SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB


(Mark One)
[X]     Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 2001 or

[ ]     Transition  report  pursuant  to  section 13 or 15(d) of  the Securities
Exchange Act of 1934 for the transition period from __________ to__________

                         Commission file number: 0-27063

                      Family Room Entertainment Corporation
                      -------------------------------------
                 (Name of small business issuer in its charter)

            New Mexico                                    85-0206160
            ----------                                    -----------
  (State or other jurisdiction                         (I.R.S. Employer
of incorporation or organization)                    Identification Number)

1041 N. Formosa Ave. Mary Pickford Bldg., Ste. 101, Los Angeles, CA.    90046
           (Address of principal executive offices)                   (Zip code)

Registrant's telephone number, including area code:   (323) 850-2800

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

Securities registered pursuant to Section 12(g) of the Act:     Common Stock

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X  NO
    -

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.    ____

The issuer had revenues of $ 6,440,748  for the fiscal year ended June 30, 2001.

The  aggregate  market  value of the voting stock held by non-affiliates on June
30, 2001 was approximately $ 6,627,730 based on the average of the bid and asked
prices  of the issuer's common stock in the over-the-counter market on such date
as reported by the OTC Bulletin Board. As of June 30, 2001, 18,245,487 shares of
the  issuer's  common  stock  were  outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

Transitional Small Business Disclosure Format     Yes       No  X
                                                      ---      ---


                                        1
<PAGE>
PART I

ITEM 1.     DESCRIPTION OF BUSINESS

General Business Development
----------------------------

     Family Room Entertainment Corporation (the "Company"), is a New Mexico
corporation originally organized and incorporated in 1969 as Cobb Resources
Corporation .   We are located in Los Angeles, California, and are engaged in
key aspects of motion picture entertainment, including production, finance and
distribution .

Restructuring Transaction

     Prior to February 3, 2000 ,  we were engaged in  copper mining and oil and
gas exploration and marketable equity securities trading .  Effective February
3, 2000, three individuals and certain entities under their control
(collectively referred to as the "Investors") acquired 88% of our common stock
through a series of transactions as follows:

-     The three individuals  each acquired 666,666 shares (approximately 7.8%
individually and23.4% in the aggregate of our common stock from our most
significant stockholder (the "Stockholder").

-     We sold substantially all of our existing assets, including mineral
interests, cash, marketable equity securities and other assets, to the
Stockholder in exchange for 2,000,000 shares of our common stock (that were
placed in treasury) and the Stockholder's assumption of all of our known and
unknown liabilities, fixed and contingent, that had accrued up to February 3,
2000.  The aggregate purchase price paid by the Stockholder in connection with
this transaction was approximately $338,000.  As a result of this transaction,
we discontinued all current operations in which the Company was engaged.

-     We enacted a ten for one reverse stock split that was effective for
stockholders of record on February 17, 2000.

Asset Purchase

     Concurrent with the Restructuring Transaction described above, we acquired
interests in certain film projects (the "Asset Purchase") in exchange for
12,407,000 post-split shares of our common stock.  The interest in the film
projects acquired during the Asset Purchase were collectively valued at $
1,912,000 based upon independent appraisal.

Name and Symbol Change

     Effective May 22, 2000, COBB Resources Corporation's name was changed to
Family Room Entertainment Corporation, and its corresponding OTC:BB trading
symbol "COBB was changed to "FMLY".

Entertainment Motion Picture Industry Overview

    Our Company discontinued all activities in Mining, Oil and Gas as a result
of the restructure and is now in the entertainment industry. The Company
develops and produces entertainment projects through the following three


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<PAGE>
wholly-owned subsidiaries: (1) Emmett/Furla Films Productions Corporation.
(hereafter, "EFFP"), a California Corporation, is a Motion Picture Development
and Production entity that primarily develops and produces motion pictures
intended for worldwide theatrical release (EFFP's subsidiary, Good Advice, Inc.,
is a production company formed for the sole purpose of producing the film "Good
Advice"); (2) Emmett Furla Films Distribution LLC, is a Delaware Limited
Liability Company set up to oversee and arrange world wide distribution of our
Company's entertainment projects, and (3) Family Room Productions Corporation
(hereafter, "FRPC") , a California corporation, is setup primarily to develop
and produce family oriented motion pictures for television and home video
distribution as well as episodic television and internet programming. FRPC has
two wholly owned subsidiaries, Family Room Entertainment Music Publishing
Corporation and Emmett/Furla Films Music Publishing Company, both California
corporations, whose function is to oversees FRPC's EFFP's and their
subsidiaries' music publishing (ancillary rights associated with the creation of
original music for motion pictures).

     The motion picture industry may be broadly divided into two major segments:
production, which involves the development, financing and making of motion
pictures; and distribution, which involves the promotion and exploitation of
completed motion pictures in a variety of  media.

     Historically, the largest companies, the so-called "Majors" and
"mini-Majors," have dominated the motion picture industry by both producing and
distributing a majority of the motion pictures which generate significant
theatrical box office receipts.  Over the past 15 years "Independents" or
smaller film production and/or distribution companies, such as our Company, have
played an increasingly significant and sizable role in the production and
distribution of motion pictures needed to fill ever the increasing worldwide
demand for filmed entertainment product.

     The Majors (and Mini-Majors) include: Universal Pictures (a division of
Seagram), Warner Bros. Pictures (a division of Time Warner), Metro-Goldwyn-Mayer
Inc., Twentieth Century Fox Film Corporation (a division of News Corporation),
Paramount Pictures Corporation (a division of Viacom), Sony Pictures
Entertainment (including Columbia Pictures, Tri Star Pictures and Triumph
Releasing; altogether divisions of Sony) and The Walt Disney Company (Buena
Vista Pictures, Touchstone Pictures and Hollywood Pictures).  Generally, the
Majors own and operate private production studios (including lots, sound stages,
production equipment and post-production facilities), have nationwide and/or
worldwide distribution organizations, release pictures with direct production
costs generally ranging from $25,000,000 to $75,000,000, and collectively
provide a near continual source of motion pictures to film exhibitors.

     The Majors also have divisions that are promoted as "independent"
distributors of motion pictures, often referred to as the "Mini-Majors."  These
"independent" divisions of the Majors include Miramax Films (a division of The
Walt Disney Company), Sony Classics (a division of Sony Pictures), Fox
Searchlight (a division of News Corporation), and New Line (a division of Time
Warner) and its Fine Line distribution label.  Most of these divisions were
formerly private production and/or distribution companies.


                                        3
<PAGE>
     In addition to the Mini-Majors, there are private or publicly held
production and/or distribution companies, such as Family Room Entertainment,
(hereafter, collectively the "Independents") which engage primarily in the
production and/or distribution of motion pictures produced by companies other
than those held by the Majors and Mini-Majors. Such Independents include, among
others, Trimark Holdings and Artisan Entertainment.  The Independents typically
do not own production studios nor do they employ as large a development and/or
production staff as the Majors.

Motion Picture Production and Financing

     The production of a motion picture requires the financing of the direct
costs and indirect overhead costs of production. Direct production costs include
film studio rental, cinematography, post-production costs and the compensation
of creative and other production personnel.  Distribution costs (including costs
of advertising and release prints) are not included in direct production costs.

     Majors generally have sufficient cash flow from their motion picture and
related activities, or in some cases, from unrelated businesses  (e.g., theme
parks, publishing, electronics, and merchandising) to acquire new creative
properties (e.g., screenplay and novels) and pay for the direct production costs
of their motion pictures.  Overhead costs are, in substantial part, the salaries
and related costs of the production staff and physical facilities, which Majors
maintain on a full-time basis.  Majors often enter into contracts with writers,
producers and other creative personnel for multiple projects or for fixed
periods of time.

     Independents generally avoid incurring substantial overhead costs by hiring
creative and other production personnel, retaining only any essential elements,
which will be required for pre-production, principal photography and post-
production activities, on a project-by-project basis.  Independents also
typically finance their production activities from various sources, including
bank loans, "pre-sales," equity offerings and joint ventures.  Independents
generally attempt to complete the financing of their motion picture production
prior to commencement of principal photography, at which point substantial
production costs begin to be incurred and require payment.

     "Pre-sales" are often used by Independents to finance all or a portion of
the direct production costs of a motion picture. Pre-sales consist of fees or
advances paid or guaranteed to the producer by third parties in return for the
right to exhibit the completed motion picture in theaters and/or to distribute
it in home video, television, international  or other ancillary markets. Payment
commitments for a pre-sale are typically subject to the approval of a number of
pre-negotiated factors, including script, production budget, cast and director
and to the delivery of the completed motion picture in the agreed upon
format(s).

     Both Majors and Mini-Majors often acquire motion pictures for distribution
through an arrangement known as a "negative pickup" under which the Major or
Mini-Major agrees to acquire from another production company, often an
Independent,  some or all of the rights to a film upon its completion.    The
Independent often finances the production of a motion picture pursuant to
financing arrangements it has made with banks or other lenders wherein the


                                        4
<PAGE>
lender obtains a security interest in the film and in the Independent's rights
under its distribution arrangement.  When the Major or Mini-Major "picks up" the
completed motion picture, it may assume some or all of the production financing
indebtedness incurred by  the production company in connection with the film.
In addition, the Independent is often paid a production fee and is granted a
participation in the profits from the distribution of the motion picture.

     Both Majors, Mini-Majors and Independents often grant third-party
participations in connection with the distribution and production of a motion
picture.  Participations are the contractual rights of actors, directors,
screenwriters, producers, owners of rights and/or other creative and/or
financial contributors entitling them to share in revenues or profits (as
defined in their individual respective agreements) from a particular motion
picture.  Except for the most sought-after talent, participations are generally
payable only after all distribution and marketing fees and costs; direct
production costs (including overhead) and financing costs are recouped by the
producer in full.

Financing the Major Motion Picture

     Majors often produce motion pictures whose direct costs exceed $20,000,000.
In order for an Independent, such as our Company, to produce projects that
exceed their equity capabilities, they turn to various outside sources for
funding. Some of those sources, which may be used in any combination, include:
(1) foreign equity contributions, where a foreign company will exchange equity
or the guarantee thereof for the rights to distribute a motion picture in its
respective territory(s) and participation in the picture; (2) a guarantee or
advance by a distributor or exhibitor for a particular right(s) in a particular
territory(s); (3) a sales agent to garner contracts with actual exhibitors which
state minimum guarantee(s) for particular or aggregate media; (4) a bank or
lending institution will lend monies based on actual sales contract(s) which
license exhibition rights; (5) and/or a bank or lending institution which will
lend monies based on its calculations of potential earnings revenue for the
motion picture in question; and (6) by having a third party investor fund a
portion, usually from 10%% to 50% of the production costs with a participation
in the net profit of the motion picture. By combining (as necessary) the afore
mentioned outside funding sources, the Independent can create motion pictures
which meet and/or exceed the quality and scope of those created by the Major and
Mini-Major at costs which would normally exceed the Independent's possible
equity contribution.

