================================================================================


                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549




                                   FORM 8-K


                                CURRENT REPORT


                    PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                                DECEMBER 2, 1997
                            -----------------------
                       (Date of earliest event reported)



                        SINCLAIR BROADCAST GROUP, INC.
            (Exact name of Registrant as specified in its charter)



<TABLE>
<CAPTION>

<S>                             <C>                          <C>
             MARYLAND                   33-69482                   52-1494660
   (State of incorporation)     (Commission File Number)          (IRS Employer
                                                             Identification Number)

</TABLE>

             2000 W. 41st Street, Baltimore, Maryland   21211-1420
      -------------------------------------------------------------------
             (Address of principal executive offices)   (Zip code)


      Registrant's telephone number, including area code: (410) 467-5005
                                                          --------------





================================================================================

<PAGE>

ITEM 5. OTHER EVENTS

     As previously  reported,  Sinclair  Broadcast  Group,  Inc. (the "Company")
entered into acquisition  agreements on July 16, 1997 (the "Heritage Acquisition
Agreements") with The News Corporation  Limited,  Heritage Media Group, Inc. and
certain  subsidiaries of Heritage Media  Corporation  (collectively  "Heritage")
pursuant to which the Company has acquired or will acquire the assets of, or the
right to program pursuant to Local Marketing Agreements ("LMAs"), six television
stations in three  markets and the assets of 24 radio  stations in seven markets
(the "Heritage  Acquisition").  On December 3, 1997, the Company entered into an
agreement to acquire, directly or indirectly, all of the equity interests of Max
Media Properties LLC ("Max Media"),  pursuant to which the Company will acquire,
or acquire the right to program pursuant to LMA's, nine television  stations and
eight radio stations in eight markets (the "Max Media Acquisition"). On February
23, 1998 the Company  entered  into an agreement to acquire 100% of the stock of
Sullivan Broadcast  Holdings,  Inc. and Subsidiaries  ("Sullivan"),  pursuant to
which the Company will acquire or provide programming  services to 13 television
stations in 11 separate  markets (the  "Sullivan  Acquisition").  The Company is
filing with this Current Report on Form 8-K pro forma financial  information for
the  Company  showing  the  effect of the  Heritage  Acquisition,  the Max Media
Acquisition and the Sullivan Acquisition. The Company is filing with this report
on Form 8-K the audited financial statements of Heritage Media Services, Inc. --
Broadcasting Segment ("HMSI"),  Max Media Properties LLC, Sullivan  Broadcasting
Company, Inc. and Subsidiaries (Formerly Act III Broadcasting, Inc. as successor
by merger with A-3 Acquisition,  Inc.) and Sullivan Broadcast Holdings, Inc. and
Subsidiaries,  which  includes  all of the assets to be  acquired by the Company
pursuant to the Heritage Acquisition, the Max Media Acquisition and the Sullivan
Acquisition.


ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS


(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED

     The financial  statements required by this item are submitted in a separate
section of this report.


HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT


Report of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated  Statements  of Operations  for the Four Months Ended  December 31,
  1997,  the Eight Months Ended August 31, 1997 and for the year Ended  December
  31, 1996
Consolidated Statements of Stockholders' Equity for the Four Months Ended Decem-
  ber 31,  1997,  the Eight  Months Ended August 31, 1997 and for the Year Ended
  December 31, 1996
Consolidated  Statements  of Cash Flows for the Four Months  Ended  December 31,
  1997,  the Eight Months Ended August 31, 1997 and for the Year Ended  December
  31, 1996
Notes to Consolidated Financial Statements


MAX MEDIA PROPERTIES LLC

Independent Auditors' Report
Consolidated  Balance  Sheets  as of  December  31,  1997 and 1996
Consolidated  Statements of Operations for the Years Ended December 31, 1997 and
  1996
Consolidated  Statements  of Members'  Capital for the Years Ended  December 31,
  1997 and 1996
Consolidated  Statements of Cash Flows for the Years Ended December 31, 1997 and
  1996
Notes to Consolidated Financial Statements


                                       1

<PAGE>

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES

Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated  Statement of  Operations  for the Period from  Inception  (June 2,
  1995) through December 31, 1995, and for the years Ended December 31, 1996 and
  1997
Consolidated  Statement  of Cash Flows for the Period  from  Inception  (June 2,
  1995) through December 31, 1995, and for the Years Ended December 31, 1996 and
  1997
Consolidated  Statement of Changes in  Shareholders'  Equity for the Period from
  Inception  (June 2, 1995)  through  December  31, 1995 and for the Years Ended
  December 31, 1996 and 1997
Notes to Consolidated Financial Statements


SULLIVAN  BROADCASTING  COMPANY,  INC. AND  SUBSIDIARIES  --  (FORMERLY  ACT III
BROADCASTING, INC. AS SUCCESSOR BY MERGER WITH A-3 ACQUISITION, INC.)

Report of Independent Accountants
Consolidated  Statement  of  Operations  for the year ended  December  31,  1995
Consolidated  Statement  of Cash  Flows for the year  ended  December  31,  1995
Consolidated Statement of Changes in Shareholders' Deficit Notes to Consolidated
Financial Statements


(B) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF SINCLAIR

     The following Pro Forma  Consolidated  Financial Data include the unaudited
pro forma  consolidated  balance  sheet as of December  31, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated  statement
of operations for the year ended December 31, 1997 (the "Pro Forma  Consolidated
Statement of Operations"). The unaudited Pro Forma Consolidated Balance Sheet is
adjusted to give effect to the Heritage  Acquisition,  the Max Media Acquisition
and the Sullivan Acquisition, (collectively the "Significant Acquisitions"). The
unaudited  Pro Forma  Consolidated  Statement of  Operations  for the year ended
December  31, 1997 is adjusted  to give effect to the  issuance of  $200,000,000
liquidation  amount 11 5/8% High Yield Trust Offered  Preferred  Securities (the
"HYTOPS") issued on March 14, 1997 (the "HYTOPS Issuance"),  the issuance by the
Company of $200,000,000  principal amount 9% Senior  Subordinated Notes due 2007
(the " July Debt  Issuance")  issued on July 2, 1997,  the  September  23,  1997
public offering by the Company of 4,345,000  shares of Class A Common Stock (the
"1997 Common Stock  Offering"),  the September  23, 1997 public  offering by the
Company of $172.5  million  aggregate  liquidation  value  Series D  Convertible
Exchangeable   Preferred  Stock  (the  "Preferred  Stock  Offering"),   and  the
completion  by the  Company  of the  Tender  Offer for $98.1  million  aggregate
principal of the  Company's 10% Notes due 2003 (the "1993 Notes") on December 9,
1997 (the "Tender  Offer" and together with the HYTOPS  Issuance,  the July Debt
Issuance,  the 1997 Common Stock Offering, the 1997 Preferred Stock Offering, by
the Company and) the issuance by the Company of $250 million  principal amount 8
3/4 Senior  Subordinated  Notes due 2007 (the  "December Debt  Issuance"),  (the
"1997 Financings.") The Pro forma Consolidated  Financial  Information  included
herein  reflects  the  application  of the net proceeds  from the December  Debt
Issuance  utilized to pay the  consideration  payable in  connection  with,  and
expenses  of,  the  Tender  Offer  and  the  Heritage  Acquisition,  as if  such
transactions   occurred  at  the  beginning  of  such  periods.  The  Max  Media
Acquisition  and the  Sullivan  Acquisition  (net of  $100,000 of Class A Common
Stock, par value $0.01 per share issued at the option of the Company pursuant to
the  Sullivan  Acquisition  Agreement)  will be  completed  utilizing  available
indebtedness   under  the  Company's  Bank  Credit  Agreement.   The  pro  forma
adjustments are based upon available  information and certain  assumptions  that
the  Company  believes  are  reasonable.  The Pro Forma  Consolidated  Financial
Information  included  herein should be read in  conjunction  with the Company's
Consolidated Financial Statements as of and for the year ended December 31, 1997
and related notes thereto,  and the historical  financial data of Heritage Media
Services,  Inc. -- Broadcasting  Segment,  Max Media  Properties  LLC,  Sullivan
Broadcast Company, Inc., and subsidiaries (Formerly Act III Broadcastiing,  Inc.
as successor by merger with A-3 Acquisition, Inc. and Sullivan Broadcast


                                       2
<PAGE>

Holdings,  Inc.  and  Subsidiaries,  all of  which  have  been  filed  with  the
Securities  and Exchange  Commission as part of either (i) the Company's  Annual
Report on Form 10-K for the year  ended  December  31,  1997  together  with the
report of Arthur Andersen LLP, independent certified public accountants; or (ii)
the Current  Report on Form 8-K filed March 17, 1998.  The  unaudited  Pro Forma
Consolidated  Financial  Data do not  purport to  represent  what the  Company's
results of operations or financial position would have been had any of the above
events  occurred on the dates  specified or to project the Company's  results of
operations or financial position for or at any future period or date.


(C) EXHIBITS

<TABLE>
<CAPTION>
  EXHIBIT
    NO.    DESCRIPTION
---------- ---------------------------------
<S>        <C>
 23.1      Consent of Arthur Andersen LLP
 23.2      Consent of KPMG Peat Marwick LLP
 23.3      Consent of Price Waterhouse LLP
 23.4      Consent of Price Waterhouse LLP
</TABLE>


                                        3

<PAGE>

                         SINCLAIR BROADCAST GROUP, INC.
                      PRO FORMA CONSOLIDATED BALANCE SHEET
                             AS OF DECEMBER 31, 1997
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                                                    CONSOLIDATED
                                                                     HISTORICAL
                                                                   --------------
<S>                                                                <C>
                                  ASSETS
CURRENT ASSETS:
 Cash, including cash equivalents ................................   $  139,327
 Accounts receivable, net of allowance for doubtful accounts .....      123,018
 Current portion of program contract costs .......................       46,876
 Prepaid expenses and other current assets .......................        4,673
 Deferred barter costs ...........................................        3,727
 Refundable income taxes .........................................       10,581
 Deferred tax asset ..............................................        2,550
                                                                     ----------
   Total current assets ..........................................      330,752
PROGRAM CONTRACT COSTS, less current portion .....................       40,609
LOANS TO OFFICERS AND AFFILIATES .................................       11,088
PROPERTY AND EQUIPMENT, net ......................................      161,714
NON-COMPETE AND CONSULTING AGREEMENTS, net........................          200
OTHER ASSETS .....................................................      167,895
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net......................    1,321,976
                                                                     ----------
   Total Assets ..................................................   $2,034,234
                                                                     ==========
              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable ................................................   $    5,207
 Accrued liabilities .............................................       40,532
 Current portion of long-term liabilities-
  Notes payable and commercial bank financing ....................       35,215
  Notes and capital leases payable to affiliation ................        3,073
  Program contracts payable ......................................       66,404
 Deferred barter revenues ........................................        4,273
                                                                     ----------
   Total current liabilities .....................................      154,704
LONG-TERM LIABILITIES:
  Notes payable and commercial bank financing ....................    1,022,934
  Notes and capital leases payable to affiliates .................       19,500
  Program contracts payable ......................................       62,408
  Deferred tax liability .........................................       24,092
  Other long-term liabilities ....................................        3,611
                                                                     ----------
   Total liabilities .............................................    1,287,249
                                                                     ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                            3,697
                                                                     ----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
 ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
 SOLELY KDSM SENIOR DEBENTURES ...................................      200,000
                                                                     ----------
STOCKHOLDERS' EQUITY:
  Series B Preferred Stock, $.01 par value, 10,000,000 shares
   authorized and 1,071,381 shares issued and outstanding ........           10
  Series D Preferred Stock, $.01 par value, 3,450,000 shares
   authorized 3,450,000 shares issued and outstanding ............           35
  Class A Common  Stock,  $.01 par  value,  100,000,000  shares
   authorized and 13,733,430 and 15,487,816 shares issued
   and outstanding respectively ..................................          137
  Class B Common Stock, $.01 par value, 35,000,000 shares
   authorized and 25,436,432 shares issued and outstanding .......          255
  Additional paid-in capital .....................................      552,949
  Additional paid-in capital - equity put options ................       23,117
  Additional paid-in capital - deferred compensation .............         (954)
  Accumulated deficit ............................................      (32,261)
                                                                     ----------
   Total stockholders' equity ....................................      543,288
                                                                     ----------
   Total Liabilities and Stockholders' Equity ....................   $2,034,234
                                                                     ==========


<CAPTION>
                                                                                  SIGNIFICANT ACQUISITIONS
                                                                   -------------------------------------------------------
                                                                                                              SULLIVAN
                                                                       HERITAGE(A)       MAX MEDIA(B)     BROADCASTING(C)
                                                                   ------------------ ------------------ -----------------
<S>                                                                <C>                <C>                <C>
                                  ASSETS
CURRENT ASSETS:
 Cash, including cash equivalents ................................    $  (139,327)
 Accounts receivable, net of allowance for doubtful accounts .....
 Current portion of program contract costs .......................          1,462        $     2,325       $    22,850
 Prepaid expenses and other current assets .......................
 Deferred barter costs ...........................................            578                640
 Refundable income taxes .........................................
 Deferred tax asset ..............................................
                                                                      -----------        -----------       ------------
   Total current assets ..........................................       (137,287)             2,965            22,850
PROGRAM CONTRACT COSTS, less current portion .....................          1,179              2,182            23,432
LOANS TO OFFICERS AND AFFILIATES .................................
PROPERTY AND EQUIPMENT, net ......................................         32,859             25,556            39,723
NON-COMPETE AND CONSULTING AGREEMENTS, net........................
OTHER ASSETS .....................................................        (65,500)           (12,817)
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net.                             368,336            229,490         1,135,309
                                                                      -----------        -----------       ------------
   Total Assets ..................................................    $   199,587        $   247,376       $ 1,221,314
                                                                      ===========        ===========       ============
              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable ................................................
 Accrued liabilities .............................................
 Current portion of long-term liabilities-
  Notes payable and commercial bank financing ....................
  Notes and capital leases payable to affiliation ................
  Program contracts payable ......................................    $     1,788        $     2,431       $    24,944
 Deferred barter revenues ........................................            350              1,026
                                                                      -----------        -----------       ------------
   Total current liabilities .....................................          2,138              3,457            24,944
LONG-TERM LIABILITIES:
  Notes payable and commercial bank financing ....................        196,673 (d)        242,183 (e)       900,000 (f)
  Notes and capital leases payable to affiliates .................
  Program contracts payable ......................................            776              1,736            22,710
  Deferred tax liability .........................................                                             173,660
  Other long-term liabilities ....................................
   Total liabilities .............................................        199,587            247,376         1,121,314
                                                                      -----------        -----------       ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                                 --                 --                --
                                                                      -----------        -----------       ------------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
 ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
 SOLELY KDSM SENIOR DEBENTURES ...................................             --                 --                --
                                                                      -----------        -----------       ------------
STOCKHOLDERS' EQUITY:
  Series B Preferred Stock,  $.01 par value,  10,000,000  shares
   authorized and 1,071,381 shares issued and outstanding ........
  Series D Preferred Stock, $.01 par value, 3,450,000 shares
   authorized 3,450,000 shares issued and outstanding ............
  Class A Common  Stock,  $.01 par  value,  100,000,000  shares
   authorized  and 13,733,430 and 15,487,816 shares issued
   and outstanding respectively ..................................                                                  18
  Class B Common Stock, $.01 par value, 35,000,000 shares
   authorized and 25,436,432 shares issued and outstanding .......
  Additional paid-in capital .....................................                                              99,982
  Additional paid-in capital - equity put options ................
  Additional paid-in capital - deferred compensation .............
  Accumulated deficit ............................................
                                                                      -----------        -----------       ------------
   Total stockholders' equity ....................................             --                 --           100,000
                                                                      -----------        -----------       ------------
   Total Liabilities and Stockholders' Equity ....................    $   199,587        $   247,376       $ 1,221,314
                                                                      ===========        ===========       ============



<CAPTION>
                                                                     CONSOLIDATED
                                                                      HISTORICAL
                                                                    AND SIGNIFICANT
                                                                     ACQUISITIONS
                                                                   ----------------
<S>                                                                <C>
                                  ASSETS
CURRENT ASSETS:
 Cash, including cash equivalents ................................    $       --
 Accounts receivable, net of allowance for doubtful accounts .....       123,018
 Current portion of program contract costs .......................        73,513
 Prepaid expenses and other current assets .......................         4,673
 Deferred barter costs ...........................................         4,945
 Refundable income taxes .........................................        10,581
 Deferred tax asset ..............................................         2,550
                                                                      ----------
   Total current assets ..........................................       219,280
PROGRAM CONTRACT COSTS, less current portion .....................        67,402
LOANS TO OFFICERS AND AFFILIATES .................................        11,088
PROPERTY AND EQUIPMENT, net ......................................       259,852
NON-COMPETE AND CONSULTING AGREEMENTS, net........................           200
OTHER ASSETS .....................................................        89,578
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net.                          3,055,111
                                                                      ----------
   Total Assets ..................................................    $3,702,511
                                                                      ==========
              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable ................................................    $    5,207
 Accrued liabilities .............................................        40,532
 Current portion of long-term liabilities-
  Notes payable and commercial bank financing ....................        35,215
  Notes and capital leases payable to affiliation ................         3,073
  Program contracts payable ......................................        95,567
 Deferred barter revenues ........................................         5,649
                                                                      ----------
   Total current liabilities .....................................       185,243
LONG-TERM LIABILITIES:
  Notes payable and commercial bank financing ....................     2,361,790
  Notes and capital leases payable to affiliates .................        19,500
  Program contracts payable ......................................        87,630
  Deferred tax liability .........................................       197,752
  Other long-term liabilities ....................................         3,611
                                                                      ----------
   Total liabilities .............................................     2,855,526
                                                                      ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                             3,697
                                                                      ----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
 ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
 SOLELY KDSM SENIOR DEBENTURES ...................................       200,000
                                                                      ----------
STOCKHOLDERS' EQUITY:
  Series B Preferred Stock, $.01 par value, 10,000,000 shares
   authorized and 1,071,381 shares issued and outstanding ........            10
  Series D Preferred Stock, $.01 par value, 3,450,000 shares
   authorized 3,450,000 shares issued and outstanding ............            35
  Class A Common  Stock,  $.01 par  value,  100,000,000  shares
   authorized and 13,733,430 and 15,487,816 shares issued
   and outstanding respectively ..................................           155
  Class B Common Stock, $.01 par value, 35,000,000 shares
   authorized and 25,436,432 shares issued and outstanding .......           255
  Additional paid-in capital .....................................       652,931
  Additional paid-in capital - equity put options ................        23,117
  Additional paid-in capital - deferred compensation .............          (954)
  Accumulated deficit ............................................       (32,261)
                                                                      ----------
   Total stockholders' equity ....................................       643,288
                                                                      ----------
   Total Liabilities and Stockholders' Equity ....................    $3,702,511
                                                                      ==========
</TABLE>



                                        4
<PAGE>

                  NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
                             (DOLLARS IN THOUSANDS)

(a) The Heritage Acquisition column reflects the assets and liabilities acquired
    in  connection  with  the  $630,000  purchase  of  Heritage.   The  Heritage
    Acquisition column gives effect for the Company's  definitive  agreements to
    sell radio  stations  KKSN-AM,  KKSN-FM,  and KKRH-FM  serving the Portland,
    Oregon  market,  radio  stations,  WBBF-AM,  WBEE-FM,  WKLX-FM,  and WQRV-FM
    serving the  Rochester,  New York market and  television  stations  WPTZ-TV,
    WNNE-TV and WFFF-TV serving the  Burlington,  Vermont and  Plattsburgh,  New
    York markets (the "Dispositions"). Total acquired intangibles are calculated
    as follows:


<TABLE>
<CAPTION>
                                                                                                  HERITAGE
                                                                  HERITAGE      DISPOSITIONS     ACQUISITION
                                                                ------------   --------------   ------------
<S>                                                             <C>            <C>              <C>
  Purchase Price ............................................                                    $  630,000
    Add:
     Liabilities acquired--
     Current portion of program contracts payable ...........    $   2,194        $  (406)            1,788
     Deferred barter revenues ...............................          676           (326)              350
     Long-term portion of program contracts payable .........          857            (81)              776
    Less:
     Assets acquired--
     Current portion of program contract costs ..............       (1,704)           242            (1,462)
     Deferred barter costs ..................................         (880)           302              (578)
     Program contract costs, less current portion ...........       (1,323)           144            (1,179)
     Property and equipment .................................      (45,840)        12,981           (32,859)
     Proceeds from sale of stations .........................                                      (228,500)
                                                                                                 ----------
     Acquired intangibles ...................................                                    $  368,336
                                                                                                 ==========
</TABLE>

(b) The Max  Media  Acquisition  column  reflects  the  assets  and  liabilities
    acquired in  connection  with the  $255,000  purchase of Max Media.  The Max
    Media  Acquisition  is  subject  to a number  of  conditions  customary  for
    acquisitions  of  broadcasting  properties.  Total acquired  intangibles are
    calculated as follows:


<TABLE>
<CAPTION>
                                                                   MAX MEDIA
                                                                 ------------
<S>                                                              <C>
  Purchase Price .............................................    $ 255,000
    Add:
     Liabilities acquired--
     Current portion of program contracts payable ............        2,431
     Deferred barter revenues ................................        1,026
     Long-term portion of program contracts payable ..........        1,736
    Less:
     Assets acquired--
     Current portion of program contract costs ...............       (2,325)
     Deferred barter costs ...................................         (640)
     Program contract costs, less current portion ............       (2,182)
     Property and equipment ..................................      (25,556)
                                                                  ---------
     Acquired intangibles ....................................    $ 229,490
                                                                  =========

</TABLE>


                                        5
<PAGE>

(c) The  Sullivan  Broadcasting  Acquisition  column  reflects  the  assets  and
    liabilities  acquired in connection with the $1,000,000  purchase of 100% of
    the  outstanding  capital  stock of Sullivan  Broadcast  Holdings,  Inc. and
    subsidiaries.  Included in the total  purchase  price is $100,000 of Class A
    Common Stock,  which may be issued at the option of the Company  pursuant to
    the Sullivan Acquisition Agreement. The Sullivan Acquisition is subject to a
    number of conditions customary for acquisitions of broadcasting  properties.
    Total acquired intangibles are calculated as follows:


<TABLE>
<CAPTION>
                                                                   SULLIVAN
                                                                -------------
<S>                                                             <C>
     Purchase Price ...........................................  $1,000,000
       Add:
        Liabilities acquired--
        Current portion of program contracts costs ............      24,944
        Long-term portion of program contract costs ...........      22,710
        Deferred tax liability ................................     173,660
       Less:
        Assets acquired--
        Current portion of program contracts ..................     (22,850)
        Program contract costs, less current portion ..........     (23,432)
        Property and equipment ................................     (39,723)
                                                                 ----------
        Acquired intangibles ..................................  $1,135,309
                                                                 ==========

</TABLE>

(d) To reflect indebtedness of $196,673 incurred in connection with the Heritage
    Acquisition as follows:



<TABLE>
<S>                                              <C>
        Purchase Price .......................    $  630,000
         Less:
          Proceeds from dispositions .........      (228,500)
          Deposits ...........................       (65,500)
          Cash utilized ......................      (139,327)
                                                  ----------
          Indebtedness Incurred ..............    $  196,673
                                                  ==========

</TABLE>

(e) To reflect  indebtedness of $242,183  incurred (net of a $12,817 deposit for
    the  broadcast  assets) for the broadcast  assets under the  Company's  bank
    credit  facility under the Bank Credit  Agreement in connection with the Max
    Media  Acquisition.  The  Company  will  need  to  obtain  an  amendment  or
    refinancing  of the Bank Credit  Agreement  in order to complete all pending
    acquisitions.

(f) To reflect  indebtedness  incurred of  $900,000  (net of $100,000 of Class A
    Common Stock, par value $0.01 per share which may be issued at the option of
    the Company  pursuant to the Sullivan  Acquisition  Agreement).  The Company
    will need to obtain an amendment to or  refinancing  of the  Company's  bank
    credit  facility  under the Bank Credit  Agreement  in order to complete the
    Significant Acquisitions and all other pending acquisitions. See "Prospectus
    Supplement Summary -- Recent Developments."


                                        6
<PAGE>

                         SINCLAIR BROADCAST GROUP, INC.
                 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                             
                                                                                               1997 FINANCINGS                      
                                                                          --------------------------------------------------------- 
                                                                                                   JULY 1997         1997 COMMON    
                                                            CONSOLIDATED         HYTOPS               DEBT          AND PREFERRED   
                                                             HISTORICAL         ISSUANCE            ISSUANCE       STOCK ISSUANCES  
                                                           -------------- ------------------- ------------------- ----------------- 
<S>                                                        <C>            <C>                 <C>                 <C>            
REVENUES:                                                                 
 Station broadcast revenues, net of agency commissions       $ 471,228                                                           
 Revenues realized from station barter arrangements.......      45,207             --                  --                --      
                                                             ---------    -----------         -----------         ---------      
   Total revenues ........................................     516,435             --                  --                --      
                                                             ---------    -----------         -----------         ---------      
OPERATING EXPENSES:                                                                                                              
 Program and production ..................................      92,178                                                           
 Selling, general and administrative .....................     106,084                                                           
 Expenses realized from barter arrangements ..............      38,114                                                           
 Amortization of program contract costs and net realiz-                                                                          
 able value adjustments ..................................      66,290                                                           
 Amortization of deferred compensation ...................       1,636                                                           
 Depreciation and amortization of property and equip-                                                                            
 ment ....................................................      18,040                                                           
 Amortization of acquired intangible assets, non-                                                                                
 compete, consult and other ..............................      67,840    $       133 (f)     $       249 (g)                    
                                                             ---------    -----------         -----------         ---------      
   Total operating expenses ..............................     390,182            133                 249                --      
                                                             ---------    -----------         -----------         ---------      
  Broadcast operating income (loss) ......................     126,253           (133)               (249)               --      
                                                             ---------    -----------         -----------         ---------      
OTHER INCOME (EXPENSE):                                                                                                          
 Interest and amortization of debt discount expense ......     (98,393)         1,852 (i)          (1,734) (j)    $  16,857 (k)  
 Subsidiary trust minority interest expense ..............     (18,600)        (4,650)(n)                                        
 Interest income .........................................       2,174                                                           
 Other income ............................................          54                                                           
                                                             ---------    -----------         -----------         ---------      
  Income (loss) before provision (benefit) for in-                        
   come taxes ............................................      11,488         (2,931)             (1,983)           16,857      
PROVISION (BENEFIT) FOR INCOME TAXES .....................      15,984         (1,172) (p)           (793) (p)        6,743 (p)  
                                                             ---------    -----------         -----------         ---------      
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ..............      (4,496)                                                          
EXTRAORDINARY ITEM .......................................      (6,070)        (1,759)             (1,190)           10,114      
                                                             ---------    -----------         -----------         ---------      
NET INCOME (LOSS) ........................................   $ (10,566)   $    (1,759)        $    (1,190)        $  10,114      
                                                             =========    ===========         ===========         =========      
NET INCOME (LOSS) AVAILABLE TO COMMON                                                                                            
 SHAREHOLDERS ............................................   $ (13,329)                                                          
                                                             =========                                                           
BASIC EARNINGS PER SHARE:                                                                                                        
 Income (loss) per share before extraordinary item........   $   (0.13)                                                          
                                                             =========                                                           
 Net income (loss) per share .............................   $   (0.37)                                                          
                                                             =========                                                           
 Average shares outstanding ..............................      35,951                                                           
                                                             =========                                                           
DILUTED EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item .......   $   (0.11)
                                                             =========
 Net income (loss) per share .............................   $   (0.33)
                                                             =========
 Average shares outstanding ..............................      40,078
                                                             =========

<PAGE>

<CAPTION>
                                                          1997 FINANCINGS                  
                                                          ----------------
                                                          TENDER OFFER AND   CONSOLIDATED
                                                            DECEMBER 1997   HISTORICAL AND
                                                            DEBT ISSUANCE  1997 FINANCINGS HERITAGE(a)  MAX MEDIA(b) 
                                                          ---------------- --------------- -----------  ------------ 
<S>                                                       <C>               <C>            <C>          <C>          
REVENUES:
 Station broadcast revenues, net of agency commissions                       $  471,228    $  72,383    $  51,351    
 Revenues realized from station barter arrangements......                        45,207        3,996        5,362    
                                                             ---------       ----------    ---------    ---------    
   Total revenues .......................................           --          516,435       76,379       56,713    
                                                             ---------       ----------    ---------    ---------    
OPERATING EXPENSES:
 Program and production .................................                        92,178       27,645       10,662    
 Selling, general and administrative ....................                       106,084       17,010       24,148    
 Expenses realized from barter arrangements .............                        38,114        3,474        2,334    
 Amortization of program contract costs and net realiz-
 able value adjustments .................................                        66,290        1,974        5,546    
 Amortization of deferred compensation ..................                         1,636
 Depreciation and amortization of property and equip-
 ment ...................................................                        18,040        4,246        4,713    
 Amortization of acquired intangible assets, non-
 compete, consult and other .............................                        68,222       15,083        8,028    
                                                             ---------       ----------    ---------    ---------    
   Total operating expenses .............................           --          390,564       69,432       55,431    
                                                             ---------       ----------    ---------    ---------    
  Broadcast operating income (loss) .....................           --          125,871        6,947        2,282    
                                                             ---------       ----------    ---------    ---------    
OTHER INCOME (EXPENSE):
 Interest and amortization of debt discount expense .....    $  (2,010)(l)      (83,428)      (5,940)      (6,078)   
 Subsidiary trust minority interest expense .............                       (23,250)
 Interest income ........................................                         2,174
 Other income ...........................................                            54        8,636        8,795    
                                                             ---------       ----------    ---------    ---------    
  Income (loss) before provision (benefit) for in-
   come taxes ...........................................       (2,010)          21,421        9,643        3,999    
PROVISION (BENEFIT) FOR INCOME TAXES ....................         (804)(p)       19,958 (p)    7,583                 
                                                             ---------       ----------    ---------    ---------    
NET INCOME (LOSS) BEFORE EXTRAORDI-
 NARY ITEM ..............................................       (1,206)           1,463        2,000        3,999    
EXTRAORDINARY ITEM ......................................          (69)(q)       (6,139)
                                                             ---------       ----------    ---------    ---------    
NET INCOME (LOSS) .......................................    $  (1,275)      $   (4,676)   $   2,060    $   3,999    
                                                             =========       ==========    =========    =========    
NET INCOME (LOSS) AVAILABLE TO COMMON
 SHAREHOLDERS ...........................................                    $  (15,026)
                                                                             ==========
BASIC EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item.......                    $     0.04
                                                                             ==========
 Net income (loss) per share ............................                    $    (0.38)
                                                                             ==========
 Average shares outstanding .............................                        39,112
                                                                             ==========
DILUTED EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item ......                    $     0.03
                                                                             ==========
 Net income (loss) per share ............................                    $    (0.35)
                                                                             ==========
 Average shares outstanding .............................                        42,583 (r)
                                                                             ==========


<CAPTION>
                                                              SIGNIFICANT
                                                              ACQUISITIONS                          HISTORICAL,
                                                           -----------------                     1997 FINANCINGS
                                                                SULLIVAN         ACQUISITION     AND SIGNIFICANT
                                                            BROADCASTING(C)      ADJUSTMENTS      ACQUISITIONS
                                                           ----------------- ------------------ ----------------
<S>                                                        <C>               <C>                <C>
REVENUES:
 Station broadcast revenues, net of agency commissions        $  120,124                           $ 715,086
 Revenues realized from station barter arrangements.......        17,650                              72,215
                                                              ----------                           ---------
   Total revenues ........................................       137,774                --           787,301
                                                              ----------                --         ---------
OPERATING EXPENSES:
 Program and production ..................................        17,301                             147,786
 Selling, general and administrative .....................        28,319        $   (9,401)(d)       166,160
 Expenses realized from barter arrangements ..............        16,999                              60,921
 Amortization of program contract costs and net realiz-
 able value adjustments ..................................        13,198                              87,008
 Amortization of deferred compensation ...................                                             1,636
 Depreciation and amortization of property and equip-
 ment ....................................................         9,464            (1,473)(e)        34,990
 Amortization of acquired intangible assets, non-
 compete, consult and other ..............................        32,756            17,098 (h)       141,187
                                                              ----------        ----------         ---------
   Total operating expenses ..............................       118,037             6,224           639,688
                                                              ----------        ----------         ---------
  Broadcast operating income (loss) ......................        19,737            (6,224)          147,613
                                                              ----------        ----------         ---------
OTHER INCOME (EXPENSE):
 Interest and amortization of debt discount expense ......       (40,711)          (59,477)(m)      (195,634)
 Subsidiary trust minority interest expense ..............                                           (23,250)
 Interest income .........................................                            (280)(o)         1,894
 Other income ............................................            12                              17,497
                                                              ----------                           ---------
  Income (loss) before provision (benefit) for in-
   come taxes ............................................       (20,962)          (65,981)          (51,880)
PROVISION (BENEFIT) FOR INCOME TAXES .....................        (5,488)          (26,392)(p)        (4,339)
                                                              ----------        ----------         ---------
NET INCOME (LOSS) BEFORE EXTRAORDI-
 NARY ITEM ...............................................       (15,474)          (39,589)          (47,541)
EXTRAORDINARY ITEM .......................................                                            (6,139)
                                                                                                   ---------
NET INCOME (LOSS) ........................................    $  (15,474)       $  (39,589)        $ (53,680)
                                                              ==========        ==========         =========
NET INCOME (LOSS) AVAILABLE TO COMMON
 SHAREHOLDERS ............................................                                         $ (64,030)
                                                                                                   =========
BASIC EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item........                                         $   (1.16)
                                                                                                   =========
 Net income (loss) per share .............................                                         $   (1.57)
                                                                                                   =========
 Average shares outstanding ..............................                                            40,866
                                                                                                   =========
DILUTED EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item .......                                         $   (1.07)
                                                                                                   =========
 Net income (loss) per share .............................                                         $   (1.44)
                                                                                                   =========
 Average shares outstanding ..............................                                            44,337 (s)
                                                                                                   =========

</TABLE>


                                       7
<PAGE>

                         SINCLAIR BROADCAST GROUP, INC.
             NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             (DOLLARS IN THOUSANDS)

(a)        The Heritage  column  reflects the results of operations for Heritage
           for the  period  from  January 1, 1997 to  December  31,  1997,  less
           television and radio  stations the Company has definitive  agreements
           to  sell.  These  dispositions  include  the  Portland,   Oregon  and
           Rochester,  New York radio stations and the  Burlington,  Vermont and
           Plattsburgh, New York television stations.

(b)        The Max Media column reflects the results of operations for Max Media
           for the period from January 1, 1997 to December  31,  1997.  Included
           within  other  income  is  a  one  time  gain  on  station  sales  of
           approximately $8,500.

(c)        The Sullivan  Broadcasting  column reflects the results of operations
           for  Sullivan  Broadcasting  for the period  from  January 1, 1997 to
           December 31, 1997.

(d)        To  adjust  operating   expenses  for  corporate   overhead  (net  of
           integration  costs the Company  anticipates  incurring as a result of
           the  Significant  Acquisitions)  which the Company does not expect to
           incur  upon  consummation  of the  Heritage  Acquisition,  Max  Media
           Acquisition and the Sullivan Acquisition on a going-forward basis.


(e)        To record  depreciation  expense related to acquired  tangible assets
           and eliminate  depreciation expense recorded by Heritage,  Max Media,
           and Sullivan  from  January 1, 1997 to December  31,  1997.  Tangible
           assets  are to be  depreciated  over lives  ranging  from three to 20
           years, calculated as follows:

<TABLE>
<CAPTION>
                                                                                               YEAR ENDED
                                                                                            DECEMBER 31, 1997
                                                                            ------------------------------------------------
                                                                             HERITAGE   MAX MEDIA    SULLIVAN       TOTAL
                                                                            ---------- ----------- ------------ ------------
<S>                                                                         <C>        <C>         <C>          <C>
   Depreciation expense on acquired tangible assets .......................  $  5,231   $  4,637     $  7,082     $  16,950
   Less: Depreciation expense recorded by Heritage, Max Media and Sullivan     (4,246)    (4,713)      (9,464)      (18,423)
                                                                             --------   --------     --------     ---------
   Pro forma adjustment ...................................................  $    985   $    (76)    $ (2,382)    $  (1,473)
                                                                             ========   ========     ========     =========

</TABLE>

(f)        To record  amortization  expense on other  assets  that relate to the
           HYTOPS Issuance for one year ($7,677 over 12 years).

<TABLE>
<S>                                                          <C>
   Amortization expense on other assets ..................    $  640
   Amortization expense recorded by the Company ..........      (507)
                                                              ------
   Pro Forma adjustment ..................................    $  133
                                                              ======

</TABLE>

(g)        To record  amortization  expense on other  assets  that relate to the
           July 1997 Debt Issuance for one year ($4,766 over 10 years).

<TABLE>
<S>                                                          <C>
   Amortization expense on other assets ..................    $  477
   Amortization expense recorded by the Company ..........      (228)
                                                              ------
   Pro Forma adjustment ..................................    $  249
                                                              ======

</TABLE>

(h)        To record amortization  expense related to acquired intangible assets
           and  deferred  financing  costs and  eliminate  amortization  expense
           recorded by Heritage,  Max Media and Sullivan from January 1, 1997 to
           December 31, 1997.  Intangible  assets are to be amortized over lives
           ranging from one to 40 years, calculated as follows:

<TABLE>
<CAPTION>
                                                                                                YEAR ENDED
                                                                                            DECEMBER 31, 1997
                                                                            --------------------------------------------------
                                                                              HERITAGE    MAX MEDIA    SULLIVAN       TOTAL
                                                                            ------------ ----------- ------------ ------------
<S>                                                                         <C>          <C>         <C>          <C>
   Amortization expense on acquired intangible assets .....................  $  20,974    $ 12,357    $  39,634    $  72,965
   Less: Amortization expense recorded by Heritage, Max Media and Sullivan     (15,083)     (8,028)     (32,756)     (55,867)
                                                                             ---------    --------    ---------    ---------
   Pro forma adjustment ...................................................  $   5,891    $  4,329    $   6,878    $  17,098
                                                                             =========    ========    =========    =========
</TABLE>

(i)         To record  the net  interest  expense  reduction  for the year ended
            December 31, 1997 related to the  application of the HYTOPS Issuance
            proceeds  to the  outstanding  balance  under the  revolving  credit
            facility  under the Bank Credit  Agreement  offset by an increase in
            commitment  fees  for  the  available  but  unused  portion  of  the
            revolving credit facility.

<TABLE>
<S>                                                                                          <C>
     Interest on adjusted borrowings on the revolving credit facility for the period from
      January 1, 1997 to March 5, 1997 ...................................................    $  2,865
     Commitment fee on available but unused borrowings of $250,000 for five months
      and $675,000 for seven months of revolving credit facility at 1/2 of 1%.............      (2,490)
     Commitment fee on available borrowings recorded by the Company ......................       1,477
                                                                                              --------
     Pro forma adjustment ................................................................    $  1,852
                                                                                              ========

</TABLE>

(j)        To  record  the  net  interest  expense   reduction  related  to  the
           application  of the net  proceeds  of the July 1997 Debt  Issuance to
           repay  borrowings under the Bank Credit Agreement for the period from
           January 1, 1997 to June 27,  1997  offset by an  increase in interest
           expense  for the July  1997  Debt  Issuance  ($200,000  at 9%) net of
           interest recorded by the Company.


                                       8
<PAGE>


(k)        To record the interest  expense  reduction of $16,857  related to the
           application of the net proceeds of the 1997 Common Stock Issuance and
           the 1997 Preferred Stock Issuance to repay  borrowings under the Bank
           Credit Agreement for the period from January 1, 1997 to September 17,
           1997.

(l)        To record  adjustments  related to the  December  1997 Debt  Issuance
           ($250,000 at 8.75%) and the Debt Repurchase as follows:


<TABLE>
<S>                                                                                          <C>
   Interest Adjustments:
      Interest on December Debt Issuance for one year ....................................    $ 21,875
      Interest recorded in the 1993 Notes ................................................      (9,646)
      Interest recorded on the December Debt Issuance ....................................        (911)
      Interest expense reduction related to the application of the net proceeds from the
       December Debt Issuance ............................................................      (9,688)
                                                                                              --------
                                                                                                 1,630
                                                                                              --------
   Amortization Adjustments:
      Amortization of deferred financing costs and debt discount .........................         678
      Amortization recorded by the Company ...............................................        (298)
                                                                                              --------
                                                                                                   380
                                                                                              --------
      Pro forma adjustment ...............................................................    $  2,010
                                                                                              ========

</TABLE>


(m)        To record  interest  expense for the year ended  December 31, 1997 on
           acquisition financing relating to Heritage, Max Media and Sullivan of
           $401,500,  $242,183 and  $900,000  (under the  Company's  Bank Credit
           Agreement at 7.43%), and eliminate interest expense recorded.

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED
                                                                                DECEMBER 31, 1997
                                                                          -----------------------------
                                                                             HERITAGE       MAX MEDIA
                                                                          -------------- --------------
<S>                                                                       <C>            <C>
     Interest expense adjustment as noted above .........................   $  (28,956)    $  (17,288)
     Less: Interest expense recorded by Heritage, Max Media and Sullivan         5,940          6,078
                                                                            ----------     ----------
     Pro forma adjustment ...............................................   $  (23,016)    $  (11,210)
                                                                            ==========     ==========

<CAPTION>
                                                                                    YEAR ENDED
                                                                                DECEMBER 31, 1997
                                                                          ------------------------------
                                                                             SULLIVAN         TOTAL
                                                                          -------------- ---------------
<S>                                                                       <C>            <C>
     Interest expense adjustment as noted above .........................   $  (65,962)    $  (112,206)
     Less: Interest expense recorded by Heritage, Max Media and Sullivan        40,711          52,729
                                                                            ----------     -----------
     Pro forma adjustment ...............................................   $  (25,251)    $   (59,477)
                                                                            ==========     ===========
</TABLE>

(n)        To record  subsidiary  trust minority  interest  expense for the year
           ended  December 31, 1997  ($200,000  aggregate  liquidation  value of
           HYTOPS at 11.625%).

<TABLE>
<S>                                                                        <C>
     Subsidiary trust minority interest expense ........................    $  23,250
     Subsidiary trust minority interest expense recorded by the Company       (18,600)
                                                                            ---------
     Pro Forma adjustment ..............................................    $   4,650
                                                                            =========

</TABLE>

(o)        To eliminate  interest income for the year ended December 31, 1997 on
           proceeds  from the sale of the December  Debt Issuance due to assumed
           utilization of excess cash for the Significant Acquisitions.

(p)        To record tax provision (benefit) at the applicable tax rates.

(q)        To record  an  increase  in the  extraordinary  loss,  net of the tax
           effect  related  to the  Debt  Repurchase  and the  write-off  of the
           deferred financing costs related to the 1993 Notes.

(r)        Weighted average shares outstanding on a pro forma basis assumes that
           the  4,345,000  shares  of Class A Common  Stock  issued  in the 1997
           Common Stock  Issuance  were  outstanding  as of the beginning of the
           period.

(s)        Weighted average shares outstanding on a pro forma basis assumes that
           1,754,386  shares of Class A Common  Stock  issuable at the option of
           the Company pursuant to the Sullivan Acquisition  Agreement (assuming
           an average  closing price of $57 per share at time of issuance)  were
           outstanding as of the beginning of the period.



                                       9
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS


                                   CONTENTS


<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                           -----
<S>                                                                                         <C>
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
Report of Independent Public Accountants ................................................   F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............................   F-3
Consolidated Statements of Operations for the Four Months Ended December 31, 1997, the
 Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 ............   F-4
Consolidated Statements of Stockholders' Equity for the Four Months Ended December 31,
 1997, the Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 ..   F-5
Consolidated Statements of Cash Flows for the Four Months Ended December 31, 1997, the
 Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 ............   F-6
Notes to Consolidated Financial Statements ..............................................   F-7

MAX MEDIA PROPERTIES LLC
Independent Auditors' Report ............................................................   F-15
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............................   F-16
Consolidated Statements of Operations for the Years Ended December 31, 1997 and 1996 ....   F-17
Consolidated Statements of Members' Capital for the Years Ended December 31, 1997 and
 1996 ...................................................................................   F-18
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 ....   F-19
Notes to Consolidated Financial Statements ..............................................   F-20

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Accountants .......................................................   F-32
Consolidated Balance Sheet as of December 31, 1996 and 1997 .............................   F-33
Consolidated Statement of Operations for the Period from Inception (June 2, 1995) through
 December 31, 1995 and for the Years Ended December 31, 1996 and 1997 ...................   F-34
Consolidated Statement of Cash Flows for the Period from Inception (June 2, 1995) through
 December 31, 1995 and for the Years Ended December 31, 1996 and 1997 ...................   F-35
Consolidated Statement of Changes in Shareholders' Equity for the Period from Inception
 (June 2, 1995) through December 31, 1995 and for the Years Ended December 31, 1996
 and 1997 ...............................................................................   F-36
Notes to Consolidated Financial Statements ..............................................   F-37

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES -- (FORMERLY
 ACT III BROADCASTING, INC. AS SUCCESSOR BY MERGER WITH A-3 ACQUISITION, INC.)
Report of Independent Accountants .......................................................   F-48
Consolidated Statement of Operations for the Year Ended December 31, 1995 ...............   F-49
Consolidated Statement of Cash Flows for the Year Ended December 31, 1995 ...............   F-50
Consolidated Statement of Changes in Shareholders' Deficit ..............................   F-51
Notes to Consolidated Financial Statements ..............................................   F-52
</TABLE>


                                      F-1
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:

     We have audited the  accompanying  consolidated  balance sheets of Heritage
Media Services,  Inc. --  Broadcasting  Segment (the Company) as of December 31,
1997, and Heritage Media Services, Inc. - Broadcasting Segment (the Predecessor)
as of December 31, 1996, and the related consolidated  statements of operations,
stockholders'  equity and cash flows of the Company  for the four  months  ended
December 31, 1997, and of the  Predecessor for the eight months ended August 31,
1997, and the year ended December 31, 1996.  These financial  statements are the
responsibility   of  the  Company's  and  the  Predecessor's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of the Company
as of December 31, 1997,  and the  Predecessor  as of December 31, 1996, and the
results of  operations  and cash flows of the Company for the four months  ended
December 31, 1997, and of the  Predecessor for the eight months ended August 31,
1997,  and for the year ended  December 31, 1996, in conformity  with  generally
accepted accounting principles.

                                                         /s/ Arthur Andersen LLP

Baltimore, Maryland,
February 17, 1998



                                      F-2
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1996
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                 COMPANY      PREDECESSOR
                                                                                   1997          1996
                                                                               -----------   ------------
<S>                                                                            <C>           <C>
                                    ASSETS
CURRENT ASSETS:
 Cash ......................................................................    $  2,520      $   2,151
 Accounts receivable, net of allowance for doubtful accounts of $1,450 and
   $1,348, respectively ....................................................      20,869         20,036
 Current portion of program contract costs .................................       1,704          1,006
 Prepaid expenses and other current assets .................................         998            138
 Deferred barter costs .....................................................         880          1,911
 Deferred tax asset ........................................................         279            215
                                                                                --------      ---------
   Total current assets ....................................................      27,250         25,457
 PROGRAM CONTRACT COSTS, less current portion ..............................       1,323          1,498
 PROPERTY, PLANT AND EQUIPMENT, net ........................................      45,840         30,005
 ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ..............................     564,157        163,626
 OTHER ASSETS ..............................................................          19            821
                                                                                --------      ---------
   Total Assets ............................................................    $638,589      $ 221,407
                                                                                ========      =========
                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable and accrued expenses .....................................    $  5,876      $   5,399
 Deferred revenue ..........................................................         587            428
 Deferred barter revenue ...................................................         676          1,746
 Current portion of program contracts payable ..............................       2,194          2,079
                                                                                --------      ---------
   Total current liabilities ...............................................       9,333          9,652
PROGRAM CONTRACTS PAYABLE, less current portion ............................         857          1,165
DUE TO AFFILIATE ...........................................................          --        178,393
DEFERRED TAX LIABILITY .....................................................         609            563
OTHER LONG-TERM LIABILITIES ................................................         910            152
                                                                                --------      ---------
   Total Liabilities .......................................................      11,709        189,925
                                                                                --------      ---------
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY:
 Common stock, $1.00 par value, 3,576,000 shares authorized, and 2,591,586
   shares issued and outstanding ...........................................       2,592          2,592
 Additional paid-in capital ................................................     630,333         66,174
 Accumulated deficit .......................................................      (6,045)       (37,284)
                                                                                --------      ---------
   Total Stockholders' Equity ..............................................     626,880         31,482
                                                                                --------      ---------
   Total Liabilities and Stockholders' Equity ..............................    $638,589      $ 221,407
                                                                                ========      =========

</TABLE>

                 The accompanying notes are an integral part of
                       these consolidated balance sheets.


