**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-KSB**

**Amendment      1**

| [X] | Annual                report pursuant to section 13 or 15(d) of the Securities Exchange                Act of                1934 for the fiscal year ended June 30, 2005                or |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Family      Room Entertainment Corporation**

----

**PART      I**

**ITEM      1.**
**Description      of Business **

**General      Business Development**
** **

**Restructuring      Transaction**

**Asset      Purchase**

**Name      and Symbol Change**

**Family      Room Entertainment Business Overview **

----

**Financing      FMLY’s Motion Pictures**

**Distributing      FMLY’s Motion Pictures**

**The      Home Marketplace for Motion Picture Product**

----

| **Major                Customers**      |   | **June                30,** |
|-----------------------------------------|--------|-----------------------------|
|                                    |   |                        | **2005** | **2004** |
| NuImage/Millennium                Films | 86.78% | 76.67%                      |
| Lions                Gate Films         | 0.00%  | 8.04%                       |
| Regents                Films            |   | 0.00%                       | 10.33% |
| Platinium                Disc           |   | 1.00%                       | 0.00% |
| Lantern                Lane             |   | 1.00%                       | 0.00% |
| Other                                   |   |                        | 11.22% | 4.95% |
| Total                Revenue            |   | 100.00%                     | 100% |

**Technological      Developments**

**Foreign      Markets**

**New      Technologies**

**Motion      Picture Property Acquisition Process **

**FMLY      Feature Film Production **

**Film      Project History**

**Profit      Participation**

**Royalties**

----

----

| **FAMILY                ROOM ENTERTAINMENT CORPORATION**   |
|------------------------------------------------------------|
|                                                       |
| **SUMMARY                OF FILM PROJECT HISTORY (1) (4)** |
|                                                       |
| **Picture**                                                |   |   | **Fees                Received** |
| **Initial                Release Date**                    |   | **Function** | **Year                ended June 30,** |
| **and                Media Type**                          |   | **Performed                by FMLY (2)** |   |   |   |   |
|                                                       |   | **Type                of** |   |   |   |   |
| **Film                Credit Received**                    | **Principal                Talent** | **Production                Services** |   | **2004** |   | **2005** |
| **Speedway                Junky**                          | Jesse                Bradford, | Picture                originally produced |   |   |   |   |
|                                                       | Jordan                Brower, | by                a third party financier. |   |   |   |   |
| September                2001                              | Jonathan                Taylor | FMLY                subsequently |   |   |   |   |
|                                                       | Thomas,                Tiffani | acquired                50% ownership |   |   |   |   |
| Theatrical                                                 | Amber                Theisssen, | from                the financier and |   |   |   |   |
|                                                       | Warren                G, Daryl | receives                royalties if any |   |   |   |   |
|                                                       | Hannah |   |   |   |   |   |
|                                                       |   |   |   |   |   |   |
| Randall                Emmett &                        |   | Production                services |   |   |   |   |
| George                Furla                                |   | provided                include the |   |   |   |   |
| Producers                                                  |   | negotiation                of financing |   |   |   |   |
|                                                       |   | and                distribution of the |   |   |   |   |
|                                                       |   | picture,                and consulting |   |   |   |   |
|                                                       |   | services |   |   |   |   |
|                                                       |   |   | $ | 76,979 |   | (3) |
| **Held                For Ransom**                         | Dennis                Hopper, | Picture                originally produced |   |   |   |   |
|                                                       | Zachery                Ty Bryan, | by                a third party financier. |   |   |   |   |
| August                2000                                 | Kam                Heskin, | FMLY                subsequently |   |   |   |   |
|                                                       | Jordan                Brower, | acquired                100% ownership |   |   |   |   |
| Video/Cable                                                | Randy                Spelling, | from                said third party. |   |   |   |   |
|                                                       | Tsianina                Joelson, | receives                royalties, if any. |   |   |   |   |
|                                                       | &                Morgan Fairchild |   |   |   |   |   |
|                                                       |   |   |   | (3-A) | $ | 6,000 |
| **After                Sex**                               | Brooke                Shields, | Picture                originally produced |   |   |   |   |
|                                                       | Virginia                Madsen, | by                a third party financier. |   |   |   |   |
| August                2000                                 | D.B.                Sweeney, | FMLY                subsequently |   |   |   |   |
|                                                       | Dan                Cortese, | acquired                100% ownership |   |   |   |   |
| Video/Cable                                                | Maria                Pitillo, & | from                the financier and |   |   |   |   |
|                                                       | Johnathon                Schaech | receives                royalties, if any. |   |   |   |   |
|                                                       |   |   |   | (3-A) | $ | 6,000 |
| **I'm                Over Here Now**                       | Andrew                "Dice" | Picture                produced |   |   |   |   |
|                                                       | Clay | by                a third party financier. |   |   |   |   |
| March                2000                                  |   | FMLY                retains profit |   |   |   |   |
|                                                       |   | participation,                if any. |   |   |   |   |
| Pay-per-View/                Video                         |   | No                profit participation |   |   |   |   |
|                                                       |   | payments                received to date. |   |   |   |   |
|                                                       |   |   |   | (3) |   | (3) |

----

| **Picture**                               |                                |                                          | **Fees                Received**       |
|-------------------------------------------|-------------------------------------|-----------------------------------------------|----------------------------------------|
| **Initial                Release Date**   |                                | **Function**                                  | **Year                ended June 30,** |
| **and                Media Type**         |                                | **Performed                by FMLY (2)**      |                                   |   |   |   |
|                                      |                                | **Type                of**                    |                                   |   |   |   |
| **Film                Credit Received**   | **Principal                Talent** | **Production                Services**        |                                   | **2004** |   | **2005** |
| **Good                Advice**            | Charlie                Sheen,       | Picture                produced by FMLY       |                                   |   |   |   |
|                                      | Angie                Harmon,        | in                conjunction with a third    |                                   |   |   |   |
| December                2001              | Denise                Richards,     | party.                FMLY retains            |                                   |   |   |   |
|                                      | Rosanna                Arquette,    | primary                ownership and          |                                   |   |   |   |
| Video/Cable                               | &                Jon Lovitz     | receives                royalties, if any.    |                                   |   |   |   |
|                                      |                                |                                          |                                   |   |   |   |
| Randall                Emmett &       |                                | Production                services            |                                   |   |   |   |
| George                Furla               |                                | provided                include the           |                                   |   |   |   |
| Producers                                 |                                | negotiation                of financing       |                                   |   |   |   |
|                                      |                                | and                distribution of the        |                                   |   |   |   |
|                                      |                                | picture,                and consulting        |                                   |   |   |   |
|                                      |                                | services                during                |                                   |   |   |   |
|                                      |                                | development,                during            |                                   |   |   |   |
|                                      |                                | principal                photography,         |                                   |   |   |   |
|                                      |                                | and                during post                |                                   |   |   |   |
|                                      |                                | production                (to ensure          |                                   |   |   |   |
|                                      |                                | that                the film was              |                                   |   |   |   |
|                                      |                                | completed                on time and          |                                   |   |   |   |
|                                      |                                |  within                budget).          | $                                      | 60,000 |   | (3) |
| **Ticker**                                | Tom                Sizemore,        | Produced                by a third party      |                                   |   |   |   |
|                                      | Steven                Seagal,       | financier.                FMLY provided       |                                   |   |   |   |
| December                2001              | Jamie                Pressly, & | production                services and        |                                   |   |   |   |
|                                      | Dennis                Hopper        | financing                and received         |                                   |   |   |   |
| Video/Cable                               |                                | a                fee and profit               |                                   |   |   |   |
|                                      |                                | participation,                If any. No      |                                   |   |   |   |
|                                      |                                | profit                participation to        |                                   |   |   |   |
|                                      |                                | received                to date               |                                   |   |   |   |
|                                      |                                |                                          |                                   | (3) |   | (3) |
| **The                Badge**              | Billy                Bob Thornton,  | Produced                by a third party      |                                   |   |   |   |
| **(f/k/a                Behind the Sun)** | Patricia                Arquette,   | financier.                FMLY provided       |                                   |   |   |   |
|                                      | &                Seal Ward      | production                services and        |                                   |   |   |   |
| September                2002             |                                | received                a fee and             |                                   |   |   |   |
|                                      |                                | profit                participation, if any.  |                                   |   |   |   |
| Video/Cable                               |                                | No                profit participation        |                                   |   |   |   |
|                                      |                                | received                to date.              |                                   |   |   |   |
|                                      |                                |                                          |                                   |   |   |   |
| Randall                Emmett &       |                                | Production                services            |                                   |   |   |   |
| George                Furla               |                                | provided                include the           |                                   |   |   |   |
| Executive                Producers        |                                | negotiation                of financing       |                                   |   |   |   |
|                                      |                                | and                distribution of the        |                                   |   |   |   |
|                                      |                                | picture,                and consulting        |                                   |   |   |   |
|                                      |                                | services                during develop-       |                                   |   |   |   |
|                                      |                                | ment,                during principal photo-  |                                   |   |   |   |
|                                      |                                | graphy,                and during post        |                                   |   |   |   |
|                                      |                                | production                (to ensure that,    |                                   |   |   |   |
|                                      |                                | On                behalf of the financier     |                                   |   |   |   |
|                                      |                                | and                distributor, that creative |                                   |   |   |   |
|                                      |                                | and                financial resources        |                                   |   |   |   |
|                                      |                                |  were                fully utilized)     |                                   | (3) |   | (3) |

----

| **Picture**                             |                                |                                            | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|-------------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                    | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**        |                                   |   |   |   |
|                                    |                                | **Type                of**                      |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**          |                                   | **2004** |   | **2005** |
| **Run                for the Money**    | Christian                Slater,    | Produced                by a third party        |                                   |   |   |   |
|                                    | Val                Kilmer,          | financier.                FMLY provided         |                                   |   |   |   |
| February                2002            | Daryl                Hannah,        | production                services and          |                                   |   |   |   |
|                                    | Bokeem                Woodbine,     | received                a fee and               |                                   |   |   |   |
| Video/Cable                             | &                Vern Troyer    | profit                participation, if any.    |                                   |   |   |   |
|                                    |                                | No                profit participation          |                                   |   |   |   |
|                                    |                                | received                to date.                |                                   |   |   |   |
|                                    |                                |                                            |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services              |                                   |   |   |   |
| George                Furla             |                                | provided                include following:      |                                   |   |   |   |
| Producers                               |                                | Negotiated                for the acting        |                                   |   |   |   |
|                                    |                                | services                of Val Kilmer,          |                                   |   |   |   |
|                                    |                                | Christian                Slater and Daryl       |                                   |   |   |   |
|                                    |                                | Hannah;                negotiated for the       |                                   |   |   |   |
|                                    |                                | financing                and distribution       |                                   |   |   |   |
|                                    |                                | of                the film and provided         |                                   |   |   |   |
|                                    |                                | consulting                services during       |                                   |   |   |   |
|                                    |                                | development,                during              |                                   |   |   |   |
|                                    |                                | principal                photography,           |                                   |   |   |   |
|                                    |                                | and                during post production       |                                   |   |   |   |
|                                    |                                | (to                ensure that, on              |                                   |   |   |   |
|                                    |                                | behalf                of the financier          |                                   |   |   |   |
|                                    |                                | and                distributor, that creative   |                                   |   |   |   |
|                                    |                                | and                financial resources          |                                   |   |   |   |
|                                    |                                | were                fully utilized)             |                                   |   |   |   |
|                                    |                                |                                            |                                   | (3) |   | (3) |
| **Half                Past Dead**       | Steven                Seagal,       | Produced                by a third party        |                                   |   |   |   |
|                                    | Morris                Chestnut,     | financier.                FMLY provided         |                                   |   |   |   |
| November                2002            | &                Ja Rule        | production                services and          |                                   |   |   |   |
|                                    |                                | received                a fee and profit        |                                   |   |   |   |
| Theatrical                              |                                | participation,                if any. No profit |                                   |   |   |   |
|                                    |                                | participation                received to date.  |                                   |   |   |   |
|                                    |                                |                                            |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services prov-        |                                   |   |   |   |
| George                Furla             |                                | ided                included negotiating        |                                   |   |   |   |
| Executive                Producers      |                                | for                the services of Steven       |                                   |   |   |   |
|                                    |                                |  Segal                for the picture      |                                   | (3) |   | (3) |
| **Narc**                                | Ray                Liotta,          | Produced                by a third party        |                                   |   |   |   |
|                                    | Jason                Patric,        | financier.                FMLY provided         |                                   |   |   |   |
| December                2002            | &                Busta Rhymes   | production                services and          |                                   |   |   |   |
|                                    |                                | financing                and received           |                                   |   |   |   |
| Theatrical                              |                                | a                fee and profit participation,  |                                   |   |   |   |
|                                    |                                | if                any. No profit participation  |                                   |   |   |   |
|                                    |                                | received                to date.                |                                   |   |   |   |
|                                    |                                |                                            |                                   |   |   |   |
|                                    |                                |                                            |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services              |                                   |   |   |   |
| George                Furla             |                                | provided                include consulting      |                                   |   |   |   |
| Executive                Producers      |                                | on                the financing of the          |                                   |   |   |   |
|                                    |                                | of                the picture.                  |                                   |   |   |   |
|                                    |                                |                                            |                                   | (3) |   | (3) |

