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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-KSB

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

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934


    FISCAL YEAR ENDED                               COMMISSION FILE NUMBER:
    DECEMBER 31, 1998                                    333-49279


                          NEXT GENERATION NETWORK, INC.
        (Exact name of small business issuer as specified in its charter)

       DELAWARE                                       41-1670450
(State or other jurisdiction of                     (I.R.S. employer
incorporation or organization)                      identification no.)

                      11010 PRAIRIE LAKES DRIVE, SUITE 300
                        MINNEAPOLIS, MINNESOTA 55344-3854
                    (Address of principal executive offices)

                                 (612) 944-7944
                           (Issuer's telephone number)

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

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                       Yes   X     No
                            ---        ---

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. Not applicable


     State issuer's revenues for its most recent fiscal year. $2,589,690

     State the market value of common equity held by non affiliates: Not
     applicable

     Number of shares of Common Stock outstanding as of March 19, 
     1999: 266,268
     Transitional Small Business Disclosure Format (Check one):

                       Yes         No   X
                            ---        ---

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                           FORWARD-LOOKING STATEMENTS


         THE FORWARD-LOOKING STATEMENTS IN THIS REPORT INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO
DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS, UNCERTAINTIES AND
OTHER IMPORTANT FACTORS INCLUDE, AMONG OTHERS: ADVERTISING RATES; THE ABILITY TO
SECURE NEW SITES FOR NGN DISPLAYS; THE LOSS OF KEY EXISTING SITE AGREEMENTS;
CHANGES IN THE POLITICAL AND REGULATORY CLIMATE; OUT-OF-HOME ADVERTISING
INDUSTRY TRENDS; COMPETITION; CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS;
AVAILABILITY OF QUALIFIED PERSONNEL; CHANGES IN, OR THE FAILURE OR INABILITY TO
COMPLY WITH, GOVERNMENT REGULATIONS; AND OTHER FACTORS REFERENCED IN THIS
REPORT.


                                     PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

     The Company sells advertising space and provides programming through an
electronic out-of-home advertising network known as NGN - Next Generation
Network. The Company currently operates NGN in 18 Designated Market Areas
("DMA's") and their surrounding areas. As of December 31, 1998, the Company had
NGN Displays (defined below) installed and operating in 3,630 sites. Based on
the average of the daily transaction counts submitted to the Company by the site
operators (the "Daily Audience"), the Company estimates that NGN presently can
be viewed by approximately 4 million people daily.

     NGN is an "InLine TV" network of color video monitors ("NGN Displays")
located at high traffic public locations. NGN Displays are connected by ordinary
voice-grade telephone lines and controlled from a single operations center in
Minneapolis, Minnesota. From its operations center, the Company transmits
programming and advertising to its NGN Displays, presenting a sequence of
partially animated or full motion, television-quality images.

RECENT DEVELOPMENTS

     On February 18, 1998, the Company sold 45,000 units representing $45
million principal amount of 12% Series A Senior Secured PIK Notes (the "Series A
Notes") and warrants to purchase 125,240 shares of common stock (the"Warrants").
The Series A Notes mature on February 1, 2003. Interest on the Series A Notes is
payable semiannually in arrears on February 1 and August 1 of each year
commencing August 1, 1998. Interest on the Series A Notes is payable either in
cash or in additional Series A Notes, at the option of the Company, until August
1, 2000, and thereafter is payable in cash. At the time of issuance, each
Warrant entitled the holder to purchase one share of common stock at an exercise
price of $0.01 per share, representing in the aggregate approximately 20% of the
Common Stock on a fully diluted basis at the time of issuance. The number of
shares purchasable by holders of the Warrants is subject to adjustment. The
Warrants are detachable and are exercisable to February 1, 2008.


     The Series A Notes are secured by a first priority lien on substantially
all assets of the Company except for certain equipment collateralizing
noninterest-bearing notes included in long-


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term debt. The Series A Notes contain certain restrictive covenants that 
among other things prohibit the payment of dividends on, and the redemption 
of, the Company's capital stock.

     On April 2, 1998, the Company filed a Registration Statement on Form S-4
with the Securities and Exchange Commission, relative to its Exchange Offer of
Series B 12% Senior Secured PIK Notes due 2003 ("Series B Notes") for all
outstanding Series A Notes. Generally, the form and terms of the Series B Notes
are the same as the Series A Notes except that they do not bear legends
restricting their transfer. The Registration Statement was declared effective by
the Securities and Exchange Commission on July 8, 1998. All Series A Notes were
exchanged for Series B Notes on August 19, 1998.

     The Company changed its name from Mentus Media Corp. to Next Generation
Network, Inc. effective on August 31, 1998.

BUSINESS STRATEGY

     By utilizing technology to reduce labor costs and provide immediacy and
flexibility to advertisers, NGN seeks to preserve the positive attributes while
avoiding the negative attributes of traditional out-of-home advertising.
Specifically, the Company seeks to achieve the high operating profit margins and
recurring cash flows inherent in the industry, while reducing fixed costs and
labor intensity, and avoiding zoning regulations that may impede expansion.

     The Company's objectives are to (i) increase and diversify the physical
presence of NGN in the United States by building upon the Company's existing
site agreements and negotiating additional site agreements and (ii) utilize
NGN's flexibility as an advertising medium to sell advertisements through the
Company's dedicated sales force on a local, regional and national basis. To
achieve its objectives, the Company has adopted the following business
strategies:

-    INCREASE PHYSICAL PRESENCE OF NGN. The Company's expansion strategy is to
     increase the Company's geographic presence in top markets and diversify
     distribution venues. The Company intends to continue securing new site
     agreements within its existing operating DMAs as well as the DMAs targeted
     by the Company for expansion. The Company currently has NGN Displays in
     eight of the ten top DMAs and site agreements in nine of the top ten DMAs,
     and 41 of the top 50 DMAs. The Company's immediate geographic expansion
     continues to focus on the top ten DMAs, with the intention of having a
     presence in all of the top 25 DMAs by 2002. The Company installed 1,861 NGN
     Displays during 1998, and had NGN Displays installed and operating in 3,630
     sites as of December 31, 1998. The Company expects that continued
     installations will be based on Management's evaluation of advertising sales
     and other factors including contractual commitments.

-    INCREASE ADVERTISING REVENUEs. The Company conducts its sales efforts
     through a dedicated sales force within each of the DMAs in which it
     operates, which enables NGN to accommodate micro-targeted advertising needs
     of local advertisers while offering both flexibility and breadth of
     coverage to full-market and multi-market advertisers. By combining its
     local sales presence with continued expansion and diversification of
     distribution venues, the Company believes it will broaden the audience for
     NGN programming and advertising, and will appeal to an increasing pool of
     advertisers by providing a truly local, regional and national advertising
     medium.


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INDUSTRY OVERVIEW

     The Company competes in the out-of-home advertising industry. 
Out-of-home advertising derives its name from reaching audiences out of their 
homes, and consists primarily of billboards, transit advertising and stadium 
and other signage. The Company believes that the total expenditures for the 
out-of-home industry in 1997 were approximately $4.0 billion, and the 
industry is growing at a faster rate than overall advertising expenditures. 
The Company believes that out-of-home advertising, which has existed for over 
125 years, is a proven, resilient industry. Management believes that recent 
demographic and marketing trends, such as changing lifestyles and habits 
associated with dual career households and the high cost and audience 
fragmentation associated with in-home mass media, have created a favorable 
environment for out-of-home advertising in general and NGN specifically.

     Many traditional forms of out-of-home advertising are hampered by
limitations such as less desirable demographics due to zoning, long lead times
to implement advertisements, complexity of buying space nationally and high
production costs. For example, billboard advertisers are subject to numerous
state and local regulations restricting the permitted locations of
advertisements. Zoning regulations frequently restrict the height and size of
outdoor advertisements, and governmental authorities from time to time ban the
use of outdoor advertisements or order their removal. NGN Displays are placed in
privately-owned establishments primarily indoors and generally are not subject
to the same regulatory pressures affecting the placement of other out-of-home
media.

NGN SYSTEM

     NGN incorporates a sophisticated telephone based communications system that
includes the NGN Displays, computers and related operating and network
management software. From a central hub facility in Minneapolis, Minnesota, the
Company creates programming and advertising that is transmitted to NGN Displays
in multiple locations by means of standard telephone lines. NGN presents a
sequence of partially animated or full motion, television-quality images that
are intended to capture audience attention in busy out-of-home environments,
thereby effectively delivering advertising and programming messages.

     NGN integrates industry standard computer hardware and software with
proprietary software developed by the Company specifically for its out-of-home
advertising application. The computer architecture of NGN is intended to make
the system "scaleable" so that the network can be expanded to facilitate growth
at minimal incremental cost. The Company believes that NGN is reliable,
experiencing "up-time" (representing the daily average of functioning units) in
excess of 99%.

NGN DISPLAY SITES

     The Company's objective is to place NGN Displays in thousands of locations
throughout the United States, with target sites consisting of high traffic,
public venues where people remain for several minutes, including convenience
stores, fast food restaurants, office building lobbies, pharmacies, movie
theater lobbies and self-serve gas pumps. The Company historically has targeted
convenience stores as NGN Display sites because of the existence of numerous
large regional and national chains which allow for economies of scale. Companies
currently under site agreements 


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with the Company include The Southland Corporation (7-Eleven Stores), 
Cumberland Farms, Jerry's Subs, Uni-Marts and Crown Central Petroleum.

     As of December 31, 1998, the Company had NGN Displays operating in 3,630
sites. Based on the Daily Audience, the Company estimates that NGN presently can
be viewed by approximately 4 million people daily. Additionally, the Company
holds site agreements for approximately 4,700 additional sites. Upon completion
of installation of all sites currently subject to site agreements, collectively
with the Company's presently installed sites, NGN could be viewed by an
estimated Daily Audience of approximately 9 million people in 41 of the top 50
DMA's in the United States.

     The Company is highly dependent on its agreement (the "Southland Contract")
with The Southland Corporation ("Southland"), which as of December 31, 1998
covered 2,943 of the Company's installed NGN Displays and 2,267 of the
additional sites for which the Company has agreements. The Southland Contract
expires on January 1, 2004. The Southland Contract provides that NGN Displays
may be installed in all Southland owned 7-Eleven's. In addition, Southland has
agreed to use its reasonable best efforts to solicit franchisee participation in
the program. Although there is no obligation to renew, extend or enter into a
new agreement, the Southland Contract provides that Southland and the Company
will negotiate in good faith to renew or extend the Southland Contract for at
least 5 years. Under the Southland Contract, if Southland desires to enter into
an agreement with a provider of services competitive with the Company, the
Company has a right to match the competitors terms for a substantially similar
product as the other provider. The Southland Contract provides that the Company
will pay liquidated damages of $100,000 if certain minimum installations are not
completed by December 31, 1999. Southland may terminate the Southland Contract
in the event the Company materially breaches its obligations and fails to cure
such breach within 30 days of receiving notice thereof or if minimum
installations are not completed by June 30, 2000. Either the non-renewal of the
Southland Contract or any difficulty that might arise in the Company's
relationship with Southland would have a material adverse effect on the
Company's business.

     Under the site agreements with site operators, the NGN Displays are
installed, maintained and operated by the Company. The store owner generally
receives a percentage of the advertising revenues derived by the Company from
the particular site, typically at no cost to the operator (other than, in
certain circumstances, the cost of the NGN Displays). This additional source of
income provides the site operators with an incentive to renew the agreements at
the end of their terms. The Company's agreements with site operators have
varying expiration dates ranging from approximately June 2000 to December 2010.
The Company is solely responsible for the installation and maintenance of its
NGN Displays. Subject to certain exceptions, the site agreements generally
provide that the Company shall be the exclusive provider of video-based
information, entertainment and advertising services. Under the Southland
Contract, the Company is required to make minimum annual payments to Southland.

     The Company has created a specialized corporate development group aimed at
increasing the Company's geographic presence by identifying and negotiating with
companies and organizations that would provide multiple potential new locations.
The corporate development group currently consists of seven full-time
professionals. The Company also intends to utilize the local knowledge of its
general managers, sales managers and sales personnel to identify locations for
further expansion in existing markets.


                                      4
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PROGRAMMING

     NGN Displays present repeating two-and-one-half minute sequences, or
"loops", of advertising and programming. As currently configured, the loops
consist of twelve advertising slots of approximately ten seconds each and six to
eight programming slots of approximately six seconds each. Advertising slots
currently consist of advertising principally for local and regional advertisers,
and programming slots include information such as local and national weather,
sports, news headlines and financial information, as well as Company sponsored
promotional contests. For example, a Baltimore, Maryland 7-Eleven customer
waiting in line to purchase merchandise may view the three day Baltimore
forecast, the Baltimore Oriole's baseball score and local news headlines
interspersed with advertisements for Haagen-Dazs ice cream, a Chrysler
dealership and a local dentist, among other messages.

     The advertising and programming loops for each NGN Display are all created
and controlled from a central hub in Minneapolis, allowing the Company to
quickly and cost-effectively custom-tailor both the advertising and programming
content on a regional or micro-targeted basis. By utilizing the Company's
network management software, the Company customizes programming information for
local markets. Attributes such as instantaneous copy changes, minimal lead
times, negligible production costs and expedited electronic communications
distinguish NGN from other out-of-home advertising. NGN is designed so that
programming information can be provided to the Company via electronic feed from
providers of such information, such as Accu-Weather, which provides weather
information. Once the feed is received at the Company's facilities, it generally
is processed automatically and distributed to the NGN Displays over telephone
lines.

ASSEMBLY, INSTALLATION AND MAINTENANCE

     The Company has designed its NGN Displays so that their component parts are
readily available from a number of suppliers. All of the NGN Displays are
assembled and tested prior to installation by a third party contractor. The
principal components of NGN Displays, the monitor and embedded computer, are
purchased from separate third party contractors, with three-year warranties. All
components for NGN Displays, including electronic and computer-related
equipment, are available from a number of well-established suppliers. The
Company intends to continue to rely on its contractors for the assembly of its
NGN Displays for the foreseeable future. Although the Company to date has not
experienced any difficulties or delays in obtaining the desired quantities of
NGN Displays, there can be no assurance that assembly delays will not result in
delays in obtaining the necessary quantities of NGN Displays in the future. The
Company has utilized the services of its contractors for several years and has
maintained a good relationship. However, the Company does not have any formal
long-term agreement with such contractors.

     The Company has a contractual arrangement with an independent contractor
for the nationwide installation and maintenance of most of its NGN Displays. The
independent contractor has a network of offices and subcontractors throughout
the United States, and has been able to adequately satisfy all of the Company's
installation and maintenance needs to date. Pursuant to its agreement with the
independent contractor, the Company pays a fee for each installation and a fixed
monthly maintenance fee based on the number of existing NGN Display
installations. The independent contractor maintains an inventory of spare parts
for NGN Displays at local warehouses within the vicinity of NGN Display sites.
If an NGN Display cannot be repaired on-site, it is exchanged with a new one.
Since the independent contractor is an authorized repair center for the
Company's computer manufacturer, if the malfunctioning component is the embedded
computer, it 


                                      5
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can generally be repaired at no additional cost to the Company. The agreement 
with the independent contractor expires in June 1999. The Company is 
negotiating with the independent contractor for a renewal or extension of the 
existing agreement and is evaluating alternative providers. The Company 
believes that performance under its existing agreement has been satisfactory, 
and the Company does not foresee any difficulties in obtaining these services 
in the future.

