<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, 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, 1999

              [ ]    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               (IRS Employer Incorporation or
          of Organization)                            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: $1,538,000

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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 31, 2000, a date within the past
60 days, is: $17,461,415.

State the number of shares outstanding of each of issuer's classes of common
equity, as of March 31, 2000: 4,186,941.

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

DOCUMENTS INCORPORATED BY REFERENCE

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


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                           FORWARD-LOOKING STATEMENTS

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

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

o    our potential need for additional financing,
o    our ability to successfully integrate the operations of PM Entertainment
     Group with those of the Company,
o    our ability to successfully implement our business strategy,
o    our ability to increase the level of media exposure or popularity of our
     characters, resulting in increased revenues from products based on those
     characters,
o    the lack of consumer acceptance of new product introductions,
o    changing consumer preferences,
o    the impact of competition and changes to the competitive environment on our
     products and services, and
o    other factors detailed from time to time in our filings with the Securities
     and Exchange Commission.

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


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                                     PART I

ITEM 1.   BUSINESS

                                  INTRODUCTION

GENERAL

     The Harvey Entertainment Company, together with its subsidiaries Harvey
Comics, Inc., Baby Huey Productions, Inc. and Inferno Acquisition Corporation
(the "Company") owns and exploits a library of widely recognized classic
characters (the "Harvey Classic Characters") and other intellectual property
assets, including a related film library of animated short features (the "Harvey
Classic Library"). The roster of Harvey Classic Characters includes the
following well-known characters:

                       o    Casper, the Friendly Ghost
                       o    Richie Rich
                       o    Baby Huey
                       o    Wendy, the Good Little Witch
                       o    the Ghostly Trio (Fatso, Stinkie and Stretch)
                       o    Hot Stuff

as well as Little Audrey, Little Lotta, Little Dot, Bunny, Herman and Katnip,
Stumbo the Giant and Buzzy the Funny Crow among 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 PM
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 will be consolidated with those of the
Company from the closing date of the acquisition forward. Unless expressly
stated herein, references to the Company do not include the operations or
financial results of PM Entertainment.

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.

     In 1990, the Company sold an approximately 20% equity share to an affiliate
of Universal Studios, Inc. ("Universal") and entered into a merchandising and
distribution agreement with Universal. In 1993, the Company completed its
initial public offering of common stock. In 1994



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and 1995, two motion pictures licensed by the Company were released by major
studios featuring Harvey Classic Characters - Richie Rich (Warner Brothers) and
Casper (Universal). In 1996, the weekly animated television series "Casper"
premiered on Fox Kid's Network produced in conjunction with Universal Cartoon
Studios (52 episodes produced during two seasons). In 1996 and 1997, the Company
contracted with Saban Entertainment to produce two direct-to-video live action
full-length "Casper" films and one direct-to-video live action full-length
"Richie Rich" film.

     In addition, in order to exert more direct control over its character
rights and merchandising activities, the Company reacquired from Universal
control of substantially all merchandising and film rights, except certain of
those relating to a Casper or Casper character motion picture produced or
released by Universal, as further described below. 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 merchandising related to any Casper film
produced by Universal.

     In 1997, the Company also terminated a license agreement with Marvel Comics
and reacquired the right to publish, distribute and license comic books based
upon the Harvey Classic Characters. From 1998 through August 1999, the Fox
Family Channel ran a daily program entitled "Harvey Toons." In 1999, the Company
also released its direct-to-video live action feature "Baby Huey's Great Easter
Adventure" through Columbia-TriStar Home Video.

                               RECENT DEVELOPMENTS

EQUITY INFUSION

     In September 1998, the Company's board of directors engaged the
investment-banking firm of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") as a financial advisor to the Company. DLJ agreed to assist the Company
to evaluate and pursue strategic alternatives intended to maximize shareholder
value. Such alternatives included the sale, merger, consolidation or
recapitalization of the Company.

     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 $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. As part
of the 1999 Refinancing, a new permanent management team took control of the
Company. See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

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CHANGE IN MANAGEMENT

     From March 23, 1998 until April 26, 1999 the Company was managed by Global
Media Management Group, LLC ("Global Media"). Through a management services
agreement with Global Media, the Company's Board retained the non-exclusive
services of Anthony J. Scotti as the Company's Interim Chief Executive Officer
and Interim President, and Michael S. Hope as the Company's Interim Chief
Financial Officer. 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.

