<PAGE>   1
 
================================================================================
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549-1004
 
                                   FORM 10-K
 
   (MARK ONE)
      [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

      [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                  FOR THE TRANSITION PERIOD FROM ____________ TO ____________
 
                         COMMISSION FILE NUMBER 1-13452
 
                       PAXSON COMMUNICATIONS CORPORATION
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                                              <C>
                        DELAWARE                                          59-3212788
            (State or other jurisdiction of                            (I.R.S. Employer
             incorporation or organization)                          Identification No.)

   601 CLEARWATER PARK ROAD, WEST PALM BEACH, FLORIDA                       33401
        (Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code: (561) 659-4122
Securities Registered Pursuant to Section 12(b) of the
  Act:
                                                                       NAME OF EXCHANGE
                  TITLE OF EACH CLASS                                ON WHICH REGISTERED
--------------------------------------------------------         ----------------------------
      Class A Common Stock, $0.001 par value                       American Stock Exchange
      11 5/8% Senior Subordinated Notes                            American Stock Exchange
</TABLE>
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
 
    The aggregate market value of voting stock held by non-affiliates as of
March 9, 1998 is $233,013,000, computed by reference to the closing price for
such shares on the American Stock Exchange.
 
    The number of shares outstanding of each of the registrant's classes of
common stock, as of March 9, 1998 was: 51,381,100 shares of Class A Common
Stock, $.001 par value, and 8,311,639 shares of Class B Common Stock, $.001 par
value.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Parts of the definitive Proxy Statement for the Registrant's Annual Meeting
of Stockholders to be held on April 17, 1998.
 
================================================================================
<PAGE>   2
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>        <C>                                                           <C>
Item 1.    Business....................................................     1
Item 2.    Properties..................................................    16
Item 3.    Legal Proceedings...........................................    17
Item 4.    Submission of Matters to Vote of Security Holders...........    18
Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters.........................................    18
Item 6.    Selected Financial Data.....................................    20
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................    21
Item 7A.   Quantitative and Qualitative Disclosures About Market
           Risk........................................................    27
Item 8.    Financial Statements and Supplementary Financial Data.......    27
Item 9.    Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure....................................    27
Item 10.   Directors and Executive Officers of the Registrant..........    27
Item 11.   Executive Compensation......................................    27
Item 12.   Security Ownership of Certain Beneficial Owners and
           Management..................................................    27
Item 13.   Certain Relationships and Related Transactions..............    27
Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form
           8-K.........................................................    27
</TABLE>
 
                                        i
<PAGE>   3
 
ITEM 1.  BUSINESS
 
GENERAL
 
     Paxson Communications Corporation (the "Company") is a broadcasting company
whose principal business is the ownership and operation of the largest broadcast
television station group in the United States. The Company commenced its
television operations in early 1994 in anticipation of deregulation of the
broadcast industry. In response to federal regulatory changes increasing limits
on broadcast television station ownership and mandating cable carriage of local
television stations, the Company has expanded rapidly, through acquisitions and
construction of television stations, to establish the largest owned and operated
broadcast television station group in the United States. The Company currently
owns or operates 58 stations and has 8 affiliates carrying the Company network
television programming. Upon completion of pending acquisitions, construction
projects, divestitures and other transactions, the Company will have 77 owned,
operated and affiliated television stations and it will be the only television
broadcaster that owns stations in all of the top 20 television markets in the
United States. The Company's broadcast television station group will then
include 71 full power television stations and the Company will have a
broadcasting presence in 75 markets, including 42 of the top 50 television
markets. Subject to the receipt of additional financing, regulatory approvals
and other conditions, the Company expects to complete substantially all of the
acquisitions within the next year.
 
     In addition to expanding the distribution capacity of its broadcast
television group, the Company has traditionally pursued a strategy of operating
its television stations inexpensively relative to comparable television stations
in similar markets. Typically, the Company has been able to acquire non-network
affiliated stations with marginal operating results for relatively low cost.
Generally, the stations have begun to cover operating costs and contribute
positively to the Company's cash flows from operations shortly after being
incorporated into the Company's centralized television infrastructure.
 
     The Company has sought to provide its stations with programming that
maximizes the value of its television properties. Consistent with its low cost
operating strategy, the Company's television group currently broadcasts long
form paid programming, consisting primarily of infomercials, under the Company's
proprietary television network programming service known as "inTV". The Company
launched inTV in January 1995 with four broadcast television stations in order
to participate in the rapidly growing infomercial industry. Infomercials and
long form paid programming have allowed the Company to operate its stations with
insignificant programming costs, furthering its low cost operating strategy.
 
     As the Company's television distribution capacity has increased, the
Company has continued to evaluate the best use of such capacity. Seeking to
leverage the value of its extensive broadcast properties and to participate in
the larger advertising revenue pool of the traditional television "spot"
advertising market, the Company announced in November 1997 that it would launch
its PAX NET television network on August 31, 1998. PAX NET will serve as a brand
name for the programming that the Company expects to provide to its television
stations, other affiliated television stations, cable systems and satellite
television providers. PAX NET programming will generally consist of
family-oriented traditional entertainment television programming, including a
variety of off-network drama, situation comedy, talk and information programs
and movies. By utilizing a centralized programming acquisition strategy, the
Company expects to incur programming costs per station less than those of
comparable television stations in similar markets. After the launch of PAX NET,
the Company will continue to air long form and infomercial programming at such
times and in such amounts as the Company believes will maximize the value of its
broadcast properties.
 
     The Company was founded in 1991 by Lowell W. "Bud" Paxson. Mr. Paxson has
been at the forefront of several innovative broadcasting concepts over the last
decade, including his leadership role in the creation and early growth of
electronic retailing as the creator and co-founder of Home Shopping Network,
Inc. and Silver King Communications, Inc.
 
     In 1997, the Company discontinued two business segments, Paxson Radio and
Paxson Network-Affiliated Television. Paxson Radio's assets, which included the
Company's radio and billboard operations and an agreement to purchase three
additional radio stations, were sold for aggregate consideration of
approximately $629 million, consisting of approximately $602 million of cash and
the assumption of the purchase commitment. Paxson Network-Affiliated Television,
which consisted of two traditional network-affiliated


                                        1
<PAGE>   4
 
television stations, was sold for aggregate consideration of approximately $119
million. The Company is reinvesting the net proceeds from such sales in
additional television stations. These business segments have been classified as
discontinued operations in the accompanying Consolidated Statements of
Operations for all periods presented. See Note 2 to the Consolidated Financial
Statements appearing elsewhere in this report for additional discussion of these
transactions.
 
PAXSON TELEVISION DISTRIBUTION STRATEGY
 
     The Company has typically acquired non-network affiliated stations with
marginal operating results at a relatively low cost compared to network
affiliated stations. Certain of these stations are licensed to communities
outside the center of major television markets, but within such markets'
designated market areas ("DMA"). By virtue of the "must carry" rules of the
Federal Communications Commission ("FCC"), these stations are generally entitled
to carriage on cable systems throughout the DMA. Through the exercise of "must
carry" rights and the improvement of its stations' over-the-air signals, the
Company has increased its station reach within each of its markets. The
upholding of the "must carry" rules by the Supreme Court in March 1997
reinforced the Company's distribution strategy. The Company believes that its
stations reach a significant number of over-the-air television households that
do not receive cable television. The Company continues to seek to expand
television distribution through the purchase or operation of, or affiliation
with, independent television stations in major United States television markets.
As of February 28, 1998, the DMAs to be served by the Company's stations upon
completion of pending acquisitions, divestitures and other transactions,
contained approximately 72 million television households, of which approximately
48 million were served by cable television.
 
     By purchasing independent television stations, entering into time brokerage
agreements, affiliating with stations, and extending its stations' reach on
cable via "must carry" requirements, the Company has created a valuable national
television broadcasting distribution infrastructure. The Company's television
stations included in its broadcast distribution network are either (i) owned, in
whole or in part, by the Company, (ii) operated by the Company pursuant to time
brokerage agreements entered into with FCC licensees, or (iii) owned by
independent television station operators that enter into affiliation agreements
with the Company. During January 1998, the Company adopted new call letters for
39 of its television stations in an effort to more closely align the station
call letters with PAX NET. These new call letters have been utilized throughout
this report.
 
     The following table lists television stations that the Company owns,
operates or is affiliated with, and that the Company has agreements to acquire
or operate, as identified under "Pending Acquisitions or Affiliates" below.
(Television and cable households in thousands.)
<TABLE>
<CAPTION>
                                                                               STATION CABLE       CURRENT          TOTAL
                       TV MARKET      STATION CALL            COMMENCEMENT      CARRIAGE AT     STATION CABLE   MARKET CABLE
MARKET(1)                RANK        (FORMER CALL)      CH    OF OPERATIONS   COMMENCEMENT(2)    CARRIAGE(3)    HOUSEHOLDS(3)
---------              ---------   ------------------   ---   -------------   ---------------   -------------   -------------
<S>                    <C>         <C>                  <C>   <C>             <C>               <C>             <C>
Owned or Operated
New York, NY.........       1      WPXN                  31        7/97            4,141            4,419           4,825
New York, NY.........       1      WIPX (whai)(17)       43        3/96              626              541           4,825
Los Angeles, CA......       2      KPXN (kzki)           30        5/95            1,453            2,729           3,133
Philadelphia, PA.....       4      WPPX (wtgi)           61        2/95            1,225            1,663           2,033
San Francisco, CA....       5      KKPX (klxv)           65        6/95              650            1,310           1,640
Boston, MA...........       6      WPXB (wgot)           60        5/95              604            1,056           1,694
Boston, MA*..........       6      WBPX (whrc)(5)        46        4/97                0              460           1,694
Washington, D.C......       7      WPXW (wvvi)           66        8/97              940            1,040           1,331
Dallas, TX...........       8      KPXD (kinz)(15)       68       12/96                0              687             989
Detroit, MI..........       9      WPXD (wbsx)           31        1/98              624              712           1,191
Atlanta, GA..........      10      WPXA (wtlk)           14        4/94              300              985           1,144
Atlanta, GA*.........      10      WNGM(10)              34        4/96              182              344           1,144
Houston, TX..........      11      KPXB (ktfh)           49        3/95              647              889             918
Seattle, WA..........      12      KWPX(kbge)            33        3/98              592              592           1,104
Cleveland, OH........      13      WVPX (wakc)           23        3/96              560              981           1,026
Cleveland, OH*.......      13      WOAC(10)              67       10/95              332              470           1,026
Minneapolis, MN......      14      KPXM (kxli)           41       10/96              605              637             746
Tampa, FL............      15      WXPX (wfct)           66        8/94                0            1,045           1,043
Miami, FL............      16      WPXM (wctd)           35        4/94              396            1,047             993
Phoenix, AZ..........      17      KBPX (kwbf)           13        3/96               23               28             755
Phoenix, AZ*.........      17      KAJW(4)(8)            51                            0                0             755
Denver, CO...........      18      KPXC (kubd)           59        8/95              430              474             741
Sacramento, CA*......      20      KSPX (kcmy)           29        7/95              624              640             726
Orlando, FL..........      22      WOPX (wirb)           56       12/94              468              781             796
Indianapolis, IN.....      25      W51BU(14)             51        3/98                0                0             618
Hartford, CT*........      27      WHPX (wtws)(5)        26        3/95              661              832             792
Raleigh, NC..........      29      WFPX (wfay)           62        1/98              111              132             512
Kansas City, MO......      31      KPXE (kinb)           50        5/97              397              439             518
Milwaukee, WI........      32      WPXE (whke)(6)(10)    55        7/96              257              401             477
 
<CAPTION>
                           CURRENT           TOTAL
                        STATION CABLE      MARKET TV
MARKET(1)               CARRIAGE%(3)     HOUSEHOLDS(3)
---------              ---------------   -------------
<S>                    <C>               <C>
Owned or Operated
New York, NY.........        91.6%           6,756
New York, NY.........        11.2%           6,756
Los Angeles, CA......        87.1%           5,009
Philadelphia, PA.....        81.8%           2,659
San Francisco, CA....        79.9%           2,298
Boston, MA...........        62.3%           2,174
Boston, MA*..........        27.1%           2,174
Washington, D.C......        78.1%           1,928
Dallas, TX...........        69.4%           1,899
Detroit, MI..........        59.7%           1,782
Atlanta, GA..........        86.1%           1,675
Atlanta, GA*.........        30.1%           1,675
Houston, TX..........        96.8%           1,624
Seattle, WA..........        53.6%           1,514
Cleveland, OH........        95.6%           1,469
Cleveland, OH*.......        45.8%           1,469
Minneapolis, MN......        85.4%           1,448
Tampa, FL............       100.2%           1,436
Miami, FL............       105.4%           1,386
Phoenix, AZ..........         3.7%           1,289
Phoenix, AZ*.........         0.0%           1,289
Denver, CO...........        64.0%           1.199
Sacramento, CA*......        88.0%           1,127
Orlando, FL..........        98.1%           1,041
Indianapolis, IN.....         0.0%             957
Hartford, CT*........       105.1%             916
Raleigh, NC..........        25.7%             826
Kansas City, MO......        84.7%             792
Milwaukee, WI........        84.0%             791
</TABLE>
 
                                        2
<PAGE>   5
<TABLE>
<CAPTION>
                                                                               STATION CABLE       CURRENT          TOTAL
                       TV MARKET      STATION CALL            COMMENCEMENT      CARRIAGE AT     STATION CABLE   MARKET CABLE
MARKET(1)                RANK        (FORMER CALL)      CH    OF OPERATIONS   COMMENCEMENT(2)    CARRIAGE(3)    HOUSEHOLDS(3)
---------              ---------   ------------------   ---   -------------   ---------------   -------------   -------------
<S>                    <C>         <C>                  <C>   <C>             <C>               <C>             <C>
Nashville, TN........      33      WNPX (wkzx)           28        1/98               39               39             496
Columbus, OH.........      34      WLWG-LP(14)           62        3/98                0                0             473
Salt Lake City, UT...      36      KUPX (koog)           30        7/97              200              219             387
Norfolk, VA..........      39      WPXV (wjcb)           49        8/95              343              408             474
New Orleans, LA*.....      41      WCCL                  49        1/98              366              366             455
Memphis, TN*.........      42      WFBI                  50        1/98              259              259             390
West Palm Beach, FL..      43      WPXP(whbi)(12)        67        3/98                0                0             496
Oklahoma City, OK....      44      KOPX (kmnz)           62       10/96                0              234             374
Greensboro, NC.......      46      WGPX (waap)           16        7/96              323              341             367
Wilkes Barre, PA*....      47      WQPX (wswb)(4)(8)     64                            0                0             452
Providence, RI.......      49      WPXQ (wost)(4)(7)     69                            0                0             433
Birmingham, AL.......      51      WPXH (wnal)           44       10/96               31              109             363
Albany, NY...........      52      WYPX (wocd)           55        5/96              251              274             376
Dayton, OH...........      53      WDPX (wtjc)           26       10/95              298              310             351
Fresno, CA...........      55      KPXF (kkag)           61        6/97              195              193             263
Little Rock, AR*.....      56      KVUT(4)(8)            42                            0                0             301
Charleston, WV*......      57      WKRP(4)(8)            29                            0                0             353
Tulsa, OK*...........      58      KTPX (kglb)           44       10/97                0              191             299
Las Vegas, NV........      61      KVPX-LP(14)           59        2/98                0                0             302
Knoxville, TN*.......      64      WPXK(wpmc)            54        1/98              161              161             299
Roanoke, VA..........      68      WPXR (wefc)           38       10/97              182              189             263
Green Bay, WI........      70      WPXG (wsco)(4)        14                            0                0             226
Syracuse, NY*........      72      WAUP(4)(8)            56                            0                0             379
Ft. Myers, FL........      83      W57CJ(14)             57        8/96                0                0             253
Chattanooga, TN......      86      W55CD(14)             55        4/94                0                0             217
Cedar Rapids, IA.....      87      KPXR (ktvc)           48        5/97                0              161             198
San Sebastian, PR....      NR      WJWN                  38        2/96
Ponce, PR............      NR      WKPV                  20        2/96
San Juan, PR.........      NR      WJPX (wsjn)           24        2/96              285              285             298
                                                                                  ------           ------          ------
      Total Owned or Operated(9)                                                  19,782           29,070          39,185
Affiliates
Philadelphia, PA.....       4      WTVE(11)              51       10/96              414              814           2,033
Washington, D.C......       7      WWPX (wshe)(13)       60       10/96                0              122           1,331
St. Louis, MO........      21      WPXS (wcee)(13)       13        1/96               23               65             585
Indianapolis, IN.....      25      WIIB(11)              63        1/96              401              424             618
Hartford, CT.........      27      WHCT(11)              18        7/97                0              183             792
Raleigh, NC..........      29      WRPX (wrmy)(13)       47        6/96                0              377             512
Grand Rapids, MI.....      37      WZPX (wilv)(13)       43        9/96                0              415             412
Fresno, CA...........      55      KGMC(11)              43        1/96              179              164             263
                                                                                  ------           ------          ------
      Total Affiliates                                                             1,016            2,564           6,546
      Total Owned, Operated and Affiliates(9)                                     20,798           31,634          40,182
                                                                                  ======           ======          ======


</TABLE>
<TABLE> 
<CAPTION>
                                                                           CURRENT           TOTAL
                                                                        STATION CABLE      MARKET TV
MARKET(1)                                                               CARRIAGE%(3)     HOUSEHOLDS(3)
---------                                                              ---------------   -------------
<S>                                                                    <C>               <C>
Nashville, TN........                                                         7.9%             789
Columbus, OH.........                                                         0.0%             739
Salt Lake City, UT...                                                        56.5%             690
Norfolk, VA..........                                                        86.1%             636
New Orleans, LA*.....                                                        80.6%             623
Memphis, TN*.........                                                        66.2%             614
West Palm Beach, FL..                                                         0.0%             593
Oklahoma City, OK....                                                        62.5%             593
Greensboro, NC.......                                                        92.9%             577
Wilkes Barre, PA*....                                                         0.0%             566
Providence, RI.......                                                         0.0%             559
Birmingham, AL.......                                                        30.1%             547
Albany, NY...........                                                        72.8%             509
Dayton, OH...........                                                        88.3%             503
Fresno, CA...........                                                        73.3%             496
Little Rock, AR*.....                                                         0.0%             481
Charleston, WV*......                                                         0.0%             480
Tulsa, OK*...........                                                        64.0%             468
Las Vegas, NV........                                                         0.0%             450
Knoxville, TN*.......                                                        53.8%             441
Roanoke, VA..........                                                        71.8%             402
Green Bay, WI........                                                         0.0%             381
Syracuse, NY*........                                                         0.0%             378
Ft. Myers, FL........                                                         0.0%             320
Chattanooga, TN......                                                         0.0%             310
Cedar Rapids, IA.....                                                        81.7%             308
San Sebastian, PR....
Ponce, PR............
San Juan, PR.........                                                        95.6%           1,064
                                                                            -----           ------
      Total Owned or Operated(9)                                             74.9%          58,512
Affiliates
Philadelphia, PA.....                                                        40.0%           2,659
Washington, D.C......                                                         9.2%           1,928
St. Louis, MO........                                                        11.2%           1,109
Indianapolis, IN.....                                                        68.6%             957
Hartford, CT.........                                                        23.1%             916
Raleigh, NC..........                                                        73.6%             826
Grand Rapids, MI.....                                                       100.9%             659
Fresno, CA...........                                                        62.3%             496
                                                                            -----           ------
      Total Affiliates                                                       39.2%           9,550
      Total Owned, Operated and Affiliates(9)                                79.7%          60,280
                                                                            =====           ======
</TABLE>

<TABLE>
<S>                        <C>     <C>                   <C>                                                        <C>
Pending Acquisitions or Affiliates
Chicago, IL..........       3      WCFC                  38                                                         1,950
San Francisco, CA....       5      KWOK(4)(10)           68                                                         1,640
Pittsburgh, PA.......      19      Channel 40            40                                                           899
Portland, OR.........      24      KBSP                  22                                                           611
Buffalo, NY..........      40      WAQF(4)               51                                                           475
Albuquerque, NM......      48      Channel 14(4)         14                                                           332
Jacksonville, FL.....      54      WDVL-LP(4)(14)        54                                                           376
Mobile, AL...........      62      Channel 61(4)         61                                                           324
Des Moines, IA.......      69      Channel 39(4)         39                                                           233
Honolulu, HI*........      71      KAPA(4)               66                                                           333
Spokane, WA..........      73      Channel 34(4)         34                                                           233
Shreveport, LA.......      76      Channel 21(4)         21                                                           217
Portland, ME.........      80      Channel 23(4)         23                                                           266
Champaign, IL........      81      WFHL                  23                                                           249
Davenport, IA........      89      Channel 67(4)         67                                                           202
Jackson, MS..........      90      Channel 51(4)         51                                                           177
Greenville, NC.......     106      Channel 38(4)         38                                                           152
Odessa, TX...........     150      Channel 30(4)         30                                                            98
Christiansted, VI....      NR      Channel 15(4)         15                                                            18
                                                                                                                   ------
      Total Proposed TV Stations(9)                                                                                 7,146
                                                                                                                   ------
      Total Pending TV Acquisitions or Affiliates(9)(16)                                                           47,327
                                                                                                                   ======

</TABLE>

<TABLE>
<CAPTION>
<S>                                                                 <C>
Pending Acquisitions
Chicago, IL..........                                               3,140
San Francisco, CA....                                               2,298
Pittsburgh, PA.......                                               1,140
Portland, OR.........                                                 976
Buffalo, NY..........                                                 630
Albuquerque, NM......                                                 560
Jacksonville, FL.....                                                 502
Mobile, AL...........                                                 450
Des Moines, IA.......                                                 383
Honolulu, HI*........                                                 380
Spokane, WA..........                                                 375
Shreveport, LA.......                                                 366
Portland, ME.........                                                 350
Champaign, IL........                                                 331
Davenport, IA........                                                 302
Jackson, MS..........                                                 297
Greenville, NC.......                                                 234
Odessa, TX...........                                                 134
Christiansted, VI....                                                  36
                                                                   ------
      Total Proposed TV Stations(9)                                10,688
                                                                   ------
      Total Pending TV Acquisitions or Affiliates(9)(16)           70,868
                                                                   ======
</TABLE>
 
---------------
 
*   Operated or to be operated pursuant to a time brokerage agreement; except as
    noted, the Company has an agreement and/or an option to acquire a 100%
    ownership interest.
 
NR  Not ranked
 
(1) Each station is licensed by the FCC to serve a specific community, which is
    included in the listed market.
 
(2) Cable households reached at commencement of station's operations.
 
(3) Cable households are those reached at 2/98, per station and local cable
    system management and are to be billed in 3/98. Source for total market
    cable and total market television households is A.C. Nielsen, published
    9/97. Households for the three markets in Puerto Rico per Morgan Stanley,
    Dean Witter and the Virgin Islands per BIA.
 
(4) Station is currently under construction or not operating commercially.
 
(5) The Company has no option to acquire this station.
 
(6) Pending affiliate.
 
(7) 50% ownership interest.
 
(8) 49% ownership interest with an option for the remaining 51%.
 
                                        3
<PAGE>   6
 
(9) Figures represent total cable and television households in each market
    monthly and are not necessarily indicative of the number of households
    reached by each station in its market; totals do not double count markets
    where the Company has more than one station.
 
(10)The Company has contracted or entered into a letter of intent to sell its
    interest in this station.
 
(11)Currently an inTV affiliate only.
 
(12)33% ownership interest with an option to acquire up to 90%.
 
(13)The Company has an option to acquire, or right of first refusal upon a
    proposed sale, of station.
 
(14)A low power station. Other low power stations the Company owns or operates,
    which simulcast programs aired on an owned or operated full power television
    station in the same market, are not presented.
 
(15)The Company has an 80% ownership interest in this station.
 
(16)After accounting for all acquisitions, divestitures, and other transactions
    including those stations which the Company does not anticipate becoming a
    PAX NET affiliate (see footnote 11) as well as additional markets served by
    the Company's station group including Rochester, NY (WAQF), Lansing, MI
    (WZPX), Monterey/Salinas, CA (KKPX) and Bakersfield, CA (KPXF), the markets
    served by the Company's television stations will contain 48.0 million cable
    households and approximately 72 million television households.
 
(17)In conjunction with its acquisition of WPXN in New York the FCC has required
    that the Company sell this station.
 
TELEVISION PROGRAMMING
 
     As the Company has developed its television distribution capacity, it has
continued to evaluate the optimal use of its broadcasting assets. The Company's
broadcast television group currently broadcasts long form paid programming,
consisting primarily of infomercials on its inTV television network.
Infomercials and other long form paid programming have allowed the Company to
operate its stations with insignificant programming costs, furthering its low
cost operating strategy.
 
     Seeking to leverage the value of its extensive broadcast properties and to
participate in the larger advertising revenue pool of the traditional television
"spot" advertising market, the Company announced in November 1997 that it would
launch PAX NET on August 31, 1998. PAX NET programming will consist primarily of
one-hour drama, situation comedy, talk and information programs and movies, most
of which have aired (and in certain cases continue to air) on other national
television networks. The Company's management has stated its intent to select
programs that are family-friendly and will appeal to a broad viewership. PAX
NET's prime time programming line-up will include the off-network CBS hit series
Touched By An Angel, Promised Land, Dr. Quinn, Medicine Woman, Diagnosis Murder,
Highway to Heaven, and Life Goes On. Additionally, the line-up includes I'll Fly
Away, Dave's World, Christy, The Father Dowling Mystery Series, Neon Rider, Love
Boat, The New Flipper, Barnaby Jones, and Seventh Heaven, as well as theatrical
and made-for-television movies.
 
     Although the Company's programming costs under PAX NET will rise relative
to its inTV operations, the Company negotiated program license contracts which
in most cases entitle the Company to exclusive nationwide distribution rights to
deliver programming for a fixed cost independent of the number of households
which receive such programming. Accordingly, the Company's costs for a
particular program are expected to remain relatively fixed, even as the Company
expands its television distribution network and the viewers made available to
advertisers. The Company will continue to maintain lean staffing levels at each
television station relative to traditional television stations. The Company
expects that when its stations start broadcasting PAX NET programming, they will
be operated by an average of 18 people, compared to network and independent
stations which average over 100 and 60 people, respectively, in markets of
similar size to the Company's. The Company intends to continue seeking
efficiencies in centralization of many station functions, including promotion,
research, engineering, accounting, traffic and programming through PAX NET.
 
     With most of the television industry's revenues derived from traditional
30-second spots rather than infomercials, the Company is seeking through PAX NET
to access this greater source of advertising revenue. The Company intends to
continue to carry a reduced but still significant amount of infomercial
programming. Management's goal is to create a mix of syndicated entertainment
programming and infomercials to maximize the Company's national distribution
system. While inTV has relied on the "must carry" rules to obtain distribution,
management believes that PAX NET's programming will be attractive enough to
certain cable operators and independent broadcasters to enable the Company's
programming to be carried voluntarily.
 
     As the Company prepares to commence airing its PAX NET programming through
its television distribution system, it is seeking to broaden its network
television management, complete its family-oriented programming line-up, further
expand its television distribution capacity and finalize its advertising sales
 
                                        4
<PAGE>   7
 
strategy. Because the Company owns or has an economic interest in a significant
portion of its broadcast television distribution network, the Company is seeking
to maximize PAX NET advertising revenues by optimizing the mix of advertising
time it plans to sell to local, national spot, and network advertisers, as well
as its current base of long form paid programmers. The Company currently intends
to sell a significant portion of advertising time to both local advertisers in
each market and to national advertisers seeking to reach specific markets within
the Company's television group. The Company believes that these advertisers, who
seek to target viewers in specific markets, will purchase advertising inventory
at rates per viewer that the Company believes will be higher than an advertiser
would typically pay for a single commercial aired across the Company's entire
television distribution system.
 
     The Company sells its programming and advertising time on a local, national
and network basis. The Company currently makes available to long form
programmers and advertisers time on inTV at rates primarily based on the number
of cable households reached, the effectiveness of infomercials, the nature of
the advertiser, the nature of the advertisement (local, national or network),
and ultimately the demand for available infomercial time. Advertising time made
available to spot advertisers on PAX NET will primarily be based on audience
ratings generated by its programming in each of the markets served by the
Company's television distribution system. Local programming and advertising time
is sold by each station's local sales force and is offered to merchants and
businesses operating within a station's local market and local advertisers
seeking to target viewers in specific markets, including retailers, insurance
companies, automobile dealers, financial services providers and general
merchandisers. National and network programming and time is sold by national
advertising placement agencies and the Company's own in-house national and
network sales force. National and network long form paid programming and
advertising times appeal to advertisers who desire to reach viewers in,
respectively, targeted television markets and all television markets served by
the Company's television distribution system. The Company maintains national
sales offices in New York, Los Angeles, Chicago and at the Company's
headquarters in West Palm Beach.
 
     In 1997, the Company and Discovery Communications, Inc. (operators of
Discovery Channel, The Learning Channel and Discovery Animal Planet) formed The
Travel Channel, L.L.C., of which the Company owns a 30% interest, to operate The
Travel Channel in an effort to expand the cable television network's
distribution and programming offerings (See Note 3 to the Consolidated Financial
Statements appearing elsewhere in this report).
 
COMPETITION
 
     The Company's television stations compete with the other television
broadcasting stations in their respective market areas, as well as with other
advertising media, including newspapers, radio, magazines, outdoor advertising,
transit advertising, direct mail marketing and cable television networks.
Competition within the television broadcasting industry occurs primarily in
individual market areas, so a station in one market does not generally compete
with stations in other market areas. In each of its markets, the Company's
television stations face competition from other stations with substantial
financial resources, including, in certain instances, stations whose programming
is directed to the same demographic groups. In addition to management
experience, factors that are material to competitive positions include a
station's rank in its market, authorized power, assigned frequency, audience
characteristics, local program acceptance and the programming characteristics of
other stations in the market area.
 
     Although the television broadcasting industry is highly competitive, some
barriers to entry exist. The operation of a television broadcasting station
requires a license from the FCC, and the number of television stations that can
operate in a given market is limited by the availability of stations that the
FCC will license in that market. The television broadcasting industry
historically has grown in terms of total revenue, despite the introduction of
new technologies for the delivery of entertainment and information, such as
cable, and direct satellite. There is no assurance that market fragmentation
resulting from the application of new media technologies will not have an
adverse effect on the television broadcasting industry.
 
