SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10-KSB/A

                                 AMENDMENT NO. 1


[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE ACT OF
     1934


                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT
     OF 1934


                         COMMISSION FILE NUMBER: 0-23000

                         SUNLAND ENTERTAINMENT CO., INC.
                 (Name of Small Business Issuer in its charter)


                 DELAWARE                                  95-4217605
       (State or Other Jurisdiction              (IRS Employer Incorporation or
             of Organization)                          Identification No.)

    11835 W. OLYMPIC BLVD., SUITE 550,                        90064
         LOS ANGELES, CALIFORNIA                           (Zip Code)
 (Address of Principal Executive Offices)


          Issuer's Telephone Number, Including Area Code: 310-444-4100

       Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:

                           COMMON STOCK, NO PAR VALUE
                                (Title of class)

     Check  whether  the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the issuer was required to file such  reports),  and (2) has
been subject to such filing requirements for past 90 days: Yes [X] No [ ]

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to the Form 10-KSB: [X]

       State issuer's revenue for its most recent fiscal year: $1,119,000

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock, as of March 31, 2003, a date within the past
60 days, is: $189,549

     State the  number of shares  outstanding  of each of  issuer's  classes  of
common equity,  as of March 31, 2003:  455,017 (713,137 shares including 258,120
shares into which the Series A and B Preferred Stock could be converted).


<PAGE>


     Transitional Small Business Disclosure Format: Yes:  [_]    No:  [X]

DOCUMENTS INCORPORATED BY REFERENCE

     The following  documents are  incorporated  by reference  into this report:
None.

                           FORWARD-LOOKING STATEMENTS

     This  report  includes  forward-looking  statements  with-in the meaning of
Section 27A of the Securities Act (the "Securities  Act") and Section 21E of the
Securities  Exchange Act of 1934, as amended (the "Exchange Act"). We have based
these statements on our beliefs and assumptions,  based on information currently
available  to us.  These  forward-looking  statements  are  subject to risks and
uncertainties. Forward-looking statements include the information concerning our
possible or assumed  future  results of operations  set forth under the sections
entitled  "Business"  and  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations."

     Forward-looking  statements are not guarantees of  performance.  Our future
results and  requirements  may differ  materially  from those  described  in the
forward-looking  statements.  Many of the  factors  that  will  determine  these
results and  requirements  are beyond our control.  In addition to the risks and
uncertainties discussed in "Business" and "Management's  Discussion and Analysis
of Financial  Condition and Results of  Operations,"  investors  should consider
those discussed under "Risk Factors" and, among others, the following:


          o    our ability to successfully implement our business strategy,

          o    changing consumer preferences,

          o    the  impact  of  competition   and  changes  to  the  competitive
               environment on our products and services, and

          o    other factors  detailed from time to time in our filings with the
               Securities and Exchange Commission.


     These forward-looking  statements speak only as of the date of this report.
We do not intend to update or revise any  forward-looking  statements to reflect
changes in our business strategy or planned capital expenditures,  or to reflect
the occurrence of unanticipated events.


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<PAGE>


                                     PART I

ITEM 1.    BUSINESS
                                  INTRODUCTION

GENERAL


     Sunland  Entertainment  Co., Inc.,  together with its subsidiaries  Sunland
Entertainment,  Inc. and Pepin/Merhi  Entertainment  Group, Inc.  (collectively,
(the   "Company"))   owns  and  exploits  motion  picture  product  and  related
intellectual property.


                               RECENT DEVELOPMENTS

PURCHASE OF PEPIN/MERHI ENTERTAINMENT GROUP, INC.

     Effective  April  3,  2000,  the  Company   completed  the  acquisition  of
Pepin/Merhi  Entertainment Group, Inc. ("PM Entertainment") to broaden the scope
of the Company's  entertainment  operations.  PM Entertainment is a producer and
distributor of motion  pictures in the United States home video,  television and
Internet broadcasting markets as well as in all media in international markets.

     The purchase price consisted of $6,500,000 paid in cash at closing,  36,300
common shares of the Company with a fair value of $1,668,000  and  $2,050,000 in
subordinated  notes.  The Company also assumed  existing bank debt with Imperial
Bank in the amount of  approximately  $5,300,000.  Additionally,  the  Company's
subsidiary  Inferno  Acquisition  Corp.,  purchased  from  Imperial Bank a loan,
secured by the motion picture "Inferno" and guaranteed by PM Entertainment.  The
Company paid a down payment of  $2,000,000  and obtained a loan in the amount of
approximately   $4,800,000.   Financial   results  from  the  operations  of  PM
Entertainment are included in the Company's accompanying  Consolidated Financial
Statements  from the date of  acquisition.  All bank debt acquired in connection
with the purchase of PM Entertainment  was completely  satisfied at December 31,
2001.

CLASSIC MEDIA, LLC


     In March 2001,  the Company  signed an Asset Sale and  Purchase  Agreement,
which  was  later  amended,  for the sale of  substantially  all of the  assets,
properties and rights of the Harvey Classic  Characters  owned by the Company to
Classic Media, LLC ("Classic  Media").  The sale excluded PM  Entertainment  and
related assets. The purchase price of $17,000,000 plus the assumption of certain
liabilities was paid in cash at closing, which occurred June 22, 2001, after the
receipt  of a  shareholder  vote and  satisfaction  of other  customary  closing
conditions.  In  connection  with the  sale,  the  Company  changed  its name to
"Sunland Entertainment Co., Inc."


REINCORPORATION TO DELAWARE AND REVERSE STOCK-SPLIT

     On June  27,  2002,  a  special  meeting  of  shareholders  was held at the
Company's offices, where the proposal to change Sunland's state of incorporation
from  California  to  Delaware  and  enact a  ten-for-one  reverse  split of the
Company's  common and preferred  stock were approved.  The Company  subsequently
changed its stock symbol to SLDE  effective  August 9, 2002.  The effect of this
stock split was reflected in the financial  statements  retroactively  as if the
stock split occurred at the beginning of the earliest period reported.

SETTLEMENT OF METROPOLITAN CONTRACT

     The Company's  subsidiaries  Inferno Acquisition Corp. and PM Entertainment
had an ongoing dispute with  Metropolitan  Film Export regarding  $2,300,000 due
under a licensing contract for the motion picture "Inferno".  In September 2001,
the Company entered into a settlement  agreement with  Metropolitan  Film Export
and The Motion  Picture Bond Company,  an insuring  agent,  for  $1,625,000  and
received  the  related  payment in October  2001.  The  difference  between  the
proceeds and accounts  receivable balance was fully provided for and written off
in October 2001. The proceeds from the settlement  were used to satisfy the loan
facility with Imperial Bank secured by the motion picture "Inferno".


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<PAGE>


CHANGES IN MANAGEMENT

     Roger  Burlage,  the Chairman and Chief  Executive  Officer of the Company,
notified the Board of  Directors  that he intends to resign from his position at
the  expiration of his contract in April of this year. On January 15, 2003,  the
Board of Directors of the Company  authorized  the creation of the Office of the
President  to  provide  for a smooth  transition  during  the  remainder  of Mr.
Burlage's  employment  term.  The Office of the President was created to provide
general supervision,  direction and control of the Company. Roger Burlage, David
Weiner, and Gary Freeman were appointed to serve in the Office of the President.
Mr. Freeman was also elected the Company's Chief Financial Officer and Corporate
Secretary.

     In September 2001,  Caroline Stewart,  the Company's former Chief Financial
Officer and Corporate  Secretary  resigned all of her positions with the Company
and Monique Green was appointed the Secretary of the Company and Chief Financial
Officer. In September 2002, Monique Green resigned all of her positions with the
Company.

     The Company's  principal  executive offices are located at 11835 W. Olympic
Blvd.,  Suite 550,  Los  Angeles,  California  90064;  its phone number is (310)
444-4100.

SALE OF PM ENTERTAINMENT LIBRARY

     On April 10, 2003, the Company and its wholly-owned subsidiary, Pepin/Merhi
Entertainment  Group,  Inc.,  entered into an Asset Purchase Agreement with Film
Library Acquisition Corp.  ("Purchaser") for the sale of our remaining principal
asset,  PM's film library (the "PM  Entertainment  Library"),  for $6,000,000 in
cash  and the  assumption  by the  Purchaser  of all of the  operating  expenses
associated  with the film library (the  "Purchase  Price").  The  transaction is
subject to shareholder approval, and we expect to close by the end of June 2003.
In  addition,  $750,000  of the  Purchase  Price  will be placed in an escrow at
Closing and for a period of two years following the Closing, these funds will be
subject  to  potential  claims  by the  Purchaser  against  us for  breaches  of
representations  and  warranties  contained  in  the  agreement.  The  agreement
establishes  a cut-off  date (the  "Cut-Off  Date") for the  operation of the PM
Entertainment Library for the benefit of the Company as of January 31, 2003, and
as such,  upon the  Closing of the  transaction,  Purchaser  will be entitled to
receive the cash flow from the business,  net of all direct expenses of the film
library and a portion of our fixed expenses, in each case incurred from February
1, 2003 until the Closing.


     The PM Entertainment Library currently represents  substantially all of our
assets and most of our  liabilities,  other than our fixed  operating  expenses.
Thus,  as a result  of this  transaction,  after  the  Closing  we will  have no
continuing business operations,  except for certain overhead expenses, including
various  employees and real estate leases.  Consequently,  the discussion of our
results of operations  should be read in light of the  significant  changes that
will  occur  in  our  business  as  a  result  of  the  Closing,  and  with  the
understanding  that our  historical  results  of  operations  have  little or no
relevance to our continuing operations.

     Additionally, pursuant to the terms of our Amended and Restated Certificate
of Incorporation, the Closing will trigger the liquidation preference provisions
governing the Series A and B Preferred  Stock.  As a result,  the holders of our
Series A and B Preferred  Stock would be entitled to receive all of the proceeds
from the sale of the PM Entertainment  Library.  Discussions with the holders of
our Series A and B Preferred  Stock have  indicated  that these holders would be
willing  to waive  their  rights  to these  proceeds  subject  to the  Company's
acquisition  of another  business  opportunity  although  the  holders  have not
definitely agreed to waive their rights and there can be no assurance that these
holders will waive these rights.


     If our  preferred  stockholders  waive  their  rights  to  the  liquidation
preference  described  above we intend to utilize the proceeds  from the sale of
the PM Entertainment Library for the possible acquisition of other businesses as
opportunities arise.  Although we are actively considering a number of potential
acquisition  opportunities,  we have not entered into any  definitive  agreement
with respect to any specific future  acquisitions.  However, we do not intend to
purchase  another film library or to search within any specific kind of industry
or business, and may investigate and ultimately acquire a venture that is in its
preliminary or development stage, is already in operation,  or in various stages
of its corporate  existence and  development.  Therefore,  the discussion of our
results of operations  should be read in light of the  significant  changes that
will  occur  in  our  business  as  a  result  of  the  Closing,  and  with  the
understanding  that our  historical  results  of  operations  have  little or no
relevance to our continuing operations.

     Once the Company identifies a particular entity as a potential  acquisition
or merger candidate,  management will seek to determine  whether  acquisition or
merger is  warranted,  or  whether  further  investigation  is  necessary.  Such
determination will generally be based on management's  knowledge and experience,
or with the  assistance  of outside  advisors  and  consultants  evaluating  the
preliminary  information  available  to them.  Management  may  elect to  engage


                                       4


<PAGE>


outside  independent  consultants to perform  preliminary  analysis of potential
business opportunities. In evaluating such potential business opportunities, the
Company  will  consider,  to the extent  relevant to the  specific  opportunity,
several factors including:

    *    potential benefits to us and our shareholders;
    *    working capital;
    *    financial requirements and availability of additional financing;
    *    history of operation, if any;
    *    nature of present and expected competition;
    *    quality and experience of management;
    *    need for further research, development or exploration;
    *    potential for growth and expansion;
    *    potential for profits; and
    *    other factors deemed relevant to the specific opportunity.

     There are certain  unidentified  risks that cannot be adequately  expressed
prior to the identification of a specific business opportunity.  There can be no
assurance following  consummation of any acquisition or merger that the business
venture  will  develop  into a going  concern  or, if the  business  is  already
operating,  that  it will  continue  to  operate  successfully.  Many  potential
business  opportunities  available  to the Company may involve new and  untested
products,  processes  or  market  strategies  which  may  not  ultimately  prove
successful.  Please see the section below entitled "Risks Related to the Sale of
the PM Entertainment Library and Our Future Operations."

     Pending their ultimate  application and the  determination of our preferred
stockholders,  the net proceeds  from the sale of the PM  Entertainment  Library
will be used  for  general  corporate  purposes,  and will be  invested  in high
quality,   short  term,  interest  bearing  investments  and  deposit  accounts.
Depending  upon  the  nature  of  any  potential  future   acquisition  and  the
requirement  of any use of the  proceeds  therefore,  we may also in the  future
consider  distributing  any excess  proceeds to our Preferred  Stockholders as a
distribution.


                                    BUSINESS


     Historically,  the Company's  business  strategy  involved  exploiting  the
Harvey Classic Characters through filmed entertainment and capitalizing upon the
relationship  between filmed  entertainment,  merchandising  and other ancillary
markets. The assets,  rights and properties  pertaining to these activities were
sold in June 2001.  Through the  Company's  subsidiary,  PM  Entertainment,  the
Company has continued its  exploitation  of motion  picture  product and related
intellectual  property by  increasing  its presence in foreign  markets.  Due to
depressed  market  conditions,  the  Company has decided not to finance new film
product.  If the  Company  does  not  successfully  complete  the sale of the PM
Entertainment  Library,  the Company will  continue to operate as a  scaled-back
business  focusing  on the sale and  licensing  of that  library.  Although  the
Company  previously  engaged  Houlihan  Lokey Howard & Zukin,  or "Houlihan," to
explore  strategic  alternatives  that may have been  available  to the  Company
following the  completion of its  transaction  with Classic  Media,  the Company
terminated its agreement with Houlihan in February of 2002 due to Houlihan being
unable to provide any potential internal or external  alternatives that met with
the approval of the Company's Board of Directors.


     Whether  or not  the  Company  successfully  completes  the  sale of the PM
Entertainment  Library,  the Company  intends to continue  exploring its various
strategic  alternatives,  including the acquisition of additional  assets,  or a
merger or sale of the  Company,  or its assets.  The Company  does not intend to
limit  its  search  to  any  specific  kind  of  industry  or  business.  It may
investigate  and  ultimately  acquire a venture  that is in its  preliminary  or
development  stage,  is  already  in  operation,  or in  various  stages  of its
corporate  existence and development.  A potential venture might need additional
capital or merely desire to have its shares publicly traded.

FILMED ENTERTAINMENT


     Filmed entertainment includes  direct-to-video films, television movies and
television series. Through its subsidiary PM Entertainment, the Company extended
its  operations  into the  lower  budget  feature  film  and  video  arena.  The
predecessor of PM Entertainment  was an independent  entertainment  company that
produced and distributed  motion pictures into the domestic  television and home
video   markets  and  into  the   international   markets  for  all  media.   PM
Entertainment's  most valuable assets are its film library of approximately  140
motion  picture  titles  and 74  episodes  of  television  series.  The  Company
previously  retained Cinetel Films to act as its sales agent to foreign licensee
agreements, Ventura Distribution to handle the distribution of its domestic home
video division and other outside sales consultants for the Company's  television
properties.  On April 9, 2002, the Company  canceled its Sales Agency  Agreement
with  Cinetel



                                       5


<PAGE>


due to performance  issues relating to Cinetel's  ability to adequately  exploit
the  Company's  film  library  and  collect  outstanding   accounts  receivable,
effective August 15, 2002. Currently,  the Company is primarily in charge of all
sales and collection activities.

MERCHANDISING

     In  March  2000,  the  Company   appointed   Felix  the  Cat   Productions,
Inc.("FTCP"),  as its exclusive licensing agent for Latin America. The agreement
covered all of the Company's  Harvey Classic  Characters for a term of seven and
one-half years.

     In June 2000, the Company  appointed Hearst  Entertainment as its exclusive
licensing agent for the remainder of the world. The agreement covered all of the
Company's Harvey Classic Characters for a term of two years.


     In  June  2001,  all of the  Company's  Harvey  Classic  Character  assets,
properties  and rights were sold and the Company's  merchandising  and licensing
division was dissolved.


INTELLECTUAL PROPERTY ASSETS

     The Company's principal assets are its intellectual  property rights in its
proprietary PM Entertainment  library  consisting of approximately 140 films and
74 television  episodes.  The Company has applied for and received copyright and
trademark  protection in the United  States and copyright  protection in certain
foreign countries which are parties to the Berne Convention, on many but not all
of its  film  library.  The  Company  attempts  vigorously  to  protect  against
infringements on the rights it holds to its proprietary film library.

COMPETITION

     Competition  is intense in the filmed  entertainment  industry in which the
Company operates. The Company's licensed products compete with products produced
and/or distributed by major entertainment companies, as well as numerous smaller
entertainment  companies.  Many of these competitors have  significantly  longer
operating  histories,  greater financial resources and larger film catalogs than
the Company.  Additionally,  the film entertainment market for independent films
has suffered dramatically over the past year, creating a decreased value on film
assets.  Such economic cycles are common and the Company  believes as the global
economy  rebounds,  there will be a resurgence in the independent film market as
well.

EMPLOYEES

     The Company employs approximately 3 persons on its full-time staff. For the
Company's  filmed  entertainment  productions,  the  Company  hires  independent
contractors or production  facilities  for creative work on an as-needed  basis.
None of the  Company's  employees  are  represented  by a union and the  Company
believes relations with its employees are good.

                     FACTORS WHICH MAY AFFECT FUTURE RESULTS

     In connection with the "safe harbor"  provisions of the Private  Securities
Litigation  Reform Act of 1995, the Company wishes to caution that the following
important  factors,  among others, in some cases have affected and in the future
could affect the Company's actual results and could cause such results to differ
materially  from those  expressed in  forward-looking  statements  made by or on
behalf of the Company.


     NET LOSSES. The Company experienced net losses of $7,139,000 and $1,452,000
for the fiscal years ended  December 31, 2002 and 2001,  and total net losses of
$37,073,000 since inception.  Such losses are expected to continue into the 2003
year as a result of the lack of product for release in the entertainment  media.
There can be no assurance  that the Company can achieve its business  plan,  and
net losses are likely to continue into the future.


     RISKS  RELATED  TO  THE  FILMED  ENTERTAINMENT  INDUSTRY.   Motion  picture
production,  acquisition and distribution are highly competitive businesses. The
Company  competes  with major  studios,  other  independent  motion  picture and
television companies, large diversified entertainment  conglomerates and others.
Some of the  Company's  competitors  are  entities  that  are  part  of  larger,
diversified  corporate  groups  with a variety  of other  operations,  including
television  networks and cable  channels,  which can provide  superior  means of
distributing   their   products  and  stable   sources  of  earnings  to  offset
fluctuations in the financial performance of their motion picture and television
operations.  There is a risk that some or all of the Company's  motion pictures,
if any,  will not be  commercially  successful,  resulting  in costs  not


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<PAGE>


being recouped or anticipated profits not being realized.

     The television,  motion picture and  direct-to-video  industries are highly
speculative  and  historically  have involved a substantial  degree of risk. The
success of a trademarked or copyrighted  television program, video production or
motion picture depends upon  unpredictable and changing factors such as audience
acceptance,  which may bear little or no correlation to the Company's production
and other costs.

     Audience  acceptance  of the Company's  products  represents a response not
only to the artistic  components of the  products,  but also to promotion by the
distributor,  the availability of alternative forms of entertainment and leisure
time  activities,  general economic  conditions and public taste generally,  and
other  intangible  factors,  all of which change rapidly and cannot be predicted
with any certainty.