     The Company believes it can find other outside sources to adequately
satisfy its assembly, installation and maintenance needs. However, there can be
no assurance that it will be able to do so in a timely manner or that such new
outside sources would be able to meet the Company's requirements. Although to
date the Company has not experienced any material adverse effects due to such
risks, there can be no assurance that the business of the Company will not be
adversely affected by such risks in the future.

ADVERTISING  SALES AND MARKETING

     The Company seeks to take advantage of its inherent flexibility of
geographically targeted advertising by emphasizing sales to local advertisers,
the traditional area of strength for out-of-home advertising. The Company
believes that in 1997, an estimated 60-70% of all out-of-home advertising
revenue (comprised principally of outdoor advertising) was derived from local
advertisers. The Company conducts its advertising sales efforts through a
dedicated, local sales force within each of the DMA's in which it operates NGN
Displays. The local sales force is thereby able to work closely with each of the
Company's advertisers to develop advertising campaigns that match specifically
targeted audience segments with the advertisers' overall marketing strategies.
The Company currently has local sales offices serving each market, each staffed
with a general manager and generally with between 4 and 10 sales persons. The
size of the sales staff depends on various factors, including the physical size
of the DMA and the number of NGN locations within the DMA. In early 1997, the
Company realized its first operating revenues from advertising sales in markets
where the Company has a dedicated sales force.

     The Company generally attracts candidates for its general manager and sales
representative positions from existing media sales personnel in the local areas,
including from radio and broadcasting and cable television operators as well as
from outdoor advertising and various print media companies. The Company believes
that, as NGN expands, the Company will continue to attract qualified sales and
sales management personnel.

     All graphic design, network management, billing and other functions are 
handled from the Company's main corporate headquarters in Minneapolis. 
Through local links to the main database and the use of modem-equipped laptop 
computers, the local offices can utilize the Company's sophisticated 
technology and dedicated technical and creative staff to support local 
selling efforts. The laptop computers can be linked to the Company's main 
database and include the Company's proprietary proposal generating software. 
Such software was developed by the Company to allow a sales person to 
customize advertising proposals instantly to accommodate the stated 
preferences of the advertiser. For example, a sales person can generate 
proposals based on a location within a specified radius, or site by site 
purchases. The proposals can specify cost (as well as other schedule 
information) and can prepare maps and location lists to show the exact NGN 
Display locations on which an advertisement will appear.

     While the Company believes that achieving its growth strategy requires
concentration on local advertisers, the Company also intends to target national
advertisers. The Company has a 


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contract with Capital Cities/ABC as its exclusive agent for national 
advertising sales for NGN until March 28, 2002. To date, the Company has not 
recognized any sales through this agreement. The Company does not anticipate 
generating significant national sales through Capital Cities/ ABC, and the 
Company currently plans to handle national sales internally. The Company has 
internal sales personnel headquartered in New York to concentrate on national 
sales. The Company believes that with its current distribution of sites, it 
will be able to generate national advertising sales revenues.

     The Company charges a fixed daily rate for the advertising slots provided
to advertisers on its NGN Displays. Based on traffic counts at NGN Display
sites, the present cost to the Company's advertisers per thousand impressions
("CPM") is between $3 and $4. By comparison, the Company believes that radio,
newspaper and television advertising has a CPM of between $7 and $20.
Traditional outdoor advertising, which bases impressions on the number of
vehicles which pass a site, has a CPM of between $1.60 to $3.50 depending on the
size, type and location of the display surface, plus substantial production
costs. While enjoying a substantial cost advantage over television, radio and
print advertising, the Company believes it can compete effectively with
traditional outdoor advertising because of the flexibility and efficiencies
inherent in the Company's display medium and centrally controlled network.

COMPETITION

     The advertising and promotional industries are intensely competitive. The
Company competes for advertising dollars directly with advertising and
promotional vehicles such as broadcast and cable television, internet, radio,
magazines, newspapers, billboards, direct mail marketers and others. In
addition, the Company also competes with a wide variety of out-of-home
advertising, including highway logo signs, advertising in shopping centers and
malls, airports, stadiums, movie theaters and supermarkets, as well as on taxis,
trains, buses and subways. Management believes that the out-of-home advertising
industry is attracting numerous alternative media products, many of which will
compete directly or indirectly with NGN. These products may be offered by
companies with greater resources and with greater industry recognition than the
Company. The Company is aware of other companies that place displays that look
similar to NGN Displays in specific venues for commercial purposes, such as in
airports and subways. Although the Company believes that these companies are not
competing in the venues targeted by the Company, there can be no assurance that
such companies will not commence marketing in the same venues and within the
same DMA's targeted by the Company. While Management believes that NGN is
favorably differentiated from other available media, in competing with existing
media for advertising sales the Company encounters media that is more
established and recognized by potential advertisers and advertising agencies.

PROTECTION OF TECHNOLOGY

     The Company does not have patent or registered copyright protection on any
of the software technology that the Company utilizes in connection with NGN, and
such technology might not be eligible for patent protection. The Company
believes that significant portions of its software are entitled to copyright
protection in the United States. Should the Company seek and obtain federally
registered copyright protection for any of its software in the future, no
assurance can be given that the copyright application would be accepted or that
a capable and adequately financed competitor could not lawfully develop software
that would perform the same function.


                                       7

<PAGE>

     The Company views the computer software technology that it has developed 
as proprietary, and attempts to protect its technology and trade secrets 
through the use of confidentiality and non-disclosure agreements and by other 
security measures. The protection offered by trade secret law and 
confidentiality agreements is limited in comparison to patent protection. 
Confidentiality and non-disclosure agreements may be difficult to enforce, 
and the Company's products might be subject to reverse engineering. 
Consequently, no assurance can be given that competitors will not be able to 
develop or obtain technology similar to the Company's and produce products 
similar to those the Company is utilizing.

     The Company has received several federal registrations of trademarks, 
including "NGN," and "Out of Home That's In Your Face." In addition, the 
Company has applied for several additional federal registrations of 
trademarks, including " Next Generation Network", "Proposal Machine", "Look 
Up and Win", and "InLine TV". While no assurance can be given that the 
trademarks will be issued on the pending applications, the Company is not 
aware that the trademarks for which federal registration is sought infringe 
on existing trademarks.

GOVERNMENT REGULATION

     The Company is not aware of any material legal or other regulatory 
restrictions which may adversely affect its business, other than those that 
affect businesses generally. The furnishing of in-store marketing services is 
subject to compliance with the Robinson-Patman Act. In general, the 
Robinson-Patman Act prohibits price discrimination and discriminatory 
promotional allowances and services between different purchasers of 
commodities of like grade and quality, the effect of which may be 
substantially to lessen competition in any line of commerce.

     The Company's use of telephone lines to transmit messages to its NGN 
Displays subjects the Company to regulation by the Federal Communications 
Commission ("FCC") as well as laws and regulations affecting the advertising 
industry generally. While the Company has not sought determination on the 
issues, the FCC may attempt to prohibit the Company from transmitting tobacco 
advertisements on NGN. In addition, certain state statutes restrict 
advertising of alcoholic beverages on NGN.

EMPLOYEES

     As of December 31, 1998 the Company had 155 employees, of which 13 were 
involved in engineering, purchasing, corporate development, and field 
operations, 26 were involve in network operations, marketing and creative 
service, 8 were involved in management and administration, 20 were involved 
in management information systems and accounting, and 88 were employed in the 
regional sales offices. The Company's employees are not represented by a 
collective bargaining agreement. Management considers relations with the 
Company's employees to be very good.

ITEM 2. PROPERTIES

     The Company's headquarters are located in approximately 24,200 square 
feet of office space in Eden Prairie, Minnesota, a suburb of Minneapolis. The 
Company also leases 2,150 square feet of warehouse space in Minneapolis. In 
addition, the Company has a regional sales office in each of New York, New 
York (5,779 square feet); Los Angeles, California (4,421 square feet);


                                      8

<PAGE>

Philadelphia, Pennsylvania (3,588 square feet); San Francisco, California 
(3,392 square feet); Boston, Massachusetts (2,362 square feet); Dallas, Texas 
(7,200 square feet); Washington, D.C. (2,250 square feet); Norfolk, Virginia 
(1,523 square feet); Baltimore, Maryland (1,680 square feet); Orlando, 
Florida (2,399 square feet); Fort Lauderdale, Florida (1,893 square feet); 
and Tampa, Florida (1,964 square feet). The Company's leases expire on 
various dates, ranging from April 30, 2000 to December 31, 2006, and many 
provide for renewal options.

ITEM 3. LEGAL PROCEEDINGS.

     Although the Company may be subject to litigation from time to time in 
the ordinary course of its business, it is not party to any pending legal 
proceedings that it believes will have a material impact on its business.

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

     No matter was submitted to the holders of the Series B Notes during the 
three months ended December 31, 1998.


                                      9

<PAGE>

                                    PART II

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     There is no public trading market for the Company's common equity. The 
approximate number of holders of the Company's Common Stock is 33.

     The Company has not paid cash dividends on its Common Stock since 
inception, and does not anticipate paying dividends on its Common Stock in 
the foreseeable future. The Company is restricted from paying dividends under 
its Indenture covering the Series B Notes, as well as under its Certificates 
of Designation for its 8.25% Series A Cumulative Preferred Stock ("Series A 
Preferred Stock"), Series B Senior Cumulative Compounding Convertible 
Redeemable Preferred Stock ("Series B Preferred Stock"), and Series C Senior 
Cumulative Compounding Convertible Redeemable Preferred Stock ("Series C 
Preferred Stock").

     On February 18, 1998, the Company issued warrants to purchase 125,240 
shares of Common Stock in connection with the sale of the Series A Notes. See 
"Business-Recent Developments".

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

OVERVIEW

     The Company was founded in 1990 and thereafter focused its efforts on, 
among other things, the development of its electronic out-of-home advertising 
network known as NGN (Next Generation Network) by developing and improving 
the NGN technology. At the same time, the Company concentrated its efforts on 
securing site agreements for the placement of NGN Displays as well as 
recruiting local sales personnel and opening local sales offices in its 
initially developed DMAs.

     The operating revenues of the Company presently are derived from the 
sale of advertising on NGN. The Company's primary operating expenses are for 
NGN Display operating costs and employee compensation. Advertising rates are 
based upon the availability of space on the network for the location targeted 
by the advertiser, the size and demographic makeup of the market served by 
the NGN Displays and the availability of alternative advertising media in the 
market area. Most advertising contracts are short-term. Most of the Company's 
annual gross revenues are generated from local advertising, and the remainder 
represents national advertising, both of which are primarily sold directly by 
the Company's own sales personnel.

     In 1996, the Company generated its initial revenues primarily from two 
sources: (1) sales of NGN Displays and its rights under exclusive site 
agreements within defined territories not then targeted by the Company; and 
(2) royalties on advertising sales and network operating revenues in 
owner-operator markets. At the same time, the Company continued to 
concentrate its efforts on sales of advertising and establishing site 
agreements for its own NGN Displays. Effective in January and August 1997, 
the Company entered into agreements with these owner-operators whereby the 
Company repurchased the equipment on terms that the Company considered 
favorable. In addition, through this process the owner-operators forfeited 
their respective territorial rights.


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<PAGE>

     In 1997, the scope of the Company's business shifted from sales of 
network equipment and territorial rights to sales of advertising on the 
Company's own NGN installations. During 1997, the Company generated its 
revenues from both advertising revenues from its own NGN Displays and from 
royalties on advertising sales and network operating revenues in 
owner-operator markets. Operating revenues during 1998 were principally from 
advertising on NGN Displays.

     The following table presents the number of NGN installations in their 
respective DMAs as of December 31, 1998, 1997 and 1996, respectively:

<TABLE>
<CAPTION>
                                                              December 31,
                                             ----------------------------------------------
Market:                                               1998            1997            1996
                                             ----------------------------------------------
<S>                                                   <C>             <C>             <C>
Washington, D.C.                                       510             502             183
Dallas-Ft. Worth, TX                                   263             226              47
Tampa-Clearwater-St. Petersburg, FL                    141             136             135
Miami, FL                                               86              87              90
Orlando, FL                                            243             233             220
Baltimore, MD                                          202             208             111
Norfolk, VA                                            238             239             244
West Palm Beach, FL                                     63              63              65
Ft. Myers, FL                                           46              43              40
New York, NY                                           447               -               -
Los Angeles, CA                                        490               -               -
Philadelphia, PA                                       247               -               -
San Francisco, CA                                      197               -               -
Boston, MA                                             179              21               -
Chicago, IL                                             71               -               -
San Diego, CA                                          133               -               -
Sacramento, CA                                          62               -               -
Other                                                   12              11               4
                                             ----------------------------------------------
       Total                                         3,630           1,769           1,139
                                             ----------------------------------------------
                                             ----------------------------------------------
</TABLE>

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31,1997

     Total revenues for the year ended December 31, 1998 were $2.6 million, 
an increase of $0.8 million, or 42%, compared to $1.8 million for the year 
ended December 31, 1997. The increase was attributable to the shift in the 
Company's business from owner-operator network operating fees to sales of 
advertising on the Company's own NGN installations and the opening of local 
sales offices. Three offices were opened in former owner-operator markets 
during the first quarter of 1998. The installation of NGN Displays was 
substantially completed and sales offices were opened in New York, Los 
Angeles, Philadelphia, San Francisco, Sacramento, and San Diego during the 
last six months of 1998. Advertising revenues from newly opened markets were 
minimal since efforts were concentrated on staff hiring and training. 
Advertising revenues increased to $2.6 million during 1998 compared to $1.2 
million in 1997. Network operating revenues were minimal during 1998 due to 
the termination of owner-operator agreements as discussed above. During 1998 
the Company had equipment sales and network operating revenues from site 
owners of $28,000 compared to $623,000 during 1997. Barter revenue, which was 
$257,000 during 1998 compared to $158,000 in 1997, is included in advertising 
revenue.

     Costs and expenses for the year ended December 31, 1998 were $17.3 
million, an increase of $9.3 million, or 115%, compared to $8.0 million for 
the year ended December 31, 1997.


                                      11

<PAGE>

Network operating expenses increased $2.5 million, or 88%, due to the 
increase in both the number of NGN Display installations and the number of 
months in operation. Major components of network operating expenses include 
local telephone service, telephone long distance, depreciation, maintenance, 
and site agreement expense related to the NGN Displays. The increase in site 
agreement expense was due to the repurchase of equipment in former 
owner-operator markets in August 1997, and also due to additional NGN 
installations. Site agreement expense was recorded net of reimbursement from 
owner-operators so the Company expense increased when the owner-operators 
forfeited their territorial rights. Site agreements generally provide the 
site operator with a percentage of the advertising revenues derived from the 
NGN Display at the particular site. The Company accrues monthly site 
agreement expenses which are the greater of the computed amount based on a 
percentage of revenue or, where applicable, the appropriate portion of an 
annual minimum. Most network operating expenses are fixed. Accordingly, the 
Company expects that such expenses as a percentage of advertising revenues 
will decrease as the Company's advertising revenues increase. Currently, 
network operating expenses exceed advertising revenues due to the Company's 
limited operating history.