     The Company's successful development of PAX NET is subject to obtaining
sufficient audience ratings for its programming and converting such ratings into
advertising revenue sufficiently greater than the related programming and other
operating costs. The family-friendly programming is subject to competition from
 
                                        5
<PAGE>   8
 
several sources including certain programming of major broadcasting and cable
networks targeted to family viewers.
 
TIME BROKERAGE AGREEMENTS AND OTHER INTERESTS IN BROADCAST STATIONS
 
     Time Brokerage Agreements.  The Company has entered into time brokerage
agreements with third parties pursuant to which the Company enjoys many, but not
all, of the benefits of operating a television station while not owning the FCC
license. The Company is currently operating, or will operate upon consummation
of pending acquisitions or construction, stations KAJW-TV, Phoenix, Arizona,
KSPX-TV, Sacramento, California, WCCL-TV, New Orleans, Louisiana, WFBI-TV,
Memphis, Tennessee, WQPX-TV, Wilkes Barre, Pennsylvania, KVUT-TV, Little Rock,
Arkansas, WKRP-TV, Charleston, West Virginia, KTPX-TV, Tulsa, Oklahoma, WPXK-TV,
Knoxville, Tennessee, KAPA-TV Honolulu, Hawaii and WAUP-TV, Syracuse, New York
pursuant to time brokerage agreements. The Company may in the future enter into
other time brokerage agreements to operate stations prior to their acquisition
or to enable the Company to operate additional television stations that it might
not be able to own itself under current FCC multiple station ownership
restrictions.
 
     The Company also operates or intends to operate pursuant to time brokerage
agreements certain stations that the Company is not in the process of acquiring.
The Company currently operates each of WOAC-TV, Cleveland, Ohio, WNGM-TV,
Atlanta, Georgia, WHPX-TV, Hartford, Connecticut, and WBPX-TV, Boston,
Massachusetts, under time brokerage agreements. Two of the stations (WOAC-TV and
WNGM-TV) are operated pursuant to time brokerage agreements with entities owned
or controlled by Eddie Whitehead (collectively, "Whitehead Media") and the
Company's interest in these stations is presently under contract to be sold. In
addition, one station (WHPX-TV) is operated pursuant to a time brokerage
agreement with an entity owned or controlled by Steven Roberts and Michael
Roberts jointly ("Roberts Broadcasting"), and one (WBPX-TV) is operated pursuant
to a time brokerage agreement with The Christian Network, Inc. ("CNI").
 
     With limited exceptions, the time brokerage agreements that the Company
enters into, other than in anticipation of an acquisition, involve a basic
transaction structure. The Company (i) finances the acquisition by a third party
of some or all of the assets of the brokered stations and secures such financing
by encumbering such assets including, to the extent permitted under FCC rules
and regulations, the FCC license and all of the capital stock of the acquiring
company; and (ii) enters into a time brokerage agreement with the third party
that allows the Company to operate the brokered station in accordance with FCC
guidelines. In the case of Whitehead Media, the Company initially financed the
acquisition by Whitehead Media of each of WNGM-TV and WOAC-TV. Whitehead Media
subsequently obtained third party financing, part of the proceeds of which was
used to repay the Company. In general, payments made to the FCC licensee under
the time brokerage agreement are established, and renegotiated from time to
time, based upon increases in expenses. According to FCC regulations, the FCC
licensee remains primarily liable for those expenses, which include the
indebtedness owed by such FCC licensee to the Company or, in the case of
Whitehead Media, to third parties. In certain circumstances, the Company may
acquire certain tangible assets useful in the construction or operation of the
brokered station and lease such assets to the brokered station. In addition,
unless prohibited by FCC rules and regulations, the FCC licensee also grants to
the Company an option to purchase the station for an amount payable in cash
together with the forgiveness of all indebtedness. The Company has options to
purchase WNGM-TV and WOAC-TV. The Company has no ownership interest in the
parties with which it has entered into time brokerage agreements.
 
     Affiliation Agreements and Other Investments in Television Properties.  The
Company has several affiliation agreements with third parties, including DP
Media, Inc. (an entity owned and controlled by members of Mr. Paxson's family).
The affiliation agreements with DP Media, Inc. include the following television
stations: WWPX(TV) Martinsburg, West Virginia; WPXS(TV) Mt. Vernon, Illinois;
WRPX(TV) Rocky Mount, North Carolina; and WZPX(TV) Battle Creek, Michigan. The
Company has options to acquire WWPX(TV), and WRPX(TV) and a right of first
refusal upon any proposed sale of WPXS(TV) and WZPX(TV).
 
     The Company has purchased the stock of Cocola Media of San Francisco, Inc.,
which was financing the construction of KWOK-TV, San Francisco, California, with
the proceeds of loans made to it by the Company,
 
                                        6
<PAGE>   9
 
and held an option to acquire the station from the licensee. Upon completion of
the station's construction, the Company will exercise its option to acquire
KWOK-TV, and then include the station as partial consideration for the Company's
pending acquisition of WCFC-TV, Chicago, Illinois.
 
     The Company had also extended financing to Cocola Media Corporation of
Florida ("Cocola"), which has in turn financed the construction of television
station WPXP-TV, West Palm Beach, Florida, that is licensed to Hispanic
Broadcasting, Inc. ("HBI"). Cocola owns thirty-three percent (33%) of HBI and is
the holder of an option to acquire up to ninety percent (90%) of HBI after the
station commences broadcast operations. During March 1998 the Company purchased
all of the stock of Cocola and began operating WPXP pursuant to a time brokerage
agreement with HBI.
 
FEDERAL REGULATION OF BROADCASTING
 
     The FCC regulates television broadcast stations pursuant to the
Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act permits the operation of television broadcast stations only
according to a license issued by the FCC upon a finding that the grant of the
license would serve the public interest, convenience and necessity and to
provide a fair, efficient and equitable distribution of broadcast service
throughout the United States.
 
     The Communications Act empowers the FCC, among other things, to determine
the frequencies, location and power of broadcast stations; to issue, modify,
renew and revoke station licenses; to approve the assignment or transfer of
control of broadcast licenses; to regulate the equipment used by stations; to
impose fees for processing applications; and to impose penalties for violations
of the Communications Act or FCC regulations. The FCC may revoke licenses for,
among other things, false statements made to the FCC or willful or repeated
violations of the Communications Act or of FCC rules. Legislation has been
introduced from time to time to amend the Communications Act in various respects
and the FCC from time to time considers new regulations or amendments to its
existing regulations. The Telecommunications Act of 1996 (the "1996 Act")
changed many provisions of the Communications Act and required the FCC to change
its existing rules and adopt new rules in several areas affecting broadcasting.
 
     The following is a brief summary of certain provisions of the
Communications Act and the rules of the FCC. Reference should be made to the
Communications Act and the rules, orders, decisions and published policies of
the FCC for further information on FCC regulation of television and radio
broadcast stations.
 
     License Renewal.  The Communications Act provides that a broadcast station
license may be granted to an applicant if the public interest, convenience and
necessity will be served thereby, subject to certain limitations. In making
licensing determinations, the FCC considers an applicant's legal, technical,
financial and other qualifications. Broadcast station licenses are granted for
specific, limited periods and upon application, are renewable for additional
terms. The license term for both television and radio broadcast stations is
eight years. The Company's full power licenses, and the licenses of stations
with which the Company has time brokerage and affiliation agreements expire on
the following dates:
 
<TABLE>
<CAPTION>
OWNED TELEVISION STATIONS                           MARKET(1)                             LICENSE EXPIRATION
-------------------------                           ---------                             ------------------
<S>                                                 <C>                                   <C>
WPXN..............................................  New York                              June 1, 1999
WIPX(whai)........................................  New York                              April 1, 1999
KPXN(kzki)........................................  Los Angeles                           December 1, 1998
WPPX(wtgi)........................................  Philadelphia                          August 1, 1999
KKPX(klxv)........................................  San Francisco                         December 1, 1998
WPXB(wgot)........................................  Boston                                April 1, 1999
WPXW(wvvi)........................................  Washington                            October 1, 2004
KPXD(kinz)(3).....................................  Dallas                                August 1, 1998
WPXD(wbsx)........................................  Detroit                               October 1, 2005
WPXA(wtlk)........................................  Atlanta                               April 1, 2005
KPXB(ktfh)........................................  Houston                               August 1, 1998
KWPX(kbge)........................................  Seattle                               February 1, 1999
WVPX(wakc)........................................  Cleveland                             October 1, 2005
KPXM(kxli)*.......................................  Minneapolis                           April 1, 1998
WXPX(wfct)........................................  Tampa                                 February 1, 2005
WPXM(wctd)........................................  Miami                                 February 1, 2005
KAJW(4)...........................................  Phoenix                               October 1, 1998
</TABLE>
 
                                        7
<PAGE>   10
 
<TABLE>
<CAPTION>
OWNED TELEVISION STATIONS                           MARKET(1)                             LICENSE EXPIRATION
-------------------------                           ---------                             ------------------
<S>                                                 <C>                                   <C>
KBPX(kwbf)........................................  Phoenix                               October 1, 1998
KPXC(kubd)*.......................................  Denver                                April 1, 1998
WOPX(wirb)........................................  Orlando                               February 1, 2005
WFPX(wfay)........................................  Raleigh                               December 1, 2004
KPXE(kinb)........................................  Kansas City                           December 1, 2006
WPXE(whke)........................................  Milwaukee                             December 1, 2005
WNPX(wkzx)........................................  Nashville                             August 1, 2005
KUPX(koog)........................................  Salt Lake City                        October 1, 1998
WPXV (wjcb).......................................  Norfolk                               October 1, 2004
WPXP(whbi)(6).....................................  West Palm Beach                       February 1, 2005
KOPX(kmnz)*.......................................  Oklahoma City                         June 1, 1998
WGPX(waap)........................................  Greensboro                            December 1, 2004
WQPX(wswb)(4).....................................  Wilkes Barre                          August 1, 1999
WPXQ(wost)(5).....................................  Providence                            April 1, 1999
WPXH(wnal)........................................  Birmingham                            April 1, 2005
WYPX(wocd)........................................  Albany                                June 1, 1999
WDPX(wtjc)........................................  Dayton                                October 1, 2005
KPXF(kkag)........................................  Fresno                                December 1, 1998
KVUT(4)...........................................  Little Rock                           June 1, 2005
WKRP(4)...........................................  Charleston                            October 1, 2004
KTPX(kglb)*.......................................  Tulsa                                 June 1, 1998
WPXR(wefc)........................................  Roanoke                               October 1, 2004
WPXG(wsco)*.......................................  Green Bay                             December 1, 1997
WAUP(4)...........................................  Syracuse                              June 1, 1999
KPXR(ktvc)*.......................................  Cedar Rapids                          February 1, 1998
WJPX(wsjn)........................................  San Juan, Puerto Rico                 February 1, 2005
WKPV..............................................  Ponce, Puerto Rico                    February 1, 2005
WJWN..............................................  San Sebastian, Puerto Rico            February 1, 2005
</TABLE>
 
<TABLE>
<CAPTION>
TIME BROKERAGE AND AFFILIATED
TELEVISION STATIONS                                 MARKET(1)                             LICENSE EXPIRATION
-----------------------------                       ---------                             ------------------
<S>                                                 <C>                                   <C>
WTVE..............................................  Philadelphia                          August 1, 1999
WBPX(whrc)........................................  Boston                                April 1, 1999
WWPX(wshe)........................................  Washington                            October 1, 2004
WNGM..............................................  Atlanta                               April 1, 2005
WOAC..............................................  Cleveland                             October 1, 2005
KSPX (kcmy).......................................  Sacramento                            December 1, 1998
WPXS(wcee)........................................  St. Louis                             December 1, 2005
WIIB..............................................  Indianapolis                          August 1, 2005
WHPX(wtws)........................................  Hartford/New Haven                    April 1, 1999
WHCT..............................................  Hartford/New Haven                    April 1, 1999
WRPX(wrmy)........................................  Raleigh                               December 1, 2004
WZPX(wilv)........................................  Grand Rapids                          October 1, 2005
WCCL..............................................  New Orleans                           June 1, 2005
WFBI..............................................  Memphis                               August 1, 2005
KGMC..............................................  Fresno                                December 1, 1998
WPXK(wpmc)........................................  Knoxville                             August 1, 2005
</TABLE>
 
<TABLE>
<CAPTION>
RADIO STATIONS(2)                                   MARKET(1)                             LICENSE EXPIRATION
-----------------                                   ---------                             ------------------
<S>                                                 <C>                                   <C>
WHNZ-AM...........................................  Tampa/St. Petersburg                  February 1, 2004
WYCL-FM...........................................  Pensacola                             February 1, 2004
</TABLE>
 
---------------
 
 * License renewal pending.
(1) Each station is licensed by the FCC to serve a specific community which is
    included in the listed market.
(2) The formal call sign assigned by the FCC does not include the "-AM" suffix
    and does not necessarily include the "-FM" suffixes. These stations are
    contracted for sale.
(3) 80% owned.
(4) 49% owned.
(5) 50% owned.
(6) 33% ownership interest with an option to acquire up to 90%.
 
                                        8
<PAGE>   11
 
     Generally, the FCC renews licenses without a hearing. The Communications
Act authorizes the filing of petitions to deny during specified periods after
the renewal applications have been filed. Interested parties, including members
of the public, may file petitions to deny as a means to raise issues concerning
the renewal applicant's qualifications. The FCC will renew broadcast licenses if
the incumbent meets three requirements: (1) the station has served the public
interest, convenience and necessity; (2) the licensee has not seriously violated
the Communications Act or the FCC's rules; and (3) there have been no other
violations, which, taken together, would constitute a pattern of abuse. If an
applicant for renewal fails to satisfy this tripartite standard, the FCC
nevertheless may renew the license on appropriate terms and conditions,
including renewal for less than a full license term. The FCC may not consider
applications for the channel by other parties until it first has decided to deny
renewal to the incumbent. Before denying renewal to an incumbent, the FCC must
first allow the licensee a hearing on the licensee's alleged failure to satisfy
the statutory standard.
 
     Ownership Matters.  The Communications Act requires the prior approval of
the FCC for the assignment of a broadcast license or the transfer of control of
a corporation or other entity holding a license. In determining whether to
approve an assignment of a broadcast license or a transfer of control of a
broadcast licensee, the FCC considers, among other things, the financial and
legal qualifications of the prospective assignee or transferee, including
compliance with FCC restrictions on alien ownership and control, compliance with
rules limiting the common ownership of certain attributable interests in
broadcast, cable and newspaper properties, and the character qualifications of
the transferee or assignee and the individuals or entities holding attributable
interests in them.
 
     The FCC generally applies its ownership limits to attributable interests
held by an individual, corporation, partnership, or other association or entity.
In the case of corporations holding broadcast licenses, the interests of
officers, directors, and those who, directly or indirectly, have the right to
vote five percent or more of the corporation's stock are generally attributable,
as are positions of an officer or director of a corporate parent of a broadcast
licensee. The FCC treats all partnership interests as attributable, except for
those limited partnership interests that are insulated under FCC policies. For
insurance companies, certain regulated investment companies and bank trust
departments, that hold stock for investment purposes only, such interests become
attributable with the ownership of ten percent or more of the stock of the
corporation holding broadcast licenses.
 
     The Communications Act permits an entity to hold an attributable interest
in television stations reaching up to 35% of the United States television
households. The FCC utilizes a UHF discount in determining the reach of UHF
television stations by considering them to reach only fifty percent (50%) of the
households within their markets. The FCC also has rules that limit the number of
co-located television broadcast stations in which a single entity may own an
attributable interest. No single entity may hold an attributable interest in
television stations with overlapping Grade B service contours. The 1996 Act
directs the FCC to conduct a rule making proceeding to determine whether these
rules should be retained. The FCC has established a liberal waiver policy to
permit common ownership of a radio station and a television station in any of
the nation's 25 largest markets, and in some circumstances involving failed
stations and in other situations where more stringent waiver standards can be
met. The 1996 Act extends this waiver policy to the top 50 markets.
 
     The FCC's cross-ownership rules prohibit the common ownership of
attributable interests in certain combinations of media outlets serving the same
geographic area. Under these rules, a single entity may not have an attributable
interest in: (i) both a radio station and a television station that serve
specified overlapping areas; (ii) a daily newspaper and either a radio station
or a television station that serve specified overlapping areas; or (iii) a
television station and a cable television system that serve specified
overlapping areas. The FCC has initiated proceedings to inquire whether it
should change or eliminate its cross interest policy, covering joint ventures
and common key employees. The policy does not necessarily prohibit these
interests, but may require that the FCC consider whether they could have a
significant adverse affect on programming diversity and competition in the
market.
 
     In cases where one person or entity (such as Mr. Paxson in the case of the
Company) holds more than 50% of the combined voting power of the common stock of
a broadcasting corporation, a minority shareholder
 
                                        9
<PAGE>   12
 
of the corporation generally would not acquire an attributable interest in the
corporation. If a majority shareholder of a company (such as Mr. Paxson in the
case of the Company) were no longer to hold more than 50% of the combined voting
power of the common stock of the Company, the interests of minority shareholders
that had theretofore been considered non-attributable could become attributable,
with the result that any other media interests held by such shareholders would
be combined with the media interests of such company for purposes of determining
the shareholders' compliance with FCC ownership rules.
 
     Under the Communications Act, no FCC broadcast license may be held by a
corporation of which any officer or director is an alien or of which more than
one-fifth of its capital stock is owned or voted by aliens or their
representatives or by a foreign government or representative thereof, or by any
corporation organized under the laws of a foreign country (collectively
"Aliens"). Furthermore, the Communications Act provides that no FCC broadcast
license may be granted to any corporation controlled by any other corporation of
which more than one-fourth of its capital stock is owned of record or voted by
Aliens if the FCC should find that the public interest would be served by the
refusal of such license. Restrictions on alien ownership also apply, in modified
form, to other types of business organizations, including partnerships.
 
     Programming and Operation.  The Communications Act requires broadcasters to
present programming that responds to community problems, needs and interests and
to maintain certain records demonstrating such responsiveness.
 
     Broadcast of obscene or indecent material is regulated by the FCC as well
as by state and federal law. Stations also must follow various rules promulgated
under the Communications Act that regulate, among other things, political
advertising, sponsorship identifications, the advertising of contests and
lotteries, and technical operations, including limits on radio frequency
radiation. Pursuant to the Children's Television Act of 1990, the FCC has
adopted rules limiting advertising in children's television programming and has
required that television broadcast stations serve the educational and
informational needs of children.
 
     Time Brokerage Agreements.  Over the past several years a significant
number of broadcast licensees, including the Company, have entered into time
brokerage agreements. These arrangements are subject under FCC rules and
regulations to maintenance by the licensee of each station of independent
control over the programming and station operations of its own station.
 
     Typically, a time brokerage agreement is a programming agreement between
two separately owned broadcast stations serving a common service area, whereby
the licensee of one station programs substantial parts of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the licensee of the brokered station. The broker then sells
advertising time during such program segments for its own account.
 
     The FCC has determined that issues of joint advertising sales should be
left to antitrust enforcement. In addition, it has specifically exempted time
brokerage agreements from its cross-interest policy. Furthermore, the FCC has
held that time brokerage agreements do not per se constitute a transfer of
control and are not contrary to the Communications Act provided that the
licensee of the station maintains ultimate responsibility for and control over
operations of its broadcast station (including, specifically, control over
station finances, licensee personnel and programming) and complies with
applicable FCC rules and with antitrust laws.
 
     The FCC has no present rules on the attribution of television time
brokerage agreements as it does with radio time brokerage agreements. The 1996
Act grandfathered time brokerage agreements existing at the time of its passage
and included a provision that the broadcast ownership section of the Act is not
to be construed to prohibit the origination, continuation or renewal of any
television time brokerage agreement that complies with FCC regulations.
 
     "Must Carry"/Retransmission Consent.  The Communications Act contains
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years to require a cable system to
carry the station subject to certain exceptions, or to negotiate for
retransmission consent to carry the station. A cable system generally is
required to devote up to one-third of its activated channel capacity for the
mandatory carriage of local commercial television stations. Additionally, cable
systems are required to obtain retransmission consent for all distant commercial
television stations (except for
                                       10
<PAGE>   13
 
commercial satellite-delivered independent super stations such as WTBS),
commercial radio stations and certain low power television stations carried by
such systems after October 6, 1993.
 
     The 1996 Act modified the way in which markets for carriage will be
determined for purposes of the "must carry" rules. The 1996 Act provides that
the FCC will determine a broadcast station's market by using commercial
publications that delineate television markets based on viewing patterns. This
modification has resulted in the FCC ruling that for the election period
commencing January 1, 2000 a station's market will be defined by the DMA to
which it has been designated. The FCC is authorized to entertain requests for
expansion or other modification of television station markets, and is now
required to resolve any market modification request within 120 days after the
request is filed or within 120 days of enactment of the 1996 Act, whichever is
later.
 
     Equal Employment Opportunity Requirements.  The FCC's existing equal
employment opportunity ("EEO") regulations and reporting forms used by
television broadcast stations have been codified in the Communications Act. In
addition, the FCC has adopted rules providing for a review of the EEO
performance of each television station at the mid-point in its license term (in
addition to an examination at renewal time) and for the FCC to inform the
licensee of any improvements in recruiting practices that may be needed as a
result of the review. The FCC recently proposed rules that would reduce the EEO
record keeping and filing requirements of certain categories of stations.
 
     Syndicated Exclusivity/Territorial Exclusivity.  The FCC has imposed on
cable operators syndicated exclusivity rules and expanded existing network
non-duplication rules. These syndicated exclusivity rules allow local broadcast
stations to require that cable operators black out certain syndicated
non-network programming carried on distant signals (that is, signals of
broadcast stations, including so-called super stations, which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network affiliates to require that
cable operators black out duplicating network broadcast programming carried on
more distant signals that are not significantly viewed over the air.
 
     Television stations also may be subject to a number of other federal, state
and local regulation, including regulations of the Federal Aviation
Administration affecting tower height and marking, and federal, state and local
environmental and land use restrictions and general business regulation, and a
variety of local regulatory concerns.
 
     Proposed Changes.  The Congress and the FCC have under consideration, and
in the future may consider and adopt, new laws, regulations and policies
involving a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's broadcast stations,
result in the loss of audience and advertising revenue for the Company's
broadcast stations and affect the ability of the Company to acquire additional
broadcast stations or finance such acquisitions.
 
     FCC Proceedings to Revise Broadcast Ownership Rules.  The FCC has issued a
further notice of proposed rule making which proposed the following changes in
regulations governing television broadcasting: (i) modifying the reach discount
as it applies to UHF stations; (ii) narrowing the geographic area where common
ownership restrictions would be triggered by limiting it to overlapping Grade A
contours and by permitting certain UHF/UHF or UHF/VHF overlaps; (iii) relaxing
the rules prohibiting cross-ownership of radio and television stations in the
same market; and (iv) treating television time brokerage agreements the same as
radio time brokerage agreements which would presently preclude certain
television time brokerage agreements where the programmer owns or has an
attributable interest in another television station in the same market. In June
1995, the FCC announced an interim policy for processing television transfer and
assignment applications that include time brokerage agreements. Pending the
adoption of new rules, the FCC has stated that it will not grant applications
that propose a time brokerage arrangement if the arrangement also includes both
debt financing by the time broker and an option for the time broker to purchase
the brokered station. The FCC has stated that it will continue to grant
applications with time brokerage arrangements if they include only one of those
elements (that is, either debt financing by the broker or an option of the time
broker to purchase). The FCC also issued a further notice of proposed rule
making that combined several long-pending proceedings to consider changes in its
ownership rules and policies.
 
                                       11
<PAGE>   14
 
     FCC Inquiry on Broadcast of Commercial Matter.  The FCC also has initiated
a notice of inquiry proceeding seeking comment on whether the public interest
would be served by establishing limits on the amount of commercial matter
broadcast by television stations. No prediction can be made at this time as to
whether the FCC will propose any limits on commercial advertising at the
conclusion of its deliberation or the effect the imposition of limits on the
commercial matter broadcast by television stations would have upon the Company's
operations.
 
     Advanced High Definition Television System.  The FCC has adopted rules for
implementing advanced (high definition) television ("ATV") in the United States.
Implementation of ATV service should improve the technical quality of television
broadcasts. In anticipation of the implementation of ATV operations, the FCC has
adopted ATV technical standards and other rules necessary to protect the public
interest. The FCC has conditioned ATV licenses on recapture of either the new
ATV spectrum or television licensees' initial spectrum. Ten years after it first
issues ATV licenses, the FCC must evaluate its regulation and public acceptance
of ATV, including possible alternative uses of and reduction in ATV spectrum.
 
     The FCC is required to adopt rules permitting ATV licensees to offer
"ancillary or supplementary services" on newly-available ATV spectrum, so long
as such services are consistent with the FCC's ATV standards; do not derogate
required ATV services, including high definition television; and are regulated
in the same manner as similar non-ATV services. The FCC has decided that it will
set aside specific new channel allotments for ATV service. Initial eligibility
for these channels will be limited to existing television licensees.
 
     Beginning in May 2002 the Company will be required to air a certain number
of broadcast hours in the ATV format.
 
EMPLOYEES
 
     As of December 31, 1997, the Company had approximately 447 full-time
employees and 130 part-time employees. The substantial majority of the Company's
employees are not represented by labor unions. The Company considers its
relations with its employees to be good.
 
SEASONALITY
 
     Seasonal revenue fluctuations are common within the television broadcasting
industry and result primarily from fluctuations in advertising expenditures.
Because of the short operating history of inTV and the start up nature of PAX
NET, the Company's ability to assess the effects of seasonality on either inTV
or PAX NET is limited. It appears, however, that inTV experiences its highest
revenues during the first and fourth calendar quarters.
 
TRADEMARKS AND SERVICE MARKS
 
     The Company has 13 federally registered trademarks and service marks with
another 21 applications pending. It does not own any patents or patent
applications.
 
FORWARD-LOOKING STATEMENTS AND ASSOCIATED CONSIDERATIONS
 
     This Report contains forward-looking statements that reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are made pursuant to the "safe harbor" provisions of
the Securities Litigation Reform Act of 1995 and involve risks and
uncertainties, including those identified below, which could cause actual
results to differ materially from historical results or those anticipated. The
words "believe," "expect," "intend," "anticipate" and similar expressions
identify certain of such forward-looking statements, which speak only as of the
dates on which they were made. All statements herein, other than those
consisting solely of historical facts, that address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, including such things as business strategy, measures to implement
strategy, competitive strengths, goals, projected revenues, costs and other
financial results, references to future success and other events may be
forward-looking statements. Statements herein are based on certain assumptions
and analysis made by the Company in light of its experience and its perception
of historical trends, current conditions and potential future developments, as
well as other factors it believes are appropriate in the circumstances. Whether
actual results, events and developments will conform with the Company's
expectations is subject to a number of risks and uncertainties and important
factors that could cause actual results, events and developments to differ
materially from those
 
                                       12
<PAGE>   15
 
referenced in, contemplated by or underlying any forward-looking statements
herein, many of which are beyond the control of the Company. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
Readers are cautioned not to place undue reliance on these forward-looking
statements. Factors to consider in evaluating any forward-looking statements and
the other information contained herein and which could cause actual results to
differ from those anticipated in the forward-looking statements or otherwise
adversely affect the Company's business include those set forth below:
 
  High Level of Indebtedness; Restrictions Imposed by Terms of Indebtedness and
Preferred Stock
 
     The Company is highly leveraged. At December 31, 1997, the Company had
$350.8 million of total debt as well as $211.0 million of redeemable securities.
In addition, the Company may incur additional indebtedness and will likely issue
additional shares of preferred stock to finance acquisitions, capital
expenditures and for other corporate purposes. Its ability to do so is subject
to restrictions in the Company's Senior Secured Revolving Credit Facility (the
"Credit Facility"), the indenture (the "Indenture") governing the Company's
11 5/8% Senior Subordinated Notes (the "Notes"), the terms of the Company's
Junior Cumulative Compounding Redeemable Preferred Stock (the "Junior Redeemable
Preferred Stock") and the terms of the Company's redeemable 12 1/2% Cumulative
Exchangeable Preferred Stock (the "Exchangeable Preferred Stock," and with the
Junior Redeemable Preferred Stock, collectively, the "Preferred Stock").
 
     The level of the Company's indebtedness could have important consequences
to the Company, including: (i) a significant amount of the Company's cash flow
from operations must be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in the
future, if needed, may be limited; (iii) the Company's leveraged position and
covenants contained in the Indenture and the Credit Facility (or any replacement
thereof) could limit its ability to expand and make capital improvements and
acquisitions; and (iv) the Company's level of indebtedness could make it more
vulnerable to economic downturns, limit its ability to withstand competitive
pressures and limit its flexibility in reacting to changes in its industry and
economic conditions generally. Many of the Company's competitors currently
operate on a less leveraged basis and may have significantly greater operating
and financing flexibility than the Company.
 
     The Credit Facility, the Indenture and the Preferred Stock contain certain
covenants that restrict, among other things, the Company's ability to incur
additional indebtedness, incur liens, make investments, pay dividends or make
certain other restricted payments, consummate certain asset sales, consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. Currently,
such covenants prevent the Company from incurring additional indebtedness,
although refinancing of existing debt is not prohibited. In addition, the Credit
Facility requires the Company to comply with certain financial ratios and tests,
under which the Company is required to achieve certain financial and operating
results. If the Company defaults under the Credit Facility, the lenders may
terminate their lending commitments and declare the indebtedness under the
Credit Facility immediately due and payable. If this were to happen there is no
assurance that the Company would have sufficient assets to pay indebtedness then
outstanding under the Credit Facility and the Notes. If the Company is unable to
service its indebtedness or satisfy its dividend or redemption obligations with
respect to its Preferred Stock, it will be forced to adopt an alternative
strategy that may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There is no assurance that any of these
strategies could be effected on satisfactory terms, if at all.
 
  "Must Carry" Regulations
 
     The Company believes that the growth and success of its television station
group depends materially upon access to households served by cable television
systems. Pursuant to the 1992 Cable Act, each broadcaster is required to elect,
every three years, to exercise either certain "must carry" or retransmission
consent rights in connection with carriage of their signals by cable systems in
their local market. By electing the "must carry" rights, a broadcaster can
demand carriage on a specified channel on cable systems within its DMA, provided
the broadcaster's television signal can be delivered to the cable system
operator's cable head end at a specified strength. These "must carry" rights are
not absolute, and their exercise depends on variables such as the number of
activated channels on a cable system, the location and size of a cable system,
and the amount of
                                       13
<PAGE>   16
 
duplicative programming on a broadcast station. Therefore, under certain
circumstances, a cable system can decline to carry a given station.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. The Company's television stations have elected the
"must carry" alternative. The Company's elections of retransmission or "must
carry" status will continue until the next required election date of October 1,
1999. If the law were changed to eliminate or materially alter "must carry"
rights, the Company could suffer adverse effects.
 