     The entertainment  industry in general,  and the motion picture industry in
particular,   continues  to  undergo  significant  changes,   primarily  due  to
technological  developments,  shifting  consumer  tastes and the  popularity and
availability of other forms of  entertainment.  As a result, it is impossible to
predict the overall  effect  these  factors will have on the  operations  of the
Company.


     FLUCTUATIONS  IN REVENUE  RECOGNIZED  FROM FILM  LICENSING.  The  Company's
quarterly and yearly operating  results may fluctuate due to the manner in which
the Company is required to record revenue from film licensing agreements and the
seasonality  surrounding  the film licensing  business.  Although film licensing
agreements  typically  grant rights for a period of one to five years,  revenues
are  typically  recognized  when the license  period  begins,  provided  certain
conditions  are met.  Fluctuations  in quarterly  and yearly  operating  results
principally  arise due to the Company's  timing in entering into film  licensing
agreements  as the film  markets,  at which the Company  licenses its  products,
occur from February  through May and October through  November.  Therefore,  the
Company  believes  that   period-to-period   comparisons  of  its  results  from
operations are not necessarily an accurate indication of future performance.


     INTELLECTUAL  PROPERTY  RIGHTS.  The  Company's  principal  assets  are its
intellectual property rights. The Company has applied for and received copyright
and trademark  protection in the United States, and copyright protection in many
foreign  countries,  on many publications and other works. The Company endeavors
to protect against infringements on the rights it holds.

     The term of  copyright  protection  in the U.S.  is limited by statute  and
trademark rights, while potentially of indefinite duration,  must be continually
used and,  depending  on the date of  publication,  may have to be  periodically
renewed.

     The Company  believes it has protectible  rights with respect to all of its
proprietary film library subject to licenses  granted by the Company.  There is,
however,  no  assurance  that claims  will not be  asserted  against the Company
which,  if  successful,  would have a material  adverse  effect on the Company's
business.

  RISKS RELATED TO THE SUCCESSFUL SALE OF THE PM ENTERTAINMENT LIBRARY AND OUR
                               FUTURE OPERATIONS

     IF THE SALE OF THE PM ENTERTAINMENT LIBRARY IS SUCCESSFUL,  THE COMPANY MAY
BE  SUBJECT TO  SUBSTANTIAL  RISKS  SPECIFIC  TO ANOTHER  BUSINESS  OR  BUSINESS
OPPORTUNITY, THE SPECIFIC RISKS OF WHICH THE COMPANY CANNOT CURRENTLY ASCERTAIN.
If the Company successfully  completes the sale of the PM Entertainment  library
and subsequently  acquires or merges with another business, it may be subject to
substantial risks specific to a particular business or business opportunity, the
specific risks of which cannot be ascertained  until a potential  acquisition or
merger  candidate  has been  identified.  However,  at a minimum,  the Company's
proposed  business  operations may be highly  speculative  and be subject to the
same types of risks inherent in any new or unproven venture.

     IF THE SALE OF THE PM ENTERTAINMENT LIBRARY IS SUCCESSFUL,  WE WILL HAVE NO
MATERIAL  ASSETS  OTHER  THAN CASH,  AND NO SOURCE OF  REVENUE.  If the  Company
successfully completes the sale of the PM Entertainment library, it will have no
material  assets other than cash and will have no revenues.  It is unlikely that
the Company  will receive any revenues  until it  completes  an  acquisition  or
merger.  There can be no assurance  that any acquired  business will produce any
material  revenues for the Company or its stockholders or that any such business
will operate on a profitable basis.

     OUR  AUDITORS  HAVE  EXPRESSED  A GOING  CONCERN  OPINION.  Even  with  the
Company's continuing operation of the PM Entertainment  library, its independent
auditors  discuss in their report the  Company's  ability to continue as a going
concern.  They  include  a  statement  that:  "[a]s  discussed  in Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and  has an  accumulated  deficit.  This  raises  substantial  doubt  about  the
Company's  ability to continue as a going concern." If the Company  successfully
completes the sale of the PM Entertainment library


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<PAGE>


and is unable to subsequently consummate a successful acquisition or merger, the
Company may be forced to cease operations.  You are encouraged to read Note 1 to
the financial statements included in this report.

     DISCRETIONARY USE OF PROCEEDS. If the Company successful completes the sale
of the PM  Entertainment  library,  it will not be  engaged  in any  substantive
business   activities  other  than  looking  for  and   investigating   business
opportunities.  Accordingly,  management will have broad discretion with respect
to the potential  acquisition of assets,  property or business.  There can be no
assurance  that the Company's use or allocation of its available cash will allow
the Company to achieve its business objectives.

ITEM 2.    PROPERTIES


     The principal offices of the Company consist of approximately 14,000 square
feet of general office space located at 11835 W. Olympic  Blvd.,  Suite 550, Los
Angeles,  California 90064. The Company entered into a seven-year lease for such
office space  commencing in December 1999, with a five-year option to renew. The
Company  also leases  approximately  9,000  square feet of office space in Santa
Monica  pursuant to a ten-year  lease entered into in December 1993. The Company
has entirely  subleased the Santa Monica space to an  unaffiliated  person until
July of 2004. The Company recorded rent expense of $376,000 and $379,000 for its
principal and Santa Monica offices during 2002.

     The  principal  offices  of PM  Entertainment  consisted  of  approximately
120,000  square  feet  of  general  office,  post  production  and  sound  stage
facilities located in Sunland, California. In connection with the acquisition of
PM Entertainment, the Company entered into a two year lease of the premises with
an option to purchase the facility and surrounding property, which expired March
31,  2002.  The  Company  recorded  rent  expense of $150,000  for its  Sunland,
California office during 2002.


ITEM 3.    LEGAL PROCEEDINGS

     The Company is not currently involved in any material legal proceedings.

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

     None.


                                       8


<PAGE>


                                     PART II

ITEM 5.    MARKET FOR ISSUER'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET PRICES

     The Company's  common stock, no par value (the "Common Stock") is currently
traded on the Over-The  Counter  Bulletin  Board under the symbol  "SLDE.OB." On
June 27,  2002,  a special  meeting of  shareholders  was held at the  Company's
offices,  where  the  proposal  to  enact a  ten-for-one  reverse  split  of the
Company's  common and  preferred  stock was approved.  The Company  subsequently
changed its stock symbol from "SUNE.OB" to "SLDE.OB,"  effective August 9, 2002.
The following table sets forth, for the fiscal quarters indicated,  the high and
low sale  price  for the  common  stock,  as  reported  on the  Over-The-Counter
Bulletin Board.

     QUARTERLY PERIOD                                       HIGH         LOW
     ----------------------------------------------         ----         ---
     Fiscal year ended December 31, 2001:
                    First Quarter .................       $   4.50    $   1.30
                    Second Quarter ................       $   2.20    $   1.00
                    Third Quarter .................       $   2.00    $   0.90
                    Fourth Quarter ................       $   1.20    $   0.70

     Fiscal year ended December 31, 2002:
                    First Quarter .................       $   1.10    $   0.80
                    Second Quarter ................       $   1.20    $   0.70
                    Third Quarter .................       $   1.00    $   0.70
                    Fourth Quarter ................       $   0.72    $   0.45


HOLDERS

     As of March 29, 2003, there were approximately 160 holders of record of the
Company's Common Stock.

DIVIDENDS


     The Company has never paid cash dividends on the Common Stock.  The Company
is required to pay dividends on its  outstanding  classes of preferred  stock in
the form of additional shares of preferred stock. These dividends have been paid
since the issuance of the underlying preferred stock. Other than these preferred
stock dividends,  the Board of Directors  expects that the Company will continue
to retain any future earnings for use in its business.


EQUITY COMPENSATION PLAN INFORMATION

     The following table sets forth certain information  regarding the Company's
equity compensation plans as of December 31, 2002.


<TABLE>
<CAPTION>

                           NUMBER OF SECURITIES TO    WEIGHTED-AVERAGE EXERCISE        NUMBER OF SECURITIES
                           BE ISSUED UPON EXERCISE       PRICE OF OUTSTANDING         REMAINING AVAILABLE FOR
                           OF OUTSTANDING OPTIONS,      OPTIONS, WARRANTS AND      FUTURE ISSUANCE UNDER EQUITY
                             WARRANTS AND RIGHTS                RIGHTS                  COMPENSATION PLANS
-----------------------    -----------------------    -------------------------    ----------------------------

<S>                               <C>                           <C>                           <C>
Equity compensation                29,900                       75.90                         78,600
plans approved by
security holders

Equity compensation               265,633                      106.13                            0
plans not approved by
security holders

Total                             295,533                      103.07                         78,600
-----------------------    -----------------------    -------------------------    ----------------------------
</TABLE>


         The Company's current employee stock option plans (the "Plans") provide
for the grant of  non-statutory  or  incentive  stock  options to the  Company's
employees, officers, directors or consultants.

         The Company's Compensation Committee administers the Plans, selects the
individuals to whom options will be granted, determines the number of options to
be  granted,  and the term and  exercise  price of each  option.  Stock  options


                                       9


<PAGE>


granted  pursuant to the terms of the Plans generally  cannot be granted with an
exercise  price of less  than 100% of the fair  market  value on the date of the
grant  (110% for awards  issued to a 10% or more  shareholder).  The term of the
options  granted under the Plans cannot be greater than 10 years;  5 years for a
10% or more  shareholder.  Options  vest at varying  rates  generally  over five
years.  An aggregate of 105,000 shares were reserved  under the Plans,  of which
78,600 shares were available for future grant at December 31, 2002.


         As a result of a  refinancing  that  took  place in 1999,  the  Company
granted options,  not covered by its stockholder approved stock incentive plans,
to purchase  134,462 shares of common stock to certain  employees,  officers and
directors.  These options vest either on the grant date or over three years from
the grant date.  The options are  exercisable at prices ranging from $90 to $120
per share and expire six to eight years from their issuance date.


         Information related to the Company's issued and outstanding warrants is
identified in Note 9 to the Financial  Statements attached to this report and is
incorporated herein by this reference.


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

INTRODUCTION


     The Company conducts its operations through its wholly-owned  subsidiaries,
which include Sunland  Entertainment,  Inc. and PM Entertainment.  The Company's
revenues  were  previously   derived  from  two  primary  sources:   (i)  filmed
entertainment  and (ii)  merchandising  and licensing.  In June 2001, all of the
Company's Harvey Classic Character  assets,  properties and rights were sold and
the Company's  merchandising  and licensing  division was dissolved.  Since that
time, the Company's  revenues have been derived solely from film  entertainment.
This Report contains, or incorporates by reference,  certain statements that may
be  deemed  "forward-looking  statements"  within  the  meaning  of the  Private
Securities  Litigation Reform Act of 1995. Such statements appear in a number of
places in this Report, including,  without limitation,  "Management's Discussion
and Analysis of Financial Condition and Results of Operations". These statements
are based on current expectations,  estimates and projections about our business
based,  in part, on  assumptions  made by management.  These  statements are not
guarantees  of  future   performance  and  involve  risks,   uncertainties   and
assumptions that are difficult to predict.


RECENT DEVELOPMENTS

SALE OF PM ENTERTAINMENT LIBRARY

     On April 10, 2003, the Company and its wholly-owned subsidiary, Pepin/Merhi
Entertainment  Group,  Inc.,  entered into an Asset Purchase Agreement with Film
Library Acquisition Corp.  ("Purchaser") for the sale of our remaining principal
asset,  PM's film library (the "PM  Entertainment  Library"),  for $6,000,000 in
cash  and the  assumption  by the  Purchaser  of all of the  operating  expenses
associated  with the film library (the  "Purchase  Price").  The  transaction is
subject to shareholder approval, and we expect to close by the end of June 2003.
In  addition,  $750,000  of the  Purchase  Price  will be placed in an escrow at
Closing and for a period of two years following the Closing, these funds will be
subject  to  potential  claims  by the  Purchaser  against  us for  breaches  of
representations  and  warranties  contained  in  the  agreement.  The  agreement
establishes  a cut-off  date (the  "Cut-Off  Date") for the  operation of the PM
Entertainment Library for the benefit of the Company as of January 31, 2003, and
as such,  upon the  Closing of the  transaction,  Purchaser  will be entitled to
receive the cash flow from the business,  net of all direct expenses of the film
library and a portion of our fixed expenses, in each case incurred from February
1, 2003 until the Closing.

     Additionally, pursuant to the terms of our Amended and Restated Certificate
of Incorporation, the Closing will trigger the liquidation preference provisions
governing the Series A and B Preferred  Stock.  As a result,  the holders of our
Series A and B Preferred  Stock would be entitled to receive all of the proceeds
from the sale of the PM Entertainment  Library.  Discussions with the holders of
our Series A and B Preferred  Stock have  indicated  that these holders would be
willing  to waive  their  rights  to these  proceeds  subject  to the  Company's
acquisition  of another  business  opportunity  although  the  holders  have not
definitely agreed to waive their rights and there can be no assurance that these
holders will waive these rights.

     If our  preferred  stockholders  waive  their  rights  to  the  liquidation
preference  described  above we intend to utilize the proceeds  from the sale of
the PM Entertainment Library for the possible acquisition of other businesses as
opportunities arise.  Although we are actively considering a number of potential
acquisition  opportunities,  we have not entered into any  definitive  agreement
with respect to any specific future  acquisitions.  However, we do not intend to
purchase  another film library or to search within any specific kind of industry
or business, and may investigate and ultimately acquire a venture


                                       10


<PAGE>


that is in its preliminary or development stage, is already in operation,  or in
various  stages of its  corporate  existence  and  development.  Therefore,  the
discussion  of our  results  of  operations  should  be  read  in  light  of the
significant  changes that will occur in our business as a result of the Closing,
and with the understanding that our historical results of operations have little
or no relevance to our continuing operations.

     Once the Company identifies a particular entity as a potential  acquisition
or merger candidate,  management will seek to determine  whether  acquisition or
merger is  warranted,  or  whether  further  investigation  is  necessary.  Such
determination will generally be based on management's  knowledge and experience,
or with the  assistance  of outside  advisors  and  consultants  evaluating  the
preliminary  information  available  to them.  Management  may  elect to  engage
outside  independent  consultants to perform  preliminary  analysis of potential
business opportunities. In evaluating such potential business opportunities, the
Company  will  consider,  to the extent  relevant to the  specific  opportunity,
several factors including:

    *    potential benefits to us and our shareholders;
    *    working capital;
    *    financial requirements and availability of additional financing;
    *    history of operation, if any;
    *    nature of present and expected competition;
    *    quality and experience of management;
    *    need for further research, development or exploration;
    *    potential for growth and expansion;
    *    potential for profits; and
    *    other factors deemed relevant to the specific opportunity.

     There are certain  unidentified  risks that cannot be adequately  expressed
prior to the identification of a specific business opportunity.  There can be no
assurance following  consummation of any acquisition or merger that the business
venture  will  develop  into a going  concern  or, if the  business  is  already
operating,  that  it will  continue  to  operate  successfully.  Many  potential
business  opportunities  available  to the Company may involve new and  untested
products,  processes  or  market  strategies  which  may  not  ultimately  prove
successful. Please see the section entitled "Risks Related to the Sale of the PM
Entertainment Library and Our Future Operations."

     Pending their ultimate  application and the  determination of our preferred
stockholders,  the net proceeds  from the sale of the PM  Entertainment  Library
will be used  for  general  corporate  purposes,  and will be  invested  in high
quality,   short  term,  interest  bearing  investments  and  deposit  accounts.
Depending  upon  the  nature  of  any  potential  future   acquisition  and  the
requirement  of any use of the  proceeds  therefore,  we may also in the  future
consider  distributing  any excess  proceeds to our Preferred  Stockholders as a
distribution.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

     The SEC recently issued  Financial  Reporting  Release No. 60,  "Cautionary
Advice  Regarding  Disclosure  About Critical  Accounting  Policies"  ("FRR60"),
suggesting  companies  provide  additional  disclosure  and  commentary on those
accounting  policies  considered  most critical.  FRR 60 considers an accounting
policy to be critical if it is important to the  Company's  financial  condition
and results of operations,  and requires  significant  judgment and estimates on
the part of  management  in its  application.  For a  summary  of the  Company's
significant  accounting  policies,  including the critical  accounting  policies
discussed  below,  see the  accompanying  notes  to the  consolidated  financial
statements.

     The  preparation of the Company's  financial  statements in conformity with
GAAP requires  management to make  estimates,  judgments  and  assumptions  that
affect the reported amounts of assets and liabilities,  disclosure of contingent
assets and liabilities at the date of the financial  statements and the reported
amount of expenses during the reporting period. On an ongoing basis, the Company
evaluates its estimates which are based on historical  experience and on various
other  assumptions that are believed to be reasonable  under the  circumstances.
The result of these  evaluations  forms the basis for making judgments about the
carrying  values of assets and  liabilities  and the reported amount of expenses
that are not readily apparent from other sources. Actual results may differ from
these estimates under different  assumptions.  The following accounting policies
require significant management judgments and estimates:

     o    Accounting for the production and  distribution of motion pictures and
          television  programming is in accordance with SOP 00-2, which requires
          management's  judgment as it relates to totals revenues to be received
          and  costs  to be  incurred  throughout  the life of each  program  or
          license period. These judgments are


                                       11


<PAGE>


          used to determine the  amortization of capitalized  programming  costs
          associated  with  revenues   earned  and  any  net  realizable   value
          adjustments.


     o    The Company accounts for its business  acquisitions under the purchase
          method  of  accounting  in   accordance   with  SFAS  141,   "Business
          Combinations."  The total cost of  acquisitions  is  allocated  to the
          underlying  net  assets,  based on  their  respective  estimated  fair
          values. The excess of the purchase price over the estimated fair value
          of the  tangible  net assets  acquired  is  recorded  as  intangibles.
          Determining the fair value of assets acquired and liabilities  assumed
          requires   management's   judgment  and  often  involves  the  use  of
          significant  estimates and  assumptions,  including  assumptions  with
          respect to future cash inflows and  outflows,  discount  rates,  asset
          lives, and market multiples, among other items.

     o    The Company assesses the potential impairment of long-lived assets and
          identifiable  intangibles under the guidance of SFAS 144,  "Accounting
          for the  Impairment  or Disposal of Long-Lived  Assets."  which states
          that a long-lived asset should be tested for  recoverability  whenever
          events or changes in  circumstances  indicate that the carrying amount
          of the long-lived  asset exceeds its fair value. An impairment loss is
          recognized only if the carrying amount of the long-lived asset exceeds
          its fair value and is not recoverable.


     o    The  Company  adopted  SFAS 142  "Accounting  For  Goodwill  and Other
          Intangible Assets" in the first quarter of 2002. SFAS No. 142 requires
          that goodwill and intangible  assets with  indefinite  useful lives no
          longer  be  amortized  to  earnings,   but  instead  be  reviewed  for
          impairment in accordance  with this standard.  The  impairment  charge
          taken in the first  quarter  of 2002 was  recognized  as a  cumulative
          effect of a change in accounting principle.

     The Company  bases its estimates on  historical  experience  and on various
other  assumptions that are believed to be reasonable  under the  circumstances,
the  results  of which form the basis for making  judgments  about the  carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  There can be no  assurance  that actual  results  will not differ from
these estimates.