                                      F-3
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                       COMPANY            PREDECESSOR
                                                                   -------------- ---------------------------
                                                                     FOUR MONTHS   EIGHT MONTHS
                                                                        ENDED         ENDED       YEAR ENDED
                                                                    DECEMBER 31,    AUGUST 31,   DECEMBER 31,
                                                                        1997           1997          1996
                                                                   -------------- ------------- -------------
<S>                                                                <C>            <C>           <C>
NET REVENUES:
 Station broadcasting revenues, net of agency commissions of
   $7,303, $10,820 and $16,727,respectively.......................    $ 36,906      $ 62,180      $  95,302
 Revenues realized from station barter arrangements ..............       2,029         3,610          4,292
                                                                      --------      --------      ---------
   Total net revenues ............................................      38,935        65,790         99,594
                                                                      --------      --------      ---------
OPERATING EXPENSES:
 Programming and production ......................................      13,437        22,515         20,089
 Selling, general and administrative .............................       8,569        15,477         31,916
 Expenses realized from station barter arrangements ..............       1,912         3,035          3,478
 Amortization of program contract costs and net realizable value
   adjustments ...................................................         870         1,879          3,165
 Depreciation of property and equipment ..........................       2,286         3,790          5,472
 Amortization of acquired intangible broadcasting assets and
   other assets ..................................................      12,867         7,127          8,460
                                                                      --------      --------      ---------
   Total operating expenses ......................................      39,941        53,823         72,580
                                                                      --------      --------      ---------
   Broadcast operating income (loss) .............................      (1,006)       11,967         27,014
                                                                      --------      --------      ---------
OTHER INCOME (EXPENSE):
 Interest expense ................................................      (2,026)       (6,499)       (17,949)
 Gain on sale of assets ..........................................          --         9,401          6,031
 Other expense, net ..............................................        (588)         (177)          (203)
                                                                      --------      --------      ---------
   Income (loss) before provision for income taxes ...............      (3,620)       14,692         14,893
PROVISION FOR INCOME TAXES .......................................      (2,425)       (7,605)        (7,853)
                                                                      --------      --------      ---------
   Net income (loss) .............................................    $ (6,045)     $  7,087      $   7,040
                                                                      ========      ========      =========

</TABLE>

  The accompanying notes are an integral part of these consolidated statements.

                                       F-4
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                     COMMON STOCK         ADDITIONAL
                                                 ---------------------     PAID-IN      ACCUMULATED     STOCKHOLDER'S
                                                  SHARES      AMOUNT       CAPITAL        DEFICIT          EQUITY
                                                 --------   ----------   -----------   -------------   --------------
<S>                                              <C>        <C>          <C>           <C>             <C>
PREDECESSOR:
 BALANCE, December 31, 1995 ..................    2,592      $ 2,592      $ 14,368       $ (13,804)      $   3,156
   HMC capital contributions .................       --           --        43,024              --          43,024
   HMC noncash capital contributions .........       --           --         8,782              --           8,782
   Dividends to HMC ..........................       --           --            --         (30,520)        (30,520)
   Net income ................................       --           --            --           7,040           7,040
                                                  -----      -------      --------       ---------       ---------
 BALANCE, December 31, 1996 ..................    2,592        2,592        66,174         (37,284)         31,482
   HMC noncash capital contributions .........       --           --         7,109              --           7,109
   Net income ................................       --           --            --           7,087           7,087
                                                  -----      -------      --------       ---------       ---------
 BALANCE, August 31, 1997 ....................    2,592      $ 2,592      $ 73,283       $ (30,197)      $  45,678
                                                  =====      =======      ========       =========       =========
COMPANY:
   Impact of acquisition by News Corporation
    and related push down accounting .........    2,592      $ 2,592      $627,408              --       $ 630,000
   News Corporation noncash capital contribu-
    tions ....................................       --           --         2,925              --           2,925
   Net loss ..................................       --           --            --          (6,045)         (6,045)
                                                  -----      -------      --------       ---------       ---------
 BALANCE, December 31, 1997 ..................    2,592      $ 2,592      $630,333       $  (6,045)      $ 626,880
                                                  =====      =======      ========       =========       =========

</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       F-5
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                           COMPANY            PREDECESSOR
                                                                       -------------- ---------------------------
                                                                         FOUR MONTHS   EIGHT MONTHS
                                                                            ENDED         ENDED       YEAR ENDED
                                                                        DECEMBER 31,    AUGUST 31,   DECEMBER 31,
                                                                            1997           1997          1996
                                                                       -------------- ------------- -------------
<S>                                                                    <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss) ...................................................    $ (6,045)     $   7,087     $   7,040
 Adjustments to reconcile net income (loss) to net cash flows from
   operating activities-
   Depreciation of property and equipment ............................       2,286          3,790         5,472
   Amortization-
    Acquired intangible broadcasting assets and other assets .........      12,867          7,127         8,460
    Program contract costs and net realizable value adjustments .              870          1,879         3,165
   Gain on sale of assets ............................................          --         (9,401)       (6,031)
   Amortization of deferred compensation .............................          --             --           135
   Deferred tax provision (benefit) ..................................          40            (57)         (101)
 Changes in assets and liabilities, net of effects of acquisitions-
   (Increase) decrease in accounts receivable, net ...................      (1,329)           496        (1,681)
   Net effect of change in deferred barter revenue and deferred
    barter costs .....................................................       2,471         (2,507)          (53)
   Increase in other assets ..........................................        (108)        (1,309)         (147)
   Decrease (increase) in prepaid expenses and other current as-
    sets .............................................................         401         (1,261)          810
   (Decrease) increase in accounts payable and accrued expenses .           (1,036)         1,705        (3,486)
   Increase in deferred revenue ......................................          93             66           151
   Increase (decrease) in other liabilities ..........................         498            260           (44)
 Payments on program contracts payable ...............................        (941)        (1,882)       (2,565)
                                                                          --------      ---------     ---------
      Net cash flows from operating activities .......................      10,067          5,993        11,125
                                                                          --------      ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition of property and equipment ...............................        (317)        (4,118)       (6,938)
 Proceeds from sale of station .......................................          --             --        13,759
 Receipts (payments) from exchange of stations .......................          --         11,240        (9,384)
                                                                          --------      ---------     ---------
      Net cash flows from investing activities .......................        (317)         7,122        (2,563)
                                                                          --------      ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Dividends to Parent .................................................          --             --       (30,520)
 Decrease in due to affiliates .......................................      (9,293)       (13,203)      (20,714)
 Capital contributions made by Parent ................................          --             --        43,024
                                                                          --------      ---------     ---------
      Net cash flows from financing activities .......................      (9,293)       (13,203)       (8,210)
                                                                          --------      ---------     ---------
NET INCREASE (DECREASE) IN CASH ......................................         457            (88)          352
CASH, beginning of period ............................................       2,063          2,151         1,799
                                                                          --------      ---------     ---------
CASH, end of period ..................................................    $  2,520      $   2,063     $   2,151
                                                                          ========      =========     =========
SUPPLEMENTAL DISCLOSURE:
 Program rights acquired .............................................    $  2,152      $     693     $   3,674
                                                                          ========      =========     =========

</TABLE>

  The accompanying notes are an integral part of these consolidated statements.

                                       F-6
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

Heritage  Media  Services,  Inc.  ("HMSI")  operates in two segments - Marketing
Services  and  Broadcasting.  The  parent  company  of  HMSI is  Heritage  Media
Corporation ("HMC"). The accompanying  consolidated financial statements include
the accounts of the  television  and radio  operations,  which are  collectively
referred  to  hereafter  as "the  Company,  the  Companies  or the  Broadcasting
Segment." The Broadcasting  Segment was wholly-owned and operated by HMSI, which
was owned by HMC through  August 31, 1997 (the  Predecessor).  In July 1997, HMC
entered into an asset sale agreement with Sinclair Broadcast Group, Inc. ("SBG")
whereby SBG would  acquire  100% of the  Broadcast  Segment for $630  million in
cash. The sale to SBG is expected to close during the first quarter of 1998.

Effective September 1, 1997, The News Corporation  Limited ("News  Corporation")
acquired  all of the  outstanding  stock  of  HMC.  Due  to  certain  regulatory
requirements,  News  Corporation  has  established  a trust  to hold  all of the
license and nonlicense assets of the Broadcasting  Segment until the sale to SBG
has closed.  The  acquisition  of the  Broadcasting  Segment was  accounted  for
utilizing  push down  accounting  whereby the  purchase  price was  allocated to
property and programming assets and acquired  intangible  broadcasting assets of
$51.4 million and $578.6 million, based upon an independent appraisal.

As a result of the News Corporation  acquisition,  the accompanying December 31,
1997,  balance sheet and related statements of operations and cash flows for the
four-month  period  ended  December 31,  1997,  are  presented on a new basis of
accounting.  The accompanying  financial  statements for the eight-month  period
ended August 31, 1997,  and for the year ended  December 31, 1996, are presented
as "Predecessor" financial statements.

The Company owns and  operates  television  and radio  stations  throughout  the
United  States.  Also  included  in  the  accompanying   consolidated  financial
statements  are the results of  operations  of WFGX-TV  Channel 35 in Ft. Walton
Beach, Florida, and WFFF in Burlington,  Vermont,  pursuant to a local marketing
agreement (LMA).


Disclosure of Certain Significant Risks and Uncertainties

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

In the opinion of management,  credit risk with respect to trade  receivables is
limited due to the large  number of  diversified  customers  and the  geographic
diversification  of the Company's  customer base. The Company  performs  ongoing
credit  evaluations  of its customers and believes that adequate  allowances for
any  uncollectable  trade  receivables are maintained.  At December 31, 1997 and
1996, no receivable from any customer exceeded 5% of stockholders'  equity,  and
no customer accounted for more than 10% of net revenues in 1997 and 1996.


Acquired Intangible Broadcasting Assets

Acquired intangible broadcasting assets are being amortized over periods of four
to 40 years. These amounts result from the acquisition of certain television and
radio station license and nonlicense assets. The Company monitors the individual
financial  performance  of each of the stations and  continually  evaluates  the
realizability  of  intangible  and  tangible  assets  and the  existence  of any
impairment to its recoverability based on the projected  undiscounted cash flows
of the respective stations.


                                       F-7
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

Intangible  assets consist of the following as of December 31, 1997 and 1996 (in
thousands):


<TABLE>
<CAPTION>
                                              AMORTIZATION     COMPANY    PREDECESSOR
                                                 PERIOD          1997        1996
                                            ---------------- ----------- ------------
<S>                                         <C>              <C>         <C>

   Goodwill ...............................    40 years       $ 298,466   $  63,979
   FCC licenses ........................... 15 -- 25 years      275,391     147,040
   Other ..................................  4 - 25 years           912       1,319
                                                              ---------   ---------
                                                                574,769     212,338

   Less: Accumulated amortization .........                     (10,612)    (48,712)
                                                              ---------   ---------

                                                              $ 564,157   $ 163,626
                                                              =========   =========

</TABLE>

Property and Equipment

Property  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation is recorded on the  straight-line  basis over the estimated  useful
lives of the assets.  Property and equipment at December 31, 1997 and 1996,  are
summarized as follows (in thousands):


<TABLE>
<CAPTION>
                                                                COMPANY      PREDECESSOR
                                               USEFUL LIFE        1997          1996
                                              -------------   -----------   ------------
<S>                                           <C>             <C>           <C>

   Land ...................................        --          $  3,101      $   2,685
   Broadcasting equipment .................    5-25 years        35,548         41,268
   Buildings and improvements .............   12-30 years        10,417          7,369
   Other equipment ........................    4-8 years          2,350          9,904
                                                               --------      ---------
                                                                 51,416         61,226
   Less: Accumulated depreciation .........                      (5,576)       (31,221)
                                                               --------      ---------
                                                               $ 45,840      $  30,005
                                                               ========      =========

</TABLE>

Programming

The  Company  has  agreements  with  distributors  for the rights to  television
programming  over contract  periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period.  Each contract is recorded as an asset and a liability
when the  license  period  begins  and the  program is  available  for its first
showing.  The  portion  of the  program  contracts  payable  within  one year is
reflected  as a  current  liability  in the  accompanying  consolidated  balance
sheets.

The rights to program  materials are reflected in the accompanying  consolidated
balance  sheets at the lower of  unamortized  cost or estimated  net  realizable
value.  Estimated net realizable values are based upon management's  expectation
of future advertising revenues,  net of sales commissions to be generated by the
program  material.   Amortization  of  program  contract  costs  is  charged  to
operations  by the  straight-line  method over the  contract  period or based on
usage,  whichever  yields the greater  amortization  for each  program.  Program
contract costs  estimated by management to be amortized in the  succeeding  year
are classified as current assets.  Payments of program contract  liabilities are
typically  paid on a scheduled  basis and are not  affected by  adjustments  for
amortization or estimated net realizable value.


                                       F-8
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

Barter Transactions

Certain  program  contracts  provide for the exchange of advertising air time in
lieu of cash payments for the rights to such  programming.  These  contracts are
recorded  as  the  programs  are  aired  at  the  estimated  fair  value  of the
advertising  air  time  given  in  exchange  for  the  program  rights.  Network
programming is excluded from these calculations.

The Company broadcasts certain customers' advertising in exchange for equipment,
merchandise and services. The estimated fair value of the equipment, merchandise
or services  received is recorded as deferred barter costs and the corresponding
obligation to broadcast advertising is recorded as deferred barter revenues. The
deferred barter costs are expensed or capitalized as they are used,  consumed or
received.  Deferred barter revenues are recognized as the related advertising is
aired.


Other Assets

Debt  issuance  costs are  amortized  to interest  expense  using the  effective
interest method over the period of the related debt agreement.


Revenues

Broadcast  revenues  are derived  primarily  from local,  regional  and national
advertising and network  compensation.  Advertising revenues are recognized upon
the airing of  commercials,  while network  revenues are  recognized  monthly as
earned.  Revenues are presented  net of  advertising  agency and national  sales
representative commissions.


Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

The  Company  adopted  the  provisions  of  Statement  of  Financial  Accounting
Standards  (SFAS) No. 121,  "Accounting for the Impairment of Long-Lived  Assets
and  for  Long-Lived  Assets  to Be  Disposed  Of" on  January  1,  1996.  These
statements require that long-lived assets and certain  identifiable  intangibles
be reviewed 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 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.  Initial adoption of these  statements,
as of January 1, 1996, did not have a material impact on the Company's financial
position or results of operations.


Local Marketing Agreements

The Company  generally enters into LMA's and similar  arrangements with stations
located in markets in which the Company already owns and operates a station, and
in  connection  with  acquisitions  pending  regulatory  approval of transfer of
license assets. Under the terms of these agreements, the Company makes specified
periodic payments to the owner-operator in exchange for the grant to the Company
of the right to  program  and sell  advertising  on a  specified  portion of the
station's  inventory  of  broadcast  time.  Nevertheless,  as the  holder of the
Federal Communication  Commission (FCC) license, the owner-operator retains full
control and responsibility  for the operation of the station,  including control
over all programming broadcast on the station.


Reclassifications

Certain  reclassifications have been made to the prior year financial statements
to conform with the current year presentation.


                                       F-9
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

2. ACCRUED EXPENSES:

Accrued  expenses  consist of the  following at December 31, 1997 and 1996,  (in
thousands):


<TABLE>
<CAPTION>
                                              COMPANY     PREDECESSOR
                                                1997         1996
                                             ---------   ------------
<S>                                          <C>         <C>
   Commissions ...........................    $3,429        $1,449
   Payroll and employee benefits .........       702           960
   Other .................................     1,740         2,842
                                              ------        ------
                                              $5,871        $5,251
                                              ======        ======

</TABLE>

3. DUE TO AFFILIATE:

The Predecessor had an arrangement  with HMSI whereby HMSI would provide certain
management and other services to the Predecessor. The services provided included
consultation  and direct  management  assistance  with respect to operations and
strategic planning. The Predecessor was allocated approximately $4.7 million and
$2.0 million of  corporate  overhead  expenses for these  services for the eight
months  ended  August  31,  1997,  and for the year  ended  December  31,  1996,
respectively.

In order to fund  acquisitions and provide  operating funds, HMSI entered into a
Bank Credit Agreement.  The debt was used to finance acquisitions and fund daily
operations  of the  Predecessor  and was recorded by the  Predecessor  as due to
affiliate in the  accompanying  consolidated  balance  sheets as of December 31,
1996.  HMSI  allocated  interest  at  a  rate  of  approximately   10.0%,  which
approximated  the average rate paid on the borrowings.  Associated with the HMSI
debt,  the  Predecessor  was  allocated  approximately  $0.6 million of deferred
financing  costs in 1996. The deferred  financing  costs were fully amortized in
conjunction with the acquisition by News Corporation on September 1, 1997.


4. PROGRAM CONTRACTS PAYABLE:

Future  payments  required  under program  contracts  payable as of December 31,
1997, are as follows (in thousands):

<TABLE>
<S>                                                           <C>
   1998 ...................................................    $  2,194
   1999 ...................................................         666
   2000 ...................................................         175
   2001 ...................................................          16
                                                               --------
                                                                  3,051
   Less: Current portion ..................................      (2,194)
                                                               --------
   Long-term portion of program contracts payable .........    $    857
                                                               ========

</TABLE>

The Company has  estimated the fair value of its program  contract  payables and
noncancelable  commitments  at  approximately  $2.5  million  and $0.4  million,
respectively,   at  December  31,  1997  and  $2.6  million  and  $0.4  million,
respectively, at December 31, 1996, based on future cash flows discounted at the
Company's current borrowing rate.


Broadcast Program Rights

The Company has entered into contracts for broadcast  program rights that expire
at various dates during the next four years.  Contracts  totaling  approximately
$0.5 million relate to programs  which are not currently  available for use and,
therefore,  are not  reflected  as assets  or  liabilities  in the  accompanying
consolidated balance sheets at December 31, 1997 and 1996.


                                      F-10
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

5. INCOME TAXES:

The Parent  files a  consolidated  federal  tax return  and  separate  state tax
returns for each of its subsidiaries in certain filing jurisdictions.  It is the
Parent's  policy to pay the federal  income tax  provision of the  Company.  The
accompanying  financial  statements  have been prepared in  accordance  with the
separate  return method of FASB 109,  whereby the  allocation of the federal tax
provision due to the Parent is based on what the Company's  current and deferred
federal tax provision would have been had the Company filed a federal income tax
return  outside  of its  consolidated  group.  The  Company is not  required  to
reimburse the Parent for its federal tax provision.  Accordingly, this amount is
recorded as a capital  contribution in the accompanying  consolidated  financial
statements.  No federal  deferred tax assets or liabilities are recorded because
those amounts are considered  currently  paid to or received by the Parent.  The
federal and state tax provision was calculated  based on pretax income,  plus or
minus permanent  book-to-tax  differences,  times the statutory tax rate of 40%.
The Company had no alternative  minimum tax credit  carryforwards as of December
31, 1997 and 1996.

The  provision  (benefit)  for  income  taxes  consists  of  the  following  (in
thousands):


<TABLE>
<CAPTION>
                                               COMPANY                     PREDECESSOR
                                         ------------------- ---------------------------------------
                                          FOUR MONTHS ENDED   EIGHT MONTHS ENDED      YEAR ENDED
                                          DECEMBER 31, 1997     AUGUST 31, 1997    DECEMBER 31, 1996
                                         ------------------- -------------------- ------------------
<S>                                      <C>                 <C>                  <C>

  Current:
    Federal ............................        $2,241              $7,202              $7,477
    State ..............................           144                 460                 477
                                                ------              ------              ------
                                                 2,385               7,662               7,954
                                                ------              ------              ------
  Deferred:
    Federal ............................            --                  --                  --
    State ..............................            40                 (57)               (101)
                                                ------              ------              ------
                                                    40                 (57)               (101)
                                                ------              ------              ------
    Provision for income taxes .........        $2,425              $7,605              $7,853
                                                ======              ======              ======

</TABLE>

The  following is a  reconciliation  of federal  income taxes at the  applicable
statutory rate to the recorded provision (in thousands):


<TABLE>
<CAPTION>
                                                         COMPANY                     PREDECESSOR
                                                   ------------------- ---------------------------------------
                                                    FOUR MONTHS ENDED   EIGHT MONTHS ENDED      YEAR ENDED
                                                    DECEMBER 31, 1997     AUGUST 31, 1997    DECEMBER 31, 1996
                                                   ------------------- -------------------- ------------------
<S>                                                <C>                 <C>                  <C>

  Statutory federal income taxes .................      $ (1,231)             $4,995              $5,064
  Adjustments:
    State income taxes, net of federal effect.....          (143)                582                 590
    Non-deductible goodwill amortization .........         3,789               1,725               1,659
    Non-deductible expense items .................            --                  20                  38
    Other ........................................            10                 283                 502
                                                        --------              ------              ------

  Provision for income taxes .....................      $  2,425              $7,605              $7,853
                                                        ========              ======              ======

</TABLE>

The following table summarizes the state tax effects of the significant types of
temporary differences between financial reporting basis and tax basis which were
generated during the years ended December 31, 1997 and 1996 (in thousands):


                                      F-11
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)


<TABLE>
<CAPTION>
                                    COMPANY    PREDECESSOR
                                     1997          1996
                                   --------   -------------
<S>                                <C>        <C>
   Deferred Tax Assets:
     Bad debt reserve ..........     $ 87          $ 80
     Accruals ..................      172           135
     Other intangibles .........       20            --
                                     ----          ----
                                     $279          $215
                                     ====          ====
   Deferred Tax Liability:
     Depreciation ..............     $609          $563
                                     ====          ====

</TABLE>

6. EMPLOYEE BENEFIT PLAN:

Company  employees  were  covered by HMC's  Retirement  Savings  Plan (the Plan)
through December 31, 1997, whereby  participants  contributed  portions of their
annual  compensation  to the Plan and  certain  contributions  were  made at the
discretion  of the Company  based on criteria  set forth in the Plan  Agreement.
Participants are generally 100% vested in Company contributions after five years
of  employment  with the  Company.  Company  expenses  under  the Plan  were not
material for the year ended December 31, 1997.


7. RELATED PARTY TRANSACTIONS:

The Company  received  certain  advances  from HMC during the eight months ended
August 31, 1997, which were evidenced by a subordination agreement. All advances
from HMC were repaid on August 31, 1997.


8. CONTINGENCIES AND OTHER COMMITMENTS:

Leases and Contracts

The Company and its subsidiaries  lease certain real property and transportation
and other equipment  under  noncancelable  operating  leases expiring at various
dates through 2010. The Company also has long-term contractual  obligations with
two major  broadcast  ratings firms that provide  monthly  ratings  services and
guaranteed store contracts.  Rent expense under these leases for the four months
ended  December 31, 1997,  the eight months ended August 31, 1997,  and the year
ended December 31, 1996,  was  approximately  $.6 million,  $.9 million and $1.6
million, respectively.

Future minimum payments under the leases are as follows (in thousands):



<TABLE>
<S>                                <C>
   1998 ........................    $  997
   1999 ........................       950
   2000 ........................       921
   2001 ........................       901
   2002 ........................       920
   2003 and thereafter .........     2,428
                                    ------
                                    $7,117
                                    ======

</TABLE>

Litigation

Lawsuits  and  claims are filed  against  the  Company  from time to time in the
ordinary  course of business  which are  generally  incidental  to its business.
Management  of the Company does not believe the  resolution of such matters will
have a significant  effect on its  liquidity,  financial  position or results of
operations.


                                      F-12
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

9. ACQUISITIONS AND EXCHANGES:

On January 7, 1997,  the Company  acquired  all of the  license  and  nonlicense
assets of radio station WHRR (FM),  serving the Rochester,  New York, market for
approximately $2.0 million. The acquisition was accounted for under the purchase
method of  accounting  whereby the purchase  price was allocated to property and
programming assets and acquired  intangible  broadcasting  assets of $.1 million
and $1.9 million, respectively.

On January 20, 1997, the Company entered into a like-kind  exchange with Journal
Broadcast Group ("JBG") whereby the Company transferred radio stations WMYU (FM)
and WWST (FM) in exchange for radio station KQRC (FM). The assets exchanged were
used in the same line of business,  no monetary  consideration  was received and
the fair value of the assets  exchanged  were greater than their  carrying  cost
and,  as  such,  no  gain  was  recognized  in  the  accompanying  statement  of
operations.

On January 24,  1997,  the Company  acquired  all of the license and  nonlicense
assets of radio  stations  KXTR (FM) and KCAZ (FM),  serving  the  Kansas  City,
Missouri,  market for approximately $10.5 million. The acquisition was accounted
for under the  purchase  method of  accounting  whereby the  purchase  price was
allocated  to  property   and   programming   assets  and  acquired   intangible
broadcasting assets of $.9 million and $9.6 million, respectively.

On February  17,  1997,  the Company  entered  into a  like-kind  exchange  with
Susquehanna  Radio  Corporation  ("SRC") whereby the Company  transferred  radio
station WVAE (FM) to SRC and received radio stations WGH (AM), WGH (FM) and WVCL
(FM),  along with $5.0 million in cash. In connection with the exchange,  a gain
of  approximately  $4.6  million was recorded in the  accompanying  statement of
operations.

On April 11, 1997, the Company  entered into a like-kind  exchange with American
Radio System Corporation ("ARSC") whereby the Company transferred radio stations
KCIN (FM) and KRPM (AM) to ARSC and received radio stations WRNO (FM), WEZB (FM)
and WBYU (AM), along with approximately $6.2 million in cash. In connection with
the  exchange,  a  gain  of  approximately  $4.8  million  was  recorded  in the
accompanying statement of operations.


10. FINANCIAL INFORMATION BY SEGMENT:

In June 1997, the Financial  Accounting Standards Board (FASB) released SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
131 establishes  standards for reporting information about operating segments in
annual financial  statements and requires  selected  information about operating
segments  in  interim  financial  statements.   SFAS  131  supercedes  SFAS  14,
"Financial Reporting for Segments of a Business Enterprise" and is effective for
financial statements for periods beginning after December 15, 1997.

The  Company  operates  in  two  principal   business   segments  --  television
broadcasting  and  radio  broadcasting.  At  December  31,  1997 and  1996,  the
television  segment  included five television  stations for which the Company is
the  licensee  and two  stations  which  are  operated  under a local  marketing
agreement.  These  seven  stations  operate  in seven  different  markets in the
continental United States.

The radio  group  currently  operates  23 radio  stations in seven of the top 50
largest markets by population. The holdings include at least three stations (and
two FM stations) in every market.


                                      F-13
<PAGE>

              HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)


<TABLE>
<CAPTION>
                                                           COMPANY               PREDECESSOR
                                                       --------------   -----------------------------
                                                         FOUR MONTHS     EIGHT MONTHS
                                                            ENDED           ENDED         YEAR ENDED
                                                        DECEMBER 31,      AUGUST 31,     DECEMBER 31,
                                                            1997             1997            1996
                                                       --------------   -------------   -------------
<S>                                                    <C>              <C>             <C>
TELEVISION
 Total revenues ....................................      $ 16,213         $ 28,360        $ 46,316
 Station operating expenses ........................         8,265           14,862          19,365
 Depreciation and program amortization .............         2,101            4,402           6,707
 Amortization of goodwill and other assets .........         5,769            4,136           4,910
                                                          --------         --------        --------
 Station broadcast operating income ................      $     78         $  4,960        $ 15,334
                                                          ========         ========        ========
 Total assets ......................................      $313,235         $134,071        $ 83,479
                                                          ========         ========        ========
 Capital expenditures ..............................      $     --         $  3,265        $  5,791
                                                          ========         ========        ========
RADIO
 Total revenues ....................................      $ 22,722         $ 37,430        $ 53,278
 Station operating expenses ........................        15,653           26,165          36,118
 Depreciation ......................................         1,055            1,267           1,930
 Amortization of goodwill and other assets .........         7,098            2,991           3,550
                                                          --------         --------        --------
 Station broadcast operating income ................      $ (1,084)        $  7,007        $ 11,680
                                                          ========         ========        ========
 Total assets ......................................      $329,169         $ 93,201        $137,928
                                                          ========         ========        ========
 Capital expenditures ..............................      $    317         $    853        $  1,147
                                                          ========         ========        ========
CONSOLIDATED
 Total revenues ....................................      $ 38,935         $ 65,790        $ 99,594
 Station operating expenses ........................        23,918           41,027          55,483
 Depreciation and program amortization .............         3,156            5,669           8,637
 Amortization of goodwill and other assets .........        12,867            7,127           8,460
                                                          --------         --------        --------
 Station broadcast operating income ................      $ (1,006)        $ 11,967        $ 27,014
                                                          ========         ========        ========
 Total assets ......................................      $642,404         $227,272        $221,407
                                                          ========         ========        ========
 Capital expenditures ..............................      $    317         $  4,118        $  6,938
                                                          ========         ========        ========

</TABLE>

11. SUBSEQUENT EVENTS:

In January 1998,  the Company  closed on the sale to SBG of television  stations
serving the Charleston/  Huntington market, the Mobile/Pensacola  market and the
Oklahoma City market for an aggregate purchase price of $215 million.


                                      F-14
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


The Board of Managers and Members
Max Media Properties LLC:

     We have audited the accompanying  consolidated  balance sheets of Max Media
Properties LLC and its limited partnerships as of December 31, 1997 and 1996 and
the related  consolidated  statements of operations,  members'  capital and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     As  discussed  in  note  3 to the  consolidated  financial  statements,  on
December 2, 1997 the Company and its members  entered into  agreements that will
result  in the sale of all of the  membership  interests  of the  Company  to an
unrelated party.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial  position of Max Media
Properties LLC and its limited partnerships as of December 31, 1997 and 1996 and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.


                                                       /s/ KPMG Peat Marwick LLP

Norfolk, Virginia
February 18, 1998

                                      F-15
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                          1997               1996
                                                                    ----------------   ----------------
<S>                                                                 <C>                <C>
                         ASSETS (NOTE 9)
CURRENT ASSETS:
 Cash and cash equivalents ......................................    $   1,789,194      $   1,175,542
 Restricted cash (note 4) .......................................          512,856                 --
 Accounts receivable, net (note 6) ..............................       11,484,849          9,655,084
 Program contract rights, current portion .......................        2,325,431          1,960,224
 Deferred charges, primarily barter agreements (note 5) .........          640,145            679,776
 Prepaid expenses and other current assets ......................          851,502            672,926
                                                                     -------------      -------------
   Total current assets .........................................       17,603,977         14,143,552
Property and equipment, net (note 7) ............................       25,709,048         18,412,542
Program contract rights, long-term portion ......................        2,182,349          2,506,632
Intangible assets, net (note 8) .................................       82,137,183         63,606,370
Due from related party (note 13) ................................        1,800,370          1,531,530
Notes receivable (note 14) ......................................          457,445            107,168
Deposits on pending acquisitions ................................               --          2,383,056
Other assets ....................................................           92,667            113,103
                                                                     -------------      -------------
                                                                     $ 129,983,039      $ 102,803,953
                                                                     =============      =============
                LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
 Current portion of long-term debt (note 9) .....................    $   4,751,520      $   3,064,076
 Program contract rights payable, current portion (note 14)              2,430,572          2,211,002
 Accounts payable ...............................................          717,748          1,406,923
 Accrued compensation and benefits (note 11) ....................        2,043,859            881,924
 Other accrued expenses .........................................          979,409          1,112,412
 Deferred revenue, primarily barter agreements (note 5) .........        1,026,238            866,365
                                                                     -------------      -------------
   Total current liabilities ....................................       11,949,346          9,542,702

Long-term debt, excluding current portion (note 9) ..............       68,927,774         56,172,774
Program contract rights payable, long-term portion (note 14)             1,736,102          2,042,981
                                                                     -------------      -------------
   Total liabilities ............................................       82,613,222         67,758,457
Members' capital (notes 2, 9 and 10):
 Class A -- 3,069,000 member units at December 31, 1997
   and 1996 .....................................................       21,346,430         21,346,430
 Class B -- 5,140,500 and 6,831,000 member units at De-
   cember 31, 1997 and 1996, respectively .......................        6,738,406         19,211,365
 Class C -- 3,421,931 and 100,000 member units at Decem-
   ber 31, 1997 and 1996, respectively ..........................       21,893,829            695,550
 Accumulated deficit ............................................       (2,608,848)        (6,207,849)
                                                                     -------------      -------------
   Total members' capital .......................................       47,369,817         35,045,496
                                                                     -------------      -------------
                                                                     $ 129,983,039      $ 102,803,953
                                                                     =============      =============
Commitments and contingencies (notes 9 and 14)

</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-16
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                            1997               1996
                                                                      ---------------   -----------------
<S>                                                                   <C>               <C>
Gross revenues ....................................................    $ 64,281,296       $  50,298,698
Less agency commissions ...........................................       7,567,894           6,042,708
                                                                       ------------       -------------
   Net revenues ...................................................      56,713,402          44,255,990
                                                                       ------------       -------------
Operating expenses:
 General and administrative .......................................      11,812,056           9,393,933
 Sales ............................................................      11,443,544           8,040,303
 News .............................................................       2,845,499           1,922,426
 Programming and production:
   Program amortization ...........................................       5,545,904           4,881,056
   Operations .....................................................       4,768,127           4,727,219
 Promotions .......................................................       3,066,572           2,806,561
 Engineering ......................................................       3,223,911           2,255,699
 Depreciation and amortization of property and equipment ..........       4,713,124           3,120,049
 Amortization of intangible assets ................................       8,028,187           6,696,048
                                                                       ------------       -------------
   Total operating expenses .......................................      55,446,924          43,843,294
                                                                       ------------       -------------
Income from operations ............................................       1,266,478             412,696
                                                                       ------------       -------------
Other income (expenses):
 Interest expense .................................................      (6,078,296)         (4,139,088)
 Gain on station sales, net (note 4) ..............................       8,452,216                  --
 Other income, net ................................................         358,777              95,782
                                                                       ------------       -------------
   Total other income (expenses), net .............................       2,732,697          (4,043,306)
                                                                       ------------       -------------
 Income (loss) ....................................................    $  3,999,175       $  (3,630,610)
                                                                       ============       =============
Pro forma income data:
 Income (loss) ....................................................    $  3,999,175       $  (3,630,610)
 Pro forma income tax expense (benefit) (unaudited) (note 12) .....       1,559,678          (1,415,938)
                                                                       ------------       -------------
 Pro forma net income (loss) (unaudited) ..........................    $  2,439,497       $  (2,214,672)
                                                                       ============       =============

</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-17
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
                     YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                           MEMBERSHIP INTERESTS
                                             ------------------------------------------------    ACCUMULATED
                                                 CLASS A          CLASS B         CLASS C          DEFICIT
                                             --------------- ---------------- --------------- -----------------
<S>                                          <C>             <C>              <C>             <C>
Membership interests issued at formation
 (note 2) ..................................  $ 21,346,430    $   19,211,365   $    695,550     $          --
Member distributions .......................            --                --             --        (2,577,239)
Loss .......................................            --                --             --        (3,630,610)
                                              ------------    --------------   ------------     -------------
Balances at December 31, 1996 ..............  $ 21,346,430        19,211,365        695,550        (6,207,849)
                                              ------------    --------------   ------------     -------------
Cancellation of Class B member units (note
 10) .......................................            --       (12,472,959)            --                --
Issuance of Class C member units, net of
 transactions costs of $1,721 (note 10).....            --                --     21,198,279                --
Member distributions .......................            --                --             --          (400,174)
Income .....................................            --                --             --         3,999,175
                                              ------------    --------------   ------------     -------------
Balances at December 31, 1997 ..............  $ 21,346,430    $    6,738,406   $ 21,893,829     $  (2,608,848)
                                              ============    ==============   ============     =============


<CAPTION>
                                                  TOTAL             MEMBERSHIP UNITS
                                                 MEMBERS'    ------------------------------
                                                 CAPITAL         CLASS A        CLASS B        CLASS C        TOTAL
                                             --------------- -------------- --------------- ------------ ---------------
<S>                                          <C>             <C>            <C>             <C>          <C>
Membership interests issued at formation
 (note 2) ..................................  $  41,253,345   $ 3,069,000       6,831,000      100,000      10,000,000
Member distributions .......................     (2,577,239)           --              --           --              --
Loss .......................................     (3,630,610)           --              --           --              --
                                              -------------   -----------       ---------      -------      ----------
Balances at December 31, 1996 ..............     35,045,496     3,069,000       6,831,000      100,000      10,000,000
                                              -------------   -----------       ---------      -------      ----------
Cancellation of Class B member units (note
 10) .......................................    (12,472,959)           --      (1,690,500)          --      (1,690,500)
Issuance of Class C member units, net of
 transactions costs of $1,721 (note 10).....     21,198,279            --              --    3,321,931       3,321,931
Member distributions .......................       (400,174)           --              --           --              --
Income .....................................      3,999,175            --              --           --              --
                                              -------------   -----------      ----------    ---------      ----------
Balances at December 31, 1997 ..............  $  47,369,817     3,069,000       5,140,500    3,421,931      11,631,431
                                              =============   ===========      ==========    =========      ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-18
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                                                 1997              1996
                                                                                           ---------------- -----------------
<S>                                                                                        <C>              <C>
Cash flows from operating activities:
 Income (loss) ...........................................................................  $   3,999,175     $  (3,630,610)
 Reconciliation of income (loss) to net cash provided by operating activities:
  Depreciation and amortization of property and equipment ................................      4,713,124         3,120,049
  Amortization of intangible assets ......................................................      8,028,187         6,696,048
  Amortization of program contract rights ................................................      2,475,600         2,683,563
  Barter program amortization ............................................................      3,070,304         2,197,493
  Barter program revenue .................................................................     (3,070,304)       (2,197,493)
  Gain on station sales, net .............................................................     (8,452,216)               --
  Loss on disposal of equipment ..........................................................         62,396            32,762
  Changes in assets and liabilities, net of effect of station acquisitions:
   Accounts receivable, net ..............................................................     (1,829,765)         (788,868)
   Deferred charges, primarily barter agreements .........................................        (14,896)         (257,504)
   Prepaid expenses and other current assets .............................................       (178,576)          (80,949)
   Accounts payable ......................................................................       (689,175)          651,095
   Accrued compensation and benefits .....................................................      1,161,935           210,192
   Other accrued expenses ................................................................       (133,003)          (94,621)
   Deferred revenue, primarily barter agreements .........................................        259,009           236,416
                                                                                            -------------     -------------
     Net cash provided by operating activities ...........................................      9,401,795         8,777,573
                                                                                            -------------     -------------
Cash flows from investing activities:
 Acquisition of stations, net of cash deposits ...........................................    (34,309,611)      (10,400,000)
 Deposits on pending acquisitions ........................................................             --        (2,383,056)
 Payments for program contract rights ....................................................     (2,376,966)       (1,944,977)
 Purchases of property and equipment .....................................................     (6,305,013)       (4,370,388)
 Payment of organizational and start-up costs ............................................       (613,552)         (931,829)
 Restricted cash deposited in escrow .....................................................       (512,856)               --
 Issuance of notes receivable ............................................................       (365,500)               --
 Proceeds from sale of stations, net .....................................................     12,564,111                --
 Proceeds from sale of property and equipment ............................................        510,000                --
 Other ...................................................................................       (124,629)         (158,787)
                                                                                            -------------     -------------
     Net cash used in investing activities ...............................................    (31,534,016)      (20,189,037)
                                                                                            -------------     -------------
Cash flows from financing activities:
 Proceeds from issuance of long-term debt ................................................  $  39,100,000     $  22,000,000
 Proceeds from issuance of Class C member units, net of expenses .........................     21,198,279                --
 Payment to cancel Class B member units ..................................................    (11,200,000)               --
 Repayment of long-term debt:
  Credit Facility ........................................................................    (25,150,000)       (7,425,000)
  Other ..................................................................................       (336,627)         (149,321)
 Payments of loan, financing and equity issuance costs ...................................       (465,605)         (882,408)
 Member distributions ....................................................................       (400,174)       (2,577,239)
 Cash contributed at inception (note 2) ..................................................             --         1,620,974
                                                                                            -------------     -------------
     Net cash provided by financing activities ...........................................     22,745,873        12,587,006
                                                                                            -------------     -------------
 Net increase in cash and cash equivalents ...............................................        613,652         1,175,542
 Cash and cash equivalents at beginning of year ..........................................      1,175,542                --
                                                                                            -------------     -------------
 Cash and cash equivalents at end of year ................................................  $   1,789,194     $   1,175,542
                                                                                            =============     =============
 Supplemental disclosure of cash flow information:
 Cash paid during the year for interest ..................................................  $   6,169,698     $   4,174,128
                                                                                            =============     =============
 Supplemental disclosure of noncash investing and financing activities:
 Noncash additions to program contract rights and program contract rights payable ........  $   1,778,868     $   1,390,596
                                                                                            =============     =============
 Noncash additions to long-term debt obligations (note 10) ...............................  $     817,811     $   1,064,758
                                                                                            =============     =============
 The Company  assumed  liabilities  in 1997 and 1996 in connection  with station
  acquisitions as more fully described in note 4.

</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-19
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Operations and Basis of Presentation

Max Media Properties LLC, a Virginia limited  liability company (the "Company"),
owns and operates radio and television  broadcasting  stations.  At December 31,
1997, the Company owned or operated under time brokerage agreements ("TBA"s) the
following stations:


<TABLE>
<CAPTION>
       RADIO MARKET          STATION           FORMAT           OWNERSHIP
-------------------------   ---------   --------------------   ----------
<S>                         <C>         <C>                    <C>
Norfolk, VA .............   WWDE-FM     Adult Contemporary     Owned

                            WNVZ-FM     Contemporary Hits      Owned

                            WFOG-FM     Adult Contemporary     Owned

                            WPTE-FM     Alternative Rock       Owned

Greensboro, NC ..........   WMQX-FM     Oldies                 Owned

                            WJMH-FM     Urban                  Owned

                            WQMG-AM     Religious              Owned

                            WQMG-FM     Urban                  Owned
</TABLE>


<TABLE>
<CAPTION>
  TELEVISION MARKET     STATION     AFFILIATION     OWNERSHIP
--------------------   ---------   -------------   ----------
<S>                    <C>         <C>             <C>
Dayton, OH             WKEF-TV     NBC             Owned

Syracuse, NY           WSYT-TV     Fox             Owned

                       WNYS-TV     UPN             TBA

Cape Girardeau, MO     KBSI-TV     Fox             Owned

Paducah, KY            WDKA-TV     UPN             TBA

Tri-Cities, TN         WEMT-TV     Fox             Owned

Charleston, SC         WMMP-TV     UPN             Owned

Tyler, TX              KETK-TV     NBC             Owned

Nacogdoches, TX        KLSB-TV     NBC             TBA
</TABLE>

At December 31, 1996, the Company owned and operated KKLZ-FM, Las Vegas, Nevada,
which was sold in January 1997 (note 4).


(b) Principles of Consolidation

The consolidated  financial  statements include the financial  statements of the
Company and seven limited  partnerships.  All significant  intercompany balances
and transactions have been eliminated in consolidation.


(c) Advertising Revenue Recognition

The  Company  recognizes  revenue on the sale of  advertising  air time when the
related advertising is broadcast.


                                      F-20
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)


(d) Cash and Cash Equivalents

Cash equivalents consist of overnight repurchase  agreements and certificates of
deposit with an initial term of less than three months.


(e) Program Contract Rights

The Company has entered into  agreements with program  distributors  granting it
the right to broadcast  programs over contract  periods which generally run from
one to seven years.  The total cost of each contract is recorded as an asset and
liability  when the license  period  begins and the program is available for its
first  showing.   The  Company  amortizes  program  contract  rights  using  the
straight-line  method based on program usage. Program contract rights are stated
at  the  lower  of  unamortized  cost  or  net  realizable  value  as  estimated
periodically by management. Contract payments are generally made in installments
over a term somewhat shorter than the contract period.

Program  contract  rights  expected to be amortized in the  succeeding  year and
program  contract  rights  payable due within one year are classified as current
assets and current liabilities, respectively.


(f) Barter Agreements

Certain program contract rights provide for the exchange of advertising air time
in lieu of cash  payments for the  programming.  As the program is aired,  equal
amounts of revenue and program amortization  expense are recorded,  at estimated
fair market value, in results of operations.

In addition,  the Company provides  advertising air time to certain customers in
exchange for equipment, merchandise or services. The estimated fair value of the
equipment,  merchandise  or  services to be received is recorded as an asset and
the  corresponding  obligation to broadcast  advertising is recorded as deferred
revenue.   Property  and  equipment   acquired  through  barter  agreements  are
depreciated  over their  estimated  useful lives.  Services and other assets are
charged to expense as they are used or consumed.  Deferred revenue is recognized
in operations as the related advertising is broadcast.


(g) Property and Equipment

Property and equipment are stated at cost.  Depreciation is calculated using the
straight-line  method over the estimated  useful lives of the assets.  Leasehold
improvements  are amortized using the  straight-line  method over the shorter of
the lease term and the estimated useful lives of the assets.


(h) Intangible Assets

Intangible assets include Federal  Communications  Commission  ("FCC") licenses,
advertiser  base,  network  affiliation   agreements,   goodwill  and  favorable
contractual agreements resulting from acquisitions. These assets are recorded at
their fair value as of the date of  acquisition  as  determined  by  independent
appraisals and are amortized using the straight-line method over their estimated
useful  lives.  Intangible  assets also include loan costs which are recorded at
cost and amortized  using the  straight-line  method over the term of the credit
facility.


(i) Income Taxes

The Company operates as a partnership for income tax purposes.  As a result, the
Company is generally not subject to federal and state income taxes.  Such income
taxes are the obligation of the members of the Company.  The Company distributes
to its  members  amounts  sufficient  to pay income and  franchise  taxes on the
income of the Company allocated to these members.


                                      F-21
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)


(j) Use of Estimates

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


(k) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed

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


(l) Value Appreciation Rights

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
interpretations in accounting for its value  appreciation  rights, as opposed to
the fair value accounting  provided for under Statement of Financial  Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FASB 123"). There
is no difference in the accounting for value appreciation rights under APB 25 or
FASB 123. The required  accounting  is to treat the future  compensation  (value
above  awarded  rights) as a liability.  The  liability is measured  each period
based on the current  valuation,  as required under FASB  Interpretation No. 28,
"Accounting  for Stock  Appreciation  Rights and Other  Variable Stock Option or
Award Plans."


(m) Reclassifications

Certain  reclassifications  have been made in the 1996  financial  statements to
conform with the 1997 financial statement presentation.


(n) Time Brokerage Agreements

The Company operates  certain stations  pursuant to TBAs under which the Company
purchases from the broadcast station licensee substantially all of the broadcast
time on the station and provides  programming  to and sells  advertising  on the
station during the purchased time. The Company  receives all the revenue derived
from the  advertising  sold during the purchased time,  pays  substantially  all
operating  expenses of the station and performs other  functions.  The broadcast
station licensee retains  responsibility  for ultimate control of the station in
accordance  with FCC policies.  Net revenues of $3,888,339  and  $2,739,168  and
operating losses of $260,238 and $691,698 resulting from stations operated under
TBAs  during  1997 and 1996,  respectively,  are  included  in the  accompanying
consolidated financial statements.


2. FORMATION OF THE COMPANY

Effective  January 1, 1996,  Max  Television  Company ("Max TV"), Max Radio Inc.
("Max Radio") and MTR Holding Corp.  ("MTR") each contributed  substantially all
their  assets to the  Company and the  Company  assumed  all their  liabilities,
including, all liabilities under program license agreements,  barter agreements,
operating leases and bank loans. In exchange, the Company issued 6,831,000 Class
B  member  units to Max TV,  3,069,000  Class A member  units to Max  Radio  and
100,000 Class C member units to MTR.


