Securities and Exchange Commission
                   Washington, D.C. 20549
                         Form 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended June 30, 1996
                            OR
[  ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to_________________

               Commission File Number 0-26808
                HUNGARIAN BROADCASTING CORP.
   (Exact Name of Registrant as specified in its charter)

          Delaware                        13-3787223
     (State or other jurisdiction of     (I.R.S. Employer
     incorporation or organization)      Identification No.)

       445 Park Avenue, 15th Floor, New York NY 10022
          (Address of principal executive offices)

The Registrant's telephone number, including area code:
(212) 758-9870

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 

     Title of Each Class      Name of Each Exchange on which Registered
     Common Stock,                          NASDAQ
     par value $.001 per share
                    
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirement for the
past 90 days.            Yes  X    No     

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB.  [   ]
Registrant had revenues of $672,108 for the year ended June 30, 1996. 

As of August 30, 1996, 2,577,500 shares of Common Stock were
outstanding of which 1,150,000 were held by non-affiliates of the
Company.  The aggregate market value of the Common Stock held by 
non-affiliates of the Company as of August 30, 1996 was $7,475,000 (based
upon the closing bid price on such date on NASDAQ).

            Documents Incorporated by Reference
                             
Part III-Portions of the Registrant's proxy statement for the
Annual Meeting of Stockholders for the fiscal year ended June 30,
1996.
                           
<PAGE>

                           PART I
   
   Item 1.  Business

   (a) General Development of Business

        1.  Industry Overview  

   Private commercial television stations (those which derive the majority
of their revenues from the sale of advertising) generally began
broadcasting in the United States in the 1940s, in parts of Western Europe
in the 1950s, in Germany in the 1980s, and in Scandinavia and Central
Europe (including Hungary) in the 1990s. Austrian TV channels are still
owned by the state. Commercial television has become an important medium
for advertisers in the more developed advertising markets. For example, in
1995, television advertising expenditures totaled $30.6 billion in the
United States and an aggregate of $18.3 billion in 16 countries of Western
Europe.  
 
   An advertising industry has been developing in Hungary since 1991.
Based on a report published by Saatchi & Saatchi/Zenith Media World Wide,
TV advertising expenditure increased from $45 million in 1991, to $107
million in 1992, to $128 million in 1993, to $138 million in 1994, and to
$157 million in 1995.  
 
   The Hungarian Parliament enacted a Media Law on December 21, 1995 which
provided for the privatization through a tender process of one of the two
state owned TV channels (MTV 2) and the sale of a currently dormant
frequency. The Company believes that it is currently operating in
compliance with the provisions of the Media Law.  
 
   The two basic methods of television transmission in use in Hungary are
(i) over-the-air television broadcasting, which can be either local or
national in scope (these operations are often referred to as "terrestrial"
broadcast operations) and (ii) satellite-to-cable broadcasting. In 
over-the-air broadcasting, the station operator obtains a license from the
appropriate regulatory authority with a limited geographic range. In
satellite-to-cable broadcasting, the station operator transmits its
programming signal to a satellite which redirects the signal to either a
ground based antenna which is connected to a cable system or to a home
television via a satellite dish ("direct-to-home").  
 
   While over-the-air broadcasters can typically be received by virtually
all of the television households in the geographic area covered by their
broadcast signal, satellite-to-cable broadcasters can only be received by
television households connected to a cable system or households that have
satellite dishes positioned to receive the broadcast signal. Cable
television growth in Hungary initially occurred in the most heavily
populated areas and has been extended to less populated areas. Households
with cable service in the most heavily populated areas in Hungary are
sought after by advertisers because these households tend to have higher
disposable incomes and greater access to advertised goods and services.  
 
        2.  General  
 
   The Company was formed in September 1994 to acquire majority interests
in companies owning broadcasting licenses and becoming the operator of the
licensed broadcasting stations.  
 
   Hungary has three state owned and operated television channels Magyar
Televizio I ("MTV 1"), which started broadcasting in 1957, and Magyar
Televizio 2 ("MTV 2"), which started broadcasting in 1972 and DUNA TV,
which started to broadcast via satellite in 1993. The signals of MTV 1, MTV
2 and the microwave signal of A-3 (the Company's channel) are over-the-air
(terrestrial) and are transmitted by Antenna Hungaria, a state owned
company which built, owns and operates a trunk network of transmitter
stations consisting of 19 transmitter stations and 90 relay stations. The
signals of MTV 1 reaches over 96% of the households of Hungary and MTV 2
reaches approximately 80% of the households of Hungary. To receive the
signals of MTV 1 and MTV 2, a household merely needs a pair of "ears" or
antennae and does not require any dish.
 
<PAGE>

   A household requires a dish to receive signals from channels
transmitting over a microwave frequency or directly via satellite.
 
   The AM Micro system is the least expensive system for consumers. The
receiving equipment is limited to a dish (smaller than a comparable
satellite receiver) and a receiving head (converter). The equipment costs
average $100 per household. However, equipment for one household can
service four households if they are located in the same building. Equipment
for cable networks costs $150 per household and for satellite antenna
systems $300 per household. The monthly fee transmission charged directly
to households by Antenna Hungaria is $1 for AM-Micro access as compared to
$4 to $8 for cable and satellite access.  
 
   In 1994, based on a decree enacted by the Hungarian Parliament in July
1993, the Hungarian Ministry of Culture and Education made a tender offer
to open only to holders of studio licenses for a license to broadcast over
Channel A3 using AM-Micro technology over an area of Budapest plus 30 km
(18 miles). Fourteen contenders applied for the license. The license was
given to three of the contenders as follows, each for the time period from
July 1, 1994 to July 1, 2000.  
 
        VI-DOK: Mondays, Wednesdays, Fridays and Sundays from 6:00 a.m. to
        5:00 p.m. and 7:30 p.m. to 6 a.m.  
 
        DNTV: Tuesdays, Thursdays and Saturdays from 6:00 a.m. to 5:00 p.m.
        and 7:30 p.m. to 6 a.m.  
         
        NAP TV: Daily from 5:00 p.m. to 7:30 p.m.  
         
   VI-DOK and DNTV had no prior television broadcasting experience. DNTV
was organized on February 14, 1994 and VI-DOK was organized on December 10,
1991. The Ministry granted licenses to DNTV and to VI-DOK on March 29,
1994. VI-DOK then organized Pest-Buda Televizio Kft ("Pest-Buda") on March
31, 1994 as a vehicle from which to conduct the broadcasting operations
under the license. Between the date of grant and the commencement of
broadcasting on A3 in September 1994, DNTV and VI-DOK devoted their
energies to seeking an equity partner. The two companies started
broadcasting in September 1994 as a music channel using the broadcasting
facilities of Land Studios rather than their own studios to provide
programming and technical personnel.  
 
   VI-DOK and DNTV, acting jointly thereafter sought an equity partner. In
November 1994, the Company commenced negotiations to acquire majority
interests in each of the two licensed companies. At the same time, the
Company agreed to provide loans aggregating approximately $2,000,000 to the
Licensees to help finance their operating and programming costs (which
loans were to be deemed capital contributions in the event the acquisitions
were completed) until it could complete its due diligence in connection
with the acquisitions. The Company then recruited a management staff, a
sales staff and a station operating staff and completed its acquisition of
DNTV and VI-DOK in May 1995 and June 1995, respectively. The Company
acquired 90% and 80% of the capital interests of VI-DOK and DNTV for
$240,000 and $176,000, respectively, from the existing owners of VI-DOK and
DNTV and contributed the loans to the capital of the two licensee companies
as additional acquisition costs, and assumed the operational control of A3
in May 1995.  

   On September 6, 1996, the Company added satellite-to-cable (and direct
-to-home) broadcasting, which enabled it to broadcast 24 hours per day,
including the hours of 5:00 p.m. to 7:30  p.m.  daily to its cable
networks. It still broadcasts 21 1/2 hours per day through its AM Micro
network

        3.  Population Reach and Demographics  
 
   Prior to September 1996, A3's signal was carried over-the-air and
reached approximately 350,000 households through the AM Microwave network
and approximately 500,000 households through cable networks located in
Budapest and its environs.

<PAGE>

   The Company entered into a ten year agreement with Nethold  to rent to
the Company space on its satellite known as "Hotbird 2". Satellite
broadcasting (which began September 6, 1996), together with its existing AM
Micro network will enable the Company to reach an estimated 1.8 million TV
households or 49% of the 3.7 million TV households (3.9 million total
households) in Hungary. This includes all nine of the cable systems
operated by  Kable Com Kft, the Hungarian affiliate of HBO, which reaches
in the aggregate of 210,000 households. The Company intends to increase its
reach in calendar 1997 to close to 60% by equipping small cable networks
with decoders and by reaching individual TV homes that are equipped with
decoders through direct-to-home broadcasting. The Company also entered into
a ten year agreement with Banknet to provide uplink and downlink facilities
for satellite broadcasting. As of September 18, 1996, 28 cable television
companies have installed and have begun operating down link equipment
enabling their 190,000 subscribers to receive A 3's broadcast via the
satellite.

   The Company designs its program schedule to appeal to and attract
viewers in the 14 to 35 year old age group.  
  
        4. Strategy  
 
  The Company's strategy is to improve the operating results and market
share of A3. Specific elements of the Company's operating strategy include: 

 
     Utilize Viewer-Oriented Scheduling make it easier for viewers to
     find the programs they prefer to watch by regular and consistent
     scheduling of programming  
 
     Promote Programs advertise and promote both on A3 and in other media
     its programming to increase ratings and viewer identification  
 
     Control Station Operating Costs continue fundamental cost controls
and operating efficiencies  
 
     Increase Advertising Sales expand, train and motivate the sales
force.  
 