----

| **Picture**                              |                                |                                         | **Fees                Received**       |
|------------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date**  |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**        |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                     |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received**  | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **The                Devil and**         | Alec                Baldwin,        | Produced                by a third party     |                                   |   |   |   |
| **Daniel                Webster**        | Anthony                Hopkins,     | financier.                FMLY provided      |                                   |   |   |   |
|                                     | &                Jennifer Love  | production                services and       |                                   |   |   |   |
| March                2003                | Hewitt                              | received                a fee and            |                                   |   |   |   |
|                                     |                                | profit                participation, if any. |                                   |   |   |   |
| Video/Cable                              |                                | No                profit participation       |                                   |   |   |   |
| (Foreign                Release)         |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         | $                                      | - | $ | - |
| **All                I Want**            | Elijah                Wood,         | Produced                by a third party     |                                   |   |   |   |
| **(f/k/a                Try Seventeen)** | Franka                Potente,      | financier.                FMLY provided      |                                   |   |   |   |
|                                     | &                Mandy Moore    | production                services and       |                                   |   |   |   |
| September                2003            |                                | received                a fee and            |                                   |   |   |   |
|                                     |                                | profit                participation, if any. |                                   |   |   |   |
| Video/Cable                              |                                | No                profit participation       |                                   |   |   |   |
|                                     |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include              |                                   |   |   |   |
| Producers                                |                                | consulting                on the financing   |                                   |   |   |   |
|                                     |                                | of                the picture.               |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         | $                                      | - | $ | (3) |
| **Out                for a Kill**        | Steven                Seagal        | Produced                by a third party     |                                   |   |   |   |
|                                     |                                | financier.                FMLY provided      |                                   |   |   |   |
| August                2003               |                                | production                services and       |                                   |   |   |   |
|                                     |                                | received                a fee and            |                                   |   |   |   |
| Video/Cable                              |                                | profit                participation, if any. |                                   |   |   |   |
|                                     |                                | No                profit participation       |                                   |   |   |   |
|                                     |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include              |                                   |   |   |   |
| Producers                                |                                | negotiating                for the services  |                                   |   |   |   |
|                                     |                                | of                Steven Segal for the       |                                   |   |   |   |
|                                     |                                | picture                and providing         |                                   |   |   |   |
|                                     |                                | consulting                services during    |                                   |   |   |   |
|                                     |                                | development,                on location      |                                   |   |   |   |
|                                     |                                | and                during principal          |                                   |   |   |   |
|                                     |                                | photography                                  |                                   |   |   |   |
|                                     |                                | (to                ensure that the film      |                                   |   |   |   |
|                                     |                                | was                completed on time and     |                                   |   |   |   |
|                                     |                                | within                budget).               |                                   |   |   |   |
|                                     |                                |                                         | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                          | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|-----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                  | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**      |                                   |   |   |   |
|                                    |                                | **Type                of**                    |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**        |                                   | **2004** |   | **2005** |
| **Belly                of the Beast**   | Steven                Seagal        | Produced                by a third party      |                                   |   |   |   |
|                                    |                                | financier.                FMLY provided       |                                   |   |   |   |
| December                2003            |                                | production                services and        |                                   |   |   |   |
|                                    |                                | received                a fee and             |                                   |   |   |   |
| Video/Cable                             |                                | profit                participation, if any.  |                                   |   |   |   |
|                                    |                                | No                profit participation        |                                   |   |   |   |
|                                    |                                | received                to date.              |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services            |                                   |   |   |   |
| George                Furla             |                                | provided                include               |                                   |   |   |   |
| Executive                Producers      |                                | negotiating                for the services   |                                   |   |   |   |
|                                    |                                | of                Steven Segal for the        |                                   |   |   |   |
|                                    |                                | picture                and providing          |                                   |   |   |   |
|                                    |                                | consulting                services during     |                                   |   |   |   |
|                                    |                                | development,                on location       |                                   |   |   |   |
|                                    |                                | and                during principal           |                                   |   |   |   |
|                                    |                                | photography                                   |                                   |   |   |   |
|                                    |                                | (to                ensure that the film       |                                   |   |   |   |
|                                    |                                | was                completed on time and      |                                   |   |   |   |
|                                    |                                | within                budget).                |                                   |   |   |   |
|                                    |                                |                                          | $                                      | - | $ | - |
| **Blind                Horizon**        | Val                Kilmer,          | Produced                by a third party      |                                   |   |   |   |
|                                    | Neve                Campbell,       | financier.                FMLY provided       |                                   |   |   |   |
| March                2005               | Sam                Shepard &    | production                services and        |                                   |   |   |   |
| (Estimated                Release)      | Faye                Dunaway         | received                a fee and             |                                   |   |   |   |
|                                    |                                | profit                participation, if any.  |                                   |   |   |   |
| Video/Cable                             |                                | No                profit participation        |                                   |   |   |   |
|                                    |                                | received                to date.              |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services            |                                   |   |   |   |
| George                Furla             |                                | provided                include               |                                   |   |   |   |
| Producers                               |                                | negotiating                for the acting     |                                   |   |   |   |
|                                    |                                | services                of Val Kilmer,        |                                   |   |   |   |
|                                    |                                | negotiating                for the financing  |                                   |   |   |   |
|                                    |                                | and                distribution of the        |                                   |   |   |   |
|                                    |                                | picture                and providing          |                                   |   |   |   |
|                                    |                                | consulting                services during     |                                   |   |   |   |
|                                    |                                | development,                during            |                                   |   |   |   |
|                                    |                                | principal                photography and      |                                   |   |   |   |
|                                    |                                | during                post production         |                                   |   |   |   |
|                                    |                                | (to                ensure that, on            |                                   |   |   |   |
|                                    |                                | behalf                of the financier        |                                   |   |   |   |
|                                    |                                | and                distributor, that creative |                                   |   |   |   |
|                                    |                                | and                financial resources        |                                   |   |   |   |
|                                    |                                | were                fully utilized)           |                                   |   |   |   |
|                                    |                                |                                          | $                                      | - | $ | - |

----

| **Picture**                              |                                |                                         | **Fees                Received**       |
|------------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date**  |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**        |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                     |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received**  | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **Control**                              | Ray                Liotta, &    | Produced                by a third party     |                                   |   |   |   |
|                                     | William                Dafoe        | financier.                FMLY provided      |                                   |   |   |   |
| March                2005                |                                | production                services and       |                                   |   |   |   |
| (Estimated                Release)       |                                | received                a fee and            |                                   |   |   |   |
|                                     |                                | profit                participation, if any. |                                   |   |   |   |
| Video/Cable                              |                                | No                profit participation       |                                   |   |   |   |
|                                     |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include negotiating  |                                   |   |   |   |
| Producers                                |                                | for                the acquisition of the    |                                   |   |   |   |
|                                     |                                | rights                in and to the screen-  |                                   |   |   |   |
|                                     |                                | play                upon which the picture   |                                   |   |   |   |
|                                     |                                | was                based and negotiating     |                                   |   |   |   |
|                                     |                                | the                acting services           |                                   |   |   |   |
|                                     |                                | agreement                with Ray Liotta.    |                                   |   |   |   |
|                                     |                                | Also                performed consulting     |                                   |   |   |   |
|                                     |                                | services                during principal     |                                   |   |   |   |
|                                     |                                | photography                and through-      |                                   |   |   |   |
|                                     |                                | out                the post production       |                                   |   |   |   |
|                                     |                                | process                to assist in getting  |                                   |   |   |   |
|                                     |                                | the                picture completed on      |                                   |   |   |   |
|                                     |                                | time                and within budget.       |                                   |   |   |   |
|                                     |                                |                                         | $                                      | 117,500 | $ | - |
| **Love                Song for Bobby**   | John                Travolta &  | Produced                by a third party     |                                   |   |   |   |
| **Long**                                 | Scarlett                Johansson   | financier.                FMLY provided      |                                   |   |   |   |
|                                     |                                | production                services and       |                                   |   |   |   |
| December                2004             |                                | received                a fee and            |                                   |   |   |   |
|                                     |                                | profit                participation, if any. |                                   |   |   |   |
| Theatrical                               |                                | No                profit participation       |                                   |   |   |   |
|                                     |                                | received                to date.             |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include consulting   |                                   |   |   |   |
| Executive                Producers       |                                | in                the negotiations for the   |                                   |   |   |   |
|                                     |                                | acting                services of John       |                                   |   |   |   |
|                                     |                                | Travolta                for the picture.     |                                   |   |   |   |
|                                     |                                |                                         | $                                      | 25,000 | $ | - |
| **The                Amityville Horror** | Ryan                Reynolds, & | Produced                by a third party     |                                   |   |   |   |
|                                     | Melissa                George       | financier.                FMLY provided      |                                   |   |   |   |
| April                2005                |                                | development                services and      |                                   |   |   |   |
| (Scheduled                Release)       |                                | received                a fee.               |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Theatrical                               |                                |                                         |                                   |   |   |   |
|                                     |                                |                                         |                                   |   |   |   |
| Randall                Emmett &      |                                | Production                services           |                                   |   |   |   |
| George                Furla              |                                | provided                include negotiating  |                                   |   |   |   |
| Co-                Executive Producers   |                                | for                the acquisition of the    |                                   |   |   |   |
|                                     |                                | rights                in and to the picture  |                                   |   |   |   |
|                                     |                                | and                subsequently              |                                   |   |   |   |
|                                     |                                | negotiated                for their sale     |                                   |   |   |   |
|                                     |                                | to                NuImage.                   |                                   |   |   |   |
|                                     |                                |                                         | $                                      | 110,516 | $ | 500,000 |

----

| **Picture**                             |                                |                                          | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|-----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                  | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**      |                                   |   |   |   |
|                                    |                                | **Type                of**                    |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**        |                                   | **2004** |   | **2005** |
| **Edison**                              | Morgan                Freeman,      | Produced                by a third party      |                                   |   |   |   |
|                                    | Justin                Timberlake,   | financier.                FMLY provided       |                                   |   |   |   |
| December                2005            | LL                Cool J, &     | production                services and        |                                   |   |   |   |
| (Estimated                Release)      | Kevin                Spacey         | received                a fee and             |                                   |   |   |   |
|                                    |                                | profit                participation, if any,  |                                   |   |   |   |
|                                    |                                | in                the film.                   |                                   |   |   |   |
| Theatrical                              |                                |                                          |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services            |                                   |   |   |   |
| George                Furla             |                                | provided                include negotiating   |                                   |   |   |   |
| Producers                               |                                | for                the acquisition of the     |                                   |   |   |   |
|                                    |                                | rights                in and to the screen-   |                                   |   |   |   |
|                                    |                                | play                upon which the picture    |                                   |   |   |   |
|                                    |                                | was                based as well as           |                                   |   |   |   |
|                                    |                                | the                acting services            |                                   |   |   |   |
|                                    |                                | agreements                of Morgan           |                                   |   |   |   |
|                                    |                                | Freeman,                Justin Timberlake,    |                                   |   |   |   |
|                                    |                                | LL                Cool J and Kevin            |                                   |   |   |   |
|                                    |                                | Spacey.                Also provided          |                                   |   |   |   |
|                                    |                                | consulting                services            |                                   |   |   |   |
|                                    |                                | during                principal               |                                   |   |   |   |
|                                    |                                | photography                and the post       |                                   |   |   |   |
|                                    |                                | production                process.            |                                   |   |   |   |
|                                    |                                | (to                ensure that, on            |                                   |   |   |   |
|                                    |                                | behalf                of the financier        |                                   |   |   |   |
|                                    |                                | and                distributor, that creative |                                   |   |   |   |
|                                    |                                | and                financial resources        |                                   |   |   |   |
|                                    |                                | were                fully utilized)           |                                   |   |   |   |
|                                    |                                |                                          | $                                      | 250,000 | $ | - |
| **Submerged**                           | Steven                Seagal        | Produced                by a third party      |                                   |   |   |   |
|                                    |                                | financier.                FMLY provided       |                                   |   |   |   |
| August                2005              |                                | development                services and       |                                   |   |   |   |
| (Estimated                Release)      |                                | received                a fee.                |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Video/Cable                             |                                |                                          |                                   |   |   |   |
|                                    |                                |                                          |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services            |                                   |   |   |   |
| George                Furla             |                                | provided                include               |                                   |   |   |   |
| Producers                               |                                | negotiating                an acting          |                                   |   |   |   |
|                                    |                                | services                agreement with        |                                   |   |   |   |
|                                    |                                | Steven                Segal for the           |                                   |   |   |   |
|                                    |                                | picture                and providing          |                                   |   |   |   |
|                                    |                                | consulting                services during     |                                   |   |   |   |
|                                    |                                | development,                and on            |                                   |   |   |   |
|                                    |                                | location                during principal      |                                   |   |   |   |
|                                    |                                | photography.                                  |                                   |   |   |   |
|                                    |                                |                                          | $                                      | - | $ | 300,000 |