Motion Picture Distribution

     Distribution of a motion picture involves the domestic and international
licensing of the picture for (i) theatrical exhibition, (ii) home video, (iii)
presentation on television, including pay-per-view, video-on-demand, satellites,
pay cable, network, basic cable and  syndication, (iv) non-theatrical
exhibition, which includes airlines,   hotels, armed forces facilities and
schools and (v) marketing of the other rights in the picture, which may include
books, CD-ROMs,  merchandising and soundtrack recordings.


                                        5
<PAGE>
Theatrical Distribution and Exhibition.

     Motion pictures are often exhibited first in theaters open to the public
where an admission fee is charged.  Theatrical distribution involves the
manufacture of release prints, licensing of motion pictures to theatrical
exhibitors, and promotion of the motion picture through advertising and
promotional  campaigns.  The size and success of the promotional and advertising
campaign may materially affect the revenues realized from its theatrical
release, generally referred to as "box office gross."

     Box  office gross represents the total amounts paid by patrons at motion
picture theaters for a particular film, as determined from reports  furnished by
exhibitors.  The ability to exhibit films during summer and holiday periods,
which are generally considered peak exhibition seasons, may affect the
theatrical success of a film.  Competition among distributors to obtain
exhibition dates in theaters during these seasons is significant.  In addition,
the costs incurred in connection with the distribution of a motion picture can
vary significantly depending on the number of screens on which the motion
picture is to be exhibited and whether the motion picture is exhibited during
peak exhibition season(s).  Similarly, the ability to exhibit motion pictures in
the most popular theaters in each area can affect theatrical revenues.



Exhibition arrangements with theater operators for the first run of a film
generally provide for the exhibitor to pay the greater of 90% of ticket sales in
excess of fixed amounts relating to the theater's costs of operation and
overhead, or a minimum percentage of ticket sales which varies from 40% to 70%
for the first week of an engagement at a particular theater, decreasing each
subsequent week to 25% to 30% for the final weeks of the engagement.  The length
of an engagement depends principally on exhibitors' evaluation of the audience's
response to the film with respect to the current marketplace (e.g., the success
of other films) as weighed against the opportunity cost of exhibiting a "new"
release.

Films with theatrical releases (which generally may continue for several months
domestically) typically are made available for release in other media as
follows:

<TABLE>
<CAPTION>
Market                           Months After Theatrical Release  Approximate Release Period
-------------------------------  -------------------------------  --------------------------
<S>                              <C>                              <C>
Domestic pay-per-view                               4 - 6 months        3 months
Domestic pay cable                                 6 - 12 months        12 - 21 months
Domestic home video                               10 - 12 months        12 - 24 months
Domestic network or basic cable                   30 - 36 months        18 - 36 months
Domestic syndication                              30 - 36 months        3 - 15 years
International theatrical                                     ---        4 - 6 months
International home video                           6 - 12 months        6 months
International television                          18 - 24 months        18 months - 10 years
</TABLE>


                                        6
<PAGE>
Home Video.

     The home video distribution business involves the promotion and sale of
videocassettes, DVDs and videodiscs to video retailers (including video
specialty stores, convenience stores, record stores "on-line" stores (i.e.,
Amazon.com) and other outlets), which then rent or sell the videocassettes and
videodiscs to consumers for private viewing.  The home video marketplace now
generates total revenues greater than the domestic theatrical exhibition market.

     Videocassettes of feature films are generally sold to domestic wholesalers
on a unit basis.  Unit-based sales typically involve the sales of individual
videocassettes to wholesalers or actual retailers (e.g., Blockbuster) at  $20.00
to $50.00 per unit and generally are rented by consumers for fees ranging from
$1.00 to $5.00 per day (with all rental fees retained  by the retailer).
Wholesalers who meet certain sales and performance objectives may earn rebates,
return credits and cooperative advertising allowances. Selected titles including
certain made-for-video programs, are priced significantly lower to encourage
direct purchase by consumers.  The market for direct sale to consumers is
referred to as the "priced-for-sale" or "sell-through" market.

     Technological developments, including video server and compression
technologies which regional telephone companies and others are developing, and
expanding markets for DVD and laser discs, could make competing delivery systems
economically viable and could significantly impact the home video market
generally and, as a consequence, the Company's home video revenues.

Pay-Per-View.

     Pay-per-view television allows cable and satellite television subscribers
to purchase individual programs, primarily recently released theatrical motion
pictures, sporting events and music concerts, on a "per use" basis.  The fee a
subscriber is charged is typically split among the program distributor, the pay-
per-view operator and the cable operator.

Pay Cable.

     The domestic pay cable industry (as it pertains to motion pictures)
currently consists primarily of HBO/Cinemax, Showtime/The Movie Channel,
Encore/Starz and a number of regional pay services.  Pay cable services are sold
to cable system operators for a monthly license fee based on the number of
subscribers receiving the service.  These pay programming services are in turn
offered by cable system operators to subscribers for a monthly subscription fee.
The pay television networks generally acquire their film programming by
purchasing the distribution rights from motion picture distributors.

Broadcast  and Basic Cable Television .

     Broadcast television allows viewers to receive, without charge, programming
broadcast over the air by affiliates of the major networks ( ABC, CBS, NBC, and
Fox), recently formed networks (UPN<and WB Network), independent television
stations and cable and satellite networks and stations. In certain areas,
viewers may receive the same programming via cable transmission for which
subscribers pay a basic cable television fee. Broadcasters or cable systems
operators pay fees to distributors for the right to air programming a specified
number of times.


                                        7
<PAGE>
Foreign Markets

     In addition to their domestic distribution activities, some motion picture
distributors generate revenue from distribution of motion pictures in foreign
theaters, home e video, television and other foreign markets. There has been a
dramatic increase in recent years in the world wide demand for television
stations, introduction of direct broadcast satellite services, and increased
home video and cable penetration.

Other Markets

     Revenues also may be derived from the distribution of motion pictures to
airlines, schools, libraries, hospitals and the military, licensing of rights to
perform musical works and sound recordings embodied in a motion picture, and
licensing rights to manufacture and distribute merchandise, clothing and similar
commercial articles derived from characters or other elements for a motion
picture.

New Technologies

     New means of delivery of entertainment product are constantly being
developed and offered to the consumer including internet. The impact of emerging
technologies such as direct broadcast satellites and the internet, on the
Company's operations cannot be determined at this time. However, as a holder of
entertainment copyrights, the Company monitors these new media possibilities.

Non-Theatrical Exhibition.

     In addition to the distribution media described above, a number of sources
of revenue exist for motion picture distribution through the exploitation of
other rights, including the right to distribute films to airlines, schools,
libraries, hotels, armed forces facilities and hospitals.
International Markets.

     The worldwide demand for motion pictures has expanded significantly as
evidenced by the development of new international markets and media.  This
growth is primarily driven by the overseas privatization of television stations,
introduction of direct broadcast satellite services, growth of home video and
increased cable penetration.

Company Motion Picture Acquisitions

     In addition to its own production activities, the Company continually seeks
to acquire rights to films and other programming from Independent film
producers, distribution companies and others in order to increase the number of
films it can distribute in existing and emerging delivery systems.  To be
successful, the Company must locate and track the development and production of
numerous independent feature films.


                                        8
<PAGE>
Types of Motion Pictures Acquired.

     Our Company generally seeks to  produce or acquire motion pictures across a
broad range of genres,  including drama, thriller, comedy, science fiction,
family, action and  fantasy/adventure, which will individually appeal to a
targeted  audience.  The Company has been very selective in acquiring higher
budget (over $3,000,000) films because of the interest that the Majors have
shown in acquiring such films, and the associated competition and higher
production advances, minimum guarantees and other costs.  The Company acquires
projects when it believes it can limit its financial risk on such projects
through, for example, significant presales, and when it believes that a project
has significant marketability.  In most cases, the Company attempts to acquire
rights to motion pictures with a recognizable marquis "name" personality with
public recognition, thereby enhancing promotion of the motion pictures in the
home video or international markets.  The Company believes that this approach
increases the likelihood of producing a product capable of generating positive
cash flow, ancillary rights income and the possibility of a theatrical release.

Methods of Acquisition.

     Our Company typically acquires films on either a "pick-up" basis or a
"pre-buy" basis.  The "pick-up" basis refers to those films in which the Company
acquires distribution rights following  completion of most or all of the
production and post-production  process.  These films are generally acquired
after management of the Company has viewed the film to evaluate its commercial
viability.

     The "pre-buy" basis refers to films in which the Company acquires
distribution rights prior to completion of a substantial portion of production
and post-production.  Management's willingness to acquire films on a pre-buy
basis is based upon factors generally including the track record and reputation
of the picture's producer(s), the quality and commercial value of the
screenplay, the "package" elements of the picture, including the director and
principal cast members, the budget of the picture and the genre of the picture.
Before making an offer to acquire rights in a film on a pre-buy basis, the
Company may work with the producer to modify certain of these elements.  Once
the modifications are considered acceptable, the Company's obligation to accept
delivery and make payment is conditioned upon receipt of a finished film
conforming to the script reviewed by the Company and other specifications
considered important by the Company.

Acquisition Process.

     If our Company locates a motion picture project which it believes satisfies
its criteria, the Company may pay an advance against a share or participation in
the revenue actually received by the Company from the exploitation of a film in
each licensed media (hereafter an, "Advance") or a guarantee a minimum payment
based on projected revenues actually to be received by the Company from the


                                        9
<PAGE>
exploitation of a film in each licensed media (hereafter, a "Minimum
Guarantee"), all of which are conditioned upon delivery of a completed film
which meets or exceeds certain technical standards which are pre-determined in
the distribution agreement with Company. The minimum guarantee is generally paid
prior to the film's release.  Typically, our Company will have the right to
recoup the Advance or Minimum Guarantee and certain other amounts from the
distribution revenues realized by the Company prior to paying any  additional
revenue participation to the production company.

Company Feature Film Production

     Our Company's feature film division, Emmett/Furla Films Productions
Corporation, develops and produces low to medium budget films. Our Company's low
to medium budget films to date have had production budgets ranging from less
than $1 million to $10 million, although our Company from time to time may
produce and release films having higher or much higher budgets.  Our Company's
low-budget films are primarily targeted for direct distribution to the
television and home video markets and its medium-budget films our generally
targeted for initial theatrical release.

