<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 September 30, 1999

         Commission File Number: 0-26197


                        STUDIO CITY HOLDING CORPORATION
                        -------------------------------
             (Exact name of Registrant as specified in its Charter)


         NEW YORK                                           EIN: 13-322-7032
         --------                                           ----------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                           Identification Number)


                           14400 Southwest 46th Court
                              Ocala, Florida 34473
                           --------------------------
              (Address of principal executive offices) (zip code)


                                (352) 347 -3947
                                ---------------
              (Registrant's telephone number, including area code)


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 [ ]


The number of outstanding shares of common stock, $0.002 par value, as of
September 30, 2000, was 32,557,001.




===============================================================================

<PAGE>   2

                                     INDEX


PART ONE - FINANCIAL INFORMATION

ITEM 1.  Consolidated Condensed Financial Statements

         Balance Sheets as of
                  September 30, 2000, December 31, 1999 and
                  accumulative from inception.............................  3

         Statements of Income (Loss) as of
                  September 30, 2000, December 31, 1999 and
                  accumulative from inception.............................  4

         Stockholders' Equity as of
                  September 30, 2000, December 31, 1999 and
                  accumulative from inception.............................  5

         Notes to Consolidated condensed financial statements.............  6

ITEM 2.  Management's Discussion and Analysis of Financial Condition...... 18

PART TWO - OTHER INFORMATION.............................................. 22

SIGNATURES................................................................ 23



<PAGE>   3
                         STUDIO CITY HOLDING CORPORATION
                                AND SUBSIDIARIES

                     Independent Accountant's Review Report
                                       and
                              Financial Statements

               October 21, 1991 (Inception) To September 30, 2000




<PAGE>   4


STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES

October 21, 1991 (Inception) To September 30, 2000



                                TABLE OF CONTENTS

<TABLE>

<S>                                                                      <C>
INDEPENDENT ACCOUNTANT'S REVIEW REPORT                                   1


CONSOLIDATED FINANCIAL STATEMENTS

         CONSOLIDATED BALANCE SHEETS                                     2

         CONSOLIDATED STATEMENTS OF OPERATIONS                           3

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY      4

         CONSOLIDATED STATEMENTS OF CASH FLOWS                           5

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      6
</TABLE>


<PAGE>   5


                     INDEPENDENT ACCOUNTANT'S REVIEW REPORT


To the Board of Directors and Stockholders
Studio City Holding Corporation


We have reviewed the accompanying consolidated balance sheet of Studio City
Holding Corporation (a New York corporation) (a development stage company) and
subsidiaries (development stage companies) as of September 30, 2000, and the
related consolidated statements of operations for the three and nine months then
ended, and the changes in stockholders' equity, and cash flows for the nine
months then ended, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Studio City Holding Corporation.

A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying September 30, 2000 financial statements in order for
them to be in conformity with generally accepted accounting principles.

The financial statements for the year ended December 31, 1999 (including
cumulative information from inception October 21, 1991 to December 31, 1999),
were audited by us, and we expressed an unqualified opinion on them in our
report dated February 28, 2000, but we have not performed any auditing
procedures since that date.




Peel, Schatzel & Wells, P.A.
St. Petersburg, Florida

November 14, 2000


                                       1


<PAGE>   6

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               December 31,       September 30,      September 30,
                                                                                   1999              1999               2000
                                                                               -------------      -------------      -------------
                                                                                                  (Unaudited)        (Reviewed)
<S>                                                                            <C>                <C>                <C>
ASSETS
    Cash and cash equivalents                                                  $      55,843      $     139,048      $      37,404
    Intangible assets (Note 3)                                                        77,315             83,150             77,315
    Investment in joint ventures and stock                                            56,823             56,823          2,560,943
    Prepaid services                                                                   3,469              3,469              4,911
    Office equipment (cost $53,312, $53,316 and $53,312;
      accumulated depreciation $40,480, $39,141 and $45,408)                          12,832             14,175              7,904
    Organization costs (net of accumulated amortization)                                 190                445                189
    Accounts receivable                                                                5,170              1,636
                                                                               -------------      -------------      -------------
TOTAL ASSETS                                                                   $     211,642      $     298,746      $   2,688,666
                                                                               =============      =============      =============


LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
    Note payable-majority stockholder                                          $   1,554,027      $   1,554,027      $   1,554,027
    Loans from minority stockholders                                                 888,784            821,993          1,233,584
    Note payable-Hammer Trust                                                                                            2,500,000
    Accrued interest on majority stockholder note                                    415,952            422,151            434,270
    Accrued interest on minority stockholder loans                                    74,631             34,415            153,561
    Accrued interest on Hammer Trust note                                                                                   96,780
    Accrued expenses                                                                   7,417                                21,758
CONTINGENT LIABILITIES--Collective Bargaining Agreement (Note 3)                          --                 --                 --
LEASE COMMITMENTS--(Note 15)                                                              --                 --                 --
                                                                               -------------      -------------      -------------
TOTAL LIABILITIES                                                                  2,940,811          2,832,586          5,993,980

EQUITY SECURITIES SUBJECT TO RESCISSION (Note 20)                                  1,003,100          1,003,100          1,006,220

STOCKHOLDERS' EQUITY
    Common stock - par value $.002;
      150,000,000 shares authorized; 31,057,001, 31,057,001 and 32,557,001
      shares issued and outstanding                                                   61,077             61,077             61,077
    Common stock warrants                                                          5,000,000          5,000,000          5,000,000
    Preferred stock--A - par value $.0001;
       10,000,000 shares authorized, issued and outstanding                            1,000              1,000              1,000
    Preferred stock--B - par value $.0001; 10,000,000 shares authorized;
       3,825,834, 3,825,834 and 5,025,834 issued and outstanding                         383                383                383
    Additional paid-in capital                                                     1,392,737          1,392,737          1,392,737
    Deficit accumulated during development stage                                  (2,959,466)        (2,766,137)        (3,538,731)
    Less treasury stock--cost of 400 shares                                           (2,000)                               (2,000)
    Less special distribution to stockholder (Note 3)                             (7,226,000)        (7,226,000)        (7,226,000)
                                                                               -------------      -------------      -------------
TOTAL STOCKHOLDERS' EQUITY                                                        (3,732,269)        (3,536,940)        (4,311,534)
                                                                               -------------      -------------      -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $     211,642      $     298,746      $   2,688,666
                                                                               =============      =============      =============
</TABLE>

See Independent Accountant's Review Report and accompanying notes.


                                       2
<PAGE>   7

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  For The Nine Months                For The Three Months
                                           Cumulative             Ended September 30,                 Ended September 30,
                                         From Inception         2000              1999              2000               1999
                                       October 21, 1991 to   -----------       -----------       -----------       -----------
                                       September 30, 2000    (Reviewed)        (Unaudited)       (Reviewed)        (Unaudited)
                                       ---------------------------------------------------------------------------------------
<S>                                    <C>                   <C>               <C>               <C>               <C>
INCOME                                     $   331,809       $        50       $        --       $        --       $        --

EXPENSES
    Accounting fees                            155,931            22,722            19,475             3,093            13,600
    Advertising                                 16,347               555
    Amortization--organization costs             1,792
    Auto expenses                              188,112            11,670             6,755             3,887            (1,430)
    Bad debts                                  167,695
    Bank charges                                 2,023               370               401               185                76
    Commissions                                 36,906
    Consulting fees                            165,781            28,789            16,682            10,587             8,228
    Contributions                                2,682               980               651               835               101
    Depreciation                                45,410             4,927             5,820             1,791             1,559
    Dues and publications                       24,298             4,870             2,766             1,760               417
    Equipment rental                           372,496            52,259            74,588            14,483            21,011
    Insurance                                   23,414
    Interest                                 1,102,105           279,607           146,575           101,091            48,938
    Legal fees                                 345,277            35,678            67,538            13,211            28,342
    Licenses                                    27,141             2,746             2,383              (100)
    Meals                                       33,846             3,050             2,618             1,035             1,058
    Medical reimbursement--officer              26,271             3,991                               1,722
    Miscellaneous expenses                      47,980                               3,244                               1,328
    Offering costs                              32,051
    Office expenses                            161,544            19,790            19,262             9,890             6,332
    Officer compensation                         5,000
    Postage                                     69,334             8,741             8,610             3,540             2,390
    Professional fees                           92,382             5,750               521               750               321
    Project costs                              360,238            66,215            51,172            22,712            28,615
    Rent                                       164,139            13,790             7,591             4,934             3,046
    Repairs and maintenance                      1,993               632               249                                  35
    Seminars                                       604
    Telephone expense                           85,993             5,169             3,866             1,512             1,440
    Travel                                      72,916             4,629            13,843             4,569            12,253
    Utilities                                   24,922             2,385             1,712               633               568
    Wages                                       13,917
                                           -----------       -----------       -----------       -----------       -----------
TOTAL EXPENSES                               3,870,540           579,315           456,322           202,120           178,228
                                           -----------       -----------       -----------       -----------       -----------
NET LOSS                                   $(3,538,731)      $  (579,265)      $  (456,322)      $  (202,120)      $  (178,228)
                                           ===========       ===========       ===========       ===========       ===========

EARNINGS (LOSS) PER
    COMMON SHARE
    (Basic and Diluted Loss Per Share
    are the same--See Note 2)              -----------       -----------       -----------       -----------       -----------
                                           $   (0.0181)      $   (0.0181)      $   (0.0147)      $   (0.0062)      $   (0.0057)
                                           ===========       ===========       ===========       ===========       ===========
</TABLE>

See Independent Accountant's Review Report and accompanying notes.