----

| **Picture**                             |                                |                                        | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|---------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**    |                                   |   |   |   |
|                                    |                                | **Type                of**                  |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**      |                                   | **2004** |   | **2005** |
| **The                Tenants**          | Dylan                McDermott,     | Produced                by a third party    |                                   |   |   |   |
|                                    | Snoop                Doggy Dogg,    | financier.                FMLY provided     |                                   |   |   |   |
| December                2005            | &                Peter Falk     | production                services and      |                                   |   |   |   |
| (Estimated                Release)      |                                | financing                and received       |                                   |   |   |   |
|                                    |                                | a                fee and profit             |                                   |   |   |   |
| Theatrical                              |                                | participation,                if any, in    |                                   |   |   |   |
|                                    |                                | the                film.                    |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Producers                               |                                | negotiating                the financing    |                                   |   |   |   |
|                                    |                                | of                the picture and its       |                                   |   |   |   |
|                                    |                                | distribution                by NuImage.     |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | 12,000 |
| **Today                You Die**        | Steven                Seagal        | Produced                by a third party    |                                   |   |   |   |
|                                    |                                | financier.                FMLY provided     |                                   |   |   |   |
| December                2005            |                                | production                services and      |                                   |   |   |   |
| (Estimated                Release)      |                                | received                a fee and profit    |                                   |   |   |   |
|                                    |                                | participation,                if any, in    |                                   |   |   |   |
| Video/Cable                             |                                | the                film                     |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Producers                               |                                | negotiating                an acting        |                                   |   |   |   |
|                                    |                                | services                agreement with      |                                   |   |   |   |
|                                    |                                | Steven                Segal for the         |                                   |   |   |   |
|                                    |                                | picture                and providing        |                                   |   |   |   |
|                                    |                                | consulting                services during   |                                   |   |   |   |
|                                    |                                | development,                and on          |                                   |   |   |   |
|                                    |                                | location                during principal    |                                   |   |   |   |
|                                    |                                | photography.                                |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | 200,000 |
| **Wonderland**                          | Val                Kilmer,          | Produced                by a third party    |                                   |   |   |   |
|                                    | Kate                Bosworth,       | financier.                FMLY provided     |                                   |   |   |   |
| October                2003             | Lisa                Kudrow,         | development                services and     |                                   |   |   |   |
|                                    | Josh                Lucas &     | received                a fee.              |                                   |   |   |   |
| Theatrical                              | Dylan                Mcdermott      |                                        |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Executive                Producers      |                                | obtaining                financing          |                                   |   |   |   |
|                                    |                                | and                negotiating for the      |                                   |   |   |   |
|                                    |                                | distribution                of the picture. |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                        | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|---------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**    |                                   |   |   |   |
|                                    |                                | **Type                of**                  |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**      |                                   | **2004** |   | **2005** |
| **Loverboy**                            | Kyra                Sdgwick,        | Produced                by a third party    |                                   |   |   |   |
|                                    | Kevin                Bacon,         | financier.                FMLY provided     |                                   |   |   |   |
| May                2005                 | Sandra                Bullock,      | development                services and     |                                   |   |   |   |
|                                    | Matt                Dillon,         | received                a fee.              |                                   |   |   |   |
| Theatrical                              | Oliver                Platt &   |                                        |                                   |   |   |   |
|                                    | Marissa                Tomei        |                                        |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Co-                Executive Producers  |                                | consulting                on the financing  |                                   |   |   |   |
|                                    |                                | and                distribution of the      |                                   |   |   |   |
|                                    |                                | picture.                                    |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | - |
| **Shottas**                             | Ky-Mani                Marley,      | Produced                by a third party    |                                   |   |   |   |
|                                    | Spragga                Benz,        | financier.                FMLY provided     |                                   |   |   |   |
| December                2005            | Wyclef                Jean,         | post-production                services     |                                   |   |   |   |
| (Estimated                Release)      | &                Louie Rankin   | and                financing and will       |                                   |   |   |   |
|                                    |                                | receive                a fee and profit     |                                   |   |   |   |
| Video/Cable                             |                                | participation,                if any, in    |                                   |   |   |   |
|                                    |                                | the                film.                    |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include             |                                   |   |   |   |
| Co-                Executive Producers  |                                | consulting                on the financing  |                                   |   |   |   |
|                                    |                                | and                distribution of the      |                                   |   |   |   |
|                                    |                                | picture.                                    |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | - |
| **Black                Widow**          | William                Dafoe        | Produced                by a third party    |                                   |   |   |   |
| **aka                The Widows**       |                                | financier.                FMLY provided     |                                   |   |   |   |
| **Lover**                               |                                | development                services         |                                   |   |   |   |
|                                    |                                | and                received a fee.          |                                   |   |   |   |
| March                2006               |                                |                                        |                                   |   |   |   |
| (Estimated                Release)      |                                |                                        |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Theatrical                              |                                |                                        |                                   |   |   |   |
|                                    |                                |                                        |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services          |                                   |   |   |   |
| George                Furla             |                                | provided                include obtaining   |                                   |   |   |   |
| Executive                Producers      |                                | financing,                negotiating for   |                                   |   |   |   |
|                                    |                                | distribution                of the picture, |                                   |   |   |   |
|                                    |                                | and                providing consulting     |                                   |   |   |   |
|                                    |                                | services                during              |                                   |   |   |   |
|                                    |                                | development,                and on          |                                   |   |   |   |
|                                    |                                | location                during principal    |                                   |   |   |   |
|                                    |                                | photography.                                |                                   |   |   |   |
|                                    |                                |                                        | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                         | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                    |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **Lonely                Hearts**        | John                Travolta,       | Produced                by a third party     |                                   |   |   |   |
|                                    | James                Gandofini,     | financier.                FMLY provided      |                                   |   |   |   |
| March                2006               | &                Salma Hayek    | development                services          |                                   |   |   |   |
| (Estimated                Release)      |                                | and                received a fee.           |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Theatrical                              |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include              |                                   |   |   |   |
| Co-Executive                Producers   |                                | negotiating                an acting         |                                   |   |   |   |
|                                    |                                | services                agreement for this   |                                   |   |   |   |
|                                    |                                | picture                with John Travolta    |                                   |   |   |   |
|                                    |                                | and                providing consulting      |                                   |   |   |   |
|                                    |                                | services                during               |                                   |   |   |   |
|                                    |                                | development,                and on           |                                   |   |   |   |
|                                    |                                | location                during principal     |                                   |   |   |   |
|                                    |                                | photography.                                 |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | 100,000 |
| **Mercenary**                           | Steven                Seagal        | Produced                by a third party     |                                   |   |   |   |
|                                    |                                | financier.                FMLY provided      |                                   |   |   |   |
| April                2006               |                                | production                services and       |                                   |   |   |   |
| (Estimated                Release)      |                                | and                received a fee.           |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Video/Cable                             |                                | 2005                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include              |                                   |   |   |   |
| Producers                               |                                | negotiating                an acting         |                                   |   |   |   |
|                                    |                                | services                agreement with       |                                   |   |   |   |
|                                    |                                | Steven                Segal for the          |                                   |   |   |   |
|                                    |                                | picture                and providing         |                                   |   |   |   |
|                                    |                                | consulting                services during    |                                   |   |   |   |
|                                    |                                | development,                and on           |                                   |   |   |   |
|                                    |                                | location                during principal     |                                   |   |   |   |
|                                    |                                | photography.                                 |                                   |   |   |   |
|                                    |                                | **Note:                We do not have a**    |                                   |   |   |   |
|                                    |                                | **contract                on this project;** |                                   |   |   |   |
|                                    |                                | **and                are uncertain about**   |                                   |   |   |   |
|                                    |                                | **profit                participation.**     |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | 300,000 |

----

| **Picture**                             |                                |                                         | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                    |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **16                Blocks**            | Bruce                Willis         | Produced                by a third party     |                                   |   |   |   |
|                                    | Mos                Def              | financier.                FMLY provided      |                                   |   |   |   |
| May                2006                 |                                | production                services and       |                                   |   |   |   |
| (Estimated                Release)      |                                | and                received a fee.           |                                   |   |   |   |
|                                    |                                | 2005.                Additionally, we        |                                   |   |   |   |
| Theatrical                              |                                | will                receive a profit         |                                   |   |   |   |
|                                    |                                | participation,                if any, in the |                                   |   |   |   |
|                                    |                                | film.                                        |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include negotiating  |                                   |   |   |   |
| Producer/                               |                                | for                the acquisition of the    |                                   |   |   |   |
| Executive                Producer       |                                | rights                in and to the screen-  |                                   |   |   |   |
|                                    |                                | play                upon which the picture   |                                   |   |   |   |
|                                    |                                | was                based as well as          |                                   |   |   |   |
|                                    |                                | the                acting services           |                                   |   |   |   |
|                                    |                                | agreements                of Bruce           |                                   |   |   |   |
|                                    |                                | Willis                and the directing      |                                   |   |   |   |
|                                    |                                | services                of Richard           |                                   |   |   |   |
|                                    |                                | Donner.                Also provided         |                                   |   |   |   |
|                                    |                                | consulting                services           |                                   |   |   |   |
|                                    |                                | during                principal              |                                   |   |   |   |
|                                    |                                | photography                and the post      |                                   |   |   |   |
|                                    |                                | production                process.           |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | 625,000 |
| **Borderland**                          | Brian                Presley        | Picture                produced by FMLY      |                                   |   |   |   |
|                                    | Jake                Muxworthy       | in                conjunction with a third   |                                   |   |   |   |
| April                2006               | Rider                Strong         | party.                FMLY retains           |                                   |   |   |   |
| (Estimated                Release)      | Sean                Astin           | 50%                ownership and             |                                   |   |   |   |
| Theatrical                              | Beto                Cuevas          | receives                royalties, if any.   |                                   |   |   |   |
|                                    |                                |                                         |                                   |   |   |   |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include the          |                                   |   |   |   |
| Producers                               |                                | negotiation                of financing      |                                   |   |   |   |
|                                    |                                | and                distribution of the       |                                   |   |   |   |
|                                    |                                | picture,                and consulting       |                                   |   |   |   |
|                                    |                                | services                during               |                                   |   |   |   |
|                                    |                                | development,                during           |                                   |   |   |   |
|                                    |                                | principal                photography,        |                                   |   |   |   |
|                                    |                                | and                during post               |                                   |   |   |   |
|                                    |                                | production                (to ensure         |                                   |   |   |   |
|                                    |                                | that                the film was             |                                   |   |   |   |
|                                    |                                | completed                on time and         |                                   |   |   |   |
|                                    |                                |  within                budget).         | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                         | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|----------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                                 | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)**     |                                   |   |   |   |
|                                    |                                | **Type                of**                   |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**       |                                   | **2004** |   | **2005** |
| **The                Wicker Man**       | Nicolas                Cage         | Produced                by a third party     |                                   |   |   |   |
|                                    | Ellen                Burstyn        | financier.                FMLY provided      |                                   |   |   |   |
| April                2006               | Leelee                Sobieski      | production                services and       |                                   |   |   |   |
| (Estimated                Release)      |                                | will                receive a producers      |                                   |   |   |   |
|                                    |                                | fee                in the first quarter of   |                                   |   |   |   |
| Theatrical                              |                                | 2006.                Additionally, we        |                                   |   |   |   |
|                                    |                                | will                receive a profit         |                                   |   |   |   |
|                                    |                                | participation,                if any, in the |                                   |   |   |   |
|                                    |                                | film.                (This project is in     |                                   |   |   |   |
|                                    |                                | production                with principal     |                                   |   |   |   |
|                                    |                                | photography                having started    |                                   |   |   |   |
|                                    |                                | on                July 28, 2005)             |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | - |
| Randall                Emmett &     |                                | Production                services           |                                   |   |   |   |
| George                Furla             |                                | provided                include negotiating  |                                   |   |   |   |
| Producer/                               |                                | for                the acquisition of the    |                                   |   |   |   |
| Executive                Producer       |                                | rights                in and to the screen-  |                                   |   |   |   |
|                                    |                                | play                upon which the picture   |                                   |   |   |   |
|                                    |                                | was                based as well as          |                                   |   |   |   |
|                                    |                                | the                acting services           |                                   |   |   |   |
|                                    |                                | agreements                of Nicolas         |                                   |   |   |   |
|                                    |                                | Cage                and the directing        |                                   |   |   |   |
|                                    |                                | services                of Neil              |                                   |   |   |   |
|                                    |                                | La                Bute Also provided         |                                   |   |   |   |
|                                    |                                | consulting                services           |                                   |   |   |   |
|                                    |                                | during                principal              |                                   |   |   |   |
|                                    |                                | photography                and the post      |                                   |   |   |   |
|                                    |                                | production                process.           |                                   |   |   |   |
|                                    |                                |                                         | $                                      | - | $ | - |

----

| **Picture**                             |                                |                                     | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                             | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)** |                                   |   |   |   |
|                                    |                                | **Type                of**               |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**   |                                   | **2004** |   | **2005** |

| **The                Contract**     | Morgan                Freeman | Produced                by a third party              |   |   |   |   |
|-------------------------------------|-------------------------------|-------------------------------------------------------|--------|--------|--------|--------|
|                                | John                Cusack    | financier.                FMLY provided               |   |   |   |   |
| May                2006             |                          | production                services and                |   |   |   |   |
| (Estimated                Release)  |                          | will                receive a producers               |   |   |   |   |
|                                |                          | fee                in the first quarter of            |   |   |   |   |
| Theatrical                          |                          | 2006.                Additionally, we                 |   |   |   |   |
|                                |                          | will                receive a profit participation    |   |   |   |   |
|                                |                          | ,                if any, in the film (This project is |   |   |   |   |
|                                |                          | In                production with principal           |   |   |   |   |
|                                |                          | photography                having started             |   |   |   |   |
|                                |                          | on                July 11, 2005)                      |   |   |   |   |
|                                |                          |                                                  |   |   |   |   |
| Randall                Emmett & |                          | Production                services                    |   |   |   |   |
| George                Furla         |                          | provided                include negotiating           |   |   |   |   |
| Producer/                           |                          | for                the acquisition of the             |   |   |   |   |
| Executive                Producer   |                          | rights                in and to the screen-           |   |   |   |   |
|                                |                          | play                upon which the picture            |   |   |   |   |
|                                |                          | was                based as well as                   |   |   |   |   |
|                                |                          | the                acting services                    |   |   |   |   |
|                                |                          | agreements                of Morgan                   |   |   |   |   |
|                                |                          | Freemand                and John                      |   |   |   |   |
|                                |                          | Cusack                and the directing               |   |   |   |   |
|                                |                          | services                of Bruce                      |   |   |   |   |
|                                |                          | Beresford                Also provided                |   |   |   |   |
|                                |                          | consulting                services                    |   |   |   |   |
|                                |                          | during                principal                       |   |   |   |   |
|                                |                          | photography                and the post               |   |   |   |   |
|                                |                          | production                process.                    |   |   |   |   |
|                                |                          |                                                  | $      | -      | $      | -      |