     Our Company generally retains distribution rights through our Emmett/Furla
Films Distribution, LLC and licenses to third parties internationally.  Our
Company's films generally are distributed by third parties domestically and by
third party sales agents for international distribution.  In unique
circumstances, our Company undertakes limited domestic distribution or
co-distribution activities.

     Our Company's feature film strategy generally is to develop and produce
feature films when the production budgets for the films are expected to be
entirely or substantially covered through a combination of pre-sales, output
arrangements, equity arrangements and production loans with "gap"  financing.
To further limit our Company's financing risk or to obtain production loans, our
Company often purchases completion bonds to guarantee the completion of
production and delivery of pre-determined, technically acceptable film and/or
video elements.



The  following  films  were  either in production, completed, and/or released or
delivered  by  our Company to certain distributors in 2000, and/or scheduled for
release  in  our  Company's  fiscal  2001

<TABLE>
<CAPTION>
PICTURE              INITIAL MEDIA      DELIVERY/RELEASE     PRINCIPAL TALENT
                                        DATE
=================  ==================  ==================  =====================
<S>                <C>                 <C>                 <C>
Held For Ransom    Video/Cable         August 2000         Dennis Hopper,
                                       (foreign and        Zachery Ty Bryan,
                                       domestic)           Kam Heskin, Jordan
                                                           Brower Randy
                                                           Spelling, Tsianina
                                                           Joelson, Morgan
                                                           Fairchild
-----------------  ------------------  ------------------  ---------------------


                                       10
<PAGE>
=================  ==================  ==================  =====================
                                                           Fairchild
-----------------  ------------------  ------------------  ---------------------
After Sex          Video/Cable         August 2000         Brooke Shields,
                                       (foreign and        Virginia Madsen,
                                       domestic)           D.B. Sweeney, Dan
                                                           Cortese, Maria
                                                           Pitillo, Johnathon
                                                           Schaech
-----------------  ------------------  ------------------  ---------------------
I'm Over Here Now  Pay-pre-            March 2000          Andrew "Dice" Clay
                   View/Video
-----------------  ------------------  ------------------  ---------------------
Good Advice        Video/Cable         March 2001          Charlie Sheen,
                                       delivery date.      Angie Harmon,
                                       December 2001       Denise Richards,
                                       release date.       Rosanna Arquette,
                                       (Domestic)          & Jon Lovitz
-----------------  ------------------  ------------------  ---------------------
Ticker             Video/Cable         March 2001          Tom Sizemore,
                                       delivery date.      Steven Seagal,
                                       December 2001       Jamie Pressly, &
                                       (Domestic release)  Dennis Hopper
-----------------  ------------------  ------------------  ---------------------
Behind the Sun     Theatrical          December 2001       Billy Bob Thornton,
                                                           Patricia Arquette, &
                                                           Seal Ward
-----------------  ------------------  ------------------  ---------------------
In God We Trust    Theatrical          December 2001       Christian Slater, Val
                                       (Delivery date)     Kilmer, Daryl
                                       To be released in   Hannah, Bokeem
                                       2002                Woodbine, & Vern
                                                           Troyer
-----------------  ------------------  ------------------  ---------------------
Narc               Theartical          October 2001        Ray Liotta, Jason
                                       (delivery date)     Patric, Busta
                                       To be released in   Rhymes
                                       2002
-----------------  ------------------  ------------------  ---------------------
-----------------  ------------------  ------------------  ---------------------
</TABLE>

     There is no assurance that any motion picture, which has not yet been
released, will be released, that a change in the scheduled release dates of any
such films will not occur or, if such motion picture is released, it will be
successful.  Our Company has various additional potential feature films under
development.  There is no assurance that any project under development will be
produced.

Employees

     As of June 30, 2001, our Company had 8 full-time employees, 6 of whom were
engaged in development, production and distribution of theatrical based motion
pictures.   None of our Company's employees are covered by a collective
bargaining agreement, although some of our Company's subsidiaries are subject to
guild agreements.  Management believes that its employee relations are good.


                                       11
<PAGE>
ITEM 2.     PROPERTIES

     Our  Company  leases  approximately 1785 square feet of office space at The
Lot,  1041 North Formosa Avenue, Mary Pickford Building, Suite 101, Los Angeles,
California.  The  lease  is month to month with approximate monthly payment of $
5,200  Effective July 2001 we reduced our rental space and the lease was reduced
to  $  4,600  per  month

ITEM 3.     LEGAL PROCEEDINGS

     Our Company is no a party to any material pending legal proceedings and, to
the best of our knowledge, no such action by or against the Company has been
threatened

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

     There were no matters that were submitted to a vote by our Company's
security holders during the fiscal year.

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock trades on the Over-the Counter Bulletin Board, also called
the OTCBB, under the trading symbol "FMLY".  The following table set forth the
quarterly high and low bid prices per share for our common stock.  The bid
prices reflect inter-dealer prices, without retail markup, markdown, or
commission and may not represent actual transactions.

                    HIGH    LOW
                     BID    BID
                    -----  -----
Fiscal 1999
-----------
September 30, 1998  $0.17  $0.06
December 31, 1998   $0.12  $0.10
March 31, 1999      $0.12  $0.08
June 30, 1999       $0.12  $0.08

Fiscal 2000
-----------
September 30, 1999  $0.17  $0.10
December 31, 1999   $0.12  $0.10
March 31, 2000      $0.12  $0.18
June 30, 2000       $1.50  $1.50  (reflects ten to one reverse split)

Fiscal 2001
-----------
September 30, 2000  $2.25  $1.12
December 31, 2000   $3.12  $1.37
March 31, 2001      $1.87  $0.43
June 30, 2001       $1.57  $0.60


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<PAGE>
To date, the Company has not declared or paid dividends on its common stock.

     As  of  June 30, 2001, there were approximately 1119 shareholders of record
of  the  company's  Common  Stock.

Recent Sales of Unregistered Securities
---------------------------------------

     During March through April, 2000, the Company issued 5,160,000 restricted
shares of the Company's common stock to various investors pursuant to the
exemption to registration provided under Rule 505 of Regulation D of the
Securities Act of 1933, as amended.   These shares were sold at $.50 per share
(sale price was arbitrarily set by the Company's management).  The Company
received gross proceeds of $2,580,000 from the offering.

Transfer Agent and Registrar
----------------------------

     The Company's transfer agent is Securities Transfer Corporation, 2591
Dallas Parkway, Suite 102, Frisco, Texas, 75034.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Plan of Operation
-----------------

The short-term objectives of the Company are the following:

     1.     To produce moderate cost movies in the $5 to $25+ million range,
plus independent family oriented project in the $1 to $10 million range.

The Company's long-term objectives are as follows

     1.   To build a film library from which our Company can earn revenue from.
     2.   Continue producing films with high profile talent.
     3.   Produce films with commercial studios.

     Additionally Family Room Entertainment Corporation's, through its Emmett
Furla Film Productions Corp., business plan emphasized the expansion of film
project development along with acquisitions and beginning of new productions for
the fiscal year 2002.   Recent developments include the following:

     -    April 04, 2001 - Emmett/Furla Films announces their ten picture
          non-exclusive distribution/financing arrangement with Millennium
          Films. Under that arrangement is 'In God We Trust,' currently in
          production, starring Christian Slater, Val Kilmer, Daryl Hannah,
          Bokeem Woodbine and Vern Troyer. Peter Antonijevic ('Savior,' starring
          Dennis Quaid) is helming the project. Also falling under this
          arrangement is the recently wrapped 'Behind the Sun' by
          writer/director Robby Henson. Billy Bob Thornton and Patricia Arquette
          star in this dark, twisting tale of corruption and love in backwoods
          of Louisiana.


<PAGE>
     -    May 30, 2001 - Emmett/Furla Films announces their partnership with
          Gotham-based production company Bigel/Mailer Films on the motion
          picture project 'The Night Job.' Michael Mailer and Daniel Bigel will
          produce the picture along with Randall Emmett and George Furla, who
          will exec produce. Mercy Santos and M. Dal Walton, III will
          co-executive produce.


                                       13
<PAGE>
     'The Night Job,' based on an original screenplay by James O'Hanlon, is the
story of an ex-con out on parole who is drawn back into the life he left behind
by a crooked cop trying to corner a flamboyant mobster who is running an
international art smuggling ring. This tale of one man's murder, one woman's
lust, another man's betrayal and their violent redemption is set against the
ominous skyline of New York City at night.

     Dennis Hopper is set to direct and star as the cop, with Val Kilmer set to
play the mobster. Hopper has appeared in more than one hundred movies, including
the classic 'Easy Rider,' which he also directed. Other directorial efforts
include 'Colors' with Sean Penn and Robert Duvall. Kilmer, whose credits include
'The Doors' and 'Red Planet,' will next star in Warner Brothers' 'The Salton
Sea' with Vincent D'Onofrio.

     Family Room Entertainment has financed operations through the sale of
common stock and through financing from financial institutions.  In the near
term, it is anticipated that our film financing will be entirely through outside
sources to sustain our operations.  In fiscal year 2000 we raised approximately
$1,374,000 in the third quarter ending March 31, 2000 and $1,200,000 in the
fourth quarter June 30, 2000 from a private placement of our common stock to
qualified investors and current major shareholders.  For the fiscal year 2001,
Family Room obtained approximating $600,000 in the aggregate in debt financing
from outside funding.  Of this, $250,000 of debt has been retired.

     Our capital requirements will depend on numerous factors, including the
profitability of our film projects and our ability to control costs.  We believe
that our current assets will be sufficient to meet our operating expenses and
capital expenditures to the successful commercialization of our existing film
projects.  However, we cannot predict when and if any additional capital
contributions may be needed and we may need to seek one or more substantial new
investors.  New investors could cause substantial dilution to existing
stockholders.

RESULTS OF OPERATIONS
---------------------

Year Ended June 30, 2001 Compared to Year Ended June 30, 2000
-------------------------------------------------------------

      During the year ended June 30, 2001  our company generated revenue
of$6,440,748 as compared to $679,188  for the  year ended June 30, 2000. The
significant increase  in our  fiscal 2001 revenues  was a direct result of
domestic and foreign quarantees of $4,500,000 that we receivedon  a theatrical
motion picture that our company completed and delivered in 2001. Our company did
not engage in any large motion picture projects in 2000 because we did not enter
the motion picture business until February 2000. Substantially all of our  film


                                       14
<PAGE>
revenue in 2000 were derived from  profit participation in motion pictures
produced by other companies  for  domestic theatrical, home video, cable and
foreign markets of $489,532 . We generated the remaining $1,703,539  of fiscal
2001 revenue  from producer feesand production and rechargeable overhead fees.
These sources produced revenue of only   $189,656 during fiscal 2000.