CONSOLIDATED STATEMENTS OF OPERATIONS

                                                      YEAR ENDED DECEMBER 31,
                                                    ---------------------------
                                                        2002            2001
                                                    -----------     -----------

Selling, general & administrative expenses .....    $ 1,460,000     $ 2,645,000
Depreciation and other amortization ............        112,000         151,000
                                                    -----------     -----------
Loss from operations ...........................     (1,572,000)       (796,000)
Other income (loss) ............................        685,000         519,000
                                                    -----------     -----------
Loss before income taxes, extraordinary
   item and cumulative effect of
   accounting principle change .................       (887,000)       (277,000)
Extraordinary gain .............................           --           293,000
Cumulative effect of accounting changes ........     (2,861,000)       (628,000)
                                                    -----------     -----------
Loss from continuing operations ................     (3,748,000)       (612,000)
Income (Loss) from discontinued operations .....     (3,391,000)      1,160,000
                                                    -----------     -----------
Net Loss .......................................     (7,139,000)     (1,452,000)
Preferred stock dividends ......................     (1,168,000)     (1,304,000)
Excess of carrying amount on preferred
   stocks and warrants over fair value
   transferred to shareholders .................           --         6,579,000
Excess of fair value of Series B stock
   (less carrying amount and associated
   beneficial conversion feature of Series
   A redeemed) .................................           --          (469,000)
                                                    -----------     -----------
Net income (loss) applicable to common
   stockholders ................................    $(8,307,000)    $ 3,354,000

                                                    -----------     -----------
Basic & Diluted net income (loss) per share ....    $    (18.26)    $      7.37



                                       12


<PAGE>



RESULTS FROM OPERATIONS


FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001



SELLING, GENERAL AND ADMINISTRATIVE EXPENSES


     Selling, general and administrative expenses were $1,460,000 and $2,645,000
for  2002  and  2001,  respectively.   The  decrease  in  selling,  general  and
administrative  expenses of $1,185,000 in 2002 is due to a reduction in staffing
and other overhead.  The Company has budgeted for additional overhead reductions
in the first quarter of 2003.

DEPRECIATION AND AMORTIZATION

     Depreciation and amortization expense was $112,000 and $151,000 in 2002 and
2001,  respectively.  The $39,000  decrease was  principally  due to the Company
disposing of certain assets during 2002.


OTHER INCOME/(LOSS)

     Loss on the  impairment  of  securities  was $5,000 and $26,000 in 2002 and
2001, respectively.  The loss in 2002 results from an impairment in the value of
Metromedia  International Group, Inc. common stock. The loss in 2001 consists of
an  impairment  in the  value of  Tutornet  common  stock.  Tutornet  stock  was
completely written off at June 30, 2001.




     Interest  income/(expense),  net  was  $139,000  and $0 in 2002  and  2001,
respectively.  Interest income in 2002 consists primarily from amounts earned on
the federal tax refund receivable.


     Other income was $551,000 and $545,000 in 2002 and 2001, respectively.  The
income was derived principally from sublease arrangements on leased office space
that is no longer  occupied.  The  company  received  $469,000 of rent income in
2002, and $443,000 in 2001.

EXTRAORDINARY GAIN

     Extraordinary  gain was zero and  $293,000 in 2002 and 2001,  respectively.
The gain is due to a  $293,000  settlement  on  subordinated  notes  payable  to
stockholders of the Company.

CUMULATIVE EFFECT OF ACCOUNTING CHANGES


     Effective  January 1, 2002, the Company changed the accounting for goodwill
from an amortization  method to an impairment  only approach.  During the second
quarter of 2002, in accordance  with SFAS No. 142, the Company  determined  that
its goodwill was impaired due to its continued  historical and forecasted future
losses as a result of the  changing  economic  conditions  in the  entertainment
industry. As a result, a one-time, non-cash charge of $2,861,000 was recorded to
write-off the remaining balance of goodwill on the Company's balance sheet.


     Effective January 1, 2001, the Company changed its method of accounting for
film costs, which resulted in a one-time non-cash charge of $628,000.


DISCONTINUED OPERATIONS

     Income (Loss) from discontinued  operations was $(3,391,000) and $1,160,000
in 2002 and 2001,  respectively.  The decrease of $4,551,000  can be principally
attributed to the decrease in revenue  recognized from discontinued  operations.
The  decrease is due, in part,  to the sale of the  Company's  library of Harvey
Classic Characters in June 2001, with an effective date of February 1, 2001, for
$17 million.  In addition,  recent events overseas have negatively  impacted the
international  media  markets,  causing  significant  financial  losses  to  the
entertainment  industry  and  further  depressing  the values of filmed  library
assets.


LIQUIDITY AND CAPITAL RESOURCES

     Net cash  provided  by/(used in)  operating  activities  was  $(67,000) and
$2,855,000  in 2002  and  2001,  respectively.  The  increase  in  cash  used in
operating  activities was primarily due to a decrease in net income,  investment
in film  inventory,  gains on  disposition  of assets  and  settlement  of debt,
prepaids and accounts  receivable,  offset by a decrease in


                                       13


<PAGE>


the amortization of deferred financing charges, accounts payable, participations
and residuals and deferred revenue balances.


     Net  cash  provided   by/(used  in)  investing   activities  was  zero  and
$16,075,000  in  2002  and  2001,  respectively.   Cash  provided  by  investing
activities in 2001 resulted from the sale of substantially  all of the Company's
Harvey Classic Character assets, properties and rights owned by the Company.


     Net  cash  provided   by/(used  in)  financing   activities  was  zero  and
$(18,475,000) in 2002 and 2001, respectively.  Cash used in financing activities
in 2001 is due to the  repayment of a credit  facility the Company  entered into
with The Chase  Manhattan Bank credit  facility,  subordinated  notes payable to
stockholders and other production loans.




     In April 2000, the Company  acquired 100% of the  outstanding  shares of PM
Entertainment. The purchase price consisted of $6,500,000 in cash, 36,300 common
shares of the Company with a fair value of $1,668,000, a $2,050,000 subordinated
note and  assumption  of  Imperial  Bank debt of  approximately  $5,300,000.  In
connection with the acquisition of PM Entertainment,  the Company purchased from
Imperial Bank a loan, secured by the motion picture "Inferno",  by paying a down
payment of  $2,000,000  and obtaining a loan from Imperial Bank in the amount of
approximately  $4,800,000 pursuant to a Loan and Security Agreement.  Loans from
Imperial Bank were completely repaid by December 31, 2001.

     Management  believes that the Company's current and anticipated  sources of
working  capital from  collection  of accounts  receivable  and new sales of the
Company's  remaining  film library are not  sufficient  to provide the necessary
liquidity and financing for the Company's operating financial needs as set forth
in  Management's  current  business plan for the next twelve months.  To address
previous liquidity issues management sold certain assets,  properties and rights
owned by the  Company.  On April 10,  2003,  the  Company  and its  wholly-owned
subsidiary,  Pepin/Merhi  Entertainment  Group,  Inc.,  entered  into  an  Asset
Purchase Agreement with Film Library Acquisition Corp. for the sale of PM's film
library.  If the  Company  does  not  successfully  complete  the sale of the PM
Entertainment  Library,  management  will  continue  to operate the Company as a
scaled-back business focusing on the sale of that PM library.


     Whether  or not  the  Company  successfully  completes  the  sale of the PM
Entertainment  Library,  the Company  intends to continue  exploring its various
strategic  alternatives,  including the acquisition of additional  assets,  or a
merger or sale of the  Company,  or its assets.  The Company  does not intend to
limit  its  search  to  any  specific  kind  of  industry  or  business.  It may
investigate  and  ultimately  acquire a venture  that is in its  preliminary  or
development  stage,  is  already  in  operation,  or in  various  stages  of its
corporate  existence and development.  A potential venture might need additional
capital or merely desire to have its shares publicly traded.


Following  is a summary of the  contractual  obligations  available  to us as of
December 31, 2002 (in thousands):

CONTRACTUAL OBLIGATIONS                 PAYMENTS DUE BY PERIOD
-----------------------   ------------------------------------------------
                                               Between   Between
                          Total    Less than     2-3       4-5     After 5
                                     1 year     years     years     years
-----------------------   ------   ---------   -------   -------   -------
Operating leases          $2,117      $734      $983      $400       $0
Total Contractual Cash
   Obligations            $2,117      $734      $983      $400       $0


INFLATION AND SEASONALITY

     Inflation has not been material to the Company during the past five years.


     The Company's  quarterly and yearly operating  results may fluctuate due to
the  manner  in which the  Company  is  required  to  record  revenue  from film
licensing  agreements  and  the  seasonality   surrounding  the  film  licensing
business. Although film licensing agreements typically grant rights for a period
of one to five years,  revenues are typically recognized when the license period
begins,  provided  certain  conditions  are met.  Fluctuations  in quarterly and
yearly  operating  results  principally  arise  due to the  Company's  timing in
entering  into  film  licensing  agreements  as the film  markets,  at which the
Company  licenses  its  products,  occur from  February  through May and October
through  November.   Therefore,   the  Company  believes  that  period-to-period
comparisons  of its results  from  operations  are not  necessarily  an accurate
indication of future performance.



                                       14


<PAGE>


ITEM 7.    FINANCIAL STATEMENTS

     Pages F-1 through F-20 follow.

     The following tables set forth  supplementary data for each of the years in
the two-years ended December 31, 2002.


<TABLE>
<CAPTION>
                                                             2002
                                      ------------------------------------------------------
                                      MARCH 31       JUNE 30        SEPT 30         DEC 31
                                    ------------   -----------    -----------    -----------
                                     (UNAUDITED)   (UNAUDITED)    (UNAUDITED)    (UNAUDITED)

<S>                                 <C>            <C>            <C>            <C>
Revenues ........................   $      --      $      --      $      --      $      --

Gross Profit (Loss) .............          --             --             --             --
Income (Loss) from continuing
   operations ...................      (250,000)    (2,936,000)      (122,000)      (440,000)
Income (Loss) from discontinued
   operations ...................      (314,000)      (775,000)      (772,000)    (1,530,000)
Net Income (Loss) attributable to
   Common Stock .................      (848,000)    (4,000,000)    (1,189,000)    (2,270,000)
INCOME (LOSS) PER SHARE:
Basic and Diluted ...............   $     (1.86)   $     (8.79)   $     (2.61)   $     (5.00)



<CAPTION>
                                                             2001
                                      ------------------------------------------------------
                                      MARCH 31       JUNE 30        SEPT 30         DEC 31
                                    ------------   -----------    -----------    -----------
                                     (UNAUDITED)   (UNAUDITED)    (UNAUDITED)    (UNAUDITED)

<S>                                 <C>            <C>            <C>            <C>
Revenues ........................   $      --      $      --      $      --      $      --

Gross Profit ....................          --             --             --             --
Income (Loss) from continuing
   operations ...................    (1,466,000)      (647,000)      (261,000)      (238,000)
Income (Loss) from discontinued
   operations ...................    (1,445,000)     4,442,000       (518,000)    (1,319,000)
Net Income (Loss) attributable to
   Common Stock .................    (3,285,000)     2,950,000      5,525,000     (1,836,000)
INCOME (LOSS) PER SHARE:
Basic and Diluted ...............   $     (7.20)   $      6.50    $     12.07    $     (4.00)
</TABLE>



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

     Not Applicable


                                       15


<PAGE>


                                    PART III

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

                                   MANAGEMENT

     Set forth below is certain  information  with respect to the  directors and
executive officers of the Company as of the date of the filing of this report:


NAME                  AGE                        POSITION
----                  ---                        --------

Roger A. Burlage       60      Chairman of the Board, Chief Executive Officer,
                                  and Co-President
David B. Weiner        46      Co-President
Gary Freeman           35      Co-President, Chief Financial Officer and
                                  Corporate Secretary
William Dallas         48      Director
Michael S. Doherty     49      Director
Gary M. Gray           58      Director
Paul Guez              59      Director


     Roger A.  Burlage  and  Gary  Freeman  currently  serve  as  directors  and
executive  officers  of  the  Company's  primary  wholly  owned  subsidiary,  PM
Entertainment. Directors are currently elected for terms of one year each.

     The Company's Bylaws allow the Board to fix the number of directors between
five and nine. The number of directors is currently fixed at five.

     ROGER A. BURLAGE has served as Chairman and Chief Executive  Officer of The
Sunland  Entertainment  Co., Inc. since April 1999. Mr. Burlage was also elected
Co-President  in January  2003.  Until he joined the  Company,  Mr.  Burlage was
President of Burlage/Edell  Productions  Inc., a film and television  production
company which he formed in February 1998 with his partner Elaine Hastings-Edell,
and Chief  Executive  Officer of Heartland  Entertainment,  Inc., an independent
film production  entity.  From March 1996 until July 1997, he served as Chairman
and Chief Executive Officer of LIVE Entertainment  Inc. ("LIVE"),  a diversified
independent   entertainment  company,  after  serving  as  President  and  Chief
Executive  Officer  since  joining LIVE in January 1994.  Mr.  Burlage  became a
Director of LIVE in December 1994,  and after LIVE's sale to a private  investor
group in July 1997  remained with LIVE until  February  1998 on a  significantly
full time basis as a  transitional  Chairman.  From 1989 until joining LIVE, Mr.
Burlage  served as President and Chief  Executive  Officer of Trimark  Holdings,
Inc. ("Trimark"),  an independent  entertainment entity, and most recently was a
member of Trimark's  Board of Directors from April 1998 until April 1999.  Prior
to joining  Trimark,  Mr.  Burlage  served in several  other  capacities  in the
entertainment  industry,  including executive positions with New World Pictures,
Ltd. and with AVCO Corporation and AVCO Embassy Pictures.

     DAVID B. WEINER was elected  Co-President  in January  2003.  Mr. Weiner is
currently a management  consultant with the consulting firm of W-Net,  Inc. From
1993 to 1998, Mr. Weiner served as Vice President,  Senior Vice  President,  and
President of K-Tel,  International,  a music and direct marketing company. Prior
to joining  K-Tel,  International,  Mr. Weiner  worked in the corporate  finance
consulting group of Deloitte and Touche.

     GARY  FREEMAN  was  elected  Co-President,   Chief  Financial  Officer  and
Corporate  Secretary in January 2003.  Mr. Freeman is currently a Vice President
with Kellogg & Andelson,  a Southern  California  based public  accounting firm.
From 1990 to 2000, Mr. Freeman worked at BDO Seidman, LLP in various capacities,
including as a partner from 1998 to 2000.

     WILLIAM DALLAS was appointed as a Director of the Company in March of 2001.
Mr. Dallas also served as a director from May of 2000 through  December of 2000.
Mr. Dallas is the founder of First Franklin and has served as its Chairman since
1981.  First  Franklin is a leading  nonprime  wholesale  lender in the mortgage
banking  industry.  The firm  provides  mortgage  lenders with a wide variety of
products and services, focusing on its proprietary risk-based Direct Access loan
programs.   First  Franklin  is  a  subsidiary  of  National  City   Corporation
(NYSE:NCC).  Headquartered  in San Jose,  First  Franklin  employs  close to 900
professionals in over 30 locations nationwide.  National City Corporation is one
of the


                                       16


<PAGE>


nation's  largest  commercial  banks.  Mr. Dallas has also  co-founded two other
banking institutions: In 1995, Mr. Dallas helped found Heritage Bank of Commerce
(NASDAQ HTBC), a community  business bank serving Silicon  Valley;  and in 1998,
Mr. Dallas helped found  California Oaks State Bank in Thousand Oaks. Mr. Dallas
is a  Certified  Mortgage  Banker,  and  is a  Board  advisor  to  Factual  Data
Corporation,  a Colorado based credit services  provider since.  Mr. Dallas also
presently serves as director for the following companies: Affinity Corporation a
private technology company dedicated to mortgage fraud detection, LoanCity.com a
provider of mortgage  infrastructure  technology and products based in San Jose,
Diversified Capital, a mortgage brokerage in Northern California,  and Finet.com
a publicly  traded  mortgage  company.  Mr.  Dallas  accepted the  nomination of
California  Lutheran  University,  or  "CLU,"  to be  secretary  of the Board of
Regents and he teaches Venture Development, a class he created at CLU.


     MICHAEL S. DOHERTY has been a Director of the Company since  December 1997.
Since  November  1999,  Mr.  Doherty has been  President  of  Doherty,  Scotti &
Company,  LLC, a firm specializing in venture capital and private equity funding
for development stage companies. From February 1999 to October 1999, Mr. Doherty
served as Senior Managing Director of Spencer Trask Securities Incorporated. Mr.
Doherty served as Managing Director and Director of Private Equity at Cruttenden
Roth Incorporated from October 1996 to February 1999. From 1992 to October 1999,
he served as Vice President of Arnhold and S. Bleichroeder Inc, a New York-based
investment banking, brokerage and asset management firm. Mr. Doherty also serves
on the Boards of several  public and private  companies,  including ACLN Ltd., a
marine transport  company,  IPAXS, a voice-over  Internet  Provider and Internet
telephony  company,  Xycom,  Inc.,  an  industrial  automation  company and Zyan
Communications, Inc., a provider of digital subscriber line services.


     GARY M. GRAY has been a Director  of the  Company  since 1991 and served as
the Chairman of the Board from March 1998 to April 1999.  Mr. Gray is a Managing
Director of Milestone  Capital,  Inc., a firm based in Houston,  Texas which, in
concert with  affiliated  foreign  entities,  invests in or acquires  control of
private  companies with  operations in the United  States.  Prior to locating in
Houston in 1997, from 1994 to 1997, Mr. Gray practiced law and provided business
consulting  services to foreign clients from offices based in Oklahoma and, from
1991 to 1993,  practiced law in New York. Prior to attending  Harvard Law School
from 1987 to 1990,  Mr.  Gray was  involved  in various  investment  and banking
activities, principally in Oklahoma.

     PAUL GUEZ has been a Director of the Company  since 1999. As an investor in
many business activities,  Mr. Guez is also chairman of the board of DVT 3000, a
DVD company, and has been the president of Stone Canyon  International,  a movie
production  firm,  since  1998.  For the past  eleven  years,  Mr. Guez has been
overseeing Azteca Production,  a clothing  manufacturing company that he founded
with his brother,  Hubert Guez in 1990. Prior to Azteca, Mr. Guez headed the JAG
clothing  label,  which he purchased in 1984,  as well as the Sasson Jeans label
which he launched in 1976.

           COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934

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

     To the  Company's  knowledge,  based solely on review of the copies of such
reports furnished to the Company and certain other representations that no other
reports were  required,  during the year ended  December  31, 2002,  all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.


                                       17


<PAGE>


ITEM 10.   EXECUTIVE COMPENSATION

                  EXECUTIVE COMPENSATION AND OTHER REMUNERATION

     The following table and related footnotes show the compensation paid during
the fiscal years ended December 31, 2002,  2001 and 2000 to the Company's  Chief
Executive Officer. No other executive officer that was serving at the end of the
last completed fiscal year (2002) earned over $100,000.

<TABLE>
                           SUMMARY COMPENSATION TABLE
<CAPTION>

                                   ANNUAL COMPENSATION         LONG TERM COMPENSATION
                                ------------------------    ---------------------------
                                                            COMMON STOCK
                                                             UNDERLYING     ALL OTHER
NAME AND PRINCIPAL POSITION     YEAR     SALARY    BONUS       OPTIONS     COMPENSATION
---------------------------     ----   ---------   -----    ------------   ------------
<S>                             <C>    <C>          <C>           <C>      <C>
Roger A. Burlage                2002   $ 560,314    N/A           N/A      $  7,500(1)
  Chairman, Chief               2001   $ 543,734    N/A           N/A      $  7,500(1)
  Executive Officer,            2000   $ 519,412    N/A           N/A      $  7,500(1)
  and Co-President
----------
<FN>
(1)  Represents benefits paid under Mr. Burlage's employment contract related to
     country club dues.
</FN>
</TABLE>


                        OPTION GRANTS IN LAST FISCAL YEAR

     The  following  table  and  related  footnotes  set  forth  the  number  of
securities underlying options granted in the last fiscal year (2002) and held by
the Company's Chief Executive Officer.