                                      F-22
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)


The assets contributed and liabilities assumed are as follows:


<TABLE>
<CAPTION>
                                                                    MAX
                                                 MAX TV            RADIO             MTR            TOTAL
                                            ---------------   ---------------   ------------   --------------
<S>                                         <C>               <C>               <C>            <C>
Cash ....................................    $    263,351      $    662,073      $ 695,550      $  1,620,974
Accounts receivable .....................       5,943,235         2,672,543             --         8,615,778
Deferred charges ........................         260,350           157,355             --           417,705
Program contract rights .................       5,759,823                --             --         5,759,823
Property and equipment ..................      10,099,872         4,373,153             --        14,473,025
Intangible assets .......................      38,112,329        21,612,173             --        59,724,502
Other assets ............................       2,061,532           310,800             --         2,372,332
                                             ------------      ------------      ---------      ------------
 Total assets contributed ...............      62,500,492        29,788,097        695,550        92,984,139
                                             ------------      ------------      ---------      ------------
Long-term debt ..........................      36,062,933         7,683,480             --        43,746,413
Program contract rights payable .........       4,808,160                --             --         4,808,160
Accounts payable ........................         572,265            95,507             --           667,772
Deferred revenue ........................         436,746           192,939             --           629,685
Other liabilities .......................       1,409,023           469,741             --         1,878,764
                                             ------------      ------------      ---------      ------------
 Total liabilities assumed ..............      43,289,127         8,441,667             --        51,730,794
                                             ------------      ------------      ---------      ------------
 Net contribution .......................    $ 19,211,365      $ 21,346,430      $ 695,550      $ 41,253,345
                                             ============      ============      =========      ============

</TABLE>

The Company and Max TV are under common control,  therefore,  in accordance with
Accounting  Principles  Board  Opinion No. 16 and the  Securities  and  Exchange
Commission's  Staff Accounting  Bulletin No. 97, the Company recorded the Max TV
contribution  at book  value.  The Company  accounted  for the Max Radio and MTR
contributions  as a  purchase,  therefore,  their  assets and  liabilities  were
recorded at fair market value as of the date of inception.


3. SALE OF THE COMPANY

On December 2, 1997,  the Class A member and one of the Class C members  entered
into agreements to sell all the issued and outstanding  shares of each member to
one  buyer.  Simultaneously,  the Class B member  and one of the  other  Class C
members entered into agreements to sell their  respective  member units,  equity
interests in other members and limited partnership  interests to this buyer. The
Company  is also a party to each of these  purchase  agreements.  The  aggregate
purchase  price is  $255,000,000  plus the  assumption  of  certain  liabilities
consisting  primarily  of program  contract  rights  payable.  A portion of this
purchase  price  will be used to repay  all  long-term  debt  and  make  certain
payments  contingent on the closing of the transaction (note 14). Cash, accounts
receivable,  notes receivable and certain other  immaterial  assets are excluded
from  this  transaction.  The  transaction  is  subject  to  certain  regulatory
approvals and is expected to close in the second quarter of 1998.


4. ACQUISITIONS AND DISPOSITIONS

(a) Acquisitions

On  January  3,  1997,  the  Company   completed  the  acquisition  of  WMMP-TV,
Charleston, South Carolina for approximately $3.4 million plus the assumption of
approximately  $612,000  of  liabilities  and  paid  $850,000  for a  three-year
agreement not to compete.  In May 1996, the Company  entered into a TBA with the
seller to  operate  the  station  pending  closing  of the  acquisition.  On the
commencement  date of the TBA, the Company  assumed  certain  obligations of the
seller and the seller  assigned all accounts  receivable to the Company.  During
1996,  the Company made payments  under the TBA to the seller of $200,000  which
were applied against the purchase price. In conjunction  with this  acquisition,
the TBA was terminated.


                                      F-23
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

On January 31, 1997,  the Company  completed the  acquisition  of WFOG AM/FM and
WPTE-FM,  Norfolk,  Virginia for approximately  $15.2 million. In July 1996, the
Company  entered  into a TBA with the seller to  operate  the  stations  pending
closing of the  acquisition.  During 1997 and 1996,  the Company  made  payments
under the TBA to the seller of $75,000 and  $375,000,  respectively,  which have
been included in operating expenses in the accompanying  consolidated  financial
statements. In conjunction with this acquisition, the TBA was terminated.

On March 14, 1997, the Company acquired the assets of KETK-TV,  Tyler, Texas and
substantially  all the assets of  KLSB-TV,  Nacogdoches,  Texas  (other than FCC
licenses and certain  related assets) for  approximately  $16.9 million plus the
assumption  of  certain  immaterial  liabilities.  Simultaneously,  the  Company
entered into a 10-year TBA to operate KLSB-TV.

On June 5, 1997,  the  Company  commenced  commercial  broadcast  operations  of
WDKA-TV, Paducah,  Kentucky. The Company invested approximately $2.0 million for
the construction of studio,  transmission and office facilities. The Company had
previously entered into a 10-year TBA to build and operate this station.

On July 1, 1996, the Company acquired certain assets of WNYS-TV,  Syracuse,  New
York, for $3,650,000 and paid $100,000 for a one-year  agreement not to compete.
Simultaneously,  the Company  entered into a 10-year TBA to operate the station.
Additionally,   the  Company  invested   approximately   $1.6  million  for  the
construction of a new studio, transmission and office facilities.

On August 26, 1996, the Company  acquired the assets of WQMG AM/FM,  Greensboro,
North Carolina, for approximately  $6,650,000 cash and entered into a three-year
agreement not to compete for $214,758.

Each of these  acquisitions was accounted for by the Company as a purchase.  The
results of operations of the acquired  stations are included in the accompanying
consolidated  financial statements at the earlier of the commencement of the TBA
or the date of acquisition.

The  following  is a summary of the assets  acquired,  liabilities  assumed  and
consideration given for the above-stated acquisitions:


<TABLE>
<CAPTION>
                                                                         1997              1996
                                                                   ---------------   ---------------
<S>                                                                <C>               <C>
Accounts receivable ............................................    $         --      $    250,444
Deferred charges, primarily barter agreements ..................         225,177                --
Program contract rights ........................................         737,652            13,850
Property and equipment .........................................       7,023,608         1,646,991
FCC licenses ...................................................      20,105,728         3,353,000
Goodwill .......................................................         249,553           229,857
Other intangible assets ........................................       9,119,698         5,197,801
                                                                    ------------      ------------
 Total assets acquired .........................................      37,461,416        10,691,943
                                                                    ------------      ------------
Less:
Seller financing ...............................................              --           214,758
Deferred revenue assumed, primarily barter agreements ..........         225,177                --
Program contract rights payable assumed ........................         510,858            13,850
Other liabilities assumed ......................................          32,714           385,346
                                                                    ------------      ------------
Cash paid for acquisitions .....................................    $ 36,692,667      $ 10,077,989
                                                                    ============      ============
</TABLE>

The Company allocated the aggregate consideration to the tangible and intangible
assets  based on their  respective  fair  values.  Goodwill  was recorded as the
excess of the purchase price over the assets acquired.


                                      F-24
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

The following  unaudited pro forma summary combines the results of operations of
the Company and the  acquired  stations as if the  acquisitions  occurred at the
beginning of 1996,  after giving  effect to certain  adjustments,  including the
depreciation and amortization of assets based on their fair values and increased
interest  expense  resulting  from the  additional  borrowings  to  finance  the
acquisitions.  The unaudited pro forma information does not purport to represent
what  the  results  of  operations  of the  Company  would  have  been  if  such
acquisitions  had in fact  occurred  on such date or to  project  the  Company's
results of operations as of any future date or for any future period.


<TABLE>
<CAPTION>
                                                                       PRO FORMA
                                                                YEARS ENDED DECEMBER 31
                                                          -----------------------------------
                                                                1997               1996
                                                          ---------------   -----------------
                                                                      (UNAUDITED)
<S>                                                       <C>               <C>
  Net revenues ........................................    $ 58,274,280       $  55,991,292
                                                           ============       =============
  Income (loss) from operations .......................    $  2,290,632       $  (1,125,087)
                                                           ============       =============
  Income (loss) before pro forma income taxes .........    $  4,945,258       $  (6,711,206)
                                                           ============       =============

</TABLE>

(b) Dispositions

On January 28, 1997, the Company sold the assets of KKLZ-FM,  Las Vegas,  Nevada
for approximately $12.5 million,  net of commissions and other selling expenses,
including  a two-year  agreement  not to  compete,  which  resulted in a gain of
approximately  $8.5 million.  The Company  agreed to indemnify and hold harmless
the purchaser from certain losses, liabilities, damages, costs and expenses. The
Company placed  $500,000 in escrow for a period of one year to serve as security
for the  performance of the Company's  indemnification  obligations.  The escrow
fund is included in restricted cash in the accompanying  consolidated  financial
statements.  The station had net  revenues of $144,361 and  operating  losses of
$94,665 in 1997 and net revenues of $3,207,168 and operating income of $8,361 in
1996, which are included in the accompanying consolidated financial statements.

On August 12, 1997,  the Company sold the assets of WFOG-AM,  Norfolk,  Virginia
for approximately $107,000, net of selling expenses.

These sales  resulted in the  disposition  of FCC licenses and other  intangible
assets, net of accumulated  amortization,  aggregating $3,451,837 as of the date
of the disposition.


5. BARTER AGREEMENTS

The Company's  liability to broadcast  commercial spots in fulfillment of barter
contracts is recorded as deferred  revenue.  Future  amounts to be recognized on
receipt of assets,  goods or  services  on barter  agreements  are  recorded  as
deferred charges.

Barter  agreements  (excluding  barter  program  agreements  of  $3,070,304  and
$2,197,493 in 1997 and 1996, respectively) resulted in $2,291,420 and $1,647,754
in net barter  revenue,  $2,333,436  and  $1,635,875  in operating  expenses for
merchandise  and  services  received  and  $193,409  and $23,000 in property and
equipment additions during 1997 and 1996, respectively.


                                      F-25
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

6. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

Activity in the allowance  for doubtful  accounts  receivable  was as follows in
1997 and 1996:


<TABLE>
<CAPTION>
                                            1997           1996
                                        ------------   ------------
<S>                                     <C>            <C>
Balance, beginning of year ..........    $ 518,512      $ 421,924
Amounts charged to expense ..........      526,487        323,257
Deductions ..........................      456,957        398,389
Acquisitions ........................           --        171,720
                                         ---------      ---------
Balance, end of year ................    $ 588,042      $ 518,512
                                         =========      =========
</TABLE>

7. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 1997 and 1996:


<TABLE>
<CAPTION>
                                     USEFUL
                                      LIVES
                                                            (IN YEARS)          1997              1996
                                                           ------------   ---------------   ---------------
<S>                                                        <C>            <C>               <C>
Land ...................................................                   $    895,875      $    614,807
Buildings and real estate improvements .................      15-39           5,973,366         3,279,959
Broadcasting equipment, furniture and fixtures .........        3-7          27,745,616        17,678,119
Vehicles ...............................................          3             921,109           563,066
Leasehold improvements .................................       2-15             506,999           865,266
Construction in progress ...............................                         26,595         1,577,495
                                                                           ------------      ------------
                                                                             36,069,560        24,578,712
Less accumulated depreciation and amortization .........                     10,360,512         6,166,170
                                                                           ------------      ------------
                                                                           $ 25,709,048      $ 18,412,542
                                                                           ============      ============
</TABLE>

8. INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 1997 and 1996:


<TABLE>
<CAPTION>
                                                               PERIOD OF
                                                              AMORTIZATION
                                                               (IN YEARS)          1997              1996
                                                             -------------   ---------------   ---------------
<S>                                                          <C>             <C>               <C>
FCC licenses .............................................       10-15        $ 47,910,031      $ 31,478,717
Advertiser base ..........................................          15          15,223,747        15,968,506
Network affiliation agreements ...........................          15          19,082,142        12,335,307
Time brokerage agreement .................................          10           3,650,000         3,650,000
Loan costs ...............................................           8           3,385,234         3,374,776
Other intangibles including organizational costs .........        1-15           7,398,324         4,619,611
                                                                              ------------      ------------
                                                                                96,649,478        71,426,917
Less accumulated amortization ............................                      14,512,295         7,820,547
                                                                              ------------      ------------
                                                                              $ 82,137,183      $ 63,606,370
                                                                              ============      ============
</TABLE>


                                      F-26
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

9. LONG-TERM DEBT

Long-term debt consists of the following at December 31, 1997 and 1996:


<TABLE>
<CAPTION>
                                                            1997              1996
                                                      ---------------   ---------------
<S>                                                   <C>               <C>
Credit Facility:
 Term A facility ..................................    $ 32,610,000      $ 36,000,000
 Term B facility ..................................      10,640,000                --
 Reducing revolving credit facility ...............      28,700,000        22,000,000
Other .............................................       1,729,294         1,236,850
                                                       ------------      ------------
 Total long-term debt .............................      73,679,294        59,236,850
Less current portion ..............................       4,751,520         3,064,076
                                                       ------------      ------------
Long term debt, excluding current portion .........    $ 68,927,774      $ 56,172,774
                                                       ============      ============
</TABLE>

In January 1996,  the Company  entered into a $50 million  Credit  Facility (the
"Credit  Facility")  by amending  and  restating  the Max TV credit  facility to
reflect the  formation  of the Company  (note 2). The bank loan assumed from Max
Radio was repaid in full with proceeds of borrowings  under the Credit Facility.
In August 1996, the Credit Facility was amended, among other things, to increase
total availability to $100 million.

In February 1997, the Credit Facility was further  amended,  among other things,
to create an $11.2  million term  facility,  reduce the  availability  under the
reducing  revolving  credit  facility by $11.2  million and allow the Company to
make a distribution  to Max TV in conjunction  with the  cancellation of Class B
membership  units (note 10). As amended,  the Credit Facility  consists of a $36
million term facility,  an $11.2 million term facility, a $47.8 million reducing
revolving  credit  facility  and  a $5  million  non-reducing  revolving  credit
facility.  Amounts  outstanding  under  the  $11.2  million  term  facility  are
guaranteed by the Class B member.

The Credit  Facility  is  secured  by all of the member  units and assets of the
Company.  Outstanding  principal  under the Credit  Facility bears interest at a
floating rate based in part on the Company achieving certain operating cash flow
ratios.  The weighted average interest rate on the Credit Facility was 8.16% and
7.95%  in 1997  and  1996,  respectively.  The  Company  is  obligated  to pay a
quarterly commitment fee on the average daily unused portion of the reducing and
non-reducing  revolving  credit  facilities at an annual rate of 0.375% to 0.50%
depending  on certain  operating  cash flow  ratios and an annual  agency fee of
$30,000.

Amounts  outstanding  under the term  loans  must be repaid  over an  eight-year
period in quarterly  installments  beginning in 1997 with final payment required
no later than June 30, 2004. The maximum commitment under the reducing revolving
credit  facility  reduces by 7.5% in 1998,  10% in 1999,  12.5% in 2000,  15% in
2001,  17.5% in 2002 and 32.5%  thereafter  with maturity on June 30, 2004.  The
non-reducing  revolving  credit  facility must be paid in full by June 30, 2004.
Generally,  the Company is required to make principal  prepayments  with the net
cash proceeds  from asset sales and the issuance of additional  equity and debt.
The Company  must also make annual  prepayments  of 50% of excess cash flow,  as
defined in the Credit Facility,  after the Company  achieves  certain  operating
cash flow ratios.

The  Credit  Facility  contains  substantial  restrictive  covenants,  including
restrictions  on  the  Company's  ability  to  incur  additional  debt,  acquire
interests  in other  business  entities,  sell,  mortgage,  pledge or  otherwise
encumber any of its assets,  make capital  expenditures or make distributions to
the members  (other than  distributions  used to pay taxes  attributable  to the
operations of the Company (note 1(i))), without the prior written consent of the
lenders. In addition,  the Company is required,  among other things, to maintain
certain operating ratios.


                                      F-27
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

To reduce the impact of changes in  interest  rates,  the Company is required to
maintain  interest rate  protection on a minimum of 50% of the aggregate  amount
outstanding under the Credit Facility. At December 31, 1997, the Company has two
outstanding  interest rate cap agreements which expire on September 30, 1999 and
October  1,  1999 and  which  limit the rate of  interest  to 8.50%  and  7.50%,
respectively.  The  principal  amounts  related  to these  agreements  aggregate
$41,150,000  at  December  31,  1997.  Any net gain or loss from  interest  rate
protection  agreements is included in interest  expense in the period  incurred.
The  counterparties  to these interest rate cap  agreements are major  financial
institutions with which the Company also has other financial relationships.  The
Company  is  exposed  to  credit  loss in the event of  nonperformance  by these
counterparties.  The Company, however, does not anticipate nonperformance by the
other  parties,  and in the event of such  nonperformance  no  material  loss is
expected.

Estimated  aggregate  maturities of the Credit Facility and other long-term debt
after December 31, 1997 are as follows:


<TABLE>
<CAPTION>
                                         CREDIT          OTHER
                                        FACILITY         DEBT           TOTAL
                                     -------------- -------------- --------------
<S>                                  <C>            <C>            <C>
       1998 ........................  $  4,440,000   $   311,520    $  4,751,520
       1999 ........................     5,440,000       337,210       5,777,210
       2000 ........................     6,800,000       280,681       7,080,681
       2001 ........................    11,880,000       737,468      12,617,468
       2002 ........................    16,085,000        30,007      16,115,007
       2003 and thereafter .........    27,305,000        32,408      27,337,408
                                      ------------   -----------    ------------
                                      $ 71,950,000   $ 1,729,294    $ 73,679,294
                                      ============   ===========    ============

</TABLE>

10. MEMBERS' CAPITAL

The Company was organized under the Virginia Limited Liability Company Act (note
2) and the members are generally  not liable for any debts or other  obligations
of the Company. Under the terms of its January 1, 1996 Operating Agreement,  the
Company will cease to exist on December 31, 2045 unless earlier terminated.  The
Company has three  classes of member  units.  With the exception of the right to
elect the Company's  Board of Managers,  all units are  identical.  Holders of a
majority  of the Class A and Class B member  units  each have the right to elect
four of the eight members of the Company's Board of Managers. Holders of Class C
member units are not entitled to vote for members of the Board.  Net profits and
losses  are  allocated  in  proportion  to the  members'  respective  percentage
interests.

On February 14, 1997,  the Operating  Agreement was amended to admit  additional
members.  The Company issued  3,321,931  Class C member units to the new members
for net proceeds of approximately  $21.2 million. On March 13, 1997, the Company
paid $11.2 million and incurred transactions costs of approximately $455,000 and
other  long-term  obligations of  approximately  $818,000 in connection with the
cancellation of 1,690,500 Class B member units.


11. EMPLOYEE BENEFIT PLANS

(a) Benefit Plans

The Company has  retirement  savings and  cafeteria  plans  pursuant to Sections
401(k)  and  125  of  the  Internal  Revenue  Code,  respectively,  which  cover
substantially  all of  the  Company's  employees.  The  Company's  discretionary
contribution to the 401(k) plan is determined annually by the Company's Board of
Managers.  The Company did not contribute to the 401(k) plan for the years ended
December


                                      F-28
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

31, 1997 and 1996. Under the cafeteria plan,  employees may elect to participate
in health,  dental,  life,  medical  expense  reimbursement  and dependent  care
reimbursement benefit plans funded through employee payroll deductions.

(b) Value Appreciation Rights Plan

In 1996,  the Company  established  a Value  Appreciation  Rights Plan (the "VAR
Plan") to  encourage  the  retention of key  employees  and the  achievement  of
improved  financial results.  The award of value  appreciation  rights is at the
discretion  of the Company's  Board of Managers.  The VAR Plan provides for cash
payments equal to appreciation  in the value of the rights on retirement,  death
or  disability  of the VAR Plan  participant  or a change  in  ownership  of the
Company.  At December 31, 1997 and 1996,  500,000  rights were  authorized,  and
500,000  and  155,000  rights  were  awarded as of  December  31, 1997 and 1996,
respectively. The Company incurred approximately $940,000 and $40,000 of expense
with  respect to the VAR Plan in 1997 and 1996,  respectively.  The  amounts are
included  in accrued  compensation  and  benefits  in the  accompanying  balance
sheets.

12. INCOME TAXES

The  unaudited  pro  forma  income  tax  expense  (benefit)   presented  on  the
consolidated  statements of operations represents the estimated taxes that would
have been recorded had the Company been a C corporation  for income tax purposes
for each of the years presented.  The pro forma income tax expense  (benefit) is
as follows:


<TABLE>
<CAPTION>
                                           PRO FORMA (UNAUDITED)
                                     ----------------------------------
                                          1997               1996
                                     --------------   -----------------
<S>                                  <C>              <C>
         Federal .................    $ 1,359,719       $  (1,234,407)
         State ...................        199,959            (181,531)
                                      -----------       -------------
         Total pro forma .........    $ 1,559,678       $  (1,415,938)
                                      ===========       =============

</TABLE>

A  reconciliation  of the  statutory  federal  income tax rate and the pro forma
effective rate is as follows:


<TABLE>
<CAPTION>
                                                             1997      1996
                                                            ------   -------
<S>                                                         <C>      <C>
         Statutory tax rate .............................     34%       34%
         Effect of state income taxes, net of federal tax
          benefit .......................................      5%        5%
                                                              --        --
         Pro forma effective tax rate ...................     39%       39%
                                                              ==        ==

</TABLE>

13. RELATED PARTY TRANSACTIONS

At December  31, 1997 and 1996,  the Company has a receivable  of  approximately
$1,339,000  from an  entity  owned by  certain  shareholders  of a member of the
Company.  The receivable is secured by all of the assets of the related  entity,
which consists primarily of an aircraft, bears interest at a floating rate equal
to the rate under the Credit Facility (note 9) and is payable on demand, subject
to certain limitations. No principal payments were made in 1997 or 1996. Accrued
interest and other amounts owed to the Company from the related  entity  totaled
approximately $462,000 and $193,000 at December 31, 1997 and 1996, respectively.
During 1997 and 1996,  the Company  paid  approximately  $253,000  and  $95,000,
respectively, to the entity for use of the aircraft.

The Company leases office space from an entity owned by certain  shareholders of
a member of the Company.  The lease has a 10-year term ending  November 30, 2005
with three  five-year  renewal  options.  During 1997 and 1996, the Company paid
approximately $77,000 and $68,000, respectively, under the lease.


                                      F-29
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

At December  31, 1997,  the Company has  employment  agreements  with two of its
senior officers.  These employment  agreements  require total annual payments of
$396,000 through December 31, 1998.

The  Company  paid  management  fees of  $300,000  in 1997 and 1996 to  entities
affiliated with entities which hold approximately 80% of the ownership interests
of the Class A member and 100% of the ownership of one of the Class C members.


14. COMMITMENTS AND CONTINGENCIES

(a) Program Contract Rights

At December 31, 1997,  the Company's  liability for available  program  contract
rights  totals  approximately  $4.2  million.   Additionally,  the  Company  has
commitments to pay approximately  $5.0 million under program contract rights not
yet available and  approximately  $1.0 million for sports  broadcasting and news
co-production agreements.

Future minimum payments by year for program contract rights payable, commitments
for future program contract rights and other agreements are as follows:


<TABLE>
<CAPTION>
                                             COMMITMENTS FOR
                        PROGRAM CONTRACT      FUTURE PROGRAM         OTHER
                         RIGHTS PAYABLE      CONTRACT RIGHTS      AGREEMENTS
                       ------------------   -----------------   --------------
<S>                    <C>                  <C>                 <C>
1998 ...............       $ 2,430,572         $   364,360       $   364,800
1999 ...............         1,224,933           1,069,586           229,150
2000 ...............           411,648           1,221,594           229,150
2001 ...............            99,521             994,653           200,750
2002 ...............                --             648,825                --
Thereafter .........                --             725,408                --
                           -----------         -----------       -----------
                           $ 4,166,674         $ 5,024,426       $ 1,023,850
                           ===========         ===========       ===========
</TABLE>

(b) Leases

The Company incurred total rental expense of $982,058 and $844,900 for the years
ended  December  31, 1997 and 1996,  respectively,  under  operating  leases for
office space,  land,  vehicles and equipment  (note 13).  Future  minimum annual
payments under non-cancelable operating leases are as follows:


<TABLE>
<S>                              <C>
  1998 .......................    $ 1,079,709
  1999 .......................        980,341
  2000 .......................        877,395
  2001 .......................        852,697
  2002 .......................        789,516
  Thereafter .................      2,245,771
                                  -----------
                                  $ 6,825,429
                                  ===========

</TABLE>


                                      F-30
<PAGE>

                            MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

(c) Other Commitments

At December 31, 1997,  future minimum  payments under the Company's  three TBAs,
which expire between June 30, 2005 and March 13, 2007, are as follows:



<TABLE>
<S>                              <C>
  1998 .......................    $   301,750
  1999 .......................        301,750
  2000 .......................      1,122,192
  2001 .......................        679,375
  2002 .......................         95,000
  Thereafter .................        342,000
                                  -----------
                                  $ 2,842,067
                                  ===========

</TABLE>

The Company is required to satisfy  $880,000 of the minimum payments due in 2000
and  $550,000 of the minimum  payments due in 2001 as a condition to closing the
transactions described in note 3.

In July 1997, the Company paid $25,000 for an option to purchase  certain assets
and the FCC  licenses of  WWBI-LPTV,  Burlington,  Vermont  for $2 million.  The
option expires December 31, 1998, however,  the Company may extend the option to
June 30, 1999 for a one-time payment of $25,000.  The sellers have issued to the
Company  non-interest  bearing  promissory  notes  in the  aggregate  amount  of
$359,000 that will be applied to the purchase price if the option is exercised.


In  connection  with the closing of the  transactions  discussed  in note 3, the
Company is committed to pay an aggregate of approximately  $10 million under the
VAR Plan, other incentive plans and for transaction costs.


(d) Year 2000 Conversion (unaudited)

The Company is currently  evaluating  its  information  systems to determine the
scope  of its  year  2000  issues  and  has  not  fully  developed  a year  2000
transformation  plan or determined the costs associated with implementing such a
plan.  Failure to achieve year 2000  compliance by the Company  could  adversely
impact the Company's ability to conduct business for an extended period of time.


15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following  summarizes  the estimated  fair value of the Company's  financial
instruments at December 31, 1997:


(a) Long-term Debt

The carrying  amount of long-term debt  approximates  fair value.  Fair value is
estimated by discounting the future cash flows under the debt at rates currently
offered to the Company.


(b) Program Contract Rights Payable

The amount  reflected in program  contract  rights  payable at December 31, 1997
represents future payments to be made under program license agreements. The fair
value of program  contract  rights  payable is the present value of these future
payments.  At December 31, 1997,  the present value of these future  payments is
approximately $3.7 million.


(c) Other

The carrying value of cash,  accounts  receivable,  other receivables,  accounts
payable  and  accrued  expenses  approximate  fair  value  because  of the short
maturity  of  these  instruments.  The  fair  value  of the  interest  rate  cap
agreements (note 9) is insignificant.


                                      F-31
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders
of Sullivan Broadcast Holdings, Inc.


In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements  of  operations,  of  cash  flows,  and of  changes  in
shareholders'  equity present fairly,  in all material  respects,  the financial
position  of  Sullivan  Broadcast  Holdings,  Inc.  and  its  subsidiaries  (the
"Company")  at December 31, 1996 and 1997,  and the results of their  operations
and their cash  flows for the  period  from  inception  (June 2,  1995)  through
December  31, 1995 and each of the two years in the period  ended  December  31,
1997,  in  conformity  with  generally  accepted  accounting  principles.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

/s/Price Waterhouse LLP
Boston, Massachusetts


March 10, 1998

                                      F-32
<PAGE>


              SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                  -------------------------
                                                                                      1996          1997
                                                                                  -----------   -----------
<S>                                                                               <C>           <C>
                                      ASSETS
CURRENT ASSETS:
 Cash and cash equivalents ....................................................    $   6,469     $   3,840
 Accounts receivable, net of allowance for doubtful accounts of $1,297 and
   $1,325......................................................................       31,686        34,990
 Current portion of programming rights ........................................       23,360        22,850
 Current deferred tax asset ...................................................        4,535         4,310
 Prepaid expenses and other current assets ....................................          733           941
                                                                                   ---------     ---------
   Total current assets .......................................................       66,783        66,931
 Property and equipment, net ..................................................       44,454        39,723
 Programming rights, net of current portion ...................................       21,319        23,432
 Deferred financing costs, net of accumulated amortization of $1,238 and
   $2,120......................................................................       14,016        13,134
 Intangible assets, net .......................................................      590,972       567,096
                                                                                   ---------     ---------
   Total assets ...............................................................    $ 737,544     $ 710,316
                                                                                   =========     =========
                         LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Current portion of senior debt ...............................................    $  18,583     $  23,562
 Interest payable .............................................................        4,362         3,882
 Accounts payable .............................................................        1,925         2,262
 Current portion of programming contracts payable .............................       24,281        24,944
 Income taxes payable .........................................................        2,865           195
 Accrued expenses .............................................................        3,771         4,367
                                                                                   ---------     ---------
   Total current liabilities ..................................................       55,787        59,212
Senior debt, net of current portion ...........................................      195,917       171,820
Borrowings under revolving lines of credit ....................................       56,500        59,500
Subordinated debt .............................................................      155,326       155,508
Interest payable ..............................................................        4,942        10,394
Programming contracts payable, net of current portion .........................       20,392        22,710
Deferred tax liability and other non-current liabilities ......................       84,124        82,132
                                                                                   ---------     ---------
   Total liabilities ..........................................................      572,988       561,276
                                                                                   ---------     ---------
15% Mandatorily redeemable cumulative preferred stock, non-voting $.001 par
 value; authorized 1,500,000 shares; 1,150,000 shares issued and outstanding ..      111,483       133,185
                                                                                   ---------     ---------
Commitments and contingencies (Note 11) .......................................           --            --
SHAREHOLDERS' EQUITY:
 Class B-1 common stock, $.001 par value; 5,000,000 shares authorized;
   1,204,077 and 1,201,577 shares issued and outstanding at December 31,
   1996 and 1997, respectively ................................................            1             1
 Class B-2 common stock; $.001 par value; 7,000,000 shares authorized;
   6,158,211 shares issued and outstanding at December 31, 1996 and 1997 ......            6             6
 Class C common stock; $.001 par value; 2,000,000 shares authorized; 896,229
   and 853,854 shares issued and outstanding at December 31, 1996 and 1997,
   respectively ...............................................................            1             1
 Additional paid-in capital ...................................................       76,861        55,117
 Accumulated deficit ..........................................................      (23,796)      (39,270)
                                                                                   ---------     ---------
   Total shareholders' equity .................................................       53,073        15,855
                                                                                   ---------     ---------
   Total liabilities and shareholders' equity .................................    $ 737,544     $ 710,316
                                                                                   =========     =========

</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                      F-33
<PAGE>


               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
                             STATEMENT OF OPERATIONS

                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                          PERIOD FROM
                                                           INCEPTION
                                                         (JUNE 2, 1995)            YEAR ENDED
                                                            THROUGH               DECEMBER 31,
                                                          DECEMBER 31,    ----------------------------
                                                              1995             1996           1997
                                                        ---------------   -------------   ------------
<S>                                                     <C>               <C>             <C>
Revenues (excluding barter) .........................      $      --        $ 129,711      $ 144,169
 Less: commissions ..................................             --           21,997         24,045
                                                           ---------        ---------      ---------
Net revenues (excluding barter) .....................             --          107,714        120,124
Trade and barter revenues ...........................             --           14,808         17,650
                                                           ---------        ---------      ---------
   Total net revenues ...............................             --          122,522        137,774
                                                           ---------        ---------      ---------
Expenses:
 Operating expenses .................................          1,601           15,005         17,301
 Selling, general and administrative ................             --           23,921         28,319
 Amortization of programming rights .................             --           26,673         30,197
 Depreciation and amortization ......................             --           48,051         42,220
                                                           ---------        ---------      ---------
                                                               1,601          113,650        118,037
                                                           ---------        ---------      ---------
    Operating (loss) income .........................         (1,601)           8,872         19,737
Interest expense, net, including amortization of debt
 discount and deferred loan costs ...................            258           41,187         40,711
Other expenses (income) .............................             --              131            (12)
                                                           ---------        ---------      ---------
Loss before income taxes ............................         (1,859)         (32,446)       (20,962)
Income tax benefit ..................................            335           10,174          5,488
                                                           ---------        ---------      ---------
 Net loss ...........................................      $  (1,524)       $ (22,272)     $ (15,474)
                                                           ---------        ---------      ---------

</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-34
<PAGE>

              SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                            PERIOD FROM
                                                                             INCEPTION
                                                                           (JUNE 2, 1995)            YEAR ENDED
                                                                              THROUGH               DECEMBER 31,
                                                                            DECEMBER 31,    -----------------------------
                                                                                1995             1996            1997
                                                                          ---------------   -------------   -------------
<S>                                                                       <C>               <C>             <C>
Cash flows from operating activities:
 Net loss .............................................................     $   (1,524)      $  (22,272)      $ (15,474)
 Adjustments to reconcile net loss to net cash (used for) provided
   by operating activities:
   Deferred income taxes ..............................................           (349)         (11,767)         (8,332)
   Depreciation of property and equipment .............................             --            7,865           9,251
   Amortization of intangible assets ..................................             --           40,186          32,969
   Amortization of programming rights (excluding barter) ..............             --           12,911          13,198
   Payments for programming rights ....................................             --           (9,087)        (11,820)
   Amortization of deferred financing costs and debt discount .........             38            2,765           1,064
 Changes in assets and liabilities:
   Increase in accounts receivable ....................................             --           (2,707)         (3,048)
   Increase in prepaid expenses and other assets ......................             --             (477)           (131)
   Increase (decrease) in amounts due to related party ................          1,547           (2,717)             --
   Increase (decrease) in income taxes payable ........................             14             (179)         (1,328)
   Increase in interest payable .......................................            485            8,819           4,972
   Increase in deferred debt issuance costs ...........................         (6,647)              --              --
   Increase in accounts payable .......................................             --              383             337
   Increase (decrease) in accrued expenses ............................          5,163           (7,060)           (201)
   Decrease in non-current liabilities ................................             --               --             (96)
                                                                            ----------       ----------       ---------
    Net cash (used for) provided by operating activities ..............         (1,273)          16,663          21,361
                                                                            ----------       ----------       ---------
 Cash flows from investing activities:
   (Increase) decrease in restricted cash .............................       (162,599)         162,599              --
   Acquisition of Act III Broadcasting, Inc., net of cash acquired                  --         (550,045)            751
   Acquisition of WFXV and WPNY (Note 3) ..............................             --             (792)             --
   Acquisition of WMSN (Note 3) .......................................             --          (26,584)             --
   Purchase of CTBC stock (Note 3) ....................................             --          (26,950)             --
   Payments for purchase options ......................................             --           (2,800)             --
   Acquisition of Cascom stock (Note 3) ...............................             --               --          (4,142)
   Capital expenditures ...............................................             --           (3,105)         (4,439)
                                                                            ----------       ----------       ---------
    Net cash used for investing activities ............................       (162,599)        (447,677)         (7,830)
                                                                            ----------       ----------       ---------
 Cash flows from financing activities:
   Proceeds from issuance of common stock .............................          6,972           61,692              10
   Proceeds from issuance of subordinated debt ........................        125,000               --              --
   Proceeds from issuance of long-term debt ...........................             --          220,000              --
   Proceeds from borrowings under credit facilities ...................             --           56,500           3,000
   Proceeds from bridge loan ..........................................          1,300               --              --
   Proceeds from issuance of preferred stock ..........................             --          115,000              --
   Proceeds from issuance of senior accrual debentures ................         35,000               --              --
   Repayment of long-term debt ........................................             --           (5,500)        (19,118)
   Repurchase of common stock .........................................             --             (129)            (52)
   Debt and preferred stock issuance costs ............................         (4,400)          (5,684)             --
   Advance buydown of programming rights ..............................             --           (4,396)             --
                                                                            ----------       ----------       ---------
    Net cash provided by (used for) financing activities ..............        163,872          437,483         (16,160)
                                                                            ----------       ----------       ---------
    Net increase (decrease) in cash and cash equivalents ..............             --            6,469          (2,629)
    Cash and cash equivalents, beginning of period ....................             --               --           6,469
                                                                            ----------       ----------       ---------
    Cash and cash equivalents, end of period ..........................     $       --       $    6,469       $   3,840
                                                                            ==========       ==========       =========

</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-35
<PAGE>

              SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       CLASS B-1              CLASS B-2
                                                 ---------------------- ---------------------
                                                      COMMON STOCK          COMMON STOCK
                                                 ---------------------- ---------------------
                                                     SHARES     AMOUNT     SHARES     AMOUNT
                                                 ------------- -------- ------------ --------
<S>                                              <C>           <C>      <C>          <C>
Issuance of Class B-1 common stock .............     560,000      $ 1           --      $--
Issuance of Class B-2 common stock- ............          --       --      697,243        1
Net loss .......................................          --       --           --       --
                                                     -------      ---      -------      ---
Balance at December 31, 1995 ...................     560,000        1      697,243        1
Issuance of Class B-1 common stock .............     651,577       --           --       --
Repurchase of Class B-1 common stock ...........      (7,500)      --           --       --
Issuance of Class B-2 common stock .............          --       --    5,460,968        5
Issuance of Class C common stock ...............          --       --           --       --
Repurchase of Class C common stock .............          --       --           --       --
Issuance of common stock purchase warrants .....          --       --           --       --
Accretion of preferred stock ...................          --       --           --       --
Net loss .......................................          --       --           --       --
                                                     -------      ---    ---------      ---
Balance at December 31, 1996 ...................   1,204,077        1    6,158,211        6
Repurchase of Class B-1 common stock ...........      (2,500)      --           --       --
Issuance of Class C common stock ...............          --       --           --       --
Repurchase of Class C common stock .............          --       --           --       --
Accretion of preferred stock ...................          --       --           --       --
Net loss .......................................                   --           --       --
                                                                  ---    ---------      ---
Balance at December 31, 1997 ...................   1,201,577      $ 1    6,158,211      $ 6
                                                   =========      ===    =========      ===

<CAPTION>

                                                        CLASS C
                                                 --------------------- 
                                                     COMMON STOCK       ADDITIONAL                     TOTAL
                                                 ---------------------    PAID-IN    ACCUMULATED   SHAREHOLDERS'
                                                    SHARES     AMOUNT     CAPITAL      DEFICIT        EQUITY
                                                 ------------ -------- ------------ ------------- --------------
<S>                                              <C>          <C>      <C>          <C>           <C>
Issuance of Class B-1 common stock .............         --      $--    $    5,599    $      --     $    5,600
Issuance of Class B-2 common stock- ............         --       --         6,971           --          6,972
Net loss .......................................         --       --            --       (1,524)        (1,524)
                                                         --      ---    ----------    ---------     ----------
Balance at December 31, 1995 ...................         --       --        12,570       (1,524)        11,048
Issuance of Class B-1 common stock .............         --       --         6,515           --          6,515
Repurchase of Class B-1 common stock ...........         --       --           (75)          --            (75)
Issuance of Class B-2 common stock .............         --       --        54,605           --         54,610
Issuance of Class C common stock ...............    990,979        1           566           --            567
Repurchase of Class C common stock .............    (94,750)      --           (54)          --            (54)
Issuance of common stock purchase warrants .....         --       --        24,063           --         24,063
Accretion of preferred stock ...................         --       --       (21,329)          --        (21,329)
Net loss .......................................         --       --            --      (22,272)       (22,272)
                                                    -------      ---    ----------    ---------     ----------
Balance at December 31, 1996 ...................    896,229        1        76,861      (23,796)        53,073
Repurchase of Class B-1 common stock ...........         --       --           (25)          --            (25)
Issuance of Class C common stock ...............      5,000       --            10           --             10
Repurchase of Class C common stock .............    (47,375)      --           (27)          --            (27)
Accretion of preferred stock ...................         --       --       (21,702)          --        (21,702)
Net loss .......................................         --       --            --      (15,474)       (15,474)
                                                    -------      ---    ----------    ---------     ----------
Balance at December 31, 1997 ...................    853,854      $ 1    $   55,117    $ (39,270)    $   15,855
                                                    =======      ===    ==========    =========     ==========
</TABLE>

   The accompanying notes are an integral part of those financial statements.

                                      F-36

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BUSINESS OPERATIONS

A-3 Holdings Inc. ("Holdings" or the "Company") was incorporated on June 2, 1995
in the  State  of  Delaware  for  the  sole  purpose  of  acquiring  100% of the
outstanding capital stock of Act III Broadcasting, Inc. ("Act III"), through its
wholly  owned  subsidiary  A-3  Acquisition,  Inc.  ("A-3"),  under  a  purchase
agreement  dated June 19,  1995.  The  purchase  of Act III was  consummated  on
January 4, 1996 (the "Act III  Acquisition"),  at which time A-3 merged with and
into Act III and changed its name to Sullivan Broadcasting Company, Inc. ("SBC")
(Note 3).

The Company  currently owns,  operates and programs,  through its  subsidiaries,
nine Fox  Broadcasting  Company  ("Fox")  affiliated  television  stations,  one
television station  affiliated with the American  Broadcasting  Companies,  Inc.
("ABC"),  and one  independent  television  station  throughout  the  Northeast,
Southeast,  and the  Mid-Atlantic  states.  The Company programs two independent
television  stations under local marketing  agreements  ("LMA") in markets where
the Company owns another television station (Note 4). Television broadcasting is
subject to the  jurisdiction of the Federal  Communications  Commission  ("FCC")
under the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television  broadcasting  stations
except  under a license  issued by the FCC and  empowers  the FCC,  among  other
things,  to issue,  revoke,  and modify  broadcasting  licenses,  determine  the
location of the  stations,  regulate the equipment  used by the stations,  adopt
regulations  to carry out the  provision of the  Communications  Act, and impose
penalties for violation of such regulations.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidations

The consolidated  financial  statements  include the accounts of the Company and
its  wholly   owned   subsidiaries.   Significant   intercompany   accounts  and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid  investments  purchased with an original
maturity of ninety days or less to be cash equivalents.

Revenue Recognition

Advertising  revenues are recognized in the period during which the  advertising
spots are aired.  Revenues from other sources are  recognized in the period when
the services are provided.

Trade and Barter Transactions

The Company  trades  certain  advertising  time for various  goods and services.
These  transactions  are  recorded at the  estimated  fair value of the goods or
services  received.   Revenues  from  trade  transactions  are  recognized  when
advertisements are broadcast and services or merchandise received are charged to
expense when received or used.

The  Company  barters  advertising  time for  certain  program  material.  These
transactions  are  recorded  at  management's  estimate  of  the  value  of  the
advertising  time exchanged,  which  approximates  the fair value of the program
material received.

Concentration of Credit Risk

Financial instruments which potentially expose the Company to a concentration of
credit risk include cash, cash equivalents and accounts receivable.  The Company
maintains  cash in excess of  federally  insured  deposits at several  financial
institutions at December 31, 1997. The Company does not believe

                                      F-37

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

that such  deposits  are  subject to any  unusual  credit risk beyond the normal
credit risk  associated  with  operating  its  business.  The Company  maintains
reserves for potential credit losses and such losses, in the aggregate, have not
historically exceeded management's expectations.

Programming Rights and Contracts Payable

Programming  rights,  primarily in the form of  syndicated  programs and feature
film packages,  represent  amounts paid or payable to program  suppliers for the
limited  right to broadcast  the  suppliers'  programming  and are recorded when
available  for use.  Programming  rights are stated at the lower of  unamortized
cost or net realizable  value.  Amortization is computed using the straight-line
method  based on the  license  period or based on usage,  whichever  yields  the
greater  accumulated  amortization  for each  program.  The  current  portion of
programming rights represents those rights available for broadcast which will be
amortized in the succeeding year.

The Company has estimated the fair value of these programming  contracts payable
at approximately  $49,480,000 as of December 31, 1997 based on future cash flows
discounted at the Company's current borrowing rate.

Property and Equipment

Property and equipment is stated on the basis of cost or estimated fair value at
the date of  acquisition.  Major renewals and  betterments  are  capitalized and
ordinary  repairs and maintenance are charged to expense in the period incurred.
Depreciation is computed on the  straight-line  basis over the estimated  useful
lives of the assets which range from three to thirty-nine years.

Intangible Assets

Intangible  assets  represent  the  estimated  fair  value of both  identifiable
intangible  assets  and  goodwill  resulting  from  acquisitions.   Identifiable
intangibles  include FCC broadcast  licenses,  network  affiliation  agreements,
non-competition  agreements,  and favorable  leases and are being amortized on a
straight-line  basis over periods  ranging  from 5 to 15 years.  Goodwill is the
excess of the  purchase  price over the fair  value of the net assets  acquired,
determined  through an  independent  appraisal,  and is amortized  over 40 years
using the straight-line  method. The Company evaluates the recoverability of its
intangible  assets  whenever  adverse  events or  changes  in  business  climate
indicate  that the  expected  undiscounted  future  cash flows from the  related
intangible assets may be less than previously anticipated. If the net book value
of the related  intangible asset exceeds the  undiscounted  future cash flows of
the intangible  asset,  the carrying value would be reduced to the present value
of its expected  future cash flows and an impairment  loss would be  recognized.
The  Company  did not  recognize  any  impairment  loss  during the years  ended
December 31, 1996 and 1997.

Deferred Financing Costs

Deferred  financing  costs  represent  costs  incurred  in  obtaining  long-term
financing.  These costs are  expensed as interest  over the lives of the related
loans, using the effective interest method.

Accounting for Income Taxes

The Company  accounts for income taxes under the liability  method of accounting
as set forth in Statement of Financial  Accounting Standards No. 109 "Accounting
for Income  Taxes".  Under the method  prescribed  by this  statement,  deferred
income taxes are  recognized at enacted tax rates to reflect the future  effects
of income tax  carryforwards and temporary  differences  arising between the tax
basis of assets and liabilities and their  financial  reporting  amounts at each
period end.

                                      F-38

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

Interest Rate Risk Management

The Company enters into interest rate swap agreements  with commercial  banks to
mitigate  the risk of possible  rising  interest  rates.  These  agreements  are
designated  as hedges of  interest  rates,  and the  differential  to be paid or
received on interest rate swaps is accrued as an adjustment to interest  expense
as interest rates change.  The Company is exposed to credit loss in the event of
nonperformance  by the other  parties  to the  interest  rate  swap  agreements;
however, the Company does not anticipate nonperformance by the counterparties.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles requires management to make estimates and use assumptions
that affect the reported  amounts of assets and  liabilities  and the disclosure
for contingent assets and liabilities at the date of the financial statements as
well as the  reported  amounts of revenues  and  expenses  during the  reporting
period. Actual results may vary from estimates used.

3.   ACQUISITIONS

In 1996 and 1997,  the Company made the  acquisitions  set forth below,  each of
which  has  been  accounted  for  as  a  purchase.  The  consolidated  financial
statements  include  the  operating  results of each  business  from the date of
acquisition,  except for the Act III  Acquisition  which  includes the operating
results  of Act III from  January  1, 1996  through  January  4, 1996 due to the
immateriality of the results in relation to the financial  statements taken as a
whole.  Pro forma results of operations of the other  acquisitions  made in 1996
and 1997 are not considered material.

The Act III Acquisition

On January 4, 1996,  the Company  acquired all of the  outstanding  stock of Act
III. The acquisition cost consisted of the following:


     Cash paid to Act III shareholders .........    $ 359,108,000
     Cash paid to retire debt ..................      167,764,000
     Acquisition costs .........................       23,173,000
                                                    -------------
                                                    $ 550,045,000
                                                    =============


The excess of the purchase price over the fair value of the net assets  acquired
was $208,861,000. In 1997, the Company received $751,000 from the sellers due to
the settlement of certain items for which funds were being held in escrow.  This
amount, net of expenses, was recorded as a reduction of goodwill during the year
ended December 31, 1997.

The Utica Acquisition

On February 7, 1996, the Company executed an asset purchase agreement to acquire
certain  assets of Mohawk Valley  Broadcasting,  Inc.  ("Mohawk")  and Acme T.V.
Corporation  ("Acme"),  the owners and operators of WFXV and WPNY in Utica,  New
York,  for a total  purchase  price of $400,000.  In addition,  the Company paid
$2,600,000  for the option to purchase the  remaining  assets of Mohawk and Acme
pending FCC approval for  $250,000  and  simultaneously  entered into a LMA with
Mohawk and Acme (Note 4). One June 24,  1996,  the FCC granted  approval for the
Company to purchase the  remaining  assets at which time the LMA with Mohawk and
Acme was  terminated  and the  remaining  assets  were  purchased.  The  Company
allocated the total cost of $3,250,000 plus fees and expenses of $142,000 to the
net assets acquired. The excess of the purchase price over the fair value of the
net assets acquired was $1,322,000.

                                      F-39

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

The Madison Acquisition

On July 1, 1996, the Company acquired substantially all of the assets of Channel
47 Limited  Partnership,  owner and operator of a television station in Madison,
Wisconsin  (WMSN)  for a total  purchase  price  of  $26,500,000  plus  fees and
expenses of $84,000. The excess of the purchase price over the fair value of the
net assets acquired was $4,155,000.

The Nashville Acquisition

On February 22,  1996,  the Company  entered  into a LMA with Central  Tennessee
Broadcasting  Corporation  ("CTBC"),  owner and operator of WXMT, an independent
television  station in  Nashville,  Tennessee.  Additionally,  the Company  paid
$200,000 for the option to acquire the stock of CTBC based upon  certain  events
defined in the underlying  agreement for  $13,710,000 in cash plus the repayment
of  $13,030,000  of CTBC's debt.  On July 12, 1996,  the Company  exercised  the
option and  purchased  the stock of CTBC.  The cost plus fees of  $210,000  were
allocated to the net assets acquired.  The excess of the purchase price over the
fair value of the net assets acquired was $17,505,000.

