10-Q/A 1 a2057297z10-qa.txt 10-Q/A -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q/A (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 001-13715 ------------------------ BIG CITY RADIO, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3790661 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number)
11 SKYLINE DRIVE, HAWTHORNE, NEW YORK 10532 (Address and zip code of principal executive offices) (914) 592-1071 (Registrant's telephone number, including area code) ------------------------ 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 / / The number of shares of the registrant's Class A common stock and Class B common stock outstanding as of July 19, 2001 was 6,226,817 and 8,250,458, respectively. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BIG CITY RADIO, INC. PART 1--FINANCIAL INFORMATION
PAGE ---- Item 1. Financial Statements Consolidated Balance Sheets................................. 3 Consolidated Statement of Operations........................ 4 Consolidated Statement of Stockholders' Equity (Deficiency)................................................ 5 Consolidated Statement of Cash Flows........................ 6 Notes to Consolidated Financial Statements.................. 7-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13-20
PART II--OTHER INFORMATION Item 1. Legal Proceedings........................................... 21 Item 2. Changes in Securities and Use of Proceeds................... 21 Item 3. Defaults Upon Senior Securities............................. 21 Item 4. Submission of Matters to a Vote of Security Holders......... 21 Item 5. Other Information........................................... 21 Item 6. Exhibits and Reports on Form 8-K............................ 21 Signatures.............................................................. 22
2 PART 1--FINANCIAL INFORMATION ITEM. 1 FINANCIAL STATEMENTS BIG CITY RADIO, INC. CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2001 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 549,000 $ 862,000 Cash held in investment, restricted....................... 801,000 802,000 Marketable securities, available for sale................. -- 1,895,000 Accounts receivable, net of allowance of $288,000 and $338,000 in 2001 and 2000, respectively................. 4,490,000 4,716,000 Interest receivable....................................... 4,000 38,000 Prepaid expenses and other current assets................. 705,000 981,000 ------------ ------------ Total current assets.................................... 6,549,000 9,294,000 Property and equipment, net................................. 6,502,000 7,148,000 Intangibles, net............................................ 108,832,000 110,476,000 Deferred financing fees..................................... 2,420,000 2,747,000 Other assets................................................ 207,000 181,000 ------------ ------------ Total assets............................................ $124,510,000 $129,846,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable.......................................... $ 2,437,000 $ 1,337,000 Accrued expenses.......................................... 1,609,000 2,138,000 Interest payable.......................................... 5,801,000 -- Promissory note to related party.......................... 985,000 -- Other current liabilities................................. 42,000 36,000 ------------ ------------ Total current liabilities............................... 10,874,000 3,511,000 ============ ============ Senior Discount Notes....................................... 174,000,000 170,296,000 Other long term liabilities................................. 750,000 621,000 Deferred income tax liabilities............................. 2,316,000 2,347,000 Stockholders' Equity: Preferred stock, $.01 par value. Authorized 20,000,000 shares; zero shares issued and outstanding in 2001 and 2000.................................................... -- -- Common stock, Class A, $.01 par value. Authorized 80,000,000 shares; issued and outstanding 6,226,817 shares and 6,218,817 shares in 2001 and 2000, respectively............................................ 62,000 62,000 Common stock, Class B, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 8,250,458 shares in 2001 and 2000................................. 83,000 83,000 Additional paid-in capital................................ 29,492,000 29,492,000 Other comprehensive loss.................................. -- (9,000) Accumulated deficit....................................... (93,067,000) (76,557,000) ------------ ------------ Net stockholders' equity (deficiency)..................... (63,430,000) (46,929,000) ------------ ------------ Total liabilities and stockholders' equity (deficiency).......................................... $124,510,000 $129,846,000 ============ ============
See accompanying notes to consolidated financial statements 3 BIG CITY RADIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- --------------------------- 2001 2000 2001 2000 ----------- ----------- ------------ ------------ Gross revenues........................... $ 6,506,000 $ 7,718,000 $ 11,167,000 $ 12,977,000 Less: commissions and fees............. 675,000 903,000 1,112,000 1,515,000 ----------- ----------- ------------ ------------ Net revenues......................... 5,831,000 6,815,000 10,055,000 11,462,000 Operating expenses: Station operating expenses, excluding depreciation and amortization........ 5,957,000 6,966,000 11,621,000 13,076,000 Internet and publishing expenses, excluding depreciation and amortization......................... 393,000 390,000 873,000 621,000 Corporate, general and administrative expenses............................. 889,000 1,107,000 1,734,000 1,974,000 Cost of abandonment of station acquisition agreement................ -- -- -- 550,000 Depreciation and amortization.......... 1,263,000 1,214,000 2,520,000 2,426,000 ----------- ----------- ------------ ------------ Total operating expenses............. 