     Selling expenses in regional sales offices were $6.1 million during 1998 
compared to $1.8 million for 1997. The increases resulted primarily from the 
addition of sales office staff (88 at December 31, 1998 compared to 32 at 
December 31, 1997) and costs associated with opening additional regional 
sales offices as noted above. General and administrative expenses were $6.0 
million during 1998 compared to $3.4 million in 1997. The increases were due 
to the additional administrative staff in computer operations, graphic 
creation, marketing, and accounting that were added to support the sales 
offices and increased advertising volume, as well as to marketing efforts 
such as printing expenses related to promotional material, market research, 
sales promotion and public relations expenses. Research and development costs 
increased to $430,000 in 1998 compared to $363,000 in 1997.

     Interest expense was $6.5 million in 1998 compared to $281,000 for 1997. 
The increase in 1998 was due to the issuance of $45 million of 12% Senior 
Secured PIK Notes (the "Notes") in February 1998. Interest income increased 
to $1.6 million in 1998 compared to $113,000 in 1997. The increase was due to 
investing the unused proceeds from the Notes.

     The net loss for the year ended December 31, 1998 increased to $19.7 
million, from $6.4 million in 1997, primarily as a result of the items 
discussed above. The Company expects to incur additional costs to install 
additional NGN Displays and for operating costs to expand NGN. The Company 
expects to incur a net loss for 1999 and expects to operate at a loss for the 
foreseeable future.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,1996

     As discussed above, in 1996 the Company entered into agreements with two 
owner-operators for the installation of NGN Displays. Net revenues generated 
during 1996, the first year of network operations, were approximately $3.2 
million, including $2.7 million resulting from sales of network equipment and 
territorial rights. The remaining $490,000 of revenues were network operating 
revenues received from two network owner-operators.

     Net revenues for the year ended December 31, 1997 were $1.8 million, a 
decrease of $1.4 million, or 43% compared to $3.2 million for the year ended 
December 31, 1996. The decrease was attributable to the shift in the 
Company's business from sales of network equipment and territorial rights to 
sales of advertising on the Company's own NGN installations. During 1997, the 
Company realized the first net advertising revenues from Company owned 
installations of approximately $1.2


                                      12

<PAGE>

million and had equipment sales of approximately $137,000, primarily to site 
owners. Although the Company does not anticipate any future equipment and 
territorial rights sales to owner-operators, sales of equipment to site 
owners may continue. Network operating revenues from owner-operators were 
approximately the same at $490,000 in 1996 and $485,000 in 1997 as a result 
of equivalent months of network operating fees from owner-operators. The 
owner-operators forfeited the territories and the Company repurchased the NGN 
equipment in 1997. The Company does not anticipate any future owner-operator 
network operating revenues. Barter revenue was $158,000 during 1997 and is 
included in advertising revenue. There was no barter revenue in 1996.

     Costs and expenses for the year ended December 31, 1997 were $8.0 
million, an increase of $3.0 million, or 58%, compared to $5.1 million for 
the year ended December 31, 1996. Network operating expenses increased $2.4 
million due to the increase in both the number of NGN Display installations 
and equivalent months in operation. Site lease expense accounted for $1.1 
million of the increase since the first Company owned units were not 
installed until December, 1996. Selling expenses of $1.8 million were 
incurred for the first time during 1997 as the result of the addition of 
sales staff and the opening of seven regional sales offices and the 
generation of the first advertising revenues from Company owned NGN 
installations. General and administrative expenses increased approximately 
$921,000. Compensation costs increased $286,000 primarily due to additional 
administrative staff in computer operations, graphic creation, and accounting 
added to support the sales offices and increased advertising revenues. 
General and administrative expenses also increased due to increases in 
marketing costs such as printing, market research, sales promotion, and 
public relations ($266,000), and increases of $189,000 in professional fees 
due primarily to increased computer related consulting fees. The cost of 
network equipment sales decreased $2.2 million due to the change in scope of 
the Company's business as mentioned above. Research and development costs 
increased to $363,000 for 1997, compared to $222,000 for 1996, primarily due 
to the Company's efforts in the area of software development.

     Interest expense for 1997 was $49,000 higher than in 1996 due to 
slightly higher average levels of long term debt and capital lease 
obligations. Interest income increased $31,000 from 1996 to 1997 due to 
investing the unused proceeds from the issuance of the Company's 14.8% Series 
B and Series C Mandatory Redeemable Preferred Stock.

     The net loss for the year ended December 31, 1997 increased to $6.4 
million, from $2.1 million in 1996, primarily as a result of the items 
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

     Through December 31, 1998, the Company's primary source of liquidity has 
been proceeds from the sale of equity and debt securities.

     As of December 31, 1998, total cash and cash equivalents were $24.7 
million compared to $2.8 million as of December 31, 1997. The increase in 
cash was a result of financing activities, including $40.2 million of net 
cash provided by the sale of units ("Units") consisting of Senior Secured PIK 
Notes (the "Notes") and warrants ("Warrants") after offering expenses ($42.1 
million) and repayment of long term debt ($1.9 million) offset by $10.5 
million of cash used in operating activities (due to the loss from 
operations) and $7.8 million of cash used in investing activities (primarily 
for capital expenditures related to the expansion of the NGN network). The 
Company expects that increasing sales volume will require the use of 
additional cash to fund increased receivable levels.


                                      13

<PAGE>

     Interest on the Notes is payable on February 1 and August 1 of each 
year, commencing August 1, 1998. Interest on the Notes is payable either in 
cash or additional Notes, at the option of the Company through August 1, 
2000, and thereafter is payable in cash. Accordingly, the Company will not be 
required to pay cash interest payments on the Notes until the February 1, 
2001 interest payment date. Additional Notes were issued in the amount of 
$2,441,000 for the interest payment due August 1, 1998 and in the amount of 
$2,841,000 for the interest payment due February 1, 1999. The Company expects 
to pay interest through August 1, 2000, by issuing additional Notes, which 
would increase the $45 million principal amount of the Notes to approximately 
$60.2 million.

     The Company anticipates that its $24.7 million of cash and its operating 
cash flow will be sufficient to finance the operating requirements of the 
Company and anticipated capital expenditures primarily related to the 
expansion of NGN through 1999. The Company's cash flow is dependent on the 
Company's ability to increase advertising revenues and is subject to 
financial, economic and other factors, some of which are beyond its control. 
If the Company is unable to increase revenues as anticipated or operating 
expenses are higher than anticipated, the Company will need to raise 
additional capital to satisfy its obligations. There can be no assurance that 
the additional funds will be available, or if available, will be available on 
terms acceptable to the Company. The Company believes that the current 
installed base of NGN Displays is large enough to attain profitable 
operations when advertising revenues reach desired levels.

     The Company does not believe it has any significant risk related to 
interest rate fluctuation since it has only fixed rate debt.

YEAR 2000

BACKGROUND, ISSUES AND STATE OF READINESS

     Year 2000 (Y2K) issues are the result of computer programs being written 
using two digits to define year dates. Computer programs running 
date-sensitive software may recognize a date using "00" as the year 1900 
rather than the year 2000. This could result in systems failure or 
miscalculations causing disruption of operations.

     The Company's overall goal is to be Y2K ready. To accomplish this goal, 
the Company has been addressing the issue with respect to both its 
information technology (IT) and non-IT systems, as well as its business 
relationships with key third parties. To be ready, the Company needs to 
evaluate the Y2K issues and fix any problems it can so that all of its 
systems and relationships will be suitable for continued use into and beyond 
the Year 2000.

     The Company began addressing the Year 2000 issue in 1998 by establishing 
a Y2K team (the "Team") comprised of individuals from the following 
disciplines: technical support, software development, database 
administration, networking, and management. To deal with Y2K the Team is 
using a multi-step approach, including assessment, remediation and testing, 
and contingency planning. The Company began by assessing its major internal 
software systems that were susceptible to systems failure or processing 
errors as a result of the Y2K issue. This assessment is currently in the 
discovery phase. There are two discovery methods being exercised at this 
time: 1) A manual check and double check of all internally generated 
databases, scripts, and compiled applications; and 2) An automated check of 
commercial, shareware and freeware applications in addition to the documents 
generated for or by those applications.


                                      14

<PAGE>

     The remaining estimated time to complete the aforementioned project is 
approximately 60 days of effort, distributed across the Team. A trial run or 
preliminary screening of software and hardware making up 10% of the Company's 
systems yielded no business critical issues. The Team's Y2K efforts have also 
included assessment of "embedded" systems (such as building security, 
telephone systems and elevator systems).

     As part of the assessment phase, the Team members have also been working 
with vendors of business critical hardware and software to identify any Y2K 
compliance issues. The Team has gathered many certificates and/or statements 
of compliance. Physical statements are filed by vendor and by product. 
Electronic or online statements of compliance or references to statements of 
compliance are being stored in a Y2K assessment database. This activity has 
and will continue to include statements from business critical and 
non-business critical vendors. In addition, the Team has received 
communications from its significant third party vendors and service providers 
stating that they are generally on target to become Year 2000 compliant in 
1999 if they have not already done so. The Company cannot predict the outcome 
of other companies' remediation efforts and there can be no assurance that 
those third party vendors and service providers will complete their Y2K 
compliant projects in a timely manner and that failure to do so would not 
have an adverse impact on the Company's business.

YEAR 2000 COSTS

     The Company is actively working on its Y2K compliance plan which is 
scheduled to be substantially complete by June 1999. As of December 31, 1998, 
the Company incurred and expensed less than $10,000 on matters directly 
related to addressing Y2K issues and does not expect to spend more than an 
additional $20,000 in connection with becoming Year 2000 compliant. The 
remaining costs will be expensed as incurred over the next year. The cost of 
the project and the date on which the Company plans to complete Year 2000 
assessment and modifications are based on the Team's best estimates, which 
were derived utilizing numerous assumptions of future events including the 
availability of certain resources, third parties' Year 2000 readiness and 
other factors.

RISK ASSESSMENT AND CONTINGENCY PLANS

     At this point in time the Company's topic of greatest concern relative 
to Y2K is the potential failure or partial failure of the national phone 
network. In event of such a failure, the Company's NGN field units would 
continue to run based on resident information. This type of event could 
affect some long-term advertising contracts. There is also some probability 
of the need to make refunds or to make-good any missed advertising due to 
missed updates or uploads that would otherwise have happened during a phone 
network outage. Complete or partial failure of the national phone network 
could have a material adverse impact on the Company's results of operations, 
financial condition and cash flows if it lasted for an extended period of 
time.

     The Company is developing a formal contingency plan so that the 
Company's critical business processes can be expected to continue to function 
on January 1, 2000 and beyond. The Company's contingency plans will be 
structured to address both remediation of systems and their components and 
overall business operating risks. These plans are intended to mitigate both 
internal risks as well as potential risks with third parties, and will likely 
include identifying and securing alternative suppliers. The Company also 
intends to have its contingency plans substantially finalized by June 1999.


                                      15

<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

        The financial statements follow Item 13 in this report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE.

        None.








                                      16

<PAGE>

                                   PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     The directors, executive officers and significant employees of the 
Company are as follows:

<TABLE>
<CAPTION>

Name                                                Age       Position
----                                                ---       --------
<S>                                                 <C>       <C>
Gerard P. Joyce......................................47       Chairman of the Board of Directors and
                                                              President
Thomas M. Pugliese...................................36       Vice Chairman of the Board of Directors,
                                                              Chief Executive Officer and Secretary
Timothy P. Hartman...................................60       Director
Malcolm Lassman......................................61       Director
Michael J. Marocco...................................40       Director
Susan Molinari.......................................40       Director
David R. Voelker.....................................45       Director
Thomas J. Davis......................................51       Director
Alejandro Zubillaga..................................30       Director
Carol A. Lundstrom...................................47       Executive Vice President
Michael J. Kolthoff..................................46       Treasurer and Assistant Secretary
Dennis Reese.........................................46       Vice President-Sales
Thomas Mosher........................................57       Vice President-Sales

</TABLE>

     GERARD P. JOYCE. Mr. Joyce founded the Company in 1990 and has served as 
the Company's Chairman of the Board of Directors since inception and as its 
President since December 1991. Prior to founding the Company, Mr. Joyce was 
Chairman and Chief Executive Officer of the Patrick Media Group, Inc. a 
successor to a company he formed in 1969. The Patrick Media Group, Inc. 
through internal growth and a series of acquisitions, became the largest 
out-of-home advertising company in the United States. Mr. Joyce sold his 
controlling interest in the Patrick Media Group, Inc. in September 1989. 
Mr. Joyce is Thomas Davis' brother-in-law.

     THOMAS M. PUGLIESE. Mr. Pugliese founded the Company together with 
Gerard Joyce in 1990 and has served as the Company's Vice Chairman of the 
Board of Directors since its inception. From 1988 to 1990, Mr. Pugliese was 
President of Thomas More & Company, Inc., a private investment banking firm. 
From 1984 through 1988, Mr. Pugliese was an investment banker with Shearson, 
Lehman, Hutton Inc. and its predecessor form, E. F. Hutton & Company, Inc. 
where he held various positions in New York and London, including as American 
representative for the firm's international investment banking operations.

     TIMOTHY P. HARTMAN. Mr. Hartman has been a director of the Company since 
1996. Mr. Hartman was employed by NationsBank Corporation from 1982 until his 
retirement in 1996, at which time he served as Vice Chairman and as a 
director as well as the Chairman of the Board of its subsidiary, NationsBank 
of Texas. He is currently a private investor. Mr. Hartman serves as a 


                                       17

<PAGE>

Director of Sensormatic Electronics Corporation, a public company listed on 
the New York Stock Exchange ("NYSE"), and chairs its Finance Committee.

     MALCOLM LASSMAN. Mr. Lassman was elected as a director of the Company in 
1998. Mr. Lassman is a managing partner of the Washington office of Akin, Gump, 
Strauss, Hauer & Feld, L.L.P., a leading international law firm, a position he 
has held since 1970.

     MICHAEL J. MAROCCO. Mr. Marocco has been a director of the Company since 
1996. Since 1989, he has been employed with Sandler Capital Management, a 
communications specific capital management firm, managing approximately $1 
billion invested in both public and private companies. He is a general 
partner with primary responsibility for private investment activities. He 
serves as a director for Source Media Inc., which is a public company listed 
on Nasdaq.

     SUSAN MOLINARI. Ms. Molinari was elected a director of the Company in 
1999. Ms. Molinari is a prominent Republican political figure whose political 
career began with her election to the New York City Council where she served 
from 1986 to 1990. She served as a member of the United States House of 
Representatives from 1990 to 1997. She also hosted the CBS Morning Show from 
1997 to 1998.

