<PAGE>   1
                       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, 1997 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. Employer
incorporation or organization)                      Identification No.)

9150 Wilshire Blvd., Suite 205, Beverly Hills, CA          90212
    (Address of principal executive offices)             (Zip Code)

        Registrant's telephone number, including area code (310) 285-0400

                                 Not applicable
              (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-- 12,632,152 SHARES AS OF MAY 8, 1997


<PAGE>   2
Part 1. Financial Information
Item 1. Financial Statements

             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              MARCH 31, 1997        JUNE 30, 1996
                                                                                (UNAUDITED)            (NOTE)
                                                    ASSETS
<S>                                                                             <C>                 <C>         
Cash and cash equivalents                                                       $    532,432        $    336,415
Short term investments                                                             2,869,020                 ---
Accounts receivable, net trade                                                       375,800             222,200
Receivable from related parties                                                        1,944              18,983
Notes receivable, trade                                                              284,381             260,000
Right to receive revenue                                                             227,817             291,241
Film costs, net                                                                    1,195,444             772,777
Fixed assets, net                                                                     86,086              50,242
Investment in distribution subsidiary                                                140,943                 ---
Covenant not to compete                                                              460,000                 ---
Other assets                                                                          32,218             154,979
                                                                                ------------        ------------
TOTAL ASSETS                                                                    $  6,206,085        $  2,106,837
                                                                                ------------        ------------


                                     LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable                                                             $              ---        $    600,000
Accounts payable and accrued expenses                                                 69,827             433,136
Accounts payable for dividends                                                       106,250                 ---
Accrued payable for legal settlement                                                  25,000                 ---
Deferred Income                                                                       50,000                 ---
                                                                                ------------        ------------
TOTAL LIABILITIES                                                               $    251,077        $  1,033,136

Shareholders' equity:
Preferred Stock, $.001 par value, authorized 10,000,000 shares,
  issued and outstanding 1,000,000 shares - Series A                                   1,000               1,000
Common Stock, $.001 par value, authorized 50,000,000 shares;
  issued 12,912,761 and 3,585,819;
  outstanding 12,632,152 and 3,305,210 shares                                         12,913               3,586
Additional paid-in capital                                                        23,806,849          16,114,017
Accumulated deficit and dividends                                                (15,854,564)        (13,182,710)
                                                                                ------------        ------------

                                                                                   7,966,198           2,935,893
Treasury stock 280,609 shares, at cost                                            (1,010,192)         (1,010,192)
Notes receivable from related parties from sales of
  Common Stock, net of imputed interest discount                                  (1,000,998)           (852,000)
                                                                                ------------        ------------
Net shareholders' equity                                                        $  5,955,008        $  1,073,701
                                                                                ------------        ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      $  6,206,085        $  2,106,837
                                                                                ------------        ------------
</TABLE>


Note: The balance sheet at June 30, 1996 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       2
<PAGE>   3
             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED MARCH 31,
                                                         ---------------------------------
                                                                 1997                 1996
<S>                                                      <C>                  <C>         
Revenues                                                 $    812,391         $  2,132,767

Film amortization                                             (53,353)            (717,000)
                                                         ------------         ------------

  Net Revenues                                                759,038            1,415,767

General and administrative expenses                        (2,952,306)          (2,665,625)
                                                         ------------         ------------

  Operating (loss)                                         (2,193,268)          (1,249,858)


Other income (expenses):

Income (loss) from settlement of lawsuit                     (236,916)             267,633

Forgiveness of note receivable from related party                 ---              (68,016)

Interest income                                               150,645                7,656

Interest income from related parties                           83,410               39,000

Interest and financing expense                               (156,975)                 ---
                                                         ------------         ------------

  Net other income (expense)                                 (159,836)             246,273
                                                         ------------         ------------


Net (loss)                                                 (2,353,104)          (1,000,585)


Dividend requirement on Series A Preferred Stock
  at $.31875 per share                                       (318,750)            (318,750)
                                                         ------------         ------------

Net (loss) applicable to common
  shareholders                                           $ (2,671,854)        $ (1,319,335)
                                                         ------------         ------------


Net (loss) per share                                            ($.25)               ($.11)


Average common shares outstanding                          10,515,708           11,595,400
                                                         ------------         ------------
</TABLE>




            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       3
<PAGE>   4
             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                                                         ---------------------------------
                                                                 1997                 1996
<S>                                                      <C>                  <C>         
Revenues                                                 $     70,305         $    457,873

Adjustment to sales, net                                      (92,416)                 ---

Film amortization                                             (54,287)             (20,000)
                                                         ------------         ------------

  Net Revenues                                                (76,398)             437,873