8,502,000 9,677,000 16,748,000 18,647,000 ----------- ----------- ------------ ------------ Operating loss..................... (2,671,000) (2,862,000) (6,693,000) (7,185,000) Other income (expenses): Interest income........................ 12,000 84,000 34,000 182,000 Interest expense....................... (5,055,000) (4,547,000) (9,836,000) (8,916,000) Other, net............................. (16,000) (37,000) (47,000) (98,000) ----------- ----------- ------------ ------------ Total other expenses................. (5,059,000) (4,500,000) (9,849,000) (8,832,000) Loss before income taxes................. (7,730,000) (7,362,000) (16,542,000) (16,017,000) Income tax benefit, net.................. 15,000 31,000 32,000 31,000 ----------- ----------- ------------ ------------ Net Loss............................... $(7,715,000) $(7,331,000) $(16,510,000) $(15,986,000) =========== =========== ============ ============ Basic and diluted loss per share: Net loss............................... $ (0.53) $ (0.51) $ (1.14) $ (1.10) =========== =========== ============ ============ Weighted average shares outstanding...... 14,477,275 14,475,016 14,477,275 14,472,145 =========== =========== ============ ============
See accompanying notes to consolidated financial statements 4 BIG CITY RADIO, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
CLASS A AND CLASS B COMMON STOCK ADDITIONAL OTHER --------------------- PAID-IN COMPREHENSIVE ACCUMULATED SHARES AMOUNT CAPITAL LOSS DEFICIT TOTAL ---------- -------- ----------- ------------- ------------ ------------ Balance at December 31, 2000.................... 14,477,275 $145,000 $29,492,000 $(9,000) $(76,557,000) $(46,929,000) Unrealized gain on marketable securities... -- -- -- 9,000 -- 9,000 Net loss.................. -- -- -- -- (16,510,000) (16,510,000) ---------- -------- ----------- ------- ------------ ------------ Balance at June 30, 2001.................... 14,477,275 $145,000 $29,492,000 $ -- $(93,067,000) $(63,430,000) ========== ======== =========== ======= ============ ============
See accompanying notes to consolidated financial statements 5 BIG CITY RADIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000 ------------ ------------ Cash flows from operating activities: Net loss.................................................. $(16,510,000) $(15,986,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 2,520,000 2,426,000 Non cash interest....................................... 4,031,000 8,887,000 Non cash change in other comprehensive loss............. 9,000 -- Deferred income taxes................................... (31,000) (31,000) Loss on sale of fixed assets............................ 2,000 -- Employment stock incentives............................. -- 34,000 Change in operating assets and liabilities, net of acquisitions: (Increase) decrease in assets: Accounts receivable................................. 226,000 326,000 Interest receivable................................. 34,000 505,000 Prepaid expenses and other current assets........... 276,000 (194,000) Other assets........................................ (26,000) (50,000) Increase (decrease) in liabilities: Accounts payable...................................... 1,100,000 (116,000) Accrued expenses...................................... (529,000) (174,000) Interest payable...................................... 5,801,000 -- Other liabilities..................................... 135,000 (35,000) ------------ ------------ Net cash used in operating activities............... (2,962,000) (4,408,000) ------------ ------------ Cash flows from investing activities: Purchase of property and equipment........................ (254,000) (413,000) Sales of marketable securities............................ 1,895,000 3,105,000 Decrease in cash held in restricted investment............ 1,000 613,000 Decrease in cash held in escrow........................... -- 275,000 Cash received for radio stations sold..................... -- 352,000 Cash received for disposal of fixed assets................ 22,000 -- ------------ ------------ Net cash provided by investing activities........... 1,664,000 3,932,000 ------------ ------------ Cash flows from financing activities: Cash received from issuance of promissory note to related party................................................... 985,000 -- Repayment of promissory notes............................. -- (587,000) ------------ ------------ Net cash provided by (used in) financing activities........................................ 985,000 (587,000) ------------ ------------ Change in cash and cash equivalents................. (313,000) (1,063,000) Cash and cash equivalents at beginning of period............ 862,000 2,431,000 ------------ ------------ Cash and cash equivalents at end of period.................. $ 549,000 $ 1,368,000 ============ ============
See accompanying notes to consolidated financial statements 6 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The Company owns and operates radio stations in four of the largest radio markets in the United States. The Company's radio broadcast properties are located 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. The Company owns Hispanic Internet Holdings, Inc. which owns TodoAhora.com, a bilingual Internet portal, which delivered a full range of Internet programming to the Hispanic community including news, entertainment, finance, culture and e-commerce opportunities. During the quarter ended June 30, 2001, the Company merged the operations of TodoAhora.com into the LatinMusicTrends.com internet businesses, which it acquired as part of the purchase of United Publishers of Florida, Inc. ("UPFI") (see below). The merger into LatinMusicTrends.com is part of a plan to re-focus TodoAhora.com on Hispanic entertainment. The Company acquired substantially all of the assets of United Publishers of Florida, Inc. which owned and operated "Disco", a Hispanic music trade magazine, a graphic design business and the LatinMusicTrends.com website. The Company also owns Independent Radio Rep, LLC, an in-house Hispanic National radio advertising agency. 