     Our company's operating Costs for the year ended June 30, 2001 were $
5,516,565 as compared to $348,749 for the year ended June 30, 2000 .  Our
Company's operating costs consis solely of film cost amortization and write
offs. Film cost amortization and write-offs were significantly higher in fiscal
2001 than in 2000 because we completed and delivered a major motion picture in
2001 and we wrote-off film projects that we believed were of no future value .
Our company's gross profit for fiscal year 2001 was $924,183 as compared to
$330,439 for fiscal year 2000 . The increase in our grossprofit was a direct
result of the  of the success of  certain of our film projects.

     Our company's selling, general administrative expenses for fiscal year 2001
were $646,535 as compared to $330,498 for fiscal 2000. Our costs for fiscal 2001
consisted primarily of salaries and benefits of $266,884, rent and occupancy
costs of $ 77,041 , general advertising and promotion costs of $144,887
entertainment and travel of $ 35,407 , communications costs of $ 75,358 ,
messenger and fright costs of $13,082, other general and administrative costs of
$213,876 , and the reversal/adjustment of the allowance for doubtful account
receivable of $(180,000); as compared to costs for fiscal 2000 consisting of
salaries and benefits of $46,000, rent and occupancy cost of $20,000, general
advertising of $8,400, entertainment and travel of $20,000, communications of
$20,000, messenger service of $10,000, provision for doubtful accounts of
$180,000 with the remaining $18,000 made up of general office expenses and
supplies.

      Our company's net income  from continuing operations in fiscal 2001
was$64,348 as compared to $8,987 for fiscal 2000. For fiscal 2001 there was no
loss related to discontinued operations ; however for fiscal 2000 there was an
offsetting  $(66,957) loss from discontinued operations resulting in a net loss
of $ (57,970) for fiscal 2000.

     LIQUIDITY AND CAPITAL RESOURCES:
     -------------------------------

     Our company use of net cash used in operating activities in fiscal 2001
amounted to $530,752. The use of cash for fiscal year 2001 is mainly
attributable to additions in film costs of $3,391,000, increase in accounts
receivables of $434,955, decrease in accounts payable of $2,192,007 offset by
and increase in film cost amortization of $5,516,565, with miscellaneous items
making up the difference.

     Net cash used in investing activities for fiscal year 2001 amounted to
$473,155 as compared to $1,332,451 in fiscal year 2000.


                                       15
<PAGE>
     Financing activities used net cash of $34,237 in fiscal 2001 compared with
generating cash of $3,939,782 in fiscal year 2000.  The decrease in fiscal 2001
was attributable to no need to sell shares of common stock for funds

     There is no expected or planned sale of significant equipment by the
company.  The Company's work force is expected to remain at the same level over
the next twelve months.

ITEM 7.     FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----
<S>                                                                                <C>
INDEX TO AUDITED FINANCIAL STATEMENTS


Independent Auditors' Report                                                          2

Consolidated Balance Sheets as of June 30, 2000 and 1999                              3

Consolidated Statements of Loss for the years ended June 30, 2000 and 1999            4

Consolidated Statement of Stockholders' Equity (Deficit) and Comprehensive Income
 For the years ended June 30, 2000 and 1999                                           5

Consolidated Statements of Cash Flows for the years ended June 30, 2000 and 1999      6

Notes to Consolidated financial Statements                                            7
</TABLE>


ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable


                                       16
<PAGE>
                                    PART III


ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The following table sets forth the names, ages and all positions with our
Company currently held by each person who may be deemed an executive officer of
our Company. Executive officers serve at the discretion of the Board of
directors.      Unless otherwise noted, all references to our Company include
Family Room Entertainment Corporation and all its wholly owned subsidiaries:

     The following table sets forth the directors and executive officers of the
Company

Name                       Age                Executive Position Held
----                       ---                ----------------------------
George Furla               41                 Co-Chairman, Chief Executive
                                                Officer and President

Randall Emmett             30                 Co-Chairman, Chief Operating
Officer and Secretary

Peter Benz                 41                 Treasurer

Randall Emmett - Co-Chairman  Mr. Emmett has extensive experience in the
----------------------------
entertainment and film industry.  He began his career with Simpson/Bruckheimer
Films as an Assistant to the Producer after graduating from the New York School
of Visual Arts in 1994.  While at Simpson/Bruckheimer, Randall worked on film
projects such as "Bad Boys" and "Crimson Tide".  Randall later worked for
International Creative Management ("ICM") as an Assistant within the Motion
Picture Talent Division.  Mr. Emmett jointly formed the current production
company in 1998 and is principally responsible for talent, agency relationships
and has joint responsibility for concept development.

George Furla - Co-Chairman  Mr. Furla has over 18 years of business experience
--------------------------
in entertainment and financial services. He began his business career with
Cantor Fitzgerald where he was a trader in the equity securities area. After
spending several years with Cantor Fitzgerald, George then worked for Jones and
Associates for 3 years in a similar capacity. In 1988, Mr. Furla left Jones and
Associates to run a hedge fund which he established. Mr. Furla entered the film
business in 1995, financing several productions. George formed the current
production company in 1998 and is principally responsible for financing
arrangements, distribution and has joint responsibility for concept development.
Mr. Furla is a 1982 graduate of the University of Southern California with a
degree in business administration.

Peter T. Benz - Treasurer     Mr. Benz has over 15 years experience in the areas
-------------------------
of investment banking and advisory services.   Mr. Benz is the founding
principal and President of Bi Coastal Consulting, a company founded in 1986 to
work with small growth companies in the areas of financing, mergers/acquisition,


                                       17
<PAGE>
funding strategy and general corporate development.  Prior to founding Bi
Coastal Consulting, Mr. Benz worked at Gilford Securities where he was
responsible for Private Placements and Investment Banking activities.  Mr. Benz
has also founded three public companies and has served as a Director of four
other public companies.  Mr. Benz is a graduate of Notre Dame University.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.  Officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.

     To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the company and written representations that no other
reports were required during the fiscal year ended June 30, 2000, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.

ITEM  10.     EXECUTIVE COMPENSATION

     The following table sets forth certain summary information regarding
compensation paid by our Company for services rendered during the fiscal years
ended June 30, 2001 and 2000, respectively, to our Company's Chief Executive
Officer, President and Chief Financial Officer during such period.

<TABLE>
<CAPTION>
                             EXECUTIVE COMPENSATION

                                                                  Long Term Compensation
                        Annual Compensation                                Awards
 Payouts
                 ----------------------------------         ------------------------------------
(a)               (b)       (c)       (d)       (e)         (f)        (g) (3)     (h)          (I)
<S>              <C>    <C>          <C>     <C>        <C>          <C>          <C>         <C>
Name                                         Other (2)               Securities               All
and                                          Annual     Restricted   Underlying               Other
Principal                                    Compen     Stock        Options/     LTIP        Compen
Position         Year   Salary (1)   Bonus   sation($)  Award($)     Sar (#)      Payouts($)  sation ($)
President/CEO     2001  $         0       0          0           0            0            0           0
Secretary         2001            0       0          0           0            0            0           0
Director          2001            0       0          0           0            0            0           0
Key Personnel:    2001            0       0          0           0            0            0           0
Total:                  $         0       0          0           0            0            0           0
Directors as a
Group                   $         0       0          0           0            0            0           0
<FN>
(1)  There  are  no  existing employment agreements between the officers and the
     Company.
(2)  Executive  Officers  are  not  collecting  any  salary  at  this  time.
</TABLE>


                                       18
<PAGE>
<TABLE>
<CAPTION>
Options/Share Grants in Last Fiscal Year
----------------------------------------

                         Number of     % of Total
                         Securities   Options/SARS
                         Underlying    Granted to
                        Options/SARS  Employees in    Exercise or Base
NAME                      GRANTED      FISCAL YEAR      PRICE ($/SH)     EXPIRATION DATE
----------------------  ------------  -------------  ------------------  ---------------
<S>                     <C>           <C>            <C>                 <C>
George Furla, Co -CEO        300,000          18.4%  $             0.50         12/15/10
Randall Emmett, Co-CEO       300,000          18.4%                0.50         12/15/10
Peter Benz, Treasurer        300,000          18.4%                0.50         12/15/10
</TABLE>

Aggregated Option/Sar Exercises
-------------------------------

None exercised

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of our Company's Common Stock as of June 30, 2001 based on information
available to our Company by (I) each person who is known by our Company to own
more than 5% of the outstanding Common Stock based upon reports filed by such
persons within the Securities and Exchange Commission; (ii) each of our
Company's directors; (iii) each of the Named Executive Officers; and (iv) all
officers and directors of our Company as a group.


<TABLE>
<CAPTION>
Name and Address of                        Number of Shares
  Beneficial Owner                       Beneficially Owned(1)  Percentage
---------------------------------------  ---------------------  ----------
<S>                                      <C>                    <C>
George Furla
The Lot, Mary Pickford Bldg., Suite 101
1041 North Formosa Ave.
Hollywood, CA.   90046                               6,502,334      35.54 %

Randall Emmett
The Lot, Mary Pickford Bldg., Suite 101
1041 North Formosa Ave.
Hollywood, CA.   90046                               4,268,999      23.40 %

Peter Benz
543 Virginia Avenue
San Mateo, CA.  94402                                2,638,999      14.46 %
                                         ---------------------  -----------

     Total                                          13,410,333      73.50 %
---------------------------------------  ---------------------  -----------
</TABLE>


                                       19
<PAGE>
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     As at June 30, 2000 George Furla has loaned the Company under a Convertible
Note Payable amounting to $350,000 (see Note 8 of Notes to Financial
Statements). Subsequently to June 30, 2000 George Furla has loaned the Company
approximately an additional $850,000 under a Convertible Notes Payable.

As of June 30, 2001 George Furla's loan to Family Room had a outstanding balance
of $98,263.   This note was amended to be non convertible. (see Note 8 of Notes
to Financial Statements)


                                       20
<PAGE>
ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K


2.1  *    Asset Purchase Agreement between the Company and George Furla
          ("Furla"), Randall Emmett ("Emmett"), Emmett/Furla Films, a California
          general partnership ("EF Films"), and Randall Emmett Films, Inc. a
          California corporation ("RE FILMS") (all of whom are collectively
          referred to as the "Seller" or "Sellers").
2.2  *    Asset Purchase Agreement between the Company and COBB Resources
          corporation, a Texas corporation.
2.3  *    Security Purchase Agreement between George Furla, Peter Benz and
          Randall Emmett and Charles Cobb.
3.1  **   Articles of  Incorporation  as  amended
3.2  **   Bylaws
_______________________
    *     Incorporated by reference to the Company's Annual Report on Form
          8-K/A Amendment Number One filed with the Commission on May 18, 2000.
   **     Incorporated by reference to the Company's Annual Report on Form 10-K
          Amendment Number One for the fiscal year ended June 30, 1997, as filed
          with the Commission on July 16, 1998.