General and administrative expenses                        (1,006,975)            (881,590)
                                                         ------------         ------------

  Operating (loss)                                         (1,083,373)            (443,717)


Other income (expenses):

Income (loss) from settlement of lawsuits, net                (70,875)              50,000

Forgiveness of note receivable from related party                 ---              (68,016)

Interest income                                                44,087                  852

Interest income from related parties                           32,410               24,000
                                                         ------------         ------------

  Net other income (expense)                                    5,622                6,836
                                                         ------------         ------------


Net (loss)                                                 (1,077,751)            (436,881)


Dividend requirement on Series A Preferred Stock
  at $.10625 per share                                       (106,250)            (106,250)
                                                         ------------         ------------

Net (loss) applicable to common
  shareholders                                           $ (1,184,001)        $   (543,131)
                                                         ------------         ------------


Net (loss) per share                                            ($.09)                ($.04)


Average common shares outstanding                          12,632,152           12,858,900
                                                         ------------         ------------
</TABLE>




            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       4

<PAGE>   5
             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                        NINE MONTHS ENDED MARCH 31, 1997
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                           ADDITIONAL
                               PREFERRED    COMMON          STOCK            PAID-IN          ACCUMULATED
                                 STOCK      SHARES          AMOUNT           CAPITAL            DEFICIT           NET
                                 ------    ---------        ------         -----------        ------------    ----------
<S>                              <C>       <C>              <C>            <C>                <C>             <C>       
Balance,
June 30, 1996                    $1,000    3,585,819        $3,586         $16,114,017        ($13,182,710)   $2,935,893

Issuance of common
shares in payment of
dividends on Series A
Preferred Stock                               94,442            94                 (94)

Issuance of common
shares to Cypress in
connection with legal
settlement                                    32,500            33              36,530                            36,563

Sale of Units in Public
Offering, Net Proceeds                     9,200,000         9,200           7,590,808                         7,600,008

Adjustment to sale of
Common Stock to related
parties                                                                         65,588

Net (loss)                                                                                      (2,353,104)   (2,353,104)

Dividends paid on Series
A Preferred Stock                                                                                 (318,750)     (318,750)

                                 ------    ---------        ------         -----------        ------------    ----------
Balance,
March 31, 1997                   $1,000   12,912,761       $12,913         $23,806,849        ($15,854,564)   $7,966,198

Less:
Treasury stock                              (280,609)                                                         (1,010,192)
                                 ------    ---------        ------         -----------        ------------    ----------

Notes receivable from
related parties for
sales of Common Stock,
net imputed interest
discount                                                                                                      (1,000,998)
                                                                                                              ----------
                                                                       NET SHAREHOLDERS' EQUITY               $5,955,008
</TABLE>



            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       5

<PAGE>   6
             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                       NINE MONTHS ENDED MARCH 31,
                                                                   -------------------------------
                                                                          1997                1996
<S>                                                                <C>                 <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss)                                                       $(2,353,104)        $(1,000,585)

ADJUSTMENTS TO RECONCILE NET (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
    Depreciation of fixed assets                                        22,653                 ---
    Amortization of film costs                                          22,574             742,115
    Write off of projects in development                                30,779                 ---
    Amortization of right to receive revenue                            63,424                 ---
    (Accrued) interest income on note receivable                       (24,381)                ---
    (Accrued) interest income on investments                           (68,200)               ----
    Amortization of imputed interest (discount)                        (83,410)            (39,000)
    (Income) from settlement of lawsuit                                    ---            (137,633)
    Issuance of shares of Common Stock to Cypress                       36,563                 ---

CHANGES IN OPERATING ASSETS AND LIABILITIES:
    (Increase) decrease in accounts receivable                         (94,207)            115,295
    (Increase) decrease in other assets                                  8,232             (13,278)
    Increase (decrease) in accounts payable
        and accrued expenses                                          (363,309)            115,468
Increase (decrease) in deferred revenues                                50,000            (598,708)
                                                                   -----------         -----------
Net cash (used in) operating activities                             (2,752,386)           (816,326)
                                                                   -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    (Additions) to film costs, net                                    (476,020)           (129,347)
    Capital (expenditures) on equipment                                (58,497)             (7,166)
    (Increase) in short term investments                            (2,869,020)                ---
    (Increase) in investment for distribution subsidiary              (140,943)                ---
    (Increase) decrease in receivables from related parties             17,039             101,353
    (Increase) in related party covenant not to compete               (460,000)                ---
    Increase in accrued legal settlement payable                        25,000                 ---
                                                                   -----------         -----------
Net cash (used in) investing activities                             (3,962,441)            (35,160)
                                                                   -----------         -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Sale of 2,300,000 Units in public offering, net                  7,585,841                 ---
    Decrease in deferred financing costs                               137,503                 ---
    Proceeds from borrowings                                           275,000             100,000
    (Repayment) of borrowings                                         (875,000)                ---
    Increase in dividends payable                                      106,250                 ---
    (Payment) of cash dividends on Preferred Stock                    (318,750)                ---
                                                                   -----------         -----------
Net cash provided by financing activities                            6,910,844             100,000
                                                                   -----------         -----------
Net increase (decrease) in cash                                        196,017            (751,486)
Cash and cash equivalents at beginning of period                       336,415             832,754
                                                                   -----------         -----------
Cash and cash equivalents at end of period                         $   532,432         $    81,268
                                                                   -----------         -----------
</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       6