                                       3
<PAGE>   8

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                              Common Stock
                                                     --------------------------------------------------------------
                                                                                        Additional        Common
                                                         Common                          Paid-In          Stock         Preferred
                                                         Shares          Amount          Capital         Warrants        Stock A
                                                     -------------     -----------     -----------     ------------    -----------
<S>                                                  <C>               <C>             <C>             <C>             <C>
Issuance of common stock                                   748,000     $    11,920     $ 1,138,500     $         --    $        --
Special distribution (Note 3)
Common shareholder loss for period
     October 21, 1991 to December 31, 1991
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1991                               748,000          11,920       1,138,500               --             --
Issuance of common stock                                   610,201           1,662          72,770
Common shareholder loss for year
     ended December 31, 1992
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1992                             1,358,201          13,582       1,211,270               --             --
Stock split 1 to 100                                   134,461,899
Shares for properties                                                                   (1,151,004)
Special distribution (Note 3)
Issuance of common and preferred
     stock and common warrants                          16,749,900           1,675          56,976        5,000,000
Common shareholder loss for year
     ended December 31, 1993
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1993                           152,570,000          15,257         117,242        5,000,000             --
Issuance of common stock                               (13,420,000)         (1,342)        242,670
Common shareholder loss for year
     ended December 31, 1994
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1994                           139,150,000          13,915         359,912        5,000,000             --
Issuance of common stock                                 4,150,000             415         406,095
Common shareholder loss for year
     ended December 31, 1995
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1995                           143,300,000          14,330         766,007        5,000,000             --
Issuance of common stock                                 6,700,000             670         431,506
Equity securities subject to rescission (Note 20)                             (670)       (431,506)
Common shareholder loss for year
     ended December 31, 1996
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1996                           150,000,000          14,330         766,007        5,000,000             --
Issuance of common stock                                   155,000             310         481,113
Equity securities subject to rescission (Note 20)                             (310)       (481,113)
Common shareholder loss for year
     ended December 31, 1997
Shares issued, exchanged or converted                 (119,126,500)        (11,000)          9,000                           1,000
Merger adjustments                                                          57,747         617,730
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1997                            31,028,500          61,077       1,392,737        5,000,000          1,000
Issuance of common stock                                    28,501              57          89,444
Equity securities subject to rescission (Note 20)                              (57)        (89,444)
Common shareholder loss for year
     ended December 31, 1998
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1998                            31,057,001          61,077       1,392,737        5,000,000          1,000
Cost of 400 shares of common stock
Common shareholder loss for year
     ended December 31, 1999
                                                     -------------     -----------     -----------     ------------    -----------
Balance at December 31, 1999                            31,057,001          61,077       1,392,737        5,000,000          1,000
Issuance of common and preferred stock                   1,500,000           3,000
Equity securities subject to rescission (Note 20)                           (3,000)
Common shareholder loss for nine months
     ended September 30, 2000 (Reviewed)
                                                     -------------     -----------     -----------     ------------    -----------
Balance at September 30, 2000                        $  32,557,001     $    61,077     $ 1,392,737     $  5,000,000    $     1,000
                                                     =============     ===========     ===========     ============    ===========

<CAPTION>
                                                                       Deficit
                                                                     Accumulated                       Special
                                                                       During                        Distribution         Total
                                                      Preferred      Development       Treasury           To          Stockholders'
                                                       Stock B          Stage           Stock        Stockholder         Equity
                                                     -----------     -----------     -----------     ------------     -----------
<S>                                                  <C>             <C>             <C>             <C>              <C>
Issuance of common stock                             $        --     $        --     $        --     $         --     $ 1,150,420
Special distribution (Note 3)                                                                          (1,150,000)     (1,150,000)
Common shareholder loss for period
     October 21, 1991 to December 31, 1991                               (35,455)                                         (35,455)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1991                                  --         (35,455)             --       (1,150,000)        (35,035)
Issuance of common stock                                                                                                   74,432
Common shareholder loss for year
     ended December 31, 1992                                             (57,999)                                         (57,999)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1992                                  --         (93,454)             --       (1,150,000)        (18,602)
Stock split 1 to 100
Shares for properties                                                                                                  (1,151,004)
Special distribution (Note 3)                                                                          (6,076,000)     (6,076,000)
Issuance of common and preferred
     stock and common warrants                           671,974                                                        5,730,625
Common shareholder loss for year
     ended December 31, 1993                                            (73,409)                                          (73,409)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1993                             671,974        (166,863)             --       (7,226,000)     (1,588,390)
Issuance of common stock                                                                                                  241,328
Common shareholder loss for year
     ended December 31, 1994                                            (172,174)                                        (172,174)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1994                             671,974        (339,037)             --       (7,226,000)     (1,519,236)
Issuance of common stock                                                                                                  406,510
Common shareholder loss for year
     ended December 31, 1995                                            (316,578)                                        (316,578)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1995                             671,974        (655,615)             --       (7,226,000)     (1,429,304)
Issuance of common stock                                                                                                  432,176
Equity securities subject to rescission (Note 20)                                                                        (432,176)
Common shareholder loss for year
     ended December 31, 1996                                            (558,211)                                        (558,211)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1996                             671,974      (1,213,826)             --       (7,226,000)     (1,987,515)
Issuance of common stock                                                                                                  481,423
Equity securities subject to rescission (Note 20)                                                                        (481,423)
Common shareholder loss for year
     ended December 31, 1997                                            (572,506)                                        (572,506)
Shares issued, exchanged or converted                      1,182                                                              182
Merger adjustments                                      (672,773)                                                           2,704
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1997                                 383      (1,786,332)             --       (7,226,000)     (2,557,135)
Issuance of common stock                                                                                                   89,501
Equity securities subject to rescission (Note 20)                                                                         (89,501)
Common shareholder loss for year
     ended December 31, 1998                                            (523,483)                                        (523,483)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1998                                 383      (2,309,815)             --       (7,226,000)     (3,080,618)
Cost of  400 shares of common stock                                                       (2,000)                          (2,000)
Common shareholder loss for year
     ended December 31, 1999                                            (649,651)                                        (649,651)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at December 31, 1999                                 383      (2,959,466)         (2,000)      (7,226,000)     (3,732,269)
Issuance of common and preferred stock                       120                                                            3,120
Equity securities subject to rescission (Note 20)           (120)                                                          (3,120)
Common shareholder loss for nine months
     ended September 30, 2000 (Reviewed)                                (579,265)                                        (579,265)
                                                     -----------     -----------     -----------     ------------     -----------
Balance at September 30, 2000                        $       383     $(3,538,731)    $    (2,000)    $ (7,226,000)    $(4,311,534)
                                                     ===========     ===========     ===========     ============     ===========
</TABLE>


See Independent Accountant's Review Report and accompanying notes.

                                       4
<PAGE>   9

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                    For The Nine Months Ended
                                                               Cumulative                 September 30,
                                                             From Inception          2000               1999
                                                           October 21, 1991 to   -------------      -------------
                                                            September 30, 2000    (Reviewed)         (Unaudited)
                                                           --------------------  -------------      -------------
<S>                                                        <C>                   <C>                <C>
OPERATING ACTIVITIES
    Net loss                                                  $  (3,538,731)     $    (579,265)     $    (456,322)
    Amortization and depreciation                                    47,202              4,927              5,820
    Changes in operating assets and liabilities:
      Increase in prepaid services                                   (2,466)            (1,442)
      Increase in organizational costs                               (1,860)
      Decrease in accounts receivable                                                    5,170              5,809
      Increase (decrease) in accrued expenses                        21,758             13,339            (30,870)
      Increase in accrued interest payable                          684,611            194,028             47,082
      Decrease in intangible assets                                  19,750
                                                              -------------      -------------      -------------
Net cash used in operating activities                            (2,769,736)          (363,243)          (428,481)

INVESTING ACTIVITIES
    Investment in CVT Corporation of America                        (12,000)
    Investment in joint ventures and stocks                         (56,823)
    Acquisition of equipment                                        (53,312)                                 (810)
    Acquisition of properties                                       (97,066)                               (5,834)
                                                              -------------      -------------      -------------
Net cash used in investing activities                              (219,201)                --             (6,644)

FINANCING ACTIVITIES
    Borrowings from stockholders                                  1,305,322            344,804            493,995
    Proceeds for issuance of common stock                         1,817,036
    Repayment of stockholders loans                                 (72,737)
    Loan to affiliated company                                      (21,280)
    Purchase of 400 shares of common stock                           (2,000)
                                                              -------------      -------------      -------------
Net cash provided by financing activities                         3,026,341            344,804            493,995
                                                              -------------      -------------      -------------
Cash and cash equivalents - increase                                 37,404            (18,439)            58,870

Cash and cash equivalents - Beginning                                    --             55,843             80,178
                                                              -------------      -------------      -------------
Cash and cash equivalents - Ending                            $      37,404      $      37,404      $     139,048
                                                              =============      =============      =============
Supplemental Disclosures of Cash Flow Information:
    Cash paid for interest                                    -------------      -------------      -------------
                                                              $     417,494      $      86,578      $      99,493
                                                              =============      =============      =============
    Noncash financing transaction:
      Value of Studio City shares                             -------------      -------------      -------------
      issued for services                                     $       3,647      $          --      $          --
                                                              =============      =============      =============
      Investment in Hammer Trust in the year 2000 was
        financed with a $2,500,000 note, issuance of
        $3,000 common stock and $120 preferred stock and
        a $1,000 deposit unpaid as of September 30, 2000
</TABLE>

See Independent Accountant's Review Report and accompanying notes.


                                       5
<PAGE>   10
STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

NOTE 1--ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF PRESENTATION

Organization and Background Information

STUDIO CITY INCORPORATED HOLDING (the Company) was incorporated in the State of
Florida on October 25, 1991 as Studio City Incorporated. Prior to incorporation,
pre-incorporation operations commenced in February of 1991. The Company is
engaged in asset development, business management, production and
post-production studio operation, motion picture studio operation, tourist
attraction operation, the development of motion pictures for theatrical
exhibition, for television (i.e. network, cable, pay-per-view, etc.) and home
video, and in the development, production, and distribution of printed
publications. The Company owns a significant number of intellectual properties
and has a partial interest in other intellectual properties.

FAWNSWORTH INTERNATIONAL PICTURES CORPORATION (FIPC) was incorporated in the
State of Florida on October 21, 1991. Prior to incorporation, pre-incorporation
operations commenced in February of 1991. FIPC is a full service motion picture
and television production and distribution company. As a result of the
stockholders of FIPC receiving 491,150 shares of common stock of Studio City
with a par value of $1.00 in exchange for their ownership in the shares of FIPC,
FIPC became a wholly owned subsidiary of the Company on October 18, 1992. The
Company owns 100% of the voting stock of FIPC.

