U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


 (Mark One)
 [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
 of 1934 For Quarterly period ended September 30, 1998 or

 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
 of 1934 For the Transition period from _________ to _________

 Commission File No. 0-21534

                       Children's Broadcasting Corporation
                       -----------------------------------
        (Exact name of small business issuer as specified in its charter)

   Minnesota                                            41-1663712
   ---------------------------------                ----------------------
     (State or other jurisdiction of                (IRS Employer
     incorporation or organization)                 Identification Number)

       724 First Street North-4th Floor, Minneapolis, MN 55401 (Address of
       -------------------------------------------------------------------
                 principal executive office, including zip code)

                                 (612) 338-3300
                                 --------------
                (Issuer's telephone number, including area code)

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

   Yes __X__    No _____

            As of November 13, 1998, there were outstanding 6,600,642 shares of
common stock, $.02 par value, of the registrant.


<PAGE>


INDEX

CHILDREN'S BROADCASTING CORPORATION

PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements (Unaudited)

            Consolidated Balance Sheets -- September 30, 1998 and
            December 31, 1997.

            Consolidated Statements of Operations -- Three and nine months ended
            September 30, 1998 and 1997.

            Consolidated Statements of Cash Flows -- Nine months ended September
            30, 1998 and 1997.

            Notes to Consolidated Financial Statements -- September 30, 1998.


Item 2.     Management's Discussion and Analysis of Financial Condition and 
            Results of Operations



PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings
Item 2.     Changes in Securities and Use of Proceeds
Item 3.     Defaults upon Senior Securities
Item 4.     Submission of Matters to a Vote of Security Holders
Item 5.     Other Information
Item 6.     Exhibits and Reports on Form 8-K


SIGNATURES

EXHIBIT INDEX


<PAGE>


PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                       CHILDREN'S BROADCASTING CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                      SEPTEMBER 30,   DECEMBER 31,
                                                                          1998            1997
                                                                      ------------    ------------
                                     ASSETS
<S>                                                                   <C>             <C>         
Current assets:
         Cash and cash equivalents                                    $    166,641    $    545,258
         Accounts receivable                                               318,320       1,696,756
                 Allowance for doubtful accounts                          (186,005)       (472,000)
         Accounts receivable - affiliates                                  211,619         142,868
         Prepaid expenses                                                  137,829         108,174
                                                                      ------------    ------------

                       TOTAL CURRENT ASSETS                                648,404       2,021,056

         Investment in Harmony                                           6,035,357       6,281,728
         Property & equipment, net                                       3,990,985       4,708,327
         Broadcast license, net                                         17,704,703      19,679,154
         Intangible assets, net                                          1,558,456       1,550,100
         Deferred debt issue costs                                       1,519,194       1,173,209
                                                                      ------------    ------------

                               TOTAL ASSETS                           $ 31,457,099    $ 35,413,574
                                                                      ============    ============


                                 LIABILITIES & SHAREHOLDERS' EQUITY

Current liabilities:
         Accounts payable                                             $  2,304,104    $  1,688,832
         Accrued interest                                                  457,037         324,994
         Other accrued expenses                                          4,445,955       1,203,331
         Line of credit                                                    672,539         453,838
         Short-term debt                                                 1,250,000       1,172,500
         Long-term debt - current portion                               23,908,714      22,857,386
         Obligation under capital lease - current portion                   30,008          26,367
                                                                      ------------    ------------

                  TOTAL CURRENT LIABILITIES                             33,068,357      27,727,248

         Long-term debt - net of current portions                        2,224,137       2,508,819
         Obligation under capital lease                                     29,270          48,836
                                                                      ------------    ------------

                          TOTAL LIABILITIES                             35,321,764      30,284,903
                                                                      ------------    ------------

Redeemable Convertible Preferred Stock
         Authorized shares - 606,061
         Issued and outstanding shares - 606,061 redeemable
           in certain circumstances at $4.04 per share                   2,312,439              --

Shareholders' equity:
         Common stock, $.02 par value:
                 Authorized shares - 50,000,000
                 Issued & outstanding shares - voting: 6,532,601
                   1998 and 6,460,824-- 1997;
                 Issued and outstaning shares - 189,041 nonvoting -
                   1998 and 1997                                           134,380         132,997
         Additional paid-in capital                                     46,792,121      46,387,536
         Stock subscription receivable                                    (529,563)       (529,563)
         Accumulated deficit                                           (52,574,042)    (40,862,299)
                                                                      ------------    ------------

                 TOTAL SHAREHOLDERS' EQUITY                             (6,177,104)      5,128,671
                                                                      ------------    ------------

         TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                     $ 31,457,099    $ 35,413,574
                                                                      ============    ============
</TABLE>


<PAGE>

                       CHILDREN'S BROADCASTING CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED            NINE MONTHS ENDED
                                                                          SEPTEMBER 30,                SEPTEMBER 30,
                                                                 ------------    ------------    ------------    ------------
                                                                     1998            1997            1998            1997
                                                                 ------------    ------------    ------------    ------------
<S>                                                              <C>             <C>             <C>             <C>
REVENUES
         Owned, Operated and LMA Stations                        $    483,974    $  1,069,321    $  1,768,150    $  3,122,036
         Network                                                       47,868         612,125         203,098       1,127,043
                                                                 ------------    ------------    ------------    ------------

                 REVENUES                                        $    531,842    $  1,681,446    $  1,971,248    $  4,249,079

OPERATING EXPENSES:
         Owned, Operated and LMA Stations:
                 General and Administrative                           580,102         747,702       1,556,689       2,276,826
                 Technical and Programming                            225,206         293,805         692,656         837,687
                 Selling                                               56,591         317,780         272,766       1,214,378
                                                                 ------------    ------------    ------------    ------------
                                                                      861,899       1,359,287       2,522,111       4,328,891

         Network
                 General and Administrative                           102,188         134,390         311,586         429,415
                 Programming                                           65,181         236,230         282,220         663,141
                 Selling                                               70,174         366,158         306,819       1,315,484
                 Marketing                                              2,669          (6,060)         21,078         144,996
                                                                 ------------    ------------    ------------    ------------
                                                                      240,212         730,718         921,703       2,553,036

         Corporate                                                  1,413,877       1,149,382       3,941,445       3,140,578
         Depreciation & Amortization                                  528,005         549,770       1,621,626       1,552,805


                 TOTAL OPERATING EXPENSES                           3,043,993       3,789,157       9,006,885      11,575,310
                                                                 ------------    ------------    ------------    ------------

         LOSS FROM OPERATIONS                                      (2,512,151)     (2,107,711)     (7,035,637)     (7,326,231)
         Loss/(Gain) on Exchange of Assets                           (542,297)           --          (542,297)           --
         Equity Loss in Harmony                                       877,074         169,132       1,803,871         169,132
         Interest Expense (Net of Interest Income)                  1,267,549         546,395       3,414,533       1,263,599
                                                                 ------------    ------------    ------------    ------------


                 NET LOSS                                        ($ 4,114,477)   ($ 2,823,238)   ($11,711,744)   ($ 8,758,962)
                 Accretion of Redeemable Convertible Preferred        544,189            --           544,189            --
                 NET LOSS TO COMMON SHAREHOLDERS                 ($ 4,658,666)   ($ 2,823,238)   ($12,255,933)   ($ 8,758,962)
                                                                 ============    ============    ============    ============

NET LOSS PER SHARE                                               ($      0.69)   ($      0.44)   ($      1.83)   ($      1.43)
                                                                 ============    ============    ============    ============




WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                       6,728,000       6,384,500       6,692,000       6,142,500
                                                                 ============    ============    ============    ============
</TABLE>

<PAGE>


                       CHILDREN'S BROADCASTING CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                                    September 30,
                                                                           ------------    ------------
                                                                                1998            1997
                                                                           ------------    ------------
<S>                                                                        <C>             <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                   ($11,711,744)   ($ 8,758,963)

