SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                             ----------------------

                                   FORM 10-QSB


                   Quarterly Report Under Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934.

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

For Quarter Ended MARCH 31, 1999                Commission file number 0-18410
                  --------------                                       -------

                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                     --------------------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                               95-4233050
--------------------------------------------------------------------------------
(State or other jurisdiction of                               (I.R.S. Employee
 incorporation or organization)                              Identification No.)

        5757 Wilshire Blvd., PH1, Los Angeles, CA                   90036
--------------------------------------------------------------------------------
         (Address of principal executive offices)                 (Zip Code)

         Registrant's telephone number, including area code (323) 634-8634

--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

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
REQUIREMENTS FOR THE PAST 90 DAYS.

                             YES   X       NO
                                 ------       ------

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

       COMMON STOCK, $.001 PAR VALUE--11,869,269 SHARES AS OF MAY 13, 1999
       -------------------------------------------------------------------



<PAGE>


Part 1. Financial Information
Item 1. Financial Statements

                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                MARCH 31, 1999    JUNE 30, 1998
                                                 (UNAUDITED)        (AUDITED)
ASSETS
<S>                                                  <C>              <C>
Cash and cash equivalents                             ($47,086)         $73,751
Accounts receivable, net trade                       2,222,319          938,130
Note Receivable                                        200,000                0
Receivable from related parties                        257,747           47,778
Prepaid expenses                                        39,487                0
Film costs, net                                      1,484,006        1,189,392
Fixed assets, net                                      153,894          182,473
Covenant not to compete                                      0          115,000
Acquisition Costs                                      103,199                0
Goodwill                                               708,785                0
Investment in Pacific Softworks - at cost              500,000                0
Investment in flowersandgifts.com - at cost            300,000                0
Other Assets                                           906,449          179,167
                                               ---------------- ----------------
TOTAL ASSETS                                        $6,028,800       $2,725,691
                                               ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses               $2,554,644         $335,712
Obligations under capital leases                        28,474           70,905
Dividends payable                                      106,250          106,250
Deferred Income                                        131,543                0
Notes payable                                                0           84,346
                                               ---------------- ----------------
TOTAL LIABILITIES                                   $2,820,910         $597,213
Shareholders' equity:
Preferred Stock, $.001 par value, authorized
20,000,000 shares
  Series A Preferred Stock, $.001 par value,
  authorized 1,000,000 shares; issued and
  outstanding 1,000,000 shares                           1,000            1,000
  Series B Preferred Stock, $.001 par value,
  authorized 1,375,662 shares; none issued
  and outstanding                                            0                0
  Series D Preferred Stock, $.001 par value,
  authorized 50,000 shares; issued and
  outstanding 50,000 shares                                 50                0
  Series E Preferred Stock, $.001 par value,
  authorized 500,000 shares; issued and
  outstanding 25,000 shares                                200                0
  Series F Preferred Stock, $.001 par value,
  authorized 500,000 shares; issued and
  outstanding 75,000 shares                                 75                0
Common Stock, $.001 par value, authorized
  50,000,000 shares; issued and outstanding
  7,876,647 and 6,672,943 shares                         7,877            6,673
Additional paid-in capital                          26,709,680       23,411,349
Accumulated deficit and dividends                  (22,500,800)     (20,280,352)
Treasury stock, 93,536 shares at cost               (1,010,192)      (1,010,192)
                                               ---------------- ----------------
Net shareholders' equity                            $3,207,890       $2,128,478
                                               ================ ================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          $6,028,800       $2,725,691
                                               ================ ================
</TABLE>

              SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                     Page 2
<PAGE>


                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED MARCH 31,
                                               ----------------------------
                                                 1999              1998

<S>                                         <C>             <C>
Revenues                                    $          0    $   6,196,754
Costs related to revenues:
  Amortization of film costs                           0        3,980,910
  Costs of projects sold                               0          532,800
                                            ------------------------------
  Net Revenues                                         0        1,683,044
General and administrative expenses              381,840        1,370,219
                                            ------------------------------
  Operating income (loss)                       (381,840)         312,825
Other income (expenses):
Acquisition expense                                    0          (12,700)
Recovery of Expenses                           1,042,310                0
Interest income                                        0           11,092
Amortization of Goodwill                         (41,000)               0
Amortization of Acquisition Costs                 (6,070)               0
Settlement expense                                     0          (69,000)
                                            ------------------------------
  Net other income (expense)                     995,240          (74,582)
                                            ------------------------------
  Net income (loss)                              613,400          238,243
Provision for income taxes                             0                0
                                            ------------------------------
  Net income (loss)                              613,400          238,243
Dividend requirement on Series A Preferred
  Stock                                         (106,250)        (106,250)
                                            ==============================
Net income (loss) applicable to common
  shareholders                              $    507,150       $  131,993
                                            ==============================
Net income (loss) per share (basic and
  diluted)                                          $.05             $.02
Average common shares
  outstanding (basic and diluted)             10,061,725        6,335,976
                                            ------------------------------
</TABLE>


              SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                     Page 3
<PAGE>


                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1999
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                               NINE MONTHS ENDED MARCH 31,
                                               ---------------------------
                                                 1999              1998

<S>                                         <C>              <C>
Revenues                                    $    1,142,188   $    18,276,403
Costs related to revenues:
  Amortization of film costs                       817,946        12,422,090
  Costs of projects sold                             1,348           604,218
                                            ---------------------------------
  Net Revenues                                     322,894         5,250,095
General and administrative expenses              3,001,561         3,997,429
                                            ---------------------------------
  Operating income (loss)                       (2,678,667)        1,252,666
Other income (expenses):
Acquisition expense                                 (6,695)         (299,380)
Recovery of Expenses                             1,042,310                 0
Interest income                                          0           458,522
Amortization of Goodwill                          (116,000)                0
Amortization of Acquisition Costs                  (11,391)                0
Settlements expense                               (115,000)         (207,000)
                                            ---------------------------------
  Net other income (expense)                       793,224          (451,832)
                                            ---------------------------------
  Net income (loss)                             (1,885,443)          800,834
Provision for income taxes                          16,254                 0
                                            ---------------------------------
  Net income (loss)                             (1,901,697)          800,834
Dividend requirement on Series A Preferred
Stock                                             (318,750)         (318,750)
                                            ---------------------------------
Net income (loss) applicable to common
  shareholders                                 ($2,220,447)         $482,084
                                            =================================
Net income (loss) per share (basic and
diluted)                                             ($.25)             $.08
Average common shares
  outstanding (basic and diluted)                9,021,640         6,290,871
                                            ---------------------------------
</TABLE>

              SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                     Page 4
<PAGE>


                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                        NINE MONTHS ENDED MARCH 31, 1999
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                              SERIES  SERIES   SERIES   SERIES  SERIES  SERIES
                                   PREFERRED     D       D        E       E       F       F
                                     STOCK    SHARES    AMT    SHARES    AMT    SHARES  AMOUNT
                                   ---------  ------  ------   -------  ------  ------  ------
<S>                                <C>        <C>     <C>      <C>      <C>     <C>     <C>
 Balance,
 June 30, 1998                        $1,000
 Issuance of common shares in
 payment of dividends on Series A
 Preferred Stock
 Issuance of common shares in
 connection with the acquisition
 of MWI
 Issuance of Series D
 Preferred Stock                              50,000     $50
 Issuance of Series E
 Preferred Stock                                               200,000    $200
 Issuance of Series F
 Preferred Stock                                                                75,000     $75
 Net Loss
 Dividends on Series
 A PREFERRED STOCK
 -----------------                 ---------  ------  ------   -------  ------  ------  ------
 Balance,
 March 31, 1998                       $1,000  50,000     $50   200,000    $200  75,000     $75
 Less:
 Treasury Stock

 NET SHAREHOLDER'S EQUITY
</TABLE>

<TABLE>

<CAPTION>
                                                          ADDITIONAL      ACCUMU-
                                    COMMON    STOCK        PAID-IN        LATED
                                    SHARES    AMOUNT       CAPITAL        DEFICIT
                                   ---------  -------
<S>                                <C>         <C>       <C>           <C>            <C>
 Balance,
 June 30, 1998                     6,672,943   $6,673    $23,411,349  ($20,280,352)   $ 3,138,670
 Issuance of common shares in
 payment of dividends on Series
 A Preferred Stock                                  0                                           0
 Issuance of common shares in
 connection with the acquisition
 of MWI                            1,203,704   $1,204        823,581                   $  824,785
 Issuance of Series D
 Preferred Stock                                             499,950                      500,000
 Issuance of Series E
 Preferred Stock                                           1,974,800                    1,975,000
 Issuance of Series F
 Preferred Stock                                                                       $       75
 Net Loss                                                               (2,220,447)    (2,220,447)
 Dividends on Series
 A PREFERRED STOCK
 -----------------                 ---------   ------    -----------  --------------  -----------
 Balance,
 March 31, 1998                    7,876,647   $7,877    $26,709,680  ($22,500,799)    $4,218,083
 Less:
 Treasury Stock                      (93,536)                                          (1,010,192)
 NET SHAREHOLDER'S EQUITY          7,783,111                                           $3,207,891
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                     Page 5
<PAGE>

                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                         NINE MONTHS ENDED MARCH 31,
                                                           1999               1998
                                                   ----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                 <C>                <C>
Net income (loss)                                   $      (2,220,447)  $    800,834

ADJUSTMENTS TO RECONCILE NET (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
  Depreciation of fixed assets                                 28,579         43,871
  Amortization of film costs                                        0     12,422,090
  Write off of projects in development                              0              0
  Amortization of Goodwill                                    116,000              0
  Amortization of Acquisition Costs                            11,391              0
  Amortization of non-competition agreement                   115,000        207,000
  Decrease deferred tax asset                                       0              0
  Issuance of Common Stock in Settlement                            0              0

CHANGES IN OPERATING ASSETS AND LIABILITIES:
  (Increase) decrease in accounts receivable               (1,284,189)    (1,850,811)
  (Increase) decrease in other assets                         297,273         65,944
  (Increase) decrease in notes receivable                    (200,000)             0
  Increase (decrease) in accounts payable
     and accrued expenses                                   2,218,932       (216,143)
  (Increase) in prepaid expenses                             (212,208)             0
  Decrease (increase) in deferred revenues                    131,543         50,000
                                                    ------------------ --------------
  Net cash (used in) operating activities                    (998,126)    (2,700,940)
                                                    ------------------ --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  (Additions) to film costs, net                             (294,614)      (476,020)
  Company Acquisitions                                       (800,000)             0
  Capital (expenditures) on equipment                               0        (58,497)
  (Increase) in short term investments                              0     (2,869,020)
  (Increase) in investment for distribution
     subsidiary                                                     0       (140,493)
  (Increase) in Goodwill                                     (824,785)             0
  (Increase) decrease in receivables from related
     parties                                                 (261,806)        17,039
  (Increase) in related pry covenant not to compete                 0       (460,000)
  Increase (decrease) in obligations under capital
     leases                                                   (42,431)             0
  (Increase) in Acquisition Costs                            (114,589)             0
                                                    ------------------ --------------
Net cash (used in) investing activities                    (2,338,225)      (48,998)
                                                    ------------------ --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of Common Stock                                    931,035              0
  Proceeds from notes payable                                 (84,346)             0
  Proceeds from borrowings                                          0        496,000
  Issuance of Series "D" Preferred Stock                      500,000              0
  Issuance of Series "E" Preferred Stock                    1,868,750              0
  Issuance of Series "F" Preferred Stock                           75              0
  (Payment) of cash dividends on Preferred Stock                    0       (106,250)
                                                    ------------------ --------------
Net cash provided by financing activities                   3,215,514        315,000
                                                    ------------------ --------------


                                     Page 6
<PAGE>


Net cash increase (decrease) in cash                         (120,837)      (411,315)
Cash and cash equivalents at beginning of period               73,751      1,344,870
                                                    ------------------ --------------
Cash and cash equivalents at end of period          $         (47,086) $     933,555
                                                    ------------------ --------------
</TABLE>


              SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                     Page 7
<PAGE>



                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                 MARCH 31, 1999

(1)  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of The
Producers Entertainment Group Ltd. ("TPEG" or the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all material adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1999. The information contained in this Form 10-QSB should be
read in conjunction with the audited financial statements filed as part of the
Company's Form 10-KSB for the fiscal year ended June 30, 1998.

      On October 20, 1997, the Company acquired 100% of the outstanding capital
stock of three entities comprising the "Grosso Jacobson Companies" (including
Grosso Jacobson Productions, Inc., Grosso Jacobson Entertainment Corporation,
and Grosso Jacobson Music Company, Inc) through the merger of three wholly-owned
subsidiaries of the Company into the Grosso Jacobson Companies. The
consideration paid by the Company to the sole shareholders of the Grosso
Jacobson Companies pursuant to the merger was paid through the issuance of
2,222,222 shares of the Company's Common Stock valued at an issue price of $3.60
per share. The mergers of the Company's wholly-owned subsidiaries into the
Grosso Jacobson Companies for Common Stock of the Company has been recorded, for
financial statement reporting purposes, as a pooling of interests, and
accordingly, the accompanying financial statements reflect the combined results
of the pooled businesses for the respective periods presented.