                       NUMBER OF      PERCENT OF
                      SECURITIES     TOTAL OPTIONS
                      UNDERLYING      GRANTED TO      EXERCISE OR
                        OPTIONS      EMPLOYEES IN      BASE PRICE    EXPIRATION
NAME                    GRANTED       FISCAL YEAR      ($/SHARE)        DATE
----                    -------       -----------      ---------        ----
Roger A. Burlage           0              N/A             N/A           N/A



<TABLE>
               AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

<CAPTION>
                                                       NUMBER OF SECURITIES
                       SHARES                               UNDERLYING         VALUE OF UNEXERCISED
                     ACQUIRED ON         VALUE             UNEXERCISED         IN-THE-MONEY OPTIONS
NAME                 EXERCISE (#)      REALIZED ($)    OPTIONS AT 12/31/02          AT 12/31/02
----                 ------------      ------------    -------------------          -----------
<S>                       <C>             <C>                  <C>                       <C>
Roger A. Burlage          0               N/A                  64,032                    0
</TABLE>


                              DIRECTOR COMPENSATION

     Directors  of the Company who are neither  employees  of the Company nor of
the Company's  affiliates  receive  $20,000 in cash each year for serving on the
Board.

     Employment  and  other  arrangements  between  the  Company  and any  named
executive  officer are  described in Part III,  Item 12, of this Form 10-KSB and
are incorporated herein by this reference.


                                       18


<PAGE>


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of March 31, 2003,  certain  information
regarding the  beneficial  ownership of the Company's  Common Stock by: (i) each
person  known by the Company to be the  beneficial  owner of more than 5% of the
outstanding  shares  of  Common  Stock,  Series A  Preferred  Stock or  Series B
Preferred Stock, (ii) the Company's Chief Executive  Officer,  (iii) each of the
Company's directors, (iv) each person who is an executive officer of the Company
as of March 31, 2003,  and (v) the  Company's  current  directors  and executive
officers as a group:


<TABLE>
<CAPTION>
NAME AND ADDRESS                             TITLE OF CLASS(1)          NUMBER OF SHARES      PERCENT OF
OF BENEFICIAL OWNERS                                                      AND NATURE OF        CLASS(2)
                                                                      BENEFICIAL OWNERSHIP
--------------------------------------------------------------------------------------------------------
<S>                                     <C>                                   <C>                <C>
AKA USA Holdings Limited (3)            Common Stock                          105,500            23.19%
Beneficial Owner                        Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                   --               --
Ahmad Bin Khalid Al-Saud (3)            Common Stock                          105,500            23.19%
Beneficial Owner                        Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                   --               --
Gary Stein(4)                           Common Stock                           35,000             7.69%
Beneficial Owner                        Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                   --               --
Dimensional Fund Advisors Inc.(5)       Common Stock                           28,560             6.28%
Beneficial Owner                        Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                   --               --
Universal Studios, Inc. (6)             Common Stock                           37,450             8.23%
Beneficial Owner                        Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                   --               --
Aim Holdings, LLC (7)                   Common Stock                           13,115             2.80%
Beneficial Owner                        Series A Preferred Stock                  647            12.45%
                                        Series B Preferred Stock                   --               --
Sheldon Brody (8)                       Common Stock                           10,622             2.28%
Beneficial Owner                        Series A Preferred Stock                  524            10.09%
                                        Series B Preferred Stock                   --               --
Gerard Guez (9)                         Common Stock                           26,200             5.44%
Beneficial Owner                        Series A Preferred Stock                  154             2.96%
                                        Series B Preferred Stock                1,138             9.30%
Park Financial Corporation (10)         Common Stock                           26,214             5.45%
Beneficial Owner                        Series A Preferred Stock                1,293            24.89%
                                        Series B Preferred Stock                   --               --
L D B Corporation (11)                  Common Stock                           26,214             5.45%
Beneficial Owner                        Series A Preferred Stock                  129             2.49%
                                        Series B Preferred Stock                1,164             9.51%
Checchi Family Trust (12)               Common Stock                           26,214             5.45%
Beneficial Owner                        Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                1,293            10.57%
Roger A. Burlage (13)                   Common Stock                           73,810            13.96%
Chairman, Co-President and C.E.O.       Series A Preferred Stock                   66             1.27%
                                        Series B Preferred Stock                  594             4.85%
Michael S. Doherty (14)                 Common Stock                            3,000             0.65%
Director                                Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                   --               --
Paul Guez (15)                          Common Stock                          109,277            19.37%
Director                                Series A Preferred Stock                  765            14.73%
                                        Series B Preferred Stock                5,635            46.06%
Gary M. Gray (16)                       Common Stock                           12,750             2.73%
Director                                Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                   --               --
William Dallas (17)                     Common Stock                           26,214             5.45%
Director                                Series A Preferred Stock                  129             2.48%
                                        Series B Preferred Stock                1,164             9.51%


                                       19


<PAGE>



David Weiner(18)                        Common Stock                               --               --
Co-President                            Series A Preferred Stock                   --               --
                                        Series B Preferred Stock                   --               --

Gary Freeman(19)                        Common Stock                               --               --
Co-President, Chief Financial Officer   Series A Preferred Stock                   --               --
and Corporate Secretary                 Series B Preferred Stock                   --               --
All Officers and Directors a group (20) Common Stock                          230,051            33.58%
(7 persons)                             Series A Preferred Stock                  960            18.48%
                                        Series B Preferred Stock                7,393            60.42%

<FN>
(1)  When voting with the shares of Common Stock on an as-converted  basis, each
     share of Series A and Series B Preferred  Stock is entitled to 14.815 votes
     (the   number  of  shares  of  Common   Stock  into  which  each  share  is
     convertible).  The Series A Preferred Stock is entitled to elect two of the
     Company's five  directors and is otherwise  entitled to vote on all matters
     (including  the election of remaining  directors)  together with holders of
     Series  B  Preferred  Stock  and  Common  Stock  voting  as a  class  on an
     as-converted basis. The Series B Preferred Stock is entitled to vote on all
     matters  (including  the election of  remaining  directors)  together  with
     holders of Series A Preferred  Stock and Common  Stock voting as a class on
     an as-converted basis.

(2)  The percent of Common  Stock owned is  calculated  using the sum of (A) the
     number of shares of Common Stock owned,  (B) the number of shares of Common
     Stock issuable upon conversion of the beneficial owner's Series A Preferred
     Stock and Series B  Preferred  Stock,  and (C) the number of  warrants  and
     options of the beneficial owner that are exercisable within 60 days, as the
     numerator,  and the sum of (X) the total  number of shares of Common  Stock
     outstanding  (455,017),  (Y) the number of shares of Common Stock  issuable
     upon  conversion of the  beneficial  owner's  Series A Preferred  Stock and
     Series B Preferred Stock, and (Z) the number of warrants and options of the
     beneficial  owner that are exercisable  within 60 days, as the denominator.
     The  percent of Series A  Preferred  Stock  owned is  calculated  using the
     number  of shares of Series A  Preferred  Stock  beneficially  owned as the
     numerator  and the total  number of  shares  of  Series A  Preferred  Stock
     outstanding  on March 31, 2003 (5,195) as the  denominator.  The percent of
     Series B Preferred Stock owned is calculated  using the number of shares of
     Series B Preferred Stock  beneficially owned as the numerator and the total
     number of shares of Series B Preferred Stock  outstanding on March 31, 2003
     (12,235) as the denominator.

(3)  Includes shares held by AKAUSA and Mr.  Al-Saud.  The United States mailing
     address  of AKAUSA and the United  States  address of Mr.  Ahmad Bin Khalid
     Al-Saud is 3535 N. W. 58th  Street,  Suite  950,  Oklahoma  City,  Oklahoma
     73112. AKAUSA is a Cayman Islands corporation, 100% of whose stock is owned
     by Mr. Ahmad Bin Khalid  Al-Saud,  a citizen and resident of Saudi  Arabia.
     45,500 shares are held in AKAUSA's  name, and 60,000 shares are held in Mr.
     Al-Saud's name. However,  since Mr. Al-Saud owns 100% of AKAUSA, all voting
     power is held by Mr. Al-Saud.

(4)  The address of Gary Stein is 301 E. 48th Street #20F, New York, NY 10017.

(5)  The address of  Dimensional  Fund Advisors Inc. is 1299 Ocean Avenue,  11th
     Floor, Santa Monica, CA 90401.

(6)  The  address of  Universal  Studios,  Inc.  is 100  Universal  City  Plaza,
     Universal City, California 91608.

(7)  The  address  of Aim  Holdings,  LLC is 315 North  Swall  Drive,  Unit 302,
     Beverly Hills,  California 90211. Percent of class of Common Stock includes
     9,580 shares of Series A Preferred  Stock  (as-converted);  and exercisable
     options/warrants to purchase 3,529 shares of Common Stock within 60 days.

(8)  The address of Sheldon Brody is 86 Fox Hedge Road, Saddle River, New Jersey
     07458.  Percent of class of Common Stock  includes 7,760 shares of Series A
     Preferred  Stock  (as-converted);   and  exercisable   options/warrants  to
     purchase 2,859 shares of Common Stock within 60 days.

(9)  The address of Gerard Guez is 3151 East Washington Boulevard,  Los Angeles,
     California 90023. Percent of class of Common Stock includes 2,274 shares of
     Series  A  Preferred  Stock  (as-converted);  16,861  shares  of  Series  B
     Preferred  Stock  (as-converted);   and  exercisable   options/warrants  to
     purchase 7,059 shares of Common Stock within 60 days.


                                       20


<PAGE>


(10) The address of Park  Financial  Corporation  is 1800 Moler Road,  Columbus,
     Ohio 43207.  Percent of class of Common  Stock  includes  19,159  shares of
     Series A Preferred Stock (as-converted);  and exercisable  options/warrants
     to purchase 7,059 shares of Common Stock within 60 days.

(11) The address of LDB Corporation is 444 Sidney Baker South, Kerrville,  Texas
     78028.  Percent of class of Common Stock  includes 1,916 shares of Series A
     Preferred Stock  (as-converted);  17,243 shares of Series B Preferred Stock
     (as-converted);  and exercisable  options/warrants to purchase 7,059 shares
     of Common Stock within 60 days.

(12) The address of the Checchi Family Trust is 920 Manhattan  Beach Blvd.,  #1,
     Manhattan  Beach,  California  90266.  Percent  of  class of  Common  Stock
     includes  19,161  shares of Series B Preferred  Stock  (as-converted);  and
     exercisable  options/warrants  to  purchase  7,059  shares of Common  Stock
     within 60 days.

(13) The address of Roger Burlage is c/o Sunland  Entertainment Co., Inc., 11835
     W. Olympic,  Suite 550, Los Angeles,  California 90064. Percent of class of
     Common   Stock   includes   977   shares  of  Series  A   Preferred   Stock
     (as-converted);  8,794 shares of Series B Preferred  Stock  (as-converted);
     and exercisable  options/warrants to purchase 64,032 shares of Common Stock
     within 60 days.

(14) The address of Michael  Doherty is c/o  Sunland  Entertainment  Co.,  Inc.,
     11835 W.  Olympic,  Suite 550, Los Angeles,  California  90064.  Percent of
     class of Common Stock  includes  exercisable  options/warrants  to purchase
     8,000 shares of Common Stock within 60 days.

(15) The address of Paul Guez is c/o Sunland  Entertainment  Co., Inc., 11835 W.
     Olympic,  Suite 550, Los  Angeles,  California  90064.  Percent of class of
     Common  Stock   includes   11,330  shares  of  Series  A  Preferred   Stock
     (as-converted);  83,478 shares of Series B Preferred  Stock  (as-converted)
     and exercisable  options/warrants to purchase 14,462 shares of Common Stock
     within 60 days.

(16) The  address of Gary Gray is c/o  Milestone  Capital  Inc.,  1800 West Loop
     South, Suite 1075, Houston,  Texas 77027.  Percent of class of Common Stock
     includes  exercisable  options/warrants to purchase 12,750 shares of Common
     Stock within 60 days.

(17) The address of William Dallas is c/o Sunland Entertainment Co., Inc., 11835
     W. Olympic,  Suite 550, Los Angeles,  California 90064. Percent of class of
     Common  Stock   includes   1,916   shares  of  Series  A  Preferred   Stock
     (as-converted);  17,243 shares of Series B Preferred Stock  (as-converted);
     and exercisable  options/warrants  to purchase 7,059 shares of Common Stock
     within 60 days.

(18) The address of David Weiner is c/o Sunland  Entertainment  Co., Inc., 11835
     W.  Olympic,  Suite 550,  Los Angeles,  California  90064.  Mr.  Weiner was
     appointed  Co-President  in January 2003. Mr. Weiner does not currently own
     any Sunland securities or warrants/options to purchase Sunland securities.

(19) The address of Gary Freeman is c/o Sunland  Entertainment  Co., Inc., 11835
     W.  Olympic,  Suite 550, Los Angeles,  California  90064.  Mr.  Freeman was
     appointed Co-President,  Chief Financial Officer and Corporate Secretary in
     January 2003. Mr. Freeman does not currently own any Sunland  securities or
     warrants/options to purchase Sunland securities.

(20) Includes the beneficial ownership of Messrs. Burlage,  Doherty, Guez, Gray,
     Dallas,  Weiner and Freeman.  Total Voting Power  calculation  includes the
     total number of options/warrants of such persons exercisable within 60 days
     106,302 held by such persons to purchase  shares of Common Stock.  Assuming
     that none of such persons  exercises  within 60 days any of such his or her
     respective  options or  warrants,  the Total  Voting  Power of the group is
     approximately 21%.
</FN>
</TABLE>


EQUITY PLAN COMPENSATION INFORMATION

     The Equity Plan  Compensation  Information  identified  in Part II, Item 5,
above is incorporated into this Part III, Item 11, by this reference.


                                       21


<PAGE>



ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     The Company has entered into certain  relationships  and transactions  with
related  parties.   Such   relationships  and  transactions   include,   without
limitation, the following:

EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS.

     The Company  entered into an  employment  agreement  with Roger A. Burlage,
dated April 7, 1999 which provides that he will serve as the Company's  Chairman
and Chief  Executive  for a term of four  years.  Mr.  Burlage is entitled to an
annual salary of $500,000, with minimum annual increases of 7.5%. Mr. Burlage is
also eligible to receive a  discretionary  bonus as determined by the Board.  As
part of the  agreement,  Mr.  Burlage  was granted  warrants to purchase  40,000
shares of the Company's  Common Stock at exercise  prices ranging from $90.00 to
$120.00 per share, and was to receive up to an additional 20,000 warrants at his
election  under certain  circumstances  within one year of the effective date of
his employment  agreement which did not occur. One half of the original warrants
vested upon Mr.  Burlage  signing  the  agreement  and the  balance  vest over a
three-year period, with 25% vesting on the first anniversary,  and 12.5% vesting
on each of the second and third  anniversaries of the agreement.  Mr. Burlage is
also entitled to be reimbursed  for up to $7,500 per year for country club dues,
and to receive all other  benefits  generally  available to the Company's  other
officers,  including  participation  in stock  incentive,  retirement,  medical,
dental and accidental benefit plans, life and disability insurance and vacation.
If Mr. Burlage's position is eliminated as a result of a merger or consolidation
of the Company,  Mr. Burlage will be entitled to terminate his employment within
three months of such event and to receive all salary, benefits and emoluments in
effect as such date through the remainder of his  four-year  term. In January of
2003, Mr. Burlage notified the Board of Directors that he intends to resign from
his position at the expiration of his contract in April of this year. On January
15, 2003,  the Board of Directors  authorized  the creation of the Office of the
President  to  provide  for a smooth  transition  during  the  remainder  of Mr.
Burlage's employment term.

     The Company entered into a settlement  agreement with Eric S. Mischel,  the
Company's former President and Chief Operating Officer, dated December 15, 2000.
The agreement commenced on January 1, 2001 and terminates on April 25, 2003. The
agreement  terminated  Mr.  Mischel's  previous  employment  agreement  with the
Company as of January 1, 2001,  and provides  that Mr.  Mischel,  on a part time
basis,  was to assist the Company in  developing  the BUNNY,  RICHIE  RICH,  HOT
STUFF,  and the WALTER MILLER  projects for a period of one year, as well as the
Hearst  licensing  and  merchandising  deals.  The Company was to pay a $134,365
annual  consulting fee to Mr. Mischel for his services.  If the Company was sold
to a third party  during the term of the  agreement,  the Company was to pay Mr.
Mischel an amount equal to $313,500 less the amounts previously paid to Mischel.
Payment  is to be made  within 5 days of the  consummation  of the sale.  If the
acquiring entity fails to pay the foregoing amount,  Mr. Mischel was entitled to
receive $627,000 less the amounts  previously paid to Mischel.  As of January 1,
2001, all of Mr.  Mischel's  unvested  warrants were  cancelled,  and all of his
stock options  became fully vested and were  exercisable  for one year after the
date Mr.  Mischel ceases to provide  services  under the  settlement  agreement.
However,  all of these options expired on January 2, 2002. The exercise price of
all of Mr.  Mischel's  options  was to be $8.00 per share.  The  Company  was to
provide health insurance  coverage to Mr. Mischel until the earlier of April 25,
2003, or such time as Mr. Mischel became eligible for health  insurance by a new
employer. In addition,  The Company and Mr. Mischel released each other from any
and all, known or unknown,  claims,  arising during the period of Mr.  Mischel's
employment, relating to his employment or termination.


                                       22


<PAGE>


ITEM 13.   EXHIBITS, LIST AND REPORTS ON FORM 10-KSB

EXHIBIT
NUMBER     DESCRIPTION
-------    --------------------------------------------------------------------

2.1        Stock Purchase  Agreement dated as of April 3, 2000, by and among The
           Harvey Entertainment Company,  Richard J. Pepin, Joseph T. Merhi, and
           George  Shamieh  (incorporated  by  reference  to  Exhibit  2 of  the
           Company's Form 8-K dated April 14, 2000)

2.2        Asset Purchase and Sale Agreement dated March 7, 2001, by and between
           The  Harvey  Entertainment  Company,  Harvey  Comics,  Inc.  and  BHP
           Productions,  Inc., on the one hand, and Classic  Media,  LLC, on the
           other  hand  and  Exhibits  A,  B,  and C  thereto  (incorporated  by
           reference to Exhibit 2 of the Company's Form 8-K dated March 7, 2001)

2.3        Amendment  to Asset  Purchase and Sale  Agreement  dated as of May 4,
           2001 by and among the Harvey  Entertainment  Company,  Harvey Comics,
           Inc.,  BHP  Productions,  Inc.  and  Harvey  Entertainment,  Inc.  as
           consented  to by Classic  Media,  LLC  (incorporated  by reference to
           Exhibit 2 of the Company's Form 8-K dated May 9, 2001.