     5. Programming  
 
  The Company's programming strategy is to broadcast cost-effective
programs that are capable of achieving high rating thresholds and targeted
to its 14 to 35 year old viewer audience.  In addition, the Company
believes that its strategy of emphasizing programming in Hungarian will
lead to an increase in market revenue share among key demographic groups
and improving the image of the station among advertisers and viewers.

  The Company's strategy in purchasing international programs for
broadcasting in Hungary is to acquire programs that were successful on
United States, United Kingdom or Australian prime time television. These
programs are dubbed by the Company into Hungarian and include television
series, serials and soap operas. Movies previously dubbed into Hungarian
are also acquired. Popular international programs currently broadcast by
the Company include Beauty and the Beast, Pacific Drive, Homicide, and The
Benny Hill Show. The Company also produces or plans to produce local news,
variety shows, magazine format shows, talk shows and game shows.

  The Company is currently the only television station in Hungary that
broadcasts a number of western series in the Hungarian language.

  A3 programming, from 12:00 a.m. to 5:00 p.m. consists principally of
computerized music clips of Western and Hungarian recording artists plus
generally a movie in the afternoon. From 5:00 p.m. to 7:30 p.m., A3
broadcasts primarily from its library of foreign shows to its viewers who
receive the Company's signal via satellite. From 7:30 p.m. to 12:00 a.m.,
the programming features acquired programming dubbed into Hungarian,
locally produced shows or movies dubbed into Hungarian. The key target
audience of A3 is the 14 to 35 age group. Of the 168 hours of programming
broadcast by the Company, approximately 90 hours (54%) is Hungarian
production. 
 
<PAGE>

  The Company receives video music clips directly from recording
companies such as Sony or EMI, or music publishing companies without charge
to the Company. If and when the Company broadcasts a composition, the
Company pays a royalty on the use of the composition to the Hungarian
Association of Record Producers ("HARP"). In the case of its own
productions, the Company's staff selects the program and oversees the
production. The Company believes its production programming staff of 25
persons together with approximately 62 professionals employed on an as
needed basis is adequate to produce its programming. The Company acquires
rights to international sitcoms and other series for a limited number of
showings together with video-discs and scripts of the shows. The Company
dubs the video-discs into the Hungarian language in its dubbing production
studio. The Company believes its staff of 21 persons is adequate for this
activity.
 
  From time to time, A3 broadcasts a special sporting or cultural event
and replaces the regularly scheduled program with this event.  
 
  The Company is continually working on new ideas for programming and
intends to change its schedule from time to time to increase "audience
flow," which involves consecutively scheduling programs with similar
audience demographics so as to retain as many viewers as possible from one
program to the next. These scheduling practices are used widely in the
United States and help build viewer loyalty and overall market share. The
Company also advertises and promotes its programming on A3.  
 
  The Company has not and does not expect to conduct, or to expend any
funds on, any research or development activities.  

     6.  Advertising Sales

  Advertising sales to national, international and local advertisers are
the principal source of revenues for the Company. The Company has been able
to implement a number of sales practices that have been effectively used in
the United States market and in other more developed television
broadcasting markets. First, the Company has cooperated with other
broadcasters to implement accurate, independent rating surveys in each of
its markets. Second, the Company's sales efforts focus on educating the
media buying market on how to use television as an effective advertising
medium.

  In Hungary, AGB-Hungaria Meter System began providing ratings
information in 1993 on a national basis and has been providing rating
information for certain local areas including Budapest since 1996. The
Company believes that more accurate ratings information accelerates the
development of commercial television markets because advertisers with more
accurate ratings information are more willing to allocate a greater
percentage of their advertising budget to television advertising.

  The Company employs an experienced sales force under the direction of a
sales manager. The Company's executive vice president, Mr. Imre Kovats,
interacts on a regular basis with the sales force in each market.

     7.  Competition  
 
  A3 competes with MTV1 and MTV2, both government owned and operated
national television terrestrial stations and with DUNA-TV, a government
owned and operated national television satellite station for audience, for
programming and advertising. It is anticipated that both MTV 2 and channel
58 (a former Russian military channel now inactive), will be privatized and
will offer competition to the Company. It also competes with NAP TV; and
with TV3 and SZIV TV, privately owned commercial stations with AM-Micro
licenses similar to that of the Company, and with other localized stations
in Budapest that broadcast to parts of the Budapest area sporadically and
have insignificant audiences. In September, TV3 began to broadcast via
satellite.
 
  Competition for viewers also comes from foreign stations such as CNN
and TNT transmitting via satellite TV to cable. These stations broadcast in
either English, German or French. Currently, none broadcast in Hungarian.  
 
<PAGE>

  A3 also competes for revenues with other media, such as newspapers,
radio, magazines, outdoor advertising, telephone directory advertising and
direct mail.  
 
     8.  Regulation  
 
  On December 21, 1995,  the Media Act was enacted  by Parliament. Under
the Act,  A3 is required to comply with a number of restrictions on
programming and advertising. The Company believes that currently A3 is
complying with all the restrictions provided for in the Act and that none
of the restrictions has a material adverse effect on A3. These restrictions
include that 30% of A3's broadcast time must be programming of Hungarian
origin, which includes the news, events, talk shows, and sports. If Hungary
becomes a member of the European Union, A3 will be subject to additional
program content regulation. The Company currently devotes approximately 54%
of its broadcasting time to programming of Hungarian origin. The Media Act
also provides rules and regulations pertaining to renewing or extending
licenses; and provides that the state owned MTV2 and Channel 58 should be
privatized.
 
  There is no specific environmental regulation in Hungary to which the
Company is subject, and the Company has not expended and does not expect to
expend any funds on environmental compliance costs. 

     9.  Employees 

  As of June 30, 1996, the Company had three executive officers and a
central staff of 33 full-time employees, consisting of 25 in production and
in programming, four in sales and four in finance and administration. None
of the Company's employees are covered by a collective bargaining
agreement. The Company also employs from time to time, on an as-needed
basis, additional temporary personnel drawn from a pool of approximately 62
production professionals, such as directors, camera or lighting operators,
and engineers and 21 dubbing professionals. The Company believes that its
relations with its employees are good.

Item 2.  Description of Property

  The Company entered into a five year lease as of July 1, 1996 for
approximately 12,000 square feet on four floors at Kelenhegyi ut 39, 1118
Budapest, Hungary at a rental of $144,000 per year plus a 25% VAT fee and
maintenance fees. The Company is using the third floor for its executive
offices, the second floor for sales and other offices, the first floor as a
broadcast studio and offices for the production group, and the basement
floor as a dubbing studio and as a post production studio. The basement
floor also houses the master control. Live broadcast signals are
transmitted from the broadcast studio using uplink facilities leased from
Banknet to the back haul satellite Orion Atlantic. Their signals are
received in the Netherlands and retransmitted to the Astra IE satellite
(Hotbird 2 satellite after January 1, 1997) using downlink facilities
leased from Banknet to the cable system heads and to the direct-to-home
subscribers.

Item 3.  Legal Proceedings

  Prior to November 20, 1995, the Company filed a Registration Statement
with the Securities and Exchange Commission on Form SB-2 for an Initial
Public Offering of 1,000,000 of its shares of Common Stock at $7 per share,
which Registration Statement became effective at 5:30 p.m. on Friday,
November 17, 1995. On Monday, November 20, 1995, the Company entered into a
firm commitment underwriting agreement with Coleman and Company, Inc.
("Coleman") for sale of 1,000,000 of its shares at $7 per share. Starr
Securities Inc. ("Starr") was named as a co-underwriter in the Registration
Statement and in the underwriting agreement. Trading of the shares on
NASDAQ commenced soon thereafter with a contract closing scheduled for
November 27, 1995. At the Closing, Coleman advised the Company that it did
not have the funds to close, that it was unilaterally rescinding the
contract; and that it would request NASDAQ to cancel all trades made since
November 20, 1995.

<PAGE>

  On January 3, 1996, the Company commenced an action against Coleman and
Starr in the United States District Court of the Southern District of New
York for breach of contract demanding judgment of the full contract price
of the public offering together with such other compensatory and
consequential damages in an amount to be determined at trial.

  On January 19, 1996, Starr commenced an action in the Supreme Court of
New York against the Company and its former Chairman of the Board, Robert
Genova, for libel and defamation of Starr's character, and for threatening
to continue to defame Starr's character by stating that Starr "walked away"
from the Initial Public Offering deal and breached its contract with the
Company unless Starr made a bridge loan to or a private placement for the
Company. The Complaint further alleged that when Starr did not accede to
the Company's demands, the Company continued to vilify Starr in the
financial community by stating that Starr walked away from the Initial
Public Offering deal and breached its contract with the Company and by
commencing an action in the U.S. District Southern District of New York on
January 3, 1996, falsely accusing Starr of breach of contract. Starr
further included a cause of action on the same facts for prima facie tort.
The Company had this action removed to the U.S. District Court, Southern
District of New York. Starr moved to remand both actions to the New York
Supreme Court on the ground of lack of diversity of citizenship, which
motion was granted. The Company then recommenced its action in the New York
Supreme Court and consolidated its action with the Starr proceeding. The
Company believes its action has merit and that it has valid defenses to the
action brought by Starr.

Item 4.  Submission of Matters to a Vote of Security Holders

  On June 21, 1996, a special meeting of stockholders was held to vote on
proposals to amend the Certificate of Incorporation; (1) to increase the
number of authorized shares of Common Stock from 5,000,000 to 15,000,000;
(2) to authorize the issuance of up to 5,000,000 shares of preferred stock;
and (3) to increase the number of shares of the Company's 1995 Incentive
Stock Option Plan from 100,000 to 350,000 shares. The stockholders voted in
favor of each of the proposals.