----

| **Picture**                             |                                |                                     | **Fees                Received**       |
|-----------------------------------------|-------------------------------------|------------------------------------------|----------------------------------------|
| **Initial                Release Date** |                                | **Function**                             | **Year                ended June 30,** |
| **and                Media Type**       |                                | **Performed                by FMLY (2)** |                                   |   |   |   |
|                                    |                                | **Type                of**               |                                   |   |   |   |
| **Film                Credit Received** | **Principal                Talent** | **Production                Services**   |                                   | **2004** |   | **2005** |

| **88                Minutes**              | Al                Pacino | Produced                by a third party     |    |    |                           |                               |
|--------------------------------------------|--------------------------|----------------------------------------------|---------|---------|--------------------------------|------------------------------------|
|                                       |                     | financier.                FMLY provided      |    |    |                           |                               |
| September                2006              |                     | production                services and       |    |    |                           |                               |
| (Estimated                Release)         |                     | will                receive a producers      |    |    |                           |                               |
|                                       |                     | fee                in the first quarter of   |    |    |                           |                               |
| Theatrical                                 |                     | 2006.                Additionally, we        |    |    |                           |                               |
|                                       |                     | will                receive a profit         |    |    |                           |                               |
|                                       |                     | participation,                if any, in the |    |    |                           |                               |
|                                       |                     | film.                (This project is in     |    |    |                           |                               |
|                                       |                     | production                with principal     |    |    |                           |                               |
|                                       |                     | photography                having started    |    |    |                           |                               |
|                                       |                     | on                July 11, 2005)             |    |    |                           |                               |
|                                       |                     |                                         |    |    |                           |                               |
| Randall                Emmett &        |                     | Production                services           |    |    |                           |                               |
| George                Furla                |                     | provided                include negotiating  |    |    |                           |                               |
| Producer/                                  |                     | for                the acquisition of the    |    |    |                           |                               |
| Executive                Producer          |                     | rights                in and to the screen-  |    |    |                           |                               |
|                                       |                     | play                upon which the picture   |    |    |                           |                               |
|                                       |                     | was                based as well as          |    |    |                           |                               |
|                                       |                     | the                acting services           |    |    |                           |                               |
|                                       |                     | agreements                of Al              |    |    |                           |                               |
|                                       |                     | Pacino                and the directing      |    |    |                           |                               |
|                                       |                     | services                of Jon               |    |    |                           |                               |
|                                       |                     | Avnet.                Also provided          |    |    |                           |                               |
|                                       |                     | consulting                services           |    |    |                           |                               |
|                                       |                     | during                principal              |    |    |                           |                               |
|                                       |                     | photography                and the post      |    |    |                           |                               |
|                                       |                     | production                process.           |    |    |                           |                               |
|                                       |                     |                                         | $       | -       | $                              | -                                  |
|                                       |                     |                                         |    |    |                           |                               |
| Royalties                and other revenue |                     |                                         | 105,440 |    | 281,534                281,534 |
|                                       |                     |                                         |    |    |                           |                               |
| Total                                      |                     |                                         | $       | 745,435 | $                              | 2,330,534                2,330,534 |
|                                       |                     |                                         |    |    |                           |                               |
| **Revenue                by Customer (5)** |                     |                                         |    |    |                           |                               |
| Nuimage/Millenium                          |                     |                                         | $       | 571,511 | $                              | 2,278,000                2,278,000 |
| Lions                Gate Films            |                     |                                         |    | 60,000  |                           | -                                  |
| Regent                Films                |                     |                                         |    | 76,979  |                           | -                                  |
| Other                                      |                     |                                         |    | 36,945  |                           | 52,534                52,534       |
|                                       |                     |                                         |    |    |                           |                               |
|                                       |                     |                                         | $       | 745,435 | $                              | 2,330,534                2,330,534 |
|                                       |                     |                                         |    |    |                           |                               |

----

| **(1)                The following is a chronological history of film projects that were                developed, packaged and/or produced by**                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **FMLY                for third party financiers (unless otherwise noted) and for third                party                distributors and have been either**       |
| **produced,                released or waiting to be released by third parties in fiscal years                2000                through 2004, and/or are**          |
| **scheduled                for release in fiscal 2005**                                                                                                               |   |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(2)                Substantially all production, financing, and motion picture related                services provided by FMLY are performed**                     |
| **by                Randall Emmett and George Furla, officers and significant stockholders                of                the Company. The primary**                |
| **functions/services                performed by Messrs. Emmett and Furla are as                follows:**                                                            |   |   |
| **a)                Seek creative material, acquire rights and arrange for writing the                screenplay**                                                    |   |   |
| **b)                Negotiate talent for the project (I.e. development, actors, directors                and                writers) and assist with**                |
| **pre-production,                post-production and packaging.**                                                                                                     |   |   |   |   |
| **c)                Negotiate distribution agreements, both domestic and                foreign.**                                                                    |   |   |   |
| **d)                Arrange for the sale of film rights.**                                                                                                            |   |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(3)                This motion picture has been in release for greater than two years                and                FMLY does not expect it to yield**          |
| **significant                additional revenue.**                                                                                                                    |   |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(3-A)                This motion picture has been in release for greater than two years                and is                in its second cycle of distribution.** |
| **FMLY                anticipates that additional revenues from new distribution                agreements.**                                                         |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(4)                There is no assurance that any motion picture that has not yet been                released, will be released, that a change**                   |
| **in                the scheduled release dates of any such films will not occur, or                that if                such motion picture is released,**         |
| **that                it will be successful. FMLY has various additional feature films                under                development and there can be no**          |
| **assurance                that any project under development will be produced, or that if produced,                that it will be released**                        |
| **or                successful.**                                                                                                                                     |   |   |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |
| **(5)                FMLY conducts business with a limited number of customers and loss                of any                one of those customers could**           |
| **have                a negative impact on its results of operations.**                                                                                               |   |   |   |   |
|                                                                                                                                                                  |   |   |   |   |   |   |

**News      Releases**

----

----

----

----

----

----

----

----

----

----

**ITEM      2.**
**Properties      **

**ITEM      3.**
**Legal      Proceedings**

**ITEM      4.**
**      Submission of Matters to a Vote of Security Holders **

**None**

----

**ITEM      5.**
**Market      for Common Equity and Related Stockholder Matters**

|                                                  | HIGH   | LOW    |
|-------------------------------------------------------|--------|--------|
|                                        | BID    | BID    |
|                                                  |   |   |
| **Fiscal                2003**** **              |   |   |
| September                30, 2002                     | $0.54  | $0.35  |
| December                31, 2002       | $0.50  | $0.23  |
| March                31, 2003     | $0.27  | $0.07  |
| June                30, 2003           | $0.18  | $0.09  |
|                                                  |   |   |
| **Fiscal                2004**                   |   |   |
| September                30, 2003           | $0.18  | $0.09  |
| December                31, 2003            | $0.11  | $0.09  |
| March                31, 2004          | $0.15  | $0.09  |
| June                30, 2004                          | $0.12  | $0.09  |
|                                                  |   |   |
| **Fiscal                2005**                   |   |   |
| September                30, 2004           | $0.09  | $0.06  |
| December                31, 2004            | $0.09  | $0.07  |
| March                31, 2005                         | $0.09  | $0.07  |
| June                30, 2005                          |   |   |
|                                                  |   |   |
| **Fiscal                2006**                        |   |   |
| September                30, 2005                     | $.05   | $.03   |
| December                30, 2005                      | $.03   | $.01   |
| March                31, 2006                         | $.02   | $.01   |

----

----

----

**ITEM      6.**
**Managements      Discussion and Analysis of Financial Condition and Results of      Operations**

**GENERAL**

**Critical      Accounting Policies and Estimates **

| 1.   | We                recognize revenue from the development, production, and production                services earned under the criteria established by SOP 00-2 as follows: |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Producers                Fees - Producer fees are recognized upon receipt of the fees and                delivery                of the related services. If upon receipt of the fees all services                have not                been provided, the fees are deferred and recognized as the services                are                performed; |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | Royalties                - Royalty and profit participation are recognized when the amounts                are                known and the receipt of the royalties is reasonably assured. Accordingly,                recognition generally occurs upon receipt (usually quarterly or                semi-annually); and |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | Producer                Development and Production Service Fees** **-                As these services are provided, these fees are invoiced by FMLY to                the                third party financiers and producers and are recognized when the                amount                has been determined and receipt is reasonably assured. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

**Plan      of Operation**

----

**RESULTS      OF OPERATIONS**

*Accounting      for Derivative Financial Instruments Indexed to, and Potentially Settled in,      a      Company’s Own Stock*
*Accounting      for Derivative Instruments and Hedging Activities*

----

| **Year                Ended** |                                                 |               |
|-------------------------------|------------------------------------------------------|--------------------|
| **June                30,**   |                                                 | **Amount**         |
|                          |                                                 |               |
| 2005                          |                                                 | $                - |
| 2006                          |                                                 | -                  |
| 2007                          | November                2006 - Convertible Notes Due | 2,000,000          |
|                          |                                                 |               |
|                          |                                                 | $2,000,000         |

|                                    | **June                30,**      | **June                30,** |
|-----------------------------------------|----------------------------------|-----------------------------|
|                                    | **  2005  ** | **  2004 **  |
|                                    |                             |                        |
| Accounts                payable         | $                88,098          | $                61,493     |
| Accrued                film costs       | -                                | 81,400                      |
| Accrued                interest payable | 109,875                          | -            |
|                                    |                             |                        |
|                                    | $                198,603         | $                142,893    |

----

| **Year                Ended** |   |                     |
|-------------------------------|--------|--------------------------|
| **June                30,**   |   | **Amount**               |
|                          |   |                     |
| 2005                          |   | $                74,074  |
| 2006                          |   | 44,077                   |
|                          |   |                     |
|                          |   | $                118,151 |

|                                                       |   | **2006**                |
|------------------------------------------------------------|--------|-------------------------|
|                                                       |   | **Estimate**            |
|                                                       |   |                    |
| Salaries,                consultants and benefits          |   | $                40,500 |
| Rent                                                       |   | 6,054                   |
| Parking                                                    |   | 1,520                   |
| Equipment                rental                            |   | 4,000                   |
| Telephone                and communications                |   | 1,890                   |
| Directors,                officers and corporate insurance |   | 5,400                   |
| Accounting                and auditing                     |   | 5,000                   |
|                                                       |   |                    |
|                                                       |   | $                64,364 |

**Estimated      Future Cash Requirements**

----

| $950,000.00   | General                Fund |
|---------------|-----------------------------|
| $1,300,000.00 | Tenant                      |
| $1,799,719.00 | Borderland                  |
| $250,000.00   | Wickerman                   |
| $130,000.00   | Room                Service |
|          |                        |
| $4,429,719.00 | Salinas                     |

** **
**.**

**,      **

----

**Subsequent      Events:**

----

----

**ITEM      7.**
**Financial      Statements**

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

**ITEM      8A.**
**Controls      and Procedures **

----

**ITEM      8B.**

*Accounting      for Derivative Financial Instruments Indexed to, and Potentially Settled in,      a      Company’s Own Stock*
*Accounting      for Derivative Instruments and Hedging Activities *

----

**PART      III**

**ITEM      9.**
**Directors,      Executive Officers, Promoters and Control Persons; Compliance with Section      16(a)      of the Exchange Act**

----

**Code      of Ethics for Chief Executive Officer and Senior Financial      Officers**

**ITEM      10. EXECUTIVE COMPENSATION**

|                                                                                                         |         | Annual                Compensation   |         | Long                Term Compensation Awards   |
|--------------------------------------------------------------------------------------------------------------|--------------|-------------------------------------------|--------------|-----------------------------------------------------|
| Name                andPrincipal                Position                                                |         | Year                                 |         | Salary(1)                                 |   | Bonus                  |   | OtherAnnualCompensation(2)   |   | RestrictedStockAwards                  |   | SecuritiesUnderlyingOptions                  |   | All                OtherCompensation                  |
| George                FurlaCo-Chairman,Chief                Executive Officer and President                  |         | 200520042003                              |         |                                                | 000 |   |   | 000 |   | $413,758$141,746                $100,000 |   |   | 000 |   | 000 |   |   | **$                0****$354,166****0** |
|  Randall                EmmettCo-ChairmanChief                Operating Officer and Assistant Secretary |    |  200520042003                        |    |                                                |  000 |   |     |  000                  |   |  $559,609$180,404$136,000 |   |   |  000 |   |  000 |   |   |  **$                0****$354,166****0** |
|  Stanley                TepperChief                Financial Officer                                    |    |  200520042003                        |    |                                                |  00                0 |   |   |  000 |   |  000 |   |   |  000 |   |  000 |   |   |  **$35,000****$12,500****0** |

**Option      Grants in Last Fiscal Year **

|                          |   | **Individual                Grants**                                                                                                             |   |                         |   |   |
|-------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|--------|
|                          |   | **Potential                Realizable Value at Assumed Annual Rates of Stock Price Appreciation                for                Option Term**  |
|                          |   | **Number                of Securities Underlying Options Granted**                                                                                    |   |                         |   |   |   |   |
|                          |   | **%                of Total Options Granted to Employees in 2005**                                                                                    |   |                         |   |   |
|                          |   | **Exercise                or Base Price****($/Sh)**                                                                                                   |   | **Expiration****Date**  |
|                          |   | **5%**                                                                                                                                           |   | **10%**                 |
| George                Furla   |   | 0                                                                                                                                                     |   | 0                            |   |   |   |   |   |   |   |   |   |   |
| Randall                Emmett |   | 0                                                                                                                                                     |   | 0                            |   |   |   |   |   |   |   |   |   |   |
| Stanley                Tepper |   | 0                                                                                                                                                     |   | 0                            |   |   |   |   |   |   |   |   |   |   |

----

**2005      Option Exercises and Year-End Option Holdings **

**Aggregate      Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values**

|                          |            |                                           |              |                  |            | **Number                of Unexercised Options Held at June 30, 2005**  |              | **Value                of Unexercised****In-the-Money                Options at June 30, 2005****(1)**** ** |
|-------------------------------|-----------------|------------------------------------------------|-------------------|-----------------------|-----------------|-----------------------------------------------------------------------------------|-------------------|------------------------------------------------------------------------------------------------------------------|
| **Name**                 |            | **Shares                Acquired on Exercise** |              | **Value****Realized** |
|                          | **Exercisable** |                                           | **Unexercisable** |                  | **Exercisable** |                                                                              | **Unexercisable** |
| George                Furla   |            |                                           |              |                  |            |                                                                              |              |                                                                                                             |   |   |   |   |   |   |
| Randall                Emmett |            |                                           |              |                  |            |                                                                              |              |                                                                                                             |   |   |   |   |   |   |
| Stanley                Tepper |            |                                           |              |                  |            |                                                                              |              |                                                                                                             |   |   |   |   |   |   |

**ITEM      11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND      MANAGEMENT**

----

**ITEM      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

**ITEM      13. EXHIBITS AND REPORTS ON FORM 8-K**

| 31.1   | Certification                of the Chief Executive Officer pursuant to Rule                13a-14(a) |
|------------------|-------------------------------------------------------------------------------------------------------|

| 31.2   | Certification                of the Chief Financial Officer pursuant to Rule                13a-14(a) |
|------------------|-------------------------------------------------------------------------------------------------------|

| 32.1   | Certification                of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350 |
|------------------|------------------------------------------------------------------------------------------|

| 32.2   | Certification                of the Chief Financial Officer pursuant to 18                U.S.C.ss.1350 |
|------------------|---------------------------------------------------------------------------------------------------------|

| (b)       | Reports                on Form 8-K                                               |
|-----------|----------------------------------------------------------------------------------|
| **Date**  | **Subject**                                                                      |
| 12/1/2004 | Received                funding with gross proceeds of                $2,000,000 |