     DAVID R. VOELKER. Mr. Voelker has been a director of the Company since 
1996. Since 1993, Mr. Voelker has been a partner of Frantzen/Voelker 
Investments, LLC, and is a private investor with interests in real estate, 
oil & gas, media and restaurants. From 1988 until founding Frantzen/Voelker 
Investments, LLC, Mr. Voelker was a partner in Johnson Rice and Company, a 
New Orleans, Louisiana investment brokerage firm. He is a Director of several 
companies including Stone Energy Corporation, which is listed on the NYSE.

     THOMAS J. DAVIS, CPA. Mr. Davis has been a director of the Company since 
1996. Mr. Davis is an executive with Piaker & Lyons, P.C., a New York 
accounting firm where he has been employed since 1972. Mr. Davis's practice 
specializes in auditing, financial reporting and planning for closely held 
businesses in the communications and other industries. Mr. Davis is a 
Certified Public Accountant in the State of New York. Mr. Davis is Gerard 
Joyce's brother-in-law.

     ALEJANDRO ZUBILLAGA. Mr. Zubillaga was elected as a director in January 
1998. He is the founder and Chairman of Veninfotel LLC, Venezuela's leading 
provider of cable television and other telecom services. Mr. Zubillaga is 
also the Chief Executive Officer of Grupo Zubillaga, a family holding company 
which holds interests in real estate and mining.

     CAROL A. LUNDSTROM. Ms. Lundstrom currently serves as Executive Vice 
President of the Company. She has been an employee of the Company since its 
inception in 1990. From 1989 until 1990, she was a Marketing and 
Administration Executive with Electric Avenue, Inc. From 1981 to 1989, she 
was an executive with Apache Corporation, an asset management company, and 
held positions including Project Manager, Manager of Investor Relations, 
Reporting, Systems and Accounting.

     MICHAEL J. KOLTHOFF. Mr. Kolthoff currently serves as the Company's 
Treasurer and Assistant Secretary. From 1993 until he joined the Company in 
July 1995, Mr. Kolthoff was Chief Financial Officer for ONYX Real Estate 
Services. From May 1985 until November 1992, he was Chief Financial Officer 
of Maico Hearing Instruments. Prior to that time, he was Corporate Controller 
for Econo-Therm Energy Systems Corporation and held various senior audit 
positions with Coopers & Lybrand. Mr. Kolthoff is a Certified Public 
Accountant in the State of Minnesota.


                                       18

<PAGE>

     DENNIS REESE. Mr. Reese currently serves as Vice President of Sales, 
Eastern Region. Mr. Reese has been an employee of the Company since 1996. 
From June 1996 to December 1996, Mr. Reese was National Sales Manager for an 
Evergreen Media radio station. He was a General Sales Manager with Greater 
Media from 1992 to 1996.

     THOMAS MOSHER. Mr. Mosher currently serves as Vice President of Sales, 
Western Region. He has been an employee of the Company since 1998, and 
previously served as General Manager of the Company's Los Angeles office. 
From 1993 to 1998, Mr. Mosher was President of Media Marketing Resources. 
Prior to that time, Mr. Mosher held the position of General Manager at 
numerous radio stations across the country in markets such as Los Angeles 
(KGIL, KMGX), Orlando (KLITE, WXXL), Detroit (WDRQ), Colorado Springs (KSPZ) 
and Providence (WSNE).

     The Company does not have any class of equity securities registered 
pursuant to Section 12 of the Exchange Act.

ITEM 10.  EXECUTIVE COMPENSATION

     The following table summarizes the compensation for services rendered to 
the Company paid to the Chief Executive Officer and the Company's executive 
officers as to whom the total annual salary and bonus exceeded $100,000 in 
1998 or 1997.

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                ANNUAL COMPENSATION
                                                                       -------------------------------------------
                                                                                                       RESTRICTED
                                                                       SALARY           BONUS          STOCK AWARD
Name and Principal Position                                   YEAR     ($)              ($)            ($)
---------------------------                                   ----     ------------------------        -----------
<S>                                                           <C>      <C>              <C>            <C>
Gerard P. Joyce...............................................1998     $251,741         $60,000
Chairman of the Board of Directors, President                 1997      251,741          60,000

Thomas M. Pugliese............................................1998      250,000          50,000           $17,710
Vice Chairman, Chief Executive Officer, Secretary.............1997      212,587

Carol A. Lundstrom............................................1998      100,000          10,000
Executive Vice President......................................1997       67,000

Dennis Reese..................................................1998      147,534          10,000
Vice President-Sales

</TABLE>

     Non-employee directors of the Company receive a director's fee of $1500 
for each Board of Directors meeting attended in person, and for each separate 
committee meeting attended in person.

EMPLOYMENT AGREEMENTS


                                       19

<PAGE>

     The Company has an employment agreement with Gerard Joyce, its Chairman 
of the Board of Directors and President. The term of Mr. Joyce's employment 
agreement expires on December 31, 1999. Under the agreement, Mr. Joyce is 
entitled to an annual base salary of $251,741 and an annual bonus of $60,000 
payable after each calendar year based on criteria to be established by 
agreement between Mr. Joyce, the Company and the Series B Director, currently 
designated as Mr. Marocco. In addition, the agreement requires the Company to 
provide if requested by him a life insurance policy payable to his designated 
beneficiary, with a death benefit of at least $1,000,000. The Company has 
agreed to acquire a life insurance policy with a death benefit of $10,000,000 
payable to Mr. Joyce's designated beneficiary. Subject to certain exceptions, 
Mr. Joyce has agreed during the term of the agreement and for a period of two 
years thereafter not to engage in certain competitive business activities and 
not to solicit any employee of the Company to leave the Company's employ. 
Pursuant to his employment agreement, Mr. Joyce has been granted 8,831 shares 
of the Company's Common Stock which are subject to forfeiture if Mr. Joyce's 
employment with the Company is terminated by him, or by the Company for 
cause, prior to December 31, 2006 or the earlier happening of certain other 
events. Such forfeiture provisions will be removed December 31, 2006 or 
earlier upon the occurrence of such events, which include death, disability, 
a public offering of the Company's Common Stock in which such shares are 
registered for resale, and the merger, consolidation or sale of substantially 
all of the Company's assets.

     Thomas Pugliese, the Company's Vice Chairman of the Board of Directors 
and Chief Executive Officer, is party to a similar employment agreement with 
the Company, providing for a term expiring on December 31, 1999, an annual 
base salary of $250,000 and the grant of 4,983 shares of Common Stock, which 
are similarly subject to forfeiture. Under the agreement Mr. Pugliese 
received 230 shares of Series C Preferred Stock in 1998, subject to 
forfeiture provisions similar to those applicable to the grant of Common 
Stock. The agreement also provides for life insurance and disability benefits 
for Mr. Pugliese similar to those received by Mr. Joyce, and the Company has 
agreed to acquire a life insurance policy with a $10,000,000 death benefit 
payable to Mr. Pugliese's designated beneficiary.

401 (k) PLAN

     The Company maintains a retirement plan (the "401 (k) Plan") established 
in conformity with Section 401 (k) of the Internal Revenue Code of 1986, as 
amended (the "Code"), covering all of the eligible employees of the Company. 
Pursuant to the 401 (k) Plan, employees may elect to defer up to 15% of their 
current pre-tax compensation and have the amount of such deferral contributed 
to the 401 (k) Plan. The maximum elective deferral contribution was $10,000 
in 1998, subject to adjustment for cost-of-living in subsequent years. 
Certain highly compensated employees may be subject to a lesser limit on 
their maximum elective deferral contribution. The 401 (k) Plan permits, but 
does not require, matching contributions and non-matching (profit sharing) 
contributions to be made by the Company up to a maximum dollar amount or 
maximum percentage of participant contributions, as determined annually by 
the Company. The Company presently does not match employee contributions. The 
401 (k) Plan is qualified under Section 401 of the Code so that contributions 
by the employees and employer, if any, to the 401 (k) Plan, and income earned 
on plan contributions, are not taxable to employees until withdrawn from the 
401 (k) Plan, and so that contributions by the Company, if any, will be 
deductible by the Company when made.

STOCK OPTION PLANS AND OTHER EMPLOYEE INCENTIVE PLANS


                                       20

<PAGE>

     The Company has adopted three Stock Option Plans (the "Plans") for the 
purpose of advancing the interests of the Company and its stockholders by 
strengthening the Company's ability to attract and retain competent 
employees, to make service on the Board of Directors of the Company more 
attractive to present and prospective non-employee directors and to provide a 
means to encourage stock ownership and proprietary interest in the Company by 
officers, non-employee directors and valued employees and other individuals 
upon whose judgment, initiative and efforts the financial growth of the 
Company largely depend. The Plans are currently, and have been since their 
adoption, administered by the Board of Directors and the compensation 
committee of the Board.

     Incentive stock options ("ISOs") may be granted only to officers and key 
employees of the Company. Nonqualified stock options may be granted to such 
officers and employees as well as to agents and directors of and consultants 
to the Company, whether or not otherwise employees of the Company. In 
determining the eligibility of an individual for grants under the Plans, as 
well as in determining the number of shares to be optioned to any individual, 
the Board takes into account the position and responsibilities of the 
individual being considered, the nature and value to the Company of his or 
her service or accomplishments, his or her accomplishments, his or her 
present or potential contribution to the success of the Company and such 
other factors as the Board may deem relevant.

     Plans with respect to 12,000 of the options provide for the granting of 
ISOs to purchase the Company's Common Stock at not less than the fair market 
value on the date of the option grant and the granting of nonqualified 
options with any exercise price. The total number of shares with respect to 
which options may be granted under the Plans is 94,000. As of December 31, 
1998, options for an aggregate of 5,106 shares have been granted to various 
individuals. To date, all options issued under the Plans have been 
nonqualified options. The Plans providing for the potential grant of ISOs 
contain certain limitations applicable only to ISOs granted thereunder. To 
the extent that the aggregate fair market value, as of the date of grant, of 
the shares to which ISOs become exercisable for the first time by an optionee 
during the calendar year exceeds $100,000, the option will be treated as a 
nonqualified option. In addition, if any optionee owns more than 10% of the 
total voting power of the Company's stock at the time the individual is 
granted an ISO, the option price per share cannot be less than 110% of the 
fair market value per share and the term of the ISO cannot exceed five years. 
No option may be granted under the Plans after January 1, 2004 with respect 
to 4,000 of the options and January 1, 2005 with respect to 90,000 of the 
options, and no option may be outstanding for more than four years thereafter.

     Upon the exercise of an option, the holder must make payment of the full 
exercise price. Such payment may be made under certain circumstances in 
shares of Common Stock. The Plans may be terminated at any time by the Board 
of Directors, which may also amend the Plans.

     In addition to the Plans, the Company intends to implement additional 
incentive plans which may include stock options, stock appreciation rights, 
profit sharing or similar type plans.

     Set forth below is information concerning options that are held by 
Executive Officers listed in the Summary Compensation Table:


                                       21

<PAGE>

<TABLE>
<CAPTION>

                                                                Number of Shares of Common Stock Underlying
                                                                             Unexercised Options
                                                               ---------------------------------------------
                         Name                                  Exercisable                     Unexercisable
------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                             <C>
Carol Lundstrom                                                    591                              ---
Dennis Reese                                                       200                              800

</TABLE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information as of December 31, 1998
with respect to the beneficial ownership of the outstanding shares of Common
Stock by (i) any stockholder known by the Company to beneficially own more than
five percent of such outstanding shares, (ii) the Company's directors and
executive officers and (iii) the directors and executive officers of the Company
as a group. Except as otherwise indicated, the address of each beneficial owner
of five percent or more of such Common Stock is the same as the Company. Shares
of Common Stock included in the table which are issuable upon conversion of
shares of Preferred Stock give effect to the accrual of dividends added to the
liquidation value. The Company's outstanding Preferred Stock may be converted at
any time at the holder's option.

<TABLE>
<CAPTION>

                                                                  Amount
         Name and Address of                                    Beneficially                   Ownership
         Beneficial Owner                                          Owned                       Percentage
         -------------------                                    ------------                   ----------
         <C>                                                    <C>                            <C>
         Gerard P. Joyce......................................  158,899 (1)                        54.9%
         Thomas M. Pugliese...................................   70,154 (2)                        26.2
         Thomas J. Davis......................................    1,804 (3)                          *
         David Voelker........................................    9,922 (4)                         3.7
         Timothy P. Hartman...................................   18,582 (5)                         6.6
         Carol Lundstrom.......................................      591 (6)                          *
         Michael J. Marocco...................................  106,064 (7)                        28.4
         Alejandro Zubillaga..................................   15,330 (8)                         5.4
         John Strauss.........................................   17,700                             6.6
         200 Crescent Court
         Dallas, Texas 75201
         Pulitzer Publishing Company..........................   31,562 (9)                        10.6
         900 North Tucker Boulevard
         St. Louis, Missouri 64101
         Western Asset........................................   43,941 (10)                       14.2
         117 East Colorado Boulevard
         Pasadena, CA 91105
         Sun America Investments, Inc.........................   29,294 (10)                        9.9
         1 Sun America Center
         38th Floor
         Century City
         Los Angeles, CA 90067-6022
         All directors and executive officers
         as a Group  (13 persons).............................  382,746                          88.5

</TABLE>

--------------------------
*      Less than 1%


                                          22
<PAGE>


(1)  Includes 23,401 shares of Common Stock issuable upon conversion of shares 
     of Series A Preferred Stock and Series C Preferred Stock.

(2)  Includes 1,098 shares of Common Stock issuable upon conversion of shares of
     Series A, B, and C Preferred Stock.

(3)  Includes 904 shares of Common Stock issuable upon conversion of shares of
     Series B Preferred Stock and 200 shares issuable upon exercise of warrants.

(4)  Represents shares owned by Frantzen/Voelker Investments, LLC, of which Mr.
     Voelker is a manager, including 1,972 shares of Common Stock issuable upon
     conversion of shares of Series C Preferred Stock.

(5)  Includes 15,082 shares of Common Stock issuable upon conversion of shares
     of Series B Preferred Stock and Series C Preferred Stock. 

(6)  Includes 591 shares of Common Stock issuable upon exercise of stock
     options.

(7)  Represents shares of Common Stock issuable upon conversion of shares of
     Series B Preferred Stock and Series C Preferred Stock owned by affiliates
     of 21st Century Communications Partners, each of which is a limited
     partnership of which Sandler Investment Partners, L.P. is a general
     partner. Mr. Marocco is a general partner of Sandler Investment Partners,
     L.P.

(8)  Represents shares of Common Stock issuable upon conversion of shares of
     Series C Preferred Stock owned be Elektra Investments A.V.V., which is
     controlled by Mr. Zubillaga.

(9)  Represents shares of Common Stock issuable upon conversion of shares of
     Series C Preferred Stock. 