<PAGE>

                           PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
          Matters. 

  Effective December 20, 1995, the Company's Common Stock and certain
publicly held redeemable common stock purchase warrants ("Warrants")
commenced trading on NASDAQ Small-Cap Market under the symbols HBCO and
HBCOW respectively. Prior to December 20, 1995, there was no established
public trading market for the Company's Common Stock or Warrants. In August
1996, the Company sold 100,000 shares of Preferred Stock in a private
placement. There is presently no market for the Preferred Stock.

  The following table sets forth the range of high and low bid prices as
reported by NASDAQ. Bid quotations reflect interdealer prices without
retail mark-up, mark-down or commission transactions. 

                                  Common Stock         Warrants
                                   High   Low       High       Low
1995                                           
           Fourth Quarter)       $ 8.375   $5.500    $4.000    $1.000
           (December 20-31
1996                                           
           First Quarter          $11.850   $7.625    $5.750    $2.500
           Second Quarter         $11.250   $9.000    $5.125    $3.000 
           Third Quarter          $ 9.125   $5.375    $3.375    $1.500
           (to September 18)  

Shareholders

     As of August 1, 1996, there were 52 holders of record of the 2,577,500
outstanding shares of the Common Stock and two holders of the 1,609,900
outstanding Warrants and no holders of Preferred Stock. The closing bid
prices of the Common Stock and Warrants on June 30, 1996 was 9 1/4 and 3 
respectively.

Dividend Policy

     The Company has never paid any cash dividends on the Common Stock. The
Company anticipates that  in the foreseeable future, earnings, if any, will
be retained for use in the business or for other corporate purposes, and it
is not anticipated that cash dividends will be paid either on the Preferred
Shares or Common Stock. Dividends on the Preferred Shares will be paid in
Common Stock if the Company is legally able to do so. The Company is
dependent upon payment of dividends from its Hungarian subsidiary companies
as the source of its own cash dividends.  
 
     Hungarian companies are permitted to pay annual dividends out of
profits, determined on the basis of Hungarian accounting principles,
following recommendation of its Board of Directors and a declaration by the
Annual General Meeting which must be held in the first four months of each
year. Dividends are payable to foreign investors, such as the Company, in
Forints, which may be converted into U.S. Dollars at the official rate of
exchange set by the National Bank of Hungary. 

Certain Information

     The Company is presently subject to the informational requirements of
the Security Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission.

<PAGE>

Transfer Agent 

The transfer agent for the Common Stock is, and for the Preferred Shares will
be, American Stock Transfer & Trust Co., 40 Wall Street, New York,
New York 10005.


Item 6.  Management's Discussion and Analysis of Financial Conditions
                         and Results of Operations

Introduction

   The Company was organized in September 1994 and in October it commenced
exploring opportunities to own, operate and develop a regional private
commercial television station in Hungary. In November, it obtained a six
month option to acquire majority interests in DNTV and VI-DOK, two
Hungarian corporations (the "Licensees") that were granted licenses in
April 1994 for a six year term commencing July 1, 1994 to operate Channel
A3. The Licensees commenced their broadcasting on A3 on a limited basis in
September 1994, and increased their broadcasting to 21 1/2 hours per day in
December, 1994. During the option period, the Company loaned approximately
$2,000,000 to the Licensees, which was used by the Licensees principally to
produce and purchase programming.

   During the option period, the Company incurred significant costs in
preparing business plans and developing an advertising sales staff, a
station management team and a program format. 

   In May and June 1995, the Company acquired majority interests in the
two Licensee companies by purchasing 80% of DNTV and 90% of VI-DOK and
assumed operational control of the two companies.
  
   The Company's revenues are derived principally from the sale of
television advertising to local, national and international advertisers.
Although the Company's television broadcasting activities have begun only
recently, the experience of the television industry is that advertising
sales tend to be lowest during the third quarter of each calendar year,
which includes the summer holiday schedule (typically July and August) and
highest during the fourth quarter of each calendar year.
 
   The primary expenses incurred in operating television stations are
employee salaries, programming costs, broadcast studio and transmission
expenses and selling, general and administrative expenses. 

   In Management's opinion, the Company emerged from the development stage
effective during the three months ended December 31, 1995.

   For the year ended June 30, 1996, the Company had consolidated revenues
of $672,108 (primarily from the sale of advertising time) and incurred a
net loss for the period of $4,149,682. Expenses aggregated $4,351,869,
including amortization of broadcast license costs of $423,052. Corporate
expenses, which included amortization of deferred financing costs and
original issue discount, aggregated $86,645. The original issue discount
and financing costs relate to the 6% Bridge Notes issued between November
1994 and March 1995. 

   For the period from September 14, 1994 (date of inception) to June 30, 
1995, the Company incurred a net loss of $560,333.  Expenses aggregated
$560,393. Corporate expenses, which included amortization of deferred
financing costs and original issue discount, aggregated $117,486. The
original issue discount and financing costs related to the 6% Bridge Notes
issued in November 1994 and March 1995.

   A3 broadcasts only video music clips prior to June 1995 when the
Company assumed control. After changing to a civic events format in June
1995, the Company returned to the video music clips format in October 1995
which was less expensive to produce.

<PAGE>

   On December 28, 1995 the Company received the proceeds from the sale of
shares and warrants in its Initial Public Offering and determined to
relaunch Channel A3 as a Western style station.  In April 1996, the Company
introduced new programming for the hours 7:30 to 11 p.m. featuring
American, United Kingdom and Australian syndicated series that had been
successful in prime time in their home countries. The Company dubbed these
programs into the Hungarian language. Generally, the audience acceptance of
these programs has been favorable and viewership has been high and has
increased over time.

   On September 6, 1996, A3 began transmitting its signal from the Astra
Satellite. Over the next few months it is anticipated that Hungarian
Broadcasting Corp. will increase its distribution to in excess of 1.8
million households throughout Hungary, of which about 50% of this increase
in distribution will be picked up on the first 30 days as major cable
operators are the first to install the appropriate down link equipment.

   Advertising billing is determined by the specific program ratings
provided by AGB, an independent audience rating service. As the Company's
distribution more than doubles, its advertising rates should more than
double. And as the coverage broadens, the station is of increasing interest
to national and international advertisers. As a result of conversations
with advertisers and media buying groups together with booked advertising
and the improving trend of bookings, Management believes that it should
begin generating positive cash flow on a monthly basis prior to the end of
fiscal 1997.

   Nevertheless, since its inception, the Company has run at a deficit in
each month of its operations and should continue to run deficits for the
next few months. There can be no assurance that the Company can generate
enough revenues to cover its expenses in fiscal 1998 or ever.  

Liquidity and Capital Resources 

   From its inception through December 1, 1995,  the Company sold
1,647,500 shares of Common Stock in a series of private transactions for
proceeds of $1,913,622, net of issuance costs and, in addition, issued
promissory notes in the aggregate amount of $2,120,000. On December 6,
1995, 220,000 shares owned by three officers of the Registrant were
contributed to the Company for no consideration. 

   On December 20, 1995, the Company completed an Initial Public Offering
of 1,150,000 shares of its common stock at $5 per share and 1,610,000
redeemable common stock purchase warrants at $.15 per warrant. Each warrant
entitles the holder to purchase one share of common stock at an exercise
price of $6.00 per share during the five-year period commencing on the date
of the Initial Public Offering. The warrants will be redeemable, commencing
16 months after the date of the Initial Public Offering. The Company also
issued to the Underwriter warrants for the purchase of 100,000 shares of
common stock at $8.25 per share and 140,000 common sock purchase warrants
at $0.225 per warrant. The proceeds of this Offering amounted to
approximately $4,841,000, net of underwriting commission and expenses.

   In September 1996, the Company sold 100,000 Preferred Shares at $4.50
per share and 100,000 purchase warrants with the same terms as sold with
the initial public offering for proceeds of $354,500 net of issuance costs.
The Company intends to issue further securities to the public in the near
future to fund the continual development and operations of the Company.

   The Company believes that its existing cash balance and cash from
future operations and fundings should be sufficient to fund the Company's
operation for fiscal 1997.

Foreign Currency 

   The Company's broadcasting operations in Hungary incur both general
revenues and operating expenses in Forints. Asset and liability  accounts
are translated from foreign currencies into United States Dollars at the
period-end exchange rate; income and expense accounts are translated at the

<PAGE>

average exchange rate for the period. The resulting translation adjustments
are reflected in a component of shareholders' equity. Currency translation
adjustments relating to transactions of the Company and its subsidiaries in
currencies other than the functional currency of the entity involved are
reflected in the operating results of the Company. 

   Since virtually all revenues and expenses are in local currency, the
Company does not hedge against foreign currency exchange risks. However,
the current rate of inflation in Hungary approximates 22%.

<PAGE>

Item 7.  Financial Statements


                         HUNGARIAN BROADCASTING CORP.
                             FINANCIAL STATEMENTS
                                     INDEX



Report of Independent Accountants                               F - 1


Consolidated balance sheets as of  June 30, 1996,
and June 30, 1995.                                               F - 2


Consolidated statements of operations for the year
ended June 30, 1996, and the period September 14,
1994 (date of inception) through June 30, 1995.                  F - 3


Consolidated statements of stockholders' equity for the
year ended June 30, 1996, and the period September
14, 1994 (date of inception) through June  30, 1995.              F - 4


Consolidated statements of cash flows for the year
ended June 30, 1996, and the period September 14,
1994 (date of inception) through June 30, 1995.                   F - 5


Notes to consolidated financial statements                        F - 6

<PAGE>
 
                                                                  F -  1

                       REPORT OF INDEPENDENT ACCOUNTANTS



TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF HUNGARIAN BROADCASTING
CORP.