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. 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. The accompanying interim consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company's Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K"). In the opinion of management all adjustments, consisting only of normal recurring adjustments, necessary to present fairly in all material respects the financial position of the Company as of June 30, 2001 and the results of its operations and its cash flows for the three and six months ended June 30, 2001 and 2000 have been included. The results of operations for the interim period are not necessarily indicative of the results which may be realized for the full year. 2. EARNINGS PER SHARE Basic earnings per share excludes all dilutive securities. It is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur if securities to issue common stock were exercised or converted into common stock. In calculating diluted earnings per share, no potential shares of common stock are included in the computation when a loss from continuing operations available to common stockholders exists. For the three and six months ended June 30, 2001 and 2000, the Company had losses from continuing operations. The Company had antidilutive options amounting to 1,921,000 and 1,862,500 at June 30, 2001 and 2000, respectively, which were not included in the computation of diluted EPS. 7 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. RECENT ACCOUNTING DISCLOSURES 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. REVENUE RECOGNITION In December 1999, the staff of the SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which provides guidance in applying generally accepted accounting principles to selected revenue recognition issues. In March 2000 and June 2000, the staff of the SEC amended SAB No. 101 to delay the required implementation date of SAB No. 101 to the fourth quarter of fiscal years beginning after December 15, 1999. The Company has adopted SAB No. 101 as amended. The adoption of SAB No. 101, as amended, has not and is not expected to have a material impact on the Company's financial position or results of operations. BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS In July 2001, the FASB issued Statement No. 141, BUSINESS COMBINATIONS, and Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Statement 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. Statement 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. Statement 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 Statement 142. Statement 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 Statement 141 immediately, except with regard to business combinations initiated prior to July 1, 2001, and Statement 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-Statement 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 Statement 142. 8 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. RECENT ACCOUNTING DISCLOSURES (CONTINUED) Statement 141 will require upon adoption of Statement 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 Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, 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 Statement 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, Statement 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 Statement 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 $1,177,000, unamortized identifiable intangible assets in the amount of $107,655,000, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill and intangible assets was $3,293,000 and $1,644,000 for the year ended December 31, 2000 and the six months ended June 30, 2001, respectively. Because of the extensive effort needed to comply with adopting Statements 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. 4. SENIOR DISCOUNT NOTES OFFERING OF SENIOR DISCOUNT NOTES The Company completed a private placement of $174.0 million aggregate principal amount, at maturity, of 11 1/4% Senior Discount Notes due 2005 (the "Notes") on March 17, 1998 (the "Notes Offering"), generating approximately $125.4 million of gross proceeds for the Company of which the Company used approximately $32.8 million to repay outstanding indebtedness under its previous credit facility. The Company has used the proceeds of the Notes Offering to finance the acquisition costs of radio station properties and the remaining proceeds were used for general working capital purposes. On 9 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. SENIOR DISCOUNT NOTES (CONTINUED) March 15, 2001, the Notes commenced accruing interest at 11 1/4% per annum, which interest is payable in cash, semi-annually, commencing September 15, 2001. The semi-annual payment is $9.8 million. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources"). 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 holding the Company's Federal Communications Commission ("FCC") radio licenses. Big City Radio-Phoenix, L.L.C. was created in December 1998 upon signing the intent to purchase the broadcast radio properties in Phoenix. The operating agreements for the Station Subsidiaries limit the activities of these companies to owning the FCC radio licenses. Odyssey Traveling Billboards, Inc. 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 Travelling Billboards, Inc. is similarly a special purpose corporation with no income and only expenses. The covenants in the Notes, the Indenture and the Revolving Credit Facility (as such term is defined below) do not restrict the ability of the Station Subsidiaries to make cash distributions to the Company. Accordingly, set forth below is certain summarized financial information (within the meaning of Section 1-02(bb) of Regulation S-X) for the Subsidiary Guarantors, as of June 30, 2001 and December 31, 10 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. SENIOR DISCOUNT NOTES (CONTINUED) 2000 and for the three and six months ended June 30, 2001 and 2000 on an "as-if pooling" basis, given the common control relationship of the Company and the Subsidiary Guarantors.