<PAGE>   7
     SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:


         As disclosed in Note (2), during the nine months ended March 31, 1997,
the Company issued 32,500 shares of Common Stock to Cypress Entertainment LP in
connection with the settlement of certain litigation.

         As disclosed in Note (4), during the nine months ended March 31, 1997,
the Company issued 94,442 shares of Common Stock as payment of dividends in the
form of Common Stock declared on the Series A Preferred Stock for the quarter
ended June 30, 1996.

         As disclosed in Note (7), during the nine months ended March 31, 1997,
the Company made a $65,588 non-cash accounting adjustment to Additional Paid In
Capital for the imputed interest discount amount of the promissory note from
Mountaingate Productions, LLC., related to the purchase of 500,000 shares of
Common Stock.

                                       7

<PAGE>   8
             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                 March 31, 1997

(1)      Basis of Presentation

         In June 1996, the Company effected a one-for-four reverse split of the
outstanding shares of Common Stock. This reverse stock split has been
retroactively reflected for all periods reported in the accompanying condensed
consolidated financial statements and notes.

         The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary to present fairly the results
of operations for the periods presented. 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, 1996.

(2)      Settlement of Litigation

         During the nine months ended March 31, 1997, the Company settled
certain litigation relating to DSL Entertainment JV (described in the June 30,
1996 Form 10-KSB) by paying $50,000 in cash and issuing 32,500 shares of the
Company's Common Stock valued at $1.125 per share to Cypress Entertainment LP.

         On November 4, 1996, the Company settled its litigation with a former
officer and Director in a negotiated stipulated settlement filed with the Los
Angeles County Superior Court that required the Company to make aggregate
payments of $575,000 before July 1997 in exchange for an agreement by this
individual not to compete with the Company through December 31, 1998. As of
March 31, 1997, $550,000 of the settlement had been paid.

(3)      Public Offering of Common Stock and Warrants

         The Company issued a total of 2,300,000 Units consisting of 9,200,000
shares of its Common Stock and 4,600,000 Redeemable Warrants to purchase Common
Stock (at an exercise price of $1.75 per share), each Unit comprised of four
shares of Common Stock and two Redeemable Warrants, pursuant to a public
offering which commenced on September 12, 1996. The total number of shares of
Common Stock and Redeemable Warrants issued pursuant to the public offering
included 300,000 Units (comprised of 1,200,000 shares of Common Stock and
600,000 Redeemable Warrants) which were issued by the Company pursuant to
exercise by the Underwriter of its over-allotment option on September 26, 1996,
which was consummated on October 2, 1996.

         Each of the Units was priced at $4.00. The net proceeds derived by the
Company from the public offering of 2,300,000 Units described above equaled
$7,574,987 representing gross proceeds of $9,200,000 from the sale of such Units
less (a) the Underwriter's discount of $920,000 less (b) the Underwriter's
reimbursable costs and other fees associated with the offering of $368,181. The
Company's other aggregate costs associated with the offering were $336,832.

(4)      Dividend on Series A Preferred Stock

                   During the nine months ended March 31, 1997, the Company
issued a total of 94,442 shares of Common Stock representing the then fair
market value of such shares of Common Stock in payment of the $106,250 dividend
required to be paid on the Series A Preferred Stock for the quarter ended June
30, 1996. The Company paid $106,250 in cash for the dividend required to be paid
for the quarter ended September 30, 1996. 

                                       8

<PAGE>   9
The Company paid $106,250 in cash for the dividend required to be paid for the
quarter ended December 31, 1996. As of the date of this Report, the Board of
Directors of the Company has not stated its intentions regarding the method of
payment to be used for the dividend due for the quarter ending March 31, 1997.

(5)      (Loss) Per Share

                   (Loss) per share for the three month and nine month periods
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, 1997 after giving effect to the shares of Common Stock sold in the public
offering described in Note (3). The weighted average number of common and common
equivalent shares for the periods ending on March 31, 1997 has been adjusted for
the one-for-four reverse stock split which occurred in May 1996.