  Government Regulation
 
     Each of the Company's television stations operates pursuant to one or more
licenses issued by the FCC that expire at different times, some of which are
currently up for renewal. The Company may apply to renew those licenses, and
third parties may challenge those applications. The license term for broadcast
television stations is eight years. Although the Company has no reason to
believe that its licenses will not be renewed in the ordinary course, there can
be no assurance that the licenses will be renewed. The television broadcasting
industry is subject to extensive and changing regulation. See "Federal
Regulation of Broadcasting."
 
  Multiple Ownership Rules; Time Brokerage Agreements
 
     Current FCC rules prohibit ownership interests in two or more television
stations with overlapping service areas. The FCC generally applies its ownership
limits to attributable interests held by an individual, corporation, partnership
or other entity. In the case of corporations holding broadcast licenses, the
interests of officers, directors and those who directly or indirectly have the
right to vote 5% or more of the corporation's voting stock are generally deemed
to be attributable, as are the interests of officers and directors of a
corporate parent of a broadcast licensee. Changes in the rule for attributing
the ownership of media interests for purposes of the FCC's multiple ownership
and cross-ownership rules could require that the Company restructure or divest
itself of some existing broadcast interests.
 
     The television duopoly and one-to-a-market rules currently prevent the
Company from acquiring the FCC licenses of television stations with which it has
time brokerage agreements in those markets where the Company owns a television
station. In addition, if the FCC were to decide that the provider of programming
services under time brokerage agreements should be treated as having an
attributable interest in the television station it programs, and if it did not
relax the corresponding duopoly rules, or if the FCC were to adopt restrictions
on time brokerage agreements without grandfathering existing time brokerage
agreements, the Company could be required to renegotiate or terminate certain of
its time brokerage agreements. The 1996 Act specifies, however, that none of the
provisions relating to broadcast ownership shall be construed to prohibit the
origination, continuation or renewal of any television time brokerage agreement
that is in compliance with the regulations of the FCC. Nevertheless, if in
individual cases the FCC were to find that the licensee of a station with which
the Company has a time brokerage agreement failed to maintain control over its
operations as required by FCC rules and policies, the licensee of the time
brokerage agreement and/or the Company could be fined or could be set for
hearing, the outcome of which could be a fine or, under certain circumstances,
loss of the applicable FCC license. The Company is unable to predict the
ultimate outcome of possible changes to these FCC rules and the impact such FCC
rules may have on its broadcasting operations. See "Federal Regulation of
Broadcasting."
 
  New Industry
 
     inTV operates in a relatively new industry with a limited operating
history. Difficulties and uncertainty are normally associated with new
industries, including a lack of consumer and advertiser acceptance, difficulty
in obtaining financing, increasing competition, advances in technology, and
changes in law and regulations. There is no assurance that this new industry
will develop and continue as a viable industry. Growth in revenue from the
Company's inTV business depends on increasing consumer awareness and acceptance
of infomercial programming and growing demand by infomercial advertisers. Should
these circumstances not occur, the Company's business could be adversely
affected.
 
                                       14
<PAGE>   17
 
  Risk Associated with Starting PAX NET
 
     PAX NET will be operated differently from traditional television and cable
networks and independent stations. The Company believes its revenues and
expenses will likewise be different. As a result, the Company's plans and
strategies with respect to PAX NET cannot be tested against traditional
television and cable networks and independent station data or experiences. The
success of the Company's PAX NET network will depend largely on the programming
PAX NET offers and the Company's cost of obtaining such programming. The Company
seeks to acquire programming for PAX NET which will generate sufficient ratings
to enable the Company to capture advertising revenues exceeding the Company's
programming costs and other expenses. The Company has made certain assumptions
in formulating its plans and strategies including, among others, the Company's
ability to achieve certain ratings, sell advertising at certain rates, sell a
significant amount of its time on a local basis at higher rates, sell out its
time at targeted rates, locate and hire the significant number of additional
employees which the Company expects will be necessary for the launch of PAX NET,
operate its stations at the anticipated staffing levels, achieve targeted cost
savings through the centralization of certain tasks for multiple stations, sell
time utilizing limited outside sales representatives, attract affiliates and
acquire additional stations, and continue to sell time for infomercials during
the day, on weekends, at anticipated rates. There can be no assurance that the
PAX NET programming obtained by the Company will generate sufficient audience
ratings for the profitable operation of PAX NET or that the Company's
programming costs will not prove excessive in relation to its advertising
revenues, nor can there be any assurance that any of the Company's assumptions
regarding the startup and operation of PAX NET will prove correct.
 
  Dependence on Key Personnel
 
     The Company's business depends upon the efforts, abilities and expertise of
its executive officers and other key employees, including Lowell W. Paxson. If
certain of these executive officers were to leave the Company, the Company's
operating results could be adversely affected. In addition, in the event of Mr.
Paxson's death, the Company may be required, in certain circumstances, to make
an offer to repurchase the Notes and to redeem its Preferred Stock. There is no
assurance that if such an event were to occur, the Company would have, or would
have access to, sufficient funds to satisfy such repurchase or redemption
obligations.
 
  Ability to Manage Growth
 
     Since inception, the Company has experienced rapid growth, primarily
through acquisitions. Rapidly growing businesses frequently encounter unforeseen
expenses and delays in completing acquisitions, as well as difficulties and
complications in integrating acquired operations without disruption to overall
operations. In addition, such rapid growth may adversely affect the Company's
operating results because of many factors, including capital requirements,
transitional management and operating adjustments, and interest costs associated
with acquisition debt. There can be no assurance that the Company will
successfully integrate acquired operations or successfully manage the costs
often associated with rapid growth.
 
  Competition
 
     The Company's television stations are located in highly competitive
markets. Upon the launch of PAX NET, the financial success of each of the
Company's television stations will depend, to a significant degree, upon its
audience ratings, its share of the overall television sales within its
geographic market, the economic health of the market and the popularity of its
programming. The audience ratings and advertising of such individual stations
are subject to change and any adverse change in a particular market could have a
material adverse effect on the revenue and cash flow of the Company. The
Company's television stations will compete for audience share and advertising
revenue directly with other television stations and with other media within
their respective markets. In addition, to the extent that many of the Company's
competitors have or may, in the future, obtain greater resources than the
Company, its ability to compete successfully in its broadcasting markets may be
impeded. There can be no assurance that the Company will be able to obtain or
maintain significant audience ratings and advertising revenue. See
"Competition."


                                       15
<PAGE>   18
 
  Industry and Economic Conditions
 
     The profitability of the Company's television stations is subject to
various factors that influence the television broadcasting industries as a
whole, including changes in audience tastes, priorities of advertisers, new laws
and governmental regulations and policies, changes in broadcast technical
requirements, technological changes, proposals to eliminate the tax
deductibility of expenses incurred by advertisers and changes in the willingness
of financial institutions and other lenders to finance television station
acquisitions and operations. The Company's broadcasting revenue is likely to be
adversely affected by a recession or downturn in the United States economy or
other events or circumstances that adversely affect advertising activity. In
addition, the Company's operating results in individual geographic markets could
be adversely affected by local or regional economic downturns.
 
ITEM 2.  PROPERTIES
 
     The following table sets forth information with respect to the Company's
offices and its studios and broadcast tower locations. Management believes that
the Company's properties are in good condition and are suitable for its
operations.
 
<TABLE>
<CAPTION>
MARKET(A)                                     PROPERTY       OWNED/LEASED  LEASE EXPIRATION
---------                                     --------       ------------  ----------------
<S>                                       <C>                <C>           <C>
New York, NY............................  Studio             Leased        March 2001
                                          Offices            Leased        June 2000
Los Angeles, CA.........................  Tower              Leased        March 2006
                                          Studio/Offices     Leased        April 2008
                                          Tower              Leased        June 2005
Chicago, IL.............................  Offices            Leased        June 2000
Philadelphia, PA........................  Sales Office       Leased        July 1998
                                          Studio             Leased        September 2000
San Francisco, CA.......................  Tower              Leased        June 2020
                                          Studio/Offices     Leased        June 2005
Boston, MA..............................  Studio/Offices     Leased        February 2006
                                          Tower              Leased        February 2012
Washington, DC..........................  Tower              Owned
                                          Studio             Owned
Dallas, TX..............................  Studio             Leased        October 2001
                                          Tower              Leased        March 2016
Detroit, MI.............................  Studio             Leased        August 1999
                                          Tower              Owned
Atlanta, GA.............................  Tower              Leased        October 2015
                                          Studio/Offices     Leased        June 2001
Houston, TX.............................  Tower              Owned
                                          Studio             Owned
Seattle, WA.............................  Tower              Leased        August 2002
                                          Studio             Leased        October 2000
Cleveland, OH...........................  Tower              Leased        May 2006
                                          Studio             Leased        October 1999
Minneapolis, MN.........................  Studio             Owned
                                          Tower              Owned
Tampa, FL...............................  WHNZ-AM Tower      Owned
                                          WXPX(wfct) Tower   Owned
                                          WXPX(wfct) Studio  Leased        April 2001
Miami, FL...............................  Tower              Leased        October 1999
                                          Studio             Leased        July 2001
Phoenix, AZ.............................  KBPX(kwbf) Studio  Leased        September 1999
                                          KBPX(kwbf) Tower   Leased        October 2001
                                          KAJW Tower         Leased        June 2012
Denver, CO..............................  Studio             Leased        August 2001
                                          Tower              Leased        August 2003
</TABLE>
 
                                       16
<PAGE>   19
 
<TABLE>
<CAPTION>
MARKET(A)                                     PROPERTY       OWNED/LEASED  LEASE EXPIRATION
---------                                     --------       ------------  ----------------
<S>                                       <C>                <C>           <C>
Orlando, FL.............................  Tower              Leased        August 2015
                                          Tower              Owned
                                          Studio/Offices     Leased        Month to Month
Raleigh/Fayetteville, NC................  Studio             Leased        January 2003
                                          Tower              Leased        January 2003
Kansas City, MO.........................  Studio             Leased        August 2004
                                          Tower              Leased        August 2047
Milwaukee, WI...........................  Studio             Owned
                                          Tower              Leased        June 2012
Nashville, TN...........................  Studio             Leased        January 2003
                                          Tower              Leased        January 2013
Salt Lake City, UT......................  Studio             Leased        July 2000
                                          Tower              Leased        January 1999
Norfolk, VA.............................  Studio             Leased        June 1998
                                          Tower              Leased        May 1999
Oklahoma City, OK.......................  Studio             Leased        October 2003
                                          Tower              Leased        September 2003
Greensboro, NC..........................  Tower              Leased        October 2011
                                          Studio             Leased        September 2002
West Palm Beach, FL.....................  Headquarters       Owned
                                          Annex              Leased        February 2000
                                          Undeveloped Land   Owned
Providence, RI..........................  Tower              Leased        August 2006
Birmingham, AL..........................  Studio             Leased        November 1999
                                          Tower              Owned
Albany, NY..............................  Tower              Owned
                                          Studio             Leased        November 2003
Dayton, OH..............................  Tower              Owned
                                          Studio             Owned
Fresno, CA..............................  Studio             Leased        Month to Month
                                          Tower              Leased        June 2000
Little Rock, AR.........................  Tower              Leased        January 2012
Tulsa, OK...............................  Tower              Leased        December 2006
                                          Studio             Leased        February 2004
Roanoke, VA.............................  Studio             Leased        December 2003
                                          Tower              Owned
Green Bay, WI...........................  Studio             Leased        December 2007
                                          Tower              Leased        January 2012
Cedar Rapids, IA........................  Studio             Leased        December 1999
                                          Tower              Owned
                                          Tower land         Leased        December 2015
Pensacola, FL...........................  Studio             Leased        Month to Month
                                          Tower              Owned
Puerto Rico.............................  Towers -- two      Owned
                                          Tower              Leased        Month to Month
                                          Studio             Leased        November 2001
</TABLE>
 
---------------
 
(a) Market listed may differ from actual location.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, no material legal
proceedings are pending to which the Company or any of its property is subject.
 
                                       17
<PAGE>   20
 
ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the period covered by this report.
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Class A Common Stock became publicly-held November 7, 1994
when it was listed on the NASDAQ Small-Cap Market. Since July 10, 1995, the
Class A Common Stock has been listed on the American Stock Exchange under the
symbol PXN. On November 24, 1997, the Company changed its listing symbol to PAX.
The following table sets forth, for the periods indicated, the high and low last
sales price per share for the Class A Common Stock.
 
<TABLE>
<CAPTION>
                                                                 1997               1996
                                                             -------------      -------------
                                                             HIGH      LOW      HIGH      LOW
                                                             ----      ---      ----      ---
<S>                                                          <C>       <C>      <C>       <C>
First Quarter..............................................   10 1/4    7 15/16  21 1/4   13 7/8
Second Quarter.............................................   13 1/8    9 3/4    15 3/8   10 5/8
Third Quarter..............................................   14 3/8   10 15/16  13        9 11/16
Fourth Quarter.............................................   12 1/16   7 3/16   11 1/8    6 5/8
</TABLE>
 
     On March 9, 1998, the closing sale price of the Class A Common Stock on the
American Stock Exchange was $8.4375 per share. As of that date, there were
approximately 363 holders of record of the Class A Common Stock.
 
     On January 27, 1998, in connection with the Company's acquisition of
KPXR-TV, the Company issued 600,000 shares of Class A Common Stock with an
approximate market value at the time of $5,250,000 to Fant Broadcasting of Iowa,
Inc. The shares issued were not registered under the Securities Act of 1933 and
were issued in reliance upon the exemption from registration provided in Section
4(2) of such Act for transactions not involving a public offering.
 
     On July 30, 1997, in connection with the Company's acquisition of WPXW-TV,
the Company issued 1,197,892 shares of Class A Common Stock with an approximate
market value at the time of $10,000,000 to ValueVision International. The shares
issued to ValueVision International are entitled to piggyback registration
rights in the event of certain offerings of shares to the public. The shares
issued were not registered under the Securities Act of 1933 and were issued in
reliance upon the exemption from registration provided in Section 4(2) of such
Act for transactions not involving a public offering.
 
     On July 11, 1997, in connection with the Company's acquisition of The
Travel Channel, the Company issued 4,773,097 shares of Class A Common Stock with
an approximate market value at the time of $55,000,000 to the shareholders of
Landmark Communications, Inc. ("Landmark") and the Company also issued 97,632
shares of Class A Common Stock valued at $1,125,000 to Communications Equity
Associates, Inc. ("CEA") in connection with their role as financial advisor in
the Travel Channel transaction. The shares issued to Landmark and CEA are
entitled to piggyback registration rights in the event of certain offerings of
shares to the public. The shares issued were not registered under the Securities
Act of 1933 and were issued in reliance upon the exemption from registration
provided in Section 4(2) of such Act for transactions not involving a public
offering.
 
     On June 28, 1996, in connection with the Company's acquisition of Todd
Communications, Inc., the Company issued 139,555 shares of Class A Common Stock
with an approximate market value at the time of $1,535,000 to the shareholders
of Todd Communications in payment of a portion of the $5 million purchase price.
The shares issued were not registered under the Securities Act of 1933 and were
issued in reliance upon the exemption from registration provided in Section 4(2)
of such Act for transactions not involving a public offering.
 
                                       18
<PAGE>   21
 
     The Company has not paid cash dividends and does not intend for the
foreseeable future to declare or pay any cash dividends on any of the Common
Stocks and intends to retain earnings, if any, for the future operation and
expansion of the Company's business. Any determination to declare or pay
dividends will be at the discretion of the Company's board of directors and will
depend upon the Company's future earnings, results of operations, financial
condition, capital requirements, contractual restrictions under the Company's
debt instruments, considerations imposed by applicable law and other factors
deemed relevant by the board of directors. In addition, the terms of the Credit
Facility, the Indenture and the Preferred Stock contain restrictions on the
declaration of dividends with respect to the Common Stock.
 
                                       19
<PAGE>   22
 
ITEM 6.  SELECTED FINANCIAL DATA
 
     The following table sets forth selected consolidated financial data as of
and for each of the years in the five year period ended December 31, 1997. This
information is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements and the notes thereto which are
included elsewhere in this report. The following data insofar as it relates to
each of the years presented has been derived from annual financial statements,
including the consolidated balance sheets at December 31, 1997 and 1996 and the
related consolidated statements of operations and of cash flows for the three
years ended December 31, 1997 and notes thereto appearing elsewhere herein.
 
<TABLE>
<CAPTION>
                                                FOR THE YEAR ENDED DECEMBER 31,
                           --------------------------------------------------------------------------
                                1997            1996           1995           1994           1993
                           --------------   ------------   ------------   ------------   ------------
<S>                        <C>              <C>            <C>            <C>            <C>
INCOME STATEMENT DATA:
Total revenues...........  $   88,421,453   $ 62,332,618   $ 31,784,315   $  4,226,641   $  1,982,042
Operating loss...........     (21,934,375)    (3,895,436)    (7,996,836)    (4,646,812)    (3,271,290)
Loss from continuing
  operations before
  extraordinary item.....     (36,502,962)   (30,435,471)   (22,705,467)    (8,740,661)    (6,281,311)
Income (loss) from
  discontinued
  operations(a)..........     251,192,869      4,216,570       (142,096)     3,978,587     (4,670,542)
Extraordinary item.......              --             --     10,625,727             --       (457,157)
Net income (loss)........     214,689,907    (26,218,901)   (33,473,290)    (4,762,074)   (11,409,000)
Net income (loss)
  attributable to common
  stock(b)...............  $  188,412,901   $(48,127,485)  $(46,770,496)  $ (8,417,530)  $(11,560,367)
PER SHARE DATA:(C)
Loss from continuing
  operations before
  extraordinary item.....           (1.17)         (1.20)         (1.05)         (0.36)         (0.21)
Discontinued
  operations.............            4.67           0.10             --           0.12          (0.15)
Extraordinary item.......              --             --          (0.31)            --          (0.01)
Net income (loss)........            3.50          (1.10)         (1.36)         (0.24)         (0.37)
Cash dividends
  declared...............              --             --             --             --             --
Weighted average shares
  outstanding -- basic
  and fully diluted(d)...      53,808,472     43,836,526     34,429,517     33,430,116     31,581,948
BALANCE SHEET DATA:
Working capital..........      86,943,106     76,200,837     74,388,086     26,392,082     12,894,569
Total assets.............   1,057,112,974    543,182,460    293,832,077    152,670,381     66,574,608
Current portion of
  long-term debt.........         496,378        644,509        430,590      6,393,415        410,632
Long-term debt and
  notes..................     350,257,761    231,062,784    239,858,935     76,013,542     32,206,770
Total redeemable
  securities.............     210,986,652    184,709,646     57,175,963     43,878,757     13,798,540
Total common
  stockholders' equity...     367,743,559    106,775,237    (17,478,797)    17,019,390     16,119,257
</TABLE>
 
---------------
 
(a) Includes in 1997 a gain on disposal of discontinued operations of
    $254,748,055, net of applicable income taxes. See Note 2 to the Consolidated
    Financial Statements for additional discussion on the disposition of the
    Network-Affiliated Television and Paxson Radio segments during 1997.
(b) Includes dividends and accretion on redeemable preferred stock and
    redeemable common stock warrants, as applicable.
(c) The Company computes per share data in accordance with Statement of
    Financial Accounting Standards No. 128, "Earnings per Share". Due to losses
    from continuing operations, the effect of stock options and
 
                                       20
<PAGE>   23
 
    warrants is antidilutive. Accordingly, the Company's presentation of diluted
    earnings per share is the same as that of basic earnings per share.
(d) Loss per share data and weighted average shares outstanding for the years
    ended December 31, 1993 and 1994 give retroactive effect to (i) the
    Company's recapitalization related to the merger with The American Network
    Group, Inc. on November 7, 1994; and (ii) a stock dividend on common shares
    outstanding on January 1, 1995.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
GENERAL
 
     Since its inception in 1991, the Company has grown primarily through the
acquisition or management of radio and television broadcast stations and radio
networks, as well as subsequent improvement in the operation of these
properties. Two of the Company's former business segments, Paxson Radio and
Paxson Network-Affiliated Television, have been classified as discontinued
operations in the consolidated financial statements for all periods presented as
a result of the Company's sale of these operations during 1997.
 
     The Company currently operates a nationwide network of owned, operated or
affiliated television stations carrying its proprietary network, which
broadcasts long form paid programming consisting primarily of infomercials.
Certain of the Company's television stations were and continue to be operated
under time brokerage and affiliation agreements for various periods. Pursuant to
the time brokerage agreements, the stations' operating revenues and expenses are
controlled by the Company and are included in its consolidated statements of
operations. Pursuant to the affiliation agreements the Company includes
advertising revenue, related sales costs and affiliation fees in its
consolidated statements of operations. The Company announced in November 1997
its intention to launch PAX NET, a new broadcast television network of family
values oriented programming on August 31, 1998. The Company also owns a 30%
interest in The Travel Channel, L.L.C., a cable television network joint venture
with Discovery Communications, Inc. ("DCI"). The Company's interest in the
operating results of The Travel Channel, L.L.C. has been included in the
consolidated financial statements using the equity method of accounting.
 
     The Company's operating data throughout the periods discussed have been
impacted significantly by the timing and mix of television acquisitions
throughout such periods. Operating revenues are derived from the sale of
advertising to local and national advertisers. The Company's primary operating
expenses include commissions on revenues, employee salaries and administrative
expenses. Upon launch of PAX NET the Company will also incur significant expense
for syndicated program rights fees, ratings services and promotion. Presently
the costs of operating the Company's television stations do not vary
significantly with revenue, with the exception of costs associated with sales
commissions and agency fees. As such, upon obtaining a certain level of revenue
sufficient to cover fixed costs, additional revenue levels have a significant
impact on the operating results of an individual television station.
 
     The Company currently expects to continue acquiring additional stations
which may have similar effects on the comparability of revenues, operating
expenses, interest expense and operating cash flow as those described above.
 
     The Company's business is subject to various risks and uncertainties which
may significantly reduce revenues and increase operating expenses. For example,
a reduction in expenditures by television advertisers in the Company's markets
may result in lower revenues. The Company may be unable to reduce expenses,
including syndicated program rights fees and certain variable expenses, in an
amount sufficient in the short term to offset lost revenues caused by poor
market conditions. The broadcasting industry continues to undergo rapid
technological change which may increase competition within the Company's markets
as new delivery systems, such as direct broadcast satellite and computer
networks, attract customers. The changing nature of audience tastes and viewing
habits may affect the continued attractiveness of the Company's broadcasting
stations to advertisers, upon whom the Company is dependent for its revenue.
 
     Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount (contingent or otherwise) of
 
                                       21
<PAGE>   24
 
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. The fair values of
the Company's investments in broadcast properties are estimated based on recent
market sale prices for comparable stations and markets and approximates their
carrying value as of December 31, 1997. The fair values of the Company's
long-term debt and the Notes were estimated based on market rates of instruments
with similar risks and maturities, and approximates the carrying value as of
December 31, 1997. As a result of the foregoing, the estimates presented in the
Company's financial statements are not necessarily indicative of the amounts
that the Company could realize in a current market exchange and have not been
comprehensively revalued for purposes of the Company's financial statements.
 
     The Company believes that its network of television stations comprise a
valuable national television broadcasting distribution infrastructure, the value
of which could potentially be greater if employed to air programming other than,
or in addition to, the long form paid programming which is currently being
aired. Including all pending station acquisitions, construction projects,
divestitures and other transactions, the Company will broadcast via a total of
77 stations in markets reaching more than approximately 72 million U.S. TV
households, including stations in each of the nation's top 20 markets as well as
42 of the nation's top 50 markets. The Company announced in November 1997 its
intention to launch PAX NET, a new broadcast television network of family values
oriented programming, on August 31, 1998. This new network will allow the
Company to obtain programming and sell spot advertising during such programming
on its own. The Company believes that this strategy will provide an opportunity
to achieve greater long term shareholder value than that achievable through
alternative uses of its broadcasting distribution infrastructure. The Company
has entered into programming contracts to air syndicated television shows as
well as theatrical and made-for-television movies from 1998 to 2004. As of March
16, 1998, such programming contracts require collective payments by the Company
of approximately $325.6 million over such periods as follows:
 
<TABLE>
<S>                                                           <C>
1998........................................................  $ 46,114,015
1999........................................................    75,202,626
2000........................................................    71,015,115
2001........................................................    62,155,787
2002........................................................    31,723,792
Thereafter..................................................    39,418,667
                                                              ------------
                                                              $325,630,002
                                                              ============
</TABLE>
 
     The Company had $36.7 million of broadcast rights deposits recorded in
other assets as of December 31, 1997. The Company continues to evaluate
additional programming. The Company expects that under PAX NET, selling expenses
will remain proportionate to revenues and that revenues as well as promotional
and programming expenses will increase significantly.
 
     See "Business -- Forward-Looking Statements and Associated Considerations"
for a discussion of certain factors which could influence the Company's future
performance and prospects.
 
DISCONTINUED OPERATIONS
 
     During 1997, the Company sold two business segments, Paxson Radio and
Paxson Network-Affiliated Television. Losses from operations of these segments
in 1997, net of tax, were $3.6 million compared to income of $4.2 million in
1996. The losses in 1997 primarily reflect the sale of Paxson Network-Affiliated
Television on July 31, 1997 and Paxson Radio on October 1, 1997 compared to full
year results of operations for 1996. Paxson Network-Affiliated Television and
Paxson Radio generally experienced their lowest revenue in the first quarter of
the year, whereas the highest revenue for the year generally occurred in the
fourth quarter. Paxson Network-Affiliated Television net losses were $937,000 in
1997 compared to net income of $354,000 in 1996. Paxson Radio net losses were
$2.7 million in 1997 compared to net income of $3.9 million in 1996.
 
     Income from operations of these segments in 1996, net of tax, was $4.2
million compared to a loss of $142,000 in 1995. The improved results in 1996
were primarily related to Paxson Radio, which had income of
 
                                       22
<PAGE>   25
 
$3.9 million in 1996 compared to a loss of $1.4 million in 1995. The increase in
income in 1996 for Paxson Radio primarily reflects revenue increases from radio
stations and billboard faces due to acquisitions as well as revenue increases
from existing stations. In 1996, Paxson Network-Affiliated Television had income
of $354,000 compared to income of $1.3 million in 1995. The decline in income in
1996 for Paxson Network-Affiliated Television primarily reflects increased time
brokerage fees paid to operate WTVX-TV, which the Company began to operate
pursuant to a time brokerage agreement in August 1995.
 
     In connection with the disposal of its Network Affiliated Television and
Paxson Radio segments in 1997, the Company recorded gains of $68.7 million and
$186.1 million, respectively, net of applicable income taxes. Net proceeds from
the sale of these segments were approximately $722.0 million.
 
RESULTS OF CONTINUING OPERATIONS
 
  Years Ended December 31, 1997 and 1996
 
     Consolidated revenues for 1997 increased 42% (or $26.1 million) to $88.4
million from $62.3 million for 1996. This increase was primarily due to
television station acquisitions and new time brokerage operations, with WPXN-TV
in New York which has been operated by the Company since June 30, 1997
accounting for $13.3 million of the increase.
 
     Operating expenses for 1997 increased 67% (or $44.2 million) to $110.4
million from $66.2 million for 1996. The increase was due to higher direct
expenses such as commissions which rise in proportion to revenues ($4.0
million), compensation associated with Paxson Radio asset sales ($9.7 million),
other non-direct costs, which are primarily due to operating new television
stations ($11.3 million), higher depreciation and amortization primarily related
to assets acquired ($9.2 million), and increased time brokerage agreement fees,
primarily related to new time brokerage operations ($13.4 million), of which
increase, $10.3 million is attributable to WPXN-TV, all of which were partially
offset by lower option plan compensation costs ($3.6 million).
 
     Operating cash flow for 1997 increased 55% (or $10.7 million) to $30.2
million, from $19.5 million for 1996. The increase in operating cash flow was
primarily a result of television station acquisitions and new time brokerage
operations, with WPXN-TV accounting for $10.5 million of the increase.
 
     For purposes of this report, "operating cash flow" is defined as net income
excluding non-cash items, non-recurring items including 1997 compensation
associated with Paxson Radio asset sales, discontinued operations and relocation
costs, interest, other income, income taxes and time brokerage fees, less
scheduled program rights payments. The Company has included operating cash flow
data because the financial performance of broadcast companies is frequently
evaluated based on some measure of cash flow from operations. Operating cash
flow is not, and should not be used as, an indicator of or alternative to
operating income, net income or cash flow as reflected in the Consolidated
Financial Statements as it is not a measure of financial performance under
generally accepted accounting principles.
 
     The Company has issued options to purchase shares of Class A Common Stock
to certain members of management and employees during 1997, 1996 and 1995 under
its stock compensation plans. There are currently 3,605,461 options outstanding
under these plans. Further, the Company recognized total option plan
compensation expense, including amounts recorded in income (loss) from
discontinued operations, of approximately $6.5 million, $7.9 million and $10.8
million in 1997, 1996 and 1995, respectively, and expects that approximately
$2.2 million of compensation expense will be recognized over the remaining
vesting period of the outstanding options.
 
     Interest expense for 1997 increased to $37.7 million from $31.5 million for
1996, an increase of 20% primarily due to a greater level of senior debt
throughout the period. As a result of acquisitions, at December 31, 1997, total
long-term debt and senior subordinated notes were $350.8 million, compared with
the balance of $231.7 million outstanding a year prior.
 
     Interest income for 1997 increased to $9.5 million from $6.7 million,
primarily due to greater levels of cash and cash equivalents and cash held by
qualified intermediary invested during the second half of the
 
                                       23
<PAGE>   26
 
period primarily as a result of the receipt of the proceeds from the
Network-Affiliated Television and Radio segments sales during 1997.
 
     At December 31, 1996 the Company had accumulated approximately $70 million
of net operating losses available to offset future taxable income, $7.9 million
of which were limited as to use. The gain realized upon the disposal of Paxson
Radio was substantially deferred for tax purposes. The remaining gain on the
disposal of the Paxson Radio and Network-Affiliated Television segments was
offset through the use of net operating losses available at December 31, 1996 as
well as tax losses generated from operations during 1997.
 
