---

---

SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

---

FORM 10-KSB

|/x/ | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ------------------------------------------------------------------------------

For the fiscal year ended December 31, 2000

OR

|/ / | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------

Commission file number: 0-23000

---

THE HARVEY ENTERTAINMENT COMPANY(Name of Small Business Issuer in its charter)

CALIFORNIA

95-4217605(State or Other Jurisdiction
of Organization)

(IRS Employer Incorporation or
Identification No.)


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

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-K SB or any amendment to the
Form 10-K SB: /x/

State
issuer's revenue for its most recent fiscal year: $19,323,000

State
the aggregate market value of the voting stock held by non-affiliates: $379,000 (excludes shares held by directors, officers and greater than ten percent
shareholders; computed by reference to the average bid and asked prices of such stock on March 31, 2001, which price was $0.125).

State
the number of shares outstanding of each of issuer's classes of common equity, as of March 31, 2001: 4,549,441 (3,162,407 including Common Stock issuable upon exercise of
the issuer's Class A and Class B Preferred Stock).

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:



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.

2

---



PART I

ITEM 1. BUSINESS

Introduction

General

The Harvey Entertainment Company, together with its subsidiaries Harvey Comics, Inc., BHP Productions, Inc., Pepin/Merhi Entertainment
Group, Inc., Firetrap, Inc., Shadow Hills Post LLC, Sunland Studios, Inc. and Inferno Acquisition Corp. (collectively, (the "Company") owns and exploits motion picture product and
related intellectual property. This includes a library of widely recognized classic characters (the "Harvey Classic Characters") and a related film library of animated short features (the "Harvey
Classic Library"). The roster of Harvey Classic Characters includes the following well-known characters:



as
well asLittle Audrey, Little Lotta, Little Dot, Bunny, Herman and Katnip, Stumbo the GiantandBuzzy the Funny
Crowamong others. The Harvey Classic Library includes 274 six- to eight-minute animated short features, which in most cases star one or more of the Harvey Classic
Characters.

Effective
as of 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 financial results of PM Entertainment are consolidated with those of the Company from the closing date of the acquisition forward.

On
March 7, 2001, the Company entered into an Asset Sale and Purchase Agreement with Classic Media LLC for the sale of substantially all assets relating to the Harvey Classic
Characters and the Harvey Classic Library. This sale is expected to close before the end of the second quarter of 2001.

History

The Company is the successor to Harvey Comics, Inc. ("Harvey Comics") which was founded in 1939 by the Harvey family. In the late 1950s Harvey Comics
acquired rights to the popular Paramount Pictures cartoon stars Casper, Baby Huey, Little Audrey and many others. Harvey Comics was active during the 1950s and 1960sthe "golden age" of
comics. However, as its founders retired in the early 1980s, the family-owned Harvey Comics became dormant. In 1989 the Company's predecessor purchased Harvey Comics to exploit its intellectual
property.

Recent Developments

Equity Infusion

On April 7, 1999, the Company entered into a Stock Purchase Agreement between the Company and Roger A. Burlage, Michael R. Burns, Ken Slutsky and The
Kushner-Locke Company ("Kushner-Locke") pursuant to which the Company received approximately $11,644,000 in cash and approximately

3

---

$6,226,000 in value of common stock of Kushner-Locke for newly-issued shares of the Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock") and common stock
purchase warrants (the "1999 Refinancing"). As the 1999 Refinancing was oversubscribed, the Company issued a subordinated convertible note in the amount of approximately $2,049,000 which was converted
into additional Series A Preferred Stock and common stock purchase warrants on September 2, 1999. See also "Management's Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources."

Changes In Management

In April 1999, in connection with the 1999 Refinancing, Roger A. Burlage became Chairman and Chief Executive Officer, Eric S. Mischel was appointed
President and Chief Operating Officer and Ronald B. Cushey was appointed Executive Vice President, Chief Financial Officer and Secretary. Glenn R. Weisberger was appointed Senior Vice President and
General Counsel in October 1999.

In
May 2000, Ronald B. Cushey resigned all of his positions with the Company and Glenn Weisberger was appointed the Secretary of the Company and Interim Chief Financial
Officer, and was promoted to Executive Vice President. In December 2000, Eric S. Mischel and Glenn R. Weisberger agreed to amend their employment agreements with the Company. Effective
January 1, 2001, Eric S. Mischel resigned all of his positions with the Company and became a part time consultant to the Company. On the same date, Glenn R. Weisberger resigned his positions as
Interim Chief Financial Officer and Corporate Secretary. He has agreed to continue with the Company on a part time non-exclusive basis as Executive Vice President and General Counsel
through June 30, 2001.

In
May 2000, Michael Burns resigned from the Company's Board of Directors and was replaced by William Dallas. In late October 2000, Meyer Gottlieb stepped down from the
Board and the Board appointed William Merrigan as a replacement director. In December 2000, William Dallas stepped down as director and the Board then appointed Paul Guez as a director. In
March 2001, William Merrigan then stepped down as director and the board reappointed William Dallas as a director

Strategic Acquisition

As noted above, on September 24, 1999, the Company signed a letter of intent for the acquisition of PM Entertainment. The PM Entertainment acquisition
closed effective as of April 3, 2000. The purchase price consisted of $6,500,000 paid in cash at closing, 363,000 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 in the amount of approximately $5,300,000. In connection with the acquisition of PM Entertainment, the Company also 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 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 as of and for the years ended December 31, 2000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Credit Facility

Effective as of April 3, 2000, the Company entered into a five year, $25,000,000 revolving credit facility with The Chase Manhattan Bank ("Chase Bank")
to provide operating funds and a portion of the acquisition financing of the PM Entertainment acquisition, (the "Chase Facility"). The facility is secured by substantially all of the assets of the
Company (including PM Entertainment) and replaces a $2,500,000 facility with City National Bank that expired in April 1999. While the Company had hoped that this loan agreement would provide it
with the ability to finance a sufficient number of films to execute its business plan, limitations on the Company's borrowing base caused the Company to have

4

---

less borrowing ability than the Company expected. In addition, Chase's decision to not syndicate the Company loan capped the Company borrowing from Chase at $15,000,000. Chase has since informed the
Company that no future borrowings would be alloweed under the Chase Facility. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and
Capital Resources."

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.

Business

The Company's business strategy has historically involved exploiting the Harvey Classic Characters through filmed entertainment and capitalizing upon the
relationship between filmed entertainment, merchandising and other ancillary markets. The acquisition of PM Entertainment allowed the Company to broaden its exploitation of motion picture product and
related intellectual property by increasing the range of product in its motion picture library and its presence in foreign markets.

Filmed Entertainment

Filmed entertainment includes direct-to-video films, television movies and television series.

In
October 2000, the Company released a new direct-to-video animated computer generated full-length feature film featuring the "Casper"
character. The Company co-produced the film with Mainframe Entertainment Inc., a Canadian animation production company. Universal is serving as the exclusive domestic home video
distributor and the Company is responsible for other domestic ancillary sales such as television, cable, and pay-per-view, and international licensing in all media.

Feature Motion Pictures

Through its acquired 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 150 motion picture titles and 74 episodes of television series. Financing of the productions has been done in part
through the third party financing arrangements and has been supported by presales of certain distribution rights in the international and domestic markets.

Television



The Company owns the Harvey Classic Library, which consists of approximately 274 six- to eight-minute color cartoon shorts, of which 248 were
originally created in the 1950's for theatrical exhibition. Portions of the library are currently broadcast in more than 25 countries worldwide. The Harvey Classic Library was restored, digitized,
re-dubbed and re-scored by the Company in 1990, 1991 and 1997. As part of the restoration process, the Company created 65 half-hour episodes from the original 248
shorts and entitled them "Harveytoons." In 1994 and 1996, the Company added 13 animated shorts to its film library for each of the Baby Huey and Richie Rich characters. The Company aired
re-packaged 65 half hour episodes of "Harveytoons" on the Fox Family Channel from September 1998 through August 1999.

The
Company has the right to use the original musical score to the original 248 shorts in the Harvey Classic Library, but Paramount Pictures retained certain ownership to that music.
Paramount receives music performance royalties when the cartoons utilizing the original music score are shown

5

---

publicly. The writers and publisher of the music receive performance royalties from BMI, which collects such royalties from broadcasters. When the Company created the Harveytoons episodes, certain new
foreign musical scores were created for which the Company owns all rights and interest.



In February 2000, the Company entered into a licensing and co-production agreement with Studio B Productions Inc. ("Studio B") for
the worldwide development, production and exploitation of an unlimited number of episodes of a television series based on the Company's character "Wendy the Witch." This agreement has lapsed and all
rights in the property have reverted to the Company.

Theatrical Licensing

In November 1999, the Company entered into a development agreement with Metro-Goldwyn-Mayer Pictures Inc. ("MGM"), whereby the Company licensed
to MGM the theatrical and certain ancillary and movie merchandising rights to MGM related to the Company's character "Bunny."

In
1994 and 1995, two motion pictures licensed by the Company were released featuring Harvey Classic CharactersRichie Rich (through Warner Brothers) and Casper (through
Universal). As part of its distribution agreement with Universal the Company agreed to provide Universal an exclusive release window for the first sequel to the 1995 Casper movie, the right of first
refusal/first negotiation for the first direct-to-video production featuring Casper after the release of any Casper sequel, and the right to exploit related movie
merchandising. Theatrical motion pictures featuring Casper, the Friendly Ghost and Richie Rich were released in May 1995 and December 1994, respectively.

To
date, the "Casper" and "Richie Rich" features have generated reported worldwide box office gross receipts in excess of $307,000,000 and $80,000,000, respectively. While the Company
received certain character movie licensing fees and merchandising participations for both features, it has not received revenues from its defined profit participations except for a payment from
Universal received in 1997. There can be no assurance that the Company will receive any further profit shares from these films.

In
May 1997, the Company entered into an agreement with Universal to produce and distribute a motion picture sequel to the original Casper movie to be produced by Universal
Pictures and Amblin' Entertainment. The Company received a non-refundable advance for the sequel rights and, if a sequel is produced, is contractually entitled to receive additional
advances against a percentage of the gross receipts from all sources of exploitation of the motion picture. As part of the Company's agreement with Universal for a potential Casper sequel, the Company
was also paid a non-refundable advance against the Company's share of its profit participation from the 1995 Casper movie. There can be no assurance that the sequel will be produced,
completed or released, or that the sequel will generate gross receipts sufficient to entitle the Company to amounts in excess of advances.

Pursuant
to a May 1997 amendment to the Company's 1990 distribution agreement with Universal and subsequent agreements with Universal, Universal has the exclusive right to
initiate, develop and produce further Casper sequels. The agreement with Universal provides that the rights fees for the second and subsequent sequels will be negotiated in good faith subject to
resolution by arbitration. The Company agreed, if Universal makes certain payments to the Company, to a "window" around the theatrical release of any Casper sequel during which time the Company would
not permit the initial release of any other Casper filmed entertainment product. Universal has, to date, failed to make any such payments and there are no assurances that Universal will make any such
future protection payments. Universal also has certain rights to other pictures in which Casper may make a "guest
appearance," and first negotiation rights for pictures involving other characters appearing in the Casper pictures. In May 1997, the Company reimbursed Universal for the unrecouped costs for
its restoration of the Harvey Classic Video Library, the rights to which then reverted to the Company.

6

---

As stated above, Universal holds the right to produce and release Casper theatrical feature films. Universal is required to give the Company notice on February 15 of the year
before it wishes to release a Casper theatrical feature film that it has either approved a script or commenced pre-production on such film, triggering a limited fixed payment obligation to
the Company. To date, Harvey has not received a notice from Universal. There can be no assurance that Universal will actually request such extension or produce or release a Casper feature film in 2002
or at any time in the future.

In
January 2000, the theatrical sequel rights to the "Richie Rich" character reverted back to the Company from Warner Brothers.

Merchandising

In March 2000, the Company appointed Felix the Cat Productions, Inc.("FTCP"), as its exclusive licensing agent for Latin America. The agreement
covers all of the Company's characters and is for a term of seven and one-half years. FTCP is a fully integrated family oriented entertainment company that manages a roster of trademarked
characters in all areas of entertainment including new technologies, television animation production and distribution, publishing, licensing and merchandising worldwide.

In
June 2000, the Company appointed Hearst Entertainment as its exclusive licensing agent for the remainder of the world. The agreement covers all of the Company's characters
and is for a term of two years.

Location-Based Family Entertainment

In November 1999, the Company announced an agreement with Landmark Entertainment Group ("Landmark"), whereby Landmark was granted certain exclusive
worldwide rights to develop themed attractions based on the characters in the Company's classic character library. Initially, Landmark plans
to develop a mini-theme park concept that will incorporate the Company's characters and be designed as location-based entertainment centers. This agreement excludes certain theme park
rights to the character "Casper", which are controlled by Universal. Landmark will develop conceptual design and feasibility studies and may seek financing and/or real estate development partners for
theme parks around the world. There can be no assurance that Landmark will develop the theme parks or that the Company will receive any future revenues from this agreement.

Fashion Activities

In February 2000, the Company announced the completion of a preliminary joint venture agreement entered into as of June 1999, to establish Harvey
Fashion LLC. This Agreement was terminated as of May 2000.

Intellectual Property Assets

The Company's principal assets are its intellectual property rights in its proprietary Harvey Classic Characters and the PM Entertainment, library consisting
of approximately 150 films and 74 television episodes. In addition, the Company possesses rights to approximately 1,875 comic books published between 1955 and 1993 and the film shorts in its Harvey
Classic Library. 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 publications, the film shorts in the Harvey Classic Library and the Harvey Classic Characters. The Company attempts vigorously to protect against infringements
on the rights it holds to its proprietary characters and publications.

7

---

Competition

Competition is intense in the filmed entertainment, merchandising and animation industries 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.

Employees

The Company employs approximately 36 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.

Operating Losses.For the fiscal years ended December 31, 2000 and 1999 the Company experienced significant
operating losses. Such losses are expected to continue into the 2001 year as a result of the lack of product for release in the entertainment media and minimal activity in the Company's
licensing and merchandising areas. There can be no assurance that the Company can achieve its business plan, and operating losses are likely to continue into the future. The inability of the Company
to generate operating profits has and will continue to result in a material adverse affect on the Company and may restrict its ability to continue as a going concern.