The Cascom Acquisition

On January 2, 1997,  the  Company  acquired  substantially  all of the assets of
Cascom  International,  Inc. and related film libraries for $4,038,000 plus fees
and expenses of $104,000.  The excess of the purchase  price over the fair value
of the net assets acquired was $1,877,000.

4.   LOCAL MARKETING AGREEMENTS

As part of the Act III  Acquisition,  the Company was  assigned Act III's right,
title and interest in a LMA with Guilford Telecasters, Inc. ("Guilford"),  owner
of WUPN (formerly WGGT), an independent television station in Greensboro,  North
Carolina  (the "WUPN LMA").  Under the WUPN LMA, the Company  sells and collects
the  advertising  revenues of WUPN,  programs WUPN, and reimburses  Guilford for
operating expenses. In connection with the Act III Acquisition, the Company also
acquired Act III's right, title and interest in a prepayment made under the WUPN
LMA,  which  released the Company from the quarterly  payments based on the cash
flows of WUPN which were  initially  required  under the WUPN LMA. In July 1996,
Guilford sold the assets of WUPN to Mission Broadcasting II, Inc. ("Mission II")
and assigned their right, title and interest in the WUPN LMA to Mission II under
substantially similar terms.

On July 12, 1996, the Company  entered into an LMA with Mission  Broadcasting I,
Inc.  ("Mission I"), owner of WUXP (formerly  WXMT),  an independent  station in
Nashville,  Tennessee  (the "WUXP  LMA").  Under the terms of the WUXP LMA,  the
Company  sells and  collects  the  advertising  revenues of WUXP and  reimburses
Mission I for operating expenses and debt service requirements.

Net  revenues of  $7,121,000  and  $11,989,000,  respectively,  and  expenses of
$2,818,000, and $3,397,000, respectively, related to the WUXP and WUPN LMAs have
been included in the  Company's  consolidated  statement of  operations  for the
years ended  December 31, 1996 and 1997. The Company has guaranteed an aggregate
amount of debt of $3,850,000 related to WUXP and WUPN as of December 31, 1997.

                                      F-40

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

5.   PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                               ESTIMATED             DECEMBER 31,
                                                              USEFUL LIFE   -------------------------------
                                                                (YEARS)          1996             1997
                                                             ------------   --------------   --------------
<S>                                                          <C>            <C>              <C>
 Land ....................................................          --       $  1,385,000     $  1,426,000
 Buildings and improvements ..............................       15-39          6,262,000        6,556,000
 Broadcasting equipment ..................................         3-5         39,978,000       43,845,000
 Furniture and other equipment ...........................         5-7          3,070,000        3,724,000
 Construction in progress ................................          --          1,624,000        1,288,000
                                                                             ------------     ------------
                                                                               52,319,000       56,839,000
 Less: accumulated depreciation and amortization .........                      7,865,000       17,116,000
                                                                             ------------     ------------
                                                                             $ 44,454,000     $ 39,723,000
                                                                             ============     ============
</TABLE>


6.   INTANGIBLE ASSETS

Intangible assets consists of the following:

<TABLE>
<CAPTION>
                                               AMORTIZATION              DECEMBER 31,
                                                  PERIOD      -----------------------------------
                                                 (YEARS)            1996               1997
                                              -------------   ----------------   ----------------
<S>                                               <C>         <C>                <C>
 Commercial advertising contracts .........       15           $ 148,986,000      $ 148,986,000
 Goodwill .................................       40             231,494,000        238,508,000
 Affiliation agreements ...................       10              98,445,000         98,445,000
 FCC licenses .............................       15              81,297,000         81,297,000
 Canadian cable rights ....................       10              59,000,000         59,000,000
 Other intangible assets ..................       5- 15           11,936,000         14,015,000
                                                               -------------      -------------
                                                                 631,158,000        640,251,000
 Less: accumulated amortization ...........                       40,186,000         73,155,000
                                                               -------------      -------------
                                                               $ 590,972,000      $ 567,096,000
                                                               =============      =============
</TABLE>


7.   LONG-TERM DEBT

Long term debt consists of the following:

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                         ----------------------------------
                                               1996              1997
                                         ---------------   ----------------
<S>                                      <C>               <C>
 SENIOR DEBT:
 Revolving credit facility ...........    $  30,000,000     $   6,000,000
 Acquisition credit facility .........       26,500,000        53,500,000
 Term loan ...........................      214,500,000       195,382,000
                                          -------------     -------------
                                            271,000,000       254,882,000
 Less: current portion ...............       18,583,000        23,562,000
                                          -------------     -------------
                                          $ 252,417,000     $ 231,320,000
                                          =============     =============
</TABLE>


                                      F-41

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)


<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                  -------------------------------------
                                                                         1996                1997
                                                                  -----------------   -----------------
<S>                                                               <C>                 <C>
SUBORDINATED DEBT:
 Senior accrual debentures,  interest at 13.25% compounded
   semi-annually payable on June 15, 2001 and payable semi-
   annual thereafter, principal due December 15, 2005 .........     $  35,000,000       $  35,000,000
 Less: unamortized discount ...................................        (4,859,000)         (4,677,000)
                                                                    -------------       -------------
                                                                       30,141,000          30,323,000
 Senior subordinated notes, interest at 10.25% payable semi-
   annually, principal due December 15, 2005 ..................       125,000,000         125,000,000
 Senior subordinated notes, interest at 9.625% payable semi-
   annually, principal due December 31, 2003 ..................           185,000             185,000
                                                                    -------------       -------------
                                                                    $ 155,326,000       $ 155,508,000
                                                                    =============       =============
</TABLE>

On January 4, 1996,  the Company  entered into a Credit  Agreement  (the "Credit
Agreement")  to  provide  a  $220,000,000  term  loan  to  finance  the  Act III
Acquisition.  The Credit Agreement also provides for a revolving credit facility
and an acquisition  credit  facility  allowing for borrowings of $30,000,000 and
$75,000,000,  respectively,  through  2003.  During  1997,  the  Company  rolled
$24,000,000  of  borrowings   under  the  revolving  credit  facility  into  the
acquisition  credit  facility per the lenders  permission as the borrowings were
utilized to finance acquisitions. All borrowings under the Credit Agreement bear
interest at the lender's base rate plus a percentage  determined  based upon the
Company's  most  recent  quarterly  leverage  ratio  as  defined  in the  Credit
Agreement (8.49% at December 31, 1997). The interest is payable  quarterly or at
other  increments  if the Company has chosen a LIBOR  interest rate for a period
greater than 90 days. These  borrowings are secured by substantially  all of the
Company's  assets.  The term loan is payable in varying  quarterly  installments
beginning  in  December  1996  through  December  2003.  The lender may  require
prepayments  based upon the meeting of certain cash flow  criteria as defined in
the Credit Agreement.

The Credit  Agreement  requires  the  Company to enter into  interest  rate swap
agreements  for  notional  amounts  of at  least  50% of its  total  outstanding
floating rate debt under the Credit Agreement. At December 31, 1997, the Company
had several interest rate swap agreements.  These financial  instruments,  which
are not held for trading purposes, expire from 1998 to 2001. The swap agreements
set rates in the range of 5.14% to 5.61%.  The notional  amount related to these
agreements was  $200,000,000 at December 31, 1997. The Company has no intentions
of  terminating  these  instruments  prior to their  expiration  dates unless it
repays a portion of its bank debt in advance of scheduled payments.  The Company
estimates  the fair  value of  these  instruments  at  December  31,  1997 to be
$1,576,000.

On December 21, 1995,  the Company issued and sold 35,000 units through a public
offering  consisting  in the  aggregate of  $35,000,000  in principal  amount of
13.25% senior  accrual  debentures  (the  "Debentures")  due in 2006 and 560,000
shares of Holdings  Class B-1 common  stock,  the proceeds of which were used to
finance  the  acquisition  of Act III.  An  estimated  value of  $5,600,000  was
assigned to the shares of Class B-1 common stock  resulting in a discount of the
same amount on the Debentures.  This discount is being amortized through charges
to interest expense over the life of the Debentures using the effective interest
method.

Interest on the  Debentures  for the period of issuance until June 15, 2001 will
accrue at the stated interest rate,  compounded on a semi-annual basis, and will
be  payable  in  cash  on  that  date in an  aggregate  amount  of  $35,879,000.
Thereafter,  interest on the Debentures  will accrue at the stated rate and will
be payable  semi-annually  in arrears on June 15 and  December  15 of each year,
commencing  December 15, 2001.  The Company is required to redeem  $2,772,000 in
aggregated principal of the Debentures on June 15, 2001.

                                      F-42

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

On December 21, 1995, the Company issued and sold  $125,000,000 of 10.25% senior
subordinated  notes (the "Notes") due on December 15, 2005 in a public offering,
the  proceeds of which were used to finance the Act III  Acquisition.  The Notes
are  unsecured  and are  subordinated  to all  existing  and future  debt of the
Company.

Interest  on the Notes is payable  semi-annually  on June 15 and  December 15 of
each year,  commencing  June 15, 1996. The Notes are subject to redemption on or
after  December  15,  2000 at the  option of the  Company at  redemption  prices
specified in the debt agreement.  In addition, on or prior to December 15, 1998,
the  Company  may  redeem  additional  principal  amounts  of the Notes with the
proceeds  from an  initial  public  offering  of  equity  at  redemption  prices
specified  in the  agreement,  so long as 67% of the  original  principal of the
Notes is still outstanding.

Concurrent  with the Act III  Acquisition,  the Company  made a tender offer for
$100,000,000  9 5/8% senior  subordinated  notes (the "9 5/8 Notes")  originally
issued by Act III. At December 31, 1997,  $185,000 of the 9 5/8 Notes were still
outstanding.

The Credit Agreement,  Debentures and Notes contain covenants which, among other
restrictions,  require the Company to comply with certain  financial  ratios and
provisions and limit the Company's ability to incur additional  indebtedness and
pay dividends.  The Company was in compliance  with all covenants as of December
31, 1997.

The Company has estimated the fair value of long-term  debt at December 31, 1996
and 1997 to  approximate  the carrying  value.  The fair value was  estimated by
discounting  the future  cash flows of loans with  similar  terms and  remaining
maturities at the Company's current borrowing rate.

As of December 31, 1997,  scheduled  maturities,  including debt  discount,  are
summarized as follows:


                 1998 ...............    $  23,562,000
                 1999 ...............       31,513,000
                 2000 ...............       42,017,000
                 2001 ...............       42,963,000
                 2002 ...............       42,963,000
                 Thereafter .........      232,049,000
                                         -------------
                                         $ 415,067,000
                                         =============



                                      F-43

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

8.   INCOME TAXES

The income tax benefit consists of the following:

<TABLE>
<CAPTION>
                                      PERIOD FROM
                                       INCEPTION
                                     (JUNE 2, 1995)                YEAR ENDED
                                        THROUGH                   DECEMBER 31,
                                      DECEMBER 31,    ------------------------------------
                                          1995               1996                1997
                                    ---------------   ------------------   ---------------
<S>                                 <C>               <C>                  <C>
Current tax expense:
 Federal ........................     $        --       $           --      $    166,000
 State ..........................          14,000            1,593,000         2,678,000
                                      -----------       --------------      ------------
                                           14,000            1,593,000         2,844,000

Deferred tax benefit:
 Federal ........................        (324,000)          (8,779,000)       (5,884,000)
 State ..........................         (25,000)          (2,988,000)       (2,448,000)
                                      -----------       --------------      ------------
                                         (349,000)         (11,767,000)       (8,332,000)
                                      -----------       --------------      ------------
 Net income tax benefit .........     $  (335,000)      $  (10,174,000)     $ (5,488,000)
                                      ===========       ==============      ============
</TABLE>


Reconciling amounts,  stated below as a percentage of pretax income, between the
statutory  federal  income tax rate and the Company's  effective tax rate are as
follows:

<TABLE>
<CAPTION>
                                            PERIOD FROM
                                             INCEPTION
                                           (JUNE 2, 1995)         YEAR ENDED
                                              THROUGH            DECEMBER 31,
                                            DECEMBER 31,    -----------------------
                                                1995           1996         1997
                                          ---------------   ----------   ----------
<S>                                       <C>               <C>          <C>
U.S. federal statutory rate ...........         35.0%           35.0%        35.0%
State and local taxes, net ............          1.2             4.3         (1.5)
Amortization of goodwill ..............           --            (7.9)        (9.5)
Other .................................          0.6              --           --
Change in valuation allowance .........        (18.8)             --           --
                                               -----            ----         ----
Effective tax rate ....................         18.0%           31.4%        24.0%
                                               =====            ====         ====
</TABLE>

The  components  of the net deferred tax liability at December 31, 1996 and 1997
are as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                            -------------------------------------
                                                                   1996                1997
                                                            -----------------   -----------------
<S>                                                         <C>                 <C>
Property and equipment ..................................    $   (9,699,000)     $   (7,624,000)
Programming rights ......................................           770,000             239,000
Bad debts ...............................................         1,739,000           1,885,000
Intangible assets .......................................      (131,966,000)       (119,912,000)
Accrued interest ........................................           576,000             783,000
Net operating loss and charitable carryforwards .........        61,357,000          46,073,000
Other assets ............................................         2,649,000           2,879,000
Other ...................................................        (4,882,000)         (2,098,000)
                                                             --------------      --------------
Net deferred tax liability ..............................    $  (79,456,000)     $  (77,775,000)
                                                             --------------      --------------
</TABLE>

                                      F-44

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

At  December  31,  1997,  the  Company  had net  operating  loss and  charitable
contribution   carryforwards  of  approximately  $109,857,000  and  $10,000,000,
respectively,  for  federal  income tax  purposes,  available  to reduce  future
taxable income. To the extent not used, federal net operating loss carryforwards
expire in varying  amounts  beginning in 2003. In addition,  the Company had net
operating loss  carryforwards of  approximately  $38,604,000 for state and local
income tax purposes in various jurisdictions.

A corporation that undergoes a "change of ownership"  pursuant to Section 382 of
the  Internal  Revenue Code is subject to  limitations  on the amount of its net
operating  loss  carryforwards  which may be used in the  future.  An  ownership
change occurred on January 4, 1996. The annual  limitation on the use of the net
operating loss is $10,050,000.  The Company  estimates the limitation on the net
operating  loss  will  not  have a  material  adverse  impact  on the  Company's
consolidated  financial  position or results of operations.  No assurance can be
given that an ownership change will not occur as a result of other  transactions
entered into by the Company,  or by certain other parties over which the Company
has no control.  If a "change in ownership" for income tax purposes occurs,  the
Company's  ability to use  "pre-change  losses"  could be  postponed or reduced,
possibly resulting in accelerated or additional tax payments which, with respect
to tax  periods  beyond  1997,  could  have a  material  adverse  impact  on the
Company's consolidated financial position or results of operations.

In  1996,  the tax  benefit  related  to the  repurchase  of  stock  options  of
approximately  $3,850,000  was recorded as a reduction of goodwill.  In 1997, an
adjustment of  approximately  $4,500,000  was made to goodwill  resulting from a
change in management's  estimate of the ultimate tax benefit of acquired assets,
liabilities and carryforwards related to the Act III Acquisition.

9.   MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK

On January 4, 1996, the Company issued $115,000,000,  15% mandatorily redeemable
cumulative  preferred stock (the  "Preferred  Stock").  Dividends  accrue on the
outstanding  shares  of  Preferred  Stock at a rate of 15% per year  compounding
annually.  Accrued  dividends  are payable on March 15, 2001 and will be payable
annually  subsequent  to that  date.  In  connection  with the  issuance  of the
Preferred  Stock,  the Company issued  2,406,307  warrants to purchase Class B-1
common stock at $.001 per share. These warrants are currently exercisable and do
not  expire.  Accretion  to  record  the  value  of the  Preferred  Stock at its
redemption value is calculated using the effective interest method. Such amounts
have been charged to additional-paid-in-capital.

10.  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company paid interest of $33,828,000 and $34,666,000  during the years ended
December 31, 1996 and 1997, respectively.

During the years  ended  December  31,  1996 and 1997,  the  programming  rights
increased  $44,679,000  and  $31,800,000  due to the  assumption of  programming
liabilities.

During  the  years  ended   December  31,  1996  and  1997,   the  Company  paid
approximately $1,749,000 and $3,600,000, respectively for income taxes.

11.  COMMITMENTS AND CONTINGENCIES

Leases

The Company has  operating  lease  agreements  for land,  office  space,  office
equipment and other property which expire on various dates through 2005.  Rental
expense was $691,000,  $750,000 and $884,000 during the years ended December 31,
1995, 1996 and 1997,  respectively.  As of December 31, 1997,  minimum  required
annual payments under noncancelable operating leases are as follows:

                                      F-45

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)


                       1998 ...............    $   978,000
                       1999 ...............        968,000
                       2000 ...............        984,000
                       2001 ...............        836,000
                       2002 ...............        715,000
                       Thereafter .........      1,230,000
                                               -----------
                                               $ 5,711,000
                                               ===========


Programming Contracts

Programming contracts acquired under license agreements are recorded as an asset
and a  corresponding  liability  at the  inception  of the  license  period.  In
addition to the programming  contracts payable at December 31, 1996, the Company
has  $17,575,000  of  commitments  to acquire  programming  rights for which the
license  period  has not  commenced  and,  accordingly,  for  which  no asset or
liability  has  been  recorded.   Future  minimum  payments  arising  from  such
commitments  outstanding at December 31, 1996,  excluding  $18,976,000 of barter
commitments, are as follows:


                      1998 ...............    $ 14,798,000
                      1999 ...............      11,437,000
                      2000 ...............       9,351,000
                      2001 ...............       5,868,000
                      2002 ...............       3,632,000
                      Thereafter .........       1,167,000
                                              ------------
                                              $ 46,253,000
                                              ============
              

Litigation

The Company currently and from time to time is involved in litigation incidental
to the conduct of its  business.  In the opinion of  management,  no existing or
contingent claims will have a material adverse effect on the Company's financial
position or results of operations.

Employment Contracts

The Company has entered into an employment contract with an executive officer of
the  Company  providing  for a  minimum  aggregate  amount of  $500,000  payable
annually  commencing  September  13,  1995 for an initial  term of eight  years.
Additionally,  the Company has  guaranteed  annual bonus  arrangements  with two
other executive officers which have historically been paid.

12.  RELATED PARTY TRANSACTIONS

Operating expenses include  reimbursements to ABRY Partners,  Inc. ("ABRY"),  an
entity related through common  ownership,  for the Company's  allocable share of
rent paid by ABRY for the  Company.  These  expenses  approximated  $73,000  and
$106,000 for the years ended December 31, 1996 and 1997,  respectively,  and are
included  in  selling,  general and  administrative  expenses  in the  Company's
consolidated statement of operations.

The Company also pays ABRY a management  fee for  financial  and other  advisory
services.  Management fees paid to ABRY were approximately $252,000 and $265,000
for the years ended December 31, 1996 and 1997, respectively and are included in
selling  general  and  administrative  expenses  in the  Company's  consolidated
statement of operations.

                                      F-46

<PAGE>



               SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

13.  SUBSEQUENT EVENT

On February 23, 1998, the Company  entered into a Plan of Merger (the "Merger").
Under the terms of the Merger,  100% of the issued and outstanding  common stock
of the Company  will be acquired by means of a merger.  The Merger is subject to
approval of the FCC and is expected to close prior to August 1998.











                                      F-47

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Sullivan Broadcasting Company, Inc.
(formerly Act III Broadcasting, Inc. as successor by
merger with A-3 Acquisition, Inc.)

     In our opinion, the accompanying  consolidated statements of operations, of
cash flows and of changes in  shareholders'  deficit and present fairly,  in all
material  respects,  the  results of  operations  and of cash flows of  Sullivan
Broadcasting  Company,  Inc. and its  subsidiaries  (the "Company") for the year
ended  December 31, 1995,  in  conformity  with  generally  accepted  accounting
principles.  These financial  statements are the responsibility of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audit.  We conducted  our audit of these  statements in
accordance with generally accepted auditing standards which 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,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion  expressed
above.

/s/Price Waterhouse LLP
Boston, Massachusetts

March 25, 1996



                                      F-48

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                             (DOLLARS IN THOUSANDS)


                                                                     YEAR ENDED
                                                                    DECEMBER 31,
                                                                        1995
                                                                   -------------
  Revenues .......................................................   $112,039
    Less -- commissions ..........................................     19,914
                                                                     --------
  Net revenues ...................................................     92,125
  Trade and barter revenues ......................................      7,876
                                                                     --------
    Total net revenues ...........................................    100,001

  Expenses:
    Operating expenses ...........................................     11,136
    Selling, general and administrative ..........................     23,447
    Amortization of programming rights ...........................     18,033
    Depreciation and amortization ................................     11,780
                                                                     ========
                                                                       64,396
                                                                     --------
    Operating income .............................................     35,605
  Interest expense, including amortization of debt dis-
    count and deferred loan costs ................................     17,777
  Other expenses .................................................        247
                                                                     --------
  Income before provision for income taxes .......................     17,581
  Provision for income taxes .....................................     (4,762)
                                                                     --------
  Net income .....................................................   $ 22,343
                                                                     ========


   The accompanying notes are an integral part of these financial statements.

                                      F-49

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)


                                                             YEAR ENDED
                                                            DECEMBER 31,
                                                                1995
                                                           -------------
CASH FLOWS FROM OPERATING ACTIVITIES:                     
    Net income ...........................................   $  22,343
    Adjustments to reconcile net income to net cash       
      provided by operating activities:                   
      Adjustment to goodwill relating to realization of   
        net operating loss ...............................         484
      Depreciation of property and equipment .............       3,147
      Amortization of intangibles ........................       8,633
      Amortization of programming rights, excluding       
        barter ...........................................      10,728
      Payments for programming rights ....................      (8,368)
      Prepayment of WGGT time brokerage fees .............      (6,000)
      Amortization of debt issuance costs and discount....         851
      Loss on sale or retirement of fixed assets .........          24
      Increase in interest payable .......................          95
      Amortization of deferred compensation ..............         153
CHANGES IN ASSETS AND LIABILITIES:
      Increase in accounts receivable ....................      (3,121)
      Increase in prepaid expenses and other assets ......        (515)
      Increase in deferred tax assets ....................      (7,326)
      Increase in taxes payable ..........................       1,105
      Decrease in accounts payable and other accrued      
        liabilities ......................................        (413)
                                                              ---------
      Net cash provided by operating activities ..........      21,820
                                                              ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Payment for WGGT option ............................      (1,000)
      Purchase of fixed assets ...........................      (5,560)
                                                              ---------
        Net cash used for investing activities ...........      (6,560)
                                                              ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Payment of principal amounts .........................     (14,971)
                                                              ---------
      Net cash used for financing activities .............     (14,971)
                                                              ---------
      Net increase in cash and cash equivalents ..........         289
      Cash and cash equivalents, beginning of year .......       3,295
                                                              ---------
      Cash and cash equivalents, end of year .............   $   3,584
                                                              =========



   The accompanying notes are an integral part of these financial statements.

                                      F-50

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                           CLASS A              CLASS C
                                    -------------------- --------------------
                                        COMMON STOCK         COMMON STOCK       ADDITIONAL                                 TOTAL  
                                    -------------------- --------------------     PAID-IN   ACCUMULATED    DEFERRED    SHAREHOLDERS'
                                       SHARES     AMOUNT    SHARES     AMOUNT     CAPITAL     DEFICIT    COMPENSATION     DEFICIT   
                                    ------------ ------- ------------ -------  ----------- ------------ ------------- --------------
<S>                                 <C>          <C>     <C>          <C>      <C>         <C>          <C>           <C>           
Balance at December 31, 1994 ......     893.720     $ 9      666.879     $ 7    $   6,285   $ (114,639)    $ (153)      $ (108,491) 
Accretion of discount and divi-                                                                                                     
 dends on 8% Cumulative Re-                                                                                                         
 deemable Preferred Stock .........         --       --          --       --       (2,518)          --         --           (2,518) 
Amortization of deferred compen-                                                                                                    
 sation ...........................         --       --          --       --           --           --        153              153  
Net income ........................         --       --          --       --           --       22,343         --           22,343  
                                        -------     ---      -------     ---    ---------   ----------     ------       ----------  
Balance at December 31, 1995 ......    893,720      $ 9     666,879      $ 7    $   3,767   $  (92,296)    $   --       $  (88,513) 
                                       ========     ===     ========     ===    =========   ==========     ======       ==========  
</TABLE>


   The accompanying notes are an integral part of these financial statements.



                                      F-51

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On January 4, 1996, all of the outstanding capital stock of Act III Broadcasting
(the  "Company")  was  purchased by and the Company was merged with and into A-3
Acquisition,  Inc. The Company  then  changed its name to Sullivan  Broadcasting
Company, Inc. (Note 11).

The Company was incorporated in Delaware in 1986 and at December 31, 1995 owned,
operated and/or  programmed,  through its  subsidiaries,  seven Fox Broadcasting
Company ("Fox") affiliated stations,  one television station affiliated with the
American Broadcasting  Companies,  Inc. ("ABC"), and two independent  television
stations that the Company  programs under time brokerage  agreements  throughout
the Northeast,  Southeast,  and Mid-Atlantic states.  Television broadcasting is
subject to the  jurisdiction of the Federal  Communications  Commission  ("FCC")
under the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television  broadcasting  stations
except  under a license  issued by the FCC and  empowers  the FCC,  among  other
things,  to issue,  revoke  and  modify  broadcasting  licenses,  determine  the
location of the  stations,  regulate the equipment  used by the stations,  adopt
regulations  to carry out the  provisions of the  Communications  Act and impose
penalties for violation of such regulations.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its subsidiaries.  Significant  intercompany accounts and transactions have been
eliminated in consolidation.

As of December 31, 1995,  Act III  Communications  Holdings,  L.P.  ("Holdings")
directly  owned  approximately  15%,  100% and 6% of the Company's 8% Cumulative
Redeemable Preferred Stock ("Senior Preferred Stock"),  Class A Common Stock and
Class C Common Stock, respectively.

Revenue Recognition

Advertising  revenues are  recognized  in the period during which the time spots
are aired.  Revenues  from other  sources are  recognized in the period when the
services are provided.

Trade and Barter Transactions

The Company  trades  certain  advertising  time for various  goods and services.
These  transactions  are  recorded at the  estimated  fair value of the goods or
services  received.  The related  revenue is  recognized  when  commercials  are
broadcast.  Goods or services  received are recorded as assets or expenses  when
received or used, respectively.

The  Company  barters  advertising  time for  certain  program  material.  These
transactions  are  recorded  at  management's  estimate  of  the  value  of  the
advertising  time exchanged,  which  approximates  the fair value of the program
material received.

Programming Rights and Contracts Payable

Programming  rights,  primarily in the form of  syndicated  programs and feature
film packages,  represent  amounts paid or payable to program  suppliers for the
limited  right to broadcast  the  suppliers'  programming  and are recorded when
available  for use.  Programming  rights are stated at the lower of  unamortized
cost or net realizable  value.  Amortization is computed using the straight-line
method  based on the  license  period or based on usage,  whichever  yields  the
greater accumulated amortization for each program.

                                      F-52

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Property and Equipment

Property and equipment is stated on the basis of cost or estimated fair value at
the  date of  acquisition.  Expenditures  for  renewals  and  improvements  that
significantly  add to productive  capacity or extend the useful life of an asset
are capitalized.  Expenditures for maintenance and repairs are charged to income
when  incurred.  Depreciation  is computed on the  straight-line  basis over the
estimated useful lives of the assets which range from 3 to 37 years.

Intangible Assets

Intangible assets represent the estimated fair value of both identifiable assets
and goodwill resulting from acquisitions.  Identifiable  intangibles include FCC
broadcast licenses,  non-competition  agreements,  favorable leases, accelerated
market growth assets and underdeveloped  market competition assets and are being
amortized  on a  straight-line  basis over  periods  ranging from 5 to 15 years.
Goodwill is being amortized over 40 years using the  straight-line  method.  The
Company  evaluates the  recoverability of its intangible assets whenever adverse
events or changes in business  climate  indicate that the expected  undiscounted
future cash flows from the related intangible assets may be less than previously
anticipated.  If the net book value of the related  intangible asset exceeds the
undiscounted future cash flows of the intangible asset, the carrying value would
be  reduced  to the  present  value of its  expected  future  cash  flows and an
impairment  loss  would  be  recognized.  The  Company  did  not  recognize  any
impairment loss for the year ended December 31, 1995.

Deferred Loan Costs

Deferred loan costs represent costs incurred in obtaining  long-term  financing.
These costs are  expensed as interest  over the lives of the related  loan using
the effective interest method.

Accounting for Income Taxes

The Company  accounts for income taxes under the liability  method of accounting
as set forth in Statement of Financial Accounting Standards No. 109; "Accounting
for Income  Taxes".  Under the method  prescribed  by this  statement,  deferred
income taxes are  recognized at enacted tax rates to reflect the future  effects
of income tax  carryforwards and temporary  differences  arising between the tax
basis of assets and liabilities and their  financial  reporting  amounts at each
period end.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles requires management to make estimates and use assumptions
that affect the reported  amounts of assets and  liabilities  and the disclosure
for contingent assets and liabilities at the date of the financial statements as
well as the  reported  amounts of revenues  and  expenses  during the  reporting
period. Actual results may vary from estimates used.

Supplementary Statement of Operations Information

Included  in  operating  expenses  for the year  ended  December  31,  1995 were
advertising costs of $1,694,000 and music license fees of $548,000.

2.   TIME BROKERAGE AGREEMENT

On September 30, 1991, the Company entered into a time brokerage  agreement with
Guilford  Telectasters,  Inc.  ("Guilford") for WGGT, an independent  television
station in Greensboro,  North Carolina. The purchase price was $2,000,000,  plus
the  assumption  of  $821,000  in  film  liabilities.  Under  the  terms  of the
agreement, Guilford sells certain broadcast time of WGGT to the Company for the

                                      F-53

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

purpose of retransmitting  the signal of WXLV, the Company's  television station
in Winston-Salem, North Carolina. In addition to the purchase price, the Company
will remit quarterly  payments,  not to be lower than $50,000, to Guilford based
on a  specified  calculation.  The term of the  contract  is five  years  with a
five-year extension that may be exercised by Guilford.

On June 30, 1995, the Company and Guilford amended the time brokerage agreement.
Under the terms of the amended agreement,  the Company paid Guilford  $6,000,000
in  exchange  for the right to  broadcast  the  signal  of WXLV on WGGT  through
September  30,  2001.  This  payment  released  the Company  from the  quarterly
payments originally required under the agreement. This amount is being amortized
on a straight line basis, over the term of the agreement.

In conjunction with the amendment, the Company also paid Guilford $1,000,000 and
Guilford  granted to a third party an option to purchase  certain assets of WGGT
of an exercise  price of  $1,000,000.  The third  party  granted the Company the
right to  require  such  third  party to assign  this  option to the  Company or
another third party.

3.   LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                             1995
                                                                                       ---------------
<S>                                                                                    <C>
   Senior Debt:
     Bank Credit Agreement, $60,000,000 revolving credit, commitment reducing
      year by year, due December 31, 2000 ............................................  $  24,000,000
     Series A Senior Notes, interest at 11.34% payable semi-annually, principal
      payable in semi-annual installments commencing June 30, 1993 ...................     15,260,000
     Less: unamortized discount ......................................................       (109,000)
                                                                                        -------------
                                                                                           15,151,000
                                                                                        -------------
     Series B Senior Notes, interest at 12.03% payable semi-annually, principal
      payable in semi-annual installments commencing June 30, 1993 ...................      2,723,000
     Series C Senior Notes, interest at 12.60% payable semi-annually, principal
      due on December 31, 1996 .......................................................     13,432,000
     Less: unamortized discount ......................................................        (61,000)
                                                                                        -------------
                                                                                           13,371,000
                                                                                        -------------
     Series D Senior Notes, interest at 13.31% payable semi-annually, principal
      due on December 31, 1996 .......................................................      4,368,000
     Senior Acquisition Notes, interest at 12.92% payable semi-annually, principal
      payable in semi-annual installments commencing June 30, 1993 ...................      3,363,000
                                                                                        -------------
                                                                                           62,976,000
     Less: current maturities ........................................................    (24,078,000)
                                                                                        -------------
                                                                                        $  38,898,000
                                                                                        =============
   Subordinated Debt:
     Senior Subordinated Notes, interest at 9.625% payable semi-annually, princi-
      pal due December 15, 2003 ......................................................  $ 100,000,000
                                                                                        =============
</TABLE>

On December  22,  1993,  the Company  refinanced  a  substantial  portion of its
outstanding  debt. The Company  secured a revolving  credit  facility (the "Bank
Credit Agreement")  originally in the amount of $50 million,  currently at $57.6
million,  to mature on December  31,  2000,  and issued  $100  million of 9 5/8%
Senior  Subordinated  Notes due December 2003 ("Notes").  With the proceeds from
these transactions,

                                      F-54

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

the Company repaid  $35,000,000  of its Floating Rate Senior Notes,  $36,867,000
Series A Senior  Notes,  $10,054,000  Series B Senior Notes,  $8,689,000  Senior
Acquisition Notes,  $7,568,000 Series A Subordinated Notes and $9,632,000 of its
Series B Subordinated  Notes.  In connection  with the issuance of the Notes and
Bank Credit  Agreement,  the Company  amended its existing loan  agreement  (the
"Amended  Existing  Agreement")  which extended the maturity of a portion of the
Company's  existing senior and subordinated  debt from its then current maturity
of December 31, 1996 to December 31, 1997. Of the $40,615,000 of remaining notes
under the Amended Existing Agreement,  $15 million is due December 31, 1997. All
the notes under the  Amended  Existing  Agreement  rank pari passu with the debt
issued under the Bank Credit  Agreement.  Concurrent with the  refinancing,  the
Company  redeemed  17.2  shares  of 8%  Cumulative  Redeemable  Preferred  Stock
("Senior  Preferred  Stock") at a price of $22,865,000  (see Note 5) and 606.478
shares of Class C Common Stock at a price of $16,557,000 (see Note 6).

The  interest  rate  under  the Bank  Credit  Agreement  will be  based,  at the
Company's  option,  on the lender's (i) ABR;  (ii)  Eurodollar or (iii) CD rates
(each as defined therein),  each plus an applicable margin which is based on the
Company's  ratio  of Total  Funded  Debt to  Operating  Cash  Flow  (as  defined
therein).  Interest rates will be adjusted monthly,  with the applicable margins
varying  between .5% to 1.5% for the ABR rate,  1.5% to 2.5% for the  Eurodollar
rate,  and 1.625% to 2.625% for the CD rate.  The  Company is required to pay to
the lender an annual  commitment  and an annual agency fee. The interest rate at
December 31, 1995 was 7.25%.

Borrowings  under the Bank Credit  Agreement are subject to a maximum  available
amount (the "Maximum  Amount"),  currently $57.6 million,  and may be repaid and
reborrowed at any time. The Maximum Amount is being reduced in varying quarterly
amounts  beginning June 30, 1995 through  December 31, 2000.  Principal  amounts
outstanding on such dates must be repaid to reduce total  outstanding  principal
to at least the  Maximum  Amount.  Generally,  the  Company may prepay a greater
amount of borrowed funds than is required without premium or penalty, except for
certain breakage costs associated with prepayment of CD and Eurodollar loans.

The Series A Senior Notes require principal payments of $260,000 on each June 30
and December 31 through June 30, 1996,  with the  remaining  $15,000,000  due on
December 31, 1997.  In  consideration  for  extending  this maturity to 1997 the
Company  will be  required to pay a 3% premium or $450,000  upon  maturity.  The
Company has recorded the liability  for this premium.  The Series B Senior Notes
require  principal  payments of $359,000 on each June 30 and December 31 through
June 30, 1996 with the remaining  $2,364,000 due December 31, 1996. The Series C
Senior  Notes and Series D Senior  Notes are due in full on December 31, 1996. A
principal  payment on Senior  Acquisition Notes totaling $214,000 is due on June
30, 1996 with the  remaining  $3,147,000  due on December 31, 1996.  Interest is
payable in semi-annual installments on June 30 and December 31.

The Notes mature on December 15, 2003. Interest on the Notes accrues at the rate
of 9 5/8% per annum and will be payable  semiannually in arrears on June 15, and
December 15. Although the Notes are general unsecured obligations of the Company
and are subordinate to all  indebtedness,  the Notes are guaranteed  jointly and
severally by each of the Company's subsidiaries.

As  of  December  31,  1995,  scheduled  maturities,  including  discounts,  are
summarized as follows:


                    1996 .........................   $ 24,145,000
                    1997 .........................     15,000,000
                    1998 .........................             --
                    1999 .........................      9,000,000
                    2000 .........................     15,000,000
                    Thereafter ...................    100,000,000
                                                     ------------
                                                     $163,145,000
                                                     ============


                                      F-55

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Notes,  Bank Credit Agreement and Amended Existing  Agreement of the Company
contain covenants which,  among other  restrictions,  require the maintenance of
certain  financial  ratios  and cash  flow,  restrict  asset  purchases  and the
encumbrance  of  existing   assets,   require   lender   approval  for  proposed
acquisitions,  and limit  the  incurrence  of  additional  indebtedness  and the
payment of dividends.

The Company has estimated the fair value of long-term  debt at December 31, 1995
to approximate the carrying  value.  The fair value was estimated by discounting
the future cash flows of loans with similar  terms and  remaining  maturities at
the Company's current borrowing rate.

4.   INCOME TAXES

The Company  accounts for income taxes in accordance  with Financial  Accounting
Standards  Statement No. 109, "Accounting  for Income Taxes" ("FAS 109"),  which
mandates the liability method for computing deferred income taxes. The provision
for income taxes charged to continuing operations was as follows:


                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                                    1995
                                                              ---------------
          Current tax expense:
            Federal .......................................    $    373,000
            State .........................................       1,265,000
                                                               ------------
                                                                  1,638,000

          Deferred tax expense (benefit):
            Federal .......................................      (7,000,000)
            State .........................................         116,000
                                                               ------------
                                                                 (6,884,000)

          Benefit of acquired loss carryforward used to re-
            duce goodwill .................................         484,000
                                                               ------------
          Total benefit ...................................    $ (4,762,000)
                                                               ============


Reconciling amounts,  stated below as a percentage of pretax income, between the
statutory  federal  income tax rate and the Company's  effective tax rate are as
follows:


                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                                     1995
                                                                -------------
          U.S. federal statutory rate .......................        35.0%
          State and local taxes, net ........................         5.1%
          Amortization of goodwill ..........................         1.3%
          Realized benefit for net operating losses .........       (27.1)%
          Other .............................................         0.3%
          Change in valuation allowance .....................       (41.7)%
                                                                    -----
          Effective tax rate ................................       (27.1)%
                                                                    =====


The components of the net deferred tax asset are as follows:





                                      F-56

<PAGE>



             SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                                                         DECEMBER 31,
                                                             1995
                                                        -------------
          Property and equipment .....................    $ (744,000)
          Programming rights ..........................     3,498,000
          Bad debts ................................          443,000
          Intangible assets ........................          745,000
          Music license fees .......................           12,000
          Net operating loss carryforwards .........       25,373,000
          Other ....................................         (944,000)
                                                           ----------
                                                           28,383,000
          Less -- valuation allowance ..............      (21,057,000)
                                                          -----------
          Net deferred tax asset ...................    $   7,326,000
                                                        =============


At December  31,  1995,  the Company had net  operating  loss  carryforwards  of
approximately  $60,303,000 for federal income tax purposes,  available to reduce
future  taxable  income.  To the extent not used,  federal  net  operating  loss
carryforwards  expire in varying  amounts  beginning in 2002.  In addition,  the
Company had net operating loss  carryforwards of  approximately  $44,147,000 for
state and local income tax purposes in various jurisdictions. Under FAS 109, the
Company has recorded valuation allowances against the realization of the federal
and state and local tax  benefits  resulting  from net  operating  losses in the
amounts of $16,647,000  at December 31, 1995. In 1995,  the valuation  allowance
decreased by $11,438,000,  of this $7,326,000 was a result of the  determination
by management  that it is more likely than not that certain  deferred tax assets
will be utilized in future periods. The remaining valuation allowances are based
on  management's  estimates and  analysis,  which include the impact of tax laws
which may limit the Company's ability to utilize such loss carryforwards.

A corporation that undergoes a "change of ownership"  pursuant to Section 382 of
the  Internal  Revenue Code is subject to  limitations  on the amount of its net
operating  loss  carryforwards  which may be used in the  future.  An  ownership
change occurred on January 4, 1996. The Company  estimates the limitation on the
net  operating  loss will not have a material  adverse  impact on the  Company's
consolidated  financial  position or results of operations.  No assurance can be
given that an ownership change will not occur as a result of other  transactions
entered into by the Company,  or by certain other parties over which the Company
has no control.  If a "change in ownership" for income tax purposes occurs,  the
Company's  ability to use  "pre-change  losses"  could be  postponed or reduced,
possibly resulting in accelerated or additional tax payments which, with respect
to tax  periods  beyond  1995,  could  have a  material  adverse  impact  on the
Company's consolidated financial position or results of operations.

In addition,  net operating loss carryforwards  acquired through the acquisition
of a corporation are also subject to limitations on the amount which may be used
in the future.  If the acquired net operating loss  carryforwards  are utilized,
the tax benefit will result in an adjustment to the purchase  price  allocations
of the  acquired  corporation.  As a  result  of  the  acquisition  of  Act  III
Broadcasting of Dayton, Inc. (formerly Meridian Communications  Corporation) and
Act III Broadcasting of West Virginia, Inc. (formerly West Virginia Telecasting,
Inc.)  by the  Company,  federal  tax  net  operating  loss  carryforwards  were
acquired.  During 1995, the Company utilized  approximately  $1.4 million of the
acquired  net  operating  loss  carryforwards  with  a  resulting  reduction  of
approximately $.5 million to goodwill.

5.8% Cumulative Redeemable Preferred Stock ("Senior Preferred Stock")

Dividends  accrue on the outstanding  shares of the Senior  Preferred Stock at a
rate of 8% per annum of the dividend  base.  The dividend  base is the number of
shares  outstanding  times  $1,000,000  per share plus accrued  dividends and is
adjusted on December 31 of each year for dividends  accrued during the year. The
accrued dividends  converted to shares of Senior Preferred Stock on December 31,
1995 at $1,000,000 per share. All dividends earned subsequent to that date shall
be paid, in cash, on each December 31. With the exception of stock  dividends on
securities that are subordinate to the Senior Preferred Stock, dividends may not
be paid on the Class A Common  Stock or Class C Common  Stock  until all accrued
dividends  relating  to the  Senior  Preferred  Stock  are paid and  there is no
outstanding

                                      F-57

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

mandatory  redemption  obligation.  Accretion  to record the value of the Senior
Preferred  Stock at its  redemption  value on its scheduled  redemption  date is
calculated using the effective  interest method.  Such amounts have been charged
to additional paid-in capital in the accompanying financial statements.  Holders
of the  Senior  Preferred  Stock  are  entitled  to elect  one  director  if any
dividends  payable are in arrears and unpaid for two consecutive  periods or the
Company  fails to discharge  its  mandatory  redemption  obligation  and have no
voting rights except under certain specified circumstances.

The  Company  has  estimated  the fair  value of the Senior  Preferred  Stock at
December  31, 1995 to  approximate  the  carrying  value  based on the  recently
negotiated redemption values.

In connection with the issuance of the Notes and the Bank Credit Agreement,  the
Company  redeemed 17.2 shares of Senior Preferred Stock at a price of $1,000,000
per share plus accrued dividends totaling $22,865,000.  The mandatory redemption
on the remaining  16.627 shares of Senior Preferred Stock has been extended from
December 31, 1996 to December 31, 2004.  Beginning January 1, 1994, the dividend
on the Senior  Preferred  Stock increased to 9% from 8%. On January 1, 1997, the
dividend rate will  increase to 11% per annum.  Dividends are payable in cash or
in-kind at the Company's option.  The Senior Preferred Stock will be redeemable,
in whole or in part, at anytime without  premium.  If the Senior Preferred Stock
is  outstanding  after December 31, 1996, the holders are entitled to a one-time
2% dividend payable at redemption.  Beginning  January 1, 2000, the Company will
issue to the holders of Senior  Preferred  Stock,  warrants to purchase  Class C
Common Stock every three months.

Each holder will  receive  thirty-six  and  one-half  warrants for each share of
Senior  Preferred Stock owned.  Each warrant will entitle the holder to purchase
one share of Class C Common Stock at a price of $27,397 per share. A warrant may
be exercised with cash or by tendering  Senior  Preferred  Stock to the Company.
The warrants expire at the end of each three month period.

6.   SHAREHOLDERS' DEFICIT

Class C Common  Stock is  convertible  into Class A Common Stock on a one-to-one
ratio upon the occurrence of certain events.  Any necessary  approval of the FCC
must be obtained prior to all stock conversions.

Holders of the Class A Common  Stock are  entitled  to one vote per share on all
matters submitted to shareholder  vote.  Holders of Class C Common Stock have no
voting rights except under certain specified circumstances.

In the event of  liquidation,  dissolution  or  winding-up of the affairs of the
Company,  the  holders  of Class A Common  Stock  and  Class C Common  Stock are
entitled to share ratably, based on the number of shares held by each holder, in
the remaining assets of the Company.

Holdings  has  pledged  all of its  Class A  Common  Stock of the  Company  (the
"Holdings  Pledge") to secure a  promissory  note (the  "Holdings  Note") in the
amount of $12 million held by Mediafin USA Incorporated,  a Delaware corporation
("Mediafin") and a wholly owned subsidiary of Tractebel S.A., a Belgian company.
Any foreclosure by Mediafin on the Company's stock, however, would require prior
approval of the FCC. Current FCC rules restrict  foreign  ownership of broadcast
companies  and  Mediafin  is owned by a foreign  entity.  The  Holdings  Note is
assignable in whole or in part,  however,  the Holdings  Pledge of the Company's
Class A Common Stock to Mediafin is not assignable without Holdings' consent.

On November 30, 1989,  the Company  implemented a stock option plan (the "Plan")
whereby 250 shares of the authorized but unissued shares of Class B Common Stock
have been reserved for issuance upon the exercise of nonqualified  stock options
to be granted to certain key  personnel.  These  options are  exercisable  for a
period of up to ten years  from the date of grant.  The Class B Common  Stock is
convertible  into  Class A  Common  Stock  at a ratio  of  one-to-one  upon  the
occurrence of certain events.

                                      F-58

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following options were outstanding under the Plan at December 31, 1995:


                                                                   PER SHARE
                                                                   EXERCISE
                                                       NUMBER        PRICE
                                                     ----------   ----------
Options outstanding at December 31, 1994 .........      250.0
Option granted during 1995 .......................       33.01     $11,850
                                                        ------
Options outstanding at December 31, 1995 .........      283.01
                                                        ======

No options were exercised  during the year ended December 31, 1995.  There is no
compensation expense associated with the options granted in 1995 as the exercise
price approximates the fair value at the date of the grant.

7.   LEASES

The Company has  operating  lease  agreements  for land,  office  space,  office
equipment and other property which expire on various dates through 2005.  Rental
expense was $691,000 during the year ended December 31, 1995.

As of December 31, 1995,  minimum  required annual payments under  noncancelable
operating leases are as follows:


                     1996 .......................    $  650,000
                     1997 .......................       620,000
                     1998 .......................       594,000
                     1999 .......................       595,000
                     2000 .......................       510,000
                     Thereafter .................     2,518,000
                                                     ----------
                                                     $5,487,000
                                                     ==========


8.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company  paid  interest of  $16,862,000  during the year ended  December 31,
1995.

During  the year  ended  December  31,  1995 the  programming  rights  increased
$12,913,000, due to the assumption of programming liabilities.

During the year ended December 31, 1995 the Company paid approximately  $995,000
for income taxes.

9.   COMMITMENTS AND CONTINGENCIES

The Company has executed contracts for programming rights totaling approximately
$18,961,000 at December 31, 1995, for which the broadcast  period has not begun.
Accordingly, the asset and related liability are not recorded at such dates.

The Company currently and from time to time is involved in litigation incidental
to the conduct of its  business.  In the opinion of  management,  no existing or
contingent claims will have a material adverse effect on the Company's financial
position or results of operations.

The Company has entered  into  employment  contracts  with two of its  executive
officers in the minimum aggregate amount of $425,000 payable annually commencing
June 1, 1993 and  ending  December  31,  1996.  In  addition,  the  Company  has
quarterly  bonus  arrangements  for its  executive  officers  which are based on
achieving budgeted  performance goals. Such budgeted performance goals have been
met historically.

                                      F-59

<PAGE>



              SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company has no post-retirement or post-employment benefit plans.

