UNITED STATES
                        SECURITY AND EXCHANGE COMMISSION

                              Washington D.C. 20549

(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

   FOR THE TRANSITION PERIOD FROM ___________________ TO ____________________

                        COMMISSION FILE NUMBER: 333-08935

                   HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                   54-1799019
(STATE OR OTHER JURISDICTION OF            (IRS EMPLOYER IDENTIFICATION)
 INCORPORATION OR ORGANIZATION)  

                           1320 OLD CHAIN BRIDGE ROAD
                                McLEAN, VA 22101

          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                  703-883-1836
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                    COMMON STOCK, $0.001 PAR VALUE PER SHARE

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

      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 regitrant'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. [X]

      As of March 31, 1998, there is not yet a market value for the Registrant's
common stock.

      There were 1,389,314  shares of the  registrant's  Common Stock issued and
outstanding as of March 31, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Part III incorporates information by reference from the Registrant's Proxy
Statement for its 1998 Annual Meeting of  Stockholders  which will be filed with
the Commission not later that 120 days after December 31, 1997.

<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<S>              <C>                                                                                       <C>
PART I
      Item 1.    Business                                                                                   3
      Item 2.    Properties                                                                                19
      Item 3.    Legal Proceedings                                                                         19
      Item 4.    Submission of Matters to Vote of Security Holders                                         19

PART II

      Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters                 19
      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                                26
      Item 8.    Financial Statements and Supplementary Data                                               26
      Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      26

PART III

      Item 10.   Directors and Executive Officers of the Registrant                                        26
      Item 11.   Executive Compensation                                                                    30
      Item 12.   Security Ownership of Certain Beneficial Owners and Management                            30
      Item 13.   Certain Relationship and Related Transactions                                             30

PART IV

      Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K                          30
</TABLE>

                                       2
<PAGE>
                                     PART I

Item 1. BUSINESS

General

         Heartland  Communications  &  Management,   Inc.  (the  "Company")  was
organized  March 27, 1996.  The Company's  offices are located at 1320 Old Chain
Bridge Road -- Suite 220,  McLean,  Virginia 22101,  and its telephone number is
(703) 883-1836.  The Company intends to raise capital,  perform support services
and pursue specific targeted business development opportunities as its basis for
growth and  profitability.  At the present  time,  the Company is offering up to
2,500,000  shares  of  its  Common  Stock  at $5  per  share  for a  maximum  of
$12,500,000 (the "Initial Public Offering).  The Company has identified  several
service and support areas where it intends to establish  profit  centers.  These
include,  but are not  limited  to,  business  areas  such as  radio  talk  show
programming,   newspaper   supplements   and   inserts   publishing   and  other
communications- and management-related  activities. (See "Specific Opportunities
Under  Consideration.") The Company has investigated business  opportunities for
investment and has performed  preliminary due diligence on certain projects.  It
is the intent of management to use a part of the proceeds of the Initial  Public
Offering to continue the due  diligence  process on these  projects  (which will
include third party feasibility studies where management  considers such studies
prudent to complete the required due diligence).

         More   specifically,   the  Company  will  engage  in  the  broad-based
communications   and  media  business,   including  (but  not  limited  to)  the
development,  production,  marketing and  syndication  of  advertising-supported
broadcast  programs and print products.  These products will be designed to meet
the expanding needs of the media business for creative  content -- especially in
those segments,  e.g., AM radio and newspaper  publishing,  in which  syndicated
alternatives to locally-produced  content are financially attractive.  Its radio
operation  will not only assist in the  development  of  programming  by outside
producers,  secure syndication opportunities for them and share in their revenue
but also produce news,  information and talk  programming of its own, the latter
effected through an affiliate,  ATB  Productions,  L.L.C. The Company expects to
own a  specific,  negotiated  portion  (typically  10%  to  60%)  of  the  gross
advertising receipts and/or net income of several radio productions. The Company
contemplates forming one or more of its own satellite-transmitted radio networks
to sell broadcast time to advertisers and talk show hosts.  In addition,  if the
Company provides the associated funding,  the Company has the option to obtain a
50% interest in two prospective  innovative,  national specialty  supplements to
newspapers  designed to appeal to targeted  segments of the mass audience  which
the Company believes are under-served: teens and sports enthusiasts.  Additional
print, broadcast,  Internet-based products,  information services and news media
components,  as  well  as  hybrid  combinations,  also  are  contemplated.  Such
activities  will be  developed  by the Company or will be part of the  Company's
acquisition  strategy and/or management services will be offered to clients on a
fee and/or equity basis.

Introduction

         Though  recently   organized,   many  of  the  Company's   contemplated
activities to be pursued  during the early years of operations  will be based on

                                       3
<PAGE>
opportunities  developed by Heartland  Capital  Corporation  ("HCC"),  a private
merchant banking  business  advisory firm which was incorporated in June 1994 to
pursue a broad spectrum of investment opportunities.  To the date of the Initial
Public   Offering,   HCC   has   concentrated   much   of  its   activities   in
communications-related  businesses,  most  specifically the support of talk show
programs and a contemplated  radio network.  Because of the faster than expected
progress  of HCC's  efforts  in the  communications  arena and the  slower  than
expected  development of other areas, the HCC Board of Directors determined that
the best  strategy was to take an affiliate  public at this time.  Specifically,
the decision was made by HCC to assign all contracts, business opportunities and
performance  obligations meeting certain investment  development criteria to the
Company with existing HCC  shareholders  receiving the same number of shares and
associated  rights  that they  owned in HCC,  including  the  right to  exercise
warrants for Shares of the Company, by paying a variable exercise price (ranging
from $.001 up to $.50 per share).  (Some limited merchant banking activities may
take place in the Company as well.)  Accordingly,  on May 17, 1996, HCC assigned
these opportunities to the Company, which was a wholly-owned  subsidiary on that
date, and HCMI  thereafter  was  responsible  for pursuing  development of these
opportunities.  Because the Company has assumed the rights previously negotiated
and owned by HCC and there continues to be common ownership and management,  the
Company and HCC may be deemed to be affiliated.

         As part of its merchant banking operations,  HCC identifies  investment
opportunities  which can be developed into viable  operations.  Several targeted
opportunities  were  identified  in 1994  and  1995,  including  talk  radio,  a
teen-oriented  supplement to newspapers  and a newspaper  insert aimed at sports
enthusiasts.  The talk  radio  venture  was  furthest  along in the  development
process,  with  HCC  having  provided  a line of  credit  as  well as  marketing
expertise to ATB. The other ventures  identified to date are only  developmental
options.

         HCC has determined that these ventures  cannot be adequately  developed
without  additional  capital and, to that end, on May 17, 1996, HCC assigned its
option (and in the case of ATB, its contract) rights to the Company. Formed as a
wholly-owned  subsidiary  of HCC,  the  Company  received  on May 17,  1996  the
development and contract  rights and obligations and the assumed  responsibility
for costs to be associated with the future  development of these activities.  On
May 18,  1996,  HCC spun  off the  Company  via a  taxable  dividend  to the HCC
stockholders with the Company  replicating the HCC capital structure,  including
replicating  HCC's  outstanding  non-contingent  stock  options and warrants and
issuing 1,394,500 of the Company's  warrants to the HCC preferred  shareholders,
who held  contingent  warrants,  on the  basis of one  warrant  for each two HCC
preferred  shares.  A share of the Company's common stock was issued to each HCC
common and  preferred  shareholder  for each  share of HCC common and  preferred
stock  outstanding  May 18, 1996.  Warrants to purchase the Company's stock were
granted to holders of  non-contingent  HCC stock purchase warrants as of May 17,
1996.  Additionally,  on April  17,  1996,  HCC  itself  was  granted  warrants,
exercisable until April 16, 2001, to purchase  1,236,000 Shares of the Company's
common stock for $.50 per share. The contracts and option rights  transferred to
the Company have no net book value because  development  or servicing the rights
is expected to require a substantial infusion of capital. It is HCMI's intention
to obtain the necessary  capital  through the Initial Public Offering to develop
these rights and associated activities.

                                       4

<PAGE>
         The activities to date  principally  relate to "Newsmaker" with Michael
Foudy and "The Travel  Show" (with Larry Gelwix and Danny  Kramer).  There are a
number of other related talk show programs under  development which are expected
to be added to the existing  line-up,  thereby enabling the Company to develop a
network of its own.  This would permit  stations  around the country to pick and
choose from the  Company's  stable of talk shows.  Such an  arrangement  permits
economies in production  and enhances  cross selling  opportunities  to maximize
advertising revenues and revenues from sponsorship of these programs.

         HCC also has obtained rights to acquire working and/or equity interests
in specialized newspaper  supplements  (described in greater detail in "Specific
Opportunities Under Consideration"); while expected to cost considerably more to
develop, they are believed to be quite promising.  Accordingly, as a function of
the amount of monies  raised,  it is intended that a series of special  interest
supplements be developed and distributed by newspapers  around the country.  The
supplements  can best be  analogized  to the Parade  insert  that goes into many
Sunday  newspapers  around the country.  These new products will be  value-added
supplements  distributed by local  newspapers  either within the newspaper or as
stand-alone  supplements to segments of the non-subscribing  market. The Company
believes  its  proposed  magazine  for teens and a national  sports  weekly have
unique  attributes.  Based upon its market research,  actual  experience  and/or
proprietary  concepts  (including their expected  distribution  through existing
newspapers),  the Company  believes  that a large  readership  can be  developed
relatively quickly. (The "national sports weekly" and "magazine for teens" names
are working titles only;  all materials and editorial  content will be protected
by pertinent trademark and copyright laws.)

         As described in greater  detail under each of the  individual  sections
which follow, the ownership interests will be negotiated  independently for each
activity. For example,  individual radio programs might be based upon a fee or a
percentage of gross  advertising  revenues  generated and/or a percentage of net
profits without any actual ownership in the talk show itself.  In contrast,  the
proposed  magazine  for teens and  national  sports  weekly are  expected  to be
separate  joint  ventures  between the Company and the creators of such concepts
with each party  sharing on a 50/50 basis after all expenses and the Company has
been repaid its original  investment(s).  Such expenses include paying royalties
aggregating 5% annually; during the first five years, the Company will receive a
royalty of 1.25%  annually and its creators (or an entity its creators  control)
will receive 3.75%; thereafter,  the 5% royalty payment will be paid entirely to
its creators (or an entity they control.)

                                       5
<PAGE>
Specific Opportunities Under Consideration

         The Company has  identified  several  projects for which it proposes to
provide funding.  No fixed commitments have been made for any of these projects.
The  projects  listed  below are in different  states of due  diligence  and are
intended  to be pursued  once,  and only if, the funding  contemplated  from the
Initial Public  Offering is achieved and the  appropriate due diligence has been
completed.  Therefore,  at present,  these projects cannot be viewed as probable
acquisitions.  This list is not complete and those  identified below are subject
to being  discontinued if warranted after its due diligence review is concluded.
Management intends to fund projects strictly based on satisfactory completion of
appropriate due diligence and based on investment  guidelines as they may evolve
over time.  Any specific  opportunities  pursued will relate to  communications,
broadcast or print, and/or management activities.

         The Company  intends to consider  many other  development  projects and
intends to continue to raise capital to take  advantage of  opportunities,  thus
providing  income and asset  growth for its  shareholders  based on its  planned
investment  and  development  strategy.  The Company  intends to develop  strict
guidelines for  investment,  first  considering  preservation  of capital,  then
equity  participation  and liquidity.  In most  situations,  it will endeavor to
maintain a preferred  position  with  emphasis on an exit strategy with earnings
and a residual  equity  position.  Actual  liquidation of an investment  will be
based on  management's  assessment  of growth  and  earnings  potential  of each
investment.  However,  investments as suggested herein are inherently risky, and
there can be no  assurance  that these risks can be mitigated to the extent that
losses will not occur.

(1)      Heartland Radio Network

         The Company has  established  radio  program  marketing  and,  directly
and/or through  contractual  arrangements  with ATB,  production (in addition to
station  ownership/operation)  as one of its primary activities.  It will market
those  services to the $11.5  billion  advertiser - supported  commercial  radio
broadcasting market.  (Source:  National Association of Broadcasters 1995 Annual
Report.) The Company has a variety of other communication properties,  broadcast
and/or print, under development and/or consideration.  The Company,  directly or
through ATB,  will  acquire,  create,  develop and own creative  content that it
markets for domestic and  international  broadcasters  with the production being
done by its affiliate, ATB.

         The Company  believes most nationally  syndicated and locally  produced
talk shows  adopt a  conservative  political  slant,  attempting  to emulate the
success of Rush  Limbaugh's  15-year-old  program by appealing to the  so-called
"angry white male" which  typically  feels  under-served by other media outlets.
The  general  tenor of talk  radio  has  therefore  become  negative,  angry and
anti-government, with much of the content provided by listeners themselves. This
has made some advertisers reluctant to advertise on talk radio programming.

         Because talk radio has largely ignored  alternatives  to  conservative,
"sound off" themes,  the Company  believes the potential for talk radio which is
non-partisan and which presents  alternative  viewpoints  emphasizing the search
for solutions to societal  problems  (rather than just  complaining  about those
problems) is  considerable.  (In fact, the Company will test its theory 

                                       6
<PAGE>
that  the  success  of talk  radio  --  which it  believes  strongly  relies  on
participation  by angry or  alienated  listeners  but is cheaper to develop  and
sustain -- may have peaked.) Support for this theory can be found in the success
of  ethnic-oriented  programming and National  Public Radio ("NPR")  programming
such as "All Things  Considered" and "Morning  Edition." The NPR programs air in
morning and  afternoon  drive times;  however,  the  economic  potential of such
programs is largely untested because of their non-profit, non-commercial nature.

         There are approximately 11,500 radio stations in America; about half of
these  are AM  stations,  and most of them are  co-owned  and  operated  with FM
affiliates.  Many AM radio  stations  lose  money;  about  1,200 of them  have a
news/talk  format,  the only  format to  emerge  in the past 20 years  which has
consistently  demonstrated  the  potential for profit on AM stations -- which do
not have the bandwidth required for the successful programming of music formats.
(Source:  Broadcasting & Cable 1996  Yearbook.)  Complicating  this inequity has
been the inclination of packaged goods advertisers to concentrate their messages
on younger  audience  segments,  as they have on television.  Thus, the share of
advertising  revenues  flowing to AM stations has steadily  declined since 1975,
and joint AM/FM  licensees have  concentrated  their energies on FM programming.
Operators spend relatively  little on AM program content.  In fact, almost 1,000
AM operators  merely  "simulcast"  on their AM outlets the  programming  that is
produced on their FM outlets,  although  the Federal  Communications  Commission
("FCC") frowns on the practice.

         The limited local spending on local AM programming content has provided
a major  opportunity for programmers who provide a national service  distributed
inexpensively  by  satellite.  As a result,  AM radio,  once  thought  of as the
prototypically local medium, is today heavily reliant on national programs.

         Most  syndicated  programs  are  provided to the local  affiliate  on a
barter (free, in exchange for advertising time) basis.  Typically,  the national
program receives  one-quarter to one-half of the total commercial time (up to 15
minutes total)  available per hour in exchange for providing the program content
itself.  Some programs are distributed on a cash basis only. Talk radio programs
can  be   broken   down  into   several   categories   --   entertainment/humor,
advice/information, host opinion and listener driven.

         Several  networks  have  sprung  up to  provide  additional  syndicated
programming on a barter basis,  including Talk America, Sun Network,  Chancellor
Radio Network, Talk Radio Network and the Business Radio Network. These networks
typically sell production and  transmission  services to the program hosts,  who
then sell national advertising time to cover their costs.

         Syndicated  talk  shows air from one to six hours per day -- most often
two to three hours -- and most have 15 to 60 local  affiliates.  Most affiliates
are in medium to small  markets  or cover  portions  of  larger  markets  (radio
coverage areas are  substantially  smaller than TV coverage areas).  The Company
believes  station  operators and  programmers  face a paradox in designing  talk
radio  formats.  According to listener  surveys at the station  level and in the
media which cover them,  controversial  programs draw the largest  audiences and
are  therefore  the  most  desirable.   However,   most  nationally   syndicated
advertisers  avoid  controversial  program  formats  for  fear of  having  their
product(s) identified with a particular controversial 

                                       7
<PAGE>
political  viewpoint.  Thus,  nationally  syndicated  talk  shows may have great
difficulty selling their advertising time.