Prior to the stock exchange and transfer, the stockholders of Studio City
Incorporated voted unanimously to increase the amount of common stock authorized
from 1,000,000 shares to 1,500,000 to accommodate the exchange with FIPC
stockholders. The end result was that Studio City, Incorporated became the
parent company of FIPC (a wholly owned subsidiary) with both companies being
developmental stage companies. In a unanimous vote of the stockholders of the
Company, it was voted to change the name of the Company to Studio City
Incorporated Holding, which also operated under the name SCI Holding.

In a unanimous vote of its stockholders, the Company was instructed to execute a
stock split to fully dilute the stock of the Company. The 100 to 1 stock split
was executed on March 1, 1993. On that date, the total authorized common stock
of 150,000,000 shares includes all of the stock authorized including 500,000
shares reserved under the Company's Employee Incentive Stock Option Plan. The
common stock of the Company originally had a par value of $1.00 per share and
was amended to $.01 per share at the time of the stock split. Subsequent to the
stock split, the par value has again been amended to reflect the par value at
$.0001 per share, and this is the par value per share for each of the
subsidiaries subsequently formed.

Realizing the necessity for expansion, the Company created another subsidiary,
POC-IT PUBLISHERS, INCORPORATED (Poc-It). Poc-It was incorporated in the State
of Florida on May 3, 1993. The Company owns 100% of the voting stock. This
subsidiary was created to assemble, acquire, produce and publish various
literary properties owned by Studio City Incorporated Holding.


                                       6
<PAGE>   11

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

NOTE 1--ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF
PRESENTATION - continued

On December 14, 1993, the Company entered into an agreement to acquire 77.5% of
CVT CORPORATION OF AMERICA (CVT), an inactive New York based public company. The
cost of the stock was $12,000 plus the Company assumed certain debts. The
purpose of this acquisition was as follows: (i) to reactivate the operations of
CVT after a subsequent reorganization, (ii) prepare CVT for a merger, (iii)
merge the Company into CVT, thus becoming Studio City Holding Corporation, a New
York public company, (iv) prepare the merged entity for SEC and NASD
registration, and (v) prepare the merged entity for a Secondary Offering.

The Company and its subsidiaries are in the developmental stage and have not
generated significant revenues. In addition, the development of commercial
products using the Company's proprietary technology and inventory of
intellectual properties have not been completed and will require significant
additional financing. There is no assurance that commercially successful
products will be developed and that the Company will achieve a profitable level
of operations.

Realizing the necessity to develop certain intellectual properties and assets
through the expansion of operations, the Company created six subsidiaries in
1994. They are as follows:

The Company formed POC-IT COMICS, INCORPORATED on March 29, 1994 as a Florida
corporation. The Company owns 96.93% of the voting stock. Poc-It Comics has
three comic book franchises for development-- "THE EARTH WARRIORS" created by
Larry Faw; "MAGNET MAN" created by Paul Piterski; and "SHADOW RAVEN" created by
Frank Zanca. Poc-It Comics owns literary properties, as well as character
artwork. The first comic book--SHADOW RAVEN PREMIER EDITION was distributed in
May 1995.

The Company formed ZWEIG KNIGHTS PUBLISHING CORPORATION on March 29, 1994 as a
Florida corporation. The Company owns 64.30% of the voting stock. Zweig Knights
Publishing owns twenty six literary properties for future development and
publication. On November 11, 1997, Zweig Knights published its first in a series
of "Limited First Editions", The Nicholas Stories: The Boy With A Wish. The
second book of The Nicholas Stories series, The First Flight of St. Nicholas,
was released on November 1, 1998, and the third book in the series, The Maiden
Voyage of Kris Kringle, was released on October 1, 1999. An animated television
special of The Nicholas Stories: A Holiday Classic is currently in
pre-production.

The Company formed THE INTERNATIONAL CHILDREN'S TELEVISION NETWORK, INCORPORATED
on April 14, 1994 as a Florida corporation. The Company owns 99.96% of the
voting stock. The International Children's Television Network has fifteen
literary properties, which is the equivalent of twelve hours of children's
programming.

The Company formed STUDIO CITY AMUSEMENTS, INC. on November 10, 1994 as a
Florida corporation. The Company owns 100% (99.9% in 2000) of the voting stock.
Studio City Amusements owns two theatrical musical productions entitled "SLICING
UP THE BIG APPLE" and "TINTYPES ON AN INTERGALACTICAL STAGE". Studio City
Amusements purpose is to develop and manage entertainment properties, and to
develop and produce Specialty Entertainment Projects. During 1999, this entity
changed its name to SCA GLOBAL RESOURCES, INC.


                                       7
<PAGE>   12

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

NOTE 1--ORGANIZATION, BACKGROUND INFORMATION AND BASIS
OF PRESENTATION - continued

The Company formed NON-EXISTENT MAJOR LEAGUE FANTASY SPORTS ASSOCIATION,
INCORPORATED on November 10, 1994 as a Florida corporation. The Company owns
100% of the voting stock. Non-Existent Major League Fantasy Sports Association
owns "The 1994 Fan's Choice Fantasy World Championship of Baseball", the first
in a series of interactive radio and television fantasy sporting events. This
satirical 12 hour long radio play of a "fantasy world series of baseball" was
completed December 1, 1994 and is now ready for radio broadcast and/or
distribution.

The Company formed ZINGRR N-2-AKTIV TELEVISION NETWORK, INC. on November 22,
1994 as a Florida corporation. The Company owns 94.95% of the voting stock.
Zingrr N-2-Aktiv was created to serve as a partner in development, creation,
maintenance and programming of FCC Licensed Wireless Cable Stations and Systems.

The following seven subsidiaries were formed subsequently for the purposes of
diversification and expansion. They are as follows:

The Company formed QUAGGA ENTERTAINMENT CORPORATION on March 30, 1995 as a
Florida corporation. The Company owns 93.33% of the voting stock. Quagga is in
the development stage and is engaged in the exploitation of motion picture and
television properties including the creation of revenue streams and profits from
captive intellectual and franchiseable properties. These activities would
include creating products for television, theatrical release, spin-off book
products, and ancillary spin-offs.

The Company formed ACCINEMATRON RELEASING CORPORATION on September 13, 1995 as a
Florida corporation. The Company owns 100% of the voting stock. Accinematron was
created to coordinate the distribution of various product lines which include
films, television programming, videocassettes, audio products, and ancillary
merchandise.

The Company formed THE MAGIC SHOP, INC. on October 7, 1995 as a Florida
corporation. The Company owns 100% of the voting stock. The Magic Shop was
created to serve as a production center and business incubator for entertainment
related companies.

The Company formed ZOLLIPE CYBERSPACE CORPORATION on June 14, 1996 as a Florida
corporation. The Company owns 100% of the voting stock. Zollipe was created to
develop computer programming and software for interactive games and information
from both the CD-ROM platform and worldwide web.

The Company formed ZZOONZUIT, INC. on June 14, 1996 as a Florida corporation.
The Company owns 100% of the voting stock. Zzoonzuit was created to design and
manufacture a new line of beachwear, swimwear, and athletic clothing.


                                       8
<PAGE>   13

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

NOTE 1--ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF PRESENTATION -
continued

The Company formed XENOMORPH DIGITAL POST, INC. on June 14, 1996 as a Florida
corporation. The Company owns 100% of the voting stock. Xenomorph was created to
be a digital broadcast and video post-production center and on-line producer of
television programming.

The Company formed PRO-SPORTS ENTERTAINMENT GROUP, INC. on November 1, 1996 as a
Florida corporation. The Company owns 100% of the voting stock. Pro-sports was
created as a motion picture and television production group to produce
entertainment products focused on minority role models.


Basis of Presentation

The consolidated financial statements include the accounts of Studio City
Holding Corporation, and all subsidiaries. All significant intercompany accounts
and transactions have been eliminated.

These consolidated financial statements have been prepared to comply with
disclosure requirements of Securities and Exchange Commission Regulation S-X and
conform to S-B format.


NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.

Office Furniture and Equipment: Office furniture and equipment is stated on the
basis of cost. Depreciation is computed by the straight-line method over useful
lives of 5-10 years.

Organization Costs: Costs to organize the corporations have been capitalized and
are stated on the basis of cost. Amortization is computed by the straight-line
method over 60 months.

Offering Costs: As discussed in Note 16, Quagga incurred specific incremental
costs in connection with a proposed Securities Act of 1993 Regulation D-504
offering. These offering costs were expensed in 1997 due to the expiration of
the offering on April 12, 1997.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


                                       9
<PAGE>   14

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES - continued

Earnings (Loss) Per Common Share: Basic Earnings (Loss) Per Share is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the year. Diluted Earnings (Loss) Per Share
is computed the same as Basic but also giving effect to all dilutive potential
common shares such as options, warrants and convertible preferred stock.
However, the computation of Diluted Earnings (Loss) Per Share does not assume
conversion of any potential common shares if that has an antidilutive effect on
earnings per share. Since there is a loss from operations, Diluted Earnings
(Loss) Per Share is computed the same as Basic Earnings (Loss) Per Share. This
is computed by dividing the net loss by weighted average number of common shares
outstanding during the year. The Earnings (Loss) Per Share are as follows:

<TABLE>
<CAPTION>
    Year        Net Loss        Weighted Average Shares  Loss Per Share
    ----        --------        -----------------------  --------------
    <S>         <C>             <C>                      <C>
    2000        $579,265             31,919,638            $(.0181)
    1999        $649,651             31,057,001            $(.0209)
    1998        $521,483             31,042,751            $(.0168)
    1997        $572,506             30,950,955            $(.0185)
    1996        $558,211            146,650,000            $(.0038)
    1995        $316,578            141,225,000            $(.0022)
    1994        $172,174            145,703,500            $(.0012)
    1993        $ 73,409            144,038,550            $(.0005)
    1992        $ 57,999              1,071,101            $(.0541)
    1991        $ 35,455                784,000            $(.0452)
</TABLE>

NOTE 3--INTANGIBLE ASSETS AND RELATED OBLIGATIONS

Intangible assets consists of ownership of and rights to a significant number of
literary properties.