                                       21
<PAGE>
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

               Family Room Entertainment Inc.
               By:  /s/  George Furla
                    -----------------
                    George Furla
                    Director, Chief Executive Officer,
                    President and Chief Accounting Officer

                    Date September 28, 2001


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
<S>                  <C>                                     <C>
/s/ George Furla     Director, Chief Executive Officer,      September 28, 2001
-------------------  President and Chief Accounting Officer
    George Furla

/s/ Randell Emmett   Director                                September 28, 2001
-------------------
    Randell Emmett

/s/ Peter Benz       Director                                September 28, 2001
-------------------
    Pete Benz
</TABLE>


                                       22
<PAGE>




                      FAMILY ROOM ENTERTAINMENT CORPORATION
                                   __________




                        CONSOLIDATED FINANCIAL STATEMENTS
                     WITH REPORT OF INDEPENDENT ACCOUNTANTS
                   FOR THE YEARS ENDED JUNE 30, 2001 AND 2000




                                       F-1
<PAGE>
<TABLE>
<CAPTION>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
                                TABLE OF CONTENTS
                                   __________



                                                         PAGE(S)
                                                         -------
<S>                                                      <C>
Report of Independent Accountants                           F-3

Audited Financial Statements

  Consolidated Balance Sheet as of June 30, 2001
    and 2000                                                F-4

  Consolidated Statement of Operations for the
    years ended June 30, 2001 and 2000                      F-5

  Consolidated Statement of Stockholders' Equity
    for the years ended June 30, 2001 and 2000              F-6

  Consolidated Statement of Cash Flows for the
    years ended June 30, 2001 and 2000                      F-7

Notes to Consolidated Financial Statements                  F-8
</TABLE>


                                       F-2
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ---------------------------------



To the Stockholders and Board of Directors
Family Room Entertainment Corporation:


We  have  audited  the  accompanying balance sheets of Family Room Entertainment
Corporation  (the  "Company")  as  of  June  30,  2001 and 2000, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended.  These  financial  statements  are  the  responsibility  of the Company's
management.  Our  responsibility  is  to  express  an opinion on these financial
statements  based  on  our  audits.

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

In  our  opinion,  the financial statements referred to above present fairly, in
all  material  respects,  the  financial  position  of Family Room Entertainment
Corporation  as of June 30, 2001 and 2000, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally  accepted  in  the  United  States  of  America.

                                             /s/ Ham, Langston & Brezina, L.L.P.


Houston, Texas
September 10, 2001


                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 2001 AND 2000
                                    ________



     ASSETS                                     2001          2000
     ------                                 ------------  ------------
<S>                                         <C>           <C>
Cash and cash equivalents                   $   332,593   $ 1,370,737
Marketable equity securities                    954,175             -
Accounts receivable, net                        152,552       491,772
Restricted certificate of deposit                     -     1,200,000
Notes receivable                                478,500             -
Film costs, net                               2,861,998     4,987,388
Property and equipment, net                      58,938        54,386
Prepaid expenses and other                       51,881             -
                                            ------------  ------------

      Total assets                          $ 4,890,637   $ 8,104,283
                                            ============  ============


LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Notes payable                               $   423,263   $ 1,423,152
Accounts payable and accrued liabilities        117,625     2,309,632
Income tax payable                                6,500             -
                                            ------------  ------------

    Total liabilities                           547,388     3,786,784
                                            ------------  ------------

Commitments and contingencies

Stockholders' equity:
  Preferred stock; $.01 par value;
    5,000,000 shares authorized; no shares
    issued and outstanding                            -             -
  Common stock; $.01 par value; 25,000,000
    shares authorized; 18,245,487 shares
    issued and outstanding                    1,824,549     1,824,549
  Additional paid in capital                  9,157,172     9,197,770
  Deferred compensation                         (52,000)            -
  Accumulated deficit                        (6,586,472)   (6,650,820)
                                            ------------  ------------

    Total stockholders' equity                4,343,249     4,371,499
                                            ------------  ------------

      Total liabilities and stockholders'
        equity                              $ 4,890,637   $ 8,104,283
                                            ============  ============
</TABLE>


                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       F-4
<PAGE>
<TABLE>
<CAPTION>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
                                   __________


                                                   2001          2000
                                               ------------  -----------
<S>                                            <C>           <C>

Revenue:
  Film revenue                                 $ 6,203,539   $  489,532
  Overhead fees                                    237,209      189,656
                                               ------------  -----------

    Total revenue                                6,440,748      679,188

Operating cost - amortization of film costs      5,516,565      348,749
                                               ------------  -----------

      Gross profit                                 924,183      330,439

Selling, general and administrative                646,535      331,498
                                               ------------  -----------

      Income (loss) from operations                277,648       (1,059)
                                               ------------  -----------

Other income and expenses:
  Interest income                                   58,768       10,046
  Interest expense                                (265,568)           -
                                               ------------  -----------

    Total other income (expense), net             (206,800)      10,046
                                               ------------  -----------

    Income from continuing operations before
      provision for income taxes                    70,848        8,987

Provision for income taxes                           6,500            -
                                               ------------  -----------

    Income before loss from operations of
      discontinued business segment                 64,348        8,987

Loss from operation of discontinued business
  segment                                                -      (66,957)
                                               ------------  -----------

      Net income (loss)                        $    64,348   $  (57,970)
                                               ============  ===========

Weighted average number of common shares
  outstanding:
  Basic                                         18,245,487    7,082,674
                                               ============  ===========

  Fully diluted                                 18,741,112    7,082,674
                                               ============  ===========

Net income (loss) per common share-(basic
  and fully diluted):
  Continuing operations                        $      0.00   $     0.00
  Discontinued operations                                -        (0.01)
                                               ------------  -----------

    Net income (loss)                          $      0.00   $    (0.01)
                                               ============  ===========
</TABLE>


                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       F-5
<PAGE>
<TABLE>
<CAPTION>
                                              FAMILY ROOM ENTERTAINMENT CORPORATION
                                         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                           FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
                                                           __________


                                         COMMON STOCK         ADDITIONAL
                                 --------------------------    PAID-IN        DEFERRED     ACCUMULATED    TREASURY
                                    SHARES        AMOUNT       CAPITAL      COMPENSATION     DEFICIT        STOCK       TOTAL
                                 -------------  -----------  ------------  --------------  ------------  ----------  -----------
<S>                              <C>            <C>          <C>           <C>             <C>           <C>         <C>
Balance at June 30, 1999              853,427   $   85,343   $ 6,924,255   $           -   $(6,592,850)  $       -   $  416,748

Sale of assets in exchange for
  treasury stock                            -            -             -               -             -    (338,839)    (338,839)

Cancellation of treasury stock       (175,000)     (17,500)     (321,339)              -             -     338,839            -

Issuance of common stock to
  purchase film projects           12,407,060    1,240,706       596,294               -             -           -    1,837,000

Sale of common stock in a pri-
  vate placement for $0.50 per
  share                             5,160,000      516,000     2,064,000               -             -           -    2,580,000

Syndication costs in connection
  with private placement                    -            -      (206,000)              -             -           -     (206,000)

Value of conversion feature at-
  tached to convertible debt                -            -       140,560               -             -           -      140,560

Net loss                                    -            -             -               -       (57,970)          -      (57,970)
                                 -------------  -----------  ------------  --------------  ------------  ----------  -----------

Balance at June 30, 2000           18,245,487    1,824,549     9,197,770               -    (6,650,820)          -    4,371,499

Cancellation of conversion
  feature attached to conver-
  tible debt                                -            -      (126,848)              -             -           -     (126,848)

Issuance of compensatory stock
  options                                   -            -        86,250         (52,000)            -           -       34,250

Net income                                  -            -             -               -        64,348           -       64,348
                                 -------------  -----------  ------------  --------------  ------------  ----------  -----------

Balance at June 30, 2001           18,245,487   $1,824,549   $ 9,157,172   $     (52,000)  $(6,586,472)  $       -   $4,343,249
                                 =============  ===========  ============  ==============  ============  ==========  ===========
</TABLE>


                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                       F-6
<PAGE>
<TABLE>
<CAPTION>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED JUNE 30, 2001 AND 2000

                                   ___________


                                                          2001          2000
                                                      ------------  ------------
<S>                                                   <C>           <C>
Operating activities:
  Net income (loss)                                   $    64,348   $   (57,970)
  Adjustment to reconcile net loss to net cash
    used by operating activities:
    Loss from operation of discontinued
      business segment                                          -        66,957
    Compensatory stock options                             34,250             -
    Film cost amortization                              5,516,565       348,749
    Depreciation                                            6,374         1,263
    Software amortization                                  12,229         1,802
    Provision for doubtful accounts                      (180,000)      180,000
    Amortization of debt costs                            107,500        13,712
    Change in operating assets and liabilities:
      Increase in accounts receivable                    (434,955)     (671,772)
      Increase in accrued interest receivable             (28,500)            -
      Increase in prepaid expenses and other assets       (51,881)            -
      Additions to film costs                          (3,391,175)   (3,410,425)
      Increase (decrease) in accounts payable and
        accrued liabilities                            (2,192,007)    2,309,632
      Increase in income taxes payable                      6,500             -
                                                      ------------  ------------

        Net cash used by continuing operations           (530,752)   (1,218,052)
        Net cash used by discontinued operations                -       (89,448)
                                                      ------------  ------------

          Net cash used by operating activities          (530,752)   (1,307,500)
                                                      ------------  ------------

Investing activities:
  Purchase of film projects at inception                        -       (75,000)
  Investment in notes receivable                         (450,000)            -
  Purchase of property and equipment                      (23,155)      (57,451)
  Purchase of certificate of deposit                            -    (1,200,000)
                                                      ------------  ------------

          Net cash used by investing activities          (473,155)   (1,332,451)
                                                      ------------  ------------

Financing activities:
  Proceeds from notes payable and revolving
    line of credit                                      3,567,000     1,550,000
  Proceeds from sale of common stock                            -     2,580,000
  Syndication costs incurred in connection
    with sale of common stock                                   -      (206,000)
  Principal payment on note payable and revolving
    line of credit                                     (3,601,737)            -
  Cash paid for treasury stock                                  -        15,782
                                                      ------------  ------------

          Net cash provided by (used by)
            financing activities                          (34,237)    3,939,782
                                                      ------------  ------------

Increase (decrease) in cash and cash equivalents       (1,038,144)    1,299,831

Cash and cash equivalents at beginning of period        1,370,737        70,906
                                                      ------------  ------------

Cash and cash equivalents at end of period            $   332,593   $ 1,370,737
                                                      ============  ============
</TABLE>


                   The accompanying notes are an integral part
                   of these consolidated financial statements
                                       F-7
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   THE COMPANY
     -----------

     Family  Room  Entertainment  Corporation  (the  "Company"),  a  New  Mexico
     corporation,  is  a  motion  picture  company  involved  in  the  creative
     development,  production,  distribution,  licensing and financing of motion
     pictures  and the internet content that supports those motion pictures. The
     Company's  distribution  markets  include  primarily  the United States and
     Canadian  domestic  markets,  but  extend  to  other markets worldwide. The
     significant  business  activities  of  the  Company constitute one business
     segment,  filmed  entertainment.