Absence of Product Slate.As a result of the operating inactivity of the Company during the 2000 period during which
the Company was evaluating various strategic alternatives and exploring sources of capital investment, the Company currently has a minimal amount of new programs or products scheduled for release.
This absence of product will have a material adverse effect on the Company's results of operations for the foreseeable future.

Risks Related To The Filmed Entertainment Industry.The acquisition of PM Entertainment provides the Company with
additional risks not previously encountered. Motion picture production and distribution is highly speculative and inherently risky. The production, completion and distribution of motion pictures are
subject to numerous uncertainties, including financing requirements, personnel availability and the release schedule of competitive motion pictures. The Company can give no assurances that their
filmed entertainment production and release goals will be met in any period or that completion of production will occur in accordance with the anticipated budget or schedule. 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 being recouped or anticipated profits not being realized.

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.

8

---

The Company's operations depend on its ability to obtain sufficient financing. In particular, motion picture production and distribution activities require the up front expenditure of
substantial funds, while revenues relating to films and programs are typically not generated for some period of time after these expenditures and may be received, if at all, over an extended period of
time. The Company intends to finance these expenditures through a combination of cash on hand, presales of certain distribution rights in certain territories and a variety of third party financing
arrangements. Borrowings under such third party financing arrangements are subject to continuing satisfaction of specific covenants and conditions. There can be no assurance that the Company will be
able to obtain the required financing or that any financing obtained will be on terms satisfactory to the Company. As noted earlier, Chase has informed Harvey that no future borrowings would be
allowed under the Chase Facility.

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.

Fluctuation In Revenue Recognition From Film Licensing And Merchandising.The Company's quarterly and yearly operating
results may fluctuate in part due to the manner in which the Company is required to record revenue from film licensing and merchandising agreements. Although film licensing and merchandising
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 may also arise due to the Company's timing in entering into merchandising and film licensing agreements. For example, merchandising revenues with respect to a particular
character tend to be concentrated around the period of initial release of a filmed entertainment project featuring such character. Accordingly, until such time as additional products are licensed,
excess royalties are remitted by existing licensees, or existing licensing agreements expire and
are renewed or replaced, no additional revenue will be recognized from the rights the Company has previously licensed. 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 characters, works and publications 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.

Speculative Nature of the Entertainment Industry.The television, merchandising, 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 character, 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

9

---

generally, and other intangible factors, all of which change rapidly and cannot be predicted with any certainty.

ITEM 2. PROPERTIES

The principle 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 subleased approximately 6,000
square feet of the Santa Monica space to an unaffiliated person through the end of term, and approximately 3,000 square feet of the Santa Monica space to a subsidiary of Universal through
September 30, 2001. After the expiration of the sublease to Universal's subsidiary, this space has been subleased through the end of the underlying lease term to an unaffiliated person.

The
principle offices of PM Entertainment consist 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. PM Entertainment's
principal business address is 9545 Wentworth Street, Sunland, California 91040.

ITEM 3. LEGAL PROCEEDINGS

In December 1999, the Company received a notice from the heirs of the Oriolo family (the "Oriolo Heirs"), attempting to revoke the Company's rights in
the Casper character. The Company believed that the claim was without merit and vigorously defended itself by filing a counterclaim against the Oriolo Heirs. In March 2000, the parties to the
dispute entered into a settlement agreement whereby the Oriolo Heirs reaffirmed the Company's exclusive ownership rights to the copyright and trademark to the Casper character in perpetuity.

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

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

None.

10

---



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") currently trades on The OTC Bulletin Board under the symbol ("NASDAQ") HRVY. Prior to being
delisted on January 29, 2001, the Common Stock traded on The Nasdaq Stock Market, Inc. Prior to December 5, 1994, the Common Stock traded on the Nasdaq SmallCap Market. The
following table sets forth, for the fiscal quarters indicated, the high and low sale price for the common stock, as reported on NASDAQ.

|Quarterly Period                     |                                         | High |      | Low
|------------------------------------ | --------------------------------------- | ---- | ---- | ---
|Fiscal year ended December 31, 1999: |                                         |      |      |    
|                                     | First Quarter                           |      | 8.13 |    
|                                     | Second Quarter                          |      | 8.25 |    
|                                     | Third Quarter                           |      | 6.38 |    
|                                     | Fourth Quarter                          |      | 7.13 |    
|Fiscal year ended December 31, 2000: |                                         |      |      |    
|                                     | First Quarter                           |      | 6.00 |    
|                                     | Second Quarter                          |      | 5.00 |    
|                                     | Third Quarter                           |      | 3.50 |    
|                                     | Fourth Quarter                          |      | 1.50 |    
|Fiscal year ended December 31, 2001: |                                         |      |      |    
|                                     | First Quarter                           |      | 0.45 |    
|                                     | Second Quarter (through April 10, 2001) |      | 0.14 |    

Holders

As of April 10, 2001, there were approximately 157 holders of record of the Company's Common Stock.

Dividends

The Company has never paid cash dividends on the Common Stock, and provisions in the Company's revolving credit facilities have in the past, and will continue
in the future to, prohibit the payment of dividends. The Board of Directors expects that the Company will continue to retain any future earnings for use in its business.

Recent Sales Of Unregistered Securities

In January 1997, the Company issued two warrants to purchase Common Stock at an exercise price of $10.00 per share to Arnhold and S.
Bleichroeder, Inc. as compensation for investor relations and other related services. The first warrant, for 25,000 shares, for services to the Company in 1997 vested immediately and is
exercisable at any time through January 16, 2002. The second warrant, also for 25,000 shares, vested upon the Company's request that Arnhold and S. Bleichroeder perform services for calendar
year 1998 and is exercisable through January 16, 2003.

In
January 1997, the Company issued two warrants to purchase Common Stock at an exercise price of $10.00 per share to Michael Doherty on terms similar to those provided to
Arnhold and S. Bleichroeder. At the time of issuance, Mr. Doherty was an advisor to the Company and a former employee of Arnold and S. Bleichroeder. Mr. Doherty is presently a director
of the Company. The first warrant, for 25,000 shares, vested immediately and is exercisable at any time through January 16, 2002.

11

---

The second warrant, also for 25,000 shares, vested upon Mr. Doherty's rendering of services to the Company in 1998 and is exercisable at any time through January 16, 2003.

Upon
entering into the management services agreement with Anthony Scotti, Leonard Breijo and Michael Hope in March 1998, the Company issued three warrants to purchase an
aggregate of 200,000 shares of Common Stock, each of which vested upon issuance, may be exercised by the holder at any time through March 23, 2003 and has a strike price of $12.75 per share
(the closing price of a share of Common Stock on The Nasdaq Stock Market, Inc. on the date the warrants were authorized). The first warrant, for a total of 155,200 shares of the Company's
Common Stock, was issued to Anthony J. Scotti as compensation for services to be rendered as the Company's Interim Chief Executive Officer. The second warrant, for a total of 38,800 shares of the
Company's Common Stock, was issued to Michael S. Hope as compensation for services to be rendered as the Company's Interim Chief Financial Officer.
The third warrant, for a total of 6,000 shares of the Company's Common Stock, was issued to Leonard Breijo of Global Media as compensation for services to be rendered as head of business affairs of
the Company. In addition, the Company granted to Messrs. Scotti, Hope and Breijo fully vested options to purchase an aggregate of 50,000 shares of Common Stock pursuant to the terms of the
Company's 1997 stock option plan at an exercise price of $12.69 per share (the closing price of a share of Common Stock on The Nasdaq Stock Market, Inc. on the date the options were
authorized).

On
July 22, 1998, in connection with an extension of the term of their services, the Company granted to Messrs. Scotti, Hope and Breijo fully vested options to purchase
an aggregate of 100,000 shares of Common Stock pursuant to the terms of the Company's 1997 stock option plan at an exercise price of $9.63 (the closing price of a share of Common Stock on The Nasdaq
Stock Market, Inc. on the date the options were authorized).

The
1999 Refinancing and conversion of the convertible note issued in connection therewith resulted in the issuance of a total of 190,488 shares of the Company's Series A
Preferred Stock, par value $100, and 1,344,618 Warrants to purchase shares of the Company's common stock. The Investor Warrants granted are fully vested, non-forfeitable and are
exercisable commencing six months from their issuance date, at prices ranging from $9.00 to $12.00 per share of common stock. As part of the 1999 Refinancing, options to purchase 1,344,618 shares of
common stock were also issued to certain employees. The employee options granted vest and become exercisable according to schedules set forth in their respective option agreements, and are exercisable
at prices ranging from $9.00 to $12.00 per share of common stock. Terms of the Investor Warrants and employee options provide for expiration dates from 2005 through 2007.

Pursuant
to the 1999 Refinancing, the Company received gross proceeds of approximately $17,900,000, of which approximately $6,226,000 was Kushner-Locke common stock. In connection
with such transactions, the Company incurred fees and expenses of approximately $1,900,000 and subsequently repaid the outstanding balance of approximately $2,013,000 on the Company's then existing
credit facility. In addition, the Company received additional capital of approximately $2,049,000 from the issuance of a convertible note payable on June 30, 1999. The proceeds from these
transactions were used to fund the Company's filmed production and acquisition activities and for general working capital purposes.

In
April 1999, the Company designated 300,000 shares as Series A Preferred Stock. The Company issued 190,488 shares of Series A Preferred Stock as part of the
1999 Refinancing. 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 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

12

---

Company's management the holders of Series A Preferred Stock may redeem the shares in consideration for cash. In May 2000, to increase stockholders' equity, the Company allowed holders
of Series A Preferred Stock to exchange a portion of their shares for an equivalent number of shares of Convertible Preferred Stock ("Series B Preferred Stock"). As described more fully
in Note 10 to the financial statements, Series B Preferred Stock has substantially similar characteristics to those of Series A Preferred Stock, but is classified as permanent
equity. In May 2000, 84,600 shares of Series A Preferred Stock were exchanged for an equivalent number of shares of Series B Preferred Stock.

The
Series A Preferred Stock has the following characteristics:



In
May 2000, the Company designated 300,000 shares of authorized Preferred Stock as Series B Preferred Stock. The Company issued 84,600 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 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, 2000, the
Series B Preferred Stock is convertible into 1,320,000 shares of the Company's common stock. During 2000, the Company has settled dividend obligations with respect to its Series B
Preferred Stock by issuing 4,519 shares of additional Series B Preferred Stock.

13

---

In connection with the Chase Facility, the Company issued 126,000 warrants to Chase Equity Associates, LP to purchase shares of the Company's common stock. The warrants are fully
vested, non-forfeitable and are exercisable from their issuance date, at $6.75 per share.

All
warrants described above were issued in reliance on the private placement exemption of Section 4(2) of the Securities Act of 1933, as amended.

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 Harvey Comics, Inc. and PM Entertainment. The Company's
revenues are derived from three primary sources: (i) filmed entertainment, (ii) merchandising and (iii) publishing. This report includes forward-looking statements made based on
the expectations of current management pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and
actual outcomes may differ materially from what is expressed or forecasted. There are many factors that affect the Company's business and its results of operations, including the factors discussed
below and in "BusinessFactors Which May Affect Future Results."

Consolidated Statement of Operations

|                                                                                |  | Year Ended December 31, |            
|------------------------------------------------------------------------------- |  | ----------------------- | -----------
|
|Filmed entertainment revenues                                                   |  | $                       | 17,075,000 
|Merchandising revenues                                                          |  |                         | 2,192,000  
|Publishing revenues, net of returns                                             |  |                         | 56,000     
|                                                                                |  |                         |            
|Total operating revenues                                                        |  |                         | 19,323,000 
|Film costs                                                                      |  |                         | 12,900,000 
|Other costs of sales                                                            |  |                         | 255,000    
|Selling, general & administrative expenses (including stock based compensation) |  |                         | 9,415,000  
|Depreciation and other amortization                                             |  |                         | 759,000    
|                                                                                |  |                         |            
|Loss from operations                                                            |  |                         | (4,006,000 
|Other loss                                                                      |  |                         | (6,044,000 
|                                                                                |  |                         |            
|Loss before income taxes                                                        |  |                         | (10,050,000
|Income tax provision                                                            |  |                         | (4,000     
|                                                                                |  |                         |            
|Net loss                                                                        |  |                         | (10,054,000
|Preferred stock dividends and deduction for beneficial conversion feature       |  |                         | (2,001,000 
|                                                                                |  |                         |            
|Net loss applicable to common stockholders                                      |  | $                       | (12,055,000
|                                                                                |  |                         |            
|Basic & Diluted net loss per share                                              |  | $                       | (2.70      
|                                                                                |  |                         |            

14

---

Results From Operations

Fiscal Year 2000 Compared to Fiscal Year 1999

Revenues

The Company's net filmed entertainment revenues were $17,075,000 in 2000 and $24,000 in 1999, an increase of $17,051,000. The increase is due to revenues
generated by PM Entertainment and the delivery of the animated direct to video "Casper's Haunted Christmas". The 2000 revenue primarily consists of $10,591,000 of foreign broadcast license revenues,
$3,271,000 of domestic home video revenues and $3,122,000 of domestic license fee revenues.

Net
merchandising revenues were $2,192,000 and $1,385,000 in 2000 and 1999, respectively, an increase of $807,000. In 2000, $655,000 of revenues were generated from the licensing of
characters for use on internet companies websites. The revenues in 2000 and 1999 consist of licenses for the worldwide merchandising of the Harvey Classic Characters and licensing revenues from the
Company's direct-to-video features entered into by the Company's in-house licensing division and by Hearst Entertainment and FTCP on behalf of the Company. Although
merchandising licenses are generally granted for a period of one to five years, minimum guaranteed license revenues are recognized when the license period begins, provided certain conditions have been
met. Due to this accounting treatment, revenue fluctuations from the Company's merchandising activities will likely recur in the future on a quarterly and annual basis. The ongoing success of the
merchandising program is in part dependent upon the attractiveness, future marketability and the release of new product involving the Harvey Classic Characters or the potential acquisition of new
characters.

Net
publishing revenues related to music publishing in 2000 were $56,000 and to the Company's monthly magazine in 1999 were $129,000. Publishing sales were on a fully returnable basis
recorded upon shipment, net of a reserve based on estimated returns. Publishing revenues also included sales of advertising space and subscriptions to the Company's magazine. The publication was
ceased with the July 1999 issue, resulting from management's decision to focus on the Company's core entertainment business operations.