We have audited the consolidated balance sheet of Hungarian Broadcasting Corp.
and subsidiaries (the "Company") as of June 30, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audit.  The financial statements of the
Company as of  June 30, 1995, were audited by other auditors whose report dated
August 30, 1995 (and December 19, 1995, as to notes 5 and 12) included an
explanatory paragraph that described two restatements.

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

In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hungarian
Broadcasting Corp., as of June 30, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles in the United States.

We draw to your attention, as described in Note 14, that the Company plans a
further public offering to finance its continued development and operations.



Coopers & Lybrand
Budapest, Hungary

19  September, 1996
<PAGE>
 
                                                                 F -  2

                         HUNGARIAN BROADCASTING CORP.
       CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND JUNE 30, 1995
                              (EXPRESSED IN US$)

<TABLE>
<CAPTION>

                              Notes      June 30, 1996        June 30, 1995
-----------------------------------------------------------------------------
<S>                           <C>        <C>                <C> 
ASSETS                                                           
                                                        
CURRENT ASSETS                                         
                                                                             
  Cash and cash equivalents      3        1,462,379              295,006
  Accounts receivable, net of               191,715               87,598 
  allowance for doubtful accounts 
  of $82,536 (1995; $0)          
  VAT receivable                 4          123,175               83,429
  Deferred program costs, less 
  accumulated amortization of    5          500,000                   -
  $250,000         
  Prepaid expenses and other current assets  42,383                5,000
                                        -----------           ----------
               Total Current Assets       2,319,652              471,033

Investments

Office and transportation equipment,
less accumulated depreciation of  6          136,296              58,562
$14,067 (1995: $7,310)                                                          
Broadcast license costs, less 
accumulated amortization of 
$458,405 (1995: $35,453)           7        1,692,109          2,115,061
Other deferred financing and other
expenses, less accumulated amortization
of $98,460 (1995: $46,655)                    103,341            146,079
                                                             
                                          -----------         ----------
               Total Assets               $ 4,252,051         $2,790,735
                                          ===========         ==========
                                                                       
LIABILITIES AND STOCKHOLDERS' EQUITY                                 
        
CURRENT LIABILITIES              

 Current portion of notes payable   8         975,412             959,156
 Accounts payable                             479,047             264,112
 Accrued expenses                             129,271              89,627
 Due to related parties                       454,720             495,995
 Other                                         231,307             47,424
                                           -----------         ----------
               Total Current Liabilities     2,269,757          1,856,314
                                           -----------          ----------
                        
LONG-TERM LIABILITIES             
                                                                                                                            
 Notes payable, less current portion 8           -                 890,839
                                            -----------         ----------
MINORITY INTEREST                                40,326                 -
                                            -----------         ----------
               Total Liabilities              2,310,083          2,747,153
                                            -----------         ----------
COMMITMENTS AND CONTINGENCIES        12           
        
STOCKHOLDERS' EQUITY                                                  
                                                               
 Common stock, $.001 par value - shares authorized 15,000,000   
 (1995: 5,000,000); issued and outstanding 2,583,600 (1995:         
 1,265,000)                           9            2,583             1,265
 Additional paid-in capital           9        6,789,029           862,545
                                                                         
 Accumulated deficit                  9       (4,980,040)         (830,358)

 Currency translation adjustment      9           130,396           10,130
                                               -----------      ----------
               Total Stockholders' Equity        1,941,968          43,582
                                               -----------        ----------
                                               $ 4,252,051       $2,790,735
                                               ===========       ==========
</TABLE>                                                             
          The notes on pages 6 to 15 are an integral part of these 
                             financial statements.
<PAGE>
 
                                                                     F -  3

                         HUNGARIAN BROADCASTING CORP.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR THE YEAR ENDED JUNE 30, 1996, AND THE
                 PERIOD SEPTEMBER 14, 1994 (DATE OF INCEPTION)
                             THROUGH JUNE 30, 1995
                              (EXPRESSED IN US$)

<TABLE>
<CAPTION>
                                                      1995/1996     1994/1995  
-------------------------------------------          ------------------------  
<S>                                                  <C>            <C>        
Revenues                                                 672,108       72,043  
Expenses                                                                       
     Operating costs and expenses                      2,038,828      185,469  
     Amortization of broadcast license costs             423,052       35,453  
      Amortization of deferred program costs             250,000            -  
     Selling, general and administrative               1,639,989      339,471  
      expenses                                                                 
                                                                               
                                                       4,351,869      560,393  
                                                     -----------   ----------  
     Operating loss                                   (3,679,761)    (488,350) 
Interest and other income                                 49,671        2,327  
Interest expense                                        (481,238)     (74,310) 
                                                     -----------   ----------  
Net loss                                              (4,111,328)    (560,333) 
Minority interest                                        (38,354)           -  
                                                     -----------   ----------  
     Net loss after minority interest                $(4,149,682)  $ (560,333) 
                                                     ===========   ==========  
                                                                               
Net loss per share                                        $(2.01)      $(0.39) 
                                                                               
Weighted average number of common                      2,067,008    1,427,500   
shares outstanding
</TABLE>

           The notes on pages 6 to 15 are an integral part of these 
                             financial statements.
<PAGE>
 
                                                                   F -  4

                          HUNGARIAN BROADCASTING CORP.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
                 FOR THE TWELVE MONTHS ENDED JUNE 30, 1996 AND
               THE PERIOD SEPTEMBER 14, 1994 (DATE OF INCEPTION)
                   THROUGH JUNE 30, 1995  (EXPRESSED IN US$)
<TABLE>
<CAPTION>
 
 
                                                                                                                                
                               Common Stock                Additional paid-in            Accumulated             Currency    
                                                                      capital                deficit            translation 
                                Shares       Amount  $                      $                      $           adjustment $  
------------------------------------------------------------------------------------------------------------------------------------

<S>                            <C>           <C>                 <C>                       <C>                    <C>
PERIOD TO JUNE 30,                                                                                              
1995

Initial issuance of            850,000               850                7,650
common - stock
September, 1994

Sale of common                 265,000               265              405,045
stock to private           
placement investors
- Nov. and Dec.
1994

Issuance of common             150,000               150              449,850
stock -  March 1995

Net losses for period                                                                       (830,358)

Foreign currency                                                                                                     10,130
translation 
adjustment  

                             ---------            ------          -----------           ------------               ---------
BALANCE, JUNE 30,            1,265,000             1,265              862,545               (830,358)                10,130
1995 

YEAR ENDED JUNE          
30, 1996 

Issuance of common             182,500               182              499,818
stock -  July 1995

Issuance of common             200,000               200              549,612
stock -  August 1995

Shares contributed by         (220,000)             (220)                 220
officers for 
cancellation
in December 1995

Initial public               1,150,000             1,150            5,990,590
offering in 
December 1995

Public Offering Costs                                              (1,150,286)

Exercise of warrants             6,100              6.00               36,530
during year

Foreign currency                                                                                                    120,266
translation adjustment

Net loss                                                                                  (4,149,682)
                             ---------            ------          -----------           ------------               --------
BALANCE, JUNE 30, 1996       2,583,600          $  2,583         $  6,789,029          $  (4,980,040)            $  130,396
                             =========            ======          ===========          ============                ========
</TABLE>

The notes on pages 6 to 15 are an integral part of these financial statements.
<PAGE>
 
                                                                    F- 5

                   HUNGARIAN BROADCASTING CORP. CONSOLIDATED
                  STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED
                JUNE 30, 1996, AND THE PERIOD SEPTEMBER 14,1994
          (DATE OF INCEPTION) THROUGH JUNE 30, 1995 (EXPRESSED IN US$)
<TABLE>
<CAPTION>
                                                                         1995/1996              1994/1995
-----------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss                                                                (4,149,682)               (560,333)
     Adjustments to reconcile net loss to
     net cash used in operating activities:
          Amortization of deferred financing
          costs and organization                                            51,805                 213,650
          Amortization of program costs                                    250,000                       -
          Amortization of broadcast license costs                          422,952                  35,453
          Depreciation of fixed assets                                      13,798                   1,786
          Currency translation adjustment                                  120,266                       -
     Changes in operating assets and
     liabilities:

          Increase in accounts receivable                                 (104,117)                (87,598)
          Increase in VAT receivable                                       (39,746)                (83,429)
          Increase in prepaid expenses and other
          assets                                                           (37,383)                 (5,000)
          Increase in accounts payable                                     214,935                 264,112
          Increase in accrued expenses                                      39,644                  89,627
          Increase in other liabilities                                    183,883                  15,734
                                                                        ----------              ----------
Net cash used in operating activities                                   (3,033,645)               (115,998)
                                                                        ----------              ----------
CASH FLOWS FROM INVESTING ACTIVITIES

     Payment for broadcast license cost                                          -              (2,146,744)
     Purchase of office and transportation
     equipment net of disposal                                             (91,532)               (105,872)
     Payment for organizational costs                                            -                 (40,165)
     Investments                                                              (653)                      -
     Purchase of programs                                                 (750,000)                      -
     Net increase in deferred timing costs                                  (9,067)                      -
                                                                        ----------              ----------
     Net cash used in investing activities                                (851,252)             (2,292,781)
                                                                        ----------              ----------
CASH FLOWS FROM FINANCING ACTIVITIES

     (Decrease)/Increase in advances from
     related parties                                                       (41,275)                160,285
     Proceeds from issuance of common stock                              5,927,802                 458,500
     Proceeds from issuance of notes payable                                     -               2,120,000
     Payments of notes payable, net of issue
     discount                                                             (874,583)                      -
     Payments for offering costs                                                 -                 (35,000)
     Increase in liability to minorities                                    40,326                       -
                                                                        ----------              ----------
Net cash provided by financing
activities                                                               5,052,270               2,703,785
                                                                        ----------              ----------
INCREASE  IN CASH AND CASH EQUIVALENTS                                   1,167,373                 295,006

Cash and cash equivalents at beginning
of period                                                                  295,006                       -
                                                                        ----------              ----------
Cash and cash equivalents at end of                                     
period                                                                   1,462,379                 295,006
                                                                        ==========              ==========
</TABLE>

The notes on pages 6 to 15 are an integral part of these financial statements.

