jersey, owner of the FCC licenses of WRNJ-FM,
Belvedere, New Jersey (now WWYY-FM) and WRNJ-AM, Hackettstown, New Jersey. The
aggregate purchase price for WRNJ-FM was $5.4 million excluding
acquisition-related expenses, of which $3.0 million was paid in cash and the
remainder was satisfied by the issuance of two promissory notes. Simultaneously,
the Company sold substantially all of the assets of WRNJ-AM to one of the
existing stockholders of Radio New Jersey. Also, in December 1994, the Company
acquired the assets of radio station WRKL-AM, Pomona, New York, from Rockland
Communicators, Inc. for a purchase price of $1.0 million. The Company sold this
station in March 1999 to Polnet Communications, Ltd. for a price of
$1.6 million.

LOS ANGELES

In May 1996, the Company acquired four radio stations in the Los Angeles
area from Douglas Broadcasting, Inc. ("Douglas"). The Company acquired the
assets of radio station KMAX-FM (now KLYY-FM), Arcadia, California, KAXX-FM (now
KVYY-FM), Ventura, California, KBAX-FM (now KSYY-FM) Fallbrook, California, and
KWIZ-FM, Santa Ana, California, for an aggregate purchase price of
$38.0 million. The Company also acquired FM Translator station K252BF, Temecula,
California, which rebroadcasts on 98.3 MHz the signal of KSYY-FM, and FM Booster
station KLYY-FM, Burbank, California, which boosts on 107.1 MHz the broadcast of
the signal of KLYY-FM. In December 1996, the Company sold radio station KWIZ-FM
to Liberman Broadcasting, Inc. for a price of $11.2 million.

CHICAGO

In August 1997, the Company acquired the assets of radio station WVVX-FM
(now WXXY-FM), Highland Park, Illinois, from WVVX License, Inc., for a purchase
price of $9.5 million. Douglas, WVVX, Inc. and WVVX License, Inc. agreed not to
compete for a period of eighteen months. In August 1997, the Company acquired
the assets of radio station WJDK-FM (now WYXX-FM), Morris, Illinois, from DMR
Media, Inc., for a purchase price of $1.1 million. In addition, the Company
agreed not to compete with DMR Media, Inc.'s operations of radio station
WCSJ-AM, Morris, Illinois, for a period of five years. In August 1998, the
Company closed two transactions in which it acquired substantially all of the
assets of WCBR-FM (now WKIE-FM), Arlington Heights, Illinois from Darrel

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Peters Productions, Inc. and WLRT-FM (now WKIF-FM), Kankakee, Illinois from
STARadio Corp. for an aggregate purchase price of $19.5 million. In
February 1999, the Company acquired substantially all of the assets of radio
stations WDEK-FM and WLBK-AM, DeKalb, Illinois, from DeKalb Radio Studios, Inc.
for a purchase price of $4.5 million. The Company added WDEK-FM, which operates
on the 92.5 FM frequency, together with two existing 92.7 FM stations in the
Chicago metropolitan area, collectively know as Energy92. The Company sold the
operating assets of WLBK-AM on April 12, 2000. No gain or loss was recorded on
this transaction.

PHOENIX

In July 1999, the Company acquired the assets of radio stations KEDJ-FM, Sun
City, Arizona and KDDJ-FM, Globe, Arizona from New Century Arizona for a
purchase price of $22.0 million. In September 1999, the Company acquired the
assets of radio station KBZR-FM, Arizona City, Arizona from Brentlinger
Broadcasting, Inc. for a purchase price of $3.9 million. In September 1999, the
Company acquired the assets of radio station KMYL-FM (now KSSL-FM), Wickenburg,
Arizona, from Interstate Broadcasting Systems of Arizona, Inc. for a purchase
price of $5.6 million. On October 31, 2001, the Company sold its radio
properties and operating assets to Hispanic Broadcasting Corporation for
$34.0 million. A gain of $2.3 million was recorded on this transaction.

INTERNET AND PUBLISHING

On November 1, 1999 the Company consummated a transaction in which the
Company acquired, in an all stock transaction, all the issued and outstanding
stock of Hispanic Internet Holdings, Inc., a privately held bilingual Online
Service Provider for the U.S. Hispanic and Latin American markets. The Company,
through the acquisition of Hispanic Internet Holdings, Inc. owns TodoAhora.com,
a bilingual Internet portal. TodoAhora.com was launched on May 5, 2000 and
delivered a range of world wide web programming to the Hispanic community
including news, entertainment, finance, culture, and e-commerce opportunities.
During 2001, the Company decided to cease the development and operation of
TodoAhora.com. The decision was based upon management's evaluation of future
revenue generation potential and the current resources needed to continue to
develop and operate the portal.

In November 2000, the Company acquired the assets of United Publishers of
Florida, Inc., owner of Disco Magazine, and LatinMusicTrends.com. The Company
merged its existing Internet operations together with the United Publishers
publishing and Internet operations.

EMPLOYEES

At December 31, 2001, the Company had approximately 126 full-time employees
and 77 part-time employees. The Company believes that its relations with its
employees are good. None of the Company's employees is represented by a labor
union.

The Company employs several on-air personalities and generally enters into
employment agreements with certain of these personalities to protect its
interests in those relationships that it believes to be valuable. The loss of
certain of these personalities could result in a short-term loss of audience
share, but the Company does not believe that any such loss would have a material
adverse effect on the Company.

10

PATENTS AND TRADEMARKS

The Company owns registered trademark rights for STMC-TM- and domestic
trademark registrations related to the business of the Company. The Company does
not believe that any of its trademarks are material to its business or
operations. The Company does not own any patents or patent applications.

FEDERAL REGULATION OF RADIO BROADCASTING

The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act of 1934, as amended (the "Communications Act"). Among other
things, the FCC assigns frequency bands for broadcasting; determines the
particular frequencies, locations and power of stations; issues, renews, revokes
and modifies station licenses; determines whether to approve changes in
ownership or control of station licenses; regulates equipment used by stations;
imposes regulations and takes other action to prevent harmful interference
between stations; adopts and implements regulations and policies that directly
or indirectly affect the ownership, management, programming, operation and
employment practices of stations; and has the power to impose penalties for
violations of its rules or the Communications Act. In February 1996, Congress
enacted the Telecom Act to amend the Communications Act. The Telecom Act, among
other measures, directed the FCC, which has since conformed its rules, to
(a) eliminate the national radio ownership limits; (b) liberalize the local
radio ownership limits as specified in the Telecom Act; (c) issue broadcast
licenses for periods of up to eight years; and (d) eliminate the opportunity for
the filing of competing applications against broadcast license renewal
applications.

Congress, via the Balanced Budget Act of 1997, authorized the FCC to conduct
auctions for the awarding of initial broadcast licenses or construction permits
for commercial radio and television stations. To facilitate the settlement
without auctions of already pending mutually exclusive applications, Congress
directed the FCC to waive existing rules as necessary. This action has resulted
in the awarding of construction permits for additional radio stations, some of
which might have the potential to compete with the Company's radio stations.
Notwithstanding that the 1997 Act exempted noncommercial applicants from
auctions, the FCC had subjected all mutually-exclusive applicants--commercial
and noncommercial--to auction procedures for broadcast authorizations not
reserved for noncommercial use. Following the vacation by the U.S. Court of
Appeals for the D.C. Circuit of that policy, the FCC is considering several
options to preserve the noncommercial exemption as well as the directive to
award permits with more than one applicant by auction. In the meantime, the FCC
has not acted on existing mutually-exclusive broadcast applications where one or
more of the applicants is a noncommercial broadcaster, nor has the FCC opened
filing windows for available broadcast frequencies. The Company is not, and has
not been, a participant in any broadcast auction proceeding,

LICENSE GRANTS AND RENEWALS

The Communications Act provides that a radio broadcast license may be
granted to an applicant if the grant would serve the public interest,
convenience and necessity, subject to certain limitations referred to below. In
making licensing determinations, the FCC considers the legal, technical,
financial and other qualifications of the applicant, including compliance with
the Communications Act's limitations on alien ownership, compliance with various
rules limiting common ownership of broadcast and newspaper properties, and the
"character" qualifications of the licensee and those persons holding
"attributable" interests in the licensee. Broadcast licenses are granted for
specific periods of time and, upon application, are renewable for additional
terms. The Telecom Act amended the Communications Act to provide that broadcast
licenses be granted, and thereafter renewed, for a term not to exceed eight
years, if the FCC finds that the public interest, convenience, and necessity
would be served.

Generally, the FCC renews broadcast licenses without a hearing. The Telecom
Act amended the Communications Act to require the FCC to grant an application
for renewal of a broadcast license if:

11

(1) the station has served the public interest, convenience and necessity;
(2) there have been no serious violations by the licensee of the Communications
Act or the rules and regulations of the FCC; and (3) there have been no other
violations by the licensee of the Communications Act or the rules and
regulations of the FCC which, taken together, would constitute a pattern of
abuse. Competing applications against broadcast license renewal applications are
therefore not entertained. The Telecom Act provided that if the FCC, after
notice and an opportunity for a hearing, decides that the requirements for
renewal have not been met and that no mitigating factors warrant lesser
sanctions, it may deny a renewal application. Only thereafter may the FCC accept
applications by third parties to operate on the frequency of the former
licensee. The Communications Act continues to authorize the filing of petitions
to deny against broadcast license renewal applications during particular periods
of time following the filing of renewal applications. Petitions to deny can be
used by interested parties, including members of the public, to raise issues
concerning the qualifications of the renewal applicant.

The Company's Chicago Stations' broadcast licenses were renewed in 1996 and
will expire on December 1, 2004. The Los Angeles Stations' broadcast licenses
were renewed in 1997 and will expire on December 1, 2005. The New York Stations'
broadcast licenses were renewed in 1998 and will expire on June 1, 2006. The
Company does not anticipate any material difficulty in obtaining license
renewals for full terms in the future.

LICENSE ASSIGNMENTS AND TRANSFERS OF CONTROL

The Communications Act prohibits the assignment of an FCC license or the
transfer of control of a corporation holding or controlling such a license
without the prior approval of the FCC. Applications to the FCC for such
assignments or transfers are subject to petitions to deny by interested parties
and must satisfy requirements similar to those for renewal and new station
applicants. In reviewing assignment and transfer applications, the FCC has
indicated that in evaluating whether a proposed transaction would serve the
public interest, the FCC may consider, among other things, the impact of the
transaction on the diversity of media voices and whether the transaction would
result in the acquiring party obtaining an excessive share of the radio
advertising revenues in a given market or would otherwise result in excessive
concentration of media ownership. The FCC is currently considering changes to
its local radio ownership rules. In the meantime, the FCC has adopted an interim
policy guiding its review of radio transactions, which if certain levels of
radio advertising market shares are present, will result in an FCC analysis of
the product and geographic market definitions, market participants, shares and
concentration, barriers to entry, potential adverse competitive effects and
efficiencies and other public interest benefits. The U.S. Department of Justice
("DOJ") also reviews proposed acquisitions of radio stations. The DOJ has, in
some instances, obtained consent decrees requiring radio station divestitures in
a particular market based on allegations that acquisitions would lead to
unacceptable concentration levels.

OWNERSHIP RULES

Rules of the FCC limit the number and location of broadcast stations in
which one licensee (or any party with a control position or attributable
interest therein) may have an attributable interest. The FCC, pursuant to the
Telecom Act, eliminated the previously existing "national radio ownership rule."
Consequently, there now is no limit imposed by the FCC to the number of radio
stations one party may own nationally.

The "local radio ownership rule" limits the number of stations in a radio
market in which any one individual or entity may have a control position or
attributable interest. Pursuant to the Telecom Act, the FCC revised its rules to
set the local radio ownership limits as follows: (a) in markets with 45 or more
commercial radio stations, a party may own up to eight commercial radio
stations, no more than five of which are in the same service (AM or FM); (b) in
markets with 30-44 commercial radio stations, a party may own up to seven
commercial radio stations, no more than four of which are in the same

12

service; (c) in markets with 15-29 commercial radio stations, a party may own up
to six commercial radio stations, no more than four of which are in the same
service; and (d) in markets with 14 or fewer commercial radio stations, a party
may own up to five commercial radio stations, no more than three of which are in
the same service, provided that no party may own more than 50% of the commercial
stations in the market. As noted above, the FCC is currently reviewing its local
radio ownership rules, and is considering, among other issues, whether the FCC
should rely exclusively on these numerical limits or instead adopt a
case-by-case competition analysis in determining compliance with the local radio
ownership rules, whether the FCC should revise its definition of the local radio
market and whether the FCC should revise its treatment of local marketing and
joint sales agreements. FCC cross-ownership rules also limit or prohibit one
party from having attributable interests in a radio station as well as in a
local television station or daily newspaper, although such restrictions are
waived by the FCC under certain circumstances. In September 2001, the FCC
initiated a rulemaking proceeding to determine whether and how to modify its
newspaper-broadcast cross-ownership rule. The FCC has proposed several potential
modifications of such rule, including re-defining the relevant geographic market
or allowing cross-ownership of broadcast stations and a daily newspaper if a
certain number of independent voices will remain in the relevant market
following the proposed transaction. A number of commenters have urged the
complete elimination of the rule or the retention of the rule only for
newspaper-television combinations, so that radio stations and newspapers could
be commonly owned. This proceeding is pending and the Company cannot predict
whether the FCC will adopt any changes in its newspaper-broadcast
cross-ownership rule or, if so, what the new rules will be or how they might
affect the Company. In February 2002, the U.S. Court of Appeals for the D.C.
Circuit, in a decision relating to the Commission's national television and
television-cable ownership rules, interpreted Section 202(h) of the
Communications Act to require the FCC to review each of its broadcast ownership
restrictions every two years, and unless the FCC can affirmatively find that
each such rule serves the public interest, to require the elimination or
modification of the rule. The FCC has not yet determined whether it will appeal
this decision. The Company cannot predict whether in such biennial reviews the
FCC would eliminate or modify any of its ownership rules applicable to
broadcasting, or, if so, what the new rules would be or how they might affect
the Company.

ATTRIBUTION RULES

All holders of attributable interests must comply with, or obtain waivers
of, the FCC's multiple and cross-ownership rules. Under the current FCC rules,
an individual or other entity owning or having voting control of 5% or more of a
corporation's voting stock is considered to have an attributable interest in the
corporation, its subsidiaries and their stations, except that investment
companies, insurance companies and banks holding such stock in their trust
accounts and are not considered to have an attributable interest unless they own
or have voting control over 20% or more of such stock, provided that none of the
officers or directors of the broadcast licensee are representatives of the
investment company, insurance company or bank concerned. An officer or director
of a corporation or any general partner of a partnership also is deemed to hold
an attributable interest in the media license. Furthermore, under the FCC's
"Equity-Debt Plus" or "EDP" rule--otherwise non-attributable equity or debt
interests in a licensee are deemed to be attributable interests when a party
holds equity and/or debt in excess of 33% of the total assets (defined as equity
plus debt) of a licensee or its parent and such party also holds an attributable
(non-EDP) interest in another media entity in the same market or is a major
programmer supplier to another media entity in the market. To the Company's
knowledge, no person or entity qualifies as an attributable party to the Company
under the EDP rule. Subject to the EDP rule, the FCC does not consider holders
of non-voting stock or of minority stock interests when there is a single
majority stockholder to be attributable parties. Moreover, subject to the EDP
rule, holders of warrants, convertible debentures, options, or other non-voting
interests with rights of conversion to voting interests generally will not be
attributed such an interest unless and until such conversion is effected.
Traditionally, when a single shareholder holds a majority of the voting stock of
a

13

corporate licensee, the FCC considers other shareholders, unless they are also
officers, directors or attributable pursuant to the EDP rule, to be exempt from
attribution. While the FCC had decided to eliminate this "single majority
shareholder exemption," following the reversal by the U.S. Court of Appeals for
the D.C. Circuit of the FCC's elimination of this exemption in the cable
context, the FCC has suspended its repeal of the single majority shareholder
exemption. Thus, at present, minority voting interests are not attributable if
there is a single holder of more than 50% of the outstanding voting stock of a
corporate broadcast licensee, unless such stockholder is otherwise attributable
as an officer, director or EDP holder. Holders of attributable interests must
comply with or obtain waivers of the FCC's multiple and cross-ownership rules.
Also, holders of attributable interests must possess "character qualifications"
to be parties to a broadcast license. Character disqualification is reserved
generally for adjudicated instances of intentional misrepresentation to or lack
of candor with governmental agencies or convictions for serious crimes. At
present, none of the Company's attributable parties have any other media
interests besides those of the Company that implicate the FCC's multiple
ownership limits and each meets the FCC character qualification criteria. In the
event that the Company learns of a new attributable party and if such party
holds interests that exceed the FCC limits on media ownership or is unqualified,
under the Company's Amended and Restated Certificate of Incorporation (as
defined herein), the Board of Directors of the Company has the corporate power
to redeem stock of the Company's stockholders to the extent necessary to be in
compliance with FCC and Communications Act requirements.