Film Costs

Costs of sales relating to filmed entertainment revenues were $3,019,000 and $9,000 in 2000 and 1999, respectively. The increase in cost of sales is due to an
increase in filmed entertainment activity resulting from the acquisition of PM Entertainment.

Amortization
of the film library was $9,881,000 and $2,232,000 in 2000 and 1999, respectively. Included in the film amortization is approximately $1,000,000 and $2,000,000 in 2000 and
1999, respectively, of additional amortization recorded to adjust the carrying book value of certain film properties to their net realizable values. Amortization in 2000 consists of $8,192,000 of the
PM Entertainment film inventory and $1,689,000 amortization of the Harvey Entertainment film library.

Other Costs of Sales

Merchandising costs of sales were $261,000 and $334,000 in 1999 and 1998, respectively. The decrease in cost of sales is due to a decrease in
in-house merchandising activity in 2000, as the agency agreements with Hearst Entertainment and FTCP were implemented during 2000.

Publishing
costs of sales were $384,000 in 1999. Publishing costs in 2000 are immaterial as publication of the Company's magazine with the July 1999 issue.

15

---

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $9,415,000 and $6,662,000 for 2000 and 1999, respectively. The increase in selling, general and
administrative expenses of $2,753,000 in 2000 is due to the acquisition of PM Entertainment. However, selling, general and administrative expenses for Harvey Comics, Inc. have decreased due to
lower costs incurred for consulting services throughout the year and an overall decrease in other overhead expenses.

Stock
based charges were zero and $108,000 in 2000 and 1999, respectively. Charges in 1999 are related to the issuance of warrants to consultants to the Company.

Depreciation and Amortization

Depreciation expense was $290,000 and $187,000 in 2000 and 1999, respectively. The increase in depreciation was due to the acquisition of fixed assets included
in PM Entertainment.

Amortization
of trademarks, copyrights and other was $87,000 and $106,000 in 2000 and 1999, respectively.

Amortization
of goodwill was $382,000 and $130,000 in 2000 and 1999, respectively. The increase in amortization of goodwill is due to the acquisition of PM Entertainment.

Other Income

Loss on the sale of securities was $(3,989,000) and zero in 2000 and 1999, respectively. The loss in 2000 consists of a realized loss on the sale of
Kushner-Locke securities.

Loss
on impairment of securities was $(474,000) and zero in 2000 and 1999, respectively. The loss in 2000 consists of an impairment in the value of Tutornet Securities.

Other
income/(expenses) were $(2,000) and $(219,000) in 2000 and 1999, respectively. The expense in 1999 represents currency exchange losses and costs related to the purchase of
certain investment securities.

Interest
(expense)/income was $(1,579,000) and $171,000 in 2000 and 1999, respectively. Interest expense increased due to an increase in notes payable in April 2000. The
expense in 2000 consists of $911,000 of interest on the Chase Facility, $334,000 of interest on other production loans, $133,000 interest on loans from shareholders, $307,000 amortization of financing
charges relating mainly to the Chase Facility and $106,000 of interest income primarily from investment of capital into money market funds. See "Liquidity and Capital Resources". The income in 1999
resulted primarily from interest income of $252,000, offset by interest expense of ($81,000) which represented annual loan fees and borrowings under the Company's line of credit.

Income Taxes

Income tax provision was $(4,000) and $(3,000) in 2000 and 1999, respectively.

Liquidity and Capital Resources

Net cash used in operating activities was $5,680,000 and $6,500,000 in 2000 and 1999, respectively. The reduction in cash used in operating activities was
primarily due to an increase in cash flow provided by sales and a decrease in cash used in costs of sales, offset by an increase in cash used in selling, general and administrative expenses and
interest.

Net
cash used in investing activities was $4,814,000 and $491,000 in 2000 and 1999, respectively. The increase in investing activities resulted from the acquisition of PM
Entertainment.

16

---

Net cash provided by financing activities was $6,257,000 and $12,365,000 in 2000 and 1999, respectively. The cash provided by financing activities in 2000 resulted from proceeds from
The Chase Facility and The Lewis Horwitz Organization production loans. This was offset by cash used in financing activities in 2000 for repayment of notes payable on the acquisition of PM
Entertainment. The cash provided by
financing activities in 1999 resulted from the cash proceeds from the 1999 Refinancing and the issuance of a subordinated note payable as described below.

As
previously stated, effective as of April 3, 2000 the Company entered into a five year, $25,000,000 revolving credit facility with The Chase Manhattan Bank to provide
operating funds and a portion of the acquisition financing of the PM Entertainment acquisition. Borrowings under the Chase Facility are limited to $15,000,000. Borrowings under the Facility are
determined under a borrowing base calculation, which includes certain allowable accounts receivable, film and intellectual property rights, and are secured by substantially all of the assets of the
Company. Interest is payable on the outstanding borrowings under the Facility at the rate of either 1.5% per annum above the prime rate (as defined in the Facility) or 2.5% per annum above the London
Interbank Offered Rate, at the Company's election. The Facility requires the Company to meet certain financial ratios. The Company is not in compliance with certain warranties and covenants of the
Facility. Although The Chase Manhattan Bank has issued waivers of all non-compliance and resulting events of default, The Chase Manhattan bank is not allowing Harvey to draw additional
funds from the Chase Facility.

Pursuant
to the terms of the Loan and Security Agreements, with The Lewis Horwitz Organization, the Company receives loans from The Lewis Horwitz organization, which loans are secured
by the accounts receivable of certain motion pictures. Interest is payable on the loans at a rate of 1.5% per annum above the prime rate. At December 31, 2000, the Company's obligation under
the loans is $603,000. The loans were repaid in February 2001.

On
September 24, 1999, the Company signed a letter of intent for the acquisition of all of the outstanding stock of PM Entertainment, a privately-owned producer and distributor
of motion pictures in the United States home video, television and internet broadcasting markets as well as all media in international markets. The closing of the PM Entertainment acquisition occurred
effective as of April 3, 2000. The purchase price consisted of approximately $6,500,000 of cash paid at closing, 363,000 common shares of the Company with a fair value of $1,668,000 and a
$2,050,000 subordinated note. The Company also assumed existing bank debt in the amount of approximately $5,200,000.

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 is payable
on the note at a rate of 10% per annum. At December 31, 2000, the Company's obligation under these notes payable was $1,600,000. At December 31, 2000, the Company was not in compliance
with the payment terms of the note.

In
connection with the acquisition of PM Entertainment, the Company also 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. Interest is payable on the loan at the prime rate and the loan expires December 31, 2001. At December 31, 2000, the Company's obligation under the loan is
$3,781,000. In January 2001, the Company received notice from Imperial Bank alleging that Events of Default had occurred per the Loan and Security Agreement, in part, because of material
adverse changes in the financial condition of the Company, by virtue of a reduction or impairment in the Company's currently available funds to an amount insufficient to pay the cost of operations.
The Company has demanded that the notification of an Event of Default be withdrawn based on the planned sale of assets per the Asset Purchase and Sale Agreement between the Company and Classic Media,
LLC.

17

---

As a result of the 1999 Refinancing being oversubscribed, on June 30, 1999 the Company issued a subordinated convertible note (the "Note") in the amount of approximately
$2,049,000. The Note accrued interest at an annual rate of 7%, payable quarterly on the last day of each March, June, September and December, commencing on June 30, 1999. As a result of
shareholder approval at the Company's Annual Meeting of Shareholders' on August 17, 1999 of an increase in the authorized shares of Series A Preferred Stock and the conversion of the
Note, the Company's Board of Directors approved the conversion of the Note on September 2, 1999 into 20,488 shares of Series A Preferred Stock (convertible into 303,518 shares of Common
Stock) and investor warrants to purchase 144,618 shares of Common Stock.

The
Company was party to a $2,500,000 revolving line of credit with City National Bank ("Bank") to provide funds for operations. The facility originally had a maturity date of
March 31, 1999. On April 9, 1999, the Bank extended the maturity of the debt to April 30, 1999 and amended the covenants such that the Company was in compliance at that date. The
facility was secured by substantially all of the assets of the Company. On April 27, 1999 the entire outstanding balance of $2,013,000, inclusive of accrued interest through the date of
payment, was paid off with the funds the Company received in connection with the 1999 Refinancing. The Company was in discussions with the Bank to renew or extend the credit facility, but such
discussions were not pursued and the facility expired.

On
April 26, 1999, the Company consummated the 1999 Refinancing pursuant to a Stock Purchase Agreement and received gross proceeds of approximately $17,900,000. In connection
with such transactions, the Company incurred fees and expenses of approximately $1,905,000 and subsequently repaid the outstanding balance of approximately $2,013,000 on the Company's City National
Bank credit facility. In addition, the Company received additional capital of approximately $2,049,000 from the issuance of the Note on June 30, 1999.

Management
believes that the Company's current and anticipated sources of working capital 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. Management has
addressed these issues, including seeking out several strategic partners and investors, and as such has signed an Asset Purchase and Sale Agreement with Classic Media LLC for the sale of certain
assets, properties and rights owned by the Company. The assets, properties and rights sold include Harvey's library of classic characters and certain contractual rights and agreements which relate to
those assets. The purchase price of $16 million plus the assumption of certain liabilities will be paid in cash at closing, which is expected to occur within sixty to ninety days from signing
of the agreement and after the receipt of shareholder vote and satisfaction of other customary closing conditions. Management intends to utilize such funds to repay a significant portion of the
Company's debt outstanding, including the borrowings under the Chase Manhattan Bank Facility, and to continue to operate the scaled-back business focusing on sales of the PM Entertainment
library and development of new product. Management has commenced discussions on obtaining a new credit facility to provide some working capital for ongoing operations. At the same time Management will
be exploring all options to create maximum shareholder value.

Inflation and Seasonality

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

ITEM 7. FINANCIAL STATEMENTS

Pages
F-1 through F-21 follow.

18

---

The following tables set forth supplementary data for each of the years in the two-years ended December 31, 2000.

|                    |                   | 2000 |         
|------------------- | ----------------- | ---- | --------
|
|Revenues            |                   | $    | 882,000 
|Gross Profit/(Loss) |                   |      | (598,000
|Net Loss            |                   |      | (885,000
|Loss per share:     |                   |      |         
|                    | Basic and Diluted |      | $       

|                    |                   | 1999 |           
|------------------- | ----------------- | ---- | ----------
|
|Revenues            |                   | $    | 562,000   
|Gross Profit/(Loss) |                   |      | (9,000    
|Net Loss            |                   |      | (2,409,000
|Loss per share:     |                   |      |           
|                    | Basic and Diluted |      | $         

---

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

Not Applicable

19

---



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    |  | 58  |  | Chairman of the Board and Chief Executive Officer
|Glenn R. Weisberger |  | 42  |  | Senior Vice President and General Counsel        
|Caroline J. Stewart |  | 30  |  | Chief Financial Officer and Corporate Secretary  
|William Dallas      |  | 46  |  | Director                                         
|Michael S. Doherty  |  | 47  |  | Director                                         
|Gary M. Gray        |  | 56  |  | Director                                         
|Paul Guez           |  | 57  |  | Director                                         

Each
of the directors and executive officers serves in similar positions for both the Company and its wholly owned subsidiaries. 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. Burlagehas served as Chairman and Chief Executive Officer of The Harvey Entertainment Company since April 1999. 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.

Glenn R. Weisbergerhas been the Senior Vice President and General Counsel of the Company since October 1999. Prior to joining
the Company, Mr. Weisberger worked for Universal Studios, Inc. from 1991 in various positions, most recently as Vice President of Business and Legal Affairs for the Universal Television
and Networks Group. From 1994 to 1991 Mr. Weisberger was a partner in the law firm of Dubin & Weisberger. Mr. Weisberger was admitted to the California bar in 1984 and is a CPA in
the state of California.

Caroline J. Stewarthas been the Chief Financial Officer of Harvey since January 2001, and Corporate Secretary since
March 2001. Prior to joining Harvey, Ms. Stewart worked as a financial

20

---

consultant to entertainment companies, mainly in the areas of financial reporting, tax shelters and tax credits. From 1998 to 1999, Ms. Stewart served as VP Finance and Controller for New
City Inc., a Canadian film production and distribution company. From 1997 to 1998, Ms. Stewart worked for Warner Bros. International TV Production overseeing entertainment activities
located in Vancouver, Canada. From 1994 to 1996 Ms. Stewart was with PricewaterhouseCoopers Vancouver where she was a manager in the entertainment division.

William Dallaswas appointed as a director at Harvey in March of 2000. Mr. Dallas has 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 Bank (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
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. Most recently, as a board member, Mr. Dallas
helped David Murdock take Castle & Cooke, Inc., a publicly traded (NYSE:CCS) company private in a $750 million transaction. Mr. Dallas accepted the nomination of California
Lutheran University to be secretary of the Board of Regents and he teaches Venture Development, a class he created at CLU.

Michael S. Dohertyhas 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 Privae 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. Grayhas 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 Guezhas been a director of Harvey 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

21

---

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.

The
Company has granted observer rights to The Kushner-Locke Company ("Kushner-Locke") which has the right to designate Donald Kushner, Kushner-Locke's Co-Chairman of the
Board, Co-Chief Executive Officer and Secretary (or in his absence, Peter Locke, Kushner-Locke's Co-Chairman of the Board and Co-Chief Executive Officer) to attend
and participate in all Board meetings as an observer without the right to vote on any action taken by the Board. Such attendee shall be compensated in the same amount of cash, options or other items
and at the same times as the other non-executive members of the Board; provided that Messrs. Kushner and Locke shall be entitled to receive collectively only such amount as one
Board member would so be entitled to receive. See "Executive CompensationDirector Compensation." At March 31, 2001, Kushner-Locke owns 6,287 shares of the Company's Series A
Preferred Stock, including 4,081 shares in accrued dividends and 56,587 Series B Preferred Stock, including 3,794 shares in accrued dividends. The Company owns no shares of common stock of
Kushner-Locke. See "Security Ownership of Certain Beneficial Owners and Management."

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, 2000, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were complied
with.

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, 2000, 1999 and 1998 to the Company's
Chief Executive Officer, and its three other most highly compensated officers for services rendered during such period to the Company.