In October 1991, the date of incorporation of the Company and FIPC, stock was
issued for rights to several literary properties. 750,000 shares of Studio City
Incorporated Holding stock and 400,000 shares of Fawnsworth International
Pictures Corporation were issued at $1.00 per share in exchange for property
rights and exploitation. The recorded amount of these intangible assets for the
years 1991 and 1992 was zero based on the predecessor's cost. Larry D. Faw,
majority stockholder, was the predecessor owner. The total price of $1,150,000
has been reflected in the 1991 and 1992 financial statements as a reduction in
equity, specifically as a special distribution to stockholder.

Purchase Agreement: On February 16, 1993, the Company entered into an agreement
to acquire the direct ownership of various intellectual properties in the amount
of $7,226,000, which included 72 motion picture properties, 4 television pilot
properties, 48 books for publication, 4 inventions, 1 franchise program and 1
Specialty Product Design and marketing program. The Company's Purchase Agreement
for these properties included an obligation in the form of a promissory demand
note in the amount of $1,554,027 payable to Larry D. Faw, the majority
stockholder. In addition, the Company granted to Larry D. Faw warrants with the
option to purchase 5,000,000 shares of common stock, which was considered to be
partial payment under


                                       10
<PAGE>   15

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

NOTE 3--INTANGIBLE ASSETS AND RELATED OBLIGATIONS - continued

the Purchase Agreement. These warrants are exercisable at $1.00 per share at a
maximum of 25% per year beginning the first anniversary of the effective date of
the grant and continues until one of the following occurs: (i) to the year 2003,
or, (ii) when all warrants have been exercised, or, (iii) all rights to such
warrants have been terminated in a mutually agreed upon written agreement.

The Purchase Agreement additionally provided for the requirement that 51% of the
Company's preferred stock be issued to Larry D. Faw. The amount of preferred
stock was later decreased to 1,000,000 shares of redeemable convertible and
callable preferred B stock, with each share of preferred stock being entitled to
noncumulative dividends at 6% annual rate upon declaration of the Board of
Directors.

The preferred stock was recorded in the amount of $671,973, which was the
purchase price of the assets less the amount attributed to the promissory demand
note and the common stock warrants.

The Company, as part of the Purchase Agreement issued 1,000,000 shares of its
preferred B stock on February 15, 1995. The preferred stock can be converted to
common stock at market price, or, callable at any time by the Company at a fixed
price of $50 per share for preferred B stock and $105 per share for preferred A
stock, or in parts, on or after February 16, 1996, and will be redeemable and/or
callable until February 16, 2006.

In summary, the Purchase Agreement includes the $1,554,027 promissory demand
note, the $5,000,000 common stock warrants and $671,973 value of preferred stock
for a total price of $7,226,000. Management believes this Purchase Agreement was
at a significant discount which is evidenced by the Independent Valuation as
discussed below in Note 3. As previously stated, the recorded amount of these
intangible assets was zero based on the predecessor's cost. Larry D. Faw, the
majority stockholder, was the predecessor owner. The total price of $7,226,000
has been reflected in the 1993 through 1999 financial statements as a reduction
in equity, specifically as a special distribution to stockholder.

Pre-existing Rights: Ownership of certain literary properties were transferred
from the Company to its subsidiaries in 1993. Properties with a value of
$600,000 were transferred to Fawnsworth International Pictures Corporation,
increasing the intangible asset value from $400,000 to $1,000,000 (note:
properties were purchased in 1993 for $100, increasing intangible assets to
$1,000,100) and increasing its additional paid-in capital from $433,880 to
$1,033,880. Properties with a value of $1,200,000 were transferred to Poc-It
Publishers, Incorporated in exchange for its common stock. After these
transfers, the Company's intangible assets were $5,026,000. Incidental costs
have subsequently been incurred increasing the asset costs.

The purchase price of the intangible assets acquired from the majority
stockholder, Larry D. Faw, was determined by Industry Standards (i.e. Union
Minimums as detailed in the Writers Guild of America 1992 Minimum Basic
Agreement as collectively bargained with the Alliance of Motion Picture and
Television Producers, Producers Guild of America, Directors Guild of


                                       11
<PAGE>   16

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

NOTE 3--INTANGIBLE ASSETS AND RELATED OBLIGATIONS - continued

America, and all other signatory union business franchise valuation methods, and
other similar industry standards for product and merchandise development).

Independent Valuation: In 1995, the Company engaged a major U.S. investment
banking firm to conduct an analysis of the Companies' intellectual properties as
an independent third party consultant. This Independent Valuation was in direct
response as a requirement of the Securities and Exchange Commission's Chief
Accounting Office. This Independent Valuation was prepared as a Preliminary
Valuation prior to a public offering and was created as an internal document,
which due to its sensitive contents, has been made available to the Securities
and Exchange Commission as a confidential sealed document. The Preliminary
Independent Valuation was prepared through the following:

(1) Independent Research: (a) the investment banker's Research Analysts Reports,
(b) Standard & Poor's Industry Surveys, (c) Mergers and Acquisitions from
Securities Data Corporation, and, (d) financial reports from publicly traded
media holding companies and motion picture/television production companies.

(2) Industry Guidelines.

(3) Analysis of the Collective Bargaining Agreements: The 1992 Writers Guild of
America-Alliance of Motion Picture & Television Producers Theatrical and
Television Basic Agreement, Amended and Effective May 2, 1992 through May 1,
1995; and the 1995 Writers Guild of America-Alliance of Motion Picture &
Television Producers Theatrical and Television Basic Agreement, Amended and
Effective May 2, 1995 through May 1, 1998, and ratified and amended on May 2,
1998 through May 1, 2001. All of which are Collective Bargaining Agreements
under the auspices of the National Labor Relations Board.

(4)  Management Interviews.

The Preliminary Valuation Summary was prepared utilizing two valuation
methodologies for 22 of the Companies' intellectual properties: (1) Cost
Approach projected as $9,700,000 and, (2) Discounted Cash Flow projected as
$46,000,000. Based on the two methodologies, the preliminary value achieved was
$9,659,980 for 22 intellectual properties having a projected
costs/obligations/value of $439,090 for each of the 22 intellectual properties.
At the time of the Independent Valuation, Studio City Holding Corporation and
its subsidiaries owned 152 intellectual properties, the majority of which were
not utilized in calculations of the Preliminary Valuation.

Contingent Liabilities-Collective Bargaining Agreement: Studio City Holding
Corporation, Fawnsworth International Pictures Corporation, the International
Children's Television Network, Incorporated, and Zingrr N-2-Aktiv Television
Network, Inc. are registered signatory companies to the 1995 Writer's Guild of
America-Alliance of Motion Picture & Television Producers


                                       12
<PAGE>   17

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

Theatrical and Television Basis Agreement ("MBA"), Amended and Effective May 2,
1995 through May 1, 1998. Studio City Holding Corporation and its subsidiaries
are exclusively


NOTE 3--INTANGIBLE ASSETS AND RELATED OBLIGATIONS - continued

represented by the Alliance of Motion Picture & Television Producers, Inc. The
collective bargaining agreement is under the auspices of the National Labor
Relations Board and is deemed to be a contingent liability for Studio City
Holding Corporation and its subsidiaries in regards to all literary properties
owned by the companies for development and/or sale. All aspects of intellectual
properties represented by the "MBA" have been tabulated and have pre-set
financial obligations that pass through to the Company and/or other type of
ownership, and, directly passes through to any and all purchasers of the
intellectual properties. The contingent liabilities, requisite costs, and
expense calculations as determined under the 1995 "MBA" are restrictive and
compliance is dictated by law.

NOTE 4--INVESTMENT IN JOINT VENTURE AND STOCK

The Companies currently own (in entirety) literary properties whose "replacement
cost/value" and/or "1995 Minimum Basic Agreements" contingent
liabilities/obligation and/or associated direct pass-through costs for
production and distribution are tabulated under the Agreement as of December 31,
1996 as $811,931 per intellectual property. Studio City Holding Corporation and
its subsidiaries current portfolio of intellectual properties are required to
comply with all of the aspects pertaining to the collective bargaining agreement
in its most current form, and, those contingent liabilities pass through to the
owner of record.

This investment represents costs of $6,823 paid by FIPC on behalf of Florida
Screen Gems Partners, a partnership of which the FIPC is a partner. The
Partnership is in the development stage. The Company has also invested in two
Corporations--Environmental Production Systems and Florida Film Investment
Company. These investments are recorded at cost for a total of $50,000. In April
2000, the investment in Hammer Trust in the amount of $2,504,120 increased this
investment total to $2,560,943 (See Note 21).


NOTE 5--PREPAID SERVICES

The Company and FIPC issued common stock to several individuals in exchange for
future services and expertise. The asset values recorded were determined by
management.


NOTE 6--OFFICE FURNITURE AND EQUIPMENT AND NOTE PAYABLE-STOCKHOLDER

At the time of incorporation in October 1991, FIPC acquired office furniture and
equipment from a stockholder, Genevieve Faw in the amount of $13,600. The
Company became indebted for this


                                       13
<PAGE>   18

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

amount plus $1,520 for supplies that was expensed in 1991. Therefore, the total
liability to the stockholder for this transaction was $15,120 since 1991. In
1994 the liability was satisfied. In 1995, the Company and Poc-It Comics
acquired office furniture and equipment. In 1996, 1997 and 1999, the Company
acquired additional office furniture and equipment. Office furniture and
equipment is recorded at cost, less accumulated depreciation. The provision for
depreciation is

NOTE 6--OFFICE FURNITURE AND EQUIPMENT AND NOTE PAYABLE-STOCKHOLDER - continued

computed on the straight-line method over the estimated useful lives of the
assets which range from 5 to 7 years.