10.  RELATED PARTY TRANSACTIONS

The Company has a management agreement with Holdings to reimburse certain salary
and operating  expenses  incurred on behalf of the Company.  Operating  expenses
include  reimbursements  to  Holdings  for  $6,100  per  month  representing  an
allocable share of rent paid by Holdings under its lease.  During the year ended
December  31,  1995,  the Company  paid  $913,000 in  management  fees and other
charges to Holdings.  Such amounts  have been  included in selling,  general and
administrative expenses in the Company's consolidated statements of operations.

A former member of the Company's Board of Directors,  who was a member from 1990
through  October  1993,  also serves as Chairman  and  President  of the Buffalo
Sabres, a professional hockey team. Total programming rights fees payable to the
Buffalo Sabres are $340,000 at December 31, 1995.

11.  SUBSEQUENT EVENT

On January 4, 1996, A-3 Acquisition,  Inc. ("A-3") acquired substantially all of
the outstanding stock of the Company for approximately $517,000,000 plus certain
amounts  defined in the purchase and sale  agreement  which are based on working
capital and less the  amounts  necessary  to  repurchase  or repay the  existing
indebtedness  of the  Company.  The  acquisition  will be  accounted  for by the
purchase method.  Accordingly,  the results of operations of the Company will be
included with those of A-3 for periods subsequent to the date of acquisition.

The unaudited pro forma combined  condensed balance sheet of the Company and A-3
as of December 31, 1995 after giving effect to certain pro forma  adjustments is
as follows:


                      ASSETS
    Current assets ............................. $ 49,728,000
    Property and equipment, net ................   44,164,000
    Other assets and intangible assets .........  649,054,000
                                                 ------------
                                                 $742,946,000
                                                 ============

            LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities ........................ $ 29,043,000
    Long-term debt .............................  488,395,000
    Shareholders' equity .......................  225,508,000
                                                 ------------
                                                 $742,946,000
                                                 ============


The  unaudited pro forma  combined  results of operations of the Company and A-3
for the year ended  December 31, 1995 after  giving  effect to certain pro forma
adjustments are as follows:


            Net revenues ..................   $ 101,082,000
            Net loss ......................   $ (10,367,000)


                                      F-60
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{"company-data": {"conformed-name": "SINCLAIR BROADCAST GROUP INC", "cik": "0000912752", "assigned-sic": "4833", "irs-number": "521494660", "state-of-incorporation": "MD", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-26076", "film-number": "98567515"}, "business-address": {"street1": "2000 WEST 41ST ST", "city": "BALTIMORE", "state": "MD", "zip": "21211", "phone": "4104675005"}, "mail-address": {"street1": "2000 W 41ST ST", "city": "BALTIMORE", "state": "MD", "zip": "21211"}}
================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 8-K

                                CURRENT REPORT

                    PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                                DECEMBER 2, 1997
                            -----------------------
                       (Date of earliest event reported)

                        SINCLAIR BROADCAST GROUP, INC.
            (Exact name of Registrant as specified in its charter)
MARYLAND                   33-69482                   52-1494660
   (State of incorporation)     (Commission File Number)          (IRS Employer
                                                             Identification Number)
2000 W. 41st Street, Baltimore, Maryland   21211-1420
      -------------------------------------------------------------------
             (Address of principal executive offices)   (Zip code)

      Registrant's telephone number, including area code: (410) 467-5005
                                                          --------------

================================================================================
ITEM 5. OTHER EVENTS

     As previously  reported,  Sinclair  Broadcast  Group,  Inc. (the "Company")
entered into acquisition  agreements on July 16, 1997 (the "Heritage Acquisition
Agreements") with The News Corporation  Limited,  Heritage Media Group, Inc. and
certain  subsidiaries of Heritage Media  Corporation  (collectively  "Heritage")
pursuant to which the Company has acquired or will acquire the assets of, or the
right to program pursuant to Local Marketing Agreements ("LMAs"), six television
stations in three  markets and the assets of 24 radio  stations in seven markets
(the "Heritage  Acquisition").  On December 3, 1997, the Company entered into an
agreement to acquire, directly or indirectly, all of the equity interests of Max
Media Properties LLC ("Max Media"),  pursuant to which the Company will acquire,
or acquire the right to program pursuant to LMA's, nine television  stations and
eight radio stations in eight markets (the "Max Media Acquisition"). On February
23, 1998 the Company  entered  into an agreement to acquire 100% of the stock of
Sullivan Broadcast  Holdings,  Inc. and Subsidiaries  ("Sullivan"),  pursuant to
which the Company will acquire or provide programming  services to 13 television
stations in 11 separate  markets (the  "Sullivan  Acquisition").  The Company is
filing with this Current Report on Form 8-K pro forma financial  information for
the  Company  showing  the  effect of the  Heritage  Acquisition,  the Max Media
Acquisition and the Sullivan Acquisition. The Company is filing with this report
on Form 8-K the audited financial statements of Heritage Media Services, Inc. --
Broadcasting Segment ("HMSI"),  Max Media Properties LLC, Sullivan  Broadcasting
Company, Inc. and Subsidiaries (Formerly Act III Broadcasting, Inc. as successor
by merger with A-3 Acquisition,  Inc.) and Sullivan Broadcast Holdings, Inc. and
Subsidiaries,  which  includes  all of the assets to be  acquired by the Company
pursuant to the Heritage Acquisition, the Max Media Acquisition and the Sullivan
Acquisition.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS

(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED

     The financial  statements required by this item are submitted in a separate
section of this report.

HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT

Report of Independent Public Accountants
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated  Statements  of Operations  for the Four Months Ended  December 31,
  1997,  the Eight Months Ended August 31, 1997 and for the year Ended  December
  31, 1996
Consolidated Statements of Stockholders' Equity for the Four Months Ended Decem-
  ber 31,  1997,  the Eight  Months Ended August 31, 1997 and for the Year Ended
  December 31, 1996
Consolidated  Statements  of Cash Flows for the Four Months  Ended  December 31,
  1997,  the Eight Months Ended August 31, 1997 and for the Year Ended  December
  31, 1996
Notes to Consolidated Financial Statements

MAX MEDIA PROPERTIES LLC

Independent Auditors' Report
Consolidated  Balance  Sheets  as of  December  31,  1997 and 1996
Consolidated  Statements of Operations for the Years Ended December 31, 1997 and
  1996
Consolidated  Statements  of Members'  Capital for the Years Ended  December 31,
  1997 and 1996
Consolidated  Statements of Cash Flows for the Years Ended December 31, 1997 and
  1996
Notes to Consolidated Financial Statements

                                       1
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES

Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated  Statement of  Operations  for the Period from  Inception  (June 2,
  1995) through December 31, 1995, and for the years Ended December 31, 1996 and
  1997
Consolidated  Statement  of Cash Flows for the Period  from  Inception  (June 2,
  1995) through December 31, 1995, and for the Years Ended December 31, 1996 and
  1997
Consolidated  Statement of Changes in  Shareholders'  Equity for the Period from
  Inception  (June 2, 1995)  through  December  31, 1995 and for the Years Ended
  December 31, 1996 and 1997
Notes to Consolidated Financial Statements

SULLIVAN  BROADCASTING  COMPANY,  INC. AND  SUBSIDIARIES  --  (FORMERLY  ACT III
BROADCASTING, INC. AS SUCCESSOR BY MERGER WITH A-3 ACQUISITION, INC.)

Report of Independent Accountants
Consolidated  Statement  of  Operations  for the year ended  December  31,  1995
Consolidated  Statement  of Cash  Flows for the year  ended  December  31,  1995
Consolidated Statement of Changes in Shareholders' Deficit Notes to Consolidated
Financial Statements

(B) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF SINCLAIR

     The following Pro Forma  Consolidated  Financial Data include the unaudited
pro forma  consolidated  balance  sheet as of December  31, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated  statement
of operations for the year ended December 31, 1997 (the "Pro Forma  Consolidated
Statement of Operations"). The unaudited Pro Forma Consolidated Balance Sheet is
adjusted to give effect to the Heritage  Acquisition,  the Max Media Acquisition
and the Sullivan Acquisition, (collectively the "Significant Acquisitions"). The
unaudited  Pro Forma  Consolidated  Statement of  Operations  for the year ended
December  31, 1997 is adjusted  to give effect to the  issuance of  $200,000,000
liquidation  amount 11 5/8% High Yield Trust Offered  Preferred  Securities (the
"HYTOPS") issued on March 14, 1997 (the "HYTOPS Issuance"),  the issuance by the
Company of $200,000,000  principal amount 9% Senior  Subordinated Notes due 2007
(the " July Debt  Issuance")  issued on July 2, 1997,  the  September  23,  1997
public offering by the Company of 4,345,000  shares of Class A Common Stock (the
"1997 Common Stock  Offering"),  the September  23, 1997 public  offering by the
Company of $172.5  million  aggregate  liquidation  value  Series D  Convertible
Exchangeable   Preferred  Stock  (the  "Preferred  Stock  Offering"),   and  the
completion  by the  Company  of the  Tender  Offer for $98.1  million  aggregate
principal of the  Company's 10% Notes due 2003 (the "1993 Notes") on December 9,
1997 (the "Tender  Offer" and together with the HYTOPS  Issuance,  the July Debt
Issuance,  the 1997 Common Stock Offering, the 1997 Preferred Stock Offering, by
the Company and) the issuance by the Company of $250 million  principal amount 8
3/4 Senior  Subordinated  Notes due 2007 (the  "December Debt  Issuance"),  (the
"1997 Financings.") The Pro forma Consolidated  Financial  Information  included
herein  reflects  the  application  of the net proceeds  from the December  Debt
Issuance  utilized to pay the  consideration  payable in  connection  with,  and
expenses  of,  the  Tender  Offer  and  the  Heritage  Acquisition,  as if  such
transactions   occurred  at  the  beginning  of  such  periods.  The  Max  Media
Acquisition  and the  Sullivan  Acquisition  (net of  $100,000 of Class A Common
Stock, par value $0.01 per share issued at the option of the Company pursuant to
the  Sullivan  Acquisition  Agreement)  will be  completed  utilizing  available
indebtedness   under  the  Company's  Bank  Credit  Agreement.   The  pro  forma
adjustments are based upon available  information and certain  assumptions  that
the  Company  believes  are  reasonable.  The Pro Forma  Consolidated  Financial
Information  included  herein should be read in  conjunction  with the Company's
Consolidated Financial Statements as of and for the year ended December 31, 1997
and related notes thereto,  and the historical  financial data of Heritage Media
Services,  Inc. -- Broadcasting  Segment,  Max Media  Properties  LLC,  Sullivan
Broadcast Company, Inc., and subsidiaries (Formerly Act III Broadcastiing,  Inc.
as successor by merger with A-3 Acquisition, Inc. and Sullivan Broadcast

                                       2
Holdings,  Inc.  and  Subsidiaries,  all of  which  have  been  filed  with  the
Securities  and Exchange  Commission as part of either (i) the Company's  Annual
Report on Form 10-K for the year  ended  December  31,  1997  together  with the
report of Arthur Andersen LLP, independent certified public accountants; or (ii)
the Current  Report on Form 8-K filed March 17, 1998.  The  unaudited  Pro Forma
Consolidated  Financial  Data do not  purport to  represent  what the  Company's
results of operations or financial position would have been had any of the above
events  occurred on the dates  specified or to project the Company's  results of
operations or financial position for or at any future period or date.

(C) EXHIBITS
EXHIBIT
    NO.    DESCRIPTION
---------- ---------------------------------
23.1      Consent of Arthur Andersen LLP
 23.2      Consent of KPMG Peat Marwick LLP
 23.3      Consent of Price Waterhouse LLP
 23.4      Consent of Price Waterhouse LLP
3
SINCLAIR BROADCAST GROUP, INC.
                      PRO FORMA CONSOLIDATED BALANCE SHEET
                             AS OF DECEMBER 31, 1997
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
CONSOLIDATED
                                                                     HISTORICAL
                                                                   --------------
ASSETS
CURRENT ASSETS:
 Cash, including cash equivalents ................................   $  139,327
 Accounts receivable, net of allowance for doubtful accounts .....      123,018
 Current portion of program contract costs .......................       46,876
 Prepaid expenses and other current assets .......................        4,673
 Deferred barter costs ...........................................        3,727
 Refundable income taxes .........................................       10,581
 Deferred tax asset ..............................................        2,550
                                                                     ----------
   Total current assets ..........................................      330,752
PROGRAM CONTRACT COSTS, less current portion .....................       40,609
LOANS TO OFFICERS AND AFFILIATES .................................       11,088
PROPERTY AND EQUIPMENT, net ......................................      161,714
NON-COMPETE AND CONSULTING AGREEMENTS, net........................          200
OTHER ASSETS .....................................................      167,895
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net......................    1,321,976
                                                                     ----------
   Total Assets ..................................................   $2,034,234
                                                                     ==========
              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable ................................................   $    5,207
 Accrued liabilities .............................................       40,532
 Current portion of long-term liabilities-
  Notes payable and commercial bank financing ....................       35,215
  Notes and capital leases payable to affiliation ................        3,073
  Program contracts payable ......................................       66,404
 Deferred barter revenues ........................................        4,273
                                                                     ----------
   Total current liabilities .....................................      154,704
LONG-TERM LIABILITIES:
  Notes payable and commercial bank financing ....................    1,022,934
  Notes and capital leases payable to affiliates .................       19,500
  Program contracts payable ......................................       62,408
  Deferred tax liability .........................................       24,092
  Other long-term liabilities ....................................        3,611
                                                                     ----------
   Total liabilities .............................................    1,287,249
                                                                     ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                            3,697
                                                                     ----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
 ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
 SOLELY KDSM SENIOR DEBENTURES ...................................      200,000
                                                                     ----------
STOCKHOLDERS' EQUITY:
  Series B Preferred Stock, $.01 par value, 10,000,000 shares
   authorized and 1,071,381 shares issued and outstanding ........           10
  Series D Preferred Stock, $.01 par value, 3,450,000 shares
   authorized 3,450,000 shares issued and outstanding ............           35
  Class A Common  Stock,  $.01 par  value,  100,000,000  shares
   authorized and 13,733,430 and 15,487,816 shares issued
   and outstanding respectively ..................................          137
  Class B Common Stock, $.01 par value, 35,000,000 shares
   authorized and 25,436,432 shares issued and outstanding .......          255
  Additional paid-in capital .....................................      552,949
  Additional paid-in capital - equity put options ................       23,117
  Additional paid-in capital - deferred compensation .............         (954)
  Accumulated deficit ............................................      (32,261)
                                                                     ----------
   Total stockholders' equity ....................................      543,288
                                                                     ----------
   Total Liabilities and Stockholders' Equity ....................   $2,034,234
                                                                     ==========
SIGNIFICANT ACQUISITIONS
                                                                   -------------------------------------------------------
                                                                                                              SULLIVAN
                                                                       HERITAGE(A)       MAX MEDIA(B)     BROADCASTING(C)
                                                                   ------------------ ------------------ -----------------
ASSETS
CURRENT ASSETS:
 Cash, including cash equivalents ................................    $  (139,327)
 Accounts receivable, net of allowance for doubtful accounts .....
 Current portion of program contract costs .......................          1,462        $     2,325       $    22,850
 Prepaid expenses and other current assets .......................
 Deferred barter costs ...........................................            578                640
 Refundable income taxes .........................................
 Deferred tax asset ..............................................
                                                                      -----------        -----------       ------------
   Total current assets ..........................................       (137,287)             2,965            22,850
PROGRAM CONTRACT COSTS, less current portion .....................          1,179              2,182            23,432
LOANS TO OFFICERS AND AFFILIATES .................................
PROPERTY AND EQUIPMENT, net ......................................         32,859             25,556            39,723
NON-COMPETE AND CONSULTING AGREEMENTS, net........................
OTHER ASSETS .....................................................        (65,500)           (12,817)
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net.                             368,336            229,490         1,135,309
                                                                      -----------        -----------       ------------
   Total Assets ..................................................    $   199,587        $   247,376       $ 1,221,314
                                                                      ===========        ===========       ============
              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable ................................................
 Accrued liabilities .............................................
 Current portion of long-term liabilities-
  Notes payable and commercial bank financing ....................
  Notes and capital leases payable to affiliation ................
  Program contracts payable ......................................    $     1,788        $     2,431       $    24,944
 Deferred barter revenues ........................................            350              1,026
                                                                      -----------        -----------       ------------
   Total current liabilities .....................................          2,138              3,457            24,944
LONG-TERM LIABILITIES:
  Notes payable and commercial bank financing ....................        196,673 (d)        242,183 (e)       900,000 (f)
  Notes and capital leases payable to affiliates .................
  Program contracts payable ......................................            776              1,736            22,710
  Deferred tax liability .........................................                                             173,660
  Other long-term liabilities ....................................
   Total liabilities .............................................        199,587            247,376         1,121,314
                                                                      -----------        -----------       ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                                 --                 --                --
                                                                      -----------        -----------       ------------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
 ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
 SOLELY KDSM SENIOR DEBENTURES ...................................             --                 --                --
                                                                      -----------        -----------       ------------
STOCKHOLDERS' EQUITY:
  Series B Preferred Stock,  $.01 par value,  10,000,000  shares
   authorized and 1,071,381 shares issued and outstanding ........
  Series D Preferred Stock, $.01 par value, 3,450,000 shares
   authorized 3,450,000 shares issued and outstanding ............
  Class A Common  Stock,  $.01 par  value,  100,000,000  shares
   authorized  and 13,733,430 and 15,487,816 shares issued
   and outstanding respectively ..................................                                                  18
  Class B Common Stock, $.01 par value, 35,000,000 shares
   authorized and 25,436,432 shares issued and outstanding .......
  Additional paid-in capital .....................................                                              99,982
  Additional paid-in capital - equity put options ................
  Additional paid-in capital - deferred compensation .............
  Accumulated deficit ............................................
                                                                      -----------        -----------       ------------
   Total stockholders' equity ....................................             --                 --           100,000
                                                                      -----------        -----------       ------------
   Total Liabilities and Stockholders' Equity ....................    $   199,587        $   247,376       $ 1,221,314
                                                                      ===========        ===========       ============
CONSOLIDATED
                                                                      HISTORICAL
                                                                    AND SIGNIFICANT
                                                                     ACQUISITIONS
                                                                   ----------------
ASSETS
CURRENT ASSETS:
 Cash, including cash equivalents ................................    $       --
 Accounts receivable, net of allowance for doubtful accounts .....       123,018
 Current portion of program contract costs .......................        73,513
 Prepaid expenses and other current assets .......................         4,673
 Deferred barter costs ...........................................         4,945
 Refundable income taxes .........................................        10,581
 Deferred tax asset ..............................................         2,550
                                                                      ----------
   Total current assets ..........................................       219,280
PROGRAM CONTRACT COSTS, less current portion .....................        67,402
LOANS TO OFFICERS AND AFFILIATES .................................        11,088
PROPERTY AND EQUIPMENT, net ......................................       259,852
NON-COMPETE AND CONSULTING AGREEMENTS, net........................           200
OTHER ASSETS .....................................................        89,578
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net.                          3,055,111
                                                                      ----------
   Total Assets ..................................................    $3,702,511
                                                                      ==========
              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable ................................................    $    5,207
 Accrued liabilities .............................................        40,532
 Current portion of long-term liabilities-
  Notes payable and commercial bank financing ....................        35,215
  Notes and capital leases payable to affiliation ................         3,073
  Program contracts payable ......................................        95,567
 Deferred barter revenues ........................................         5,649
                                                                      ----------
   Total current liabilities .....................................       185,243
LONG-TERM LIABILITIES:
  Notes payable and commercial bank financing ....................     2,361,790
  Notes and capital leases payable to affiliates .................        19,500
  Program contracts payable ......................................        87,630
  Deferred tax liability .........................................       197,752
  Other long-term liabilities ....................................         3,611
                                                                      ----------
   Total liabilities .............................................     2,855,526
                                                                      ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                             3,697
                                                                      ----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
 ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
 SOLELY KDSM SENIOR DEBENTURES ...................................       200,000
                                                                      ----------
STOCKHOLDERS' EQUITY:
  Series B Preferred Stock, $.01 par value, 10,000,000 shares
   authorized and 1,071,381 shares issued and outstanding ........            10
  Series D Preferred Stock, $.01 par value, 3,450,000 shares
   authorized 3,450,000 shares issued and outstanding ............            35
  Class A Common  Stock,  $.01 par  value,  100,000,000  shares
   authorized and 13,733,430 and 15,487,816 shares issued
   and outstanding respectively ..................................           155
  Class B Common Stock, $.01 par value, 35,000,000 shares
   authorized and 25,436,432 shares issued and outstanding .......           255
  Additional paid-in capital .....................................       652,931
  Additional paid-in capital - equity put options ................        23,117
  Additional paid-in capital - deferred compensation .............          (954)
  Accumulated deficit ............................................       (32,261)
                                                                      ----------
   Total stockholders' equity ....................................       643,288
                                                                      ----------
   Total Liabilities and Stockholders' Equity ....................    $3,702,511
                                                                      ==========
4
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
                             (DOLLARS IN THOUSANDS)

(a) The Heritage Acquisition column reflects the assets and liabilities acquired
    in  connection  with  the  $630,000  purchase  of  Heritage.   The  Heritage
    Acquisition column gives effect for the Company's  definitive  agreements to
    sell radio  stations  KKSN-AM,  KKSN-FM,  and KKRH-FM  serving the Portland,
    Oregon  market,  radio  stations,  WBBF-AM,  WBEE-FM,  WKLX-FM,  and WQRV-FM
    serving the  Rochester,  New York market and  television  stations  WPTZ-TV,
    WNNE-TV and WFFF-TV serving the  Burlington,  Vermont and  Plattsburgh,  New
    York markets (the "Dispositions"). Total acquired intangibles are calculated
    as follows:
HERITAGE
                                                                  HERITAGE      DISPOSITIONS     ACQUISITION
                                                                ------------   --------------   ------------
Purchase Price ............................................                                    $  630,000
    Add:
     Liabilities acquired--
     Current portion of program contracts payable ...........    $   2,194        $  (406)            1,788
     Deferred barter revenues ...............................          676           (326)              350
     Long-term portion of program contracts payable .........          857            (81)              776
    Less:
     Assets acquired--
     Current portion of program contract costs ..............       (1,704)           242            (1,462)
     Deferred barter costs ..................................         (880)           302              (578)
     Program contract costs, less current portion ...........       (1,323)           144            (1,179)
     Property and equipment .................................      (45,840)        12,981           (32,859)
     Proceeds from sale of stations .........................                                      (228,500)
                                                                                                 ----------
     Acquired intangibles ...................................                                    $  368,336
                                                                                                 ==========
(b) The Max  Media  Acquisition  column  reflects  the  assets  and  liabilities
    acquired in  connection  with the  $255,000  purchase of Max Media.  The Max
    Media  Acquisition  is  subject  to a number  of  conditions  customary  for
    acquisitions  of  broadcasting  properties.  Total acquired  intangibles are
    calculated as follows:
MAX MEDIA
                                                                 ------------
Purchase Price .............................................    $ 255,000
    Add:
     Liabilities acquired--
     Current portion of program contracts payable ............        2,431
     Deferred barter revenues ................................        1,026
     Long-term portion of program contracts payable ..........        1,736
    Less:
     Assets acquired--
     Current portion of program contract costs ...............       (2,325)
     Deferred barter costs ...................................         (640)
     Program contract costs, less current portion ............       (2,182)
     Property and equipment ..................................      (25,556)
                                                                  ---------
     Acquired intangibles ....................................    $ 229,490
                                                                  =========
5
(c) The  Sullivan  Broadcasting  Acquisition  column  reflects  the  assets  and
    liabilities  acquired in connection with the $1,000,000  purchase of 100% of
    the  outstanding  capital  stock of Sullivan  Broadcast  Holdings,  Inc. and
    subsidiaries.  Included in the total  purchase  price is $100,000 of Class A
    Common Stock,  which may be issued at the option of the Company  pursuant to
    the Sullivan Acquisition Agreement. The Sullivan Acquisition is subject to a
    number of conditions customary for acquisitions of broadcasting  properties.
    Total acquired intangibles are calculated as follows:
SULLIVAN
                                                                -------------
Purchase Price ...........................................  $1,000,000
       Add:
        Liabilities acquired--
        Current portion of program contracts costs ............      24,944
        Long-term portion of program contract costs ...........      22,710
        Deferred tax liability ................................     173,660
       Less:
        Assets acquired--
        Current portion of program contracts ..................     (22,850)
        Program contract costs, less current portion ..........     (23,432)
        Property and equipment ................................     (39,723)
                                                                 ----------
        Acquired intangibles ..................................  $1,135,309
                                                                 ==========
(d) To reflect indebtedness of $196,673 incurred in connection with the Heritage
    Acquisition as follows:
Purchase Price .......................    $  630,000
         Less:
          Proceeds from dispositions .........      (228,500)
          Deposits ...........................       (65,500)
          Cash utilized ......................      (139,327)
                                                  ----------
          Indebtedness Incurred ..............    $  196,673
                                                  ==========
(e) To reflect  indebtedness of $242,183  incurred (net of a $12,817 deposit for
    the  broadcast  assets) for the broadcast  assets under the  Company's  bank
    credit  facility under the Bank Credit  Agreement in connection with the Max
    Media  Acquisition.  The  Company  will  need  to  obtain  an  amendment  or
    refinancing  of the Bank Credit  Agreement  in order to complete all pending
    acquisitions.

(f) To reflect  indebtedness  incurred of  $900,000  (net of $100,000 of Class A
    Common Stock, par value $0.01 per share which may be issued at the option of
    the Company  pursuant to the Sullivan  Acquisition  Agreement).  The Company
    will need to obtain an amendment to or  refinancing  of the  Company's  bank
    credit  facility  under the Bank Credit  Agreement  in order to complete the
    Significant Acquisitions and all other pending acquisitions. See "Prospectus
    Supplement Summary -- Recent Developments."

                                        6
SINCLAIR BROADCAST GROUP, INC.
                 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)
1997 FINANCINGS                      
                                                                          --------------------------------------------------------- 
                                                                                                   JULY 1997         1997 COMMON    
                                                            CONSOLIDATED         HYTOPS               DEBT          AND PREFERRED   
                                                             HISTORICAL         ISSUANCE            ISSUANCE       STOCK ISSUANCES  
                                                           -------------- ------------------- ------------------- -----------------
REVENUES:                                                                 
 Station broadcast revenues, net of agency commissions       $ 471,228                                                           
 Revenues realized from station barter arrangements.......      45,207             --                  --                --      
                                                             ---------    -----------         -----------         ---------      
   Total revenues ........................................     516,435             --                  --                --      
                                                             ---------    -----------         -----------         ---------      
OPERATING EXPENSES:                                                                                                              
 Program and production ..................................      92,178                                                           
 Selling, general and administrative .....................     106,084                                                           
 Expenses realized from barter arrangements ..............      38,114                                                           
 Amortization of program contract costs and net realiz-                                                                          
 able value adjustments ..................................      66,290                                                           
 Amortization of deferred compensation ...................       1,636                                                           
 Depreciation and amortization of property and equip-                                                                            
 ment ....................................................      18,040                                                           
 Amortization of acquired intangible assets, non-                                                                                
 compete, consult and other ..............................      67,840    $       133 (f)     $       249 (g)                    
                                                             ---------    -----------         -----------         ---------      
   Total operating expenses ..............................     390,182            133                 249                --      
                                                             ---------    -----------         -----------         ---------      
  Broadcast operating income (loss) ......................     126,253           (133)               (249)               --      
                                                             ---------    -----------         -----------         ---------      
OTHER INCOME (EXPENSE):                                                                                                          
 Interest and amortization of debt discount expense ......     (98,393)         1,852 (i)          (1,734) (j)    $  16,857 (k)  
 Subsidiary trust minority interest expense ..............     (18,600)        (4,650)(n)                                        
 Interest income .........................................       2,174                                                           
 Other income ............................................          54                                                           
                                                             ---------    -----------         -----------         ---------      
  Income (loss) before provision (benefit) for in-                        
   come taxes ............................................      11,488         (2,931)             (1,983)           16,857      
PROVISION (BENEFIT) FOR INCOME TAXES .....................      15,984         (1,172) (p)           (793) (p)        6,743 (p)  
                                                             ---------    -----------         -----------         ---------      
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ..............      (4,496)                                                          
EXTRAORDINARY ITEM .......................................      (6,070)        (1,759)             (1,190)           10,114      
                                                             ---------    -----------         -----------         ---------      
NET INCOME (LOSS) ........................................   $ (10,566)   $    (1,759)        $    (1,190)        $  10,114      
                                                             =========    ===========         ===========         =========      
NET INCOME (LOSS) AVAILABLE TO COMMON                                                                                            
 SHAREHOLDERS ............................................   $ (13,329)                                                          
                                                             =========                                                           
BASIC EARNINGS PER SHARE:                                                                                                        
 Income (loss) per share before extraordinary item........   $   (0.13)                                                          
                                                             =========                                                           
 Net income (loss) per share .............................   $   (0.37)                                                          
                                                             =========                                                           
 Average shares outstanding ..............................      35,951                                                           
                                                             =========                                                           
DILUTED EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item .......   $   (0.11)
                                                             =========
 Net income (loss) per share .............................   $   (0.33)
                                                             =========
 Average shares outstanding ..............................      40,078
                                                             =========
1997 FINANCINGS                  
                                                          ----------------
                                                          TENDER OFFER AND   CONSOLIDATED
                                                            DECEMBER 1997   HISTORICAL AND
                                                            DEBT ISSUANCE  1997 FINANCINGS HERITAGE(a)  MAX MEDIA(b) 
                                                          ---------------- --------------- -----------  ------------
REVENUES:
 Station broadcast revenues, net of agency commissions                       $  471,228    $  72,383    $  51,351    
 Revenues realized from station barter arrangements......                        45,207        3,996        5,362    
                                                             ---------       ----------    ---------    ---------    
   Total revenues .......................................           --          516,435       76,379       56,713    
                                                             ---------       ----------    ---------    ---------    
OPERATING EXPENSES:
 Program and production .................................                        92,178       27,645       10,662    
 Selling, general and administrative ....................                       106,084       17,010       24,148    
 Expenses realized from barter arrangements .............                        38,114        3,474        2,334    
 Amortization of program contract costs and net realiz-
 able value adjustments .................................                        66,290        1,974        5,546    
 Amortization of deferred compensation ..................                         1,636
 Depreciation and amortization of property and equip-
 ment ...................................................                        18,040        4,246        4,713    
 Amortization of acquired intangible assets, non-
 compete, consult and other .............................                        68,222       15,083        8,028    
                                                             ---------       ----------    ---------    ---------    
   Total operating expenses .............................           --          390,564       69,432       55,431    
                                                             ---------       ----------    ---------    ---------    
  Broadcast operating income (loss) .....................           --          125,871        6,947        2,282    
                                                             ---------       ----------    ---------    ---------    
OTHER INCOME (EXPENSE):
 Interest and amortization of debt discount expense .....    $  (2,010)(l)      (83,428)      (5,940)      (6,078)   
 Subsidiary trust minority interest expense .............                       (23,250)
 Interest income ........................................                         2,174
 Other income ...........................................                            54        8,636        8,795    
                                                             ---------       ----------    ---------    ---------    
  Income (loss) before provision (benefit) for in-
   come taxes ...........................................       (2,010)          21,421        9,643        3,999    
PROVISION (BENEFIT) FOR INCOME TAXES ....................         (804)(p)       19,958 (p)    7,583                 
                                                             ---------       ----------    ---------    ---------    
NET INCOME (LOSS) BEFORE EXTRAORDI-
 NARY ITEM ..............................................       (1,206)           1,463        2,000        3,999    
EXTRAORDINARY ITEM ......................................          (69)(q)       (6,139)
                                                             ---------       ----------    ---------    ---------    
NET INCOME (LOSS) .......................................    $  (1,275)      $   (4,676)   $   2,060    $   3,999    
                                                             =========       ==========    =========    =========    
NET INCOME (LOSS) AVAILABLE TO COMMON
 SHAREHOLDERS ...........................................                    $  (15,026)
                                                                             ==========
BASIC EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item.......                    $     0.04
                                                                             ==========
 Net income (loss) per share ............................                    $    (0.38)
                                                                             ==========
 Average shares outstanding .............................                        39,112
                                                                             ==========
DILUTED EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item ......                    $     0.03
                                                                             ==========
 Net income (loss) per share ............................                    $    (0.35)
                                                                             ==========
 Average shares outstanding .............................                        42,583 (r)
                                                                             ==========
SIGNIFICANT
                                                              ACQUISITIONS                          HISTORICAL,
                                                           -----------------                     1997 FINANCINGS
                                                                SULLIVAN         ACQUISITION     AND SIGNIFICANT
                                                            BROADCASTING(C)      ADJUSTMENTS      ACQUISITIONS
                                                           ----------------- ------------------ ----------------
REVENUES:
 Station broadcast revenues, net of agency commissions        $  120,124                           $ 715,086
 Revenues realized from station barter arrangements.......        17,650                              72,215
                                                              ----------                           ---------
   Total revenues ........................................       137,774                --           787,301
                                                              ----------                --         ---------
OPERATING EXPENSES:
 Program and production ..................................        17,301                             147,786
 Selling, general and administrative .....................        28,319        $   (9,401)(d)       166,160
 Expenses realized from barter arrangements ..............        16,999                              60,921
 Amortization of program contract costs and net realiz-
 able value adjustments ..................................        13,198                              87,008
 Amortization of deferred compensation ...................                                             1,636
 Depreciation and amortization of property and equip-
 ment ....................................................         9,464            (1,473)(e)        34,990
 Amortization of acquired intangible assets, non-
 compete, consult and other ..............................        32,756            17,098 (h)       141,187
                                                              ----------        ----------         ---------
   Total operating expenses ..............................       118,037             6,224           639,688
                                                              ----------        ----------         ---------
  Broadcast operating income (loss) ......................        19,737            (6,224)          147,613
                                                              ----------        ----------         ---------
OTHER INCOME (EXPENSE):
 Interest and amortization of debt discount expense ......       (40,711)          (59,477)(m)      (195,634)
 Subsidiary trust minority interest expense ..............                                           (23,250)
 Interest income .........................................                            (280)(o)         1,894
 Other income ............................................            12                              17,497
                                                              ----------                           ---------
  Income (loss) before provision (benefit) for in-
   come taxes ............................................       (20,962)          (65,981)          (51,880)
PROVISION (BENEFIT) FOR INCOME TAXES .....................        (5,488)          (26,392)(p)        (4,339)
                                                              ----------        ----------         ---------
NET INCOME (LOSS) BEFORE EXTRAORDI-
 NARY ITEM ...............................................       (15,474)          (39,589)          (47,541)
EXTRAORDINARY ITEM .......................................                                            (6,139)
                                                                                                   ---------
NET INCOME (LOSS) ........................................    $  (15,474)       $  (39,589)        $ (53,680)
                                                              ==========        ==========         =========
NET INCOME (LOSS) AVAILABLE TO COMMON
 SHAREHOLDERS ............................................                                         $ (64,030)
                                                                                                   =========
BASIC EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item........                                         $   (1.16)
                                                                                                   =========
 Net income (loss) per share .............................                                         $   (1.57)
                                                                                                   =========
 Average shares outstanding ..............................                                            40,866
                                                                                                   =========
DILUTED EARNINGS PER SHARE:
 Income (loss) per share before extraordinary item .......                                         $   (1.07)
                                                                                                   =========
 Net income (loss) per share .............................                                         $   (1.44)
                                                                                                   =========
 Average shares outstanding ..............................                                            44,337 (s)
                                                                                                   =========
7
SINCLAIR BROADCAST GROUP, INC.
             NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                             (DOLLARS IN THOUSANDS)

(a)        The Heritage  column  reflects the results of operations for Heritage
           for the  period  from  January 1, 1997 to  December  31,  1997,  less
           television and radio  stations the Company has definitive  agreements
           to  sell.  These  dispositions  include  the  Portland,   Oregon  and
           Rochester,  New York radio stations and the  Burlington,  Vermont and
           Plattsburgh, New York television stations.

(b)        The Max Media column reflects the results of operations for Max Media
           for the period from January 1, 1997 to December  31,  1997.  Included
           within  other  income  is  a  one  time  gain  on  station  sales  of
           approximately $8,500.

(c)        The Sullivan  Broadcasting  column reflects the results of operations
           for  Sullivan  Broadcasting  for the period  from  January 1, 1997 to
           December 31, 1997.

(d)        To  adjust  operating   expenses  for  corporate   overhead  (net  of
           integration  costs the Company  anticipates  incurring as a result of
           the  Significant  Acquisitions)  which the Company does not expect to
           incur  upon  consummation  of the  Heritage  Acquisition,  Max  Media
           Acquisition and the Sullivan Acquisition on a going-forward basis.

(e)        To record  depreciation  expense related to acquired  tangible assets
           and eliminate  depreciation expense recorded by Heritage,  Max Media,
           and Sullivan  from  January 1, 1997 to December  31,  1997.  Tangible
           assets  are to be  depreciated  over lives  ranging  from three to 20
           years, calculated as follows:
YEAR ENDED
                                                                                            DECEMBER 31, 1997
                                                                            ------------------------------------------------
                                                                             HERITAGE   MAX MEDIA    SULLIVAN       TOTAL
                                                                            ---------- ----------- ------------ ------------
Depreciation expense on acquired tangible assets .......................  $  5,231   $  4,637     $  7,082     $  16,950
   Less: Depreciation expense recorded by Heritage, Max Media and Sullivan     (4,246)    (4,713)      (9,464)      (18,423)
                                                                             --------   --------     --------     ---------
   Pro forma adjustment ...................................................  $    985   $    (76)    $ (2,382)    $  (1,473)
                                                                             ========   ========     ========     =========
(f)        To record  amortization  expense on other  assets  that relate to the
           HYTOPS Issuance for one year ($7,677 over 12 years).
Amortization expense on other assets ..................    $  640
   Amortization expense recorded by the Company ..........      (507)
                                                              ------
   Pro Forma adjustment ..................................    $  133
                                                              ======
(g)        To record  amortization  expense on other  assets  that relate to the
           July 1997 Debt Issuance for one year ($4,766 over 10 years).
Amortization expense on other assets ..................    $  477
   Amortization expense recorded by the Company ..........      (228)
                                                              ------
   Pro Forma adjustment ..................................    $  249
                                                              ======
(h)        To record amortization  expense related to acquired intangible assets
           and  deferred  financing  costs and  eliminate  amortization  expense
           recorded by Heritage,  Max Media and Sullivan from January 1, 1997 to
           December 31, 1997.  Intangible  assets are to be amortized over lives
           ranging from one to 40 years, calculated as follows:
YEAR ENDED
                                                                                            DECEMBER 31, 1997
                                                                            --------------------------------------------------
                                                                              HERITAGE    MAX MEDIA    SULLIVAN       TOTAL
                                                                            ------------ ----------- ------------ ------------
Amortization expense on acquired intangible assets .....................  $  20,974    $ 12,357    $  39,634    $  72,965
   Less: Amortization expense recorded by Heritage, Max Media and Sullivan     (15,083)     (8,028)     (32,756)     (55,867)
                                                                             ---------    --------    ---------    ---------
   Pro forma adjustment ...................................................  $   5,891    $  4,329    $   6,878    $  17,098
                                                                             =========    ========    =========    =========
(i)         To record  the net  interest  expense  reduction  for the year ended
            December 31, 1997 related to the  application of the HYTOPS Issuance
            proceeds  to the  outstanding  balance  under the  revolving  credit
            facility  under the Bank Credit  Agreement  offset by an increase in
            commitment  fees  for  the  available  but  unused  portion  of  the
            revolving credit facility.
Interest on adjusted borrowings on the revolving credit facility for the period from
      January 1, 1997 to March 5, 1997 ...................................................    $  2,865
     Commitment fee on available but unused borrowings of $250,000 for five months
      and $675,000 for seven months of revolving credit facility at 1/2 of 1%.............      (2,490)
     Commitment fee on available borrowings recorded by the Company ......................       1,477
                                                                                              --------
     Pro forma adjustment ................................................................    $  1,852
                                                                                              ========
(j)        To  record  the  net  interest  expense   reduction  related  to  the
           application  of the net  proceeds  of the July 1997 Debt  Issuance to
           repay  borrowings under the Bank Credit Agreement for the period from
           January 1, 1997 to June 27,  1997  offset by an  increase in interest
           expense  for the July  1997  Debt  Issuance  ($200,000  at 9%) net of
           interest recorded by the Company.

                                       8
(k)        To record the interest  expense  reduction of $16,857  related to the
           application of the net proceeds of the 1997 Common Stock Issuance and
           the 1997 Preferred Stock Issuance to repay  borrowings under the Bank
           Credit Agreement for the period from January 1, 1997 to September 17,
           1997.

(l)        To record  adjustments  related to the  December  1997 Debt  Issuance
           ($250,000 at 8.75%) and the Debt Repurchase as follows:
Interest Adjustments:
      Interest on December Debt Issuance for one year ....................................    $ 21,875
      Interest recorded in the 1993 Notes ................................................      (9,646)
      Interest recorded on the December Debt Issuance ....................................        (911)
      Interest expense reduction related to the application of the net proceeds from the
       December Debt Issuance ............................................................      (9,688)
                                                                                              --------
                                                                                                 1,630
                                                                                              --------
   Amortization Adjustments:
      Amortization of deferred financing costs and debt discount .........................         678
      Amortization recorded by the Company ...............................................        (298)
                                                                                              --------
                                                                                                   380
                                                                                              --------
      Pro forma adjustment ...............................................................    $  2,010
                                                                                              ========
(m)        To record  interest  expense for the year ended  December 31, 1997 on
           acquisition financing relating to Heritage, Max Media and Sullivan of
           $401,500,  $242,183 and  $900,000  (under the  Company's  Bank Credit
           Agreement at 7.43%), and eliminate interest expense recorded.
YEAR ENDED
                                                                                DECEMBER 31, 1997
                                                                          -----------------------------
                                                                             HERITAGE       MAX MEDIA
                                                                          -------------- --------------
Interest expense adjustment as noted above .........................   $  (28,956)    $  (17,288)
     Less: Interest expense recorded by Heritage, Max Media and Sullivan         5,940          6,078
                                                                            ----------     ----------
     Pro forma adjustment ...............................................   $  (23,016)    $  (11,210)
                                                                            ==========     ==========
YEAR ENDED
                                                                                DECEMBER 31, 1997
                                                                          ------------------------------
                                                                             SULLIVAN         TOTAL
                                                                          -------------- ---------------
Interest expense adjustment as noted above .........................   $  (65,962)    $  (112,206)
     Less: Interest expense recorded by Heritage, Max Media and Sullivan        40,711          52,729
                                                                            ----------     -----------
     Pro forma adjustment ...............................................   $  (25,251)    $   (59,477)
                                                                            ==========     ===========
(n)        To record  subsidiary  trust minority  interest  expense for the year
           ended  December 31, 1997  ($200,000  aggregate  liquidation  value of
           HYTOPS at 11.625%).
Subsidiary trust minority interest expense ........................    $  23,250
     Subsidiary trust minority interest expense recorded by the Company       (18,600)
                                                                            ---------
     Pro Forma adjustment ..............................................    $   4,650
                                                                            =========
(o)        To eliminate  interest income for the year ended December 31, 1997 on
           proceeds  from the sale of the December  Debt Issuance due to assumed
           utilization of excess cash for the Significant Acquisitions.

(p)        To record tax provision (benefit) at the applicable tax rates.

(q)        To record  an  increase  in the  extraordinary  loss,  net of the tax
           effect  related  to the  Debt  Repurchase  and the  write-off  of the
           deferred financing costs related to the 1993 Notes.

(r)        Weighted average shares outstanding on a pro forma basis assumes that
           the  4,345,000  shares  of Class A Common  Stock  issued  in the 1997
           Common Stock  Issuance  were  outstanding  as of the beginning of the
           period.

(s)        Weighted average shares outstanding on a pro forma basis assumes that
           1,754,386  shares of Class A Common  Stock  issuable at the option of
           the Company pursuant to the Sullivan Acquisition  Agreement (assuming
           an average  closing price of $57 per share at time of issuance)  were
           outstanding as of the beginning of the period.

                                       9
INDEX TO FINANCIAL STATEMENTS

                                   CONTENTS
PAGE
                                                                                           -----
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
Report of Independent Public Accountants ................................................   F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............................   F-3
Consolidated Statements of Operations for the Four Months Ended December 31, 1997, the
 Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 ............   F-4
Consolidated Statements of Stockholders' Equity for the Four Months Ended December 31,
 1997, the Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 ..   F-5
Consolidated Statements of Cash Flows for the Four Months Ended December 31, 1997, the
 Eight Months Ended August 31, 1997 and for the Year Ended December 31, 1996 ............   F-6
Notes to Consolidated Financial Statements ..............................................   F-7

MAX MEDIA PROPERTIES LLC
Independent Auditors' Report ............................................................   F-15
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............................   F-16
Consolidated Statements of Operations for the Years Ended December 31, 1997 and 1996 ....   F-17
Consolidated Statements of Members' Capital for the Years Ended December 31, 1997 and
 1996 ...................................................................................   F-18
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 ....   F-19
Notes to Consolidated Financial Statements ..............................................   F-20

SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Accountants .......................................................   F-32
Consolidated Balance Sheet as of December 31, 1996 and 1997 .............................   F-33
Consolidated Statement of Operations for the Period from Inception (June 2, 1995) through
 December 31, 1995 and for the Years Ended December 31, 1996 and 1997 ...................   F-34
Consolidated Statement of Cash Flows for the Period from Inception (June 2, 1995) through
 December 31, 1995 and for the Years Ended December 31, 1996 and 1997 ...................   F-35
Consolidated Statement of Changes in Shareholders' Equity for the Period from Inception
 (June 2, 1995) through December 31, 1995 and for the Years Ended December 31, 1996
 and 1997 ...............................................................................   F-36
Notes to Consolidated Financial Statements ..............................................   F-37

SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES -- (FORMERLY
 ACT III BROADCASTING, INC. AS SUCCESSOR BY MERGER WITH A-3 ACQUISITION, INC.)
Report of Independent Accountants .......................................................   F-48
Consolidated Statement of Operations for the Year Ended December 31, 1995 ...............   F-49
Consolidated Statement of Cash Flows for the Year Ended December 31, 1995 ...............   F-50
Consolidated Statement of Changes in Shareholders' Deficit ..............................   F-51
Notes to Consolidated Financial Statements ..............................................   F-52
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:

     We have audited the  accompanying  consolidated  balance sheets of Heritage
Media Services,  Inc. --  Broadcasting  Segment (the Company) as of December 31,
1997, and Heritage Media Services, Inc. - Broadcasting Segment (the Predecessor)
as of December 31, 1996, and the related consolidated  statements of operations,
stockholders'  equity and cash flows of the Company  for the four  months  ended
December 31, 1997, and of the  Predecessor for the eight months ended August 31,
1997, and the year ended December 31, 1996.  These financial  statements are the
responsibility   of  the  Company's  and  the  Predecessor's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of the Company
as of December 31, 1997,  and the  Predecessor  as of December 31, 1996, and the
results of  operations  and cash flows of the Company for the four months  ended
December 31, 1997, and of the  Predecessor for the eight months ended August 31,
1997,  and for the year ended  December 31, 1996, in conformity  with  generally
accepted accounting principles.

                                                         /s/ Arthur Andersen LLP

Baltimore, Maryland,
February 17, 1998

                                      F-2
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1996
                                 (IN THOUSANDS)
COMPANY      PREDECESSOR
                                                                                   1997          1996
                                                                               -----------   ------------
ASSETS
CURRENT ASSETS:
 Cash ......................................................................    $  2,520      $   2,151
 Accounts receivable, net of allowance for doubtful accounts of $1,450 and
   $1,348, respectively ....................................................      20,869         20,036
 Current portion of program contract costs .................................       1,704          1,006
 Prepaid expenses and other current assets .................................         998            138
 Deferred barter costs .....................................................         880          1,911
 Deferred tax asset ........................................................         279            215
                                                                                --------      ---------
   Total current assets ....................................................      27,250         25,457
 PROGRAM CONTRACT COSTS, less current portion ..............................       1,323          1,498
 PROPERTY, PLANT AND EQUIPMENT, net ........................................      45,840         30,005
 ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ..............................     564,157        163,626
 OTHER ASSETS ..............................................................          19            821
                                                                                --------      ---------
   Total Assets ............................................................    $638,589      $ 221,407
                                                                                ========      =========
                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable and accrued expenses .....................................    $  5,876      $   5,399
 Deferred revenue ..........................................................         587            428
 Deferred barter revenue ...................................................         676          1,746
 Current portion of program contracts payable ..............................       2,194          2,079
                                                                                --------      ---------
   Total current liabilities ...............................................       9,333          9,652
PROGRAM CONTRACTS PAYABLE, less current portion ............................         857          1,165
DUE TO AFFILIATE ...........................................................          --        178,393
DEFERRED TAX LIABILITY .....................................................         609            563
OTHER LONG-TERM LIABILITIES ................................................         910            152
                                                                                --------      ---------
   Total Liabilities .......................................................      11,709        189,925
                                                                                --------      ---------
COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY:
 Common stock, $1.00 par value, 3,576,000 shares authorized, and 2,591,586
   shares issued and outstanding ...........................................       2,592          2,592
 Additional paid-in capital ................................................     630,333         66,174
 Accumulated deficit .......................................................      (6,045)       (37,284)
                                                                                --------      ---------
   Total Stockholders' Equity ..............................................     626,880         31,482
                                                                                --------      ---------
   Total Liabilities and Stockholders' Equity ..............................    $638,589      $ 221,407
                                                                                ========      =========
The accompanying notes are an integral part of
                       these consolidated balance sheets.