22

---

SUMMARY COMPENSATION TABLE

|                                                                                                           |  |                |  |     |                        |   |   | Long Term Compensation |     
|---------------------------------------------------------------------------------------------------------- |  | -------------- |  | --- | ---------------------- | - | - | ---------------------- | ----
|
|
|
|Roger A. Burlage(1)
Chairman and Chief Executive Officer                                                   |  | 2000
1999      |  | $$  | 519,412
342,949        |   |   | N/A
N/A                |     
|Eric S. Mischel(1)
President and Chief Operating Officer                                                   |  | 2000
1999      |  | $$  | 252,216
171,474        |   |   | N/A
N/A                |     
|Ronald B. Cushey(6)
Executive Vice President and Chief Financial Officer                                   |  | 2000
1999      |  | $$  | 75,331
102,885         |   | $ | 12,500
N/A             |     
|Glenn R. Weisberger(6), (14)
Executive Vice President, General Counsel and Interim Chief Financial Officer |  | 2000
1999      |  | $$  | 149,340
35,785         |   | $ | 12,500
N/A             |     
|Anthony J. Scotti(1)
(Former) Interim Chief Executive Officer and (Former) Interim President               |  | 1998           |  |     | (5                     | ) |   |                        | (5) 
|Michael S. Hope(6)
(Former) Interim Chief Financial Officer and (Former) Interim Secretary                 |  | 1998           |  |     | (7                     | ) |   |                        | (7) 
|Jeffrey A. Montgomery(8)
Former) Chief                                                                     |  | 1998           |  | $   | 59,150                 |   |   | N/A                    |     
|Charles Day
(Former) Senior Vice President of Consumer Products                                            |  | 2000
1999
1998 |  | $$$ | 46,250
181,250
147,255 |   |   | N/A
N/A
N/A            |     
|Don Gold(11)
(Former) Senior Vice PresidentHarvey Home Entertainment                                      |  | 1998           |  | $   | 118,750                |   | $ | 20,000                 | (12)

---

23

---

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 (2000) and held by each person
who served as the Company's Chief Executive Officer and its three other most highly compensated officers and the value thereof.

|Name                |  | Number of
Securities
Underlying
Options Granted |  | Percent of Total
Options Granted to
Employees in Fiscal
Year (1) |      | Exercise or
Base Price
($/Share) |                       | Expiration Date
|------------------- |  | ----------------------------------------------- |  | ---------------------------------------------------------------- | ---- | -------------------------------- | --------------------- | ---------------
|Roger A. Burlage    |  | 0                                               |  | N/A                                                              |      |                                  | N/A                   |                
|Eric S. Mischel     |  | 0                                               |  | N/A                                                              |      |                                  | N/A                   |                
|Ronald B. Cushey    |  | 0                                               |  | N/A                                                              |      |                                  | N/A                   |                
|Glenn R. Weisberger |  | 40,000
6,667
6,667
6,666                        |  | 20
3
3
3                                                         | %%%% | $$$$                             | 6.75
9.00
11.00
12.00 |                

24

---



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

|Name                |  | Shares
Acquired on
Exercise (#) |  | Value
Realized ($) |  | Number of Securities
Underlying Unexercised
Options at 12/31/00 |  | Value of Unexercised
In-the-Money
Options at 12/31/00
|------------------- |  | ------------------------------- |  | ------------------ |  | --------------------------------------------------------------- |  | -----------------------------------------------------
|Roger A. Burlage    |  | 0                               |  | N/A                |  | 589,309                                                         |  | 0/0                                                  
|Eric S. Mischel     |  | 0                               |  | N/A                |  | 260,000                                                         |  | 0/0                                                  
|Ronald B. Cushey    |  | 0                               |  | N/A                |  | 60,000                                                          |  | 0/0                                                  
|Glenn R. Weisberger |  | 0                               |  | N/A                |  | 75,000                                                          |  | 0/0                                                  

The
Common Stock closed on The Nasdaq National Market on December 31, 2000 at $0.188 per share.

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.
Such Directors also receive 10,000 stock options under the Company's 1997 Stock Option Plan on May 18 each year.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 31, 2001, 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) each of the Company's current directors and nominees, (iii) each person who served as an executive officer of the Company during fiscal year 2000, (iv) each person who is an
executive officer of the Company as of March 31, 2001, and (v) the Company's current directors and executive officers as a group:

|Name and Address
of Beneficial Owners         |  | Title of Class(1)                                              |  | Number of Shares and Nature
of Beneficial Ownership |  | Percent of
Class(2)
|--------------------------------------------- |  | -------------------------------------------------------------- |  | --------------------------------------------------- |  | -------------------
|AKAUSA Holdings Limited(3)
Beneficial Owner   |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 1,075,000

                                       |  | 23.63%

         
|Ahmad Bin Khalid Al-Saud(3)
Beneficial Owner  |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 1,075,000

                                       |  | 23.63%

         
|Universal Studios, Inc.(4)
Beneficial Owner   |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 374,500

                                         |  | 8.23%

          
|The Kushner-Locke Company(5)
Beneficial Owner |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 1,319,710
6,287
56,587                              |  | 22.49%
4.97%
62.41%
|Checchi Family Trust(6)
Beneficial Owner      |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 179,359
11,432
                                    |  | 3.79%
9.04%
      
|                                              |  |                                                                |  |                                                     |  |                    

25

---

|Michael R. Burns(7)
Beneficial Owner                                                                           |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 505,308

           |  | 10.03%

        
|-------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------- |  | --------------------- |  | ------------------
|Anthony J. Scotti(8)
Beneficial Owner                                                                          |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 155,800

           |  | 3.31%

         
|Dimension Fund Advisors, Inc.(9)
Beneficial Owner                                                              |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 296,500

           |  | 6.52%

         
|L D B Corporation(10)
Beneficial Owner                                                                         |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 179,359
1,143
152,423 |  | 3.79%
11.35%
    
|Roger A. Burlage(11)
Chairman and C.E.O.                                                                       |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 510,432
572
2,058     |  | 10.11%
 .45%
2.27%
|Michael S. Doherty(12)
Director                                                                                |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 80,000

            |  | 1.73%

         
|Paul Guez(13)
Director                                                                                         |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 1,046,797
56,597
    |  | 18.71%
44.73%
   
|Gary M. Gray(14)
Director                                                                                      |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 155,500

           |  | 3.30%

         
|William Dallas(15)
Director                                                                                    |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 239,947
1,143
10,289  |  | 5.01%
 .90%
11.35%
|Glenn R. Weisberger(16)
Executive Vice President, General Counsel and Interim Secretary                        |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 116,000

           |  | 2.49%

         
|Caroline J. Stewart(17)
Chief Financial Officer and Corporate Secretary                                        |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 

                 |  | 

             
|Eric S. Mischel(18)
(Former) President and (Former) Chief Operating Officer                                    |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 274,702
86
772        |  | 5.70%
 .07%
 .85% 
|Ronald B. Cushey(19)
(Former) Executive Vice President (Former) Chief Financial Officer and (Former) Secretary |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 77,549
915
          |  | 1.68%
 .72%
     
|                                                                                                               |  |                                                                |  |                       |  |                   

26

---

|Charles Day(20)
(Former) Senior Vice President of Consumer Products |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 12,500

              |  | .27%

            
|------------------------------------------------------------------- |  | -------------------------------------------------------------- |  | ----------------------- |  | --------------------
|All Officers and Directors a group (21) (7 persons)                 |  | Common Stock
Series A Preferred Stock
Series B Preferred Stock |  | 2,148,176
58,311
12,346 |  | 32.19%
46.09%
13.62%

---

27

---



28

---



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Harvey 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 400,000 shares of the Company's Common Stock at exercise prices ranging
from $9.00 to $12.00 per share, and may receive up to an additional 200,000 warrants at his election under certain circumstances within one year of the effective date of his employment agreement. One
half of such 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.

The
Company entered into an employment agreement with Charles Day, effective October 16, 1996, as amended on December 19, 1997, which provides that Mr. Day served
as The Company's Senior Vice President of Consumer Products. In September 1998, the agreement was extended through March 31, 2000 and it was not renewed further upon its expiration. The
termination agreement between the Company and Mr. Day is described below. The employment agreement was further amended on May 17, 1999 to increase Mr. Day's annual salary from
$139,000 to $149,000 effective as of that date. In addition to his annual salary, Mr. Day was entitled to certain other benefits including a monthly living allowance of $3,000 during the term
of his employment agreement, insurance benefits, four weeks of paid vacation, use of an automobile, reimbursement of automobile insurance expenses,

29

---

reimbursement of moving expenses at the beginning of the term and reimbursement of attorney's fees incurred in connection with the negotiation of his employment agreement. Mr. Day was also
entitled to receive an annual bonus equal to a percentage of pre-tax net profits from the Company's merchandising activities under Mr. Day's supervision. In addition, Mr. Day
received an option to purchase 15,000 shares of common stock at $11.00 per share (adjusted to $7.25 per share in December 1998) vesting over three years and an option to purchase 5,000 shares
of common stock at $11.00 per share vesting over two years. Mr. Day's employment agreement also provided that the Company would indemnify Mr. Day for any loss he incurs by virtue of his
position as an employee of the Company.

The
Company entered into a termination agreement with Mr. Day, dated January 21, 2000. The agreement terminates Mr. Day's employment at The Company as of
March 31, 2000. Mr. Day was to be paid any accrued vacation pay and any unreimbursed business expenses. All vested and unexercised stock options were to expire per the terms of the stock
option plan agreement. All unvested stock options as of March 31, 2000 were to be cancelled. Pursuant to the termination agreement, the Company and Mr. Day released each other from any
and all, known or unknown, claims, liabilities, losses, agreements, rights, causes of action and expenses of any nature arising during the period of Mr. Day's employment, relating to the
employment, or concerning the termination of Mr. Day's employment.

The
Company entered into an employment agreement with Ronald B. Cushey, dated April 26, 1999, which provides that he will serve as the Company's Executive Vice President and
Chief Financial Officer and Corporate Secretary for a term of three years. Mr. Cushey has since resigned pursuant to the settlement agreement described below. The April 1999 employment
agreement states that Mr. Cushey was entitled to annual salaries of $150,000, $165,000 and $180,000, in the first, second and
third years of the term, respectively, as well as an annual discretionary bonus as determined by the Board. Mr. Cushey's annual salary could have been increased to $200,000 in certain
circumstances if the Company's annual revenues exceed $20,000,000 or if responsibilities related to additional corporate activity were required. As part of the agreement, Mr. Cushey was granted
warrants to purchase 80,000 shares of the Company's Common Stock at exercise prices ranging from $9.00 to $12.00 per share, with one-half of such warrants vesting on signing of the
agreement, 25% vesting on the first anniversary of the agreement and 12.5% vesting on each of the second and third anniversaries of the agreement. Mr. Cushey was also entitled 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.

The
Company entered into a settlement agreement with Mr. Cushey, dated May 24, 2000. The agreement provides that Mr. Cushey's employment is terminated as of
May 24, 2000. All unvested stock options and warrants that were not vested as of Mr. Cushey's termination were cancelled. All vested and unexercised stock options and warrants are to
expire per the terms of the stock option plan and applicable warrant agreement. Pursuant to the termination agreement, the Company and Mr. Cushey released each other from any and all, known or
unknown, claims, liabilities, losses, agreements, rights, causes of action and expenses of any nature arising during the period of Mr. Cushey's employment, relating to the employment, or
concerning the termination of Mr. Cushey's employment.

The
Company entered into an employment agreement with Eric S. Mischel, dated April 26, 1999 which provided that he would serve as the Company's President and Chief Operating
Officer for a term of four years. Mr. Mischel has since resigned pursuant to the settlement agreement described below. The April 1999 employment agreement states that Mr. Mischel
was entitled to an annual salary of $250,000 with minimum annual increases of 71/2%, as well as an annual discretionary bonus as determined by the Board. As part of the agreement,
Mr. Mischel was granted warrants to purchase 210,000 shares of the Company's Common Stock at exercise prices ranging from $9.00 to $12.00 per share, with one-half of such warrants
vesting on signing of the agreement, 25% vesting on the first

30

---

anniversary of the agreement and 12.5% vesting on each of the second and third anniversaries of the agreement. The Company agreed to obtain certain film projects previously held by Mr. Mischel
in The Mischel Company, of which he was president prior to joining the Company. Mr. Mischel was paid an amount of $65,000 by the Company for the transfer of all title, rights and interest in
these projects. He was entitled to receive a profit participation of 60% on certain of the film projects transferred to the Company. Mr. Mischel was also entitled 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.

The
Company entered into a settlement agreement with Mr. Mischel, dated December 15, 2000. The agreement commenced on January 1, 2001 and terminates on
April 25, 2003. The agreement terminates
Mr. Mischel's previous employment agreement as of January 1, 2001, and provides that Mr. Mischel, on a part time basis, is 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 new Hearst licensing and merchandising deals. The Company is to pay a $134,365 annual consulting fee to
Mr. Mischel for his services. If the Company is sold to a third party during the term of the agreement, the Company is 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 is 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 are exercisable for one year after the date Mr. Mischel ceases to provide services under the settlement agreement. However, in no event shall any options be exercisable after
January 2, 2002. The exercise price of all of Mr. Mischel's options is to be $0.80 per share. The Company will provide health insurance coverage to Mr. Mischel until the earlier
of April 25, 2003, or such time as Mr. Mischel becomes eligible for health insurance by a new employer. Mr. Mischel is also entitled to continue the use of his company car until
the end of the lease, whereby Mr. Mischel is to pay half of the monthly cost of the lease. 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.

The
Company entered into an employment agreement with Glenn R. Weisberger, dated September 22, 1999, which provides that he will serve as the Company's Executive Senior Vice
President and General Counsel for a three year term. This agreement has since been amended as detailed below. The 1999 agreement provides that Mr. Weisberger will receive an annual guaranteed
salary of $145,000 for the first year, $155,000 for the second year, and $165,000 for the third year, as well as an annual discretionary bonus as determined by the Board. As part of the agreement,
Mr. Weisberger was granted warrants to purchase 40,000 shares of the Company's Common Stock, with one-half of such warrants vesting on signing of the agreement, 25% vesting on the
first anniversary of the agreement and 12.5% vesting on each of the second and third anniversaries of the agreement.