NOTE 7--NOTE PAYABLE-MAJORITY STOCKHOLDER

As discussed in Note 3 above, the Company became obligated under the Purchase
Agreement to its majority stockholder, Larry D. Faw. The promissory demand note
is dated the date of the Purchase Agreement, which is February 16, 1993. The
promissory demand note contains the following provisions: (i) due upon demand,
(ii) payments may be made at any time, and (iii) a balloon payment is due on
February 16, 1995. The note has an initial annual interest rate of 2%. On
February 16, 1995, the note became due and subsequently was extended for six
months at an annual interest rate of 9%. Since August 16, 1995, the note has
been extended nine times through February 16, 2001. No principal payments have
been made on this note, but partial interest payments have been made in 1995
through 2000. Accrued interest on this note was $434,270 as of September 30,
2000, and $415,952, $375,069, $290,518, $194,456, $108,593, $58,158 and $27,078
as of December 31, 1999, 1998, 1997, 1996, 1995, 1994 and 1993 respectively.


NOTE 8--RELATED PARTY TRANSACTIONS

In February of 1991, both the Company and FIPC started incurring
pre-incorporation expenses that were expensed by the companies and were paid by
its majority stockholder, Larry D. Faw. This practice has continued through the
present and both companies have reimbursed the stockholder for these expenses.

The nature of these expenses were automobile expense, office rent expense,
telephone expense, office supplies expense and other operational expenses. These
expenses were corporate expenses that were paid by the majority stockholder,
Larry D. Faw and charged to the companies. The Company incurred automobile
expenses and reimbursed Larry D. Faw at the mileage rates as prescribed by the
Internal Revenue Service. Additionally, the Company incurred office rent and
utilities and reimbursed Larry D. Faw $500 and $84 per month respectively.
Additional expenses were incurred and reimbursed to Larry D. Faw such as
telephone expenses, office supplies, and other operational expenses.

As discussed in Note 3, the Company acquired various intellectual properties
from the majority stockholder, Larry D. Faw, for $7,226,000 in exchange for a
promissory demand note, preferred stock and warrants to purchase common stock at
a fixed price.


                                       14
<PAGE>   19

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

The Company executed a statutory merger with CVT Corporation of America (name
changed to Studio City Holding Corporation) on July 1, 1996 with Studio City
Holding Corporation (a New York Corporation) being the surviving entity.
Subsequently, the operations of Studio City Incorporated Holding (a Florida
Corporation) were wound up and the corporation dissolved. (See Note 17--Merger).

NOTE 8--RELATED PARTY TRANSACTIONS - continued

Zweig Knights Publishing Corporation, a subsidiary of the Company, has earned
revenue from sale of three books of the Nicholas Stories series. Total revenue
earned was $45,591 and $66,026 for the years ended December 31, 1999 and 1998.
Of these amounts, $41,000 and $54,575 were from sales to Harry K, Inc. Harry K,
Inc. is a corporation 100% owned by Harry Knights, the author of the books, who
is also a stockholder and officer of the Company as well as the subsidiary,
Zweig Knights Publishing Corporation. In 1997, the Company enlisted Harry K,
Inc. to serve as chief marketer and retail sales coordinator. The Company sells
to Harry K, Inc. as a wholesaler at a price of $10 per unit/book. Harry K, Inc.
markets the books within the guidelines of the Board of directors. Harry Knights
coordinates advertising, public relations and sales management at major trade
and specialty products showcases and conventions. Harry Knights receives no
compensation for the duties he performs on behalf of the Company. The Company
does assist in providing reimbursements for some expenses that are incurred
above and beyond the requirements necessary for retail sales.


NOTE 9--STOCKHOLDERS' EQUITY

Common Stock and Preferred Stock

Studio City Holding Corporation immediately after the Merger and as of December
31, 1996 (See Note 17) had 150,000,000 shares authorized, issued and outstanding
with a par value of $.01 per share. Upon the Merger, Larry D. Faw, the principal
stockholder converted 100,000,000 shares of common stock into 10,000,000 shares
of Class A Preferred Stock and 10,000,000 shares of common stock into 1,000,000
shares of Class B Preferred Stock. Additionally, the former stockholders of CVT
exchanged their shares for 9,123,250 shares of common stock. Additionally, some
shareholders elected the option to exchange their common shares for Class B
Preferred Stock (10 shares of common for 1 share of Class B Preferred Stock).
18,258,340 shares of common stock were exchanged for 1,825,834 shares of Class B
Preferred Stock. Additional shares of common were issued during 1997 and 1998.
As of September 30, 2000, 32,557,001 shares were issued and outstanding. As of
December 31, 1999 and 1998, there were 31,057,001 shares issued and outstanding.
The par value was amended to $.002 per share.

As discussed above, Larry D. Faw, the principal stockholder, converted common
stock into 10,000,000 shares of Class A Preferred Stock. This is the amount of
shares issued and outstanding as of September 30, 2000 and December 31, 1999 and
1998. The par value is $.0001 per share.

As discussed above, Larry D. Faw, the principal stockholder, converted common
stock into 1,000,000 shares of Class B Preferred Stock. He previously had
1,000,000 shares prior to this


                                       15
<PAGE>   20

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

conversion. Additionally, other stockholders exchanged common stock for
1,825,834 shares of Class B Preferred Stock. As of September 30, 2000, 5,025,834
shares were issued and outstanding. As of December 31, 1999 and 1998, there were
3,825,834 shares issued and outstanding. The par value is $.0001 per share.

NOTE 9--STOCKHOLDERS' EQUITY - continued

Fawnsworth International Pictures Corporation has 500,000 shares authorized. The
par value is $.01 per share. There were 491,150 shares issued and outstanding as
of September 30, 2000 and December 31, 1999 and 1998 with Studio City being the
registered beneficial owner.

Poc-It Publishers, Incorporated has 10,000,000 shares authorized, issued and
outstanding. The par value is $.0001 per share.

Poc-It Comics, Incorporated has one class of common stock and it is voting (one
share, one vote). The par value is $.0001 per share with 10,000,000 authorized.
10,000,000 shares are issued and outstanding. Poc-It Comics has 5,000,000 shares
authorized, issued and outstanding of Class A Preferred Stock at $.0001 par
value per share which is callable, voting and convertible to common. There are
also 5,000,000 shares authorized, issued and outstanding Class B Preferred Stock
at $.0001 par value per share which is non-voting with preferential dividends.

Quagga Entertainment Corporation has one class of common stock and it is voting
(one share, one vote). The par value is $.001 per share with 10,000,000 shares
authorized and 7,000,000 shares issued and outstanding. Quagga has 5,000,000
shares of Class A Preferred Stock authorized, issued, and outstanding. The par
value of the Class A shares is zero. The Class A shares (1) are voting--one
share, one vote (2) receive no dividends (3) are not convertible ( 4) are not
redeemable (5) are callable at $25.00 per share.

Quagga has 5,000,000 shares of Class B Preferred Stock of which 2,500,000 are
issued and outstanding. The par value of the Class B shares is zero. The Class B
shares (1) are non-voting (2) have special dividend rights based on earnings (3)
have the initial price of $6.00 (4) have a fixed dividend of 12% per annum based
on earnings (5) are callable at $7.50 per share after the first year's dividend
(6) are callable after 3 years at $10.00 per share (7) are convertible to common
(8) have preferential liquidation treatment above all other shares.
Additionally, Quagga has 500,000 shares of Class C Preferred Stock, however, no
shares have been issued. The par value of the Class C shares is zero. The Class
C shares (1) are non-voting (2) have special dividend rights based on earnings
(3) have the initial price of $2.00 (4) are callable any time after issuance for
$2.00 for a period up to two years (5) are callable for $2.50 after two years
(6) are convertible to common after three years on a one to one basis (7) have
preferential liquidation treatment over common stock and Class A Preferred
stock.

All other entities presented in these financial statements other than those
referred to above in this note, have one class of common stock and it is voting
(one share, one vote). The par value is $.0001 per share with 10,000,000
authorized, issued and outstanding. There are 5,000,000 shares authorized,
issued and outstanding each of Class A and B Preferred Stock at $.0001 par value
per


                                       16
<PAGE>   21

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

share. Class A is voting and convertible to common and Class B is non-voting
with preferential dividends.

NOTE 10--TRADEMARKS, COPYRIGHTS AND LICENSES

The Company uses its own and licensed trademarks from its subsidiaries for
spinoff product development and merchandising from its various intellectual
properties. The Company owns 126 copyrights and will seek patents for 4
products. Additionally, the Company will be purchasing new products and literary
properties for development, and/or, enter into joint ventures for the
development of intellectual properties or consumer products. Each such instance
will be earmarked by distinct contractual requirements and obligations by the
Company.

NOTE 11--EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFITS

The Company has had no full-time employees from inception to date except for
Quagga Entertainment Corporation during 1995. The Company has had contractual
relationships with independent contractors. Operations are managed by officers,
directors, and stockholders who received no monetary compensation through 1999.
In the year 2000, the Company began paying consulting fees to certain officers
and stockholders. Through September 30, 2000, $14,306 has been paid to the
majority stockholder, Larry D. Faw, and $7,776 has been paid to other minority
stockholders. The Company has had no employment agreements with key officers
from inception to date. However, the Company anticipates entering into
employment agreements with key personnel and intends to obtain key-man insurance
when the Company emerges from the development stage.

The Company does maintain a medical reimbursement plan whereby the majority
stockholder, Larry D. Faw, is reimbursed for his medical costs. This does not
include any other family members.

NOTE 12--ADDITIONAL CONTINGENT PAYMENTS

As of September 30, 2000, the Company was obligated to make future contingent
payments under research and development contracts, which are based upon actual
utilization of certain intellectual properties in pre-publication, published or
cinematic form. These contingent payments will continue for an indeterminable
length of time, and will be payable in all cases at the time of funding for each
respective project. Under certain of these contracts, the Company is obligated
to pay royalties ranging from 1.5% to 5% of the gross net profits which are
distributable from the commercialization and merchandising of these properties.