         As a recently formed,  development stage company,  the Company has only
recently begun to have business  activities.  Many of these activities are those
that were  assigned from HCC,  incorporating  pre-existing  business  relations,
contractual  rights and opportunities.  In that context,  ATB has been producing
and  distributing  a number of radio  shows as  described  above or has a number
under  development.  To expand those  activities and to create a focus, the talk
radio  programs  have been cross  marketed to  prospective  radio  stations  and
newspapers under the trade style, the "Heartland Radio Network"  ("HRN").  Under
those  pre-existing  agreements,  ATB enters into the  contracts and the Company
receives  various  percentages  of the gross  revenues  generated.  As described
above, those  interrelated  transactions  constitute an affiliated  relationship
among  the  Company,  ATB  and  HCC.  Because  ATB is an  integral  part  of the
communications  business  contemplated  by the  Company,  it is possible  that a
merger between the two will be affected at some time in the future.  Because the
communications  activities  developed by HCC have already been  spun-off and HCC
will continue to function as a merchant bank in other areas, it is unlikely that
a merger or other combination will occur between the Company and HCC.

         HRN has been formed to take  advantage of the inherent  opportunity  in
this  situation.   Specifically,   ATB  has  obtained  agreements  with  various
nationally  syndicated  talk shows (of the host  opinion and  advice/information
type) and a talk radio network to market their availabilities. By combining buys
in several programs,  the Company can assemble an audience sufficient to justify
an advertising buy for national  advertisers who have minimum  audience-coverage
requirements.  In addition, HRN will work to place advertising in targeted local
talk shows in major markets to assure appropriate coverage.

         By  delivering  sponsors to  struggling  talk show  hosts,  the Company
believes it has the  opportunity  to  demonstrate to those hosts how they can be
financially  and  politically  independent.  The Company  expects the  resulting
increase in diversity of its talk radio  programming by  programmers  seeking to
exploit  targeted  markets will serve to build  audience size and interest.  The
Company believes this will help AM broadcasters  become  financially  viable and
help attract both hosts and  advertisers to the Company and HRN.  Moreover,  the
Company  believes it can assemble a team of  professionals  with  experience and
expertise in media who will assure  quality  programming,  provide  personalized
service to advertisers and develop excellent affiliate relations.

         A  substantial  portion of the  Company's  revenues  initially  will be
generated from the sale of advertising and production  services for broadcast on
its talk show programs in various market niches. Additional broadcasting revenue
will be generated from production  services  agreements and other  miscellaneous
transactions.  Local  advertising  sales will be made by each talk show's  sales
staff  (or that of their  affiliates).  National  advertising  sales are made by
firms  specializing in radio advertising sales on the national level in exchange
for a  commission  from  the  Company  (based  on its  gross  revenues  from the
advertising contained on the respective talk show programs).

         The  Company  believes  that  radio  is one of the most  efficient  and
cost-effective  means for  advertisers  to reach  specific  demographic  groups.

                                       8
<PAGE>
Advertising rates charged by talk shows are based primarily on (i) the program's
penetration of demographic  groups targeted by  advertisers;  (ii) the number of
stations  in the market  competing  for the same  demographic  group;  (iii) the
supply of, and demand for, radio advertising time; and (iv) certain  qualitative
factors.  (Because  of a larger  audience,  rates are  generally  higher  during
morning and afternoon commuting hours.)

         In  large  markets,   where  national  and  regional   advertisers  are
particularly  active,  radio  stations  live  and die on the  strength  of their
ratings.  A station's ability to deliver audiences of specific  demographic type
is evaluated by advertisers and used by their  representatives  when negotiating
advertising contacts with broadcasters. The radio broadcast industry's principal
ratings service is Arbitron,  which  publishes the results of quarterly  ratings
surveys in the largest markets and which maintains  databases on station ratings
in  smaller  markets  as  well,  for  use by  subscribers.  These  survey  data,
contracted  through  Marketron,  are an  important  tool used by the  Company in
fashioning program production  strategies and setting  advertising rates for its
programs.

         Broadcasters in smaller  markets,  and the program  suppliers who serve
them,  frequently  do not  have  Arbitron  data  available  to  them.  Moreover,
broadcasters  in some  cases  ignore  these  data even  when they are  available
because  the  broadcasters   specialize  in  developing  audiences  among  niche
population segments not counted by Arbitron. Ethnic minorities who speak neither
English nor Spanish  constitute a growing  niche  market.  Serving  these market
segments is a growing  business for radio  broadcasters,  particularly  among AM
licensees located on the fringes of major markets.  Typically,  the station rely
on their on-air  personalities to develop their ethnic audience  coverage and to
market  advertising time to local businesses  serving those niches. The stations
sell air time to these  personalities  in  hour-long  blocks  (and  thereby  are
relieved  of the heavy  financial  burden  of  maintaining  their own  staffs of
personalities and advertising sales specialists).

         The Company is assisting  its ATB  affiliate  in entering  this market.
Working  with Texas  businessman,  Fred  Lundgren,  ATB Media,  Inc. - a new ATB
subsidiary  - is  attempting  to acquire  distressed  AM licensed  stations  and
converting  them to block-time  sales  operations.  Lundgren,  a radio  industry
veteran,  is replicating a station conversion formula  successfully  employed in
the Houston  market over the past three  years.  The Company  will earn fees for
arranging  the  financing  for station  acquisition  as well as assisting in the
management  of them and,  as a  consequence,  will  receive  a share of  station
revenues through its contractual relationship with ATB.

         Future  expansion  in this area would  include  producing  programs for
possible television and/or cable television syndication as well.

(2)      Communications Companies Acquisitions

         As  of  this  date,  the  Company  has  been  engaged   principally  in
organizational activities and limited operations.  Nonetheless,  the Company has
identified  a number of  investment  opportunities  that it intends to  continue
investigating  when  capitalized.  While the Company has  performed  limited due
diligence on these projects to date, it intends to continue to investigate  them
(and other opportunities)  adequately as capital becomes available. Any specific
opportunities pursued will relate to communications,  broadcast or print, and/or
management activities.

                                       9
<PAGE>
         The  Company  will   continue  to  identify  (and  expects  to  pursue)
acquisitions  of  communications-related  activities  in  situations  where  the
Company believes it can successfully apply its operating strategy and where such
businesses can be acquired on economically attractive terms. The Company expects
to grow by emphasizing  internal  growth of its business and by making  targeted
acquisitions of companies in the communications sector with above average growth
potential (at least 20%) at prices believed by management to be attractive, even
under-valued,  and which fit synergistically in a regional concept that will aid
in the  targeted  marketing  and  promotion  of the Company -- i.e., a community
newspaper  and a  community  radio  station  working  together  to  cross-market
programs  and products  targeted at specific  demographic  and/or  psychographic
niche markets.  Management will continue to emphasize strategic acquisitions and
dispositions,  internal growth,  operating efficiencies and cost reduction. As a
result,  management  believes that the Company is positioned to achieve internal
growth and to benefit  from the  general  economic  recovery as well as from the
current recovery in the communications industry.

         The Company has had  preliminary  discussions  with a competitive  talk
show network with regard to possible  acquisition.  To date,  those  discussions
would have to be characterized as preliminary.  Nonetheless, it is expected that
once at least $2,000,000 has been raised in the Initial Public  Offering,  those
discussions  could result in future  acquisitions  -- for  example,  other radio
network(s)  or  portions  thereof  and/or at least  access to another  network's
transponder.

         Other  communications  companies  which might be sought  would  include
community  newspapers and  Internet-related  businesses.  (For example, one talk
radio network recently became the first to offer its programming in real time on
the  Internet 7 days a week,  24 hours a day.)  Because of the  current  lack of
funding to actively pursue potential targets, possible future acquisitions might
occur  fairly  rapidly  once the  Initial  Public  Offering  has been  achieved.
Moreover, as a public company, it is possible that Shares of the Company will be
exchanged for interests in those companies or facilities.

         As part of this  strategy,  the  Company  envisions  acquiring  certain
properties.  This is felt to have certain  advantages  under a "cluster"  theory
that  has  proven  quite   successful   for  other   communications   companies.
Specifically,   if  one  advertises  on  talk  radio,   those  same  prospective
advertisers  may want to advertise  in local  newspapers,  particularly  smaller
suburban  newspapers.  This same  principle  can be expanded  to specific  niche
newspapers in certain geographic areas.

         One of the Company's  contemplated  activities is to provide management
in  integrated  marketing  communication  services.  Because  of the  breadth of
experience  of  its  principals,   this  provides   tremendous   cross-marketing
opportunities across the local spectrum of media -- local newspaper and/or radio
and/or  television.  This provides a  cost-effective  mechanism for products and
programs  to be  advertised.  This is  typically  arranged  through  a barter of
certain  time and  space on one  medium  for time and space  for  another.  Such
practices are complementary  rather than competitive since many advertisers want
to  engage in a media mix that is viewed  as  prudent.  For such  services,  the
Company  will  typically be paid the  standard  industry  commission/advertising
agency rate of 15% of the gross value of the transaction.  Accordingly,  even if
the media involved are not  affiliated  and no money changes hands,  the Company
would nonetheless be paid its contemplated commission.

                                       10
<PAGE>
(3)      A National Sports Weekly Magazine

         Because  sports are an integral  part of the American way of life,  the
Company believes those viewing and participating in sports are a very large, but
underserved,  print market  niche.  The Company  believes  sports are  universal
activities that cut across age, sex, income, ethnic and other demographics. Like
the magazine for teens described in the following  section,  the Company intends
to bring the proposed  national  sports weekly to market through a joint venture
with the creators of the concept,  Gerald Garcia  (Executive  Vice President and
formerly President) and Bradford W. Baker  (Secretary-Treasurer  of the Company)
in return for the Company providing needed funding (approximately  $5,037,000 if
the Initial Public Offering is completed).

          The proposed  national sports weekly  (hereinafter  called "NSW") will
use  distribution  channels  similar  to the  proposed  magazine  for teens (see
discussion  following),  thereby  permitting  economies  of  scale.  NSW will be
published  as a  national  medium  for  advertisers  to reach  adults 18 - 54. A
national  sports  weekly  also  would  lend  itself  to  being  co-sponsored  by
commercial networks or companies associated with sports.

         With a staff of top sports  editors  and  writers,  NSW will  provide a
fully  formatted  tabloid-size  magazine to newspapers on a weekly basis.  While
most  people's  first  choice  today  for  printed  information  is their  local
newspapers, those publications cannot afford the staff to report in depth on all
of the major sports  beyond the news of franchise  and college  teams in or near
the newspaper's  coverage area,  much less provide  coverage of the less popular
sports.

         The  Company  anticipates  signing up a  reasonable  percentage  of the
nation's newspapers to distribute NSW. The overhead and production  structure of
NSW is expected to be highly  efficient.  The Company expects it will be able to
offer   advertisers  a  media  product  with  a  high   circulation   at  a  low
cost-per-thousand.  In fact,  the  Company  expects  its  weekly  reach  will be
significantly  higher than other  sports-oriented  media,  including  television
sports shows, but at a cost-per-thousand that is highly competitive.

         For  example,   Parade  Magazine,   printed   independently   and  then
distributed  through  newspapers,  has a  circulation  of  37,614,000.  (Source:
AdWeek's  Guide to  Media,  1995.)  Most  print  publications  are  printed  and
distributed  independently,  resulting in  significantly  lower  circulation and
higher costs. For example, Sports Illustrated's circulation is 3,465,000, Inside
Sports'  circulation  is  675,000,  Sporting  News'  circulation  is 515,000 and
Baseball Weekly's circulation is 303,409. (Source: AdWeek's Guide to Media, 1995
and ABC,  1994.)  While  the  market  penetration  for NSW may not be as high as
Parade  Magazine's  37.614  million  circulation,  the  Company  believes it can
achieve a reasonable penetration rate.

         Network and cable  television  also will be  considered a competitor of
NSW  because  it  is  an   efficient   means  of   reaching  a  large   audience
cost-effectively. At the currently projected cost-per-thousand, NSW rate will be
very  competitive  against all "day parts" (a media term meaning all segments of
the programming day), delivering a readership that may equal or exceed that of a
typical prime time show.

                                       11

<PAGE>
         NSW will be  created  weekly at NSW's  headquarters,  then  distributed
electronically  to subscribing  newspapers.  National  advertising  will be sold
directly by the staff of NSW. Participating newspapers can add local advertising
by either deleting certain identified editorial content or by adding more pages.
These newspapers also can add their own local editorial content, if desired.

         The targeted advertisers for NSW are those companies that have a desire
to generate immediate sales, have a need to disseminate printed information (for
image, couponing,  schedules,  etc.) and who want to supplement their electronic
advertising.

         The Company will commit approximately  $5,037,000 of the Initial Public
Offering's  net  proceeds to create NSW.  The Company has  executed an agreement
with ICON International, Inc., a media barter and trade company, for $11,800,000
in  advertising  placement  over a five year  period.  Based upon the  potential
represented by such agreement, the Company believes NSW is viable.

         Such  funds  will be used for  purposes  relating  to  bringing  NSW to
fruition,   including   research  and  development  to  further   fine-tune  the
competitive  advantages  as well as exposing any potential  obstacles  among the
Company's  three  target  audiences  (newspaper   publishers,   advertisers  and
readers);  hire an editorial and sales staff to create, sell and distribute NSW;
maximize sales with an extensive  advertising and public  relations  campaign to
promote their product; and build customer support services to handle the demands
created by the influx of advertisers and participating  newspapers. In addition,
there will be a negotiated  royalty fee to the copyright owners for the national
sports weekly  concept.  (See last paragraph of  "Introduction.")  However,  the
Company is currently  exploring  potential  strategic  partners for its national
sports weekly.  Should these relationships  develop, the Company's investment in
this venture may be reduced.

(4)      A Magazine for Teens

         The  Company  intends  to create a  magazine  for teens  which  will be
developed for the purpose of delivering a cost-effective  medium for advertisers
to reach the  targeted  teen and  pre-teen  (ages 11 - 18)  market.  The Company
intends to bring such magazine for teens to market  through a joint venture with
the  creators of the  concept,  Gerald  Garcia  (Executive  Vice  President  and
formerly President of the Company) and Bradford W. Baker (Secretary-Treasurer of
the Company) in return for the needed funding (approximately $2,300,000).

         While there have been  electronic  means (such as MTV) to reach the $60
billion teen market (Source:  AdWeek's Guide to Media, 1995), the Company is not
aware of one national print  publication  that can reach a large audience at one
time.  Similarly,  a 1994 survey  reported that  teenagers  spend their money on
food, electronics,  entertainment and health and beauty aids. (Source:  Find/SVP
1994.) Advertisers also desire to establish a relationship with teens because of
not only their buying power but also their influence on household purchases. The
Find/SVP 1994 study revealed teenagers  influence  household purchases amounting
to more than $161 billion annually.

         The Company is now in the  development  phase of a magazine  for teens.
From 1989 to 1991,  Xpress was published for the Knoxville,  Tennessee area teen
market  as a joint  venture  between  the  Knoxville  Journal  and The  Creative

                                       12
<PAGE>
Network,   Inc.,  and  its  two  principals,   Garcia  and  Baker.  (Xpress  was
discontinued in 1991 after the sale of the Knoxville Journal). Originally tested
as a monthly, the magazine was distributed in East Tennessee schools. Written by
and for students,  Xpress was the first publication of its kind. Teen acceptance
was  extremely  high  with a  circulation  of more  than  20,000  monthly.  This
publication  also set new standards in the field of computerized  pre-production
-- e.g., Xpress was one of the first  publications in the country to be produced
entirely on computer.

         The  proposed  magazine  for  teens  will be aimed at  middle  and high
schools  (grades 7-12) and will be published  weekly.  It will be created at the
magazine's   headquarters,   then  distributed   electronically  to  subscribing
newspapers  which will distribute it to students at schools in their market area
as part of their "Newspapers in Education" program.