(10) Represents shares of Common Stock issuable upon exercise of Warrants 
     issued in the Units Offering.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     On September 15, 1993, Gerard P. Joyce, the Chairman of the Board of
Directors and President of the Company, loaned $2,375,000 to the Company, and
the Company granted to Mr. Joyce a security interest in all of the Company's
assets as security for its obligation. On August 29, 1997, in consideration for
the issuance of shares of Series C Preferred Stock to Mr. Joyce, the principal
amount of the obligation was reduced by $500,038. In February 1998, the Company
repaid such indebtedness in the amount of $1,875,462 to Mr. Joyce in full with
the net proceeds of the Units offering and the security interest held by Mr.
Joyce was terminated.


                                        23

<PAGE>

<TABLE>
<CAPTION>

ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 8-K:

<S>           <C>
                a)  Exhibits
3.1(a)        Certificate of Incorporation, filed June 7, 1990(1)
3.1(b)        Certificate of Amendment, filed October 24, 1990 (1)
3.1(c)        Certificate of Designation, filed November 13, 1990 (Preferred Stock) (1)
3.1(d)        Certificate of Correction, filed June 13, 1991 (1)
3.1(e)        Certificate of Amendment, filed June 13, 1991 (1)
3.1(f)        Certificate of Amendment, filed February 5, 1993 (1)
3.1(g)        Certificate of Amendment, filed September 25, 1996 (Series A Preferred  Stock) (1)
3.1(h)        Certificate of Designation, filed September 25, 1996 (Series A Preferred Stock) (1)
3.1(i)        Certificate of Designation, filed September 25, 1996 (Series B Preferred Stock) (1)
3.1(j)        Certificate of Correction, filed December 6, 1996 (1)
3.1(k)        Certificate of Amendment, filed January 7, 1997 (1)
3.1(l)        Certificate of Amendment, filed August 28, 1997 (1)
3.1(m)        Certificate of Designation, filed August 28, 1997 (Series C Preferred Stock) (1)
3.1(n)        Certificate of Amendment, filed August 28, 1997 (Series A Preferred Stock) (1)
3.1(o)        Certificate of Amendment, filed August 28, 1997 (Series B Preferred Stock) (1)
3.1(p)        Certificate of Correction, filed August 29, 1997 (1)
3.1(q)        Certificate of Correction, filed August 29, 1997 (Series A Preferred Stock) (1)
3.1(r)        Certificate of Correction, filed August 29, 1997 (Series B Preferred Stock) (1)
3.1(s)        Certificate of Amendment, filed February 4, 1998 (Series B Preferred Stock) (1)
3.1(t)        Certificate of Amendment, filed February 4, 1998 (Series C Preferred Stock) (1)
3.1(u)        Certificate of Amendment, filed February 18, 1998 (Series B Preferred Stock) (1)
3.1(v)        Certificate of Amendment, filed February 18, 1998 (Series C Preferred Stock) (1)
3.1(w)        Certificate of Amendment dated as of August 31, 1998 (2)
3.1(x)        Certificate of Amendment, filed December 22, 1998 (Series B Preferred Stock)
3.1(y)        Certificate of Amendment, filed December 22, 1998 (Series C Preferred Stock)
3.2(a)        By-Laws of the Company (1)
3.2(b)        Amendment to By-Laws (1)
3.2(c)        Amended and Restated By-Laws
4.1(a)        Indenture dated February 18, 1998 between the Company and the Trustee (1)
4.1(b)        Exchange and  Registration  Rights  Agreement  dated February 18, 1998 between the Company and the Initial
              Purchaser (1)
4.1(c)        Pledge Agreement dated February 18, 1998 between the Company and the Initial 
              Purchaser (1) 
4.1(d)        Security Agreement dated February 18, 1998 between the Company and the Initial 
              Purchaser (1) 
4.1(e)        Purchase Agreement dated February 18, 1998 between the Company and the Initial 
              Purchaser (1) 
4.1(f)        Unit Agreement dated February 18, 1998 between the Company and the Initial Purchaser
              (1)


                                      24

<PAGE>


10.1(a)       Form of Co-Investment Agreement relating to issuances of Preferred
              Stock in 1997 (1)

10.1(b)       Stock Purchase Agreement dated September 25, 1996 between the
              Company and 21st Century Communication Partners, L.P., 21st
              Century Communications T-E Partners, L.P. and 21st Century
              Communications Foreign Partners, L.P. (1)

10.1(c)       Amended and Restated Registration Rights Agreement between the
              Company and Stephen Adams (1)

10.1(d)       Stock Purchase Agreement dated August 29, 1997 between the Company
              and 21st Century Communication Partners, L.P., 21st Century
              Communications T-E Partners, L.P. and 21st Century Communications
              Foreign Partners, L.P., and Pulitzer Publishing (1)

10.1(e)       Registration Rights Agreement dated September 25, 1996 between the
              Company, 21st Century Communication Partners, L.P., 21st Century
              Communications T-E Partners, L.P. and 21st Century Communications
              Foreign Partners, L.P., and certain holders of the Company's
              Series B Cumulative Compounding Convertible Redeemable Preferred
              Stock and certain other shareholders of the Company (1)

10.1(f)       First Amendment to Registration Rights Agreement dated August 29,
              1997 between the Company, 21st Century Communication Partners,
              L.P., 21st Century Communications T-E Partners, L.P. and 21st
              Century Communications Foreign Partners, L.P., and certain holders
              of the Company's Series B Cumulative Compounding Convertible
              Redeemable Preferred Stock and certain other shareholders of the
              Company and the Series C Stockholder (1)

10.1(g)       Second Amendment to Registration Rights Agreement entered into on
              February 18, 1998 between the Company, 21st Century Communication
              Partners, L.P., 21st Century Communications T-E Partners, L.P. and
              21st Century Communications Foreign Partners, L.P (1)

10.1(h)       Preemptive Rights Agreement dated September 25, 1996 between the
              Company, 21st Century Communication Partners, L.P., 21st Century
              Communications T-E Partners, L.P. and 21st Century Communications
              Foreign Partners, L.P. (1)

10.1(i)       First Amendment to Preemptive Rights Agreement dated August 29,
              1997 between the Company, 21st Century Communication Partners,
              L.P., 21st Century Communications T-E Partners, L.P. and 21st
              Century Communications Foreign Partners, L.P., and certain holders
              of the Company's Series B Cumulative Compounding Convertible
              Redeemable Preferred Stock and certain other shareholders of the
              Company (1)

10.1(j)       Joinder Agreement dated December 26, 1995 by and between Stephen
              Adams, Gerard P. Joyce and Thomas M. Pugliese (1)

10.1(k)       Stockholder Agreement dated September 25, 1996 by and among
              the Company and 21st Century Communication Partners, L.P., 21st 
              Century Communications T-E Partners, L.P. and 21st Century
              Communications Foreign Partners, L.P., Gerard P. Joyce and Thomas
              Pugliese. (1)

10.1(l)       First Amendment to Stockholders Agreement dated August 29, 1997
              between the Company and 21st Century Communication Partners, L.P.,
              21st Century Communications T-E Partners, L.P. and 21st Century
              Communications Foreign Partners, L.P., Gerard P. Joyce, Thomas
              Pugliese and Pulitzer Publishing (1)

10.1(m)       Stock Purchase Agreement dated December 26, 1995 by and between
              Stephen Adams and the Company (1)

10.1(n)       Letter Agreement dated March 19, 1996 by and between Stephen Adams
              and the 


                                       25
<PAGE>


              Company (1)

10.1(o)       Amendment for Consents and Waivers dated as of January 21, 1998 by
              21st Century Communication Partners, L.P., 21st Century
              Communications T-E Partners, L.P. and 21st Century Communications
              Foreign Partners, L.P. and Pulitzer Publishing (1)

10.1(p)       Form of Registration Rights Agreement between the Company and
              certain holders of common stock (1) 

10.1(q)       Form of Registration Rights Agreement between the Company and
              Warrant Holders for the exercise of Warrant Shares (1)

10.1(r)       Second Amendment to Stockholders Agreement between the Company and
              21st Century Communication Partners, L.P., 21st Century
              Communications T-E Partners, L.P. and 21st Century Communications
              Foreign Partners, L.P., Gerard P. Joyce, Thomas Pugliese and
              Pulitzer Publishing (1)

10.1(s)       Third Amendment to Stockholders Agreement between the Company and
              21st Century Communication Partners, L.P., 21st Century
              Communications T-E Partners, L.P. and 21st Century Communications
              Foreign Partners, L.P., Gerard P. Joyce and Thomas Pugliese

10.2(a)*      Employment Agreement dated August 1, 1990 between the Company and
              Gerard P. Joyce (1)

10.2(b)*      Amendment to Employment Agreement entered into September 25, 1996
              between the Company and Gerard P. Joyce (1)

10.3(a)*      Employment Agreement dated August 1, 1990 between the Company and
              Thomas M. Pugliese (1) 

10.3(b)*      Amendment to Employment Agreement entered into September 25, 1996 
              between the Company and Thomas M. Pugliese (1)

10.3(c)*      Second Amendment to Employment Agreement entered into August 29,
              1997 between the Company and Thomas M. Pugliese (1)

10.3(d)*      Third Amendment to Employment Agreement between the Company and
              Thomas M. Pugliese

10.4(a)**     Media Network Services Agreement by and between The Southland
              Corporation and the Company ("Southland Contract") (1)

10.4(b)**     Amendment No. 1 to Southland Contract

27.1          Financial Data Schedule


</TABLE>


*  Management contract or compensatory plan or arrangement

** Portions of this Exhibit have been omitted and filed separately with the SEC
pursuant to a request for Confidential Treatment.

(1)  Such Exhibit was filed with the Company's Registration Statement on Form
     S-4 (File No.333-49279) and is incorporated herein by reference.
(2)  Such Exhibit was filed with the Company's Quarterly Report on Form 10-QSB
     for the period ended September 30, 1998 and is incorporated herein by
     reference.

                  b) Reports on Form 8-K
                  None


                                       26

<PAGE>

                         INDEX TO FINANCIAL STATEMENTS
                         NEXT GENERATION NETWORK, INC.

                                   CONTENTS

<TABLE>

<S>                                                                                                   <C>
Independent Auditor's Report..........................................................................28
Balance Sheets as of December 31, 1998 and 1997.......................................................29
Statements of Operations for Year Ended December 31, 1998, 1997 and 1996..............................30
Statements of Changes in Stockholders' Deficit for the Years Ended
  December 31, 1998, 1997 and 1996....................................................................31
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.........................32
Notes to Financial Statements.........................................................................33

</TABLE>


                                       27

<PAGE>

                         INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Next Generation Network, Inc.
Eden Prairie, Minnesota

     We have audited the accompanying balance sheets of Next Generation 
Network, Inc. as of December 31, 1998 and 1997, and the related statements of 
operations, changes in stockholders' deficit, and cash flows for each of the 
three years in the period ended December 31, 1998. 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 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 financial statements referred to above present 
fairly, in all material respects, the financial position of Next Generation 
Network, Inc. as of December 31, 1998 and 1997, and the result of its 
operations and its cash flows for each of the three years in the period ended 
December 31, 1998, in conformity with generally accepted accounting principles.


                                       McGLADREY & PULLEN, LLP


Minneapolis, Minnesota
February 17, 1999


                                       28

<PAGE>

                         NEXT GENERATION NETWORK, INC.
                                BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                  December 31,
                                                                          ----------------------------
                                                                               1998           1997
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
ASSETS  (Note 2)
        Current Assets:
          Cash and cash equivalents                                       $ 24,710,213    $  2,789,142
          Trade accounts receivable, less allowance of $119,000
            in 1998 and $45,000 in 1997                                        468,725         382,108
          Other current assets                                                  91,159         120,886
                                                                          ------------    ------------
                   Total current assets                                     25,270,097       3,292,136
                                                                          ------------    ------------
        Equipment and Furnishings, at cost (Notes 3 and 7)
          Equipment                                                         11,792,069       4,719,812
          Office furniture and equipment                                       888,951         381,493
          Equipment under capitalized lease                                    276,546         276,546
          Leasehold improvements                                               319,764               -
                                                                          ------------    ------------
                                                                            13,277,330       5,377,851
          Less accumulated depreciation                                      2,759,624       1,387,665
                                                                          ------------    ------------
                                                                            10,517,706       3,990,186
                                                                          ------------    ------------
        Other Assets
          Deferred financing costs (net of accumulated 
            amortization of $390,072 in 1998)                                2,519,597          78,603
          Noncurrent trade accounts receivable                                  89,562          51,562
          Deposits                                                              56,409          44,052
          Other                                                                      -          79,109
                                                                          ------------    ------------
                                                                             2,665,568         253,326
                                                                          ------------    ------------
                                                                          $ 38,453,371    $  7,535,648
                                                                          ------------    ------------
                                                                          ------------    ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
        Current Liabilities:
          Current maturities of long-term debt                            $     21,439    $     48,302
          Accounts payable                                                   1,211,742         319,405
          Accrued expenses (Note 9)                                          4,516,000       1,663,453
                                                                          ------------    ------------
                   Total current liabilities                                 5,749,181       2,031,160
                                                                          ------------    ------------
        Non-current accrued site lease expense                                 207,712          92,253
                                                                          ------------    ------------
        Long-term Debt, including capital leases, less current
          maturities (Notes 2,3 and 4)                                      42,115,147       3,015,208
                                                                          ------------    ------------
        Commitments (Notes 3,4 and 5)

        Mandatory Redeemable Preferred Stock (Note 5)
          14.8% Series B, nonvoting; authorized 91,100 shares;
            issued and outstanding 91,059 shares; stated at
            liquidation value plus accrued dividends                         9,748,507       8,429,915
          14.8% Series C, nonvoting; authorized 90,000 shares;
            issued and outstanding 75,540 and 75,310 shares
            at 1998 and 1997, respectively; stated at
            liquidation value plus accrued dividends                         7,024,323       6,057,115
                                                                          ------------    ------------
                                                                            16,772,830      14,487,030
                                                                          ------------    ------------
        Stockholders' Deficit (Notes 5 and 6)
          8.25% Series A cumulative preferred stock,
            nonvoting; authorized 20,000 shares; issued and
            outstanding 6,000 shares, stated at liquidation
            value, excluding cumulative unpaid dividends
            (aggregate liquidation value of $4,732,500 and
            $4,485,000 at 1998 and 1997, respectively)                       3,000,000       3,000,000
          Common stock, $0.01 par value; authorized 1,000,000
            shares; issued and outstanding 266,268 shares                        2,663           2,663
          Additional paid-in capital                                         9,266,369       3,904,889
          Accumulated deficit                                              (38,660,531)    (18,997,555)
                                                                          ------------    ------------
                                                                           (26,391,499)    (12,090,003)
                                                                          ------------    ------------
                                                                          $ 38,453,371    $  7,535,648
                                                                          ------------    ------------
                                                                          ------------    ------------

</TABLE>

See notes to financial statements.