The
Company amended Mr. Weisberger's agreement on January 1, 2001. The amended agreement provides that he will serve as the Company's Senior Executive Vice President and
General Counsel, on a part-time basis, until the earlier of June 30, 2001, or such time that Mr. Weisberger accepts full-time employment with a new employer.
Mr. Weisberger is entitled to a monthly salary of $15,000. As part of the agreement, Mr. Weisberger's options and warrants are to vest and become exercisable as of January 1, 2001
and up until one year after the date Mr. Weisberger ceases to provide services to the Company. Options may be exercised at a price of $0.80 a share. Mr. Weisberger is not entitled to any
benefit coverage other than health benefit coverage, which will be provided until the earlier of October 31, 2002, or such time that Mr. Weisberger is eligible for health benefits from a
new employer. In addition, the Company and Mr. Weisberger released each other from any and all, known or unknown, claims, liabilities, losses, agreements, rights, causes of action and expenses
of any nature

31

---

arising during the period of Mr. Weisberger's employment, relating to the employment, or concerning the termination of Mr. Weisberger's employment.

The
Company entered into a consulting agreement with William Merrigan on May 28, 2000, which was to commence on June 1, 2000 and continue for two to three months at
Mr. Merrigan's option. Pursuant to the agreement, Mr. Merrigan is to perform exclusive consulting services in regards to the Company's banking and financing needs in exchange for a
compensation of $10,000 per month payable in advance of each month. In addition, the agreement provides that in the event of a sale of the Company, a change of control at the Company, or an equity
infusion into Company is closed within 12 months of the commencement date of the agreement, Mr. Merrigan is entitled to receive a Success Bonus in the amount of $45,000. In light of the
proposed sale to Classic Media, the Company has agreed to commence paying Mr. Merrigan the bonus of $45,000, payable in $5,000 monthly installments commencing in March 2001 and
continuing until the earlier of the close of a sales transaction, such as the current Classic Media transactions, or the payment of a total of $45,000.



In December 1990, the Company sold Universal Studios a 20% equity interest in the Company for $3,000,000 and entered into a Registration Agreement and
Memorandum of Distribution Agreement with Universal Studios, as amended by letters dated April 22, 1993 and September 28, 1993. Under the distribution agreement, Universal Studios was
granted certain limited rights, with no corresponding obligation, to exploit the Company's classic cartoon characters and products in (i) theatrical motion pictures, (ii) television,
(iii) home video, (iv) merchandising, and (v) theme parks, and to distribute new pictures in all media. Under the distribution agreement, the Company retained the right to create
and distribute existing and new television, home video and new media products, subject to Universal Studios' first negotiation rights and first negotiation/first refusal rights, and also retained
certain limited rights to exploit the Company's classic cartoon characters in theme parks.

In
November 1999, the Company and Universal Studios entered into an Amended and Restated Memorandum of Distribution Agreement which included alterations to the obligations and
rights of the parties with respect to merchandising in the form of a letter agreement executed concurrently therewith, collectively referred to as the "Universal Settlement Agreement". In summary,
pursuant to the Universal Settlement Agreement, the Company reacquired from Universal Studios (i) control of all merchandising rights with respect to the Company's classic cartoon characters
(except those related to a Casper or Casper character motion pictures produced and/or released by Universal Studios), (ii) first negotiation/first refusal rights and first negotiation rights in
all of the Company's classic cartoon characters other than certain first negotiation/first refusal rights and first negotiation rights relating to Casper and Casper characters and (iii) theme
park rights other than those relating to Casper and the Casper characters. In exchange for the reacquisition of these rights, the Company provided Universal Studios with an exclusive release window
for the first sequel to the first Casper movie (and potentially other sequels), a first negotiation/first refusal right with respect to the first direct-to-video production
featuring Casper after the release of the first Casper sequel and the right to exploit movie merchandising related to Casper and Casper characters appearing in permitted feature pictures which feature
or refer in to the title to Casper or Casper characters during merchandising windows associated with such picture (such windows are exclusive except that, during a window, the Company may enter into
new licenses with a term beginning after the window and such pre-existing licenses between Harvey and third parties are not affected by a window).

Under
the Universal Studios distribution agreement, Universal Studios had the sole and exclusive right and license to develop, produce and distribute theatrical motion pictures based
on the Casper, the Friendly Ghost character. Upon commencement of principal photography of the first Casper movie (released in May of 1995), Universal Studios became vested with all theatrical sequel
and theatrical remake rights to Casper.

32

---

In May 1997, The Company entered into an agreement with Universal Studios to produce and distribute a motion picture sequel to the first Casper movie to be produced by
Universal Pictures and Amblin Entertainment. The Company received an advance for the sequel rights and, if a sequel is produced, is contractually entitled to receive additional advances against a
percentage of gross receipts from all sources of exploitation of the motion picture. As part of The Company's agreement with Universal Studios, The Company was also paid a non-refundable
advance against The Company's share of its profit participation from the first Casper movie.

On
February 16, 1999, Universal Studios advised The Company that neither Universal Studios nor Amblin Entertainment had approved a script or commenced
pre-production on a Casper sequel. Universal Studios indicated that script approval was imminent and that it would advise The Company when script approval was received and would formally
request at that time an extension of the February 15, 1999 initial notice date. To date, The Company has not received any request regarding the February 15, 1999 initial notice date.

Although
Universal Studios' rights to develop and produce theatrical motion pictures featuring The Company's classic cartoon characters (other than Casper) expired in
December 1995, it had retained a first negotiation right with respect to new pictures in which the name of one or more Casper characters (other than Casper) is to appear in the title of the
picture or in which one or more Casper characters (other than Casper) are featured which it may exercise should The Company attempt to license or transfer theatrical motion picture rights or such
characters to third parties. The first negotiation right expired on December 7, 2000.

Under
the Universal Settlement Agreement, Universal Studios had first negotiation/first refusal rights for the exploitation of new television product and domestic distribution of The
Company's existing animated film library of product featuring Casper or having Casper's name in the title. These first negotiation/first refusal rights expired on December 7, 2000.

Under
the Universal Settlement Agreement, Universal Studios also had first negotiation/first refusal rights for the exploitation of new television product and domestic distribution of
The Company's existing animated film library of product featuring Casper characters (other than Casper) or having a Casper character name (other than Casper) in the title. The first negotiation/first
refusal rights expired on December 7, 2000.

Under
the distribution agreement, Universal Studios held certain first negotiation/first refusal rights with respect to The Company's worldwide licensing of (i) home video
rights in The Company's library existing on the date of the distribution agreement, (ii) new television products (subject to The Company's retaining the right under certain circumstances to
transfer home video rights in a new television product to a third party concurrent with the transfer of television rights), and (iii) characters and products which The Company intended to
exploit initially in the home video market. Pursuant to the Universal Settlement Agreement, Universal Studios released all such rights except a first negotiation/first refusal right to produce and
release the first feature length Casper direct-to-video after the next Casper theatrical release. The next sequel rights expired in December 2000.

In
1999 The Company commenced negotiations with Universal Studios relating to an agreement for the distribution of certain of its Harveytoons episodes in the domestic home video
market, plus the release of certain other projects to be produced for the domestic direct-to-video market, including "Casper's Haunted Christmas", until the year 2005 in
exchange for royalty fees. The agreement was not completed, and the parties agreed that they would continue to abide by the terms of that agreement only in respect to the film "Casper's Haunted
Christmas", but would terminate the proposed agreement in all other respects.

33

---

In order to secure Universal Studios' rights under the distribution agreement, The Company granted to Universal Studios security interests in the rights it acquired. After the
May 1997 Amendment, this security interest continues with respect to the Casper characters only.

The
Company entered into a short-term sublease with MCA Records (a subsidiary of Universal Studios) on September 22, 1998 for 3,000 square feet of space at its
Santa Monica premises for a monthly rental of approximately $7,000 until October 1997 at which time it increased to $7,500 until September 1999.
The lease has been extended to October 2001 at a monthly lease rate of approximately $12,000. MCA Records has requested that The Company allow an early termination of this sublease.



On April 7, 1999 Harvey entered into a Stock Purchase Agreement by and among Harvey and Michael R. Burns, Roger A. Burlage, Ken Slutsky, William Dallas,
Paul Guez and the Kushner-Locke Company pursuant to which Harvey issued and sold 170,000 shares of its Series A Preferred Stock and warrants to purchase up to 2,400,000 shares of Harvey's
Common Stock. In connection with the Stock Purchase, Prudential Securities Inc. received fees of approximately $450,000 for advisory services rendered. Michael R. Burns, a former director of
Harvey who resigned in May 2000, was then Managing Director of Prudential Securities Inc.

REGISTRATION RIGHTS AGREEMENTS

The Company entered into a Registration Rights Agreement dated as of December 7, 1990, as amended by letter dated as of April 22, 1993, with
Universal Studios and AKAUSA (the "Registration Agreement"). The Registration Agreement provides that at any time after June 18, 1994, AKAUSA and/or Universal Studios may request that the
Company use its best efforts to register for sale under the Securities Act their respective shares of the Common Stock. The Registration Agreement also provides for a second demand registration and
for certain "piggy back" registration rights in the event the Company initiates another registered stock offering under the Securities Act.

In
October 1994, the Company sold 250,000 shares of Common Stock, AKAUSA sold 200,000 shares of Common Stock and Mr. Montgomery sold 50,000 shares of Common Stock in a
private placement. Purchasers therein were granted registration rights. The Company filed a registration statement on Form S-3 to register the shares sold in the 1994 private
placement. AKAUSA also exercised its piggyback registration rights with respect to the Company's Form S-3 filing.

On
April 26, 1999, in connection with the issuance and sale of the Series A Preferred Stock and Warrants in the Stock Purchase, the Company entered into a Registration
Rights Agreement (the "1999 Agreement") with Michael R. Burns, Roger A. Burlage, Al Checchi, Ken Slutsky and The Kushner-Locke Company (the "Holders"). The 1999 Agreement gives the Holders certain
demand and piggyback registration rights commencing on the date that is 18-months following the issuance and sale of the Series A Preferred Stock and the Warrants to register the
Common Stock issuable upon conversion of the Series A Preferred Stock and the exercise of the Warrants.

34

---



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

|Exhibit Number |  | Description                                                                                                                                                                                                                                                                             
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | 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            |  | 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            |  | 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)                                                                                                                                 
|3.4            |  | 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)                                                                                                              
|3.5            |  | 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)                                                                                                   
|4              |  | 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           |  | Memorandum of Distribution Agreement, dated as of December 7, 1990, by and among the Company, Harvey and MCA (portions of which have been filed under a confidentiality request) (incorporated herein by reference to
Exhibit 10.13 of Company's Registration Statement No. 33-63363-LA)
|10.5           |  | 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)                                                                                                                              
|10.6           |  | 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)                                                                                                  
|10.7           |  | Profit Sharing Plan and Trust Adoption Agreement (incorporated herein by reference to Exhibit 10.43 of Company's Registration Statement No. 33-63363-LA)                                                                                                                                
|10.13          |  | September 28, 1993, Amendment to Memorandum of Distribution Agreement dated December 7, 1990 (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December
 31, 1993)                                                                     
|10.14          |  | 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)                                                                                   
|10.15          |  | Revolving Loan and Security Agreement between Company and City National Bank dated October 27, 1993 (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December
 31, 1993)                                                              
|10.16          |  | 1994 Stock Option Plan (incorporated by reference to the Company's 1994 definitive Proxy Statement)                                                                                                                                                                                     

35

---

|10.17 |  | Agreement dated September 22, 1994 between MCA, Inc. and the Company (incorporated herein by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1994)                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 |  | Multi-Agreement Amendment No. 2 dated as of November 1, 1994 among Harvey Comics, Inc. and City National Bank (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995)                
|10.19 |  | Multi-Agreement Amendment No. 3 dated as of September 1, 1995 among Harvey Comics, Inc. and City National Bank (incorporated herein by reference to the Company's Annual Report on Form 10- KSB for the
year ended December 31, 1995)              
|10.20 |  | 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)
|10.21 |  | Amended and Restated Employment Agreement effective as of April 17, 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)       
|10.22 |  | Amended and Restated Employment Agreement effective as of April 17, 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)           
|10.23 |  | 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)                               
|10.24 |  | 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)                                   
|10.25 |  | Letter Agreement dated as of March 15, 1995 between MCA, Inc. and the Company re: Baby Huey (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December
 31, 1995)                                 
|10.26 |  | Casper Live Action Direct-To-Video Agreement dated May 28, 1996 between the Company and Saban Entertainment Inc. (incorporated herein by reference to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1996)           
|10.27 |  | Sublease dated September 22, 1996 between MCA Records, Inc. and the Company (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996)                                                  
|10.28 |  | 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)                                                    
|10.29 |  | 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)                                                                
|10.30 |  | Richie Rich Live Action Direct-To-Video Agreement between the Company and Saban Entertainment Inc. (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December
 31, 1996)                          
|10.31 |  | Summary of lease terms for the premises located at 1999 Avenue of the Stars, Los Angeles (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996)                                     

36

---

|10.32 |  | Extension Agreement with City National Bank dated June 1, 1996 (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996)                                                                                                                                             
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33 |  | The Harvey Entertainment Company 1997 Stock Option Plan (incorporated herein by reference to the Company's 1997 definitive Proxy Statement)                                                                                                                                                                                      
|10.34 |  | Term Sheet for Universal/Harvey Restated Agreement, dated May 15, 1997 between the Company and Universal Studios, Inc. (incorporated herein by reference to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1997 (portions of which were redacted and filed under a confidentiality request))       
|10.35 |  | Casper Meets Wendy Direct-to-Video Agreement, dated September 5, 1997, between the Company and Saban Entertainment Inc. (incorporated herein by reference to the Company's Quarterly Report on Form 10-Q SB
for the quarter ended September 30, 1997 (portions of which were redacted and filed under a confidentiality request))
|10.36 |  | 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)                                                                                                                      
|10.37 |  | 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)                                                                                                                  
|10.38 |  | Multi-Agreement Amendment No. 5 dated June 1, 1997 to Revolving Loan and Security Agreement dated October 27, 1993, between the Company and City National Bank, N.A.(incorporated herein by reference to the
Company's Annual report on Form 10-KSB for the year ended December 31, 1997)                                        
|10.39 |  | 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)                                                                                                                       
|10.40 |  | 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)                                                                                                                     
|10.41 |  | 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)                                                                                  
|10.42 |  | 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)                                                                                                                      
|10.43 |  | Employment 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)                                                                                                                           
|10.44 |  | 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)                                                                                                                         
|10.45 |  | Management Consulting Agreement dated March 23, 1998 between the Company and Global Media Management Group, LLC (incorporated herein by reference to the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1998)                                                                                         