2.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
     ----------------------------------------------

     PRINCIPLES  OF  CONSOLIDATION
     -----------------------------

     The  consolidated  financial statements include the accounts of the Company
     and  its  wholly-owned  subsidiaries. All significant intercompany balances
     and  transactions  have  been  eliminated.

     UNCLASSIFIED  CONSOLIDATED  BALANCE  SHEET
     ------------------------------------------

     In  accordance  with  the  provisions  of  Statement of Position 00-2 ("SOP
     00-2"),  the  Company  has  elected to present an unclassified consolidated
     balance  sheet  because the Company has an operating cycle of approximately
     three  years.

     ACCOUNTING  ESTIMATES
     ---------------------

     The  preparation  of  financial  statements  in  conformity  with generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that  affect the reported amount of assets and liabilities and
     disclosure  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 these
     estimates.

     REVENUE  RECOGNITION
     --------------------

     Revenue  from  the  distribution of motion pictures is recognized as earned
     under  the criteria established by SOP 00-2. The Company's revenue cycle is
     generally  one  to three years, with the expectation that substantially all
     revenue  will  be  recognized  in  the  first  two  years  of the company's
     individual  motion  pictures.  In  accordance  with  SOP  00-2, the Company
     considers  revenue  earned  when  all  of  the  following  have  occurred:


                                       F-8
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                                   __________

2.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES,  CONTINUED
     ----------------------------------------------------------

     REVENUE  RECOGNITION,  CONTINUED
     --------------------------------

     -    The  Company  has  a  valid  sale  or  licensing  agreement  in place.
     -    The  motion  picture  is complete and in accordance with the agreement
          with  the  customer.
     -    The motion picture has been delivered or is deliverable.
     -    The license period has begun.
     -    The  revenue  is  fixed  or  determinable and collection is reasonably
          assured.

     FILM  COSTS
     -----------

     Film  costs include costs to acquire, develop and/or produce feature motion
     pictures:  mainly  salaries,  equipment,  overhead, participation costs and
     exploitation  costs. Production costs in excess of reimbursable amounts are
     capitalized. Once a film is released, any film production costs capitalized
     is  amortized  in  the proportion that the revenue during the year for each
     film  bears  to the estimated revenue to be received from all sources under
     the  individual  film forecast method. Estimates of anticipated total gross
     revenues  are reviewed periodically and revised when necessary. Unamortized
     film production costs are compared with net realizable value each reporting
     period  on  a  film-by-film  basis.  If  estimated  gross  revenues are not
     sufficient  to  recover  the  unamortized  film  production  costs,  the
     unamortized  film  production costs are written down to their estimated net
     realizable  value.

     CASH  EQUIVALENTS
     -----------------

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


                                       F-9

<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES,  CONTINUED
     ----------------------------------------------------------

     MARKETABLE  EQUITY  SECURITIES
     ------------------------------

     The Company has classified all marketable equity securities for which there
     is  a  determinable  fair market value and there are no restrictions on the
     Company's  ability  to  sell  the security within the next twelve months as
     available-for-sale.  In  accordance  with  the  provisions  of  Financial
     Accounting  Standards  Board  ("FASB")  Statement  No. 115, "Accounting for
     Certain  Investments  in  Debt  and  Equity Securities", available-for-sale
     securities  are  carried  at  fair  value, with unrealized gains and losses
     reported  as a separate component of stockholders' equity net of applicable
     income  taxes. Realized gains and losses and declines in value deemed to be
     other-than-temporary on available-for-sale securities are included in other
     income.  The cost basis for realized gains and losses on available-for-sale
     securities is determined on a specific identification basis. As of June 30,
     2001,  the Company's investment in available-for-sale securities had a fair
     market  value  that  approximated  cost.

     PROPERTY  AND  EQUIPMENT
     ------------------------

     Property  and  equipment  are  stated at cost. Depreciation of property and
     equipment  is  calculated  using  the  straight-line  method over estimated
     useful  lives  ranging  from  three  to  five  years.  These  assets  are
     periodically  reviewed  for  impairment  whenever  changes in circumstances
     indicate  that  the  carrying  amount  of the asset may not be recoverable.
     Impaired  assets  and assets to be disposed of are reported at the lower of
     carrying  values  or  fair  values,  less  costs  of  disposal.

     INCOME  TAXES
     -------------

     The Company uses the liability method of accounting for income taxes. Under
     this  method,  deferred  income  taxes  are  recorded  to  reflect  the tax
     consequences on future years of temporary differences between the tax basis
     of  assets  and  liabilities  and  their financial amounts at year-end. The
     Company  provides  a  valuation  allowance to reduce deferred tax assets to
     their  net  realizable  value.

     INTEREST
     --------

     Costs  associated  with  the  maintenance of debt are charged to expense or
     capitalized  to  the  extent  debt  is  used  for  productions.


                                      F-10
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES,  CONTINUED
     ----------------------------------------------------------

     ADVERTISING  COSTS
     ------------------

     All  costs  related  to  general  advertising  are  charged  to  expense as
     incurred.  During  the  years  ended  June  30,  2001 and 2000, the Company
     incurred  general  advertising  costs  totaling  $1,830  and  $8,409,
     respectively.

     NET  LOSS  PER  COMMON  SHARE
     -----------------------------

     Basic loss per common share amounts is based on the weighted average number
     of  common  shares outstanding during the respective periods. Dilutive loss
     per  common  share  amounts  is based on the weighted average common shares
     outstanding  during the period and shares assumed issued upon conversion of
     stock  options when the effect of such conversions would have been dilutive
     to  net  loss.  There is no assumed conversion of stock options for 2000 as
     the  effect  would  be  anti-dilutive.

     STOCK-BASED  COMPENSATION
     -------------------------

     Stock-based  compensation is accounted for using the intrinsic value method
     prescribed  in  Accounting  Principles  Board  Opinion  ("APB")  No.  25,
     "Accounting  for  Stock Issued to Employees", rather than applying the fair
     value  method  prescribed  in  Statement  of Financial Accounting Standards
     ("SFAS")  No.  123,  "Accounting for Stock-Based Compensation". The Company
     applies  the  disclosure  only  provisions  of  SFAS  No.  123.

     COMPREHENSIVE  INCOME
     ---------------------

     In  June  1997,  the FASB issued SFAS 130, "Reporting Comprehensive Income"
     ("SFAS 130") which establishes standards for the reporting of comprehensive
     income  and  its  components  in financial statements. Comprehensive income
     consists  of  net income and other gains and losses affecting stockholder's
     equity  that,  under generally accepted accounting principles, are excluded
     from  net  income,  such  as  unrealized  gains  and  losses on investments
     available  for  sale,  foreign  currency  translation  gains and losses and
     minimum  pension liability. For the years ended June 30, 2001 and 2000, the
     Company's financial statements include none of the additional elements that
     affect  comprehensive  income.  Accordingly,  net  income and comprehensive
     income  are  identical.


                                      F-11

<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
     -----------------------------------------------------

     RECLASSIFICATIONS
     -----------------

     Certain  amounts  included  in  the financial statements for 2000 have been
     reclassified  to  conform  to  2001  financial  statement  presentation.

     FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS
     ---------------------------------------

     The  Company  includes fair value information in the notes to the financial
     statements  when  the  fair value of its financial instruments is different
     from  the  book  value.  When  the  book  value approximates fair value, no
     additional  disclosure  is  made.

     CONCENTRATION  OF  CREDIT  RISK
     -------------------------------

     Cash,  accounts  receivable  and notes receivable are the primary financial
     instruments  that subject the Company to concentrations of credit risk. The
     Company  maintains  its  cash  in  banks  selected  based upon management's
     assessment of the bank's financial stability. Balances generally exceed the
     $100,000  federal  depository  insurance  limit;  however,  the Company has
     experienced  no  losses  on  deposits.

     Accounts  receivable  arise  primarily  from transactions with customers in
     California.  The  Company  performs  credit  reviews  of  its customers and
     provides  a  reserve  for  accounts  where  collectibility  is  uncertain.
     Collateral  is not required for credit granted. Notes receivable arise from
     transactions  with  a  single customer. The Company requires collateral, in
     the  form  of  security  interests  in  various  film  projects, for credit
     granted.


                                      F-12

<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
     -----------------------------------------------------

     RECENTLY  ISSUED  PRONOUNCEMENTS
     --------------------------------

     In June 1998 and June 2000, the Financial Accounting Standards Board issued
     SFAS  No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
     Activities"  and  SFAS  No.  138,  "Accounting  for  Certain  Derivative
     Instruments  and  Certain  Hedging  Activities". These statements establish
     accounting  and  reporting  standards  requiring  that  every  derivative
     instrument be recorded on the balance sheet as either an asset or liability
     measured at its fair value. SFAS Nos. 133 and 138 also require that changes
     in  the  derivative's fair value be recognized currently in earnings unless
     specific  hedge  accounting  criteria  are  met.  SFAS Nos. 133 and 138 are
     effective  for fiscal years beginning after June 15, 2000. The Company does
     not  generally  hold derivative instruments or engage in hedging activities
     and,  accordingly,  the  adoption  of  these  new  standards did not have a
     material  impact  on  the  Company's  results  of  operations  or financial
     position.

     In  December  1999  the  Securities  and  Exchange  Commission issued Staff
     Accounting  Bulletin No. 101, "Revenue Recognition in Financial Statements"
     ("SAB 101"), which clarifies certain existing accounting principles for the
     timing  of  revenue  recognition  and  its  classification in the financial
     statements.  In  October  2000,  the  SEC  issued  further  guidance on the
     interpretations  included in SAB 101. The implementation of SAB 101 did not
     have  a material impact on the Company's results of operations or financial
     position.