The FCC will consider a radio station providing programming and sales on
another local radio station pursuant to a LMA (as defined herein) to have an
attributable ownership interest in the other station for purposes of the FCC's
multiple ownership rules. In particular, a radio station is not permitted to
enter into a LMA giving it the right to program more than 15% of the broadcast
time, on a weekly basis, of another local radio station which it could not own
under the FCC's local radio ownership rules. Joint sales agreements, which
involve the sale of time on, but not the provision of programming to, another
broadcaster's station, have not been subject to the multiple ownership limits.
The FCC is currently considering whether to revise its treatment of LMA and
joint sales agreements.

ALIEN OWNERSHIP LIMITS

Under the Communications Act, broadcast licenses may not be granted,
transferred or assigned to any corporation of which more than one-fifth of the
capital stock is owned of record or voted by non-U.S. citizens or foreign
governments or their representatives or by foreign corporations. Where the
corporation owning the license is controlled by another corporation, the parent
corporation cannot have more than one-fourth of the capital stock owned of
record or voted by Aliens, unless the FCC finds it in the public interest to
allow otherwise. The FCC has issued interpretations of existing law under which
the Alien ownership restrictions in slightly modified form apply to other forms
of business organizations, including general and limited partnerships. The FCC
also prohibits a licensee from continuing to control broadcast licenses if the
licensee otherwise falls under Alien influence or control in a manner determined
by the FCC to be in violation of the Communications Act or contrary to the
public interest. At present, two of the Company's officers are known by the
Company to be Aliens. To the Company's knowledge, less than one-fourth of the
capital stock of the Company is owned of record or is voted by Aliens. In the
event that the Company learns that Aliens own, control or vote stock in the
Company in excess of the limits set in the Communications Act and the FCC's
rules, under the Amended and Restated Certificate of Incorporation, the Board of
Directors of the Company has the corporate power to redeem stock of the
Company's stockholders to the extent necessary to be in compliance with FCC and
Communications Act requirements on alien ownership.

14

PROGRAMMING AND EEO REQUIREMENTS

While the FCC has relaxed or eliminated many of its regulatory requirements
related to programming and content, radio stations are still required to
broadcast programming responsive to the problems, needs and interests of the
stations' service areas and must comply with various rules promulgated under the
Communications Act that regulate political broadcasts and advertisements,
sponsorship identifications, indecent programming and other matters. In
addition, while the U.S. Court of Appeals for the D.C. Circuit has twice
overturned the FCC's equal employment opportunity ("EEO") rules, the FCC has
proposed new EEO rules, which, if implemented, will require broadcast licensees
to file employment data annually with the FCC and to implement outreach efforts
designed to broaden the pool of employment applicants. Failure to observe these
or other FCC rules can result in the imposition of monetary forfeitures, in the
grant of a "short" (less than full term) license term or, where there have been
serious or a pattern of violations, license revocation.

TECHNICAL AND INTERFERENCE RULES

FCC rules specify technical and interference requirements and parameters
that govern the signal strength and coverage area of radio stations, and which,
unless waived, must be complied with in order to obtain FCC consent to modify a
station's service area or other technical operations. The FCC allots specific FM
radio frequencies and class designations to particular communities of license.
The FM class designations, which vary by geographic location, include (in order
of increasing potential coverage area) Class A, B1, C3, B, C2, C1, C0 and C.
(The C Class designations are generally not allocated to communities in the more
densely-populated regions of the United States, such as the Northeast and
California.) Each FM class has minimum and maximum power specifications and must
not cause interference to the protected service areas of other radio stations,
domestic or international, operating on the same or adjacent frequencies. Under
FCC rules, a radio station must transmit a minimum predicted signal strength to
its allocated community of license, and therefore must locate its transmitting
antenna at a site providing such coverage while also being within a specified
power and height range for that station's class designation, and at specified
minimum distances from the transmitting sites of nearby radio stations operating
on the same or adjacent frequencies. The Company must also comply with certain
technical, reporting, and notification requirements imposed by the FAA with
respect to the installation, location, lighting, and painting of the transmitter
towers used by the Company's radio stations. The combination of these
requirements sets limits on the ability of a particular radio station to
relocate in certain directions and to increase signal coverage. Stations may
petition the FCC to change a particular station's community of license and/or
class, which changes are granted by the FCC when its service priorities are met
and conflicting re-allotment proposals, if any, are resolved. As to minimum
distance separation requirements designed to afford interference protection to
other FM stations, the FCC rarely waives such specifications. However, the FCC
permits radio stations in certain circumstances to relocate to a site not
meeting the minimum distance separation rule when the station demonstrates that
the service contours of neighboring radio stations will be protected from
interference. Because STMC-TM- uses radio stations that operate on the same or
adjacent frequencies, the STMC-TM- stations' transmitting sites must be
sufficiently distant from each other to comply with the FCC's interference
protection guidelines, unless such stations are exempt from compliance by their
grandfathered status.

FCC POWER OR CLASS INCREASES AND OTHER ENGINEERING ENHANCEMENTS

In most instances, changes to the technical specifications of radio
stations, such as increases in the power (effective radiated power, or "ERP")
and subsequent increased coverage area, may be made only after application to
the FCC, and grant by the FCC of a construction permit for the modification of
the station. The FCC has granted applications for modifications of WWZY-FM, Long
Branch, New Jersey and WWYY-FM, Belvidere, New Jersey, which would permit
WWZY-FM to relocate its

15

transmitting facilities closer to New York City In 1998, WYNY-FM, Briarcliff
Manor, New York, WWXY-FM, Hampton Bays, New York and KLYY-FM, Arcadia,
California, implemented increases in their power levels which have resulted in
larger service areas. These changes were authorized following the FCC's
adoption, in 1997, of rule changes governing power increases and other
modifications by grandfathered short-spaced FM radio stations. Grandfathered
short-spaced stations are those that do not meet the FCC's current requirements
for distance separation of FM radio stations operating on the same or adjacent
frequencies as the stations were authorized before the adoption of the current
spacing rules.

Pending before the FCC is a proposed change in the current rules that could
allow certain of the Company's stations to increase their power or move their
transmitter sites to provide improved coverage within the desired metro area
pursuant to "negotiated interference" agreements. The Company cannot predict
whether the FCC will adopt such a rule change, and unless and until the FCC
changes its rules to permit negotiated interference and the approval of the
station modifications are granted, the Company cannot be certain that the new
policy would serve to permit increases in the Company's station's coverage
areas.

Changes may made in a broadcast station's channel, station class (which sets
the maximum service area of the station) and/or community of license through a
request to change the FCC's "Table of Allotments." Pending before the FCC is a
request by the Company to change the class of KLYY-FM, Arcadia, California, from
class A to B1 (which would authorize a larger service area), and to change the
frequency of KSYY-FM, Fallbrook, California, from 107.1 MHz to 96.9 MHz. Such
changes would require the relocation of the transmitting facilities of the
stations. The requested upgrade in class for KLYY-FM is contingent upon the
Fallbrook frequency change and other contingencies. The Company cannot predict
whether the FCC will adopt this request or if the other contingencies will
occur.

AGREEMENTS WITH OTHER BROADCASTERS

Over the past several years a significant number of broadcast licensees,
including the Company, have entered into cooperative agreements with other
stations in their markets. One typical example is a local marketing agreement
("LMA") between two separately or co-owned stations, whereby the licensee of one
station programs substantial portions or all of the broadcast day on the other
licensee's station, subject to ultimate editorial and other controls being
exercised by the latter licensee, and sells advertising time during such program
segments for its own account. The FCC has held that LMAs do not per se
constitute a transfer of control and are not contrary to the Communications Act
provided that the licensee of the station maintains ultimate responsibility for
and control over operations of its broadcast station. As in the case of the
Company, typically licensees enter into the LMA in anticipation of the sale of
the station, with the proposed acquirer providing programming for the station
while the parties are awaiting the necessary regulatory approvals to the
transaction.

The FCC's rules also prohibit a radio licensee from simulcasting more than
25% of its programming on other radio stations in the same broadcast service
(i.e., AM-AM or FM-FM), whether it owns both stations or operates one or both
through a LMA, where such stations serve substantially the same geographic area
as defined by the stations' principal community contours. The Company's stations
are not subject to this limitation.

PROPOSED REGULATORY CHANGES AND RECENT DEVELOPMENTS

The Congress and the FCC have under consideration, and may in the future
consider and adopt new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, (i) affect the operation,
programming, technical requirements, ownership and profitability of the Company
and its radio broadcast stations, (ii) result in the loss of audience share and
advertising revenues of the Company's radio broadcast stations, (iii) affect the
ability of the Company to acquire

16

additional radio broadcast stations or finance such acquisitions, (iv) affect
cooperative agreements and/or financing arrangements with other radio broadcast
licensees, (v) affect the Company's competitive position in relationship to
other advertising media in its markets, or (vi) affect the Company's ability to
exploit its unique technical capabilities and innovative approach to acquiring
and using radio broadcast stations. Such matters include, for example, changes
to the license, authorization and renewal process; spectrum use fees; revisions
of the FCC's equal employment opportunity rules and other matters relating to
minority and female involvement in broadcasting; proposals to change rules or
policies relating to political broadcasting; proposals to restrict or prohibit
the advertising of beer, wine and other alcoholic beverages on radio; proposals
to allow telephone companies to deliver audio and video programming to the home
through existing phone lines; changes in the FCC's multiple ownership, alien
ownership and cross-ownership policies; and proposals to limit the tax
deductibility of advertising expenses by advertisers.

Other matters that could affect the Company include technological
innovations and developments generally affecting competition in the mass
communications industry.. Digital audio radio service, or DARS, provides a
medium for the digital delivery of multiple audio programming formats to local
and national audiences with sound quality potentially equivalent to compact
discs. Satellite DARS employs digital transmissions from satellites directly to
fixed, mobile, and/or portable receivers. The FCC has licensed two entities, XM
Radio, Inc. and Sirius Satellite Radio, Inc., to provide DARS by satellite, and
both companies are presently offering service in selected markets. The FCC has
granted special temporary authority through March 18, 2002, to XM Radio and
Sirius Satellite Radio to operate terrestrial repeaters to overcome satellite
signal blockage and/or multipath interference, restricted to the simultaneous
retransmission of programming, in its entirety, transmitted by the satellite.
The National Association of Broadcasters ("NAB"), concerned that terrestrial
repeaters could be used to insert locally-oriented programming, has opposed the
extension of the terrestrial repeater special temporary authority, or the
granting of permanent licenses, unless the repeaters are limited to areas where
transmission conditions impede reception from satellites. Also, the NAB has
urged the FCC, when it adopts permanent rules, to expressly prohibit the use by
satellite DARS operators of terrestrial repeaters to differentiate program
delivery by market. The FCC is still considering what permanent rules to impose
on the use of terrestrial repeaters by satellite DARS operators. We cannot
predict what regulations the FCC will adopt regarding terrestrial repeaters and
what effect such regulations would have on the Company's business or the
operations of its radio stations. Nor can we predict the impact of satellite
DARS operations by XM Radio and Sirius Satellite Radio on our business. The FCC
is also considering various proposals for non-satellite delivered DARS. The FCC
currently is considering authorizing the use of in-band, on-channel, or IBOC
technology for radio stations. IBOC technology would permit an AM or FM station
to transmit radio programming in both analog and digital formats, or in digital
only formats, using the bandwidth that the radio station is currently licensed
to use. Such IBOC operations might not be consistent with STMC-TM- operations.
It is unclear what regulations the FCC will adopt regarding IBOC technology and
what effect such regulations would have on the Company's business or the
operations of its radio stations. Following its adoption of rules establishing
the low power radio service within the existing FM band, the FCC has begun to
authorize low power radio stations, including stations in California, Illinois
and New York. Low power radio stations operate on a non-commercial basis at
power levels below that of full power FM radio stations, such as those owned by
the Company, and low power radio stations are required to meet specified
interference criteria in regards to full power FM radio stations. Ownership of
low power radio stations is restricted to entities that have no attributable
interests in any other broadcast station or other media subject to the FCC's
ownership rules. It is not possible to predict what effect, including
interference effect, low power radio stations might have on the operations of
the Company's radio stations.

17

STREAMING OF BROADCASTS OVER THE INTERNET

The Company currently makes available or "streams" over its Internet
websites the programming its stations broadcast over the air. Recently, the
Copyright Arbitration Royalty Panel ("CARP") issued a report recommending that
the U.S. Copyright Office adopt specified royalty performance fees to be paid to
the recording industry for streaming by broadcasters. The CARP report also
recommended a higher set of fees to be paid for webcasting by non-broadcasters.
If the CARP report is adopted, the payments due would be retroactive to
October 1998. Several broadcasters have appealed the CARP recommendations,
arguing that the rates and terms would be confiscatory and unreasonable, and
would, if adopted, force broadcasters to cease streaming their programming. It
is not possible to predict what effect the adoption of the CARP recommendations
would have on the Company's business.

Although the Company believes the foregoing discussion is sufficient to
provide the reader with a general understanding of all material aspects of FCC
regulations that affect the Company, it does not purport to be a complete
summary of all provisions of the Communications Act or FCC rules and policies.
Reference is made to the Communications Act, FCC rules, and the public notices
and rulings of the FCC for further information.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report, including those utilizing the phrases
"will," "expects," "intends," "estimates," "contemplates," and similar phrases,
are "forward-looking" statements (as such term is defined in Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including
statements regarding, among other items, (i) the Company's expectation of
improving the coverage areas of its radio stations, and (ii) the Company's
ability to successfully implement its business strategy, and (iii) the Company's
ability to restructure its capital so as to continue as a going concern.
Certain, but not necessarily all, of such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance and achievements of the Company and its
subsidiaries to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, the following: (i) changes in the
competitive market place, including the introduction of new technologies or
formatting changes by the Company's competitors, (ii) changes in the financial
markets and in the Company's ability to secure financing, (iii) changes in the
regulatory framework, including the possibility that U.S. or non-U.S.
governments will increase regulation of the Internet, (iv) changes in audience
tastes, and (v) changes in the economic conditions of local markets. Other
factors which may materially affect actual results include, among others, the
following: general economic and business conditions, industry capacity,
demographic changes, changes in political, social and economic conditions and
various other factors beyond the Company's control. The Company does not
undertake and specifically declines any obligation to publicly release the
results of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.