     In April 1999, Roger A. Burlage and Michael R. Burns joined the Company's
Board. Meyer Gottlieb was named to the Board in June 1999.

STRATEGIC ACQUISITION

     As noted above, on September 24, 1999, the Company signed a letter of
intent for the acquisition 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
PM Entertainment acquisition closed effective as of April 3, 2000. The purchase
price consisted of $10,000,000, $6,500,000 of which was paid in cash at closing
and the balance provided through the issuance by the Company of: (1) $1,450,000
in shares of the Company's common stock and (2) a $2,050,000 subordinated note
to be paid over five future quarterly periods. 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. No
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, 1999 and 1998. 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 new 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 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. 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.


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                                    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 will allow the Company to broaden
its expansion into other entertainment industry markets. While the operations of
PM Entertainment are new to the Company, the new management team has significant
experience in the Company's expanded areas of entertainment activities.

FILMED ENTERTAINMENT

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

DIRECT-TO-VIDEO (HOME VIDEO)

     Direct-to-video productions are feature films released on video without a
prior theatrical release. In 1996 and 1997, the Company contracted with Saban
Entertainment ("Saban") to produce two direct-to-video live action full-length
films featuring Casper and one direct-to-video live action full-length film
featuring Richie Rich. During those years, the Company derived a substantial
portion of its revenues from its direct-to-video licensing. While the Company in
past years has co-produced direct-to-video product through agreements with third
parties who bear the economic risks of production, the Company's new business
plan is to produce and market direct-to-video products itself in order to
capture a greater share of the potential profits of such products. However, in
this regard, the Company is also assuming greater risk if the product ultimately
is unsuccessful.

     "CASPER'S HAUNTED CHRISTMAS"

     In December 1999, the Company began production of a new direct-to-video
animated computer generated full-length feature film featuring Casper. The
anticipated home video release date is presently scheduled for November 2000.
The Company is co-producing 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.

     "BABY HUEY'S GREAT EASTER ADVENTURE"

     In November 1998, the Company's prior management completed production of a
direct-to-video, live-action, full-length musical comedy film, "Baby Huey's
Great Easter Adventure." The video was released through Columbia-TriStar Home
Video in March 1999 to disappointing results and, based on preliminary estimates
of the ultimate profitability of the title, the Company recorded losses of
$3,000,000 and $250,000 in the fourth quarter of 1998 and first quarter of 1999,

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respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

     "RICHIE RICH'S CHRISTMAS WISH"

     In November 1998 the Company released, through Warner Home Video, "Richie
Rich's Christmas Wish," a feature-length live-action direct-to-video feature
film based on the Harvey Classic Character Richie Rich. The Company co-produced
the film with Saban Entertainment Inc. ("Saban"). Warner Home Video served as
the exclusive worldwide home video distributor and Saban is responsible for
worldwide ancillary sales such as television, cable, and pay-per-view. In
addition, Saban retained distribution rights for the film in perpetuity.

     The co-production agreement for "Richie Rich's Christmas Wish" required
Saban to bear production, manufacturing and marketing expenses, and allows the
Company to share in net profits, if any, after Saban first recovers its
marketing, production and distribution costs plus a distribution fee. The
Company recognized a nonrefundable advance from Saban in 1997, but to date, the
Company has not received any revenues from it share of net profits.

     "CASPER MEETS WENDY"

     In September 1998, the Company released, through Twentieth Century Fox Home
Entertainment, "Casper Meets Wendy," a feature length, live-action,
direct-to-video film, based on the Company's Casper and Wendy the Witch
characters. The Company co-produced the film with Saban, who licensed the
distribution rights for a fifteen year period. Twentieth Century Fox Home
Entertainment is serving as the exclusive worldwide home video distributor and
Saban is handling worldwide ancillary sales including broadcast television,
cable and pay-per-view.

     As with "Richie Rich's Christmas Wish," the production agreement for
"Casper Meets Wendy" required Saban to bear production, marketing and
distribution expenses, and allows the Company to share in the net profits, if
any, after Saban first recovers its costs plus a distribution fee. The Company
recognized a nonrefundable advance from Saban in 1997, but to date has not
received any revenues from its share of net profits.