3.   ASSET  PURCHASE
     ---------------

     Effective February 3, 2000, the Company acquired the rights to certain film
     projects  (the  "Asset Purchase") from three individuals and entities under
     their  control  for  12,407,060  newly  issued  post-split  shares  of  the
     Company's common stock and $75,000 cash. The individuals from whom the film
     projects  were  acquired  now  make  up  the Company's management team. The
     aggregate  purchase  price  for  the  projects was $1,912,000 based upon an
     independent  valuation  of  the  projects.


                                      F-13

<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.   DISCONTINUED OPERATIONS
     -----------------------

     Effective February 3, 2000, the Company discontinued its current operations
     and  sold all of its operating assets. At the date of the sales transaction
     (the  "Sales  Transaction"),  the  Company's  operating  assets  consisted
     primarily  of investments in equity securities and in non-producing oil and
     gas  properties. Under the terms of the Sales Transaction, the Company sold
     all  of  its  existing  assets  to  its largest stockholder in exchange for
     175,000  post split shares of its common stock that were placed in treasury
     and  subsequently  retired,  (See  Note  12)  and  the  assumption  of  all
     liabilities,  commitments and contingencies that existed at the date of the
     Sales  Transaction. No gain or loss was recognized as a result of the Sales
     Transaction.  Following  is  an analysis of the assets sold and liabilities
     assumed  in  connection  with  the  Sales  Transaction:

     Cash and cash equivalents               $ 15,782
     Marketable equity securities             126,878
     Non-producing oil and gas properties     133,503
     Other assets                              87,948
                                             ---------

         Total assets sold                    364,111
         Less liabilities assumed             (25,272)
                                             ---------

           Net assets sold                   $338,839
                                             =========

     Following  is  an  analysis  of  the  Company's  loss from operation of its
     discontinued  oil  and  gas  properties  and  equity  securities investment
     operations  during  2000:

       Revenue               $     -
       Loss from operations  (66,957)
       Net loss              (66,957)


                                      F-14
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


5.   MARKETABLE EQUITY SECURITIES
     ----------------------------

     Marketable equity securities at June 30, 2001 consisted of the common stock
     of 1st Miracle Group, Inc. ("1st Miracle"), a Canadian company. The Company
     received  these  shares in payment of accounts receivable for overhead fees
     and reimbursement of operating development costs. 1st Miracle trades on the
     over-the-counter  market  and  is  an  extremely  volatile  security  that
     generally  responds  negatively when large positions are sold. Accordingly,
     1st  Miracle  has been issuing the Company additional shares when its stock
     price  declines.  The Company's marketable equity securities are considered
     held-for-sale.


6.   ACCOUNTS RECEIVABLE
     -------------------

     Accounts receivable at June 30, 2001 and 2000 consisted of the following:

                                              2001      2000
                                            --------  ----------

     Accounts receivable for overhead fees
       and reimbursement of operating
       development costs                    $ 52,552  $ 235,792
     Accrued receivables from film
       distribution                          100,000    435,980
                                            --------  ----------

                                             152,552    671,772
     Less allowance for doubtful accounts       -      (180,000)
                                            --------  ----------

                                            $152,552  $ 471,772
                                            ========  ==========

     Two  customers  account  for all receivables at both June 30, 2001 and 2000
     (See  Note  15).  During the year ended June 30, 2000, the Company received
     all  film distribution revenue from distribution rights agreements covering
     three feature films from three customers. The cost reimbursement receivable
     is due from a single participant in a film participation agreement, at both
     June  30,  2001  and  2000.


                                      F-15
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


7.   NOTES  RECEIVABLE
     -----------------

     Notes  receivable  at  June 30, 2001 consisted of amounts due from a single
     film production company for film completion loans. The notes were issued at
     a  discount  and,  in addition to interest to maturity, provide the Company
     with  a  participation in the profits of certain film projects owned by the
     debtor. These notes are due at various dates through December 2001 and bear
     interest  at  a weighted average effective rate that exceeds 100% per year.
     Following  is  an  analysis  of  notes  receivable  at  June  30,  2001:

     Contractual balance of notes        $ 700,000

     Less discount at issuance            (250,000)

     Plus discount amortization in 2001     28,500
                                         ----------

                                         $ 478,500
                                         ==========

8.   FILM  COSTS
     -----------

     Film  costs  and related amounts capitalized at June 30, 2001 and 2000, and
     related  activity  during  the  years  then  ended  were  as  follows:

<TABLE>
<CAPTION>
                                                                  PRE-
                                      RELEASED    PRODUCTION   PRODUCTION      TOTAL
                                     ----------  ------------  -----------  ------------
<S>                                  <C>         <C>           <C>          <C>
Cost of acquiring film projects and
  rights at the inception of the
  Company's film business            $  374,055  $         -   $ 1,537,945  $ 1,912,000

Production costs incurred during
  2000                                   15,555    4,666,488        18,993    4,701,036

Interest cost capitalized during
  2000                                        -       21,501             -       21,501
                                     ----------  ------------  -----------  ------------

  Total film costs incurred during
    2000                                389,610    4,687,989     1,556,938    6,634,537

Less costs paid or payable by
  other participants                          -   (1,298,400)            _   (1,298,400)
                                     ----------  ------------  -----------  ------------

  Total film costs incurred and
    paid by the Company and net
    film costs before 2000
    amortization and write offs         389,610    3,389,589     1,556,938    5,336,137
</TABLE>


                                      F-16
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


8.   FILM  COSTS,  CONTINUED
     -----------------------

<TABLE>
<CAPTION>
                                                                   PRE-
                                     RELEASED     PRODUCTION    PRODUCTION      TOTAL
                                   ------------  ------------  ------------  ------------
<S>                                <C>           <C>           <C>           <C>
Less film costs amortized during
  2000                                (348,749)            -             -      (348,749)
                                   ------------  ------------  ------------  ------------

    Net film cost balance at
      June 30, 2000                     40,861     3,389,589     1,556,938     4,987,388

Cost of acquiring film rights
  in 2001                                    -             -       835,448       835,448

Production costs incurred during
  2001                                 563,301     1,197,544       719,882     2,480,727

Interest cost capitalized during
  2001                                       -        75,000             -        75,000

Transfers of film costs between
  categories in 2001                 4,681,126    (4,662,133)      (18,993)            -
                                   ------------  ------------  ------------  ------------

  Total film costs incurred and
    paid by the Company during
    2001                             5,244,427    (3,389,589)    1,536,337     3,391,175
                                   ------------  ------------  ------------  ------------

    Net film cost balance before
      2001 amortization and write
      offs                           5,285,288             -     3,093,275     8,378,563
                                   ------------  ------------  ------------  ------------

Less film cost amortization and
  write offs during 2001            (4,251,468)            -    (1,265,097)   (5,516,565)
                                   ------------  ------------  ------------  ------------

    Net film cost balance at
      June 30, 2001                $ 1,033,820   $         -   $ 1,828,178   $ 2,861,998
                                   ============  ============  ============  ============
</TABLE>

     The Company expects that all costs associated with released films will be
     fully amortized during the year ending June 30, 2002.


9.   PROPERTY  AND  EQUIPMENT
     ------------------------

     Property and equipment at June 30, 2001 and 2000 consisted of the
     following:

                                     LIFE      2001       2000
                                    -------  ---------  ---------
     Computer equipment             5 years  $ 34,706   $ 24,659
     Software                       3 years    45,588     32,792
                                             ---------  ---------

                                               80,294     57,451
     Less accumulated depreciation
       and amortization                       (21,356)    (3,065)
                                             ---------  ---------

                                             $ 58,938   $ 54,386
                                             =========  =========


                                      F-17
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


9.   PROPERTY  AND  EQUIPMENT,  CONTINUED
     ------------------------------------

     During  the  years  ended  June  30,  2001  and  2000,  depreciation  and
     amortization  expense  was  $18,603  and  $3,065,  respectively.


10.  NOTES PAYABLE
     -------------

     Notes payable at June 30, 2001 and 2000 consisted of the following:

                                                   2001      2000
                                                 --------  ----------
     Note payable to a bank under a
       $1,200,000 revolving line of credit,
       bearing interest at 7.5% per year
       and due September 3, 2000.  This
       note was collateralized by a
       $1,200,000 certificate of deposit
       that was restricted by its terms.         $      -  $1,200,000

     Notes payable (the "Stockholder Notes")
       to a major stockholder/officer of
       the Company. These notes, bearing
       interest at 10.0% per year, are due
       on demand and are collateralized by
       substantially all assets of the
       Company.  The notes outstanding at
       June 30, 2000 included a conversion
       feature that was eliminated effec-
       tive July 1, 2000.                          98,263     223,152

     Note payable to an investor (the
       "Investor Note") that currently bears
       no interest and is repayable on demand.
       The proceeds from the Investor Note
       are to be invested by the Company in
       an appropriate film project that will
       collateralize its repayment and pro-
       vide an expected return of 30% to the
       Investor                                   325,000           -
                                                 --------  ----------

                                                 $423,263  $1,423,152
                                                 ========  ==========


                                      F-18
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


10.  NOTES  PAYABLE,  CONTINUED
     --------------------------

     All notes payable are due during the year ending June 30, 2001. Interest
     incurred during the years ended June 30, 2001 and 2000 was as follows:

                                               2001     2000
                                             --------  --------

         Interest charged to expense         $265,568  $      -

         Interest capitalized in film costs    75,000    21,501
                                             --------  --------

           Total interest incurred           $340,568  $ 21,501
                                             ========  ========

         Interest expense paid in cash,
           net of amount capitalized         $265,568  $      -
                                             ========  ========

     The  Company  periodically  raises  capital to participate in film projects
     that  management feels will provide good current returns to the Company and
     the  potential  for participation in future profits. In its capital raising
     activities  the  Company  is  sometimes  dependent  on  certain  members of
     management  and  stockholders  to  provide  or  locate  sources of capital.
     Accordingly, included in total interest charges for the year ended June 30,
     2001 is $115,815 of interest expense paid to a major stockholder/officer of
     the  Company  for funds provided under the Stockholder Notes. Also included
     in  interest  expense  is  $32,500  of  interest  expense  related  to  the
     amortization  of  loan  origination  costs on the Investor Notes. Such loan
     costs  were  also  paid  to  a  major  stockholder/officer  of the Company.