     The deferral of approximately $119 million of taxes on the approximately
$305 million gain upon the sale of Paxson Radio could be contested by the
Internal Revenue Service ("IRS"). Based on the advice of counsel, management
believes that, in the event of a challenge by the IRS of these tax positions, it
is more likely than not that the Company would prevail. Should the IRS
successfully challenge the Company on these matters, the Company could be
subject to a material current tax liability.
 
  Years Ended December 31, 1996 and 1995
 
     Consolidated revenues for 1996 increased 96% (or $30.5 million) to $62.3
million from $31.8 million for 1995. This increase was primarily due to
television station acquisitions and new time brokerage operations.
 
     Operating expenses for 1996 increased 66% (or $26.4 million) to $66.2
million from $39.8 million for 1995. The increase was primarily due to higher
direct expenses such as commissions which rise in proportion to revenues ($3.8
million), other non-direct costs, which are primarily due to operating new
television stations ($13.8 million), higher depreciation and amortization
primarily related to assets acquired ($8.2 million), and increased time
brokerage agreement fees, primarily related to new time brokerage operations
($2.7 million), all of which were partially offset by lower option plan
compensation costs ($2.1 million).
 
     Operating cash flow for 1996 increased 174% (or $12.4 million) to $19.5
million, from $7.1 million for 1995. The increase in operating cash flow was
primarily a result of television station acquisitions and new time brokerage
operations.
 
     Interest expense for 1996 increased to $31.5 million from $17.2 million for
1995, an increase of 83% primarily due to a greater level of debt throughout the
period and higher borrowing rates. At December 31, 1996, total long-term debt
and senior subordinated notes were $231.7 million, compared with the balance of
$240.3 million outstanding a year prior. The balance sheets reflect the private
sale of $230 million of Notes at a discount netting $227.3 million before
transaction costs on September 28, 1995.
 
     Interest income for 1996 increased to $6.7 million from $1.7 million,
primarily due to greater levels of cash and cash equivalents invested throughout
the period primarily as a result of the receipt of the proceeds of the April
1996 common stock sale and the October 1996 exchangeable preferred stock sale.
 
                                       24
<PAGE>   27
 
     The following table sets forth, for the periods indicated, selected
financial information as a percentage of revenues.
 
                            STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                               FOR THE YEAR ENDED
                                                                  DECEMBER 31,
                                                              ---------------------
                                                              1997    1996    1995
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Total revenue...............................................  100.0%  100.0%  100.0%
                                                              -----   -----   -----
Operating Expenses:
Direct......................................................   16.6    17.0    21.3
Programming.................................................    5.7     4.2     4.3
Sales & promotion...........................................    6.6     5.8     7.6
Technical...................................................   10.2     8.0     7.1
General & administrative....................................   26.6    33.4    38.6
Trade and barter............................................    0.3     0.2     0.4
Time brokerage agreement fees...............................   19.2     5.7     2.8
Option plan compensation....................................    3.8    11.2    28.5
Compensation associated with Paxson Radio asset sales.......   10.9      --      --
Depreciation and amortization...............................   24.9    20.7    14.6
                                                              -----   -----   -----
Total operating expenses....................................  124.8   106.2   125.2
                                                              -----   -----   -----
Operating loss..............................................  (24.8)   (6.2)  (25.2)
Other Income (expense):
Interest expense............................................  (42.7)  (50.6)  (54.0)
Interest income.............................................   10.7    10.8     5.2
Equity in loss of unconsolidated investment.................   (2.8)     --      --
Other expense, net..........................................   (6.4)   (2.8)   (1.5)
                                                              -----   -----   -----
Loss from continuing operations before income tax benefit...  (66.0)  (48.8)  (75.5)
Income tax benefit..........................................   24.7      --     4.0
                                                              -----   -----   -----
Loss from continuing operations.............................  (41.3)  (48.8)  (71.5)
                                                              =====   =====   =====
</TABLE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
     During 1997, the Company sold its network-affiliated television operations
for gross proceeds of approximately $119 million and its radio operations
(including billboards) for gross proceeds of approximately $602 million. The
Company anticipates that the proceeds from the above segment sales will be
utilized primarily to fund the pending television acquisitions, related capital
expenditures and programming payments discussed elsewhere herein and for general
corporate purposes. The completion of each of the acquisitions discussed
elsewhere herein is subject to a variety of factors and to the satisfaction of
various conditions, and there can be no assurance that any such acquisitions
will be completed.
 
     The Company's working capital at December 31, 1997 and December 31, 1996
was $86.9 million and $76.2 million, respectively, and the ratio of current
assets to current liabilities was 5.29:1 and 4.88:1 on such dates, respectively.
Working capital increased primarily due to the funds received from the segment
sales discussed above.
 
     Cash (used in) provided by operating activities was $(38.6), $(1.1) and
$11.0 million for 1997, 1996 and 1995, respectively. The increase in cash used
primarily reflects the decrease in accounts payable, the payment of compensation
associated with Paxson Radio asset sales and the increase in restricted cash
required pursuant to the amendments to the revolving Credit Facility. Cash used
for investing activities of $58.5, $258.5 and $105.6 million for 1997, 1996 and
1995, respectively, primarily reflects acquisitions of and investments in
broadcast properties and purchases of equipment for acquired and existing
properties net of the proceeds from the above segment sales and asset sales.
Cash provided by financing activities of $117.9, $253.3 and $141.1
 
                                       25
<PAGE>   28
 
million in 1997, 1996 and 1995, respectively, primarily reflects the proceeds
from borrowings and \proceeds of equity offerings, net of repayments and loan
origination costs incurred. Non-cash activity relates to option plan
compensation, stock issued for the Travel Channel, WPXW-TV and WFSJ-FM
acquisitions, a note payable incurred with the WYPX-TV acquisition, reciprocal
trade and barter advertising revenue and expense and accretion of discount on
the Notes, as well as dividends on the Company's redeemable preferred stock and
common stock warrants.
 
     The Company's primary capital requirements are for the acquisition of
broadcasting properties and related capital expenditures, syndicated programming
payments and interest payments on indebtedness. The Notes require semi-annual
interest payments at a fixed rate.
 
     At December 31, 1997, the Company was not in compliance with certain of the
financial covenants under its revolving Credit Facility. In March 1998, the
Company obtained a waiver of such noncompliance from its lenders and executed an
amendment to the terms of the revolving Credit Facility. The amended terms
adjust the covenants of the Credit Facility for the sale of the Company's
Network-Affiliated Television and Paxson Radio segments in 1997 and address the
Company's business plan related to the PAX NET launch. In addition, certain
financial covenants were temporarily modified to allow for anticipated
compliance by the Company throughout the remainder of 1998. The waiver and
amendment agreement also requires the Company to use its best efforts to raise
an additional $150 million of equity by May 31, 1998 and apply the net proceeds
therefrom to repay the revolving Credit Facility and requires the Company to
fund $17 million of interest into a cash collateral account for the benefit of
the lenders.
 
     On March 11, 1998, the Company obtained a fully underwritten commitment
(the "Commitment Letter") for a $122 million senior term credit facility
maturing June 2002 (the "Senior Credit Facility") to be used to refinance the
amounts outstanding under its revolving Credit Facility. Under the terms of the
Commitment Letter, the outstanding debt will be secured by substantially all of
the Company's assets and bear interest at a base rate plus 1.75% or LIBOR plus
2.75%, at the Company's option. The Senior Credit Facility will require the
Company to maintain compliance with certain financial ratios subsequent to March
2000 and will contain other restrictions. Management expects to execute a Senior
Credit Facility pursuant to the terms of the Commitment Letter before May 31,
1998.
 
     The Company will require additional financing to enable it to complete
acquisitions which are currently pending, continue its acquisition strategy and
to fund capital expenditures on existing and acquired properties, syndicated
program rights fees and the Company's working capital requirements. The timing
and amount of the Company's additional financing needs will depend, among other
things, upon the timing of closings of pending acquisitions (which are dependent
upon the satisfaction of closing conditions, some of which are beyond the
control of the Company). The Company presently has no additional borrowing
capacity pursuant to the financial covenants of the revolving Credit Facility.
As the Company's cash available for acquisitions at December 31, 1997 will not
be adequate to pay the purchase price of all pending acquisitions, the Company
is considering additional sources of financing, including public and private
sales of equity and debt securities. The failure to raise funds necessary to
finance the Company's future cash requirements could adversely affect the
Company's ability to pursue its business strategy. In addition, should the
Company suffer a significant impairment to its cash flow from operations due to
the occurrence of one or more adverse events, the Company could have
insufficient resources to repay indebtedness under the revolving Credit Facility
or the Notes when due or to make required payments on the Preferred Stock.
 
  Year 2000 Considerations
 
     In the next two years, many companies will face potentially serious issues
associated with the inability of existing data processing hardware and software
to appropriately recognize calendar dates beginning in the year 2000. Many
computer programs that can only distinguish the final two digits of the year
entered may read entries for the year 2000 as the year 1900 and compute payment,
interest or delinquency based on the wrong date, or are expected to be unable to
compute payment, interest or delinquency. The Company is in the process of
identifying the software applications and hardware devices expected to be
impacted by this issue. The Company is currently developing a new billing and
inventory system to be put in use by the end of 1998 to
 
                                       26
<PAGE>   29
 
meet the needs of PAX NET. This new billing and inventory system will address
the year 2000 compliance issues. The Company's general ledger system is not year
2000 compliant. As a result, and in order to accommodate the Company's future
growth, the Company's management is in the process of evaluating third party
systems which are year 2000 compliant. While the Company expects that efforts on
the part of current employees of the Company will be required to continue to
monitor Year 2000 activities, the Company does not expect the cost of addressing
any Year 2000 issue will be a material event or uncertainty that would have a
material adverse effect on future operating results or financial condition.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
 
     The response to this item is submitted in a separate section of this
report.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     None required to be reported.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information required by this item regarding directors and officers is
incorporated by reference from the definitive Proxy Statement being filed by the
Company for the Annual Meeting of Stockholders to be held April 17, 1998.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     Information required by this item regarding compensation of officers and
directors is incorporated by reference from the definitive Proxy Statement being
filed by the Company for the Annual Meeting of Stockholders to be held April 17,
1998.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held April 17, 1998.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held April 17, 1998.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as part of the report:
 
          1. The financial statements filed as part of this report are listed
     separately in the Index to Consolidated Financial Statements and Financial
     Statement Schedule on page F-1 of this report.
 
          2. The Financial Statement Schedule filed as part of this report is
     listed separately in the Index to Consolidated Financial Statements and
     Financial Statement Schedule on page F-1 of this report.
 
          3. For Exhibits see Item 14(c), below. Each management contract or
     compensatory plan or arrangement required to be filed as an exhibit hereto
     is listed in Exhibits Nos. 10.26, 10.27, 10.28 and 10.157 of Item 14(c)
     below.
 
     (b) Reports on Form 8-K.
 
     The Company filed a Form 8-K, dated October 1, 1997, under Item 2.
Acquisition or Disposition of Assets in connection with the Company's sale of
its radio segment. The Form 8-K included pro forma financial information of the
Company and exhibits required under Item 7. Financial Statements and Exhibits.
 
                                       27
<PAGE>   30
 
     (c) List of Exhibits:
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
 3.1.1      --  Certificate of Incorporation of the Company(2)
 3.1.2      --  The Company's Certificate of Designations of the Company's
                Junior Cumulative Compounding Redeemable Preferred stock(2)
 3.2        --  Bylaws of the Company(8)
 4.1        --  Indenture dated as of September 28, 1995 by and between the
                Company, the guarantors named therein and The Bank of New
                York, as Trustee, with respect to the Senior Subordinated
                Notes(7)
 4.2        --  Indenture dated as of October 4, 1996 by and between the
                Company, the Guarantors named therein and the Bank of New
                York, as Trustee, with respect to the Exchange
                Debentures(11)
 4.3        --  Credit Agreement, dated as of December 19, 1995, among PCC,
                the Lenders named therein, and Union Bank, as Agent(7)
 4.3.1      --  Amended and Restated Credit Agreement, dated November 19,
                1996, among Paxson Communications Corporation, the Lenders
                named therein and Union Bank of California, N.A., as the
                Agent(14)
 4.3.2      --  Second amendment, dated May 2, 1997, with respect to the
                Amended and Restated Credit Agreement, dated as of November
                19, 1996, among Paxson Communications Corporation, the
                Lenders named therein and Union Bank of California, N.A., as
                Agent(16)
 4.3.3      --  Third amendment, dated May 30, 1997, with respect to the
                Amended and Restated Credit Agreement, dated as of November
                19, 1996, among Paxson Communications Corporation, the
                Lenders named therein and Union Bank of California, N.A., as
                Agent(17)
 4.3.4      --  Fourth amendment, dated September 25, 1997, with respect to
                the Amended and Restated Credit Agreement, dated as of
                November 19, 1996, among Paxson Communications Corporation,
                the Lenders named therein and Union Bank of California,
                N.A., as Agent(18)
 4.3.5      --  Credit agreement, dated July 11, 1997, among Travel Channel
                Acquisition Corporation, the several Lenders from Time to
                Time Parties Hereto and Union Bank of California, N.A., as
                the Agent(18)
 4.3.6      --  Fifth Amendment, dated as of October 31, 1997, to the
                Amended and Restated Credit Agreement, dated as of November
                19, 1996 among Paxson Communications Corporation, the
                lenders from time to time party thereto and Union Bank of
                California, N.A., as agent.
 4.3.7      --  Sixth Amendment, dated March 11, 1998, with respect to the
                Amended and Restated Credit Agreement, dated as of November
                19, 1996, among Paxson Communications Corporation, the
                Lenders from time to time party thereto and Union Bank of
                California, N.A., as Agent.
 9.1        --  Amended and Restated Stockholders Agreement, dated as of
                December 22, 1994, by and among the Company and certain
                stockholders thereof(2)
 9.2        --  Agreement, dated March 26, 1996, amending the Amended and
                Restated Stockholders Agreement, dated as of December 22,
                1994, by and among the Company and certain stockholders
                thereof and certain related agreements(8)
10.1        --  Securities Purchase Agreement, dated as of September 22,
                1995, by and among the Company, the Guarantors named therein
                and the Initial Purchasers named therein(7)
</TABLE>
 
                                       28
<PAGE>   31
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.2        --  Stock Purchase Agreement, dated as of December 15, 1993, by
                and among the Company and certain purchasers of the Company
                securities(2)
10.3        --  Stock Purchase Agreement, dated as of December 22, 1994, by
                and among the Company and certain purchasers of the Company
                securities(2)
10.4        --  Amended and Restated Stockholders Agreement, dated as of
                December 22, 1994, by and among the Company and certain
                stockholders thereof (incorporated by reference to Exhibit
                9.1)(2)
10.4.1      --  Agreement, dated March 26, 1996 amending the Amended and
                Restated Stockholders Agreement, by and among the Company
                and certain stockholders thereof and certain related
                agreements (incorporated by reference to Exhibit 9.2)
10.5        --  Exchange and Consent Agreement, dated as of December 22,
                1994 by and among the Company and certain stockholders
                thereof(2)
10.20       --  Warrant Agreement, dated as of December 15, 1993, by and
                among the Company and William Watson as Warrant Agent(1)
10.25       --  Warrant Agreement, dated as of December 22, 1994, by and
                among the Company and William Watson as Warrant Agent(2)
10.26       --  Employment Agreement, dated as of June 30, 1994, by and
                between the Company and Lowell W. Paxson(1)
10.27       --  Paxson Communications Corp. Profit Sharing Plan(1)
10.28       --  Paxson Communications Corp. Stock Incentive Plan(1)
10.29       --  Asset Purchase Agreement, dated as of March 31, 1995, by and
                among The Christian Network, Inc. and LeSea Broadcasting
                Corporation and the Company(3)
10.30       --  Stock Purchase Agreement, dated as of April 30, 1995, by and
                among Channel 59 of Denver, Inc. and David M. Drucker and
                Charles Ergen and the Company(3)
10.31       --  Asset Purchase Agreement, dated as of April 30, 1995, by and
                among Channel 59 of Denver, Inc. and Echonet Corporation and
                the Company(3)
10.32       --  First Letter Agreement, dated as of December 2, 1994, to
                Asset Purchase Agreement by and between the Company and
                Sandino Telecasters, Inc., dated as of December 5, 1994(4)
10.33       --  Second Letter Agreement, dated as of December 5, 1994, to
                Asset Purchase Agreement by and between the Company and
                Sandino Telecasters, Inc., dated as of December 5, 1994(4)
10.34       --  Third Amendment, dated as of May 17, 1995, to Asset Purchase
                Agreement by and between the Company and Sandino
                Telecasters, Inc., dated as of December 5, 1994(4)
10.35       --  Asset Purchase Agreement, dated January 31, 1995, between
                Gary A. Rosen in his capacity as Bankruptcy Trustee for
                Flying A Communications, Inc. and the Company(5)
10.36       --  Real Estate Sale and Purchase Agreement, dated as of May 18,
                1995, by and between F&M Bank -- Martinsburg and Paxson
                Communications of Washington-60, Inc.(5)
10.37       --  Asset Purchase Agreement, dated as of June 1, 1995, by and
                between Channel 26 of Dayton, Inc. and Video Mall
                Communications, Inc. for Television Station WTJC-TV,
                Springfield, Ohio(5)
10.38       --  Asset Purchase Agreement, dated as of May 23, 1995, by and
                among Whitehead Media, Inc., Morton J. Kent and Canton, Inc.
                for Television Station WOAC(TV) Canton, Ohio(5)
</TABLE>
 
                                       29
<PAGE>   32
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.39       --  Option Agreement, dated December 29, 1995 by and among
                Whitehead Media, Inc., Whitehead Media of Ohio, Inc. and
                Paxson Communications of Cleveland-67, Inc. for WOAC (TV),
                Channel 67, Canton, Ohio(7)
10.40       --  Time Brokerage Agreement, dated October 30, 1995, between
                Whitehead Media, Inc. and Paxson Communications of
                Cleveland-67, Inc. for WOAC (TV), Channel 67, Canton,
                Ohio(7)
10.41       --  Amendment to Time Brokerage Agreement, dated December 29,
                1995, between Whitehead Media, Inc. and Paxson
                Communications of Cleveland-67, Inc. for WOAC (TV), Channel
                67, Canton, Ohio(6)
10.42       --  Time Brokerage Agreement, dated September 22, 1994,
                effective as of August 4, 1995, between Whitehead Media,
                Inc. and the Company for Television Station WTVX-TV Fort
                Pierce, Florida(6)
10.43       --  Amendment to Time Brokerage Agreement, dated as of April 19,
                1995, between Whitehead Media, Inc. and the Company for
                Television Station WTVX-TV Fort Pierce, Florida(6)
10.44       --  Amendment to Time Brokerage Agreement, dated December 29,
                1995, by and between Whitehead Media, Inc. and Paxson
                Communications of Ft. Pierce-34, Inc. for Television Station
                WTVX-TV, Ft. Pierce, Florida(7)
10.45       --  Option Agreement, dated December 29, 1995, by and among
                Whitehead Media, Inc., Whitehead Media of Florida, Inc., and
                Paxson Communications of Ft. Pierce-34, Inc. for Television
                Station WTVX-TV Ft. Pierce, Florida(8)
10.46       --  Non-compete Agreement, dated August 18, 1995, between the
                Company and Lowell W. Paxson(7)
10.47       --  Asset Purchase Agreement, dated as of August 23, 1995, by
                and among Valuevision International, Inc., VVI Bridgeport,
                Inc., VVI Akron, Inc., and the Company(7)
10.48       --  Time Brokerage Agreement, dated August 31, 1995, by and
                between Channel 56 of Orlando, Inc. and Paxson
                Communications of Orlando-56 Inc. for Television Station
                WIRB(TV), Melbourne, Florida(7)
10.49       --  Loan Agreement, dated August 31, 1995, among Paxson
                Communications of Orlando-56, Inc. and Channel 56 of
                Orlando, Inc.(7)
10.50       --  Time Brokerage Agreement, dated August 31, 1995, by and
                between UHF Channel 59 Corp. and Paxson Communications of
                Denver-59, Inc. for Television Station KUBD(TV), Denver,
                Colorado(7)
10.51       --  Loan Agreement, dated August 31, 1995, by and between Paxson
                Communications of Denver-59, Inc. and Channel 59 of Denver,
                Inc.(7)
10.52       --  Option Agreement, dated August 31, 1995, by and among Paxson
                Communications of Denver-59, Inc., Channel 59 of Denver,
                Inc., and UHF Channel 59 Corp.(7)
10.53       --  Asset Purchase Agreement, dated August 31, 1995, by and
                between Channel 13 of Flagstaff, Inc., Michael C. Gelfand,
                and Del Ray Television Company, Inc.(7)
10.53.1     --  Option Agreement, dated January 24, 1996, by and between
                Channel 13 of Flagstaff, Inc. and Paxson Communications of
                Flagstaff-13, Inc. for television station KWBF-TV(8)
</TABLE>
 
                                       30
<PAGE>   33
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.54       --  Indenture, dated as of September 28, 1995, among the
                Company, the Guarantors named therein and The Bank of New
                York, as Trustee with respect to the Senior Subordinated
                Notes(7)
10.55       --  Original Note No. 1 for $115,000,000 CUSIP No. 704231-AA-7,
                with Guarantee of Guarantors listed therein(7)
10.56       --  Original Note No. 2 for $115,000,000, CUSIP No. 704231-AA-7,
                with Guarantee of Guarantors listed therein(7)
10.57       --  Form of New Note with Form of New Guarantee(7)
10.58       --  Registration Rights Agreement, dated as of September 28,
                1995, by and among the Company, the Guarantors named therein
                and each of the Purchasers referred to therein(7)
10.59       --  Asset Purchase Agreement, dated October 2, 1995 by and
                between Whitehead Media, Inc. and NGM Television Partners,
                Limited for Television Station WNGM-TV, Athens, Georgia(7)
10.60       --  Option Agreement dated December 29, 1995, by and between
                Whitehead Media, Inc., Whitehead Media of Georgia, Inc. and
                Paxson Communications of Atlanta-14, Inc. for WNGM (TV),
                Channel 34, Athens, Georgia(7)
10.61       --  Time Brokerage Agreement, dated December 29, 1995, by and
                between Whitehead Media of Georgia, Inc. and Paxson
                Communications of Atlanta-14, Inc. for WNGM (TV), Athens,
                Georgia(7)
10.62       --  Time Brokerage Agreement, dated October 16, 1995, by and
                between Channel 26 of Dayton, Inc. and Paxson Communications
                of Dayton-26, Inc. for Television Station WTJC(TV),
                Springfield, Ohio(7)
10.63       --  Loan Agreement, dated October 6, 1995, by and among Paxson
                Communications of Dayton-26, Inc. and Channel 26 of Dayton,
                Inc.(7)
10.64       --  Option Agreement, dated October 6, 1995, by and between
                Paxson Communications of Dayton-26, Inc. and Channel 26 of
                Dayton, Inc.(7)
10.65       --  Asset Purchase Agreement, dated August 25, 1995, by and
                between Channel 13 of St. Louis, Inc. and McEntee
                Broadcasting, Inc., for Television Station WCEE-TV, Mt.
                Vernon, Illinois(7)
10.65.1     --  Time Brokerage Agreement, dated January 26, 1996, between
                Channel 13 of St. Louis, Inc. and Paxson Communications of
                St. Louis-13, Inc. for television station WCEE-TV, Mt.
                Vernon, Illinois(7)
10.65.2     --  Option Agreement, dated January 26, 1996, by and between
                Channel 13 of St. Louis, Inc. and Paxson Communications of
                St. Louis-13, Inc.(7)
10.65.3     --  Letter Exercising Option, dated February 21, 1996, by and
                between Channel 13 of St. Louis, Inc. and Paxson
                Communications of St. Louis-13, Inc. for television station
                WCEE-TV(8)
10.67       --  Letter of Intent, dated February 24, 1996, among the
                Company, New Age Broadcasting, Inc. and The Seventies
                Broadcasting Corporation(8)
10.68       --  Time Brokerage Agreement, dated December 17, 1993, by and
                between Bradenton Broadcast Television Co., Ltd., and The
                Christian Network, Inc. regarding television station
                WFCT-TV(8)
10.69       --  Loan and Option Agreement, dated December 17, 1993, between
                Bradenton Broadcasting Television Company, Ltd. and The
                Christian Network, Inc. for Channel 66(8)
</TABLE>
 
                                       31
<PAGE>   34
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.69.1     --  Partial Assignment of Loan and Option Agreement, dated May
                15, 1994, between Bradenton Broadcast Television Company,
                Ltd., The Christian Network, Inc. and Paxson Communications
                of Tampa-66, Inc. for Channel 66(8)
10.70       --  Partial Assignment of Time Brokerage Agreement, dated May
                15, 1994, between Bradenton Broadcast Television Company,
                Ltd., The Christian Network, Inc. and Paxson Communications
                of Tampa-66, Inc.(8)
10.71       --  Letter Exercising Option, dated February 22, 1996, by Paxson
                Broadcasting of Tampa-66, Inc. to exercise option on
                WFCT-TV(8)
10.72       --  Time Brokerage Agreement, dated April 1, 1994, by and
                between Channel 35 of Miami, Inc. and Paxson Communications
                of Miami-35, Inc. regarding television station WCTD-TV(8)
10.73       --  Option Agreement, dated April 1, 1994, by and between
                Channel 35 of Miami, Inc. and Paxson Communications of
                Miami-35, Inc. regarding television station WCTD-TV(8)
10.74       --  Time Brokerage Agreement, dated January 31, 1996, by and
                between S&E Network, Inc. and Paxson Communications of San
                Juan, Inc. for television station WSJN-TV(8)
10.74.1     --  Stock Purchase Agreement, by and between S&E Network, Inc.
                and Paxson Com Communications of San Juan, Inc. for
                television station WSJN-TV(8)
10.75       --  Time Brokerage Agreement, dated October 31, 1995, by and
                between Roberts Broadcasting Company of Raleigh-Durham, L.P.
                and Paxson Communications of Raleigh Durham-47, Inc. for
                television station WRMY-TV(8)
10.76       --  Option Agreement dated October 31, 1995, between Roberts
                Broadcasting Company of Raleigh-Durham, L.P. and Paxson
                Communications of Raleigh-Durham-47, Inc. for interest in
                WRMY-TV(8)
10.77       --  Loan Agreement, dated October 31, 1995, between Roberts
                Broadcasting Company of Raleigh-Durham, L.P. and the Company
                for $4,000,000(8)
10.78       --  Letter of Intent, dated November 14, 1995, with Offshore
                Broadcasting Company regarding television station WOST-TV(8)
10.79       --  Letter of Intent, dated February 22, 1996, with Roberts
                Broadcasting Company of Salt Lake City LLC regarding
                television station KZAR-TV(8)
10.80       --  Loan Agreement, dated March 23, 1995, with Cocola Media
                Corporation of Florida for construction of facilities for
                WHBI-TV(8)
10.81       --  Asset Purchase Agreement, dated January 31, 1996 between
                TeleSouth Communications, Inc., Paxson Networks, Inc. and
                Lowell W. Paxson in connection with the sale of South
                Carolina Radio Network(8)
10.82       --  Asset Purchase Agreement, dated January 1, 1996, between the
                Company and Lowell W. Paxson in connection with the sale of
                World Travelers Network(8)
10.83       --  Lease Agreement, dated June 14, 1994, between Paxson
                Communications of Tampa-66, Inc. and The Christian Network,
                Inc. for lease of production and distribution facilities at
                WFCT-TV(8)
10.84       --  Replacement Promissory Note, dated October 20, 1995, from
                Channel 55 of Dallas, Inc., assigned to the Company for
                $1,000,000 regarding KLDT-TV(8)
10.85       --  Letter of Intent, dated September 22, 1995, from The
                Christian Network, Inc. to Western Michigan Family
                Broadcasting, Inc. for television station WJUE-TV, Battle
                Creek, Michigan(8)
10.86       --  Letter of Intent, dated October 4, 1995, from The Christian
                Network, Inc. to Cornerstone Television, Inc. for television
                station WOCD-TV, Amsterdam, New York(8)
</TABLE>
 
                                       32
<PAGE>   35
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.87       --  First Amendment dated February 29, 1996 between Channel 55
                of Albany, Inc. and Cornerstone Television, Inc.(9)
10.88       --  Asset Purchase Agreement dated as of March 29, 1996 by and
                between Paxson Communications of Cookeville, Inc. and WHUB,
                Inc.(10)
10.89       --  Amended and Restated Promissory Note dated August 5, 1996
                between Roberts Broadcasting of Salt Lake City, L.L.C. and
                Paxson Communications of Salt Lake City-16, Inc.(10)
10.90       --  First Amendment to Loan Agreement dated August 5, 1996
                between Roberts Broadcasting of Salt Lake City, L.L.C. and
                Paxson Communications of Salt Lake City-16, Inc.(10)
10.91       --  Asset Purchase Agreement, dated March 15, 1996, between
                Ralph E. Kaschai, d/b/a Cashi Signs, Cashi Corp., Cashi
                Outdoor Advertising, Inc., and Cashi Services, Inc., and
                Paxson Outdoor, Inc.(10)
10.92       --  Asset Purchase Agreement, dated May 31, 1996 by and between
                Paxson Broadcasting of Orlando, Limited Partnership and
                Press Broadcasting Company for Radio Station WTKS(FM) Cocoa
                Beach, Florida(10)
10.93       --  Time Brokerage Agreement, dated May 31, 1996, by and between
                Press Broadcasting Company, Inc. and Paxson Broadcasting of
                Orlando, Limited Partnership for Radio Station WTKS(FM)Cocoa
                Beach, Florida(10)
10.94       --  Asset Purchase Agreement, dated December 11, 1995, by and
                between Channel 55 of Albany, Inc. and Cornerstone
                Television, Inc. for Television Station WOCD(TV) Amsterdam,
                New York (10)
10.95       --  First Amendment to Asset Purchase Agreement, dated February
                29, 1996, by and between Channel 55 of Albany, Inc. and
                Cornerstone Television, Inc.(10)
10.96       --  Promissory Note, dated May 31, 1996, between Channel 55 of
                Albany, Inc. and Cornerstone Television, Inc. principal sum
                of $1,650,000(10)
10.97       --  Stock Purchase Agreement, dated May 23, 1996 by and among
                Channel 44 of Tulsa, Inc., Paxson Communications of
                Tulsa-44, Inc. and Broadcasting Systems Inc.(10)
10.98       --  Asset Purchase Agreement, dated April 18, 1996, by and
                between Paxson Communications of Phoenix-13, Inc. and
                Channel 13 of Flagstaff, Inc.(10)
10.99       --  Asset Purchase Agreement, dated April 18, 1996 by and among
                Paxson Communications of Denver-59, Inc., UHF Channel 59
                Corp. and Channel 59 of Denver, Inc.(10)
10.100      --  Asset Purchase Agreement, dated April 18, 1996, by and
                between Paxson Communications of Dayton-26, Inc. and Channel
                26 of Dayton, Inc.(10)
10.101      --  Asset Purchase Agreement, dated April 18, 1996 by and
                between Paxson Communications of St. Louis-13, Inc. and
                Channel 13 of St. Louis, Inc.(10)
10.102      --  Asset Purchase Agreement, dated April 12, 1996, by and
                between Paxson Broadcasting of Miami, Limited Partnership
                and TK Communications, L.C.(10)
10.103      --  Construction Agreement, dated April 16, 1996, by and among
                Offshore Broadcasting Corporation, Ocean State Television,
                L.L.C. and Paxson Communications of Providence-69, Inc.(10)
10.104      --  Loan Agreement, dated April 16, 1996, by and among Paxson
                Communications of Providence-69, Inc., Offshore Broadcasting
                Corporation and Ocean State Television, L.L.C.(10)
</TABLE>
 