18

ITEM 2. PROPERTIES

The Company leases approximately 6,000 square feet in New York, New York,
where its corporate offices are located.

The type of properties required to support each of the Company's radio
stations includes offices, studios, transmitter sites, booster sites, translator
sites and antenna sites. The Company owns, leases or licenses the properties
required to operate its radio stations. The Company owns facilities for WDEK-FM
and WLBK-AM in DeKalb, Illinois (approximately 4,500 square feet). The Company
leases or licenses facilities for the Los Angeles Stations in Century City
(approximately 16,048 square feet), Arcadia, Fallbrook, Ventura (approximately
758 square feet), Temecula and Burbank. The Company leases facilities for the
New York Stations in Hampton Bays (approximately 1,260 square feet), Hawthorne,
New York, East Quogue and Westchester. The Company leases facilities for the
Chicago Stations in Chicago (approximately 18,698 square feet), Highland Park
(approximately 2,120 square feet), Arlington Heights (approximately 2,800 square
feet), Kankakee, and Morris. The Company leases facilities for the Internet and
publishing operation in Coral Gable (approximately 12,600 square feet). The
Company considers its facilities to be suitable and of adequate sizes for its
current and intended purposes and does not anticipate any difficulties in
renewing those leases or licenses or in leasing or licensing additional space,
if required.

The Company owns substantially all of its other equipment, consisting
principally of transmitting antennae, transmitters, studio equipment and general
office equipment. The Company owns towers in Arcadia, CA, Ventura, CA, Long
Branch, NJ, Highland Park, IL, Morris, IL and DeKalb, IL. The towers, antennae
and other transmission equipment used in the Company's stations are generally in
good condition.

19

The following table sets forth the location of the Company's principal
properties:

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

(1) Leased.

(2) Owned.

(3) Tower owned by the Company while the property is leased.

(4) The Company sold its Long Branch studio facility during March 2002.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in litigation from time to time in the ordinary
course of its business. In management's opinion, the outcome of all pending
legal proceedings, individually and in the aggregate, will not have a material
adverse effect on the Company.

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

No matters were submitted to a vote of the Company's stockholders, through
the solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 2001

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Class A Common Stock is listed and traded on the American
Stock Exchange (the "AMEX") under the symbol "YFM" since December 19, 1997.
There is no established public trading

20

market for the Company's Class B Common Stock. The following table sets forth
the high and low sales prices per share of the Class A Common Stock as reported
by the AMEX for each quarterly periods during the years ended December 31, 2001
and 2000:

On February 25, 2002, the last reported sales price for the Company's
Class A Common Stock by the AMEX was $1.00 per share. As of February 25, 2002,
there were approximately 34 registered holders of record of Class A Common
Stock, which number includes nominees for an undeterminable number of beneficial
owners, and 8 holders of Class B Common Stock.

The Company has never declared or paid any cash dividends on its common
stock and does not expect to do so in the foreseeable future. Any future
determination with respect to the payment of dividends will be within the sole
discretion of the Company's Board of Directors and will depend upon, among other
things, the Company's earnings, capital requirements, the terms of then existing
indebtedness, applicable requirements of the Delaware General Corporations Law,
general economic conditions and such other factors considered relevant by the
Company's Board of Directors. The Company's 11 1/4% Senior Discount Notes due
2005 (the "Notes") also contain certain restrictions on the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."

On December 24, 1997, the Company successfully completed the initial public
offering (the "Initial Public Offering" or "IPO") of 4,600,000 shares of
Class A Common Stock at an offering price of $7.00 per share, lead managed by
Donaldson, Lufkin, & Jenrette Securities Corporation and Furman Selz LLC,
generating $28.5 million of net proceeds. In connection with the IPO, the
Company filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1 (file no. 333-36449) for the registration of
shares of Class A Common Stock for an aggregate offering price of $46,000,000,
which registration statement was declared effective by the Commission on
December 18, 1997. The Company paid $1,960,000 ($0.49 per share) in underwriting
discounts and commissions and approximately $1,400,000 in registration fees,
NASD filing fees, AMEX listing fees, printing, engraving, legal, accounting,
Blue Sky and other fees and expenses for the offering. The net proceeds of
$28.5 million after deducting underwriting discounts and commissions and
offering expenses were used to repay certain outstanding indebtedness of the
Company under its credit agreement dated as of May 30, 1996 with The Chase
Manhattan Bank (as amended, the "Old Credit Facility").

On December 19, 1997, the Company's old common stock was reclassified into
Class A Common Stock and Class B Common Stock and Stuart and Anita Subotnick
(the "Principal Stockholders") contributed approximately $13.3 million of
stockholder loans to the Company (the "Equity Contribution"), and the Principal
Stockholders exchanged all their shares of Class A Common Stock for a like
number of shares of Class B Common Stock (collectively, the "Reclassification").
These transactions were effected without registration under the Securities Act
in reliance on the exemption

21

from registration provided pursuant to Section 3(a)(9) or Section 4(2) and
Regulation D promulgated thereunder.

The rights of holders of Class A Common Stock and Class B Common Stock are
identical, except that each share of Class A Common Stock entitles its holder to
one vote per share on all matters voted upon by the Company's stockholders,
whereas each share of Class B Common Stock entitles its holder to ten votes per
share on all matters voted upon by the Company's stockholders. In addition,
holders of Class B Common Stock vote as a separate class to elect up to 75% of
the members of the Company's Board of Directors. Each share of Class B Common
Stock is convertible at any time into one share of Class A Common Stock. The
Principal Stockholders own all of the outstanding shares of Class B Common
Stock.

22

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected financial data and should be read in
conjunction with the Company's financial statements and the related notes
thereto and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein. The selected balance sheet
data as of December 31, 1997, 1998, 1999, 2000 and 2001 and statement of
operations data for the years ended December 31, 1997, 1998, 1999, 2000 and 2001
are derived from the Company's financial statements which have been audited by
KPMG LLP, Independent Certified Public Accountants. The historical financial
results of the Company are not comparable from period to period because of the
acquisition and sale of various broadcasting properties by the Company during
the periods covered.

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

(1) The Company acquired substantially all of the assets of WWHB-FM on April 1,
1997 and WZVU-FM on June 5, 1997 and commenced operations of these stations
under a LMA during December 1996. WWHB-FM and WZVU-FM together with WRGX-FM
form Y-107 NY. The financial statements include the operations of Y-107 NY
since December 1996.

(2) The Company acquired all of the stock of Radio New Jersey, owner of the FCC
licenses of WRNJ-FM, Belvedere, NJ and WRNJ-AM, Hackettstown, NJ on
August 14, 1998. Simultaneously at the closing, the Company sold
substantially all of the assets of WRNJ-AM to one of the existing
stockholders of Radio New

23

Jersey. The remaining WRNJ-FM operates on 107.1 FM and was added to the
Company's New Country Y-107 trimulcast under a LMA, effective April 28,
1998. The financial statements include the operations of WRNJ-FM since
April 1998.

(3) The Company acquired substantially all of the assets of WCBR-FM, Arlington
Heights, Illinois and WLRT-FM, Kankakee, Illinois on August 4 and 7, 1998,
respectively. The operations of these stations have been included in the
consolidated statements of operations from these dates.

(4) The Company acquired substantially all of the assets of WDEK-FM and WLBK-AM
on February 25, 1999. The financial statements include the operations of
these stations since February 25, 1999.

(5) The Company acquired substantially all of the assets of KEDJ-FM and KDDJ-FM
on July 31, 1999, KBZR-FM on September 22, 1999 and KMYL-FM on
September 29, 1999. The operations of these stations have been included in
the consolidated statements of operations from these dates.

(6) The Company acquired substantially all of the assets of United Publishers of
Florida, Inc. on November 8, 2000. The financial statements include the
operations of United Publishers of Florida, Inc. since November 8, 2000.

(7) The Company sold substantially all of the assets of KEDJ-FM, KDDJ-FM,
KBZR-FM and KSSL-FM on October 31, 2001. The financial statements include
the operations of these stations from their date of acquisition to
October 31, 2001, the date on which they were sold. For the year ended
December 31, 2001, the gain on sale of stations represents the gain on sales
of KEDJ-FM, KDDJ-FM, KBZR-FM and KSSL-FM.

(8) During 2001, the Company ceased the development and operation of its
Internet portal, TodoAhora.com. For the year ended December 31, 2001, the
impairment loss on goodwill represents the write-off of Internet goodwill.

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

The following discussion should be read in conjunction with "Selected
Financial Data" and the other financial data appearing elsewhere in this report.
Certain information included herein contains statements that constitute
"forward-looking statements" containing certain risks and uncertainties. See
"Business--Special Note Regarding Forward-Looking Statements."

GENERAL

The Company was incorporated in August 1994 and commenced operations on
January 1, 1995, having acquired WRGX-FM, Briarcliff Manor, New York, and
WRKL-AM, Pomona, New York (together, the "Original New York Stations"), on
December 31, 1994. On May 30, 1996 the Company merged with Q Broadcasting, Inc.
("Q") in a transaction accounted for as a combination of entities under common
control. As a result of this merger the two entities are deemed to be combined
since inception (see the Notes to Consolidated Financial Statements included
elsewhere in this report). Q owned and operated the Q stations in Stamford,
Connecticut, from July 1992 up to the date of the combination with the Company.
The Company reports on the basis of a December 31 year-end and Q reported on the
basis of a September 30 year-end. As a result, the December 31, 1996 financial
statements reflect the operations of Q on the basis of the eight-month period
ended May 30, 1996 (the date of sale of the Q stations).

The Q stations were operated in one facility, with one sales and support
staff. Their financial performance is combined for purposes of the discussions
that follow. The Los Angeles stations, WRKL-AM, and the stand-alone operations
of WRGX-FM were operated with separate staffs and facilities; therefore their
performance is separately identified.

Between March 26, 1996 and May 30, 1996, when the stations were acquired,
the Company operated the Los Angeles Stations and KWIZ-FM under a LMA. On
March 26, 1996 all of the existing operations of the Los Angeles Stations were
terminated, and the Company debuted Y-107 LA under a modern rock format with new
staffing and no existing advertiser base. Although it commenced

24

operation with no revenues, Y-107 LA revenues had surpassed all other Company
revenues combined by November 1996. During the LMA period, station operating
expenses included significant LMA fees and other reimbursed expenses to the
seller. In December 1999, the Los Angeles Stations began broadcasting as Viva
107.1 under its current format of Hispanic contemporary hit radio. The Company
sold KWIZ-FM on December 20, 1996.

On December 5, 1996, the Company commenced operation of WWZY-FM (formerly,
WZVU-FM), Long Branch, New Jersey, under a LMA, changing its format to country
music. On that date, WYNY-FM (formerly, WRGX-FM), Briarcliff Manor, New York,
which the Company had operated as a stand-alone FM station since its acquisition
on January 1, 1995, changed format to broadcast Y-107 NY as a new country music
station with WWZY-FM. Furthermore, on December 30, 1996 the Company began
operating WWXY-FM (formerly, WWHB-FM), Hampton Bays, New York, under a LMA.
Since that date, the New York Stations have operated as Y-107 NY. Y-107 NY
retained certain advertisers and staff from all three of the previously
stand-alone stations. The Company acquired WWXY-FM and WWZY-FM on April 1, 1997
and June 5, 1997, respectively. On April 27, 1998, the Company commenced
operations of WWYY-FM (formerly WRNJ-FM) under a LMA as part of the Y-107 NY
country music station. The Company completed its acquisition of WWYY-FM on
August 14, 1998.

On August 8, 1997 the Company acquired WXXY-FM (formerly WVVX-FM), Highland
Park, Illinois and WYXX-FM (formerly WJDK-FM) Morris, Illinois. The Company
operated WXXY-FM as a stand-alone, brokered-programming FM station and leased
WYXX-FM to a previous owner under a LMA until "FM 103.1 Chicago Heart and Soul"
commenced operation in early February 1998. In August 1999, 103.1 FM broadcast
its format of "The EightiesChannel". In January 2001, these stations began
broadcasting as Viva 103.1 under its current format of Hispanic contemporary hit
radio. On August 4 and 7, 1998, the Company completed the acquisitions of
WKIE-FM (formerly WCBR-FM) and WKIF-FM (formerly WLRT-FM) and launched its
second station group in the Chicago area. These stations commenced operation as
92 KISS FM, a contemporary hit radio format in November 1998. In February 1999,
the Company acquired WDEK-FM and WLBK-AM, DeKalb, Illinois and added WDEK-FM to
the 92 KISS FM stations. The Company sold WLBK-AM in April 2000. In
January 2001, these stations began broadcasting as Energy92 under its current
format of contemporary dance hit radio.

On July 30, 1999, the Company completed the acquisition of KEDJ-FM, Sun
City, Arizona and KDDJ-FM, Globe, Arizona. The Company operated KEDJ-FM and
KDDJ-FM, simulcasting as The Edge with its modern rock format and Howard Stern
morning show. On September 22, 1999, the Company acquired KBZR-FM, Arizona City,
Arizona, which was added to The Edge stations to form a trimulcast. On
September 29, 1999, the Company acquired KSSL-FM (formerly KMYL-FM), Wickenberg,
Arizona. In February 2000, the Company began operating KSSL-FM as a stand-alone
radio station broadcasting its Hispanic contemporary hit radio format. On
October 31, 2001, the Company completed the sale of its four Phoenix station
properties, KEDJ-FM, KDDJ-FM, KBZR-FM and KSSL-FM, to Hispanic Broadcasting
Corporation for an aggregate cash purchase price of $34,000,000.

On November 1, 1999 the Company entered into a merger and registration
rights agreement (the "Agreement") in which the Company acquired, in an all
stock transaction, all the issued and outstanding stock of Hispanic Internet
Holdings, Inc., a privately held bilingual web site. On November 8, 2000 the
Company entered into an asset purchase agreement in which the Company acquired
substantially all of the assets and properties of United Publishers of Florida,
Inc, which owned and operated a Hispanic music trade magazine, "Disco", a
graphic design business and a LatinMusicTrends.com web site. During 2001, the
Company ceased the development and operation of its Internet portal site,
TodoAhora.com, and wrote-off $897,000 of goodwill associated with the internet
operations.

25

In November 2000, the Company formed Independent Radio Reps, LLC., a
wholly-owned subsidiary. This in-house agency was formed to compete for Hispanic
National Radio advertising business.

RESULTS OF OPERATIONS

The Company's financial results are dependent on a number of factors,
including the general strength of the local and national economies, local market
competition, the relative efficiency and effectiveness of radio broadcasting
compared with other advertising media, government regulation and policies and
the Company's ability to provide popular programming. The performance of a radio
station group is customarily measured by its ability to generate broadcast cash
flow, calculated as station operating income or loss excluding depreciation and
amortization and corporate overhead. This measure, although widely used in the
broadcast industry as a measure of operating performance, is not calculated in
accordance with generally accepted accounting principles. Broadcast cash flow
should not be considered in isolation or as a substitute for operating income,
net income, cash flows from operating activities, or any other measure for
determining the Company's operating performance or liquidity calculated in
accordance with generally accepted accounting principles.

The Company's primary source of revenue is the sale of advertising. Total
revenue is determined by the number of advertisements aired by the station and
the advertising rates that the stations are able to charge. See
"Business--Advertising Sales."