3.1(i)     Second Amended and Restated  Articles of Incorporation of the Company
           (incorporated  herein  by  reference  to  Exhibit  3.1  of  Company's
           Registration Statement No. 33-63363-LA)

3.2(i)     First   Amendment  to  Second   Amended  and  Restated   Articles  of
           Incorporation  of the Company  (incorporated  herein by  reference to
           Exhibit 3.2 of Company's Registration Statement No. 33-63363-LA)

3.3(i)     Certificate of Determination  filed with the California  Secretary of
           State of April 15, 1999  (incorporated by reference to Exhibit 3.1 of
           the Company's Form 8-K dated April 26, 1999)

3.4(i)     Certificate of Determination for Series B Convertible Preferred Stock
           of The Harvey  Entertainment  Company  (incorporated  by reference to
           Exhibit 3(i) of the Company's Form 8-K dated June 2, 2000)

3.5(ii)    Second  Restated  and  Amended  Bylaws of the  Company  (incorporated
           herein  by  reference  to  Exhibit  3.3  of  Company's   Registration
           Statement No. 33-63363-LA)

3.6(ii)    First  Amendment to Second Restated and Amended Bylaws of the Company
           (incorporated  herein  by  reference  to  Exhibit  3.4  of  Company's
           Registration Statement No. 33-63363-LA)

4.1        Form of  Stock  Certificate  (incorporated  herein  by  reference  to
           Exhibit 4 of Company's Registration Statement No. 33-63363-LA)

10.1       Registration  Agreement,  dated as of December 7, 1990,  by and among
           the  Company,  AKAUSA and MCA  (incorporated  herein by  reference to
           Exhibit 10.11 of Company's Registration Statement No. 33-63363-LA)

10.2       Shareholders  Agreement,  dated as of December 7, 1990,  by and among
           the  Company,  AKAUSA and MCA  (incorporated  herein by  reference to
           Exhibit 10.12 of Company's Registration Statement No. 33-63363-LA)

10.3       1993 Stock  Option  Plan and Stock  Option  Agreements  (incorporated
           herein  by  reference  to  Exhibit  10.41 of  Company's  Registration
           Statement No. 33-63363-LA)

10.4       Special Salary  Reduction  Stock Option Plan of 1993 and Stock Option
           Agreements  (incorporated  herein by  reference  to Exhibit  10.42 of
           Company's Registration Statement No. 33-63363-LA)

10.5       Profit Sharing Plan and Trust Adoption Agreement (incorporated herein
           by reference to Exhibit 10.43 of Company's Registration Statement No.
           33-63363-LA)

10.6       Office  Lease  between  Company  and 100  Wilshire  Associates  dated
           December 8, 1993  (incorporated  herein by reference to the Company's
           Annual Report on Form 10-KSB for the year ended December 31, 1993)

10.7       1994 Stock Option Plan  (incorporated  by reference to the  Company's
           1994 definitive Proxy Statement)

10.8       Sublease  Agreement dated as of November 14, 1995 between the Company
           and   Travelers   Management,    Inc.,   a   California   corporation
           (incorporated  herein by reference to the Company's  Annual Report on
           Form 10-KSB for the year ended December 31, 1995)

10.9       Stock Option  Agreement dated as of July 13, 1995 between the Company
           and Jeffrey A.  Montgomery  (incorporated  herein by reference to the
           Company's  Annual  Report on Form 10-KSB for the year ended  December
           31, 1995)

10.10      Stock Option  Agreement dated as of July 13, 1995 between the Company
           and  Gregory  M.  Yulish  (incorporated  herein by  reference  to the
           Company's  Annual  Report on Form 10-KSB for the year ended  December
           31, 1995)

10.11      Warrant Agreement with Arnhold and S. Bleichroeder  dated January 16,
           1997 (incorporated herein by reference to the Company's Annual Report
           on Form 10-KSB for the year ended December 31, 1996)

10.12      Warrant  Agreement  with  Michael  Doherty  dated  January  16,  1997
           (incorporated  herein by reference to the Company's  Annual Report on
           Form 10-KSB for the year ended December 31, 1996)

10.13      The Harvey Entertainment Company 1997 Stock Option Plan (incorporated
           herein by reference to the Company's 1997 definitive Proxy Statement)

10.14      Stock Option  Agreement  dated April 17, 1997 between the Company and
           Gregory M. Yulish  (incorporated herein by reference to the Company's
           Annual report on Form 10-KSB for the year ended December 31, 1997)

10.15      Stock Option  Agreement  dated April 17, 1997 between the Company and
           Jeffrey  A.  Montgomery  (incorporated  herein  by  reference  to the
           Company's  Annual  report on Form 10-KSB for the year ended  December
           31, 1997)


                                       23


<PAGE>


10.16      Employment Agreement dated as of October 1996 between the Company and
           Charles  Day  (incorporated  herein  by  reference  to the  Company's
           Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998)

10.17      Stock Option  Agreement  dated as of October 1996 between the Company
           and Charles Day  (incorporated  herein by reference to the  Company's
           Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998)

10.18      Amendment dated December 19, 1997 to Employment Agreement dated as of
           October 1996 between the Company and Charles Day (incorporated herein
           by reference to the Company's Quarterly Report on Form 10-QSB for the
           quarter ended March 31, 1998)

10.19      Stock Option  Agreement  dated  December 19, 1997 between the Company
           and Charles Day  (incorporated  herein by reference to the  Company's
           Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998)

10.20      Stock Option  Agreement  dated  February 27, 1998 between the Company
           and Don Gold  (incorporated  herein  by  reference  to the  Company's
           Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998)

10.21      Warrant  Agreement  dated  March 23,  1998  between  the  Company and
           Anthony J. Scotti,  Michael S. Hope and Leonard Breijo  (incorporated
           herein by reference to the Company's  Quarterly Report on Form 10-QSB
           for the quarter ended March 31, 1998)

10.22      Stock  Option  Agreement  Director  dated April 13, 1998  between the
           Company and Gary M. Gray  (incorporated  herein by  reference  to the
           Company's Quarterly Report on Form 10-QSB for the quarter ended March
           31, 1998)

10.23      Stock  Option  Agreement  Services  dated April 13, 1998  between the
           Company and Anthony J. Scotti  (incorporated  herein by  reference to
           the Company's  Quarterly  Report on Form 10-QSB for the quarter ended
           March 31, 1998)

10.24      Stock  Option  Agreement  Services  dated April 13, 1998  between the
           Company and Michael S. Hope (incorporated  herein by reference to the
           Company's Quarterly Report on Form 10-QSB for the quarter ended March
           31, 1998)

10.25      Stock  Option  Agreement  Services  dated April 13, 1998  between the
           Company and Leonard Breijo  (incorporated  herein by reference to the
           Company's Quarterly Report on Form 10-QSB for the quarter ended March
           31, 1998)

10.26      Stock Purchase  Agreement  dated as of April 7, 1999 by and among the
           Company,  Michael R.  Burns,  Roger A.  Burlage,  Ken Slutsky and The
           Kushner-Locke  Company  (incorporated by reference to Exhibit 10.1 of
           the Company's Form 8-K dated April 26, 1999)

10.27      Warrant Agreement dated as of April 26, 1999 among the Company, Roger
           A. Burlage,  Michael R. Burns, The Kushner-Locke  Company, Al Checchi
           and Ken Slutsky  (incorporated  by  reference  to Exhibit 10.2 of the
           Company's Form 8-K dated April 26, 1999)

10.28      Registration Rights Agreement dated as of April 26, 1999 by and among
           the Company, The Kushner-Locke Company, Roger A. Burlage,  Michael R.
           Burns,  Al Checchi  and Ken Slutsky  (incorporated  by  reference  to
           Exhibit 10.3 of the Company's Form 8-K dated April 26, 1999)

10.29      Registration  Rights  Agreement  dated  as of April  26,  1999 by and
           between The  Kushner-Locke  Company and the Company  (incorporated by
           reference to Exhibit 10.4 of the  Company's  Form 8-K dated April 26,
           1999)

10.30      Employment  Agreement  dated as of April 5, 1999 by and  between  the
           Company and Roger A.  Burlage  (incorporated  by reference to Exhibit
           10.5 of the Company's Form 8-K dated April 26, 1999)

10.31      Employment  Agreement  dated as of April 26, 1999 between the Company
           and Ronald B. Cushey  (incorporated  by reference to Exhibit 10.61 of
           the Company's  Quarterly  Report on Form 10-QSB for the quarter ended
           June 30, 1999)

10.32      Employment  Agreement  dated as of April 26, 1999 between the Company
           and Eric S. Mischel  (incorporated  by reference to Exhibit  10.62 of
           the Company's  Quarterly  Report on Form 10-QSB for the quarter ended
           June 30, 1999)

10.33      Warrant  Agreement  dated as of June 30, 1999 between the Company and
           Paul  Guez  (incorporated  by  reference  to  Exhibit  10.64  of  the
           Company's  Quarterly Report on Form 10-QSB for the quarter ended June
           30, 1999)

10.34      Registration  Rights  Agreement  dated  as of  June  30,  1999 by and
           between the  Company  and Paul Guez  (incorporated  by  reference  to
           Exhibit  10.65 of the Company's  Quarterly  Report on Form 10-QSB for
           the quarter ended June 30, 1999)

10.35      Employment  Agreement dated as of October 4, 1999 between the Company
           and Glenn  Weisberger  (incorporated by reference to Exhibit 10.66 of
           the Company's  Quarterly  Report on Form 10-QSB for the quarter ended
           September 30, 1999)

10.36      [INTENTIONALLY LEFT BLANK.]

10.37      Settlement  and Mutual Release  Agreement  dated as of March 13, 2000
           among the Company and Dorothy Oriolo,  Donald Oriolo,  Joan Gersh and
           Joseph Donald Oriolo  (incorporated  by reference to Exhibit 10.73 of
           the  Company's  Annual  Report  on Form  10-KSB  for the  year  ended
           December 31, 1999)

10.38      Lease  Agreement  dated  September  22, 1999  between the Company and
           Douglas  Emmett  Realty Fund 1997, a California  limited  partnership
           (incorporated  by reference to Exhibit 10.76 of the Company's  Annual
           Report on Form 10-KSB for the year ended December 31, 1999)


                                       24


<PAGE>


10.39      Employment  Agreement  dated as of April 1,  2000,  by and  among The
           Harvey Entertainment Company,  Pepin/Merhi Entertainment Group, Inc.,
           and George Shamieh (incorporated by reference to Exhibit 10.77 of the
           Company's Form 8-K dated April 14, 2000)

10.40      Lease Agreement dated as of April 1, 2000, by and between Pepin/Merhi
           Entertainment  Group, Inc. and Pepin Merhi Shamieh, LLC (incorporated
           by reference to Exhibit 10.78 of the  Company's  Form 8-K dated April
           14, 2000)

10.41      Sale and Assignment Agreement dated as of April 3, 2000, by and among
           Inferno   Acquisition  Corp.,   Imperial  Bank,  and  Natexis  Banque
           (incorporated by reference to Exhibit 10.79 of the Company's Form 8-K
           dated April 14, 2000)

10.42      Loan and Security  Agreement  dated as of April 3, 2000, by and among
           Inferno   Acquisition   Corp.,   Imperial  Bank  and  Natexis  Banque
           (incorporated by reference to Exhibit 10.80 of the Company's Form 8-K
           dated April 14, 2000)

10.43      Continuing  Guaranty  dated  as of  April  3,  2000,  by  The  Harvey
           Entertainment  Company in favor of Imperial  Bank and Natexis  Banque
           (incorporated by reference to Exhibit 10.81 of the Company's Form 8-K
           dated April 14, 2000)

10.44      Credit, Security,  Guaranty and Pledge Agreement dated as of April 3,
           2000 among the Company,  the other Borrowers referred to therein, the
           Guarantors  referred to therein,  the Lenders referred to therein and
           The Chase  Manhattan  Bank as  Administrative  Agent and Issuing Bank
           (incorporated   by  reference  to  Exhibit  10.82  of  the  Company's
           Quarterly  Report on Form  10-QSB  for the  quarter  ended  March 31,
           2000.)

10.45      [INTENTIONALLY LEFT BLANK.]

10.46      [INTENTIONALLY LEFT BLANK.]

10.47      Settlement  agreement  dated May 24,  2000,  by and among The  Harvey
           Entertainment Company and Ronald B. Cushey (incorporated by reference
           to Exhibit 10.85 of the Company's Form 10-KSB dated April 16, 2001)

10.48      Amendment to employment agreement dated January 1, 2001, by and among
           The   Harvey   Entertainment   Company   and   Glenn  R.   Weisberger
           (incorporated  by reference to Exhibit  10.86 of the  Company's  Form
           10-KSB dated April 16, 2001)

10.49      Settlement agreement dated December 15, 2000, by and among The Harvey
           Entertainment  Company and Eric S. Mischel (incorporated by reference
           to Exhibit 10.87 of the Company's Form 10-KSB dated April 16, 2001)

10.50      Agency  Agreement  dated  February  1, 2001,  by and among The Harvey
           Entertainment  Company  and  Cinetel  Films,  Inc.  (incorporated  by
           reference to Exhibit 10.88 of the  Company's  Form 10-KSB dated April
           16, 2001)

10.51      Agency  Agreement  dated  May  2,  2000,  by  and  among  The  Harvey
           Entertainment  Company  and  Hearst  Entertainment  (incorporated  by
           reference to Exhibit 10.89 of the  Company's  Form 10-KSB dated April
           16, 2001)

10.52      Securities Purchase Agreement dated July 2, 2001 by and among Sunland
           Entertainment,  Inc.  and  SHO  Investments,  LLC  (incorporation  by
           reference to Exhibit 10.52 of the Company's  Form 10-KSB for the year
           ended December 31, 2001)

16         Letter of Deloitte & Touche LLP re: change in  certifying  accountant
           (incorporated  by reference to Exhibit 16 of the  Company's  Form 8-K
           dated June 25, 1999)

21         List of subsidiaries of Company  (incorporated herein by reference to
           Exhibit 22 of Company's Registration Statement No. 33-63363-LA)

24.1       Power  of  Attorney  (included  on the  signature  page to this  Form
           10-KSB).

99.1       Certification of the Company's Chief Executive  Officer,  pursuant to
           18 U.S.C.  Section  1350 as Adopted  Pursuant  to Section  906 of the
           Sarbanes-Oxley Act of 2002.

99.1       Certification of the Company's Chief Financial  Officer,  pursuant to
           18 U.S.C.  Section  1350 as Adopted  Pursuant  to Section  906 of the
           Sarbanes-Oxley Act of 2002.


ITEM 14.   CONTROLS AND PROCEDURES

     Within 90 days prior to the filing of this report, members of the Company's
management,  including the Company's Chief Executive Officer, Roger Burlage, and
Chief Financial Officer, Gary Freeman, evaluated the effectiveness of the design
and operation of the Company's  disclosure  controls and procedures  pursuant to
Exchange  Act Rule  13a-14.  Based upon that  evaluation,  Mr.  Burlage  and Mr.
Freeman believe that, as of the date of the evaluation, the Company's disclosure
controls  and  procedures  are  effective  in  making  known  to  them  material
information  relating to the Company  (including its consolidated  subsidiaries)
required to be included in this report.


                                       25


<PAGE>


     Disclosure  controls  and  procedures,  no  matter  how well  designed  and
implemented,  can provide  only  reasonable  assurance  of achieving an entity's
disclosure  objectives.  The likelihood of achieving such objectives is affected
by limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision-making can be faulty and that breakdowns in
internal  control can occur  because of human  failures such as simple errors or
mistakes or intentional circumvention of the established process.

     There were no significant  changes in the Company's internal controls or in
other factors that could significantly affect these internal controls,  known to
Mr. Burlage or Mr. Freeman, after the date of the most recent evaluation.


                                       26


<PAGE>


                                   SIGNATURES

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

Sunland  Entertainment Company, Inc.


Date: July 11, 2003                       By:        /S/   Gary Freeman
                                               ---------------------------------
                                               NAME:  GARY FREEMAN
                                               TITLE: CO-PRESIDENT AND CHIEF
                                                      FINANCIAL OFFICER
                                                      (PRINCIPAL EXECUTIVE
                                                      OFFICER, AND PRINCIPAL
                                                      FINANCIAL AND ACCOUNTING
                                                      OFFICER)




     In  accordance  with the Exchange Act, this report has been signed below by
the following  person on behalf of the  registrant  and in the capacities and on
the date indicated:

       SIGNATURE                       TITLE                           DATE
       ---------                       -----                           ----

          *                           Director                     July 11, 2003
-------------------------
     Roger Burlage


/s/   GARY FREEMAN            Co-President and Chief Financial     July 11, 2003
-------------------------     Officer (Principal Executive
      Gary Freeman            Officer, and Principal Financial
                              and Accounting Officer)

          *                           Director                     July 11, 2003
-------------------------
     William Dallas


          *                           Director                     July 11, 2003
-------------------------
  Michael S. Doherty


          *                           Director                     July 11, 2003
-------------------------
     Gary M. Gray


          *                           Director                     July 11, 2003
-------------------------
       Paul Guez


*  BY:  /s/ Gary Freeman
        --------------------------
        Gary Freeman
        As Attorney-In-Fact


                                       27


<PAGE>



                    Certification of Co-President Pursuant to
                 Securities Exchange Act Rules 13a-14 and 15d-14
                             as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

I, David Weiner, certify that:

         1. I have  reviewed  this  amended  annual  report on Form  10-KSB/A of
Sunland Entertainment Co., Inc.;

         2. Based on my  knowledge,  this  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not misleading with respect to the period covered by this report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial  condition,  results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

                  a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that  material  information  relating to the  registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
controls  and  procedures,  as of the end of the period  covered by this  report
based on such evaluation; and

                  c)  disclosed  in this  report any change in the  registrant's
internal control over financial  reporting that occurred during the registrant's
fourth fiscal quarter that has materially  affected,  or is reasonably likely to
materially affect, the registrant's  internal control over financial  reporting;
and

         5. The  registrant's  other  certifying  officers and I have disclosed,
based  on  our  most  recent  evaluation  of  internal  control  over  financial
reporting,  to  the  registrant's  auditors  and  the  audit  committee  of  the
registrant's board of directors (or persons performing the equivalent function):

                  a) all significant  deficiencies in the design or operation of
internal  control  over  financial  reporting  which  are  reasonably  likely to
adversely  affect the  registrant's  ability to record,  process,  summarize and
report financial information; and

                  b)  any  fraud,   whether  or  not  material,   that  involves
management or other  employees who have a significant  role in the  registrant's
internal control over financial reporting.



Date:    July 11, 2003
                                /s/ David Weiner
                                ---------------------
                                  David Weiner
                                  Co-President



                                       28


<PAGE>


                        Certification of CFO Pursuant to
                 Securities Exchange Act Rules 13a-14 and 15d-14
                             as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

I, Gary Freeman, certify that:


         1. I have  reviewed  this  amended  annual  report on Form  10-KSB/A of
Sunland Entertainment Co., Inc.;

         2. Based on my  knowledge,  this  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not misleading with respect to the period covered by this report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial  condition,  results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

                  a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that  material  information  relating to the  registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
controls  and  procedures,  as of the end of the period  covered by this  report
based on such evaluation; and

                  c)  disclosed  in this  report any change in the  registrant's
internal control over financial  reporting that occurred during the registrant's
fourth fiscal quarter that has materially  affected,  or is reasonably likely to
materially affect, the registrant's  internal control over financial  reporting;
and

         5. The  registrant's  other  certifying  officers and I have disclosed,
based  on  our  most  recent  evaluation  of  internal  control  over  financial
reporting,  to  the  registrant's  auditors  and  the  audit  committee  of  the
registrant's board of directors (or persons performing the equivalent function):

                  a) all significant  deficiencies in the design or operation of
internal  control  over  financial  reporting  which  are  reasonably  likely to
adversely  affect the  registrant's  ability to record,  process,  summarize and
report financial information; and

                  b)  any  fraud,   whether  or  not  material,   that  involves
management or other  employees who have a significant  role in the  registrant's
internal control over financial reporting.