                                       33
<PAGE>   36
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.105      --  Asset Purchase Agreement, dated April 19, 1996 by and
                between Paxson Communications of Greensboro-16, Inc. and
                Television Communications, Inc. for Television Station
                WAAP(TV), Burlington, North Carolina(10)
10.106      --  Asset Purchase Agreement, dated April 26, 1996, by and
                between Paxson Broadcasting of Miami, Limited Partnership
                and WIOD, Inc.(10)
10.107      --  Agreement and Plan of Merger, dated April 12, 1996 by and
                among Devon W. Paxson, Todd L. Paxson, Pax Jax, Inc., the
                Company and Todd Communications, Inc.(10)
10.107.1    --  First Amendment to Agreement and Plan of Merger, dated June
                27, 1996 by and among Devon W. Paxson, Todd L. Paxson, Pax
                Jax, Inc., the Company and Todd Communications, Inc.(10)
10.108      --  Asset Purchase Agreement, dated May 13, 1996, by and among
                Paxson Communications of Tallahassee, Inc., B. Radio, Inc.,
                and Boss Radio Group, Inc., for WGNE, WFSY, WEBZ(10)
10.109      --  Option Agreement by and between Paxson Communications of
                Minneapolis 41, Inc. and KX Acquisition, L.P. for Television
                Station KXLI(TV), St. Cloud Minnesota dated May 30,
                1996.(10)
10.110      --  Subordinated Note between MacDonald Communications
                Corporation and the Company for $3,000,000 dated June 7,
                1996.(10)
10.111      --  Asset Purchase Agreement, dated April 29, 1996, by and among
                Paxson Communications of Tallahassee, Inc., Southern
                Broadcasting Companies,Inc., Great South Broadcasting, Inc.,
                Charles E. Giddens, Inc., and Southern Broadcasting of
                Pensacola, Inc.(10)
10.112      --  Asset Purchase Agreement, dated April 26, 1996, by and
                between Paxson Broadcasting of Orlando, Limited Partnership
                and Shamrock Communications, Inc.(10)
10.113      --  Time Brokerage Agreement, dated April 26, 1996, by and
                between Shamrock Communications, Inc. and Paxson
                Broadcasting of Orlando, Limited Partnership for Radio
                Station WDIZ(FM) Orlando, Florida(10)
10.114      --  Purchase Agreement, dated July 17, 1996, by and between
                Impact Communications of Central Florida, Inc. and Paxson
                Outdoor, Inc.(10)
10.115      --  Asset Purchase Agreement, dated February 23, 1996, by and
                among Paxson Communications LPTV, Inc., and Michael A.
                Bogner d/b/a Amity Broadcasting Company(10)
10.116      --  Asset Purchase Agreement, dated July 1, 1996, by and among
                Paxson Communications of New London-26, Inc., Paxson New
                London License, Inc., and Roberts Broadcasting of Hartford,
                L.L.C.(10)
10.117      --  Asset Purchase Agreement, dated March 5, 1996, by and
                between Paxson Communications LPTV, Inc., and Craig L.
                Fox(10)
10.118      --  Asset Purchase Agreement, dated June 18, 1996, by and
                between Paxson Communications LPTV, Inc. and Communications
                Corporation(10)
10.119      --  Time Brokerage Agreement, dated July 9, 1996, by and between
                Channel 55 of Milwaukee, Inc. and Paxson Communications of
                Milwaukee-55, Inc. for Television Station WHKE-TV Milwaukee,
                Wisconsin(10)
10.120      --  Loan Agreement, dated July 9, 1996, by and between Paxson
                Communications of Milwaukee-55 of Milwaukee, Inc. for
                Television Station WHKE-TV Kenosha, Wisconsin(10)
10.121      --  Second Amendment to Asset Purchase Agreement, dated July 9,
                1996, by and between LeSea Broadcasting Corporation and
                Channel 55 of Milwaukee, Inc.(10)
</TABLE>
 
                                       34
<PAGE>   37
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.122      --  Asset Purchase Agreement, dated July 1, 1996, by and between
                Paxson Communications LPTV, Inc. and Electron Communications
                Corporation(10)
10.123      --  Asset Exchange Agreement, dated August 7, 1996, by and
                between Paxson Broadcasting of Birmingham-44, Inc. and
                WNAL-TV Inc.(10)
10.124      --  Loan Agreement, dated August 7, 1996, by and between Paxson
                Broadcasting of Birmingham-44 Inc. and WNAL-TV Inc.(10)
10.125      --  Time Brokerage Agreement, dated August 7, 1996, by and
                between Paxson Broadcasting of Birmingham-44 Inc. and
                WNAL-TV Inc.(10)
10.126      --  Option Agreement by and among Paxson Communications of Salt
                Lake City-16, Inc. and Roberts Broadcasting of Salt Lake
                City L.L.C., dated August 5, 1996(10)
10.127      --  Asset Purchase Agreement, dated July 31, 1996, by and
                between Paxson Communications of Oklahoma City-62, Inc. and
                Aracelis Ortiz for Television Station KMNZ-TV, Oklahoma
                City, Oklahoma(12)
10.128      --  Purchase Agreement, dated July 31, 1996, by and among
                America 51, L.P., Paxson Communications of Phoenix-51.,
                Inc., and Hector Garcia Salvatierra for Television Station
                Channel 51, Tolleson, Arizona(12)
10.129      --  Loan, Option and Related Transactions, dated August 19,
                1996, between Paxson Communications of Seattle-24, Inc. and
                World Television of Washington, L.L.C. for Television
                Station KBCB(TV), Bellingham, Washington(12)
10.130      --  Stock Purchase and Related Transactions, dated August 21,
                1996, between Paxson Communications of Little Rock-42, Inc.,
                Leininger-Geddes Partnership and Channel 42 of Little Rock,
                Inc. for Television Station KVUT(TV), Little Rock,
                Arkansas(12)
10.131      --  Asset Purchase and Sale Agreement, dated August 27, 1996,
                between Intermart Broadcasting First Coast, Inc., and Paxson
                Broadcasting of Jacksonville, Limited Partnership for Radio
                Station WPVJ-FM of Ponte Verda Beach, Florida(12)
10.132      --  Purchase Agreement, dated August 29, 1996, by and between
                Boardworks Outdoor Advertising Company, Inc., and Paxson
                Outdoor, Inc.(12)
10.133      --  Asset Purchase Agreement, dated August 30, 1996, by and
                between Paxson Communications Television, Inc. and Alpha &
                Omega Communications, L.L.C. for Television Station KOOG-TV,
                Ogden, Utah(12)
10.134      --  Loan Agreement, dated September 6, 1996, by and between
                Ponce-Nicasio Broadcasting, A Limited Partnership and Paxson
                Communications of Sacramento-29, Inc. for Television Station
                KCMY-TV, Sacramento, California(12)
10.135      --  Option Agreement, dated September 6, 1996, by and between
                Ponce-Nicasio Broadcasting, A Limited Partnership and Paxson
                Communications of Sacramento for Television Station KCMY-TV,
                Sacramento, California(12)
10.136      --  Asset Purchase Agreement, dated September 12, 1996, by and
                between The Moody Bible Institute of Chicago and Paxson
                Broadcasting of Tampa, Limited Partnership for Radio Station
                WKES-FM, St., Petersburg, Florida(12)
10.137      --  Asset Purchase Agreement, dated September 27, 1996, by and
                between Channel 46 of Boston, Inc. and Massachusetts
                Redevelopment Limited Liability Company for Television
                Station WHRC(TV), Norwell, Massachusetts(12)
10.138      --  Easement Agreement, dated October 9, 1996, by and between
                Kartworlds of Central Florida L.C. and Paxson Outdoor,
                Inc.(12)
10.139      --  Contract for Sale and Purchase, dated October 22, 1996,
                between Southern Land Investors, LTD., and Paxson Outdoor,
                Inc.(12)
</TABLE>
 
                                       35
<PAGE>   38
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.139.1    --  Promissory Note, dated October 22, 1996, between Southern
                Land Investors, LTD. and Paxson Outdoor, Inc.(12)
10.139.2    --  Real Estate Mortgage, dated October 22, 1996, Southern Land
                Investors, Ltd. and Paxson Outdoor, Inc.(12)
10.139.3    --  Assignment of Rights Under Pre-annexation Agreement, dated
                October 22, 1996, by and between Michael J. Grinstaff and
                Southern Land Investors, Ltd.(12)
10.140      --  Stock Purchase Agreement, dated November 12, 1996, by and
                between Housing Development Associates S.E. and Paxson
                Communications of San Juan, Inc.(14)
10.141      --  Asset Purchase Agreement, dated November 21, 1996, by and
                among Value Vision International, Inc., VVI Manassas, Inc.,
                WVVI(TV), Inc., Paxson Communications of Washington-66,
                Inc., and the Company(14)
10.142      --  Asset Purchase Agreement, dated November 21, 1996, by and
                between Paxson Communications of Milwaukee-55, Inc. and
                Channel 55 of Milwaukee, Inc.(14)
10.143      --  Asset Purchase Agreement, dated December 13, 1996, by and
                between Paxson Communications of the Keys, Inc., and Key
                Chain, Inc. for Radio Stations WFKZ-FM, Plantation Key,
                Florida, WAVK-FM, Marathon, Florida, and WKRY-FM, Key West,
                Florida(14)
10.144      --  Asset Purchase Agreement, dated December 10, 1966, by and
                between Paxson Communications of Kansas City-50, Inc. and
                Kansas City Youth for Christ, Inc. for Television Station
                KYFC-TV, Kansas City, Missouri(14)
10.145      --  Stock Purchase Agreement, dated December 11, 1996, by and
                among Channel 64 of Scranton, Inc., Paxson Communication of
                Scranton-64, Inc. and Ted Ehrhardt D/B/A Ehrhardt
                Broadcasting(14)
10.146      --  Asset Purchase Agreement, dated February 19, 1997, by and
                between Paxson Communications of Ft. Pierce-34, Inc., and
                Paramount Stations Group, Inc. for Television Station
                WTVX(TV), Ft. Pierce, Florida(14)
10.147      --  Promissory Note, dated February 12, 1997, by and between
                Roberts Broadcasting of Hartford, L.L.C. and Paxson
                Communications of New London-26, Inc. for Television Station
                WTWS (TV), New London, Connecticut(14)
10.147.1    --  Time Brokerage Agreement, dated February 12, 1997, by and
                between Roberts Broadcasting of Hartford, L. L. C. and
                Paxson Communications of New London-26, Inc. for Television
                Station WTWS(TV), New London, Connecticut(14)
10.147.2    --  Amendment to Asset Purchase Agreement, dated December 16,
                1996, by and among Roberts Broadcasting of Hartford, L.L.P.,
                Paxson Communications of New London-26, Inc., and Paxson New
                London License, Inc.(14)
10.148      --  Amended and Restated Promissory Note, dated April 16, 1996,
                by and between Ocean State Television, L. L. C. and Paxson
                Communications of Providence-69, Inc.(14)
10.149      --  Second Amendment to Stock Purchase and Option Agreement,
                dated September 27, 1996, by and among Paxson Communications
                of Battle Creek-43, Inc., Western Michigan Christian
                Broadcasting, Inc., Western Michigan Family Broadcasting,
                Inc., Horizon Broadcasting Corporation, and William B.
                Popjes.(14)
10.150      --  Partnership Interest Purchase Agreement, dated February 14,
                1997, by and among DP Media, Inc., Roberts Broadcasting,
                L.L.C., and Roberts Broadcasting company of Raleigh-Durham,
                L.P.(14)
10.151      --  Option Purchase Agreement, dated February 14, 1997, by and
                between Paxson Communications of Raleigh-Durham-47, Inc.,
                and D P. Media, Inc.(14)
</TABLE>
 
                                       36
<PAGE>   39
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.152      --  Amendment Agreement, dated February 13, 1996, by and among
                Channel 43 of Battle Creek, Inc., Western Michigan Christian
                Broadcasting, Inc., Western Michigan Family Broadcasting,
                Inc., Horizon Broadcasting Corporation, William B. Popjes
                and Paxson Communications of Battle Creek-43, Inc.(14)
10.153      --  Asset Purchase Agreement, dated March 13, 1997 by and among
                Paxson Communications of Detroit-31, Inc. and Blackstar
                Communications, Inc. for Television Stations WBSX(TV) and
                W48AV(14)
10.154      --  Asset Purchase Agreement, dated March 25, 1997, by and
                between Paxson Communications of West Palm Beach-25, Inc.
                and The Hearst Corporation, for Television Station WPBF(TV),
                West Palm Beach, Florida(14)
10.155      --  Purchase and Sale of Option, dated March 26, 1997, by and
                between Paxson Communications of Cleveland -- 67, Inc., and
                Global Broadcasting Systems, Inc. for Television Station
                WOAC(TV), Cleveland, Ohio(14)
10.155.1    --  Purchase and Sale of Option, dated March 26, 1997, by and
                between Paxson Communications of Atlanta -- 14, Inc., and
                Global Broadcasting Systems, Inc. for Television Station
                WNGM(TV), Atlanta, Georgia(14)
10.156      --  Asset purchase agreement, dated March 21, 1997, by and
                between Whitehead Media of Florida, Inc., Whitehead
                Broadcasting of Florida, Inc. and Paxson Communications of
                Ft. Pierce-34, Inc. for Television Station WTVX(TV), Ft.
                Pierce, Florida(14)
10.157      --  Paxson Communications Corporation 1996 Stock Incentive
                Plan(13)
10.158      --  Loan agreement, dated March 26, 1996, by and between Paxson
                Communications Corporation and Cocola Media Corporation of
                San Francisco for television station KWOK-TV, Novato,
                California(16)
10.159      --  Asset purchase agreement, dated April 1, 1997, by and
                between Paxson Communications Corporation and The Kralowec
                Children's Family Trust and KKAK-TV, Inc. for television
                station KKAG(TV), Porterville, California(16)
10.160      --  Asset purchase agreement, dated May 5, 1997, by and among
                Paxson Communications of Cedar Rapids-48, Inc., Fant
                Broadcasting Company of Iowa, Inc. and Paxson Communications
                Corporation for television station KTVC-TV, Cedar Rapids,
                Iowa(16)
10.161      --  Asset purchase agreement, dated April 15, 1997, by and among
                Paxson Communications of Buffalo-51, Inc., Fant Broadcasting
                of New York, L.L.C., Anthony Fant and Paxson Communications
                Corporation for television station WAQF-TV(16)
10.162      --  Assignment and acceptance agreement, dated April 18, 1997,
                among WQED Pittsburgh and Paxson Communications of
                Pittsburgh-40, Inc.(16)
10.163      --  Merger agreement, dated April 29, 1997, among WPBF Merger,
                Inc. and WPBF License, Inc. and Paxson Communications of
                West Palm Beach-25, Inc. and Paxson West Palm Beach License,
                Inc.(15)
10.163.1    --  Paxson Communications of West Palm Beach -- 25, Inc. and
                Paxson West Palm Beach License, Inc. Subordinated Promissory
                Note, dated April 29, 1997(15)
10.163.2    --  Time brokerage agreement, dated April 29, 1997, by and
                between Paxson Communications of West Palm Beach -- 25,
                Inc., and Paxson West Palm Beach License, Inc., and Paxson
                Communications of Florida, Inc.(15)
10.164      --  Asset purchase agreement, dated April 22, 1997, by and
                between Paxson Communications of Miami-35, Inc. and Channel
                35 of Miami, Inc.(16)
10.165      --  Asset purchase agreement, dated April 22, 1997, by and
                between Paxson Communications of Tampa-66, Inc. and Channel
                66 of Tampa, Inc.(16)
</TABLE>
 
                                       37
<PAGE>   40
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.166      --  Asset purchase agreement, dated April 30, 1997, by and
                between Paxson Communications of Green Bay-14, Inc and VCY
                America, Inc. for television station WSCO(TV), Green Bay,
                Wisconsin(16)
10.167      --  Asset purchase agreement, dated May 12, 1997, by and between
                the Company, Paxson communications of New York City, ITT-Dow
                Jones Television, ITT Corporation and Dow Jones & Company
                for Television Station WBIS(TV), New York City, New York(16)
10.167.1    --  Time brokerage agreement, dated May 1997, by and between
                ITT-Dow Jones Television and Paxson Communications of New
                York-31, Inc. for Television Station WBIS(TV), New York
                City, New York(16)
10.168      --  Construction Agreement, dated December 23, 1996, between
                WHCT Broadcasting, Inc., and Paxson Communications of
                Hartford-18, Inc. for WHCT(TV), Channel 18, Hartford,
                Connecticut(17)
10.169      --  Asset Purchase Agreement, dated April 11, 1997, by and
                between Roberts Broadcasting of Cookeville, L.L.C. and
                Paxson Communications of Nashville-28, Inc. (17)
10.170      --  Amended and Restated Asset Purchase Agreement, dated April
                15, 1997, by and among Paxson Communications of Buffalo-51,
                Inc., Fant Broadcasting Company of New York, L.L.C., Anthony
                Fant and Paxson Communications Corporation(17)
10.171      --  Asset Purchase Agreement, dated May 14, 1997, by and between
                Paxson Communications of West Palm Beach, Inc. and American
                Radio Systems Corporation(17)
10.172      --  Option Agreement, dated May 20, 1997, by and between Paxson
                Communications of Honolulu-66, Inc. and Dove Broadcasting
                Company of Hawaii, Inc. for television station KAPA(TV),
                Kaneohe, Hawaii(17)
10.172.1    --  Loan Agreement, dated May 20, 1997, by and among Paxson
                Communications of Honolulu-66, Inc., and Dove Broadcasting
                Company of Hawaii(17)
10.173      --  Asset Purchase Agreement, dated May 28, 1997, by and among
                Paxson Communications of Roanoke-38, Inc., Vine and Branch,
                Inc. and Evangel Foursquare Church for television station
                WEFC, Roanoke, Virginia(17)
10.174      --  Loan Agreement, dated June 10, 1997, by and between Paxson
                Communications of Boston-46, Inc. and Channel 46 of Boston,
                Inc. for television station WHRC(TV), Norwell,
                Massachusetts(17)
10.175      --  Asset Acquisition Agreement, dated June 13, 1997, by and
                among Landmark Communications, Inc., The Travel Channel,
                Inc., and Paxson Communications(17)
10.176      --  Asset Purchase Agreement, dated June 23, 1997, by and
                between Paxson Communications of Orlando-56, Inc. and
                Channel 56 of Orlando, Inc.(17)
10.177      --  Loan Agreement, dated June 30, 1997, by and between Roberts
                Broadcasting Company of Albuquerque and Paxson
                Communications of Albuqurque-14, Inc. relating to television
                station (Channel 14), Albuquerque, New Mexico(17)
10.178      --  Asset Purchase Agreement, dated June 25, 1997, by and
                between John W. Hyde, as Chapter 11 Trustee of the Chapter
                11 Debtor Estate of Riklis Broadcasting Corporation, AKA
                KADY-TV, AKA Pacific Rim Video and Paxson Communications of
                Los Angeles-63, Inc.(17)
10.179      --  Asset Purchase Agreement, dated August 25, 1997, by and
                among Paxson Communications Corporation, Clear Channel
                Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and
                Clear Channel Communications, Inc. (filed as exhibit 2.1
                with the Company's Form 8-K, dated October 1, 1997 and
                incorporated herein by reference)
</TABLE>
 
                                       38
<PAGE>   41
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
10.180      --  Asset Purchase Agreement, dated August 25, 1997, by and
                among Paxson Communications Corporation, L. Paxson, Inc.,
                Clear Channel Metroplex, Inc., Clear Channel Metroplex
                Licenses, Inc. and Clear Channel Communications, Inc. (filed
                as exhibit 2.2 with the Company's Form 8-K, dated October 1,
                1997 and incorporated herein by reference)
10.181      --  Asset Purchase Agreement, dated August 29, 1997, by and
                among Paxson Communications of Fayetteville-62, Inc.,
                Fayetteville-Cumberland Telecasters, Inc., Fayetteville-
                Cumberland Telecasters Inc., Debtor-in-Possession, and
                Poplar Apartments Limited Partnership for Television station
                WFAY, Fayetteville, North Carolina(18)
10.182      --  Stock Purchase Agreement, dated September 2, 1997, by and
                among Channel 29 of Charleston, Inc., Paxson Communications
                of Charleston-29, Inc. and Mountaineer Broadcasting
                Corporation and William L. Kepper(18)
10.183      --  Stock Purchase Agreement, dated September 9, 1997, by and
                among Channel 46 of Tucson, Inc., Paxson Communications of
                Tucson-46, Inc. and Sungilt Corporation, Inc. (18)
10.184      --  Asset Purchase Agreement, dated October 16, 1997, by and
                between Paxson Communications Corporation and Channel 49
                Acquisition Corporation for television station WJCB-TV,
                Norfolk, Virginia(18)
10.185      --  Asset Purchase Agreement, dated October 24, 1997, between
                Universal Outdoor, Inc. and Paxson Communications
                Corporation(18)
10.186      --  Option Agreement, dated November 14, 1997, by and between
                Paxson Communications Corporation and Flinn Broadcasting
                Corporation for Television station WCCL-TV, New Orleans,
                Louisiana
10.187      --  Option Agreement, dated November 14, 1997, by and between
                Paxson Communications Corporation and Flinn Broadcasting
                Corporation for Television station WFBI-TV, Memphis,
                Tennessee
10.188      --  Asset Purchase Agreement, dated January 26, 1998, by and
                among DP Media of Milwaukee, Inc., Paxson Communications of
                Milwaukee-55, Inc. and Paxson Milwaukee License, Inc. for
                Television station WPXE(TV), Kenosha, Wisconsin
10.189      --  Asset and Stock Purchase and Option Grant Agreement, dated
                as of November 14, 1997, by and among ValueVision
                International, Inc., VVI Seattle, Inc., VVI LPTV, Inc., VVI
                Spokane, Inc., VVI Tallahassee, Inc. and Paxson
                Communications Corporation
10.190      --  Limited Liability Company Agreement of The Travel Channel,
                L.L.C. dated as of November 24, 1997
10.191      --  Asset Purchase Agreement, dated as of November 24, 1997, by
                and among Travel Channel Acquisition Corporation, Project
                Discovery, Inc., Paxson Communications Corporation and
                Discovery Communications, Inc.
10.192      --  Guaranty Agreement, dated as of November 24, 1997, made by
                Discovery Communications, Inc., in favor of Travel Channel
                Acquisition Corporation
10.193      --  Asset Exchange Agreement, dated January 26, 1998, by and
                among Paxson Communications of Chicago-38, Inc., Christian
                Communications of Chicagoland, Inc., and Paxson
                Communications Corporation
10.193.1    --  Programming Agreement by and between Paxson Communications
                of Chicago-38, Inc. and Christian Communications of
                Chicagoland Inc.
</TABLE>
 
                                       39
<PAGE>   42
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                                 DESCRIPTION
--------                                -----------
<C>        <C>  <S>
21          --  Subsidiaries of the Company
23          --  Consent of Price Waterhouse LLP
27          --  Financial Data Schedule (for SEC use only)
99.1        --  Tax Exemption Savings Agreement between the Company and The
                Christian Network, Inc., dated May 15, 1994(8)
</TABLE>
 
---------------
 
    (1) Filed with the Company's Registration Statement on Form S-4, filed
September 26, 1994, Registration No. 33-84416 and incorporated herein by
reference.
 
    (2) Filed with the Company's Annual Report on Form 10-K, dated March 31,
1995 and incorporated herein by reference.
 
    (3) Filed with the Company's Quarterly Report on Form 10-Q, dated May 12,
1995 and incorporated herein by reference.
 
    (4) Filed with the Company's Report on Form 8-K dated June 1, 1995 and
incorporated herein by reference.
 
    (5) Filed with the Company's Quarterly Report on Form 10-Q, dated August 14,
1995 and incorporated herein by reference.
 
    (6) Filed with the Company's Report on Form 8-K, dated August 21, 1995 and
incorporated herein by reference.
 
    (7) Filed with the Company's Registration Statement on Form S-4, as amended,
filed January 23, 1996, Registration No. 33-63765 and incorporated herein by
reference.
 
    (8) Filed with the Company's Registration Statement on Form S-1, as amended,
filed January 26, 1996, Registration No. 333-473 and incorporated herein by
reference.
 
    (9) Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
1996 and incorporated herein by reference.
 
    (10) Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
1996 and incorporated herein by reference.
 
    (11) Filed with the Company's Registration Statement on Form S-3, as
amended, filed August 15, 1996, Registration No. 333-10267 and incorporated
herein by reference.
 
    (12) Filed with the Company's Quarterly Report on Form 10-Q, dated September
30, 1996 and incorporated herein by reference.
 
    (13) Filed with the Company's Registration Statement on Form S-8, filed
January 22, 1997, Registration No. 333-20163 and incorporated herein by
reference.
 
    (14) Filed with the Company's Annual Report on Form 10-K, dated December 31,
1996 and incorporated herein by reference.
 
    (15) Filed with the Company's Report on Form 8-K dated April 29, 1997, under
Item 7. Financial Statements and Exhibits and incorporated herein by reference.
 
    (16) Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
1997 and incorporated herein by reference.
 
    (17) Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
1997 and incorporated herein by reference.
 
    (18) Filed with the Company's Quarterly Report on Form 10-Q, dated September
30, 1997 and incorporated herein by reference.
 
    (d) The financial statement schedule filed as part of this report is listed
separately in the Index to Financial Statements beginning on page F-1 of this
report.
 
                                       40
<PAGE>   43
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of West Palm
Beach, State of Florida, on March 16, 1998.
 
                                          PAXSON COMMUNICATIONS
                                          CORPORATION
 
                                          By:     /s/ LOWELL W. PAXSON
                                            ------------------------------------
                                                      Lowell W. Paxson
                                                   Chairman of the Board
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                        NAME                                        TITLE                    DATE
                        ----                                        -----                    ----
<C>                                                    <S>                              <C>
                /s/ LOWELL W. PAXSON                   Chairman of the Board, Chief     March 16, 1998
-----------------------------------------------------    Executive Officer, and
                  Lowell W. Paxson                       Director (Principal Executive
                                                         Officer)
 
                  /s/ ARTHUR D. TEK                    Vice President, Chief Financial  March 16, 1998
-----------------------------------------------------    Officer, and Director
                    Arthur D. Tek                        (Principal Financial Officer)
 
               /s/ KENNETH M. GAMACHE                  Vice President and Controller    March 16, 1998
-----------------------------------------------------    (Principal Accounting
                 Kenneth M. Gamache                      Officer)
 
                 /s/ JAMES B. BOCOCK                   President and Chief Operating    March 16, 1998
-----------------------------------------------------    Officer, Director
                   James B. Bocock
 
                /s/ BRUCE L. BURNHAM                   Director                         March 16, 1998
-----------------------------------------------------
                  Bruce L. Burnham
 
               /s/ JAMES L. GREENWALD                  Director                         March 16, 1998
-----------------------------------------------------
                 James L. Greenwald
</TABLE>
 
                                       41
<PAGE>   44
 
                       PAXSON COMMUNICATIONS CORPORATION
 
                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE
 
<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Report of Independent Certified Public Accountants..........  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statements of Changes in Common Stockholders'
  Equity....................................................  F-5
Consolidated Statements of Cash Flows.......................  F-6-F-7
Notes to Consolidated Financial Statements..................  F-8-F-32
Financial Statement Schedule -- Schedule II-Valuation and
  Qualifying Accounts.......................................  F-33
</TABLE>
 
                                       F-1
<PAGE>   45
 
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
The Board of Directors and Stockholders
of Paxson Communications Corporation
 
     In our opinion, the consolidated financial statements referred to under
Items 14(a)(1) and (2) on page 27 and listed in the accompanying index on page
F-1 present fairly, in all material respects, the financial position of Paxson
Communications Corporation and its subsidiaries at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
PRICE WATERHOUSE LLP
 
Fort Lauderdale, Florida
March 13, 1998
 
                                       F-2
<PAGE>   46
 
                       PAXSON COMMUNICATIONS CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                   1997             1996
                                                              --------------    ------------
<S>                                                           <C>               <C>
                                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $   82,641,444    $ 61,748,788
  Restricted cash...........................................      17,000,000              --
  Accounts receivable, less allowance for doubtful accounts
    of $911,941 and $1,576,593, respectively................       4,813,524      29,860,998
  Prepaid expenses and other current assets.................       2,765,984       2,713,565
  Current program rights....................................              --       1,512,019
                                                              --------------    ------------
         Total current assets...............................     107,220,952      95,835,370
Cash held by qualified intermediary.........................     418,949,550              --
Property and equipment, net.................................     105,896,873     144,415,412
Intangible assets, net......................................     205,400,029     220,409,421
Investments in broadcast properties.........................      72,762,195      53,297,022
Investment in cable network.................................      58,974,491              --
Other assets, net...........................................      87,908,884      28,149,699
Program rights, net.........................................              --       1,075,536
                                                              --------------    ------------
         Total assets.......................................  $1,057,112,974    $543,182,460
                                                              ==============    ============

             LIABILITIES, REDEEMABLE SECURITIES AND COMMON STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued liabilities..................  $   11,305,782    $ 10,676,692
  Accrued interest..........................................       8,475,686       6,684,373
  Current portion of program rights payable.................              --       1,628,959
  Current portion of long-term debt.........................         496,378         644,509
                                                              --------------    ------------
         Total current liabilities..........................      20,277,846      19,634,533
Program rights payable......................................              --       1,000,260
Deferred gain...............................................      12,100,000              --
Deferred income taxes.......................................      95,747,156              --
Long-term debt..............................................     122,299,025       3,407,688
Senior subordinated notes, net..............................     227,958,736     227,655,096
Redeemable Cumulative Compounding Junior preferred stock,
  $0.001 par value; 12% dividend rate per annum, 33,000
  shares authorized, issued and outstanding.................      42,610,662      36,780,496
Redeemable Exchangeable preferred stock, $0.001 par value;
  12.5% dividend rate per annum, 440,000 shares authorized,
  170,782 and 150,000 shares issued and outstanding.........     168,375,990     147,929,150
Class A common stock, $0.001 par value; one vote per share;
  150,000,000 shares authorized, 50,701,600 and 40,442,482
  shares issued and outstanding.............................          50,702          40,442
Class B common stock, $0.001 par value; ten votes per share;
  35,000,000 shares authorized and 8,311,639 shares issued
  and outstanding...........................................           8,312           8,312
Class A and B common stock warrants.........................       2,316,225       6,862,647
Class C common stock warrants...............................              --       2,335,528
Stock subscription notes receivable.........................      (2,813,250)     (1,873,139)
Additional paid-in capital..................................     285,795,787     209,621,241
Deferred option plan compensation...........................      (2,205,240)     (6,397,916)
Retained earnings (accumulated deficit).....................      84,591,023    (103,821,878)
Commitments and contingencies (Note 18).....................              --              --
                                                              --------------    ------------
         Total liabilities, redeemable securities and common
           stockholders' equity.............................  $1,057,112,974    $543,182,460
                                                              ==============    ============
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                   of the consolidated financial statements.
 