Adjustments to reconcile net loss to net cash from operating activities:
                 Provision for doubtful accounts                               (285,995)             --
                 Depreciation & amortization                                  1,621,626       1,552,805
                 Amortization of deferred debt issue costs                      615,640              --
                 Gain on Sale of Assets                                        (542,297)
                 Net barter activity                                             (8,840)         30,376
                 Issuance of common stock for payment of attorney fees               --              --
                 Issuance of common stock for payment of interest                79,788          81,113
                 Equity loss in Harmony                                       1,803,871         169,132
                 Decrease (Increase) in:
                         Accounts Receivable                                  1,387,276        (197,732)
                         Other Receivables                                      (68,751)             --
                         Prepaid Expenses                                       (29,655)        (48,663)
                 Increase (Decrease) in:
                         Accounts Payable                                       615,272         769,474
                         Accrued Interest                                       132,043          96,984
                         Other Accrued Expenses                               3,242,624        (397,862)
                                                                           ------------    ------------
         NET CASH USED IN OPERATIONS                                         (3,149,142)     (6,703,336)
                                                                           ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
         Sale/Purchase of Property & Equipment                                  151,783        (693,634)
         Investment in Harmony                                               (1,557,500)     (5,636,700)
         Sale/Purchase of Intangible Assets                                   1,452,327      (2,086,582)
                                                                           ------------    ------------
                         NET CASH USED IN INVESTING ACTIVITIES                   46,610      (8,416,916)
                                                                           ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Repayment of Capital Lease Obligation                                  (15,925)        (23,411)
         Payment of Debt                                                     (2,853,859)       (352,663)
         Proceeds from Debt Financings                                        3,724,449      13,720,922
         Proceeds from Issuance of Convertible Preferred Stock                1,864,250              --
         Proceeds from Issuance of Common Stock                                   5,000         115,619
                                                                           ------------    ------------
                         NET CASH PROVIDED BY FINANCING ACTIVITIES            2,723,915      13,460,467
                                                                           ------------    ------------



Increase (Decrease) in Cash                                                    (378,617)     (1,659,785)
Cash - Beginning of Period                                                      545,258       3,370,038
                                                                           ------------    ------------
CASH - END OF PERIOD                                                       $    166,641    $  1,710,253
                                                                           ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         Cash Paid During the Period for Interest                          $  2,628,902    $  1,240,315
                                                                           ============    ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
         During the nine months ended September 30, 1998:

                 The Company recognized revenues of $112,698 and expenses of
                 $103,858 through barter activity.

                 The Company issued 66,639 shares of common stock valued at
                 $226,532 for the payment of a principal and interest
                 installment due in February, May and August 1998 totaling
                 $146,744 and $79,788 respectively, for the note payable
                 outstanding to the seller of WAUR (AM).

                 The Company incurred debt issuance costs aggregating $560,000
                 as a result of the issuance and repricing of warrants related
                 to the Foothill financing, debt issuance cost aggregating
                 $62,625 resulting from the issuance of warrants related to the
                 bridge financing to purchase Harmony stock.
<PAGE>



CHILDREN'S BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998

NOTE 1--BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation SB. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals with the exception of the adjustments discussed in
Note 2) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto including in the Company's Form 10-KSB for the
year ended December 31, 1997.

NOTE 2--SIGNIFICANT TRANSACTIONS DURING 1998

The following significant transactions occurred during the first nine months of
1998 and are considered non-recurring:

A.          In January 1998, the Company received proceeds totaling $611,000 and
            paid debt issue costs of $39,000 through the issuance of a note
            payable to Harmony Holdings, Inc. ("Harmony") with a face amount of
            $650,000. The note payable bore interest at 15%, was unsecured and
            was due upon demand. The Company paid Harmony $323,000 of the
            principal plus related interest on the note in May 1998, and paid
            the remaining $327,000 of principal plus related interest in June
            1998.

B.          In February 1998, the Company adopted a Shareholder Rights Plan 
            designed to enable the Company and its board to develop and preserve
            long-term values for shareholders and to protect shareholders in the
            event an attempt is made to acquire control of the Company through
            certain coercive or unfair tactics or without an offer of fair value
            to all shareholders. The plan provides for distribution of a common
            share purchase right to each shareholder of record of the Company's
            common stock on February 27, 1998. Under the plan, these rights to
            purchase common shares will generally be exercisable a certain
            number of days after a person or group acquires or announces an
            intention to acquire 20% or more of the Company's common stock. Each
            right entitles the holder, after the rights become exercisable, to
            receive shares of the Company's common stock having a market value
            of two times the exercise price of the right or securities of the
            acquiring entity at one-half their market value at that time.
<PAGE>

C.          On March 13, 1998, the Credit Agreement with Foothill Capital 
            Corporation ("Foothill") was amended. Pursuant to the amendment,
            Foothill issued an additional term note payable advance of
            $1,000,000 of which the Company received proceeds totaling $900,000
            and paid a loan fee of $100,000. The provisions of the Credit
            Agreement remained substantially unchanged as a result of the
            amendment, except that the variable interest rate was increased by
            1%, a principal installment of $500,000 due March 31, 1998 was
            deferred until April 16, 1998, and the Company received a waiver of
            certain debt covenants which the Company had not met as of March 31,
            1998. As additional consideration for the amendment, the Company
            issued Foothill an additional warrant to purchase 100,000 shares of
            the Company's common stock at a purchase price of $3.68 per share
            and amended the exercise price of a previously granted warrant to
            purchase 100,000 shares of common stock from $5.29 per share to
            $3.68 per share.

D.          In April 1998, the Company signed a definitive purchase agreement 
            with Catholic Radio Network, LLC ("CRN") to sell the assets of ten
            of its owned and operated stations including the stock of Children's
            Radio New York, Inc., a subsidiary of the Company, for $57.0
            million. The total purchase price was to include $52.0 million in
            cash and a $5.0 million subordinated secured promissory note. CRN
            deposited $3.0 million into an escrow account, all of which was
            released to the Company. In October 1998, the agreement was amended
            to reduce the number of stations to be purchased by CRN to seven and
            to change the purchase price to $36.9 million, $15.0 million of
            which is payable to the Company in the form of a promissory note.
            This note has a term of 18 months and bears simple interest at a
            rate of 10% per annum. Per the amendment, interest only will be
            payable to the Company on a monthly basis with the outstanding
            principal due at the maturity of the note. CRN established a $1.0
            million interest reserve in favor of the Company. The transaction
            was consummated October 30, 1998 (see exhibits 2.1, 2.2, 2.3, 10.10
            and 10.11). In connection with the transaction consummation, the
            Company paid Foothill a fee of $200,000 and canceled warrants
            previously granted to Foothill for 50,000 shares of the Company's
            common stock exercisable at $4.40 per share.

E.          In April 1998, the Company signed a definitive purchase agreement
            with Salem Communications Corporation to sell the assets of two of
            its owned and operated stations for a total purchase price of $2.7
            million cash. On April 27, 1998, $135,000 was deposited into an
            escrow account. The Company simultaneously entered into a
            pre-closing time brokerage agreement regarding the stations which
            terminated upon consummation of the sale on October 30, 1998.

F.          In May 1998, the Company signed a definitive purchase agreement with
            1090 Investments, LLC to sell the assets of one of its owned 

<PAGE>

            and operated stations for a purchase price of $2.0 million cash.
            Pursuant to the terms of the agreement, the buyer deposited $100,000
            into an escrow account to be held until closing. The Company
            simultaneously entered into a pre-closing time brokerage agreement
            to operate WCAR(AM) which terminated upon consummation of the sale
            on September 1, 1998.

G.          In May 1998, the Credit Agreement with Foothill was again amended
            effective April 17, 1998. Pursuant to the amendment, the Company
            obtained an additional term note payable advance of $2.0 million of
            which the Company received proceeds totaling $1.0 million, paid a
            loan origination fee of $200,000, and established an interest
            reserve of $800,000 to be used for payment of future interest. Also,
            pursuant to the amendment, the variable interest rate was increased
            by 1% on the entire outstanding loan balance, and the Company
            received a forbearance of all principal payments and certain
            covenant requirements through September 30, 1998. As additional
            consideration for the amendment, the Company issued Foothill an
            additional warrant to purchase 200,000 shares of the Company's
            common stock at $3.31 per share.

H.          In May 1998, the Company issued 150,000 shares of its common stock
            to its litigation counsel in connection with the ABC/Disney
            litigation. The Company also registered such shares for resale. The
            litigation counsel must obtain approval from the Company prior to
            selling any shares and using the proceeds to satisfy litigation
            expense. As of this filing, none of these shares have been sold by
            the litigation counsel.