11.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
     ----------------------------------------

     Accounts  payable  and  accrued  liabilities  at  June  30,  2001  and 2000
     consisted  of  the  following:

                                            2001      2000
                                          --------  ----------

     Accounts payable                     $  6,225  $  431,883
     Accrued film costs                    106,400   1,875,249
     Accrued professional fees and other     5,000       2,500
                                          --------  ----------

                                          $117,625  $2,309,632
                                          ========  ==========


                                      F-19
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


12.  INCOME  TAXES
     -------------

     The  Company  has incurred significant operating losses since its inception
     and,  therefore, has not generally been subject to federal income taxes. As
     of  June 30, 2001, the Company had net operating loss ("NOL") carryforwards
     for  income  tax purposes of approximately $2,378,000, which expire in 2001
     through  2020.  Under the provisions of Section 382 of the Internal Revenue
     Code the greater than 50% ownership changes that occurred in the Company in
     connection  with  the  Sales  Transaction,  subsequent  Asset  Purchase and
     private  placement  of  the  Company's  common  stock  severely limited the
     Company's  ability to utilize its NOL carryforward to reduce future taxable
     income and related tax liabilities. Additionally, because United States tax
     laws  limit  the time during which NOL carryforwards may be applied against
     future  taxable  income, the Company will be able to use only approximately
     $500,000  of  its  NOL  for  federal income tax purposes should the Company
     generate  sufficient  taxable  income.

     The composition of deferred tax assets and the related tax effects at June
     30, 2001 and 2000 are as follows:

                                           2001       2000
                                        ----------  ----------

     Deferred tax assets:
       Net operating losses             $ 954,800   $ 808,500
       Valuation allowance               (953,200)   (805,600)
                                        ----------  ----------

         Total deferred tax assets          1,600       2,900

     Deferred tax liabilities:
       Basis of property and equipment      1,600       2,900
                                        ----------  ----------

           Net deferred tax asset       $       -   $       -
                                        ==========  ==========

     The  difference  between  the  income  tax  (provision)  benefit  in  the
     accompanying  statement  of  operations and the amount that would result if
     the  U.S.  Federal  statutory  rate  of  34% were applied to pre-tax income
     (loss)  for  the  years  ended  June  30,  2001  and  2000  is  as follows:


                                      F-20

<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


12.  INCOME  TAXES,  CONTINUED
     -------------------------

                                      2001              2000
                               -----------------  -----------------
                                 AMOUNT      %      AMOUNT      %
                               ----------  -----  ----------  -----

     (Provision) benefit for
       income tax at federal
       statutory rate               $ (21,878)   (34)  $  19,709     34
     Effect of graduated rates         11,087     17     (11,750)   (20)
     Use of net operating losses
       and other                          152      -      10,583     18
     Loss of net operating losses    (143,461)  (223)   (337,041)  (581)
     Change in valuation allowance    147,600    230     318,499    549
                                    ----------  -----  ----------  -----

                                    $  (6,500)   (10)  $       -      -
                                    ==========  =====  ==========  =====

     The (provision) benefit for income taxes for the years ended June 30, 2001
     and 2000 consist of the following:

                                     2001     2000
                                    ------  --------

     Current portion:
       State                        $1,500  $      -
       Federal                       5,000         -
                                    ------  --------

                                     6,500         -
                                    ------  --------

     Deferred benefit:
       State                             -         -
       Federal                           -         -
                                    ------  --------

     Total (provision) benefit for
       income taxes                 $6,500  $      -
                                    ======  ========

     The Company incurred no cash payments for income taxes in 2001 or 2000.


                                      F-21
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


13.  COMMITMENTS
     -----------

     LEASE  AGREEMENT
     ----------------

     The Company operates in leased facilities under a month to month lease with
     a  current  base  rental rate of approximately $6,000 per month. Management
     expects  to  continue operating under the present month to month lease, but
     believes  that  the leased premises can be replaced under no less favorable
     terms  without  disruption  to the Company's operations. Total rent expense
     under  operating  leases  for  the  years  ended June 30, 2001 and 2000 was
     $77,812  and  $13,197,  respectively.


14.  STOCKHOLDERS'  EQUITY
     ---------------------

     COMMON  STOCK
     -------------

     During  the  year  ended  June 30, 2000, the Company entered into the Sales
     Transaction  (See  Note 4) and the Asset Purchase Transaction (See Note 3).
     In  connection with those transactions, the Company initiated a one-for-ten
     reverse  stock  split.  These  financial statements are presented as if the
     reverse  stock  split  occurred  prior  to  June  30,  1998.

     In  March  through  May  2000, the Company undertook a Regulation D private
     placement of its common stock under which the Company sold 5,160,000 shares
     of  common  stock  to  qualified  investors  at  a price of $.50 per share.

     STOCK OPTIONS
     --------------

     The  Company  periodically issues incentive stock options to key employees,
     officers,  and  directors  to  provide additional incentives to promote the
     success of the Company's business and to enhance the ability to attract and
     retain  the services of qualified persons. The issuance of such options are
     approved by the Board of Directors. The exercise price of an option granted
     is  generally  determined by the fair market value of the stock on the date
     of  grant;  however, certain options granted during the year ended June 30,
     2001  included  below  market  exercise  prices  and the Company recognized
     $34,500  of  compensation  related  to  those  grants.


                                      F-22
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

14.  STOCKHOLDERS'  EQUITY,  CONTINUED
     ---------------------------------

     STOCK  OPTIONS,  CONTINUED
     --------------------------

     The  Company  has elected to follow Accounting Principles Board Opinion No.
     25,  "Accounting  for  Stock  Issued  to  Employees"  (APB  25) and related
     Interpretations  in  accounting  for its employee stock options because, as
     discussed  below,  the alternative fair value accounting provided for under
     FASB Statement No. 123, "Accounting for Stock-Based Compensation", requires
     use  of  option valuation models that were not developed for use in valuing
     employee  stock  options.  Under  APB  25,  when  the exercise price of the
     Company's employee stock options is greater than or equals the market price
     of  the  underlying  stock on the date of grant, no compensation expense is
     recognized.  However,  when  the exercise price is less than the underlying
     stock on the date of grant, compensation is recognized to the extent of the
     difference.

     Proforma  information  regarding  net  income  and  earnings  per  share is
     required  by  Statement  123, and has been determined as if the Company had
     accounted  for  its  employee  stock options under the fair value method of
     that  Statement. The fair value for these options was estimated at the date
     of  grant  using  a  Black-Scholes  option pricing model with the following
     weighted-average  assumptions for 2001 and 2000: risk-free interest rate of
     4.5% and 6.0%; no dividend yield; weighted average volatility factor of the
     expected  market  price of the Company's common stock of 50% and 60%; and a
     weighted-average  expected  life  of  the  options  of  3  years.

     The  Black-Scholes  option  valuation  model  was  developed  for  use  in
     estimating  fair value of traded options which have no vesting restrictions
     and  are  fully  transferable. In addition, option valuation models require
     the  input  of  highly  subjective assumptions including the expected stock
     price  volatility.  Because  the  Company's  employee  stock  options  have
     characteristics  significantly  different from those of traded options, and
     because  changes  in the subjective input assumptions can materially affect
     the  fair  value  estimate, in management's opinion, the existing models do
     not  necessarily provide a reliable single measure of the fair value of its
     employee  stock  options.

     For  purposes  of  proforma  disclosures,  the  estimated fair value of the
     options is included in expense over the option's vesting period or expected
     life.  The  Company's  proforma  information  follows:


                                      F-23

<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


14.  STOCKHOLDERS'  EQUITY,  CONTINUED
     ---------------------------------

     STOCK  OPTIONS,  CONTINUED
     --------------------------

                                                2001      2000
                                              --------  ----------

       Proforma net income (loss)             $ 64,348  $ (57,970)
       Proforma net income (loss) available
         to common stockholders               $ 60,693  $(196,522)
       Proforma basic and dilutive income
         (loss) per share                     $   0.00  $   (0.03)

     A summary of the Company's stock option activity and related information
     for the years ended June 30, 2001 and 2000 follows:

                                   NUMBER OF
                                    SHARES
                                     UNDER    WEIGHTED-AVERAGE
                                    OPTIONS    EXERCISE PRICE
                                   ---------  -----------------

     Outstanding at June 30, 1999          -                  -

     Granted                         460,000  $            0.50
     Exercised                             -
     Forfeited                             -
                                   ---------

     Outstanding at June 30, 2000    460,000  $            0.50


     Granted                       1,480,000  $            0.50
     Exercised                             -
     Forfeited                             -
                                   ---------

     Outstanding at June 30, 2001  1,940,000  $            0.50
                                   =========

     The weighted-average fair value of options granted during the years ended
     June 30, 2001 and 2000 was approximately $0.26 and $0.30, respectively.


                                      F-24
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


14.  STOCKHOLDERS'  EQUITY,  CONTINUED
     ---------------------------------

     STOCK  OPTIONS,  CONTINUED
     --------------------------

     A summary of outstanding stock options at June 30, 2001, follows:

<TABLE>
<CAPTION>
                                                     REMAINING
                                                    CONTRACTUAL
NUMBER OF SHARES                   EXPIRATION DATE  LIFE (YEARS)  EXERCISE PRICE
---------------------------------  ---------------  ------------  ---------------
<S>                                <C>              <C>           <C>
Exercisable at June 30, 2001:

    460,000                        February 2004             2.6  $          0.50
    142,500                        April 2005                3.8             0.50


Non-exercisable at June 30, 2001:

  1,337,500                        April 2005                3.8             0.50
  ---------

  1,940,000
  =========
</TABLE>

15.  MAJOR  CUSTOMERS  AND  CONCENTRATIONS
     -------------------------------------

     The Company's revenues were derived from a limited number of customers in
     the motion picture industry in both 2001 and 2000. Following is an analysis
     of major customers for the years ended June 30, 2001 and 2000:

                                               2001   2000
                                               -----  -----

     Total number of customers                    5    3
     Number of customers accounting for more
       than 10% of total revenue                  2    3
     Percentage of total revenue derived from
       largest customer                          47%  58%
     Percentage of total revenue derived from
       second largest customer                   23%  28%


                                      F-25
<PAGE>
                      FAMILY ROOM ENTERTAINMENT CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


16.  NON-CASH  INVESTING  AND  FINANCING  ACTIVITIES
     -----------------------------------------------

     During the years ended June 30, 2000 and 2001, the Company engaged in the
     following non-cash investing and financing activities:

<TABLE>
<CAPTION>
                                          2001        2000
                                       ----------  ----------
<S>                                    <C>         <C>
Notes payable repaid by surrender of
  certificate of deposit               $1,200,000  $        -

Acquired motion picture contracts
  in exchange for shares of the
  Company's common stock (See Note 3)           -  $1,827,000

Acquired treasury stock in exchange
  for certain assets and liabilities
  (See Note 4)                                  -     323,057
</TABLE>


                                      F-26
<PAGE>