                                       F-3
<PAGE>   47
 
                       PAXSON COMMUNICATIONS CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                           1997           1996           1995
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Revenues:
  Local and national advertising.....................  $ 87,654,004   $ 60,772,499   $ 29,464,515
  Other..............................................       545,344      1,400,169      2,131,037
  Trade and barter...................................       222,105        159,950        188,763
                                                       ------------   ------------   ------------
Total revenues.......................................    88,421,453     62,332,618     31,784,315
                                                       ------------   ------------   ------------
Operating expenses:
  Direct.............................................    14,648,173     10,609,812      6,771,051
  Programming........................................     5,010,635      2,607,796      1,349,787
  Sales and promotion................................     5,809,864      3,642,038      2,424,629
  Technical..........................................     8,982,149      5,011,353      2,259,341
  General and administrative.........................    23,562,985     20,814,808     12,259,416
  Trade and barter...................................       266,674        110,449        118,339
  Time brokerage and affiliation agreement fees .....    16,961,427      3,568,192        898,643
  Option plan compensation...........................     3,369,812      6,975,830      9,052,003
  Compensation associated with Paxson Radio asset
     sales...........................................     9,700,000             --             --
  Depreciation and amortization......................    22,044,109     12,887,776      4,647,942
                                                       ------------   ------------   ------------
Total operating expenses.............................   110,355,828     66,228,054     39,781,151
                                                       ------------   ------------   ------------
Operating loss.......................................   (21,934,375)    (3,895,436)    (7,996,836)
Other income (expense):
  Interest expense...................................   (37,728,307)   (31,525,927)   (17,151,099)
  Interest income....................................     9,494,894      6,741,552      1,651,193
  Other expenses, net................................    (5,721,743)    (1,755,660)      (488,725)
  Equity in loss of unconsolidated investment........    (2,492,691)            --             --
                                                       ------------   ------------   ------------
Loss from continuing operations before income tax
  benefit and extraordinary item.....................   (58,382,222)   (30,435,471)   (23,985,467)
Income tax benefit...................................    21,879,260             --      1,280,000
                                                       ------------   ------------   ------------
Loss from continuing operations before extraordinary
  item...............................................   (36,502,962)   (30,435,471)   (22,705,467)
                                                       ------------   ------------   ------------
Discontinued operations:
  Income (loss) from discontinued operations, net of
     applicable income taxes.........................    (3,555,186)     4,216,570       (142,096)
  Gain on disposal of discontinued operations, net of
     applicable income taxes.........................   254,748,055             --             --
                                                       ------------   ------------   ------------
                                                        251,192,869      4,216,570       (142,096)
                                                       ------------   ------------   ------------
Income (loss) before extraordinary item..............   214,689,907    (26,218,901)   (22,847,563)
Extraordinary item...................................            --             --    (10,625,727)
                                                       ------------   ------------   ------------
Net income (loss)....................................   214,689,907    (26,218,901)   (33,473,290)
Dividends and accretion on redeemable preferred stock
  and redeemable common stock warrants...............   (26,277,006)   (21,908,584)   (13,297,206)
                                                       ------------   ------------   ------------
Net income (loss) attributable to common stock.......  $188,412,901   $(48,127,485)  $(46,770,496)
                                                       ============   ============   ============
Basic and diluted (loss) earnings per share:
Loss from continuing operations before extraordinary
  item...............................................  $      (1.17)  $      (1.20)  $      (1.05)
Discontinued operations..............................          4.67           0.10             --
Extraordinary item...................................            --             --          (0.31)
                                                       ------------   ------------   ------------
Net income (loss)....................................  $       3.50   $      (1.10)  $      (1.36)
                                                       ============   ============   ============
Weighted average shares outstanding..................    53,808,472     43,836,526     34,429,517
                                                       ============   ============   ============
</TABLE>
 
The accompanying Notes to Consolidated Financial statements are an integral part
                   of the consolidated financial statements.
 
                                       F-4
<PAGE>   48
 
                       PAXSON COMMUNICATIONS CORPORATION
 
       CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                CLASS        CLASS C        STOCK                        DEFERRED
                                           COMMON STOCK        A AND B       COMMON      SUBSCRIPTION    ADDITIONAL       OPTION
                                         -----------------      STOCK         STOCK         NOTES         PAID-IN          PLAN
                                         CLASS A   CLASS B    WARRANTS      WARRANTS      RECEIVABLE      CAPITAL      COMPENSATION
                                         -------   -------   -----------   -----------   ------------   ------------   ------------
<S>                                      <C>       <C>       <C>           <C>           <C>            <C>            <C>
Balance at December 31, 1994...........  $26,042   $8,312                  $ 5,338,952   $   (77,666)   $ 20,647,647
Stock issued for Cookeville
  acquisition..........................       95                                                           1,199,905
Deferred option plan compensation......       90                                                          12,187,508   $(12,187,508)
Option plan compensation...............                                                                                  10,803,241
Stock options exercised................                                                                      307,026
Increase in stock subscription
  receivable...........................                                                      (48,029)
Repayments of stock subscription notes
  receivable...........................                                                        9,981
Dividends on redeemable preferred
  stock................................
Accretion on Senior redeemable
  preferred stock......................
Accretion on Series B preferred
  stock................................
Accretion on Junior preferred stock....
Accretion on Class A and B common stock
  warrants.............................
Net loss...............................
                                         -------   ------    -----------   -----------   -----------    ------------   ------------
Balance at December 31, 1995...........   26,227    8,312                    5,338,952      (115,714)     34,342,086     (1,384,267)
Release of put option on Class A and B
  common stock warrants................                      $ 9,116,399
Issuance of common stock, net of
  issuance costs of $10,000,000........   10,300                                                         154,789,700
Exercise of Class A, B and C common
  stock warrants.......................    3,623              (2,253,752)   (3,003,424)                    5,253,548
Stock issued for Todd Communications
  acquisition..........................      139                                                           1,534,967
Deferred option plan compensation......                                                                   12,932,506    (12,932,506)
Option plan compensation...............                                                                                   7,918,857
Stock options exercised................      153                                                             768,434
Increase in stock subscription
  receivable...........................                                                   (1,873,139)
Repayment of stock subscription notes
  receivable...........................                                                      115,714
Dividends on redeemable preferred
  stock................................
Accretion on Senior redeemable
  preferred stock......................
Accretion on Series B preferred
  stock................................
Accretion on Junior preferred stock....
Accretion on Redeemable Exchangeable
  preferred stock......................
Accretion on Class A and B common stock
  warrants.............................
Net loss...............................
                                         -------   ------    -----------   -----------   -----------    ------------   ------------
Balance at December 31, 1996...........   40,442    8,312      6,862,647     2,335,528    (1,873,139)    209,621,241     (6,397,916)
Stock issued for acquisitions..........    6,069                                                          66,118,931
Exercise of Class A, B and C common
  stock warrants.......................    3,923              (4,546,422)   (2,335,528)                    6,878,028
Deferred option plan compensation......                                                                    2,263,167     (2,263,167)
Option plan compensation...............                                                                                   6,455,843
Stock options exercised................      268                                                             914,420
Increase in stock subscription notes
  receivable...........................                                                     (940,111)
Dividends on redeemable preferred
  stock................................
Accretion on Junior preferred stock....
Accretion on Redeemable Exchangeable
  preferred stock......................
Net income.............................
                                         -------   ------    -----------   -----------   -----------    ------------   ------------
Balance at December 31, 1997...........  $50,702   $8,312    $ 2,316,225   $        --   $(2,813,250)   $285,795,787   $ (2,205,240)
                                         =======   ======    ===========   ===========   ===========    ============   ============
 
<CAPTION>
                                           RETAINED
                                           EARNINGS
                                         (ACCUMULATED
                                           DEFICIT)
                                         -------------
<S>                                      <C>
Balance at December 31, 1994...........  $  (8,923,897)
Stock issued for Cookeville
  acquisition..........................
Deferred option plan compensation......
Option plan compensation...............
Stock options exercised................
Increase in stock subscription
  receivable...........................
Repayments of stock subscription notes
  receivable...........................
Dividends on redeemable preferred
  stock................................     (7,275,516)
Accretion on Senior redeemable
  preferred stock......................       (332,156)
Accretion on Series B preferred
  stock................................       (325,208)
Accretion on Junior preferred stock....       (634,988)
Accretion on Class A and B common stock
  warrants.............................     (4,729,338)
Net loss...............................    (33,473,290)
                                         -------------
Balance at December 31, 1995...........    (55,694,393)
Release of put option on Class A and B
  common stock warrants................
Issuance of common stock, net of
  issuance costs of $10,000,000........
Exercise of Class A, B and C common
  stock warrants.......................
Stock issued for Todd Communications
  acquisition..........................
Deferred option plan compensation......
Option plan compensation...............
Stock options exercised................
Increase in stock subscription
  receivable...........................
Repayment of stock subscription notes
  receivable...........................
Dividends on redeemable preferred
  stock................................    (13,223,227)
Accretion on Senior redeemable
  preferred stock......................     (1,805,599)
Accretion on Series B preferred
  stock................................     (3,418,615)
Accretion on Junior preferred stock....       (650,084)
Accretion on Redeemable Exchangeable
  preferred stock......................       (159,977)
Accretion on Class A and B common stock
  warrants.............................     (2,651,082)
Net loss...............................    (26,218,901)
                                         -------------
Balance at December 31, 1996...........   (103,821,878)
Stock issued for acquisitions..........
Exercise of Class A, B and C common
  stock warrants.......................
Deferred option plan compensation......
Option plan compensation...............
Stock options exercised................
Increase in stock subscription notes
  receivable...........................
Dividends on redeemable preferred
  stock................................    (24,942,740)
Accretion on Junior preferred stock....       (665,540)
Accretion on Redeemable Exchangeable
  preferred stock......................       (668,726)
Net income.............................    214,689,907
                                         -------------
Balance at December 31, 1997...........  $  84,591,023
                                         =============
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                   of the consolidated financial statements.
 
                                       F-5
<PAGE>   49
 
                       PAXSON COMMUNICATIONS CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                    FOR THE YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------------
                                                                  1997            1996            1995
                                                              -------------   -------------   -------------
<S>                                                           <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss).........................................  $ 214,689,907   $ (26,218,901)  $ (33,473,290)
  Adjustments to reconcile net income (loss) to net cash
    (used in) provided by operating activities:
    Depreciation and amortization...........................     35,511,000      25,974,909      17,771,109
    Option plan compensation................................      6,455,843       7,918,857      10,803,241
    Program rights amortization.............................        703,789       1,381,582       1,765,942
    Provision for doubtful accounts.........................      2,011,337       1,287,819       1,098,181
    Deferred income tax benefit.............................    (21,879,260)             --      (1,280,000)
    Loss on sale or disposal of assets......................      3,794,027         181,586         145,857
    Loss on extinguishment of long-term debt................             --              --      10,625,727
    Equity in loss of unconsolidated investment.............      2,492,691              --              --
    Gain on disposal of discontinued operations, net........   (254,748,055)             --              --
    Changes in assets and liabilities:
      Increase in restricted cash...........................    (17,000,000)             --              --
      Decrease (increase) in accounts receivable............      5,172,545     (13,422,402)     (5,255,398)
      (Increase) decrease in prepaid expenses and other
         current assets.....................................     (1,631,864)     (1,742,202)        608,591
      Increase in intangible assets.........................             --              --      (1,200,000)
      (Increase) decrease in other assets...................     (5,352,711)     (1,886,853)      2,578,733
      (Decrease) increase in accounts payable and accrued
         liabilities........................................    (10,590,638)      5,646,000         131,529
      Increase (decrease) in accrued interest...............      1,815,673        (247,969)      6,707,814
                                                              -------------   -------------   -------------
         Net cash (used in) provided by operating
           activities.......................................    (38,555,716)     (1,127,574)     11,028,036
                                                              -------------   -------------   -------------
Cash flows from investing activities:
  Acquisitions of broadcasting and billboard properties.....   (253,804,699)   (186,662,299)    (58,510,509)
  Increase in investments in broadcast properties...........     (8,026,173)    (32,104,992)    (19,442,030)
  Deposits on broadcasting properties.......................    (26,597,000)     (3,837,000)     (2,381,619)
  Increase in programming deposits..........................    (36,682,500)             --              --
  Cash held by qualified intermediary.......................   (418,949,550)             --              --
  Purchases of property and equipment.......................    (44,473,918)    (36,709,477)    (25,016,816)
  Investment in cable network...............................     (5,342,182)             --              --
  Deposits (made) refunded on buildings and equipment.......       (320,000)        555,341        (735,074)
  Proceeds from sales of discontinued operations............    721,978,459              --              --
  Proceeds from sale of assets..............................     13,764,020         228,279         466,820
                                                              -------------   -------------   -------------
         Net cash used in investing activities..............    (58,453,543)   (258,530,148)   (105,619,228)
                                                              -------------   -------------   -------------
Cash flows from financing activities:
  Proceeds from issuance of common stock, net...............             --     154,800,000              --
  Proceeds from issuance of long-term debt..................    120,000,000      17,700,000     327,539,000
  Repayments of long-term debt..............................     (1,269,978)    (28,230,464)   (169,722,340)
  Payment of loan origination costs.........................             --      (2,985,742)    (15,896,473)
  Payments for program rights...............................       (802,684)     (1,424,912)     (1,098,731)
  Proceeds from issuance of redeemable preferred stock,
    net.....................................................             --     143,197,254              --
  Redemption of Senior and Series B preferred stock.........             --     (28,455,758)             --
  Proceeds from exercise of common stock options, net.......        914,688         492,567         307,116
  Increase in stock subscription notes receivable...........       (940,111)     (1,873,139)        (48,029)
  Repayment of stock subscription notes receivable..........             --         115,714           9,981
                                                              -------------   -------------   -------------
         Net cash provided by financing activities..........    117,901,915     253,335,520     141,090,524
                                                              -------------   -------------   -------------
Increase (decrease) in cash and cash equivalents............     20,892,656      (6,322,202)     46,499,332
Cash and cash equivalents, beginning of year................     61,748,788      68,070,990      21,571,658
                                                              -------------   -------------   -------------
Cash and cash equivalents, end of year......................  $  82,641,444   $  61,748,788   $  68,070,990
                                                              =============   =============   =============
</TABLE>
 
                                       F-6
<PAGE>   50
                       PAXSON COMMUNICATIONS CORPORATION
 
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                    FOR THE YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------------
                                                                  1997            1996            1995
                                                              -------------   -------------   -------------
<S>                                                           <C>             <C>             <C>
Supplemental disclosures of cash flow information:
  Cash paid for interest....................................  $  33,895,837   $  28,342,148   $   8,292,274
                                                              =============   =============   =============
  Cash paid for income taxes................................  $     975,000   $          --   $          --
                                                              =============   =============   =============
Non-cash operating, investing and financing activities:
  Accretion of discount on Senior Subordinated Notes........  $     303,640   $     280,185   $      65,911
                                                              =============   =============   =============
  Issuance of common stock in connection with
    acquisitions............................................  $  66,125,000   $   1,535,106   $   1,200,000
                                                              =============   =============   =============
  Note payable incurred for WYPX-TV acquisition.............  $          --   $   1,650,000   $          --
                                                              =============   =============   =============
  Dividends accreted on redeemable preferred stock..........  $  24,942,740   $  12,273,227   $   7,275,516
                                                              =============   =============   =============
  Discount accretion on redeemable securities...............  $   1,334,266   $   9,635,357   $   6,021,690
                                                              =============   =============   =============
  Trade and barter revenue..................................  $   3,656,597   $   4,154,986   $   3,068,354
                                                              =============   =============   =============
  Trade and barter expense..................................  $   3,732,765   $   4,166,918   $   2,604,950
                                                              =============   =============   =============
  Sale of broadcast property for note receivable............  $  15,000,000   $          --   $          --
                                                              =============   =============   =============
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                   of the consolidated financial statements.
 
                                       F-7
<PAGE>   51
 
                       PAXSON COMMUNICATIONS CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BASIS OF PRESENTATION
 
     Paxson Communications Corporation (the "Company"), a Delaware corporation,
was organized in December 1993 for the purpose of owning and operating radio and
television broadcasting stations and networks.
 
OPERATIONS
 
     The Company currently operates a nationwide network of owned, operated or
affiliated television stations carrying programming from its proprietary
network, which presently broadcasts long form paid programming consisting
primarily of infomercials. At December 31, 1997, the Company operates 33 owned,
11 time brokered and 7 affiliated television stations. The Company announced in
November 1997 its intention to launch a new broadcast television network of
family values oriented programming ("PAX NET") effective August 31, 1998. The
Company also owns a 30% interest in The Travel Channel, L.L.C., a cable
television network joint venture with Discovery Communications, Inc. ("DCI").
(See Note 3.)
 
     During January 1998, the Company adopted new call letters for 39 of its
television stations in an effort to more closely align the station call letters
with PAX NET. These new call letters have been utilized in the notes to the
financial statements.
 
     Two other business segments, Paxson Radio and Paxson Network-Affiliated
Television, have been classified as discontinued operations in the accompanying
consolidated statements of operations for all periods presented as a result of
the Company's sale of these operations during 1997 (see Note 2).
 
PRINCIPLES OF CONSOLIDATION
 
     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. The Company accounts for its investment in
The Travel Channel L.L.C. under the equity method of accounting. All
intercompany balances and transactions have been eliminated.
 
CASH AND CASH EQUIVALENTS
 
     Cash and cash equivalents are highly liquid investments with original
maturities of three months or less. At December 31, 1997 and 1996, approximately
$96 million and $45 million, respectively, of debt securities, all classified as
available for sale and consisting of money market accounts, commercial paper and
overnight repurchase agreements, were included in cash and cash equivalents.
 
RESTRICTED CASH
 
     Restricted cash consists of cash held in an escrow account to be applied to
the payment of interest due pursuant to an amendment to the Company's revolving
credit facility executed in March 1998 (see Note 10).
 
CASH HELD BY QUALIFIED INTERMEDIARY
 
     The Company placed a portion of the proceeds received from the Paxson Radio
segment sale with a qualified intermediary in order to reinvest such proceeds
and, to the extent reinvested, qualify for tax deferred exchange treatment in
connection with such sale. In order to qualify for deferral, these funds must be
used to fund broadcast properties acquisitions prior to March 27, 1998.
Accordingly, they have been classified as long term in the accompanying
Consolidated Balance Sheet at December 31, 1997.
 
                                       F-8
<PAGE>   52
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
PROPERTY AND EQUIPMENT
 
     Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated using the straight line method over their estimated useful lives
as follows (see Note 6):
 
<TABLE>
<S>                                                           <C>
Broadcasting towers and equipment...........................     6-13 years
Office furniture and equipment..............................     5-10 years
Buildings and building improvements.........................    15-40 years
Leasehold improvements......................................  Term of lease
Aircraft, vehicles and other................................        5 years
</TABLE>
 
     Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
 
INTANGIBLE ASSETS
 
     The excess of cost over the fair value of acquired net assets has been
recorded as goodwill. Intangible assets are being amortized using the straight
line method over their estimated useful lives as follows (see Note 7):
 
<TABLE>
<S>                                                           <C>
FCC licenses................................................           25 years
Goodwill....................................................           25 years
Covenants not to compete....................................  Generally 3 years
Favorable lease and other contracts.........................      Contract term
</TABLE>
 
INVESTMENTS IN BROADCAST PROPERTIES
 
     Investments in broadcast properties primarily represent the Company's
financing of television and radio station acquisitions by third parties, and
purchase options or equity investments in entities owning broadcasting stations
or television construction permits. In connection with the financing of
acquisitions by third parties, the Company has entered into time brokerage
agreements ("TBAs") with such parties for the broadcast operations and has
written options to purchase certain of the related station assets and Federal
Communications Commission ("FCC") licenses at various amounts and terms (see
Notes 9 and 18).
 
PROGRAM RIGHTS
 
     The Company obtains licenses for program rights which allow the Company to
broadcast program material in accordance with contractual agreements. Pursuant
to a licensing agreement, an asset is recorded for the program rights acquired
and a liability is recorded for the obligation incurred, at the gross amount of
the liability when programming is available to air. Program rights are amortized
on a method that approximates the straight line method per the number of
available runs. Program rights which will not be aired are charged to expense.
Current program rights represent programs which will be amortized during the
next year; current liabilities represent program rights which will be paid
within the next year under contractual arrangements (see Note 18).
 
OTHER ASSETS
 
     Other assets consist primarily of escrow funds, programming deposits and
loan origination costs. Escrow funds represent funds held in escrow on
acquisitions pending FCC approval. Programming deposits represent deposits for
broadcast rights contracts available for airing beginning in August 1998. Loan
origination costs are stated at cost and are amortized to interest expense over
the life of the loan or agreement using the effective interest method. Other
assets are stated at cost (see Note 8).
 
                                       F-9
<PAGE>   53
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
\LONG-LIVED ASSETS
 
     The Company reviews long-lived assets, identifiable intangibles and
goodwill and reserves for impairment whenever events or changes in circumstances
indicate, based on estimated undiscounted future cash flows, the carrying amount
of the assets may not be fully recoverable.
 
REVENUE RECOGNITION
 
     Revenue is recognized as advertising air time is broadcast.
 
TRADE AND BARTER AGREEMENTS
 
     The Company enters into trade and barter agreements which give rise to
sales of advertising air time in exchange for products, services and
programming. Sales from trade and barter agreements are recognized at the fair
market value of products, services or programs received as the related
advertising air time is broadcast. Products, services and programs received are
expensed when used or when programs are broadcast. If the Company uses trade
products or services before advertising air time is provided, a trade liability
is recognized. At times, the Company trades air time for property and equipment.
 
TIME BROKERAGE AGREEMENTS
 
     The Company operates certain stations under TBAs whereby the Company has
agreed to purchase from the broadcast station licensee certain broadcast time on
the station and to provide programming to and sell advertising on the station
during the purchased time.
 
     Accordingly, the Company receives all the revenue derived from the
advertising sold during the purchased time, pays certain expenses of the station
and performs other functions. The broadcast station licensee retains
responsibility for ultimate control of the station in accordance with FCC
policies. The Company currently operates 11 stations under TBAs which expire
from May 1998 through October 2005. The financial results of TBA operated
stations have been included in the Company's statements of operations since the
respective date of commencement of the TBA.
 
STOCK-BASED COMPENSATION
 
     The Company's employee stock option plans are accounted for using the
intrinsic value method. The Company also provides disclosure of certain pro
forma information as if the Company's employee stock option plans were accounted
for using the fair value method (see Note 13).
 
INCOME TAXES
 
     The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax bases of the Company's assets and liabilities. An
allowance is recorded, based upon currently available information, when it is
more likely than not that any or all of a deferred tax asset will not be
realized. The provision for income taxes includes taxes currently payable, if
any, plus the net change during the year in deferred tax assets and liabilities
recorded by the Company.
 
PER SHARE DATA
 
     The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"), which require the
retroactive restatement of previously reported earnings per share data. SFAS 128
requires the presentation of basic and diluted earnings per share. Because
 
                                      F-10
<PAGE>   54
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
of losses from continuing operations, the effect of stock options and warrants
is antidilutive. Accordingly, the Company's presentation of diluted earnings per
share is the same as that of basic earnings per share.
 
     Basic and diluted loss per share from continuing operations was computed by
dividing the loss from continuing operations before extraordinary item less
dividends and accretion on redeemable preferred stock and redeemable common
stock warrants by the weighted average number of common shares outstanding
during the period.
 
     Potentially dilutive common shares in the amount of 4,523,210, 8,433,108,
and 10,218,205 for the years ended December 31, 1997, 1996 and 1995,
respectively, have been excluded from the computation of diluted earnings per
share as the effect of their inclusion is antidilutive.
 
USE OF ESTIMATES
 
     The preparation of financial statements 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.
 
RECLASSIFICATIONS
 
     Certain reclassifications have been made to the prior years' financial
statements to conform with the 1997 presentation.
 
2. DISCONTINUED OPERATIONS
 
     During 1997, the Company sold its interests in WTVX-TV and WPBF-TV and thus
discontinued the operations of the Paxson Network-Affiliated Television segment.
The results of operations for the Paxson Network-Affiliated Television segment
through the date of disposition, net of applicable income taxes, have been
reclassified and presented as discontinued operations in the accompanying
Consolidated Statements of Operations for all periods presented. Aggregate
consideration of approximately $119 million was received in conjunction with the
disposition of these operations during the second and third quarters of 1997. Of
the consideration received, approximately $19 million was used to exercise the
Company's option to acquire WTVX-TV from Whitehead Media, Inc. The Company
realized a gain of approximately $69 million from these sales which is net of
brokerage fees and other estimated costs in connection with such sale.
 
     The Paxson Network Affiliated Television operations generated revenues of
approximately $12,319,000, $20,517,000 and $16,537,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
 
     During 1997, the Company also sold substantially all of its Paxson Radio
segment assets for approximately $602 million. The results of operations for
Paxson Radio, net of applicable income taxes, have been presented as
discontinued operations in the accompanying Consolidated Statements of
Operations for all periods presented. The Company realized a gain of
approximately $186 million from the sale of these assets which is net of
applicable income taxes, closing costs and other estimated costs attributable to
the segment disposal. The sale of certain assets was structured as a tax
deferred exchange, permitting the Company to defer a substantial portion of the
gain for tax purposes to the extent the sales proceeds are reinvested in like
kind broadcasting properties during the first quarter of 1998. It is anticipated
that the Company will not pay current taxes on the remaining non-deferred gain
as it has sufficient net operating losses to offset such gain.
 
     Included in operating expenses are approximately $9.7 million of cash
bonuses paid to certain members of the Company's management in connection with
their efforts in assimilating, operating and arranging for the sale of the radio
stations and related properties. Although the payment of such bonuses was
contingent upon the successful disposition of the segment and directly
associated with such disposition, the Company has recorded these amounts as
operating expenses because the actual amount of such payments was discretionary
in nature.
 
                                      F-11
<PAGE>   55
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In order to accelerate the payment of the proceeds from the sales of the
Network Affiliated Television segment and the Paxson Radio segment, the Company
entered into certain bridge agreements with its principal shareholder under
similar terms and conditions to those with the ultimate buyers. As of December
31, 1997, all Network Affiliated Television and Paxson Radio properties under
these bridge agreements had been sold to the ultimate third party. The principal
shareholder did not realize any direct financial benefit from the transactions
with the Company and, in accordance with the terms of the Company's senior
subordinated notes and preferred stock, the Company obtained a written opinion
as to the fairness of such transactions from an independent investment banking
firm.
 
     The Paxson Radio operations generated revenues of approximately
$78,190,000, $82,165,000 and $54,752,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
 
     The net assets of discontinued operations at December 31, 1997 consist of
the assets of two remaining radio stations which are under contract to be sold
for $3,000,000. The components of net assets of discontinued operations included
in the consolidated balance sheets at December 31, 1997 and December 31, 1996,
are as follows:
 
<TABLE>
<CAPTION>
                                                                 1997          1996
                                                              ----------   ------------
<S>                                                           <C>          <C>
Current assets..............................................               $ 23,017,001
Noncurrent assets...........................................  $2,956,042    180,194,830
                                                              ----------   ------------
          Total assets......................................   2,956,042    203,211,831
                                                              ----------   ------------
Current liabilities.........................................          --      8,344,163
Noncurrent liabilities......................................          --      1,576,467
                                                              ----------   ------------
          Total liabilities.................................          --      9,920,630
                                                              ----------   ------------
Total net assets............................................  $2,956,042   $193,291,201
                                                              ==========   ============
</TABLE>
 
3. INVESTMENT IN CABLE NETWORK
 
     On July 11, 1997, the Company, through a wholly-owned unconsolidated
subsidiary, acquired the assets of The Travel Channel ("Travel") from Landmark
Communications, Inc. for aggregate consideration of $75,000,000, including
$55,000,000 of the Company's Class A common stock (4,773,097 shares issued at
closing) and $20,000,000 in cash. The Company also issued 97,632 shares
($1,125,000) of its Class A common stock to Communications Equity Associates,
Inc. in connection with their role as financial advisor in the Travel Channel
transaction (see Note 5).
 
     In November 1997, the Company completed transactions with Discovery
Communications, Inc. ("DCI") whereby the Company received a 30% ownership
interest in a newly formed entity, The Travel Channel, L.L.C. ("Travel L.L.C.")
in exchange for the assets of Travel. DCI effectively contributed $20,000,000
along with certain programming and intangible assets, including operating
services such as sales, affiliations, marketing, promotion and accounting, for a
70% ownership interest in Travel L.L.C. DCI will serve as the managing partner
of Travel L.L.C., overseeing all operations. The Company will receive an annual
consulting fee of $300,000.
 
     The results of operations of Travel and Travel L.L.C. have been included in
the Company's December 31, 1997 consolidated statement of operations using the
equity method of accounting. The investment in cable network balance on the
Company's December 31, 1997 consolidated balance sheet reflects the Company's
issuance of common stock in connection with the Travel acquisition from Landmark
Communications, Inc. discussed above along with closing costs and advances to
Travel prior to the formation of Travel L.L.C. Goodwill of approximately $32.5
million included in the investment in cable network amount is being amortized
over 25 years. For the year ended December 31, 1997 approximately $130,000 was
amortized related to this goodwill.
 