I.          In February and June 1998, the Company issued an aggregate of 66,639
            shares of its common stock to satisfy three principal and interest
            installments due, aggregating $226,531, to the seller of WAUR(AM).

J.          In June 1998, pursuant to a Securities Purchase Agreement, the 
            Company issued 606,061 shares of its series B convertible preferred
            stock ("this Series") to three accredited investors for which it
            received gross proceeds of $2.0 million. From the gross proceeds,
            the Company paid a 6.25% commission to Pacific Continental
            Securities Corp. After legal and escrow fees, the transaction
            resulted in net proceeds to the Company of approximately $1,860,000.
            The shares of this series have a stated value of $3.30 per share.
            The holders may require the Company to redeem these shares for cash
            in certain circumstances between three business days and 60 days
            following the CRN closing. These shares may be converted into a
            variable number of shares of common stock of the Company
            incrementally over a period of time, in certain circumstances,
            originally commencing October 23, 1998. However, the Company may, at
            any time, redeem all or part of the outstanding unconverted shares
            of this Series through cash payments of approximately $4.04 per
            share. In connection with this financing, the Company issued a
            five-year warrant to the investors for the purchase of an aggregate
            of 100,000 shares 

<PAGE>

            of the Company's common stock at a per share exercise price of
            approximately $3.77 (subject to adjustment). In addition, the
            Company issued a five-year warrant to the investors for the purchase
            of an aggregate of 25,000 shares of the Company's common stock, at a
            per share exercise price of approximately $2.68. In October 1998,
            the Company and the holders of this series agreed to extend the
            Company's absolute right to redeem such shares through January 31,
            1999. In connection with this amendment, the Company issued an
            aggregate of 125,000 warrants at the exercise price of approximately
            $2.68 per share pursuant to this June 1998 agreement and its October
            22, 1998 extension agreement. The holders can exercise up to 65,000
            of such warrants immediately, another 35,000 if the shares of this
            series have not been redeemed by December 31, 1998 and the final
            25,000 if the shares of the series have not been redeemed by January
            31, 1999 (see exhibit 10.6).

K.          In June 1998, using the proceeds of the above-referenced transaction
            (see Note J), the Company exercised previously held options to
            purchase a aggregate of 750,000 shares of common stock of Harmony at
            $1.50 per share and repaid the remainder of the note due Harmony
            (see Note A). Additionally, in July 1998, the Company made an open
            market purchase of 250,000 shares of common stock of Harmony at
            $1.73 per share. The purchase of these additional shares of
            Harmony's common stock resulted in an increase in the Company's
            actual ownership in Harmony to approximately 44.1%. The aggregate
            purchase price of $1,557,500 exceeded the Company's pro rata share
            of Harmony's net tangible assets by approximately $1 million. This
            excess purchase price relates to Harmony's intangible asset value,
            principally technical know-how, industry reputation and customer
            lists, and is being amortized on a straight line basis over a seven
            year estimated useful life. In November 1998, the Company purchased
            an additional 269,231 shares of common stock at a price of $1.30 per
            share directly from Harmony. This $350,000 purchase of Harmony's
            common stock increased the Company's actual ownership in Harmony to
            approximately 46.1%.

L.          In July 1997, the Company received proceeds aggregating $1.25
            million in exchange for the issuance of promissory notes payable and
            warrants to purchase 125,000 shares of the Company's common stock to
            a partnership controlled by a Company director, a Company director
            individually and a less that five-percent shareholder. These notes
            payable were to mature in July 25, 1998. In June 1998, the notes
            were amended to be payable on October 25, 1998. In connection with
            the amendment, the interest rate to be received by one lender was
            increased to 20% per year effective July 25, 1998, and warrants to
            purchase an aggregate of 37,500 shares of the Company's common stock
            at approximately $3.06 per share were issued to the other two
            lenders. The Company paid these notes and the related interest in
            full November 3, 1998.

M.          In July 1998, Harmony entered into a three-year, $5.0 million 
            revolving line of credit agreement with Heller Financial, Inc.  

<PAGE>

            The Company entered into an agreement to guarantee this line of
            credit.

N.          In October 1998, the Company signed a definitive purchase agreement 
            with Radio Unica Corporation ("Radio Unica") to sell the three radio
            stations not being purchased by CRN for a total purchase price of
            $29.3 million. Radio Unica has deposited $10.0 million into escrow
            and paid $2.5 million to the Company as pre-payment of local
            marketing agreement ("LMA") fees charged at $135,000 per month for
            the New York station and $65,000 per month for the other stations.
            The consummation of the transaction is subject to receipt of Federal
            Communication Commission approval, Hart-Scott-Rodino clearance, and
            other customary conditions of closing. Radio Unica will continue to
            operate the Company's New York radio station and with an additional
            $500,000 LMA pre-payment, subject to receipt of Hart-Scott-Rodino
            approval, will operate the remaining two stations for two years or
            until closing, whichever occurs first. Any unused portion of the LMA
            fee paid to the Company will be credited to the purchase price of
            the transaction at closing, which is expected to occur in January
            1999 (see exhibits 10.4 and 10.5).

O.          In October 1998, the Credit Agreement with Foothill was again
            amended. Pursuant to the amendment, the Company obtained an
            additional term note payable advance of up to $1.0 million. From the
            $1.0 million, the Company paid a loan origination fee of $100,000,
            and established an interest reserve of $300,000 to be used for
            payment of future interest. The remaining $600,000 is available to
            the Company as needed for working capital (see exhibit 10.12).

NOTE 3--INVESTMENT IN HARMONY

            In 1997, the Company acquired an equity interest in Harmony by
            purchasing 2,188,731 shares of Harmony's common stock and options to
            acquire an additional 750,000 shares of Harmony's common stock. The
            Company exercised its options on June 30, 1998, purchased
            additional stock on the open market in July 1998, and purchased
            269,231 shares directly from Harmony in November 1998 (see Note K).
            Currently, the Company's investment represents 46.1% of the
            outstanding common stock of Harmony. Harmony's most recent fiscal
            year end was June 30, 1998. Harmony's operations are summarized as
            follows for the quarter and year ended June 30, 1998:

                                         Quarter Ended     Year Ended
                                            6/30/98          6/30/98
                                         ----------------------------

                 Contract revenues       $15,878,713      $53,355,100
                 Cost of production       13,501,173       43,616,737
                                         -----------      -----------

                 Gross profit              2,377,540        9,738,363
                 Operating expenses        4,599,249       14,230,595
                                         -----------      -----------
<PAGE>

                 Income (loss) from
                        Operations        (2.221,709)      (4,492,232)
                 Interest income               3,598           25,315
                                         ------------     -----------
                 Income (loss) before
                        Income taxes      (2,218,111)      (4,466,917)
                 Income taxes                 (1,479)          21,663
                                         ------------     -----------

                 Net income (loss)       $(2,216,632)     $(4,488,580)
                                         ------------     ------------

                 Harmony's financial information as of September 30, 1998 is not
            yet available. The Company has utilized an estimate of Harmony's 
            results from operations in its computation of the equity loss in 
            Harmony for the quarter ended September 30, 1998.

<PAGE>


            ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                        CONDITION AND RESULTS OF OPERATIONS

                        This discussion and analysis contains certain
            forward-looking terminology such as "believes," "expects,"
            "anticipates," and "intends," or comparable terminology. Such
            statements are subject to certain risks and uncertainties that could
            cause actual results to differ materially from those projected.
            Potential purchasers of the Company's securities are cautioned not
            to place undue reliance on such forward-looking statements which are
            qualified in their entirety by the cautions and risks described
            herein.