JUNE 20, 2001 DECEMBER 31, 2000 ------------- ----------------- Current assets......................................... -- -- Noncurrent assets...................................... $107,655,000 $109,126,000 Current liabilities.................................... -- -- Noncurrent liabilities................................. -- --
THREE MONTHS ENDED, SIX MONTHS ENDED, JUNE 30, JUNE 30, --------------------- ------------------------- 2001 2000 2001 2000 --------- --------- ----------- ----------- Net Sales............................. -- -- -- -- Costs and expenses.................... -- -- -- -- Depreciation and amortization......... $ 735,000 $ 748,000 $ 1,471,000 $ 1,498,000 Net loss.............................. $(735,000) $(748,000) $(1,471,000) $(1,498,000)
The summarized financial information for the Subsidiary Guarantors has been prepared from the books and records maintained by the Subsidiary Guarantors and the Company. The summarized financial information may not necessarily be indicative of the results of operations or financial position had the Subsidiary Guarantors operated as independent entities. 5. LIQUIDITY AND GOING CONCERN 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 the early stages of developing, either as a result of them being recent purchases, or as a result of them being recently reformatted, the Company expects to generate significant net losses for the foreseeable future, as it continues to expand its presence in major markets. On March 15, 2001, the Notes commenced accruing interest at 11 1/4% per annum, which interest is payable in cash, semi-annually, commencing September 15, 2001. The semi-annual interest payment is $9.8 million. Cash on hand is not sufficient to support the Company's operations through December 31, 2001 and its growth strategy; nor is it sufficient to fund the $9.8 million interest payment due on the Notes on September 15, 2001. In addition, because of 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. The Company is in the process of seeking a new debt facility to finance its operating and debt service requirements and capital expenditure programs through December 31, 2001. There can be no assurance that any such financing will be available or available on acceptable terms. Management believes that its long-term liquidity can be satisfied through a combination of i) a successful financing transaction to address the operating and debt service requirements and capital expenditure programs through December 31, 2001, ii) achieving positive operating results and cash flows through revenue growth and control of operating expenses and iii) the implementation and execution of its 11 BIG CITY RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. LIQUIDITY AND GOING CONCERN (CONTINUED) growth strategy to acquire and build a major broadcast group. In order to meet its long-term financing needs, the Company is currently considering all means available to it, including the raising of additional equity and the restructuring of the Notes. 6. PROMISSORY NOTE During April 2001, the Company made a request of its bank lender that the Company be permitted to draw down on the Company's Revolving Credit Facility. The lender informed the Company that it would not 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 "Promissory Note") on May 8, 2001 to borrow up to $5,000,000 from an affiliate of the Company (the "Lender") in order to meet the Company's short-term working capital needs. The amount outstanding under the Promissory Note will bear 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 is due upon demand by the Lender. As of June 30, 2001, the amounts outstanding on the Promissory Note is $985,000. Accrued interest expense on the Promissory Note for the three months ended June 30, 2001 was $9,000. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements set forth below under this caption constitute "Forward-Looking Statements" within the meaning of 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"). See "Special Note Regarding Forward-Looking Statements." GENERAL The Company owns and operates radio stations in four of the largest radio markets in the United States. The Company's radio broadcast properties are located 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 the Los Angeles area, the Company owns and operates three FM radio stations, KLYY-FM, KSYY-FM, and KVYY-FM, all trimulcasting on 107.1 FM to form "Viva 107.1" (the "LA Stations"). These stations were acquired in 1996. In the New York area, the Company owns and operates four FM radio stations, WYNY-FM, WWXY-FM, WWZY-FM, and WWYY-FM, all programmed on 107.1 FM to form "New Country Y-107" (the "New York Stations"). New Country Y-107 began broadcasting on December 4, 1996. WWXY-FM and WWZY-FM were operated under Local Marketing Agreements ("LMAs") throughout the periods from December 1996 to April 1, 1997 and June 5, 1997, their effective acquisition dates, respectively, and WWYY-FM was operated under LMA throughout the period from April 27, 1998 to August 13, 1998, its effective acquisition date. WYNY-FM was acquired on January 1, 1995. In the Chicago area, the Company owns five radio stations, WXXY-FM and WYXX-FM, both simulcasting on 103.1 FM as "Viva 103.1" and WKIE-FM, WKIF-FM, and WDEK-FM, trimulcasting as Energy92 (Viva 103.1 and Energy92 are collectively referred to herein as, the "Chicago Stations"). Viva 103.1 stations were acquired on August 8, 1997. The Company operated WXXY-FM as a stand-alone, brokered-programming FM station and leased WYXX-FM to the previous owner under a LMA agreement until the Company commenced operation of this simulcast in early February 1998. The 103.1 simulcast began broadcasting its current Hispanic contemporary hit radio format of "Viva 103.1" in January 2001. WKIE-FM and WKIF-FM were acquired on August 4 and 7, 