<PAGE>
 
                                                                   F -  6

                          HUNGARIAN BROADCASTING CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   ORGANIZATION AND BUSINESS

Hungarian Broadcasting Corp. (the "Company") which was incorporated in the State
of Delaware on September 14, 1994, was organized to acquire interests in
companies that have commercial broadcasting licenses to own, develop, expand and
operate television stations in Hungary. The Company operates in Hungary through
a wholly-owned subsidiary known as HBC (Hungary) Kft. ("HBC") which was
organized in November 1994. As disclosed in the financial statements drawn up as
at June 30, 1995, the Company acquired a 90% interest in VI-DOK Video es
Filmgyarto studio Kft. ("VI-DOK") as of June 16, 1995, and an 80% interest in
DNTV Kft. ("DNTV") as of May 30, 1995, two Hungarian companies (the "Licensees")
which had been granted television licenses by the Hungarian Cultural Ministry in
April to broadcast over Budapest Channel AM-micro A3 ("A3") from July 1, 1994
through July 1, 2000, daily between 6 a.m. and 5 p.m. and between 7.30 p.m. and
6 a.m. with a maximum advertising time of 20%. Broadcasting on A3 commenced in
September 1994. The 90% interest in VI-DOK was acquired for $240,000 and the 80%
interest in DNTV for $176,000. The acquisitions were accounted for by the
purchase method of accounting; the acquisitions and purchase price allocation
were computed as follows:

     The Company acquired a 90% interest in VI-DOK's assets of $76,471 and
     assumed 90% of its liabilities of $1,437,328. The excess of VI-DOK's
     liabilities over its assets acquired was $1,224,771 (90% of $1,360,857).

     The Company acquired an 80% interest in DNTV's assets of $7,409 and assumed
     80% of its liabilities of $744,707 for an excess of liabilities over assets
     acquired of $589,838 (80% of $737,298). The Company paid $416,000 ($240,000
     plus $176,000) for the excess of the two companies' liabilities over assets
     acquired ($1,224,771 plus $589,838) for a total consideration of
     $2,230,609. After applying a valuation allowance of $80,095, the Company
     assigned the balance of $2,150,514 to the acquired broadcast license costs;
     this amount is being amortized over approximately five years. Prior to
     September 14, 1994, when broadcasting began, VI-DOK had been in the
     business of producing and editing motion picture films on a contract by
     contract basis. From its organization in December 1991 until September 14,
     1994, VI-DOK worked on three primary contracts. On March 31, 1994 (two days
     after acquiring the broadcast license) VI-DOK organized Pest-Buda as a
     division to conduct its broadcasting activities. Pest-Buda was dissolved as
     division on June 16, 1995, the date VI-DOK was acquired by the Company.
     DNTV, organized in February 1994, broadcast from September 1994 through May
     30, 1995 (date of acquisition). The Licensees effectively ceased operations
     shortly after their acquisition and the Company's wholly-owned subsidiary
     HBC continued the broadcasting thereafter.

From the date of inception through September 30, 1995, the Company's
consolidated financial statements reflected nominal revenues and the Company was
considered to be in the development stage. In management's opinion, the Company
emerged from the development stage during the three months ended December
31,1995.
<PAGE>

                                                                F - 7

                          HUNGARIAN BROADCASTING CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


The operations of the Company are essentially in Hungary where the majority of
revenues and expenditures are incurred.  With the exception of cash and cash
equivalents amounting to $1,375,532 and notes payable of $975,412, the assets
and liabilities of the company relate to Hungary.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  Principles of Consolidation and Use of Estimates

The consolidated financial statements include the accounts of the Company and
all its subsidiaries (which are all majority owned by the Company), from their
respective acquisition dates. All material intercompany transactions and
balances have been eliminated.

The subsidiaries of the Company are as follows:-

<TABLE>
<CAPTION>
     NAME          COUNTRY  OF INCORPORATION    PERCENTAGE OWNED
     <S>           <C>                          <C>
 
     HBC Kft              Hungary                      100%
     VI-DOK Kft           Hungary                       90%
     DNTV Kft             Hungary                       80%
</TABLE>

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period.

(b)  Fiscal Year

The Company's reporting period is the fiscal year ending June 30.

(c)  Revenue Recognition

Revenues result from the sale of advertising time. Advertising revenue is
recognized at the time the commercials are broadcast.

(d)  Barter Transactions

Revenues from barter transactions (television advertising in exchange for goods
and services) are recognized when advertisements are broadcast; merchandise or
services received are charged to expense (or capitalized, as appropriate) when
received or used.

Receivables and payables arising from barter transactions are offset when the
services have been rendered to the customer and the merchandise or services are
received from the vendor.
<PAGE>
 
                                                          F - 8

                         HUNGARIAN BROADCASTING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


(e)  Program and Film Rights

Program and film rights acquired under license agreements and the related
obligations incurred are recorded as assets and liabilities when the license
period begins, the cost of each program is determinable, and the program is
available for telecast. The capitalized costs are amortized using the straight-
line method based upon the estimated period of usage.

(f)  Production Costs

Production costs for self-produced programs are capitalized and expensed when
the program is first broadcast, except where the program has potential to
generate future revenues. In that case, production costs are capitalized and
amortized on the same basis as programming obtained from third parties.

(g)  Office and Transportation Equipment

Property and equipment are carried at cost and depreciated on a straight-line
basis using the shorter of estimated useful lives, or, if applicable, the
underlying lease period.

(h)  Broadcast License Costs

The costs of acquiring licenses to broadcast are capitalized and amortized over
the life of the related licenses. It is the Company's policy to value broadcast
licenses at the lower of amortized cost or fair value. As part of an ongoing
review of the valuation and amortization of such assets, management assesses the
carrying value of such assets if facts and circumstances suggest that they may
be impaired. If this review indicates that the assets will not be recoverable
based on a cash flow analysis, the carrying value of these assets would be
reduced to its estimated fair market value.

(i)  Organization Costs

The Company has capitalized organization costs, which are being amortized over
five years.

(j)  Income Taxes

At June 30, 1996, the Company sustained a net loss of approximately $4,110,000.
Such loss may be carried over and applied to reduce taxable income over a period
of up to 15 years, ending in the year 2010. Under SFAS 109, "Accounting for
Income Taxes", due to the uncertainty as to the realizability of such loss, the
Company has set up a full valuation allowance against any future tax benefit
that may accrue from the net operating loss, and no deferred tax asset has been
recognized. In addition, income taxes have not been recorded in the accompanying
financial statements as no tax is due for this period due to the incurred
losses.
<PAGE>
 
                                                              F - 9

                         HUNGARIAN BROADCASTING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


(k)  Deferred Financing Expenses

Deferred financing expenses represent the costs associated with the debt portion
of a consummated private placement financing and are being amortized on a
straight-line basis over the expected term of the related borrowing.

(l)  Foreign Currency Translation and Transactions

The assets and liabilities of the foreign subsidiaries were translated using the
exchange rate in effect at the balance sheet date. Income and expense accounts
were translated at the average rates in effect during the period. Translation
adjustments are included in the stockholders' equity section in the accompanying
balance sheets.

Foreign currency transaction gains and losses are recorded for changes in
exchange rates affecting cash denominated in US. dollars held in Hungarian bank
accounts.

(m)  Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.

(n)  Dividend Policy

The Company has never paid and does not anticipate paying any cash dividends on
its common stock in the foreseeable future. The Company is dependent upon
payment of dividends by its Hungarian subsidiary companies as the source of its
own dividends. Hungarian companies are permitted to pay annual dividends out of
profits determined on the basis of Hungarian accounting principles, which
differs from U.S. generally accepted accounting principles ("GAAP"). Significant
differences between U.S. GAAP and Hungarian accounting principles include the
accounting for long term investments, which, under Hungarian accounting
principles are valued at the lower of cost or market value. In addition,
deferred taxes are not presented on the face of Hungarian financial statements,
although note disclosure may be required. Leases are not capitalized and
unrealized foreign currency translation gains are not reflected in financial
statements of Hungarian entities. Dividends are payable to foreign investors
such as the Company in forints, which may be converted into U.S. dollars at the
official rate of exchange set by the National Bank of Hungary. As at June 30,
1996, there were no significant distributable reserves in the Hungarian
subsidiaries of the Company.

(o)  Loss Per Share

Net loss per share has been calculated based on the weighted average number of
common shares outstanding during each period.
<PAGE>

                                                             F - 10

                         HUNGARIAN BROADCASTING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


3. CASH AND CASH EQUIVALENTS

At June 30, 1996, cash of $1,375,532 denominated in U.S. dollars was on deposit
with a major U.S. money center bank. In addition, $86,847 (denominated partly in
U.S. dollars and partly in Hungarian forints) was on deposit with a Hungarian
bank.

4. VAT RECEIVABLE

Value-added taxes paid in Hungary for which a reimbursement claim was submitted
by the Company, have been included in current assets.

5. DEFERRED PROGRAM COSTS

During the year, the Company purchased program rights for a total of $750,000.
These are being amortized over the life of the related rights of nine months.

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment includes television broadcasting and production
equipment, vehicles and office equipment, fixtures and fittings.  These are
being depreciated on a straight line basis over their estimated useful lives,
being between three and ten years.