            GENERAL

                        The Board of Directors of Children's Broadcasting
            Corporation unanimously approved the sale of the Company's assets to
            Global Broadcasting Company, Inc. ("Global"), subject to shareholder
            approval, for $72.5 million in cash. Shareholder approval for the
            sale was obtained in January 1998. However, on January 27, 1998, the
            Company announced that Global had failed to close on the purchase of
            the Company's radio stations within the time provided under the
            purchase agreement between the parties. On January 30, 1998, the
            Company discontinued operation of Aahs World Radio, its 24-hour
            children's radio programming, which it began broadcasting by
            satellite in late 1992. The primary sources of the Company's
            broadcast revenue, prior to the discontinuation of Aahs World Radio,
            were from the sale of local advertising and air time and network
            revenue. The cessation of such broadcasting has negatively impacted
            the Company's revenue. On April 20, 1998, the Company signed a
            definitive purchase agreement with CRN to sell the assets of ten of
            its owned and operated stations including the stock of Children's
            Radio New York, Inc., a subsidiary of the Company for $57.0 million.
            Subsequently, this agreement was amended allowing for CRN to
            purchase the assets of seven of the Company's stations for $37.0
            million and to effectively assign its right to purchase the three
            other stations. This transaction closed on October 30, 1998. On
            September 1, 1998, the Company sold the assets of one of its
            stations to 1090 Investments, LLC for total purchase price of $2.0
            million. On October 30, 1998, the Company sold the assets of two
            additional owned and operated stations for a total purchase price of
            $2.7 million cash to Salem Communications Corporation. On October
            26, 1998, the Company signed a definitive purchase agreement with
            Radio Unica to sell the assets of the three remaining stations for a
            total purchase price of $29.3 million cash.

                        Radio stations frequently barter unsold advertising time
            for products or services, such as hotels, restaurants and other
            goods used principally for promotional, sales and other business
            activities. Barter revenues and expenses are included in the
            financial presentation below. The revenue and expenses related 

<PAGE>

            to barter do not have a material effect on the Company's operating
            profit in a given period.

            RESULTS OF OPERATIONS:

                        THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997.

                        Revenue:

                                    Owned, Operated and LMA Station Revenues:

                                    Total revenues from the Company's owned,
            operated and LMA stations decreased $585,000 or 55% from $1,069,000
            in the third quarter of 1997 to $484,000 in the third quarter of
            1998. Revenues during the first nine months of 1998 decreased 43%
            from $3,122,000 in 1997 to $1,768,000 in 1998. This decrease in
            revenue can be attributed to the cessation of broadcasting the Aahs
            World Radio format and the reduction of sales force at various
            stations in anticipation of the sale of the Company's owned and
            operated stations as well as the Local Marketing Agreements ("LMA")
            entered into at four of the Company's owned stations.

                                    Network:

                                    Total revenues of $48,000 were produced by
            the network during the third quarter of 1998 compared to revenues of
            $612,000, a decrease of $564,000 or 92%, compared to the third
            quarter of 1997 revenues. Revenues for the first nine months of 1998
            decreased $924,000 or 82% compared to the same period in 1997. This
            decrease in network revenues was due to the cessation of
            broadcasting the Aahs World Radio programming on January 30, 1998
            and the termination of all affiliate agreements.

                        Operating Expenses:

                                    Owned, Operated and LMA Station Expenses:

                                    General and administrative expenses
            decreased 22% to $580,000 for the third quarter of 1998 from
            $748,000 in the same period of 1997. These expenses decreased
            $720,000 or 32% for the first nine months of 1998 compared to the
            same period in 1997. This decrease was due to the Company's
            reduction in staff at the stations, which eliminated not only
            personnel but also general office overhead expenses. Additionally,
            the Company has entered into Local Marketing Agreements pertaining
            to KTEK(AM) in Houston, KYCR(AM) in Minneapolis, WCAR(AM) in
            Detroit, WJDM(AM) in New York. These LMAs have substantially reduced
            the Company's expenses at these stations. Expenses continued to
            diminish as all the stations were sold or covered by LMAs.

<PAGE>

                                    Technical and programming expenses decreased
            to $225,000 in the third quarter of 1998 from $294,000 during the
            same period in 1997, a decrease of 23%. During the first nine months
            of 1998, these expenses decreased 17% compared to the same period in
            1997. Expenses continued to diminish as all the stations were sold
            or covered by LMAs.

                                    Sales expenses totaled $57,000 in the third
            quarter of 1998 compared to $318,000 in the third quarter of 1997.
            During the first nine months of 1998, these expenses decreased 78%
            compared to the same period in 1997. This decrease is due to the
            reduction revenues and the elimination of sales personnel in
            anticipation of the sale of the Company's stations. Expenses
            continued to diminish as all the stations were sold or covered by
            LMAs.

                                    Network Expenses:

                                    General and administrative expenses
            decreased $32,000 in the third quarter of 1998 to $102,000 as
            compared to $134,000 for the third quarter of 1997. These expensed
            decreased 27% during the first nine months of 1998 as compared to
            the same period in 1997 due to the reduction in general overhead
            expenses and personnel tied to the cessation of broadcasting of Aahs
            World Radio programming.

                                    Programming expenses decreased $171,000 to
            $65,000 in the third quarter of 1998 compared to $236,000 in the
            same period of 1997, and decreased $381,000 to $282,000 in the first
            nine months of 1998 from $663,000 during the first nine months of
            1997. This decrease was due to the reduction of staff and
            elimination of production expenses due to the discontinuation of
            broadcasting of Aahs World Radio programming and in anticipation of
            the sale of the Company's owned and operated stations.

                                    Sales expenses decreased 81% from $366,000 
            in the third quarter of 1997 to $70,000 in the same period of 1998.
            These expenses decreased 77% from $1,316,000 during the first nine
            months of 1997 to $307,000 in the same period of 1998. This decrease
            was due to the reduction of sales personnel and revenues in
            conjunction with the discontinuation of broadcasting the Aahs World
            Radio format.

                                    Marketing expenses were $3,000 during the
            third quarter of 1998 compared to $(6,000) in the third quarter of
            1997, representing an increase of $9,000. During the first nine
            months of 1998, marketing expenses decreased $124,000 or 85%
            compared to the same period of 1997, due to the elimination of the
            Company's marketing effort in conjunction with the cessation of
            broadcasting of Aahs World Radio programming on January 30, 1998.


<PAGE>

                                    Corporate charges were $1,414,000 in the
            third quarter of 1998 compared to $1,149,000 in the third quarter of
            1997, representing an increase of 23%. Corporate charges increased
            26% in the first nine months of 1998 compared to the same period in
            1997. This increase is attributable to a $921,000 increase in legal
            fees incurred relating to the ABC/Disney litigation during the first
            nine months of 1998 compared to the first nine months of 1997.
            Decreases in corporate charges of $120,000 were realized due to a
            decrease in personnel expense, outside services and travel expenses.

                                    Depreciation and amortization decreased 
            $22,000 during the third quarter of 1998 compared to the same period
            in 1997. During the first nine months of 1998, these expenses
            increased $69,000 or 4% over the same period in 1997. The overall
            increase in depreciation and amortization has been minimal given the
            Company's discontinuation of its former business strategy to acquire
            radio broadcast licenses and related assets, and during the third
            quarter of 1998 some assets were disposed of due to the sale of
            WCAR(AM) in Detroit.

                                    A gain of $542,000 was realized in the third
            quarter of 1998 due to the sale of WCAR(AM) in Detroit to 1090
            Investments, LLC for a total purchase price of $2.0 million.

                                    Net interest expense for the third quarter 
            of 1998 was $1,268,000, an increase of $721,000 over the third
            quarter of 1997. Net interest expense for the first nine months of
            1998 increased 170% from $1,264,000 to $3,415,000, as a result of
            the interest increase associated with the additional financing
            provided by Foothill and the interest payable to the lenders who
            provided $1.25 million for the purchase of stock in Harmony.

                                    The net loss increased 46% in the third 
            quarter of 1998 to $4,114,000 from $2,823,000 in the third quarter
            of 1997. During the first nine months of 1998 the net loss increased
            $2,953,000 to $11,712,000 from $8,759,000 in the first nine months
            of 1997, an increase of 34%.

            LIQUIDITY AND CAPITAL RESOURCES

                        The Company's liquidity, as measured by its working
            capital, was a deficit of $32,420,000 at September 30, 1998 compared
            to a deficit of $25,706,000 at December 31, 1997.

                        During the first nine months of 1998, the Company used
            $3,149,000 cash for in operating activities. The Company ceased
            producing and distributing its full-time Aahs World Radio
            programming format as of January 30, 1998. Concurrent with the
            announcement of this termination of network programming, the Company
            initiated certain reductions in its workforce related to the
            operation of the network and the stations.