1998, respectively. On February 25, 1999 the Company acquired WDEK-FM and added it to the Energy92 stations to form a trimulcast. These stations commenced operations as Energy92, a contemporary dance hit radio format in January 2001. In the Phoenix area, the Company owns four radio stations, KEDJ-FM on 106.3 FM, KDDJ-FM on 100.3 FM, and KBZR-FM on 106.5, all trimulcasting the modern rock format known as "The Edge" with the Howard Stern morning show. KEDJ-FM and KDDJ-FM were acquired on July 30, 1999. On September 22, 1999 the Company acquired KBZR-FM and added it to "The Edge" stations to form a trimulcast. On September 28, 1999, the Company acquired KSSL-FM. In February 2000, the Company began operating KSSL-FM as a stand-alone radio station broadcasting its Hispanic contemporary hit radio format of "Que Buena". In April 2001, the company renamed the station, "Viva 105.3" ("The Edge" stations and "Viva 105.3" are collectively referred to herein as, the "Phoenix Stations"). Through the merger and registration rights agreement (the "Agreement") in which the Company acquired, on November 1, 1999, 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 owns TodoAhora.com, a bilingual Internet portal, which delivered a full range of world wide web programming to the Hispanic community including news, entertainment, finance, culture, and e-commerce opportunities. During the quarter ended June 30, 2001, the Company merged the 13 operations of TodoAhora.com into the LatinMusicTrends.com internet businesses, which it acquired as part of the purchase of United Publishers of Florida, Inc. ("UPFI") (see below). The merger into LatinMusicTrends.com is part of a plan to re-focus TodoAhora.com on Hispanic entertainment. On November 8, 2000, the Company consummated a transaction in which the Company acquired substantially all of the assets and properties of United Publishers of Florida, Inc., which owned and operated (i) "Disco", a Hispanic music trade magazine, (ii) a graphic design business and (iii) the LatinMusicTrends.com website ((i), (ii), and (iii) are collectively referred to herein as "the acquired businesses"). 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 BACKGROUND 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 internet media and radio broadcasting compared to other advertising media, government regulation and policies and the Company's ability to provide popular programming and high-quality internet content and service. The Company's primary source of revenue is the sale of advertising. Each station's total revenue is determined by the number of advertisements aired by the station and the advertising rates that the station is able to charge. Internet revenues will be derived from the sale of various forms of advertisement, including sponsorships, endorsements and product placements, and from electronic commerce activities related to its programming on pages delivered to users of the Company's Internet channel. Publishing revenues will be derived principally from the sale of advertising announcements. Furthermore, the magazine company derives revenues from contract graphic design projects. Given the fact that the Company's strategy involves developing brand new metropolitan area radio stations and various internet web sites, 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, the Company'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. In each of its markets, the Company seeks to maximize the economic outlook of its broadcast properties by selecting the most competitively viable formats, engaging experienced and talented management, and by optimizing the signal coverages of its transmitting facilities. THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000 NET REVENUES for the three months ended June 30, 2001 were $5,831,000 compared with $6,815,000 for the three months ended June 30, 2000, a decrease of $984,000 or 14.4%. This decrease was due primarily to (i) decreased net revenues at the Chicago Stations compared to the same period in 2000 resulting from their change in formats 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 Edge" in Phoenix compared to the same period in 2000, resulting from a reduced concert schedule in 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 $131,000 publishing revenues for the three months ended June 30, 2001, which business was acquired in November 2000. 14 STATION OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION for the three months ended June 30, 2001 were $5,957,000 compared with $6,966,000 for the three months ended June 30, 2000, a decrease of $1,009,000 or 14.5%. This decrease was due principally to the reduction in operating expenses for the Chicago Stations, and reduced concert expenses for "The Edge" in Phoenix as a result of its reduced concert schedule. INTERNET AND PUBLISHING OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION for the three months ended June 30, 2001 were $393,000 compared with $390,000 for the three months ended June 30, 2000, an increase of $3,000 or 0.8%. CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended June 30, 2001 were $889,000 compared with $1,107,000 for the three months ended June 30, 2000, a decrease of $218,000, or 19.7%. The decrease was primarily attributable to the lower personnel costs in 2001. DEPRECIATION AND AMORTIZATION EXPENSES for the three months ended June 30, 2001 were $1,263,000 compared with $1,214,000 for the three months ended June 30, 2000, an increase of $49,000, or 4.0%. This increase was due primarily to capital expenditures in Hispanic Internet Holdings, Inc. and Phoenix "Viva 105.3" stations during the second half of 2000. INTEREST EXPENSE for the three months ended June 30, 2001 was $5,055,000 compared with $4,547,000 for the three months ended June 30, 2000, an increase of $508,000, or 11.2%. This increase reflects additional interest