7. BROADCAST LICENSE COSTS

Broadcast license costs acquired for $2,150,514 are being amortized over the
life of the relevant licenses which terminate in July 2000.

8. NOTES PAYABLE

From November 1994 through March 1995, the Company sold (in a private placement)
units consisting of $2,120,000 aggregate principal amount of unsecured
promissory notes and 265,000 shares of common stock for an aggregate purchase
price of $2,120,000. The Company incurred $153,789 of financing expenses
relating to the private placement, of which $122,100 and $31,689 has been
allocated to debt and equity, respectively. The $153,789 includes legal fees of
$28,200 paid to the Company's secretary/stockholder. The notes bear interest at
6% per annum and were originally due upon the earlier of December 31, 1995 or
the successful consummation of the IPO, which was rescinded during November 1995
(See Note 13(b)). The revised terms require that only one-half of the notes were
due upon the earlier of December 31, 1995 or the successful consummation of the
subsequent IPO. The balance of the notes are due on June 30, 1997. Consequently,
the amortization expense relating to the original issue discount and deferred
financing expenses were recomputed over the revised expected term of the notes.
Total original issue discount of $437,000 (an imputed interest rate of 19% per
annum) has been recorded and is being amortized
<PAGE>
 
                                                           F - 11

                         HUNGARIAN BROADCASTING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


over the expected term of the notes, along with the $122,100 of financing
expenses related to the debt portion of the private placement. The remaining
unamortized original issue discount and deferred financing expenses totaled
$84,588, and $23,640, respectively, as of June 30, 1996. During January 1996,
$1,060,000 of the notes were repaid. Should the remaining notes be repaid before
June 30, 1997, any unamortized portion of the original issue discount and
deferred financing expenses will be charged to operations.

Notes payable of $975,412 at June 30, 1996 (all short-term liability) consist of
the original $2,120,000 principal amount of the notes, less notes of $1,060,000
repaid during the year ended June 30, 1996, less the unamortized portion of the
original issue discount of $84,588.

The private placement investors have the right to include their shares in any
registration statement filed by the Company after the IPO to the extent that the
managing underwriter of the public offering advises the Company that such
inclusion would not interfere with the orderly sale of the securities to be
publicly offered.

9. COMMON STOCK

(a)  In July 1995, the Company sold 182,500 of common stock at a price of $3 per
share for an aggregate of $547,500 ($500,000 net) of which 30,000 shares were
sold to a director and officer of the Company. In August 1995, the Company sold
200,000 shares of common stock at a price of $3 per share for an aggregate of
$600,000 (approximate $550,000 net). The remaining stock subscription receivable
at September 30, 1995, of $100,000, was received on October 4, 1995. On December
6, 1995, three of the Company's officers, Messrs. Klenner, Genova and Cohen,
contributed to the Company for cancellation 100,000, 100,000 and 20,000 common
shares, respectively, for no consideration.

(b)  The Company made a public offering of 1,000,000 shares of common stock at
$7 per share in November 1995. The offering was rescinded after the shares
offered traded below $7 per share between the effective date and the scheduled
closing date of the offering. The Company incurred $129,631 of expenses in
connection with that offering, which were shown as deferred offering costs in
the financial statements at September 30, 1995 and were charged to operations
during the three months ended December 31, 1995.

(c)  On December 20, 1995 the Company completed an IPO of 1,150,000 shares of
its common stock at $5.00 per share and 1,610,000 redeemable common stock
purchase warrants at $0.15 per warrant. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $6.00 per share
during the five-year period ending December 20, 2000. The warrants will be
redeemable, commencing April 20, 1997. The Company also issued to the
underwriter warrants for the purchase of 100,000 shares of common stock at $8.25
per share and 10,000 common stock purchase warrants at $0.225 per warrant. The
proceeds of this offering amounted to $4,995,338, net of underwriting
commissions and expenses.
<PAGE>
 
                                                            F - 12




                         HUNGARIAN BROADCASTING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

(d)  On June 21, 1996, the Company increased the number of authorized shares of
Common Stock from 5,000,000 to 15, 000,000; authorized the issuance of up to
5,000,000 shares of preferred stock; and increased the number of shares of the
Common Stock available under the Company's 1994 Incentive Stock Option Plan, as
amended, from 100,000 shares to 350,000 shares for use as incentive awards to
certain key employees, directors and consultants.

10. STOCK OPTION PLAN

The Company has adopted a Stock Option Plan (the "Plan"). The Plan provides that
incentive and non-qualified options may be granted to officers, employees,
directors and consultants to the Company for the purpose of providing an
incentive to those persons to work for the Company. The Plan will be
administered by the compensation committee of the Board of Directors (the
"Committee"). The Committee determines, among other things, the persons to whom
stock options are granted, the number of shares subject to each option, the date
or dates upon which each option may be exercised and the exercise price per
share.

Options granted under the Plan are exercisable for a period of up to ten years
from the date of the grant. Options terminate upon the optionee's termination of
employment or consulting arrangement with the Company, except that, under
certain circumstances, an optionee may exercise an option within the three-month
period after such termination of employment. An optionee may not transfer any
options except that an option may be exercised by the personal representative of
a deceased optionee within the three-month period following the optionee's
death. Incentive options granted to any employee who owns more than 10% of the
Company's outstanding common stock immediately before the grant must have an
exercise price of not less than 110% of the fair market value of all underlying
stock on the date of the grant and the exercise term may not exceed five years.
The aggregate fair market value of common stock (determined at the date of the
grant) for which any employee may exercise incentive options in any calendar
year, may not exceed $100,000. In addition, the Company will not grant a non-
qualified option with an exercise price less than 85% of the fair market value
of the underlying common stock on the date of the grant. On December 20, 1995,
the Company granted to certain directors options to purchase an aggregate of
100,000 shares of common stock at $5.00 per share, not exercisable before
December 20, 1996.

The following table is a summary of all stock options as of June 30, 1996:

<TABLE>
<CAPTION>
                            Outstanding options      Option price per share
<S>                         <C>                      <C>
July 1, 1995                 -                        -
Granted in 1995              100,000                  $5.00
                             -------
Balance at June 30, 1996     100,000                  $5.00
                             =======                  
</TABLE>

As of June 30, 1996, none of the stock options were exercisable.
<PAGE>
 
                                                           F - 13


                         HUNGARIAN BROADCASTING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

11. RELATED PARTY TRANSACTIONS

Certain officers and directors of the Company control a company (the "related
party") that purchased $800,000 of unsecured promissory notes and 100,000 shares
of common stock in a November 1994 private placement (Note 8). As additional
compensation, the related party received an option (which was exercised in March
1995) to purchase 150,000 shares of common stock at $3 per share and the right
of first refusal for a three-year period to act as general contractor for all
broadcast facilities to be built by the Company. In addition, the related party
had advanced approximately $120,000 to the Company amounts which were repaid in
January 1996.

12. COMMITMENTS AND CONTINGENCIES

(a)  Consulting and Compensation Agreements

The Company has a five-year employment agreement with its President and Chief
Financial Officer effective beginning in January 1996, at a monthly salary of
$10,000. The employment agreement also permits reimbursement of ordinary and
necessary business expenses.

The Company has a two-year employment agreement with its Executive Vice
President effective beginning in January 1996, at a monthly salary of $10,000.
He is also entitled to receive reimbursement for ordinary and necessary business
expenses.

The Secretary is a partner in a firm which has a two-year retainer agreement to
provide all SEC related legal services for the Company for a fee of $100,000 per
year, beginning in 1996.

A financial and management consultant receives a fee of $3,000 per month for a
two-year term, beginning in January 1996.

As compensation to outside directors, the Company pays directors' fees equal to
$2,000 per meeting, minimum of four meetings per year, and reimburses their
travel and other out-of-pocket expenses. Officers do not receive any
compensation for serving as directors.

(b)  Leases

The Company has a lease for office facilities in Budapest, Hungary, with minimum
monthly payments including taxes of $3,125, expiring May 30, 2000, cancelable by
the Company upon 90 days notice.
<PAGE>
 
                                                            F - 14

                         HUNGARIAN BROADCASTING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


13. LEGAL PROCEEDINGS

(a)  License Proceeding

TV 3, a competitor of A3, which was granted a six year, 24 hour per day
microwave license, applied to the Ministry of Culture to overturn the grant of
the A3 license to the Licensees and NAP TV made on March 29, 1994 on the ground
that proper procedures were not followed because the authority of the committee
that awarded the licenses had expired prior to the date the licenses were
granted. The Ministry of Culture denied the application and held that even if a
new committee were acting, it would also have granted the A3 license to the
Licensees and to NAP TV. TV 3 thereafter instituted a legal action on December
1, 1994 against the Ministry of Culture, but not against either of the
Licensees, to overturn its decision in awarding the A3 broadcast license in the
Metropolitan Court of Budapest. At a hearing held on December 1, 1994, the
Municipal Court ordered the Ministry to follow prescribed procedures and make a
new decision. The Ministry appealed this decision to the Appeals Court of
Budapest. On April 25, 1995, the Company received a letter from the Ministry
confirming that the license had been granted to the Licensees and the Licensees
may operate in accordance with the terms of the license. On November 6, 1995,
the Appeals Court vacated the decision of the Metropolitan Court on the ground
that no notice of the hearing had been given to the Licensees (which had not had
an opportunity to appear at that hearing). The Appeals Court ruled that the only
issue to be decided by the Metropolitan Court is whether the Ministry's
committee was properly constituted to grant the licenses and remanded the matter
for a hearing in the Fall 1996 term. In particular, the Appeals Court ruled that
the Metropolitan Court does not have jurisdiction to revoke the grant of the
licenses or otherwise modify the decision of the Ministry's committee and,
accordingly, the Licensees may continue to operate under the licenses, pending a
final determination by the Ministry committee. In its ruling dated June 24,
1996, the Metropolitan Court has now ruled in favor of the Company.