----

**ITEM      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES **

|                              | **For                the Year Ended June 30,** |
|-----------------------------------|------------------------------------------------|
|                              | **2005**                                       | **2004** |
| Audit                Fees         | $55,000                                        | $30,000 |
| Audit-Related                Fees | $-                                             | $- |
| Tax                Fees           | $6,900                                         | $3,200 |
| All                Other Fees     | $-                                             | $- |
| Total                Fees         | $61,900                                        | $33,200 |

**Audit      committee’s pre-approval policies and procedures**

**Percentage      of hours expended**

----

**Signatures**

----

**Exhibit      31.1 **

**CERTIFICATION      OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) (SECTION 302 OF THE      SARBANES-OXLEY ACT OF 2002)**

|  /s/                George Furla  |
|---------------------------------------------|
| Chief                Executive Officer      |

----

**Exhibit      31.2 **

**CERTIFICATION      OF THE CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) ( SECTION 302 OF      THE      SARBANES-OXLEY ACT OF 2002)**

|  /s/                Stanley Tepper  |
|-----------------------------------------------|
| Chief                Financial Officer        |

----

**Exhibit      32.1**

**CERTIFICATION      PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 **

**(18      U.S.C. SECTION 1350) **

| (2) | The                information contained in the Report fairly presents, in all material                respects, the financial condition and result of operations of the                Company. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  /s/                George Furla  |
|---------------------------------------------|
| Chief                Executive Officer      |

----

**Exhibit      32.2 **

**CERTIFICATION      PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 **

**(18      U.S.C. SECTION 1350) **

|  /s/                Stanley Tepper                        |
|---------------------------------------------------------------------|
| Stanley                TepperChief                Financial Officer |

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**CONSOLIDATED        FINANCIAL STATEMENTS**

**WITH        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**for        the years ended June 30, 2005 and 2004**

----

***FAMILY        ROOM ENTERTAINMENT CORPORATION***

**______________________________________________________________________________________**

** **
**Page**

----

**REPORT        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

----

|  **FAMILY                  ROOM ENTERTAINMENT CORPORATION**                                                            |
|----------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                  BALANCE SHEETS**                                                                                 |
| **June                  30, 2005 and 2004**                                                                                      |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                                                                                                       |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   | **2005** |   | **2004** |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   | (As                  restated) |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                                                                       |   | $ | 736,870 |   | $ | 289,849 |   |
| Restricted                  cash                                                                                                 |   |   | 2,544,345 |   |   | - |   |
| Accounts                  receivable, net                                                                                        |   |   | 366,704 |   |   | 119,498 |   |
| Film                  costs, net                                                                                                 |   |   | 3,378,185 |   |   | 794,873 |   |
| Property                  and equipment, net                                                                                     |   |   | 56,540 |   |   | 38,958 |   |
| Prepaid                  expenses and other assets                                                                               |   |   | 44,936 |   |   | 175 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   | Total                  assets |   | $ | 7,127,580 |   | $ | 1,243,353 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' (DEFICIT)/EQUITY**                                                              |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes                  payable under film participation agreements                                                               |   | $ | 4,929,719 |   | $ | - |   |
| Notes                  payable and convertible debt, net of debt discount of $756,600                  and                  $-0- |   |   | 1,067,600 |   |   | 180,653 |   |
| Accounts                  payable and accrued liabilities                                                                        |   |   | 198,972 |   |   | 142,893 |   |
| Derivative                  financial instrument liabilities                                                                     |   |   | 1,158,898 |   |   | - |   |
|                                                                                                                             |   | Total                  liabilities |   |   | 7,355,189 |   |   | 323,545 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commitments                  and contingencies                                                                                   |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stockholders'                  equity                                                                                            |   |   |   |   |   |   |   |
|                                                                                                                             | Common                  stock: $0.01 par value, 200,000,000 shares |   |   |   |   |   |   |   |
|                                                                                                                             |   | authorized,                  89,537,254 and 87,037,254 shares |   |   |   |   |   |   |   |
|                                                                                                                             |   | issued                  and outstanding at June 30, 2005 and |   |   |   |   |   |   |   |
|                                                                                                                             |   | 2004,                  respectively |   |   | 895,373 |   |   | 870,373 |   |
|                                                                                                                             | Additional                  paid-in capital |   |   | 17,609,454 |   |   | 17,444,454 |   |
|                                                                                                                             | Accumulated                  deficit |   |   | (18,732,436 | ) |   | (17,395,019 | ) |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   | Total                  stockholders' (deficit)/equity |   |   | (227,609 | ) |   | 919,808 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   | Total                  liabilities and stockholders' (deficit)/equity |   | $ | 7,127,580 |   | $ | 1,243,353 |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of these consolidated financial                  statements         |

----

| **FAMILY                  ROOM ENTERTAINMENT CORPORATION**                                                               |
|--------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                  STATEMENTS OF OPERATIONS**                                                               |
| **For                  The Years Ended June 30, 2005 and 2004**                                                          |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   | **2005** |   | **2004** |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   | (as                  restated) |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |
| Film                  revenue                                                                                            |   | $ | 2,330,534 |   | $ | 745,435 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  cost - amortization of film costs                                                             |   |   | 1,669,809 |   |   | 1,131,338 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   | Gross                  margin |   |   | 660,725 |   |   | (385,904 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative expenses                                                            |   |   | 1,371,740 |   |   | 3,115,367 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   | Loss                  from operations |   |   | (711,015 | ) |   | (3,501,271 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  income and (expense)                                                                              |   |   |   |   |   |   |   |
|                                                                                                                     | Interest                  income |   |   | 5,764 |   |   | 22 |   |
|                                                                                                                     | Interest                  expense |   |   | (514,870 | ) |   | (831,118 | ) |
|                                                                                                                     | Change                  in value of derivative financial instruments |   |   | (117,296 | ) |   | - |   |
|                                                                                                                     |   | Total                  other income and expense, net |   |   | (626,402 | ) |   | (831,096 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | Net                  loss |   | $ | (1,337,417 | ) | $ | (4,332,366 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                  average number of common shares                                                                |   |   |   |   |   |   |   |
|                                                                                                                     | outstanding                  - basic and diluted |   |   | 88,626,295 |   |   | 43,982,613 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  loss per common share - basic and diluted                                                           |   | $ | (0.02 | ) | $ | (0.10 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of these consolidated financial                  statements |

----

| **FAMILY                  ROOM ENTERTAINMENT CORPORATION**                                                               |
|--------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**                                          |
| **For                  the Years Ended June 30, 2005 and 2004**                                                          |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   | **Additional** |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   | **Common                  Stock** |   | **Paid-In** |   | **Deferred** |   | **Accumulated** |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   | **Shares** |   | **Amount** |   | **Capital** |   | **Compensation** |   | **Deficit** |   | **Tota**l |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 2003                                                                                | 24,187,536 |   | $ | 241,875 |   | $ | 12,707,710 |   | $ | (5,437 | ) | $ | (13,062,653 | ) | $ | (118,505 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                  stock issued for                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | cash |   |   |   |   | 15,450,544 |   |   | 154,505 |   |   | 890,140 |   |   | - |   |   | - |   |   | 1,044,645 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                  of deferred                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | compensation |   |   | - |   |   | - |   |   | - |   |   | 5,437 |   |   | - |   |   | 5,437 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Value                  of beneficial                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | conversion                  feature and |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | warrants                  on convertible |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | debt |   |   |   |   | - |   |   | - |   |   | 679,856 |   |   | - |   |   | - |   |   | 679,856 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                  stock issued for                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | legal                  and consulting |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | services |   |   | 9,443,142 |   |   | 94,431 |   |   | 878,395 |   |   | - |   |   | - |   |   | 972,826 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                  stock issued upon                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | conversion                  of debt |   | 23,122,698 |   |   | 231,228 |   |   | 1,175,854 |   |   |   |   |   |   |   |   | 1,407,082 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                  stock issued for                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | employee                  compensation | 14,833,334 |   |   | 148,334 |   |   | 1,112,499 |   |   | - |   |   | - |   |   | 1,260,833 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  loss                                                                                                |   |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (4,332,366 | ) |   | (4,332,366 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 2004                                                                                | 87,037,254 |   |   | 870,373 |   |   | 17,444,454 |   |   | - |   |   | (17,395,019 | ) |   | 919,808 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common                  stock issued for                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     | consulting                  services |   | 2,500,000 |   |   | 25,000 |   |   | 165,000 |   |   | - |   |   | - |   |   | 190,000 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  loss, as restated                                                                                   |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (1,337,417 | ) |   | (1,337,417 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at June 30, 2005                                                                                | 89,537,254 |   | $ | 895,373 |   | $ | 17,609,454 |   | $ | - |   | $ | (18,732,436 | ) | $ | (227,609 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of these consolidated financial                  statements |

----

|  **FAMILY                  ROOM ENTERTAINMENT CORPORATION**                                                    |
|--------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                    STATEMENTS OF CASH FLOWS**                                                             |
| **For                  The Years Ended June 30, 2005 and 2004**                                                          |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   | **2005** |   | **2004** |   |
|                                                                                                                     |   |   | (as                  restated) |   |   |   |   |
|                                                                                                                     |   |   |   |   |   |   |   |
| Cash                  flows from operating activities:                                                                   |   |   |   |   |   |   |   |
|                                                                                                                     | Net                  loss |   | $ | (1,337,417 | ) | $ | (4,332,366 | ) |
|                                                                                                                     | Adjustment                  to reconcile net loss to net cash |   |   |   |   |   |   |   |
|                                                                                                                     |   | used                  in operating activities: |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Depreciation                  expense |   |   | 27,013 |   |   | 24,000 |   |
|                                                                                                                     |   |   | Amortization                  of film costs |   |   | 1,669,809 |   |   | 1,131,338 |   |
|                                                                                                                     |   |   | Stock-based                  compensation |   |   | - |   |   | 2,239,096 |   |
|                                                                                                                     |   |   | Common                  stock issued for services |   |   | 190,000 |   |   | - |   |
|                                                                                                                     |   |   | Common                  stock issued for accrued interest |   |   | - |   |   | 31,082 |   |
|                                                                                                                     |   |   | Derivative                  valuation adjustment |   |   | 117,296 |   |   | - |   |
|                                                                                                                     |   |   | Amortization                  of loan costs |   |   | 285,000 |   |   | 772,793 |   |
|                                                                                                                     |   | Increase/decrease |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Accounts                  receivable |   |   | (247,206 | ) |   | (69,498 | ) |
|                                                                                                                     |   |   | Film                  costs |   |   | (4,253,120 | ) |   | (881,876 | ) |
|                                                                                                                     |   |   | Other                  assets |   |   | (44,761 | ) |   | 37,976 |   |
|                                                                                                                     |   |   | Accounts                  payable and accrued liabilities |   |   | 56,079 |   |   | (55,288 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Net                  cash used by operating activities |   |   | (3,537,305 | ) |   | (1,102,743 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  flows from investing activities:                                                                   |   |   |   |   |   |   |   |
|                                                                                                                     | Increase                  in restricted cash |   |   | (2,544,345 | ) |   | - |   |
|                                                                                                                     | Purchase                  of property and equipment |   |   | (44,595 | ) |   | (18,531 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Net                  cash used by investing activities |   |   | (2,588,940 | ) |   | (18,531 | ) |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  flows from financing activities:                                                                   |   |   |   |   |   |   |   |
|                                                                                                                     | Proceeds                  from notes payable |   |   | 4,929,719 |   |   | - |   |
|                                                                                                                     | Payments                  on notes payable |   |   | (180,653 | ) |   | (115,372 | ) |
|                                                                                                                     | Payments                  on notes payable to stockholders |   |   | - |   |   | (323,562 | ) |
|                                                                                                                     | Proceeds                  from convertible debentures |   |   | 2,000,000 |   |   | 711,000 |   |
|                                                                                                                     | Payment                  of debt issue costs on convertible debentures |   |   | (175,800 | ) |   | - |   |
|                                                                                                                     | Proceeds                  from sale of common stock |   |   | - |   |   | 1,044,645 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Net                  cash provided by financing activities |   |   | 6,573,266 |   |   | 1,316,711 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Increase                  in cash and cash equivalents                                                                   |   |   | 447,021 |   |   | 195,437 |   |
|                                                                                                                     |   |   |   |   |   |   |   |
| Cash                  and cash equivalents at beginning of year                                                          |   |   | 289,849 |   |   | 94,412 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents at end of year                                                                |   | $ | 736,870 |   | $ | 289,849 |   |
|                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of these consolidated financial                  statements |

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**1.**
**General**

**2.**
**Summary        of Significant Accounting Policies**

**Principles        of Consolidation**

**Unclassified        Consolidated Balance Sheet**

**Accounting        Estimates**

**Revenue        Recognition**

| •   | FMLY                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. |
|---------------------|----------------------------------------------------------------------------------------------------------|

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary        of Significant Accounting Policies, continued**

**Revenue        Recognition, continued**

**Producers        Fees**

**Royalties**

**Producer        Development and Production Service Fees and Film Distribution Fees**

**Film        Costs**

**Exploitation        Costs**

**Participation        Costs**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **2.  ** | **Summary                of Significant Accounting Policies,                continued** |
|--------------------|-----------------------------------------------------------------------------------------|

**Cash        Equivalents**

**Property        and Equipment**

**Income        Taxes**

**Interest**

**Net        Loss Per Common Share**

**Stock-Based        Compensation**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary        of Significant Accounting Policies, continued **

**Comprehensive        Income**

**Fair        Value of Financial Instruments**

**Concentration        of Credit Risk**

**                   Convertible Debt Financing and Derivative        Liabilities**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary        of Significant Accounting Policies, continued **