resulting from the higher accreted principal amount of the Notes for the quarter ended June 30, 2001 when compared to the quarter ended June 30, 2000. Partially offsetting the increase in interest expense was a decrease in interest payment on Promissory Notes relating to the acquisition of WWYY-FM and WRNJ-AM in August 1998, which were repaid on August 1, 2000. In the three months ended June 30, 2001 and 2000, the average outstanding total debt for the Company was $174,406,000 and $160,073,000 respectively. The average rate of interest on the outstanding debt was 11.59% and 11.36%, respectively. Interest income for the three months ended June 30, 2001 was $12,000 compared with $84,000 for the three months ended June 30, 2000. This decrease was a result of lower average balance of investments in marketable securities. NET LOSSES for the three months ended June 30, 2001 were $7,715,000 compared with $7,331,000 for the three months ended June 30, 2000. The increase in net loss of $384,000 was primarily attributable to the decrease in net revenues, and higher net interest expenses, partially offset by lower station operating expenses, and lower corporate, general and administrative expenses, compared to the corresponding quarter in 2000. SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000 NET REVENUES for the six months ended June 30, 2001 were $10,055,000 as compared with $11,462,000 for the six months ended June 30, 2000, a decrease of $1,407,000 or 12.3%. This decrease was due primarily to (i) decreased net revenues at the Chicago Stations compared to the same period in 2000 resulting from their change in formats 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 Edge" in Phoenix compared to the same period in 2000, resulting from a reduced concert schedule in 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 $232,000 publishing revenues for the six months ended June 30, 2001, which business was acquired in November 2000. STATIONS OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATIONfor the six months ended June 30, 2001 were $11,621,000 as compared with $13,076,000 for the six months ended June 30, 2000, a decrease of $1,455,000 or 11.1%. This decrease was due principally to the reduction in operating expenses for the Chicago Stations, and reduced concert expenses for "The Edge" in Phoenix as a result of its reduced 15 concert schedule, partially offset by operating expenses for Independent Radio Reps, LLC which was formed in November 2000. INTERNET AND PUBLISHING OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION for the six months ended June 30, 2001 were $873,000 compared with $621,000 for the six months ended June 30, 2000, an increase of $252,000 or 40.6%. This increase was due to the expansion of TodoAhora.com, which was formally launched on May 5, 2000, and the magazine publishing business which was acquired on November 8, 2000. CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the six months ended June 30, 2001 were $1,734,000 compared with $1,974,000 for the six months ended June 30, 2000, a decrease of $240,000, or 12.2%. The 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. The decision to abandon the transaction was made in response to a change in the engineering enhancement plan for our Phoenix radio licenses. There were no such expenses for the six months ended June 30, 2001. DEPRECIATION AND AMORTIZATION EXPENSES for the six months ended June 30, 2001 were $2,520,000 compared with $2,426,000 for the six months ended June 30, 2000, an increase of $94,000 or 3.9%. This increase was due primarily to capital expenditures in Hispanic Internet Holdings, Inc. and Phoenix "Viva 105.3" stations during the second half of 2000. INTEREST EXPENSE for the six months ended June 30, 2001 was $9,836,000 compared with $8,916,000 for the six months ended June 30, 2000, an increase of $920,000, or 10.3%. This increase reflects additional interest resulting from the accreted principal amount of the Notes for the six months ended June 30, 2001 when compared to the six months ended June 30, 2000. Partially offsetting the increase in interest expense was a decrease in interest payment on Promissory Notes relating to the acquisition of WWYY-FM and WRNJ-AM in August 1998, which were repaid on August 1, 2000. In the six months ended June 30, 2001 and 2000, the average outstanding total debt for the Company was $173,730,000 and $158,060,000 respectively. The average rate of interest on the outstanding debt was 10.27% and 11.27%, respectively. Interest income for the six months ended June 30, 2001 was $34,000 compared with $182,000 for the six months ended June 30, 2000. This decrease was a result of lower average balance of investments in marketable securities. NET LOSSES for the six months ended June 30, 2001 were $16,510,000 compared with $15,986,000 for the six months ended June 30, 2000. The increase in net loss of $524,000 was primarily attributable to the decrease in net revenues, and higher net interest expenses, and the start-up operations of Internet and publishing business in 2001, partially offset by lower station operating expenses, and lower corporate, general and administrative expenses, compared to the corresponding six months ended June 30, 2000. LIQUIDITY AND CAPITAL RESOURCES The Company has reported net losses since inception primarily due to broadcast cash flow deficits characteristic of the start up of the LA Stations, the New York Stations, the Chicago Stations, and the Phoenix Stations and depreciation and amortization charges relating to the Company's acquisition of radio stations, as well as interest charges on its outstanding debt. In addition, because certain of its broadcast properties and the internet operations are in the early stages of development, the Company expects to generate significant net losses as it continues to expand its