(b)  Claim regarding underwriters

Prior to November 20, 1995, the Company filed a Registration Statement with the
Securities and Exchange Commission of Form SB-2 for an Initial Public Offering
of 1,000,000 of its shares of Common Stock at $7 per share, which Registration
Statement became effective at 5.30 p.m. on Friday, November 17, 1995. On Monday,
November 20, 1995, the Company entered into a firm commitment underwriting
agreement with Coleman and Company Inc. ("Coleman") for sale of 1,000,000 of its
shares at $7 per share. Starr Securities Inc. ("Starr") was named as a co-
underwriter in the Registration closing schedule for November 27, 1995. At the
Closing, Coleman advised the Company that it did not have the funds to close,
that it was unilaterally rescinding the contract; and that it would request
NASDAQ to cancel all trades made since November 20, 1995.

On January 3, 1996, the Company commenced an action against Coleman and Starr in
the United States District Court of the Southern District of New York for breach
of contract demanding judgment of the full contract price of the public offering
together with such other compensatory and consequential damages in an amount to
be determined at trial.
<PAGE>
 
                                                              F - 15

                         HUNGARIAN BROADCASTING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

On January 19, 1996, Starr commenced an action in the Supreme Court of New York
against the Company and its former Chairman of the Board, Robert Genova, for
libel and defamation of Starr's character, and for threatening to continue to
defame Starr's character by stating that Starr "walked away" from the Initial
Public Offering deal and breached its contract with the Company unless Starr
made a bridge loan to or a private placement for the Company. The complaint
further alleged that when Starr did not accede to the Company's demands, the
Company continued to vilify Starr in the financial community by stating that
Starr walked away from the Initial Public Offering deal and breached its
contract with the Company and by commencing an action in the U.S. District
Court, Southern District of New York on January 3, 1996, falsely accusing Starr
of breach of contract. Starr further included a course of action on the same
facts for prima facie tort. The Company had this action removed to the US.
District Court, Southern District of New York. Starr moved to remand both
actions to the New York Supreme Court on the ground of lack of diversity of
citizenship, which motion was granted. The Company then recommenced its action
in the New York Supreme Court and consolidated its action with the Starr
proceeding. The Company believes its action has merit and that it has valid
defenses to the action brought by Starr.

Management believes that the outcome of the above litigation matters will not
have a material adverse effect on the consolidated financial position, liquidity
or results of operations of the Company.

14. SUBSEQUENT EVENT

In September 1996, the Company sold 100,000 Preferred Shares at $4.50 per share
and 100,000 common stock purchase warrants with the same terms as warrants sold
with the initial public offering. Proceeds were $354,500, net of issuance costs.

The Company intends to issue further securities to the public in the near future
to fund the continued development and operations of the Company. On September
18, 1996, J.W. Barclay & Co. signed a letter of intent to underwrite this issue.
Under the terms of this letter of intent, it is anticipated that the proceeds to
the company upon completion of the issue will be between $2,880,000 and
$4,320,000. In the event that this issue is not completed, the Company would be
required to seek alternative sources of financing to fund the continued
development and operations of the Company.

<PAGE>

Item 8.  Changes in and Disagreements with Accountants on
                         Accounting and Financial Disclosure

   On April 11, 1996, the Board of Directors of the Company selected
Coopers & Lybrand as its new independent auditor. Todman  & Co., CPAs, P.C.
had served as the Company's independent auditor until that time. The
Company made the change because Coopers & Lybrand has an auditing staff in
the Republic of Hungary, while Todman & Co., CPAs, P.C. does not. The
Company believes that such a local auditing presence in Hungary will serve
the Company better during its anticipated growth period. The Board of
Directors approved the decision to change public accountants based on the
reasons stated above. The Board of Directors did not dismiss Todman & Co.,
CPAs, P.C., nor did Todman & Co., CPAs, P.C. resign or decline to serve if
reappointed. None of Todman & Co., CPAs, P.C. reports on the financial
statements for any year contained an adverse opinion or disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope or
accounting principle. There were no disagreements with Todman & Co., CPAs,
P.C. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure in connection with the
audits of the Company at any time.

<PAGE>

                                  PART III

Item 9.  Directors and Executive Officers of the Registrant

         The directors and executive officers of the Company are: 

Name                    Age            Position

Peter E. Klenner         37             President, Chief
                                           Executive Officer, 
                                            and Director
Imre M. Kovats           40             Executive Vice
                                           President and Director
Frank R. Cohen           75             Secretary and
                                            Treasurer, Director
Justin Bodle             35             Director
James H. Season          52             Chief Financial
                                            Officer

   Peter E. Klenner, a German national, has served as President, Chief
Financial Officer and a director of the Company since its inception in
1994. Mr. Klenner has also served as President, Chief Executive Officer and
a director of Hungarian Teleconstruct Corp. ("Teleconstruct"), a publicly
traded construction corporation since 1993. In February 1992, Mr. Klenner
founded Hungarian Telephone and Cable Corp. ("HTCC"), an owner of local
telephone exchanges, and served as President, Chief Executive Officer, and
Chief Financial Officer from February 1992 until May 1995, when he resigned
in order to devote his time to the Broadcasting Company. From June 1991 to
May 1992 he served as Chairman of the Board of Montavid Engineering AG, a
Budapest based building and engineering firm. Mr. Klenner attended the
University of Munich.

   Imre M. Kovats, of Austro-Hungarian nationality, has been Executive
Vice President of the Company since 1995 and a director since August 1995.
In 1990, he founded the Saatchi & Saatchi Group Hungary and was Group
Chairman until 1994. The Saatchi & Saatchi Group Hungary engaged in its
business of buying time from broadcasting companies for their clients and
in producing commercials for their clients for use in broadcasting
stations. Mr. Kovats graduated from the University of Translators and
Interpreters at Vienna and attended the University of Law of Vienna.

   Frank R. Cohen has served as Secretary, Treasurer, and director since
the Company's inception in 1994. He has been practicing law in the City of
New York since 1946. Since 1985 he has been a member of the law firm of
Cohen & Cohen, counsel to the Company. He also serves as Secretary-Treasurer 
and a director of Teleconstruct. Mr. Cohen is a graduate of Columbia
University Law School. 

   Justin Bodle has been a director since June 1996. Since 1992, he has
been managing director of Power Television Limited, his own company,
specializing in distributing and licensing television programs. Power TV is
the largest syndication company in Central Europe. From 1989 to 1992, he
was Managing Director and Board Member of Carat Entertainment, the largest
media buying company in Europe. Prior to 1989, he was Sales Director for
all of Jim Henson international productions. Mr. Bodle is a graduate of
Eton and Sandhurst.

   James H. Season was appointed Chief Financial Officer in August 1996.
Mr. Season was managing director with RHL Management Group, Inc., based in
Greenwich, Connecticut since 1990, where he has been involved in financial
consulting, crisis management and investment banking. From 1986 to 1990,
Mr. Season was a Group Vice President and Chief Investment Officer of
Golodetz Trading Corporation, an international trading firm based in New
York City. Prior to 1986, Mr. Season was a Managing Director of Chase
Manhattan Bank, N.A. He also serves as a director of Hungarian Telephone
and Cable Corp. Mr. Season holds a J.D. degree from the University of
Virginia and an M.B.A. from the University of Michigan.

<PAGE>

   Directors are elected annually and hold office until the next annual
meeting of the stockholders of the Company and until their successors are
elected and qualified. Officers are elected annually and serve at the
discretion of the Board of Directors. Officers do not receive any
compensation for serving as directors.

Item 10.  Executive Compensation

   Prior to January 1996, no officer or director received any compensation
from the Company. 

   In July 1995, the Company entered into a five year employment agreement
with Peter E. Klenner effective January 1, 1996 at a monthly salary of
$10,000. He is entitled to receive reimbursement of ordinary and necessary
business expenses. 

   In July 1995, the Company entered into a two year employment agreement
with Imre M. Kovats effective January 1, 1996 at a monthly salary of
$10,000. He also is entitled to receive reimbursement of ordinary and
necessary business expenses. 

   In July 1996, the Company retained Justin Bodle as a consultant to
supervise programming and station management for the Company at a fee of
1,000 shares of Common Stock per month for a two year period. Mr. Bodle
also received an option to purchase 25,000 shares of the Company's Common
Stock at $10 per share after the first profitable quarter before June 30,
1997 and an additional 25,000 shares after the second profitable quarter
before December 31, 1997.

   In August 1996, the Company retained James H. Season as its Chief
Financial Officer at a fee of $6,500 per month through December 1996 and
thereafter at a fee of $8,000 per month on a month to month basis plus
living expenses.

Limitation of Liability for Directors 

   The Company's Certificate of Incorporation provides that its directors
shall not be liable for monetary damages for breach of the directors'
fiduciary duty of care to the Company and its stockholders as a director
except in the case of (i) any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
payments of dividends or approvals of stock repurchases or redemptions that
are unlawful under Delaware law, or (iv) any transactions from which the
directors derived an improper personal benefit. Currently under Delaware
law, such provisions do not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
relief will remain available under Delaware law. This provision does not
affect a director's responsibilities under federal securities laws.
Pursuant to the Company's Certificate of Incorporation, current and former
directors and officers are indemnified to the maximum extent permitted,
from time to time, by the Delaware General Corporation Law. 