     On January 21, 1999, the Company announced that it was in discussions with
Messrs. Grosso and Jacobson whereby they would re-establish their private
production company and resign as officers and directors of the Company. As part
of this transaction, on January 19, 1999, Messrs. Grosso and Jacobson did resign
from the Company and are expected to return a certain number of shares of the
Company's common stock in exchange for certain of the Company's projects. The
parties have entered into an agreement in principle whereby the Company would
invest the sum of $575,000 in Messrs. Grosso and Jacobson's new company named
Grosso-Jacobson Communications in exchange for the termination of their
respective employment agreements as well as releasing each other from all
obligations, including the promissory notes set forth in the Company's 10-QSB
for the period ended December 31, 1998. Additionally, the Company shall be
entitled to receive a 15% profit participation on those projects transferred to
Messrs. Grosso and Jacobson's private production Company. As further
consideration for this agreement, Messrs. Grosso and Jacobson agreed to return a
total of 1,666,666 shares of TPEG Common Stock to the Company. As a result of
this transaction the Company recognized the one time amount, set forth as
Recovery of Expenses on the


                                     Page 8
<PAGE>


Company's financial statements.

      On July 15, 1998, the Company acquired 100% of the outstanding capital
stock of MWI Distribution, Inc., a California corporation ("MWI"), which is
engaged in the international co-production and licensing of television and video
programming, as well as merchandising. The acquisition was accomplished by
merger. The consideration paid by the Company to the sole shareholders of MWI
pursuant to the merger was paid through the issuance of a total of 1,203,704
shares of the Company's Common Stock valued at an issue price of $1.75 per
share. In addition, the Company may have to pay additional consideration, in the
form of Common Stock, to the stockholders of MWI, which payments are contingent
upon the performance of MWI over a period of time. Under the terms of the Merger
Agreement, the stockholders of MWI could have received up to an additional
109,428 shares of Common Stock if the Common Stock Average Price, as defined in
the Merger Agreement, does not equal or exceed $3.80 per share between July 15,
1998 and June 30, 1999. On January 20, 1999, the Company announced that it was
interested in selling this subsidiary. The Company is not in discussions at this
time regarding this sale. On January 21, 1999, one of the stockholders, Thomas
Daniels and the Company entered into an agreement in principle whereby Mr.
Daniels would be granted the option to purchase 500,000 shares of the Company's
Common Stock at a price equal to $0.82 per share, in exchange for the
relinquishment of Daniels' opportunity to receive the additional shares listed
above.

(2)  GOODWILL

      Goodwill related to the acquisition of MWI is being amortized over a
period of five years.

(3)  DIVIDEND ON SERIES A PREFERRED STOCK

      For the three months ended September 30, 1998 and December 31, 1998, the
Company issued shares of its Common Stock at a combined market value equivalent
to $212,000, representing the $106,250 quarterly dividend required to be paid on
the Series A Preferred Stock for each of the quarters ended September 30, 1998
and December 31, 1998. For the three months ended March 31, 1999, the Company
will issue shares of its Common Stock at a market value equivalent to $106,250
for the quarterly dividend required to be paid on the Series A Preferred Stock.

(4)  LOSS PER SHARE

      Loss per share for the three-month period ended March 31, 1999 has been
computed after deducting the dividend requirements of the Series A Preferred
Stock. It is based on the weighted average number of common and common
equivalent shares reported outstanding during the entire period ending on March
31, 1999.

(5)  STOCK OPTIONS AND WARRANTS

      The Company uses APB Opinion No. 25 "Accounting for Stock Issued to
Employees" to calculate the compensation expense related to the grant of options
to purchase Common Stock under the intrinsic value method. Accordingly, the
Company makes no adjustments to its compensation expense or equity


                                     Page 9
<PAGE>


accounts for the grant of options. The Company has made several grants of
options for the period ended March 31, 1999. At March 31, 1999 there were
options to acquire 2,670,665 shares outstanding at exercise prices ranging from
$0.82 per share to $24.00 per share of Common Stock.

      In connection with the Company's offering in 1996, the Company issued
5,100,000 Warrants to purchase 5,100,000 shares of common stock at an exercise
price of $1.75 per share (or one warrant for one share of Common Stock). These
warrants trade on the Nasdaq Small Cap market under the symbol "TPEGW". In April
1998, the Company's stockholders approved a 1-for-3 reverse stock split of the
Company's Common Stock. Pursuant to the terms of the Warrant Agreement governing
the warrants, the terms of the warrants were automatically adjusted so that the
5,100,000 warrants outstanding can now be exercised to purchase 1,700,00 shares
of Common Stock in the aggregate at $5.25 per share. Therefore, in order to
acquire one share of stock, a warrant holder must exercise three warrants and
pay an aggregate exercise price of $5.25.


(6)   RELATED PARTY TRANSACTIONS

      As of the period ended March 31, 1999, the Company issued a promissory
note to Mountaingate Productions, LLC, an affiliate of Irwin Meyer, Chief
Executive Officer and Co-Chairman of the Board of Directors of the Company, for
the sum of $50,384.60, which represents amounts owed to Mountaingate
Productions, LLC under its production agreement with the Company. The promissory
note bears interest at the rate of ten percent (10%) per annum.


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

FORWARD LOOKING STATEMENTS

      This report contains statements that constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933 with respect to the Company
and its operations that are subject to certain risks and factors which could
cause the Company's future actual results of operations and future financial
condition to differ materially from those described herein. The words "expect,"
"estimate," "anticipate," "predict," "believe" and similar expressions and
variations thereof are intended to identify forward-looking statements. These
statements appear in a number of places in this filing and include statements
regarding the intent, belief or current expectations of the Company with respect
to, among other things, the integration of the acquisition of MWI, trends
affecting the Company's financial condition and the Company's future business
and strategies. The stockholders of TPEG are cautioned not to put undue reliance
on these forward-looking statements. Such forward-looking statements involve
risks and uncertainties, including the number of the Company's projects in
development that result in completed productions, the lapse in time between the
expenditures made by the Company and the receipt of cash and the Company's
ability to change the direction of the Company. Other risk factors include the
competition in the internet industry, the status of the Company's liquidity in
future fiscal periods,


                                    Page 10
<PAGE>


the Company's ability to integrate the acquisition of MWI and factors that
generally affect the internet and e-commerce industries, as well as economic,
political, regulatory, technological and public taste environments. The readers
of this filing are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in this filing,
including, without limitation, those risks and uncertainties discussed herein
and under the headings "Factors That Could Impact Future Results" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998 as well as the information set forth below. The Company does
not ordinarily make projections of its future operating results and undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

OVERVIEW

      In December, 1998, the Company commenced a restructuring of its operations
in order to redirect its primary revenue sources. It determined that it would
seek opportunities in the internet and e-commerce sectors.