         National   advertising   will  be  sold   directly  by  the   magazine.
Participating  newspapers can add local  advertising by either deleting  certain
identified  editorial content or by adding  additional  pages.  These newspapers
also can add their own local editorial content, if desired.

         The targeted advertisers for the magazine are those companies that have
a desire to reach the affluent teen market -- companies such as Coca-Cola,  Taco
Bell, Pepsi, Levi's,  Blockbuster,  The Gap and McDonald's. The Company believes
it can attract  advertisers  who know teens spend  (especially  when it comes to
food, clothes and fun) and help such advertising  entities to generate immediate
sales and establish  future brand loyalty.  In turn,  this influences the buying
decisions  of  parents  of teens.  According  to  market  research,  teens  have
increasingly more money to spend, do a  disproportionately  large portion of the
family  shopping  and are  more  apt to try a new  product  than  would be their
parents. (Source: Find/SVP Study, 1994.) The Company business plan was developed
on the  premise  that the  magazine  will  permit  the  Company to tap into such
favorable demographics.

         Future product development by the Company will include the targeting of
other  demographic  niche market groups such as 50+ adults,  African  Americans,
Hispanics  and  Native  Americans,  as  well  as  other  products  that  can  be
distributed in a manner similar to the magazine.

         The Company  will commit a portion of the Initial  Public  Offering to:
create the magazine for teens,  including hiring an initial  editorial and sales
staff to  create,  distribute  and sell the  magazine;  maximize  sales  with an
extensive  campaign to promote the magazine;  build customer support services to
handle  the  demands  created  by the influx of  advertisers  and  participating
newspapers; and use research and development to create other products capable of
being  distributed  through  pre-existing  newspaper  networks.  In addition,  a
negotiated  royalty fee for the magazine's concept will be paid to its copyright
owners.

         There is no niche market  teen-oriented  national  publication that can
reach a large teen audience. Magazines such as Sassy and Seventeen reach at best
1.9 million subscribers per issue and are targeted to females. (Source: AdWeek's
Guide to Media,  1995.) There are even fewer  choices in male teen  publications
(Boy's  Life and Sports  Illustrated  for Kids),  reaching  only  1,300,000  and
950,000, respectively. (Source: AdWeek's Guide to Media, 1995.) Electronic media
have been successful at reaching teens;  however,  their reach is generally less
than   commonly   perceived  --  for  example,   MTV's   audience  is  currently
approximately  328,000 per quarter  hour  between  1:00 

                                       13
<PAGE>
a.m.  and 3:00 a.m.  and 656,200  between 7:00 p.m. and  3:00 a.m. (Source: A.C.
Nielsen, 1995.)

         While  the  Company  believes  the  magazine  for  teens  will  be more
interactive and wider-reaching than MTV-like products,  it is also complementary
with them (since the magazine is a printed product) with respect to their use by
major  advertisers.  For  example,  the  magazine's  printed  format  allows for
couponing and can be used as a cross-selling device.

         Xpress was  distributed  in Knoxville to 90% of the high schools (18 of
20) and 83% (20,000 of 24,000) of the students at those  schools  actually  read
it.  (Source:  Knoxville  Journal,  1991.)  While the  market  penetration  on a
national basis is not expected to be as high as in the Knoxville experience, the
Company believes a reasonable  penetration rate of the targeted 37 million,  $60
billion teen audience can be achieved. (Source: Ad Week's Guide to Media, 1995.)

(5)      Management and Marketing Services

         While currently a limited activity of the Company,  it is expected that
integrated  communications management services will constitute a growing portion
of the  Company's  business.  Once  funding  is in  place,  for  example,  it is
anticipated  that new  personnel  will be engaged to  complement  the  Company's
existing  personnel.  The  contemplated  activities  would  be  associated  with
representing clients for cash fees (and possible equity-based)  compensation for
management  advisory  services.  Because the  Company  intends to embark upon an
active  acquisition  strategy,  it is felt that these  management and consulting
services would  complement the Company's other activities since it would already
be seeking comparable information and generally be in the "information flow." It
is believed  attractive  economies for upcoming business activities will result,
thereby  permitting the Company to acquire  poorly managed  companies that could
benefit from professional management techniques.

         One of the Company's  contemplated  activities is to provide management
in  integrated  marketing  communication  services.  Because  of the  breadth of
experience  of  its  principals,   the  Company  believes  there  are  promising
cross-marketing  opportunities  across  the  local  spectrum  of  media -- local
newspaper  and/or  radio  and/or  television.  This  provides  a cost  effective
mechanism for products and programs to be advertised. This is typically arranged
through  a barter of  certain  time and space on one media for time and space on
another.  Such practices are  complementary  rather than competitive  since many
advertisers  want to engage in a media mix that is viewed as  prudent.  For such
services,   the  Company  will   typically   be  paid  the   standard   industry
commission/advertising agency rate of 15% of the gross value of the transaction.
Accordingly,  even if the media involved are not affiliated and no money changes
hands, the Company would nonetheless be paid its contemplated commission.

         The Company believes this will introduce  attractive economies because,
once an advertiser  uses a particular  medium,  it is a good candidate for doing
more  advertising  on related  medium and  programming  in the  community.  This
approach also ties into the phenomenon that most advertising (approximately 53%)
is done in print and the  balance is  allocated  between  television,  radio and
other media.  (Source:  Advertising Age,  September 1995.) (See  "Communications
Companies Acquisitions.")

                                       14

<PAGE>
         One of the principal  functions of the marketing services function will
be  to  develop  marketing   concepts,   ideas  and  strategies  for  a  fee  to
non-affiliated  entities.  This will  constitute  the  generator  of new revenue
sources and provide  value-added  service to advertisers on the Company's  radio
programming.  It is believed  that the Company  can  develop new  marketing  and
promotion strategies based upon this basic concept.

      In the same vein, much of the Company's  strategy is to avoid  traditional
distribution  networks  but rather to deliver  directly  in bulk -- whether  the
proposed magazine for teens, a contemplated  national sports weekly or any other
specialty publication. This permits the Company to get incremental returns in an
existing market with little or no costs.

Employees

      As of December 31. 1997,  the Company had one  full-time and two part-time
employees,  all of  whom  are  located  in its  Virginia  offices.  None of such
employees  is  represented  by  employee  union(s).  The  Company  believes  its
relations with all of its employees are good.

Additional Business Risks

     The  Company's  business is subject to the  following  risks in addition to
those discussed above and elsewhere in this report.

(1) Limited History Of Operation; Net Losses To Date. While activities (teen and
sports week weekly supplements) in preparation have been assigned to the Company
from an affiliate,  Heartland Capital  Corporation,  the Company is in the early
stage of development and has only a limited history of operations  which through
December 31, 1997, have generated  aggregate losses of $. To the extent that the
Company  implements its business plan, the Company's business will be subject to
all of the  problems,  expenses,  delays and risks  inherent  in a new  business
enterprise (including limited capital,  delays in program development,  possible
cost overruns,  uncertain market acceptance and a limited operating history). In
addition, the Company's future success will depend upon many factors,  including
those which may be beyond its control or which cannot be predicted at this time,
such as increased  levels of competition  (including the emergence of additional
competitors,  changes in economic conditions,  emergence of new technologies and
changes in governmental regulations).

(2) Going  Concern  Report Of  Independent  Certified  Public  Accountants.  The
factors   described  above  in  "Limited  History  Of  Operations;   Activities'
Historical Net Losses" raise  substantial  doubt about the Company's  ability to
continue  as a going  concern.  In this  regard,  See the Report of  Independent
Certified  Public  Accountants  accompanying  the  Company's  audited  financial
statements  appearing  elsewhere herein which cites  substantial doubt about the
Company's ability to continue as a going concern. There can be no assurance that
the Company will achieve  profitability in the future, if at all. As a result of
these and other factors,  there can be no assurance that the Company's  proposed
activities  and/or  acquisitions  will be successful or that the Company will be
able to achieve or  maintain  profitable  operations.  If the  Company  fails to
achieve  profitability,  its growth  strategies  could be  materially  adversely
affected. (See "Management's  Discussion And Analysis Of Financial Condition And
Prospective Results Of Operations.")

                                       15

<PAGE>
(3) Need  For  Additional  Capital.  The  Company's  capital  resources  are not
adequate to fully  implement  its  business  plan.  While  $12,500,000  from the
Initial Public Offering would be sufficient to pursue the specific opportunities
already  targeted and  described  above,  such amount would not be sufficient to
pursue the Company's larger business plan - e.g. embarking on a major program of
acquiring  communications  companies.  Hence,  as is true  for  other  companies
contemplating  significant  growth,  in due course the  Company is  expected  to
require additional financing. There can be no assurance that any such additional
financing  that is  required  will  be  available  to the  Company  if and  when
required,  or on  terms  acceptable  to the  Company,  or that  such  additional
financing, if available,  would not result in substantial dilution of the equity
interests of existing Shareholders.

(4)  Minimum/Maximum   Offering.  While  $12,500,000  is  the  maximum  offering
contemplated  in the  Initial  Public  Offering,  it is subject to a  $2,000,000
minimum. If such minimum is not achieved during the up to nine (9) month Initial
Offering  Period,  any  subscription  proceeds  will be returned  (with pro rata
interest based on amount and timing of the  subscription) to subscribers and the
offering will be terminated. If the minimum is achieved, the Company believes it
will have  sufficient  funds for 12 to 18 months of  operation  but at a reduced
level than would be the case, of course, for the maximum offering.

(5) Possible Adverse Impact Of Penny Stock Regulation.  The Shares being offered
in the Initial  Public  Offering  are  subject to the  low-priced  security  (or
so-called   "penny   stock")  rules  that  impose   additional   sales  practice
requirements on  broker-dealers  who sell such  securities.  For any transaction
involving a penny stock,  the rules  require  (among other things) the delivery,
prior to the transaction,  of a disclosure  schedule  required by the Securities
and Exchange  Commission  relating to the penny stock market.  The broker-dealer
also must disclose the  commissions  payable to both the  broker-dealer  and the
registered  representative and current  quotations for the securities.  Finally,
monthly  statements  must be sent  disclosing  recent price  information for the
penny  stocks  held  in  the   customer's   account.   Because  the  Shares  are
characterized  as a penny stock,  the market  liquidity  for the Shares could be
severely  affected.  In such an event, the regulations  relating to penny stocks
could limit the ability of  broker-dealers  to sell the Shares  and,  thus,  the
ability of  purchasers  in this  offering to sell their Shares in the  secondary
market.

(6) Reliance On  Management.  Although  members of management  have  significant
experience  and expertise in the  identification,  acquisition  and operation of
various  businesses,  none  of  its  members  previously  has  operated  such  a
broad-based  communications and management company. Investors will have no right
or  power  to take  part in or  direct  the  management  of the  Company.  Thus,
purchasers  of the Shares  offered  hereby will be  entrusting  the funds to the
Company's  management,  upon whose judgment the investors must depend, with only
limited information concerning management's specific intentions. Accordingly, no
investor  should  purchase Shares unless such investor is willing to entrust all
aspects of the  Company's  management,  including  the  selection of  businesses
and/or companies to acquire, to its officers and/or directors. This includes the
fact that Shareholders will not be given the opportunity to vote on acquisitions
or  review  the  associated   financials  prior  to  such   transactions   being
consummated.  This  potential risk is even more important in this offering since
(i) the Company's  business is  dependent,  to a  significant  degree,  upon the
performance  of certain key  individuals,  the  departure or disabling of any of
whom could have a material adverse effect on the Company's  performance and (ii)
none of those key persons is required to devote their  services  exclusively  to
the Company. (See "The Company - Remuneration.") The Company has entered into an
employment agreement (which

                                       16
<PAGE>
contains  non-compete  provisions) with each of Michael L. Foudy, Gerald Garcia,
Bradford W. Baker and Bradley B.  Niemcek;  the loss of the services of any such
key personnel could have a material adverse effect upon the Company. The Company
maintains key man life  insurance of $1,000,000 on Mr. Foudy.  These  employment
agreements contain non-compete  provisions;  however,  there can be no assurance
that the Company  will be able to retain  such  employees  or prevent  them from
competing with the Company in the event of their departure.

(7)  Additional  Investment  Opportunities.  As a result of the  Initial  Public
Offering, the Company is expected to experience significant expansion, including
expansion into certain  activities  which neither the Company nor its management
has previously operated. (See "The Company" generally.) In addition, the Company
is pursuing  additional  opportunities  for expansion through the acquisition of
additional  communications  and/or  management  companies  and,  to that end, is
expected to be regularly  involved in discussions  with third parties  regarding
potential  acquisitions.  Although no agreements have been reached regarding any
such  potential  acquisition,  in light of the  Company's  pursuit of additional
acquisitions  and  funding in this and future  offerings,  it is likely that the
Company will experience  significant expansion in the future. It is possible (as
a  result  of  these  recent  preliminary  activities  -- and  potential  future
acquisitions) that the Company's  management will be required to manage a larger
business  operation  than  historically  has  been  the  case.  There  can be no
assurance  that  the  Company  will  be  able  to   effectively   implement  the
organizational   and  operational   systems  necessary  for  optimal  management
integration of its expanded portfolio of activities.

(8) Unspecified Future Acquisitions.  Contemplated future acquisitions are fully
within the  discretion of management  and are not subject to  Shareholder  prior
review of financials  and/or  approval before being  consummated.  To expand its
market and diversify its business mix, the Company's  business strategy includes
growth through  acquisitions  and  investments.  (See "The Company"  generally.)
There can be no assurance  that future  acquisitions  will be available  and, if
they are,  will be  consummated  on terms  favorable  to the Company or that any
newly acquired  companies  will be  successfully  integrated  into the Company's
operations.  The Company  may use equity or incur  long-term  indebtedness  or a
combination  thereof  for all or a portion  of the  consideration  to be paid in
conjunction with any future acquisitions.

(9) Conflicts Of Interest.  Certain inherent and potential conflicts of interest
exist with respect to operations of the Company's business.  These include:  (i)
the  interest  of  certain  current  or former  affiliates  in the  contemplated
activities of the Company;  (ii) certain  members of management are not required
to devote  full time to the  company's  activities;  and (iii)  there are, as of
March 31, 1998, significant overlapping ownership interests between the Company,
HCC,  ATB  Productions,  L.L.C.  ("ATB")  and Xpress  Ventures,  Inc.  (See "The
Company".)

(10)  Competition.  The Company's  business plan spans a variety of  businesses,
many of which overlap and are highly competitive.  The Company faces substantial
competition from a number of well-established,  well-financed companies, many of
whom have greater resources and are more established than the Company. Increased
competition by existing and future  competitors  could  materially and adversely
affect the  Company's  ability to achieve  profitability.  For  example,  to the
extent that ownership of radio stations is consolidated among only a few owners,
there may be a reduction in the market for  independently  produced programs the
Company has  developed or will  develop.  In addition,  as the Company  seeks to
increase market penetration, its success will depend, in part, on its ability to
gain market share from established competitors. For example, the success of each
of the Company's  talk show  activities is dependent,  to a significant  degree,
upon its audience 

                                       17
<PAGE>
ratings  and  share  of the  overall  advertising  revenue  within  its  market.
Similarly,  the  broadcasting  and  newspaper  publishing  industry  are  highly
competitive  businesses.  The Company will compete for listeners  and/or readers
and  advertising  revenue  directly with other radio  networks,  print and other
media,  within their  respective  markets.  The Company's  audience  ratings and
market  share are  subject to change,  and any  adverse  change in a  particular
market  could have a material  and adverse  effect on the revenue of the Company
and/or publishers located in that market. There can be no assurance that any one
of the Company's properties will be able to attain, maintain and/or increase its
current audience ratings,  readership and advertising revenue market share. (See
"The Company" generally.)

(11)  Possible  Strategic  Relationships.  The Company is currently  negotiating
various  strategic  alliances.  If  successful,  such  alliances are expected to
dramatically  reduce the  Company's  need for capital  and result in  additional
acquisitions and expanding of existing activity.  (See "The Company" generally.)
while  there  can be no  assurance  that  such  strategic  relationships  can be
achieved,  in  fact,  the  Company  has  entered  into an  agreement  with  ICON
International,  Inc. relating to advertising in Xpress Ventures' national sports
weekly.