Date:    July 11, 2003
                                  /s/ Gary Freeman
                                  -------------------------
                                  Gary Freeman
                                  Co-President, Chief Financial Officer and
                                  Corporate Secretary



                                       29


<PAGE>


ITEM 7.    FINANCIAL STATEMENTS

                SUNLAND ENTERTAINMENT CO., INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS


                                                                        PAGE
                                                                        ----


REPORTS OF INDEPENDENT ACCOUNTANTS                                   F-2 to F-3

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR
   THE YEARS ENDED DECEMBER 31, 2002 AND 2001

Consolidated Balance Sheets                                          F-4 to F-5

Consolidated Statements of Operations                                       F-6

Consolidated Statements of Stockholders' Equity                             F-7

Consolidated Statements of Cash Flows                                F-8 to F-9

Notes to Consolidated Financial Statements                         F-10 to F-21



                                      F-1


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Sunland Entertainment Co., Inc.
Los Angeles, CA

We have audited the consolidated balance sheet of Sunland Entertainment Co, Inc.
and subsidiaries as of December 31, 2001 and the related consolidated statements
of  operations,  stockholders'  equity and cash  flows for the year then  ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,   in  all  material   respects,   the  financial   position  of  Sunland
Entertainment Co., Inc. and subsidiaries as of December 31, 2001 and the results
of their  operations  and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
July 8, 2003


                                      F-2


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Sunland Entertainment Co., Inc
Los Angeles, CA

     We have  audited the  accompanying  consolidated  balance  sheet of Sunland
Entertainment  Co. and  subsidiaries  as of  December  31,  2002 and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Sunland
Entertainment  Co. and  subsidiaries  as of December 31, 2002 and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and  has an  accumulated  deficit.  This  raises  substantial  doubt  about  the
Company's ability to continue as a going concern.  Management's  plans in regard
to these matters are also  described in Note 1. The financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.





Singer Lewak Greenbaum & Goldstein LLP

Los Angeles, California
March 12, 2003, except for Note 1,
as to which the date
is April 10, 2003


                                      F-3


<PAGE>


                SUNLAND ENTERTAINMENT CO., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                       YEARS ENDED DECEMBER 31,
                                                      --------------------------
                                                         2002           2001
                                                      -----------    -----------
ASSETS
     Cash and cash equivalents ...................    $ 1,976,000    $ 2,043,000
     Marketable securities .......................           --            5,000
     Accounts receivable, net of allowance
       for doubtful accounts of $720,000 and
       $907,000 in 2002 and 2001, respectively
       and net of a returns reserve of
       $39,000 and $111,000 in 2002 and 2001,
       respectively ..............................           --             --
     Prepaid expenses and other assets ...........        520,000        696,000
     Income tax receivable .......................          7,000        590,000
     Film inventory, net of accumulated
       amortization of $14,389,000 and
       $12,477,000 in 2002 and 2001,
       respectively ..............................           --             --
     Fixed assets, net of accumulated
       depreciation of $1,106,000 and
       $994,000 in 2002 and 2001,
       respectively ..............................         86,000        289,000
     Goodwill, net of accumulated amortization
       of $4,537,000 and $1,676,000 in 2002
       and 2001, respectively ....................           --        2,861,000
     Net assets from discontinued operations .....      3,781,000      7,458,000
                                                      -----------    -----------
TOTAL ASSETS .....................................    $ 6,370,000    $13,942,000
                                                      -----------    -----------


          See accompanying notes to consolidated financial statements.

                                   (Continued)


                                      F-4


<PAGE>


                SUNLAND ENTERTAINMENT CO., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                     YEARS ENDED DECEMBER 31,
                                                   ----------------------------
                                                       2002            2001
                                                   ------------    ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Accounts payable and accrued expenses .......   $    423,000    $    856,000
   Participations and residuals payable ........           --              --
   Deferred revenue ............................           --              --
                                                   ------------    ------------
TOTAL LIABILITIES ..............................        423,000         856,000
                                                   ------------    ------------
COMMITMENTS AND CONTINGENCIES

   Series A Convertible Preferred Stock,
   $1,000 stated value, 75,000 shares
   authorized, 5,200 and 4,800 shares
   issued and outstanding at December
   31, 2002 and December 31, 2001,
   respectively, liquidation preference
   of $5,186,000 and $4,838,000 at
   December 31, 2002 and December 31, 2001,
   respectively ................................      4,326,000       3,978,000
                                                   ------------    ------------
STOCKHOLDERS' EQUITY:

   Preferred stock, $10 par value, 675,000
   shares authorized (30,000 shares
   designated as Series A Convertible
   Preferred Stock and 30,000 shares
   designated as Series B Convertible
   Preferred Stock) ............................           --              --

   Series B Convertible Preferred Stock,
   $1,000 stated value, 250,000 shares
   authorized, 12,200 and 11,400 shares
   issued and outstanding at December
   31, 2002 and December 31, 2001,
   respectively, liquidation preference
   of $12,235,000 and $11,415,000 at
   December 31, 2002 and December 31, 2001,
   respectively ................................     12,235,000      11,415,000

   Common stock, $.001 par value, 1,500,000
   shares authorized, 455,000 issued and
   outstanding at December 31, 2002 and
   December 31, 2001, respectively .............           --              --

   Additional paid in capital ..................     26,459,000      26,459,000
   Accumulated deficit .........................    (37,073,000)    (28,766,000)
                                                   ------------    ------------
           Total stockholders' equity ..........      1,621,000       9,108,000
                                                   ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....   $  6,370,000    $ 13,942,000
                                                   ------------    ------------


          See accompanying notes to consolidated financial statements.


                                      F-5


<PAGE>


                SUNLAND ENTERTAINMENT CO., INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                         TWELVE MONTHS ENDED
                                                             DECEMBER 31,
                                                     --------------------------
                                                         2002          2001
                                                     -----------    -----------
OPERATING EXPENSES
   Selling, general and administrative expenses ..   $ 1,460,000    $ 2,645,000
   Depreciation and amortization .................       112,000        151,000
                                                     -----------    -----------
           Total operating expenses ..............     1,572,000      2,796,000
LOSS FROM OPERATIONS .............................    (1,572,000)    (2,796,000)
Loss on impairment of marketable securities ......        (5,000)       (26,000)
Interest income/(expense), net ...................       139,000           --
Other income .....................................       551,000        545,000
                                                     -----------    -----------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY ITEM,
CUMULATIVE EFFECT OF ACCOUNTING PRINCIPLE
CHANGES AND DISCONTINUED OPERATIONS ..............      (887,000)    (2,277,000)

Income Taxes .....................................          --             --
LOSS BEFORE EXTRAORDINARY ITEM, CUMULATIVE
   EFFECT OF ACCOUNTING PRINCIPLE CHANGES AND
   DISCONTINUED OPERATIONS .......................      (887,000)    (2,277,000)
Extraordinary gain ...............................          --          293,000
Cumulative effect of accounting changes ..........    (2,861,000)      (628,000)
                                                     -----------    -----------
LOSS FROM CONTINUING OPERATIONS ..................    (3,748,000)    (2,612,000)
Income (Loss) from discontinued operations .......    (3,391,000)     1,160,000
                                                     -----------    -----------
NET LOSS .........................................    (7,139,000)    (1,452,000)
Preferred stock dividends ........................    (1,168,000)    (1,304,000)
Excess of carrying amount of Series A and
   Series B convertible preferred stock and
   warrants over fair value transferred to
   shareholders ..................................          --        6,579,000
Excess of fair value of Series B convertible
   preferred stock issued less the carrying
   amount of Series A convertible preferred
   stock redeemed and the associated beneficial
   conversion feature on Series A convertible
   preferred stock redeemed ......................          --         (469,000)
                                                     -----------    -----------
NET INCOME/(LOSS) APPLICABLE TO COMMON
   STOCKHOLDERS ..................................   $(8,307,000)   $ 3,354,000
                                                     -----------    -----------
LOSS PER SHARE OF COMMON STOCK BEFORE
   EXTRAORDINARY GAIN, CUMULATIVE EFFECT
   OF ACCOUNTING PRINCIPLE CHANGES AND
   DISCONTINUED OPERATIONS--Basic and diluted ....   $     (1.95)   $     (5.00)
Extraordinary gain ...............................          --             0.64
Cumulative effect of accounting changes ..........         (6.29)         (1.38)
Discontinued operations ..........................         (7.45)          2.55
Preferred stock dividends ........................         (2.57)         (2.87)
Preferred stock and warrant redemption ...........          --            14.46
Beneficial conversion feature ....................          --            (1.03)
                                                     -----------    -----------
NET INCOME/(LOSS) PER SHARE OF COMMON STOCK--
   Basic and diluted .............................   $    (18.26)   $      7.37
                                                     -----------    -----------
WEIGHTED AVERAGE SHARES OUTSTANDING--
   Basic and diluted .............................       455,000        455,000
                                                     -----------    -----------

          See accompanying notes to consolidated financial statements.


                                      F-6


<PAGE>

<TABLE>
                SUNLAND ENTERTAINMENT CO., INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

<CAPTION>
                                     SERIES B
                                    PREFERRED             COMMON STOCK
                              ---------------------   ----------------------
                                                                                ADDITIONAL
                                                                                 PAID IN
                              SHARES       AMOUNT      SHARES      AMOUNT        CAPITAL        DEFICIT          TOTAL
                              ------   ------------   -------   ------------   -----------   -------------    ------------
<S>                            <C>     <C>            <C>       <C>            <C>           <C>              <C>
BALANCE, DECEMBER 31, 2000     8,911   $  8,911,000   455,000   $     0        $27,878,000   $ (32,119,000)   $  4,670,000
Issuance of warrants
Issuance of common
  stock
Conversion of preferred
  stock                        7,478      7,478,000                               (738,000)                      6,740,000
Stock dividends declared         784        784,000                                             (1,304,000)       (519,000)
Excess on fair value of
  conversion                                                                                      (470,000)       (470,000)
Stock Repurchase              (5,758)    (5,758,000)                              (681,000)      6,579,000         140,000
     Net loss                                                                                   (1,452,000)     (1,452,000)
                              ------   ------------   -------   ------------   -----------   -------------    ------------
BALANCE, DECEMBER 31, 2001    11,415     11,415,000   455,000         0         26,459,000     (28,766,000)      9,108,000
Stock dividends declared         820        820,000                                             (1,168,000)       (348,000)
     Net loss                                                                                   (7,139,000)     (7,139,000)
                              ------   ------------   -------   ------------   -----------   -------------    ------------
BALANCE, DECEMBER 31, 2002    12,235   $ 12,235,000   455,000   $     0        $26,459,000   $ (37,073,000)      1,621,000
                              ------   ------------   -------   ------------   -----------   -------------    ------------
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-7


<PAGE>


                SUNLAND ENTERTAINMENT CO., INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     YEARS ENDED DECEMBER 31,
                                                   ----------------------------
                                                       2002            2001
                                                   ------------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss before extraordinary item,
   cumulative effect of accounting
   principle changes and discontinued
   operations ..................................   $   (887,000)   $ (2,277,000)
Adjustments to reconcile loss before
   extraordinary gain, cumulative
   effect of accounting principle
   changes and discontinued operations
   to net cash provided by/(used in)
   operating activities:
     Depreciation and amortization .............        112,000         151,000
     Changes in operating assets and
        liabilities, net of effects from
        acquisition/disposition of business:
     Marketable securities .....................          5,000          21,000
     Prepaid expenses and other assets .........        176,000         (99,000)
     Income taxes receivable ...................        583,000         (50,000)
     Accounts payable and accrued expenses .....       (433,000)     (1,773,000)
                                                   ------------    ------------
           Net cash provided by/(used in)
              continuing operations ............       (444,000)     (4,027,000)
           Net cash provided by/(used in)
              discontinued operations ..........        377,000       6,882,000
                                                   ------------    ------------
           Net cash provided by/(used in)
              operating activities .............        (67,000)      2,855,000
                                                   ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Expenditures for fixed assets .............           --           (14,000)
     Net proceeds from divesture ...............           --        16,089,000
                                                   ------------    ------------
           Net cash provided by/(used in)
              investing activities .............           --        16,075,000
                                                   ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayment of bank loans ...................           --       (17,975,000)
     Purchase of preferred stock ...............           --          (500,000)
                                                   ------------    ------------
           Net cash (used in)/provided by
              financing activities .............           --       (18,475,000)
                                                   ------------    ------------
NET INCREASE/(DECREASE) IN CASH AND CASH
   EQUIVALENTS .................................        (67,000)        455,000
CASH AND CASH EQUIVALENTS, Beginning of
   period ......................................      2,043,000       1,588,000
                                                   ------------    ------------
CASH AND CASH EQUIVALENTS, End of period .......   $  1,976,000    $  2,043,000
                                                   ------------    ------------


          See accompanying notes to consolidated financial statements.


                                      F-8


<PAGE>


                SUNLAND ENTERTAINMENT CO., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                            YEARS ENDED
                                                            DECEMBER 31,
                                                     --------------------------
                                                         2002           2001
                                                     -----------    -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash received/(paid) during the period for:
           Interest ..............................   $   139,000    $(1,172,000)
           Income taxes ..........................   $    (6,800)   $   (46,000)


NON-CASH FINANCING ACTIVITY:

     See Notes 2 and 6 for disclosure of non-cash financing activities.


                                      F-9


<PAGE>


                SUNLAND ENTERTAINMENT CO., INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BACKGROUND AND OPERATIONS  --Sunland  Entertainment Co., Inc.  ("Sunland"),
together  with its  subsidiaries  Sunland  Entertainment,  Inc. and  Pepin/Merhi
Entertainment Group, Inc.  (collectively,  (the "Company")),  is incorporated in
the state of Delaware and is  primarily  engaged in the  exploitation  of motion
picture product and related  intellectual  property.  In April 2000, the Company
acquired Pepin/Merhi Entertainment Group, Inc. ("PM Entertainment"),  a producer
and distributor of motion picture product.  In March 2001, the Company signed an
Asset  Purchase and Sale  Agreement,  which was later  amended,  for the sale of
substantially  all of the assets,  properties  and rights of the Harvey  Classic
Characters  owned by the Company to Classic Media,  LLC ("Classic  Media").  The
purchase price of $17,000,000  plus the  assumption of certain  liabilities  was
paid in cash at closing,  which  occurred in June 2001. In  connection  with the
sale, the Company changed its name to "Sunland  Entertainment Co., Inc." Through
the  Company's  subsidiary,  PM  Entertainment,  the Company has  continued  its
exploitation  of motion  picture  product and related  intellectual  property by
increasing its presence in foreign markets.  Due to depressed market conditions,
the  Company  has decided  not to finance  new film  product.  The Company  will
continue to operate as a scaled-back  business  focusing on sales of existing PM
Entertainment  library.  Although the Company  previously engaged Houlihan Lokey
Howard & Zukin, or "Houlihan," to explore  strategic  alternatives that may have
been available to the Company  following the completion of its transaction  with
Classic Media, the Company terminated its agreement with Houlihan in February of
2002 due to Houlihan being unable to provide any potential  internal or external
alternatives that met with the approval of the Company's Board of Directors. The
Company  intends to  continue  exploring  its  various  strategic  alternatives,
including  the  acquisition  of  additional  assets,  or a merger or sale of the
Company, or its assets.

     On April 10, 2003, the Company and PM  Entertainment  entered into an Asset
Purchase  Agreement with Film Library  Acquisition  Corp.  ("Purchaser") for the
sale of our remaining  principal asset, PM's film library (the "PM Entertainment
Library"),  for $6,000,000 in cash and the assumption by the Purchaser of all of
the operating expenses  associated with the film library (the "Purchase Price").
The  transaction is subject to shareholder  approval,  and we expect to close by
the end of June 2003. In addition, $750,000 of the Purchase Price will be placed
in an escrow at Closing  and for a period of two years  following  the  Closing,
these funds will be subject to potential claims by the Purchaser  against us for
breaches of  representations  and  warranties  contained in the  agreement.  The
agreement  establishes a cut-off date (the "Cut-Off  Date") for the operation of
the PM  Entertainment  Library  for the benefit of the Company as of January 31,
2003,  and as such,  upon the  Closing  of the  transaction,  Purchaser  will be
entitled to receive and accrue the revenues and cash flow from the business, net
of all direct  expenses of the film library and a portion of our fixed expenses,
in each case incurred from February 1, 2003 until the Closing.

     The following  summarizes the assets sold and the liabilities assumed as of
December 31, 2002 and 2001, prior to closing under the Asset Purchase Agreement:

<TABLE>
<CAPTION>
                                                       2002                                               2001
                                  ----------------------------------------------      ----------------------------------------------
                                                  PROPOSED SALE    SUBSEQUENT TO                      PROPOSED SALE    SUBSEQUENT TO
                                 PRIOR TO SALE     TRANSACTION     PROPOSED SALE     PRIOR TO SALE     TRANSACTION     PROPOSED SALE
                                  -----------      -----------       -----------      -----------      -----------       -----------
<S>                               <C>              <C>               <C>              <C>              <C>               <C>
Cash .......................      $ 1,976,000      $      --         $ 1,976,000      $ 2,043,000      $      --         $ 2,043,000
Marketable securities ......             --               --                --              5,000             --               5,000
Accounts receivable ........        1,471,000       (1,471,000)             --          4,544,000       (4,544,000)             --
Prepaid expenses and
   other assets ............          520,000             --             520,000          696,000             --             696,000
Income tax receivable ......            7,000             --               7,000          590,000             --             590,000
Film Inventory .............        2,748,000       (2,748,000)             --          4,660,000       (4,660,000)             --
Fixed assets (net) .........           86,000             --              86,000          289,000             --             289,000
                                  -----------      -----------       -----------      -----------      -----------       -----------
Goodwill                                 --               --                --          2,861,000             --           2,861,000
                                  -----------      -----------       -----------      -----------      -----------
Total assets ...............        6,808,000       (4,219,000)        2,589,000       15,688,000       (9,204,000)        6,484,000
                                  -----------      -----------       -----------      -----------      -----------       -----------
Accounts payable and
   accruals ................          423,000             --             423,000          856,000             --             856,000
Participations and
   residuals ...............          339,000         (339,000)             --          1,623,000       (1,623,000)             --
Deferred revenues ..........           99,000          (99,000)             --            123,000         (123,000)             --
                                  -----------      -----------       -----------      -----------      -----------       -----------
Total liabilities ..........          861,000         (438,000)          423,000        2,602,000       (1,746,000)          856,000
                                  -----------      -----------       -----------      -----------      -----------       -----------
Net assets .................      $ 5,947,000      $(3,781,000)      $ 2,166,000      $13,086,000      $(7,458,000)      $ 5,628,000
                                  ===========      ===========       ===========      ===========      ===========       ===========
</TABLE>

     Included in the income/(loss)  from discontinued  operations for the twelve
months  ended  December  31,  2002 and 2001,  are  revenues  of  $1,119,000  and
$11,441,000,  respectively,  and income/(loss)  from discontinued  operations of
$(3,391,000) and $1,160,000, respectively.

     The PM Entertainment Library currently represents  substantially all of our
assets and most of our  liabilities,  other than our fixed  operating  expenses.
Thus,  as a result  of this  transaction,  after  the  Closing  we will  have no
continuing business


                                      F-10


<PAGE>


operations.  Consequently, the discussion of our results of operations should be
read in light of the  significant  changes  that will occur in our business as a
result of the Closing, and with the understanding that our historical results of
operations have little or no relevance to our continuing operations.

     We intend to utilize  the  proceeds  from the sale of the PM  Entertainment
Library for the possible acquisition of other businesses as opportunities arise.
Although  we  are  actively  considering  a  number  of  potential   acquisition
opportunities, we have not entered into any definitive agreement with respect to
any specific future acquisitions.  However, we do not intend to purchase another
film library or to search within any specific kind of industry or business,  and
may investigate  and ultimately  acquire a venture that is in its preliminary or
development  stage,  is  already  in  operation,  or in  various  stages  of its
corporate existence and development. Therefore, the discussion of our results of
operations should be read in light of the significant changes that will occur in
our business as a result of the  Closing,  and with the  understanding  that our
historical  results of operations  have little or no relevance to our continuing
operations.

     There are certain  unidentified  risks that cannot be adequately  expressed
prior to the identification of a specific business opportunity.  There can be no
assurance following  consummation of any acquisition or merger that the business
venture  will  develop  into a going  concern  or, if the  business  is  already
operating,  that  it will  continue  to  operate  successfully.  Many  potential
business  opportunities  available  to the Company may involve new and  untested
products,  processes  or  market  strategies  which  may  not  ultimately  prove
successful. Please see the section entitled "Risks Related to the Sale of the PM
Entertainment Library and Our Future Operations."