**Recently        Issued Accounting Pronouncements**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary        of Significant Accounting Policies, continued **

**Recently        Issued Accounting Pronouncements, continued**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**2.**
**Summary        of Significant Accounting Policies, continued **

**Recently        Issued Accounting Pronouncements, continued**

**3.**
**Restricted        Cash**

| **4.** | **Accounts                  Receivable** |
|--------|------------------------------------------|

|   |   |   |                                                 |   |   |   |   |   |   |    | **2005** |    | **2004** |   |
|--------|--------|--------|------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|----------|---------|----------|--------|
|   |   |   |                                                 |   |   |   |   |   |   |    |     |    |     |   |   |   |
|   |   |   | Accrued                  receivables - producer fees |   |   |   |   |   | $      | 325,000 |     | $       | 106,998  |   |
|   |   |   | Accrued                  royalties                   |   |   |   |   |   |   |    |     | 41,704  |     |   | 12,500 |   |
|   |   |   |                                                 |   |   |   |   |   |   |    |     |    |     |   |   |   |
|   |   |   | Total                                                |   |   |   |   |   |   |    | $        | 366,704 |     | $      | 119,498 |   |

|   | At                  June 30, 2005 and 2004, one customer accounted for $325,000 and                  $106,998                  of accounts receivable. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| **5.** | **Film                  Costs and Revenue** |
|--------|---------------------------------------------|

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **5.** | **Film                  Costs and Revenue,                  continued** |
|--------|-------------------------------------------------------------------------|

|   |                                                    |                                         |   |    |         |   |           |      |                          |    | **Development** |   |      |      |   |
|--------|---------------------------------------------------------|----------------------------------------------|--------|---------|--------------|--------|----------------|-----------|-------------------------------|---------|-----------------|--------|-----------|-----------|--------|
|   |                                                    |                                         |   |    |         |   | **In**         |      | **and                  Pre-** |    |            |   |
|   |                                                    |                                         |   |    | **Released** |   | **Production** |      | **Production**                |    | **Total**       |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Net                  film cost balance at June 30, 2003 |                                         | $      | 772,163 |         | $      | 174,083        |      | $                             | 98,090  |            | $      | 1,044,336 |      |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Production                  costs incurred during 2004  |                                         |   | 27,990  |         |   | 182,220        |      |                          | 671,666 |            |   | 881,876   |      |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Transfers                  of film costs between        |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   |                                                    | categories                  in 2004          |   |    | (76,312      | )      |           | -         |                          |    | 76,312          |   |      | -         |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Total                  film costs incurred and paid by  |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   |                                                    | FMLY                  during 2004            |   |    | (48,322      | )      |           | 182,220   |                          |    | 747,978         |   |      | 881,876   |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Net                  film cost balance before 2004      |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   |                                                    | amortization                  and write offs |   |    | 723,841      |   |           | 356,303   |                          |    | 846,068         |   |      | 1,926,212 |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Less                  film cost amortization and        |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   |                                                    | write-offs                  during 2004      |   |    | 513,342      |   |           | 198,774   |                          |    | 419,222         |   |      | 1,131,338 |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Net                  film cost balance at June 30, 2004 |                                         |   | 210,499 |         |   | 157,529        |      |                          | 426,846 |            |   | 794,874   |      |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   | Production                  costs incurred during 2005  |                                         |   | 77,607  |         |   | 3,180,156      |      |                          | 895,357 |            |   | 4,253,120 |      |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Transfers                  of film costs between        |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   |                                                    | categories                  in 2005          |   |    | -            |   |           | 271,460   |                          |    | (271,460        | )      |      | -         |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Total                  film costs incurred and paid by  |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   |                                                    | FMLY                  during 2005            |   |    | 77,607       |   |           | 3,551,616 |                          |    | 623,897         |   |      | 4,253,120 |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Net                  film cost balance before 2005      |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   |                                                    | amortization                  and write offs |   |    | 288,106      |   |           | 3,709,146 |                          |    | 1,050,742       |   |      | 5,047,994 |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Less                  film cost amortization and        |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |
|   |                                                    | write-offs                  during 2005      |   |    | 228,106      |   |           | 1,045,439 |                          |    | 396,264         |   |      | 1,669,809 |   |
|   |                                                    |                                         |   |    |         |   |           |      |                          |    |            |   |      |      |   |   |
|   | Net                  film cost balance at June 30, 2005 |                                         | $      | 60,000  |         | $      | 2,663,707      |      | $                             | 654,478 |            | $      | 3,378,185 |      |

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**____________________________________________________________________________________**

**5.**
**Film        Costs and Revenue, continued **

|   |                                                                           |                                                     |                                     |   |   |   |   |   |   |   | **2005** |      | **2004** |                       |
|--------|--------------------------------------------------------------------------------|----------------------------------------------------------|------------------------------------------|--------|--------|--------|--------|--------|--------|--------|----------|-----------|----------|----------------------------|
|   |                                                                           |                                                     |                                     |   |   |   |   |   |   |   |     |      |     |                       |   |   |
|   | **Released                  Projects - Amortization**                          |                                                     |                                     |   |   |   |   |   |   |   |     |      |     |                       |
|   |                                                                           | Amityville                  Horror After 25 Years        |                                     |   |   |   |   |   |   | $      | 311,827  |      | $        | 116,397                  - |   |
|   |                                                                           | After                  Sex                               |                                     |   |   |   |   |   |   |   | 40,413   |      |     | -                          |   |
|   |                                                                           | Good                  Advice                             |                                     |   |   |   |   |   |   |   | 98,926   |      |     | 228,258                    |   |
|   |                                                                           | Held                  for Ransom                         |                                     |   |   |   |   |   |   |   | 41,020   |      |     | 106,896                    |   |
|   |                                                                           | Speedway                  Junkie                         |                                     |   |   |   |   |   |   |   | 9,641    |      |     | 115,971                    |   |
|   |                                                                           | Submerged                                                |                                     |   |   |   |   |   |   |   | 291,741  |      |     | -                          |   |
|   |                                                                           |                                                     |                                     |   |   |   |   |   |   |   |     |      |     |                       |   |   |
|   | **Projects                  in Development, In-Production, or Pre-Production** |                                                     |                                     |   |   |   |   |   |   |
|   |                                                                           | 16                  Blocks                               |                                     |   |   |   |   |   |   |   | 270,981  |      |     | -                          |   |
|   |                                                                           | Control                                                  |                                     |   |   |   |   |   |   |   | -        |      |     | 121,390                    |   |
|   |                                                                           | Edison                                                   |                                     |   |   |   |   |   |   |   | -        |      |     | 177,002                    |   |
|   |                                                                           | Lonely                  Hearts                           |                                     |   |   |   |   |   |   |   | 62,941   |      |     |                       |   |
|   |                                                                           | Mercenary                                                |                                     |   |   |   |   |   |   |   | 117,271  |      |     | -                          |   |
|   |                                                                           | Today                  We Die                            |                                     |   |   |   |   |   |   |   | 188,634  |      |     | -                          |   |
|   |                                                                           | Windfall                                                 |                                     |   |   |   |   |   |   |   | -        |      |     | 49,807                     |   |
|   |                                                                           | Total                  of other individual projects with |                                     |   |   |   |   |   |   |   |     |      |     |                       |   |
|   |                                                                           |                                                     | costs                  less than $40,000 |   |   |   |   |   |   |   |     | 236,414   |     |                       | 215,617 |   |
|   |                                                                           |                                                     |                                     |   |   |   |   |   |   |   |     |      |     |                       |   |   |
|   |                                                                           |                                                     | Total                  all projects      |   |   |   |   |   |   |   | $        | 1,669,809 |     | $                          | 1,131,338 |   |

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**5.**
**Film        Costs and Revenue, continued **

|   | “Speedway                  Junkie” - FMLY wrote this project off in 2004 when management determined                  that no additional revenues were likely from this                  project. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | “Submerged”                  - went into production in fiscal 2005 and FMLY received a producer                  fee                  (see above) and amortized its costs for year-end June 30,                  2005. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | “Today                  We Die” - into production in fiscal 2005 and FMLY received a producer fee                  (see above) and amortized its costs for year-end June 30,                  2005. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | “16                  Blocks” - into production in fiscal 2005 and FMLY received a producer fee                  (see above) and amortized its costs for year-end June 30,                  2005. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | “Control”                  and “Edison” - In 2004 FMLY derived producer’s fees from these projects                  and all costs associated with the projects were amortized. These                  projects                  were in development/post production stage at the time they were                  taken over                  by producer or third party financier. No Costs related to these                  projects                  are reflected in FMLY’s financial statements at June 30,                  2004. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**5.**
**Film        Costs and Revenue, continued **

|   |                                                             |   |   |   |   |   |   |   |   |   | **2005** |   | **2004** |   |
|--------|------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------|--------|----------|--------|
|   |                                                             |   |   |   |   |   |   |   |   |   |     |   |     |   |   |   |
|   | The                  Tenants                                     |   |   |   |   |   |   |   |   | 37     | %        |   | -        | %      |
|   | Borderland                                                       |   |   |   |   |   |   |   |   | 22     |     |   | -        |   |
|   | White                  Air                                       |   |   |   |   |   |   |   |   | 7      |     |   | -        |   |
|   | Wickerman                                                        |   |   |   |   |   |   |   |   | 7      |     |   | -        |   |
|   | Submerged                                                        |   |   |   |   |   |   |   |   | -      |     |   | 23       |   |
|   | Shottas                                                          |   |   |   |   |   |   |   |   | -      |     |   | 19       |   |
|   | Good                  Advice                                     |   |   |   |   |   |   |   |   | -      |     |   | 13       |   |
|   | After                  Sex                                       |   |   |   |   |   |   |   |   | -      |     |   | 7        |   |
|   | Held                  for Ransom                                 |   |   |   |   |   |   |   |   | -      |     |   | 7        |   |
|   | 88                  Minutes                                      |   |   |   |   |   |   |   |   | 5      |     |   | 5        |   |
|   | Total                  of other individual projects less than 5% |   |   |   |   |   | 22     |   |   | 26     |     |
|   |                                                             |   |   |   |   |   |   |   |   |   |     |   |     |   |   |   |
|   |                                                             | Total  |   |   |   |   |   |   |   |   | 100      | %      |     | 100    | % |
|   |                                                             |   |   |   |   |   |   |   |   |   |     |   |     |   |   |   |

|                                             |                                                         |                                                |   |   |   |   |    |   |   |                      | **2005**  |    | **2004**                              |    |
|--------------------------------------------------|--------------------------------------------------------------|-----------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|---------------------------|-----------|---------|---------------------------------------|---------|
| **Producer                  Fees**               |                                                         |                                                |   |   |   |   |    |   |   |                      |      |    |                                  |
|                                             | 16                  Blocks                                   |                                                |   |   |   |   |    |   | $      | 625,000                   |      | $       | -                                     |    |
|                                             | Amityville                  Horror After 25 Years            |                                                |   |   |   |   |    |   |   | 500,000                   |      |    | -                                     |    |
|                                             | Submerged                                                    |                                                |   |   |   |   |    |   |   | 300,000                   |      |    | -                                     |    |
|                                             | Mercenary                  Seagal Project                    |                                                |   |   |   |   |    |   |   | 300,000                   |      |    | -                                     |    |
|                                             | Today                  We Die                                |                                                |   |   |   |   |    |   |   | 200,000                   |      |    | -                                     |    |
|                                             | Lonely                  Hearts                               |                                                |   |   |   |   |    |   |   | 100,000                   |      |    | -                                     |    |
|                                             | The                  Tenants                                 |                                                |   |   |   |   |    |   |   | 12,000                    |      |    | -                                     |    |
|                                             | Control                                                      |                                                |   |   |   |   |    |   |   | -                         |      |    | 117,500                               |    |
|                                             | Edison                                                       |                                                |   |   |   |   |    |   |   | -                         |      |    | 250,000                               |    |
|                                             | Out                  for a Kill                              |                                                |   |   |   |   |    |   |   | -                         |      |    | -                                     |    |
|                                             | Belly                  of the Beast                          |                                                |   |   |   |   |    |   |   | -                         |      |    | -                                     |    |
|                                             | Wonderland                                                   |                                                |   |   |   |   |    |   |   | -                         |      |    |                      - |    |
|                                             |                                                         |                                                |   |   |   |   |    |   |   |                      |      |    |                                  |    |   |   |
|                                             |                                                         | Total                  producer fees / film revenue |   |   |   |   |    |   |   |                      | 2,037,000 |    |                                  | 367,500 |   |
|                                             |                                                         |                                                |   |   |   |   |    |   |   |                      |      |    |                                  |    |   |   |
| **Royalties                  and Other Revenue** |                                                         |                                                |   |   |   |   |    |   |   |                      |      |    |                                  |
|                                             | Royalties                                                    |                                                |   |   |   |   |    |   |   | 28,034                    |      |    | 11,945                                |    |
|                                             | Distribution                  revenue                        |                                                |   |   |   |   |    |   |   | 24,500                    |      |    | 136,979                               |    |
|                                             | Film                  production service fees and consulting |                                                |   |   |   |   | 241,000 |   |   |    229,011 |      |
|                                             |                                                         |                                                |   |   |   |   |    |   |   |                      |      |    |                                  |    |   |   |
|                                             |                                                         |                                                |   |   |   |   |    |   |   |                      |      | 293,534 |                                  |    |    377,935 |   |
|                                             |                                                         |                                                |   |   |   |   |    |   |   |                      |      |    |                                  |    |   |   |
|                                             | Total                  revenue                               |                                                |   |   |   |   |    |   | $      | 2,330,534                 |      | $       | 745,435                               |    |