(12) Market Studies;  Due Diligence  Reviews.  In formulating its business plan,
the Company has relied on the  judgment of  management.  No formal,  independent
market  studies  concerning the demand for the Company's  proposed  products and
services  have been  conducted;  however,  market  studies  are  expected  to be
employed in the future. Moreover,  directly or indirectly,  the Company will use
certain  proceeds  of its  initial  public  offering  to  perform  on-going  due
diligence  with regard to its proposed  activities  and/or  contemplated  future
acquisitions.  While the Company's  business plan is believed  feasible,  to the
extent  that the  Company  determines  any or part of its  business  plan is not
feasible,  the Company will be unable to develop in accordance with its business
plan and investors may lose all or a portion of their investment in the Company.

(13) Dividends At Discretion Of  Management;  No Current Plans To Pay Dividends.
Dividends,  if any, to  Shareholders  are in the  discretion of  management.  To
conserve funds for its  contemplated  activities,  management does not presently
intend  to pay  dividends.  In  fact,  the  Company  anticipates  that,  for the
foreseeable  future,  it will  continue  to retain any  earnings  for use in the
operation of its businesses. Moreover, the Company may be restricted from paying
dividends  to  its   Shareholders   under  future  credit  or  other   financing
agreement(s).

(14) Cyclicality.  Advertising  revenues of the Company, as well as those of the
media  generally,  are  often  cyclical  and  dependent  upon  general  economic
conditions. Historically, advertising revenues have increased with the beginning
of an economic  recovery,  principally with increases in classified  advertising
for employment, housing and automobiles.  Decreases in advertising revenues have
historically   corresponded   with  general  economic   downturns  and  regional
recessions  and  local  conditions.   Management  believes,  however,  that  the
Company's pricing strategies, distribution, production cost structure, marketing
strategy and management's experience mitigate, to some degree, the effects of an
economic downturn to the extent such downturn is regional. Moreover, the diverse
nature of its  targeted  businesses  -- talk  radio,  a  satellite  distribution
system, targeted print products, management and marketing services, Internet and
related media  components  -- should  reduce the cyclical risk often  associated
with communications companies.

(15)  Control  By  The  Principal  Stockholders.  Prior  to the  Initial  Public
Offering,  individual  officers,  directors and more than 10% shareholders  (the
"Principal  Stockholders")  owned in the  aggregate  approximately  42.3% of the
Shares.   Upon  completion  of  the  Initial  Public  Offering,   the  Principal
Stockholders'  and their

                                       18
<PAGE>
affiliates' aggregate ownership Shares in the Company will permit them to retain
approximately  33.3% of the Shares,  assuming the $12,500,000 maximum is raised.
Consequently,  the Principal Stockholders may be able to effectively control the
outcome  on all  matters  submitted  for a vote  to the  Company's  stockholders
(particularly  if  significantly  less than the $12,500,000  maximum is raised).
Specifically,  at least initially,  the Principal  Stockholders  will be able to
elect all of the Company's directors. Such control by the Principal Stockholders
may have the effect of discouraging  certain types of transactions  involving an
actual or potential change of control of the Company,  including transactions in
which holders of Shares might otherwise  receive a premium for their Shares over
then current market prices.

(16) Radio and Television  Broadcasting  Industry Subject To Federal Regulation.
The radio and  television  broadcasting  industries are subject to regulation by
the FCC under the  Communications  Act of 1934, as amended (the  "Communications
Act"). Approval of the FCC is required for the issuance,  renewal or transfer of
radio and television broadcast station operating licenses. Because the Company's
current plans  contemplate  marketing for  licensees  (rather than  ownership of
stations),  those FCC  requirements  are  expected to have little  effect on the
Company for the foreseeable future. It should be noted that Congress and the FCC
may in the future  adopt new laws,  regulations  and  policies  regarding a wide
variety of matters (including  technological  changes) which could,  directly or
indirectly, affect the operations and ownership of the Company. For example, the
Telecommunications  Act of 1995 relaxes the current  limitations  imposed on the
number and  location  of  broadcasting  properties  that may be owned by any one
person or entity; such regulations had not permitted any person or entity to own
more than two FM or two AM radio  stations  in any one market  over a  specified
size  or in  excess  of 20 FM and 20 AM  radio  stations  in the  aggregate  and
restricted   ownership  of  licensed  properties  by  foreign  nationals.   (See
"Competition" above.)

Item 2.         PROPERTIES

     The Company rents its office facilities at market rates. Such leased office
space  is  adequate,  the  Company  believes,  to  satisfy  its  needs  for  the
foreseeable future.

Item 3.         LEGAL PROCEEDINGS

     There  has  not  been  any  material  civil,   administrative  or  criminal
proceedings  concluded,  pending  or  on  appeal  against  the  Company  or  its
affiliates and principals.

Item 4.         SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 1997 fiscal year.

                                     PART II

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

     In  connection  with the  Initial  Public  Offering,  the  Company  filed a
Registration  Statement on Form S-1, SEC File No.  333-8935,  which was declared
effective by the Commission on February 13, 1998.


                                       19
<PAGE>
     As of March 31,  1998,  the  Company's  shares are being  offered on a best
effort basis by Northridge Capital  Corporation and other selected brokers.  The
Company is in the preliminary  stages of its Initial Public Offering and has not
yet begun to accept orders for its common  shares.  Consequently,  the Company's
shares  are not yet  traded on any  market  and there is no  established  public
trading market for such common shares. Furthermore,  the Company does not expect
such a market to exist for 6 to 18 months.

(b) Holders

     As of March 31, 1998,  there were One hundred  forty-two  (142)  holders of
record of the Company's Common Stock.

(c) Dividends

     The  Company  has never paid  dividends  on its common  shares,  intends to
retain future earning for use in its business and does not anticipate paying any
such dividends for the foreseeable future.

Item 6.         SELECTED FINANCIAL DATA

     The following table sets forth certain financial data for the Company.  The
selected  financial  data  should  be read in  conjunction  with  the  Company's
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" included in Item 7 of this Form 10-K and the Financial Statements of
the Company and Notes  thereto  referred to in Item 8 and included in Item 14 of
this Form 10-K.  The selected  financial data for the periods ended December 31,
1996 and 1997 have been derived from the Company's financial  statements,  which
have been audited by independent  certified public  accountants and are included
elsewhere in this Prospectus.

                                       HCMI (1)(4)
                                     Date of Formation             Year Ended
Income Statement Data:           (3/27/96) Through 12/31/96         12/31/97
                                  --------------------------         --------

Revenue                                 $     3,507               $      9,908
Costs and Expenses                      $   321,421               $  1,130,596
Loss from Operation (1)                 $  (317,914)              $ (1,120,688)
Interest Expense (Income), net          $    (2,899)              $    (13,724)
Net Loss (2)                            $  (315,015)              $ (1,106,964)
Net Loss Per Share                      $     (0.25)               $      (.81)
Common and common equivalent
shares outstanding (3)                    1,270,503                  1,360,373


Balance Sheet Data:                  As of 12/31/96            As of 12/31/97
                                     --------------            --------------
Working Capital (Deficiency)            $ (516,327)                $ 1,216,029
Total Assets                            $  797,964                 $   431,317
Stockholders' Equity (Deficit)          $  275,143                 $  (800,571)
Accumulated Deficit                     $ (315,015)                $(1,421,979)


(1) Includes  $618,690 in write-off of deferred  offering  costs and $185,958 in
    bad debt expense in 1997.

(2) There have been no, nor are there expected to be, cash dividends.


                                       20
<PAGE>
(3) Based upon the  weighted  number of shares  outstanding  during the  period,
    adjusted retroactively for the reverse stock split approved March 25, 1997.

(4) The financial  statements from which the above  information has been derived
    assume the Company will continue as a going  concern.  However,  the Company
    has incurred  losses since  inception.  Such factors,  among  others,  raise
    substantial  doubt  about  the  Company's  ability  to  continue  as a going
    concern.  In that  regard,  see  "Report  of  Independent  Certified  Public
    Accountants"  accompanying  the Company's  financial  statements which cites
    substantial  doubt  about  the  Company's  ability  to  continue  as a going
    concern.   There  can  be  no  assurance   that  the  Company  will  achieve
    profitability  and  adequate  financing  in the future.  And, if the Company
    fails  to  achieve  these,  their  growth  strategies  would  be  materially
    adversely affected.

(5)



Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

(1) Heartland Communications & Management, Inc. (the "Company")

     (a) Liquidity and Capital Resources

     The Company was  incorporated  as a  wholly-owned  subsidiary  of Heartland
Capital Corporation ("HCC") on March 27, 1996 for the purpose of raising capital
to develop  several  print and  electronic  media and  investment  concepts (the
"Media  Concepts")  and bring them to market.  The  development  rights to these
Media Concepts had been owned by HCC and were assigned to the Company on May 17,
1996 simultaneously with payment by HCC of its $4,758 subscription for the stock
of the Company to which it subscribed on March 27, 1996.

     The Company  has not yet  commenced  generating  substantial  revenue.  The
Company expects to fund  development  expenditures  and incur losses until it is
able to generate  sufficient income and cash flows to meet such expenditures and
other  requirements.  The Company does not currently have adequate cash reserves
to continue to cover such anticipated expenditures and cash requirements.  These
factors,  among others,  raise  substantial doubt about the Company's ability to
continue as a going  concern.  In this  regard,  see the  Independent  Certified
Public  Accountants'  Report appearing  elsewhere herein which cites substantial
doubt about the Company's ability to continue as a going concern.

     The  Company  and HCC have been  evaluating  financing  and  capitalization
alternatives  as part of their  long-term  business  plans.  These  alternatives
include  HCC's sale of  preferred  stock and  warrants  and other  alternatives,
including the formation of the Company and the  associated  transfer  thereto of
many of HCC's development  options,  with the Company,  in turn,  undertaking an
initial  public  offering  (the  "IPO") of a portion  of its  common  stock.  To
preserve  operating  funds,  HCC and the Company have also developed a strategic
plan which  provides for  reductions of  expenditures  and a  prioritization  of
development options, as discussed below.

                                       21
<PAGE>
     The  following  table sets forth  certain data from the  Statements of Cash
Flow for the Company:

     For the Period March 27, 1996 (date of formation) through December 31, 1996
and for the year ended December 31, 1997:

                                    Periods Ended         For the period 3/27/96
                                 ----------------------      (date of formation)
                                 12/31/96     12/31/97        through 12/31/97
                                 --------     --------        ----------------
Net cash provided by
(used in) operating activities  ($417,290)     $16,425           ($400,865)

Net cash provided by (used in)
investing activities,
principally loans to ATB         (172,780)      (5,594)           (178,374)

Net cash provided by financing
activities, principally from
exercise of warrants              590,158           -              590,158
                                ---------     ---------            -------
Increase in cash                $      88      $10,831           $  10,919
                                =========      =========          =========

     The  development  rights had only a nominal  intrinsic value as of the date
they were assigned to the Company because of the significant  anticipated future
development  costs and,  therefore,  such rights  have no carrying  value on the
Company's  balance  sheet.  The Media Concepts  cannot be developed  without the
capital  expected  to be raised by the  Company's  IPO.  The extent to which the
Company can realize any return on the development  rights is directly related to
the amount of funding obtained  through the Company's  offering of its shares to
the public, as well as its ability to successfully develop the Media Concepts.

     Subsequent  to the  assignment,  ownership of the Company was "spun off" to
the  shareholders of HCC and HCC's stock  ownership was retired.  As part of the
spin-off,  the Company issued shares of its common stock (the "Shares") to HCC's
common and preferred  shareholders equal to shares they currently held in HCC on
a one-for-one  basis.  Holders of HCC preferred stock also received  warrants to
buy the  Company's  common  stock on the basis of one  warrant  for each two HCC
preferred shares held, resulting in 1,394,500 warrants for 2,789,000 outstanding
shares of HCC preferred stock.  Holders of  non-contingent  warrants to purchase
HCC shares were likewise provided the same number of warrants to purchase shares
of the  Company,  at exercise  prices  identical  to those  contained in the HCC
warrants.

     During May 1996, the Company  notified its warrant holders of its intent to
do an initial public offering ("IPO") stating that the warrant holders had until
July 6, 1996 to exercise  their  warrants at $.50 per share  versus $4 per share
thereafter  (80% of the then  expected  IPO price of $5 per share).  On July 19,
1996,  the Company  extended this warrant  exercise  period until July 23, 1996.
Through that date, 1,170,400 of the warrants had been exercised resulting in net
proceeds  to the  Company of  $585,200,  virtually  all of the cash  provided by
financing activities.

     To facilitate the IPO, the  stockholders  approved a reverse stock split as
of March  25,  1997 in which  one new share of the  Company's  common  stock was
issued for each  4.6190302  shares  outstanding  with  shares for the  remaining
3.6190302  shares being placed in escrow and being  released only if the Company
meets a specified  level of future  performance.  Likewise,  the exercise of the
remaining  outstanding  warrants were tied to the  attainment of this  specified
level of future  performance.  The principal  purpose of the reverse stock split
was to reduce the number of outstanding common shares prior to the IPO.

                                       22

<PAGE>
     (b) Results of Operations

     Since its  inception  (March 27,  1996)  through  December  31,  1997,  the
Company's  activities have been  organizational with the Company expending funds
principally  to  develop  a  business  plan and to  raise  capital.  Where  such
expenditures relate to capital raising and are both incremental and direct, they
have been treated as deferred offering costs in the accompanying balance sheets.
Where such  expenditures are indirect and  administrative  in nature,  they have
been expensed in the accompanying statements of operations. Such expensed costs,
together  with the  write off of  $618,680  of such  expenditures  that had been
previously deferred and the provision of a $185,958 reserve for receivables,  as
discussed below,  account for the majority of the $1,421,979 deficit accumulated
by the Company during the development stage through December 31, 1997.

     During the year ended December 31, 1997, the Company, in recognition of the
length of the IPO process,  wrote off $618,690 of deferred  offering costs,  the
balance  accumulated  as of December  31,  1996.  New  deferred  offering  costs
amounted to $407,454 during the year ended December 31, 1997.

     Due to the  importance of ATB to the Company's  business  plan, the Company
has joined HCC in co-funding the ATB Credit Agreement. HCC originally executed a
line of credit agreement with ATB in January 1995 to provide working capital for
its operations.  In 1996, HCMI began co-funding this credit  facility.  HCMI had
advanced  $172,780 as of December 31, 1996.  During the year ended  December 31,
1997, ATB repaid $3,410 of this loan. The $169,370 outstanding balance is due in
December  1999. At December 31, 1997,  the Company  concluded  that the recorded
assets and known  business  of ATB did not,  at the  present  time,  support the
assured  collectibility  of the  receivables  from ATB,  including  the $169,370
advanced under the Credit  Agreement and $16,588 from accrued interest under the
Credit Agreement and unpaid fees under the HCC Agreement.  Although an affiliate
of ATB received  consideration  subsequent  to December 31, 1997 for the sale of
certain radio properties it had sold,  management of the Company again concluded
there was not yet  sufficient  assured  asset value and  business  within ATB to
ensure the collectibility of these receivables. Consequently, the Company, as of
December 31,  1997,  provided a reserve for these  receivables  in the amount of
$185,958.  The Company,  however,  intends to vigorously  pursue, and expects to
fully collect,  these  receivables.  Any repayments of these receivables will be
recorded as income when received.

     When the  deficit  (i.e.  cumulative  net  losses)  accumulated  during the
development  stage at December  31, 1997  ($1,421,979)  is (1)  increased by the
total offering costs that were deferred  through December 31, 1997 of $1,026,144
($618,690  in 1996 and  $407,454  in 1997) and (2)  reduced by the 1996 and 1997
non-cash items described  below,  aggregating  $2,047,258,  the net cash used in
operations of $400,865 for the period from inception  through  December 31, 1997
is determined.