   In addition, the By-laws of the Company provide that the Company shall
indemnify any and all of its Directors and Officers or former Directors and
Officers or any person who may have served at its request as a Director or
Officer of another Corporation in which it owns shares of capital stock or
of which it is a creditor against expenses actually and necessarily
incurred by them in connection with the defense of any action, suit or
proceeding in which they, or any of them, are made parties, or a party, by
reason of being or having been Directors or a Director or Officer of the
Company, or such other corporation, except, in relation to matters as to
which any such Director or Officer or person shall be adjudged in such
action, suit or proceeding to be liable for negligence or misconduct, in
the performance of duty. 

   Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and persons controlling

<PAGE>

the Company pursuant to the foregoing provisions or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable. 

Stock Option Plan 

   In 1994 the Company adopted a Stock Option Plan (the "Plan"). An
aggregate of 350,000 shares of Common Stock are authorized for issuance
under the Plan. The Plan provides that incentive and non-qualified options
may be granted to officers, employees, directors and consultants to the
Company for the purpose of providing an incentive to those persons to work
for the Company. The Plan will be administered by a Committee of the Board
of Directors. The Committee determines, among other things, the persons to
whom stock options are granted, the number of shares subject to each
option, the date or dates upon which each option may be exercised and the
exercise price per share. 

   Options granted under the Plan are exercisable for a period of up to
ten years from the date of grant. Options terminate upon the optionee's
termination of employment or consulting arrangement with the Company,
except that under certain circumstances an optionee may exercise an option
within the three-month period after such termination of employment. An
optionee may not transfer any options except that an option may be
exercised by the personal representative of a deceased optionee within the
three-month period following the optionee's death. Incentive options
granted to any employee who owns more than 10% of the Company's outstanding
Common Stock immediately before the grant must have an exercise price of
not less than 110% of the fair market value of all underlying stock on the
date of the grant and the exercise term may not exceed five years. The
aggregate fair market value of Common Stock (determined at the date of
grant) for which any employee may exercise incentive options in any
calendar year may not exceed $100,000. In addition, the Company will not
grant a non-qualified option with an exercise price less than 85% of the
fair market value of the underlying Common Stock on the date of the grant.
Options to purchase an aggregate of 185,000 shares of Common Stock have
been granted under the Plan including options to purchase 50,000, 30,000,
and 10,000 shares granted to Messrs. Klenner, Kovats and Cohen
respectively. The options granted to Messrs. Klenner and Cohen cannot be
exercised until December 20, 1996.

   The Company has no pension or profit sharing plan or other contingent
forms of remuneration. 

Compliance with Section 16(a) of the Exchange Act

   Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and beneficial owners
of over 10% of the Common Stock to file reports of holdings and
transactions in the Common Stock. Based upon a review of the Forms 3, 4 and
5 required to be filed by such directors, executive officers and beneficial
owners pursuant to Section 16(a) for the Company's fiscal year ended June
30, 1996, the Company has complied with the reporting requirements.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

   The following table sets forth information with respect to the
beneficial ownership of the Common Stock as of June 30, 1996 by (i) each
person known by the Company to own beneficially more than 5% of the
outstanding Common Stock; (ii) each director of the Company; and (iii) all
directors and officers as a group.
<PAGE>

Name and Address         Shares Beneficially Owned
                            Number      Percent               
                            
Peter E. Klenner(1)(2)
Szamado u. 19
Budapest, Hungary          390,000        15.10%

Hungarian Teleconstruct Corp.(1)
Szamado u. 19
Budapest, Hungary          250,000         9.70%

Frank R. Cohen(1)(2)
445 Park Avenue
New York, NY 10022          30,000         1.20%

Imre Kovats
Szamado u. 19
Budapest, Hungary           35,000         1.36%

Justin Bodle
Szamado u. 19
Budapest, Hungary             0             0.00%

James H. Season
Szamado u. 19
Budapest, Hungary             0              0.00%

All officers and directors as a group
 (5 persons)               455,000           17.66%
                      
(1)     Messrs. Klenner and Cohen own 17.2% and 2.3% respectively of the
        outstanding shares of Hungarian Teleconstruct Corp. including
        options currently exercisable and constitute two out of the five
        members of its Board of Directors. Messrs. Klenner and Cohen
        disclaim that they will be able to control the voting of these
        shares.
(2)     Messrs. Klenner and Cohen may be deemed to be the "promoters" or
        "parents" of the Company, as those terms are defined in the rules
        and regulations as adopted under the Securities Act of 1933, as
        amended.


Item 12.  Certain Relationships and Related Transactions

   On September 14, 1994, the Company sold 480,000 shares to Peter E.
Klenner, president of the Company for $4,800 ($.01 per share); 320,000 shares
to Robert Genova, formerly Chairman of the Board for $3,200 ($.01 per share);
and 50,000 shares to Frank R. Cohen, Secretary, Treasurer, Director and
Counsel to the Company for $500 ($.01 per share) for an aggregate of $8,500. 

   In December 1994 and March 1995, the Company borrowed $800,000 from
Hungarian Teleconstruct Corp. ("HTEL"), at 6% per annum interest. Fifty
percent of the loan was repaid in January 1996. As an additional
consideration, the Company (1) issued 100,000 shares of its Common Stock to
HTEL; (ii) granted HTEL an option to purchase 150,000 additional shares of
Common Stock at $3 per share from the Company exercisable until April 30,
1995. HTEL exercised its option to purchase 150,000 additional shares in
March 1995. Messrs. Klenner and Cohen, officers and directors of the Company,
own approximately 17.2% and 2.3%, respectively, of the outstanding shares of
the Common Stock (including shares subject to exercisable options) of HTEL. 
<PAGE>

   In connection with the July private placement in which the Company sold
182,500 shares at $3 per share, Peter E. Klenner purchased 30,000 shares on
the same terms as the other investors. 

   In December 1995, Messrs. Klenner, Genova and Cohen contributed 100,000
shares, 100,000 shares, and 20,000 shares, respectively to the Company
without cost to the Company for cancellation as a condition to the
Underwriter agreeing to underwrite the Offering. 

   The Company does not intend in the future to have any transactions with
affiliates. The Company has no arrangement, understanding or intention to
enter into any transaction or participate in any business opportunity with
any Officer, Director or principal stockholder or with any firm or business
organization with which they are affiliated, whether by reason of stock
ownership, position as Officer or Director, or otherwise, that poses a
conflict of interest. However, should the company enter into any affiliated
transaction with any Officer, Director or principal stockholder of the
company, such transaction will be approved by a resolution of at least a
majority of the independent members of the Board of Directors of the company.
Any transaction with an affiliate will be on terms no less favorable to the
Company than could be obtained from an independent third party. Failure of
the Company and its management to conduct the Company's business in its best
interests may result in liability to the Company and its management.
<PAGE>   

   

                             PART IV

Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

 (a)(1)  List of Financial Statements
         Reference is made to Item 8 for a list of all financial
         statements filed as part of this Form 10-K.
 (a)(2)  List of Financial Statement Schedules 
         Reference is made to Item 8 on page 12 for a list of all
         financial statement schedules filed as part of this Form 10-K.
 (a)(3)  List of Exhibits * (numbers below are references to Regulation S-B)
        (3)(a)  Certificate of Incorporation filed September 14, 1994*
           (b)  Certificate of Amendment to Certificate of
                Incorporation filed June 28, 1996.***
           (c)  By-laws
        (4)(a)  Form of Warrant Agreement**
           (a) (i) Form of Common Stock Purchase Warrant Certificate**
           (b)  Form of Underwriter's Warrant**
           (c)  Form of Underwriter's Stock Warrant**
       (10)(a)  Employment agreement between Registrant and
                Peter E. Klenner*      
           (b)  Employment agreement between Registrant and Imre M.
                Kovats*
           (c)  Financial Consultant agreement between Registrant and
                Robert Genova*
           (d)  1994 Incentive Stock Option Plan*
           (e)  Sharing agreement for space and facilities between
                Registrant and Hungarian Telephone & Cable Corp.*    
           (f)  Agreement to Purchase Shares in DNTV*
           (g)  Agreement to purchase shares in VI-DOK*
           (h)  Letter of intent with Kablecom*
           (i)  Offer from OKK Kft to Registrant to rent satellite
                space to Company*
           (j)  Agreement with Land Studios Kft.*
           (k)  Lease agreement with HAKON Ltd. for space at Szamado,
                Budapest.*        
           (l)  Form of 6% Bridge Note.*
           (m)  License to broadcast on A3.*
           (n)  Form of Consulting Agreement with J.W. Barclay & Co.,
                Inc.* *
           (o)  Form of Mergers and Acquisitions Agreement with J.W.
                Barclay & Co., Inc.** 
           (p)  Contracts for purchase of programming between Power TV
                Ltd. and Registrant dated February 28 and July 29,
                1996.***
           (q)  Lease for satellite space between Nethold Central
                Europe BV and Registrant dated July 5, 1996.***
           (r)  Management consulting agreement between Registrant and
                Justine Bodle dated June 15, 1996.***
           (s)  Agreement to set up uplink and downlink between
                Registrant and Banknet dated June 26, 1996.***
           (t)  Rental lease between Registrant and Investor Holding
                RT dated June 25, 1996.*** 
                  
        *      Filed with Registration Statement No. 33-96674.
        **  Filed with Registration Statement No. 33-80177.
        *** Filed with this report
B.  The following reports on Form 8-K have been filed during the three months
    ended June 30, 1996::
    On April 11, 1996 a report on change of accountants, was filed on form 8-K.

<PAGE>


                                SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf  by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on the 30th day of September 1996.


                                  HUNGARIAN BROADCASTING CORP
                                  (Registrant)


                                  /s/___________________________________
                                  By  Frank R. Cohen              
                                  Frank R. Cohen, Secretary, Treasurer
                                  (Duly Authorized Representative)