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **6.** | **Property                  and Equipment** |
|--------|---------------------------------------------|

|   |   |   |                                                            |   |   |   |   |   | **Life**                 |   | **2005** |    | **2004** |   |
|--------|--------|--------|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------------------------|--------|----------|---------|----------|--------|
|   |   |   |                                                            |   |   |   |   |   |                     |   |     |    |     |   |   |   |
|   |   |   | Office                  furniture and equipment                 |   |   |   |   |   | 7                  years |   | $        | 45,793  |     | $      | 11,223 |   |
|   |   |   | Computer                  equipment                             |   |   |   |   |   | 5                  years |   |     | 55,413  |     |   | 51,743 |   |
|   |   |   | Software                                                        |   |   |   |   |   | 3                  years |   |     | 79,409  |     |   | 74,054 |   |
|   |   |   |                                                            |   |   |   |   |   |                     |   |     |    |     |   |   |   |
|   |   |   | Total                                                           |   |   |   |   |   |                     |   |     | 180,615 |     |   | 137,020 |   |
|   |   |   |                                                            |   |   |   |   |   |                     |   |     |    |     |   |   |   |
|   |   |   | Less                  accumulated depreciation and amortization |   |   |   |   |   | 124,075                  |   |     | 98,062  |     |
|   |   |   |                                                            |   |   |   |   |   |                     |   |     |    |     |   |   |   |
|   |   |   |                                                            |   |   |   |   |   |                     |   | $        | 56,540  |     | $      | 38,958 |   |

| **7.** | **Notes                  Payable Under Film Participation                  Agreements** |
|--------|-----------------------------------------------------------------------------------------|

|   |   |   |                               |   |   |   |   |   |   | **Investor                  Loans** |
|--------|--------|--------|------------------------------------|--------|--------|--------|--------|--------|--------|-------------------------------------|
|   |   |   |                               |   |   |   |   |   |   |                                | **Scorched** |
|   |   |   |                               |   |   |   |   |   |   | **Tau**                             | **Earth** |
|   |   |   | **Specified                  Use** |   |   |   |   |   |   | **Entertainment**                   | **Entertainment** |
|   |   |   |                               |   |   |   |   |   |   |                                |   |   |   |   |   |   |
|   |   |   | General                  Fund (a)  |   |   |   |   |   |   |                                | $ | 950,000 |   | $ | - |   |
|   |   |   | The                  Tenant        |   |   |   |   |   |   |                                |   | 1,300,000 |   |   | - |   |
|   |   |   | Borderland                         |   |   |   |   |   |   |                                |   | 1,799,719 |   |   | 500,000 |   |
|   |   |   | Wickerman                          |   |   |   |   |   |   |                                |   | 250,000 |   |   | - |   |
|   |   |   | Room                  Service      |   |   |   |   |   |   |                                |   | 130,000 |   |   | - |   |
|   |   |   |                               |   |   |   |   |   |   |                                |   |   |   |   |   |   |
|   |   |   |                               |   |   |   |   |   |   |                                | $ | 4,429,719 |   | $ | 500,000 |   |

** **
**.**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**7.**
**Notes        Payable Under Film Participation Agreements, continued**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **8.** | **Notes                  Payable and Convertible                  Debt** |
|--------|--------------------------------------------------------------------------|

|   |   |   |                                                                                                       |                                                                             |                                              |      |      |   |    |    |   |   | **2005** |      | **2004** |   |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|---------------------------------------------------|-----------|-----------|--------|---------|---------|--------|--------|----------|-----------|----------|--------|
|   |   |   |                                                                                                       |                                                                             |                                              |      |      |   |    |    |   |   |     |      |     |   |   |   |
|   |   |   | Note                  payable to a bank under a $322,936 revolving line of                  credit         |                                                                             |                                              |      |      |   |    |    |
|   |   |   | converted                  to a term loan bearing interest at the banks prime rate                  (4.00% |                                                                             |                                              |      |      |   |    |    |
|   |   |   | at                  June 30, 2005) plus 1.5% per year and due in monthly installments                      |                                                                             |                                              |      |      |   |    |    |
|   |   |   | of                  $5,382, plus interest through January 15, 2008. This note was                          |                                                                             |                                              |      |      |   |    |    |
|   |   |   | collateralized                  by the guarantees of two major stockholders of FMLY,                       |                                                                             |                                              |      |      |   |    |    |
|   |   |   | Including                  FMLY's Chief Executive Officer, and was fully repaid in                  2005   |                                                                             | $                                                 | -         |      | $      | 180,653 |    |
|   |   |   |                                                                                                       |                                                                             |                                              |      |      |   |    |    |   |   |     |      |     |   |   |   |
|   |   |   | Notes                  payable under convertible debt agreements                                           |                                                                             |                                              | 1,824,200 |      |   | -       |    |
|   |   |   |                                                                                                       |                                                                             |                                              |      |      |   |    |    |   |   |     |      |     |   |   |   |
|   |   |   |                                                                                                       | Total                  contractual amounts of notes payable and convertible debt |                                              |      | 1,824,200 |   |    | 180,653 |   |
|   |   |   |                                                                                                       |                                                                             |                                              |      |      |   |    |    |   |   |     |      |     |   |   |   |
|   |   |   |                                                                                                       | Less                  un-amortized debt issue costs                              |                                              |      | 756,600   |   |    | -       |   |
|   |   |   |                                                                                                       |                                                                             |                                              |      |      |   |    |    |   |   |     |      |     |   |   |   |
|   |   |   |                                                                                                       |                                                                             | Notes                  payable and long-term debt |      |      |   |    |    |   |   | $        | 1,067,600 |     | $      | 180,653 |   |

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **8.** | **Notes                  Payable and Convertible Debt,                  continued** |
|--------|-------------------------------------------------------------------------------------|

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **8.** | **Notes                  Payable and Convertible Debt,                  continued** |
|--------|-------------------------------------------------------------------------------------|

**9.**
**Accounts        Payable and Accrued Liabilities**

|   |   |   |                                      |   |   |   |   |   |   |   | **2005** |    | **2004** |   |
|--------|--------|--------|-------------------------------------------|--------|--------|--------|--------|--------|--------|--------|----------|---------|----------|--------|
|   |   |   |                                      |   |   |   |   |   |   |   |     |    |     |   |   |   |
|   |   |   | Accounts                  payable         |   |   |   |   |   |   |   | $        | 89,097  |     | $      | 61,493 |   |
|   |   |   | Accrued                  film costs       |   |   |   |   |   |   |   |     | -       |     |   | 81,400 |   |
|   |   |   | Accrued                  Interest Payable |   |   |   |   |   |   |   |     | 109,975 |     |   | - |   |
|   |   |   |                                      |   |   |   |   |   |   |   |     |    |     |   |   |   |
|   |   |   |                                      |   |   |   |   |   |   |   | $        | 199,072 |     | $      | 142,893 |   |

| **10.** | **Income                  Taxes** |
|---------|-----------------------------------|

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**10.**
**Income        Taxes, continued**

|   |   |   |                                                                   |   |   |   |   |   |   |   | **2005** |        | **2004** |   |
|--------|--------|--------|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|----------|-------------|----------|--------|
|   |   |   |                                                                   |   |   |   |   |   |   |   |     |        |     |   |   |   |
|   |   |   | **Deferred                  tax assets:**                              |   |   |   |   |   |   |   |     |        |     |   |   |   |
|   |   |   | Net                  operating losses                                  |   |   |   |   |   |   |   | $        | 3,305,763   |     | $      | 3,014,919 |   |
|   |   |   | Accounts                  receivable - allowance for doubtful accounts |   |   |   | -      |   |   | 28,050 |     |
|   |   |   | Valuation                  allowance                                   |   |   |   |   |   |   |   |     | (3,302,763) |     |   | (3,035,274) |   |
|   |   |   |                                                                   |   |   |   |   |   |   |   |     |        |     |   |   |   |
|   |   |   | Total                  deferred tax assets                             |   |   |   |   |   |   |   |     | 3,000       |     |   | 7,695 |   |
|   |   |   |                                                                   |   |   |   |   |   |   |   |     |        |     |   |   |   |
|   |   |   | **Deferred                  tax liabilities:**                         |   |   |   |   |   |   |   |     |        |     |   |   |   |
|   |   |   | Basis                  of property and equipment                       |   |   |   |   |   |   |   |     | 3,000       |     |   | 7,695 |   |
|   |   |   |                                                                   |   |   |   |   |   |   |   |     |        |     |   |   |   |
|   |   |   | Net                  deferred tax asset                                |   |   |   |   |   |   |   | $        | -           |     | $      | - |   |

|   |   |   |                                                                                                                       |   | **2005**   |     | **2004**    |   |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------|--------|------------|----------|-------------|--------|
|   |   |   |                                                                                                                       |   | **Amount** |     | **Percent** |   | **Amount** |   | **Percent** |   |
|   |   |   |                                                                                                                       |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   | Benefit                  for income tax at federal                                                                         |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   | statutory                  rate                                                                                            |   | $          | 454,722  |        |   | 34% |   | $ | 1,473,004 |   |   | 34% |   |
|   |   |   | Non-deductible                  stock-based                                                                                |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   | Compensation                                                                                                               |   |       | -        |        |   | 0% |   |   | (761,293 | ) |   | -18% |   |
|   |   |   | Non-deductible                  expenses related to convertible debt and derivative financial                  instruments |   |       | (153,684 | )           |   | -12% |   |   | (262,750 | ) |   | -6% |   |
|   |   |   | Other,                  including non-deductible                                                                           |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   | business                  meals and entertainment                                                                          |   |       | (7,704   | )           |   | -                  % |   |   | (1,208 | ) |   | -                  % |   |
|   |   |   | Change                  in valuation allowance                                                                             |   |       | (293,334 | )           |   | -22% |   |   | (447,753 | ) |   | -10% |   |
|   |   |   |                                                                                                                       |   |       |     |        |   |   |   |   |   |   |   |   |   |
|   |   |   |                                                                                                                       |   | $          | -        |        |   | - |   | $ | - |   |   | - |   |

**11.**
**Lease        Agreement**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**11.**
**Lease        Agreement, continued**

|   |   |   | **Year                  Ending** |   |   |   |   |   |   |   |   |   |   |       |    |   |
|--------|--------|--------|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|---------|--------|
|   |   |   | **June                  30,**    |   |   |   |   |   |   |   |   |   |   | **Amount** |    |
|   |   |   |                             |   |   |   |   |   |   |   |   |   |   |       |    |   |
|   |   |   | 2006                             |   |   |   |   |   |   |   |   |   |   | $          | 74,074  |   |
|   |   |   | 2007                             |   |   |   |   |   |   |   |   |   |   |       | 44,077  |   |
|   |   |   |                             |   |   |   |   |   |   |   |   |   |   |       |    |   |
|   |   |   |                             |   |   |   |   |   |   |   |   |   |   | $          | 118,151 |   |

| **12.** | **Stockholders’                  Equity** |
|---------|-------------------------------------------------|

**Common        Stock**

**Stock        Options**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**12.**
**Stockholders’        Equity, continued**

**Stock        Options, continued**

|   |   |   |                                          |   |   |   |   |   | **Number                  of** |        | **Weighted** |   |
|--------|--------|--------|-----------------------------------------------|--------|--------|--------|--------|--------|--------------------------------|-------------|--------------|--------|
|   |   |   |                                          |   |   |   |   |   | **Shares**                     |        | **Average**  |   |
|   |   |   |                                          |   |   |   |   |   | **Under**                      |        | **Exercise** |   |
|   |   |   | **Description**                               |   |   |   |   |   | **Options**                    |        | **Price**    |   |
|   |   |   |                                          |   |   |   |   |   |                           |        |         |   |   |   |
|   |   |   | Outstanding                  at June 30, 2003 |   |   |   |   |   |                           | 2,085,000   |         | $      | 0.25 |   |
|   |   |   |                                          |   |   |   |   |   |                           |        |         |   |   |   |
|   |   |   | Granted                                       |   |   |   |   |   |                           | -           |         |   | - |   |
|   |   |   | Exercised                                     |   |   |   |   |   |                           | -           |         |   | - |   |
|   |   |   | Forfeited                                     |   |   |   |   |   |                           | (460,000)   |         |   | 0.25 |   |
|   |   |   |                                          |   |   |   |   |   |                           |        |         |   |   |   |
|   |   |   | Outstanding                  at June 30, 2004 |   |   |   |   |   |                           | 1,625,000   |         |   | 0.25 |   |
|   |   |   |                                          |   |   |   |   |   |                           |        |         |   |   |   |
|   |   |   | Granted                                       |   |   |   |   |   |                           | -           |         |   | - |   |
|   |   |   | Exercised                                     |   |   |   |   |   |                           | -           |         |   | - |   |
|   |   |   | Forfeited                                     |   |   |   |   |   |                           | (1,480,000) |         |   | 0.25 |   |
|   |   |   |                                          |   |   |   |   |   |                           |        |         |   |   |   |
|   |   |   | Outstanding                  at June 30, 2005 |   |   |   |   |   |                           | 145,000     |         |   | 0.25 |   |

|   |   |   |                                  |   |   |   |   |                           |   | **Remaining**   |   |         |   |
|--------|--------|--------|---------------------------------------|--------|--------|--------|--------|--------------------------------|--------|-----------------|--------|--------------|--------|
|   |   |   |                                  |   |   |   |   |                           |   | **Contractual** |   |         |   |
|   |   |   |                                  |   |   |   |   | **Expiration**                 |   | **Life**        |   | **Exercise** |   |
|   |   |   | **Number                  of Shares** |   |   |   |   | **Date**                       |   | **(Years)**     |   | **Price**    |   |
|   |   |   |                                  |   |   |   |   |                           |   |            |   |         |   |
|   |   |   | 45,000                                |   |   |   |   | December                  2006 |   | 1.5             |   | $0.25        |   |
|   |   |   | 100,000                               |   |   |   |   | June                  2007     |   | 1.9             |   | $0.25        |   |
|   |   |   |                                  |   |   |   |   |                           |   |            |   |         |   |
|   |   |   | 145,000                               |   |   |   |   |                           |   |            |   |         |   |

**Stock        Compensation Plan**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

| **12.  ** | **Stockholders’                Equity, continued** |
|---------------------|----------------------------------------------------------|