     "CASPER, A SPIRITED BEGINNING"

     In September 1997, the Company released, through Twentieth Century Fox Home
Entertainment, its first direct-to-video feature, "Casper, a Spirited
Beginning," a co-production with Saban. The Company received a nonrefundable
advance from Saban in 1996, and Saban obtained distribution rights in this
project for a seven year period.

     The production agreement for "Casper, A Spirited Beginning" required Saban
to bear production, marketing and distribution expenses and allows the Company
to share in the net profits, if any, after Saban first recovers its costs. This
agreement did not provide for Saban to receive any distribution fees. In 1997,
based on shipments of videocassettes to date and the resultant lifetime
profitability of the title, the Company recorded approximately $4,000,000 as its
share of the net profits. Reports which the Company received from Saban during
1998 stated that


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Saban had experienced a higher than expected return rate and had yet to recoup
its costs and that the title may not generate net profits. As a result, in 1998
the Company reversed the amount of net profits which it had previously
recognized in 1997 (which reversal includes a $1,675,000 loss on the title that
was recorded in the fourth quarter of 1998). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company has
exercised its right to audit the books and records of Saban to review the
accuracy of the reports which it has received. Pending the final outcome of the
audit, the Company will not recognize any additional revenues from this title
until such revenues appear certain.

FEATURE MOTION PICTURES

     Through its newly acquired subsidiary PM Entertainment, the Company will be
expanding its operations into the lower budgeted feature film 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, and its operating
facilities, which comprise post production and sound stage locations. Financing
of the productions will be done through the Company's new credit facility and
supported by presales of certain distribution rights in the international and
domestic markets.

TELEVISION

     HARVEY CLASSIC LIBRARY

     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 are shown publicly utilizing the original music score. 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 foreign musical scores were created for which the
Company owns all rights and interest.


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     FOREIGN SALES

     In March 1998, the Company hired a foreign distribution consultant based in
London to assist with and oversee foreign sales of the Harvey Classic Library.
The consulting agreement expired in February 1999 and the Company has not
renewed it. Currently, the Company is establishing an in-house foreign sales
staff to oversee the marketing and licensing of its product into the
international markets. The acquisition of PM Entertainment will also provide the
Company with an established international sales infrastructure that will be used
to distribute the Company's product in foreign markets.

     TELEVISION PRODUCTION

     From 1995 to 1997, the Universal/Harvey Animation Studios, a joint venture
of the Company and Universal, produced a total of 52 new half-hour television
episodes of the animated series "Casper, the Friendly Ghost" which currently
airs in more than 50 countries around the world. In 1996 the series premiered on
the Fox Kids Network. For each episode produced, the Company received a fixed
license fee and is entitled to share in a percentage of the profits, if any. The
Company controls the merchandising rights associated with the new animated
episodes. There are no current plans to produce additional animated television
episodes of "Casper, the Friendly Ghost."

     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." The
Company and Studio B will share certain of the production costs, territorial
distribution, and net profits, as defined in the agreement.

THEATRICAL LICENSING

     In November 1999, the Company entered negotiations on a development
agreement with Metro-Goldwyn-Mayer Pictures Inc. ("MGM"), whereby the Company is
licensing the theatrical and certain ancillary and movie merchandising rights to
MGM related to the Company's character "Bunny." Should MGM produce and release
the theatrical motion picture the Company will receive an advance license fee
and participate in certain profits of the motion picture and related revenues.
There can be no assurance that MGM will produce the motion picture or that the
Company will receive any future revenues from this agreement.

     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.



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     To date, "Casper" and "Richie Rich" 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 and 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.

     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. On February
17, 1999, Universal advised the Company that it had not met either condition but
that it was reviewing a script for potential approval. In the event of such
approval, Universal would likely request an extension from the February 15
notice date once such approval was received to trigger a period of certain
exclusive rights in favor of Universal. There can be no assurance that Universal
will actually request such extension or produce or release a Casper feature film
in 2000 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. The Company is
currently in development on a new feature film based on this character.


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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 trademark characters in all areas of entertainment including
new technologies, television animation production and distribution, publishing,
licensing and merchandising worldwide.