37

---

|10.46 |  | 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)                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.47 |  | 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)                                                                                                                       
|10.48 |  | 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)                                                                                                                 
|10.49 |  | 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)                                                                                                                   
|10.50 |  | 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)                                                                                                                     
|10.51 |  | Termination and Consulting Agreement and Mutual General Release dated April 17, 1998 between the Company on one hand, and Gregory M. Yulish, Jane McGregor and JEM Entertainment, Inc., on the other (incorporated
herein by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998)            
|10.52 |  | Multi-Agreement No 6 dated June 1, 1998 to Revolving Loan and Security Agreement dated October 27, 1993, between the Company and City National Bank, N.A. (incorporated herein by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998)                                                       
|10.53 |  | Extension to the Management Consulting Agreement dated July 22, 1998 between the Company and Global Media Management Group, LLC (incorporated herein by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1998 (portions of which have been redacted and filed under a confidentiality request))
|10.54 |  | Agreement dated September 18, 1998 between the Company and Donaldson, Lufkin & Jenrette Securities Corporation (incorporated herein by reference to the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1998 (portions of which have been redacted and filed under a confidentiality request)                  
|10.55 |  | Consulting Agreement dated May 1, 1998 between the Company and Matty Simmons Productions. (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998)                                                                                                                          
|10.56 |  | Publishing Distribution Agreement dated June 23, 1998 between the Company and Warner Publisher Services, Inc. (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998)                                                                                                      
|10.57 |  | Video Distribution Letter Agreement dated October 30, 1998 between the Company and Columbia TriStar Home Video, Inc. (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998)                                                                                               
|10.58 |  | Video Distribution Agreement dated October 30, 1998 between the Company and Columbia TriStar Home Video, Inc. (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998)                                                                                                      

38

---

|10.59 |  | Multi-Agreement No. 7 dated December 11, 1998 to Revolving Loan and Security Agreement dated October 27, 1993, between the Company and City National Bank, N.A. (incorporated herein by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.60 |  | Extension Letter dated March 31, 1999 between the Company and City National Bank. (incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998)                                                                              
|10.61 |  | 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)                                
|10.62 |  | 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)                                 
|10.63 |  | 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)             
|10.64 |  | 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)                                                                         
|10.65 |  | 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)                                                                                            
|10.66 |  | 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)                                                           
|10.67 |  | 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)                                                            
|10.68 |  | Note Payable Agreement dated as of June 30, 1999 between the Company and Paul Guez (incorporated by reference to Exhibit 10.63 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June
 30, 1999)                                                                
|10.69 |  | 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)                                                                      
|10.70 |  | 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)                                                   
|10.71 |  | 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)                                                     
|10.72 |  | Acquisition letter if intent dated September 24, 1999 between the Company and PM entertainment Group, Inc. (incorporated by reference to Exhibit 10.66 of the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1999)                                    

39

---

|10.73 |  | 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)                                                                                                                       
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.74 |  | Undated Amended and Restated Memorandum of Distribution Agreement by and between the Company and Universal Studios (portions of which have been filed under a confidentiality request) (incorporated by reference to Exhibit
 10.74 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999)                                                                                           
|10.75 |  | Undated Amendment to Merchandising Deal by and between the Company and Universal Studios (portions of which have been filed under a confidentiality request) (incorporated by reference to Exhibit 10.75 of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999)                                                                                                                      
|10.76 |  | 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)                                                                                                                                                
|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)                                                                                                                                                                                                                                                                              
|99.1  |  | Press release of the Company dated April 27, 1999 (incorporated by reference to Exhibit 99.1 of the Company's Form 8-K dated April 26, 1999)                                                                                                                                                                                                                                                                      
|2     |  | 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)                                                                                                                                                                  
|10.77 |  | 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)                                                                                                                                                              
|10.78 |  | 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)                                                                                                                                                                                          
|10.79 |  | 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)                                                                                                                                                                                    
|10.80 |  | 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)                                                                                                                                                                                       
|10.81 |  | 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)                                                                                                                                                                                       
|10.82 |  | 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)

40

---

|3(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)                                                                                                                                        
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99    |  | Pro Forma Balance Sheet and Pro Forma Statement of Operations of The Harvey Entertainment Company as of and for the three month period ended March 31, 2000 (incorporated by reference to Exhibit 99 of the
Company's Form 8-K dated June 2, 2000)                                                                                        
|10.83 |  | Letter of Intent dated August 24, 2000, by and between The Harvey Entertainment Company and Classic Media LLC (incorporated by reference to Exhibit 10.83 of the Company's Form 8-K dated August 24, 2000)                                                                                                                                
|99    |  | Press release dated August 24, 2000 regarding a Letter of Intent for an Investment by Classic Media LLC in The Harvey Entertainment Company (incorporated by reference to Exhibit 99 of the Company's Form 8-K
dated August 24, 2000)                                                                                                     
|10.84 |  | Amendment to Letter of Intent dated September 28, 2000, by and between The Harvey Entertainment Company and Classic Media LLC (incorporated by reference to Exhibit 10.84 of the Company's Form 8-K dated
September 28, 2000)                                                                                                             
|99    |  | Press Release dated September 29, 2000, regarding Classic Media LLC's completion of due diligence regarding The Harvey Entertainment Company (incorporated by reference to Exhibit 99 of the Company's Form
 8-K dated September 28, 2000)                                                                                                
|99    |  | Press Release dated November 1, 2000, regarding termination of the proposed investment by Classic Media LLC in The Harvey Entertainment Company (incorporated by reference to Exhibit 99 of the Company's Form
 8-K dated November 1, 2000)                                                                                               
|10.85 |  | Termination agreement dated May 24, 2000, by and among The Harvey Entertainment Company and Ronald B. Cushey *                                                                                                                                                                                                                            
|10.86 |  | Amendment to employment agreement dated December 15, 2000, by and among The Harvey Entertainment Company and Glenn R. Weisberger *                                                                                                                                                                                                        
|10.87 |  | Settlement agreement dated December 15, 2000, by and among The Harvey Entertainment Company and Eric S. Mischel *                                                                                                                                                                                                                         
|10.88 |  | Agency Agreement dated February 1, 2001, by and among The Harvey Entertainment Company and Cinetel Films, Inc. *                                                                                                                                                                                                                          
|10.89 |  | Agency Agreement dated May 2, 2000, by and among The Harvey Entertainment Company and Hearst Entertainment*                                                                                                                                                                                                                               
|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)
|99    |  | Press release regarding Asset Purchase and Sale Agreement with Classic Media, LLC. (incorporated by reference to Exhibit 99 of the Company's Form 8-K dated March 7, 2001)                                                                                                                                                                

---

41

---



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.

|THE HARVEY ENTERTAINMENT COMPANY
|--------------------------------
|Date: April 16, 2001            
|Date: April 16, 2001            

Pursuant
to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.

|SIGNATURE                               |  | TITLE    |  | DATE          
|--------------------------------------- |  | -------- |  | --------------
|                                        |  |          |  |               
|/s/WILLIAM DALLASWilliam Dallas         |  | Director |  | April 16, 2001
|/s/MICHAEL S. DOHERTYMichael S. Doherty |  | Director |  | April 16, 2001
|/s/GARY M. GRAYGary M. Gray             |  | Director |  | April 16, 2001
|/s/PAUL GUEZPaul Guez                   |  | Director |  | April 16, 2001

42

---



ITEM 7. FINANCIAL STATEMENTS

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS

|                                                                                           |  | PAGE       
|------------------------------------------------------------------------------------------ |  | -----------
|REPORT OF INDEPENDENT ACCOUNTANTS                                                          |  | F-2        
|CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 |  |            
|Consolidated Balance Sheets                                                                |  | F-3 to F-4 
|Consolidated Statements of Operations                                                      |  | F-5        
|Consolidated Statements of Stockholders' Equity                                            |  | F-6        
|Consolidated Statements of Cash Flows                                                      |  | F-7 to F-8 
|Notes to Consolidated Financial Statements                                                 |  | F-9 to F-21

F-1

---

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
The Harvey Entertainment Company:

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of The Harvey Entertainment Company and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company needs to obtain
additional sources of financing in order to fund its ongoing operations, which raises substantial doubt about its 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.

PricewaterhouseCoopers LLPCentury City, California
April 13, 2001

F-2

---

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES    CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                    |  | Years Ended December 31,
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|
|ASSETS                                                                                                                                                                                              |  |                         
|Cash and cash equivalents                                                                                                                                                                           |  | $                       
|Marketable securities                                                                                                                                                                               |  |                         
|Accounts receivable, net of allowance for doubtful accounts of $521,000 and $235,000 in 2000 and 1999, respectively and net of a returns reserve of $193,000 and zero in 2000 and 1999 respectively |  |                         
|Prepaid expenses and other assets                                                                                                                                                                   |  |                         
|Income tax receivable                                                                                                                                                                               |  |                         
|Film inventory, net of accumulated amortization of $19,005,000 and $9,124,000 in 2000 and 1999, respectively                                                                                        |  |                         
|Fixed assets, net of accumulated depreciation of $1,045,000 and $755,000 in 2000 and 1999, respectively                                                                                             |  |                         
|Goodwill, net of accumulated amortization of $1,734,000 and $1,352,000 in 2000 and 1999, respectively                                                                                               |  |                         
|Trademarks, copyrights and other intangibles, net of accumulated amortization of $457,000 and $370,000 in 2000 and 1999, respectively                                                               |  |                         
|                                                                                                                                                                                                    |  |                         
|TOTAL ASSETS                                                                                                                                                                                        |  | $                       
|                                                                                                                                                                                                    |  |                         

See
accompanying notes to consolidated financial statements.
(Continued)

F-3

---

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES    CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                | Years Ended December 31,                                                                                                                                                                                 |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------
|
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|LIABILITIES:                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     | Accounts payable and accrued liabilities                                                                                                                                                                       |                                                                                                                                                                                                          | $         
|                                                                                                                                                                                                                                                                                     | Accrued marketing expenses                                                                                                                                                                                     |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     | Participations payable                                                                                                                                                                                         |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     | Deferred revenue                                                                                                                                                                                               |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     | Notes payable                                                                                                                                                                                                  |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                | Total liabilities                                                                                                                                                                                        |           
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|Series A convertible preferred stock, $100 stated value, 300,000 shares authorized, 124,000 and 199,000 shares issued and outstanding at December 31, 2000 and 1999, respectively, liquidation preference of
$12,435,000 and $19,916,000 at December 31, 2000 and 1999, respectively |                                                                                                                                                                                                                |                                                                                                                                                                                                          | 10,368,000
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|COMMITMENTS AND CONTINGENCIES (NOTE 11)                                                                                                                                                                                                                                              |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|STOCKHOLDERS' EQUITY:                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     | Preferred stock, $1 par value, 3,000,000 shares authorized (300,000 shares have been designated as Series A convertible preferred stock and 300,000 shares designated as Series B convertible preferred stock) |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                | Series B convertible preferred stock, $100 stated value, 300,000 shares authorized, 89,000 shares issued and outstanding at December 31, 2000, liquidation preference of $8,911,000 at December 31, 2000 |           
|                                                                                                                                                                                                                                                                                     | Common stock, no par value, 30,000,000 shares authorized, 4,550,000 and 4,187,000 shares issued and outstanding at December 31, 2000 and 1999, respectively                                                    |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     | Additional paid in capital                                                                                                                                                                                     |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     | Accumulated other comprehensive loss                                                                                                                                                                           |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     | Accumulated deficit                                                                                                                                                                                            |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                | Total stockholders' equity                                                                                                                                                                               |           
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                                                           |                                                                                                                                                                                                                | $                                                                                                                                                                                                        | 47,209,000
|                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                |                                                                                                                                                                                                          |           

See
accompanying notes to consolidated financial statements.

F-4

---



THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES    CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                                                                                                                                                                |                                                                                                                        | Years Ended December 31, |                         
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------------------ | ------------------------
|
|OPERATING REVENUES:                                                                                                                                                                                                                             |                                                                                                                        |                          |                         
|                                                                                                                                                                                                                                                | Filmed entertainment                                                                                                   |                          | $                       
|                                                                                                                                                                                                                                                | Merchandising                                                                                                          |                          |                         
|                                                                                                                                                                                                                                                | Publishing                                                                                                             |                          |                         
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|                                                                                                                                                                                                                                                |                                                                                                                        |                          | Total operating revenues
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|COST OF REVENUES:                                                                                                                                                                                                                               |                                                                                                                        |                          |                         
|                                                                                                                                                                                                                                                | Film costs                                                                                                             |                          |                         
|                                                                                                                                                                                                                                                | Other costs of sales                                                                                                   |                          |                         
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|                                                                                                                                                                                                                                                |                                                                                                                        |                          | Total cost of revenues  
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|GROSS PROFIT/(LOSS)                                                                                                                                                                                                                             |                                                                                                                        |                          | 6,168,000               
|OPERATING EXPENSES:                                                                                                                                                                                                                             |                                                                                                                        |                          |                         
|                                                                                                                                                                                                                                                | Selling, general and administrative expenses (including stock based compensation of zero in 2000 and $108,000 in 1999) |                          |                         
|                                                                                                                                                                                                                                                | Amortization of goodwill, trademarks, copyrights and other                                                             |                          |                         
|                                                                                                                                                                                                                                                | Depreciation expense                                                                                                   |                          |                         
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|                                                                                                                                                                                                                                                |                                                                                                                        |                          | Total operating expenses
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|LOSS FROM OPERATIONS                                                                                                                                                                                                                            |                                                                                                                        |                          | (4,006,000              
|LOSS ON SALE OF MARKETABLE SECURITIES                                                                                                                                                                                                           |                                                                                                                        |                          | (3,989,000              
|LOSS ON IMPAIRMENT OF MARKETABLE SECURITIES                                                                                                                                                                                                     |                                                                                                                        |                          | (474,000                
|OTHER EXPENSES, NET                                                                                                                                                                                                                             |                                                                                                                        |                          | (2,000                  
|INTEREST (EXPENSE)/INCOME, NET                                                                                                                                                                                                                  |                                                                                                                        |                          | (1,579,000              
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|LOSS BEFORE INCOME TAXES                                                                                                                                                                                                                        |                                                                                                                        |                          | (10,050,000             
|INCOME TAX PROVISION                                                                                                                                                                                                                            |                                                                                                                        |                          | (4,000                  
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|NET LOSS                                                                                                                                                                                                                                        |                                                                                                                        | $                        | (10,054,000             
|Preferred stock dividends and deduction for beneficial conversion feature                                                                                                                                                                       |                                                                                                                        |                          | (1,431,000              
|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 |                                                                                                                        |                          | (570,000                
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|NET LOSS APPLICABLE TO COMMON STOCKHOLDERS                                                                                                                                                                                                      |                                                                                                                        | $                        | (12,055,000             
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|NET LOSS PER SHARE OF COMMON STOCK:                                                                                                                                                                                                             |                                                                                                                        |                          |                         
|                                                                                                                                                                                                                                                | Basic and Diluted                                                                                                      |                          | $                       
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         
|WEIGHTED AVERAGE SHARES OUTSTANDING:                                                                                                                                                                                                            |                                                                                                                        |                          |                         
|                                                                                                                                                                                                                                                | Basic and Diluted                                                                                                      |                          |                         
|                                                                                                                                                                                                                                                |                                                                                                                        |                          |                         

See
accompanying notes to consolidated financial statements.