                                       29
<PAGE>
                                       
                          NEXT GENERATION NETWORK, INC.
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                            --------------------------------------------
                                                                 1998           1997            1996
                                                            --------------  ------------   -------------
<S>                                                         <C>             <C>            <C>
Revenues (Note 7):

    Advertising revenues                                    $   2,609,512   $ 1,243,868    $        ---
    Less agency commissions                                       (47,851)      (39,325)            ---
                                                            --------------  ------------   -------------

    Net advertising revenues                                    2,561,661     1,204,543             ---
    Network equipment and territorial rights sales                 26,309       137,279       2,688,455
    Network operating revenues                                      1,720       485,299         489,512
                                                            --------------  ------------   -------------
          Total revenues                                        2,589,690     1,827,121       3,177,967
                                                            --------------  ------------   -------------

Costs and expenses:

    Cost of network equipment sales                                 9,996        60,893       2,213,772
    Network operating expenses                                  5,272,793     2,799,498         362,889
    Selling expenses                                            6,062,770     1,757,523             ---
    General and administrative expenses                         5,976,388     3,428,649       2,507,134
                                                            --------------  ------------   -------------
         Total costs and expenses                              17,321,947     8,046,563       5,083,795
                                                            --------------  ------------   -------------

         Operating loss                                       (14,732,257)   (6,219,442)     (1,905,828)

Non operating income (expense):

    Interest expense  (Note 2)                                 (6,494,147)     (280,806)       (231,355)
    Interest income                                             1,563,427       113,037          81,679
    Other expense                                                     ---        (1,273)            ---
                                                            --------------  ------------   ------------

         Net loss                                             (19,662,977)   (6,388,484)     (2,055,504)
Preferred stock dividends (Note 5)                              2,515,590     1,630,836         540,802
                                                            --------------  ------------   ------------

         Net loss applicable to common stockholders         $ (22,178,567)  $(8,019,320)   $ (2,596,306)
                                                            --------------  ------------   ------------
                                                            --------------  ------------   ------------

         Basic and diluted net loss per common share        $      (83.29)  $    (30.12)   $     (10.16)
                                                            --------------  ------------   ------------
                                                            --------------  ------------   ------------
Weighted average number of common shares outstanding              266,268       266,268         255,538
                                                            --------------  ------------   ------------
                                                            --------------  ------------   ------------
</TABLE>



See notes to financial statements.

                                      30



<PAGE>
                                       
                          NEXT GENERATION NETWORK, INC.
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
                                    Series A
                                   Cumulative
                                 Preferred Stock          Common Stock         Additional
                               --------------------  ----------------------      Paid-In    Accumulated 
                                 Shares     Amount      Shares      Amount       Capital       Deficit            Total
                               ---------  ----------  ----------  -----------   ----------  -------------   -----------
<S>                            <C>        <C>         <C>         <C>          <C>          <C>            <C>
Balance, December 31,1995          6,000  $3,000,000     250,892       $2,509  $ 4,649,574  $(10,553,567)  $ (2,901,484)
Issuance of common stock
  at $71 per share (Note 5)          ---         ---       1,562           16      111,547           ---        111,563
Contribution of deferred
  Compensation to additional
  paid-in capital and
  subsequent issuance of
  common stock (Note 4)              ---         ---      13,814          138    1,063,518           ---      1,063,656
Compensation element of stock
  options granted (Note 6)           ---         ---         ---          ---       70,430           ---         70,430
Accrued dividends on
  mandatory redeemable
  preferred stock                    ---         ---         ---          ---     (293,302)          ---       (293,302)
Series B mandatory
  redeemable preferred stock
  issuance costs                     ---         ---         ---          ---     (136,847)          ---       (136,847)
Net loss                             ---         ---         ---          ---          ---    (2,055,504)    (2,055,504)
                               ---------  ----------  ----------  -----------   ----------  -------------   -----------
Balance, December 31,1996          6,000   3,000,000     266,268        2,663    5,464,920   (12,609,071)    (4,141,488)
Accrued dividends on
  mandatory redeemable
  preferred stock                    ---         ---         ---          ---   (1,383,336)          ---     (1,383,336)
Series C mandatory
  redeemable preferred stock                                                                                       
  issuance costs                     ---         ---         ---          ---     (155,566)          ---       (155,566)
Compensation element of stock
  options forfeited (Note 6)         ---         ---         ---          ---      (21,129)          ---        (21,129)
Net loss                             ---         ---         ---          ---                 (6,388,484)    (6,388,484)
                               ---------  ----------  ----------  -----------   ----------  -------------   -----------
Balance, December 31, 1997         6,000   3,000,000     266,268        2,663  $ 3,904,889   (18,997,555)   (12,090,003)
Accrued dividends on
  mandatory redeemable
  preferred stock                    ---         ---         ---          ---   (2,268,090)          ---     (1,664,741)
Issuance of Warrants in
  connection with PIK
  Notes (Note 2)                     ---         ---         ---          ---    7,700,000           ---      7,700,000
Compensation element of stock
  options forfeited (Note 6)         ---         ---         ---          ---      (70,430)          ---        (70,430)
Net Loss                             ---         ---         ---          ---          ---   (19,662,977)   (19,662,977)
                               ---------  ----------  ----------  -----------   ----------  -------------   -----------
Balance, December 31,1998          6,000  $3,000,000     266,268       $2,663  $ 9,266,369  $(38,660,531)  $(26,391,499)
                               ---------  ----------  ----------  -----------   ----------  -------------   -----------
                               ---------  ----------  ----------  -----------   ----------  -------------   -----------
</TABLE>


See notes to financial statements.

                                       31



<PAGE>

                          NEXT GENERATION NETWORK, INC.
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                    Years Ended December 31,
                                                                      ------------------------------------------------
                                                                          1998              1997              1996
                                                                      ------------      ------------      ------------
<S>                                                                 <C>                <C>               <C>
Operating Activities:

   Net Loss                                                         $ (19,662,977)     $ (6,388,484)     $ (2,055,504)
   Adjustments to reconcile net loss to net cash used in
        operating activities:

        Accretion of long term debt discounts                           1,255,840            88,027               ---
        Noncash interest on PIK Notes                                   4,813,050               ---               ---
        Amortization of deferred financing costs                          390,072               ---               ---
        Depreciation and amortization                                   1,371,959           713,892           211,368
        Compensation element of stock options granted (forfeited)         (70,430)          (21,129)           70,430
        Other                                                              17,710             1,896               ---
        Changes in assets and liabilities:

        Receivables                                                      (124,617)         (270,530)         (163,140)
        Other current assets                                               29,728          (120,886)              ---
        Accounts payable                                                  892,337          (198,148)          339,815
        Other accrued expenses                                            595,956         1,543,107           145,451
                                                                      ------------      ------------      ------------
        Net Cash Used In Operating Activities                         (10,491,372)       (4,652,255)       (1,451,580)
                                                                      ------------      ------------      ------------
Investing Activities:

   Purchases of equipment and furnishings                              (7,899,479)       (1,278,775)       (2,140,886)
   Deposits and other assets                                               66,752          (109,516)           (2,113)
                                                                      ------------      ------------      ------------
        Net Cash Used in Investing Activities                          (7,832,727)       (1,388,291)       (2,142,999)
                                                                      ------------      ------------      ------------
Financing Activities:

   Borrowings under bridge loans and PIK Notes                         37,300,000               ---           450,000
   Principal payments on long-term debt and capital leases             (1,923,764)          (56,149)         (174,936)
   Net proceeds from issuance of preferred stock                              ---         5,143,245         6,374,696
   Proceeds from issuance of warrants                                   7,700,000               ---               ---
   Deferred financing costs                                            (2,831,066)          (78,603)              ---
   Payment received on stock subscription receivable                          ---               ---           500,000
   Net decrease in short-term shareholder debt                                ---               ---          (126,663)
                                                                      ------------      ------------      ------------

        Net Cash Provided by Financing Activities                      40,245,170         5,008,493         7,023,097
                                                                      ------------      ------------      ------------
        Increase (decrease) in cash and cash equivalents               21,921,071        (1,032,053)        3,428,518
Cash and cash equivalents
   Beginning                                                            2,789,142         3,821,195           392,677
                                                                      ------------      ------------      ------------
   Ending                                                           $  24,710,213      $  2,789,142      $  3,821,195
                                                                      ------------      ------------      ------------
                                                                      ------------      ------------      ------------
Supplemental Cash Flow Information
   Cash payments for interest                                       $      35,243      $    192,779      $    219,479
   Non cash activities:
      Increase in mandatory redeemable preferred stock and
         decrease in paid-in capital from accrued dividends             2,268,090         1,383,336           293,302
      Accrued interest converted to long term debt (Note 2)             2,441,000               ---               ---
      Increase in long term debt resulting from interest accretion      1,255,840               ---               ---
      Reduction in paid-in capital from issuance costs on
         mandatory redeemable preferred stock                                 ---           155,566           136,847
      Equipment repurchased through issuance of notes payable                 ---           996,514               ---
      Equipment acquired under capital leases                                 ---            29,364            73,245
      Stockholder note converted to Series C mandatory
        redeemable preferred stock (Note 5)                                   ---           500,038               ---
      Bridge loan converted to Series B mandatory redeemable
         preferred stock (Note 5)                                             ---               ---           500,000
      Bridge loan converted to common stock (Note 5)                          ---               ---           111,563
      Deferred compensation contributed to capital (Note 4)                   ---               ---         1,063,656
                                                                      ------------      ------------      ------------
                                                                      ------------      ------------      ------------
</TABLE>
See notes to financial statements.

                                       32
<PAGE>

                         NEXT GENERATION NETWORK, INC.

                         NOTES TO FINANCIAL STATEMENTS

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF BUSINESS: Next Generation Network, Inc. (the Company) sells 
advertising space and programming through an electronic out-of-home 
advertising network, known as the Next Generation Network (NGN). The Company 
was founded in 1990 and thereafter focused its efforts, among other things, 
on the development of NGN by developing and improving the NGN technology. At 
the same time, the Company concentrated its efforts on securing site 
agreements for the placement of NGN Displays as well as recruiting local 
sales personnel and opening local sales offices in designated market areas.

     Prior to 1996 the Company was in the development stage. During 1996, the 
Company commenced operations and, based on agreements for the placement of its 
monitors with convenience store chains representing over 8,000 stores, the 
Company began the installation of NGN in these stores. As of December 31, 
1998 the NGN displays have been installed in approximately 3600 sites in 
seventeen market areas, principally in major cities. The Company currently 
generates revenue principally through the sale of advertising on NGN and 
previously by selling equipment and exclusive territorial rights to NGN 
within certain markets (owner-operator networks). During 1997, the Company 
repurchased all NGN equipment from the owner-operators who, in turn, 
forfeited their territorial rights (see Note 7).

     CHANGE OF COMPANY NAME: During 1998 the Company amended its certificate 
of incorporation to change its name from Mentus Media Corp. to Next 
Generation Network, Inc.

     A summary of the Company's significant accounting policies follows:

     REVENUE RECOGNITION: Revenue from network equipment and territorial 
rights sales was recognized upon installation of the equipment in the 
territory. Network operating revenues, which consist of network operating 
fees and advertising revenue for owner-operator networks, and advertising 
revenues for Company networks are recognized in the period the service is 
provided. A full month's advertising revenue is recognized in the first month 
of each advertising service or contract period. Costs incurred for the 
production of media advertising are recognized in the initial month of the 
advertising service or contract period or as incurred during the advertising 
service period. Advertising revenues are reduced by agency commissions on the 
statements of operations. In addition, the Company provides allowances for 
uncollectible revenues receivable based on Management's periodic assessment 
of the need for such allowances. Such allowances charged to expense amounted 
to $100,640 in 1998 and $45,363 in 1997. No similar allowances were necessary 
in 1996.

     BARTER TRANSACTIONS: Barter transactions, which represent the exchange 
of NGN advertising for goods or services, are recorded at the estimated fair 
value of the products or services received, not to exceed the estimated fair 
value of the NGN advertising provided. The Company has valued all bartered 
advertising credits received at a substantial discount from both the outside 
advertising media's and the Company's standard rates. Barter revenues are 
recognized as barter credit on the 


                                       33

<PAGE>

balance sheet when NGN advertising services are rendered, and barter expense 
is recognized when the related products or services are received or used. 
Barter revenues were $257,142 during 1998 and $158,076 during 1997, of which 
$47,738 and $104,407 are included in other current assets on the balance 
sheets at December 31, 1998 and 1997, respectively. There were no barter 
revenues prior to 1997.

     CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the 
Company considers any Treasury bills, commercial paper, certificates of 
deposit, and money market funds with an original maturity of three months or 
less to be cash equivalents. The Company maintains its cash in bank deposit 
accounts which, at times, may exceed federally insured limits. The Company 
has not experienced any losses in such accounts.

     RESEARCH AND DEVELOPMENT COSTS: Expenditures for research and development 
activities performed by the Company are charged to operations as incurred. 
Research and development expense was approximately $430,000, $363,000 and 
$222,000 for the years ended December 31, 1998, 1997 and 1996 respectively.

     SOFTWARE DEVELOPMENT COSTS: The majority of the Company's software 
development costs are associated with the internal development and 
enhancement of the NGN technology and software. The Company's policy is to 
expense these costs as incurred and include them with the aforementioned 
research and development costs.

     DEPRECIATION: It is the policy of the Company to provide depreciation 
based on estimated useful lives of five to seven years for its equipment and 
furnishings using the straight-line method. Leasehold improvements are being 
amortized over the terms of the respective leases.

     ACCOUNTING FOR LONG-LIVED ASSETS: The Company began generating operating 
revenue with its long-lived assets in 1996 and is in the process of building 
up an acceptable revenue base and related cash flows. Management has and will 
continue, on a periodic basis, to closely evaluate its equipment to determine 
potential impairment by comparing its carrying value with the estimated 
future net undiscounted cash flows expected to result from the use of the 
assets, including cash flows from disposition. Should the sum of the expected 
future net cash flows be less than the carrying value, the Company would 
recognize an impairment loss at that date. An impairment loss would be 
measured by comparing the amount by which the carrying value exceeds the fair 
value (estimated discounted future cash flows or appraisal of assets) of the 
long-lived assets. To date, management has determined that no impairment of 
long-lived assets exits.

     DEFERRED FINANCING COSTS: In connection with the issuance of Senior 
Secured PIK Notes in 1998 the company incurred approximately $2,910,000 of 
financing costs which have been deferred and are being amortized over the 
five year term of the Notes using the interest method.

     BASIC AND DILUTED NET LOSS PER SHARE: Basic per share amounts are 
computed, generally, by dividing net income or loss by the weighted-average 
number of common shares outstanding. Diluted per share amounts assume the 
conversion, exercise, or issuance of all potential common stock instruments 
unless their effect is antidilutive, thereby reducing the loss or increasing 
the income per common share.