<PAGE>


                        In January 1998, the Company received proceeds totaling
            $611,000 and paid debt issue costs of $39,000 through the issuance
            of a note payable to Harmony with a face amount of $650,000. The
            note payable, which has subsequently been repaid, bore an interest
            rate of 15%, was unsecured and was due upon demand (see Note A).

                        The Company entered into second, third, and fourth
            amendments to its Credit Agreement with Foothill in March, May, and
            October 1998, pursuant to which the Company obtained additional term
            note payable advances totaling $4,000,000 of which the Company
            received net proceeds totaling $2,500,000, paid loan origination
            fees of $400,000, and established an interest reserve of $1,100,000
            to be used for payment of future interest (see Notes C, G, & O).

                        In June 1998, the Company issued 606,061 shares of its
            Series B Convertible Preferred Stock ("this Series") to three
            accredited investors for which it received gross proceeds of
            $2,000,000. This securities purchase agreement was subsequently
            amended in October 1998. Net proceeds to the Company after
            commissions and legal fees were approximately $1,860,000. With the
            proceeds, the Company exercised its stock options to acquire 750,000
            shares of Harmony, purchased 250,000 additional shares of Harmony
            common stock on the open market, and repaid the above-referenced
            debt obligation to Harmony. The Company current ownership in Harmony
            is 44.1% (see Notes J & K).

                        In September, the Company sold its Detroit station to 
            1090 Investments, LLC for $2.0 million cash. Net proceeds after
            closing costs were used to pay interest and a portion of the
            principal on the Foothill term loan.

                        Subsequent to September 30, 1998, the Company sold nine
            of its radio stations for $39.6 million. The transactions included
            (i) a sale of seven stations to CRN for $21.9 million cash and a
            $15.0 million, 18 month promissory note with 10% annual interest to
            be paid quarterly, and (ii) a sale of two radio stations to Salem
            Communications Corporation for $2.7 million cash. Additionally, the
            Company entered into an agreement to sell its remaining three
            stations to Radio Unica for $29.3 million. The sale is expected to
            occur in early January 1999. Radio Unica paid the company $2.5
            million as a prepaid LMA fee with an additional payment of $500,000
            due pending approval of a Hart-Scott-Rodino filing. Radio Unica also
            deposited $10 million into a joint escrow account. As of November 9,
            1998, the Company has used the proceeds in the following manner: a)
            $14.0 million principal payment to Foothill, b) approximately
            $600,000 to purchase Harmony common stock per a put agreement, c)
            approximately $1.3 million to repay bridge notes and interest, d)
            $200,000 to repurchase a warrant previously granted to Foothill, e)
            approximately $2.0 million principal payment to seller notes related
            to the sale of the stations, f) approximately $500,000 to 

<PAGE>

            repurchase the Company's common stock, g) approximately $2.0 million
            related to closing costs of the transactions, and h) $350,000 to
            purchase additional shares of Harmony. Additionally, the Company
            used some of its proceeds to pay certain outstanding accounts
            payable including various legal costs associated with the ABC/Disney
            litigation. The Company believes its current working capital
            position will enable the Company to proceed through the sale of the
            remaining stations to Radio Unica. Upon sale of those stations, the
            Company will pay all remaining debt due to Foothill and other
            accounts payable.

                        The Company is committed to growing its investment in
            Harmony as evidenced by the $350,000 purchase of Harmony's common
            stock it made upon receipt of proceeds from the sale of its
            stations. Harmony's management has determined it is in the best
            interest of Harmony to discontinue the operation of its Harmony
            Pictures division. For the year ended June 30, 1998, that division
            recorded revenues of $10,867,000 and an operating loss of
            $1,625,000. Additionally, for the quarter ended September 30, 1998,
            that division recorded revenues of $1,139,000 and an operating loss
            of $595,000. Harmony expects to incur expenses for discontinuation
            of the division in the second quarter ended December 31, 1998. The
            amount of the one time expense has not yet been determined.

                        Consolidated cash was $167,000 at September 30, 1998 and
            $545,000 at December 31, 1997, a decrease of $378,000.

                        Accounts receivable at September 30, 1998 decreased
            $1,092,000 from December 31, 1997, other receivables increased
            $69,000, and prepaid expenses at September 30, 1998 increased
            $30,000 from December 31, 1997. Accounts payable at September 30,
            1998 increased $615,000 from December 31, 1997, accrued interest
            increased $132,000 from December 31, 1997 to September 30, 1998 and
            other accrued expenses increased $3,243,000 during that same period.
            The $3,149,000 cash used for operations was provided by the proceeds
            obtained through the Foothill financing and CRN escrow releases.

                        During the first nine months of 1998, net cash used for
            investing activities was $47,000. Cash used for the additional
            investment in Harmony was $1,558,000 and was provided by the sale of
            convertible preferred stock pursuant to the Securities Purchase
            Agreement and the bridge loans described in notes J and L. The
            primary source of the $1,604,000 cash provided from investing
            activities was the sale of one of the Company's stations.

                        Cash obtained through financing activities amounted to
            $2,724,000 during the first nine months of 1998. This cash
            represents the $2,500,000 cash proceeds from term loan advance from
            Foothill, the $1,860,000 net proceeds obtained through the issuance
            of convertible preferred stock pursuant to a Securities Purchase
            Agreement, and the $5,000 obtained through the issuance of common
            stock through the exercise of stock options, less the repayment of
            debt.

            YEAR 2000 COMPLIANCE

                        The Company has made an assessment of its systems and
            has been advised by its computer consultant that its systems are
            year 2000 compliant. Additionally, management believes it will not
            be materially impacted by the Year 2000 compliance of third parties
            with which it conducts business.

            SEASONALITY AND INFLATION

                        In the past, the Company's revenues generally followed
            retail sales trends, with the fall season (September through
            December) reflecting the highest revenues for the year, due
            primarily to back-to-school and holiday season retail advertising,
            and the first quarter reflecting the lowest revenues for the year.
            Presently, the Company has not determined the impact of seasonality
            on its future revenues. The Company does not believe inflation has
            affected the results of its operations, 

<PAGE>

            and does not anticipate that inflation will have an impact on its
            future operations.

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1            LEGAL PROCEEDINGS

         On September 30, 1998, a jury in the United States District Court for
         the District of Minnesota ruled in favor of the Company in connection
         with litigation for breach of contract and misappropriation of trade
         secrets that the Company had commenced against The Walt Disney Company
         ("Disney") and ABC Radio Networks, Inc. ("ABC"). The Company is seeking
         to have judgment entered by the Court upon that verdict in the amount
         of $20 million against ABC and $10 million against Disney, as well as
         additional amounts for taxes, pre-judgment interest and for exemplary
         damages for willful and malicious misappropriation of trade secrets.
         The entry of judgment is currently pending before the Court.

ITEM 2            CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not applicable.

ITEM 3            DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

ITEM 4            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         (a)      The Company held its Annual Meeting of Shareholders on 
                  August 18, 1998.

         (b)      Proxies for the Annual Meeting of Shareholders were solicited
                  pursuant to Regulation 14A under the Exchange Act, there was
                  no solicitation in opposition to the management's nominees as
                  listed in the proxy statement, and all of such nominees were
                  elected.

         (c)      The following matters were voted upon at the Annual Meeting of
                  Shareholders:

                  (1)      To elect four directors for the ensuing year and
                           until their successors shall be elected and duly
                           qualified.

                                                     FOR           AGAINST

                           Christopher T. Dahl       6,210,451     166,417
                           Richard W. Perkins        6,200,101     176,767
                           Michael R. Wigley         6,217,751     159,117
                           William E. Cameron        6,217,901     158,967

                  (2)      To consider and vote upon a proposal to approve the
                           plan for the sale of all of the Company's owned and
                           operated radio stations (the "Plan") pursuant to
                           which (a) ten stations will be sold to Catholic Radio
                           Network, LLC ("CRN") for $57.0 million (subject to
                           adjustment), (b) two stations will be sold to Salem
                           Communications Corporation ("Salem") for $2.7 million
                           (subject to adjustment) and (c) one station


<PAGE>


                           will be sold to 1090 Investments, L.L.C. ("1090") for
                           $2.0 million (subject to  adjustment).