(6)      Stock Options and Warrants

                   The Company is using 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 made no adjustments to its compensation expense or
equity accounts for the grant of options for the period ended March 31, 1997.
There were a total of approximately 914,417 options outstanding as of March 31,
1997 at exercise prices ranging from $1.12 to $13.00 per share of Common Stock.

         On August 15, 1996, the Company granted options to purchase 50,000
shares of Common Stock to its Chief Financial Officer at the exercise price of
$1.12 per share which equaled the fair market value of the Common Stock on the
date of the grant. One-half of such options vested on the date of grant and the
other half vest one year from the date of grant subject to certain conditions.
On October 22, 1996 the Company granted options to purchase 150,000 shares of
Common Stock to the Senior Vice President at the exercise price of $1.2187 per
share. The average fair market value of the Common Stock high and low price on
the date of the grant was $1.2187. One-half of such options vested on the date
of grant and the other half vest on June 30, 1997 subject to certain conditions.

         If the Company had adopted FASB 123 "Accounting for Stock Based
Compensation" in its accounting treatment for employees, then the Company would
have recognized compensation expense related to the granting of stock options.
If using the Black-Scholes pricing model to evaluate the fair market value of
the options, the Company would have recorded an increase to Additional Paid-In
Capital of $176,057, a deferred compensation expense asset of $123,181 for
vested options in fiscal 1996, and it would have recorded a $114,462 option
expense on a monthly amortization basis for the period ending March 31, 1997.
This additional expense would have increased the net loss to ($2,786,316) or
($.26 per share) for the nine month period ended on March 31, 1997.

         In addition to the 4,600,000 Redeemable Warrants exercisable at $1.75
per share of Common Stock issued in connection with the September 1996 public
offering, there are approximately 927,554 other outstanding warrants. As part of
a June 1996 private placement of $500,000 aggregate principal amount of 10%
promissory notes ("Bridge Notes"), 500,000 "Bridge Warrants" were issued. Upon
repayment of the Bridge Notes in September 1996, the Bridge Warrants were
automatically exchanged for 500,000 Redeemable Warrants exercisable at $1.75 per
share. The Company has other existing warrants outstanding to purchase an
aggregate of 427,554 shares of Common Stock at prices ranging from $7.70 to
$14.40 per share. There were a total of approximately 5,527,554 warrants
outstanding as of March 31, 1997.

(7)      Related Party Transactions

         In November 1995, the Company sold an aggregate of 525,000 shares of
its Common Stock to related parties, at a purchase price of $2.00 per share, in
exchange for an aggregate of $1,050,000 principal amount of promissory notes.
500,000 of these shares were sold to Mountaingate Productions, LLC.
("Mountaingate"), a California company that provides the Company with producer
services of its President/Chief Executive Officer and others. The remaining
25,000 shares were sold to a former officer and Director of the Company.
Interest on 

                                       9

<PAGE>   10
these notes is computed at the annual rate of 7% compounded semi-annually, and
is payable with the installment payments of principal on the notes. The notes
are secured by the purchased shares with personal recourse liability of the
purchasers limited to 25% of the principal amount thereof, plus accrued interest
thereon.

         In January 1997, the Company's Board of Directors authorized the
extension of the maturity date of the first installment of $125,000 due under
the Mountaingate promissory note referred to above from April 1, 1997 to April
1, 1998. The subsequent installment payments due under that promissory note
remain as October 1, 1998 -- $125,000 and October 1, 2000 -- $750,000. The
extension of the payment date resulted in additional interest expense that
increased the total amount of the Mountaingate promissory note from
$1,000,000 to $1,009,871. Mountaingate has undertaken to pay the Company accrued
interest on its 25% recourse liability portion of such promissory note arising
from the purchase of the 500,000 shares in reference. In addition, the Company's
Board of Directors is currently considering alternative stock incentives for all
its executives and employees; but the Board has not authorized any other such
stock compensatory arrangements as of the date of this Report.

         The promissory notes received by the Company were originally recorded
at their principal amount less an imputed interest discount in the aggregate
amount of approximately $265,000; which has since been adjusted to approximately
$195,655 to reflect the final maturity dates of October 1, 2000. Further
adjustment for the above mentioned extension results in an imputed interest
discount of approximately $205,526. This imputed interest discount is being
amortized over the term of the notes using the present value method to provide
an effective interest rate of 12% per annum. During the nine months ended March
31, 1997, the Company recorded approximately $83,410 of interest income on these
notes including the effect of the adjustments to the imputed interest discount
and the amendment to the Mountaingate promissory note. The difference between
this imputed interest rate and the stated rate on the notes may be deemed to be
additional compensation to the purchasers of the shares. For further information
regarding these transactions and the vesting of the shares of Common Stock
purchased in these transactions, reference is made to Item 10. (Executive
Compensation) of the Company's Form 10-KSB for the fiscal year ended June 30,
1996.