Given the fact that the Company's strategy involves developing brand new
metropolitan area radio stations, the initial revenue base is zero and subject
to factors other than ratings and radio broadcasting seasonality. After the
start-up period, as is typical in the radio broadcasting industry, a station's
first calendar quarter generally will produce the lowest revenues for the year,
and the fourth quarter generally will produce the highest revenues for the year.
The Company's operating results in any period may be affected by the incurrence
of advertising and promotion expenses that do not produce commensurate revenues
in the period in which the expenses are incurred.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

NET REVENUES in the year ended December 31, 2001 were $20,549,000 compared
with $23,841,000 for the year ended December 31, 2000, a decrease of $3,292,000
or 14%. This decrease was due primarily to (i) decreased net revenues of the
Chicago Stations compared to the same period in 2000 resulting from their change
in format in January 2001, (ii) decreased net revenues at the New York Stations
compared to the same period in 2000, resulting from an adverse competitive
environment and the overall decline in revenues in the New York City Market, and
(iii) decreased net revenues at the Phoenix Stations compared to the same period
in 2000, due to the sale of these properties on October 31, 2001. This decrease
was partially offset by increased net revenues of the LA Stations, which began
broadcasting their current Hispanic contemporary hit radio format in
December 1999, and increased publishing revenues due to a full year of operation
in 2001 following their acquisition in November 2000.

STATION OPERATING EXPENSES excluding depreciation and amortization for the
year ended December 31, 2001 were $21,307,000 compared with $26,047,000 in the
year ended December 31, 2000, a decrease of $4,740,000 or 18%. This decrease was
due principally to the reduction in operating expenses for the New York,
Chicago, and LA Stations, and reduced operation expenses from the Phoenix
Stations which were sold on October 31, 2001.

INTERNET AND PUBLISHING operating expenses excluding depreciation and
amortization for the year ended December 31, 2001 were $1,491,000 compared with
$1,569,000 in the year ended December 31, 2000, a decrease of $78,000. In the
second half of 2001, the Company ceased its Internet operations.

26

DEPRECIATION AND AMORTIZATION EXPENSES for the year ended December 31, 2001
were $4,868,000 compared with $4,867,000 for the year ended December 31, 2000,
an increase of $1,000. This increase was due primarily to capital expenditures
by the Phoenix and New York Stations. This increase was partially offset by the
decreased depreciation and amortization expenses from the Phoenix Stations which
were sold on October 31, 2001.

CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the year ended
December 31, 2001 were $3,610,000 compared with $3,845,000 for the year ended
December 31, 2000, a decrease of $235,000 or 6%. This decrease was primarily
attributable to lower personnel costs in 2001.

COST OF ABANDONMENT ON STATION ACQUISITION AGREEMENT was the result of the
cancellation of a signed agreement whereby the assets of radio station KLVA-FM,
Casa Grande, Arizona would have been exchanged for the assets of radio station
KDDJ-FM, Globe, Arizona. On signing of the acquisition agreement, the Company
deposited $275,000 into an escrow account in April 1999. In February 2000, the
Company paid the balance in the escrow account and an additional amount of
$275,000, totaling $550,000 to cancel the signed KLVA-FM acquisition agreement.
The decision to abandon the transaction was made in response to a change in the
engineering enhancement plan for the Company's Phoenix radio licenses. There
were no such expenses in 2001.

IMPAIRMENT LOSS ON GOODWILL for the year ended December 31, 2001 was
$897,000. During 2001, the Company decided to cease the development and
operation of its Internet portal, TodoAhora.com, and focus on its publishing
operation. The impairment loss represented the write-off on the remaining
Internet goodwill balances.

INTEREST EXPENSE for the year ended December 31, 2001 was $21,540,000
compared with $18,392,000 for the year ended December 31, 2000, an increase of
$3,148,000 or 17%. This increase reflects additional interest resulting from the
issuance of the Notes on March 17, 1998 (the "Notes Offering") and its accreted
principal amount for the year ended December 31, 2001 when compared to the
corresponding period in 2000. The increase in interest expense also attributed
to the Bridge Loan financing (the "Bridge Loan"), and interest incurred on a
promissory note to an affiliate of the Company (the "Affiliate Promissory Note")
in 2001. In the years ended December 31, 2001 and 2000, the weighted average
outstanding total debt for the Company was $175,182,000 and $162,288,000,
respectively. The weighted average rate of interest on the outstanding debt was
12.29% and 11.324%, respectively.

INTEREST INCOME for the year ended December 31, 2001 was $111,000 as
compared to $281,000 for the year ended December 31, 2000, a decrease of
$170,000 or 61%. This decrease was due primarily to a decline in marketable
securities balances as a result of those funds being used in operations.

NET LOSSES for the year ended December 31, 2001 were $30,707,000 compared
with $31,168,000 for the year ended December 31, 2000, a decrease of $461,000 or
1%. The decrease in the net loss was primarily attributable to, (a) the gain on
the sale of the Phoenix Stations, (b) lower operating expenses, (c) a $550,000
cancellation charge related to the KLVA-FM acquisition in 2000, offset by
(d) higher net interest expense, (e) an impairment loss on Internet goodwill,
and (f) the decrease in net revenues for the year ended December 31, 2001,
compared to the corresponding year ended December 31, 2000.

27

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

NET REVENUES in the year ended December 31, 2000 were $23,841,000 compared
with $20,604,000 for the year ended December 31, 1999, an increase of $3,237,000
or 16%. This increase was due primarily to the increase in net revenues of the
New York Stations and the Chicago Stations and the addition of the Phoenix
Stations on July 31, 1999. Partially offsetting the net revenue increase was a
decrease in net revenues at the LA Stations compared to the same period in 1999
resulting from its change in format in December 1999.

STATION OPERATING EXPENSES excluding depreciation and amortization for the
year ended December 31, 2000 were $26,047,000 compared with $23,566,000 in the
year ended December 31, 1999, an increase of $2,481,000 or 11%. This increase
was due principally to the addition of the operations of the Phoenix Stations
and the increased costs associated with Chicago Stations' revenue growth,
partially offset by the reduction in operating expenses for the New York
Stations, LA Stations and WRKL-AM.

INTERNET AND PUBLISHING operating expenses excluding depreciation and
amortization for the year ended December 31,2000 were $1,569,000 compared with
$51,000 in the year ended December 31, 1999, an increase of $1,518,000. The
increase was due principally to the start-up operations of TodaAhora.com since
its inception in November 1999.

DEPRECIATION AND AMORTIZATION EXPENSES for the year ended December 31, 2000
were $4,867,000 compared with $3,812,000 for the year ended December 31, 1999,
an increase of $1,055,000 or 28%. This increase was due primarily to the
amortization of intangibles and depreciation of capital assets of the Phoenix
Stations which were acquired in July and September 1999 and Hispanic Internet
Holdings, Inc. which was acquired in November 1999.

CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the year ended
December 31, 2000 were $3,845,000 compared with $4,371,000 for the year ended
December 31, 1999, a decrease of $526,000 or 12%. This decrease was due
primarily to a severance payment made to the Company's prior Chief Executive
Officer in 1999, and decreased legal and professional fees in 2000.

COST OF ABANDONMENT ON STATION ACQUISITION AGREEMENT for the year ended
December 31, 2000 was the result of the cancellation of a signed agreement
whereby the assets of radio station KLVA-FM, Casa Grande, Arizona would have
been exchanged for the assets of radio station KDDJ-FM, Globe, Arizona. On
signing of the acquisition agreement, the Company deposited $275,000 into an
escrow account in April 1999. In February 2000, the Company paid the balance in
the escrow account and an additional amount of $275,000, totaling $550,000, to
cancel the signed KLVA-FM acquisition. The decision to abandon the transaction
was made in response to a change in the engineering enhancement plan for our
Phoenix radio licenses.

INTEREST EXPENSE for the year ended December 31, 2000 was $18,392,000
compared with $16,953,000 for the year ended December 31, 1999, an increase of
$1,439,000 or 8%. This increase reflects additional interest resulting from the
issuance of the Notes on March 17, 1998 (the "Notes Offering") and its accreted
principal amount for the year ended December 31, 2000 when compared to the
corresponding period in 1999. In the years ended December 31, 2000 and 1999, the
weighted average outstanding total debt for the Company was $162,288,000 and
$146,540,000, respectively. The weighted average rate of interest on the
outstanding debt was 11.324% and 11.323%, respectively.

INTEREST INCOME for the year ended December 31, 2000 was $281,000 as
compared to $1,952,000 for the year ended December 31, 1999, a decrease of
$1,671,000 or 86%. This decrease was due primarily to a decline in marketable
securities balances as a result of those funds being used in operations.

NET LOSSES for the year ended December 31, 2000 were $31,168,000 compared
with $25,808,000 for the year ended December 31, 1999, an increase of $5,360,000
or 21%. The increase in the net loss was primarily attributable to, (a) higher
station operating expenses and the start-up operations of

28

TodoAhora.com, (b) higher depreciation and amortization expenses and net
interest expense, resulting from the Phoenix station acquisitions in 1999, and
(c) a $550,000 cancellation charge related to the KLVA-FM acquisition, and the
absence of the gain on sale of radio stations in 2000. Partially offsetting
these factors, was the increase in net revenues for the year ended December 31,
2000, compared to the corresponding year ended December 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred substantial net losses since inception primarily
due to broadcast cash flow deficits characteristic of the start up of its radio
stations. In addition, since the majority of its broadcast properties are in
stages of development, either as a result of them awaiting engineering
enhancements or upgrades from pending FCC applications, or as a result of them
being recently reformatted, the Company expects to generate significant net
losses for the foreseeable future.

As a result of these factors, working capital needs have been met by
borrowings, including loans from the Principal Stockholders (which borrowings
were contributed to the capital of the Company immediately prior to the
consummation of the Initial Public Offering), under the Old Credit Facility and
the issuance of the Notes. The net proceeds of approximately $120,808,000 from
the Notes Offering were used to repay approximately $32,600,000 of the Old
Credit Facility (as hereinafter defined; see Note 8 to the Consolidated
Financial Statements). Simultaneously with the completion of the Note Offering,
the Company obtained a revolving credit facility (the "Revolving Credit
Facility") with The Chase Manhattan Bank ("Chase") in the amount of
$15.0 million. (see Note 8 to the Consolidated Financial Statements).

The Company has entered into employment contracts with 11 individuals,
mainly officers and senior management that provide for minimum salaries and
incentives based upon specified levels of performance. The minimum payments
under these contracts are $1,534,000 in 2002 and $150,000 in 2003.

The Company has never paid cash or stock dividends. The Company will
continue to report net losses throughout the start up period for the Los
Angeles, Chicago and New York Stations. Furthermore, it intends to retain future
earnings for use in its business and does not anticipate paying dividends on
shares of its common stock in the foreseeable future.

CASH FLOWS FROM OPERATING ACTIVITIES

In each of the years ended December 31, 1999, 2000 and 2001, the Company
reported cash used in operations. In the year ended 1999 the negative cash flow
was predominantly due to the funding of start-up operations at New York and
Chicago Stations. In the year ended December 31, 2000, the negative cash flow
was predominantly due to the start-up operating losses of the LA Stations as
Viva 107.1, the Que Buena Phoenix Station, and the Hispanic Internet portal
site, TodoAhora.com, as well as the operating losses of the Chicago Stations. In
the year ended 2001 the negative cash flow was predominantly due to start-up
operating losses of the Chicago Stations as Viva 103.1 and Energy92, and
operating losses of the New York stations.

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures (excluding acquisitions of radio stations) were
$2,941,000, $1,584,000 and $851,000 in the years ended December 31, 1999, 2000
and 2001, respectively. These expenditures primarily reflect costs associated
with the FCC Power Increases and other technical improvements at the Company's
stations, the upgrade and expansion of the studio and broadcast facilities,
computer support equipment, and purchase of promotional vehicles for the new
station properties, as well as purchase of furniture and fixture and computer
equipment for the Internet and publishing operations. In the year ended 1999,
the Company purchased $34,508,000 in marketable securities and sold

29

$75,065,000 to generate cash for the purchase of radio stations in DeKalb,
Illinois and Phoenix, Arizona and for general working capital purposes. In the
year ended 2000, the Company sold $5,964,000 in marketable securities to
generate cash for general working capital purposes. In the year ended 2001, the
Company purchased $15,000,000 in marketable securities and sold $1,895,000 to
generate cash for general working capital purposes. Cash paid and advanced for
the purchase of assets of radio stations and Internet and publishing businesses
were $36,177,000 and $250,000 in the years ended December 31, 1999 and 2000,
respectively.

CASH FLOWS FROM FINANCING ACTIVITIES

The Company completed a private placement of $174.0 million aggregate
principal amount at maturity of Notes on March 17, 1998 (the "issue date"),
generating approximately $125.4 million of gross proceeds for the Company of
which the Company used approximately $32.6 million to repay outstanding
indebtedness under its Old Credit Facility. The Company has used the proceeds of
the Notes Offering to finance the acquisition costs of radio station properties
and intends to use the remaining proceeds for general working capital purposes.

The Notes were issued at an original issue discount and accreted in value
until March 15, 2001 at a rate of 11 1/4% per annum, compounded semi-annually to
an aggregate principal amount of $174.0 million. Cash interest began accruing on
the Notes on March 15, 2001 at a rate of 11 1/4% per annum and is payable in
cash semi-annually, each March 15 and September 15 through and including
March 15, 2005. The Notes will mature on March 15, 2005 but may be redeemed at
the option of the Company, in whole or in part at a redemption price of
105.625%, 102.813% or 100.000% if redeemed during the 12-month period commencing
on March 15 of 2002, 2003 and on and after 2004, respectively.

Holders of the Notes have the right to require the Company to repurchase
their Notes upon a "change of control" of the Company, at a price equal to the
principal amount of such Notes. A "change of control" for purposes of the Notes
is deemed to occur (i) when any person other than the Principal Stockholders,
the management and their affiliates (the "Permitted Holders"), becomes the owner
of more than 35% of the total voting power of the Company's stock and the
Permitted Holders own in the aggregate a lesser percentage of such voting power
and do not have the right or ability to elect a majority of the Board of
Directors, (ii) when the Board of Directors does not consist of a majority of
continuing directors, (iii) upon the occurrence of a sale or transfer of all or
substantially all of the assets of the Company taken as a whole, or (iv) upon
the adoption by the stockholders of a plan for the liquidation or dissolution of
the Company.

Payments under the Notes are guaranteed on a senior unsecured basis by the
Company's Restricted Subsidiaries, as defined in the Indenture governing the
Notes; as of December 31, 2001, all of the Company's subsidiaries were
Restricted Subsidiaries. The Notes contain certain financial and operational
covenants with which the Company and its Restricted Subsidiaries must comply,
including covenants regarding the incurrence of additional indebtedness,
investments, payment of dividends on and redemption of capital stock and the
redemption of certain subordinated obligations, sales of assets and the use of
proceeds therefrom, transactions with affiliates, creation and existence of
liens, the types of businesses in which the Company may operate, asset swaps,
distributions from Restricted Subsidiaries, sales of capital stock of Restricted
Subsidiaries and consolidations, mergers and transfers of all or substantially
all of the Company's assets. At December 31, 2001 the Company is in compliance
with all covenants under the Notes.

On July 6, 1998, the Company completed an exchange offer for the Notes, in
which the holders of substantially all outstanding Notes exchanged their Notes
for newly-issued Notes registered under the Securities Act of 1933. The new
Notes have the same terms as the exchanged Notes, except that the

30

new Notes are so registered. The amount exchanged was $172,500,000 aggregate
principal amount at maturity of Notes.