                           FOR.........................................3,811,576
                           AGAINST........................................54,739
                           ABSTAIN........................................24,963
                           BROKER NON-VOTE.............................2,485,290

                  (3)      To consider and vote upon a proposal to approve an
                           amendment to the Company's 1994 Stock Option Plan
                           (the "1994 Plan") which would permit the committee
                           administering the 1994 Plan to suspend or discontinue
                           it at any time and to revise or amend it in any
                           respect; provided, however, that no revision or
                           amendment may be made without shareholder approval
                           that: (a) absent such shareholder approval, would
                           cause Rule 16b-3 under the Securities Exchange Act of
                           1934, as amended, to become unavailable with respect
                           to the 1994 Plan or (b) requires shareholder approval
                           under any rules or regulations of the National
                           Association of Securities Dealers, Inc. or any
                           exchange that are applicable to the Company.

                           FOR.........................................5,973,641
                           AGAINST.......................................314,383
                           ABSTAIN........................................52,223
                           BROKER NON-VOTE................................36,621


                  (4)      To ratify the appointment of BDO Seidman, LLP as the
                           Company's independent public accountants for the
                           fiscal year ending December 31, 1998.

                           FOR.........................................6,301,090
                           AGAINST........................................25,054
                           ABSTAIN........................................50,724
                           BROKER NON-VOTE.....................................0

         (d)      Not applicable.

ITEM 5            OTHER INFORMATION

         THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 2 OF FORM 8-K
         (ACQUISITION OR DISPOSITION OF ASSETS)

         Sale of Seven Radio Stations to Catholic Radio Network, LLC

                  On April 17, 1998, Catholic Radio Network, LLC, a California
                  limited liability company ("CRN"), entered into a Purchase
                  Agreement with the Company, pursuant to which CRN agreed to
                  purchase ten of the Company's owned and operated radio
                  stations. CRN was formed in March 1998 for the purpose of
                  developing and promoting by broadcast media the teachings of
                  the Roman Catholic Church.


<PAGE>


                  The proposed sale of substantially all of the Company's
                  assets, including the sale of assets to CRN, was approved by
                  the Company's shareholders at the Annual Meeting of
                  Shareholders held on August 18, 1998.

                  On September 29, 1998, the parties entered into the First
                  Amendment to the Purchase Agreement. This amendment extended
                  the scheduled closing of the sale of assets through October
                  16, 1998, and provided for up to two one-week extensions upon
                  CRN's payment to the Company of $125,000 in cash for each such
                  extension. This delay was required in order to enable CRN to
                  obtain an alternate source of secondary financing after Bank
                  of America announced, upon its merger with NationsBanc, that
                  it would no longer provide financing to broadcast entities.

                  On October 26, 1998, the parties entered into the Second
                  Amendment to the Purchase Agreement, attached hereto as an
                  exhibit. Under the amended agreement, instead of purchasing
                  ten radio stations from the Company, CRN agreed to purchase
                  seven radio stations from the Company and CRN effectively
                  assigned its right to purchase the other three radio stations
                  to Radio Unica Corp.

                  On October 30, 1998, after CRN's use of two one-week
                  extensions, the Company completed the sale of seven of its
                  radio stations to CRN for which CRN paid $37.0 million. Of the
                  total paid by CRN, $18.89 million was paid in cash at closing,
                  $3.0 million was paid in cash prior to the closing, $110,000
                  was withheld by CRN in connection with certain post-closing
                  obligations of the Company, and $15.0 million will be paid
                  pursuant to the terms of a promissory note. The note requires
                  monthly interest payments, at the rate of 10% simple interest
                  per annum, pending repayment of the principal, which is due in
                  full on April 30, 2000. The Company holds a first security
                  interest in the assets conveyed to CRN as security for the
                  debt obligation. CRN also created a $1.0 million interest
                  payment reserve in favor of the Company.

                  CRN acquired radio stations KCNW(AM) licensed to Fairway,
                  Kansas; KKYD(AM) licensed to Denver, Colorado; KPLS(AM)
                  licensed to Orange, California; WAUR(AM) licensed to Sandwich,
                  Illinois; WPWA(AM) licensed to Chester, Pennsylvania; WWTC(AM)
                  licensed to Minneapolis, Minnesota; and WZER(AM) licensed to
                  Jackson, Wisconsin.

         THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 5 OF FORM 8-K
         (OTHER EVENTS)

         Sale of Assets to Salem Communications Corporation

                  On April 24, 1998, Salem Communications Corporation ("Salem")
                  entered into an Asset Purchase Agreement with the Company
                  pursuant to which Salem agreed to purchase two of the
                  Company's owned and operated radio stations. Salem is the
                  leading radio broadcasting company in the United States,
                  measured by number of stations owned and audience coverage,
                  that focuses on serving the religious/conservative listening
                  audience. The sale of assets to Salem was approved by the
                  Company's shareholders at the Annual Meeting of Shareholders
                  held on August 18, 1998. On October 30, 1998, the Company
                  completed the sale of assets


<PAGE>

                  to Salem for which Salem paid $2.7 million in cash. Salem
                  acquired radio stations KTEK(AM) licensed to Alvin, Texas, and
                  KYCR(AM) licensed to Golden Valley, Minnesota.


<PAGE>


         Sale of Assets to Radio Unica Corp.

                  On October 26, 1998, the Company entered into an Asset
                  Purchase Agreement with Radio Unica Corp. ("Radio Unica"),
                  attached hereto as an exhibit, for the purchase of three radio
                  stations not being purchased by CRN. Radio Unica agreed to
                  purchase radio stations in the Phoenix, Dallas and New York
                  markets for $29.25 million to be paid in cash at closing. The
                  closing is subject to the receipt of FCC approval,
                  Hart-Scott-Rodino clearance, and other customary closing
                  conditions. Closing is expected to occur before the end of
                  1998. In connection with the purchase, Radio Unica has
                  deposited $10.0 million into escrow accounts.

         Local Marketing Agreements

                  Radio Unica currently operates the Company's WBAH(AM) radio
                  station in the New York market pursuant to a local marketing
                  agreement. Radio Unica has pre-paid the Company $2.5 million
                  in fees to operate such station for two years or until closing
                  of the sale of assets, whichever occurs first. If regulatory
                  approval is obtained, Radio Unica will also operate the
                  Company's radio stations in the Phoenix and Dallas markets on
                  the same terms upon pre-payment of an additional $500,000 in
                  fees. The Company will offset any unused portion of such fees
                  against the purchase price which Radio Unica must pay at
                  closing for the three stations.

         Repurchase of Shares

                  The Board of Directors of the Company previously determined
                  that the Company's common stock, in light of the Company's
                  financial condition, the pending sale of its major assets and
                  its prospects, was significantly undervalued and in connection
                  therewith authorized the repurchase of up to 400,000 shares
                  pursuant to Exchange Act Rule 10b-18. Pursuant to a resolution
                  dated August 28, 1998, authorized the repurchase of up to
                  385,000 shares of common stock through a broker, which was to
                  have made purchases of common stock in the open market in the
                  Company's name and on its behalf. The Company subsequently
                  determined that the broker did not follow the Company's
                  instructions with respect to the purchase of such shares and
                  canceled its authorization for the repurchase of shares.

                  The broker advised the Company that it had accumulated 385,000
                  shares of common stock for its own account and presented the
                  Company with the opportunity to purchase such shares, but the
                  Company was unable to effect such purchase because of delays
                  in connection with the closing of the sale of assets to
                  Catholic Radio Network and restrictions placed upon the
                  Company by its lenders.

                  Two of the Company's directors, Christopher T. Dahl and
                  Richard W. Perkins, with the consent of the Board, initiated
                  negotiations with the broker to acquire the broker's shares,
                  similarly believing that the Company's shares were
                  undervalued, but also aware of the potential depressive effect
                  upon the market of the Company's common stock that could
                  result from a sale on the market of the broker's shares in a
                  quantity or quantities far in excess of the normal trading
                  volumes of the common stock. Messrs. Dahl and Perkins financed
                  the acquisition of 171,000 shares of the Company's common
                  stock from the broker for their own account and assumed all
                  market and other risks associated therewith.