                                       17
<PAGE>   22

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

The Company has agreements with various individuals who will receive funds from
the initial distribution proceeds from the exploitation of certain literary
properties. These amounts are uncalculable because they are percentage rights in
individual properties which are identified in the Company's unaudited financial
statements and inventory analysis. These contracts and percentage rights are as
follows:

NOTE 12--ADDITIONAL CONTINGENT PAYMENTS - continued

For the motion picture property "Bawdyhouse Bandits":

<TABLE>
                  <S>                       <C>
                  Frederick G. Spriggs      1% profit participation
                  Norman T. Godheim         1% profit participation
                  Heflar Family Trust       2% profit participation
                  Darlene C. Barror         1% profit participation
                  Suzanne Quinonez          1% profit participation
                  Genevieve H. Faw          2% profit participation
</TABLE>

For each of the following motion picture properties-- "Return To Treasure
Island", "Bad News", "TampaVice or The Comic Misadventures of Nipit and Budd",
"Mistaken Identity", "Love Can Kill", "Billion Dollar Bunnies", "The Love Bugs",
"A Touch of Evil", "Eyes of Terror", "Rail Rider", "Swingtime", "Whooz Choice",
"The War Lords", "Captain J Ride Again", "Midnight Blues", "Belle of Berry
Hill", "Hells Revenge", "Vendetta", "A Miracle In Tibet", "The Junkyard Gang",
"Land of the GaNodds", "So Far From My Heart", "Water Drop Series", "Damon
Runyon Series", "Way Off Broadway", "Paparazzi", "Love Bugs-Television Game
Show", "Fright Night", "Fountain Blue", "The Worlds Greatest Escapes", and
"Seminole"--the following contractual agreements exist: Genevieve H. Faw--2%.

For each of the following motion picture properties under option--"Cut Throat
Ridge", "The Plunderers", "The Last Glider", "Silence Awaits", "Stihlman and the
Firestone", "The Orion Murders", "Battle of Buck Mountain", "A Delicate
Obsession", "Seven Eleven Sorority Street", "Happy Bob", "Ghost Rider", "Teeth
of Lions", "Dali", "The Hillsville Courthouse Murder Massacre", "The Last Great
Adventure", "Otto", "Wheels", "Freefalling", and "Like A Butterfly"-the
following contractual agreements exist: Genevieve H. Faw--1%.

For the following book rights and motion picture rights on "Cain and Abel
Revisited: The True Life Story of Earle Don Fagan, Jr."--the following
contractual agreement exists:

<TABLE>
              <S>                                   <C>
              The E. Don Fagan, Jr. Trust           $50,000 on contract to sale
                                                    $25,000 new purchase
                                                    1% net profit participation
</TABLE>

The Company has separate contractual royalty agreements with Genevieve H. Faw
for deferred fees and royalties for each of the following inventions-- "Enviro
Tools"(tm), "Boot Valet"(r),


                                       18
<PAGE>   23

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

"Book Lounge"(r), and "Radius Gauge"(r). The following contracts exist:
Genevieve H. Faw--1% royalty per number sold.

The Company has separate contractual agreements for royalties for books under
the research and development phase of the Company's wholly owned subsidiary,
Poc-It Publishers, Incorporated. All of the following book titles in each series
have royalty fees -- "Reward Series" (13 titles), "The Poc-It Mania Series" (11
titles), "Self Help Manuals" (11 titles), and "Contemporary Career Guide Series"
(10 titles): The following contracts exist: Genevieve H. Faw--1% royalty per
number sold.

NOTE 12--ADDITIONAL CONTINGENT PAYMENTS - continued

There are separate contractual agreements in connection with the assignment of
Artistic Property Agreement between Fawnsworth International Pictures
Corporation and Michael Fields for ownership rights of original art for 4 comic
books characters created by Larry D. Faw. These 4 characters are "Taren",
"Mercer", "Shrieve", and "Quant", all from the "Earth Warrior" series. Poc-It
Comics, Incorporated issued 10,000 shares of common stock to Michael Fields in
addition to $100 cash per contract--$400 total. Additionally, Fields is to
receive a flat fee of $5,000 for each agreement payable when and if the art
design is utilized in the production of a movie or animation product--$20,000
total if all character art is utilized.

There is a separate Purchase & Profit Participation Agreement between Fawnsworth
International Pictures Corporation and Paul and Brahm Piterski for the ownership
of the literary rights and artwork of the comic book character "Willy the Magnet
Man". Poc-It Comics, Incorporated issued 50,000 shares of common stock to
Piterski in addition to $100 cash. Additionally, Piterski is to receive a
$15,000 consultant/production fee at time of movie production plus 10% of the
net profits generated from the exploitation of the entertainment franchise.

There is a separate Agreement between the Company, Roger H. Hefler, Larry D. Faw
and Frank Zanca/Wingspan Productions for the ownership rights of the literary
property "Shadow Raven", which are assigned to Poc-It Comics, Incorporated.
Poc-It Comics, Incorporated issued 50,000 shares of common stock and 100,000
shares of Class B preferred stock to Zanca.

There is a separate Assignment of Artistic Property Agreement between Fawnsworth
International Pictures Corporation and Calvin B. Clarke for the ownership rights
of original art for the comic book character created by Larry D. Faw. The
character is "Hafro", another character from the "Earth Warrior" series. Clarke
received $100 cash plus he will receive a $5,000 consultant fee if the art is
utilized plus a pro rata percentage from 5% allocated to Talent Pool.

There is a separate Assignment of Artistic Property Agreement between Fawnsworth
International Pictures Corporation and Ricardo Colon for the ownership rights of
original art for the comic book character "Un-named". Colon received $100 cash
plus he will receive a $5,000 consultant fee if the art is utilized plus a pro
rata percentage from 5% allocated to Talent Pool.


                                       19
<PAGE>   24

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

There is a separate Assignment of Artistic Property Agreement between Fawnsworth
International Pictures Corporation and Marco Antonio Nazario for the ownership
rights of original art for the comic book character created by Larry D. Faw. The
character is "Sunspot", another character from the "Earth Warrior" series.
Clarke received $100 cash plus he will receive a $5,000 consultant fee if the
art is utilized plus a pro rata percentage from 5% allocated to Talent Pool.

There is a separate Assignment of Artistic Property Agreement between Fawnsworth
International Pictures Corporation and Melissa Polizzi for the ownership rights
of original art for

NOTE 12--ADDITIONAL CONTINGENT PAYMENTS - continued

3 comic book characters created by Larry D. Faw. The characters are "Marilise",
"Lilian", and "Renata", triplet characters from the "Earth Warrior" series.
Polizzi received $100 cash plus she will receive a $5,000 consultant fee if the
art is utilized plus a pro rata percentage from 5% allocated to Talent Pool.

There is a separate Assignment of Rights and Profit Participation Agreement
between Fawnsworth International Pictures Corporation and Larry D. Faw for the
licensing rights of the literary property "Earth Warriors", which consists of 12
characters. This Agreement is for a 5 year period ending October 9, 1998. Faw
received no cash but did receive 50,000 shares of Poc-It Comics, Incorporated on
March 29, 1994. If the rights are utilized, Faw will receive $15,000 for print
format, $50,000 for motion picture and/or other multi-media plus 5% of the net
profits attributable to this entertainment franchise.

There is a separate Agreement between the Company and Harry B. Knights, the
author of "The Nicholas Stories", who serves as Senior Vice-President of the
Company and Chief Operations Officer of Zweig Knights Publishing Corporation, a
subsidiary of the Company. The contractual obligation to Harry B. Knights was
met by issuing to him 1,250,000 shares of Preferred A and 1,250,000 of shares of
Preferred B stock of Zweig Knights Publishing Corporation plus 100,000 shares of
restricted common stock of the Company in April 1994. Additionally, Harry B.
Knights received a cash consulting fee of $5,000 on the 1997 production of "The
Nicholas Stories".

There is a separate pass-through Agreement between Harry B. Knights which is
contingent upon the publication and/or cinematic adaptation of any of these
intellectual properties. He is to receive a consultant fee and a profit
participation in each of these properties.

On July 1, 1995, the Company entered into a joint venture with Quagga Television
Partners Limited Partnership for the production and distribution of low budget
motion pictures and television programming. Larry D. Faw is the Managing Partner
of Quagga Television Partners and is the largest contributor as a limited
partner. Quagga Television Partners furnished the majority of the funding for
the production of Zoo Toonz. Quagga Television Partners owns a


                                       20
<PAGE>   25

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

library of video footage of exotic animals for the creation of animal music
videos. As of this date, Quagga Television Partners has not licensed use of this
footage.

The Company has entered into a series of Joint Venture Agreements with Lisa
Moody/Tin Woman Music, Inc. for the creation of music for the first generation
of Zoo Toonz. Larry D. Faw and Quagga Television Partners Limited Partnership
have contributed capital for these joint ventures. To date, 5 contractual
arrangements have been made for the creation of 27 songs for the Zoo Toonz
project. The songwriter has been prepaid for the creation of these songs and
separate funds have been expended for the production of Recording Masters. A
contingent liability passes through to the Company for any profits associated
with the useage of these songs, if the songs are utilized.

NOTE 12--ADDITIONAL CONTINGENT PAYMENTS - continued

The Company had entered into an Agreement for the use of 2 puppets, Clyde and
Alfred, for the utilization in volume one of Zoo Toonz, with John C. Cummings,
Jr. Additional puppet footage was shot at Disney-MGM Studios, however, the
footage was unacceptable. Due to contractual restrictions placed on the Company
by Disney for Volume one of Zoo Toonz, the release and distribution was
cancelled. The Joint Venture Agreement was terminated by John C. Cummings, Sr.
on October 2, 1996.

A Contingent Production Joint Venture was entered into by the Company with Marc
Rose and Radio Cinema for the creation of various products and merchandise which
could be created from the distribution and cinematic adaptation of a series of
radio shows entitled "Dry Smoke and Whispers". This contingent agreement may be
terminated.

On June 17, 1996, the Company purchased the patents and trademarks for "Uncle
Tuffy's French Security Window". The purchase was made between the Company and
Paul Piterski, the inventor and patent owner for $2,000 in cash plus 5% of the
gross profits attributable to the sale, licensing, or other profits due to the
Company for the exploitation of this patented product.