**Stock        Warrants**

|   |   |   |                                          |   |   |   |   |   |   |   |   | **Number                  of** |       |
|--------|--------|--------|-----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------------------------------|------------|
|   |   |   |                                          |   |   |   |   |   |   |   |   | **Shares**                     |       |
|   |   |   |                                          |   |   |   |   |   |   |   |   | **Under**                      |       |
|   |   |   | **Description**                               |   |   |   |   |   |   |   |   | **Warrants**                   |       |
|   |   |   |                                          |   |   |   |   |   |   |   |   |                           |       |   |
|   |   |   | Outstanding                  at June 30, 2003 |   |   |   |   |   |   |   |   |                           | 2,500,000  |   |
|   |   |   |                                          |   |   |   |   |   |   |   |   |                           |       |   |
|   |   |   | Granted                                       |   |   |   |   |   |   |   |   |                           | 8,571,428  |   |
|   |   |   |                                          |   |   |   |   |   |   |   |   |                           |       |   |
|   |   |   | Outstanding                  at June 30, 2004 |   |   |   |   |   |   |   |   |                           | 11,071,428 |   |
|   |   |   |                                          |   |   |   |   |   |   |   |   |                           |       |   |
|   |   |   | Granted                                       |   |   |   |   |   |   |   |   |                           | 23,333,334 |   |
|   |   |   |                                          |   |   |   |   |   |   |   |   |                           |       |   |
|   |   |   | Outstanding                  at June 30, 2005 |   |   |   |   |   |   |   |   |                           | 34,404,762 |   |

|   |   |   |                                  |   |   |   |                            |   |        |   | **Remaining**                   |   |   |   |   |
|--------|--------|--------|---------------------------------------|--------|--------|--------|---------------------------------|--------|-------------|--------|---------------------------------|--------|--------|--------|--------|
|   |   |   |                                  |   |   |   |                            |   |        |   | **Contractual**                 |   |   |   |   |
|   |   |   |                                  |   |   |   | **Expiration**                  |   | **Life**    |   | **Exercise**                    |   |
|   |   |   | **Number                  of Shares** |   |   |   | **Date**                        |   | **(Years)** |   | **Price**                       |   |
|   |   |   |                                  |   |   |   |                            |   |        |   |                            |   |   |   |   |   |
|   |   |   | 250,000                               |   |   |   | September                  2006 |   | 1.3         |   | 110%                  of market |   |
|   |   |   | 1,500,000                             |   |   |   | January                  2008   |   | 2.5         |   | $3.00                           |   |
|   |   |   | 750,000                               |   |   |   | January                  2008   |   | 2.5         |   | 65%                  of market  |   |
|   |   |   | 5,000,000                             |   |   |   | January                  2008   |   | 2.5         |   | $0.50                           |   |
|   |   |   | 3,571,428                             |   |   |   | January                  2008   |   | 2.5         |   | $0.13                           |   |
|   |   |   | 23,333,334                            |   |   |   | November                  2009  |   | 4.4         |   | $0.12                           |   |
|   |   |   |                                  |   |   |   |                            |   |        |   |                            |   |   |   |   |   |
|   |   |   | 34,404,756                            |   |   |   |                            |   |        |   |                            |   |   |   |   |   |

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**13.**
**Claims        and Contingencies**

**14.**
**Major        Customers and Concentrations**

|   |   |   |                                                                       |   |   |   |   |   | **2005** |   | **2004** |   |
|--------|--------|--------|----------------------------------------------------------------------------|--------|--------|--------|--------|--------|----------|--------|----------|--------|
|   |   |   |                                                                       |   |   |   |   |   |     |   |     |   |   |   |
|   |   |   | Number                  of customers accounting for more than 10%          |   |   | 1      |   |   | 2        |   |
|   |   |   | of                  revenue                                                |   |   |   |   |   |     |   |     |   |   |   |
|   |   |   |                                                                       |   |   |   |   |   |     |   |
|   |   |   | Percentage                  of total revenue derived from largest customer |   |   | 87%    |   |   | 77%      |   |
|   |   |   |                                                                       |   |   |   |   |   |     |   |     |   |   |   |
|   |   |   | Percentage                  of total revenue derived from second largest   |   |   |   |   |   |     |   |
|   |   |   | Customer                                                                   |   |   |   |   |   |     | 1%     |     |   | 10% |   |

**15.**
**Related        Party Transactions**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**15.**
**Related        Party Transactions, continued**

**16.**
**Non-Cash        Investing and Financing Activities**

|   |   |   |                                                              |   |   |      |   |   | **2005**  |   | **2004** |   |
|--------|--------|--------|-------------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|----------|--------|
|   |   |   |                                                              |   |   |      |   |   |      |   |     |   |   |   |
|   |   |   | Common                  stock issued to convert debt to equity    |   | $      | -         |   | $      | 1,407,082 |   |
|   |   |   |                                                              |   |   |      |   |   |      |   |     |   |   |   |
|   |   |   | Embedded                  derivative financial instruments        |   |   |      |   |   |      |   |
|   |   |   | issued                  as part of convertible debt issuance      |   |   | 1,041,602 |   |   |      |   |
|   |   |   |                                                              |   |   |      |   |   |      |   |     |   |   |   |
|   |   |   | Beneficial                  conversion value offset against       |   |   |      |   |   |      |   |
|   |   |   | convertible                  debt and treated as an increase      |   |   |      |   |   |      |   |
|   |   |   | to                  additional paid-in capital                    |   |   |      |   |   |      | -      |     |   | 471,314 |   |
|   |   |   |                                                              |   |   |      |   |   |      |   |
|   |   |   | Warrants                  issued to originate convertible debt    |   |   |      |   |   |      |   |
|   |   |   | and                  treated as an increase to additional paid-in |   |   |      |   |   |      |   |
|   |   |   | capital                  and an offset against convertible debt   |   |   | -         |   |   | 208,542   |   |

**17.        **
**Subsequent        Events**

**Stock        Issuances**

**New        Subsidiaries**

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**18.**
**Restatement**

| **Balance                  Sheet**                                  |                                        |                                                  |                                                                        |      |      |                               |      |           |         |
|---------------------------------------------------------------------|---------------------------------------------|-------------------------------------------------------|-----------------------------------------------------------------------------|-----------|-----------|------------------------------------|-----------|----------------|--------------|
|                                                                |                                        |                                                  |                                                                        |      |      | **As                  Previously** |      |           |         |   |   |   |   |
|                                                                |                                        |                                                  |                                                                        |      |      | **Reported**                       |      | **Adjustment** |         | **As                  Restated** |   |
| **ASSETS**                                                          |                                        |                                                  |                                                                        |      |      |                               |      |           |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |   |   |   |   |   |
| Cash                  and cash equivalents                          | $                                           | 736,870                                               |                                                                        | $         | -         |                               | $         | 736,870        |         |
| Restricted                  cash                                    |                                        | 2,544,435                                             |                                                                        |      | -         |                               |      | 2,544,435      |         |
| Accounts                  receivable, net                           |                                        | 366,704                                               |                                                                        |      | -         |                               |      | 366,704        |         |
| Film                  costs, net                                    |                                        | 3,378,135                                             |                                                                        |      | -         |                               |      | 3,378,135      |         |
| Property                  and equipment, net                        |                                        | 56,540                                                |                                                                        |      | -         |                               |      | 56,540         |         |
| Prepaid                  expenses and other assets                  |                                        | 44,936                                                |                                                                        |      | -         |                               |      | 44,936         |         |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |   |   |   |   |   |
|                                                                |                                        |                                                  | Total                  assets                                               | $         | 7,127,580 |                               | $         | -              |         | $ | 7,127,580 |   |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |   |   |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY/(DEFICIT)** |                                        |                                                  |                                                                        |      |      |                               |      |           |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |
| Convertible                  debt, net of debt discount             | $                                           | 1,283,671                                             |                                                                        | $         | (215,871) |                               | $         | 1,067,800      |         |
| Notes                  payable under film participation agreements  |                                        | 4,929,719                                             |                                                                        |      | -         |                               |      | 4,929,719      |         |
| Accounts                  payable and accrued liabilities           |                                        | 198,972                                               |                                                                        |      | -         |                               |      | 198,972        |         |
| Derivative                  financial instrument liabilities        |                                        | -                                                     |                                                                        |      | 1,158,898 |                               |      | 1,158,898      |         |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |   |   |   |   |   |
|                                                                |                                        | Total                  liabilities                    |                                                                        | 6,412,162 |      |                               | 943,027   |           |         | 7,355,189 |   |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |   |   |   |   |   |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |   |   |   |   |   |
| Stockholders'                  equity/(deficit):                    |                                        |                                                  |                                                                        |      |      |                               |      |           |         |
|                                                                | Common                  stock               |                                                  | 895,373                                                                     |      |      | -                                  |      |           | 895,373      |   |
|                                                                | Additional                  paid-in capital |                                                  | 18,243,742                                                                  |      |      | (634,288)                          |      |           | 17,609,454   |   |
|                                                                | Accumulated                  deficit        |                                                  | (18,423,697)                                                                |      |      | (308,739)                          |      |           | (18,732,436) |   |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |   |   |   |   |   |
|                                                                |                                        | Total                  stockholders' equity/(deficit) |                                                                        | 715,418   |      |                               | (943,027) |           |         | (227,609) |   |
|                                                                |                                        |                                                  |                                                                        |      |      |                               |      |           |         |   |   |   |   |   |
|                                                                |                                        |                                                  | Total                  liabilities and stockholders’ equity/(deficit) | $         | 7,127,580 |                               | $         | -              |         | $ | 7,127,580 |   |

----

**FAMILY        ROOM ENTERTAINMENT CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**                                                                                                                                                                        **

**18.**
**Restatement,        continued**

|                                         |                                                                 |                                           |                                               |                      |   | **As                  Previously** |      |                             |      |      |   |
|----------------------------------------------|----------------------------------------------------------------------|------------------------------------------------|----------------------------------------------------|---------------------------|--------|------------------------------------|-----------|----------------------------------|-----------|-----------|--------|
|                                         |                                                                 |                                           |  **Statement                  of Operations** | **Reported**              |   | **Adjustment**                     |      | **As                  Restated** |      |
|                                         |                                                                 |                                           |                                               |                      |   |                               |      |                             |      |      |   |   |   |   |
| Film                  revenue                | $                                                                    | 2,330,534                                      |                                               |                      | -      |                               | $         | 2,330,534                        |      |
|                                         |                                                                 |                                           |                                               |                      |   |                               |      |                             |      |      |   |   |   |   |
| Loss                  from operations        |                                                                 | (711,015)                                      |                                               |                      | -      |                               |      | (711,015)                        |      |
|                                         |                                                                 |                                           |                                               |                      |   |                               |      |                             |      |      |   |   |   |   |
| Other                  income and (expense): |                                                                 |                                           |                                               |                      |   |                               |      |                             |      |
|                                         | Interest                  income                                     |                                           | 5,764                                              |                      |   | -                                  |      |                             | 5,764     |      |
|                                         | Interest                  expense                                    |                                           | (323,427)                                          |                      |   | (191,443)                          |      |                             | (514,870) |      |
|                                         | Change                  in value of derivative financial instruments |                                           | -                                                  |                      |   | (117,296)                          |      |                             | (117,296) |      |
|                                         |                                                                 |                                           |                                               |                      |   |                               |      |                             |      |      |   |   |   |   |
|                                         |                                                                 | Other                  income and expense, net |                                               | (317,663)                 |   |                               | (308,739) |                             |      | (626,402) |   |
|                                         |                                                                 |                                           |                                               |                      |   |                               |      |                             |      |      |   |   |   |   |
|                                         |                                                                 |                                           |                                               | Net                  loss | $      | (1,028,678)                        |      | $                                | (308,739) |      | $      | (1,337,417) |   |
|                                         |                                                                 |                                           |                                               |                      |   |                               |      |                             |      |      |   |   |   |   |
| Net                  loss per common share:  |                                                                 |                                           |                                               |                      |   |                               |      |                             |      |
|                                         | Basic                  and diluted                                   | $                                              | (                  0.01)                           |                      |   |                               |      | $                                | (0.02)    |      |

| **As                  Originally Filed**                     |   | **September                  30, 2004** |   |   | **December                  31, 2004** |   |   | **March                  31, 2005** |   |
|--------------------------------------------------------------|--------|-----------------------------------------|--------|--------|----------------------------------------|--------|--------|-------------------------------------|--------|
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Total                  assets                                | $      | 1,306,834                               |   | $      | 3,902,986                              |   | $      | 4,839,343                           |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Total                  liabilities                           |   | 292,308                                 |   |   | 2,523,491                              |   |   | 3,904,902                           |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Stockholders’                  equity                  |   | 1,014,526                               |   |   | 1,379,495                              |   |   | 934,441                             |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Film                  revenue                                |   | 975,557                                 |   |   | 295,000                                |   |   | 111,965                             |   |
| Income/(loss)                  from operations               |   | 49,726                                  |   |   | (241,344)                              |   |   | (427,200)                           |   |
| Other                  income and (expenses), net            |   | (5,007)                                 |   |   | (57,975)                               |   |   | (107,854)                           |   |
| Net                  income/(loss)                           |   | 44,719                                  |   |   | (299,319)                              |   |   | (535,054)                           |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Basic                  and diluted earnings/(loss) per share |   | 0.00                                    |   |   | (0.00)                                 |   |   | (0.01)                              |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| **As                  Restated**                             |   |                                    |   |   |                                   |   |   |                                |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Total                  assets                                | $      | 1,306,834                               |   | $      | 3,902,986                              |   | $      | 4,839,343                           |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Total                  liabilities                           |   | 292,308                                 |   |   | 3,220,836                              |   |   | 4,990,908                           |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Stockholders’                  equity                  |   | 1,014,526                               |   |   | 682,150                                |   |   | (151,565)                           |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Film                  revenue                                |   | 975,557                                 |   |   | 295,000                                |   |   | 111,965                             |   |
| Income/(loss)                  from operations               |   | 49,726                                  |   |   | (241,344)                              |   |   | (427,200)                           |   |
| Other                  income and (expenses), net            |   | (5,007)                                 |   |   | (121,032)                              |   |   | (433,291)                           |   |
| Net                  income/(loss)                           |   | 44,719                                  |   |   | (362,376)                              |   |   | (860,491)                           |   |
|                                                         |   |                                    |   |   |                                   |   |   |                                |   |
| Basic                  and diluted earnings/(loss) per share |   | 0.00                                    |   |   | (0.00)                                 |   |   | (0.01)                              |   |

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