     The Company has retained the services of Strategic Capital Consultants to
advise and assist the Company in locating acquisitions in the internet and
e-commerce industries. During the quarter ended March 31, 1999, the Company made
two investments in internet-related companies. On February 4, 1999, the Company
announced that it made an initial investment in flowersandgifts.com, a
storefront on the Internet to sell flowers and gifts. The Company has executed
an agreement with flowersandgifts.com to acquire up to $1,000,000 of common
stock in the aggregate, subject to certain conditions. The initial investment
was $200,000 for 100,000 shares, representing approximately 2% of the
outstanding common stock of flowersandgifts.com. Additionally, the Company has
the right to purchase up to an additional $1,000,000 in common stock of
flowersandgifts.com at a price of $2.10 per share. The Company then invested the
sum of $100,000 for an additional 50,000 shares of the common stock.
Subsequently, on February 24, 1999, the Company entered into a Stock Sale
Agreement with Pacific Softworks, Inc. ("Pacific") to purchase 100,000
restricted shares of Pacific's common stock for the total sum of $500,000. The
Company has executed an agreement with Pacific to acquire up to an additional
100,000 of common stock in the aggregate at a price of $6.00 per share, subject
to certain conditions.

      In view of the diminished revenue resulting from the discontinuance of
certain television production and distribution activities, the Company has
focused on the following areas in order to generate working capital over the
next twelve months: collection of current accounts receivables; revenues to be
derived from two made-for-television movies currently in development and
additional equity financings currently being negotiated.

      It is the Company's intention to seek a strategic alliance, acquisition,
or merger, that would enable it to generate revenues sufficient to operate
profitably, although there can be no assurance that any such alliance,
acquisition or merger will be successful. Since the Company's experience has
been in the entertainment industry, it is focusing primarily on enabling
technologies in the converging telecommunications, cable, satellite, e-commerce,
entertainment and on-line industries.


                                    Page 11
<PAGE>


     Amortization of film costs is charged to operations on a project by project
basis. The cost charged per period is determined by multiplying the remaining
unamortized costs of the project by a fraction, whose numerator is the income
generated by the project during the period and whose denominator is management's
estimate of the total gross revenue to be derived by the project over its useful
life from all sources. This is commonly referred to as the Individual Film
Forecast Method under FASB 53. The effects on the amortization of completed
projects resulting from revision of management's estimates of total gross
revenue on certain projects are reflected in the year in which such revisions
are made.


RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

      Revenues for the three months ended March 31, 1999 was $0.00, a 100%
decrease from $6,196,754 for the three months ended March 31, 1998. The Company
had no revenues for the three months ended March 31, 1999 from its television
and international distribution activities. Revenues of $6,196,142 for the three
months ended March 31, 1998 consisted of revenues from television production and
distribution activities and $353,223 from personal management fees. The decrease
in revenues was due to the lack of television production and decreased
international sales, as well as the elimination of the personal management
operation.

      Amortization of film costs for the three months ended March 31, 1999 and
March 31, 1998 was $0.00 and $3,980,910, respectively, and was computed using
the Individual Film Forecast Method. The difference in amortization as a
percentage of total revenues related to the amortization of projects and
reflects the mix of projects in which TPEG has no expectation of additional
revenues that are amortized at 100% of cost and projects in which TPEG has
retained distribution rights held for future sale that are amortized according
to the Individual Film Forecast Method.

      Cost of sales for the three months ended March 31, 1999 and March 31,
1998, was $0.00 and $532,800, respectively. Cost of sales as a percentage of
total revenues decreased from 9% for the three months ended March 31, 1998 to 0%
for the three months ended March 31, 1999.

      General and administrative expenses for the three months ended March 31,
1999 were $381,840 compared to $1,370,219 for the three months ended March 31,
1998. The $988,379, or 72%, decrease in general and administrative expenses
was due to (i) the elimination of certain staff and related benefits of
television production, international sales and talent management personnel in
the Los Angeles office, and (ii) a non-recurring credit for accrued expenses
which have been reversed.

      During the three months ended March 31, 1999, the Company recorded no
additional amortization related to a November 4, 1996 non-competition agreement
with a former officer and director since such cost was fully amortized as of
December 31, 1998.


                                    Page 12
<PAGE>


     During the three months ended March 31, 1999, TPEG recorded no interest
income. During the three months ended March 31, 1998, interest income of $11,092
consisted of interest income earned on temporary cash investments. During the
three months ended March 31, 1999, TPEG recorded a recovery of expenses in the
amount of $1,042,310 in connection with the Grosso-Jacobson transaction
described in Note 1.

      TPEG reported a profit of $507,150 or $.05 per share in the three months
ended March 31, 1999 compared to a profit of $131,993 or $.02 per share in the
three months ended March 31, 1998. The income for both compared periods included
required dividend payments of $106,250 to holders of the Company's outstanding
Series A Preferred Stock. The number of average common shares outstanding
increased to 10,061,725 as of the three months ended March 31, 1999 from
6,335,976 as of the three months ended March 31, 1998 due primarily from the
sale of securities to The Augustine Fund, LP and the issuance of Common Stock in
connection with the purchase of MWI. The calculation of average common shares
for both periods reflects the effect of the one-for-three stock split completed
during the fourth quarter 1998.

NINE MONTHS ENDED MARCH 31, 1999, COMPARED TO NINE MONTHS ENDED MARCH 31, 1998.

      Revenues for the nine months ended March 31, 1999 were $1,142,188, a 94%
decrease from $18,276,403 for the nine months ended March 31, 1998. Revenues for
the nine months ended March 31, 1999 consisted of income from the continuing
international distribution of completed projects. Revenues of $1,142,188 for the
nine months ended March 31, 1999 consisted of revenues from production,
distribution, and talent management. The decrease in revenues was due to a
reduction in production or international distribution activities and the
elimination of the talent management activities.

      Amortization of film costs for the nine months ended March 31, 1999 and
March 31, 1998 was $0.00 and $12,422,090, respectively, and was computed using
the Individual Film Forecast Method. The difference in amortization as a
percentage of total revenues related to the amortization of projects and
reflects the mix of projects in which TPEG has no expectation of additional
revenues that are amortized at 100% of cost and projects in which TPEG has
retained distribution rights held for future sale that are amortized according
to the Individual Film Forecast Method.