                                      F-12
<PAGE>   56
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4. ACQUISITIONS
 
Acquisitions
 
     During 1997, the Company acquired the assets of seventeen television
stations, for total consideration of approximately $120,290,000, one
network-affiliated television station for total consideration of approximately
$19,001,000 (see Note 2), seven radio stations for total consideration of
approximately $123,014,000 and easements for three billboard locations for total
consideration of approximately $1,500,000.
 
     During 1996, the Company acquired the assets of ten television stations and
eighteen radio stations for total consideration of approximately $165,700,000
and three billboard companies for total consideration of approximately
$21,000,000.
 
     All of the previously described acquisitions have been accounted for using
the purchase method of accounting. Goodwill recorded in connection with the
television acquisitions (approximately $11,388,000 and $2,567,000 in 1997 and
1996, respectively) will be amortized over a period of 25 years.
 
Pro Forma (unaudited)
 
     The Company's results of operations for the years ended December 31, 1997
and 1996 include the results of operations for acquisitions and investments in
television stations from their respective dates of commencement. The following
unaudited pro forma statement of operations data gives effect to the 1997 and
1996 television acquisitions as if they had occurred on January 1, 1996.
Depreciation and amortization has been increased each period to reflect the
initial purchase price allocation on all acquisitions and investments (whether
businesses or assets), and interest expense on associated debt financing as if
such transactions and debt issuance had occurred on January 1, 1996. Pro forma
results of operations for the years ended December 31, 1997 and 1996 exclude the
results of operations of the Company's Network Affiliated Television and Paxson
Radio segment operations sold in 1997 (see Note 2).
 
<TABLE>
<CAPTION>
                                                                     PRO FORMA
                                                                FOR THE YEARS ENDED
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1997          1996
                                                              ----------    ----------
                                                               (IN THOUSANDS, EXCEPT
                                                                 FOR SHARE AMOUNTS)
<S>                                                           <C>           <C>
Revenues....................................................  $   88,421    $   63,738
                                                              ----------    ----------
Operating loss..............................................  $  (26,602)   $  (13,928)
                                                              ----------    ----------
Loss from continuing operations.............................  $  (43,339)   $  (51,357)
                                                              ----------    ----------
Basic and diluted loss per share from continuing operations,
  before extraordinary item.................................  $    (1.18)   $    (1.36)
                                                              ----------    ----------
Pro forma weighted average shares outstanding...............  58,850,806    58,710,426
                                                              ----------    ----------
</TABLE>
 
5. CERTAIN TRANSACTIONS
 
     The Company has entered into certain operating and financing transactions
with related parties as described below.
 
THE CHRISTIAN NETWORK, INC.
 
     The Company has entered into several agreements with The Christian Network,
Inc. and certain of its for profit subsidiaries (individually and collectively
referred to herein as "CNI"). The Christian Network, Inc. is a section 501(c)(3)
not-for-profit corporation to which Mr. Lowell W. Paxson, the majority
stockholder of
 
                                      F-13
<PAGE>   57
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the Company, has been a substantial contributor and of which he was a member of
the Board of Stewards through 1993.
 
     Investment in Broadcast Properties.  At December 31, 1997 and 1996 the
Company had approximately $15.4 million and $12.8 million of advances to CNI
relating to television stations recorded as investments in broadcast properties.
(See Note 9.)
 
     During 1997 and 1996, the Company acquired television stations from CNI in
Miami, Orlando, Tampa, Denver, Milwaukee and Dayton, for total consideration of
approximately $14,000,000 and $17,200,000, respectively.
 
     CNI Agreement.  The Company and CNI entered into an agreement in May 1994
(the "CNI Agreement") under which the Company agreed that, if the tax exempt
status of CNI were jeopardized by virtue of its relationships with the Company
and its subsidiaries, the Company would take certain actions to ensure that
CNI's tax exempt status would no longer be so jeopardized. Such steps could
include, but not be limited to, rescission of one or more transactions or
payment of additional funds by the Company. The Company believes that all of its
agreements with CNI have been on terms as favorable to CNI as it would obtain in
arm's length transactions. The Company intends any future agreements with CNI to
be as favorable to CNI as CNI would obtain in arm's length transactions.
Accordingly, if the Company's activities with CNI are consistent with the terms
governing their relationship, the Company believes that it will not be required
to take any actions under the CNI Agreement. However, there can be no assurance
that the Company will not be required to take any actions under the CNI
Agreement at a material cost to the Company.
 
     Demand Note.  On December 30, 1997, the Company's advances to CNI totaling
$5,485,000 under a demand note bearing interest at the prime rate were repaid
out of the proceeds of television stations sold by CNI to the Company. At
December 31, 1996, amounts outstanding under the demand note to CNI totaled
approximately $2,993,000 and were included in investment in broadcast
properties.
 
     Worship Channel Studio.  CNI and the Company have contracted for the
Company to lease CNI's television production and distribution facility for the
purpose of producing television programming for the Company's television
network. During the years ended December 31, 1997, 1996 and 1995, the Company
incurred rental charges in connection with this agreement of $231,000, $193,000
and $174,000, respectively.
 
AIRCRAFT LEASE
 
     During 1997, the Company entered into a three year aircraft lease with a
company which is owned by Mr. Paxson. The lease is for a Boeing 727 aircraft and
calls for monthly payments of $63,600. In connection with such lease, the
Company incurred rental costs of approximately $382,000 during 1997.
Additionally, the Company has recorded at December 31, 1997 leasehold
improvements of approximately $107,000 in connection with the lease.
 
SPORTS VENTURES
 
     During 1996, the Company invested in various ventures which would own and
operate interests in two Arena Football League teams located in West Palm Beach
and Miami, Florida, an inactive American Hockey League franchise for Palm Beach
County, Florida and a proposed sports arena in West Palm Beach, Florida. During
1996, the Company included in other expenses, net the write-off of approximately
$1,200,000 relating to its investments in the West Palm Beach Arena Football
League team and the proposed sports arena and in connection with its acquisition
of the Arena Football League team in Miami, Florida. During 1997, in conjunction
with the decision to dispose of the Paxson Radio segment, the Company wrote-off
its investments in the remaining sports ventures, resulting in a 1997 charge to
other expenses, net of approximately $2,900,000, which is net of anticipated
proceeds on the sale of the hockey franchise which the Company has contracted to
sell for $2,000,000.
 
                                      F-14
<PAGE>   58
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
HOME SHOPPING NETWORK, INC.
 
     On August 25, 1995, the Company and Mr. Paxson agreed with Home Shopping
Network, Inc. ("HSN") to, among other things, terminate HSN's rights under a
consulting agreement between Mr. Paxson and HSN in consideration of a payment to
HSN by the Company of $1,200,000. Mr. Paxson has agreed with the Company that he
will not compete with the Company for a period ending on December 31, 1999 (the
date that the HSN consulting agreement would have otherwise terminated) or the
date of a change in control (as defined with respect thereto) of the Company. In
connection with its payment to HSN, the Company recorded an intangible asset of
$1,200,000 which is being amortized through December 1999.
 
TODD COMMUNICATIONS, INC.
 
     During June 1996, the Company acquired Todd Communications, Inc. ("Todd
Communications"), a company which owned WFSJ-FM (St. Augustine, Florida) and was
beneficially owned by members of Mr. Paxson's family. The Company gave aggregate
consideration of $5,000,000, consisting of the cancellation of a note receivable
held by the Company from Todd Communications in the principal amount of
$1,822,000, the assumption and immediate repayment by the Company of a note
payable to Mr. Paxson by Todd Communications in the amount of $1,643,000 and the
issuance of shares of Class A Common Stock valued at approximately $1,535,000 to
the shareholders of Todd Communications. During 1996, the Company recognized
approximately $71,000 of interest income on its note receivable from Todd
Communications. The Todd Communications assets were sold as part of the disposal
of the Paxson Radio segment.
 
DP MEDIA, INC.
 
     In connection with the acquisition by DP Media, Inc. (DP Media) of WEBZ-FM,
during September 1996, the Company agreed to loan up to $750,000 to DP Media, a
company beneficially owned by members of Mr. Paxson's family. The loan bore
interest at the rate of 10% and required monthly principal and interest
payments.
 
     During May 1997, the Company sold WWPX-TV to DP Media in exchange for a
$2,470,000 promissory note. Upon its sale to DP Media the station became a
Company network affiliate.
 
     During June 1997, the Company financed DP Media's purchase of WRPX-TV from
Roberts Broadcasting through a loan of approximately $10,000,000 (of which
approximately $7,500,000, which was assumed by DP Media, had been advanced to
Roberts Broadcasting through the date of closing). Upon its sale to DP Media the
station became a Company network affiliate.
 
     During July 1997, the Company entered into contracts to sell its interest
in television stations WPXS-TV and WZPX-TV, serving the St. Louis, Missouri and
Grand Rapids, Michigan markets for $4,800,000 and $7,000,000, respectively, to
DP Media. The sale of WPXS-TV to DP Media was consummated in December 1997. The
sale of the tangible assets of WZPX-TV was transacted separately from the sale
of the FCC license. As of December 31, 1997, the Company had received
approximately $5,250,000 for the sale of the tangible assets, and received
$1,750,000 in January 1998 for the sale of the station license upon receipt of
regulatory approval to transfer the station license.
 
     The DP Media loans for WEBZ-FM, WWPX-TV, and WRPX-TV were repaid to the
Company on July 30, 1997, using proceeds of third party financing obtained by DP
Media from Banque Paribas, an affiliate of a holder of the Company's Junior
preferred stock.
 
     During February 1998, the Company contracted to sell WPXE-TV to DP Media
for $6,000,000. Upon its sale to DP Media the station will become a Company
network affiliate.
 
     During 1997, the Company granted 33,000 fully vested non-qualified stock
options with a fair value of approximately $299,000 to the President and Vice
President of DP Media, members of Mr. Paxson's family, as consideration for past
services as former employees of the Company.
 
                                      F-15
<PAGE>   59
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
CONSULTING AGREEMENT
 
     During 1996, the Company entered into a one year consulting arrangement
with the former Chairman of American Network Group to provide review,
implementation and development consulting services to the Company with respect
to its general and medical insurance programs and policies and executive
insurance, deferred compensation and benefit planning as well as general
financial consulting services. Consulting expense in 1997 and 1996 related to
this agreement totaled $600,000 for each year. This agreement expired in June
1997. The consultant was also granted 75,000 nonqualified stock options with a
fair value of $930,000 during February 1996.
 
BOARD OF DIRECTORS
 
     The Company has entered into transactions with certain members of its Board
of Directors.
 
     Communications Equity Associates, Inc. ("CEA").  The Chairman of the Board
and Chief Executive Officer of CEA had been a director of the Company since
February 1995, resigning in August 1997. The Company engaged CEA as a financial
advisor in connection with private debt and equity placements and various other
lending, acquisition and divestiture services. Fees paid to CEA for these
services totaled approximately $2,365,000, $250,000 and $1,300,000 for the years
ended December 31, 1997, 1996 and 1995, respectively, including $1,125,000 of
the Company's Class A common stock during 1997 in conjunction with The Travel
Channel acquisition.
 
     Stockholders Agreement.  Certain entities controlled by Mr. Paxson and
entities which are affiliates of a former director of the Company are parties to
a stockholders agreement whereby the parties to such agreement were granted
registration rights with respect to certain shares of common stock held by such
parties and the right of first refusal to acquire a pro rata share of any new
securities the Company may issue. Additionally, the stockholders agreement
grants certain cosale rights in the event that Mr. Paxson should sell more than
a predetermined percentage of his ownership interest in the Company.
 
     S. William Scott.  S. William Scott, a director of the Company since
February 1995, had an arrangement with the Company to provide consulting
services to the Company with respect to the development of its news programming
for its radio and television broadcast business and its radio network business.
Mr. Scott was paid approximately $10,000, $81,000 and $80,000 for such services
during the years ended December 31, 1997, 1996 and 1995, respectively.
Additionally, Mr. Scott received benefits under the Company's health and
benefits plan and was granted options to purchase 20,000 shares of stock under
the Company's stock incentive plan. During 1997 the Company hired Mr. Scott and
subsequently named him President of Network Programming, on January 1, 1998. Mr.
Scott resigned as a director of the Company on February 23, 1998.
 
6. PROPERTY AND EQUIPMENT
 
     Property and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                  1997           1996
                                                              ------------   ------------
<S>                                                           <C>            <C>
Broadcasting towers and equipment...........................  $105,585,397   $122,771,345
Office furniture and equipment..............................     6,619,896     12,833,246
Buildings, billboards and leasehold improvements............     7,594,594     21,354,005
Land and land improvements..................................     5,840,840     13,830,692
Aircraft, vehicles and other................................     6,910,458      9,422,324
                                                              ------------   ------------
                                                               132,551,185    180,211,612
Accumulated depreciation....................................   (26,654,312)   (35,796,200)
                                                              ------------   ------------
Property and equipment, net.................................  $105,896,873   $144,415,412
                                                              ============   ============
</TABLE>
 
     Depreciation expense aggregated $19,148,793, $15,197,945 and $10,083,135
for the years ended December 31, 1997, 1996 and 1995, respectively.
 
                                      F-16
<PAGE>   60
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
7. INTANGIBLE ASSETS
 
     Intangible assets consist of the following:
 
<TABLE>
<CAPTION>
                                                                1997           1996
                                                            ------------   ------------
<S>                                                         <C>            <C>
FCC licenses..............................................  $196,268,719   $191,624,748
Goodwill..................................................    18,359,013     36,467,957
Covenants not to compete..................................     3,777,770     17,425,145
Favorable lease and other contracts.......................       437,407      8,598,155
                                                            ------------   ------------
                                                             218,842,909    254,116,005
Accumulated amortization..................................   (13,442,880)   (33,706,584)
                                                            ------------   ------------
Intangible assets, net....................................  $205,400,029   $220,409,421
                                                            ============   ============
</TABLE>
 
     Amortization expense related to intangible assets aggregated $15,208,244,
$10,669,065 and $7,621,848 for the years ended December 31, 1997, 1996 and 1995,
respectively.
 
8. OTHER ASSETS
 
     Other assets consist of the following:
 
<TABLE>
<CAPTION>
                                                                1997           1996
                                                            ------------   ------------
<S>                                                         <C>            <C>
Escrow funds for station acquisitions.....................  $ 37,107,000   $ 10,510,000
Programming deposits......................................    36,682,500             --
Loan origination costs....................................    12,333,649     11,958,684
Other.....................................................     5,303,271      7,630,717
                                                            ------------   ------------
                                                              91,426,420     30,099,401
Accumulated amortization..................................    (3,517,536)    (1,949,702)
                                                            ------------   ------------
                                                            $ 87,908,884   $ 28,149,699
                                                            ============   ============
</TABLE>
 
     Amortization expense related to organization costs and other assets
aggregated $1,153,963, $107,899 and $66,126 for the years ended December 31,
1997, 1996 and 1995, respectively. Additionally, during the years ended December
31, 1997, 1996 and 1995, the Company recorded amortization of loan origination
costs of $1,782,000, $1,643,000 and $948,000, respectively, and classified such
amortization as interest expense.
 
     Loan origination costs of $10,625,727 associated with debt extinguished
through proceeds from the senior subordinated notes are reflected in the 1995
statement of operations as an extraordinary item.
 
9. INVESTMENTS IN BROADCAST PROPERTIES
 
     Investments in broadcast properties represent primarily the Company's
financing of broadcasting asset acquisitions by third party licensees, purchase
options and equity investments in entities owning broadcasting stations or
television construction permits. Interest rates on financing arrangements range
from 7% to 11.875% with loans maturing in five to seven years. In connection
with the financing of acquisitions by third parties, the Company has obtained
the right to provide programming for the related stations pursuant to TBAs and
has obtained options to purchase certain stations. Unpaid principal balances
will be applied toward the acquisition
 
                                      F-17
<PAGE>   61
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
cost upon exercise of purchase options. The Company records interest on certain
investments as received. Investments in broadcast properties consist of:
 
<TABLE>
<CAPTION>
ENTITY                                                           1997          1996
------                                                        -----------   -----------
<S>                                                           <C>           <C>
Roberts Broadcasting........................................  $17,260,394   $ 6,459,163
CNI.........................................................   15,483,364    12,810,087
Cocola Broadcasting.........................................   12,240,934     3,213,122
Ponce-Nicasio Broadcasting..................................    8,630,655     8,549,583
America 51, L.P.............................................    5,480,713            --
Flinn Investments...........................................    4,025,000            --
Kaleidoscope Investments....................................    3,081,000            --
United Broadcast Group......................................           --     3,771,672
Southern Land Investors.....................................           --     4,460,000
Fant Broadcasting...........................................           --     8,068,500
Others......................................................    6,560,135     5,964,895
                                                              -----------   -----------
                                                              $72,762,195   $53,297,022
                                                              ===========   ===========
</TABLE>
 
     During February 1997, the Company sold WHPX-TV to Roberts Broadcasting in
exchange for a $15,000,000 note receivable and entered into a five year time
brokerage agreement to operate the station. The note bears interest at LIBOR
plus 3.5% and has been included by the Company in investments in broadcast
properties. Interest is payable monthly with principal payments commencing
February 1998 and payable monthly in 84 equal installments. The Company
recognized a deferred gain on the sale of approximately $12,100,000 which will
be accreted to income using the installment method.
 
10. LONG-TERM DEBT
 
     Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                                  1997          1996
                                                              ------------   ----------
<S>                                                           <C>            <C>
Revolving credit facility, interest at LIBOR plus 3.00%
  (8.75% to 8.91% at December 31, 1997), maturing June 30,
  2002......................................................  $120,000,000
Mortgage note payable, interest at 10%, repaid in September
  1997......................................................            --   $  167,778
Mortgage note payable, interest at 8.83%, principal and
  interest payment of $8,284 due monthly from June 1995 to
  May 2010..................................................       754,071      784,463
Notes payable, interest at 8.25% to 9.325%, aggregate
  principal and interest payments of $53,129 due monthly,
  maturing at varying dates through June 2003, secured by
  purchased assets..........................................     2,041,332    3,099,956
                                                              ------------   ----------
                                                               122,795,403    4,052,197
Less current portion........................................      (496,378)    (644,509)
                                                              ------------   ----------
                                                              $122,299,025   $3,407,688
                                                              ============   ==========
</TABLE>
 
     Under the terms of its revolving credit facility (the "Credit Facility"),
the Company was required to obtain approval from the lenders under such facility
for the sale of the Paxson Radio segment. Approval of the sale was obtained
under an amendment to the revolving Credit Facility in September 1997. As a
result of the sale of the Paxson Radio assets and the related loss of cash flows
from such assets, borrowings under the revolving Credit Facility were
effectively frozen due to noncompliance with certain leverage ratio covenants.
 
     Under the amended terms of the revolving Credit Facility, amounts
outstanding under the facility at December 31, 1997 bear interest at LIBOR or a
base rate (as defined) plus a margin of 3.5% and 2.25%, respectively. Until the
revised business plan required under the revolving Credit Facility is ratified
by the lenders, the interest rate margins will increase by .5% per quarter
through December 31, 1998. The Company is also required to pay quarterly a
commitment fee of .5% per year on the unborrowed commitment ($75,000,000 at
December 31, 1997). The revolving Credit Facility is secured by substantially
all of the Company's assets.
 
                                      F-18
<PAGE>   62
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     At December 31, 1997, the Company was not in compliance with certain of the
financial covenants under the amended terms of the revolving Credit Facility. In
March 1998, the Company obtained a waiver of such noncompliance from its lenders
and executed an amendment to the terms of the revolving Credit Facility. The
amended terms adjust the covenants of the revolving Credit Facility for the sale
of the Company's Network-Affiliated Television and Paxson Radio segments in 1997
and address the Company's business plan related to the PAX NET launch. In
addition, certain financial covenants were temporarily modified to allow for
anticipated compliance by the Company throughout the remainder of 1998. The
waiver and amendment agreement also requires the Company to use its best efforts
to raise an additional $150 million of equity prior to May 31, 1998 and apply
the net proceeds therefrom to repay the revolving credit facility and requires
the Company to fund $17 million of interest into a cash collateral account for
the benefit of the lenders.
 
     On March 11, 1998, the Company obtained a fully underwritten commitment
(the "Commitment Letter") for a $122 million senior term credit facility
maturing June 2002 (the "Senior Credit Facility") to be used to refinance the
amounts outstanding under its revolving credit facility. Under the terms of the
Commitment Letter, the outstanding debt will be secured by substantially all of
the Company's assets and bear interest at a base rate plus 1.75% or LIBOR plus
2.75%, at the Company's option. The Senior Credit Facility will require the
Company to maintain compliance with certain financial ratios subsequent to March
2000 and will contain other restrictions. Management expects to execute a Senior
Credit Facility pursuant to the terms of the Commitment Letter before May 31,
1998.
 
     The revolving Credit Facility contains a number of covenants that restrict,
among other things, the Company's ability to incur additional indebtedness,
incur liens, make investments, pay dividends or make other restricted payments,
consummate certain asset sales, consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of substantially all of the
assets of the Company.
 
     Aggregate maturities of long-term debt at December 31, 1997 are as follows:
 
<TABLE>
<S>                                                          <C>
1998.......................................................  $    496,378
1999.......................................................       578,748
2000.......................................................    35,396,461
2001.......................................................    42,808,332
2002.......................................................    42,835,083
Thereafter.................................................       680,401
                                                             ------------
                                                             $122,795,403
                                                             ============
</TABLE>
 
11. SENIOR SUBORDINATED NOTES
 
     On September 28, 1995, the Company issued $230,000,000 of senior
subordinated notes (the "Notes") at a discount, netting proceeds of $227,309,000
to the Company. The Company accretes the original issue discount over the term
of the Notes using the effective interest method. At December 31, 1997, the
unamortized discount was $2,041,264 ($2,344,904 in 1996). Interest on the Notes
accrues at 11.625% to yield an effective rate per annum of 11.875%. Interest
payments are payable semiannually on each April 1 and October 1. The principal
balance is due at maturity on October 1, 2002.
 
     The Notes contain certain covenants which, among other things, restrict
additional indebtedness, payment of dividends, stock issuance of subsidiaries,
certain investments and transfers or sales of assets, and provide for the
repurchase of the Notes in the event of a change in control of the Company. The
Notes are general unsecured obligations of the Company subordinate in right of
payment to all existing and future senior indebtedness of the Company and senior
in right to all future subordinated indebtedness of the Company.
 
     The Notes are redeemable at the option of the Company on October 1, 1999,
2000 and 2001 at a redemption price of 104%, 102% and 100%, respectively, of the
outstanding principal amount, plus accrued
 
                                      F-19
<PAGE>   63
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
interest. Additionally, the Company may redeem up to 25% of the original
principal amount of the Notes with proceeds from certain sales of Company stock
or assets at any time prior to October 1, 1998 at a redemption price of 110% of
the outstanding principal amount, plus accrued interest. There are no mandatory
redemption requirements.
 
12. INCOME TAXES
 
     As a result of tax losses incurred by the Company during previous years,
and net operating loss carryforwards available to offset taxable income in 1997,
no current tax provision has been recorded by the Company for the years 1995 to
1997. The deferred benefit (provision) for federal and state income taxes for
the three years ended December 31, 1997, 1996 and 1995 is as follows:
 
<TABLE>
<CAPTION>
                                                  1997            1996          1995
                                              -------------    ----------    ----------
<S>                                           <C>              <C>           <C>
CONTINUING OPERATIONS
  Federal...................................  $  19,576,180    $       --    $1,152,000
  State.....................................      2,303,080            --       128,000
                                              -------------    ----------    ----------
                                              $  21,879,260    $       --    $1,280,000
                                              =============    ==========    ==========
DISCONTINUED OPERATIONS
  Federal...................................  $   1,196,191    $       --    $       --
  State.....................................        140,728            --            --
                                              -------------    ----------    ----------
                                              $   1,336,919    $       --    $       --
                                              =============    ==========    ==========
FROM DISPOSAL OF DISCONTINUED OPERATIONS
  Federal...................................  $(106,440,879)   $       --    $       --
  State.....................................    (12,522,456)           --            --
                                              -------------    ----------    ----------
                                              $(118,963,335)   $       --    $       --
                                              =============    ==========    ==========
</TABLE>
 
     Deferred tax assets and deferred tax liabilities reflect the tax effect of
differences between financial statement carrying amounts and tax bases of assets
and liabilities as follows:
 
<TABLE>
<CAPTION>
                                                              1997            1996
                                                          -------------   -------------
<S>                                                       <C>             <C>
Deferred tax assets:
  Net operating loss carryforwards......................  $  17,505,309   $  24,338,000
  Deferred compensation.................................      7,231,812       6,359,000
  Allowance for doubtful accounts.......................        346,538         599,000
  Alternative minimum tax payments......................        975,000              --
                                                          -------------   -------------
                                                             26,058,659      31,296,000
  Deferred tax asset valuation allowance................     (3,070,754)    (23,615,000)
                                                          -------------   -------------
                                                             22,987,905       7,681,000
Deferred tax liabilities:
  Tax over book depreciation and amortization...........    (13,904,824)     (7,681,000)
  Deferred gain on disposal of discontinued
     operations.........................................   (104,830,237)             --
                                                          -------------   -------------
          Net deferred tax liabilities..................  $ (95,747,156)  $          --
                                                          =============   =============
</TABLE>
 
     The Company and its subsidiaries have filed consolidated tax returns for
all periods subsequent to December 15, 1993.
 
                                      F-20
<PAGE>   64
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The reconciliation of income tax benefit attributable to continuing
operations, computed at the U.S. federal statutory tax rate, to the provision
for income taxes is as follows:
 
<TABLE>
<CAPTION>
                                                    1997          1996           1995
                                                ------------   -----------   ------------
<S>                                             <C>            <C>           <C>
Tax benefit at U.S. federal statutory tax
  rate........................................  $(19,849,954)  $(8,914,000)  $(11,417,000)
State income tax benefit, net of federal
  tax.........................................    (2,335,289)   (1,038,000)    (1,343,000)
Non deductible items..........................       305,983     1,346,000        597,000
Valuation allowance...........................            --     8,606,000     10,883,000
                                                ------------   -----------   ------------
Benefit for income taxes......................  $(21,879,260)  $        --   $ (1,280,000)
                                                ============   ===========   ============
</TABLE>
 
     During 1997, the Company reversed approximately $20,544,000 of its deferred
tax asset valuation allowance in connection with the disposition of discontinued
operations. Accordingly, the benefit of the reversal of this allowance has been
included within the gain on disposal of discontinued operations.
 
As a result of the deferred tax liability created by the tax deferred treatment
of the gain on the sale of the Paxson Radio assets during the fourth quarter of
1997, management believes it is more likely than not that the Company's deferred
tax assets created by such losses will be realized. Accordingly, the Company
recognized a deferred tax benefit from continuing operations in the amount of
approximately $21,879,260 during the fourth quarter of 1997.
 
     The Company has net operating loss carryforwards for income tax purposes
subject to certain carryforward limitations of approximately $46,067,000 at
December 31, 1997 expiring through 2012. A portion of the net operating losses,
amounting to approximately $7,900,000, are limited to annual utilization as a
result of a change in ownership. Additionally, further limitations on the
utilization of the Company's net operating tax loss carryforwards could result
in the event of certain changes in the Company's ownership.
 
     The tax deferral of the gain upon the sale of Paxson Radio, of
approximately $305 million before deferred taxes of approximately $119 million,
could be contested by the Internal Revenue Service ("IRS"). Based on the advise
of counsel, management believes that, in the event of a challenge by the IRS of
these tax positions, it is more likely than not that the Company would prevail.
Should the IRS successfully challenge the Company on these matters, the Company
could be subject to a material current tax liability.
 
13. EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS
 
SAVINGS AND PROFIT SHARING PLAN
 
     The Company has retirement savings and cafeteria plans pursuant to Sections
401(k) and 125 of the Internal Revenue Code which cover substantially all of the
Company's employees. Employer contributions to the retirement savings plan are
discretionary. For the plan years ended December 31, 1997, 1996 and 1995, the
Company made retirement savings contributions of approximately $68,000, $175,000
and $0, respectively. Under the cafeteria plan, employees may elect to
participate in health, dental, life and disability insurance benefit plans
funded through employee payroll deductions.
 
DEFERRED COMPENSATION PLAN
 
     During 1996, the Company established a supplemental deferred compensation
plan for certain key executives. Under this program, participants may defer
certain amounts of their base compensation and receive a corresponding match by
the Company. Participants vest 100% in the company match after five years of
service. Upon retirement, participants shall be eligible to receive from the
Company certain amounts based on the initial deferral and the Company match.
Certain amounts are also due if a participant terminates employment (other than
by his voluntary action or discharge for cause) before attaining retirement age.
The participants in this plan are general creditors of the Company with respect
to the benefits under the plan. The
 
                                      F-21
<PAGE>   65
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
expense associated with this program was approximately $131,200 and $66,000 for
1997 and 1996, respectively. The cash surrender value of the insurance policies
under this program at December 31, 1997 is approximately $366,000 and the total
liability under this program at December 31, 1997 is approximately $370,000.
 
LIFE INSURANCE
 
     The Company maintains a life insurance agreement for the benefit of Mr.
Paxson and his spouse (the "Insureds") whereby the Company contributes to the
payment of premiums on the policy. Upon the death of the survivor of the
Insureds, the Company will be repaid its premium advance. The policy owner will
retain all remaining proceeds. Premiums paid with respect to this policy were
approximately $176,000 and $220,000 for 1997 and 1996, respectively.
 
STOCK INCENTIVE PLANS
 
     In November 1994 and October 1996, the Company established the Stock
Incentive Plan (the "1994 Plan") and the 1996 Stock Incentive Plan (the "1996
Plan"), respectively, to provide incentives to officers, employees and others
who perform services for the Company through awards of options and shares of
restricted stock. Awards granted under each plan are at the discretion of the
Company's Compensation Committee and may be in the form of either incentive or
nonqualified stock options or awards of restricted stock. At December 31, 1997,
27,936 options for shares of Class A common stock were available for additional
awards under the plans.
 