     Pending their ultimate  application,  the net proceeds from the sale of the
PM Entertainment  Library will be used for general corporate purposes,  and will
be invested  in high  quality,  short term,  interest  bearing  investments  and
deposit accounts.  Depending upon the nature of any potential future acquisition
and the  requirement  of any use of the proceeds  therefore,  we may also in the
future consider  distributing any excess proceeds to our Preferred  Stockholders
as a distribution. If the Company does not successfully complete the sale of the
PM Entertainment  library, the Company will continue to operate as a scaled-back
business focusing on the sales of that library.

     Whether  or not  the  Company  successfully  completes  the  sale of the PM
Entertainment  library,  the Company  intends to continue  exploring its various
strategic  alternatives,  including the acquisition of additional  assets,  or a
merger or sale of the  Company,  or its assets.  The Company  does not intend to
limit  its  search  to  any  specific  kind  of  industry  or  business.  It may
investigate  and  ultimately  acquire a venture  that is in its  preliminary  or
development  stage,  is  already  in  operation,  or in  various  stages  of its
corporate  existence and development.  A potential venture might need additional
capital or merely desire to have its shares publicly traded.

     GOING CONCERN -- The accompanying  financial  statements have been prepared
assuming  that the Company  will  continue as a going  concern.  The Company has
suffered  recurring  losses  from  operations  since  its  inception  and has an
accumulated deficit of $37,073,000 at December 31, 2002.

     The  consolidated  financial  statements  do not  include  any  adjustments
relating to the  recoverability  and classification of recorded asset amounts or
amounts and  classifications  of liabilities  that might be necessary should the
Company be unable to continue  its  existence.  The  recovery  of the  Company's
assets is dependent upon continued operations of the Company.

     In addition,  the Company's  recovery is dependent upon future events,  the
outcome of which is  indeterminable.  The Company intends to continue  exploring
its various  strategic  alternatives,  including the  acquisition  of additional
assets, or a merger or sale of the Company, or its assets.

     REINCORPORATION  TO DELAWARE AND REVERSE  STOCK-SPLIT-- On June 27, 2002, a
special meeting of  shareholders  was held at the Company's  offices,  where the
proposal to change Sunland's state of incorporation  from California to Delaware
and enact a  ten-for-one  reverse  split of the  Company's  common and preferred
stock were approved.  The Company  subsequently changed its stock symbol to SLDE
effective  August 9, 2002.  The effect of this stock split was  reflected in the
financial  statements  retroactively  as if  the  stock  split  occurred  at the
beginning of the earliest period reported.

     BASIS OF PRESENTATION  AND PRINCIPLES OF CONSOLIDATION  --The  consolidated
financial  statements reflect the financial position,  results of operations and
cash flows of the Company  and its wholly  owned  subsidiaries.  The Company has
elected to present an unclassified  balance sheet. All significant  intercompany
accounts and transactions have been eliminated on consolidation.


                                      F-11


<PAGE>


     CUMULATIVE  EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLES--  On June 12, 2000,
the  Accounting  Standards  Executive  Committee  of the  American  Institute of
Certified  Public  Accountants  issued Statement of Position 00-2 "Accounting by
Producers or Distributors of Films" ("SOP 00-2").  SOP 00-2 establishes new film
accounting  standards,  including changes in revenue  recognition and accounting
for advertising,  development and overhead costs. Effective January 1, 2001, the
Company adopted SOP 00-2, and as a result, recorded a one-time,  non-cash charge
of $628,000, or $0.14 per share. This charge has been reflected in the Company's
Consolidated  Statement  of  Operations  as a  cumulative  effect of  accounting
change,  effective  January 1,  2001.  The  adoption  of SOP 00-2 did not have a
material  impact  on the  Company's  current  and  future  years'  revenues  and
operating results.

     During the second  quarter of 2002,  in  accordance  with SFAS No. 142, the
Company  determined  that its goodwill was  impaired.  As a result,  a one-time,
non-cash charge of $2,861,000 was recorded to write-off the remaining balance of
goodwill on the Company's  balance sheet.  In accordance  with the  transitional
guidance of SFAS No.142,  the charge is reflected in the Company's  Consolidated
Statement of Operations as a cumulative effect of accounting principle change.

     USE OF ESTIMATES  --The  preparation of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

     CASH AND CASH EQUIVALENTS --The Company considers investments with original
maturities of 90 days or less to be cash equivalents.

     FILM  COSTS-- The Company  accounts for film costs in  accordance  with SOP
00-2.  Film  inventory  is  stated  at the  lower  of cost,  net of  accumulated
amortization,  or estimated net realizable  value.  Film  inventory  consists of
direct production costs, production overhead and capitalized interest.

     Amortization  is determined  using the  individual  film  forecast  method,
whereby  costs  accumulated  in the  development  and  production  of a film are
amortized in the proportion that the current gross revenue bears to management's
estimate of the remaining  total gross revenues  expected to be derived from all
sources.  Revenue estimates on a film-by-film basis are reviewed periodically by
management and are revised,  if warranted,  based on  management's  appraisal of
current market conditions.  Where applicable,  unamortized  inventory is written
down to net realizable  value using a discounted  cash flows model based on this
appraisal.

     Included  in  film  inventory  are  development   costs,  which  represents
expenditures  directly  attributable  to projects,  which are incurred  prior to
their production. Such inventory items are capitalized and, upon commencement of
production, are charged to the production.  Development costs not charged to the
production are written off when the project is abandoned or when more than three
years has passed from the first expenditure.

     Estimated liabilities for participations and residuals are amortized in the
same manner as film inventory costs. Based on management's estimate, $305,000 of
the accrued  participations  and  residuals  at  December  31, 2002 will be paid
during the year ending December 31, 2003.

     FIXED ASSETS  --Fixed assets are stated at cost and are  depreciated  using
the  straight-line  method  over three to ten year  estimated  lives.  Leasehold
improvements  are amortized  over the shorter of the lease term or the estimated
life of the improvement.

     GOODWILL --Goodwill  represents the excess of the consideration paid for PM
Entertainment in 2000 over the estimated fair value of net assets  acquired.  In
2001,  the  Company  reduced  the useful  life of  goodwill  from ten years to a
remaining  period of three years  commencing  from January 2001. The decision to
reduce the useful life on goodwill related to the PM  Entertainment  acquisition
was made due to a change in the Company's business plan, resulting from a change
in  economic   conditions   occurring   subsequent  to  the  acquisition  of  PM
Entertainment,  not to finance  new  product  and to  operate  as a  scaled-back
business focusing on sales of the PM Entertainment library.

     During the second  quarter of 2002,  in  accordance  with SFAS No. 142, the
Company  determined  that  its  goodwill  was  impaired  due  to  its  continued
historical  and  forecasted  future losses as a result of the changing  economic
conditions in the  entertainment  industry.  As a result,  a one-time,  non-cash
charge of $2,861,000 was recorded to write-off the remaining balance of goodwill
on the Company's balance sheet. In accordance with the transitional  guidance of
SFAS No.142, the


                                      F-12


<PAGE>


charge is reflected in the Company's  Consolidated  Statement of Operations as a
cumulative effect of accounting principle change.

     REVENUE  RECOGNITION   --Revenue  is  recognized  in  accordance  with  the
provisions of SOP 00-2. The majority of the Company's  licensing  agreements for
motion  picture  product  and  related   merchandising  call  for  nonrefundable
guaranteed fees, which are recognized as revenue when the license period begins,
provided  certain  other  conditions  have  been met  pursuant  to the  criteria
specified  in  SOP  00-2.   Additional  revenues  in  excess  of  non-refundable
guaranteed  fees  are  recognized  when  earned  based  on  receipt  of  royalty
statements.  Payments received under licensing  agreements for which the product
is not yet available are recorded as deferred revenue.

     The Company  recognizes  revenue related to sales of motion picture product
on  videocassette  and Digital Video Disk upon  shipment of the product.  At the
time it  recognizes  the revenue,  the Company  estimates  returns and records a
corresponding reduction of revenue.

     CONCENTRATION  OF CREDIT  RISK  --Financial  instruments  that  potentially
subject the Company to a  concentration  of credit risk consist of cash and cash
equivalents  and accounts  receivable.  The Company  maintains its cash and cash
equivalents  with high credit quality  financial  institutions;  at times,  such
balances  with any one  financial  institution  may exceed FDIC insured  limits.
Concentration of credit risk associated with accounts  receivable is limited due
to the large number of customers,  as well as their dispersion across geographic
areas.  The Company  performs  ongoing  credit  evaluations of its customers and
generally  does not require  collateral.  Although the Company has a diversified
customer  base, a  substantial  portion of its  debtors'  ability to honor their
contracts is dependent  upon  financial  conditions in the filmed  entertainment
industry.  Currently, 55% of the Company's receivables are derived from a single
foreign licensee in South America.

     INCOME TAXES --The  Company  records  income taxes in  accordance  with the
provisions  of SFAS  No.  109,  "Accounting  for  Income  Taxes."  The  standard
requires,  among other provisions,  an asset and liability approach to recognize
deferred tax liabilities and assets for the expected future tax  consequences of
temporary  differences  between the financial statement carrying amounts and tax
basis of assets and  liabilities.  Valuation  allowances  are provided if, based
upon the weight of available  evidence,  it is more likely than not that some or
all of the deferred tax assets will not be realized.

     STOCK-BASED  COMPENSATION--  The Company accounts for stock-based  employee
compensation  arrangements  in  accordance  with the  provisions  of  Accounting
Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," and
related  interpretations  and  complies  with  the  disclosure  requirements  of
Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based  Compensation."  Under APB No. 25,  compensation  cost,  if any,  is
recognized over the respective  vesting period based on the difference,  if any,
on the date of grant,  between the fair value of the Company's  common stock and
the grant  price.  The Company  accounts for stock  issued to  non-employees  in
accordance  with the provisions of SFAS No. 123 and EITF 96-18,  "Accounting for
Equity Instruments that are issued to other than Employees for Acquiring,  or in
Conjunction with Selling, Goods or Services."

     NET INCOME  (LOSS) PER SHARE --The  Company  computes net income (loss) per
share in accordance with SFAS No. 128,  "Earnings per Share," and Securities and
Exchange  Commission  Staff  Accounting  Bulletin  No. 98 ("SAB 98").  Under the
provisions  of SFAS No. 128 and SAB 98,  basic and diluted net loss per share is
computed by  dividing  the net loss  available  to common  stockholders  for the
period by the  weighted  average  number of shares of common  stock  outstanding
during the period.  Common equivalent shares related to stock options,  warrants
and convertible  preferred stock have been excluded from the computation because
their effect is anti-dilutive.

     FINANCIAL  INSTRUMENTS --In June 1998, the Financial  Accounting  Standards
Board ("FASB") issued SFAS No. 133,  "Accounting for Derivative  Instruments and
Hedging  Activities."  In June 1999,  the FASB delayed the effective date of the
standard, which is now effective for the Company's fiscal year beginning January
1, 2001. If the Company enters into derivative  transactions in the future, SFAS
No. 133 will require the Company to record all  derivatives on its balance sheet
at fair value.  Changes in  derivative  fair values will either be recognized in
earnings as offsets to the changes in fair value of related  hedged  assets,  or
deferred and recorded as a component of accumulated other  comprehensive  income
until  the  hedged  transactions  occur  and are  recognized  in  earnings.  The
ineffective  portion  of a hedging  derivative's  change in fair  value  will be
immediately  recognized in earnings. The impact of SFAS No. 133 on the Company's
financial  statements will depend on a variety of factors,  including the extent
of the Company's  future hedging  activities,  the types of hedging  instruments
used and the effectiveness of such instruments.  There was no impact of adopting
SFAS No. 133 on the Company's financial statements.


                                      F-13


<PAGE>


     The Company's  financial  instruments consist of cash and cash equivalents,
marketable  securities  classified as available for sale,  accounts  receivable,
accounts  payable,  accrued  expenses and notes payable.  The carrying values of
cash  and cash  equivalents,  accounts  receivable,  accounts  payable,  accrued
expenses and notes payable are  representative of their fair values due to their
short-term  maturities.  Marketable  securities classified as available for sale
are  stated at fair  value in  accordance  with SFAS No.  115,  "Accounting  for
Certain Investments in Debt and Equity Securities."

     NEW  ACCOUNTING  GUIDANCE -- In April  2002,  the FASB issued SFAS No. 145,
"Rescission of FASB  Statements  No. 4, 44, and 64,  Amendment of FASB Statement
No.  13,  and  Technical  Corrections."  SFAS No. 145  updates,  clarifies,  and
simplifies existing accounting pronouncements.  This statement rescinds SFAS No.
4,  which  required  all  gains and  losses  from  extinguishment  of debt to be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect.  As a result,  the criteria in APB No. 30 will now be used to
classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer
necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it
is no longer necessary.  SFAS No. 145 amends SFAS No. 13 to require that certain
lease  modifications  that  have  economic  effects  similar  to  sale-leaseback
transactions  be accounted  for in the same manner as  sale-lease  transactions.
This statement also makes technical corrections to existing pronouncements.  The
Company does not expect adoption of SFAS No. 145 to have a material  impact,  if
any, on its financial position or results of operations.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal Activities." This statement addresses financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies  Emerging  Issues Task Force ("EITF")  Issue No. 94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."  This statement
requires  that a  liability  for a cost  associated  with an  exit  or  disposal
activity be recognized when the liability is incurred.  Under EITF Issue 94-3, a
liability  for an exit  cost,  as  defined,  was  recognized  at the  date of an
entity's  commitment  to an exit plan.  The  provisions  of this  statement  are
effective for exit or disposal  activities that are initiated after December 31,
2002 with earlier application  encouraged.  The Company does not expect adoption
of SFAS No. 146 to have a material impact, if any, on its financial  position or
results of operations.

     In October  2002,  the FASB issued SFAS No. 147,  "Acquisitions  of Certain
Financial Institutions." SFAS No. 147 removes the requirement in SFAS No. 72 and
Interpretation 9 thereto, to recognize and amortize any excess of the fair value
of  liabilities  assumed  over  the  fair  value of  tangible  and  identifiable
intangible assets acquired as an unidentifiable intangible asset. This statement
requires that those  transactions  be accounted for in accordance  with SFAS No.
141,  "Business  Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." In addition,  this statement  amends SFAS No. 144,  "Accounting for the
Impairment  or Disposal of  Long-Lived  Assets,"  to include  certain  financial
institution-related  intangible  assets. The Company does not expect adoption of
SFAS No. 147 to have a material  impact,  if any, on its  financial  position or
results of operations.

     In  November  2002,  the FASB issued FASB  Interpretation  No.  ("FIN") 45,
GUARANTOR'S  ACCOUNTING AND DISCLOSURE  REQUIREMENTS  FOR GUARANTEES,  INCLUDING
INDIRECT  GUARANTEES  OF  INDEBTEDNESS  OF  OTHERS.  FIN 45  requires  that upon
issuance of a guarantee,  the entity  (i.e.,  the  guarantor)  must  recognize a
liability for the fair value of the obligation it assumes under that  guarantee.
FIN 45's provisions for initial recognition and measurement will be effective on
a prospective  basis to guarantees  issued or modified  after December 31, 2002.
The Company  does not expect  adoption of FIN 45 to have a material  impact,  if
any, on its financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition and  Disclosure,"  an amendment of SFAS No. 123. SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.  In
addition,  SFAS No. 148 amends the  disclosure  requirements  of SFAS No. 123 to
require more  prominent and more frequent  disclosures  in financial  statements
about the effects of stock-based  compensation.  This statement is effective for
financial  statements for fiscal years ending after December 15, 2002.  SFAS No.
148 will not have any impact on the Company's financial statements as management
does not have any intention to change to the fair value method.

2.   ACQUISITION OF PEPIN/MERHI ENTERTAINMENT GROUP, INC.

     In April 2000, the Company  acquired 100% of the  outstanding  shares of PM
Entertainment for approximately  $6,500,000 in cash, 36,300 common shares of the
Company with a fair value of $1,668,000 and a $2,050,000  subordinated note. The
acquisition  was  accounted  for under the purchase  method of  accounting,  and
accordingly,  the results of the  acquisition of PM  Entertainment  are included
with the  results  of the  Company  from the date of  acquisition.  The  Company


                                      F-14


<PAGE>


acquired net assets with a fair value of $6,100,000.  Goodwill of $4,118,000 was
amortized on a straight  line basis,  initially  over a ten year period from the
acquisition date to a revised period of three years,  commencing from January 1,
2001.  During the second  quarter of 2002, in accordance  with SFAS No. 142, the
Company  determined  that its goodwill was  impaired.  As a result,  a one-time,
non-cash charge of $2,861,000 was recorded to write-off the remaining balance of
goodwill on the Company's  balance sheet.  In accordance  with the  transitional
guidance of SFAS No. 142, the charge is reflected in the Company's  Consolidated
Statement of Operations as a cumulative effect of accounting principle change.

3.   MARKETABLE SECURITIES

     During 2000,  the Company  received  approximately  68,000 common shares of
Tutornet.com,  Inc. ("Tutornet") with a fair value of $500,000 for the licensing
of certain  character  rights for use on Tutornet's  website.  During 2001,  the
market value of the securities was  approximately  $26,000 and a loss impairment
of $474,000 was taken as the reduction in value was not deemed temporary. During
2002, the value of the stock decreased further, resulting in the Company writing
off the remaining $26,000.

4.   FILM INVENTORY

     Film inventory consists of the following at December 31, 2002 and 2001:

                                                        2002             2001
                                                     ----------       ----------
Films released, net of accumulated
   amortization ..............................       $2,748,000       $4,660,000
Films in development .........................             --               --
                                                     ----------       ----------
Total film inventory .........................       $2,748,000       $4,660,000
                                                     ----------       ----------

     Approximately  $1,072,000  of  released  film  inventory  is expected to be
amortized  during the next twelve  months.  As discussed  in Note 1,  management
plans to operate  the  Company as a scaled  back  business  while they  consider
various   strategic   alternatives.   Therefore,   the  Company  estimates  that
approximately  80% of  unamortized  costs of released films at December 31, 2002
will be amortized within the next three years.

5.   FIXED ASSETS

     Fixed assets are comprised of the following at December 31, 2002 and 2001.