F-5

---

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY    YEARS ENDED DECEMBER 31, 2000 AND 1999

|                                                             |                                                                  | Series B Preferred |  | Common Stock |           |  |           |  |   |            |  |   |          
|------------------------------------------------------------ | ---------------------------------------------------------------- | ------------------ |  | ------------ | --------- |  | --------- |  | - | ---------- |  | - | ---------
|
|
|BALANCE, DECEMBER 31, 1998                                   |                                                                  |                   |  | $            |          |  | 4,187,000 |  | $ | 22,160,000 |  | $ |         
|Issuance of warrants                                         |                                                                  |                    |  |              |           |  |           |  |   |            |  |   | 2,360,000
|Beneficial conversion feature on convertible preferred stock |                                                                  |                    |  |              |           |  |           |  |   |            |  |   | 2,163,000
|Stock based compensation                                     |                                                                  |                    |  |              |           |  |           |  |   | 108,000    |  |   |          
|Stock dividends declared                                     |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|Components of comprehensive loss:                            |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             | Unrealized holding loss on equity securities                     |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             | Gain on derivative financial instruments                         |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             | Net loss                                                         |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|Total comprehensive loss                                     |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|BALANCE, DECEMBER 31, 1999                                   |                                                                  |                   |  |              |           |  | 4,187,000 |  |   | 22,268,000 |  |   | 4,523,000
|Issuance of warrants                                         |                                                                  |                    |  |              |           |  |           |  |   |            |  |   | 320,000  
|Issuance of common stock                                     |                                                                  |                    |  |              |           |  | 363,000   |  |   | 1,668,000  |  |   |          
|Conversion of preferred stock                                |                                                                  | 85,000             |  |              | 8,459,000 |  |           |  |   |            |  |   | (901,000 
|Stock dividends declared                                     |                                                                  | 4,000              |  |              | 452,000   |  |           |  |   |            |  |   |          
|Components of comprehensive loss:                            |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             | Realization of loss upon sale or impairment of equity securities |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             | Net loss                                                         |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|Total comprehensive loss                                     |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|                                                             |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          
|BALANCE, DECEMBER 31, 2000                                   |                                                                  | 89,000             |  | $            | 8,911,000 |  | 4,550,000 |  | $ | 23,936,000 |  | $ | 3,942,000
|                                                             |                                                                  |                    |  |              |           |  |           |  |   |            |  |   |          

See accompanying notes to consolidated financial statements.

F-6

---

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES    CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                            |                                                             | Years Ended December 31, |                                          
|--------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------ | -----------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |                                                             |                          |                                          
|Net loss                                                                    |                                                             | $                        | (10,054,000                              
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                             |                          |                                          
|                                                                            | Depreciation                                                |                          |                                          
|                                                                            | Loss on disposition of fixed assets                         |                          |                                          
|                                                                            | Amortization of film inventory                              |                          |                                          
|                                                                            | Amortization of goodwill, trademark, copyrights and other   |                          |                                          
|                                                                            | Loss on sale of marketable securities                       |                          |                                          
|                                                                            | Stock based compensation                                    |                          |                                          
|                                                                            | Premium on derivative financial instruments, net            |                          |                                          
|Changes in operating assets and liabilities:                                |                                                             |                          |                                          
|                                                                            | Marketable securities                                       |                          |                                          
|                                                                            | Accounts receivable, net                                    |                          |                                          
|                                                                            | Prepaid expenses and other assets                           |                          |                                          
|                                                                            | Income taxes receivable, net of income taxes payable        |                          |                                          
|                                                                            | Investment in film inventory                                |                          |                                          
|                                                                            | Accounts payable and accrued expenses                       |                          |                                          
|                                                                            | Accrued marketing expense                                   |                          |                                          
|                                                                            | Participations payable                                      |                          |                                          
|                                                                            | Deferred revenue                                            |                          |                                          
|                                                                            |                                                             |                          |                                          
|                                                                            |                                                             |                          | Net cash used in operating activities    
|                                                                            |                                                             |                          |                                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |                                                             |                          |                                          
|                                                                            | Sale of marketable securities                               |                          |                                          
|                                                                            | Purchase of property and equipment                          |                          |                                          
|                                                                            | Purchase of PM Entertainment Group, Inc.                    |                          |                                          
|                                                                            | Investments in trademarks and copyrights                    |                          |                                          
|                                                                            |                                                             |                          |                                          
|                                                                            |                                                             |                          | Net cash used in investing activities    
|                                                                            |                                                             |                          |                                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |                                                             |                          |                                          
|                                                                            | Proceeds from bank loans, net                               |                          |                                          
|                                                                            | Repayment on notes payable                                  |                          |                                          
|                                                                            | Repayment on line of credit, net                            |                          |                                          
|                                                                            | Proceeds from issuance of convertible preferred stock, net  |                          |                                          
|                                                                            | Proceeds from sale of derivative financial instruments, net |                          |                                          
|                                                                            |                                                             |                          |                                          
|                                                                            |                                                             |                          | Net cash provided by financing activities
|                                                                            |                                                             |                          |                                          
|NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                        |                                                             |                          | (4,237,000                               
|CASH AND CASH EQUIVALENTS, Beginning of year                                |                                                             |                          | 5,825,000                                
|                                                                            |                                                             |                          |                                          
|CASH AND CASH EQUIVALENTS, End of year                                      |                                                             | $                        | 1,588,000                                
|                                                                            |                                                             |                          |                                          

See
accompanying notes to consolidated financial statements.

(Continued)

F-7

---

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                  |              | Years Ended December 31, |  
|------------------------------------------------- | ------------ | ------------------------ | -
|
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |              |                          |  
|Cash paid during the year for:                    |              |                          |  
|                                                  | Interest     |                          | $
|                                                  | Income taxes |                          | $

NON-CASH FINANCING ACTIVITY:

See
Notes 2, 3 and 8 for disclosure of non-cash financing activity.

F-8

---



THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    YEARS ENDED DECEMBER 31, 2000 AND 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Background and OperationsThe Harvey Entertainment Company ("Harvey" or the "Company") is
incorporated in the state of California and is primarily engaged in the exploitation of motion picture product and related intellectual property. Harvey is the successor to Harvey Comics, Inc.
which was founded in 1939 by the Harvey family. In 1989, Harvey's predecessor purchased Harvey Comics, Inc. to exploit its intellectual property related to the well know characters Casper the Friendly Ghost, Richie Rich,
Baby Huey, Wendy the Good Little Witch, andHot Stuff. In 1993,
the Company completed its initial public offering of common stock. In April 2000, the Company acquired Pepin/Merhi Entertainment Group, Inc. ("PM Entertainment"), a producer and
distributor of motion picture product (see Note 3).

Going ConcernThe accompanying financial statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. During 2000, the Company incurred significant losses and negative cash flows and has no remaining borrowing
capacity with its current lenders. At December 31, 2000, the Company is in default under the terms of certain notes payable agreements. Consequently, the Company needs to obtain additional
sources of financing in order to fund the ongoing operations of the business until the Company is profitable. The Company has commenced discussions on obtaining a new credit facility to provide some
working capital for ongoing operations. As discussed in Note 16, the Company has entered into an agreement with Classic Media, LLC, which contemplates that the Company will receive
$16 million cash in exchange for certain assets, properties and rights relating to Harvey's library of classic characters. Completion of this transaction is contingent upon occurrence of
certain events, including the receipt of consents from various entities with whom the Company does business. There is no assurance that this transaction will be completed. Substantial doubt exists as
to the Company's ability to continue as a going concern for a reasonable period of time.

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.

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 InventoryThe Company accounts for film costs in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 53, "Financial Reporting by Producers and Distributors of Motion Picture Films". Film inventory is stated at the lower of cost less accumulated amortization or estimated net realizable
value. Film inventory which consists of direct production costs, exploitation costs, production overhead and capitalized interest is amortized using the individual film forecast method. The individual
film forecast method amortizes film inventory in the ratio that the current period's gross revenue bears to the total estimated gross revenues to be derived from all sources. Such estimates are
revised periodically, and estimated losses, if any, are provided for in full at the time determined.

F-9

---

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 Harvey Comics, Inc. and PM Entertainment over
the estimated fair value of net assets acquired. Goodwill is being amortized on a straight-line basis over twenty years for Harvey Comics, Inc, and over ten years for PM Entertainment.

Trademarks and CopyrightsTrademarks and copyrights represent cost incurred to register intellectual property owned by the
Company and are amortized on a straight-line basis over twenty years.

Long-Lived AssetsThe Company reviews its long-lived and intangible assets for impairment whenever
events or circumstances indicate that the carrying amount of such assets may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result
from the use of the asset and its eventual disposition is less than its carrying amount. If such assets are considered impaired, the amount of the impairment loss recognized is measured as the amount
by which the carrying value of the asset exceeds the fair value of the asset, fair value being determined based upon discounted cash flows or appraised values, depending on the nature of the asset.
The Company has identified no such impairment losses.

Revenue Recognition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 conditions have been met. 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 and merchandising industries.

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 FASB Interpretation ("FIN") No. 28 "Accounting for Stock Appreciation Rights and
Other Variable Stock Option Award Plans an Interpretation of APB Opinions No. 15 and 25" and complies with the disclosure requirements of Statement of Financial

F-10

---

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."

In
March 2000, the Financial Accounting Standards Board issued FIN No. 44 "Accounting for Certain Transactions involving Stock Compensation." FIN No. 44 provides
guidance for issues arising in applying APB No. 25. FIN No. 44 applies specifically to new awards, exchanges of awards in a business combination, modification to outstanding awards, and
changes in grantee status that occur on or after July 1, 2000, except for the provisions related to repricing and the definition of an employee which apply to awards issued after
December 15, 1998. The Company's financial statements have been prepared under the guidance provided by FIN No. 44.

Comprehensive IncomeThe Company accounts for comprehensive income in accordance with SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes
in equity during a period from non-owner sources.

Net Loss Per ShareBasic and diluted net loss per share is computed by dividing the net loss applicable to common
stockholders by the weighted average number of shares of common stock and common equivalent shares outstanding. 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 1999, the Company entered into derivative financial instrument contracts for the purpose of
minimizing risk associated with changes in the market value of the Company's investment in common stock of The Kushner-Locke Company ("Kushner-Locke") (the "Hedged Security") that could adversely
affect its results of operations and financial position if un-hedged. The Company does not use derivative financial instruments for trading or speculative purposes.

Gains
or losses on these derivative financial instruments are offset against the unrealized gains and losses associated with this Hedged Security. At December 31, 1999, all
derivative financial instrument contracts entered into by the Company had expired.

The
Company's other 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."

ReclassificationsCertain reclassifications have been made to the 1999 consolidated financial statements to conform with
the current year's presentation.

New Accounting Guidance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 will now be
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 the 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

F-11

---

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. Management does not expect the impact of adopting SFAS No. 133 on the Company's financial statements to be
significant.

In
December 1999, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). The Company's
financial statements have been prepared under the guidance provided by SAB 101.

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", which replaces SFAS No. 53, is effective for the Company's fiscal year beginning January 1, 2001. This Statement of Position
establishes new film accounting standards, including changes in revenue recognition and accounting for advertising, development and overhead costs. Under the new standard, all exploitation costs such
as advertising expenses and marketing costs for theatrical and television products will be expensed as incurred, whereas under the existing standards, these costs are capitalized and amortized over
the products' lifetime revenues. In addition, the new standard requires that development costs for abandoned projects be charged directly to expense instead of those costs being capitalized to film
costs, which is what the current guidance prescribes. Management estimates the cumulative charge for the change in accounting principle, to be accounted for upon adoption of SOP 00-2 in
the current fiscal quarter ended March 31 2001, will be in the range of $1,000,000 to $2,000,000.

2. 1999 REFINANCING

In April 1999, the Company entered into a Stock Purchase Agreement by and among the Company, certain investors, and Kushner-Locke pursuant to which the
Company agreed to issue 170,000 shares of its Series A Convertible Preferred Stock, stated value of $100 per share ("Series A Preferred Stock"), and warrants to purchase 1,200,000 shares
of the Company's common stock ("Investor Warrants") in consideration of cash and common stock of Kushner-Locke (the "1999 Refinancing"). In addition, as a result of the 1999 Refinancing being
oversubscribed and the desire of the Company to realize the potential benefits of additional capital, in June 1999 the Company issued a convertible subordinated note (the "Note") in the amount
of approximately $2,049,000. In September 1999, the Note was converted into 20,488 shares of Series A Preferred Stock. In connection with the conversion of the Note, the Company granted
the investor 144,618 warrants to purchase common stock ("Investor Warrants"). The total cash consideration received in the 1999 Refinancing and issuance of the Note was approximately $11,644,000, net
of transaction fees and expenses of approximately $1,905,000.

3. 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, 363,000 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 acquired net assets with a fair value of $6,100,000. Goodwill of $4,118,000 is
being amortized on a straight line basis over a period of 10 years.

The
unaudited condensed pro forma results of operations below assume the PM Entertainment acquisition occurred at the beginning of the earliest period presented and were prepared
based upon the historical consolidated statements of operations of the Company and PM Entertainment for the year ended December 31, 2000 and 1999, adjusted to reflect purchase accounting
adjustments. The

F-12

---

unaudited pro forma information is not necessarily indicative of the combined results of operation of the Company and PM Entertainment that would have resulted if the transactions had occurred on the
dates previously indicated, nor is it necessarily indicative of future operating results of the Company.