presence in its markets for the foreseeable future. As a result, working capital needs have been met by borrowings, including loans from Stuart and 16 Anita Subotnick ("the Principal Stockholders") (which borrowings were contributed to the capital of the Company immediately prior to the consummation of the Company's initial public offering in December 1997), borrowings under the previous credit facility and the issuance of the Notes. During April 2001, the Company made a request of its bank lender that the Company be permitted to draw down on the Company's Revolving Credit Facility. The lender informed the Company that it would not 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 "Promissory Note") on May 8, 2001 to borrow up to $5,000,000 from an affiliate of the Company (the "Lender") in order to meet the Company's short-term working capital needs. The amounts outstanding under the Promissory Note will bear 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 is due upon demand by the Lender. As of June 30, 2001, the amounts outstanding on the Promissory Note is $985,000. Interest expense on the Promissory Note for the three months ended June 30, 2001 was $9,000. The Company has entered into various employment contracts with twenty-four 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 $1,919,000 in 2001, $1,246,000 in 2002, and $150,000 in 2003. The Company has never paid cash or stock dividends on shares of common stock. Furthermore, it intends to retain any 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 both the six months ended June 30, 2001 and 2000, the Company used cash in its operations. In the six months ended June 30, 2001, the deficit was predominantly due to operating losses of the New York, and Chicago Stations, and the start-up operations of the internet and publishing businesses and Independent Radio Reps, LLC. In the six months ended June 30, 2000, the deficit was predominantly due to the start-up operating losses of the LA Stations as Viva 107.1 and Hispanic Internet Holdings, Inc. CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (excluding acquisitions of radio stations) were $254,000 and $413,000 for the six months ended June 30, 2001 and 2000, respectively. These expenditures primarily reflect costs associated with technical improvements at the Company's stations, in particular, the expansion of the studio and broadcast facilities, and computer support equipment. In each of the six months ended June 30, 2001 and 2000, the Company sold marketable securities of $1,895,000 and $3,105,000, respectively, to generate cash for general working capital purposes. CASH FLOWS FROM FINANCING ACTIVITIES The Company completed the Notes offering of $174.0 million aggregate principal amount at maturity of Notes on March 17, 1998, generating approximately $125.4 million of gross proceeds for the Company of which the Company used approximately $32.8 million to repay outstanding indebtedness under its previous credit facility. The Company has used the proceeds of the Notes offering to finance the acquisition costs of radio station properties and 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. 17 Cash interest did not accrue on the Notes prior to March 15, 2001. Since March 15, 2001 interest on the Notes has been accruing at a rate of 11 1/4% per annum and will be payable in cash semi-annually, commencing September 15, 2001. The semi-annual interest payment is $9.8 million. The Notes will mature on March 14, 2005 but may be redeemed after March 15, 2001 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, 2002, 2003 and 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 Company's 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 June 30, 2001, all of the Company's subsidiaries were Restricted Subsidiaries. The Notes contain certain financial and operational covenants and other restrictions with which the Company and its Restricted Subsidiaries must comply, including restrictions on 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, restriction on 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. The Company has inadequate cash and cash equivalents on hand to make the required $9.8 million interest payment on the Notes, due September 15, 2001, and will only be able to make such payment if the Company consummates a financing transaction. There can be no assurances that the Company can consummate such a financing at all or on terms acceptable to the Company. 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. 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 new Notes are registered. The amount exchanged was $172,500,000 aggregate principal amount at maturity of the Notes. 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 will mature on the fifth anniversary of March 17, 1998 and amounts outstanding under the Revolving Credit Facility will bear interest at an applicable margin plus, at the Company's option, Chase's prime rate (in which case the applicable margin will initially be 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 will initially be 3.00% subject to reduction upon achieving performance criteria based on the Company's leverage ratio). The Company's 18 obligations under the Revolving Credit Facility are secured by a pledge of substantially all of the Company's and its Station Subsidiaries' assets. In each of the six months ended June 30, 2001 and 2000, the Company paid $20,000 and $36,000, respectively, in fees relating to the facility. The Revolving Credit Facility contains certain financial and operational covenants and other restrictions with which the Company must 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, and requirements to maintain certain minimum interest coverage ratios. The Company is currently 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 includes a "going concern" opinion. During