     When options are granted, a non-cash charge representing the difference
between the exercise price and the fair market value of the common stock
underlying the vested options on the date of grant is recorded as option plan
compensation expense with the balance deferred and amortized over the remaining
vesting period. For the years ended December 31, 1997, 1996 and 1995, the
Company recognized approximately $6,500,000, $7,900,000 and $10,800,000,
respectively, of option plan compensation expense and expects to recognize
additional expense of approximately $2,200,000 over the next five years as such
options vest. To date, no awards of shares of restricted stock have been made
under the plans.
 
     Options granted under the 1994 Plan are pursuant to a five year vesting
cycle commencing retroactively to the participant's date of employment or are
exercisable in full at the date of grant. Options granted under the 1996 Plan
are pursuant to a five year vesting cycle commencing January 1, 1996, if the
participant was employed by the Company at January 1, 1996 and January 1, 1997,
if the participant commenced employment with the Company subsequent to January
1, 1996, or, in certain instances, are exercisable in full at the date of grant.
All options granted expire ten years after the date of grant.
 
     A summary of the Company's 1994 and 1996 stock option plans as of December
31, 1997 and 1996 and changes during the years ending on those dates is
presented below:
 
                                      F-22
<PAGE>   66
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                     1997                   1996                   1995
                                             --------------------   --------------------   --------------------
                                                         WEIGHTED               WEIGHTED               WEIGHTED
                                                         AVERAGE                AVERAGE                AVERAGE
                                             NUMBER OF   EXERCISE   NUMBER OF   EXERCISE   NUMBER OF   EXERCISE
                                              OPTIONS     PRICE      OPTIONS     PRICE      OPTIONS     PRICE
                                             ---------   --------   ---------   --------   ---------   --------
<S>                                          <C>         <C>        <C>         <C>        <C>         <C>
Outstanding, beginning of year.............  3,590,693    $3.41     1,752,405    $3.42           --     $  --
Granted....................................   348,018      2.07     2,030,216     3.38     1,847,005     3.42
Forfeited..................................   (65,800)     3.42      (39,000)     3.42       (4,800)     3.42
Exercised..................................  (267,450)     3.42     (152,928)     3.22      (89,800)     3.42
                                             ---------    -----     ---------    -----     ---------    -----
Outstanding, end of year...................  3,605,461    $3.28     3,590,693    $3.41     1,752,405    $3.42
                                             =========    =====     =========    =====     =========    =====
Weighted average fair value of options
  granted during the year..................               $8.39                  $8.23                  $8.66
                                                          =====                  =====                  =====
</TABLE>
 
     The majority of the Company's option grants have been at exercise prices of
$3.42, a price which has historically been below the fair market value of the
underlying common stock at the date of grant.
 
FAIR VALUE DISCLOSURES
 
     Had compensation expense for the Company's option plans been determined
using the fair value method the Company's net income (loss) and net income
(loss) per share would have been as follows:
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                           --------------------------------------------
                                               1997            1996            1995
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Net income (loss):
  As reported............................  $188,412,901    $(48,127,485)   $(46,770,496)
  Pro forma..............................   187,297,693     (50,444,441)    (49,974,777)
Basic and diluted net income (loss) per
  share:
  As reported............................  $       3.50    $      (1.10)   $      (1.36)
  Pro forma..............................          3.48           (1.15)          (1.45)
</TABLE>
 
     The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model assuming a dividend yield of 0.0%,
expected volatility range of 54% to 73%, and risk free interest rates of 6% to
6.9% and weighted average expected option terms of 7.5 years for both periods.
 
     The following tables summarize information about employee and director
stock options at December 31, 1997:
 
OPTIONS OUTSTANDING AND EXERCISABLE
 
<TABLE>
<CAPTION>
                                                                   WEIGHTED
                                                    NUMBER          AVERAGE          NUMBER
                                                OUTSTANDING AT     REMAINING     EXERCISABLE AT
                                                 DECEMBER 31,     CONTRACTUAL     DECEMBER 31,
EXERCISE PRICES                                      1997            LIFE             1997
---------------                                 --------------    -----------    --------------
<S>                                             <C>               <C>            <C>
   $0.01......................................      151,071            2             151,071
   $3.42......................................    3,454,390            6           2,591,390
</TABLE>
 
EMPLOYMENT AGREEMENTS
 
     Mr. Paxson is employed under an employment agreement for a term expiring
December 31, 1999, unless sooner terminated. The agreement provides that Mr.
Paxson's base salary will be $465,850 in 1998 and $500,000 in 1999. In addition
to his base salary, Mr. Paxson may receive an annual bonus at the discretion of,
and in an amount set by, those members of the Compensation Committee who are not
employees of the Company.
 
                                      F-23
<PAGE>   67
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTES RECEIVABLE FROM THE SALE OF STOCK
 
     During December 1996, the Company approved a program under which it would
extend loans to certain members of management for the purchase, in the open
market, of Company common stock by those individuals. The notes are full
recourse promissory notes bearing interest at 5.75% per annum and are
collateralized by the stock purchased with the loan proceeds. Principal and
interest is payable at maturity, March 31, 1999. The outstanding balance on such
loans aggregated $2,813,250 and $1,873,139 at December 31, 1997 and 1996,
respectively, and is reflected as stock subscription notes receivable in the
accompanying balance sheet.
 
14. REDEEMABLE PREFERRED STOCK
 
     The following represents a summary of the changes in the Company's
preferred stock during the three years ended December 31, 1997:
 
<TABLE>
<CAPTION>
                                     REDEEMABLE    REDEEMABLE     REDEEMABLE    REDEEMABLE
                                    EXCHANGEABLE     JUNIOR         SENIOR       SERIES B
                                    ------------   -----------   ------------   -----------
<S>                                 <C>            <C>           <C>            <C>
Balance at December 31, 1994......  $         --   $26,808,053   $ 14,060,054   $ 1,274,671
Issuance of shares................            --            --             --            --
Accretion.........................            --       634,988        332,156       325,208
Accrual of cumulative dividends...            --     4,090,869      2,431,872       752,775
                                    ------------   -----------   ------------   -----------
Balance at December 31, 1995......            --    31,533,910     16,824,082     2,352,654
Issuances.........................   143,197,254            --             --            --
Accretion.........................       159,977       650,084      1,805,599     3,418,615
Accrual of cumulative dividends...     4,571,919     4,596,502      2,374,740       730,066
Redemption premium................            --            --        700,000       250,000
Redemptions.......................            --            --    (21,704,421)   (6,751,335)
                                    ------------   -----------   ------------   -----------
Balance at December 31, 1996......   147,929,150    36,780,496             --            --
Accretion.........................       668,726       665,540             --            --
Accrual of cumulative dividends...    19,778,114     5,164,626             --            --
                                    ------------   -----------   ------------   -----------
Balance at December 31, 1997......  $168,375,990   $42,610,662   $         --   $        --
                                    ============   ===========   ============   ===========
</TABLE>
 
REDEEMABLE EXCHANGEABLE PREFERRED STOCK
 
     The Company issued the Redeemable Exchangeable preferred stock on October
4, 1996 for gross proceeds of $150,000,000. Holders of Redeemable Exchangeable
preferred stock are entitled to cumulative dividends at an annual rate of 12.5%
of the liquidation price, per annum, payable semi-annually beginning April 30,
1997. The Company, at its option, may pay dividends on or before October 31,
2002 either in cash or by the issuance of additional shares of Redeemable
Exchangeable preferred stock.
 
     The Company is required, subject to certain conditions, to redeem all of
the Redeemable Exchangeable preferred stock outstanding on October 31, 2006 plus
accumulated and unpaid dividends to the date of redemption. Additionally, the
Redeemable Exchangeable preferred stock is redeemable, subject to certain
 
                                      F-24
<PAGE>   68
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
restrictions, at the option of the Company on or after October 31, 2001 at the
redemption prices set forth below (expressed as a percentage of liquidation
price):
 
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
BEGINNING OCTOBER 31,
---------------------
<S>                                                           <C>
2001........................................................   106.250%
2002........................................................   104.167%
2003........................................................   102.083%
2004 and thereafter.........................................   100.000%
</TABLE>
 
     The Redeemable Exchangeable preferred stock also requires redemption
features in the event of certain changes in ownership control of the Company.
 
     On or before October 31, 1999, subject to certain restrictions, the Company
may use the proceeds of a Public Equity Offering or a Major Asset Sale, as
defined, to redeem for cash up to an aggregate of 35% of the shares of
Redeemable Exchangeable preferred stock at a redemption price of 112.500% of the
liquidation price of such shares plus accumulated and unpaid dividends.
 
     Subject to certain limitations, the Company may, at its option and provided
it is not contractually prohibited from doing so, exchange the outstanding
Redeemable Exchangeable preferred stock for Exchange Debentures as defined.
Additionally, the Company has agreed to exchange all outstanding Redeemable
Exchangeable preferred stock for Exchange Debentures within 60 days from the
date on which the Company is no longer contractually prohibited from effecting
such exchange.
 
     The Exchange Debentures bear interest at 12.5% per annum and are due
October 31, 2006. The Exchange Debentures have redemption features similar to
those of the Redeemable Exchangeable preferred stock.
 
     During 1997, the Company paid dividends of $20,782,320 by the issuance of
additional shares of Redeemable Exchangeable preferred stock. Cumulative
Redeemable Exchangeable preferred stock dividends in arrears aggregated
$3,567,713 and $4,571,919 at December 31, 1997 and 1996, respectively.
 
REDEEMABLE JUNIOR PREFERRED STOCK
 
     The Company issued the Redeemable Junior preferred stock with 4,853,628
detachable Class C common stock warrants (after giving effect to the stock
dividend during January 1995) on December 22, 1994 for gross proceeds of
$33,000,000. Holders of Redeemable Junior preferred stock are entitled to
cumulative dividends at an annual rate of 12% prior to the seventh anniversary
of the issue date (December 22, 2001), 13% per annum from the seventh through
the eighth anniversary of the issue date (December 22, 2002), and 14% per annum
thereafter. Semi-annual dividend payments are required commencing December 31,
1999.
 
     The Redeemable Junior preferred shares are redeemable, at the option of the
Company, at a 2% premium over the liquidation price thereof, plus unpaid,
deferred, and accrued dividends after the third and prior to the fourth
anniversary of the issue date (December 22, 1998), and at par plus unpaid,
deferred, and accrued dividends on or after the fourth anniversary of the issue
date. The shares are subject to mandatory redemption on the ninth anniversary of
the issue date (December 22, 2003).
 
     Cumulative Redeemable Junior preferred stock dividends in arrears
aggregated $13,949,641 and $8,785,015 at December 31, 1997 and 1996,
respectively.
 
                                      F-25
<PAGE>   69
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
REDEEMABLE SENIOR PREFERRED STOCK
 
     On October 4, 1996, the Company redeemed all of the outstanding shares of
Redeemable Senior preferred stock for an aggregate of $21,704,421. Of this
amount, $700,000 was considered a redemption premium over book value and
accounted for as a preferred stock dividend.
 
REDEEMABLE SERIES B PREFERRED STOCK
 
     On October 4, 1996, the Company redeemed all of the outstanding shares of
Redeemable Series B preferred stock for an aggregate of $6,751,335. Of this
amount, $250,000 was considered a redemption premium over book value and
accounted for as a preferred stock dividend.
 
REDEMPTION FEATURES OF PREFERRED STOCK
 
     The following table presents the redemption value of the two classes of
preferred stock outstanding at December 31, 1997 should each be redeemed in the
indicated year, assuming no dividends are paid prior to redemption, unless
required:
 
<TABLE>
<CAPTION>
                                                                 JUNIOR      EXCHANGEABLE
                                                              PREFERRED(1)   PREFERRED(2)
                                                              ------------   ------------
<S>                                                           <C>            <C>
1998........................................................  $53,412,616             --
1999........................................................   59,102,420             --
2000........................................................   59,102,420             --
2001........................................................   59,102,420    300,494,498
2002........................................................   59,102,420    332,707,505
</TABLE>
 
---------------
 
(1) Mandatorily redeemable on December 22, 2003; redeemable by the Company prior
    to that date.
(2) Redeemable at the option of the Company on or after October 31, 2001. See
    previous discussion for earlier redemption features on up to 35% of the
    shares.
 
15. COMMON STOCK WARRANTS
 
CLASS A AND B COMMON STOCK WARRANTS
 
     In connection with the 1993 Redeemable Senior preferred stock issuance, the
Company issued 225 detachable redeemable common stock purchase warrants. During
April 1996, in connection with the Company's offering of 10.3 million previously
unissued shares of Class A common stock, the holders of the then outstanding
Class A and B warrants surrendered their put provision requiring the Company to
repurchase the warrants. The holders of the warrants are entitled to demand
registration rights and piggyback registration rights following certain
offerings of shares to the public. Additionally, the holders of the warrants
have rights to convert shares of Class B common stock acquired in connection
with the exercise of the warrants to shares of Class A common stock. On April 3,
1996, 32.2319 warrants were exercised for 893,000 shares of Class A common
stock. In July 1997, the holders of the Company's Class A and B common stock
warrants exercised 32.5083 warrants for 900,000 shares of Class A common stock
and in September 1997, exercised 32.5121 warrants for 900,000 shares of Class A
common stock. At December 31, 1997, the Company had 33.1252 Class A and B common
stock warrants still outstanding which entitle the holders to purchase 688,312
Class A common shares and 229,437 Class B common shares.
 
CLASS C COMMON STOCK WARRANTS
 
     In connection with the Redeemable Junior preferred stock issuance on
December 22, 1994, the Company issued 4,853,628 detachable Class C common stock
purchase warrants, entitling the holder to purchase one Class C common share per
warrant at an exercise price of $0.001 per share. Certain holders of these
purchase
 
                                      F-26
<PAGE>   70
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
warrants are entitled to demand registration rights subsequent to the third
anniversary of the issuance date and piggyback registration rights six months
following certain offerings of shares to the public. During 1996, the terms of
the Class C common stock purchase warrants were modified to allow the issuance
of Class A common stock upon exercise of the warrants. Subsequent to such
modification, 2,730,385 Class C common stock warrants were exercised for
2,730,173 shares of Class A common stock. During the quarter ended June 30,
1997, 2,123,243 Class C common stock warrants were exercised for approximately
2,123,047 shares of Class A common stock. At December 31, 1997, no class C
common stock warrants were outstanding.
 
16. COMMON STOCK
 
     The Company has authorized 12,500,000 shares of Class C common stock with a
par value of $0.001 per share. No shares of the Company's Class C common stock
were issued or outstanding at December 31, 1997 or 1996.
 
     On April 3, 1996, the Company sold 10,300,000 previously unissued shares of
its Class A common stock for net proceeds of approximately $154,800,000.
 
     Class A common stock and Class B common stock will vote as a single class
in all matters submitted to a vote of the stockholders, with each share of Class
A common stock entitled to one vote and each share of Class B common stock
entitled to ten votes; Class C common stock is non-voting. Each share of Class B
common stock is convertible, at the option of its holder, into one share of
Class A common stock at any time. Under certain circumstances, Class C common
stock may be converted, at the option of the holder, into Class A common stock.
 
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of December 31,
1997. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and current estimates of fair value may differ significantly from the
amounts presented herein. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practicable to estimate such value:
 
     Cash and cash equivalents, accounts receivable, cash held by qualified
intermediary, accounts payable and accrued expenses.  The fair values
approximate the carrying values due to their short term nature.
 
     Investments in broadcast properties.  The fair value of investments in
broadcast properties is estimated based on recent market sale prices for
comparable stations and/or markets. The fair value approximates the carrying
value.
 
     Long-term debt and Senior subordinated notes.  The fair values of long-term
debt and senior subordinated notes are estimated based on current market rates
and instruments with the same risk and maturities. The fair values approximate
the carrying value.
 
     Mandatorily redeemable securities.  Redeemable preferred stock (Junior and
Exchangeable) is being accreted to its respective redemption values.
 
                                      F-27
<PAGE>   71
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
18. COMMITMENTS AND CONTINGENCIES
 
     The Company incurred total operating expenses of approximately $4,689,000,
$2,876,000 and $1,531,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, under operating leases for broadcasting facilities and equipment,
employment agreements and on-air talent agreements. Future minimum annual
payments under these non-cancelable operating leases and agreements, as of
December 31, 1997, are as follows:
 
<TABLE>
<S>                                                           <C>
1998........................................................  $ 6,236,000
1999........................................................    5,062,000
2000........................................................    3,501,000
2001........................................................    2,962,000
2002........................................................    2,815,000
Thereafter..................................................   10,585,000
                                                              -----------
                                                              $31,161,000
                                                              -----------
</TABLE>
 
     As of December 31, 1997 the Company had entered into TBAs with 11 licensees
which require monthly TBA payments ranging from $2,500 to $1,250,000 and have
effective terms ranging from one to ten years. The Company expects to acquire
four of these TBA stations during the first quarter of 1998, including WPXN-TV
which currently requires a monthly payment of $1,250,000.
 
PROGRAMMING COMMITMENTS
 
     In conjunction with its announced launch of a new broadcast television
network the Company has entered into commitments for broadcast rights related to
programs that are not currently available for broadcast and therefore not
included in the consolidated financial statements. Future minimum annual
payments (including deposits) under these agreements are as follows.
 
<TABLE>
<S>                                                          <C>
1998.......................................................  $ 46,114,015
1999.......................................................    75,202,626
2000.......................................................    71,015,115
2001.......................................................    62,155,787
2002.......................................................    31,723,792
Thereafter.................................................    39,418,667
                                                             ------------
                                                             $325,630,002
                                                             ============
</TABLE>
 
     As of December 31, 1997, the Company had $36,682,500 of broadcast rights
deposits recorded in Other Assets.
 
     The Company has also committed to purchase at similar terms additional
future episodes of these programs should they be made available.
 
                                      F-28
<PAGE>   72
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
INVESTMENT COMMITMENTS
 
     The completion of each of the investments discussed below is subject to a
variety of factors and to the satisfaction of various conditions, and there can
be no assurance that any such investments will be completed. The Company has
agreements to purchase significant assets of, or to enter into time brokerage
and financing arrangements with respect to, the following properties, which are
subject to various conditions, including the receipt of regulatory approvals:
 
<TABLE>
<CAPTION>
STATION                                            MARKET SERVED(*)                COMMITMENT AMOUNT
-------                                            ----------------                -----------------
<S>                                  <C>                                           <C>
WPXN-TV............................  New York, NY(1)                                 $257,500,000
WCFC-TV............................  Chicago, IL(2)                                   135,000,000
WFBI/WCCL..........................  Memphis, TN/New Orleans, LA                       40,000,000
WPXD-TV............................  Detroit, MI(10)                                   35,000,000
Channel 40.........................  Pittsburgh, PA                                    35,000,000
KWPX-TV............................  Seattle, WA(3)(11)                                35,000,000
KBSP-TV............................  Portland, OR(13)                                  30,000,000
KSPX-TV............................  Sacramento, CA(4)                                 17,000,000
WPXP-TV............................  West Palm Beach, FL(6)                            16,635,000
WPXV-TV............................  Norfolk, VA(11)                                   14,750,000
WFHL-TV............................  Champaign, IL                                      9,250,000
WKRP-TV............................  Charleston, WV(7)                                  8,070,000
KPXF-TV............................  Fresno, CA(5)(10)                                  7,960,000
WAUP-TV............................  Syracuse, NY(7)                                    6,750,000
KAJW-TV............................  Phoenix, AZ(7)                                     6,600,000
WQPX-TV............................  Wilkes-Barre, PA                                   6,160,000
Channel 34.........................  Spokane, WA(12)                                    5,676,667
Channel 61.........................  Mobile, AL(12)                                     5,150,000
KAPA-TV............................  Honolulu, HI                                       5,000,000
KPXR-TV............................  Cedar Rapids, IA(8)(10)                            5,000,000
WPXK-TV............................  Knoxville, TN                                      5,000,000
Channel 14.........................  Albuquerque, NM(12)                                4,650,000
WFPX-TV............................  Raleigh, NC(10)                                    4,500,000
WNPX-TV............................  Nashville, TN(10)                                  4,200,000
Channel 21.........................  Shreveport, LA(12)                                 3,939,000
Channel 67.........................  Davenport, IA(12)                                  3,800,000
Channel 39.........................  Des Moines, IA(12)                                 3,750,000
Channel 23.........................  Portland, ME(12)                                   3,550,000
Channel 38.........................  Greenville, NC                                     3,550,000
WAQF-TV............................  Buffalo, NY(9)                                     3,000,000
WLWG-LP............................  Columbus, OH                                       2,500,000
Channel 51.........................  Jackson, MS(12)                                    2,250,000
KWOK-TV............................  San Francisco, CA(2)(6)                            2,215,000
Channel 30.........................  Odessa, TX(12)                                     1,306,000
KVUT-TV............................  Little Rock, AR(7)                                 1,250,000
WDVL-LP............................  Jacksonville, FL                                     600,000
K59ER-LP...........................  Las Vegas, NV(11)                                    500,000
Channel 15.........................  Christiansted, Virgin Islands(12)                    200,000
</TABLE>
 
---------------
 
     In connection with the above commitments, the Company has made deposits or
     advances totaling approximately $74 million at December 31, 1997, recorded
     as escrow deposits or investments in broadcast properties. The Company has
     additional commitments of approximately $13.9 million in connection with a
     pending television station acquisition. The commitment amounts do not
     include capital expenditures required to upgrade or construct the above
     properties.
 
   * Each station is licensed by the FCC to serve a specific community, which is
     included in the listed market.
 
 (1) The Company began operating the station pursuant to a time brokerage
     agreement on June 30, 1997. The Company completed the purchase of this
     station in March 1998.
 
                                      F-29
<PAGE>   73
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
 (2) The Company is acquiring the station for consideration of $120 million
     cash, the Company's interests in KWOK-TV and up to $15 million of
     contingent payments to be determined based upon the seller's ability to
     deliver its programming to the Chicago market via cable carriage post
     closing.
 (3) The station purchase price of $35 million includes $10 million of
     consideration which is contingent upon the subsequent improvement of the
     station's broadcast signal, if feasible.
 (4) The Company has loaned an aggregate of $8,500,000 to KCMY-TV and began
     operating the station pursuant to a time brokerage agreement on October 1,
     1996, pending completion of the acquisition of the station. The loan will
     be applied to the purchase price at the date of closing.
 (5) The Company began operating the station pursuant to a time brokerage
     agreement on June 1, 1997 pending completion of the acquisition of the
     station.
 (6) The Company has entered into various agreements with Cocola Broadcasting,
     its subsidiaries and other parties, whereby, the Company will acquire 100%
     and 90% of the ownership of KWOK-TV and WHBI-TV, respectively.
 (7) The Company has acquired a 49% interest in this property.
 (8) On May 3, 1997, the Company began operating the station pursuant to a time
     brokerage agreement. The purchase price reflects the cash portion only and
     does not include additional consideration of 600,000 shares of Class A
     common stock of the Company.
 (9) Includes the purchase of two low power television stations, W69CS and
     W63BM.
(10) The Company completed the purchase of this station in January 1998.
(11) The Company completed the purchase of this station in February 1998.
(12) The Company participated in FCC settlements and thereby acquired a
     construction permit for this property.
(13) Presently under a letter of intent.
 
GUTHY-RENKER
 
     During 1997, the Company entered into an agreement with Guthy-Renker
Corporation to create transactional, entertainment and direct response
programming. The Company has committed to provide the venture with funding of at
least $3,000,000, of which $600,000 had been advanced as of December 31, 1997.
The parties will share in the revenues generated by this programming.
 
LEGAL PROCEEDINGS
 
     The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the Company's consolidated
financial position or results of operations and cash flows.
 
                                      F-30
<PAGE>   74
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                     FOR THE 1997 QUARTERS ENDED
                                     -----------------------------------------------------------
                                     DECEMBER 31     SEPTEMBER 30      JUNE 30        MARCH 31
                                     ------------    ------------    -----------    ------------
<S>                                  <C>             <C>             <C>            <C>
Total revenue......................  $ 27,168,270    $ 23,778,844    $18,536,999    $ 18,937,340
Operating expenses, less
  depreciation, amortization,
  compensation associated with
  Paxson Radio asset sales and
  option plan compensation.........    26,113,720      20,365,043     14,169,937      14,593,207
Compensation associated with Paxson
  Radio asset sales................     9,700,000              --             --              --
Depreciation and amortization......     7,256,111       5,854,249      4,854,019       4,079,730
Option plan compensation...........     1,215,809         722,166        717,832         714,005
                                     ------------    ------------    -----------    ------------
Operating loss.....................  $(17,117,370)   $ (3,162,614)   $(1,204,789)   $   (449,602)
                                     ============    ============    ===========    ============
Loss from continuing operations....  $ (4,178,923)   $(14,810,071)   $(9,790,548)   $ (7,723,420)
Discontinued operations............   185,065,802      14,553,473     52,309,170        (735,576)
                                     ------------    ------------    -----------    ------------
Net income (loss)..................  $180,886,879    $   (256,598)   $42,518,622    $ (8,458,996)
                                     ============    ============    ===========    ============
Net income (loss) attributable to
  common stock.....................  $174,033,528    $ (6,982,630)   $36,092,638     (14,730,635)
                                     ============    ============    ===========    ============
Basic and diluted earnings per
  share:
  Loss from continuing
     operations....................  $      (0.19)   $      (0.38)   $     (0.33)   $      (0.28)
  Discontinued operations..........  $       3.14    $       0.26    $      1.04    $      (0.02)
  Net income (loss)................  $       2.95    $      (0.12)   $      0.71    $      (0.30)
Weighted average common shares
  outstanding......................    58,980,015      56,835,119     50,495,490      48,777,893
                                     ============    ============    ===========    ============
  Stock price(1)
     High..........................  $    12 1/16    $     14 3/8    $    13 1/8    $     10 1/4
     Low...........................  $     7 3/16    $   10 15/16    $     9 3/4    $    7 15/16
</TABLE>
 
---------------
 
(1) The Company's Class A common stock is listed on the American Stock Exchange
    under the symbol PAX.
 
                                      F-31
<PAGE>   75
                       PAXSON COMMUNICATIONS CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                      FOR THE 1996 QUARTERS ENDED
                                      -----------------------------------------------------------
                                      DECEMBER 31     SEPTEMBER 30      JUNE 30        MARCH 31
                                      ------------    ------------    -----------    ------------
<S>                                   <C>             <C>             <C>            <C>
Total revenue.......................  $ 19,335,060    $14,950,507     $14,994,642    $ 13,052,409
Operating expenses, less
  depreciation, amortization and
  option plan compensation..........    16,076,043     11,740,206      10,061,577       8,486,622
Depreciation and amortization.......     4,339,268      3,576,510       2,636,273       2,335,725
Option plan compensation............     4,629,964        308,200         312,702       1,724,964
                                      ------------    -----------     -----------    ------------
Operating income (loss).............  $ (5,710,215)   $  (674,409)    $ 1,984,090    $    505,098
                                      ============    ===========     ===========    ============
Loss from continuing operations.....  $(14,597,739)   $(6,698,736)    $(2,769,195)   $ (6,369,801)
Discontinued operations.............     2,087,784        995,119       1,382,526        (248,859)
                                      ------------    -----------     -----------    ------------
Net (loss)..........................  $(12,509,955)   $(5,703,617)    $(1,386,669)   $ (6,618,660)
                                      ============    ===========     ===========    ============
Net (loss) attributable to common
  stock.............................  $(24,541,413)   $(8,166,709)    $(3,852,754)   $(11,566,609)
                                      ============    ===========     ===========    ============
Basic and diluted earnings per
  share:
  Loss from continuing operations...  $      (0.56)   $     (0.19)    $     (0.11)   $      (0.32)
  Discontinued operations...........  $       0.04    $      0.02     $      0.03    $      (0.01)
  Net loss..........................  $      (0.52)   $     (0.17)    $     (0.08)   $      (0.33)
Weighted average common shares
  outstanding.......................    47,158,019     46,983,274      46,570,794      34,556,861
                                      ============    ===========     ===========    ============
  Stock price(1)
     High...........................  $     11 1/8    $        13     $    15 3/8    $     21 1/4
     Low............................  $      6 5/8    $   9 11/16     $    10 5/8    $     13 7/8
</TABLE>
 
---------------
 
(1) The Company's Class A common stock is listed on the American Stock Exchange
    under the symbol PAX.
 
                                      F-32
<PAGE>   76
 
                                                                     SCHEDULE II
 
                       PAXSON COMMUNICATIONS CORPORATION
 
                       VALUATION AND QUALIFYING ACCOUNTS
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
        COLUMN A           COLUMN B             COLUMN C               COLUMN D        COLUMN E
        --------           --------             --------               --------        --------
                                               ADDITIONS
                                        ------------------------
                          BALANCES AT   CHARGED TO                                    BALANCE AT
                           BEGINNING    COSTS AND                                       END OF
                            OF YEAR      EXPENSES       OTHER         DEDUCTIONS         YEAR
                          -----------   ----------   -----------     ------------     -----------
<S>                       <C>           <C>          <C>             <C>              <C>
For the year ended
  December 31, 1997
Allowance for doubtful
  accounts..............  $ 1,576,593   $2,011,337   $        --     $ (2,675,989)(1) $   911,941
                          ===========   ==========   ===========     ============     ===========
Deferred tax assets
  valuation allowance...  $23,615,000   $       --   $        --     $(20,544,246)(2) $ 3,070,754
                          ===========   ==========   ===========     ============     ===========
For the year ended
  December 31, 1996
Allowance for doubtful
  accounts..............  $   909,713   $1,287,819   $        --     $   (620,939)(3) $ 1,576,593
                          ===========   ==========   ===========     ============     ===========
Deferred tax assets
  valuation allowance...  $15,009,000   $       --   $ 8,606,000(4)  $         --     $23,615,000
                          ===========   ==========   ===========     ============     ===========
For the year ended
  December 31, 1995
Allowance for doubtful
  accounts..............  $   556,950   $1,098,181   $        --     $   (745,418)(3) $   909,713
                          ===========   ==========   ===========     ============     ===========
Deferred tax assets
  valuation allowance...  $ 4,126,507   $       --   $10,882,493(4)  $         --     $15,009,000
                          ===========   ==========   ===========     ============     ===========
</TABLE>
 
---------------
 
(1) Reflects the impact of the sale of Network-Affiliated Television and Paxson
    Radio receivables in connection with the sales of these segments during 1997
    of $1,495,695 as well as the write off of uncollectible receivables of
    $1,180,294.
(2) Reflects utilization of deferred tax assets generated by net operating loss
    carryforwards to offset non-tax deferred gains on the sale of
    Network-Affiliated Television and Paxson Radio segments during 1997.
(3) Write off of uncollectible receivables.
(4) A valuation allowance related to deferred tax assets.
 
                                      F-33