     Loss per share has been adjusted for undeclared, cumulative dividends on 
the Company's Series A cumulative preferred stock which totaled $247,500 for 
each of the years ended December 31, 1998, 1997, and 1996, and the dividends 
accrued on the Series B and C mandatory redeemable 


                                       34

<PAGE>

preferred stock of $2,268,090, $1,383,336, and $293,302 for the years ended 
December 31, 1998, 1997, and 1996, respectively. As described in Note 6, the 
Company has options and warrants outstanding to purchase shares of common 
stock, and the Series A, B, and C preferred stock is convertible into common 
stock. However, because the Company has incurred losses in all periods 
presented, the inclusion of those potential common shares in the calculation 
of diluted loss per share would have an antidilutive effect. Therefore, basic 
and diluted loss per share amounts are the same in each period presented.

     INCOME TAXES: The Company accounts for deferred taxes on an asset and 
liability method whereby deferred tax assets are recognized for deductible 
temporary differences and operating loss and tax credit carryforwards and 
deferred tax liabilities are recognized for taxable temporary differences. 
Temporary differences are the differences between the reported amounts of 
assets and liabilities and their tax basis. Deferred tax assets are reduced 
by a valuation allowance when, in the opinion of management, it is more 
likely than not that some portion or all of the deferred tax assets will not 
be realized. Deferred tax assets and liabilities are adjusted for the effects 
of changes in tax laws and rates on the date of enactment.

     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.

     FAIR VALUE OF FINANCIAL INSTRUMENTS: The financial statements include 
the following financial instruments and the methods and assumptions used in 
estimating their fair value: for cash and cash equivalents, the carrying 
amount is fair value; for trade accounts receivable and accounts payable, the 
carrying amounts approximate their fair values due to the short term nature 
of these instruments; and for the fixed rate notes payable fair value has 
been estimated based on discounted cash flows using interest rates being 
offered for similar borrowing. No separate comparison of fair values versus 
carrying values is presented for the aforementioned financial instruments 
since their fair values are not significantly different than their balance 
sheet carrying amounts. In addition, the aggregate fair values of the 
financial instrument would not represent the underlying value of the Company.

     SEGMENTS: Effective January 1, 1998, the Company adopted Statement of 
Financial Accounting Standards No. 131, "Disclosures about Segments of an 
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that a 
company report financial and descriptive information about its reportable 
operating segments, defined as those components of an enterprise about which 
separate financial information is available and is evaluated regularly by 
management in deciding how to allocate resources and in assessing 
performance. The adoption of SFAS No. 131 did not affect the Company's 
results of operations or financial position. The Company believes that is has 
one operating segment, although certain separate financial information by the 
Company's 17 market areas is available. That is, the services being provided, 
the development of the services, the method in which the services are being 
delivered and the customers the services are being provided to, are similar.

     REPORTING COMPREHENSIVE INCOME: As of January 1, 1998, the Company 
adopted Statement of Financial Accounting Standards No. 130, "Reporting 
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the 
reporting and display of comprehensive income and its components. SFAS 130 
requires certain items, which prior to adoption were reported separately in 


                                       35

<PAGE>

stockholders' equity, to be included in other comprehensive income. For the 
Company, reporting comprehensive income is equivalent to reporting operating 
results in the statement of operations.

NOTE 2.  LONG-TERM DEBT:

     On February 18, 1998, the Company issued 45,000 units representing $45 
million principal amount of 12% Series A Senior Secured PIK Notes (the 
"Notes") and warrants to purchase 125,240 shares of common stock 
(the "Warrants"). The Notes mature on February 1, 2003. Interest on the Notes 
is payable semiannually in arrears on February 1 and August 1 of each year 
commencing August 1, 1998. Interest on the Notes is payable either in cash or 
in additional Notes, at the option of the Company, until August 1, 2000, and 
thereafter is payable in cash. At the time of issuance, each Warrant entitled 
the holder to purchase one share of common stock at an exercise price of 
$0.01 per share, representing in the aggregate approximately 20% of the 
common stock on a fully diluted basis at the time of issuance. The number of 
shares purchasable by holders of the Warrants is subject to antidilution 
adjustments. The Warrants are detachable and are exercisable anytime prior to 
February 1, 2008. For financial reporting purposes the aforementioned Notes 
have been recorded net of the value ascribed to the Warrants which is in 
effect an original issuance discount on the Notes. This discount is being 
amortized as additional interest expense over the five year term of the Notes 
using the interest method. The value ascribed to the Warrants was $7.7 
million, and was recorded as additional paid in capital. The Warrant value 
was determined based on the total estimated potential market capitalization 
of the Company's common stock, on a fully diluted basis before the Warrant 
issuance, using an estimated per share value of $77 per share and the 
percentage of such value that the Warrants represent, if exercised. In 
August, 1998, the Company issued additional Notes in payment of $2,441,000 of 
accrued interest on the aforementioned Notes.

     On August 19, 1998, all Series A Senior Secured PIK Notes were exchanged
for Series B 12% Senior Secured PIK Notes due 2003. Generally, the form and
terms of the Series B Notes are the same as the Series A Notes except that they
do not bear legends restricting their transfer.

     The Notes are secured by a first priority lien on substantially all assets
of the Company except for certain equipment collateralizing noninterest-bearing
notes included in long-term debt. The Notes contain certain restrictive
covenants that among other things prohibit the payment of dividends on, and the
redemption of, the Company's capital stock.

     A summary of long-term debt at December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>

                                                                                      1998           1997
                                                                                  -----------     ----------
         <S>                                                                      <C>             <C>
         12% Series B Senior Secured PIK Notes due February 2003 (net of
           $6,606,331 of unamortized discount attributed to warrants
           issued in connection with PIK Notes) (See above)                       $40,834,669            ---
         8% note payable to shareholder, repaid in 1998                                   ---     $1,875,462
         10.1% to 18.8% capital leases, due in varying monthly installments                                     
           to August 2001, secured by equipment  (Note 3)                              55,205        103,507
         Noninterest-bearing note payable, discounted at 15%, total of
           $700,000 payable based on certain cash flows, if any, with
           balance due December 2001, secured by equipment (Note 7)                   460,260        400,226


                                       36

<PAGE>

         Noninterest-bearing note payable, discounted at 15%, total of
           $1,500,000 payable August 2003, plus 10% of certain net
           revenues, if any, secured by equipment (Note 7)                            786,452        684,315
                                                                                  -----------     ----------
                                                                                   42,136,586      3,063,510

         Less current maturities                                                       21,439         48,302
                                                                                  -----------     ----------
                                                                                  $42,115,147     $3,015,208
                                                                                  -----------     ----------
                                                                                  -----------     ----------

</TABLE>

     The long term debt excluding capital lease obligations and assuming full 
accretion of related discounts is payable as follows: $700,000 in 2001 and 
$48,941,000 in 2003.

     Interest expense on the 8% note payable to shareholder was approximately 
$20,000, $176,000 and $190,000 for the years ended December 31, 1998, 1997 
and 1996, respectively. This note was repaid in full on February 18, 1998, 
with a portion of the proceeds from the sale of Senior Secured PIK Notes (see 
above).

NOTE 3.  LEASE COMMITMENTS

     CAPITAL LEASES: The Company leases various equipment under capital leases. 
Approximate future minimum lease payments under capital leases and the 
aggregate present value of the net minimum lease payments at December 31, 1998, 
were as follows:

<TABLE>

     <S>                                                 <C>
     Years ending December 31:
               1999                                      $28,339
               2000                                       28,339
               2001                                        9,133
                                                         -------
                                                         $65,811
     Less amounts representing interest                   10,606
                                                         -------
                                                         $55,205
                                                         -------
                                                         -------

</TABLE>

     The following is a summary of equipment under capital lease as of 
December 31, 1998:

<TABLE>

     <S>                                                <C>
     Cost                                               $276,546
     Accumulated depreciation                            180,991
                                                        --------
                                                        $ 95,555
                                                        --------
                                                        --------

</TABLE>

     OPERATING LEASES: The Company leases its offices and warehouse facilities 
under noncancelable operating leases, which require various monthly payments 
including operating costs. The approximate future minimum lease payments under 
operating leases at December 31, 1998 are as follows:

<TABLE>

     <S>                                              <C>
     Years ending December 31:
               1999                                   $1,221,000
               2000                                    1,215,000
               2001                                      966,000
               2002                                      926,000
               2003                                      705,000
               Thereafter                              1,292,000
                                                      ----------
                                                      $6,325,000
                                                      ----------
                                                      ----------

</TABLE>


                                       37

<PAGE>

     Rent expense amounted to approximately $623,000, $303,000, and $184,000 
for the years ended December 31, 1998, 1997, and 1996 respectively. Letters of 
credit in the amount of approximately $200,000 are outstanding at December 31, 
1998 as security for certain of these leases.

     SITE AGREEMENTS: In connection with NGN, the Company enters into site 
agreements that provide for revenue-sharing arrangements (based on percentage 
of net advertising revenues) with the operators of the sites in which its NGN 
displays are located. The Company accrues as monthly site agreement expense 
the greater of computed amount based on a percent of revenue or, where 
applicable, the appropriate portion of an annual minimum.

     At December 31, 1998, in connection with the aforementioned arrangements, 
the Company was committed to certain minimum site agreement fees of 
approximately $2,943,000 annually through the year 2003, based on NGN displays 
installed as of December 31,1998. The Company is highly dependent upon one 
multistore site agreement and 81 percent of the Company's NGN displays are 
located in sites covered by this agreement which expires on January 1, 2004, 
if not renewed.

     Site agreement expenses included in the statements of operations were 
$2,087,945, $1,120,431 and $7,917, for the years ended December 31, 1998, and 
1997 and 1996 respectively.

NOTE 4.  EMPLOYMENT AGREEMENTS AND DEFERRED COMPENSATION AGREEMENT

     The Company has employment agreements with two officers of the Company. 
These agreements, which extend to 1999, provide for an annual base salary which 
is not subject to annual increases.

     The agreement with one officer, who is a major shareholder, provides for 
an annual base salary of $251,741 and an annual bonus of $60,000 to be paid to 
the officer if certain criteria are met. The agreement with the other officer 
provides for an annual base salary of $250,000. Also, under this agreement the 
officer received 230 shares (valued at $17,710) of Series C Preferred Stock in 
1998.

     The Company previously had agreements with the two officers to defer a 
portion of their compensation under prior employment agreements. The accrued 
balance outstanding under these agreements at December 31, 1995, was 
$1,063,656. In conjunction with the 1996 Series B preferred stock 
transaction, the officers agreed to terminate these agreements and to 
contribute the accrued balance outstanding to paid-in capital of the Company, 
and the Company simultaneously issued 8,831 shares of restricted common stock 
to one officer and 4,983 shares of restricted common stock to the other 
officer, effectively in exchange (at $77 per share) for the deferred 
compensation obligations to them. The shares become unrestricted in years 2006 
and 2017, respectively, or upon the occurrence of death, disability, or a 
qualifying public offering.

NOTE 5.  COMMON AND PREFERRED STOCK

     PREEMPTIVE RIGHTS: As of December 31, 1998, holders of 176,593 shares of 
Common Stock (including shares issuable upon exercise of outstanding warrants 
or upon conversion of 


                                       38

<PAGE>

Preferred Stock), or their transferees, are entitled to certain rights 
permitting them to maintain their percentage common equity interest in the 
Company (on a fully diluted basis).

     PREFERRED STOCK: The Company's Board of Directors has authorized 500,000 
shares of preferred stock for designation and issuance, of which 298,900 shares 
were not designated as of December 31, 1998.

     DIVIDEND RESTRICTIONS: The Company is restricted from paying dividends 
under its indenture covering the Series B Notes, as well as under its Series A, 
Series B, and Series C Preferred Stock.

     SERIES A CUMULATIVE PREFERRED STOCK: The Company's 8.25% Series A 
cumulative preferred stock is convertible at the option of the holder into 
Common Stock, at any time prior to the close of business on the tenth day 
prior to the date fixed for a redemption or exchange by the Company, at a 
conversion price of $135.27 per common share (equivalent to a conversion rate 
of 3.696 shares of common stock for each share of preferred stock).

     The Series A preferred stock is redeemable at the option of the Company, 
if not previously converted into common stock, in whole or in part, at $500 
per share, plus accrued and unpaid dividends to the redemption date.

     Dividends of $247,500 for each of the years ended December 31, 1998, 1997, 
and 1996 were not declared nor paid. Dividends in arrears totaled $1,732,500 
and $1,485,000 at December 31, 1998 and 1997, respectively. The dividends in 
arrears are also convertible into common stock at a conversion price of $135.27 
per common share.

     SERIES B MANDATORY REDEEMABLE PREFERRED STOCK: During 1996, the Company's 
Board of Directors created and designated for issuance 91,100 shares of $1 par 
Series B Senior Cumulative Compounding Convertible Redeemable Preferred Stock. 
On September 25, 1996, the Company issued 91,059 shares of its Series B 
Preferred Stock to private investors at $77 per share. Proceeds upon the 
issuance of this stock, net of issuance costs of approximately $137,000, 
totaled approximately $6,875,000, which consisted of approximately $6,375,000 
in cash and conversion of bridge loans totaling $500,000 at $77 per share.

     The Series B Preferred Stock is equal in all respective rights with the 
Series C Preferred Stock and senior to all other classes of capital stock 
with respect to dividend and liquidation rights. Dividends, which accrue at 
14.8% on an initial liquidation value of $77 per share, are to be paid 
quarterly on March 1, June 1, September 1, and December 1. On each dividend 
payment date, accrued dividends, to the extent unpaid, are compounded upon 
the stock's liquidation value. For the years ended December 31, 1998, 1997, 
and 1996, dividends of $1,318,592, $1,125,070, and $293,302 respectively, 
have been accrued and are unpaid.

     The Series B Preferred Stock and all accrued unpaid dividends are 
convertible, in whole or in part, at the option of the holder into common 
stock at a conversion price of $77 per share (representing 126,604, 109,479, 
and 94,671 shares of common stock at December 31, 1998, 1997, and 1996, 
respectively). The stock is convertible at the option of the Company in the 
event of a qualifying public offering. The stock is also redeemable in whole, 
but not in part, at the option of the Company at a redemption price of $308 per 
share at any time prior to the mandatory redemption date, which is September 
2003. At that time, the Company is required to redeem all outstanding 


                                       39

<PAGE>

shares of the Series B preferred stock at a redemption price of $77 per share, 
adjusted for cumulative compounded unpaid dividends.

     In addition, upon a qualifying change in ownership control or 
reorganization event, the majority Series B preferred stockholders may require 
the Company to redeem all outstanding Series B Preferred Stock at certain 
redemption prices.

     The Company is also required to and has reserved from its authorized but 
unissued shares of common stock, solely for the conversion of Series B 
preferred stock, the full number of shares of common stock issuable if all 
outstanding Series B shares were to be converted in full.

     SERIES C MANDATORY REDEEMABLE PREFERRED STOCK: During 1997, the 
Company's Board of Directors created and designated for issuance 90,000 
shares of $1 par Series C Senior Cumulative Compounding Convertible 
Redeemable Preferred Stock. This preferred stock contains terms and 
provisions that are virtually identical to the Series B Preferred Stock 
except for the mandatory redemption date, which is March 2003 for Series C.