                                      F-3
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)
COMPANY            PREDECESSOR
                                                                   -------------- ---------------------------
                                                                     FOUR MONTHS   EIGHT MONTHS
                                                                        ENDED         ENDED       YEAR ENDED
                                                                    DECEMBER 31,    AUGUST 31,   DECEMBER 31,
                                                                        1997           1997          1996
                                                                   -------------- ------------- -------------
NET REVENUES:
 Station broadcasting revenues, net of agency commissions of
   $7,303, $10,820 and $16,727,respectively.......................    $ 36,906      $ 62,180      $  95,302
 Revenues realized from station barter arrangements ..............       2,029         3,610          4,292
                                                                      --------      --------      ---------
   Total net revenues ............................................      38,935        65,790         99,594
                                                                      --------      --------      ---------
OPERATING EXPENSES:
 Programming and production ......................................      13,437        22,515         20,089
 Selling, general and administrative .............................       8,569        15,477         31,916
 Expenses realized from station barter arrangements ..............       1,912         3,035          3,478
 Amortization of program contract costs and net realizable value
   adjustments ...................................................         870         1,879          3,165
 Depreciation of property and equipment ..........................       2,286         3,790          5,472
 Amortization of acquired intangible broadcasting assets and
   other assets ..................................................      12,867         7,127          8,460
                                                                      --------      --------      ---------
   Total operating expenses ......................................      39,941        53,823         72,580
                                                                      --------      --------      ---------
   Broadcast operating income (loss) .............................      (1,006)       11,967         27,014
                                                                      --------      --------      ---------
OTHER INCOME (EXPENSE):
 Interest expense ................................................      (2,026)       (6,499)       (17,949)
 Gain on sale of assets ..........................................          --         9,401          6,031
 Other expense, net ..............................................        (588)         (177)          (203)
                                                                      --------      --------      ---------
   Income (loss) before provision for income taxes ...............      (3,620)       14,692         14,893
PROVISION FOR INCOME TAXES .......................................      (2,425)       (7,605)        (7,853)
                                                                      --------      --------      ---------
   Net income (loss) .............................................    $ (6,045)     $  7,087      $   7,040
                                                                      ========      ========      =========
The accompanying notes are an integral part of these consolidated statements.

                                       F-4
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
COMMON STOCK         ADDITIONAL
                                                 ---------------------     PAID-IN      ACCUMULATED     STOCKHOLDER'S
                                                  SHARES      AMOUNT       CAPITAL        DEFICIT          EQUITY
                                                 --------   ----------   -----------   -------------   --------------
PREDECESSOR:
 BALANCE, December 31, 1995 ..................    2,592      $ 2,592      $ 14,368       $ (13,804)      $   3,156
   HMC capital contributions .................       --           --        43,024              --          43,024
   HMC noncash capital contributions .........       --           --         8,782              --           8,782
   Dividends to HMC ..........................       --           --            --         (30,520)        (30,520)
   Net income ................................       --           --            --           7,040           7,040
                                                  -----      -------      --------       ---------       ---------
 BALANCE, December 31, 1996 ..................    2,592        2,592        66,174         (37,284)         31,482
   HMC noncash capital contributions .........       --           --         7,109              --           7,109
   Net income ................................       --           --            --           7,087           7,087
                                                  -----      -------      --------       ---------       ---------
 BALANCE, August 31, 1997 ....................    2,592      $ 2,592      $ 73,283       $ (30,197)      $  45,678
                                                  =====      =======      ========       =========       =========
COMPANY:
   Impact of acquisition by News Corporation
    and related push down accounting .........    2,592      $ 2,592      $627,408              --       $ 630,000
   News Corporation noncash capital contribu-
    tions ....................................       --           --         2,925              --           2,925
   Net loss ..................................       --           --            --          (6,045)         (6,045)
                                                  -----      -------      --------       ---------       ---------
 BALANCE, December 31, 1997 ..................    2,592      $ 2,592      $630,333       $  (6,045)      $ 626,880
                                                  =====      =======      ========       =========       =========
The accompanying notes are an integral part of these consolidated statements.

                                       F-5
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
COMPANY            PREDECESSOR
                                                                       -------------- ---------------------------
                                                                         FOUR MONTHS   EIGHT MONTHS
                                                                            ENDED         ENDED       YEAR ENDED
                                                                        DECEMBER 31,    AUGUST 31,   DECEMBER 31,
                                                                            1997           1997          1996
                                                                       -------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss) ...................................................    $ (6,045)     $   7,087     $   7,040
 Adjustments to reconcile net income (loss) to net cash flows from
   operating activities-
   Depreciation of property and equipment ............................       2,286          3,790         5,472
   Amortization-
    Acquired intangible broadcasting assets and other assets .........      12,867          7,127         8,460
    Program contract costs and net realizable value adjustments .              870          1,879         3,165
   Gain on sale of assets ............................................          --         (9,401)       (6,031)
   Amortization of deferred compensation .............................          --             --           135
   Deferred tax provision (benefit) ..................................          40            (57)         (101)
 Changes in assets and liabilities, net of effects of acquisitions-
   (Increase) decrease in accounts receivable, net ...................      (1,329)           496        (1,681)
   Net effect of change in deferred barter revenue and deferred
    barter costs .....................................................       2,471         (2,507)          (53)
   Increase in other assets ..........................................        (108)        (1,309)         (147)
   Decrease (increase) in prepaid expenses and other current as-
    sets .............................................................         401         (1,261)          810
   (Decrease) increase in accounts payable and accrued expenses .           (1,036)         1,705        (3,486)
   Increase in deferred revenue ......................................          93             66           151
   Increase (decrease) in other liabilities ..........................         498            260           (44)
 Payments on program contracts payable ...............................        (941)        (1,882)       (2,565)
                                                                          --------      ---------     ---------
      Net cash flows from operating activities .......................      10,067          5,993        11,125
                                                                          --------      ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition of property and equipment ...............................        (317)        (4,118)       (6,938)
 Proceeds from sale of station .......................................          --             --        13,759
 Receipts (payments) from exchange of stations .......................          --         11,240        (9,384)
                                                                          --------      ---------     ---------
      Net cash flows from investing activities .......................        (317)         7,122        (2,563)
                                                                          --------      ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Dividends to Parent .................................................          --             --       (30,520)
 Decrease in due to affiliates .......................................      (9,293)       (13,203)      (20,714)
 Capital contributions made by Parent ................................          --             --        43,024
                                                                          --------      ---------     ---------
      Net cash flows from financing activities .......................      (9,293)       (13,203)       (8,210)
                                                                          --------      ---------     ---------
NET INCREASE (DECREASE) IN CASH ......................................         457            (88)          352
CASH, beginning of period ............................................       2,063          2,151         1,799
                                                                          --------      ---------     ---------
CASH, end of period ..................................................    $  2,520      $   2,063     $   2,151
                                                                          ========      =========     =========
SUPPLEMENTAL DISCLOSURE:
 Program rights acquired .............................................    $  2,152      $     693     $   3,674
                                                                          ========      =========     =========
The accompanying notes are an integral part of these consolidated statements.

                                       F-6
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

Heritage  Media  Services,  Inc.  ("HMSI")  operates in two segments - Marketing
Services  and  Broadcasting.  The  parent  company  of  HMSI is  Heritage  Media
Corporation ("HMC"). The accompanying  consolidated financial statements include
the accounts of the  television  and radio  operations,  which are  collectively
referred  to  hereafter  as "the  Company,  the  Companies  or the  Broadcasting
Segment." The Broadcasting  Segment was wholly-owned and operated by HMSI, which
was owned by HMC through  August 31, 1997 (the  Predecessor).  In July 1997, HMC
entered into an asset sale agreement with Sinclair Broadcast Group, Inc. ("SBG")
whereby SBG would  acquire  100% of the  Broadcast  Segment for $630  million in
cash. The sale to SBG is expected to close during the first quarter of 1998.

Effective September 1, 1997, The News Corporation  Limited ("News  Corporation")
acquired  all of the  outstanding  stock  of  HMC.  Due  to  certain  regulatory
requirements,  News  Corporation  has  established  a trust  to hold  all of the
license and nonlicense assets of the Broadcasting  Segment until the sale to SBG
has closed.  The  acquisition  of the  Broadcasting  Segment was  accounted  for
utilizing  push down  accounting  whereby the  purchase  price was  allocated to
property and programming assets and acquired  intangible  broadcasting assets of
$51.4 million and $578.6 million, based upon an independent appraisal.

As a result of the News Corporation  acquisition,  the accompanying December 31,
1997,  balance sheet and related statements of operations and cash flows for the
four-month  period  ended  December 31,  1997,  are  presented on a new basis of
accounting.  The accompanying  financial  statements for the eight-month  period
ended August 31, 1997,  and for the year ended  December 31, 1996, are presented
as "Predecessor" financial statements.

The Company owns and  operates  television  and radio  stations  throughout  the
United  States.  Also  included  in  the  accompanying   consolidated  financial
statements  are the results of  operations  of WFGX-TV  Channel 35 in Ft. Walton
Beach, Florida, and WFFF in Burlington,  Vermont,  pursuant to a local marketing
agreement (LMA).

Disclosure of Certain Significant Risks and Uncertainties

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

In the opinion of management,  credit risk with respect to trade  receivables is
limited due to the large  number of  diversified  customers  and the  geographic
diversification  of the Company's  customer base. The Company  performs  ongoing
credit  evaluations  of its customers and believes that adequate  allowances for
any  uncollectable  trade  receivables are maintained.  At December 31, 1997 and
1996, no receivable from any customer exceeded 5% of stockholders'  equity,  and
no customer accounted for more than 10% of net revenues in 1997 and 1996.

Acquired Intangible Broadcasting Assets

Acquired intangible broadcasting assets are being amortized over periods of four
to 40 years. These amounts result from the acquisition of certain television and
radio station license and nonlicense assets. The Company monitors the individual
financial  performance  of each of the stations and  continually  evaluates  the
realizability  of  intangible  and  tangible  assets  and the  existence  of any
impairment to its recoverability based on the projected  undiscounted cash flows
of the respective stations.

                                       F-7
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

Intangible  assets consist of the following as of December 31, 1997 and 1996 (in
thousands):
AMORTIZATION     COMPANY    PREDECESSOR
                                                 PERIOD          1997        1996
                                            ---------------- ----------- ------------
Goodwill ...............................    40 years       $ 298,466   $  63,979
   FCC licenses ........................... 15 -- 25 years      275,391     147,040
   Other ..................................  4 - 25 years           912       1,319
                                                              ---------   ---------
                                                                574,769     212,338

   Less: Accumulated amortization .........                     (10,612)    (48,712)
                                                              ---------   ---------

                                                              $ 564,157   $ 163,626
                                                              =========   =========
Property and Equipment

Property  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation is recorded on the  straight-line  basis over the estimated  useful
lives of the assets.  Property and equipment at December 31, 1997 and 1996,  are
summarized as follows (in thousands):
COMPANY      PREDECESSOR
                                               USEFUL LIFE        1997          1996
                                              -------------   -----------   ------------
Land ...................................        --          $  3,101      $   2,685
   Broadcasting equipment .................    5-25 years        35,548         41,268
   Buildings and improvements .............   12-30 years        10,417          7,369
   Other equipment ........................    4-8 years          2,350          9,904
                                                               --------      ---------
                                                                 51,416         61,226
   Less: Accumulated depreciation .........                      (5,576)       (31,221)
                                                               --------      ---------
                                                               $ 45,840      $  30,005
                                                               ========      =========
Programming

The  Company  has  agreements  with  distributors  for the rights to  television
programming  over contract  periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period.  Each contract is recorded as an asset and a liability
when the  license  period  begins  and the  program is  available  for its first
showing.  The  portion  of the  program  contracts  payable  within  one year is
reflected  as a  current  liability  in the  accompanying  consolidated  balance
sheets.

The rights to program  materials are reflected in the accompanying  consolidated
balance  sheets at the lower of  unamortized  cost or estimated  net  realizable
value.  Estimated net realizable values are based upon management's  expectation
of future advertising revenues,  net of sales commissions to be generated by the
program  material.   Amortization  of  program  contract  costs  is  charged  to
operations  by the  straight-line  method over the  contract  period or based on
usage,  whichever  yields the greater  amortization  for each  program.  Program
contract costs  estimated by management to be amortized in the  succeeding  year
are classified as current assets.  Payments of program contract  liabilities are
typically  paid on a scheduled  basis and are not  affected by  adjustments  for
amortization or estimated net realizable value.

                                       F-8
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

Barter Transactions

Certain  program  contracts  provide for the exchange of advertising air time in
lieu of cash payments for the rights to such  programming.  These  contracts are
recorded  as  the  programs  are  aired  at  the  estimated  fair  value  of the
advertising  air  time  given  in  exchange  for  the  program  rights.  Network
programming is excluded from these calculations.

The Company broadcasts certain customers' advertising in exchange for equipment,
merchandise and services. The estimated fair value of the equipment, merchandise
or services  received is recorded as deferred barter costs and the corresponding
obligation to broadcast advertising is recorded as deferred barter revenues. The
deferred barter costs are expensed or capitalized as they are used,  consumed or
received.  Deferred barter revenues are recognized as the related advertising is
aired.

Other Assets

Debt  issuance  costs are  amortized  to interest  expense  using the  effective
interest method over the period of the related debt agreement.

Revenues

Broadcast  revenues  are derived  primarily  from local,  regional  and national
advertising and network  compensation.  Advertising revenues are recognized upon
the airing of  commercials,  while network  revenues are  recognized  monthly as
earned.  Revenues are presented  net of  advertising  agency and national  sales
representative commissions.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

The  Company  adopted  the  provisions  of  Statement  of  Financial  Accounting
Standards  (SFAS) No. 121,  "Accounting for the Impairment of Long-Lived  Assets
and  for  Long-Lived  Assets  to Be  Disposed  Of" on  January  1,  1996.  These
statements require that long-lived assets and certain  identifiable  intangibles
be reviewed 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 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.  Initial adoption of these  statements,
as of January 1, 1996, did not have a material impact on the Company's financial
position or results of operations.

Local Marketing Agreements

The Company  generally enters into LMA's and similar  arrangements with stations
located in markets in which the Company already owns and operates a station, and
in  connection  with  acquisitions  pending  regulatory  approval of transfer of
license assets. Under the terms of these agreements, the Company makes specified
periodic payments to the owner-operator in exchange for the grant to the Company
of the right to  program  and sell  advertising  on a  specified  portion of the
station's  inventory  of  broadcast  time.  Nevertheless,  as the  holder of the
Federal Communication  Commission (FCC) license, the owner-operator retains full
control and responsibility  for the operation of the station,  including control
over all programming broadcast on the station.

Reclassifications

Certain  reclassifications have been made to the prior year financial statements
to conform with the current year presentation.

                                       F-9
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

2. ACCRUED EXPENSES:

Accrued  expenses  consist of the  following at December 31, 1997 and 1996,  (in
thousands):
COMPANY     PREDECESSOR
                                                1997         1996
                                             ---------   ------------
Commissions ...........................    $3,429        $1,449
   Payroll and employee benefits .........       702           960
   Other .................................     1,740         2,842
                                              ------        ------
                                              $5,871        $5,251
                                              ======        ======
3. DUE TO AFFILIATE:

The Predecessor had an arrangement  with HMSI whereby HMSI would provide certain
management and other services to the Predecessor. The services provided included
consultation  and direct  management  assistance  with respect to operations and
strategic planning. The Predecessor was allocated approximately $4.7 million and
$2.0 million of  corporate  overhead  expenses for these  services for the eight
months  ended  August  31,  1997,  and for the year  ended  December  31,  1996,
respectively.

In order to fund  acquisitions and provide  operating funds, HMSI entered into a
Bank Credit Agreement.  The debt was used to finance acquisitions and fund daily
operations  of the  Predecessor  and was recorded by the  Predecessor  as due to
affiliate in the  accompanying  consolidated  balance  sheets as of December 31,
1996.  HMSI  allocated  interest  at  a  rate  of  approximately   10.0%,  which
approximated  the average rate paid on the borrowings.  Associated with the HMSI
debt,  the  Predecessor  was  allocated  approximately  $0.6 million of deferred
financing  costs in 1996. The deferred  financing  costs were fully amortized in
conjunction with the acquisition by News Corporation on September 1, 1997.

4. PROGRAM CONTRACTS PAYABLE:

Future  payments  required  under program  contracts  payable as of December 31,
1997, are as follows (in thousands):
1998 ...................................................    $  2,194
   1999 ...................................................         666
   2000 ...................................................         175
   2001 ...................................................          16
                                                               --------
                                                                  3,051
   Less: Current portion ..................................      (2,194)
                                                               --------
   Long-term portion of program contracts payable .........    $    857
                                                               ========
The Company has  estimated the fair value of its program  contract  payables and
noncancelable  commitments  at  approximately  $2.5  million  and $0.4  million,
respectively,   at  December  31,  1997  and  $2.6  million  and  $0.4  million,
respectively, at December 31, 1996, based on future cash flows discounted at the
Company's current borrowing rate.

Broadcast Program Rights

The Company has entered into contracts for broadcast  program rights that expire
at various dates during the next four years.  Contracts  totaling  approximately
$0.5 million relate to programs  which are not currently  available for use and,
therefore,  are not  reflected  as assets  or  liabilities  in the  accompanying
consolidated balance sheets at December 31, 1997 and 1996.

                                      F-10
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

5. INCOME TAXES:

The Parent  files a  consolidated  federal  tax return  and  separate  state tax
returns for each of its subsidiaries in certain filing jurisdictions.  It is the
Parent's  policy to pay the federal  income tax  provision of the  Company.  The
accompanying  financial  statements  have been prepared in  accordance  with the
separate  return method of FASB 109,  whereby the  allocation of the federal tax
provision due to the Parent is based on what the Company's  current and deferred
federal tax provision would have been had the Company filed a federal income tax
return  outside  of its  consolidated  group.  The  Company is not  required  to
reimburse the Parent for its federal tax provision.  Accordingly, this amount is
recorded as a capital  contribution in the accompanying  consolidated  financial
statements.  No federal  deferred tax assets or liabilities are recorded because
those amounts are considered  currently  paid to or received by the Parent.  The
federal and state tax provision was calculated  based on pretax income,  plus or
minus permanent  book-to-tax  differences,  times the statutory tax rate of 40%.
The Company had no alternative  minimum tax credit  carryforwards as of December
31, 1997 and 1996.

The  provision  (benefit)  for  income  taxes  consists  of  the  following  (in
thousands):
COMPANY                     PREDECESSOR
                                         ------------------- ---------------------------------------
                                          FOUR MONTHS ENDED   EIGHT MONTHS ENDED      YEAR ENDED
                                          DECEMBER 31, 1997     AUGUST 31, 1997    DECEMBER 31, 1996
                                         ------------------- -------------------- ------------------
Current:
    Federal ............................        $2,241              $7,202              $7,477
    State ..............................           144                 460                 477
                                                ------              ------              ------
                                                 2,385               7,662               7,954
                                                ------              ------              ------
  Deferred:
    Federal ............................            --                  --                  --
    State ..............................            40                 (57)               (101)
                                                ------              ------              ------
                                                    40                 (57)               (101)
                                                ------              ------              ------
    Provision for income taxes .........        $2,425              $7,605              $7,853
                                                ======              ======              ======
The  following is a  reconciliation  of federal  income taxes at the  applicable
statutory rate to the recorded provision (in thousands):
COMPANY                     PREDECESSOR
                                                   ------------------- ---------------------------------------
                                                    FOUR MONTHS ENDED   EIGHT MONTHS ENDED      YEAR ENDED
                                                    DECEMBER 31, 1997     AUGUST 31, 1997    DECEMBER 31, 1996
                                                   ------------------- -------------------- ------------------
Statutory federal income taxes .................      $ (1,231)             $4,995              $5,064
  Adjustments:
    State income taxes, net of federal effect.....          (143)                582                 590
    Non-deductible goodwill amortization .........         3,789               1,725               1,659
    Non-deductible expense items .................            --                  20                  38
    Other ........................................            10                 283                 502
                                                        --------              ------              ------

  Provision for income taxes .....................      $  2,425              $7,605              $7,853
                                                        ========              ======              ======
The following table summarizes the state tax effects of the significant types of
temporary differences between financial reporting basis and tax basis which were
generated during the years ended December 31, 1997 and 1996 (in thousands):

                                      F-11
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)
COMPANY    PREDECESSOR
                                     1997          1996
                                   --------   -------------
Deferred Tax Assets:
     Bad debt reserve ..........     $ 87          $ 80
     Accruals ..................      172           135
     Other intangibles .........       20            --
                                     ----          ----
                                     $279          $215
                                     ====          ====
   Deferred Tax Liability:
     Depreciation ..............     $609          $563
                                     ====          ====
6. EMPLOYEE BENEFIT PLAN:

Company  employees  were  covered by HMC's  Retirement  Savings  Plan (the Plan)
through December 31, 1997, whereby  participants  contributed  portions of their
annual  compensation  to the Plan and  certain  contributions  were  made at the
discretion  of the Company  based on criteria  set forth in the Plan  Agreement.
Participants are generally 100% vested in Company contributions after five years
of  employment  with the  Company.  Company  expenses  under  the Plan  were not
material for the year ended December 31, 1997.

7. RELATED PARTY TRANSACTIONS:

The Company  received  certain  advances  from HMC during the eight months ended
August 31, 1997, which were evidenced by a subordination agreement. All advances
from HMC were repaid on August 31, 1997.

8. CONTINGENCIES AND OTHER COMMITMENTS:

Leases and Contracts

The Company and its subsidiaries  lease certain real property and transportation
and other equipment  under  noncancelable  operating  leases expiring at various
dates through 2010. The Company also has long-term contractual  obligations with
two major  broadcast  ratings firms that provide  monthly  ratings  services and
guaranteed store contracts.  Rent expense under these leases for the four months
ended  December 31, 1997,  the eight months ended August 31, 1997,  and the year
ended December 31, 1996,  was  approximately  $.6 million,  $.9 million and $1.6
million, respectively.

Future minimum payments under the leases are as follows (in thousands):
1998 ........................    $  997
   1999 ........................       950
   2000 ........................       921
   2001 ........................       901
   2002 ........................       920
   2003 and thereafter .........     2,428
                                    ------
                                    $7,117
                                    ======
Litigation

Lawsuits  and  claims are filed  against  the  Company  from time to time in the
ordinary  course of business  which are  generally  incidental  to its business.
Management  of the Company does not believe the  resolution of such matters will
have a significant  effect on its  liquidity,  financial  position or results of
operations.

                                      F-12
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

9. ACQUISITIONS AND EXCHANGES:

On January 7, 1997,  the Company  acquired  all of the  license  and  nonlicense
assets of radio station WHRR (FM),  serving the Rochester,  New York, market for
approximately $2.0 million. The acquisition was accounted for under the purchase
method of  accounting  whereby the purchase  price was allocated to property and
programming assets and acquired  intangible  broadcasting  assets of $.1 million
and $1.9 million, respectively.

On January 20, 1997, the Company entered into a like-kind  exchange with Journal
Broadcast Group ("JBG") whereby the Company transferred radio stations WMYU (FM)
and WWST (FM) in exchange for radio station KQRC (FM). The assets exchanged were
used in the same line of business,  no monetary  consideration  was received and
the fair value of the assets  exchanged  were greater than their  carrying  cost
and,  as  such,  no  gain  was  recognized  in  the  accompanying  statement  of
operations.

On January 24,  1997,  the Company  acquired  all of the license and  nonlicense
assets of radio  stations  KXTR (FM) and KCAZ (FM),  serving  the  Kansas  City,
Missouri,  market for approximately $10.5 million. The acquisition was accounted
for under the  purchase  method of  accounting  whereby the  purchase  price was
allocated  to  property   and   programming   assets  and  acquired   intangible
broadcasting assets of $.9 million and $9.6 million, respectively.

On February  17,  1997,  the Company  entered  into a  like-kind  exchange  with
Susquehanna  Radio  Corporation  ("SRC") whereby the Company  transferred  radio
station WVAE (FM) to SRC and received radio stations WGH (AM), WGH (FM) and WVCL
(FM),  along with $5.0 million in cash. In connection with the exchange,  a gain
of  approximately  $4.6  million was recorded in the  accompanying  statement of
operations.

On April 11, 1997, the Company  entered into a like-kind  exchange with American
Radio System Corporation ("ARSC") whereby the Company transferred radio stations
KCIN (FM) and KRPM (AM) to ARSC and received radio stations WRNO (FM), WEZB (FM)
and WBYU (AM), along with approximately $6.2 million in cash. In connection with
the  exchange,  a  gain  of  approximately  $4.8  million  was  recorded  in the
accompanying statement of operations.

10. FINANCIAL INFORMATION BY SEGMENT:

In June 1997, the Financial  Accounting Standards Board (FASB) released SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
131 establishes  standards for reporting information about operating segments in
annual financial  statements and requires  selected  information about operating
segments  in  interim  financial  statements.   SFAS  131  supercedes  SFAS  14,
"Financial Reporting for Segments of a Business Enterprise" and is effective for
financial statements for periods beginning after December 15, 1997.

The  Company  operates  in  two  principal   business   segments  --  television
broadcasting  and  radio  broadcasting.  At  December  31,  1997 and  1996,  the
television  segment  included five television  stations for which the Company is
the  licensee  and two  stations  which  are  operated  under a local  marketing
agreement.  These  seven  stations  operate  in seven  different  markets in the
continental United States.

The radio  group  currently  operates  23 radio  stations in seven of the top 50
largest markets by population. The holdings include at least three stations (and
two FM stations) in every market.

                                      F-13
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)
COMPANY               PREDECESSOR
                                                       --------------   -----------------------------
                                                         FOUR MONTHS     EIGHT MONTHS
                                                            ENDED           ENDED         YEAR ENDED
                                                        DECEMBER 31,      AUGUST 31,     DECEMBER 31,
                                                            1997             1997            1996
                                                       --------------   -------------   -------------
TELEVISION
 Total revenues ....................................      $ 16,213         $ 28,360        $ 46,316
 Station operating expenses ........................         8,265           14,862          19,365
 Depreciation and program amortization .............         2,101            4,402           6,707
 Amortization of goodwill and other assets .........         5,769            4,136           4,910
                                                          --------         --------        --------
 Station broadcast operating income ................      $     78         $  4,960        $ 15,334
                                                          ========         ========        ========
 Total assets ......................................      $313,235         $134,071        $ 83,479
                                                          ========         ========        ========
 Capital expenditures ..............................      $     --         $  3,265        $  5,791
                                                          ========         ========        ========
RADIO
 Total revenues ....................................      $ 22,722         $ 37,430        $ 53,278
 Station operating expenses ........................        15,653           26,165          36,118
 Depreciation ......................................         1,055            1,267           1,930
 Amortization of goodwill and other assets .........         7,098            2,991           3,550
                                                          --------         --------        --------
 Station broadcast operating income ................      $ (1,084)        $  7,007        $ 11,680
                                                          ========         ========        ========
 Total assets ......................................      $329,169         $ 93,201        $137,928
                                                          ========         ========        ========
 Capital expenditures ..............................      $    317         $    853        $  1,147
                                                          ========         ========        ========
CONSOLIDATED
 Total revenues ....................................      $ 38,935         $ 65,790        $ 99,594
 Station operating expenses ........................        23,918           41,027          55,483
 Depreciation and program amortization .............         3,156            5,669           8,637
 Amortization of goodwill and other assets .........        12,867            7,127           8,460
                                                          --------         --------        --------
 Station broadcast operating income ................      $ (1,006)        $ 11,967        $ 27,014
                                                          ========         ========        ========
 Total assets ......................................      $642,404         $227,272        $221,407
                                                          ========         ========        ========
 Capital expenditures ..............................      $    317         $  4,118        $  6,938
                                                          ========         ========        ========
11. SUBSEQUENT EVENTS:

In January 1998,  the Company  closed on the sale to SBG of television  stations
serving the Charleston/  Huntington market, the Mobile/Pensacola  market and the
Oklahoma City market for an aggregate purchase price of $215 million.

                                      F-14
INDEPENDENT AUDITORS' REPORT

The Board of Managers and Members
Max Media Properties LLC:

     We have audited the accompanying  consolidated  balance sheets of Max Media
Properties LLC and its limited partnerships as of December 31, 1997 and 1996 and
the related  consolidated  statements of operations,  members'  capital and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     As  discussed  in  note  3 to the  consolidated  financial  statements,  on
December 2, 1997 the Company and its members  entered into  agreements that will
result  in the sale of all of the  membership  interests  of the  Company  to an
unrelated party.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial  position of Max Media
Properties LLC and its limited partnerships as of December 31, 1997 and 1996 and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

                                                       /s/ KPMG Peat Marwick LLP

Norfolk, Virginia
February 18, 1998

                                      F-15
MAX MEDIA PROPERTIES LLC
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996
1997               1996
                                                                    ----------------   ----------------
ASSETS (NOTE 9)
CURRENT ASSETS:
 Cash and cash equivalents ......................................    $   1,789,194      $   1,175,542
 Restricted cash (note 4) .......................................          512,856                 --
 Accounts receivable, net (note 6) ..............................       11,484,849          9,655,084
 Program contract rights, current portion .......................        2,325,431          1,960,224
 Deferred charges, primarily barter agreements (note 5) .........          640,145            679,776
 Prepaid expenses and other current assets ......................          851,502            672,926
                                                                     -------------      -------------
   Total current assets .........................................       17,603,977         14,143,552
Property and equipment, net (note 7) ............................       25,709,048         18,412,542
Program contract rights, long-term portion ......................        2,182,349          2,506,632
Intangible assets, net (note 8) .................................       82,137,183         63,606,370
Due from related party (note 13) ................................        1,800,370          1,531,530
Notes receivable (note 14) ......................................          457,445            107,168
Deposits on pending acquisitions ................................               --          2,383,056
Other assets ....................................................           92,667            113,103
                                                                     -------------      -------------
                                                                     $ 129,983,039      $ 102,803,953
                                                                     =============      =============
                LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
 Current portion of long-term debt (note 9) .....................    $   4,751,520      $   3,064,076
 Program contract rights payable, current portion (note 14)              2,430,572          2,211,002
 Accounts payable ...............................................          717,748          1,406,923
 Accrued compensation and benefits (note 11) ....................        2,043,859            881,924
 Other accrued expenses .........................................          979,409          1,112,412
 Deferred revenue, primarily barter agreements (note 5) .........        1,026,238            866,365
                                                                     -------------      -------------
   Total current liabilities ....................................       11,949,346          9,542,702

Long-term debt, excluding current portion (note 9) ..............       68,927,774         56,172,774
Program contract rights payable, long-term portion (note 14)             1,736,102          2,042,981
                                                                     -------------      -------------
   Total liabilities ............................................       82,613,222         67,758,457
Members' capital (notes 2, 9 and 10):
 Class A -- 3,069,000 member units at December 31, 1997
   and 1996 .....................................................       21,346,430         21,346,430
 Class B -- 5,140,500 and 6,831,000 member units at De-
   cember 31, 1997 and 1996, respectively .......................        6,738,406         19,211,365
 Class C -- 3,421,931 and 100,000 member units at Decem-
   ber 31, 1997 and 1996, respectively ..........................       21,893,829            695,550
 Accumulated deficit ............................................       (2,608,848)        (6,207,849)
                                                                     -------------      -------------
   Total members' capital .......................................       47,369,817         35,045,496
                                                                     -------------      -------------
                                                                     $ 129,983,039      $ 102,803,953
                                                                     =============      =============
Commitments and contingencies (notes 9 and 14)
See accompanying notes to consolidated financial statements.

                                      F-16
MAX MEDIA PROPERTIES LLC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
1997               1996
                                                                      ---------------   -----------------
Gross revenues ....................................................    $ 64,281,296       $  50,298,698
Less agency commissions ...........................................       7,567,894           6,042,708
                                                                       ------------       -------------
   Net revenues ...................................................      56,713,402          44,255,990
                                                                       ------------       -------------
Operating expenses:
 General and administrative .......................................      11,812,056           9,393,933
 Sales ............................................................      11,443,544           8,040,303
 News .............................................................       2,845,499           1,922,426
 Programming and production:
   Program amortization ...........................................       5,545,904           4,881,056
   Operations .....................................................       4,768,127           4,727,219
 Promotions .......................................................       3,066,572           2,806,561
 Engineering ......................................................       3,223,911           2,255,699
 Depreciation and amortization of property and equipment ..........       4,713,124           3,120,049
 Amortization of intangible assets ................................       8,028,187           6,696,048
                                                                       ------------       -------------
   Total operating expenses .......................................      55,446,924          43,843,294
                                                                       ------------       -------------
Income from operations ............................................       1,266,478             412,696
                                                                       ------------       -------------
Other income (expenses):
 Interest expense .................................................      (6,078,296)         (4,139,088)
 Gain on station sales, net (note 4) ..............................       8,452,216                  --
 Other income, net ................................................         358,777              95,782
                                                                       ------------       -------------
   Total other income (expenses), net .............................       2,732,697          (4,043,306)
                                                                       ------------       -------------
 Income (loss) ....................................................    $  3,999,175       $  (3,630,610)
                                                                       ============       =============
Pro forma income data:
 Income (loss) ....................................................    $  3,999,175       $  (3,630,610)
 Pro forma income tax expense (benefit) (unaudited) (note 12) .....       1,559,678          (1,415,938)
                                                                       ------------       -------------
 Pro forma net income (loss) (unaudited) ..........................    $  2,439,497       $  (2,214,672)
                                                                       ============       =============
See accompanying notes to consolidated financial statements.

                                      F-17
MAX MEDIA PROPERTIES LLC
                   CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
MEMBERSHIP INTERESTS
                                             ------------------------------------------------    ACCUMULATED
                                                 CLASS A          CLASS B         CLASS C          DEFICIT
                                             --------------- ---------------- --------------- -----------------
Membership interests issued at formation
 (note 2) ..................................  $ 21,346,430    $   19,211,365   $    695,550     $          --
Member distributions .......................            --                --             --        (2,577,239)
Loss .......................................            --                --             --        (3,630,610)
                                              ------------    --------------   ------------     -------------
Balances at December 31, 1996 ..............  $ 21,346,430        19,211,365        695,550        (6,207,849)
                                              ------------    --------------   ------------     -------------
Cancellation of Class B member units (note
 10) .......................................            --       (12,472,959)            --                --
Issuance of Class C member units, net of
 transactions costs of $1,721 (note 10).....            --                --     21,198,279                --
Member distributions .......................            --                --             --          (400,174)
Income .....................................            --                --             --         3,999,175
                                              ------------    --------------   ------------     -------------
Balances at December 31, 1997 ..............  $ 21,346,430    $    6,738,406   $ 21,893,829     $  (2,608,848)
                                              ============    ==============   ============     =============
TOTAL             MEMBERSHIP UNITS
                                                 MEMBERS'    ------------------------------
                                                 CAPITAL         CLASS A        CLASS B        CLASS C        TOTAL
                                             --------------- -------------- --------------- ------------ ---------------
Membership interests issued at formation
 (note 2) ..................................  $  41,253,345   $ 3,069,000       6,831,000      100,000      10,000,000
Member distributions .......................     (2,577,239)           --              --           --              --
Loss .......................................     (3,630,610)           --              --           --              --
                                              -------------   -----------       ---------      -------      ----------
Balances at December 31, 1996 ..............     35,045,496     3,069,000       6,831,000      100,000      10,000,000
                                              -------------   -----------       ---------      -------      ----------
Cancellation of Class B member units (note
 10) .......................................    (12,472,959)           --      (1,690,500)          --      (1,690,500)
Issuance of Class C member units, net of
 transactions costs of $1,721 (note 10).....     21,198,279            --              --    3,321,931       3,321,931
Member distributions .......................       (400,174)           --              --           --              --
Income .....................................      3,999,175            --              --           --              --
                                              -------------   -----------      ----------    ---------      ----------
Balances at December 31, 1997 ..............  $  47,369,817     3,069,000       5,140,500    3,421,931      11,631,431
                                              =============   ===========      ==========    =========      ==========
See accompanying notes to consolidated financial statements.

                                      F-18
MAX MEDIA PROPERTIES LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
1997              1996
                                                                                           ---------------- -----------------
Cash flows from operating activities:
 Income (loss) ...........................................................................  $   3,999,175     $  (3,630,610)
 Reconciliation of income (loss) to net cash provided by operating activities:
  Depreciation and amortization of property and equipment ................................      4,713,124         3,120,049
  Amortization of intangible assets ......................................................      8,028,187         6,696,048
  Amortization of program contract rights ................................................      2,475,600         2,683,563
  Barter program amortization ............................................................      3,070,304         2,197,493
  Barter program revenue .................................................................     (3,070,304)       (2,197,493)
  Gain on station sales, net .............................................................     (8,452,216)               --
  Loss on disposal of equipment ..........................................................         62,396            32,762
  Changes in assets and liabilities, net of effect of station acquisitions:
   Accounts receivable, net ..............................................................     (1,829,765)         (788,868)
   Deferred charges, primarily barter agreements .........................................        (14,896)         (257,504)
   Prepaid expenses and other current assets .............................................       (178,576)          (80,949)
   Accounts payable ......................................................................       (689,175)          651,095
   Accrued compensation and benefits .....................................................      1,161,935           210,192
   Other accrued expenses ................................................................       (133,003)          (94,621)
   Deferred revenue, primarily barter agreements .........................................        259,009           236,416
                                                                                            -------------     -------------
     Net cash provided by operating activities ...........................................      9,401,795         8,777,573
                                                                                            -------------     -------------
Cash flows from investing activities:
 Acquisition of stations, net of cash deposits ...........................................    (34,309,611)      (10,400,000)
 Deposits on pending acquisitions ........................................................             --        (2,383,056)
 Payments for program contract rights ....................................................     (2,376,966)       (1,944,977)
 Purchases of property and equipment .....................................................     (6,305,013)       (4,370,388)
 Payment of organizational and start-up costs ............................................       (613,552)         (931,829)
 Restricted cash deposited in escrow .....................................................       (512,856)               --
 Issuance of notes receivable ............................................................       (365,500)               --
 Proceeds from sale of stations, net .....................................................     12,564,111                --
 Proceeds from sale of property and equipment ............................................        510,000                --
 Other ...................................................................................       (124,629)         (158,787)
                                                                                            -------------     -------------
     Net cash used in investing activities ...............................................    (31,534,016)      (20,189,037)
                                                                                            -------------     -------------
Cash flows from financing activities:
 Proceeds from issuance of long-term debt ................................................  $  39,100,000     $  22,000,000
 Proceeds from issuance of Class C member units, net of expenses .........................     21,198,279                --
 Payment to cancel Class B member units ..................................................    (11,200,000)               --
 Repayment of long-term debt:
  Credit Facility ........................................................................    (25,150,000)       (7,425,000)
  Other ..................................................................................       (336,627)         (149,321)
 Payments of loan, financing and equity issuance costs ...................................       (465,605)         (882,408)
 Member distributions ....................................................................       (400,174)       (2,577,239)
 Cash contributed at inception (note 2) ..................................................             --         1,620,974
                                                                                            -------------     -------------
     Net cash provided by financing activities ...........................................     22,745,873        12,587,006
                                                                                            -------------     -------------
 Net increase in cash and cash equivalents ...............................................        613,652         1,175,542
 Cash and cash equivalents at beginning of year ..........................................      1,175,542                --
                                                                                            -------------     -------------
 Cash and cash equivalents at end of year ................................................  $   1,789,194     $   1,175,542
                                                                                            =============     =============
 Supplemental disclosure of cash flow information:
 Cash paid during the year for interest ..................................................  $   6,169,698     $   4,174,128
                                                                                            =============     =============
 Supplemental disclosure of noncash investing and financing activities:
 Noncash additions to program contract rights and program contract rights payable ........  $   1,778,868     $   1,390,596
                                                                                            =============     =============
 Noncash additions to long-term debt obligations (note 10) ...............................  $     817,811     $   1,064,758
                                                                                            =============     =============
 The Company  assumed  liabilities  in 1997 and 1996 in connection  with station
  acquisitions as more fully described in note 4.
See accompanying notes to consolidated financial statements.

                                      F-19
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Operations and Basis of Presentation

Max Media Properties LLC, a Virginia limited  liability company (the "Company"),
owns and operates radio and television  broadcasting  stations.  At December 31,
1997, the Company owned or operated under time brokerage agreements ("TBA"s) the
following stations:
RADIO MARKET          STATION           FORMAT           OWNERSHIP
-------------------------   ---------   --------------------   ----------
Norfolk, VA .............   WWDE-FM     Adult Contemporary     Owned

                            WNVZ-FM     Contemporary Hits      Owned

                            WFOG-FM     Adult Contemporary     Owned

                            WPTE-FM     Alternative Rock       Owned

Greensboro, NC ..........   WMQX-FM     Oldies                 Owned

                            WJMH-FM     Urban                  Owned

                            WQMG-AM     Religious              Owned

                            WQMG-FM     Urban                  Owned
TELEVISION MARKET     STATION     AFFILIATION     OWNERSHIP
--------------------   ---------   -------------   ----------
Dayton, OH             WKEF-TV     NBC             Owned

Syracuse, NY           WSYT-TV     Fox             Owned

                       WNYS-TV     UPN             TBA

Cape Girardeau, MO     KBSI-TV     Fox             Owned

Paducah, KY            WDKA-TV     UPN             TBA

Tri-Cities, TN         WEMT-TV     Fox             Owned

Charleston, SC         WMMP-TV     UPN             Owned

Tyler, TX              KETK-TV     NBC             Owned

Nacogdoches, TX        KLSB-TV     NBC             TBA
At December 31, 1996, the Company owned and operated KKLZ-FM, Las Vegas, Nevada,
which was sold in January 1997 (note 4).

(b) Principles of Consolidation

The consolidated  financial  statements include the financial  statements of the
Company and seven limited  partnerships.  All significant  intercompany balances
and transactions have been eliminated in consolidation.

(c) Advertising Revenue Recognition

The  Company  recognizes  revenue on the sale of  advertising  air time when the
related advertising is broadcast.

                                      F-20
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

(d) Cash and Cash Equivalents

Cash equivalents consist of overnight repurchase  agreements and certificates of
deposit with an initial term of less than three months.

(e) Program Contract Rights

The Company has entered into  agreements with program  distributors  granting it
the right to broadcast  programs over contract  periods which generally run from
one to seven years.  The total cost of each contract is recorded as an asset and
liability  when the license  period  begins and the program is available for its
first  showing.   The  Company  amortizes  program  contract  rights  using  the
straight-line  method based on program usage. Program contract rights are stated
at  the  lower  of  unamortized  cost  or  net  realizable  value  as  estimated
periodically by management. Contract payments are generally made in installments
over a term somewhat shorter than the contract period.

Program  contract  rights  expected to be amortized in the  succeeding  year and
program  contract  rights  payable due within one year are classified as current
assets and current liabilities, respectively.

(f) Barter Agreements

Certain program contract rights provide for the exchange of advertising air time
in lieu of cash  payments for the  programming.  As the program is aired,  equal
amounts of revenue and program amortization  expense are recorded,  at estimated
fair market value, in results of operations.

In addition,  the Company provides  advertising air time to certain customers in
exchange for equipment, merchandise or services. The estimated fair value of the
equipment,  merchandise  or  services to be received is recorded as an asset and
the  corresponding  obligation to broadcast  advertising is recorded as deferred
revenue.   Property  and  equipment   acquired  through  barter  agreements  are
depreciated  over their  estimated  useful lives.  Services and other assets are
charged to expense as they are used or consumed.  Deferred revenue is recognized
in operations as the related advertising is broadcast.

(g) Property and Equipment

Property and equipment are stated at cost.  Depreciation is calculated using the
straight-line  method over the estimated  useful lives of the assets.  Leasehold
improvements  are amortized using the  straight-line  method over the shorter of
the lease term and the estimated useful lives of the assets.

(h) Intangible Assets

Intangible assets include Federal  Communications  Commission  ("FCC") licenses,
advertiser  base,  network  affiliation   agreements,   goodwill  and  favorable
contractual agreements resulting from acquisitions. These assets are recorded at
their fair value as of the date of  acquisition  as  determined  by  independent
appraisals and are amortized using the straight-line method over their estimated
useful  lives.  Intangible  assets also include loan costs which are recorded at
cost and amortized  using the  straight-line  method over the term of the credit
facility.

(i) Income Taxes

The Company operates as a partnership for income tax purposes.  As a result, the
Company is generally not subject to federal and state income taxes.  Such income
taxes are the obligation of the members of the Company.  The Company distributes
to its  members  amounts  sufficient  to pay income and  franchise  taxes on the
income of the Company allocated to these members.

                                      F-21
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

(j) Use of Estimates

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

(k) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed

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

(l) Value Appreciation Rights

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
interpretations in accounting for its value  appreciation  rights, as opposed to
the fair value accounting  provided for under Statement of Financial  Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FASB 123"). There
is no difference in the accounting for value appreciation rights under APB 25 or
FASB 123. The required  accounting  is to treat the future  compensation  (value
above  awarded  rights) as a liability.  The  liability is measured  each period
based on the current  valuation,  as required under FASB  Interpretation No. 28,
"Accounting  for Stock  Appreciation  Rights and Other  Variable Stock Option or
Award Plans."

(m) Reclassifications

Certain  reclassifications  have been made in the 1996  financial  statements to
conform with the 1997 financial statement presentation.

(n) Time Brokerage Agreements

The Company operates  certain stations  pursuant to TBAs under which the Company
purchases from the broadcast station licensee substantially all of the broadcast
time on the station and provides  programming  to and sells  advertising  on the
station during the purchased time. The Company  receives all the revenue derived
from the  advertising  sold during the purchased time,  pays  substantially  all
operating  expenses of the station and performs other  functions.  The broadcast
station licensee retains  responsibility  for ultimate control of the station in
accordance  with FCC policies.  Net revenues of $3,888,339  and  $2,739,168  and
operating losses of $260,238 and $691,698 resulting from stations operated under
TBAs  during  1997 and 1996,  respectively,  are  included  in the  accompanying
consolidated financial statements.

2. FORMATION OF THE COMPANY

Effective  January 1, 1996,  Max  Television  Company ("Max TV"), Max Radio Inc.
("Max Radio") and MTR Holding Corp.  ("MTR") each contributed  substantially all
their  assets to the  Company and the  Company  assumed  all their  liabilities,
including, all liabilities under program license agreements,  barter agreements,
operating leases and bank loans. In exchange, the Company issued 6,831,000 Class
B  member  units to Max TV,  3,069,000  Class A member  units to Max  Radio  and
100,000 Class C member units to MTR.

                                      F-22
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

The assets contributed and liabilities assumed are as follows:
MAX
                                                 MAX TV            RADIO             MTR            TOTAL
                                            ---------------   ---------------   ------------   --------------
Cash ....................................    $    263,351      $    662,073      $ 695,550      $  1,620,974
Accounts receivable .....................       5,943,235         2,672,543             --         8,615,778
Deferred charges ........................         260,350           157,355             --           417,705
Program contract rights .................       5,759,823                --             --         5,759,823
Property and equipment ..................      10,099,872         4,373,153             --        14,473,025
Intangible assets .......................      38,112,329        21,612,173             --        59,724,502
Other assets ............................       2,061,532           310,800             --         2,372,332
                                             ------------      ------------      ---------      ------------
 Total assets contributed ...............      62,500,492        29,788,097        695,550        92,984,139
                                             ------------      ------------      ---------      ------------
Long-term debt ..........................      36,062,933         7,683,480             --        43,746,413
Program contract rights payable .........       4,808,160                --             --         4,808,160
Accounts payable ........................         572,265            95,507             --           667,772
Deferred revenue ........................         436,746           192,939             --           629,685
Other liabilities .......................       1,409,023           469,741             --         1,878,764
                                             ------------      ------------      ---------      ------------
 Total liabilities assumed ..............      43,289,127         8,441,667             --        51,730,794
                                             ------------      ------------      ---------      ------------
 Net contribution .......................    $ 19,211,365      $ 21,346,430      $ 695,550      $ 41,253,345
                                             ============      ============      =========      ============
The Company and Max TV are under common control,  therefore,  in accordance with
Accounting  Principles  Board  Opinion No. 16 and the  Securities  and  Exchange
Commission's  Staff Accounting  Bulletin No. 97, the Company recorded the Max TV
contribution  at book  value.  The Company  accounted  for the Max Radio and MTR
contributions  as a  purchase,  therefore,  their  assets and  liabilities  were
recorded at fair market value as of the date of inception.