      Cost of sales for the nine months ended March 31, 1999 and March 31, 1998,
was $0.00 and $604,218, respectively.

      General and administrative expenses for the nine months ended March 31,
1999 were $3,001,561 compared to $3,974,429 for the nine months ended March 31,
1998. The $3,592,589 decrease in general and administrative expenses was due to
a reduction in overhead and the discontinuation of certain television and
personal management operations.

      During the nine months ended March 31, 1999, the Company recorded
($184,000) of amortization related to a November 4, 1996 non-competition
agreement with a former officer and director, which cost was


                                    Page 13
<PAGE>


fully amortized as of December 31, 1998.

     During the nine months ended March 31, 1999, TPEG recorded no interest
income. During the nine months ended March 31, 1998, interest income of $58,522
consisted of interest income earned on temporary cash investments. During the
three months ended March 31, 1999, TPEG recorded a recovery of expenses in the
amount of $1,042,310 in connection with the Grosso-Jacobson transaction
described in Note 1.

      TPEG reported a loss of $2,220,447 or ($.25) per share in the nine months
ended March 31, 1999 compared to a profit of $482,084 or $.08 per share in the
nine months ended March 31, 1998. The income (loss) for both compared periods
included required dividend payments of $106,250 to holders of the Company's
outstanding Series A Preferred Stock. The number of average common shares
outstanding increased to 9,021,640 as of the nine months ended March 31, 1999
from 6,290,871 as of the nine months ended March 31, 1998 due primarily to the
sales of securities to The Augustine Fund and the issuance of Common Stock in
connection with the Company's purchase of MWI. The calculation of weighted
average common shares for both periods reflects the effect of the one-for-three
stock split completed during the fourth quarter of fiscal 1998.

LIQUIDITY AND CAPITAL RESOURCES

      As of March 31, 1999, TPEG had decreased liquidity from the comparable
period ended March 31, 1998 primarily as a result of a decrease in revenue. Cash
and cash equivalents as of March 31, 1999 were ($47,086) and trade accounts
receivable increased to $2,222,319. As of March 31, 1999, the Company had
recorded accounts payable and accrued expenses of $2,554,644. In the comparable
period ending March 31, 1998, the Company had $933,555 in cash and cash
equivalents and $2,373,039 in trade accounts receivable available to provide
payment for $674,624 in recorded accounts payable and accrued expenses.

      Management estimates that, as of March 31, 1999, the Company's cash
commitments for the next twelve months will aggregate approximately $1,700,000.
The figure includes (a) base compensation to its key officers, key independent
contractors and key consultants of approximately $550,000 and (b) office rent of
approximately $150,000.

      The Company also incurs other general and administrative costs such as
staff salaries, employee benefits, employer taxes, premiums on insurance
policies, marketing costs, office expenses, professional fees, consulting fees
and other expenses. For the three months ended March 31, 1999, total cash
general and administrative expenses for all categories aggregated approximately
$381,840. In addition to general and administrative expenses, the required
dividends on the shares of Series A Preferred Stock are $425,000 annually. The
dividends on the Series A Preferred Stock and the Series E Preferred Stock may
be paid either in shares of the Company's Common Stock or in cash.

      The Company's projected costs of operation will require additional funding
in order to continue its operations and to establish other activities. The
Company anticipates that funds raised in the course of the year will be used to
further its internet-related projects and ventures. However, there can be no
assurance that the Company will be able to raise adequate funds to continue
operations. The actual utilization of excess


                                    Page 14
<PAGE>


working capital is subject to change based on the then present circumstances and
management's evaluation of alternative projects. An inability to raise
additional capital could prevent the Company from achieving its objectives and
would have a material adverse effect on the Company's business, results of
operations and financial condition.

     The Company is seeking to obtain additional external financing or capital.
The Company's ability to rely on external sources of funds, rather than its own
liquid resources, will be significant in determining the extent to which the
Company will be able to seek those strategic alliances or acquisitions required
to diversify itself in the internet and e-commerce industries. There is no
assurance that such external sources of funds will be available to the Company
or that, if available, the terms thereof will be at reasonable cost to the
Company. No new agreements have been entered into for any such external
financing as of the date of this Report. In July 1998, the Company secured
access to a $5,500,000 equity-based line of credit with an institutional
investor. The Company's ability to further draw on this equity-based line of
credit is subject to stockholder approval, among other requirements. Through
March 31, 1999, the Company has received approximately $2,500,000 from the
investor in exchange for the sale by the Company of Series D and Series E
convertible preferred stock and the issuance of Series F convertible preferred
stock to the investor. Subject to the restrictions described above, the Company
is committed to use $2,000,000 of the equity-based line of credit, which is
available to the Company through August 2000. All of the Series D Preferred
Stock issued has been converted into Common Stock. The holders of the Company's
Series E Preferred Stock are entitled to annual dividends of 6%, all of which
are payable quarterly in cash, or at the Company's option, in shares of Common
Stock.

IMPACT OF YEAR 2000

      The Year 2000 issue is the result of computer programs being written using
two digits instead of four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software or facilities or equipment
containing embedded micro-controllers may recognize a date using "00" as the
year 1900 rather than the Year 2000. This could cause a system failure or
miscalculations resulting in potential disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities.

     The Company has assessed its hardware and software systems, which are
comprised solely of an internal personal computer network and commercially
available software products. Based on this assessment, the Company believes that
its hardware and software systems are Year 2000 compliant. The Company has begun
to assess the embedded system contained in its leased equipment and expects to
finish this assessment by the end of June 1999. At this time, the Company is
uncertain whether the embedded systems contained in its leased equipment are
ready for the Year 2000.

      In addition, the Company is contacting its key vendors and customers to
determine if there are any significant Year 2000 exposures which would have a
material effect on the Company. The Company is not yet aware of any Year 2000
issues relating to third parties with which the Company has a material
relationship. There can be no assurance, however, that the systems of third
parties on which the Company or its systems rely will not present Year 2000
problems that could have a material adverse effect on the Company. The Year


                                    Page 15
<PAGE>


2000 issue presents a number of other risks and uncertainties that could impact
the Company, such as disruptions of service from third parties providing
electricity, water or telephone service. If such critical third party providers
experience difficulties resulting in disruption of service to the Company, a
shutdown of the Company's operations at individual facilities could occur for
the duration of the disruption.