         As of the date of this Report, a former officer and Director of the
Company has not paid the first installment due on April 1, 1997, of $6,250
principal plus accrued interest under his $50,000 promissory note related to the
purchase of the 25,000 shares of Common Stock described above. The Company has
made demand for this payment. In the event that a default occurs, the Company
intends to respond by pursuing its rights and remedies under the promissory note
for amounts subject to the personal liability of the borrower and may foreclose
on the 25,000 shares of Common Stock which is the collateral securing the
promissory note. The Company may be required to recognize a charge of
approximately $5,787 against the imputed interest income earned since November
1995.

         In January 1997, the Company agreed to compensate a present outside
Board member for his executive producer services on a television movie project
entitled "Marabunta" should the project be produced. As of the date of this
Report, the Company commenced pre-production on this project and is currently
negotiating license agreements with Fox Broadcasting Company for U.S.
distribution rights and with World International Network, LLC., for
international distribution rights. The project is currently scheduled to
commence principal photography in June 1997. In the event that principal
photography does commence, the Company will pay the Board member $75,000 in
weekly installments during production and is obligated to pay him a percentage
of the Company's net profits, as defined.

(8)      Investment in Distribution Subsidiary

         In October 1996 the Company announced its intention to form a joint
venture with Rigel Independent Distribution and Entertainment ("RIGEL") to
internationally distribute the Company's cable and syndicated television series
and reality programs. The TPEG/RIGEL joint venture will be organized as a
majority owned subsidiary of the Company. The agreement with RIGEL is currently
being finalized and contemplates that RIGEL will design marketing campaigns,
solicit sales and service the physical delivery elements to customers outside of
the United States. The Company will be responsible for sales contract
administration, collections and 

                                       10


<PAGE>   11
financial controls for the business operations of the joint venture. As RIGEL
has been performing its sales function since October, the Company commenced
funding the required recoupable advances to cover the costs of trade show
attendance of $180,000 per year plus other operational advances as may be
required for business operation. As of March 31, 1997 the Company had invested
$120,000 of its commitment to fund Convention Advances and $11,501 of its
commitment to fund Operation Advances. The Company also incurred $9,442 of legal
costs related to this transaction.

(9)   Subsequent Event--Acquisition of Another Company

         The Company entered into a letter of intent, dated April 25, 1997, to
acquire Grosso Jacobson Productions, Inc. and Grosso Jacobson Entertainment
Corp. plus 49% of the shares of a Grosso Jacobson Canadian production entity
(the "Grosso Jacobson Companies"). The Grosso Jacobson Companies are engaged in
the business of developing and producing television movies and series. The price
to be paid by the Company for the Grosso Jacobson Companies will equal
$8,000,000 (subject to potential adjustment) which will be payable in shares of
the Company's Common Stock. The actual number of such shares is to be determined
by dividing the total purchase price by the average market price of the
Company's shares during the 30 days preceding the closing the transaction,
subject to a maximum of $1.40 per share and a minimum of $1.20 per share. The
contemplated acquisition by the Company of the Grosso Jacobson Companies is
subject to completion of due diligence by the parties, the execution by the
parties of definitive legal documents and approval by the Company's Board of
Directors.

                                       11

<PAGE>   12
Part 1. Financial Information
Item 2.



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



GENERAL


         The following discussion and analysis should be read in conjunction
with the Company's accompanying condensed consolidated financial statements and
Notes.

         The Notes to the Condensed Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth herein contain certain forward-looking statements 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.
These risk factors include, but are not limited to, the number of the Company's
projects in development that result in completed productions that yield
revenues, the timing of such production expenditures and related revenues, the
intensity of competition from other television and motion picture producers and
distributors, the status of the Company's liquidity in future fiscal periods and
other factors that generally affect the entertainment industry such as changes
in management at the major studios, broadcast and distribution companies, as
well as economic, political, regulatory, technological and public taste
environments.

         The Company's revenues are primarily derived from the production and
distribution of completed television projects, producer fees and personal
management fees. The amount of revenues derived by the Company in any one period
is dependent upon, among other factors, projects completed during any such
period and the distribution of completed projects. Revenues from producer fees
are primarily dependent on the number of projects being produced by the Company
and other parties, and the agreements relating to such projects. Accordingly,
the amount of revenues recognized in any period are not necessarily indicative
of revenues to be recognized by the Company in future periods.