     In May 1997, the Company reacquired from Universal control of all
merchandising rights (except those relating to a Casper or Casper character
motion picture produced or released by Universal) and rights of first
negotiation/first refusal and first negotiation for the merchandising use of the
Harvey Classic Characters (other than certain limited rights to Casper, Casper
characters and new characters appearing in the Casper movie) in partial
consideration for the Company providing Universal an exclusive release window
for the first sequel to the Casper movie, a first negotiation/first refusal
right with respect to the first direct-to-video production featuring Casper
after the release of any Casper sequel, and the right to exploit related
merchandising.

     In October 1996, the Company established an in-house consumer products
department to manage its reacquired merchandising rights. Since that time the
Company has focused on increasing its merchandising revenues. However, the level
of merchandising activities is dependent, in part, on the level of product
releases and has, resultantly, been minimal for the 1998 and 1999 years as a
result of the lack of entertainment product. The Company cannot ascertain at
this time whether its merchandising strategy will ultimately be successful.

PUBLISHING

     In November 1998, prior management launched Harvey, the Magazine for
Kids(C), a monthly magazine targeted for children four to ten years of age, with
an initial print run of 200,000. Warner Publisher Services and Diamond Comic
Distributors, Inc. domestically distributed the magazine. As a result of new
management's decision to focus on the Company's core entertainment business
operations, the publication of the magazine ceased with the July 1999 issue.

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


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that Landmark will develop the theme parks or that the Company will receive any
future revenues from this agreement.

     In 1995 the Company entered into a licensing agreement with an Indonesian
company for the construction of a 50,000 square-foot family entertainment center
based on the Harvey Classic Characters and featuring Harvey character rides and
merchandising areas. The facility opened in the largest shopping mall in
Jakarta, Indonesia, on November 1, 1997. The Company recognized a license fee
for the initial term, payable in six annual installments, and is entitled to a
portion of the licensee's merchandising revenue. The licensee is in default on
its payments and the Company is unable to predict what effect the current
political and economic turmoil in Indonesia will have on receipts, if any, from
the licensing agreement.

INTERNET ACTIVITIES

     The Company has recently developed an online presence for the Company's
events, characters, products and strategic alliances through the Company's
"Harvey.com" website. In addition, as highlighted below, the Company is actively
pursuing increasing its exposure and operating opportunities through a variety
of Internet related activities.

     The Company entered into an animation licensing agreement in March 2000
with LearningSoft Corporation ("LearningSoft") whereby the Company licensed the
rights to the Company's characters "Casper", "The Ghostly Trio", "Richie Rich"
and certain related characters to LearningSoft for a three year period.
LearningSoft provides state-of-the-art educational computer gaming experiences
to the Latin American market, with collateral opportunities in Spanish and
Portuguese-language markets worldwide. The Company received a license fee in
connection with the agreement in the form of a warrant to purchase certain
amounts of LearningSoft common stock at a stated price over a ten year period.

     In February 2000, the Company entered into an animation licensing agreement
with Tutornet.com, Inc. ("Tutornet") whereby the Company licensed the rights to
the Company's character "Richie Rich" to Tutornet for a three year period.
Tutornet provides online, real-time tutoring services over the Internet. The
Company received a license fee in connection with the agreement and obtained an
option to purchase certain amounts of Tutornet common stock at a stated price
over a twenty four month period.

     The Company announced in October 1999 that it had entered into an agreement
with Spumco Inc. ("Spumco") for the production of cartoons containing certain of
the Company's characters specifically for the Internet. Spumco, the creators of
"The Ren & Stimpy Show", will initially distribute the cartoons on their online
cartoon network, and subsequently over the Company's website.

     There can be no assurance that the Tutornet, Spumco or any other Internet
agreements or activities will provide the Company with any future revenues other
than the initial license fees.

                                      -13-
<PAGE>   14

FASHION ACTIVITIES

     In February 2000, the Company announced the completion of a preliminary
joint venture agreement entered into in June 1999, to establish Harvey Fashion
LLC. The new company is responsible for manufacturing, selling and marketing a
complete apparel collection based on the Company's characters. The investment by
the Company is limited to an initial capital outlay and the contribution of its
characters for use by the joint venture, and will share in certain profits, as
defined, of the operations of the joint venture.