The Notes contain customary events of default including payment defaults and
default in the performance of other covenants, certain bankruptcy defaults,
judgment and cross defaults, and failure of a subsidiary guarantee to be in full
force and effect.

Cash interest commenced accruing on the Company's Senior Discount Notes on
March 15, 2001 and is payable semi-annually commencing September 15, 2001. The
Company failed to make the initial interest payment on September 15, 2001,
however, under the terms of the Senior Discount Notes' Indenture, a grace period
of thirty days exists in which to pay the interest due. On October 12, 2001 the
Company obtained the Bridge Loan (see Note 5 to the Consolidated Financial
Statements, above), and used the proceeds from borrowing under the Bridge Loan
to pay the September 15, 2001 Senior Discount Note interest, applicable
additional interest, and the indebtedness and accrued interest on the Affiliate
Promissory Note, at that date.

In connection with the consummation of the Notes Offering, the Company
entered into a revolving credit facility with The Chase Manhattan Bank ("Chase")
providing for up to $15.0 million of availability, based upon a multiple of the
Company's radio stations' positive rolling four quarter broadcast cash flow (the
"Revolving Credit Facility") and subject to compliance with certain financial
and operational covenants. The Revolving Credit Facility was to mature on the
fifth anniversary of March 17, 1998 and amounts outstanding under the Revolving
Credit Facility bore interest at an applicable margin plus, at the Company's
option, Chase's prime rate (in which case the applicable margin was initially
2.00% subject to reduction upon achieving performance criteria based on the
Company's leverage ratio) or the London Interbank Borrowing Rate (in which case
the applicable margin was 3.00% subject to reduction upon achieving performance
criteria based on the Company's leverage ratio). The Company's obligations under
the Revolving Credit Facility were secured by a pledge of substantially all of
the Company's and its Station Subsidiaries' assets. In each of the years ended
December 31, 2001 and 2000, the Company paid $55,000 and $71,000, respectively,
in fees based on the aggregate unused portion of the facility. The Revolving
Credit Facility contained customary events of default, including material
misrepresentations, payment defaults and default in the performance of other
covenants, certain bankruptcy and ERISA defaults, judgment and cross defaults,
and defaults upon the revocation of any of the Company's broadcast licenses. At
December 31, 2000, the Company was in compliance with all material covenants and
restrictions under the Revolving Credit Facility, with the exception that the
Independent Auditors' Report for the year ended December 31, 2000 included a
"going concern" paragraph. The Revolving Credit Facility also provided that an
event of default would occur upon the occurrence of a "change of control" as
defined in the Revolving Credit Facility. For purposes of the Revolving Credit
Facility, a change of control would occur when (i) any person or group other
than the Principal Stockholders and their affiliates obtains the power to elect
a majority of the Board of Directors, (ii) the Company fails to own 100% of the
capital stock of its subsidiaries owning any of the FCC broadcast licenses, or
(iii) the Board of Directors does not consist of a majority of continuing
directors, as defined.

During April 2001, the Company made a request of its bank lender that the
Company be permitted to draw down on its Revolving Credit Facility (the
"Existing Facility"). The lender declined to permit the Company to draw on the
Revolving Credit Facility due to the Company's violation of a covenant discussed
above. In response to its inability to draw down on the Existing Facility, on
October 12, 2001, the Company obtained a new term loan facility (the "Bridge
Loan") in the amount of $15,000,000. The Bridge Loan was obtained by the
assignment of the Company's Revolving Credit Facility from the lender thereunder
to a new lender, and was therefore secured to the same extent as the Revolving
Credit Facility. The Bridge Loan bore interest at the rate of LIBOR plus 3.0%,
or a Base Rate plus 2.0%, at the option of the Company. Net proceeds of the
Bridge Loan were used to

31

pay the semi-annual interest on its Senior Discount Notes, together with
applicable additional interest thereon, and to repay indebtedness under the
Affiliate Promissory Note.

The Bridge Loan was a term facility containing certain financial and
operational covenants and other restrictions with which the Company had to
comply, including, among others, limitations on capital expenditures, the
incurrence of additional indebtedness, restrictions on sales of assets,
restrictions on the use of borrowings, limitations on paying cash dividends and
redeeming or repurchasing capital stock of the Company or the Notes. The Bridge
Loan was repaid on October 31, 2001 with a portion of the proceeds from the sale
of the Phoenix radio station properties as discussed below. The Company
currently does not have a credit facility.

On October 31, 2001, the Company completed the sale of its four Phoenix
radio properties to Hispanic Broadcasting Corporation for a cash price of
$34 million. The Company has the ability to reinvest the net proceeds remaining
from the sale of the Phoenix Stations after the repayment of the Bridge Loan
(approximately $18 million) in broadcast assets for a period of up to one year
from the date of these asset sales. Thereafter, any net proceeds not reinvested
must be used to make an offer to repurchase the Senior Discount Notes. As
described above, the Company used a portion of the proceeds to repay
indebtedness under the Bridge Loan and will use the remainder to fund ongoing
operations. The Company is currently considering all available options to repay
such amounts, if required, to the bondholders.

The Company had available approximately $18.2 million of cash and cash
equivalents and marketable securities at December 31, 2001. Cash interest
commenced accruing on the Company's Senior Discount Notes on March 15, 2001 and
is payable semi-annually. The semi-annual interest payment is $9.8 million.
Following payment of the semi-annual interest payment on March 15, 2002, the
Company had available approximately $6.5 million of cash and cash equivalents.

Cash on hand may be insufficient to support the Company's operations
(exclusive of interest payments) through December 31, 2002. In addition, because
of the Company's substantial indebtedness, a significant portion of the
Company's cash on hand will be required for debt service. Cash on hand will be
insufficient to satisfy the Company's debt service requirements for the
foreseeable future. The Company will not be able to make the $9.8 million
interest payment on the Notes that is due on September 15, 2002 unless it is
able to obtain additional debt or equity financing or sell assets. Absent such
financing or sales, the Company will also not be able to consummate the offer to
repurchase Senior Discount Notes that is required to be made in the event that
it does not reinvest the net proceeds from the sale of the Phoenix Stations
(after giving effect to the repayment of the Bridge Loan) in broadcast assets on
or before October 31, 2002. No assurances can be provided that the Company will
be able to obtain any such financing or sell assets on acceptable terms or at
all. In the event that the Company is unable to obtain financing or sell assets
it may need to restructure the Notes. These matters raise substantial doubt
about the Company's ability to continue as a going concern.

The Company will evaluate on a continuing basis its strategic alternatives
and the most efficient use of the Company's capital, including, without
limitation, the sale of the Company's broadcast assets and, depending on market
conditions, debt and/or equity financing and purchasing, restructuring,
recapitalizing, refinancing or otherwise retiring certain of the Company's
securities in the open market or by other means, in each case subject to the
restrictions contained in the Indenture governing the Notes.

32

SELECTED CONTRACTUAL OBLIGATIONS AND COMMITMENTS

LEASES

The Company leases studio and office space, transmitter tower sites and
office equipment under operating leases. Future minimum rental commitments for
the remainder of the operating leases are as follows:

2002........................................................ $2,424,000
2003........................................................ 1,557,000
2004........................................................ 762,000
2005........................................................ 303,000
2006........................................................ 81,000
Thereafter.................................................. 39,000
----------
$5,166,000
==========

EMPLOYMENT CONTRACTS

The Company has entered into various employment contracts with 11
individuals comprised of mainly officers and senior management that provide for
minimum salaries and incentives based upon specified levels of performance. The
minimum payments under these contracts are as follows:

2002........................................................ $1,534,000
2003........................................................ 150,000
----------
$1,684,000
==========

SENIOR DISCOUNT NOTES

On March 17, 1998, the Company completed the Note Offering. The
$174 million Senior Discount Notes mature on March 15, 2005. Cash interest
commenced accruing on the Company's Senior Notes on March 15, 2001 and is
payable semi-annually. The semi-annual interest payment is $9.8 million.

On October 31, 2001, the Company completed the sale of its four Phoenix
radio stations to Hispanic Broadcasting Corporation for a cash purchase price of
$34 million. The Company has the ability to reinvest the net proceeds remaining
from the sale of Phoenix Stations after the repayment of the Bridge Loan
(approximately $18 million) in broadcast assets for a period of up to one year
from the date of this assets sales. Thereafter, any net proceeds not invested
must be used to make an offer to repurchase the Senior Discount Notes. As
discussed in Note 3, the Company used a portion of the proceeds to repay
indebtedness under the Bridge Loan and will use the remainder to fund ongoing
operations. The Company is currently considering all available options to repay
such amounts, if required, to the bondholders.

CERTAIN FACTORS THAT MAY EFFECT FUTURE RESULTS AND FINANCIAL CONDITION

The following factors (in addition to others) could have a material and
adverse impact on the Company's business:

- Our highly leveraged financial position poses the following risks to
stockholders:

- a substantial portion of our cash flow from operations will be required to
service our indebtedness;

- our ability to obtain financing in the future for working capital, capital
expenditures and general corporate purposes, including acquisitions might
be impeded; and

33

- we are more vulnerable to economic downturns and our ability to withstand
competitive pressures is limited.

We derive substantially all of our revenues from advertisers in diverse
industries. If a number of our advertisers reduce their expenditures because of
a general economic downturn, or an economic downturn in one or more industries
or regions, or for any other reason, our results of operations would be
materially and adversely affected.

Cash on hand may be insufficient to meet our obligations and commitments. If
we do not meet our interest obligations under our indentures or if we otherwise
default under the indentures, our debt may be accelerated under the indentures.
In addition, because we are highly leveraged, it could limit our ability to
respond to market conditions or meet extraordinary capital needs. If we are
unable to generate sufficient cash flow from operations to meet our obligations
and commitments, we will be required to refinance or restructure our
indebtedness or raise additional debt or equity capital. Additionally, we may be
required to sell material assets or operations. These alternative strategies
might not be effected on satisfactory terms, if at all.

Our Senior Discount Notes Indenture contains restrictive covenants that may
limit our ability to:

- incur additional debt;

- pay dividends;

- merge, consolidate or sell assets;

- make acquisitions or investments; or

- change the nature of our business.

We currently do not have a credit agreement. We may not be able to obtain a
new credit agreement. Management believes that its long-term liquidity needs
will be satisfied through a combination of i) achieving positive operating
results and cash flows through revenue growth and control of operating expenses
and ii) the raising of additional equity and/or restructuring of the Notes. It
should be noted that there is no guarantee the Company will be able to raise
additional equity or restructure the Notes.

If we experience a change of control, with respect to the Senior Discount
Notes, we might not have sufficient funds to repurchase the notes, as may be
required.

We have incurred losses from continuing operations in each of our fiscal
years since inception and expect to continue to experience net losses in the
foreseeable future. These net losses, which may be greater than our net losses
in the past, are principally a result of interest expense on our outstanding
debt and non-cash charges for depreciation expense related to long-term assets.

Our growth could be limited if we are unable to successfully implement our
engineering enhancement plans, and if we are forced to change formats at our
radio properties in response to competitor format changes. Our ability to grow
is affected, amongst other reasons, by the following;

- many competing radio station groups have greater resources available to
finance the start up losses often associated with a format change;

- we might not have the financial resources necessary to implement any FCC
engineering upgrades or enhancements;

- we might be unable to obtain FCC approval of requested upgrades and
enhancements.

34

CRITICAL ACCOUNTING POLICIES AND MATERIAL ESTIMATES

The Company's discussion and analysis of its financial condition and results
of operations are based upon our consolidated financial statements, which have
been prepared in accordance with the accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgements that affected the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluated our estimates, including
those to broadcast rights, bad debts, intangible assets, income taxes, and
contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgements about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The Company believes the
following critical accounting policies affect its more significant judgements
and estimates used in the preparation of its consolidated financial statements.

The carrying values of our long-lived assets (tangible, identifiable
intangible and goodwill) are reviewed for impairment based upon estimated future
cash flows of the stations. As of December 31, 2001, the Company has not
recorded any impairment related to long-lived assets except for Internet
goodwill write-off of $897,000 during December 2001. Future adverse changes in
market conditions, changes in technology and other factors could reduce the
expected future cash flows and result in an impairment charge in the future.

The Company records revenue from the sale of airtime related to advertising
and contracted time at the time of broadcast. The Company maintains allowances
for doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. The Company utilizes information available
to the Company, including the timing of payments and the financial condition of
our customers to estimate the allowance for doubtful account. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. It should
be noted that the Company does not have a significant concentration of accounts
receivable from one customer or industry segment.

RECENT ACCOUNTING PRONOUNCEMENTS

BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. SFAS 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. SFAS 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS 142.
SFAS 142 will also require that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.

The Company is required to adopt the provisions of SFAS 141 immediately,
except with regard to business combinations initiated prior to July 1, 2001, and
SFAS 142 effective January 1, 2002. Furthermore, any goodwill and any intangible
asset determined to have an indefinite useful life that are acquired in a
purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS 142

35

accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized prior
to the adoption of SFAS 142.

SFAS 141 will require upon adoption of SFAS 142, that the Company evaluate
its existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and to make any necessary reclassifications in
order to conform with the new criteria in SFAS 141 for recognition apart from
goodwill. Upon adoption of SFAS 142, the Company will be required to reassess
the useful lives and residual values of all intangible assets acquired in
business combinations accounted for using the purchase method, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of SFAS 142
within the first interim period. Any impairment loss will be measured as of the
date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation,
SFAS 142 will require the Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.

As of the date of adoption, the Company expects to have unamortized goodwill
in the amount of $108,000, unamortized identifiable intangible assets in the
amount of $76,955,000, all of which will be subject to the transition provisions
of SFAS 141 and 142. Amortization expense related to goodwill and intangible
assets was $3,293,000 and $3,158,000 for the year ended December 31, 2000 and
2001, respectively. Because of the extensive effort needed to comply with
adopting SFAS 141 and 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on the Company's financial statements at the
date of this report, including whether any transitional impairment losses will
be required to be recognized as the cumulative effect of a change in accounting
principle.

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF

In August 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS 144"), which supersedes both FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of ("SFAS 121") and the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions ("Opinion 30"), for the disposal of a segment
of a business (as previously defined in that Opinion). SFAS 144 retains the
fundamental provisions in SFAS 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues associated with
SFAS 121. For example, SFAS 144 provides

36

guidance on how a long-lived asset that is used as part of a group should be
evaluated for impairment, establishes criteria for when a long-lived asset is
held for sale, and prescribes the accounting for a long-lived asset that will be
disposed of other than by sale. SFAS 144 retains the basic provisions of Opinion
30 on how to present discontinued operations in the income statement but
broadens that presentation to include a component of an entity (rather than a
segment of a business). Unlike SFAS 121, an impairment assessment under
SFAS 144 will never result in a write-down of goodwill. Rather, goodwill is
evaluated for impairment under SFAS 142, Goodwill and Other Intangible Assets.

The Company is required to adopt SFAS 144 no later than the year beginning
after December 15, 2001, and plans to adopt its provision for the quarter ending
March 31, 2002. Management does not expect the adoption of SFAS 144 for
long-lived assets held for use to have a material impact on the Company's
financial statements because the impairment assessment under SFAS 144 is largely
unchanged from SFAS 121. The provisions of the Statement for assets held for
sale or other disposal generally are required to be applied prospectively after
the adoption date to newly initiated disposal activities. Therefore, management
cannot determine the potential effects that adoption of SFAS 144 will have on
the Company's financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes and the change
in the market values of its investments.