         Amounts received from license fees for distribution rights to
projects-in-process are deferred income until the project becomes available for
broadcast in accordance with the terms of its licensing agreements and are
recognized as revenue at such time. The portion of the license fees which equals
the amount allowed within the project's budget for the Company's producer fees
is recognized as revenue during the production phase. Revenues from completed
projects where distribution rights are owned by the Company are recognized when
the project becomes contractually available for broadcasting or exhibition in
certain media and geographical territories by the licensee. Revenues from the
sale of projects completed under straight producer arrangements are recognized
during the production phase. Additional licensing, distribution fees or profit
participation's are recognized as earned in accordance with the terms of the
related agreements.

         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.

                                       12

<PAGE>   13
RESULTS OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 1997, COMPARED TO NINE MONTHS
ENDED MARCH 31, 1996

         Revenues for the nine months ended March 31, 1997 consisted of $111,084
from the continuing international distribution of completed projects and
$701,307 from personal management fees for total revenues of $812,391, a 62%
decrease from the comparable nine months ended March 31, 1996, resulting from
lower levels of project production and delivery. Revenues of $2,132,767 for the
nine months ended March 31, 1996 were comprised of distribution revenues from
completed projects; producer fees from the CBS television series "Dave's World"
and the Showtime movie for television entitled "Lily Dale" which were in
production; and from personal management fees.

         Amortization of film costs for the nine months ended March 31, 1997 was
$53,353 and $717,000, respectively, and was computed using the Individual Film
Forecast Method. The difference in amortization as a percentage of total
revenues related to the distribution of projects of 48% and 34%, respectively,
reflects the mix of projects in which the Company has no expectation of
additional revenues that are amortized at 100% of cost and projects in which the
Company has retained distribution rights held for future sale that are amortized
according to the Individual Film Forecast Method. No new projects were completed
during the nine months ended March 31, 1997; accordingly the rate of
amortization was based on distribution rights retained to completed projects in
the Company's film library.

         During April 1997, the Company commenced pre-production on a television
movie for Fox Broadcasting Company entitled "Marabunta," a story about South
American, flesh eating ants that arrive in Alaska, terrorizing all life forms.
The license agreement for US distribution rights with the network is currently
in negotiation. A license agreement for distribution rights in certain foreign
territories in exchange for approximately $1,000,000 to be paid to the Company
during the production period is currently being documented with World,
International Network, an independent distribution company. There is no
assurance that these arrangements will be finalized. The project is currently
scheduled to commence principal photography in June 1997 with delivery to the US
broadcast network anticipated by October 1997. Revenue from executed license
agreements would be recognized during the fiscal quarter when the "Marabunta"
project has been completed.

         General and administrative expenses for the nine months ended March 31,
1997 were $2,952,306 compared to $2,665,625 for the nine months ended March 31,
1996. The $286,681 increase in general and administrative expenses was primarily
attributable to the expansion of staff in the television development and
accounting departments, the addition of professional consultants, the
identification of uncollectable accounts receivable and the marketing costs
associated with preparing for trade shows in connection with the Company's
expansion of production and international distribution activities in the
TPEG/RIGEL joint venture described in Note (8). As trade shows take place at
certain times of the year, the Company expects that these marketing costs will
fluctuate in future fiscal periods.

         During the nine months ended March 31, 1997, the Company's other
non-recurring expenses, not included in general and administrative expenses,
consisted of the settlement of various litigation related to a former officer
and Director for $575,000 described in Note (2), which cost is being amortized
over the life of the non-compete agreement at ($23,000) per month. As of March
31, 1997, the recognized costs expensed were ($115,000) towards this settlement.
In addition, the Company incurred unusual legal fee expenses of approximately
($122,000) in connection with the negotiated stipulated settlement of this
litigation. During the nine months ended March 31, 1996, the Company agreed to
settle several legal proceedings related to its former international
distribution division, DSL Entertainment, Joint Venture (described in the June
30, 1996 Form 10-KSB). The Company recorded $267,633 of non-recurring income
related to that settlement. During the nine months ended March 31, 1996, the
Company forgave a note receivable and accrued interest thereon in the aggregate
amount of ($68,016) which was due from the company that provides the services of
the Company's President and Chief Executive Officer and others.


                                       13


<PAGE>   14
         During the nine months ended March 31, 1997, the Company recorded
$234,055 of interest income of which $83,410 consisted of amortization of the
imputed interest discount on the extended notes receivable from related parties
in connection with sales of the Company's Common Stock described in Note (7). Of
the balance of $150,645 interest income for this period, $24,381 was imputed
interest related to a trade note receivable and $126,264 was interest or
dividends earned on a portion of the cash proceeds from the Company's September
1996 public offering described in Note (3). During the nine months ended on
March 31, 1996, interest income of $46,656 consisted of $39,000 imputed interest
discount on the same related party notes described in Note (7) and $7,656 earned
on temporary cash investments.