INTELLECTUAL PROPERTY ASSETS

     The Company's principal assets are its intellectual property rights in its
proprietary Harvey Classic Characters, including Casper the Friendly Ghost, the
Ghostly Trio (Fatso, Stinkie and Stretch), Richie Rich, Baby Huey, Wendy, the
Good Little Witch, Little Audrey, Herman and Katnip, Little Lotta, Little Dot,
Buzzy the Funny Crow, Stumbo the Giant and Hot Stuff. 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.

     Substantially all of the United States copyrights on the Company's cartoon
shorts and comic books were acquired under the Copyright Act of 1909 (the "1909
Act"). Under the 1909 Act, copyrights were granted for an initial term of 28
years and a renewal term of 28 years. Under the Copyright Act of 1976 (the "1976
Act"), copyright protection for existing and new copyrights was extended for a
total term of 75 years from the date of initial publication.

     The copyright registrations for seven cartoon shorts and a limited number
of comic books involving Casper and other characters were not timely renewed by
the Harvey family and such registrations have expired. By virtue of the
expiration of the copyrights in these original cartoon shorts and comic books,
certain rights may have fallen into the public domain and the Company's rights
to the sole and exclusive use of those cartoons and comic books is unclear.

     Substantially all of the most important Harvey Classic Characters are
protected in the United States by United States trademarks which run for a
period of ten years and which may be renewed for an indefinite number of
additional ten year periods upon a showing of continued use. While many
countries have intellectual property laws that protect United States holders of
such property, others do not, and there can be no assurance that the Company's
rights will not be violated or its characters "pirated" in foreign
jurisdictions.

     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


                                      -14-
<PAGE>   15

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.

     From time to time, claims have been asserted against the Company alleging
that the Casper character may have fallen into the public domain and thus can be
freely used and exploited by anyone. However, those claims have not prevailed.

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.
The Company believes that its principal competitors include The Walt Disney
Company, Warner Brothers, Fox Kids Worldwide, Henson Productions and
Nickelodeon, all of which have children's networks and far greater resources and
distribution capabilities than the Company.

EMPLOYEES

     The Company and PM Entertainment employ approximately 25 and 37 persons,
respectively, on their full-time staffs. For the Company's and PM
Entertainment's filmed entertainment productions, the Company and PM
Entertainment have hired independent contractors or production facilities for
creative work on an as-needed basis. None of the Company's or PM Entertainment's
employees are represented by a union and the Company and PM Entertainment
believe relations with their 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, 1999 and 1998 the
Company experienced significant operating losses. Such losses are expected to
continue into the 2000 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 may continue into the future. The inability
of the Company to generate operating profits will 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 throughout the 1999 and 1998 periods during which the Company was
evaluating various strategic alternatives, exploring sources of capital
investment and seeking permanent management, the


                                      -15-
<PAGE>   16

Company currently has a minimal amount of new programs or products involving
Harvey Characters scheduled for release. This absence of product will have a
material adverse effect on the Company's results of operations for the
foreseeable future. In addition, management's business plan, even if
implemented, contemplates that the Company will produce direct-to-video products
for its own account (as opposed to licensing third parties in consideration of
an advance and potential royalty). This strategy maximizes upside potential for
the Company in the exploitation of its characters, but it also subjects the
Company to greater risk if the products are not successful.

     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 and PM Entertainment 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 and PM Entertainment's motion pictures 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 and PM Entertainment compete with major
studios, other independent motion picture and television companies, large
diversified entertainment conglomerates and others. Some of the Company's and PM
Entertainment'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 means of distributing their
products and stable sources of earnings to offset fluctuations in the financial
performance of their motion picture and television operations.

     The Company's and PM Entertainment's operations depend on its ability to
obtain sufficient financing. In particular, motion picture production and
distribution activities require the upfront 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 over an
extended period of time. The Company and PM Entertainment intend to finance
these expenditures through a combination of cash on hand, borrowings under the
new credit facility, presales of certain distribution rights in certain
territories and a variety of third party financing arrangements. Borrowings
under the Company's credit facility and other financing arrangements are subject
to continuing satisfaction of specific covenants and conditions. There can be no
assurance that the Company and PM Entertainment will be able to obtain the
required financing or that any financing obtained will be on terms satisfactory
to the Company.