<PAGE>

                  Having closed on the sale of assets to Catholic Radio Network,
                  having significantly reduced its obligations to its lender and
                  now having available to it capital sufficient to conclude an
                  acquisition of its common stock, the Company purchased 171,000
                  shares of the Company's common stock from Messrs. Dahl and
                  Perkins at their actual cost, including financing expenses
                  associated therewith. In connection therewith, the Company
                  assumed the financing obligations of Messrs. Dahl and Perkins
                  at Key Community Bank and the Company availed itself of the
                  collateral provided by Messrs. Dahl and Perkins (to be
                  returned to them when such financing is concluded).

         Series B Convertible Preferred Stock

                  On October 22, 1998, the Company and the holders of its Series
                  B Convertible Preferred Stock (the "Preferred Shares") entered
                  into Amendment No. 1 to the Securities Purchase Agreement,
                  attached hereto as an exhibit, pursuant to which the parties
                  agreed to extend the Company's absolute right to redeem the
                  Preferred Shares through January 31, 1999.

                  In consideration of such extension, the Company agreed to
                  certain future adjustments to the terms of conversion of the
                  Preferred Shares. The Securities Purchase Agreement originally
                  provided that the number of shares of Common Stock to be
                  delivered upon conversion of a Preferred Share would be $3.30
                  divided by the lesser of (x) 110% of the average best bid
                  price of the Common Stock for the five consecutive trading
                  days ending on the day preceding the conversion date, or (y)
                  94% of the average of the three lowest closing prices of the
                  Common Stock during the 60 calendar day period ending on the
                  day preceding the conversion date, provided however, that such
                  initial conversion price would be subject to adjustment from
                  time to time in certain instances as provided therein. The
                  original agreement further provided that if the Common Stock
                  is not traded on the New York Stock Exchange, the American
                  Stock Exchange, the Nasdaq National Market or the Nasdaq
                  SmallCap Market on the conversion date, then the percentage
                  specified in clause (y) would be 84%. The original agreement
                  also provided that a holder could convert Preferred Shares
                  into Common Stock, at the option of the holder, in accordance
                  with the following schedule:

                     Number of Days                  Percentage of Original
                     Elapsed Following Issuance      Preferred Stock Convertible

                              120                            20%
                              150                            40%
                              180                            60%
                              210                            80%
                              240                            100%

                  In connection with the amendment, the Company agreed that the
                  percentage specified in clause (y) of the conversion formula
                  would be 80% effective February 1, 1999 and such percentage
                  would be 75% effective May 1, 1999. The Company also agreed to
                  restate the conversion schedule as follows:

<PAGE>

                     Number of Days                  Percentage of Original
                     Elapsed Following Issuance      Preferred Stock Convertible

                              221                            80%
                              251                            100%

                  The Company also issued the holders a five-year warrant to
                  purchase an aggregate of up to 65,000 shares of Common Stock
                  at an exercise price of $2.6755062 per share. Such warrant is
                  immediately exercisable. If the Company has not redeemed all
                  of the Preferred Shares on or before December 31, 1998, the
                  holders will have the right to exercise additional five-year
                  warrants to purchase an aggregate of up to 35,000 shares at an
                  exercise price of $2.6755062 per share. If the Company has not
                  redeemed all of the Preferred Shares on or before January 31,
                  1999, the holders will have the right to exercise additional
                  five-year warrants to purchase an aggregate of up to 25,000
                  shares at an exercise price of $2.6755062 per share. All of
                  these warrants are entitled to registration rights
                  substantially in the form of the Registration Rights Agreement
                  pursuant to which the Common Stock underlying the Preferred
                  Shares was registered.

         General

                  Reference is made to the cautionary statements of the Company,
                  presented in its Annual Report on Form 10-KSB for the year
                  ended December 31, 1998, filed on March 31, 1998, as amended
                  by Form 10-KSB/A filed on June 29, 1998.

         THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 7 OF FORM 8-K
         (FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS)

         (a)      Financial Statements of Businesses Acquired

                  Not applicable.

         (b)      Pro Forma Financial Information

                  The following unaudited pro forma condensed financial
                  statements are filed with this report:

                  Pro Forma Condensed Consolidated Balance Sheet as of September
                  30, 1998 Pro Forma Condensed Consolidated Statements of
                  Income:
                           Year Ended December 31, 1997
                           Nine Months Ended September 30, 1998

         This unaudited pro forma financial information sets forth the impact of
         the CRN transaction (Note 20) and the Company's termination of its
         network affiliation agreements and cessation of distribution of its
         24-hour Aahs World Radio format on January 31, 1998. The transaction
         was consummated on October 30, 1998. The unaudited pro forma statements
         of operations and balance sheets do not purport to present the
         Company's consolidated results of operations and financial position as
         they might have been, or as they may be in the future, had the
         transaction and affiliation agreement termination occurred on the
         assumed dates.

<PAGE>


         The Company's remaining assets, including AAHS trademarks and network
         production equipment, will be utilized to develop and create other
         business opportunities related to short form network syndication
         programming. The Company has not developed a revenue stream associated
         with these business opportunities. The company has increased its
         ownership position in Harmony and may choose to increase it further.
         The Company initially expects to utilize its core management expertise
         to improve and enhance the performance of Harmony. In addition to the
         potential investment in the business opportunities described above, the
         Company seeks to reposition itself through acquisitions in the
         television commercial production industry.

         The Company sold seven of its radio stations to CRN for $21.9 million
         cash and a $15.0 million, 18 month promissory note with 10% annual
         interest to be paid quarterly. The Company has used the proceeds in the
         following manner: a) $13.0 million principal payment to Foothill, b)
         approximately $1.3 million to repay bridge notes and interest, c)
         approximately $2.0 million principal payment to seller notes related to
         the sale of the stations d) approximately $2.0 million related to
         closing costs of the transactions. Additionally, the Company used some
         of its proceeds to pay certain outstanding accounts payable including
         various legal costs associated with the ABC/Disney litigation.

         The pro forma adjustments are based upon information currently
         available and on certain assumptions, described within the footnotes to
         the pro forma financial statements, that management of the Company
         believes are necessary and reasonable for a fair presentation of the
         pro forma financial information. The pro forma financial information
         and accompanying notes should be read in conjunction with the
         historical consolidated financial statements of the Company for the
         fiscal year ended December 31, 1997 and for the interim periods ended
         through September 30, 1998.

         The objective of the unaudited pro forma financial information is to
         show what the significant effects on the historical financial
         statements might have been had the sale of the stations occurred, for
         balance sheet purposes, on September 30, 1998, and, for statement of
         operations purposes, on January 1, 1997. However, the pro forma balance
         sheets are not necessarily indicative of the effects of the Company's
         financial position that would have been attained had the transaction
         occurred earlier.

<PAGE>


STATEMENTS OF OPERATIONS:

<TABLE>
<CAPTION>
                                                                            Pro Forma Adjustments       Pro Forma After
                                                             Children's    for the CRN transaction      CRN transaction
                                                           Broadcasting     and Termination of the     and Termination of
                                                            Corporation     Affiliation Agreements   Affiliation Agreements
----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                        <C>                      <C>           
Nine months ended
  September 30, 1998:
      Revenues                                            $   1,971,248                 (1,037,652)(1)              933,596
      Operating Expenses                                      9,006,885                 (3,497,386)(1)            5,509,499
                                                          ------------------------------------------------------------------
      Income (loss) from operations                          (7,035,637)                 2,459,734               (4,575,903)
      Gain on sale of assets                                    542,297                         --                  542,297
      Equity loss in Harmony                                 (1,803,871)                        --               (1,803,871)
      Interest income (expense), net                         (3,414,533)                 2,715,000(2)              (699,533)
                                                          ------------------------------------------------------------------
      Net loss                                              (11,711,744)                 5,174,734               (6,537,010)
      Accretion of preferred stock                              544,189                         --                  544,189
                                                          ------------------------------------------------------------------
      Net loss to common shareholders                     $ (12,255,933)             $   5,174,734            $  (7,081,199)
                                                          ==================================================================

      Net loss per share                                  $       (1.83)                                      $       (1.06)
                                                          =============                                       ==============

      Weighted average number of shares outstanding           6,692,000                                           6,692,000
                                                          =============                                       ==============
</TABLE>

--------------------------------------------------
(1)  To eliminate the revenue and operating expenses related to the network, and
     stations sold in the CRN transaction.