               Non-cash Items
               --------------

           Write-off offering costs           $  618,690
           Bad debt expense                      185,958
           Increase in liabilities             1,231,888
           Compensation expense funded
             by stock issuance                    31,250
           Other                                 (20,528)
                                              -----------
           Total                              $2,047,258
                                              ===========

                                       23
<PAGE>
     The primary  differences between the 1996 and 1997 periods for the net cash
provided  by (used in  operations)  was,  first,  the  1997  loss of  $1,106,964
contained the large  non-cash  write-off  and reserve  provision of $618,690 and
$185,958, respectively. Without these, the net loss for both 1996 and 1997 would
have approximated  $300,000.  The second major difference  between 1996 and 1997
was that  more  cash was  available  in 1996 and  consequently  more of the 1996
expenditures  were funded with cash  resulting in $417,920 of cash being used in
operations in 1996. In 1997,  the  expenditures  were  principally  funded by an
increase  in  liabilities  resulting,  together  with the  large  non-cash  1997
expenses  described  above,  in  $16,425  of cash  actually  being  provided  by
operations in 1997. The source of cash in 1996 was  principally  the exercise of
warrants ($565,200) which did not occur in 1997 since most had been exercised in
1996.  This  1996  cash  was  also  used to fund ATB  Credit  Agreement  in 1996
($172,780)  while there was no new  fundings  in 1997 and, in fact,  there was a
small repayment.

     The  Company  will  structure  its  operations  based on both the amount of
capital  raised in the IPO and the timing of the  receipt of the  proceeds.  The
Company has developed an action plan geared to varying  amounts of capital being
raised.  Assuming that only $2,000,000 of capital is raised, the Company's goals
will be to develop  additional  programming and broadcast  capabilities  for the
Heartland  Radio Network (the  "Network") and to make media  acquisitions  which
will help develop the Network. In addition,  the Company also plans to develop a
weekly  publication  aimed at the youth  (ages 11 to 18)  market  that  would be
distributed free to students in schools. Based on preliminary discussions, it is
expected that several major national companies would be prominent advertisers in
the publication.  Additionally,  at the $5,000,000 level, the Company also would
expand  its  investment  in the teen  publication  and  would  plan to invest in
additional media acquisitions.  If a total of $12,500,000 is raised, the Company
also  would  expect to devote  additional  capital  to  investments  in the teen
publication  and  more  media  acquisitions  as well as to  partially  fund  the
creation of a sports-based  weekly  newspaper  insert which would be provided to
newspapers around the country. This publication also is expected to be supported
by advertising revenue from major national companies.

     At the conclusion of this development  effort,  which for some of the Media
Concepts  will  require as much as nine  months,  the  Company may still need to
obtain additional financing to begin operations.  There can be no assurance that
the Company will complete the necessary  work on the Media  Concepts on schedule
or that bank or additional  equity financing will be available to the Company as
it seeks to develop the Media Concepts and begin operations.

     Because  the Company has no history of  operations,  there is no  assurance
that the Media  Concepts can be  successfully  developed and put into  operation
within  the  anticipated  levels  described  above.  Additionally,  there  is no
assurance  that the Media  Concepts  would in fact be  acceptable to the general
public and,  as a result,  there is no  assurance  that  revenues  would ever be
generated sufficient to recover the capital raised in the IPO, let alone provide
a return to shareholders on invested capital.

     The Company  also did not record an income tax  provision or benefit in the
financial statements for the periods ended December 31, 1996 and 1997 because of
the existence of net operating losses.

     (c) Recent Accounting Pronouncements

     Recent  accounting  pronouncements  and  their  effect on the  Company  are
discussed below.


                                       24

<PAGE>
     In March 1995,  SFAS No. 121,  "Accounting for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to be Disposed  of," was issued.  The Company
adopted SFAS No. 121 as of March 27, 1996, and its implementation did not have a
material effect on the Company's financial statements.

     In October 1995, SFAS No. 123,  "Accounting for Stock-Based  Compensation,"
was issued.  SFAS No. 123  establishes  a fair value method for  accounting  for
stock-based  compensation  plans either through  recognition or disclosure.  The
Company  intends to adopt the employee  stock-based  compensation  provisions of
SFAS No. 123 by disclosing the pro forma net income and pro forma net income per
share  amounts  assuming  the fair value method is adopted at the date it grants
stock  options to  officers,  employees  and  directors.  The  adoption  of this
standard will not impact the Company's financial position or cash flows.

     On March 3, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share (SFAS 128)". SFAS
128  provides  a  different  method of  calculating  earnings  per share than is
currently  used in  accordance  with APB Opinion 15. SFAS 128  provides  for the
calculation  of basic and diluted  earnings per share.  Basic earnings per share
includes no dilution  and is computed  by dividing  income  available  to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
that could share in the earnings of an entity, similar to existing fully diluted
earnings per share.  Using the  principles set forth in SFAS 128, basic earnings
per share would not be different from reported earnings per share.

     Statement  of  Financial  Accounting  Standards  No.  129,  "Disclosure  of
Information  about Capital  Structure  ("SFAS 129") effective for periods ending
after December 15, 1997,  establishes standards for disclosing information about
an entity's  capital  structure.  SFAS 129 requires  disclosure of the pertinent
rights  and  privileges  of  various  securities  outstanding  (stock,  options,
warrants,  preferred stock, debt and participation  rights),  including dividend
and  liquidation  preferences,  participants  rights,  call  prices  and  dates,
conversion or exercise prices and redemption requirements.  Adoption of SFAS 129
will have no effect on the Company as it  currently  discloses  the  information
specified.

     In June 1997,  the  Financial  Accounting  Standards  board  issued two new
disclosure  standards.  Results of  operations  and  financial  position will be
unaffected by implementation of these new standards.

     Statements of Financial  Accounting ("SFAS") 130, "Reporting  Comprehensive
Income",  establishes  standards  for  reporting  and  display of  comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity  except those  resulting  from  investments  by
distributions  to owners.  Among other  disclosures,  SFAS 130 requires that all
items that are required to be recognized under current  accounting  standards as
components of comprehensive  income be reported in a financial statement that is
displayed with the same prominence as other financial statements.

     SFAS 131, "Disclosure about Segments of a Business Enterprise", establishes
standards for the way public  enterprises  report  information  about  operating
segments in annual  financial  statements  and  requires  reporting  of selected
information about operating  segments in interim financial  statements issued to
the public. It also establishes standards for disclosures regarding products and
services,  geographic  areas,  and major customers.  SFAS 131 defines  operating
segments  as  components  of  an  enterprise  about  which  separate   financial
information

                                       25
<PAGE>
is available that is evacuated  regularly by the chief operating  decision maker
in deciding how to allocate resources and in assessing performance.

      Both of these new standards are  effective  for financial  statements  for
periods  beginning after December 15, 1997 and require  comparative  information
for earlier years to be restated.  Management believes the impact, if any, would
not be material to the financial  statement  disclosures.  Results of operations
and financial position will be unaffected by implementation of these standards.

(d) Year 2000 Compliance

     Many currently  installed  computer systems and software products are coded
to accept only two digit  entries in the date code field.  Beginning in the year
2000,  these  date code  fields  will  need to  accept  four  digit  entries  to
distinguish 21st century dates from 20th century dates. While uncertainty exists
concerning  the  potential  effect  of such  compliance,  the  Company  does not
currently  believe that year 2000 compliance  will result in a material  adverse
effect on business, financial condition or results of operation.

Item 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not Applicable

Item 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Company's financial statements,  together with related notes and report
of BDO Seidman, LLP, independent auditors, are listed in Item 14(a).

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

     Not Applicable

                                    PART III

Item 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a)   Directors

     Information  required  by this item will be  contained  under the  captions
"Election of Directors"  and  "Compliance  with Section 16(a) of the  Securities
Exchange Act of 1934" in the Company's  definitive  proxy statement with respect
to the Company's 1998 Annual Meeting of  Stockholders  (the "Proxy  Statement"),
and is hereby  incorporated  by reference  thereto.  The Proxy Statement will be
filed with the Commission not later than April 30, 1998.

(b)      Management

     The following table reflects the names, ages and positions of the Company's
executive  officers.   See  the  pertinent  individual's  specific  biographical
information which follows:

     Name                     Age       Position
     ----                     ---       --------

     Michael L. Foudy          47       President, Chief Executive Officer and
                                          Chairman of the Board of Directors



                                       26
<PAGE>
     Gerald Garcia             55       Vice President
     Bradley B. Niemcek        58       Vice President-Operations and Director
     Bradford W. Baker         43       Secretary-Treasurer
     Linda G. Moore            51       Assistant Treasurer and Chief Financial 
                                          Officer


(2) Officers

     Michael  L.  Foudy,  born  1951,  a  principal  founder,  President,  Chief
Executive  Officer and Chairman of the Board of  Directors,  graduated  from the
University of Arizona in 1973 and received a Juris Doctorate from the University
of  Arizona  College  of Law in  1976.  Mr.  Foudy  hosted  ATB's  "America  The
Beautiful"  nationally  syndicated  talk radio show from February 27, 1995 until
February 28, 1977 and now co-hosts  "Newsmaker"  which is broadcast on 119 radio
stations by the United Broadcasting Network. He has diverse experience in public
affairs,  integrated marketing communications,  strategic planning,  management,
entrepreneurship, finance, writing and broadcasting. Mr. Foudy's accomplishments
include  creation  of a  30,000  member  Utility  Shareholder's  Association  to
intervene in rate legal cases and winning  over $400  million in increased  rate
base. During the 1992 Presidential primary campaign,  he was actively engaged in
organizing a movement to draft an  independent  candidate for  President  (which
activities  generally  would permit an  independent  candidate  for President to
obtain ballot access in all U.S. jurisdictions).

     During 1974,  while in law school,  Michael Foudy founded a small marketing
communications  Company  in Tucson.  When he sold his  interest  in the  Company
thirteen  years  later,   WFC/Westcom   had  grown  to  be  the  largest  public
affairs/public  relations  Company in Arizona with  billings of over $7 million,
with  offices  in  Tucson,  Phoenix  and  San  Diego,  a  staff  of  twenty-five
professionals, a base of "blue chip" clients and a history of profitability.

     Since 1987,  Mr.  Foudy has  undertaken  a variety of projects on behalf of
distressed  clients.  These range from a  comprehensive  marketing audit for the
owners of Garfinckel's  Department Stores in Washington,  D.C. to preparation of
promotional and sales materials for the liquidation of $86 million of commercial
property  and the auction of 4,000  residential  properties  once owned by First
City Bank of Houston,  Texas.  He directed  the  successful  repositioning  of a
master planned golf and retirement  community  owned by Fairfield Homes in Green
Valley,  Arizona and designed a comprehensive  marketing  communications program
which doubled home sales for the troubled home builder.  He also  supervised the
restructuring/liquidation  of Compass Publishing based in Chicago,  Illinois and
Sarasota, Florida.

     Mr. Foudy wrote the book  Reinventing  America  which was  published by the
Institute  for  American  Democracy.  He  serves on the  Board of  Directors  of
Heartland Capital Corporation, which he co-founded, and is Of Counsel to the DCM
Group, an integrated communications strategy firm based in McLean, Virginia. Mr.
Foudy has been active in a variety of  charitable  and  community  organizations
including  the Tucson Free Clinic,  Tucson  Community  Food Bank,  Arizona Opera
Company and Southwestern Film Consortium.  He currently serves on the foundation
for American  Liberty and the American  Initiative  Committee Board of Directors
and is Editor of the American Initiative Newsletter.

                                       27
<PAGE>
     Gerald  Garcia,  born 1943,  Vice  President and formerly  Chief  Executive
Officer  and  Chairman  of the  Board of  Directors,  graduated  from  Texas A&M
University in 1967.  Mr. Garcia joined the Company from The Houston Post,  where
he was vice president and editor.  During his  three-years  there,  The Post was
honored regularly for journalistic excellence. Prior to his return to his native
Texas,  Mr.  Garcia  was editor  and  publisher  of the  Knoxville  Journal  and
president  and  publisher  of the  Maryville  Daily  Times,  its  nearby  sister
publication.  Mr.  Garcia  had a  significant  impact  on  both  newspapers.  He
supervised the transformation of the Daily Times to a morning paper,  redesigned
the  Journal  and led  both  papers  to  journalistic  excellence  and  economic
vitality.  During his tenure, the Journal was credited with having developed the
"Best Sports  Section in the Country" for newspapers of 50,000  circulation  and
under  and the  Daily  Times  was  named  "Tennessee's  Best  Newspaper"  by the
Tennessee Press Association in 1990 and 1991. While Mr. Garcia was editor of the
Journal  and  Daily  Times,  respectively,  market  penetration  grew  for  both
newspapers at rates superior to industry  standards for newspapers of comparable
size.

     Mr.  Garcia began his career at the Brenham  Banner-Press  while  attending
Texas A&M. He held the positions of reporter,  sports editor and managing editor
there.  After  receiving his B.A.  degree in Journalism,  he moved to the Corpus
Christi  Caller-Times  as sports  reporter and sports news editor and then on to
the Fort Worth  Star-Telegram  as a sports  reporter  and his first  significant
newsroom management responsibilities.

     In 1976,  Mr.  Garcia  went to the Kansas  City Star and Times where he was
director of newsroom  operations and assistant to the  publisher.  He later also
assumed  directorship  of the Capital Cities'  Minority  Training  Program.  Mr.
Garcia moved next to the Gannett  Company where he was general  executive of the
San Bernadino Sun and then editor and publisher of the Tucson Citizen.  In 1983,
he was named vice president of Gannett West Newspaper Group.

     Mr. Garcia played an integral role in the launch of USA Today,  supervising
the building of Gannett's print site in Phoenix.  He returned to the home of his
alma mater in 1986 to be publisher  of the  Bryan-College  Station  Eagle before
moving to Knoxville in 1988.

     In 1984, Mr. Garcia  received the Ruben Salazar award for his  achievements
in  publishing.  Mr. Garcia has been a community  leader  wherever he has lived,
most  notably in Tucson,  where he is credited  with  creating  "The New Pueblo"
concept.  He served a two-year  term, in 1989-1991,  as chairman of the American
Newspaper  Publishers  Association's  Task Force on  Minorities in the Newspaper
Business.

     Bradley B. Niemcek,  born 1940, Vice  President-Operations  and director of
the  Company,  is a 1965  Journalism  graduate of  Marquette  University  and is
currently  pursuing,  on a part-time  basis, a graduate degree in  International
Telecommunications  at George Mason University.  He plays and active role in the
Heartland  Radio  Network,  which not only  provides  marketing  and  management
services to ATB  Productions,  L.L.C.  but also has other  broadcast  activities
under  development.  Mr.  Niemcek  is a 30-year  veteran  of the  communications
industry.  He spent his early years as a  newspaper  reporter,  television  news
writer and public relations executive. In addition, Mr. Niemcek for the past two
decades has worked for, or established and built his own, companies specializing
in client services based on emerging  communications  technologies.  Mr. Niemcek
began his career as a reporter and writer for the Milwaukee Sentinel and the NBC
affiliates in that city,  WTMJ radio and TV. He was recruited into the corporate
public  relations field in 1967 by Carl Byoir & Associates in Chicago and, after
one year there, moved to its New York  headquarters.  Mr. Niemcek departed Byoir
in 1974 to  undertake  a series of 

                                       28
<PAGE>
entrepreneurial   enterprises  in  the  sports   promotion   field,   television
syndication and in newsletter publishing.  In 1982, he founded Newslink, Inc. to
develop and market a satellite  distribution service to connect public relations
enterprises with the nation's local TV newsrooms. By 1988, the firm had expanded
to  include  offices  in New York and  Washington,  D.C.  and  diversified  into
providing  facilities  management  satellite services for broadcast and cable TV
clients as well; its largest client was Cable News Network ("CNN").  Mr. Niemcek
sold his  interest in Newslink in 1988 and formed TV People,  Inc., a television
facilities management firm and, from his new base in the Washington,  D.C. area,
consulted  on the  development  of a number  of  local  and  regional  political
campaigns.