     During 1997, the Company issued 75,310 shares of Series C Preferred 
Stock to private investors at $77 per share. Proceeds upon issuance of this 
stock, net of issuance costs of approximately $156,000 totaled approximately 
$5,643,000, which consisted of approximately $5,143,000 in cash and conversion 
of a stockholder note of $500,038. For the years ended December 31, 1998 and 
1997, dividends of $949,498, and $258,266, respectively, have been accrued 
and are unpaid on this preferred stock.

     The Series C Preferred Stock and all accrued unpaid dividends are 
convertible into common stock at a conversion price of $77 (representing 91,225 
and 78,664 shares of common stock at December 31, 1998 and 1997, respectively). 
The terms are similar to the Series B Preferred Stock.

     STOCKHOLDERS AGREEMENT: The Company is party to a stockholders agreement 
among certain holders of Common Stock and Series B and Series C Preferred 
Stock, which requires the approval of a majority of the preferred stockholders 
who are party to the Agreement, for certain significant corporate transactions. 
In addition, the holders of preferred stock are entitled to elect up to three 
directors as set forth in the Series B and Series C Certificates of Designation.

     OTHER COMMON AND PREFERRED STOCK TRANSACTIONS: During 1996, bridge loans 
of $100,000 and accrued interest thereon of $11,563 were exchanged for 1,562 
shares of common stock at a price of $71.43 per share. These bridge loans 
were part of a 1995 financing transaction. The number of shares of common 
stock into which the bridge loans were converted was based on the Company's 
estimate of the per share value of the common stock based on redemption 
prices or significant private stock sales near the conversion date.

NOTE 6.  STOCK OPTIONS AND WARRANTS

     The Company has a 1993 Stock Option Plan effective January 1, 1994, a 
1994 Stock Option Plan effective December 15, 1994 and a 1998 Nonqualified 
Stock Option Plan effective November 20, 1998 (the Plans). The Plans permit 
the granting of incentive stock options and nonqualified options. A total of 
4,000, 8,000, and 82,000 shares of the Company's common stock have been 
reserved for issuance pursuant to options granted under the 1993, 1994, and 
1998 Plans, respectively.


                                       40

<PAGE>

     Grants under the Plans are accounted for following APB Opinion No. 25 
and related interpretations. Compensation cost charged to operations for 
stock option grants was $70,430 for the year ended December 31, 1996. During 
1998 and 1997, certain compensatory options were forfeited, resulting in the 
reversal of $70,430 and $21,129, respectively, of compensation expense. Had 
compensation cost for the options been determined using the fair value method 
required by FASB Statement No. 123, the Company's basic and diluted net loss 
applicable to common stockholders and net loss per common share on a pro 
forma basis would have been as follows:

<TABLE>
<CAPTION>

                                                                        Years Ended December 31
                                                        -------------------------------------------------------
                                                             1998                 1997                  1996
                                                        ------------          -----------           -----------
     <S>                                                <C>                   <C>                   <C>
     Net loss applicable to common stockholders:
          As reported.................................. $(22,178,567)         $(8,019,320)          $(2,596,306)
          Pro forma....................................  (22,268,781)          (8,088,203)           (2,620,902)
     Basic and diluted net loss per common
          Share:
          As reported..................................    (83.29)               (30.12)               (10.16)
          Pro forma....................................    (83.63)               (30.38)               (10.26)

</TABLE>

     The fair value of each option grant is estimated on the date of the grant 
using the Black-Scholes option pricing model with the following 
weighted-average assumptions used for grants: risk-free interest rate of 6.16% 
and 5.98% in 1997 and 1996, respectively; expected lives of 5 years; and 
expected volatility of 10%.

     A summary of stock option activity is as follows:

<TABLE>
<CAPTION>

                                                 Weighted                                        
                                                 Average                                        
                                                  Grant                            Weighted -
                                                 Date Fair                          Average
                                                  Value          Shares          Exercise Price
                                                  -----          ------          --------------
    <S>                                          <C>             <C>             <C>
     Outstanding at December 31, 1995              ---            3,406                1.00
          Granted                                 71.43           1,000                1.00
          Granted                                 71.43             500               90.56
          Granted                                 77.00           1,000               77.00
                                                                 ------
     Outstanding at December 31, 1996              ---            5,906               21.45
          Granted                                 77.00           1,000               77.00
          Canceled                                 ---             (300)               1.00
     Outstanding at December 31, 1997              ---            6,606               30.79
          Cancelled                                ---           (1,500)              30.85
                                                                 ------
     Outstanding at December 31, 1998                             5,106               30.77
                                                                 ------
                                                                 ------

</TABLE>

     There were 3,506 options exercisable at December 31, 1998 at a 
weighted-average exercise price of $9.67.

     The following table summarizes additional information about stock options 
outstanding as of December 31, 1998:


                                       41

<PAGE>

<TABLE>
<CAPTION>


                                                                 Weighted Average 
                                                                     Remaining                   Number of Options
   Range of exercise             Number of Options               Contractual Lives (In             Exercisable at 
         prices                     Outstanding                       Years)                    December 31, 1998
         ------                     -----------                       -----                     -----------------
<S>                         <C>                             <C>                            <C>
           $1.00                          3,106                          5.0                         3,106
           $77.00                         2,000                          5.0                           400
                                          -----                                                      -----
                                          5,106                                                      3,506
                                          -----                                                      -----
</TABLE>

     WARRANTS: In connection with 12.5% unsecured bridge loan financing of
$775,000 in 1995, the Company issued warrants to purchase 3,100 shares of common
stock at a price of $71.43 per share, exercisable any time prior to May 1, 2000.
Since the exercise price approximated the estimated fair value of the common
stock and since the scheduled interest over the term of the bridge loans was not
significantly different than interest computed using the Company's incremental
borrowing rate, no separate value was ascribed to the warrants as it was
determined to be immaterial.

     In connection with the Company's issuance of Senior Secured PIK Notes the
Company issued warrants to purchase 125,240 shares of its common stock at a
price of $.01 per share, exercisable at any time prior to February 1, 2008 (See
Note 2). Due to antidilution provisions, these warrants allowed the holders to
acquire 131,822 shares of common stock as of December 31, 1998.

NOTE 7. TERRITORIAL AGREEMENTS AND REPURCHASE OF NETWORK EQUIPMENT

     During 1996, the Company entered into territorial agreements with two
separate unrelated owner-operators. Each agreement granted exclusive territorial
rights to NGN within certain designated markets for a period of ten years. In
the aggregate, the Company received initial payments of approximately $2,688,000
for the purchase of hardware, software, and exclusive territorial rights
(approximately $366,000, applied to territorial rights), all of which was fully
paid. The agreements also provided for royalties on all advertising revenue and
reimbursement of certain network operating expenses. The original equipment
sales and territorial rights agreement did not provide for any continuing
involvement or obligations by the Company other than the aforementioned payments
to the Company for royalties and costs relative to operating the network. One of
the agreements also provided the grantee with the option to purchase the
exclusive rights to certain additional designated NGN Network territories.

     In January 1997, the Company entered into an agreement with one of its NGN
owner-operators whereby the Company repurchased equipment originally sold by the
Company in 1996 in exchange for a $700,000 note payable. In addition, the
owner-operator forfeited its territorial rights. This equipment repurchase was
not a condition of or done in connection with the terms of the original
territorial agreement and equipment sales contract. The note is
noninterest-bearing and is payable annually at an amount equal to 40% of
operating cash flows generated by the former owner-operator's territory with the
unpaid balance of the note due December 31, 2001. The note is secured by the
equipment being repurchased. The Company recorded the note and the repurchased
equipment at $348,023, the present value of the note using a discount rate of
15% and no assumed payments until maturity. No periodic payments were assumed
since the former owner-operator's territory was not generating positive
operating cash flow at the time of the equipment repurchase and there is no
assurance that such positive cash flow will be achieved and in what amount.

                                      42

<PAGE>


     In April 1997, the other owner-operator gave notice of forfeiture of its
territorial rights and its option to purchase the exclusive rights to certain
additional designated NGN territories, effective as of August 18, 1997. The
Company subsequently entered into an agreement with the owner-operator whereby,
in August 1997, the Company repurchased equipment originally sold in 1996 in
exchange for $25,000 cash and a $1,500,000 note payable. This equipment
repurchase was not a condition of or done in connection with the terms of the
original territorial agreement and equipment sales contract. The note is
noninterest-bearing and is payable in full on August 18, 2003. The note is
secured by the equipment being repurchased. The Company has also agreed to pay
the former owner-operator 10 percent of the net revenues generated by the
forfeited Florida territory for the term of the note. The Company recorded the
repurchased equipment at $25,000 plus $648,491, the present value of the note
using a discount rate of 15%.

     In the aforementioned purchase transactions the entire recorded present
value repurchase price approximated less than fifty percent of the original
aggregate installed cost of the NGN Displays (monitor equipment). The Company
believes this equipment has a five year useful life and at time of repurchase
had been used an average approximately six months to one year. The Company
allocated all of the repurchase price to the NGN Displays in place since it
believed their fair value was significantly greater than the present value of
the total repurchase price. No value was allocated to the territorial rights
since they were forfeited, not repurchased and since the estimated fair value of
the tangible assets repurchased more than exceeded their repurchase cost as
noted above. The repurchased NGN Displays are being depreciated over their
approximate remaining useful lives.

NOTE 8: INCOME TAXES

         Deferred income tax assets (liabilities) consisted of the following:

<TABLE>
<CAPTION>

                                                                                         December 31
                                                                      --------------------------------------------------
                                                                                   1998                      1997
                                                                      ------------------------- ------------------------
<S>                                                                 <C>                         <C>
Deferred tax assets:

   Net operating loss carryforwards                                                $14,523,000               $6,711,000
   Tax credit carryforwards                                                            166,000                  147,000
   Nondeductable compensation                                                          541,000                  541,000
   Allowance for uncollectible accounts and other                                       64,000                   34,000
                                                                      ------------------------- ------------------------
                                                                                    15,294,000                7,433,000
Deferred tax liabilities:
   Depreciation and amortization                                                     (118,000)                 (78,000)
                                                                                             -
                                                                      ------------------------- ------------------------
Net deferred tax                                                                   15,176,000                7,355,000
Less valuation allowance                                                          (15,176,000)              (7,355,000)
                                                                      ------------------------- ------------------------

                                                                               $ ---                     $ ---
                                                                      ------------------------- ------------------------
                                                                      ------------------------- ------------------------
</TABLE>

     The Company had valuation allowances of $15,176,000 and $7,355,000 against
its deferred tax assets to reduce those assets to amounts that management
believes are appropriate at December 31, 1998 and 1997, respectively.

     The Company's income tax expense differed from the statutory federal rate
as follows:

                                      43

<PAGE>

<TABLE>
<CAPTION>

                                                                             Years ended December 31,
                                                            ------------------------------------------------------------
                                                                   1998                 1997                1996
                                                            -------------------- ------------------- -------------------
<S>                                                         <C>                  <C>                 <C>
Statutory rate applied to loss before income taxes                 $(6,685,500)        $(2,172,000)          $(719,000)
State  income tax  benefit  net of federal  tax effect and                                                              
other                                                               (1,136,000)           (288,000)           (121,000)
Change in deferred tax valuation  allowance resulting from                                                              
unused NOLs                                                           7,821,000           2,460,000             840,000
                                                            -------------------- ------------------- -------------------
                                                                         $    -             $     -              $    -
                                                            -------------------- ------------------- -------------------
                                                            -------------------- ------------------- -------------------
</TABLE>

     The Company has tax net operating loss and tax credit carryforwards which
are available to reduce income taxes payable in future years. Future utilization
of these loss and credit carryforwards is subject to certain limitations under
provisions of the Internal Revenue Code including limitations subject to Section
382, which relates to a 50 percent change in control over a three-year period,
and are further dependent upon the Company attaining profitable operations. The
Company believes that the issuance of warrants during 1998 (see Note 2) resulted
in an "ownership change" under Section 382. Accordingly, the Company's ability
to use net operating loss carryforwards generated prior to February 1998 may be
limited to approximately $1.3 million per year. These carryforwards and credits
will expire as follows:

<TABLE>
<CAPTION>

                                                         Operating Loss Carryforwards              Tax Credit
                         Year                                                                   Carryforwards
                                                        ------------------------------ -----------------------
<S>                                                  <C>                               <C>
                         2005                                                $627,000                  $  ---
                         2006                                               1,532,000                     ---
                         2007                                               1,536,000                     ---
                         2008                                               1,400,000                     ---
                         2009                                               1,442,000                  94,000
                         2010                                               2,165,000                  12,000
                         2011                                               1,959,000                   7,000
                         2012                                               6,364,000                  19,000
                         2018                                              19,000,000                     ---
                                                        ------------------------------ -----------------------
                                                                          $36,025,000                $142,000
                                                                          -----------                --------
                                                                          -----------                --------
</TABLE>

NOTE 9. ACCRUED EXPENSES

       The components of accrued expenses are as follows:

<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                  --------------------------------------
                                                                                        1998                1997
                                                                                  ------------------ -------------------
<S>                                                                             <C>                  <C>
                          Site agreement fees                                            $1,807,422          $1,272,017
                          Interest                                                        2,372,050                 ---
                          Compensation                                                      207,952             119,468
                          Legal fees                                                            ---             196,217
                          Other                                                             128,576              75,751
                                                                                  ------------------ -------------------
                                                                                         $4,516,000          $1,663,453
                                                                                  ------------------ -------------------
                                                                                  ------------------ -------------------

</TABLE>


                                      44

<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.

                                                  NEXT GENERATION NETWORK, INC.

Date:  March 26, 1999                             By: /s/ Thomas M. Pugliese
                                                      -------------------------
                                                      Thomas M. Pugliese
                                                      Chief Executive Officer

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>

              Name                  Capacity(ies)                                   Date
              ----                  -------------                                   ----
<S>                        <C>                                                 <C>

/s/ Gerard P. Joyce
-----------------------         President, Chairman and Director                 March 26, 1999
Gerard P. Joyce

/s/ Thomas M. Pugliese
-----------------------         Chief Executive Officer, Secretary               March 26, 1999
Thomas M. Pugliese              and Director(Principal Executive
                                Officer)
/s/ Michael J. Kolthoff
-----------------------         Treasurer and Assistant Secretary                March 26, 1999
Michael J. Kolthoff             (Principal Financial and Accounting
                                Officer)
/s/ Thomas J. Davis
-----------------------         Director                                         March 26, 1999
Thomas J. Davis

/s/ Timothy P. Hartman
-----------------------         Director                                         March 26, 1999
Timothy P. Hartman

/s/ Michael J. Marocco
-----------------------         Director                                         March 26, 1999
Michael J. Marocco

/s/ Susan Molinari
-----------------------         Director                                         March 26, 1999
Susan Molinari


                                      45

<PAGE>

<CAPTION>

/s/ Malcolm Lassman
-----------------------         Director                                         March 26, 1999
Malcolm Lassman

/s/ David Voelker
-----------------------         Director                                         March 26, 1999
David Voelker

/s/ Alejandro Zubillaga
-----------------------         Director                                         March 26, 1999
Alejandro Zubillaga

</TABLE>


                                      46