April 2001, the Company made a request of Chase that the Company be permitted to draw down on the Company's Revolving Credit Facility. Chase informed the Company that it would not 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." The Revolving Credit Facility contains 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. The Revolving Credit Facility also provides that an event of default will 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 will 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. As of the date of this report, the Company has no binding commitments for any acquisitions. The Company had available approximately $549,000 of cash and cash equivalents on hand at June 30, 2001. On March 15, 2001, the Notes commenced accruing interest at 11 1/4% per annum, which interest is payable in cash, semi-annually, commencing September 15, 2001. The semi-annual interest payment is $9.8 million. Cash on hand is not sufficient to support the Company's operations through December 31, 2001 and its growth strategy; nor is it sufficient to fund the $9.8 million interest payment due on the Notes on September 15, 2001. In addition, because of 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. The Company is in the process of seeking a new debt facility to finance its operating and debt service requirements and capital expenditure programs through December 31, 2001. There can be no assurance that any such financing will be available or available on acceptable terms. Management believes that its long-term liquidity can be satisfied through a combination of i) a successful financing transaction to address the operating and debt service requirements and capital expenditure programs through December 31, 2001, ii) achieving positive operating results and cash flows through revenue growth and control of operating expenses and iii) the implementation and execution of its growth strategy to acquire and build a major broadcast group. In order to meet its long-term financing needs, the Company is currently considering all means available to it, including the raising of additional equity and the restructuring of the Notes. As a result of its inability to draw on the Revolving Credit Facility, the Company issued a promissory note (the "Promissory Note") on May 8, 2001 to borrow up to $5,000,000 from an affiliate of the Company (the "Lender") in order to meet the Company's short-term working capital needs. The amounts outstanding under the Promissory Note will bear 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 is due upon 19 demand by the Lender. As of June 30, 2001, the amounts outstanding on the Promissory Note is $985,000. Accrued interest expense on the Promissory Note for the three months ended June 30, 2001 was $9,000. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this report, including those utilizing 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 growth strategy, (ii) the Company's intention to acquire additional radio stations and to enter additional markets, including its ability to do so at attractive valuations, (iii) the Company's expectation of improving the coverage areas of its radio stations, and (iv) the Company's ability to successfully implement its business strategy. 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 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 Company's and its competitors, (ii) changes in the regulatory framework, (iii) changes in audience tastes, changes or advances in technology and (iv) 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 release publicly 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. 20 PART II--OTHER INFORMATION ITEM 1--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 2--CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3--DEFAULTS UPON SENIOR SECURITIES None. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's 2001 Annual Meeting of Stockholders held on May 11, 2000, the holders of Class A common stock of the Company were asked to consider and vote as a separate class upon the election of two members to the Company's Board of Directors to serve a one year term as Class A Directors, and the holders of Class A common stock together with the holders of Class B common stock were asked to consider and vote as a single class upon the ratification of the selection of KPMG LLP as the Company's independent accountants for the year ending December 31, 2001. At such a meeting, a majority of the Company's stockholders (i) elected Michael H. Boyer and Leonard White as Class A Directors for a one year term ending in the year 2001 and (ii) ratified the appointment of KPMG LLP as the Company's independent accountants for the year ending December 31, 2001. The following is a summary of the voting results with respect to each of the proposals:
PROPOSAL FOR WITHHOLD -------- --------- -------- 1. The Election of Class A Directors........................ NAME ---- Michael H. Boyer. 5,484,775 9,814 Leonard White............................................. 5,484,775 54,125
FOR AGAINST ABSTAIN BROKER NON-VOTES ---------- -------- -------- ---------------- 2. Ratification of the Appointment of Independent Auditors........................................ 87,085,533 3,900 500 --
No other matters were submitted to a vote of the Company's stockholders, through the solicitation of proxies or otherwise, during the second quarter of the year ending December 31, 2001. ITEM 5--OTHER INFORMATION. None. ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K No reports were filed during the quarter for which this report was filed. ------------------------ * Filed herewith 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BIG CITY RADIO, INC. By: /s/ PAUL R. THOMSON ----------------------------------------- Paul R. Thomson VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
Dated: August 14, 2001 22