     Bradford W. Baker, born 1955, Secretary -Treasurer of the Company, attended
the University of Dallas from 1974 - 1975. Mr. Baker's  professional  experience
spans 20 years of advertising,  sales management and marketing.  He is currently
President  and  partner  of  The  Creative  Network,   Inc.,  an  award  winning
full-service  advertising  agency  located  in  Knoxville,  Tennessee.  Prior to
helping form The Creative  Network,  Mr.  Baker was a VP/Account  Supervisor  at
Charles   Tombras   Advertising,   Inc.  in   Knoxville   and  at  Caraway  Kemp
Communications  in Jacksonville,  Florida.  He has worked on both the client and
agency sides of the business and won several awards and distinctions  including:
Who's Who in Advertising, a Presidential Citation for Private Sector Initiative,
two 1990 Telly Awards, a 1992 National ADDY award from the American  Advertising
Foundation  and a 1996  Knoxville  ADDY Best of Show.  Mr.  Baker has  extensive
experience in creating,  marketing and publishing various media vehicles.  These
include:

     O   Boating Magazine: The Creative Network is the agency of record for this
         industry-leading   publication.  Work  for  this  client  includes  all
         marketing  facets,  with heavy  concentration on trade  advertising and
         positioning.

     O   Xpress,  a  magazine  for teens.  (See  "Specific  Opportunities  Under
         Consideration -- A Magazine For Teens.")

     0   The Star:  Published  for  MasterCraft  Boat  Company,  this  quarterly
         publication has a circulation of 25,000. The Star, generally recognized
         as one  of the  best  publications  within  the  boating  industry,  is
         designed, written and produced entirely by he Creative Network.

     0   The Weekend  Journal:  The  Creative  Network was  responsible  for all
         research,  marketing and publicity for this new weekly  newspaper which
         was successfully launched in January 1992.

     Mr. Baker has also acted as consulting  advisor for The  Knoxville  Journal
and two Knoxville  suburban  newspapers,  The Oak Ridger and the Maryville Daily
Times,   and  worked   extensively  on  the  launch  and  marketing  of  several
publications for target  marketer,  Whittle  Communications,  L.P. Mr. Baker was
also  instrumental,  together  with Mr.  Garcia,  in  refining  the  concept and
developing  the business plans  respectively  for the proposed teen magazine and
national sports weekly joint ventures.

     Linda G. Moore, born 1947,  Assistant Treasurer and Chief Financial Officer
of the Company,  attended  Chico State College from 1965 to 1968.  Ms. Moore has
been Chief  Administrative  Officer of the DCM Group,  an affiliate of Edward S.
DeBolt and Company, Inc. ("ESD") since 1978. She was Secretary of the Republican
State Central  Committee of  California  from 1969 to 1970 and, in 1971and 1972,
was  Assistant  to the Deputy  Chairman of the  Republican  National  Committee.
During  1973,  Ms.  Moore was Office  Manager of Donnelly  Marketing's  National
Political   Office.   She  was 

                                       29
<PAGE>
Office Manager and held the office of  Secretary-Treasurer  from 1974 to 1996 of
ESD and has served on its Board of Directors since 1974.

Item 11.        EXECUTIVE COMPENSATION

     The  information  required  by this  item  will be  contained  in the Proxy
Statement under the caption "Executive Compensation," and is hereby incorporated
by reference thereto.  The Proxy Statement will be filed with the Commission not
later than April 30, 1998.

Item 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required  by this  item  will be  contained  in the Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners And
Management,"  and  is  hereby  incorporated  by  reference  thereto.  The  Proxy
Statement will be filed with the Commission not later than April 30, 1998.

Item 13.        CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

     The  information  required  by this  item  will be  contained  in the Proxy
Statement under the caption "Certain Relationship and Related Transactions," and
is hereby  incorporated by reference thereto.  The Proxy Statement will be filed
with the Commission not later than April 30, 1998.

                                     PART IV

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

     The following documents are being filed as part of this report on Form 10-K
immediately following the signature page and Exhibit Index:

(a)(1)          Financial Statements:

    Report of Independent Certified Public Accountants                    F-2

    Balance Sheets as of December 31, 1996 and 1997                       F-4

    Statements  of  Operations  for the period March 27, 1996 (date of
    formation)  through  December 31, 1996 and the year ended December
    31, 1997 and the period March 27, 1996 (date of formation) through
    December 31, 1997                                                     F-5

    Statements of  Stockholders'  Equity for the period March 27, 1996
    (date of formation)  through  December 31, 1996 and the year ended
    December 31, 1997                                                     F-6

    Statements  of Cash Flow for the  period  March 27,  1996 (date of
    formation)  through  December 31, 1996 and the year ended December
    31, 1997 and the period March 27, 1996 (date of formation) through
    December 31, 1997                                                     F-7

    Summary of Accounting Policies                                        F-9

    Notes to Financial Statements                                        F-14

                                  30
<PAGE>
(a)(2)          Financial Statement Schedule

   Valuation and Qualifying Accounts and Accountant's report thereon        F-25

      Other  schedules  are  omitted  because  they  are not  applicable  or the
required information is shown in the financial statement or notes thereto.

(a)(3)          Exhibits

   Exhibit
   Number          Description
   ------          -----------

    3.1   Certificate of Incorporation                                         *

    3.2   Amendments to Certificate of Incorporation                           *

    3.3   Bylaws of Registrant                                                 *

    3.4   Form of stock certificate                                            *

   10.1   Executed Escrow  Agreement  among the Registrant,  the Selling
          Agent and George Mason Bank, McLean,  Virginia (the Escrow Agent)    *

   10.2   Intentionally not used

   10.3   Employment  Agreement between Registrant and Michael L. Foudy.       *

   10.4   Employment  Agreement between Registrant and Bradford W. Baker       *

   10.5   Employment Agreement between Registrant  and  Bradley  B. Niemcek.   *

   10.6   Assignment  Agreement between Registrant and Heartland Capital
          Corporation.                                                         *

   10.61  Amended and Restated Teen Magazine Venture  Agreement  between
          Heartland Capital Corporation and Xpress Ventures, Inc.              *

   10.611 License  Agreement  between Xpress  Ventures,  Inc. and Gerald
          Garcia and Bradford W. Baker.                                        *

   10.62  Amended  and  Restated   National  Sports  Magazine   Venture
          Agreement  between   Heartland  Capital   Corporation  and  Xpress
          Ventures, Inc.                                                       *

   10.63  Representation Agreement between Heartland Capital Corporation
          and ATB Productions, L.L.C.                                          *

   10.66  Credit Agreement between  Heartland  Capital  Corporation and
          ATB Productions, L.L.C.                                              *

   10.68  Employment Agreement between Registrant and Gerald Garcia.           *

   10.69  Barter Trade Agreement  between ICON  International,  Inc. and
          Registrant                                                           *

   27.1 Financial Data Schedule and Accountant's report thereon             F-25

-------
*   Incorporated by reference from Company's  Registration Statement on Form S-1
    (File No. 333-8935) and amendments thereto.


                                       31
<PAGE>
                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or  Section  15(d)  of the
Securities  and Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized.

Date: April 14, 1998

Signature

---------------------
Michael L. Foudy           President, Chief Executive             April 14, 1998
                           Officer and Director

---------------------
Linda G. Moore             Chief Financial Officer and            April 14, 1998
                           Assistant Treasurer
                           (Principal Financial Officer
                           and Principal Accounting Officer)

---------------------
Bradley B. Niemcek         Director                               April 14, 1998

---------------------
Thomas Burgum              Director                               April 14, 1998

---------------------
B. Eric Sivertsen          Director                               April 14, 1998

---------------------
Sharon M. Murphy           Director                               April 14, 1998


                                       32

<PAGE>
                                  Exhibit Index

   Exhibit
   Number        Description
   ------        -----------

    3.1   Certificate of Incorporation                                         *

    3.2   Amendments to Certificate of Incorporation                           *

    3.3   Bylaws of Registrant                                                 *

    3.4   Form of stock certificate                                            *

   10.1   Executed Escrow  Agreement  among the Registrant,  the Selling
          Agent and George Mason Bank, McLean,  Virginia (the Escrow Agent)    *

   10.2   Intentionally not used

   10.3   Employment  Agreement between Registrant and Michael L. Foudy.       *

   10.4   Employment  Agreement between Registrant and Bradford W. Baker       *

   10.5   Employment Agreement between Registrant  and  Bradley  B. Niemcek.   *

   10.6   Assignment  Agreement between Registrant and Heartland Capital
          Corporation.                                                         *

   10.61  Amended and Restated Teen Magazine Venture  Agreement  between
          Heartland Capital Corporation and Xpress Ventures, Inc.              *

   10.611 License  Agreement  between Xpress  Ventures,  Inc. and Gerald
          Garcia and Bradford W. Baker.                                        *

   10.62  Amended  and  Restated   National  Sports  Magazine   Venture
          Agreement  between   Heartland  Capital   Corporation  and  Xpress
          Ventures, Inc.                                                       *

   10.63  Representation Agreement between Heartland Capital Corporation
          and ATB Productions, L.L.C.                                          *

   10.66  Credit Agreement between  Heartland  Capital  Corporation and
          ATB Productions, L.L.C.                                              *

   10.68  Employment Agreement between Registrant and Gerald Garcia.           *

   10.69  Barter Trade Agreement  between ICON  International,  Inc. and
          Registrant                                                           *

   27.1 Financial Data Schedule and Accountant's report thereon             F-25
 -------
*   Incorporated by reference from Company's  Registration Statement on Form S-1
    (File No. 333-8935) and amendments thereto.



                                       33
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
                                                                                    PAGE
                                                                                    ----
<S>                                                                                  <C>
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
(A Development Stage Company)

Independent Certified Public Accountants' Report                                     F-2

Balance sheets as of December 31, 1996 and 1997                                      F-4

Statements  of  operations  for the period  March 27,  1996 (date of  formation)
through December 31, 1996, the year ended December 31, 1997 and the period March
27, 1996 (date of formation) through December 31, 1997                               F-5

Statements  of changes in  shareholders'  equity for the period  March 27,  1996
(date of formation) through December 31, 1996  and the year ended  December  31,
1997                                                                                 F-6

Statements  of cash flows for the  period  March 27,  1996  (date of  formation)
through December 31, 1996, the year ended December 31, 1997 and the period March
27, 1996 (date of formation) through December 31, 1997                               F-7

Summary of accounting policies                                                       F-9

Notes to financial statements                                                        F-14

Financial statement schedules

      Schedule II - Valuation and Qualifying Accounts

      Schedules other than those listed above have been omitted because they are
      not required or are not applicable, or the required information has been
      included in the financial statements or notes thereto                          F-24
</TABLE>

                                       F-1


<PAGE>
                INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT

To the Board of Directors and Shareholders
HEARTLAND COMMUNICATIONS & MANAGEMENT, INC.
(A Development Stage Company)

     We have audited the accompanying balance sheet of HEARTLAND  COMMUNICATIONS
& MANAGEMENT,  INC. (A  Development  Stage  Company) as of December 31, 1996 and
1997, and the related statements of operations,  changes in shareholders' equity
(deficit)  and cash flows for the  period  March 27,  1996  (date of  formation)
through  December 31, 1996 and the year ended December 31, 1997. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility is to express an opinion on the financial statements based on our
audit.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of HEARTLAND  COMMUNICATIONS &
MANAGEMENT,  INC. (A Development Stage Company) as of December 31, 1996 and 1997
and the results of its  operations  and its cash flows for the period  March 27,
1996 (date of formation)  through  December 31, 1996 and the year ended December
31, 1997 in conformity with generally accepted accounting principles.

                                       F-2

<PAGE>
     The  accompanying  financial  statements  have been  prepared  assuming the
Company will  continue as a going  concern.  The Company has had no  substantial
operations and has incurred  significant  operating  losses and working  capital
deficits since formation.  In addition,  the Company expects to fund development
expenditures  and  incur  additional  losses  until its  operations  are able to
generate sufficient revenue and cash flows to meet anticipated  expenditures and
other cash  requirements.  The Company does not currently have  sufficient  cash
reserves  to  cover  such  anticipated   expenditures  and  cash   requirements,
necessitating  additional  capital or financing.  These factors,  in addition to
other factors discussed in Note 2 to the financial statements, raise substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans  regarding  these  matters  are also  discussed  in Note 2. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

                                                                BDO Seidman, LLP

Washington, D.C.
April 10, 1998

                                       F-3
<PAGE>
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                             December 31,            December 31,
                                                                                1996                    1997
-------------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                        <C>                            <C>
  Cash                                                                    $            88                  10,919
  Accounts receivable from related parties                                          6,406                       -
  Deposits                                                                              -                   4,940
-------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                                6,494                  15,859
-------------------------------------------------------------------------------------------------------------------
Note receivable from related party (Note 3)                                       172,780                       -

Office equipment, less accumulated depreciation of $1,000 (Note 9)                      -                   8,004

Deferred offering costs (Notes 7 and 8)                                           618,690                 407,454
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                               $      797,964          $      431,317
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Accounts payable                                                           $      293,235           $     586,883
Accrued payroll                                                                     8,970                 157,175
Accounts payable to related parties (Note 8)                                      220,616                 487,830
-------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                                         522,821               1,231,888
-------------------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 5 and 8)

SHAREHOLDERS' EQUITY (DEFICIT) (Notes 1, 4, 5 and 8)
Preferred stock, $.001 par value, 10,000,000 shares
  authorized; none issued

Common  stock,  $.001  par  value,  50,000,000  shares   authorized;   6,128,400
  and 6,190,900  shares  issued  at  December  31,  1996 and 1997,  respectively
  and   1,326,811  and  1,389,314  shares  outstanding  at   December  31,  1996
  and 1997, respectively                                                            1,327                   1,389
Additional paid-in capital                                                        588,831                 620,019
Deficit accumulated during the development stage                                 (315,015)             (1,421,979)
-------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)                                              275,143                (800,571)
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
  SHAREHOLDERS' EQUITY (DEFICIT)                                           $      797,964           $     431,317
===================================================================================================================
</TABLE>

                 See accompanying summary of accounting policies
                       and notes to financial statements.

                                       F-4
<PAGE>
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS
  
<TABLE>
<CAPTION>
                                                         For the period                          For the period
                                                          March 27, 1996                          March 27, 1996
                                                        (date of formation)    For the year     (date of formation)
                                                              through              ended              through
                                                           December 31,        December 31,         December 31,
                                                               1996                1997                1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>                        <C>
REVENUES
  Marketing commissions received from
    related party (Note 3)                                 $      3,507    $         9,908            $     13,415
-------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
    Salaries                                                    165,084            193,840                 358,924
    General and administrative                                  156,337            132,108                 288,445
    Write-off of offering costs (Note 8)                              -            618,690                 618,690
    Bad debt expense (Note 3)                                         -            185,958                 185,958
-------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES                                        321,421          1,130,596               1,452,017
-------------------------------------------------------------------------------------------------------------------
OPERATING LOSS                                                 (317,914)        (1,120,688)             (1,438,602)

Interest income (Note 3)                                          2,899             13,724                  16,623
-------------------------------------------------------------------------------------------------------------------
NET LOSS                                                   $   (315,015)   $    (1,106,964)           $ (1,421,979)
===================================================================================================================
WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING                                                 1,270,503          1,360,373               1,299,405
===================================================================================================================
BASIC AND DILUTED NET LOSS PER SHARE                       $       (.25)   $          (.81)           $      (1.09)
===================================================================================================================
</TABLE>
                 See accompanying summary of accounting policies
                       and notes to financial statements.

                                       F-5
<PAGE>
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

             STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)


For the Period March 27, 1996 (date of formation)  through December 31, 1996 and
the year ended December 31, 1997
<TABLE>
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                         Deficit
                                                 Common                                   Accumulated
                            Subscribed           Shares       $0.001      Additional      During the
                                Common       Issued and          Par        Paid-in       Development
                                Shares      Outstanding        Value        Capital        Stage         Total
-------------------------------------------------------------------------------------------------------------------
<S>                          <C>            <C>             <C>            <C>             <C>           <C>     
Subscription to common
  shares by Heartland
  Capital Corporation        1,030,086              -      $      1,030   $    3,728      $      -       $  4,758
===================================================================================================================
Payment of subscription     (1,030,086)      1,030,086                -           -               -             -

Cancellation of shares               -      (1,030,086)          (1,030)      (3,728)             -        (4,758)

Spin-off                             -       1,030,086            1,030        3,728                        4,758

Other issuance                       -          43,338               43          157                          200

Exercise of warrants                 -         253,387              254      584,946              -       585,200

Net loss                             -                                                      (315,015)     (315,015)
-------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996           -       1,326,811            1,327      588,831        (315,015)      275,143

Shares issued to directors           -          62,503               62       31,188               -        31,250

Net loss                             -               -                -            -      (1,106,964)   (1,106,964)
-------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997           -       1,389,314           $1,389     $620,019     $(1,421,979)    $(800,571)
===================================================================================================================
</TABLE>

                 See accompanying summary of accounting policies
                       and notes to financial statements.