In July 1996, the Company placed a $10,000 option on the right to purchase
literary properties written by science fiction writer Andre Norton. The
properties which were optioned were "The Wraiths of Time" and "A New Property
Adaptation From The Screenplay of The Wraiths of Time". The option still exists,
however, original funding was to be realized from the public offering of Quagga
Entertainment Corporation's D-504, which expired. Publishing Corporation, has
entered into an Agreement to be a corporate general partner in ZK Partners
Limited Partnership. This Partnership is currently being formed for the
financing of an animation for "The Nicholas Stories", and is currently in the
development stage.

NOTE 13--EMPLOYEE INCENTIVE STOCK OPTION PLAN

                                       21
<PAGE>   26

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000


On March 1, 1993, the Board of Directors adopted in Outline Form an Employee
Incentive Stock Option Plan for future full time employees and officers. Under
the Proposed Outline, the Company may issue options exercisable at the current
market value (110% of current market value only to 10% or greater stockholders)
up to $100,000 annually. The Proposed Plan was extended from March 1, 1998, to
terminate on March 1, 2002.

Under the Proposed Plan, any person owning 10% of the voting power of the
Company is restricted from exercising his/her options to three years after the
receipt of such grant. Additional stipulations are as follows: (1) options
terminated or expired revert back into the Plan, (2) unpurchased option shares
remain in the Plan, (3) options are only exercisable by the optionee or his/her
estate, (4) options are not transferable, (5) carryover amounts from one year to
the next year can not exceed 50% of the option, and (6) option shares are
restricted until SEC registration.

The Company has reserved 500,000 shares of common stock for issuance under the
Proposed Plan. No options have been granted under the Proposed Plan from
inception to date.


NOTE 14--INCOME TAXES

The Company and its subsidiaries have filed separate corporate income tax
returns since each corporation's inception through December 31, 1999. As of
September 30, 2000, there have been no timing differences in the recognition of
revenue and expense for financial reporting and income tax purposes. As of
December 31, 1999, the Company and its subsidiaries each have available net
operating loss carryforwards for federal and state income tax purposes (which
are the same amount) that will be available to offset future taxable income of
the Company. If unused, net operating loss carryforwards expire after 15 years
(20 years after 1997). The loss carryforwards are summarized as follows:
<TABLE>
<CAPTION>
           Year           Year             Studio City               All
         Incurred        Expires          Holding Corp.          Subsidiaries            Combined
         --------        -------          -------------          ------------            --------
         <S>             <C>              <C>                    <C>                   <C>
           1991            2006             $ 15,596                $19,859               $ 35,455
           1992            2007               24,000                 33,999                 57,999
           1993            2008               63,543                  9,866                 73,409
           1994            2009              158,468                 13,706                172,174
           1995            2010              309,995                  6,583                316,578
           1996            2011              496,761                 61,450                558,211
           1997            2012              451,666                120,840                572,506
           1998            2018              489,105                 34,378                523,483
           1999            2019              556,889                 92,762                649,651
</TABLE>


NOTE 15--RENTALS UNDER OPERATING LEASES

The Company's leasing operations consist principally of the leasing of broadcast
television equipment, various computer, video and sound equipment under
operating leases that expire over the next three to five years. Due to a cross
default by a joint venture partner, a portion of the equipment under two of the
leases was reposessed by the lessor for late payment (see note 18


                                       22
<PAGE>   27

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

regarding "Zoo Toonz"). The Company has continued making monthly payments on all
lease obligations and expects to satisfy all obligations and obtain full use of
all equipment under lease.

The following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 1999:

<TABLE>
<CAPTION>
               Year Ending December 31,                Amount
               ------------------------               -------
               <S>                                    <C>
                        2000                          $53,084
                        2001                           44,199
                        2002                            2,177
                    Later Years                           -0-
                                                      -------
                                                      $99,460
                                                      =======
</TABLE>

NOTE 16--CHANGING ECONOMIC CONDITIONS AND SUBSEQUENT EVENTS

From September 1995 to September 1996 Studio City Incorporated Holding entered
into a "First Right of Refusal/Space Lease Agreement" with The Walt Disney
Company on product produced on the Disney-MGM Studios by Studio City. The
Company entered into a one year space lease/first right of refusal/production
agreement to expend a minimum of $1,200,000 at the studio for its projects. The
Company entered into this agreement with Disney based on an agreement with a New
York investment banker taking a contractual (dated August 28, 1995) equity
position of $1,200,000 in Quagga Entertainment Corporation, the production arm
which was located with the Company at Disney/MGM Studios. Quagga Entertainment
Corporation was to achieve total capitalization in 1996 of $8,500,000 based on a
registered public offering in Connecticut. The Company was also qualified to
sell the offering in the state of New York as a registered broker/dealer. The
Company was represented by an investment banker/consultant in Connecticut, who
contractually committed to raising Quagga's capital needs through a registered
D-504 offering. Also, the Company had the option to create and market a "red
herring" D-506 private placement. The Company chose "Shadow Raven", a low-budget
feature motion picture, to be the first project. However, due to expanded costs
associated with the contingent joint venture production partners, the project
was postponed until sufficient capitalization was realized. Quagga's D-504
offering was registered in Connecticut on April 12, 1996. The investment banker
was to commence the financial marketing of the offering, but failed to do so.
The New York equity investor could not meet the contractual commitment. As a
result, the D-504 offering expired on April 12, 1997 and the "red herring" D-506
was withdrawn as a viable funding plan. Accordingly, the offering costs of
$32,051 have been expensed during 1997. With the lack of alternative financing
available to the Company, the contract with Walt Disney Company expired on
September 15, 1996 along with the contingent joint venture production
partnerships.

In April 1997, the Company expanded its operations by relocating to Tampa,
Florida into a facility that provides a small soundstage, office operations, and
edit suite. This new organization


                                       23
<PAGE>   28

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

of its operations in Tampa is anticipated to increase revenue production, while
providing low costs to the Company for its own projects.

NOTE 17--MERGER

On June 29, 1996, CVT Corporation of America restated and amended its articles
of incorporation to allow for a name change, the creation of Class A and B
Preferred Stock, the reorganization of operations, and limiting the liability of
its Directors and Officers. CVT Corporation changed its name to Studio City
Holding Corporation (a New York Corporation). 10,000,000 shares of Class A
Preferred Stock with special voting powers were created and 25,000,000 shares of
Class B Preferred Stock with preferential dividends and various rights were
created. The Company adopted a new set of By-Laws which streamlined its
operations as a public company and adopted a set of procedures which limited the
liability of its Directors and Officers.

NOTE 17--MERGER - continued

On July 1, 1996, Studio City Incorporated Holding (a Florida Corporation) and
its subsidiaries merged with and into Studio City Holding Corporation (a New
York Corporation) in a statutory merger. The merger transaction was executed in
a "like kind" stock exchange, share for share of common stock of Studio City
Incorporated Holding for common stock of Studio City Holding Corporation. On
October 24, 1996, Studio City Incorporated Holding was dissolved, with the
surviving entity being Studio City Holding Corporation. All of the assets and
liabilities of Studio City Incorporated Holding and its subsidiaries were merged
with and into Studio City Holding Corporation.

As per the Merger Agreement, Larry D. Faw, principal stockholder of Studio City
Incorporated Holding, was required to convert 100,000,000 shares of voting
common stock of Studio City Incorporated Holding into 10,000,000 shares of
Studio City Holding Corporation Class A Preferred Stock and was also required to
convert 10,000,000 shares of common stock into 1,000,000 shares of Class B
Preferred Stock.

On October 29, 1997, the Company called for a name change and exchange of shares
from both former CVT stockholders and Studio City Incorporated Holding
stockholders. This exchange was executed in a "like-kind" share for share
exchange. Additionally, all of the stockholders in the Merged Entity had the
option to convert any, all, or none of their shares of common stock into Class B
Preferred Stock at a ratio of 10 shares of common for 1 share of Class B
Preferred Stock.

NOTE 18--PENDING LITIGATION


                                       24
<PAGE>   29

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

When the merger occurred, there were no significant changes in the operations of
the Company and its subsidiaries. Studio City Holding Corporation and its
subsidiaries continued its operations as the merged entity. When the merger
occurred, there were no significant changes in the operations of the Company and
its subsidiaries. Studio City Holding Corporation and its subsidiaries continued
its operations as the merged entity.

The Company being an entertainment company is often required to defend its
rights and licenses for intellectual properties that the Company either owns or
serves as a joint venture partner. This type of litigation is common in the
entertainment industry, and considering that the Company owns numerous
intellectual properties and owns various types of licenses and joint
participations in intellectual properties, it can safely be assumed that the
Company will be required to defend its rights, presently and in the future.

Currently, the Company and its subsidiary, Poc-It Comics, Incorporated, are
defending their rights in the production and distribution of an entertainment
franchise based on a comic book story entitled "Shadow Raven". The principals
are currently attempting to resolve their issues in negotiation.

NOTE 18--PENDING LITIGATION - continued

Secondly, the Company and its subsidiary, Quagga Entertainment Corporation, are
defending a challenge to the Companies' rights associated with a joint venture
to create, produce, distribute and exploit an intellectual property entitled
"Zoo Toonz", a joint venture where the timeliness of the creation of finished
products are in question. Litigation is pending in this matter, and, it has been
determined that the products will be completed without the assistance of the
joint venture partner. The Company and its financial partners will seek to
recoup all of its investment.

In March 2000, the Company agreed to a mediated settlement. The Settlement
Agreement With Prejudice became effective April 11, 2000. In the settlement
agreement, the Company would have complete ownership of all video footage
associated with the "Zoo Toonz" video series with music. The project included
some original music created by other members of the joint venture. The Company
has the right and direct ownership of all compiled music videos, and the right
to exploit 28 musical compositions for a period which would end April 2030. The
Company and its joint venture partner will receive 100% of the revenues produced
from the sales associated with the musical products as originally produced for a
period ending in 2030, and 100% of the revenues from and for perpetuity all Zoo
Toonz products, including new music produced from various new master recordings
of Zoo Toonz recordings.