(2)  To eliminate the interest expese totaling $1,590,000 related to the debt
     expected to the repaid utilizing proceeds from the CRN transaction and add
     interest income of $1,125,000 related to the CRN note receivable.

<TABLE>
<CAPTION>
                                                                            Pro Forma Adjustments       Pro Forma After
                                                             Children's    for the CRN transaction      CRN transaction
                                                           Broadcasting     and Termination of the     and Termination of
                                                            Corporation     Affiliation Agreements   Affiliation Agreements
----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                        <C>                      <C>           
Year ended
   December 31, 1997

      Revenues                                            $   5,854,441              $  (4,447,234)(1)        $   1,407,207
      Operating Expenses                                     17,260,112                 (8,302,204)(1)            8,957,908
                                                          ------------------------------------------------------------------
      Income (loss) from operations                         (11,405,671)                 3,854,970               (7,550,701)
      Gain on sale of assets                                         --                         --                       --
      Equity loss in Harmony                                   (540,994)                        --                 (540,994)
      Interest income (expense), net                         (2,611,688)                 3,620,000(2)             1,008,312
                                                          ------------------------------------------------------------------
      Net loss                                              (14,558,353)                 7,474,970               (7,083,383)
      Accretion of preferred stock                                   --                         --                       --
                                                          ------------------------------------------------------------------
      Net loss to common shareholders                     $ (14,558,353)             $   7,474,970            $  (7,083,383)
                                                          ==================================================================

      Net loss per share                                  $       (2.33)                                      $       (1.13)
                                                          =============                                       ==============
      Weighted average number of shares outstanding           6,246,000                                           6,246,000
                                                          =============                                       ==============
      </TABLE>

--------------------------------------------------
(1)  To eliminate the revenue and operating expenses related to the network, and
     stations sold in the CRN transaction.

(2)  To eliminate the interest expese totaling $2,120,000 related to the debt
     repaid utilizing proceeds from the CRN transaction and add interest income
     of $1,500,000 related to the CRN note receivable.

<PAGE>


BALANCE SHEET:

<TABLE>
<CAPTION>
                                                                                Pro Forma Adjustments       Pro Forma After
                                                                 Children's   for the CRN transaction      CRN transaction
                                                               Broadcasting    and Termination of the     and Termination of
                                                                Corporation    Affiliation Agreements   Affiliation Agreements
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                       <C>                      <C>           
September 30, 1998

      Current assets                                          $     648,404             $          --            $     648,404
      Property and equipment                                      3,990,985                (2,033,787)(1)            1,957,198
      Broadcast licenses                                         17,704,703                (7,809,377)(1)            9,895,326
      Investment in harmony                                       6,035,357                        --                6,035,357
      Note receivable                                                    --                15,000,000(2)            15,000,000
      Other assets                                                3,077,650                (1,451,100)(1)            1,626,550
                                                              -----------------------------------------------------------------
        Total assets                                          $  31,457,099             $   3,705,736            $  35,162,835
                                                              =================================================================

      Current liabilities                                     $  33,068,357             $ (16,500,000)(3)        $  16,568,357
      Long-term debt                                              2,253,407                        --                2,253,407
      Redeemable convertible preferred stock                      2,312,439                        --                2,312,439
      Shareholders' equity (deficit)                             (6,177,104)               20,205,736               14,028,632
                                                              -----------------------------------------------------------------
        Total liabiliteis and shareholders' equity (deficit)  $  31,457,099             $   3,705,736            $  35,162,835
                                                              =================================================================
</TABLE>

--------------------------------------------------
(1)  To eliminate the assets of the stations sold in the CRN transaction,
     capitalized debt issue costs related to the repaid debt (See note 2).

(2)  To reflect the gross proceeds from the CRN transaction of $36.9 million
     (consisting of cash payments totaling $21.9 million, $3.0 million of which
     was received prior to September 30, 1998, and a $15.0 million note
     receivable), net of estimated debt repayments totalling $16.9 million and
     approximately $2.0 million in transaction costs.

(3)  To reflect payment of debt totaling $16.9 million utilizing proceeds from
     the CRN transaction net of approximately $400,000 of income taxes payable
     as a result of the CRN transaction.


         (c)      Exhibits

                  See Exhibit Index.

ITEM 6            EXHIBITS AND REPORTS ON FORM 8-K

         (a)      See Exhibit Index.

         (b)      The Company filed the following documents with the Securities
                  and Exchange Commission (File No. 0-21534) during the quarter
                  for which this report is filed:

                  (1)      Current Report on Form 8-K, filed on September 15,
                           1998, relating to (i) the closing of the sale of the
                           Company's Detroit radio station to 1090 Investments
                           and (ii) the adoption of a share repurchase program.

                  (2)      Current Report on Form 8-K, filed on October 2, 1998,
                           relating to (i) the ABC/Disney verdict, (ii) an
                           amendment to the purchase agreement with Catholic
                           Radio Network, (iii) receipt of a conditional use
                           permit for the Los Angeles radio station, (iv)
                           redemption of Series B Convertible Preferred Stock,
                           and (v) cancellation of share repurchase.

                  (3)      Current Report on Form 8-K, filed on July 6, 1998,
                           relating to (i) the Company's private placement of
                           606,061 shares of Series B Convertible Preferred
                           Stock and (ii) the Company's acquisition of
                           additional shares of common stock of Harmony
                           Holdings, Inc.

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on November 16, 1998.


                                        CHILDREN'S BROADCASTING CORPORATION

                                        By: /s/ James G. Gilbertson
                                            ---------------------------
                                                James G. Gilbertson
                                                Chief Operating Officer

<PAGE>

                                  EXHIBIT INDEX


EXHIBIT
NUMBER            DESCRIPTION

2.1               Purchase Agreement with Catholic Radio Network, LLC, dated 
                  April 17, 1998 (incorporated by reference to the Registrant's
                  Definitive Schedule 14A (Proxy Statement) filed on July 8,
                  1998).

2.2               First Amendment to Purchase Agreement with Catholic Radio 
                  Network, LLC, dated September 29, 1998 (incorporated by
                  reference to the Registrant's Current Report on Form 8-K filed
                  on October 2, 1998).

2.3               Second Amendment to Purchase Agreement with Catholic Radio 
                  Network, LLC, dated October 26, 1998.

4.1               Articles of Incorporation, as amended and restated.

10.1              See Exhibit 2.1.

10.2              See Exhibit 2.2.

10.3              See Exhibit 2.3.

10.4              Asset Purchase Agreement by and between the Company and Radio 
                  Unica Corp., dated October 26, 1998.

10.5              First Amendment to Asset Purchase Agreement by and between the
                  Company and Radio Unica Corp., dated October 27, 1998.

10.6              Amendment No. 1 to Securities Purchase Agreement by and 
                  between the Company, Talisman Capital Opportunity Fund Ltd.,
                  Dominion Capital Limited and Sovereign Partners L.P., dated
                  October 22, 1998.

10.7              Form of Common Stock Purchase Warrant issued by the Company to
                  Talisman Capital Opportunity Fund Ltd. (incorporated by
                  reference to the Registrant's Current Report on Form 8-K filed
                  on July 6, 1998).

10.8              Form of Common Stock Purchase Warrant issued by the Company to
                  Dominion Capital Limited (incorporated by reference to the
                  Registrant's Current Report on Form 8-K filed on July 6,
                  1998).

10.9              Form of Common Stock Purchase Warrant issued by the Company to
                  Sovereign Partners LP (incorporated by reference to the
                  Registrant's Current Report on Form 8-K filed on July 6,
                  1998).

<PAGE>

10.10             Promissory Note issued by Catholic Radio Network, LLC to the 
                  Company, dated October 30, 1998.

10.11             Loan Agreement by and between the Company and CRN 
                  Broadcasting, LLC, dated October 30, 1998.

10.12             Amendment No. 4 to the Amended and Restated Loan and Security 
                  Agreement by and between the Company and Foothill Capital
                  Corporation, dated as of October 1, 1998.

27.1              Financial Data Schedule.