3. SALE OF THE COMPANY

On December 2, 1997,  the Class A member and one of the Class C members  entered
into agreements to sell all the issued and outstanding  shares of each member to
one  buyer.  Simultaneously,  the Class B member  and one of the  other  Class C
members entered into agreements to sell their  respective  member units,  equity
interests in other members and limited partnership  interests to this buyer. The
Company  is also a party to each of these  purchase  agreements.  The  aggregate
purchase  price is  $255,000,000  plus the  assumption  of  certain  liabilities
consisting  primarily  of program  contract  rights  payable.  A portion of this
purchase  price  will be used to repay  all  long-term  debt  and  make  certain
payments  contingent on the closing of the transaction (note 14). Cash, accounts
receivable,  notes receivable and certain other  immaterial  assets are excluded
from  this  transaction.  The  transaction  is  subject  to  certain  regulatory
approvals and is expected to close in the second quarter of 1998.

4. ACQUISITIONS AND DISPOSITIONS

(a) Acquisitions

On  January  3,  1997,  the  Company   completed  the  acquisition  of  WMMP-TV,
Charleston, South Carolina for approximately $3.4 million plus the assumption of
approximately  $612,000  of  liabilities  and  paid  $850,000  for a  three-year
agreement not to compete.  In May 1996, the Company  entered into a TBA with the
seller to  operate  the  station  pending  closing  of the  acquisition.  On the
commencement  date of the TBA, the Company  assumed  certain  obligations of the
seller and the seller  assigned all accounts  receivable to the Company.  During
1996,  the Company made payments  under the TBA to the seller of $200,000  which
were applied against the purchase price. In conjunction  with this  acquisition,
the TBA was terminated.

                                      F-23
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

On January 31, 1997,  the Company  completed the  acquisition  of WFOG AM/FM and
WPTE-FM,  Norfolk,  Virginia for approximately  $15.2 million. In July 1996, the
Company  entered  into a TBA with the seller to  operate  the  stations  pending
closing of the  acquisition.  During 1997 and 1996,  the Company  made  payments
under the TBA to the seller of $75,000 and  $375,000,  respectively,  which have
been included in operating expenses in the accompanying  consolidated  financial
statements. In conjunction with this acquisition, the TBA was terminated.

On March 14, 1997, the Company acquired the assets of KETK-TV,  Tyler, Texas and
substantially  all the assets of  KLSB-TV,  Nacogdoches,  Texas  (other than FCC
licenses and certain  related assets) for  approximately  $16.9 million plus the
assumption  of  certain  immaterial  liabilities.  Simultaneously,  the  Company
entered into a 10-year TBA to operate KLSB-TV.

On June 5, 1997,  the  Company  commenced  commercial  broadcast  operations  of
WDKA-TV, Paducah,  Kentucky. The Company invested approximately $2.0 million for
the construction of studio,  transmission and office facilities. The Company had
previously entered into a 10-year TBA to build and operate this station.

On July 1, 1996, the Company acquired certain assets of WNYS-TV,  Syracuse,  New
York, for $3,650,000 and paid $100,000 for a one-year  agreement not to compete.
Simultaneously,  the Company  entered into a 10-year TBA to operate the station.
Additionally,   the  Company  invested   approximately   $1.6  million  for  the
construction of a new studio, transmission and office facilities.

On August 26, 1996, the Company  acquired the assets of WQMG AM/FM,  Greensboro,
North Carolina, for approximately  $6,650,000 cash and entered into a three-year
agreement not to compete for $214,758.

Each of these  acquisitions was accounted for by the Company as a purchase.  The
results of operations of the acquired  stations are included in the accompanying
consolidated  financial statements at the earlier of the commencement of the TBA
or the date of acquisition.

The  following  is a summary of the assets  acquired,  liabilities  assumed  and
consideration given for the above-stated acquisitions:
1997              1996
                                                                   ---------------   ---------------
Accounts receivable ............................................    $         --      $    250,444
Deferred charges, primarily barter agreements ..................         225,177                --
Program contract rights ........................................         737,652            13,850
Property and equipment .........................................       7,023,608         1,646,991
FCC licenses ...................................................      20,105,728         3,353,000
Goodwill .......................................................         249,553           229,857
Other intangible assets ........................................       9,119,698         5,197,801
                                                                    ------------      ------------
 Total assets acquired .........................................      37,461,416        10,691,943
                                                                    ------------      ------------
Less:
Seller financing ...............................................              --           214,758
Deferred revenue assumed, primarily barter agreements ..........         225,177                --
Program contract rights payable assumed ........................         510,858            13,850
Other liabilities assumed ......................................          32,714           385,346
                                                                    ------------      ------------
Cash paid for acquisitions .....................................    $ 36,692,667      $ 10,077,989
                                                                    ============      ============
The Company allocated the aggregate consideration to the tangible and intangible
assets  based on their  respective  fair  values.  Goodwill  was recorded as the
excess of the purchase price over the assets acquired.

                                      F-24
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

The following  unaudited pro forma summary combines the results of operations of
the Company and the  acquired  stations as if the  acquisitions  occurred at the
beginning of 1996,  after giving  effect to certain  adjustments,  including the
depreciation and amortization of assets based on their fair values and increased
interest  expense  resulting  from the  additional  borrowings  to  finance  the
acquisitions.  The unaudited pro forma information does not purport to represent
what  the  results  of  operations  of the  Company  would  have  been  if  such
acquisitions  had in fact  occurred  on such date or to  project  the  Company's
results of operations as of any future date or for any future period.
PRO FORMA
                                                                YEARS ENDED DECEMBER 31
                                                          -----------------------------------
                                                                1997               1996
                                                          ---------------   -----------------
                                                                      (UNAUDITED)
Net revenues ........................................    $ 58,274,280       $  55,991,292
                                                           ============       =============
  Income (loss) from operations .......................    $  2,290,632       $  (1,125,087)
                                                           ============       =============
  Income (loss) before pro forma income taxes .........    $  4,945,258       $  (6,711,206)
                                                           ============       =============
(b) Dispositions

On January 28, 1997, the Company sold the assets of KKLZ-FM,  Las Vegas,  Nevada
for approximately $12.5 million,  net of commissions and other selling expenses,
including  a two-year  agreement  not to  compete,  which  resulted in a gain of
approximately  $8.5 million.  The Company  agreed to indemnify and hold harmless
the purchaser from certain losses, liabilities, damages, costs and expenses. The
Company placed  $500,000 in escrow for a period of one year to serve as security
for the  performance of the Company's  indemnification  obligations.  The escrow
fund is included in restricted cash in the accompanying  consolidated  financial
statements.  The station had net  revenues of $144,361 and  operating  losses of
$94,665 in 1997 and net revenues of $3,207,168 and operating income of $8,361 in
1996, which are included in the accompanying consolidated financial statements.

On August 12, 1997,  the Company sold the assets of WFOG-AM,  Norfolk,  Virginia
for approximately $107,000, net of selling expenses.

These sales  resulted in the  disposition  of FCC licenses and other  intangible
assets, net of accumulated  amortization,  aggregating $3,451,837 as of the date
of the disposition.

5. BARTER AGREEMENTS

The Company's  liability to broadcast  commercial spots in fulfillment of barter
contracts is recorded as deferred  revenue.  Future  amounts to be recognized on
receipt of assets,  goods or  services  on barter  agreements  are  recorded  as
deferred charges.

Barter  agreements  (excluding  barter  program  agreements  of  $3,070,304  and
$2,197,493 in 1997 and 1996, respectively) resulted in $2,291,420 and $1,647,754
in net barter  revenue,  $2,333,436  and  $1,635,875  in operating  expenses for
merchandise  and  services  received  and  $193,409  and $23,000 in property and
equipment additions during 1997 and 1996, respectively.

                                      F-25
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

6. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

Activity in the allowance  for doubtful  accounts  receivable  was as follows in
1997 and 1996:
1997           1996
                                        ------------   ------------
Balance, beginning of year ..........    $ 518,512      $ 421,924
Amounts charged to expense ..........      526,487        323,257
Deductions ..........................      456,957        398,389
Acquisitions ........................           --        171,720
                                         ---------      ---------
Balance, end of year ................    $ 588,042      $ 518,512
                                         =========      =========
7. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 1997 and 1996:
USEFUL
                                      LIVES
                                                            (IN YEARS)          1997              1996
                                                           ------------   ---------------   ---------------
Land ...................................................                   $    895,875      $    614,807
Buildings and real estate improvements .................      15-39           5,973,366         3,279,959
Broadcasting equipment, furniture and fixtures .........        3-7          27,745,616        17,678,119
Vehicles ...............................................          3             921,109           563,066
Leasehold improvements .................................       2-15             506,999           865,266
Construction in progress ...............................                         26,595         1,577,495
                                                                           ------------      ------------
                                                                             36,069,560        24,578,712
Less accumulated depreciation and amortization .........                     10,360,512         6,166,170
                                                                           ------------      ------------
                                                                           $ 25,709,048      $ 18,412,542
                                                                           ============      ============
8. INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 1997 and 1996:
PERIOD OF
                                                              AMORTIZATION
                                                               (IN YEARS)          1997              1996
                                                             -------------   ---------------   ---------------
FCC licenses .............................................       10-15        $ 47,910,031      $ 31,478,717
Advertiser base ..........................................          15          15,223,747        15,968,506
Network affiliation agreements ...........................          15          19,082,142        12,335,307
Time brokerage agreement .................................          10           3,650,000         3,650,000
Loan costs ...............................................           8           3,385,234         3,374,776
Other intangibles including organizational costs .........        1-15           7,398,324         4,619,611
                                                                              ------------      ------------
                                                                                96,649,478        71,426,917
Less accumulated amortization ............................                      14,512,295         7,820,547
                                                                              ------------      ------------
                                                                              $ 82,137,183      $ 63,606,370
                                                                              ============      ============
F-26
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

9. LONG-TERM DEBT

Long-term debt consists of the following at December 31, 1997 and 1996:
1997              1996
                                                      ---------------   ---------------
Credit Facility:
 Term A facility ..................................    $ 32,610,000      $ 36,000,000
 Term B facility ..................................      10,640,000                --
 Reducing revolving credit facility ...............      28,700,000        22,000,000
Other .............................................       1,729,294         1,236,850
                                                       ------------      ------------
 Total long-term debt .............................      73,679,294        59,236,850
Less current portion ..............................       4,751,520         3,064,076
                                                       ------------      ------------
Long term debt, excluding current portion .........    $ 68,927,774      $ 56,172,774
                                                       ============      ============
In January 1996,  the Company  entered into a $50 million  Credit  Facility (the
"Credit  Facility")  by amending  and  restating  the Max TV credit  facility to
reflect the  formation  of the Company  (note 2). The bank loan assumed from Max
Radio was repaid in full with proceeds of borrowings  under the Credit Facility.
In August 1996, the Credit Facility was amended, among other things, to increase
total availability to $100 million.

In February 1997, the Credit Facility was further  amended,  among other things,
to create an $11.2  million term  facility,  reduce the  availability  under the
reducing  revolving  credit  facility by $11.2  million and allow the Company to
make a distribution  to Max TV in conjunction  with the  cancellation of Class B
membership  units (note 10). As amended,  the Credit Facility  consists of a $36
million term facility,  an $11.2 million term facility, a $47.8 million reducing
revolving  credit  facility  and  a $5  million  non-reducing  revolving  credit
facility.  Amounts  outstanding  under  the  $11.2  million  term  facility  are
guaranteed by the Class B member.

The Credit  Facility  is  secured  by all of the member  units and assets of the
Company.  Outstanding  principal  under the Credit  Facility bears interest at a
floating rate based in part on the Company achieving certain operating cash flow
ratios.  The weighted average interest rate on the Credit Facility was 8.16% and
7.95%  in 1997  and  1996,  respectively.  The  Company  is  obligated  to pay a
quarterly commitment fee on the average daily unused portion of the reducing and
non-reducing  revolving  credit  facilities at an annual rate of 0.375% to 0.50%
depending  on certain  operating  cash flow  ratios and an annual  agency fee of
$30,000.

Amounts  outstanding  under the term  loans  must be repaid  over an  eight-year
period in quarterly  installments  beginning in 1997 with final payment required
no later than June 30, 2004. The maximum commitment under the reducing revolving
credit  facility  reduces by 7.5% in 1998,  10% in 1999,  12.5% in 2000,  15% in
2001,  17.5% in 2002 and 32.5%  thereafter  with maturity on June 30, 2004.  The
non-reducing  revolving  credit  facility must be paid in full by June 30, 2004.
Generally,  the Company is required to make principal  prepayments  with the net
cash proceeds  from asset sales and the issuance of additional  equity and debt.
The Company  must also make annual  prepayments  of 50% of excess cash flow,  as
defined in the Credit Facility,  after the Company  achieves  certain  operating
cash flow ratios.

The  Credit  Facility  contains  substantial  restrictive  covenants,  including
restrictions  on  the  Company's  ability  to  incur  additional  debt,  acquire
interests  in other  business  entities,  sell,  mortgage,  pledge or  otherwise
encumber any of its assets,  make capital  expenditures or make distributions to
the members  (other than  distributions  used to pay taxes  attributable  to the
operations of the Company (note 1(i))), without the prior written consent of the
lenders. In addition,  the Company is required,  among other things, to maintain
certain operating ratios.

                                      F-27
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

To reduce the impact of changes in  interest  rates,  the Company is required to
maintain  interest rate  protection on a minimum of 50% of the aggregate  amount
outstanding under the Credit Facility. At December 31, 1997, the Company has two
outstanding  interest rate cap agreements which expire on September 30, 1999 and
October  1,  1999 and  which  limit the rate of  interest  to 8.50%  and  7.50%,
respectively.  The  principal  amounts  related  to these  agreements  aggregate
$41,150,000  at  December  31,  1997.  Any net gain or loss from  interest  rate
protection  agreements is included in interest  expense in the period  incurred.
The  counterparties  to these interest rate cap  agreements are major  financial
institutions with which the Company also has other financial relationships.  The
Company  is  exposed  to  credit  loss in the event of  nonperformance  by these
counterparties.  The Company, however, does not anticipate nonperformance by the
other  parties,  and in the event of such  nonperformance  no  material  loss is
expected.

Estimated  aggregate  maturities of the Credit Facility and other long-term debt
after December 31, 1997 are as follows:
CREDIT          OTHER
                                        FACILITY         DEBT           TOTAL
                                     -------------- -------------- --------------
1998 ........................  $  4,440,000   $   311,520    $  4,751,520
       1999 ........................     5,440,000       337,210       5,777,210
       2000 ........................     6,800,000       280,681       7,080,681
       2001 ........................    11,880,000       737,468      12,617,468
       2002 ........................    16,085,000        30,007      16,115,007
       2003 and thereafter .........    27,305,000        32,408      27,337,408
                                      ------------   -----------    ------------
                                      $ 71,950,000   $ 1,729,294    $ 73,679,294
                                      ============   ===========    ============
10. MEMBERS' CAPITAL

The Company was organized under the Virginia Limited Liability Company Act (note
2) and the members are generally  not liable for any debts or other  obligations
of the Company. Under the terms of its January 1, 1996 Operating Agreement,  the
Company will cease to exist on December 31, 2045 unless earlier terminated.  The
Company has three  classes of member  units.  With the exception of the right to
elect the Company's  Board of Managers,  all units are  identical.  Holders of a
majority  of the Class A and Class B member  units  each have the right to elect
four of the eight members of the Company's Board of Managers. Holders of Class C
member units are not entitled to vote for members of the Board.  Net profits and
losses  are  allocated  in  proportion  to the  members'  respective  percentage
interests.

On February 14, 1997,  the Operating  Agreement was amended to admit  additional
members.  The Company issued  3,321,931  Class C member units to the new members
for net proceeds of approximately  $21.2 million. On March 13, 1997, the Company
paid $11.2 million and incurred transactions costs of approximately $455,000 and
other  long-term  obligations of  approximately  $818,000 in connection with the
cancellation of 1,690,500 Class B member units.

11. EMPLOYEE BENEFIT PLANS

(a) Benefit Plans

The Company has  retirement  savings and  cafeteria  plans  pursuant to Sections
401(k)  and  125  of  the  Internal  Revenue  Code,  respectively,  which  cover
substantially  all of  the  Company's  employees.  The  Company's  discretionary
contribution to the 401(k) plan is determined annually by the Company's Board of
Managers.  The Company did not contribute to the 401(k) plan for the years ended
December

                                      F-28
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

31, 1997 and 1996. Under the cafeteria plan,  employees may elect to participate
in health,  dental,  life,  medical  expense  reimbursement  and dependent  care
reimbursement benefit plans funded through employee payroll deductions.

(b) Value Appreciation Rights Plan

In 1996,  the Company  established  a Value  Appreciation  Rights Plan (the "VAR
Plan") to  encourage  the  retention of key  employees  and the  achievement  of
improved  financial results.  The award of value  appreciation  rights is at the
discretion  of the Company's  Board of Managers.  The VAR Plan provides for cash
payments equal to appreciation  in the value of the rights on retirement,  death
or  disability  of the VAR Plan  participant  or a change  in  ownership  of the
Company.  At December 31, 1997 and 1996,  500,000  rights were  authorized,  and
500,000  and  155,000  rights  were  awarded as of  December  31, 1997 and 1996,
respectively. The Company incurred approximately $940,000 and $40,000 of expense
with  respect to the VAR Plan in 1997 and 1996,  respectively.  The  amounts are
included  in accrued  compensation  and  benefits  in the  accompanying  balance
sheets.

12. INCOME TAXES

The  unaudited  pro  forma  income  tax  expense  (benefit)   presented  on  the
consolidated  statements of operations represents the estimated taxes that would
have been recorded had the Company been a C corporation  for income tax purposes
for each of the years presented.  The pro forma income tax expense  (benefit) is
as follows:
PRO FORMA (UNAUDITED)
                                     ----------------------------------
                                          1997               1996
                                     --------------   -----------------
Federal .................    $ 1,359,719       $  (1,234,407)
         State ...................        199,959            (181,531)
                                      -----------       -------------
         Total pro forma .........    $ 1,559,678       $  (1,415,938)
                                      ===========       =============
A  reconciliation  of the  statutory  federal  income tax rate and the pro forma
effective rate is as follows:
1997      1996
                                                            ------   -------
Statutory tax rate .............................     34%       34%
         Effect of state income taxes, net of federal tax
          benefit .......................................      5%        5%
                                                              --        --
         Pro forma effective tax rate ...................     39%       39%
                                                              ==        ==
13. RELATED PARTY TRANSACTIONS

At December  31, 1997 and 1996,  the Company has a receivable  of  approximately
$1,339,000  from an  entity  owned by  certain  shareholders  of a member of the
Company.  The receivable is secured by all of the assets of the related  entity,
which consists primarily of an aircraft, bears interest at a floating rate equal
to the rate under the Credit Facility (note 9) and is payable on demand, subject
to certain limitations. No principal payments were made in 1997 or 1996. Accrued
interest and other amounts owed to the Company from the related  entity  totaled
approximately $462,000 and $193,000 at December 31, 1997 and 1996, respectively.
During 1997 and 1996,  the Company  paid  approximately  $253,000  and  $95,000,
respectively, to the entity for use of the aircraft.

The Company leases office space from an entity owned by certain  shareholders of
a member of the Company.  The lease has a 10-year term ending  November 30, 2005
with three  five-year  renewal  options.  During 1997 and 1996, the Company paid
approximately $77,000 and $68,000, respectively, under the lease.

                                      F-29
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

At December  31, 1997,  the Company has  employment  agreements  with two of its
senior officers.  These employment  agreements  require total annual payments of
$396,000 through December 31, 1998.

The  Company  paid  management  fees of  $300,000  in 1997 and 1996 to  entities
affiliated with entities which hold approximately 80% of the ownership interests
of the Class A member and 100% of the ownership of one of the Class C members.

14. COMMITMENTS AND CONTINGENCIES

(a) Program Contract Rights

At December 31, 1997,  the Company's  liability for available  program  contract
rights  totals  approximately  $4.2  million.   Additionally,  the  Company  has
commitments to pay approximately  $5.0 million under program contract rights not
yet available and  approximately  $1.0 million for sports  broadcasting and news
co-production agreements.

Future minimum payments by year for program contract rights payable, commitments
for future program contract rights and other agreements are as follows:
COMMITMENTS FOR
                        PROGRAM CONTRACT      FUTURE PROGRAM         OTHER
                         RIGHTS PAYABLE      CONTRACT RIGHTS      AGREEMENTS
                       ------------------   -----------------   --------------
1998 ...............       $ 2,430,572         $   364,360       $   364,800
1999 ...............         1,224,933           1,069,586           229,150
2000 ...............           411,648           1,221,594           229,150
2001 ...............            99,521             994,653           200,750
2002 ...............                --             648,825                --
Thereafter .........                --             725,408                --
                           -----------         -----------       -----------
                           $ 4,166,674         $ 5,024,426       $ 1,023,850
                           ===========         ===========       ===========
(b) Leases

The Company incurred total rental expense of $982,058 and $844,900 for the years
ended  December  31, 1997 and 1996,  respectively,  under  operating  leases for
office space,  land,  vehicles and equipment  (note 13).  Future  minimum annual
payments under non-cancelable operating leases are as follows:
1998 .......................    $ 1,079,709
  1999 .......................        980,341
  2000 .......................        877,395
  2001 .......................        852,697
  2002 .......................        789,516
  Thereafter .................      2,245,771
                                  -----------
                                  $ 6,825,429
                                  ===========
F-30
MAX MEDIA PROPERTIES LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    DECEMBER 31, 1997 AND 1996 - (CONTINUED)

(c) Other Commitments

At December 31, 1997,  future minimum  payments under the Company's  three TBAs,
which expire between June 30, 2005 and March 13, 2007, are as follows:
1998 .......................    $   301,750
  1999 .......................        301,750
  2000 .......................      1,122,192
  2001 .......................        679,375
  2002 .......................         95,000
  Thereafter .................        342,000
                                  -----------
                                  $ 2,842,067
                                  ===========
The Company is required to satisfy  $880,000 of the minimum payments due in 2000
and  $550,000 of the minimum  payments due in 2001 as a condition to closing the
transactions described in note 3.

In July 1997, the Company paid $25,000 for an option to purchase  certain assets
and the FCC  licenses of  WWBI-LPTV,  Burlington,  Vermont  for $2 million.  The
option expires December 31, 1998, however,  the Company may extend the option to
June 30, 1999 for a one-time payment of $25,000.  The sellers have issued to the
Company  non-interest  bearing  promissory  notes  in the  aggregate  amount  of
$359,000 that will be applied to the purchase price if the option is exercised.

In  connection  with the closing of the  transactions  discussed  in note 3, the
Company is committed to pay an aggregate of approximately  $10 million under the
VAR Plan, other incentive plans and for transaction costs.

(d) Year 2000 Conversion (unaudited)

The Company is currently  evaluating  its  information  systems to determine the
scope  of its  year  2000  issues  and  has  not  fully  developed  a year  2000
transformation  plan or determined the costs associated with implementing such a
plan.  Failure to achieve year 2000  compliance by the Company  could  adversely
impact the Company's ability to conduct business for an extended period of time.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following  summarizes  the estimated  fair value of the Company's  financial
instruments at December 31, 1997:

(a) Long-term Debt

The carrying  amount of long-term debt  approximates  fair value.  Fair value is
estimated by discounting the future cash flows under the debt at rates currently
offered to the Company.

(b) Program Contract Rights Payable

The amount  reflected in program  contract  rights  payable at December 31, 1997
represents future payments to be made under program license agreements. The fair
value of program  contract  rights  payable is the present value of these future
payments.  At December 31, 1997,  the present value of these future  payments is
approximately $3.7 million.

(c) Other

The carrying value of cash,  accounts  receivable,  other receivables,  accounts
payable  and  accrued  expenses  approximate  fair  value  because  of the short
maturity  of  these  instruments.  The  fair  value  of the  interest  rate  cap
agreements (note 9) is insignificant.

                                      F-31
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Sullivan Broadcast Holdings, Inc.

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements  of  operations,  of  cash  flows,  and of  changes  in
shareholders'  equity present fairly,  in all material  respects,  the financial
position  of  Sullivan  Broadcast  Holdings,  Inc.  and  its  subsidiaries  (the
"Company")  at December 31, 1996 and 1997,  and the results of their  operations
and their cash  flows for the  period  from  inception  (June 2,  1995)  through
December  31, 1995 and each of the two years in the period  ended  December  31,
1997,  in  conformity  with  generally  accepted  accounting  principles.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

/s/Price Waterhouse LLP
Boston, Massachusetts

March 10, 1998

                                      F-32
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                            (DOLLARS IN THOUSANDS)
DECEMBER 31,
                                                                                  -------------------------
                                                                                      1996          1997
                                                                                  -----------   -----------
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents ....................................................    $   6,469     $   3,840
 Accounts receivable, net of allowance for doubtful accounts of $1,297 and
   $1,325......................................................................       31,686        34,990
 Current portion of programming rights ........................................       23,360        22,850
 Current deferred tax asset ...................................................        4,535         4,310
 Prepaid expenses and other current assets ....................................          733           941
                                                                                   ---------     ---------
   Total current assets .......................................................       66,783        66,931
 Property and equipment, net ..................................................       44,454        39,723
 Programming rights, net of current portion ...................................       21,319        23,432
 Deferred financing costs, net of accumulated amortization of $1,238 and
   $2,120......................................................................       14,016        13,134
 Intangible assets, net .......................................................      590,972       567,096
                                                                                   ---------     ---------
   Total assets ...............................................................    $ 737,544     $ 710,316
                                                                                   =========     =========
                         LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Current portion of senior debt ...............................................    $  18,583     $  23,562
 Interest payable .............................................................        4,362         3,882
 Accounts payable .............................................................        1,925         2,262
 Current portion of programming contracts payable .............................       24,281        24,944
 Income taxes payable .........................................................        2,865           195
 Accrued expenses .............................................................        3,771         4,367
                                                                                   ---------     ---------
   Total current liabilities ..................................................       55,787        59,212
Senior debt, net of current portion ...........................................      195,917       171,820
Borrowings under revolving lines of credit ....................................       56,500        59,500
Subordinated debt .............................................................      155,326       155,508
Interest payable ..............................................................        4,942        10,394
Programming contracts payable, net of current portion .........................       20,392        22,710
Deferred tax liability and other non-current liabilities ......................       84,124        82,132
                                                                                   ---------     ---------
   Total liabilities ..........................................................      572,988       561,276
                                                                                   ---------     ---------
15% Mandatorily redeemable cumulative preferred stock, non-voting $.001 par
 value; authorized 1,500,000 shares; 1,150,000 shares issued and outstanding ..      111,483       133,185
                                                                                   ---------     ---------
Commitments and contingencies (Note 11) .......................................           --            --
SHAREHOLDERS' EQUITY:
 Class B-1 common stock, $.001 par value; 5,000,000 shares authorized;
   1,204,077 and 1,201,577 shares issued and outstanding at December 31,
   1996 and 1997, respectively ................................................            1             1
 Class B-2 common stock; $.001 par value; 7,000,000 shares authorized;
   6,158,211 shares issued and outstanding at December 31, 1996 and 1997 ......            6             6
 Class C common stock; $.001 par value; 2,000,000 shares authorized; 896,229
   and 853,854 shares issued and outstanding at December 31, 1996 and 1997,
   respectively ...............................................................            1             1
 Additional paid-in capital ...................................................       76,861        55,117
 Accumulated deficit ..........................................................      (23,796)      (39,270)
                                                                                   ---------     ---------
   Total shareholders' equity .................................................       53,073        15,855
                                                                                   ---------     ---------
   Total liabilities and shareholders' equity .................................    $ 737,544     $ 710,316
                                                                                   =========     =========
The accompanying notes are an integral part of these financial statements.

                                      F-33
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
                             STATEMENT OF OPERATIONS

                             (DOLLARS IN THOUSANDS)
PERIOD FROM
                                                           INCEPTION
                                                         (JUNE 2, 1995)            YEAR ENDED
                                                            THROUGH               DECEMBER 31,
                                                          DECEMBER 31,    ----------------------------
                                                              1995             1996           1997
                                                        ---------------   -------------   ------------
Revenues (excluding barter) .........................      $      --        $ 129,711      $ 144,169
 Less: commissions ..................................             --           21,997         24,045
                                                           ---------        ---------      ---------
Net revenues (excluding barter) .....................             --          107,714        120,124
Trade and barter revenues ...........................             --           14,808         17,650
                                                           ---------        ---------      ---------
   Total net revenues ...............................             --          122,522        137,774
                                                           ---------        ---------      ---------
Expenses:
 Operating expenses .................................          1,601           15,005         17,301
 Selling, general and administrative ................             --           23,921         28,319
 Amortization of programming rights .................             --           26,673         30,197
 Depreciation and amortization ......................             --           48,051         42,220
                                                           ---------        ---------      ---------
                                                               1,601          113,650        118,037
                                                           ---------        ---------      ---------
    Operating (loss) income .........................         (1,601)           8,872         19,737
Interest expense, net, including amortization of debt
 discount and deferred loan costs ...................            258           41,187         40,711
Other expenses (income) .............................             --              131            (12)
                                                           ---------        ---------      ---------
Loss before income taxes ............................         (1,859)         (32,446)       (20,962)
Income tax benefit ..................................            335           10,174          5,488
                                                           ---------        ---------      ---------
 Net loss ...........................................      $  (1,524)       $ (22,272)     $ (15,474)
                                                           ---------        ---------      ---------
The accompanying notes are an integral part of these financial statements.

                                      F-34
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
PERIOD FROM
                                                                             INCEPTION
                                                                           (JUNE 2, 1995)            YEAR ENDED
                                                                              THROUGH               DECEMBER 31,
                                                                            DECEMBER 31,    -----------------------------
                                                                                1995             1996            1997
                                                                          ---------------   -------------   -------------
Cash flows from operating activities:
 Net loss .............................................................     $   (1,524)      $  (22,272)      $ (15,474)
 Adjustments to reconcile net loss to net cash (used for) provided
   by operating activities:
   Deferred income taxes ..............................................           (349)         (11,767)         (8,332)
   Depreciation of property and equipment .............................             --            7,865           9,251
   Amortization of intangible assets ..................................             --           40,186          32,969
   Amortization of programming rights (excluding barter) ..............             --           12,911          13,198
   Payments for programming rights ....................................             --           (9,087)        (11,820)
   Amortization of deferred financing costs and debt discount .........             38            2,765           1,064
 Changes in assets and liabilities:
   Increase in accounts receivable ....................................             --           (2,707)         (3,048)
   Increase in prepaid expenses and other assets ......................             --             (477)           (131)
   Increase (decrease) in amounts due to related party ................          1,547           (2,717)             --
   Increase (decrease) in income taxes payable ........................             14             (179)         (1,328)
   Increase in interest payable .......................................            485            8,819           4,972
   Increase in deferred debt issuance costs ...........................         (6,647)              --              --
   Increase in accounts payable .......................................             --              383             337
   Increase (decrease) in accrued expenses ............................          5,163           (7,060)           (201)
   Decrease in non-current liabilities ................................             --               --             (96)
                                                                            ----------       ----------       ---------
    Net cash (used for) provided by operating activities ..............         (1,273)          16,663          21,361
                                                                            ----------       ----------       ---------
 Cash flows from investing activities:
   (Increase) decrease in restricted cash .............................       (162,599)         162,599              --
   Acquisition of Act III Broadcasting, Inc., net of cash acquired                  --         (550,045)            751
   Acquisition of WFXV and WPNY (Note 3) ..............................             --             (792)             --
   Acquisition of WMSN (Note 3) .......................................             --          (26,584)             --
   Purchase of CTBC stock (Note 3) ....................................             --          (26,950)             --
   Payments for purchase options ......................................             --           (2,800)             --
   Acquisition of Cascom stock (Note 3) ...............................             --               --          (4,142)
   Capital expenditures ...............................................             --           (3,105)         (4,439)
                                                                            ----------       ----------       ---------
    Net cash used for investing activities ............................       (162,599)        (447,677)         (7,830)
                                                                            ----------       ----------       ---------
 Cash flows from financing activities:
   Proceeds from issuance of common stock .............................          6,972           61,692              10
   Proceeds from issuance of subordinated debt ........................        125,000               --              --
   Proceeds from issuance of long-term debt ...........................             --          220,000              --
   Proceeds from borrowings under credit facilities ...................             --           56,500           3,000
   Proceeds from bridge loan ..........................................          1,300               --              --
   Proceeds from issuance of preferred stock ..........................             --          115,000              --
   Proceeds from issuance of senior accrual debentures ................         35,000               --              --
   Repayment of long-term debt ........................................             --           (5,500)        (19,118)
   Repurchase of common stock .........................................             --             (129)            (52)
   Debt and preferred stock issuance costs ............................         (4,400)          (5,684)             --
   Advance buydown of programming rights ..............................             --           (4,396)             --
                                                                            ----------       ----------       ---------
    Net cash provided by (used for) financing activities ..............        163,872          437,483         (16,160)
                                                                            ----------       ----------       ---------
    Net increase (decrease) in cash and cash equivalents ..............             --            6,469          (2,629)
    Cash and cash equivalents, beginning of period ....................             --               --           6,469
                                                                            ----------       ----------       ---------
    Cash and cash equivalents, end of period ..........................     $       --       $    6,469       $   3,840
                                                                            ==========       ==========       =========
The accompanying notes are an integral part of these financial statements.

                                      F-35
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                            (DOLLARS IN THOUSANDS)
CLASS B-1              CLASS B-2
                                                 ---------------------- ---------------------
                                                      COMMON STOCK          COMMON STOCK
                                                 ---------------------- ---------------------
                                                     SHARES     AMOUNT     SHARES     AMOUNT
                                                 ------------- -------- ------------ --------
Issuance of Class B-1 common stock .............     560,000      $ 1           --      $--
Issuance of Class B-2 common stock- ............          --       --      697,243        1
Net loss .......................................          --       --           --       --
                                                     -------      ---      -------      ---
Balance at December 31, 1995 ...................     560,000        1      697,243        1
Issuance of Class B-1 common stock .............     651,577       --           --       --
Repurchase of Class B-1 common stock ...........      (7,500)      --           --       --
Issuance of Class B-2 common stock .............          --       --    5,460,968        5
Issuance of Class C common stock ...............          --       --           --       --
Repurchase of Class C common stock .............          --       --           --       --
Issuance of common stock purchase warrants .....          --       --           --       --
Accretion of preferred stock ...................          --       --           --       --
Net loss .......................................          --       --           --       --
                                                     -------      ---    ---------      ---
Balance at December 31, 1996 ...................   1,204,077        1    6,158,211        6
Repurchase of Class B-1 common stock ...........      (2,500)      --           --       --
Issuance of Class C common stock ...............          --       --           --       --
Repurchase of Class C common stock .............          --       --           --       --
Accretion of preferred stock ...................          --       --           --       --
Net loss .......................................                   --           --       --
                                                                  ---    ---------      ---
Balance at December 31, 1997 ...................   1,201,577      $ 1    6,158,211      $ 6
                                                   =========      ===    =========      ===
CLASS C
                                                 --------------------- 
                                                     COMMON STOCK       ADDITIONAL                     TOTAL
                                                 ---------------------    PAID-IN    ACCUMULATED   SHAREHOLDERS'
                                                    SHARES     AMOUNT     CAPITAL      DEFICIT        EQUITY
                                                 ------------ -------- ------------ ------------- --------------
Issuance of Class B-1 common stock .............         --      $--    $    5,599    $      --     $    5,600
Issuance of Class B-2 common stock- ............         --       --         6,971           --          6,972
Net loss .......................................         --       --            --       (1,524)        (1,524)
                                                         --      ---    ----------    ---------     ----------
Balance at December 31, 1995 ...................         --       --        12,570       (1,524)        11,048
Issuance of Class B-1 common stock .............         --       --         6,515           --          6,515
Repurchase of Class B-1 common stock ...........         --       --           (75)          --            (75)
Issuance of Class B-2 common stock .............         --       --        54,605           --         54,610
Issuance of Class C common stock ...............    990,979        1           566           --            567
Repurchase of Class C common stock .............    (94,750)      --           (54)          --            (54)
Issuance of common stock purchase warrants .....         --       --        24,063           --         24,063
Accretion of preferred stock ...................         --       --       (21,329)          --        (21,329)
Net loss .......................................         --       --            --      (22,272)       (22,272)
                                                    -------      ---    ----------    ---------     ----------
Balance at December 31, 1996 ...................    896,229        1        76,861      (23,796)        53,073
Repurchase of Class B-1 common stock ...........         --       --           (25)          --            (25)
Issuance of Class C common stock ...............      5,000       --            10           --             10
Repurchase of Class C common stock .............    (47,375)      --           (27)          --            (27)
Accretion of preferred stock ...................         --       --       (21,702)          --        (21,702)
Net loss .......................................         --       --            --      (15,474)       (15,474)
                                                    -------      ---    ----------    ---------     ----------
Balance at December 31, 1997 ...................    853,854      $ 1    $   55,117    $ (39,270)    $   15,855
                                                    =======      ===    ==========    =========     ==========
The accompanying notes are an integral part of those financial statements.

                                      F-36
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BUSINESS OPERATIONS

A-3 Holdings Inc. ("Holdings" or the "Company") was incorporated on June 2, 1995
in the  State  of  Delaware  for  the  sole  purpose  of  acquiring  100% of the
outstanding capital stock of Act III Broadcasting, Inc. ("Act III"), through its
wholly  owned  subsidiary  A-3  Acquisition,  Inc.  ("A-3"),  under  a  purchase
agreement  dated June 19,  1995.  The  purchase  of Act III was  consummated  on
January 4, 1996 (the "Act III  Acquisition"),  at which time A-3 merged with and
into Act III and changed its name to Sullivan Broadcasting Company, Inc. ("SBC")
(Note 3).

The Company  currently owns,  operates and programs,  through its  subsidiaries,
nine Fox  Broadcasting  Company  ("Fox")  affiliated  television  stations,  one
television station  affiliated with the American  Broadcasting  Companies,  Inc.
("ABC"),  and one  independent  television  station  throughout  the  Northeast,
Southeast,  and the  Mid-Atlantic  states.  The Company programs two independent
television  stations under local marketing  agreements  ("LMA") in markets where
the Company owns another television station (Note 4). Television broadcasting is
subject to the  jurisdiction of the Federal  Communications  Commission  ("FCC")
under the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television  broadcasting  stations
except  under a license  issued by the FCC and  empowers  the FCC,  among  other
things,  to issue,  revoke,  and modify  broadcasting  licenses,  determine  the
location of the  stations,  regulate the equipment  used by the stations,  adopt
regulations  to carry out the  provision of the  Communications  Act, and impose
penalties for violation of such regulations.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidations

The consolidated  financial  statements  include the accounts of the Company and
its  wholly   owned   subsidiaries.   Significant   intercompany   accounts  and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid  investments  purchased with an original
maturity of ninety days or less to be cash equivalents.

Revenue Recognition

Advertising  revenues are recognized in the period during which the  advertising
spots are aired.  Revenues from other sources are  recognized in the period when
the services are provided.

Trade and Barter Transactions

The Company  trades  certain  advertising  time for various  goods and services.
These  transactions  are  recorded at the  estimated  fair value of the goods or
services  received.   Revenues  from  trade  transactions  are  recognized  when
advertisements are broadcast and services or merchandise received are charged to
expense when received or used.

The  Company  barters  advertising  time for  certain  program  material.  These
transactions  are  recorded  at  management's  estimate  of  the  value  of  the
advertising  time exchanged,  which  approximates  the fair value of the program
material received.

Concentration of Credit Risk

Financial instruments which potentially expose the Company to a concentration of
credit risk include cash, cash equivalents and accounts receivable.  The Company
maintains  cash in excess of  federally  insured  deposits at several  financial
institutions at December 31, 1997. The Company does not believe

                                      F-37
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

that such  deposits  are  subject to any  unusual  credit risk beyond the normal
credit risk  associated  with  operating  its  business.  The Company  maintains
reserves for potential credit losses and such losses, in the aggregate, have not
historically exceeded management's expectations.

Programming Rights and Contracts Payable

Programming  rights,  primarily in the form of  syndicated  programs and feature
film packages,  represent  amounts paid or payable to program  suppliers for the
limited  right to broadcast  the  suppliers'  programming  and are recorded when
available  for use.  Programming  rights are stated at the lower of  unamortized
cost or net realizable  value.  Amortization is computed using the straight-line
method  based on the  license  period or based on usage,  whichever  yields  the
greater  accumulated  amortization  for each  program.  The  current  portion of
programming rights represents those rights available for broadcast which will be
amortized in the succeeding year.

The Company has estimated the fair value of these programming  contracts payable
at approximately  $49,480,000 as of December 31, 1997 based on future cash flows
discounted at the Company's current borrowing rate.

Property and Equipment

Property and equipment is stated on the basis of cost or estimated fair value at
the date of  acquisition.  Major renewals and  betterments  are  capitalized and
ordinary  repairs and maintenance are charged to expense in the period incurred.
Depreciation is computed on the  straight-line  basis over the estimated  useful
lives of the assets which range from three to thirty-nine years.

Intangible Assets

Intangible  assets  represent  the  estimated  fair  value of both  identifiable
intangible  assets  and  goodwill  resulting  from  acquisitions.   Identifiable
intangibles  include FCC broadcast  licenses,  network  affiliation  agreements,
non-competition  agreements,  and favorable  leases and are being amortized on a
straight-line  basis over periods  ranging  from 5 to 15 years.  Goodwill is the
excess of the  purchase  price over the fair  value of the net assets  acquired,
determined  through an  independent  appraisal,  and is amortized  over 40 years
using the straight-line  method. The Company evaluates the recoverability of its
intangible  assets  whenever  adverse  events or  changes  in  business  climate
indicate  that the  expected  undiscounted  future  cash flows from the  related
intangible assets may be less than previously anticipated. If the net book value
of the related  intangible asset exceeds the  undiscounted  future cash flows of
the intangible  asset,  the carrying value would be reduced to the present value
of its expected  future cash flows and an impairment  loss would be  recognized.
The  Company  did not  recognize  any  impairment  loss  during the years  ended
December 31, 1996 and 1997.

Deferred Financing Costs

Deferred  financing  costs  represent  costs  incurred  in  obtaining  long-term
financing.  These costs are  expensed as interest  over the lives of the related
loans, using the effective interest method.

Accounting for Income Taxes

The Company  accounts for income taxes under the liability  method of accounting
as set forth in Statement of Financial  Accounting Standards No. 109 "Accounting
for Income  Taxes".  Under the method  prescribed  by this  statement,  deferred
income taxes are  recognized at enacted tax rates to reflect the future  effects
of income tax  carryforwards and temporary  differences  arising between the tax
basis of assets and liabilities and their  financial  reporting  amounts at each
period end.

                                      F-38
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

Interest Rate Risk Management

The Company enters into interest rate swap agreements  with commercial  banks to
mitigate  the risk of possible  rising  interest  rates.  These  agreements  are
designated  as hedges of  interest  rates,  and the  differential  to be paid or
received on interest rate swaps is accrued as an adjustment to interest  expense
as interest rates change.  The Company is exposed to credit loss in the event of
nonperformance  by the other  parties  to the  interest  rate  swap  agreements;
however, the Company does not anticipate nonperformance by the counterparties.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles requires management to make estimates and use assumptions
that affect the reported  amounts of assets and  liabilities  and the disclosure
for contingent assets and liabilities at the date of the financial statements as
well as the  reported  amounts of revenues  and  expenses  during the  reporting
period. Actual results may vary from estimates used.

3.   ACQUISITIONS

In 1996 and 1997,  the Company made the  acquisitions  set forth below,  each of
which  has  been  accounted  for  as  a  purchase.  The  consolidated  financial
statements  include  the  operating  results of each  business  from the date of
acquisition,  except for the Act III  Acquisition  which  includes the operating
results  of Act III from  January  1, 1996  through  January  4, 1996 due to the
immateriality of the results in relation to the financial  statements taken as a
whole.  Pro forma results of operations of the other  acquisitions  made in 1996
and 1997 are not considered material.

The Act III Acquisition

On January 4, 1996,  the Company  acquired all of the  outstanding  stock of Act
III. The acquisition cost consisted of the following:

     Cash paid to Act III shareholders .........    $ 359,108,000
     Cash paid to retire debt ..................      167,764,000
     Acquisition costs .........................       23,173,000
                                                    -------------
                                                    $ 550,045,000
                                                    =============

The excess of the purchase price over the fair value of the net assets  acquired
was $208,861,000. In 1997, the Company received $751,000 from the sellers due to
the settlement of certain items for which funds were being held in escrow.  This
amount, net of expenses, was recorded as a reduction of goodwill during the year
ended December 31, 1997.

The Utica Acquisition

On February 7, 1996, the Company executed an asset purchase agreement to acquire
certain  assets of Mohawk Valley  Broadcasting,  Inc.  ("Mohawk")  and Acme T.V.
Corporation  ("Acme"),  the owners and operators of WFXV and WPNY in Utica,  New
York,  for a total  purchase  price of $400,000.  In addition,  the Company paid
$2,600,000  for the option to purchase the  remaining  assets of Mohawk and Acme
pending FCC approval for  $250,000  and  simultaneously  entered into a LMA with
Mohawk and Acme (Note 4). One June 24,  1996,  the FCC granted  approval for the
Company to purchase the  remaining  assets at which time the LMA with Mohawk and
Acme was  terminated  and the  remaining  assets  were  purchased.  The  Company
allocated the total cost of $3,250,000 plus fees and expenses of $142,000 to the
net assets acquired. The excess of the purchase price over the fair value of the
net assets acquired was $1,322,000.

                                      F-39
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

The Madison Acquisition

On July 1, 1996, the Company acquired substantially all of the assets of Channel
47 Limited  Partnership,  owner and operator of a television station in Madison,
Wisconsin  (WMSN)  for a total  purchase  price  of  $26,500,000  plus  fees and
expenses of $84,000. The excess of the purchase price over the fair value of the
net assets acquired was $4,155,000.

The Nashville Acquisition

On February 22,  1996,  the Company  entered  into a LMA with Central  Tennessee
Broadcasting  Corporation  ("CTBC"),  owner and operator of WXMT, an independent
television  station in  Nashville,  Tennessee.  Additionally,  the Company  paid
$200,000 for the option to acquire the stock of CTBC based upon  certain  events
defined in the underlying  agreement for  $13,710,000 in cash plus the repayment
of  $13,030,000  of CTBC's debt.  On July 12, 1996,  the Company  exercised  the
option and  purchased  the stock of CTBC.  The cost plus fees of  $210,000  were
allocated to the net assets acquired.  The excess of the purchase price over the
fair value of the net assets acquired was $17,505,000.

The Cascom Acquisition

On January 2, 1997,  the  Company  acquired  substantially  all of the assets of
Cascom  International,  Inc. and related film libraries for $4,038,000 plus fees
and expenses of $104,000.  The excess of the purchase  price over the fair value
of the net assets acquired was $1,877,000.

4.   LOCAL MARKETING AGREEMENTS

As part of the Act III  Acquisition,  the Company was  assigned Act III's right,
title and interest in a LMA with Guilford Telecasters, Inc. ("Guilford"),  owner
of WUPN (formerly WGGT), an independent television station in Greensboro,  North
Carolina  (the "WUPN LMA").  Under the WUPN LMA, the Company  sells and collects
the  advertising  revenues of WUPN,  programs WUPN, and reimburses  Guilford for
operating expenses. In connection with the Act III Acquisition, the Company also
acquired Act III's right, title and interest in a prepayment made under the WUPN
LMA,  which  released the Company from the quarterly  payments based on the cash
flows of WUPN which were  initially  required  under the WUPN LMA. In July 1996,
Guilford sold the assets of WUPN to Mission Broadcasting II, Inc. ("Mission II")
and assigned their right, title and interest in the WUPN LMA to Mission II under
substantially similar terms.

On July 12, 1996, the Company  entered into an LMA with Mission  Broadcasting I,
Inc.  ("Mission I"), owner of WUXP (formerly  WXMT),  an independent  station in
Nashville,  Tennessee  (the "WUXP  LMA").  Under the terms of the WUXP LMA,  the
Company  sells and  collects  the  advertising  revenues of WUXP and  reimburses
Mission I for operating expenses and debt service requirements.