      The Year 2000 project cost has not been material to date and, based on
preliminary information, is not currently anticipated to have a material adverse
effect on the Company's financial condition, results of operations or cash flow
in future periods. However, if the Company, its customers or vendors are unable
to resolve any Year 2000 compliance problems in a timely manner, there could
result a material financial impact on the Company. Accordingly, management plans
to devote the resources it considers appropriate to resolve all significant Year
2000 problems in a timely manner.

      The project is estimated to be completed not later than mid-1999. After
completion of its Year 2000 assessment, the Company will develop contingency
plans to reduce its Year 2000 exposure and expects to have such contingency
plans in place by December 1999.

      Readers are cautioned that forward-looking statements contained in this
Year 2000 disclosure should be read in conjunction with the Company's
disclosures under the heading, "Forward-looking Statements," beginning above.
Readers should understand that the dates on which the Company believes the Year
2000 project will be completed are based upon Management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
availability of certain resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Company's Year 2000 compliance project. A delay
in specific factors that might cause differences between estimates and actual
results include, but are not limited to, the availability and costs of personnel
trained in these areas, the ability of locating and correcting all relevant
computer code, timely responses to and corrections by third parties and
suppliers, the ability to implement interfaces between the new systems and the
systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties and the interconnection
of national and international businesses, the Company cannot ensure that its
ability to timely and cost effectively resolve problems associated with the Year
2000 issue will not affect its operations and business, or expose it to third
party liability.


RISK FACTORS

RISKS ASSOCIATED WITH NEW BUSINESS STRATEGY

      During the quarter ended March 31, 1999, we announced our intention to
expand our business in the internet and electronic commerce industries. The
internet and electronic commerce industries are new, highly speculative and
involve a substantial degree of risk. We retained the services of Strategic
Capital Consultants to advise us in locating acquisition candidates. The
internet and electronic commerce industries are a completely new business
venture for us, a business in which we have never operated. None of our current


                                    Page 16
<PAGE>


executives, other than Barry Sandrew, our Chief Technology Officer, have
experience operating internet-related companies. Although we believe that our
experience in the entertainment business lends itself well to the industry, we
cannot assure you that we will be able to operate successful businesses, or that
we will invest in or acquire interests in companies which will be successful. If
we are unable to locate acquisition targets, or if we are unable to consummate
acquisitions of internet and electronic commerce companies or if we are unable
to successfully integrate their businesses, there could be a material adverse
effect on our business and financial condition.

      Our new business strategy will require substantial working capital. We
have spent and will continue to spend substantial funds to locate appropriate
acquisition candidates, to market our efforts and to establish an effective
management team with experience in the internet and electronic commerce
industries. We cannot assure you that we will be successful in any of these
areas.

CERTAIN FACTORS AFFECT OUR LIQUIDITY AND CAPITAL RESOURCES

      Our cash commitments for the next 12 months include paying aggregate
minimum base compensation of approximately $550,000 to our officers and key
independent contractors and minimum office rent of approximately $150,000. We
also incur overhead and other costs such as employee salaries, related benefits,
office expenses, professional fees and similar expenses. For our fiscal year
ended June 30, 1998, our general and administrative expenses, which include
compensation and rent, totaled $4,151,252. Dividends on our outstanding Series A
Preferred Stock aggregate $425,000 annually. We also pay dividends of 6% per
annum on our outstanding Series E Preferred Stock. At our option, we may pay
dividends on all series of preferred stock in shares of common stock or in cash.
As a result of all of these expenses, we had an accumulated deficit of
($22,500,800) at March 31, 1999.

      At March 31, 1999, we had cash and cash equivalents of ($49,101) and
accounts and contracts receivable of $2,222,319. At March 31, 1999, we also had
accounts payable and accrued expenses of $2,554,644. Other than our sale of
preferred stock, we have not arranged for external sources of financing such as
bank lines of credit and cannot assure you that additional financing will be
available on acceptable terms or at all.

WE HAVE INCURRED LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE

      For the fiscal years ended June 30, 1996, 1997 and 1998, we generated
revenues of $5,367,498, $5,521,441 and $22,369,511, respectively, and incurred
net losses of $1,447,666, $4,592,145 and $1,411,916, respectively (without
giving effect to the payment in 1996, 1997 and 1998 of dividends of $425,000
annually, on the Series A Preferred Stock which we paid by issuing shares of
common stock). As of March 31, 1999, we had an accumulated deficit of
($22,500,800). We cannot provide you any assurance that we will be profitable in
future fiscal periods.

RISKS ASSOCIATED WITH INTEGRATION OF RECENT ACQUISITION


                                    Page 17
<PAGE>


     In July 1998, we acquired MWI Distribution, Inc., which does business under
the name MediaWorks International. On January 20, 1999, we announced that we are
considering the sale of MediaWorks. If we continue to own MediaWorks, we must
efficiently, effectively and timely integrate our operations with those of
MediaWorks International. Combining these businesses will, among other things,
require us to do the following:

     o  integrate management staffs;
     o  coordinate sales and marketing efforts;
     o  combine and organize purchasing departments; and
     o  identify and eliminate redundant overhead.

    Our management will need to devote considerable effort in fully integrating
these businesses. We may experience difficulties associated with the integration
and we may not be efficient or successful in doing so. Furthermore, even if we
successfully combine the operations of the companies, we cannot assure you that
we will be able to operate profitably.

WE FACE YEAR 2000 RISKS

    The Year 2000 issue is the result of computer programs being written using
two digits instead of four to represent the year in a date field. Computer
hardware and software applications that are date-sensitive may interpret a date
represented as "00" to be the year 1900 rather than the year 2000. The results
could include system failure, inability to process transactions or send invoices
or other miscalculations causing a disruption in our operations.

    We have assessed our hardware and software systems, which are comprised only
of an internal personal computer network and commercially available software
products. Based on our assessment, we believe that our hardware and software
systems will function properly with respect to dates in the year 2000 and
beyond. We are also assessing the embedded system contained in our leased
equipment, which we expect to complete by the end of June 1999. Currently, we
are uncertain whether this embedded system is Year 2000 compliant. After we
complete all of our Year 2000 assessments, we intend to develop contingency
plans to reduce our Year 2000 exposure.

    In addition, we are contacting our key vendors and customers to determine if
they have any significant Year 2000 exposures which would have an adverse affect
on us and our business. We are not presently aware of any Year 2000 issues
relating to these vendors and customers. However, we cannot assure you that
these parties will not experience Year 2000 problems. If they do encounter such
problems, they may not be able to solve them in a timely manner, which could
adversely affect our financial condition.