                                                       2002             2001
                                                   -----------      -----------
Furniture, fixtures, equipment and post
   production equipment ......................     $   715,000      $   806,000
Leasehold improvements .......................         477,000          477,000
                                                   -----------      -----------
                                                     1,192,000        1,283,000
Less accumulated depreciation ................      (1,106,000)        (994,000)
                                                   -----------      -----------
                                                   $    86,000      $   289,000
                                                   -----------      -----------

6.   INCOME TAX

     The income tax (benefit)  expense for the years ended December 31, 2002 and
2001 consist of the following:

                                                    2002                2001
                                                -----------         -----------
Current ................................        $      --           $      --
Deferred ...............................          2,427,000             254,000
Valuation allowance ....................         (2,427,000)           (254,000)
                                                -----------         -----------
Provision for income taxes .............        $      --           $      --
                                                -----------         -----------


                                      F-15


<PAGE>


     Income tax (benefit)  expense computed at the statutory  federal income tax
rate of 34% and the provision for income tax (benefit)  expense in the financial
statements for the years ended December 31, 2002 and 2001 differ as follows:

                                                       2002             2001
                                                   -----------      -----------
Provision computed at the statutory rate .....     $(2,427,000)     $  (494,000)
Change in valuation allowance ................       2,427,000          254,000
Other ........................................            --            240,000
                                                   -----------      -----------
Income tax provision (benefit) ...............     $      --        $      --
                                                   -----------      -----------

The  following  are the  components  of the  Company's  deferred  tax assets and
(liabilities) at December 31, 2002 and 2001:

                                                     2002               2001
                                                 ------------      ------------
Federal net operating loss carryforward ....     $  6,622,000      $  4,977,000
State net operating loss carryforward ......        1,229,000           847,000
Accounts receivable ........................          752,000           856,000
Equity based charges .......................          457,000           457,000
Capital loss carryforward ..................        2,328,000         2,328,000
Film inventory .............................        1,453,000         1,453,000
Goodwill ...................................        1,024,000              --
                                                 ------------      ------------
Total deferred tax asset ...................       13,865,000        10,918,000
                                                 ------------      ------------
Film rights ................................       (1,687,000)       (1,687,000)
Deferred state taxes .......................         (498,000)         (498,000)
                                                 ------------      ------------
Total deferred tax liability ...............       (2,185,000)       (2,185,000)
                                                 ------------      ------------
Valuation allowance ........................     $(11,680,000)     $ (8,733,000)
                                                 ------------      ------------
Net deferred tax asset/(liability) .........     $       --        $       --
                                                 ------------      ------------


     At December 31, 2002, the Company has a net operating loss  carryforward of
approximately  $19,400,000  and  $14,400,000  for federal  and state  income tax
purposes,  respectively.  These net operating loss carryforwards begin to expire
in 2018 and 2003, respectively.  The net operating losses can be carried forward
to offset future taxable income, if any.  Realization of the above carryforwards
may be subject to  utilization  limitations,  which may  inhibit  the  Company's
ability  to use  these  carryforwards  in  the  future.  At  December  31,  2001
realizable  income tax benefits  from the Company's  cumulative  tax losses have
been reported as an income tax receivable of $590,000.

7.   DEBT

     Effective  April 2000,  the Company  entered into a five year,  $25,000,000
revolving  credit facility (the  "Facility")  with The Chase Manhattan Bank (the
"Bank") to provide operating funds and a portion of the acquisition financing of
the PM Entertainment acquisition.  Borrowings under the Facility were limited to
$15,000,000 until additional  participant lenders were added to the Facility, at
which time the borrowings  available  would have  increased,  up to a maximum of
$25,000,000.  Borrowings  under the Facility were  determined  under a borrowing
base calculation, which included certain allowable accounts receivable, film and
intellectual  property rights,  and were  collateralized by substantially all of
the assets of the Company. Upon the closing of the Classic Media transaction, in
June 2001, the Company repaid all  borrowings  under the Facility,  the Facility
was terminated,  and the unamortized  deferred  financing  charges of $1,308,000
were written off.

     The purchase price of PM  Entertainment  included  $2,050,000  subordinated
notes  payable  to  stockholders  of the  Company  to be paid over  five  future
quarterly periods. Interest was payable on the notes at a rate of 10% per annum.
In  June  2001,  the  Company  entered  into  a  settlement   agreement  on  the
subordinated notes payable and recognized an extraordinary gain of $293,000.

     In  connection  with  the  acquisition  of PM  Entertainment,  the  Company
purchased from Imperial Bank a loan,  collateralized by the right to exploit the
motion picture  "Inferno".  In consideration for acquiring this loan receivable,
the


                                      F-16


<PAGE>


Company paid Imperial Bank $2,000,000 and issued the bank the promissory note in
the  amount  of  approximately  $4,800,000  pursuant  to  a  Loan  and  Security
Agreement.  Interest  is  payable  on the  loan at the  prime  rate and the loan
matured on December 31, 2001. The balance outstanding on the loan was $1,640,000
at September 30, 2001. In September  2001, the Company entered into a settlement
agreement with  Metropolitan Film Export regarding amounts due under a licensing
contract for the related motion picture and The Motion Picture Bond Company,  an
insuring agent, for $1,625,000 and received the related payment in October 2001.
The difference  between the proceeds and accounts  receivable  balance was fully
provided  for and written off. The  proceeds  from the  settlement  were used to
completely  satisfy  $1,640,000  balance  outstanding  on the loan facility with
Imperial Bank.

8.   TEMPORARY EQUITY

     In April  1993,  the  Company  authorized  300,000  shares  of  convertible
preferred  stock and in April and  September  1999  designated  30,000 shares as
Series A Preferred  Stock.  As part of a refinancing  that occurred in 1999, the
Company issued 19,049 shares of Series A Preferred Stock.

     The Company  recorded a deduction  for the  beneficial  conversion  feature
associated with the issuance of Series A Preferred Stock based on the fair value
of the  underlying  common  stock at the date of  issuance.  The  deduction  was
recorded ratably over a six-month period from April 1999 to October 1999, during
which Series A Preferred Stock could not be converted into the Company's  common
stock.

     The Series A Preferred  Stock is  presented  as  temporary  equity,  on the
Company's  balance sheet,  and is not included in stockholders'  equity,  since,
under certain  circumstances  beyond the control of the Company,  the holders of
Series A Preferred  Stock may redeem the shares in  consideration  for cash.  In
order to increase stockholders' equity, in May 2000, the Company allowed holders
of Series A  Preferred  Stock to  exchange  a  portion  of their  shares  for an
equivalent  number  of  shares  of  Series B  Convertible  Preferred  Stock.  As
described  more  fully in Note 9,  Series B  Preferred  Stock has  substantially
similar  characteristics to those of Series A Preferred Stock, but is classified
as permanent  equity. In May 2000, 8,460 shares of Series A Preferred Stock were
exchanged for an equivalent  number of Series B Preferred  shares.  In May 2001,
approximately  7,500  shares  of  Series  A  Convertible  Preferred  Stock  were
exchanged for Series B Convertible  Preferred  Stock.  In July 2001, the Company
purchased 550 shares of Series A Preferred  Stock from an affiliate of a company
owned by a preferred  shareholder,  who is also a director of the  Company.  See
Note 9 for additional discussion.

     The Series A Preferred Stock has the following characteristics:

     VOTING:  The holders of Series A Preferred  Stock are entitled to elect two
directors to the Company's  Board of Directors and are entitled to the number of
votes  equal to the  number of shares of common  stock  into  which the Series A
Preferred  Stock  is then  convertible.  On all  other  matters,  including  the
election of the other Company directors, holders of the Series A Preferred Stock
vote (on an as-converted basis) together with common stockholders and holders of
Series B Preferred Stock (voting in an as-converted basis) as one class.

     DIVIDENDS:  The holders of the convertible  preferred stock are entitled to
receive  dividends  equal to $70 per  share  per annum  paid  quarterly.  At the
Company's  election,  the quarterly  dividends may be settled by the issuance of
additional  Series A  Preferred  Stock.  During  2002,  the  Company has settled
dividend  obligations with respect to its Series A Preferred Stock by issuing of
348 (2001:520) shares of additional Series A Preferred Stock.

     LIQUIDATION  PREFERENCE:  In the event of any  liquidation,  dissolution or
winding  up of the  affairs  of  the  Company,  the  holders  of  the  Company's
outstanding  Series A  Preferred  Stock  shall  receive for each share an amount
equal to the sum of $1,000 per share,  respectively,  payable in preference  and
priority  to any  payments  made to the holders of the then  outstanding  common
stock.

     Liquidation is deemed to include the Company's sale of all or substantially
all of its assets or the  acquisition  of the Company by another entity by means
of merger or  consolidation  resulting  from the  transfer of 50% or more of the
Company's voting power.

     Additionally,  the Company may redeem, at its liquidation amount,  Series A
Preferred Stock five years following the date the shares were issued.


                                      F-17


<PAGE>


     CONVERSION:  Each share of Series A Preferred  Stock,  at the option of the
holder,  is  convertible  at any time into a number of shares of common stock as
determined by dividing the Original  Issue Price of Series A Preferred  Stock by
the  Conversion  Price,  as defined,  in effect at the time.  The Original Issue
Price of Series A Preferred  Stock is $1,000 per share.  The initial  Conversion
Price of Series A  Preferred  Stock is $67.5 and is  subject  to  adjustment  in
accordance with anti-dilution  provisions contained in the Company's Articles of
Incorporation. At December 31, 2002, the Series A Preferred Stock is convertible
into 77,000 shares of the Company's common stock (2001:72,000).


9.   STOCKHOLDERS' EQUITY

     CONVERTIBLE PREFERRED STOCK

     In May 2000, the Company  designated 30,000 shares of authorized  Preferred
Stock as Series B Preferred  Stock.  As described in Note 8, the Company  issued
8,460 shares of Series B Preferred Stock in exchange for an equivalent number of
shares of Series A Preferred Stock.

     The Series B Preferred Stock has substantially  similar  characteristics to
those of Series A Preferred Stock, as described in Note 8 above. The liquidation
provisions  of Series B Preferred  Stock differ from those of Series A Preferred
Stock in that a liquidation event is not deemed to include the Company's sale of
all or  substantially  all of its assets or the  acquisition  of the  Company by
another entity by means of merger or  consolidation  resulting from the transfer
of 50% or more of the Company's voting power. At December 31, 2002, the Series B
Preferred Stock is convertible into 181,000 shares of the Company's common stock
(2001: 169,000).  During 2001, the Company has settled dividend obligations with
respect to its Series B  Preferred  Stock by  issuing  820 shares of  additional
Series B Preferred Stock (2001: 784).

     In July 2001, the Company entered into a Securities  Purchase  Agreement to
purchase from an affiliate of a company owned by a preferred shareholder, who is
also a  director  of the  Company  (i) 550  shares  of the  Company's  Series  A
Convertible  Preferred Stock together with dividends accrued thereon, (ii) 4,950
shares of the  Company's  Series B  Convertible  Preferred  Stock  together with
dividends  accrued thereon and (iii) 38,824 common stock purchase  warrants with
exercise  prices ranging from $90 to $120 per share.  Consideration  of $500,000
cash  was paid at  closing  of the  transaction.  The  liquidation  value of the
purchased Convertible Preferred Stock was approximately $6,398,000. The carrying
amount of the  securities  purchased  exceeded  the cash  consideration  paid by
approximately $6,579,000.

     WARRANTS

     As partial consideration for entering into a revolving credit facility, the
Company granted  warrants to a bank to purchase 12,600 shares of common stock at
$67.50 per share, of which 12,600 were  outstanding at December 31, 2002.  These
warrants,  which had a fair value of  $320,000  at the date of grant,  are fully
vested and expire ten years from their issuance  date. The Company  recorded the
fair value of these  warrants  as deferred  financing  costs to be expensed on a
straight-line basis over the terms of the related revolving credit facility.

     As part of the 1999  Refinancing,  the Company granted warrants to purchase
134,462 shares of common stock at prices ranging  between $90 to $120 per share,
of which 95,821 were  outstanding  at December 31, 2002. The warrants had a fair
value of  $2,360,000  at the date of grant,  are fully  vested and expire six to
eight years from their issuance date.

     During 1999, the Company granted warrants to non-employees in consideration
for services rendered. These warrants, to purchase 2,500 shares of common stock,
are fully  vested,  exercisable  at prices  ranging  from  $66.90 to $120.00 and
expire six to ten years from their issuance date, of which none were outstanding
at December 31, 2002.

     Warrants to purchase 35,200 shares of the Company's  common stock,  granted
to various  parties prior to 1999, of which 30,000 were  outstanding at December
31, 2002.  These warrants,  exercisable at price ranges from $100.00 to $134.80,
are fully vested and expire on various dates through March 2003.


                                      F-18


10.  COMMITMENTS AND CONTINGENCIES

     LEASES  --The  Company  leases  office  space and  office  equipment  under
operating leases expiring through 2006.  Future minimum lease payments due under
non-cancelable operating leases at December 31, 2002 are as follows:

     2003 ............................................       $   734,000
     2004 ............................................           594,000
     2005 ............................................           389,000
     2006 ............................................           400,000
                                                             -----------
           Total minimum lease payments ..............       $ 2,117,000
                                                             -----------

     The Company has  entered  into  certain  sublease  arrangements  for leased
office space no longer  occupied.  The term of the  sublease  expires in July of
2004.

     Rent expense charged to operations in 2002 was $755,000  (2001:$1,200,000).
Rent income from sublease  arrangements in 2002 was $469,000  (2001:  $443,000).
Future  minimum rental income under  sublease  arrangements  is $449,000 for the
fiscal year 2002.

     LITIGATION --The Company is party to legal  proceedings,  which are routine
and  incidental  to the  business.  The  Company  believes  the  results of such
litigation  will not have a material  adverse effect on the Company's  financial
condition or results of operations.

     EMPLOYMENT  AGREEMENT -- The Company  entered into an employment  agreement
with Roger A. Burlage,  dated April 7, 1999 which provides that he will serve as
the Company's Chairman and Chief Executive for a term of four years. Mr. Burlage
is entitled to an annual salary of $500,000,  with minimum  annual  increases of
7.5%.  Mr.  Burlage  is also  eligible  to  receive  a  discretionary  bonus  as
determined  by the Board.  As part of the  agreement,  Mr.  Burlage  was granted
warrants to purchase  40,000  shares of the  Company's  Common Stock at exercise
prices  ranging  from $90.00 to $120.00  per share,  and was to receive up to an
additional  20,000 warrants at his election under certain  circumstances  within
one year of the effective date of his employment  agreement which did not occur.
One half of the original  warrants vested upon Mr. Burlage signing the agreement
and the balance  vest over a  three-year  period,  with 25% vesting on the first
anniversary,  and 12.5% vesting on each of the second and third anniversaries of
the  agreement.  Mr.  Burlage is also entitled to be reimbursed for up to $7,500
per year for  country  club dues,  and to receive all other  benefits  generally
available to the Company's  other  officers,  including  participation  in stock
incentive,  retirement,  medical,  dental and accidental benefit plans, life and
disability insurance and vacation.  If Mr. Burlage's position is eliminated as a
result of a merger or consolidation of the Company, Mr. Burlage will be entitled
to terminate his employment within three months of such event and to receive all
salary,  benefits and emoluments in effect as such date through the remainder of
his  four-year  term.  In January of 2003,  Mr.  Burlage  notified  the Board of
Directors  that he intends to resign from his position at the  expiration of his
contract in April of this year.  On January  15,  2003,  the Board of  Directors
authorized  the creation of the Office of the  President to provide for a smooth
transition during the remainder of Mr. Burlage's employment term.

11.  EMPLOYEE BENEFIT PLANS

     STOCK  OPTION  PLANS -- The  Company's  employee  stock  option  plans (the
"Plans")  provide for the grant of  non-statutory  or incentive stock options to
the Company's employees, officers, directors or consultants.

     The  Company's  Board of  Directors  administers  the  Plans,  selects  the
individuals to whom options will be granted, determines the number of options to
be  granted,  and the term and  exercise  price of each  option.  Stock  options
granted  pursuant to the terms of the Plans generally  cannot be granted with an
exercise  price of less  than 100% of the fair  market  value on the date of the
grant  (110% for awards  issued to a 10% or more  shareholder).  The term of the
options  granted under the Plans cannot be greater than 10 years;  5 years for a
10% or more  shareholder.  Options  vest at varying  rates  generally  over five
years.  An aggregate of 105,000 shares were reserved  under the Plans,  of which
78,600 shares were  available for future grant at December 31, 2002. The Company
had no option grants or exercises during 2002 and 2001.

     As a result of the refinancing that took place in 1999, the Company granted
options, not covered by the Plans described above, to purchase 134,462 shares of
common stock to certain  employees,  officers and directors.  These options vest
either on the grant date or over three  years from the grant  date.  The options
are  exercisable  at prices ranging from $90 to $120 per share and expire six to
eight years from their issuance date.


                                      F-19


<PAGE>


     The following table summarizes activity in the Company's stock option plans
(including  options  issued as part of the 1999  refinancing)  during  the years
ended December 31, 2002 and 2001:

                                                                   WEIGHTED
                                                    NUMBER         AVERAGE
                                                      OF            PRICE
                                                    SHARES        PER SHARE
                                                   --------       ----------
Balance, December 31, 2000 ...........              176,000       $    98.70
Canceled .............................               (4,000)           61.70
                                                   --------       ----------
Balance, December 31, 2001 ...........              172,000       $    96.10
Canceled .............................               (9,000)            8.00
                                                   --------       ----------
Balance at December 31, 2002 .........              163,000       $   101.02
                                                   --------       ----------

     The following summarizes pricing and term information for options issued to
employees and directors which are outstanding as of December 31, 2002:

<TABLE>
<CAPTION>
                                  OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
                       -------------------------------------     -----------------------
                         NUMBER
                       OUTSTANDING     WEIGHTED     WEIGHTED       NUMBER       WEIGHTED
                           AT          AVERAGE      AVERAGE      EXERCISABLE     AVERAGE
                        DECEMBER      REMAINING     EXERCISE     AT DECEMBER    EXERCISE
RANGE OF EXERCISE          31,       CONTRACTUAL     PRICE           31,          PRICE
     PRICES               2002           LIFE                       2002
-----------------      -----------   -----------  ----------     -----------   ---------
<C>                      <C>             <C>      <C>              <C>         <C>
$  45.00 -  50.00          6,000         7.15     $   34.91          6,000     $   34.91
            66.90          2,000         6.38         66.90          2,000         66.90
   67.50 -  72.50         14,000         5.90         68.86         14,000         68.86
   88.10 -  90.00         44,000         2.32         89.97         43,000         89.97
            95.00          1,000         4.38         95.00          1,000         95.00
           105.00          2,000         5.38        105.00          2,000        105.00
  110.00 - 126.90         94,000         3.92        115.63         90,000        115.66
-----------------      -----------   -----------  ----------     -----------   ---------
$  45.00 - 126.90        163,000         3.81     $  101.02        158,000     $  100.57
-----------------      -----------   -----------  ----------     -----------   ---------
</TABLE>


     Had compensation cost for stock-based compensation been determined based on
the fair value at the grant dates in  accordance  with the method  delineated in
Statement of  Accounting  Standards No. 123, the Company's net loss and loss per
share for the year  ended  December  31,  2002  would  not have been  materially
different than currently  reported in the Company's  Consolidated  Statements of
Operations.


12.  EARNINGS PER SHARE

     The following table sets forth common stock  equivalents  (potential common
stock)  that are not  included  in the net income  (loss) per share  calculation
above because their effect would be anti-dilutive for the periods indicated:

                                                         YEAR ENDED DECEMBER 31,
                                                        ------------------------
                                                          2002             2001
                                                        -------          -------
Weighted average common stock equivalents:
     Series A Preferred Stock ................           77,000           72,000
     Series B Preferred Stock ................          181,000          169,000
     Stock options ...........................          163,000          172,000
     Warrants ................................          138,000          182,000


13.  GEOGRAPHIC INFORMATION

     The Company  operates in one segment:  the  exploitation  of motion picture
product and related intellectual property.


                                      F-20


<PAGE>


     Worldwide  sales by geographic  area for the years ended  December 31, 2002
and 2001 are as follows:

                                              2002                       2001
                                          -----------                -----------
U.S./Canada ..............                $   572,000                $ 6,787,000
Asia .....................                    159,000                    487,000
Europe ...................                    183,000                  3,516,000
Other ....................                    205,000                    651,000
                                          $ 1,119,000                $11,441,000


     At December 31, 2002, the amount owing from one customer  approximated  55%
of the total accounts receivable.


14.  RELATED PARTIES

     In connection with the acquisition of PM Entertainment, the Company entered
into a 2-year lease agreement for the use of the business's  principal  offices.
The Company  entered into this lease with an entity owned by stockholders of the
Company,  who were also the former sole  shareholders of PM  Entertainment.  The
lease is classified as an operating  lease,  and expired on March 31, 2002. Rent
expense under the operating lease in 2002 was $150,000 (2001: $600,000).


                                      F-21