Net  revenues of  $7,121,000  and  $11,989,000,  respectively,  and  expenses of
$2,818,000, and $3,397,000, respectively, related to the WUXP and WUPN LMAs have
been included in the  Company's  consolidated  statement of  operations  for the
years ended  December 31, 1996 and 1997. The Company has guaranteed an aggregate
amount of debt of $3,850,000 related to WUXP and WUPN as of December 31, 1997.

                                      F-40
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

5.   PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
ESTIMATED             DECEMBER 31,
                                                              USEFUL LIFE   -------------------------------
                                                                (YEARS)          1996             1997
                                                             ------------   --------------   --------------
Land ....................................................          --       $  1,385,000     $  1,426,000
 Buildings and improvements ..............................       15-39          6,262,000        6,556,000
 Broadcasting equipment ..................................         3-5         39,978,000       43,845,000
 Furniture and other equipment ...........................         5-7          3,070,000        3,724,000
 Construction in progress ................................          --          1,624,000        1,288,000
                                                                             ------------     ------------
                                                                               52,319,000       56,839,000
 Less: accumulated depreciation and amortization .........                      7,865,000       17,116,000
                                                                             ------------     ------------
                                                                             $ 44,454,000     $ 39,723,000
                                                                             ============     ============
6.   INTANGIBLE ASSETS

Intangible assets consists of the following:
AMORTIZATION              DECEMBER 31,
                                                  PERIOD      -----------------------------------
                                                 (YEARS)            1996               1997
                                              -------------   ----------------   ----------------
Commercial advertising contracts .........       15           $ 148,986,000      $ 148,986,000
 Goodwill .................................       40             231,494,000        238,508,000
 Affiliation agreements ...................       10              98,445,000         98,445,000
 FCC licenses .............................       15              81,297,000         81,297,000
 Canadian cable rights ....................       10              59,000,000         59,000,000
 Other intangible assets ..................       5- 15           11,936,000         14,015,000
                                                               -------------      -------------
                                                                 631,158,000        640,251,000
 Less: accumulated amortization ...........                       40,186,000         73,155,000
                                                               -------------      -------------
                                                               $ 590,972,000      $ 567,096,000
                                                               =============      =============
7.   LONG-TERM DEBT

Long term debt consists of the following:
DECEMBER 31,
                                         ----------------------------------
                                               1996              1997
                                         ---------------   ----------------
SENIOR DEBT:
 Revolving credit facility ...........    $  30,000,000     $   6,000,000
 Acquisition credit facility .........       26,500,000        53,500,000
 Term loan ...........................      214,500,000       195,382,000
                                          -------------     -------------
                                            271,000,000       254,882,000
 Less: current portion ...............       18,583,000        23,562,000
                                          -------------     -------------
                                          $ 252,417,000     $ 231,320,000
                                          =============     =============
F-41
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
DECEMBER 31,
                                                                  -------------------------------------
                                                                         1996                1997
                                                                  -----------------   -----------------
SUBORDINATED DEBT:
 Senior accrual debentures,  interest at 13.25% compounded
   semi-annually payable on June 15, 2001 and payable semi-
   annual thereafter, principal due December 15, 2005 .........     $  35,000,000       $  35,000,000
 Less: unamortized discount ...................................        (4,859,000)         (4,677,000)
                                                                    -------------       -------------
                                                                       30,141,000          30,323,000
 Senior subordinated notes, interest at 10.25% payable semi-
   annually, principal due December 15, 2005 ..................       125,000,000         125,000,000
 Senior subordinated notes, interest at 9.625% payable semi-
   annually, principal due December 31, 2003 ..................           185,000             185,000
                                                                    -------------       -------------
                                                                    $ 155,326,000       $ 155,508,000
                                                                    =============       =============
On January 4, 1996,  the Company  entered into a Credit  Agreement  (the "Credit
Agreement")  to  provide  a  $220,000,000  term  loan  to  finance  the  Act III
Acquisition.  The Credit Agreement also provides for a revolving credit facility
and an acquisition  credit  facility  allowing for borrowings of $30,000,000 and
$75,000,000,  respectively,  through  2003.  During  1997,  the  Company  rolled
$24,000,000  of  borrowings   under  the  revolving  credit  facility  into  the
acquisition  credit  facility per the lenders  permission as the borrowings were
utilized to finance acquisitions. All borrowings under the Credit Agreement bear
interest at the lender's base rate plus a percentage  determined  based upon the
Company's  most  recent  quarterly  leverage  ratio  as  defined  in the  Credit
Agreement (8.49% at December 31, 1997). The interest is payable  quarterly or at
other  increments  if the Company has chosen a LIBOR  interest rate for a period
greater than 90 days. These  borrowings are secured by substantially  all of the
Company's  assets.  The term loan is payable in varying  quarterly  installments
beginning  in  December  1996  through  December  2003.  The lender may  require
prepayments  based upon the meeting of certain cash flow  criteria as defined in
the Credit Agreement.

The Credit  Agreement  requires  the  Company to enter into  interest  rate swap
agreements  for  notional  amounts  of at  least  50% of its  total  outstanding
floating rate debt under the Credit Agreement. At December 31, 1997, the Company
had several interest rate swap agreements.  These financial  instruments,  which
are not held for trading purposes, expire from 1998 to 2001. The swap agreements
set rates in the range of 5.14% to 5.61%.  The notional  amount related to these
agreements was  $200,000,000 at December 31, 1997. The Company has no intentions
of  terminating  these  instruments  prior to their  expiration  dates unless it
repays a portion of its bank debt in advance of scheduled payments.  The Company
estimates  the fair  value of  these  instruments  at  December  31,  1997 to be
$1,576,000.

On December 21, 1995,  the Company issued and sold 35,000 units through a public
offering  consisting  in the  aggregate of  $35,000,000  in principal  amount of
13.25% senior  accrual  debentures  (the  "Debentures")  due in 2006 and 560,000
shares of Holdings  Class B-1 common  stock,  the proceeds of which were used to
finance  the  acquisition  of Act III.  An  estimated  value of  $5,600,000  was
assigned to the shares of Class B-1 common stock  resulting in a discount of the
same amount on the Debentures.  This discount is being amortized through charges
to interest expense over the life of the Debentures using the effective interest
method.

Interest on the  Debentures  for the period of issuance until June 15, 2001 will
accrue at the stated interest rate,  compounded on a semi-annual basis, and will
be  payable  in  cash  on  that  date in an  aggregate  amount  of  $35,879,000.
Thereafter,  interest on the Debentures  will accrue at the stated rate and will
be payable  semi-annually  in arrears on June 15 and  December  15 of each year,
commencing  December 15, 2001.  The Company is required to redeem  $2,772,000 in
aggregated principal of the Debentures on June 15, 2001.

                                      F-42
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

On December 21, 1995, the Company issued and sold  $125,000,000 of 10.25% senior
subordinated  notes (the "Notes") due on December 15, 2005 in a public offering,
the  proceeds of which were used to finance the Act III  Acquisition.  The Notes
are  unsecured  and are  subordinated  to all  existing  and future  debt of the
Company.

Interest  on the Notes is payable  semi-annually  on June 15 and  December 15 of
each year,  commencing  June 15, 1996. The Notes are subject to redemption on or
after  December  15,  2000 at the  option of the  Company at  redemption  prices
specified in the debt agreement.  In addition, on or prior to December 15, 1998,
the  Company  may  redeem  additional  principal  amounts  of the Notes with the
proceeds  from an  initial  public  offering  of  equity  at  redemption  prices
specified  in the  agreement,  so long as 67% of the  original  principal of the
Notes is still outstanding.

Concurrent  with the Act III  Acquisition,  the Company  made a tender offer for
$100,000,000  9 5/8% senior  subordinated  notes (the "9 5/8 Notes")  originally
issued by Act III. At December 31, 1997,  $185,000 of the 9 5/8 Notes were still
outstanding.

The Credit Agreement,  Debentures and Notes contain covenants which, among other
restrictions,  require the Company to comply with certain  financial  ratios and
provisions and limit the Company's ability to incur additional  indebtedness and
pay dividends.  The Company was in compliance  with all covenants as of December
31, 1997.

The Company has estimated the fair value of long-term  debt at December 31, 1996
and 1997 to  approximate  the carrying  value.  The fair value was  estimated by
discounting  the future  cash flows of loans with  similar  terms and  remaining
maturities at the Company's current borrowing rate.

As of December 31, 1997,  scheduled  maturities,  including debt  discount,  are
summarized as follows:

                 1998 ...............    $  23,562,000
                 1999 ...............       31,513,000
                 2000 ...............       42,017,000
                 2001 ...............       42,963,000
                 2002 ...............       42,963,000
                 Thereafter .........      232,049,000
                                         -------------
                                         $ 415,067,000
                                         =============

                                      F-43
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

8.   INCOME TAXES

The income tax benefit consists of the following:
PERIOD FROM
                                       INCEPTION
                                     (JUNE 2, 1995)                YEAR ENDED
                                        THROUGH                   DECEMBER 31,
                                      DECEMBER 31,    ------------------------------------
                                          1995               1996                1997
                                    ---------------   ------------------   ---------------
Current tax expense:
 Federal ........................     $        --       $           --      $    166,000
 State ..........................          14,000            1,593,000         2,678,000
                                      -----------       --------------      ------------
                                           14,000            1,593,000         2,844,000

Deferred tax benefit:
 Federal ........................        (324,000)          (8,779,000)       (5,884,000)
 State ..........................         (25,000)          (2,988,000)       (2,448,000)
                                      -----------       --------------      ------------
                                         (349,000)         (11,767,000)       (8,332,000)
                                      -----------       --------------      ------------
 Net income tax benefit .........     $  (335,000)      $  (10,174,000)     $ (5,488,000)
                                      ===========       ==============      ============
Reconciling amounts,  stated below as a percentage of pretax income, between the
statutory  federal  income tax rate and the Company's  effective tax rate are as
follows:
PERIOD FROM
                                             INCEPTION
                                           (JUNE 2, 1995)         YEAR ENDED
                                              THROUGH            DECEMBER 31,
                                            DECEMBER 31,    -----------------------
                                                1995           1996         1997
                                          ---------------   ----------   ----------
U.S. federal statutory rate ...........         35.0%           35.0%        35.0%
State and local taxes, net ............          1.2             4.3         (1.5)
Amortization of goodwill ..............           --            (7.9)        (9.5)
Other .................................          0.6              --           --
Change in valuation allowance .........        (18.8)             --           --
                                               -----            ----         ----
Effective tax rate ....................         18.0%           31.4%        24.0%
                                               =====            ====         ====
The  components  of the net deferred tax liability at December 31, 1996 and 1997
are as follows:
DECEMBER 31,
                                                            -------------------------------------
                                                                   1996                1997
                                                            -----------------   -----------------
Property and equipment ..................................    $   (9,699,000)     $   (7,624,000)
Programming rights ......................................           770,000             239,000
Bad debts ...............................................         1,739,000           1,885,000
Intangible assets .......................................      (131,966,000)       (119,912,000)
Accrued interest ........................................           576,000             783,000
Net operating loss and charitable carryforwards .........        61,357,000          46,073,000
Other assets ............................................         2,649,000           2,879,000
Other ...................................................        (4,882,000)         (2,098,000)
                                                             --------------      --------------
Net deferred tax liability ..............................    $  (79,456,000)     $  (77,775,000)
                                                             --------------      --------------
F-44
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

At  December  31,  1997,  the  Company  had net  operating  loss and  charitable
contribution   carryforwards  of  approximately  $109,857,000  and  $10,000,000,
respectively,  for  federal  income tax  purposes,  available  to reduce  future
taxable income. To the extent not used, federal net operating loss carryforwards
expire in varying  amounts  beginning in 2003. In addition,  the Company had net
operating loss  carryforwards of  approximately  $38,604,000 for state and local
income tax purposes in various jurisdictions.

A corporation that undergoes a "change of ownership"  pursuant to Section 382 of
the  Internal  Revenue Code is subject to  limitations  on the amount of its net
operating  loss  carryforwards  which may be used in the  future.  An  ownership
change occurred on January 4, 1996. The annual  limitation on the use of the net
operating loss is $10,050,000.  The Company  estimates the limitation on the net
operating  loss  will  not  have a  material  adverse  impact  on the  Company's
consolidated  financial  position or results of operations.  No assurance can be
given that an ownership change will not occur as a result of other  transactions
entered into by the Company,  or by certain other parties over which the Company
has no control.  If a "change in ownership" for income tax purposes occurs,  the
Company's  ability to use  "pre-change  losses"  could be  postponed or reduced,
possibly resulting in accelerated or additional tax payments which, with respect
to tax  periods  beyond  1997,  could  have a  material  adverse  impact  on the
Company's consolidated financial position or results of operations.

In  1996,  the tax  benefit  related  to the  repurchase  of  stock  options  of
approximately  $3,850,000  was recorded as a reduction of goodwill.  In 1997, an
adjustment of  approximately  $4,500,000  was made to goodwill  resulting from a
change in management's  estimate of the ultimate tax benefit of acquired assets,
liabilities and carryforwards related to the Act III Acquisition.

9.   MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK

On January 4, 1996, the Company issued $115,000,000,  15% mandatorily redeemable
cumulative  preferred stock (the  "Preferred  Stock").  Dividends  accrue on the
outstanding  shares  of  Preferred  Stock at a rate of 15% per year  compounding
annually.  Accrued  dividends  are payable on March 15, 2001 and will be payable
annually  subsequent  to that  date.  In  connection  with the  issuance  of the
Preferred  Stock,  the Company issued  2,406,307  warrants to purchase Class B-1
common stock at $.001 per share. These warrants are currently exercisable and do
not  expire.  Accretion  to  record  the  value  of the  Preferred  Stock at its
redemption value is calculated using the effective interest method. Such amounts
have been charged to additional-paid-in-capital.

10.  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company paid interest of $33,828,000 and $34,666,000  during the years ended
December 31, 1996 and 1997, respectively.

During the years  ended  December  31,  1996 and 1997,  the  programming  rights
increased  $44,679,000  and  $31,800,000  due to the  assumption of  programming
liabilities.

During  the  years  ended   December  31,  1996  and  1997,   the  Company  paid
approximately $1,749,000 and $3,600,000, respectively for income taxes.

11.  COMMITMENTS AND CONTINGENCIES

Leases

The Company has  operating  lease  agreements  for land,  office  space,  office
equipment and other property which expire on various dates through 2005.  Rental
expense was $691,000,  $750,000 and $884,000 during the years ended December 31,
1995, 1996 and 1997,  respectively.  As of December 31, 1997,  minimum  required
annual payments under noncancelable operating leases are as follows:

                                      F-45
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

                       1998 ...............    $   978,000
                       1999 ...............        968,000
                       2000 ...............        984,000
                       2001 ...............        836,000
                       2002 ...............        715,000
                       Thereafter .........      1,230,000
                                               -----------
                                               $ 5,711,000
                                               ===========

Programming Contracts

Programming contracts acquired under license agreements are recorded as an asset
and a  corresponding  liability  at the  inception  of the  license  period.  In
addition to the programming  contracts payable at December 31, 1996, the Company
has  $17,575,000  of  commitments  to acquire  programming  rights for which the
license  period  has not  commenced  and,  accordingly,  for  which  no asset or
liability  has  been  recorded.   Future  minimum  payments  arising  from  such
commitments  outstanding at December 31, 1996,  excluding  $18,976,000 of barter
commitments, are as follows:

                      1998 ...............    $ 14,798,000
                      1999 ...............      11,437,000
                      2000 ...............       9,351,000
                      2001 ...............       5,868,000
                      2002 ...............       3,632,000
                      Thereafter .........       1,167,000
                                              ------------
                                              $ 46,253,000
                                              ============
              

Litigation

The Company currently and from time to time is involved in litigation incidental
to the conduct of its  business.  In the opinion of  management,  no existing or
contingent claims will have a material adverse effect on the Company's financial
position or results of operations.

Employment Contracts

The Company has entered into an employment contract with an executive officer of
the  Company  providing  for a  minimum  aggregate  amount of  $500,000  payable
annually  commencing  September  13,  1995 for an initial  term of eight  years.
Additionally,  the Company has  guaranteed  annual bonus  arrangements  with two
other executive officers which have historically been paid.

12.  RELATED PARTY TRANSACTIONS

Operating expenses include  reimbursements to ABRY Partners,  Inc. ("ABRY"),  an
entity related through common  ownership,  for the Company's  allocable share of
rent paid by ABRY for the  Company.  These  expenses  approximated  $73,000  and
$106,000 for the years ended December 31, 1996 and 1997,  respectively,  and are
included  in  selling,  general and  administrative  expenses  in the  Company's
consolidated statement of operations.

The Company also pays ABRY a management  fee for  financial  and other  advisory
services.  Management fees paid to ABRY were approximately $252,000 and $265,000
for the years ended December 31, 1996 and 1997, respectively and are included in
selling  general  and  administrative  expenses  in the  Company's  consolidated
statement of operations.

                                      F-46
SULLIVAN BROADCAST HOLDINGS, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

13.  SUBSEQUENT EVENT

On February 23, 1998, the Company  entered into a Plan of Merger (the "Merger").
Under the terms of the Merger,  100% of the issued and outstanding  common stock
of the Company  will be acquired by means of a merger.  The Merger is subject to
approval of the FCC and is expected to close prior to August 1998.

                                      F-47
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Sullivan Broadcasting Company, Inc.
(formerly Act III Broadcasting, Inc. as successor by
merger with A-3 Acquisition, Inc.)

     In our opinion, the accompanying  consolidated statements of operations, of
cash flows and of changes in  shareholders'  deficit and present fairly,  in all
material  respects,  the  results of  operations  and of cash flows of  Sullivan
Broadcasting  Company,  Inc. and its  subsidiaries  (the "Company") for the year
ended  December 31, 1995,  in  conformity  with  generally  accepted  accounting
principles.  These financial  statements are the responsibility of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audit.  We conducted  our audit of these  statements in
accordance with generally accepted auditing standards which 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,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion  expressed
above.

/s/Price Waterhouse LLP
Boston, Massachusetts

March 25, 1996

                                      F-48
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                             (DOLLARS IN THOUSANDS)

                                                                     YEAR ENDED
                                                                    DECEMBER 31,
                                                                        1995
                                                                   -------------
  Revenues .......................................................   $112,039
    Less -- commissions ..........................................     19,914
                                                                     --------
  Net revenues ...................................................     92,125
  Trade and barter revenues ......................................      7,876
                                                                     --------
    Total net revenues ...........................................    100,001

  Expenses:
    Operating expenses ...........................................     11,136
    Selling, general and administrative ..........................     23,447
    Amortization of programming rights ...........................     18,033
    Depreciation and amortization ................................     11,780
                                                                     ========
                                                                       64,396
                                                                     --------
    Operating income .............................................     35,605
  Interest expense, including amortization of debt dis-
    count and deferred loan costs ................................     17,777
  Other expenses .................................................        247
                                                                     --------
  Income before provision for income taxes .......................     17,581
  Provision for income taxes .....................................     (4,762)
                                                                     --------
  Net income .....................................................   $ 22,343
                                                                     ========

   The accompanying notes are an integral part of these financial statements.

                                      F-49
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

                                                             YEAR ENDED
                                                            DECEMBER 31,
                                                                1995
                                                           -------------
CASH FLOWS FROM OPERATING ACTIVITIES:                     
    Net income ...........................................   $  22,343
    Adjustments to reconcile net income to net cash       
      provided by operating activities:                   
      Adjustment to goodwill relating to realization of   
        net operating loss ...............................         484
      Depreciation of property and equipment .............       3,147
      Amortization of intangibles ........................       8,633
      Amortization of programming rights, excluding       
        barter ...........................................      10,728
      Payments for programming rights ....................      (8,368)
      Prepayment of WGGT time brokerage fees .............      (6,000)
      Amortization of debt issuance costs and discount....         851
      Loss on sale or retirement of fixed assets .........          24
      Increase in interest payable .......................          95
      Amortization of deferred compensation ..............         153
CHANGES IN ASSETS AND LIABILITIES:
      Increase in accounts receivable ....................      (3,121)
      Increase in prepaid expenses and other assets ......        (515)
      Increase in deferred tax assets ....................      (7,326)
      Increase in taxes payable ..........................       1,105
      Decrease in accounts payable and other accrued      
        liabilities ......................................        (413)
                                                              ---------
      Net cash provided by operating activities ..........      21,820
                                                              ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Payment for WGGT option ............................      (1,000)
      Purchase of fixed assets ...........................      (5,560)
                                                              ---------
        Net cash used for investing activities ...........      (6,560)
                                                              ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Payment of principal amounts .........................     (14,971)
                                                              ---------
      Net cash used for financing activities .............     (14,971)
                                                              ---------
      Net increase in cash and cash equivalents ..........         289
      Cash and cash equivalents, beginning of year .......       3,295
                                                              ---------
      Cash and cash equivalents, end of year .............   $   3,584
                                                              =========

   The accompanying notes are an integral part of these financial statements.

                                      F-50
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
                             (DOLLARS IN THOUSANDS)
CLASS A              CLASS C
                                    -------------------- --------------------
                                        COMMON STOCK         COMMON STOCK       ADDITIONAL                                 TOTAL  
                                    -------------------- --------------------     PAID-IN   ACCUMULATED    DEFERRED    SHAREHOLDERS'
                                       SHARES     AMOUNT    SHARES     AMOUNT     CAPITAL     DEFICIT    COMPENSATION     DEFICIT   
                                    ------------ ------- ------------ -------  ----------- ------------ ------------- --------------
Balance at December 31, 1994 ......     893.720     $ 9      666.879     $ 7    $   6,285   $ (114,639)    $ (153)      $ (108,491) 
Accretion of discount and divi-                                                                                                     
 dends on 8% Cumulative Re-                                                                                                         
 deemable Preferred Stock .........         --       --          --       --       (2,518)          --         --           (2,518) 
Amortization of deferred compen-                                                                                                    
 sation ...........................         --       --          --       --           --           --        153              153  
Net income ........................         --       --          --       --           --       22,343         --           22,343  
                                        -------     ---      -------     ---    ---------   ----------     ------       ----------  
Balance at December 31, 1995 ......    893,720      $ 9     666,879      $ 7    $   3,767   $  (92,296)    $   --       $  (88,513) 
                                       ========     ===     ========     ===    =========   ==========     ======       ==========
The accompanying notes are an integral part of these financial statements.

                                      F-51
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On January 4, 1996, all of the outstanding capital stock of Act III Broadcasting
(the  "Company")  was  purchased by and the Company was merged with and into A-3
Acquisition,  Inc. The Company  then  changed its name to Sullivan  Broadcasting
Company, Inc. (Note 11).

The Company was incorporated in Delaware in 1986 and at December 31, 1995 owned,
operated and/or  programmed,  through its  subsidiaries,  seven Fox Broadcasting
Company ("Fox") affiliated stations,  one television station affiliated with the
American Broadcasting  Companies,  Inc. ("ABC"), and two independent  television
stations that the Company  programs under time brokerage  agreements  throughout
the Northeast,  Southeast,  and Mid-Atlantic states.  Television broadcasting is
subject to the  jurisdiction of the Federal  Communications  Commission  ("FCC")
under the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television  broadcasting  stations
except  under a license  issued by the FCC and  empowers  the FCC,  among  other
things,  to issue,  revoke  and  modify  broadcasting  licenses,  determine  the
location of the  stations,  regulate the equipment  used by the stations,  adopt
regulations  to carry out the  provisions of the  Communications  Act and impose
penalties for violation of such regulations.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its subsidiaries.  Significant  intercompany accounts and transactions have been
eliminated in consolidation.

As of December 31, 1995,  Act III  Communications  Holdings,  L.P.  ("Holdings")
directly  owned  approximately  15%,  100% and 6% of the Company's 8% Cumulative
Redeemable Preferred Stock ("Senior Preferred Stock"),  Class A Common Stock and
Class C Common Stock, respectively.

Revenue Recognition

Advertising  revenues are  recognized  in the period during which the time spots
are aired.  Revenues  from other  sources are  recognized in the period when the
services are provided.

Trade and Barter Transactions

The Company  trades  certain  advertising  time for various  goods and services.
These  transactions  are  recorded at the  estimated  fair value of the goods or
services  received.  The related  revenue is  recognized  when  commercials  are
broadcast.  Goods or services  received are recorded as assets or expenses  when
received or used, respectively.

The  Company  barters  advertising  time for  certain  program  material.  These
transactions  are  recorded  at  management's  estimate  of  the  value  of  the
advertising  time exchanged,  which  approximates  the fair value of the program
material received.

Programming Rights and Contracts Payable

Programming  rights,  primarily in the form of  syndicated  programs and feature
film packages,  represent  amounts paid or payable to program  suppliers for the
limited  right to broadcast  the  suppliers'  programming  and are recorded when
available  for use.  Programming  rights are stated at the lower of  unamortized
cost or net realizable  value.  Amortization is computed using the straight-line
method  based on the  license  period or based on usage,  whichever  yields  the
greater accumulated amortization for each program.

                                      F-52
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Property and Equipment

Property and equipment is stated on the basis of cost or estimated fair value at
the  date of  acquisition.  Expenditures  for  renewals  and  improvements  that
significantly  add to productive  capacity or extend the useful life of an asset
are capitalized.  Expenditures for maintenance and repairs are charged to income
when  incurred.  Depreciation  is computed on the  straight-line  basis over the
estimated useful lives of the assets which range from 3 to 37 years.

Intangible Assets

Intangible assets represent the estimated fair value of both identifiable assets
and goodwill resulting from acquisitions.  Identifiable  intangibles include FCC
broadcast licenses,  non-competition  agreements,  favorable leases, accelerated
market growth assets and underdeveloped  market competition assets and are being
amortized  on a  straight-line  basis over  periods  ranging from 5 to 15 years.
Goodwill is being amortized over 40 years using the  straight-line  method.  The
Company  evaluates the  recoverability of its intangible assets whenever adverse
events or changes in business  climate  indicate that the expected  undiscounted
future cash flows from the related intangible assets may be less than previously
anticipated.  If the net book value of the related  intangible asset exceeds the
undiscounted future cash flows of the intangible asset, the carrying value would
be  reduced  to the  present  value of its  expected  future  cash  flows and an
impairment  loss  would  be  recognized.  The  Company  did  not  recognize  any
impairment loss for the year ended December 31, 1995.

Deferred Loan Costs

Deferred loan costs represent costs incurred in obtaining  long-term  financing.
These costs are  expensed as interest  over the lives of the related  loan using
the effective interest method.

Accounting for Income Taxes

The Company  accounts for income taxes under the liability  method of accounting
as set forth in Statement of Financial Accounting Standards No. 109; "Accounting
for Income  Taxes".  Under the method  prescribed  by this  statement,  deferred
income taxes are  recognized at enacted tax rates to reflect the future  effects
of income tax  carryforwards and temporary  differences  arising between the tax
basis of assets and liabilities and their  financial  reporting  amounts at each
period end.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles requires management to make estimates and use assumptions
that affect the reported  amounts of assets and  liabilities  and the disclosure
for contingent assets and liabilities at the date of the financial statements as
well as the  reported  amounts of revenues  and  expenses  during the  reporting
period. Actual results may vary from estimates used.

Supplementary Statement of Operations Information

Included  in  operating  expenses  for the year  ended  December  31,  1995 were
advertising costs of $1,694,000 and music license fees of $548,000.

2.   TIME BROKERAGE AGREEMENT

On September 30, 1991, the Company entered into a time brokerage  agreement with
Guilford  Telectasters,  Inc.  ("Guilford") for WGGT, an independent  television
station in Greensboro,  North Carolina. The purchase price was $2,000,000,  plus
the  assumption  of  $821,000  in  film  liabilities.  Under  the  terms  of the
agreement, Guilford sells certain broadcast time of WGGT to the Company for the

                                      F-53
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

purpose of retransmitting  the signal of WXLV, the Company's  television station
in Winston-Salem, North Carolina. In addition to the purchase price, the Company
will remit quarterly  payments,  not to be lower than $50,000, to Guilford based
on a  specified  calculation.  The term of the  contract  is five  years  with a
five-year extension that may be exercised by Guilford.

On June 30, 1995, the Company and Guilford amended the time brokerage agreement.
Under the terms of the amended agreement,  the Company paid Guilford  $6,000,000
in  exchange  for the right to  broadcast  the  signal  of WXLV on WGGT  through
September  30,  2001.  This  payment  released  the Company  from the  quarterly
payments originally required under the agreement. This amount is being amortized
on a straight line basis, over the term of the agreement.

In conjunction with the amendment, the Company also paid Guilford $1,000,000 and
Guilford  granted to a third party an option to purchase  certain assets of WGGT
of an exercise  price of  $1,000,000.  The third  party  granted the Company the
right to  require  such  third  party to assign  this  option to the  Company or
another third party.

3.   LONG-TERM DEBT

Long-term debt consisted of the following:
DECEMBER 31,
                                                                                             1995
                                                                                       ---------------
Senior Debt:
     Bank Credit Agreement, $60,000,000 revolving credit, commitment reducing
      year by year, due December 31, 2000 ............................................  $  24,000,000
     Series A Senior Notes, interest at 11.34% payable semi-annually, principal
      payable in semi-annual installments commencing June 30, 1993 ...................     15,260,000
     Less: unamortized discount ......................................................       (109,000)
                                                                                        -------------
                                                                                           15,151,000
                                                                                        -------------
     Series B Senior Notes, interest at 12.03% payable semi-annually, principal
      payable in semi-annual installments commencing June 30, 1993 ...................      2,723,000
     Series C Senior Notes, interest at 12.60% payable semi-annually, principal
      due on December 31, 1996 .......................................................     13,432,000
     Less: unamortized discount ......................................................        (61,000)
                                                                                        -------------
                                                                                           13,371,000
                                                                                        -------------
     Series D Senior Notes, interest at 13.31% payable semi-annually, principal
      due on December 31, 1996 .......................................................      4,368,000
     Senior Acquisition Notes, interest at 12.92% payable semi-annually, principal
      payable in semi-annual installments commencing June 30, 1993 ...................      3,363,000
                                                                                        -------------
                                                                                           62,976,000
     Less: current maturities ........................................................    (24,078,000)
                                                                                        -------------
                                                                                        $  38,898,000
                                                                                        =============
   Subordinated Debt:
     Senior Subordinated Notes, interest at 9.625% payable semi-annually, princi-
      pal due December 15, 2003 ......................................................  $ 100,000,000
                                                                                        =============
On December  22,  1993,  the Company  refinanced  a  substantial  portion of its
outstanding  debt. The Company  secured a revolving  credit  facility (the "Bank
Credit Agreement")  originally in the amount of $50 million,  currently at $57.6
million,  to mature on December  31,  2000,  and issued  $100  million of 9 5/8%
Senior  Subordinated  Notes due December 2003 ("Notes").  With the proceeds from
these transactions,

                                      F-54
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

the Company repaid  $35,000,000  of its Floating Rate Senior Notes,  $36,867,000
Series A Senior  Notes,  $10,054,000  Series B Senior Notes,  $8,689,000  Senior
Acquisition Notes,  $7,568,000 Series A Subordinated Notes and $9,632,000 of its
Series B Subordinated  Notes.  In connection  with the issuance of the Notes and
Bank Credit  Agreement,  the Company  amended its existing loan  agreement  (the
"Amended  Existing  Agreement")  which extended the maturity of a portion of the
Company's  existing senior and subordinated  debt from its then current maturity
of December 31, 1996 to December 31, 1997. Of the $40,615,000 of remaining notes
under the Amended Existing Agreement,  $15 million is due December 31, 1997. All
the notes under the  Amended  Existing  Agreement  rank pari passu with the debt
issued under the Bank Credit  Agreement.  Concurrent with the  refinancing,  the
Company  redeemed  17.2  shares  of 8%  Cumulative  Redeemable  Preferred  Stock
("Senior  Preferred  Stock") at a price of $22,865,000  (see Note 5) and 606.478
shares of Class C Common Stock at a price of $16,557,000 (see Note 6).

The  interest  rate  under  the Bank  Credit  Agreement  will be  based,  at the
Company's  option,  on the lender's (i) ABR;  (ii)  Eurodollar or (iii) CD rates
(each as defined therein),  each plus an applicable margin which is based on the
Company's  ratio  of Total  Funded  Debt to  Operating  Cash  Flow  (as  defined
therein).  Interest rates will be adjusted monthly,  with the applicable margins
varying  between .5% to 1.5% for the ABR rate,  1.5% to 2.5% for the  Eurodollar
rate,  and 1.625% to 2.625% for the CD rate.  The  Company is required to pay to
the lender an annual  commitment  and an annual agency fee. The interest rate at
December 31, 1995 was 7.25%.

Borrowings  under the Bank Credit  Agreement are subject to a maximum  available
amount (the "Maximum  Amount"),  currently $57.6 million,  and may be repaid and
reborrowed at any time. The Maximum Amount is being reduced in varying quarterly
amounts  beginning June 30, 1995 through  December 31, 2000.  Principal  amounts
outstanding on such dates must be repaid to reduce total  outstanding  principal
to at least the  Maximum  Amount.  Generally,  the  Company may prepay a greater
amount of borrowed funds than is required without premium or penalty, except for
certain breakage costs associated with prepayment of CD and Eurodollar loans.

The Series A Senior Notes require principal payments of $260,000 on each June 30
and December 31 through June 30, 1996,  with the  remaining  $15,000,000  due on
December 31, 1997.  In  consideration  for  extending  this maturity to 1997 the
Company  will be  required to pay a 3% premium or $450,000  upon  maturity.  The
Company has recorded the liability  for this premium.  The Series B Senior Notes
require  principal  payments of $359,000 on each June 30 and December 31 through
June 30, 1996 with the remaining  $2,364,000 due December 31, 1996. The Series C
Senior  Notes and Series D Senior  Notes are due in full on December 31, 1996. A
principal  payment on Senior  Acquisition Notes totaling $214,000 is due on June
30, 1996 with the  remaining  $3,147,000  due on December 31, 1996.  Interest is
payable in semi-annual installments on June 30 and December 31.

The Notes mature on December 15, 2003. Interest on the Notes accrues at the rate
of 9 5/8% per annum and will be payable  semiannually in arrears on June 15, and
December 15. Although the Notes are general unsecured obligations of the Company
and are subordinate to all  indebtedness,  the Notes are guaranteed  jointly and
severally by each of the Company's subsidiaries.

As  of  December  31,  1995,  scheduled  maturities,  including  discounts,  are
summarized as follows:

                    1996 .........................   $ 24,145,000
                    1997 .........................     15,000,000
                    1998 .........................             --
                    1999 .........................      9,000,000
                    2000 .........................     15,000,000
                    Thereafter ...................    100,000,000
                                                     ------------
                                                     $163,145,000
                                                     ============

                                      F-55
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Notes,  Bank Credit Agreement and Amended Existing  Agreement of the Company
contain covenants which,  among other  restrictions,  require the maintenance of
certain  financial  ratios  and cash  flow,  restrict  asset  purchases  and the
encumbrance  of  existing   assets,   require   lender   approval  for  proposed
acquisitions,  and limit  the  incurrence  of  additional  indebtedness  and the
payment of dividends.

The Company has estimated the fair value of long-term  debt at December 31, 1995
to approximate the carrying  value.  The fair value was estimated by discounting
the future cash flows of loans with similar  terms and  remaining  maturities at
the Company's current borrowing rate.

4.   INCOME TAXES

The Company  accounts for income taxes in accordance  with Financial  Accounting
Standards  Statement No. 109, "Accounting  for Income Taxes" ("FAS 109"),  which
mandates the liability method for computing deferred income taxes. The provision
for income taxes charged to continuing operations was as follows:

                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                                    1995
                                                              ---------------
          Current tax expense:
            Federal .......................................    $    373,000
            State .........................................       1,265,000
                                                               ------------
                                                                  1,638,000

          Deferred tax expense (benefit):
            Federal .......................................      (7,000,000)
            State .........................................         116,000
                                                               ------------
                                                                 (6,884,000)

          Benefit of acquired loss carryforward used to re-
            duce goodwill .................................         484,000
                                                               ------------
          Total benefit ...................................    $ (4,762,000)
                                                               ============

Reconciling amounts,  stated below as a percentage of pretax income, between the
statutory  federal  income tax rate and the Company's  effective tax rate are as
follows:

                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                                     1995
                                                                -------------
          U.S. federal statutory rate .......................        35.0%
          State and local taxes, net ........................         5.1%
          Amortization of goodwill ..........................         1.3%
          Realized benefit for net operating losses .........       (27.1)%
          Other .............................................         0.3%
          Change in valuation allowance .....................       (41.7)%
                                                                    -----
          Effective tax rate ................................       (27.1)%
                                                                    =====

The components of the net deferred tax asset are as follows:

                                      F-56
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                                                         DECEMBER 31,
                                                             1995
                                                        -------------
          Property and equipment .....................    $ (744,000)
          Programming rights ..........................     3,498,000
          Bad debts ................................          443,000
          Intangible assets ........................          745,000
          Music license fees .......................           12,000
          Net operating loss carryforwards .........       25,373,000
          Other ....................................         (944,000)
                                                           ----------
                                                           28,383,000
          Less -- valuation allowance ..............      (21,057,000)
                                                          -----------
          Net deferred tax asset ...................    $   7,326,000
                                                        =============

At December  31,  1995,  the Company had net  operating  loss  carryforwards  of
approximately  $60,303,000 for federal income tax purposes,  available to reduce
future  taxable  income.  To the extent not used,  federal  net  operating  loss
carryforwards  expire in varying  amounts  beginning in 2002.  In addition,  the
Company had net operating loss  carryforwards of  approximately  $44,147,000 for
state and local income tax purposes in various jurisdictions. Under FAS 109, the
Company has recorded valuation allowances against the realization of the federal
and state and local tax  benefits  resulting  from net  operating  losses in the
amounts of $16,647,000  at December 31, 1995. In 1995,  the valuation  allowance
decreased by $11,438,000,  of this $7,326,000 was a result of the  determination
by management  that it is more likely than not that certain  deferred tax assets
will be utilized in future periods. The remaining valuation allowances are based
on  management's  estimates and  analysis,  which include the impact of tax laws
which may limit the Company's ability to utilize such loss carryforwards.

A corporation that undergoes a "change of ownership"  pursuant to Section 382 of
the  Internal  Revenue Code is subject to  limitations  on the amount of its net
operating  loss  carryforwards  which may be used in the  future.  An  ownership
change occurred on January 4, 1996. The Company  estimates the limitation on the
net  operating  loss will not have a material  adverse  impact on the  Company's
consolidated  financial  position or results of operations.  No assurance can be
given that an ownership change will not occur as a result of other  transactions
entered into by the Company,  or by certain other parties over which the Company
has no control.  If a "change in ownership" for income tax purposes occurs,  the
Company's  ability to use  "pre-change  losses"  could be  postponed or reduced,
possibly resulting in accelerated or additional tax payments which, with respect
to tax  periods  beyond  1995,  could  have a  material  adverse  impact  on the
Company's consolidated financial position or results of operations.

In addition,  net operating loss carryforwards  acquired through the acquisition
of a corporation are also subject to limitations on the amount which may be used
in the future.  If the acquired net operating loss  carryforwards  are utilized,
the tax benefit will result in an adjustment to the purchase  price  allocations
of the  acquired  corporation.  As a  result  of  the  acquisition  of  Act  III
Broadcasting of Dayton, Inc. (formerly Meridian Communications  Corporation) and
Act III Broadcasting of West Virginia, Inc. (formerly West Virginia Telecasting,
Inc.)  by the  Company,  federal  tax  net  operating  loss  carryforwards  were
acquired.  During 1995, the Company utilized  approximately  $1.4 million of the
acquired  net  operating  loss  carryforwards  with  a  resulting  reduction  of
approximately $.5 million to goodwill.

5.8% Cumulative Redeemable Preferred Stock ("Senior Preferred Stock")

Dividends  accrue on the outstanding  shares of the Senior  Preferred Stock at a
rate of 8% per annum of the dividend  base.  The dividend  base is the number of
shares  outstanding  times  $1,000,000  per share plus accrued  dividends and is
adjusted on December 31 of each year for dividends  accrued during the year. The
accrued dividends  converted to shares of Senior Preferred Stock on December 31,
1995 at $1,000,000 per share. All dividends earned subsequent to that date shall
be paid, in cash, on each December 31. With the exception of stock  dividends on
securities that are subordinate to the Senior Preferred Stock, dividends may not
be paid on the Class A Common  Stock or Class C Common  Stock  until all accrued
dividends  relating  to the  Senior  Preferred  Stock  are paid and  there is no
outstanding

                                      F-57
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

mandatory  redemption  obligation.  Accretion  to record the value of the Senior
Preferred  Stock at its  redemption  value on its scheduled  redemption  date is
calculated using the effective  interest method.  Such amounts have been charged
to additional paid-in capital in the accompanying financial statements.  Holders
of the  Senior  Preferred  Stock  are  entitled  to elect  one  director  if any
dividends  payable are in arrears and unpaid for two consecutive  periods or the
Company  fails to discharge  its  mandatory  redemption  obligation  and have no
voting rights except under certain specified circumstances.

The  Company  has  estimated  the fair  value of the Senior  Preferred  Stock at
December  31, 1995 to  approximate  the  carrying  value  based on the  recently
negotiated redemption values.

In connection with the issuance of the Notes and the Bank Credit Agreement,  the
Company  redeemed 17.2 shares of Senior Preferred Stock at a price of $1,000,000
per share plus accrued dividends totaling $22,865,000.  The mandatory redemption
on the remaining  16.627 shares of Senior Preferred Stock has been extended from
December 31, 1996 to December 31, 2004.  Beginning January 1, 1994, the dividend
on the Senior  Preferred  Stock increased to 9% from 8%. On January 1, 1997, the
dividend rate will  increase to 11% per annum.  Dividends are payable in cash or
in-kind at the Company's option.  The Senior Preferred Stock will be redeemable,
in whole or in part, at anytime without  premium.  If the Senior Preferred Stock
is  outstanding  after December 31, 1996, the holders are entitled to a one-time
2% dividend payable at redemption.  Beginning  January 1, 2000, the Company will
issue to the holders of Senior  Preferred  Stock,  warrants to purchase  Class C
Common Stock every three months.

Each holder will  receive  thirty-six  and  one-half  warrants for each share of
Senior  Preferred Stock owned.  Each warrant will entitle the holder to purchase
one share of Class C Common Stock at a price of $27,397 per share. A warrant may
be exercised with cash or by tendering  Senior  Preferred  Stock to the Company.
The warrants expire at the end of each three month period.

6.   SHAREHOLDERS' DEFICIT

Class C Common  Stock is  convertible  into Class A Common Stock on a one-to-one
ratio upon the occurrence of certain events.  Any necessary  approval of the FCC
must be obtained prior to all stock conversions.

Holders of the Class A Common  Stock are  entitled  to one vote per share on all
matters submitted to shareholder  vote.  Holders of Class C Common Stock have no
voting rights except under certain specified circumstances.

In the event of  liquidation,  dissolution  or  winding-up of the affairs of the
Company,  the  holders  of Class A Common  Stock  and  Class C Common  Stock are
entitled to share ratably, based on the number of shares held by each holder, in
the remaining assets of the Company.

Holdings  has  pledged  all of its  Class A  Common  Stock of the  Company  (the
"Holdings  Pledge") to secure a  promissory  note (the  "Holdings  Note") in the
amount of $12 million held by Mediafin USA Incorporated,  a Delaware corporation
("Mediafin") and a wholly owned subsidiary of Tractebel S.A., a Belgian company.
Any foreclosure by Mediafin on the Company's stock, however, would require prior
approval of the FCC. Current FCC rules restrict  foreign  ownership of broadcast
companies  and  Mediafin  is owned by a foreign  entity.  The  Holdings  Note is
assignable in whole or in part,  however,  the Holdings  Pledge of the Company's
Class A Common Stock to Mediafin is not assignable without Holdings' consent.

On November 30, 1989,  the Company  implemented a stock option plan (the "Plan")
whereby 250 shares of the authorized but unissued shares of Class B Common Stock
have been reserved for issuance upon the exercise of nonqualified  stock options
to be granted to certain key  personnel.  These  options are  exercisable  for a
period of up to ten years  from the date of grant.  The Class B Common  Stock is
convertible  into  Class A  Common  Stock  at a ratio  of  one-to-one  upon  the
occurrence of certain events.

                                      F-58
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following options were outstanding under the Plan at December 31, 1995:

                                                                   PER SHARE
                                                                   EXERCISE
                                                       NUMBER        PRICE
                                                     ----------   ----------
Options outstanding at December 31, 1994 .........      250.0
Option granted during 1995 .......................       33.01     $11,850
                                                        ------
Options outstanding at December 31, 1995 .........      283.01
                                                        ======

No options were exercised  during the year ended December 31, 1995.  There is no
compensation expense associated with the options granted in 1995 as the exercise
price approximates the fair value at the date of the grant.

7.   LEASES

The Company has  operating  lease  agreements  for land,  office  space,  office
equipment and other property which expire on various dates through 2005.  Rental
expense was $691,000 during the year ended December 31, 1995.

As of December 31, 1995,  minimum  required annual payments under  noncancelable
operating leases are as follows:

                     1996 .......................    $  650,000
                     1997 .......................       620,000
                     1998 .......................       594,000
                     1999 .......................       595,000
                     2000 .......................       510,000
                     Thereafter .................     2,518,000
                                                     ----------
                                                     $5,487,000
                                                     ==========

8.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company  paid  interest of  $16,862,000  during the year ended  December 31,
1995.

During  the year  ended  December  31,  1995 the  programming  rights  increased
$12,913,000, due to the assumption of programming liabilities.

During the year ended December 31, 1995 the Company paid approximately  $995,000
for income taxes.

9.   COMMITMENTS AND CONTINGENCIES

The Company has executed contracts for programming rights totaling approximately
$18,961,000 at December 31, 1995, for which the broadcast  period has not begun.
Accordingly, the asset and related liability are not recorded at such dates.

The Company currently and from time to time is involved in litigation incidental
to the conduct of its  business.  In the opinion of  management,  no existing or
contingent claims will have a material adverse effect on the Company's financial
position or results of operations.

The Company has entered  into  employment  contracts  with two of its  executive
officers in the minimum aggregate amount of $425,000 payable annually commencing
June 1, 1993 and  ending  December  31,  1996.  In  addition,  the  Company  has
quarterly  bonus  arrangements  for its  executive  officers  which are based on
achieving budgeted  performance goals. Such budgeted performance goals have been
met historically.

                                      F-59
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company has no post-retirement or post-employment benefit plans.

10.  RELATED PARTY TRANSACTIONS

The Company has a management agreement with Holdings to reimburse certain salary
and operating  expenses  incurred on behalf of the Company.  Operating  expenses
include  reimbursements  to  Holdings  for  $6,100  per  month  representing  an
allocable share of rent paid by Holdings under its lease.  During the year ended
December  31,  1995,  the Company  paid  $913,000 in  management  fees and other
charges to Holdings.  Such amounts  have been  included in selling,  general and
administrative expenses in the Company's consolidated statements of operations.

A former member of the Company's Board of Directors,  who was a member from 1990
through  October  1993,  also serves as Chairman  and  President  of the Buffalo
Sabres, a professional hockey team. Total programming rights fees payable to the
Buffalo Sabres are $340,000 at December 31, 1995.

11.  SUBSEQUENT EVENT

On January 4, 1996, A-3 Acquisition,  Inc. ("A-3") acquired substantially all of
the outstanding stock of the Company for approximately $517,000,000 plus certain
amounts  defined in the purchase and sale  agreement  which are based on working
capital and less the  amounts  necessary  to  repurchase  or repay the  existing
indebtedness  of the  Company.  The  acquisition  will be  accounted  for by the
purchase method.  Accordingly,  the results of operations of the Company will be
included with those of A-3 for periods subsequent to the date of acquisition.

The unaudited pro forma combined  condensed balance sheet of the Company and A-3
as of December 31, 1995 after giving effect to certain pro forma  adjustments is
as follows:

                      ASSETS
    Current assets ............................. $ 49,728,000
    Property and equipment, net ................   44,164,000
    Other assets and intangible assets .........  649,054,000
                                                 ------------
                                                 $742,946,000
                                                 ============

            LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities ........................ $ 29,043,000
    Long-term debt .............................  488,395,000
    Shareholders' equity .......................  225,508,000
                                                 ------------
                                                 $742,946,000
                                                 ============

The  unaudited pro forma  combined  results of operations of the Company and A-3
for the year ended  December 31, 1995 after  giving  effect to certain pro forma
adjustments are as follows:

            Net revenues ..................   $ 101,082,000
            Net loss ......................   $ (10,367,000)

                                      F-60