NOTE 19--LOANS FROM MINORITY STOCKHOLDERS

During 1998, 1999 and 2000, various minority stockholders loaned the Company
money. These unsecured, short-term (less than one year) loans accrue interest at
10% per annum. The total


                                       25
<PAGE>   30

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

amounts outstanding are $1,233,584, $888,784 and $328,000 as of September 30,
2000 and December 31, 1999 and 1998 respectively. Accrued interest payable on
these loans are $153,561, $74,631 and $10,653 as of September 30, 2000 and
December 31, 1999 and 1998 respectively.

NOTE 20--EQUITY SECURITIES SUBJECT TO RESCISSION

Common stock was issued during 1996, 1997, 1998 and 2000 without compliance with
registration requirements of the federal and state securities laws. As a result,
these securities may have rescission rights. Accordingly, the potential
rescission liability has been classified outside of permanent stockholders'
equity, under the caption "Equity Securities Subject To Rescission". This amount
is $432,176 as of December 31, 1996, $913,599 as of December 31, 1997,
$1,003,100 as of December 31, 1998, and 1999 and $1,006,220 as of September 30,
2000. The likelihood of the exercising of these rescission rights is considered
to be remote, and therefore, interest has not been accrued and included as an
additional liability amount. But the interest is considered to be a contingent
liability of the Company and based on a 10% annual interest rate, amounts to
approximately $36,000 as of December 31, 1996, $98,000 as of December 31, 1997,
$198,000 as of December 31, 1998, $298,000 as of December 31, 1999 and $373,000
as of September 30, 2000. When the rescission rights expire, the respective
amounts will be reclassified as permanent equity.

NOTE 21--INVESTMENT IN HAMMER TRUST

In April 2000, Studio City Holding Corporation and Problem Solvers, Incorporated
established an irrevocable business royalty trust named "The Hammer Trust-An
Irrevocable Business Royalty Trust". Studio City and Problem Solvers are the two
principals, each receiving a 50% profit participation and each having the
authority to appoint a trustee. Studio City has appointed Larry D. Faw, the
majority stockholder of Studio City, as its trustee. The purpose of this
transaction is to expand the Company's business activities into the management
and operation in the production and distribution of crude oil, natural gas, and
petroleum products.

Studio City's initial contribution to the trust is the following: $1,000 cash,
$2,500,000 promissory demand note payable to the trust accruing interest at 9%
per annum, 1,500,000 shares of Studio City's common stock, and 1,200,000 shares
of Studio City's Class B Preferred Stock. This investment in trust asset is
recorded initially at its cost of $2,504,120 and is included in these financial
statements under investments in joint ventures and stock. The cost includes
$1,000 cash, $2,500,000 note payable, $3,000 par value of common stock and $120
par value of preferred stock.

Problem Solvers initial contribution to the trust is $1,000 cash plus 2,333,340
shares of Class B Preferred Stock of SCA Global Resources, Inc. Problem Solvers
was issued these preferred shares for its efforts in obtaining an agreement for
a swap of common stock between SCA Global Resources, Inc. and M & C Oil, Inc.
and the transfer of oil and gas reserves to SCA Global. In a related
transaction, SCA Global Resources, Inc. completed an acquisition of M & C Oil,
Inc. in a share-for-share stock exchange with Wellsprings Investments, Inc.,
owner of M & C Oil, Inc.


                                       26
<PAGE>   31

STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH SEPTEMBER 30, 2000

The result of this transaction is SCA Global Resources,
Inc. received 10,000 shares (100%) of M & C Oil, Inc. and Wellsprings
Investments, Inc. received 10,000 shares (.10%) of SCA Global Resources, Inc.


                                       27
<PAGE>   32


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

The following information should be read in conjunction with the unaudited
consolidated condensed financial statements included herein. The Company filed
its first Quarterly Report on August 15, 1999. The Company filed its first
Annual Report on April 20, 2000. The attached financial statements represent
quarterly reports from inception to June 30, 2000. The Company has broadened
its operations to include the development of non-entertainment businesses.
Management is currently reviewing and preparing updated business plans to
complement new business opportunities. The purpose of this effort is to add
value to the Company and its subsidiaries and to create core activities that
will increase and maintain revenues for an extended period of time. See Item 1.

RESULTS OF OPERATIONS:

Revenues. The Company's cash flow are derived from providing debt, equity, or
debt/equity financing to its subsidiaries. The operating results have
fluctuated in the past and may fluctuate significantly in the future as well as
a result of a variety of factors, some of which are outside the Company's
control. In response to the demand for entertainment products, the Company has
recently introduced a plan to create new product lines and to fully develop
various intellectual properties. The Company expects that it will continue to
net losses at least through and including the fourth quarter of 2000 and until
March 31, 2001. There is no guarantee that the Company can fully capitalize it
operations.

Nine months ended September 30, 2000, compared to Nine months ended September
30, 1999

Total revenues increased from $178,228 to $202,120 for the nine months ended
September 30, 2000. The increase is primarily attributable to increases in,
short-term financing and Book Sales were offset by a increase in the cost of
operations as they Company prepares for its Primary Stock Offering.

The increase of expenses is due to the increase of associated administrative
costs and pre-public offering costs.

A decrease of earnings is due to the reduction of wholesale Book Sales prior to
the year end from Zweig Knights Publishing's entertainment franchise, based on
"The Nicholas Stories". The last of the first trilogy (The Maiden Voyage of
Kris Kringle) was published on November 1, 1999, and the second printing of
"The Boy With A Wish" was published on October 15, 1999. The first book of the
second trilogy (Luigi and the Lost Wish) was published on September 30, 2000
and will be released on November 1, 2000.



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<PAGE>   33

Total expenses decreased $19,121 to $225,673 for the nine months ended
September 30, 2000. The increase is primarily attributable to a decrease in
Other expenses selling, general and administrative.

LIQUIDITY AND CAPITAL RESOURCES

The Company experienced cash flow deficiencies from operations and from
financing activities, (offset by cash flow from short-term borrowings) during
the nine months ended September 30, 2000.

There were no revenues at the end of September 30, 2000, which was primarily
due a decrease in revenue from books sales from Zweig Knights Publishing
Corporation (a majority owned subsidiary of the Company). The Company has
continued to incur debt through short-term financing activities through
officers, stockholders and affiliates. The Company anticipates the continuance
of short-term financing until capital is created through a Primary stock
offering and/or mezzanine financing and/or equity capitalization. There is no
assurance that the Company will achieve the level of capitalization needed to
sustain its operations, however, new business opportunities may allow the
Company to re-capitalize through joint venture associations.

RECENT BUSINESS ALLIANCE AND ACQUISITION.

On November 26, 1999, the Company formed a business alliance with Problem
Solvers, Incorporated (a Kansas corporation that provides consultation to
petroleum companies) to form "The Hammer Trust - An Irrevocable Business
Royalty Trust". The Hammer Trust was created to coordinate the acquisition of
various types of business operations and to disperse revenues generated by
acquisitions to Studio City Holding Corporation and Problem Solvers,
Incorporated. Upon the creation of the Hammer Trust, the Company issued
1,500,000 shares of common stock to the Trust, 1,200,000 shares of Class B
Preferred stock to the Trust, and a promissory demand note of $2,500,000.
Problem Solvers provided 2,333,340 shares of Class B Preferred stock of SCA
Global Resources to the Trust. Both parties contributed $1000 in cash, goodwill
and business expertise to the alliance. The Trust is operated on a fifty-fifty
basis, with Larry D. Faw and Hurschel Buscher, Esquire serving as Managing
Trustee and Trustee, respectfully.

The first acquisition generated by The Hammer Trust was the acquisition of
M & C Oil, Incorporated.

In April 2000, SCA Global Resources, Incorporated (a majority owned subsidiary
of the Company) completed an acquisition M & C Oil, Incorporated (a Nebraska
corporation operating as a foreign corporation in Kansas). SCA Global
Resources, Inc. received all of M & C Oil's stock and assets in a stock swap of
10,000 shares of common stock in M & C Oil owned by Wellsprings Investments,
Inc. (which represented 100% of M & C Oil's stock) to a minority holding of
10,000 shares of common stock in SCA Global Resources.



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<PAGE>   34

M & C Oil owns certain oil and gas leases in Kansas with existing oil wells and
existing gas wells. SCA Global Resources is currently preparing an inventory of
each well, (i.e. pump jacks, drilled footage with steel piping, electric
plants, oil reservoirs, drilling apparatus, gas lines, and assorted materials
for the operation of each well). Upon the completion of the inventory, an
analysis will be provided through a Petroleum Engineering Report in terms of
current industry values. The current report will then be filed by amendment.

SCA Global Resource's current business plan for the remainder of the year will
to prepare a status report for each well. The Company's current business plan
revolves around the activation of existing wells, and there are no current
plans for new drilling wells.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

In March of 2000, the Company agreed to a mediated settlement with Lisa
Moody/Tin Woman Music. The Settlement Agreement With Prejudice became effective
on April 11, 2000. In the settlement agreement, the Company would have complete
ownership of all video footage associated with the "Zoo Toonz" a video series
with music. The project included some original music created by Moody. The
Company has the right and direct ownership of all compiled music videos, the
right to exploit 28 musical compositions for a period which would end in April
of 2030. The Company and Quagga Television Partners, L.P. (its associated joint
venture partner) will receive 100% of the revenues produced from the sales
associated with the musical products as originally produced for a period ending
in 2030, and, 100% of the revenues from and for perpetuity of all Zoo Toonz
products, including new music produced from various new master recordings which
are produced by new producers of Zoo Toonz recordings.

Item 2.  Changes in Securities.

         None

Item 3.  Defaults Upon Senior Securities.

         None.

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

         None.

Item 5.  Other Information.

         None.




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Item 6.  Exhibits and Reports on Form 8-K.

    (a)      Exhibits.

             None.

    (b)      Reports on Form 8-K.

             None.


                                   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.


                                       STUDIO CITY HOLDING CORPORATION
                                                 [Registrant]


                                       BY:
                                          -------------------------------------
                                               Larry D. Faw
                                               Chairman and President
                                               (Principal Financial/Accounting
                                               Officer)



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