                                       F-6
<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                        For the period                         For the period
                                                           March 27, 1996                        March 27, 1996
                                                         (date of formation)   For the year    (date of formation)
                                                               through             ended             through
                                                            December 31,       December 31,       December 31,
                                                                1996               1997               1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>                  <C>             
CASH FLOWS FROM OPERATING ACTIVITIES

NET LOSS                                                     $ (315,015)      $ (1,106,964)        $    (1,421,979)

ADJUSTMENTS TO RECONCILE NET LOSS TO NET
  CASH USED IN OPERATIONS

Shares issued to directors                                            -             31,250                  31,250

Depreciation                                                          -              1,000                   1,000

Provision for uncollectible accounts                                  -            185,958                 185,958

Increase in accounts receivable from related parties             (6,406)           (10,182)                (16,588)

Increase in deposits                                                  -             (4,940)                 (4,940)

Increase in accounts payable                                    293,235            293,648                 586,883

Increase in accrued payroll                                       8,970            148,205                 157,175

(Increase) decrease in  deferred offering costs                (618,690)           211,236                (407,454)

Increase in accounts payable to related parties                 220,616            267,214                 487,830
-------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES                                         (417,290)            16,425                (400,865)
-------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES

Capital expenditures                                                  -             (9,004)                 (9,004)

(Increase) decrease in loans to related party                  (172,780)             3,410                (169,370)
-------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES                                                     (172,780)            (5,594)               (178,374)
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       F-7
<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                          For the period                        For the period
                                                           March 27, 1996                        March 27, 1996
                                                         (date of formation)   For the year    (date of formation)
                                                               through             ended             through
                                                            December 31,       December 31,       December 31,
                                                                1996               1997               1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                                        <C>    
CASH FLOWS FROM FINANCING ACTIVITIES

Increase in subscription receivable and
  other issuance                                           $      4,958    $             -            $      4,958

Proceeds from exercise of warrants                              585,200                  -                 585,200
-------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                       590,158                  -                 590,158
-------------------------------------------------------------------------------------------------------------------
Increase in cash                                                     88             10,831                  10,919

CASH AND CASH EQUIVALENTS, beginning of period                        -                 88                       -
-------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period                   $         88    $        10,919            $     10,919
===================================================================================================================
</TABLE>

                 See accompanying summary of accounting policies
                       and notes to financial statements.

                                       F-8
<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                         SUMMARY OF ACCOUNTING POLICIES


THE COMPANY AND NATURE OF BUSINESS

     Heartland  Communications & Management,  Inc. ("HCMI" or the "Company") was
formed on March  27,  1996 to be a  broad-based  communications  and  management
business, including developing, producing and syndicating  advertising-supported
broadcast  programs and print products.  The accompanying  financial  statements
include the  financial  statements  of HCMI as of December 31, 1996 and 1997 and
the period March 27, 1996 (date of formation)  through  December 31, 1997. Since
HCMI's  activities  to this  point  have  been  organizational  and  devoted  to
financial  planning and raising capital,  HCMI's  activities have been accounted
for as those of a  "development  stage  enterprise" as set forth in Statement of
Financial Accounting Standards (SFAS) No. 7.

     On May 17, 1996,  Heartland Capital Corporation (HCC) paid its $4,758 stock
subscription and HCMI ("Successor Company") was simultaneously  assigned certain
development and contract rights and obligations by HCC  ("Predecessor  Company")
(see Note 1). Also,  HCMI is an affiliate of ATB  Productions,  L.L.C.  ("ATB"),
with  which it shares  common,  but not  identical,  ownership,  and to which it
provides marketing services.

RISKS AND UNCERTAINTIES

     HCMI is in the development stage.  Consequently,  HCMI's activities will be
subject to the risks  inherent in a new  business  enterprise,  including  among
others, limited capital, uncertain market acceptance and the inability to obtain
financing.  Additionally,  HCMI faces  substantial  competition from a number of
well established, well financed companies. HCMI's principal source of revenue, a
participation  in  advertising  revenue,  is often  cyclical and dependent  upon
general  economic  conditions,  rising in good  economic  times and declining in
economic  downturns.  HCMI believes it has properly  identified the risks in the
environment  in  which  it  operates  and  plans  to  implement   strategies  to
effectively reduce the financial impact of these risks.

                                       F-9
<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                         SUMMARY OF ACCOUNTING POLICIES

USE OF ESTIMATES

     The  preparation  of financial  statements  in  accordance  with  generally
accepted  accounting  principles  requires  HCMI to make certain  estimates  and
assumptions  particularly  as it  relates  to the  recoverability  of assets and
disclosure of contingent  assets and  liabilities.  Actual  results could differ
from those estimates.

TRANSFERS BETWEEN  AFFILIATES

     All transfers among  affiliates are recorded using the historical  carrying
value.

ACCOUNTS AND NOTES RECEIVABLE

     HCMI provides a reserve for doubtful accounts based on a specific review of
the expected collectibility of individual outstanding accounts.

OFFICE EQUIPMENT

     Office  equipment  is carried at cost.  Depreciation  is recorded  over the
estimated useful lives of the assets using the straight-line method.

DEFERRED OFFERING COSTS

     Direct,  incremental  costs  incurred  with respect to the HCMI offering of
common stock are deferred and included as an asset in the  accompanying  balance
sheets until the proceeds of the offering are  received,  whereupon  these costs
will be recognized as a reduction to the  respective  capital  accounts.  If the
offering is not completed or the offering terms are substantially  revised,  the
deferred  offering  costs  will be  expensed.  Indirect  costs  relating  to the
offering are expensed when  incurred.  If either  direct,  incremental  costs or
indirect  costs  relating to the offering  are  incurred by HCC,  such costs are
deferred or expensed, respectively, by HCMI with the net unpaid amount reflected
as part of the accounts payable to related parties (see Note 8).

                                      F-10
<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                         SUMMARY OF ACCOUNTING POLICIES

INCOME TAXES

     HCMI uses the asset and liability  method of  accounting  for income taxes.
Deferred tax assets and liabilities are recognized for the estimated  future tax
consequences  attributable  to differences  between the financial  statement and
income tax bases.  The  recognition  of net deferred  tax assets is reduced,  if
necessary,  by a valuation  allowance  for the amount of any tax benefits  that,
based on available evidence, are not expected to be realized.

REVENUES

     Marketing  commissions  are  recognized  as  commercials  are broadcast and
related advertising revenues are received.

REVERSE STOCK SPLIT

     On March 26,  1997,  the  shareholders  approved a reverse  stock  split of
HCMI's common stock. The reverse stock split has been reflected retroactively in
the accompanying financial statements to March 27, 1996 (date of formation).

FAIR VALUE OF FINANCIAL INSTRUMENTS

     Financial  instruments  of the  Company  include a note  receivable  from a
related party. In the opinion of management, the fair values of HCMI's financial
instruments  as of  December  31,  1996 are not  materially  different  from the
carrying amounts shown in the accompanying financial statements.

                                      F-11
<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                         SUMMARY OF ACCOUNTING POLICIES

RECENT ACCOUNTING PRONOUNCEMENTS

     In October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  123,  "Accounting  for  Stock-Based
Compensation,"  (SFAS 123).  SFAS 123 will begin to affect the Company  when its
grants  options  under the 1997 Omnibus Stock Plan. No options have been granted
to date. The Company will adopt only the  disclosure  provisions of SFAS 123 and
account for stock-based  compensation using the intrinsic value method set forth
in APB Opinion 25.

     In March 1997, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 128,  "Earnings per Share (SFAS 128)." SFAS
128  provides  a  different  method of  calculating  earnings  per share than is
currently used in APB Opinion 15. SFAS 128 provides for the calculation of basic
and diluted  earnings per share.  Basic  earnings per share includes no dilution
and is computed by  dividing  income  available  to common  stockholders  by the
weighted  average number of common shares  outstanding  for the period.  Diluted
earnings per share  reflects the  potential  dilution of  securities  that could
share in the earnings of an entity,  similar to existing fully diluted  earnings
per share.  The Company adopted the provisions for computing  earnings per share
set forth in SFAS 128 in  December  1997.  There is no  difference  in basic and
diluted earnings per share.

     Statement  of  Financial   Accounting  Standards  No.  129,  Disclosure  of
Information  about Capital  Structure  ("SFAS 129") effective for periods ending
after December 15, 1997,  established standards for disclosing information about
an entity's  capital  structure.  SFAS 129 requires  disclosure of the pertinent
rights  and  privileges  of  various  securities  outstanding  (stock,  options,
warrants, preferred stock, debt and participation rights) including dividend and
liquidation preferences, participants rights, call prices and dates, conversions
or exercise prices and redemptions requirements.  Adoption of SFAS 129 will have
no effect on HCMI as it currently discloses the information specified.

                                      F-12

<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                         SUMMARY OF ACCOUNTING POLICIES

     Statement of Financial  Accounting  Standards  No. 131,  "Disclosure  about
Segments of a Business Enterprise" ("SFAS 131"),  establishes  standards for the
way that public  enterprises  report  information  about  operating  segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes   standards  for  disclosures   regarding   products  and  services,
geographic areas, and major customers.  SFAS 131 defines  operating  segments as
components  of an  enterprise  about which  separate  financial  information  is
available that is evaluated  regularly by the chief operating  decision maker in
deciding how to allocate resources and in assessing performance.

     Both  SFAS 130 and SFAS 131 are  effective  for  financial  statements  for
periods  beginning after December 15, 1997 and require  comparative  information
for earlier years to be restated.  Management believes the impact, if any, would
not be material to the financial  statement  disclosures.  Results of operations
and financial position,  however,  will be unaffected by implementation of these
standards.

                                      F-13
<PAGE>
-------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

1. REORGANIZATION AND TRANSFER OF CERTAIN RIGHTS

     As part of its  merchant  banking  operations,  HCC  identifies  investment
opportunities   which  can  be  developed   into  viable   operations.   Several
opportunities  were identified in 1994,  1995 and 1996,  including talk radio, a
youth oriented newspaper and a newspaper insert aimed at sports enthusiasts. The
talk radio  venture was  furthest  along in the  development  process,  with HCC
having  provided a line of credit as well as  marketing  expertise  to ATB.  The
other ventures  identified are only  development  options and are intended to be
pursued only if funding is achieved and  appropriate  due diligence,  supporting
the feasibility of the acquisitions, has been completed.

     HCC  determined  that  these  ventures  could not be  adequately  developed
without  additional  capital and, to that end, on May 17, 1996, HCC assigned its
option and, in the case of ATB, its contract  rights to HCMI,  its  wholly-owned
subsidiary  on that date.  On May 18, 1996,  HCC spun off HCMI via a dividend to
HCC shareholders, with HCMI effectively replicating the HCC capital structure by
issuing a share of its common  stock for each share of HCC common and  preferred
stock  outstanding  as of May 18,  1996.  Warrants to  purchase  HCMI stock were
granted to holders of non-contingent HCC stock purchase  warrants,  and warrants
were issued to the HCC preferred shareholders, as of May 18, 1996. The contracts
and option rights transferred to HCMI have no carrying value because the cost of
developing,  or  servicing,  the rights are  expected  to require a  substantial
infusion of capital.  It is HCMI's  intention  to obtain the  necessary  capital
through an initial public offering (IPO) of its common stock (See Note 8).

2. GOING CONCERN

     As shown in the accompanying financial statements, HCMI incurred a net loss
of $315,015 and $1,106,964  during the period March 27, 1996 (date of formation)
through   December  31,  1996  and  for  the  year  ended   December  31,  1997,
respectively.  At December 31, 1996 and 1997, HCMI had a working capital deficit
of $516,327 and $1,216,029, respectively. As of December 31, 1996 and 1997, HCMI
had also expended  $618,690 and $407,454 for direct  incremental  offering costs
whose recovery is dependent on the success of its IPO. Furthermore, HCMI expects
to fund  development  expenditures and incur losses until it is able to generate
sufficient   income  and  cash  flows  to  meet  such   expenditures  and  other
requirements.  HCMI does not currently 

                                      F-14
<PAGE>
-------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

have sufficient cash reserves to cover such  anticipated  expenditures  and cash
requirements.  These factors  raise  substantial  doubt about HCMI's  ability to
continue as a going concern.

     HCMI and HCC have been evaluating  financing  alternatives as part of their
long-term  business plans.  These  alternatives  include loan  arrangements  for
working  capital  needs,  HCMI's and HCC's  exercise of warrants,  HCC's sale of
preferred  stock and warrants and other  alternatives,  such as the formation of
HCMI, including the transfer thereto of many of HCC's development options,  with
HCMI, in turn,  undertaking an IPO of a portion of its common stock. To preserve
operating funds, HCC and HCMI have developed a strategic plan which provides for
reductions of, and deferrals of payments for,  expenditures and a prioritization
of development options.

     The  financial  statements do not include any  adjustments  relating to the
recoverability  and  classification  of  recorded  assets  or  the  amounts  and
classification  of liabilities  that might be necessary should HCMI be unable to
complete its proposed public offering and continue as a going concern.

3. HCC MARKETING AND LINE OF CREDIT AGREEMENTS

     Effective January 1, 1995, HCC entered into a marketing  agreement with ATB
("the HCC Agreement")  whereby HCC provides marketing services on behalf of ATB.
Such  services  include  presenting  programs to sponsors on a worldwide  basis,
negotiating sponsorship  agreements,  etc. In return for receiving the marketing
services, ATB is obligated to pay HCC 40% of its gross advertising cash receipts
and 5% of its non-advertising gross receipts. The agreement was transferred from
HCC to HCMI on May 17, 1996. Revenues recorded by HCMI from the date of transfer
through  December  31, 1996 and for the year ended  December  31, 1997 amount to
$3,507 and $9,908,  respectively.  The HCC Agreement automatically terminates on
January 1, 1999,  unless extended by mutual  agreement,  and it is terminable at
earlier dates under certain  specified  conditions.  In the event of termination
for whatever  reason,  the amounts due under the HCC Agreement  for  sponsorship
existing   at  the  time  of   termination   shall   remain  due  and   payable,
notwithstanding  the  termination  (if certain other  conditions are met), for a
period ending the later of the automatic termination of the HCC Agreement 




                                      F-15

<PAGE>
-------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

or two years after the date of other  termination.  Revenues  recognized  by HCC
under  the HCC  Agreement  aggregated  $647 and  $2,847  during  1995 and  until
transfer in the year ended December 31, 1996, respectively.

     On January 15, 1995,  HCC executed an  unsecured  line of credit  agreement
with ATB (the  "Credit  Agreement")  which  provides  ATB with a standby line of
credit in the amount of $360,000.  Borrowings  under the Credit  Agreement  bear
interest at 8% per annum,  with payment of interest being deferred until January
15, 1997, whereupon monthly interest payments will be required. Through December
31, 1997,  interest payments of $13,450 and $185 have been made to HCMI and HCC,
respectively.  Any principal and interest outstanding must be repaid on December
31, 1999.  During 1996, HCMI began co-funding this Credit Agreement with HCC. As
of  December  31,  1996 and  1997,  HCMI had  advanced  $172,780  and  $169,370,
respectively,  while HCC had  advanced  $338,695 and $434,248 as of December 31,
1996 and 1997, respectively.  Although the total advances ($511,475 and $603,618
as of  December  31, 1996 and 1997,  respectively),  are in excess of the Credit
Agreement's  standby line of credit amount  ($360,000),  the total  advances are
governed by the Credit  Agreement  including  interest  rates,  due dates,  etc.
Interest income earned by HCMI on its share of the outstanding  loan amounted to
$2,899 and $13,724 during the period March 27, 1996 (date of formation)  through
December 31, 1996 and the year ended December 31, 1997, respectively.