    The Year 2000 issue presents numerous other risks that could adversely
affect us, such as disruptions of service from third parties who provide us with
electricity, water or telephone service. If these critical third party providers
experience difficulties that result in disruptions of services to us, a shutdown
of our operations at individual facilities could occur. Also, general
uncertainty exists regarding the Year 2000


                                    Page 18
<PAGE>


problem and its potential effect on the overall business environment and
economies of the United States and other nations. As a result, we cannot
determine at this time whether the Year 2000 problem will materially impact our
operations or financial condition as a result of significant disruptions to
these economies and/or business environment.

RISKS RELATED TO OUR INDUSTRIES

OUR INDUSTRIES ARE INTENSELY COMPETITIVE

    The television industry is highly competitive and involves a substantial
degree of risk. We directly compete with many other television and motion
picture producers which are significantly larger than us. These producers
typically have financial and other resources which are far greater than those
available to us now or in the foreseeable future. New technologies and the
expansion of existing technologies in the television industry may further
increase the competitive pressures on us. We cannot assure you that we will be
successful in competing in the television field.

    The feature film industry is highly competitive and involves a substantial
degree of risk. We currently compete with major film studios and other
established independent producers of feature films. Most of our current and
potential competitors in the film industry are significantly larger and have
greater financial, marketing and other resources than us. We may not be able to
compete successfully against these companies.

    Our success depends upon our ability to produce programming for television
and theatrical release which will appeal to markets characterized by changing
popular tastes. In light of the intense competition in our industry, we cannot
give you assurance that we will continue to acquire and develop products which
can be made into profitable made-for-television movies, television series or
theatrical releases.

    If we are successful in entering the internet and electronic commerce
industries, we expect to experience a similarly competitive environment, in
which many large companies have substantially greater market presence,
financial, technical, marketing and other resources.

EFFECT OF OUTSTANDING OPTIONS AND WARRANTS

    As of the date of this Report, we have granted options and warrants to
purchase a total of 2,620,665 shares of common stock that have not been
exercised. To the extent that these outstanding options and warrants are
exercised, our stockholders' interests will be diluted. Also, the terms upon
which we will be able to obtain additional equity capital may be affected
adversely, since we can expect the holders of the outstanding options and
warrants to exercise them at a time when we would, in all likelihood, be able to
obtain any needed capital on more favorable terms than those provided in the
outstanding options and warrants.


                                    Page 19
<PAGE>


EFFECT OF CONVERSION OF CONVERTIBLE PREFERRED STOCK

    In December 1994, we issued 1,000,000 shares of our Series A Preferred
Stock, which pays an annual dividend of 8 1/2%. During 1998 and 1999, we issued
200,000 shares of our Series E Preferred Stock, which has a face value of $10.00
per share and pays an annual dividend of 6%. Of the shares of Series E Preferred
Stock issued, the holder has converted 1,964,988 shares into common stock. At
our option, we can pay the dividends on all series of our preferred stock in
cash or in shares of common stock.

    Holders of our convertible preferred stock could convert their shares into
common stock at any time in the future. This conversion would dilute the
interests of our common stockholders. Additionally, since these shares of common
stock will be registered for sale in the marketplace, future offers to sell such
shares could potentially depress the price of our common stock. In the future,
this could make it difficult for us or our stockholders to sell the common
stock. Also, we may have problems obtaining additional equity capital on terms
we like, since we can expect the holders of our convertible preferred stock to
convert their shares into common stock at a time when we would, in all
likelihood, be able to obtain any needed capital on more favorable terms than
those provided by the convertible preferred stock.

POSSIBLE ISSUANCE OF PREFERRED STOCK; ANTITAKEOVER PROVISIONS OF OUR CERTIFICATE
OF INCORPORATION

    Our Certificate of Incorporation permits our Board of Directors to issue up
to 20,000,000 shares of "blank check" Preferred Stock. Our Board of Directors
also has the authority to determine the price, rights, preferences, privileges
and restrictions of those shares without any further vote or action by our
stockholders. We have issued 1,000,000 shares of Series A Preferred Stock,
50,000 shares of Series D Preferred Stock, 200,000 shares of Series E Preferred
Stock and 250,000 shares of our Series F Preferred Stock. We have reserved for
issuance an additional 300,000 shares of Series A Preferred Stock, 300,000
shares of Series E Preferred Stock and 300,000 shares of Series F Preferred
Stock. In January 1999, our Board of Directors authorized the issuance of
3,000,000 shares of Series C Preferred Stock. Additional issuances of preferred
stock with voting and conversion rights could adversely affect the rights of our
common stockholders by, among other things, causing them to lose their voting
control to others. Such an issuance could also delay, defer or prevent a change
in our control, even if these actions would benefit our stockholders.

    We are also subject to Section 203 of the Delaware General Corporation Law
which generally prohibits us from engaging in any business combination with any
interested stockholder for three years following the date that such stockholder
became "interested." Generally, an interested stockholder is any entity or
person who beneficially owns 15% or more of a corporation's outstanding voting
stock and any entity or person affiliated with, controlling or controlled by
such entity or person. These provisions could discourage others from making
tender offers for our shares of common stock. Consequently, they may inhibit
fluctuations in the market price of our shares that could result from actual or
rumored takeover attempts. Such provisions could also prevent changes in our
management, even if such changes would be in the best interest of our
stockholders.


                                    Page 20
<PAGE>


ABSENCE OF DIVIDENDS ON COMMON STOCK; ANNUAL CASH DIVIDENDS ON SERIES A
PREFERRED STOCK, AND SERIES E PREFERRED STOCK

    We have never paid cash dividends on our common stock and we do not expect
to pay these dividends in the foreseeable future. Holders of our Series A
Preferred Stock are entitled to annual dividends of 8 1/2% (aggregating $425,000
annually, assuming no conversion); holders of our Series E Preferred Stock are
entitled to annual dividends of 6%. We pay these dividends quarterly, in cash or
in shares of our common stock. For the foreseeable future, we anticipate that we
will retain all of our cash resources and earnings, if any, for the operation
and expansion of our business, except to the extent required to satisfy our
obligations under the terms of the Series A and Series E Preferred Stock.

OUR STOCK PRICE HAS BEEN VOLATILE

    The market price of our common stock has been, and is likely to continue to
be, highly volatile. Factors such as our competitors' announcements, or our
announcements concerning our financial results may significantly impact the
market price of our securities. Further, we cannot assure you that the market
will react favorably to our efforts to expand our efforts in the internet and
electronic commerce industries. Any announcement we make could significantly
affect the market price of our common stock.




                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

THE PRODUCERS ENTERTAINMENT GROUP LTD. AND MWI DISTRIBUTION, INC. V. CRAIG
SUSSMAN, Before The American Arbitration Association, No. 72 160 00256 99.