Pro Forma Statement of Operations (unaudited)

Years Ended December 31,2000

1999Revenues

$
25,584,000

$
31,230,000Net loss per share applicable to common stockholders


12,213,000


12,470,000Basic and diluted

$
2.74

$
2.98


4. 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. As at December 31, 2000, the market value of such shares is approximately $26,000. A loss on impairment of marketable securities of
$474,000 was realized, as the impairment to the value of Tutornet shares is not temporary.

In
connection with the 1999 Refinancing, the Company received approximately 470,000 common shares of Kushner-Locke with a fair value of $6,226,000. As of December 31, 1999, the
market value of such shares was approximately $2,037,000. At December 31, 1999 as the Company was holding the Kushner-Locke shares as available-for-sale securities, in
accordance with SFAS No. 115, the unrealized loss from this investment was recorded as a component of accumulated comprehensive loss. During the year ended December 31, 1999, the Company
engaged in derivative transactions to hedge changes in the market value of the Kushner-Locke stock. As a result of these transactions, the Company recorded, as other comprehensive income, a gain on
derivatives instruments of $1,152,000 to partially offset the unrealized holding losses incurred during the year. During 2000, the Kushner-Locke shares were sold and a loss on the sale of securities
of $3,989,000 was realized.

5. FILM INVENTORY

Film inventory consists of the following at December 31, 2000 and 1999:

2000

1999Films released, net of accumulated amortization

$
16,034,000

$
8,641,000Films in development


1,919,000


757,000Total film inventory

$
17,953,000

$
9,398,000


Interest
costs capitalized to film inventory were $65,000 for the years ended December 31, 2000 and 1999, respectively.

F-13

---

6. PROPERTY AND EQUIPMENT

Property and equipment are comprised of the following at December 31, 2000 and 1999.

2000

1999Furniture, fixtures, equipment and post production equipment

$
1,296,000

$
758,000Leasehold improvements


597,000


429,0001,893,000


1,187,000Less accumulated depreciation


(1,045,000
)

(755,000
)$
848,000

$
432,000


7. INCOME TAX

The provision for income taxes for the years ended December 31, 2000 and 1999 consist of the following:

2000

1999Current

$
(4,000
)
$
(3,000
)Deferred


3,481,000


2,595,000Valuation allowance


(3,481,000
)

(2,595,000
)Provision for income taxes

$
(4,000
)
$
(3,000
)




2000

1999Provision computed at the statutory rate

$
3,217,000

$
2,909,000Change in valuation allowance


(3,481,000
)

(2,595,000
)Other


260,000


(317,000
)Provision for income taxes

$
(4,000
)
$
(3,000
)


F-14

---

The
following are the components of the Company's deferred tax assets and (liabilities) at December 31, 2000 and 1999:

2000

1999Federal net operating loss carryforward

$
5,057,000

$
3,304,000State net operating loss carryforward


858,000


416,000Accounts receivable


753,000


124,000Equity based charges


457,000


427,000Capital loss carryforward


2,124,000


Deferred revenue





169,000Film inventory


1,466,000


Other





374,000Total deferred tax asset


10,715,000


4,814,000Film inventory





(432,000
)Film rights


(1,687,000
)

Deferred state taxes


(542,000
)

Total deferred tax liability


(2,229,000
)

(432,000
)Valuation allowance


(8,486,000
)

(4,382,000
)Net deferred tax asset/(liability)

$


$



At
December 31, 2000, the Company has a net operating loss carryforward of $14,872,000 and $9,697,000 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, 2000, realizable income tax benefits
from the Company's cumulative tax losses have been reported as an income tax receivable of $540,000 (1999, $540,000).

8. 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 are limited to $15,000,000 until additional participant
lenders are added to the Facility, at which time the borrowings available will be increased, up to a maximum of $25,000,000. Borrowings under the Facility are determined under a borrowing base
calculation, which includes certain allowable accounts receivable, film and intellectual property rights, and are collateralized by substantially all of the assets of the Company. At
December 31, 2000 the Company's obligation under the Facility was $13,982,000. Interest is payable on the outstanding borrowings under the Facility at the rate of either 1.5% per annum above
the prime rate (as defined in the Facility) or 2.5% per annum above the London Interbank Offered Rate, at the Company's election. A commitment fee of 0.5% per annum is payable quarterly on the unused
portion of the $15,000,000 commitment. The Company is not in compliance with certain warranties and covenants of the Facility. The Bank has issued waivers of all non-compliance and
resulting events of default. The waivers terminate upon the earliest of June 30, 2001, termination of the asset purchase agreement with Classic Media, LLC (Note 16) or failure of the
Company to repay in full all the obligations outstanding under the Facility at the date of the closing of the transaction contemplated by the asset purchase agreement.

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 is payable
on the notes at a rate of 10% per annum. At December 31, 2000, the Company's obligation under these notes

F-15

---

payable was $1,600,000. At December 31, 2000, the Company was not in compliance with the payment terms of the notes.

In
connection with the acquisition of PM Entertainment, the Company purchased from Imperial Bank a loan receivable, collateralized by the rights to exploit a motion picture. In
consideration for acquiring
this loan receivable, the Company paid Imperial Bank $2,000,000 and issued the bank a promissory note in the amount of approximately $4,800,000 pursuant to a Loan and Security Agreement. Interest in
the loan, which expires in December 31, 2001, is payable at the prime rate. At December 31, 2000 the Company's obligation under the promissory note was $3,781,000. In
January 2001, Imperial Bank gave notice of an event of default, as defined in the Loan and Security Agreement, caused by a deterioration in the Company's financial position. The Company has
demanded the notice of the event of default be withdrawn based on the Company entering into an asset purchase agreement with Classic Media, LLC (Note 16).

During
fiscal year 2000, the Company entered into loan agreements with The Lewis Horwitz Organization to finance production of two motion pictures. These loans, which were repaid in
full in February 2001, are collateralized by the revenues generated by the exploitation of these motion pictures. Interest is payable on the loans as a rate of 1.5% per annum above the prime
rate. At December 31, 2000, the Company's obligation under these loan agreements was $603,000.

9. TEMPORARY EQUITY

In April 1993, the Company authorized 3,000,000 shares of convertible preferred stock and in April and September 1999 designated 300,000 shares
as Series A Preferred Stock. As stated in Note 2, the Company issued 190,000 shares of Series A Preferred Stock as part of the 1999 Refinancing.

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 Convertible Preferred Stock. As described more fully in Note 10,
Series B Preferred Stock has substantially similar characteristics to those of Series A Preferred Stock, but is classified as permanent equity. In May 2000, 84,600 shares of
Series A Preferred Stock were exchanged for an equivalent number of shares of Series B Preferred Stock.

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 matter, including the
election of the other Company directors holders of the Series A Preferred Stock vote (on as-coverted 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 $7 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 2000, the Company has settled

F-16

---

dividend obligations with respect to its Series A Preferred Stock by issuing of 9,791 (1999, 8,664) 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 $100 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,
Series A Preferred Stock may be redeemed by the Company at its liquidation amount 5 years following the date the shares were issued.

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 $100 per share. The initial Conversion Price of Series A Preferred Stock is $6.75 and is subject to adjustment in accordance with
anti-dilution provisions contained in the
Company's Articles of Incorporation. At December 31, 2000, the Series A Preferred Stock is convertible into 1,842,000 shares of the Company's common stock.

10. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

In May 2000, the Company designated 300,000 shares of authorized Preferred Stock as Series B Preferred Stock. As described in Note 9, the
Company issued 84,600 shares of Series B Preferred Stock in exchange for an equivalent numbers 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 9 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,
2000, the Series B Preferred Stock is convertible into 1,320,000 shares of the Company's common stock. During 2000, the Company has settled dividend obligations with respect to its
Series B Preferred Stock by issuing of 4,519 shares of additional Series B Preferred Stock.

Common Stock

As stated in Note 3, in April 2000, the Company issued 363,000 shares of common stock in partial consideration for the acquisition of PM
Entertainment.

Warrants

As partial consideration for entering into a revolving credit facility, the Company granted a bank warrants to purchase 126,000 shares of common stock at $6.75
per share. 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 has 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
stated in Note 2, as part of the 1999 Refinancing, the Company granted warrants to purchase 1,344,618 shares of common stock at prices ranging between $9 to $12 per share.
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.

F-17

---

During fiscal year 1999, the Company granted warrants to non-employees in consideration for services rendered. These warrants, to purchase 25,000 shares of common stock,
are fully vested, exercisable at prices ranging from $6.69 to $12.00 and expire six to ten years from their issuance date. During fiscal year 1999, the Company recorded stock-based compensation
relating to these warrants of $108,000.

At
December 31, 1999, warrants to purchase 352,000 shares of the Company's common stock, granted to various parties prior to fiscal year 1999, remain unexercised. These
warrants, exercisable at price ranges from $10.00 to $13.48, are fully vested and expire on various dates through March 2003.

11. COMMITMENTS AND CONTINGENCIES

LeasesThe Company leases office space, automobiles and office equipment under operating leases
expiring through 2006. Future minimum lease payments due under non-cancelable operating leases at December 31, 2000 are as follows:

2001

$
1,296,0002002


792,0002003


653,0002004


544,0002005


389,000Thereafter


400,000Total minimum lease payments

$
4,074,000


The
Company has entered into certain sublease arrangements for leased office space no longer occupied. The terms of the subleases expire on various dates through October 2001.

Rent
expense charged to operations in 2000 was $1,207,000 (1999, $769,000). Rent income from sublease arrangements in 2000 was $491,000 (1999, $336,000). Future minimum rental income
under sublease arrangements is $266,000 for the fiscal year 2001.

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.

12. EMPLOYEE BENEFIT 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 1,050,000 shares were reserved under the Plans, of which 53,000 shares were available for future grant at December 31,
2000.

As
a result of the 1999 Refinancing (Note 2), the Company granted options, not covered by the Plans described above, to purchase 1,344,618 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 $9 to $12 per share and
expire six to eight years from their issuance date.

F-18

---

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, 2000
and 1999:

Number of
Shares

Weighted Average
Price
Per ShareBalance, December 31, 1998

398,000

$
10.00Granted

1,590,000


9.99Canceled

(38,000
)

10.73Balance, December 31, 1999

1,950,000

$
9.99Granted

137,000


5.81Canceled

(326,000
)

8.88Balance, December 31, 2000

1,761,000

$
9.87Exercisable as of December 31, 2000

1,555,000

$
9.98


The
following summarizes pricing and term information for options issued to employees and directors which are outstanding as of December 31, 2000:

|  |             | Options Outstanding |           | Options Exercisable
|- | ----------- | ------------------- | --------- | -------------------
|
|$ | 4.50 5.00  |                     | 66,000    |                    
|  | 6.69        |                     | 50,000    |                    
|  | 6.75 7.25  |                     | 228,000   |                    
|  | 8.81 9.00  |                     | 451,000   |                    
|  | 9.50        |                     | 10,000    |                    
|  | 10.50       |                     | 20,000    |                    
|  | 11.0012.69 |                     | 936,000   |                    
|  |             |                     |           |                    
|$ | 4.5012.69  |                     | 1,761,000 |                    
|  |             |                     |           |                    

The
Company has adopted the disclosure-only provision of SFAS No. 123. The estimated fair value of options granted during 2000 and 1999 pursuant to SFAS
No. 123 was approximately $274,000 and $6,560,000, respectively. Had the Company adopted SFAS No. 123, pro forma net loss would have been $(12,342,000) and $(16,515,000) and pro forma
basic diluted net loss per share would have been $(2.77) and $(3.21) for 2000 and 1999, respectively. The fair value of each option grant was estimated using the Black-Scholes option-pricing model
with the following weighted average assumptions: dividend yield of zero, a risk-free interest rate of 5.16% to 6.44%, a volatility of 70% and expected lives of three years.

The
Company's profit-sharing plans cover substantially all employees with more than one year of service with the Company. Contributions under the profit-sharing plan are at the
discretion of the Company and are limited to 15% of eligible employee compensation. The Company made no contributions to this plan in either 2000 or 1999. Subsequent to December 31, 2000 the
profit-sharing plans were terminated.

F-19

---

13. EARNINGS PER SHARE

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

Year Ended December 31,2000

1999Weighted average common stock equivalents:Series A Preferred Stock

1,842,000

2,950,000Series B Preferred Stock

1,320,000

Stock options

1,527,000

1,480,000Warrants

1,791,000

1,360,000


14. GEOGRAPHIC INFORMATION

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

Worldwide
sales by geographic area for the years ended December 31, 2000 and 1999 are as follows:

2000

1999U.S./Canada

$
7,650,000

$
860,000Asia


3,114,000


274,000Europe


6,431,000


117,000Other


2,128,000


287,000$
19,323,000

$
1,538,000


At
December 31, 2000, the amount owing from one customer approximated 16% of the total accounts receivable.

15. RELATED PARTIES

In connection with the 1999 Refinancing, Prudential Securities Inc. received fees of approximately $450,000 for advisory services rendered. A Director
of the Company was a Managing Director of Prudential Securities Inc. at the time of the 1999 Refinancing.

In
April 2000, the Company entered into a 2-year lease agreement with an entity owned by stockholders of the Company. The lease is classified as an operating lease.
Rent expense under the operating lease in 2000 was $450,000.

As
described in Note 8, the Company has subordinated notes payable to stockholders of the Company of $1,600,000 at December 31, 2000, including $133,000 of interest
accrued and $51,000 of interest paid during the year ended December 31, 2000.

16. SUBSEQUENT EVENTS (UNAUDITED)

In March 2001, the Company signed an Asset Purchase and Sale Agreement with Classic Media, LLC for the sale of certain assets, properties and rights
owned by the Company. The assets, properties and rights sold include Harvey's library of classic characters and certain contractual rights and agreements which relate to those assets. The purchase
price of $16,000,000 plus the assumption of certain liabilities will be paid in cash at closing, which is expected to occur within sixty to ninety days from signing of the agreement and after the
receipt of a shareholder vote and satisfaction of other customary closing conditions.

F-20

---

In February 2001, the Company signed a 2-year exclusive agreement with Cinetel Films, Inc. for Cinetel's engagement as sales agent for motion pictures in
foreign territories.

F-21

---

QuickLinks