         Interest and financing expense of $156,975 for the nine months ended
March 31, 1997 included $137,503 of deferred financing charges which were
expensed to operations upon repayment of the $500,000 aggregate principal amount
of 10% promissory notes ("Bridge Notes") described in Note (6). The one time
charge to operations represented complete amortization of the deferred financing
costs over the term of the Bridge Notes which were repaid in September 1996.
There was no interest expense for the nine months ended March 31, 1996.

         The Company reported a loss of ($2,671,854) or ($.25 per share) in the
third quarter of fiscal 1997 compared to a loss ($1,319,335) or ($.11 per share)
in the third quarter of fiscal 1996. The loss for both compared periods included
required dividend payments of $318,750 to holders of the Company's outstanding
Series A Preferred Stock. The number of weighted average common shares
outstanding decreased to 10,515,708 in the third quarter of 1997 from 11,595,400
in the third quarter of fiscal 1996 due to the combined effect of the
one-for-four reverse stock split in June 1996 and the recent public offering
described in Note (3).


THREE MONTHS ENDED MARCH 31, 1997, COMPARED TO THREE MONTHS
ENDED MARCH 31, 1996

         Revenues for the three months ended March 31, 1997 consisted of $60,748
from personal management fees and $9,557 from the continuing international
distribution of completed projects, an 85% decrease from the third quarter of
1996 resulting from a decrease in personal management fees and delays in the
commencement of production of the Company's television projects. Revenues of
$457,873 for the three months ended March 31, 1996 were comprised of personal
management fees, distribution revenues from completed projects and producer fees
from the CBS television series "Dave's World."

         Amortization of film costs for the three months ended March 31, 1997
was adjusted from $70,758 as of the quarter ended December 31, 1996 to $54,287
for the quarter ended March 31, 1997, because there was a reversal of
amortization related to a net sales figure adjustment of approximately $92,416
for a previous fiscal quarter and bad debt expense of approximately $36,893
recognized in this fiscal period. The sales figure adjustment was to previous
period accounts receivable, which were inadvertently reported in both the parent
and one subsidiary company during a change in accounting service providers.
Amortization for the three months ended March 31, 1996 was $20,000 computed
using the Individual Film Forecast Method in connection with revenues derived
from international distribution. No new projects were completed during the three
months ended March 31, 1996, so the rate of amortization was based on
distribution rights retained to completed projects in the Company's film
library.

         General and administrative expenses for the three months ended March
31, 1997 were $1,006,975 compared to $881,590 for the three months ended March
31, 1996. The $125,385 increase in general and administrative expenses was
primarily attributable to the expansion of staff in the television development
and accounting departments, the addition of professional consultants, the
identification of uncollectable accounts receivable and the marketing costs
associated with preparing for trade shows in connection with the Company's
expansion of production and international distribution activities in the
TPEG/RIGEL joint venture described in Note (8). The Company's non-recurring
expenses, not included in general and administrative expenses, consisted of the
settlement of various litigation related to a former officer and Director for
$575,000 described in 

                                       14


<PAGE>   15
Note (2). During the three months ended March 31, 1997, the Company amortized
($69,000) of the settlement costs and expensed approximately ($70,875) of legal
fees incurred in connection with the negotiated stipulated settlement of these
proceedings. During the three months ended March 31, 1996, the Company agreed to
settle several legal proceedings related to DSL Entertainment, Joint Venture
(described in the June 30, 1996 Form 10-KSB). The Company recorded $50,000 of
non-recurring income related to that settlement. The Company non-recurring
expenses included forgiveness of a note receivable and accrued interest thereon
in the aggregate amount of ($68,016) which was due from the company that
provides the services of the Company's President and Chief Executive Officer and
others.

         During the three months ended March 31, 1997, the Company recorded
$76,497 of interest income of which $32,410 consisted of current and retroactive
amortization of the imputed interest discount on the extended notes receivable
from related parties in connection with sales of the Company's Common Stock
described in Note (7). Interest income for this period also included $7,694 of
imputed interest related to a trade note receivable and $36,393 interest and
dividends earned on a portion of the invested proceeds from the Company's
September 1996 public offering described in Note (3). During the three months
ended on March 31, 1996, interest income of $24,852 consisted of $24,000 imputed
interest discount on related party notes and $852 earned on temporary cash
investments. There was no interest expense for the three months ended March 31,
1997 or March 31, 1996.