     At December 31, 1997, the Company  concluded  that the recorded  assets and
known  business  of ATB did  not,  at the  present  time,  support  the  assured
collectibility  of the receivables from ATB,  including  $169,370 advanced under
the  Credit  Agreement  and  $16,588  from  accrued  interest  under the  Credit
Agreement and unpaid fees under the HCC Agreement.  Although an affiliate of ATB
received  consideration  subsequent  to  December  31,  1997 for  certain  radio
properties it had sold,  management of the Company again concluded there was not
yet  sufficient  assured  asset  value and in the  fourth  quarter  the  Company
recorded  a reserve  of  $185,958  related to these  receivables.  The  Company,
however,  intends to  vigorously  pursue  and  expects  to fully  collect  these
receivables. Any repayments of these receivables will be recorded as income when
received.

                                      F-16


<PAGE>


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

                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

4.    SHAREHOLDERS' EQUITY

PREFERRED STOCK

     The total number of shares of stock that HCMI has the authority to issue is
60,000,000  consisting of 10,000,000  shares of preferred stock, par value $.001
per share, and 50,000,000 shares of common stock, par value $.001 per share. The
Board of Directors of HCMI is authorized  to issue shares of preferred  stock in
series,  to establish  the number of shares to be included in each series and to
fix the designations,  powers, preferences and rights of the shares of each such
series. To date, no series has been authorized.

COMMON STOCK

     In conjunction with HCMI's formation as a subsidiary of HCC, HCC subscribed
to 1,030,086 shares of HCMI common stock on March 27, 1996. On May 17, 1996, HCC
contributed  the original par value of those shares  ($4,758) to HCMI in cash in
full payment of its  subscription  receivable and the 1,030,086 shares of common
stock were issued to HCC. In conjunction with HCMI's spinoff to the shareholders
of HCC, on May 18, 1996, HCMI retired those shares and issued  1,030,086  shares
of common stock as follows:  426,280 shares to the existing common  shareholders
of HCC and 603,806  shares to the  preferred  shareholders  of HCC and 3,727,914
shares were issued into escrow on behalf of the HCC shareholders.

     In  addition,   HCMI  issued  1,394,500   warrants  to  the  HCC  preferred
shareholders who held contingent HCC warrants on the basis of 1 warrant for each
two HCC preferred  shares.  Each warrant shall entitle the holder to purchase an
additional share of common stock for $.50.  During May 1996, HCMI notified these
warrant holders of its intent to do an initial public  offering  ("IPO") stating
that the holders had until July 6, 1996 to exercise  their  warrants at $.50 per
share  versus $4 per share  thereafter  (80% of the expected IPO price of $5 per
share).  On July 19, 1996, HCMI extended this warrant exercise period until July
23, 1996. Through July 23, 1996, warrants to purchase 253,387 after-split shares
(1,170,400 pre-split shares) were exercised for proceeds of $585,200.

                                      F-17


<PAGE>


--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

     Warrants  to  purchase  1,573,500  shares of HCMI  common  stock  were also
granted on May 18,  1996 to the  holders of  non-contingent  HCC stock  purchase
warrants. Additionally, on April 17, 1996, HCMI granted HCC warrants to purchase
1,236,000 shares of its common stock for $.50 per common share.

     On June 19,  1997,  62,500  shares of common  stock were  issued to various
members of the Board of  Directors.  The  issuance of these  shares  resulted in
compensation expense of $31,250.

OUTSTANDING WARRANTS

     A summary of the  outstanding  warrants as of December 31, 1996 and 1997 to
purchase HCMI Common Stock is as follows:

                                Original                                Exercise
Warrant          Date           Date of                                    Price
Holder           Issued         Expiration*             Shares         Per Share
--------------------------------------------------------------------------------
HCC
non-contingent
warrant holders  May 18, 1996   May 17, 2001            190,000         $   .001
                                                        900,000              .10

                                                        483,500         $    .50
                                                      ---------

                                                      1,573,500
Issued to
HCC Preferred
Shareholders     May 18, 1996   December 31, 1996       224,100         $    .50

HCC              April 17,1996  April 16, 2001        1,236,000         $    .50
                                                      ---------

                                                      3,033,600
                                                      =========

*The terms of these warrants,  and the contingent warrants discussed below, have
been modified in the reverse stock split which was approved in March 1997.

                                      F-18


<PAGE>


--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

CONTINGENT WARRANTS

     HCMI common  stock which is  contingently  issuable as of December 31, 1996
and 1997 upon the occurrence of a specified event is as follows:

Event Requiring                                                      Shares of
Stock Issuance                                                      Common Stock
--------------------------------------------------------------------------------

Employment Performance
 (See Note 5)                                                             75,000
--------------------------------------------------------------------------------

TOTAL                                                                     75,000
================================================================================

STOCK OPTION PLAN

     On March 27, 1996,  HCMI's founders reserved 600,000 shares of common stock
for a stock option plan.  Conditions of grants, terms, exercise prices, etc. are
yet to be  determined  by the  Board of  Directors.  The  shareholders  would be
required to approve the plan prior to granting options.

REVERSE STOCK SPLIT

     In conjunction with the planned IPO (see note 8), the Board of Directors of
HCMI proposed a (1) reverse split of HCMI's common stock on the basis of one new
share of common stock to  shareholders  for each  4.6190302  shares of presently
outstanding  common stock  (1,326,811  new shares) and (2) a  limitation  on the
exercise of existing warrants.  The principal objective of the reverse split was
to reduce the number of outstanding common shares prior to the IPO. The Board of
Directors  believed  that the total number of shares then  outstanding  caused a
disproportionately large dilutive effect on new investors in the planned IPO and
that the  anticipated  offering price of $5 per share would be better  supported
with fewer shareholders prior to the IPO. On March 26, 1997, the majority of the
common shareholders approved this proposal.







                                      F-19


<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

     The  shareholders  will also be  reissued  a number of shares  equal to the
shares  being  surrendered  (4,801,586  shares).  Those shares will be placed in
escrow with no voting or dividend  rights while in escrow.  The release of these
shares from escrow and their  distribution to the  shareholders and the exercise
of the  existing  warrants,  both in normal  annual  increments  of  16.67%,  is
contingent on HCMI achieving the following:

      HCMI  generates an amount of income before  extraordinary  items but after
      the  deduction  for  minority   interests  (the   "Recurring   Results  of
      Operations")  that, when multiplied by a market  capitalization  factor of
      ten (10),  would  result in a product  sufficient  in size (the  "Required
      Value")  to  (1)  hypothetically  return  capital  of $5  per  share  (the
      "Capital")  and (2)  hypothetically  provide  a  return  of 40%  per  year
      (compounded  monthly) on the Capital for the first two years, and then 15%
      per year  (compounded  monthly)  thereafter,  on the sum of (a) all common
      shares then  outstanding  and (b) the (i) increase in common shares caused
      by the assumed  release  from escrow of the 16.67% of the  escrowed  stock
      that is then eligible for release,  (ii) any carryforward shares and (iii)
      other  warrants or options  probable  of being  exercised,  including  the
      16.67% of existing warrants that is then eligible for exercise.

     Issuance of shares from escrow in the future may result in the  recognition
of compensation expense.

5.    EMPLOYMENT AGREEMENTS

     HCMI has employment  agreements (the  "Agreements") with three officers and
employees.  The Agreements provide for base annual salaries aggregating $180,000
and permit  participation  in an annual bonus pool, the amount and conditions of
which  shall be  determined  by HCMI's  Board of  Directors.  In  addition,  the
Agreements provide that these employees are eligible to annually receive options
to buy up to 100,000 shares of common stock at $.10 per share with terms,  other
than price,  to be determined  by the Board of  Directors.  No options have been
granted to these  individuals as employees.  One of the Agreements also provides
for the  issuance  of 75,000  shares of common  stock to the  employee  if he is
employed by HCMI for three years from May 1, 1996.  Any  options  awarded  under
such plans will be charged to  compensation  expense to the extent fair value of
the underlying  stock

                                      F-20

<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

exceeds the related exercise  prices.  The Agreements are effective as of May 1,
1996,  have a term of three years and provide for  termination  for cause with a
cessation in compensation  payments.  If terminated by HCMI without cause, or by
the employees with cause, prior to the end of their term, the Agreements require
payments of base salary to be continued from the date of termination through the
end of the original term of the Agreements.

     In addition,  the Board of Directors has agreed to annually provide certain
directors  each with options to buy up to 12,500 shares of common stock.  Terms,
including price, are yet to be determined by the Board of Directors.

6.    INCOME TAXES

     HCMI has no provision  for income taxes for the period March 27, 1996 (date
of formation) through December 31, 1996 and the year ended December 31, 1997 due
to net operating losses  generated in those periods.  At December 31, 1997, HCMI
has net operating loss  carryforwards of approximately  $225,000 on a tax basis,
which expire in 2011 and 2012.

A  reconciliation  of the income tax benefit at the statutory rate to the amount
actually recorded is as follows:

                                                   Period Ended       Year Ended
                                                    December 31,    December 31,
                                                        1996             1997

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

Income tax benefit at statutory rate             $ (110,000)         $  (87,000)

State tax benefit                                   (10,000)            (55,000)
                                              
Increase in valuation allowance               
 related to deferred tax asset                      120,000             442,000
--------------------------------------------------------------------------------

Income tax benefit                               $        -          $        -
--------------------------------------------------------------------------------
Deferred income taxes result from temporary  differences which are the result of
provisions of the tax laws that either require or permit certain items of income
or expense to be  reported in  different  periods for  financial  statement  and
income tax reporting purposes. The following is a summary of the deferred income
taxes for 1996 and 1997.


                                      F-21
<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

                                             Period Ended             Year Ended
                                              December 31,          December 31,
                                                  1996                  1997
--------------------------------------------------------------------------------

DEFERRED TAX ASSETS
 Net operating loss carry forw              $     58,000             $   88,000
 Reserve for bad debts                                 -                 73,000
 Nondeductible expenses                                -                241,000
 Cash basis accounting for income
   tax purposes                                   62,000                 40,000
--------------------------------------------------------------------------------
                                                 120,000                442,000

Valuation allowance                             (120,000)              (442,000)
--------------------------------------------------------------------------------

Net deferred tax asset                      $          -             $        -
================================================================================

     Generally accepted accounting principles require that a valuation allowance
be recorded  against  deferred  tax assets  which are not likely to be realized.
Specifically,  HCMI  established  the  valuation  allowance due to the uncertain
nature of the ultimate realization.

7.    OTHER RELATED PARTY TRANSACTIONS

     One of HCMI's  shareholders  was/is a partner in laws firms  which  provide
services to HCMI.  Amounts  recorded for legal services  provided by these firms
principally in conjunction  with the public offering  amounted to  approximately
$107,000 and $260,000 as of December  31, 1996 and 1997,  respectively.  Another
HCMI  shareholder  is the  principal  stockholder  of a  company  that  provides
professional  services  to HCMI.  Amounts  recorded  for  professional  services
provided  by this  company  to HCMI in  conjunction  with  the  public  offering
amounted to approximately  $54,000 and $45,000 as of December 31, 1996 and 1997,
respectively.  These  amounts are  contained in deferred  offering  costs in the
accompanying balance sheets.

                                      F-22


<PAGE>


--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)
                          
                         NOTES TO FINANCIAL STATEMENTS

8.    INITIAL PUBLIC OFFERING

     As of February 13, 1998,  HCMI began  offering  2,500,000  shares of common
stock in a public  offering  at $5 per share,  or an  aggregate  of  $12,500,000
before deducting a selling  commission of 8% of the gross proceeds  raised,  and
other offering costs including a $50,000 due diligence fee and a  nonaccountable
expense  reimbursement  of 2%  of  the  gross  proceeds  of  the  offering.  The
registration  statement  under which these shares are being offered was declared
effective  by the  Securities  and  Exchange  Commission  on February  13, 1998.
Through April 10, 1998,  no orders had been accepted for such shares.  If shares
providing  a minimum of  $2,000,000  of gross  proceeds  are not sold during the
initial offering  period,  as defined,  investors'  funds will be returned.  The
arrangement with the underwriter is on a best efforts basis.

     HCMI also  expects to sell,  at the  termination  of the  offering,  to the
underwriter  for an aggregate  purchase  price of $100,  warrants  entitling the
underwriter  to  purchase  one share of HCMI stock for each ten shares of common
stock  which  have been sold in the IPO (for the  minimum  offering  of  400,000
shares, 40,000 warrants will be issued and for the maximum offering of 2,500,000
shares, 250,000 warrants will be issued). The warrants will be exercisable for a
period of 4 years  commencing  12 months after the date of the  prospectus.  The
exercise price of the warrants shall be 165% of the per share offering price.

     In  accordance  with  Securities  and  Exchange   Commission   (SEC)  Staff
Accounting  Bulletin  (SAB)  Topic  No.  (1)(B),  the  financial  statements  of
subsidiaries  are  required to include  expenses  incurred  by the  subsidiary's
parent on the subsidiary's behalf. In conjunction with the HCMI public offering,
HCC has incurred direct and indirect costs, such as salaries, rent, etc., all of
which have been assigned and/or allocated to HCMI in the accompanying  financial
statements with the net unpaid amount  reflected by HCMI as accounts  payable to
related parties. At December 31, 1996 and 1997, the net unpaid amount aggregated
$220,616  and  $487,830,  respectively.  HCC's and HCMI's  financial  statements
reflect  approximately  $300,000  and  $150,000 and of such costs from March 27,
1996 (date of information)  through  December 31, 1996 and during the year ended
December 31, 1997.  Such costs have either been either  specifically  identified
or, where specific  

                                      F-23

<PAGE>
--------------------------------------------------------------------------------
                           HEARTLAND COMMUNICATIONS &
                                MANAGEMENT, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

identification  was not possible,  have been allocated using  proportional  cost
allocation.  Management  is  of  the  opinion  that  such  methods  result  in a
reasonable  presentation of such costs.  Furthermore,  management  believes that
such costs  approximate  the amounts that would have been  incurred by HCMI on a
stand alone basis.

     By the  completion of the public  offering,  it is expected that such costs
could  aggregate  $600,000.  It is the intent of HCMI to reimburse HCC for these
costs, or at least a portion  thereof,  on a sliding scale basis. Any amount not
reimbursed will be reflected as an investment in HCMI by HCC.

     In  January  1997,  the  Company  substantially  revised  the  terms of its
proposed sale of common stock.  Accordingly,  the Company wrote off the deferred
offering  costs of $618,690  related to the prior  offering in the period  ended
September 30, 1997.

9.    OFFICE EQUIPMENT

      Office equipment consists of the following at December 31, 1997 and  1997:

December 31,                      1996                                      1997
--------------------------------------------------------------------------------

Computers                       $   -                                    $ 9,004

Less accumulated depreciation       -                                      1,000
--------------------------------------------------------------------------------

                                $   -                                    $ 8,004
================================================================================



                                      F-24
<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
  ON FINANCIAL STATEMENT SCHEDULE

Heartland Communications &
  Management, Inc.

     The  audits  referred  to in our  report to  Heartland  Communications  and
Management, Inc., dated April 10, 1998 which is contained in Item 8 of this Form
10-K,  include  the  audit of the  financial  statement  schedule  listed in the
accompanying  index  for the  year  ended  December  31,  1997.  This  financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion  on the  financial  statement  schedule
based upon our audit.

     In our opinion,  such schedule presents fairly,  in all material  respects,
the information set forth therein.

                                                                BDO Seidman, LLP

Washington, D.C.
April 10, 1998

                                      F-25


<PAGE>

--------------------------------------------------------------------------------
                                                      HEARTLAND COMMUNICATIONS &
                                                                MANAGEMENT, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                                                     SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                                Balance at  Charged to
                              Beginning of   Costs and                Balance at
                                      Year    Expenses  Deduction    End of Year
                                                                      
--------------------------------------------------------------------------------
Description
                                                                      
Year ended December 31, 1997                                          
  Allowance for doubtful                                              
    note receivable                $    -    $  169,370   $    -      $  169,370
                                                                      
  Allowance for doubtful                                              
    accounts receivable                 -        16,588        -          16,588
--------------------------------------------------------------------------------





                                            F-26