      On March 22, 1999, The Producers Entertainment Group ("TPEG") and MWI
Distribution, Inc., a wholly owned subsidiary of TPEG ("MWI"), filed a demand
for arbitration against Craig Sussman for breach of his employment agreement
with TPEG Merger Co., the predecessor-in-interest to MWI. TPEG and MWI allege
that Mr. Sussman engaged in serious misconduct while he was Chief Executive
Officer which entitled TPEG and MWI to terminate Mr. Sussman's employment
agreement for cause. Damages are in an amount to be determined. TPEG and MWI are
seeking declaratory relief that Mr. Sussman's misconduct amounts to breach of
his obligations and constitutes cause for termination under the agreement and
that in March 1999, TPEG and MWI did terminate Mr. Sussman's employment
agreement "for cause." In response to these claims, Mr. Sussman claims that TPEG
and MWI have breached their obligations to him under the agreement and believe
he is entitled to be compensated under his employment agreement. Craig Sussman
has not filed a response to TPEG's and MWI's demand for arbitration and is
taking the position, with which TPEG and MWI do not agree, that the matter at
issue does not fall within the mandatory arbitration provision of his employment
agreement. An arbitrator has yet not been selected to preside over this matter.
Due to the early stage of litigation and the fact that investigations are
ongoing, it is not possible at this time to predict the


                                    Page 21
<PAGE>


outcome of this case.

JERRY KATZ V. SUSSMAN, ET. AL.
------------------------------
Los Angeles County Superior Court, Case No. BC 203956

      On January 19, 1999, Jerry Katz filed suit against The Producers
Entertainment Group ("TPEG"), TPEG Merger Co. ("Merger Co."), MWI Distribution,
Inc. ("MWI") and several individual defendants, including Craig Sussman, Tom
Daniels, Irwin Meyer, Larry Jacobson, Salvatore Grosso and Arthur Bernstein.
Plaintiff's alleged causes of action include breach of contract, fraud and other
tort claims.

      The lawsuit is based primarily on alleged events arising prior to TPEG's
acquisition of MWI in July 1998. Mr. Katz alleges that in February 1997, he
entered into a letter of understanding with Craig Sussman and Tom Daniels, who
were then the sole shareholders and officers of MWI, whereby he would set up a
company named MediaSat to license MWI's product in foreign markets to a list of
approved broadcasters in return for a monthly draw of $2,500 against net profits
and a 49% interest in MediaSat. This transaction was for an initial period of 6
months commencing on March 18, 1998. The partnership agreement also allegedly
provided that Mr. Katz would continue to receive commissions from certain
earnings by MWI as a result of introductions by Mr. Katz. Mr. Katz claims that
in acquiring MWI, TPEG acquired all contractual rights to which MediaSat was a
party without his consent, and that the value of contracts to which MediaSat was
a party was a significant consideration in determining the value of the merger.
TPEG does not deny the limited relationship between Mr. Katz and MWI; however,
the Company believes, based on actual completed sales attributable to Mr. Katz
that no money may be due to him under the letter of understanding. In this
lawsuit, Mr. Katz asserts various causes of action against the defendants in an
effort to recover lost earnings, other ancillary benefits, and stock ownership
in TPEG, which he claims is over $1 million. Since the Company was not a party
to the letter of understanding with Mr. Katz, Mr. Daniels and Mr. Sussman and
have no contractual relationship with Mr. Katz regarding the receipt by Mr. Katz
of any shares resulting from the merger, the Company has answered the complaint
and asserted various affirmative defenses. Plaintiff has served an initial set
of discovery, but TPEG has not responded. Due to the early stage of litigation
and the fact that investigations are ongoing, it is not possible at this time to
predict the outcome of this case.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

            (c) The Company and Strategic Capital Consultants entered into a
Securities Purchase Agreement, dated as of January 14, 1999 (the "Strategic
Agreement"), pursuant to which Strategic purchased 1,700,000 shares of the
Series C Convertible Preferred Stock, par value $0.001 per share (the "Series C
Convertible Preferred Stock") for a purchase price of $1,700.00. Strategic
serves as the Company's financial advisor. All 1,700,000 shares of the Series C
Convertible Preferred Stock are convertible at a fixed rate of $0.50 per share.
As of the effective date of the Strategic Agreement, the conversion price for
the shares of the Series C Convertible Preferred Stock was above market value.
The closing sales price of the Company's Common Stock on January 14, 1999 was
$0.3125. The sale of securities was deemed to be exempt from registration in
reliance on Section 4(2) of the Securities Act as transactions by an issuer not
involving a public offering.


                                    Page 22
<PAGE>


            The Company and Mountaingate Productions ("Mountaingate") entered
into a Securities Purchase Agreement, dated as of January 14, 1999 (the
"Mountaingate Agreement"). Mountaingate purchased for $1,300.00, 1,300,000
shares of the Series C Convertible Preferred Stock convertible at a fixed rate
of $0.50 per share. Mountaingate has provided production services to the Company
since October 1, 1995. Mountaingate is owned by Alison Meyer Marcus and Patricia
Meyer, Mr. Irwin Meyer's adult children. Mr. Meyer has no direct or indirect
beneficial interest in Mountaingate. As of the effective date of the
Mountaingate Agreement, the conversion price for the shares of each of the
Series C Convertible Preferred Stock, convertible at $0.50, was above market
value. The closing sales price of the Company's Common Stock on January 14, 1999
was $0.3125. The sale of securities was deemed to be exempt from registration in
reliance on Section 4(2) of the Securities Act as transactions by an issuer not
involving a public offering.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

  None



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

  None

ITEM 5.  OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-K/A

      (a)  EXHIBITS
          10.1 Securities Purchase Agreement with Strategic Capital Consultants,
               dated as of January 14, 1999.
          10.2 Securities Purchase Agreement with Mountaingate Productions, LLC,
               dated as of January 14, 1999.
          27.1 Financial Data Schedule

      (b)  Reports on Form 8-K

            None.


                                    Page 23
<PAGE>


                                   SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this Report to be signed on its behalf by the
  undersigned thereunto duly authorized.


                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                     --------------------------------------
                                  (Registrant)

  Dated:   MAY 24, 1999       /S/ IRWIN MEYER
           ------------       ---------------
                              Irwin Meyer, Chief Executive Officer

  Dated:   MAY 24,1999        /S/ ARTHUR H. BERNSTEIN
           -----------        -----------------------
                              Arthur Bernstein, Executive Vice  President,
                              Principal Financial Officer


                                    Page 24