The Company's exposure to market rate risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company has not
used derivative financial instruments in its investment portfolio. The Company
invests its excess cash in debt instruments of the U.S. Government and its
agencies and, by policy, limits the amount of credit exposure to any one issuer.
The Company protects and preserves its invested funds by limiting default,
market and reinvestment risk.

Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. The Company may suffer
losses in principal if forced to sell securities which have declined in market
value due to changes in interest rates.

37

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BIG CITY RADIO, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

38

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
of Big City Radio, Inc.:

We have audited the accompanying consolidated balance sheets of Big City
Radio, Inc. and subsidiaries as of December 31, 2000 and 2001, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for each of the years in the three-year period ended December 31,
2001. In connection with our audits of the consolidated financial statements, we
also have audited Schedule II, Valuation and Qualifying Accounts for each of the
years in the three year period ended December 31, 2001. 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 auditing standards generally
accepted in the United States of America. These 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 Big City
Radio, Inc. and subsidiaries as of December 31, 2000 and 2001, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. 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.

The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 3 to the consolidated financial statements, the
Company has suffered recurring losses and cash deficits and has a stockholders'
deficiency of $77,627,000 at December 31, 2001 that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3. The consolidated financial
statements and financial statement schedules do not include any adjustments that
might result from the outcome of this uncertainty.

KPMG LLP

Los Angeles, California
March 8, 2002

39

BIG CITY RADIO, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2000 AND 2001

See accompanying notes to consolidated financial statements.

40

BIG CITY RADIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

See accompanying notes to consolidated financial statements.

41

BIG CITY RADIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

See accompanying notes to consolidated financial statements.

42

BIG CITY RADIO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

See accompanying notes to consolidated financial statements.

43

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 2001

(1) ORGANIZATION AND BUSINESS

Big City Radio, Inc. (formerly Odyssey Communications, Inc.) ("Big City
Radio") was incorporated in Delaware on August 2, 1994 and commenced operations
on January 1, 1995. On May 30, 1996, Big City Radio merged with Q
Broadcasting, Inc. ("Q", and together with Big City Radio, the "Company"), with
Big City Radio being the surviving company. Big City Radio and Q were owned 94%
and 100%, respectively by Stuart and Anita Subotnick (the "Principal
Stockholders"). Accordingly, the merger has been accounted for as a combination
of entities under common control. As a result, the combination of Big City Radio
and Q was effected utilizing historical costs. At the date of conversion from S
Corporation status to C Corporation status (see Note 2), the Company formed five
wholly owned subsidiaries, Big City Radio--LA, LLC; Big City Radio--NYC, LLC;
Big City Radio--CHI, LLC; WRKL Rockland Radio, LLC; and Odyssey Traveling
Billboards, Inc.

The Company owns and operates radio broadcasting stations. As of
December 31, 2001, the Company owned three FM stations in Southern California,
KLYY-FM Arcadia, KVYY-FM Ventura and KSYY-FM Fallbrook (programmed as "Viva
107.1"). In the New York area, the Company owns four radio properties, WWXY-FM
Westchester County, New York (the "Original New York Stations"), WWZY-FM
Monmouth, New Jersey, WWVY-FM Hampton Bays, New York and WWYY-FM Hackettstown,
New Jersey. WWXY-FM, WWZY-FM, WWVY-FM, and WWYY-FM are programmed as "New
Country Y-107." In the Chicago area, the Company owns five radio properties,
WXXY-FM Highland Park, Illinois, WYXX-FM Morris, Illinois (programmed as "Viva
103.1"), WKIE-FM Arlington Heights, Illinois, WKIF-FM Kankakee, Illinois, and
WDEK-FM DeKalb, Illinois (programmed as "Energy92").

The Company owns Hispanic Internet Holdings, Inc. which owns TodoAhora.com,
a bilingual internet portal, which delivered a range of internet programming to
the Hispanic community including news, entertainment, finance, culture, and
e-commerce opportunities. During 2001, the Company decided to cease the
development and operation of its Internet portal, TodoAhora.com. The decision
was based upon management's evaluation of future revenue generation potential
and the current resources needed to continue to develop and operate the portal.
The Company also owns United Publishers of Florida, Inc., which publishes the
Hispanic music trade magazine, "Disco", a graphic design business and the
LatinMusicTrends.com website.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Big City Radio, Inc. and all its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

CASH EQUIVALENTS

Cash equivalents of $2,757,000 with maturities less than three months were
included in cash and cash equivalents at December 31, 2001.

MARKETABLE SECURITIES

Marketable securities at December 31, 2000 and 2001 consist of U.S.
Treasury, mortgage-backed, corporate debt securities. The Company classifies its
debt securities as available-for-sale. Securities are recorded at fair value
with the unrealized holding gain or loss, net of the related tax effect,
excluded

44

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
from earnings and reported as a separate component of other comprehensive income
until realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis. As of
December 31, 2001, there were no unrealized holding gains or losses. Proceeds
from the sale of securities were $1.9 million in 2001. Gross realized losses
were $3,000 in 2001.

A decline in the market value of any available-for-sale security below cost
that is deemed to be other than temporary results in a charge to earnings and a
new cost basis for the security is established. Premiums and discounts are
amortized or accreted over the life of the related security as an adjustment to
yield using the effective interest method. Dividend and interest income are
recognized when earned.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets ranging from
5 to 7 years for transmission equipment, vehicles and furniture and office
equipment to 39 years for buildings and leasehold improvements over the lesser
of the useful life or the term of the lease.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value, less costs to
sell.

INTANGIBLE ASSETS

Intangible assets include the portion of the purchase price allocable to FCC
broadcast licenses, which are amortized on a straight-line method over
40 years. Covenants not to compete, signed as part of station acquisition
agreements, are amortized over the period of the agreements, generally three
years. Goodwill resulting from the acquisition of the Hispanic Internet
Holdings, Inc. and United Publishers of Florida, Inc. are amortized over five
years.

It is the Company's policy to account for intangible assets at the lower of
amortized cost or fair market value. As part of an ongoing review of the
valuation and amortization of intangible assets, management assesses the
carrying value of the Company's intangible assets if facts and circumstances
suggest that they are impaired. If this review indicates that the intangibles
will not be recoverable as determined by a non-discounted cash flow analysis
over the remaining amortization period, the carrying value of the Company's
intangibles will be reduced to their estimated fair market value. The Company
has determined that intangibles are not impaired at December 31, 2001.

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as

45

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
well as all purchase method business combinations completed after June 30, 2001.
SFAS 141 also specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. SFAS 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 will also require that intangible assets with
definite useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and reviewed for impairment in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.

The Company is required to adopt the provisions of SFAS 141 immediately,
except with regard to business combinations initiated prior to July 1, 2001, and
SFAS 142 effective January 1, 2002. Furthermore, any goodwill and any intangible
asset determined to have an indefinite useful life that are acquired in a
purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of SFAS 142.

DEFERRED FINANCING FEES

Deferred finance costs and loan origination fees are amortized over the
period of the relevant facility.

REVENUE RECOGNITION

Broadcasting revenue is recognized when commercials are aired. Net revenues
represent gross revenues, less direct fees and commissions paid to independent
advertising agencies.

INCOME TAXES

Income taxes are accounted for 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.

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
disclosures 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.

46

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:

The carrying amounts reported in the balance sheets for cash, current
receivables, accounts payable and accrued expenses approximate fair value.

The carrying value of Senior Discount Notes are $170.3 million and
$174.0 million at December 31, 2000 and 2001, respectively The fair values of
Senior Discount Notes are $60.9 million and $88.7 million at December 31, 2000
and 2001, respectively. Fair values of Senior Discount Notes are based on market
prices.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of accounts receivable. The Company believes
that concentration of credit risk with respect to accounts receivable, which are
unsecured, are limited due to the Company's ongoing relationship with its
clients. The Company estimates uncollectible accounts on a periodic basis. The
Company has not experienced significant losses relating to accounts receivable.
For periods ended December 31, 1999, 2000 and 2001, no customer accounted for
more than 10% of revenues.

BARTER TRANSACTIONS

The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and a
liability are recorded at the fair market value of the goods or services
received. Barter revenue is recorded and the liability is relieved when the
commercials are broadcast, and barter expense is recorded and the assets are
relieved when the goods or services are received or used.

ADVERTISING

The Company charges advertising costs, as incurred, to expense. Advertising
costs amounted to $1,326,000, $1,703,000 and $675,000 for the years ended
December 31, 1999, 2000 and 2001, respectively.

LOSS PER SHARE

The Company calculates loss per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". Under SFAS
No. 128 basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from
securities that could share in the earnings of the Company. In calculating
diluted EPS, no potential shares of common stock are to be included in the
computation when a loss from continuing operations available to common
stockholders exists. The statement requires dual presentation of basic and
diluted EPS by entities with complex capital structures. Stock options issued
under the Company's 1999, 2000 and 2001 Incentive Stock Plan amounting to
2,193,300, 1,964,100 and 1,870,250 at December 31, 1999,

47

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2000 and 2001, respectively, were not included in the computation of diluted EPS
because to do so would have been antidilutive.

ACCOUNTING FOR STOCK OPTIONS

On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and disclosure for employee stock option grants
made in 1995, 1996 and future years as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.

REPORTING COMPREHENSIVE INCOME

In fiscal 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130").
The statement required that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement of
financial position. Accumulated other comprehensive income of the Company
consists solely of net unrealized gains (losses) on available for sale
investments.

ACCOUNTING FOR DERIVATIVES

In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was issued.
SFAS 133 established accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. The accounting for the gain or loss due to changes in
fair value of the derivative instrument depends on whether the derivative
instrument qualifies as a hedge. In June 2000, SFAS 138 was issued which
addresses a limited number of issues causing implementation difficulties for
numerous entities that have applied SFAS 133. SFAS 133 and SFAS 138 are
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS 133 can not be applied retroactively to financial statements of prior
periods. The Company adopted SFAS No. 133 and 138 as of January 1, 2001. The
adoption of SFAS No. 133 and 138 did not have a material impact on the financial
position or results of operations of the Company.

(3) LIQUIDITY AND GOING CONCERN

The Company has incurred substantial net losses since inception primarily
due to the broadcast cash flow deficits of the start up of its radio stations.
In addition, since the majority of its broadcast properties are in stages of
development, either as a result of them awaiting engineering enhancements or
upgrades from pending FCC applications, or as a result of them being recently
reformatted, the Company expects to generate significant net losses for the
foreseeable future. In addition, because of

48

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(3) LIQUIDITY AND GOING CONCERN (CONTINUED)
the Company's substantial indebtedness, a significant portion of the Company's
broadcast cash flow will be required for debt service. These matters raise
substantial doubt about the Company's ability to continue as a going concern. No
adjustments have been made in the accompanying unaudited consolidated financial
statements as a result of this uncertainty.

During April 2001, the Company made a request of its bank lender that the
Company be permitted to draw down on its Revolving Credit Facility. The lender
declined to permit the Company to draw on this Revolving Credit Facility due to
the Company's lack of compliance with a covenant that required that the
Company's consolidated financial statements for the year ended December 31, 2000
be reported on by the Company's independent accountants without a "going concern
or like qualification or exception." As a result of its inability to draw on the
Revolving Credit Facility, the Company issued a promissory note (the "Affiliate
Promissory Note") on May 8, 2001 to borrow up to $5,000,000 from an affiliate of
the Company in order to meet the Company's short-term working capital needs. The
amount outstanding under the Affiliate Promissory Note bore interest equal to
the lower of (i) JP Morgan Chase's prime rate plus 2.00% or (ii) the highest
rate permitted by New York Law, and it was due upon demand. The Company borrowed
$2,235,000 under this Affiliate Promissory Note, and interest expense on the
Affiliate Promissory Note during 2001 was $51,000. All amounts payable under the
Promissory Note were repaid on October 12, 2001 from proceeds available from the
Bridge Loan (see below).

Cash interest commenced accruing on the Company's Senior Discount Notes on
March 15, 2001 and is payable semi-annually commencing September 15, 2001. The
Company failed to make the initial interest payment on September 15, 2001,
however, under the terms of the Senior Discount Notes' Indenture, there is a
grace period of thirty days in which to pay the interest due. On October 12,
2001 the Company obtained the Bridge Loan (see Note 10), and used the proceeds
from borrowing under the Bridge Loan to pay the September 15, 2001 Senior
Discount Note interest and applicable additional interest, and to repay the
indebtedness and accrued interest on the Affiliate Promissory Note to an
affiliate.

On October 31, 2001, the Company completed the sale of its four Phoenix
radio stations to Hispanic Broadcasting Corporation for a cash purchase price of
$34 million. The Company used a portion of the proceeds from this sale to repay
indebtedness under the Bridge Loan and the Affiliate Promissory Note to related
party and will use the remainder to fund ongoing operations. Management believes
the proceeds from the sale of the Phoenix Stations will provide sufficient
capital to satisfy its short-term liquidity. However, because of the Company's
substantial indebtedness, a significant portion of the Company's broadcast cash
flow will be required for debt service. Management believes that its long-term
liquidity can be satisfied through a combination of i) achieving positive
operating results and cash flows through revenue growth and control of operating
expenses and ii) the raising of additional equity and/or the restructuring of
the Notes. It should be noted that there is no guarantee that the Company will
be able to raise additional equity or restructure the Notes.

The Company has the ability to reinvest the proceeds of $34 million from the
sale of the Phoenix Stations in broadcast assets for a period of up to one year
from the date of this asset sale. Thereafter, any proceeds not reinvested after
the repayment of the Bridge Loan (approximately $18 million) must be used to
make an offer to repurchase the Senior Discount Notes. As described above, the
Company used a portion of the proceeds to repay indebtedness under the Bridge
Loan and will use the

49

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(3) LIQUIDITY AND GOING CONCERN (CONTINUED)
remainder to fund ongoing operations. The Company is currently considering all
available options to repay such amounts, if required, to the bondholders. These
matters raise substantial doubt about the Company's ability to continue as a
going concern.

The Company had available approximately $18.2 million of cash and cash
equivalents and marketable securities at December 31, 2001. Cash interest
commenced accruing on the Company's Senior Discount Notes on March 15, 2001 and
is payable semi-annually. The semi-annual interest payment is $9.8 million.

Cash on hand may be insufficient to support the Company's operations
(exclusive of interest payments) through December 31, 2002. In addition, because
of the Company's substantial indebtedness, a significant portion of the
Company's cash on hand will be required for debt service. Cash on hand will be
insufficient to satisfy the Company's debt service requirements for the
foreseeable future. The Company will not be able to make the $9.8 million
interest payment on the Notes that is due on September 15, 2002 unless it is
able to obtain additional debt or equity financing or sell assets. Absent such
financing or sales, the Company will also not be able to consummate the offer to
repurchase Senior Discount Notes that is required to be made in the event that
it does not reinvest the net proceeds from the sale of the Phoenix Stations
(after giving effect to the repayment of the Bridge Loan) in broadcast assets on
or before October 31, 2002. No assurances can be provided that the Company will
be able to obtain any such financing or sell assets on acceptable terms or at
all. In the event that the Company is unable to obtain financing or sell assets
it may need to restructure the Notes. These matters raise substantial doubt
about the Company's ability to continue as a going concern.

The Company will evaluate on a continuing basis its strategic alternatives
and the most efficient use of the Company's capital, including, without
limitation, the sale of the Company's broadcast assets and, depending on market
conditions, debt and/or equity financing and purchasing, restructuring,
recapitalizing, refinancing or otherwise retiring certain of the Company's
securities in the open market or by other means, in each case subject to the
restrictions contained in the Indenture governing the Notes.