         The Company reported a loss of ($1,184,001) or ($.09 per share) in the
three months ended March 31, 1997 compared to a loss ($543,131) or ($.04 per
share) in the three months ended March 31, 1996. The 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 weighted average
common shares outstanding decreased to 12,632,152 from 12,858,900 for the three
months ended March 31, 1997 and 1996, respectively, due to the combined effect
of the one-for-four reverse stock split in June 1996 and the September 1996
public offering described in Note (3).


LIQUIDITY AND CAPITAL RESOURCES

         As of March 31, 1997, the Company had increased liquidity from the
comparable period ended March 31, 1996 primarily as a result of the public
offering in September 1996. Cash and cash equivalents as of this date were
$532,432, marketable securities were $2,869,020 and trade accounts receivable
increased to $375,800. As of March 31, 1997, the Company had recorded accounts
payable and accrued expenses of $251,077. In the comparable period ending March
31, 1996, the Company had $81,268 in cash and cash equivalents and $714,779 in
trade accounts receivable to cover $591,986 of current liabilities. As of May 8,
1997, the Company's cash, cash equivalents and marketable securities were
approximately $3,325,000.

         As of March 31, 1997, the Company's firm cash commitments for the next
twelve months will aggregate to approximately $1,500,000 with the implementation
of certain cost-cutting measures. The figure includes (a) base compensation to
its key officers, key independent contractors and key consultants of
approximately $1,050,000, (b) office rent of approximately $227,500 and (c) the
last $25,000 of required installment payments to a former officer and Director
of the Company as described under Note (2). The Company also incurs other costs
such as staff salaries, employee benefits, employer taxes, premiums on insurance
policies, joint venture contributions, marketing costs, office expenses,
professional fees, consulting fees and other expenses. For the nine months ended
March 31, 1997, cash general and administrative expenses, including compensation
and rent, but excluding legal expenses, aggregated approximately $2,825,833. In
addition to general and administrative expenses, the required cash dividends on
the shares of Series A Preferred Stock are $425,000 annually. The dividends on
the Series A Preferred Stock may be paid either in shares of the Company's
Common Stock or in cash. The Company has agreed with the Underwriter of the
September 1996 public offering of 2,300,000 Units described in Note (3) that it
will not pay such dividends on the Series A Preferred Stock in shares of Common
Stock through March 1998 without the Underwriter's approval.


                                       15


<PAGE>   16
         The Company's projected business plan is to use a substantial portion
of its liquid resources to expand its operations and to establish other
activities related to its core business. The Company anticipates that cash and
cash equivalents will be used to option literary properties for new projects, to
develop properties into finished scripts, to finance timing differences between
production costs and collection of license fees, to acquire the copyrights and
distribution rights to third party product, to contribute to its TPEG/RIGEL
international distribution joint venture and to pay cash dividends on its Series
A Preferred Stock. The actual utilization of excess working capital is subject
to change based on the then present circumstances and management's evaluation of
alternative projects.

         The financing of production or acquisition timing differences of
certain projects may require the Company 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 expand and diversify its production and distribution
activities. 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 agreements have been entered into for any
such external financing as of the date of this Report. As described earlier
under "Management's Discussion," the Company is currently negotiating for
commitments for outside capital in an amount sufficient to cover the timing
difference between cash received from license agreements during the production
process and the total production budget cash outflow of the "Marabunta" project.
If it does not obtain these commitments, the Company will be required to fund
the timing difference from its own cash resources or by obtaining bank financing
therefor.

         Management anticipates that the Company will continue to incur losses
through at least the fourth quarter of the Company's current fiscal year. The
Company's ability to satisfy selling, general and administrative costs with cash
flow from operations depends on the product mix, number of projects and timing
of delivery of projects in each quarter. Projects made under producer
arrangements provide a lower contribution margin to overhead than projects in
which the Company holds distribution rights. The Company believes that its
present level of liquidity and capital resources will be sufficient to meet its
cash needs for the next twelve months.


INFLATION

         Inflation has not had a material effect on the Company.


                                       16

<PAGE>   17
                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         Reference is made to Item 1. of Part II of the Company's Form 10-QSB
quarterly report for the period ended September 30, 1996 and to Note (2) of the
Condensed Consolidated Financial Statements included in this 10-QSB Report for
information concerning the settlement in November 1996 of certain litigation
between the Company and Ronald Lightstone.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits -  None.

(b)   Reports on Form 8-K -   No reports on Form 8-K were filed during the nine
                              months ended March 31, 1997.



                                       17

<PAGE>   18
                                   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 19, 1997                /s/ Irwin Meyer
                                          --------------------------------------
                                          Irwin Meyer,
                                          President and
                                          Chief Executive Officer




Dated:        May 19, 1997                /s/ Lenore Nelson
                                          --------------------------------------
                                          Lenore Nelson,
                                          Chief Financial Officer

                                       18