(4) ACQUISITIONS AND DISPOSITIONS

On October 31, 2001 the Company sold the assets of radio stations KEDJ-FM,
KDDJ-FM, KBZR-FM, and KSSL-FM to Hispanic Broadcasting Corporation for a sales
price of $34.0 million. A gain of $2.28 million on the sale of the stations was
recognized during the period.

During 2001, the Company ceased the development and operation of its
Internet portal site. The Company wrote-off all Internet-related goodwill. An
impairment loss of $897,000 was recognized during the period.

On November 8, 2000 the Company entered into an asset purchase agreement in
which the Company acquired substantially all of the assets and properties of
United Publishers of Florida, Inc., which owned and operated a Hispanic music
trade magazine, "Disco", a graphic design business and the LatinMusicTrends.com
website. The purchase price for the acquired business was $250,000 excluding
acquisition related expenses and was paid in cash. Under the terms of the
purchase agreement a second installment of up to $250,000 is due at the one year
anniversary of the acquisition,

50

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(4) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
subject to certain operating cash flow targets to be attained by the acquired
business. The fair value of the assets acquired in this transaction is as
follows:

Fixed assets............................................ $ 118,000
Goodwill................................................ 132,000

On April 12, 2000, the Company sold the assets of radio station WLBK-AM,
DeKalb, Illinois for a sale price of $416,000. No gain or loss was recorded on
this transaction.

On November 1, 1999 the Company consummated the acquisition, in an all stock
transaction, all the issued and outstanding stock of Hispanic Internet
Holdings, Inc., a privately held bilingual Online Service Provider for the U.S.
Hispanic and Latin American markets. The transaction was accounted for as a
purchase. The Company issued 400,000 shares of its Class A Common Stock with a
fair market value of $4 per share. Under the terms of the Agreement, an
additional 600,000 shares may be issued, (i) over the next five years contingent
upon the successful achievement of certain annual revenue goals, or (ii) in the
event of a sale or spin-off of the Internet company, prior to the fifth
anniversary of the merger, for a valuation of at least $10 million, or (iii) in
the event of a sale of Big City Radio prior to the fifth anniversary of the
merger at a price of at least $4.00 per share.

On September 28, 1999 the Company completed the acquisition of KSSL-FM
(formerly KMYL-FM), Wickenburg, Arizona. The operations of this station have
been included in the consolidated statements of operations from that date. The
purchase price for this station was $5,600,000 excluding acquisition related
expenses and was paid in cash. The fair value of the assets acquired in this
transaction exclusive of acquisition costs is as follows:

Building................................................ $ 8,000
Fixed assets............................................ 92,000
FCC broadcast license................................... 5,500,000

On September 22, 1999 the Company completed the acquisition of KBZR-FM,
Arizona City, Arizona. The operations of this station have been included in the
consolidated statements of operations from that date. The purchase price for
this station was $3,900,000 excluding acquisition related expenses and was paid
in cash. The fair value of the assets acquired in this transaction exclusive of
acquisition costs is as follows:

Land.................................................... $ 20,000
Fixed assets............................................ 73,000
FCC broadcast license................................... 3,807,000

On July 30, 1999 the Company completed the acquisition of the simulcast
stations, KEDJ-FM, Sun City, Arizona and KDDJ-FM, Globe, Arizona. The operations
of these stations have been included in the consolidated statements of
operations from that date. The purchase price for these stations was $22,000,000
excluding acquisition related expenses and was paid in cash. The fair value of
the assets acquired in this transaction exclusive of acquisition costs is as
follows:

Building................................................ $ 461,000
Fixed assets............................................ 227,000
FCC broadcast license................................... 21,312,000

51

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(4) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On April 30, 1999 the Company signed an acquisition agreement whereby the
assets of radio station KLVA-FM, Casa Grande, Arizona would be exchanged for the
assets of radio station KDDJ-FM, Globe, Arizona, subject to the consummation of
its purchase which occurred on July 30, 1999. Accordingly, in April 1999 the
Company deposited into an escrow account the amount of $275,000 in good faith
consideration. In February 2000, the Company paid the balance in the escrow
account and an additional amount of $275,000, totaling $550,000, to cancel the
signed KLVA-FM acquisition. The decision to abandon the transaction was made in
response to a change in the engineering enhancement plan for our Phoenix radio
licenses.

On March 26, 1999 the Company sold the assets of radio station WRKL-AM, New
City, New York to Polnet Communications, LTD. for a sale price of
$1.625 million. A gain of $663,000 on the sale of the station was recognized
during the period.

On February 25, 1999 the Company completed the acquisition of WDEK-FM and
WLBK-AM, DeKalb, Illinois. The operations of these stations have been included
in the consolidated statements of operations from that date. The purchase price
for these stations was $4,500,000, excluding acquisition related expenses, of
which $450,000 was deposited into an escrow account in April 1998 in
anticipation of this purchase. The fair value of the assets acquired in these
transactions is as follows:

52

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(5) CASH HELD IN INVESTMENT, RESTRICTED

The restricted cash balance collateralizes four letters of credit
outstanding at December 31, 2001. The letters of credit relate to the Chicago,
Phoenix, LA office leases and the LA Stations signal upgrade. According to the
Chicago lease agreement, the Company agreed to deposit the sum of $1,000,000 as
security in the form of an unconditional and irrevocable letter of credit. The
amount of the letter of credit will decrease $200,000 each year over 5 years.
The balance was $400,000 at December 31, 2001. According to the Phoenix lease
agreement, the Company agreed to deposit the sum of $269,000 as security in the
form of an unconditional and irrevocable letter of credit. The amount of the
letter of credit will decrease $51,000 each year over 5 years. The balance was
$177,000 at December 31, 2001. On September 14, 2001, the Company entered into a
Cash Collateral Agreement with JPMorgan Chase. Under the agreement, the Company
agreed to deposit the sum of $759,500 to secure its two existing letters of
credit relate to the LA office leases and the LA Stations signal upgrade.

(6) PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2000 and 2001 were as follows:

(7) INTANGIBLES

Intangibles at December 31, 2000 and 2001 are as follows:

During December 2001, the Company wrote-off $897,000 of goodwill associated
with the internet operations.

53

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(8) SENIOR DISCOUNT NOTES

OFFERING OF SENIOR DISCOUNT NOTES

On March 17, 1998 (the "issue date"), the Company completed the Note
Offering. The $174,000,000 aggregate principal amount at maturity of Notes were
issued at a discount generating gross proceeds to the Company of approximately
$125.4 million. They mature on March 15, 2005. The Notes accreted in value until
March 15, 2001 at a rate of 11.25% per annum, compounded semiannually, to an
aggregate principal amount of $174.0 million. Commencing on March 16, 2001,
interest on the Notes began accruing at a rate of 11.25% per annum and will be
payable semiannually in cash on March 15 and September 15 through March 15,
2005.

The Company may not redeem the Notes prior to March 15, 2002. On or after
such date, the Company may redeem the Notes, in whole or in part, at certain
redemption prices together with accrued and unpaid interest, if any, to the date
of redemption. The Notes are not subject to any sinking fund requirement. Upon a
Change of Control (as such term is defined in the Notes), each holder of Notes
has the right to require the Company to make an offer to purchase the Notes at a
price equal to the principal amount of such Notes thereafter, together with
accrued and unpaid interest, if any, to the date of the purchase.

The Notes are unsecured, senior obligations of the Company and rank PARI
PASSU in right of payment to all existing and future senior indebtedness of the
Company and senior to all existing and future subordinated indebtedness of the
Company. The Notes are guaranteed on a senior unsecured basis by each of the
Company's subsidiaries. The indenture does not restrict the ability of the
Company or its subsidiaries to create, acquire or capitalize subsidiaries in the
future. The Notes will be effectively subordinated to all existing and future
indebtedness of the Company's subsidiaries. Approximately $4.6 million of costs
associated with the issuance of the Notes, including the underwriters fees and
related professional fees are included in deferred financing fees and will be
amortized over the term of the Notes.

Simultaneously with the consummation of the Notes, the Company entered into
the Revolving Credit Facility providing for up to $15 million of availability,
subject to certain available borrowing calculations. The Revolving Credit
Facility was due to mature on the fifth anniversary of the issue date, and
amounts outstanding under the Revolving Credit Facility bore interest at an
applicable margin plus, at the Company's option, Chase's prime rate (in which
case the applicable margin was 2.00% subject to reduction upon obtaining
performance criteria based on the Company's leverage ratio) or the London
Inter-Bank Borrowing Rate (in which case the applicable margin was 3.00% subject
to reduction upon obtaining performance criteria based on the Company's leverage
ratio). The Company's obligations under the Revolving Credit Facility were
secured by a pledge of substantially all of the Company and its subsidiaries'
assets. The Company paid fees of .5% per annum, on the aggregate unused portion
of the facility.

The Revolving Credit Facility contained certain financial and operational
covenants and other restrictions with which the Company must comply, including,
among others, limitations on capital expenditures, limitations on the incurrence
of additional indebtedness, restrictions on sale of assets, restrictions on the
use of borrowings, limitations on paying cash dividends and redeeming or
repurchasing capital stock of the Company or the Notes, and requirements to
maintain certain financial ratios, maximum total leverage, minimum interest
coverage and minimum fixed charge coverage. As of

54

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(8) SENIOR DISCOUNT NOTES (CONTINUED)
December 31, 2000 no amounts were drawn down on the Revolving Credit Facility.
However, a $259,000 letter of credit related to the Century City office lease
and a $500,000 letter of credit related to the LA Stations power signal project
were issued under the Revolving Credit Facility.

The Revolving Credit Facility contained customary events of default,
including material misrepresentations, payment defaults and default in the
performance of other covenants, certain bankruptcy and ERISA defaults, judgment
and cross defaults and revocation of any of the Company's broadcast licenses.
The Revolving Credit Facility also provided that an event of default would occur
upon the occurrence of a "change of control." For purposes of the Revolving
Credit Facility, a change of control would occur when (i) any person or group
other than the Principal Stockholders and their affiliates obtained the power to
elect a majority of the Board of Directors, (ii) the Company failed to own 100%
of the capital stock of its subsidiaries owning any of the FCC broadcast
licenses or (iii) the Board of Directors did not consist of a majority of
continuing directors. On October 12, 2001, the Revolving Credit Facility was
assigned and the Bridge Loan obtained (see Note 10).

SUBSIDIARY GUARANTORS

Pursuant to the terms of the indenture relating to the Notes (the
"Indenture"), the direct subsidiaries of Big City Radio, Inc.-consisting of
Odyssey Traveling Billboards, Inc., Big City Radio-NYC, L.L.C., Big City
Radio-LA, L.L.C., Big City Radio-CHI, L.L.C., and Big City Radio-Phoenix, L.L.C.
(collectively, the Subsidiary Guarantors) have, jointly and severally, fully and
unconditionally guaranteed the obligations of Big City Radio, Inc. with respect
to the Notes.

All of the then existing Subsidiary Guarantors except Odyssey Traveling
Billboards, Inc. (the "Station Subsidiaries"), were created in December 1997 as
special purpose Delaware limited liability companies formed at the request of
the lenders under the Credit Facility for the sole purpose of facilitating the
Credit Facility by holding the Company's Federal Communications Commission
("FCC") radio licenses. The operating agreements for the Station subsidiaries
limit the activities of these companies to holding the FCC radio licenses.
Odyssey Traveling Billboards, Inc. ("Odyssey") owns and operates certain
vehicles used to advertise for the Company's radio stations. Because the Station
Subsidiaries have entered into assignment and use agreements with the Company
whereby the Company manages and directs the day-to-day operations of the radio
stations, pays all expenses and capital costs incurred in operating the radio
stations, and retains all advertising and other receipts collected in operating
the radio stations, the Station Subsidiaries have no income or expenses other
than the amortization of the FCC licenses. Odyssey is similarly a special
purpose corporation with no income and only expenses.

The covenants in the Notes and the Indenture do not restrict the ability of
the Station Subsidiaries to make cash distributions to the Company.

Set forth below is certain condensed consolidating financial information for
the parent company of Big City Radio, Inc. and its Subsidiary Guarantors, as of
December 31, 2000 and 2001, and for the years ended December 31, 2000 and 2001.

55

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(8) SENIOR DISCOUNT NOTES (CONTINUED)
CONSOLIDATING BALANCE SHEET FOR THE YEAR ENDED DECEMBER 31, 2000

56

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(8) SENIOR DISCOUNT NOTES (CONTINUED)
CONSOLIDATING BALANCE SHEET FOR THE YEAR ENDED DECEMBER 31, 2001

57

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000

58

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001

59

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000

60

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001

The condensed consolidating financial information has been prepared from the
books and records maintained by the Subsidiary Guarantors and the Company. This
summarized financial information may not necessarily be indicative of the
results of operations or financial position had the Subsidiary Guarantors
operated as independent entities.

61

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(9) PROMISSORY NOTE

During April 2001, the Company made a request of its bank lender that the
Company be permitted to draw down on its Revolving Credit Facility. The lender
declined to permit the Company to draw on the Revolving Credit Facility due to
the Company's lack of compliance with a covenant that required that the
Company's consolidated financial statements for the year ended December 31, 2000
be reported on by the Company's independent accountants without a "going concern
or like qualification or exception." As a result of its inability to draw on the
Revolving Credit Facility, the Company issued a promissory note (the "Affiliate
Promissory Note") on May 8, 2001 to borrow up to $5,000,000 from an affiliate of
the Company in order to meet the Company's short-term capital needs. The amount
outstanding under the Affiliate Promissory Note bore interest equal to the lower
of (i) JPMorgan Chase's prime rate plus 2.0% or (ii) the highest rate permitted
by New York Law, and it was due upon demand. The Company borrowed $2,235,000
under the Affiliate Promissory Note, and interest expense on the Affiliate
Promissory Note during 2001 was $51,000. All amounts payable under the Affiliate
Promissory Note were repaid on October 12, 2001 (see Note 3).

(10) BRIDGE LOAN

On October 12, 2001, the Company obtained a new term loan facility (the
"Bridge Loan") in the amount of $15,000,000. The Bridge Loan was obtained by the
assignment of the Company's Revolving Credit Facility (the "Existing Credit
Facility") from the Company's existing bank lender to a new lender. The Bridge
Loan, which was repaid on October 31, 2001, bore interest at the rate of LIBOR
plus 3%, or a Base Rate plus 2% at the option of the Company. Net proceeds of
the Bridge Loan were used to pay the semi-annual interest on its Senior Discount
Notes, and to repay indebtedness under the Affiliate Promissory Note (see
discussion of liquidity and going concern in Note 3).

On October 31, 2001, the Company completed the sale of its four Phoenix
radio station properties, KEDJ-FM, KDDJ-FM, KBZR-FM and KSSL-FM, to Hispanic
Broadcasting Corporation for an aggregate cash purchase price of $34,000,000.
Proceeds from this sale were used to repay indebtedness under the Bridge Loan.
For the year ended December 31, 2001, the Company paid interest and loan fees of
$76,000 and $1,300,000, respectively.

(11) IMPAIRMENT LOSS ON GOODWILL

The Company intents to utilize all its resources to build a major broadcast
group. During 2001, the Company ceased the development and operation of its
bilingual Internet portal, TodoAhora.com. The decision was made based upon
management's evaluation of future revenue generation potential and the current
resources needed to continue the portal's development and operation. The Company
will now focus on its remaining publishing operations. The impairment loss on
Internet goodwill was $897,000 for the year ended December 31, 2001.

62

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(12) COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases studio and office space, transmitter tower sites and
office equipment under operating leases. Future minimum rental commitments for
the remainder of the operating leases are as follows:

2002........................................................ $2,424,000
2003........................................................ 1,557,000
2004........................................................ 762,000
2005........................................................ 303,000
2006........................................................ 81,000
Thereafter.................................................. 39,000
----------
$5,166,000
==========

Rent expense for the years ended December 31, 1999, 2000 and 2001 was
approximately $1,382,000, $1,960,000 and $2,267,000 respectively.

EMPLOYMENT CONTRACTS

The Company has entered into various employment contracts with 11
individuals comprised of mainly officers and senior management that provide for
minimum salaries and incentives based upon specified levels of performance. The
minimum payments under these contracts are as follows:

2002........................................................ $1,534,000
2003........................................................ 150,000
----------
$1,684,000
==========

CONTINGENT LIABILITIES

The Company has certain contingent liabilities resulting from litigation and
claims incident to the ordinary course of business. Management believes that the
probable resolution of such contingencies will not materially affect the
financial position, results of operations, or liquidity of the Company.

(13) SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS

The Company acquired vehicles during the years ended December 31, 1999, 2000
and 2001 through issuance of notes payable amounting to $0, $50,000, and $78,000
respectively.

Barter transactions resulted in sales of $841,000, $1,107,000 and $1,046,000
and related expenses of $947,000, $1,061,000 and $910,000 for the years ended
December 31, 1999, 2000 and 2001, respectively.

Cash paid for interest during the years ended December 31, 1999, 2000 and
2001 amounted to $137,000, $40,000, and $17,183,000, respectively.

63

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(14) INCOME TAXES

Income tax expense for the year ended December 31, 1999, 2000 and 2001 is
comprised of the following:

The provision for income taxes differs from the amount computed by applying
the statutory Federal income tax rate in 1999, 2000 and 2001 due to the
following:

64

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

The components of deferred taxes at December 31, 1999, 2000 and 2001 are as
follows:

The Company has approximately $57,000,000 of net operating loss
carryforwards ("NOLs") for Federal income tax purposes. These NOLs begin to
expire in 2017.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. At December 31, 2001, based on projections for future taxable income
over the periods in which the level of deferred tax assets are deductible,
management believes that it is unlikely that the Company will realize the
benefits of all these deductible differences. Accordingly, a valuation allowance
of $40,373,000 has been provided for the deferred tax assets for the year ended
December 31, 2001.

(15) CAPITAL STOCK AND RELATED TRANSACTIONS

DESCRIPTION OF CAPITAL STOCK--The authorized capital stock of the Company
consists of 120,000,000 shares of capital stock, par value $.01 per share, of
which 80,000,000 shares are designated as Class A Common Stock and 20,000,000
shares are designated as Class B Common Stock. At December 31, 2001, 6,226,817
shares of Class A Common Stock were issued and outstanding and 8,250,458 shares
of Class B Common Stock were issued and outstanding. In addition, 8,250,458
shares of Class A Common Stock are reserved for issuance upon conversion of the
Class B Common Stock. Immediately prior to the consummation of the Initial
Public Offering, there was one holder of Class A Common Stock and two holders of
Class B Common Stock.

65

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(15) CAPITAL STOCK AND RELATED TRANSACTIONS (CONTINUED)
The shares of Class A Common Stock and Class B Common Stock are identical in
all respects, except for voting rights and certain conversion rights and
transfer restrictions in respect to the shares of the Class B Common Stock.

The holders of Class A Common Stock are entitled to one vote per share.
Holders of Class B Common Stock are entitled to ten votes per share. Holders of
all classes of Common Stock vote together as a single class on all matters
presented to the stockholders for their vote or approval except for the election
and removal of directors as described below and as otherwise required by
applicable law. With respect to the election of directors, the Company's Amended
and Restated Certificate of Incorporation provides that holders of Class B
Common Stock vote as a separate class to elect up to 75% of the members of the
Company's Board of Directors. Stockholders have no cumulative voting rights.

(16) STOCK OPTION PLANS

Under the Company's 1997, 1998 and 1999 Incentive Stock Plan (the "Incentive
Stock Plan"), as amended in November 1999, 700,000, 311,500 and 2,500,000
shares, respectively of the Company's Class A Common Stock are reserved for
issuance. The types of awards that may be granted pursuant to the Incentive
Stock Plan include (i) incentive stock options ("ISOs") and (ii) nonqualified
stock options ("NQSOs" and together with ISOs, "Stock Options" and "Awards").
Stock Option grants will consist of the maximum number of ISOs that may be
granted to a particular grantee under applicable law with the balance of the
Stock Options being NQSOs. Incentive stock options granted under both Plans are
exercisable for a period of up to ten years. The following is a summary of the
material features of the Incentive Stock Plan.

Subject to certain exceptions set forth in the 1997 Incentive Stock Plan, up
to 700,000 shares of the Class A Common Stock may be the subject of Awards under
the 1997 Incentive Stock Plan. Up to 100,000 shares of Class A Common Stock are
available with respect to Awards granted to any one grantee. Shares of Class A
Common Stock granted under the 1997 Incentive Stock Plan may either be
authorized but unissued shares of Class A Common Stock not reserved for any
other purpose or shares of Class A Common Stock held in or acquired for the
treasury of the Company.

On January 16, 1998, the Company granted options to purchase an aggregate of
2,500 shares of Class A Common Stock to a certain director of the Company, at an
exercise price of $7.125 per share. On April 8, 1998, the Board of Directors
approved the Big City Radio, Inc. 1998 Incentive Stock Plan (the "1998 Incentive
Stock Plan"). Subject to certain adjustments set forth in the 1998 Incentive
Stock Plan, up to 300,000 shares of the Class A Common Stock may be the subject
of Awards under the 1998 Incentive Stock Plan. Up to 100,000 shares of Class A
Common Stock are available with respect to Awards granted to any one grantee.
Shares of Class A Common Stock subject to Awards granted under the 1998
Incentive Stock Plan may either be authorized but unissued shares of Class A
Common Stock not reserved for any other purpose or shares of Class A Common
Stock held in or acquired for the treasury of the Company.

Shares of Class A Common Stock subject to an Award which terminates
unexercised may again be subject to an Award under the 1998 Incentive Stock
Plan. In addition, shares of Class A Common

66

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(16) STOCK OPTION PLANS (CONTINUED)
Stock surrendered to the Company in payment of the exercise price of applicable
taxes upon exercise of an Award may also be used thereafter for additional
Awards.

On July 6, 1998, the Board of Directors granted stock options to purchase an
aggregate of 311,500 shares of Class A Common Stock under the 1998 Incentive
Stock Plan to certain employees and officers of the Company, at an exercise
price of the then market value of $7.8125 per share. On July 22, 1998, the
Company granted stock options to purchase an aggregate of 33,000 shares of
Class A Common Stock to certain employees of the Company at an exercise price of
$7.8125 per share. On November 30, 1998, the Board of Directors granted stock
options to purchase an aggregate of 47,500 shares of Class A Common Stock under
the 1998 Incentive Stock Plan to certain employees of the Company, at an
exercise price of the then market value of $4.375 per share. The majority of
these awards vest over a four-year period, with the first 20% vesting
immediately at the date of the grant and the remainder vesting 20% per annum,
thereafter.

On January 28, 1999, the Board of Directors granted stock options to
purchase an aggregate of 75,000 shares of Class A Common Stock under the 1999
Incentive Stock Plan to certain employees and officers of the Company, at an
exercise price of the then market value of $3.4375 per share. On March 11, 1999,
the Company granted stock options to purchase an aggregate of 25,000 shares of
Class A Common Stock to certain employees of the Company at an exercise price of
$4.313 per share. On July 19, 1999, the Board of Directors granted stock options
to purchase an aggregate of 6,500 shares of Class A Common Stock under the 1999
Incentive Stock Plan to certain employees of the Company, at an exercise price
of the then market value of $3.625 per share. On August 20, 1999, the Board of
Directors granted stock options to purchase an aggregate of 10,000 shares of
Class A Common Stock under the 1999 Incentive Stock Plan to certain employees
and officers of the Company, at an exercise price of the then market value of
$4.0625 per share. On October 20, 1999, the Board of Directors granted stock
options to purchase an aggregate of 151,000 shares of Class A Common Stock under
the 1999 Incentive Stock Plan to certain employees and officers of the Company,
at an exercise price of the then market value of $3.4375 per share. The majority
of these awards vest over a four-year period, with the first 20% vesting
immediately at the date of the grant and the remainder vesting 20% per annum,
thereafter. At November 1, 1999, there were only 222,500 shares of common stock
available for the grant of options under its 1999 Incentive Stock Plan. After
examining the overall employee compensation, the Board of Directors concluded
that additional shares of common stock be made available for the grant of
options under the plan. Accordingly, the Board approved an amendment to the 1999
Incentive Stock Plan to increase the total number of shares of common stock that
may be issued pursuant to options granted under the plan to 2,500,000 and to
increase the aggregate number of shares of Class A Common Stock that may be
issued to any one optionee under the plan from 100,000 to 1,000,000.

On November 1, 1999, the Board of Directors granted stock options to
purchase an aggregate of 770,000 shares of Class A Common Stock under the
amended 1999 Incentive Stock Plan to certain employees and officers of the
Company and certain other directors and advisors of the Company, at an exercise
price of the then market value of $3.5625 per share. Also on November 1, 1999,
the Board of Directors granted stock options to purchase an aggregate of 250,000
shares of Class A Common Stock under the amended 1999 Incentive Stock Plan to
the new Chief Executive Officer of the Company, at an exercise price of $4.00
per share. On November 22, 1999, the Board of Directors granted stock

67

BIG CITY RADIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000 AND 2001

(16) STOCK OPTION PLANS (CONTINUED)
options to purchase an aggregate of 25,000 shares of Class A Common Stock under
the amended 1999 Incentive Stock Plan to a key employee of the Company, at an
exercise price of $5 per share. The majority of these awards vest over a
four-year period, with the first 20% vesting immediately at the date of the
grant and the remainder vesting 20% per annum, thereafter.

On September 6, 2000, the Board of Directors granted stock options to
purchase an aggregate of 25,000 shares of Class A Common Stock under the amended
1999 Incentive Stock Plan to a key employee of the Company, at an exercise price
of the then market value of $4.00 per share. On October 19, 2000, the Board of
Directors granted stock options to purchase an aggregate of 20,000 shares of
Class A Common Stock under the amended 1999 Incentive Stock Plan to a key
employee of the Company, at an exercise price of the then market value of $3.375
per share. On November 20, 2000, the Board of Directors granted stock options to
purchase an aggregate of 100,000 shares of Class A Common Stock under the
amended 1999 Incentive Stock Plan to certain employees of the Company, at an
exercise price of the then market value of $2.875 per share. The majority of
these awards vest over a four-year period, with the first 20% vesting
immediately at the date of the grant and the remainder vesting 20% per annum,
thereafter.

On February 15, 2001, the Board of Directors granted stock options to
purchase an aggregate of 15,000 shares of Class A Common Stock under the amended
1999 Incentive Stock Plan to certain employees of the Company, at an exercise
price of the then market value of $4.50 per share. On July 17, 2001, the Board
of Directors granted stock options to purchase an aggregate of 65,000 shares of
Class A Common Stock under the amended 1999 Incentive Stock Plan to certain
employees of the Company, at an exercise price of the then market value of $3.15
per share. The majority of these awards vest over a four-year period, with the
first 20% vesting immediately at the date of the grant and the remainder vesting
20% per annum, thereafter

Summary information pertaining to the plan for the year ended December 31,
2001 is as follow:

68

At December 31, 2001, the weighted average remaining contractual life of all
outstanding options was 7.43 years.

The following table summarizes information concerning currently outstanding
and exercisable stock options as of December 31, 2001:

Summary information pertaining to the plan for the year ended December 31,
2000 is as follows:

At December 31, 2000, the weighted average remaining contractual life of all
outstanding options was 8.34 years.

Summary information pertaining to the plan for the year ended December 31,
1999 is as follows:

At December 31, 1999, the weighted average remaining contractual life of all
outstanding options was 9.14 years.

The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Option No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. On January 1, 1996, the

69

Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 in
accounting for its Plan, and accordingly, no compensation cost has been
recognized for its stock options granted at fair market value in the
consolidated financial statements. Compensation cost will be recorded for
options granted below fair market value.

In 1999, 2000 and 2001, had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net loss would have been increased to the pro forma amounts
indicated below:

At December 31, 1999, 2000, and 2001 the per share weighted average fair
value of stock options granted was $2.41, $1.99 and $2.14, respectively, on the
date of grant using the modified Black-Scholes option-pricing model with the
following weighted average assumptions: expected dividend yield of 0%, risk-free
interest rate of 5.85%, expected volatility of 50% and an expected life of
10 years for options granted in 1999; expected dividend yield of 0%, risk-free
interest rate of 4.93%, expected volatility of 50% and an expected life of
10 years for options granted in 2000; expected dividend yield of 0%, risk-free
interest rate of 5.0%, expected volatility of 95% and an expected life of
10 years for options granted in February 2001; expected dividend yield of 0%,
risk-free interest rate of 3.25%, expected volatility of 105% and an expected
life of 10 years for options granted in July 2001.

70

(17) UNAUDITED QUARTERLY RESULTS

The following tables contain selected unaudited consolidated statement of
operations for each quarter of fiscal years 2001 and 2000.

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

Not Applicable.

71

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement prepared with respect to the Annual Meeting
of Stockholders to be held on June 5, 2002.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement prepared with respect to the Annual Meeting
of Stockholders to be held on June 5, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement prepared with respect to the Annual Meeting
of Stockholders to be held on June 5, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement prepared with respect to the Annual Meeting
of Stockholders to be held on June 5, 2002.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statement, Financial Statement Schedules and Exhibits

1. FINANCIAL STATEMENTS

2. FINANCIAL STATEMENT SCHEDULES

Schedule II--Valuation and Qualifying Accounts

72

3. EXHIBITS

All Exhibits listed below are filed with this Annual Report on Form 10-K
unless specifically stated to be incorporated by reference to other documents
previously filed with the Securities and Exchange Commission.

73

3. EXHIBITS (CONTINUED)

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

(b) Reports on Form 8-K:

The registrant filed a Current Report on Form 8-K on November 15, 2001,
reporting the sale of Phoenix station properties. The Report included the pro
forma financial information of the business sold.

As of the date of the filing of this Annual Report on Form 10-K no proxy
materials have been furnished to security holders. Copies of all proxy materials
will be sent to the Commission in compliance with its rules.

74

SIGNATURES

Pursuant to the requirements of Section 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, in East Rutherford,
New Jersey, on this 30th day of March, 2000.

BIG CITY RADIO, INC.

By: /s/ PAUL THOMSON
-----------------------------------------
Name: Paul Thomson
Title: Vice President, Chief Financial
Officer and Treasurer

We, the undersigned officers and directors of Big City Radio, Inc., hereby
severally constitute David A. Persing, Silvia Kessel, Paul R. Thomson and
Charles M. Fernandez, and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, any and all reports (including any
amendments thereto), with all exhibits thereto and any and all documents in
connection therewith, and generally do all such things in our name and on our
behalf in such capacities to enable Big City Radio, Inc. to comply with the
applicable provisions of the Securities Exchange Act of 1934, as amended, and
all requirements of the Securities Exchange Commission, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys, or either of
them, to any and all such reports (including any amendments thereto) and other
documents in connection therewith.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.

76

SCHEDULE II
BIG CITY RADIO, INC.
VALUATION AND QUALIFYING ACCOUNTS

77

EXHIBIT INDEX