     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.


                                      -16-
<PAGE>   17

     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.

     MERCHANDISING ACTIVITIES. Prior to May 1997, the Company relied upon
Universal to merchandise the Harvey Classic Characters. In 1997 the Company
began merchandising the Harvey Classic Characters for its own account and hired
new personnel to handle such activities. There can be no assurance that the
Company, despite its additions to staff and related overhead, will be able to
promote and compete effectively in the merchandising marketplace. To the extent
the Company performs merchandising functions internally, there can be no
assurance that its merchandising revenues will increase or be sufficient to
defray the additional costs associated with its new merchandising efforts. In
addition, the level of merchandising activities is dependent, in part, on the
level and success of filmed entertainment product releases.

     INTELLECTUAL PROPERTY RIGHTS. The Company's principal assets are its
intellectual property rights in its proprietary Harvey characters and
publications and other works featuring those characters. 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 featuring Harvey characters. The Company attempts vigorously to protect
against infringements on the rights it holds to its proprietary characters,
works and publications.

     Certain copyrights held by the Company on some animated cartoons and comic
books published before about 1960 were not timely renewed and may have fallen
into the public domain. 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.


                                      -17-
<PAGE>   18

     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 show, 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. Although many of the Company's characters
have been in existence for more than 40 years, not all are currently popular and
there can be no assurance that they will become popular, or that those that are
popular will continue to be popular.

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

     RELIANCE ON MAJOR DISTRIBUTORS/SELF-DISTRIBUTION. Historically, the Company
relied on a single foreign distributor for sales of the Harvey Classic Library.
In November 1997, the Company's prior agreement for the Harvey Classic Library
with its foreign distributor expired and in March 1998, the Company hired a
foreign distribution consultant based in London to assist with and oversee
foreign sales of the Harvey Classic Library. Such foreign consulting agreement
was not renewed upon its expiry in February 1999, and the Company is pursuing
establishing an in-house foreign sales division tied to the PM Entertainment
international sales infrastructure. With respect to its direct-to-video
productions, with certain exceptions, the Company is free to contract with any
distributor in connection with a given production. The Company's establishment
of internal sales and distribution operations and the nature of its
relationships with its distributors could adversely affect the Company's results
of operations, financial condition and cash flow.

ITEM 2. PROPERTIES

     The principle offices of the Company consist of approximately 14,000 square
feet of general office space located in West Los Angeles, California. The
Company has entered into a seven-year lease for such office space with an option
to renew the facilities for a five-year period. Approximately 3,000 square feet
of the office space is being subleased to Harvey Fashions LLC. The Company also
leases approximately 3,000 square feet of office space in Century City (Los
Angeles), California pursuant to a five year lease entered into in August 1996,
and 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 the
Century City office space to an unaffiliated third party through October 2000,
approximately 6,000 square feet of the Santa Monica space to an unaffiliated
person through January 31, 2001, and approximately 3,000 square feet of the
Santa Monica space to a subsidiary of Universal through September 30, 2001. The
Company's principal business address is 11835 W. Olympic Blvd., Suite 550, Los
Angeles, California 90064.

     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


                                      -18-
<PAGE>   19

of the premises with an option to purchase the facility and surrounding
property. PM Entertainment's principle business address is 9545 Wentworth
Street, Sunland, California 91040.

ITEM 3. LEGAL PROCEEDINGS

REALTY TRUST ADVISORS, INC. V. THE HARVEY ENTERTAINMENT COMPANY.

     On December 31, 1997, Realty Trust Advisors, Inc. ("RTA") filed suit
against the Company in Los Angeles Superior Court seeking damages arising out of
the alleged failure of the Company to pay certain commissions. On May 11, 1998
the Company filed a demurrer and a motion to strike the fraud and punitive
damage portions of the first amended complaint, which were granted. In August
1998, RTA unsuccessfully sought relief from that order in the court of appeal.
On or about July 9, 1998, the Company filed an answer to the first amended
complaint and a cross-complaint against RTA and its principal, Anne Keshen, for
fraud and declaratory relief. RTA filed a demurrer and a motion to strike the
fraud and punitive damage portions of the Company's cross-complaint, which was
denied. On July 1, 1999, the parties to the above actions entered into a
Settlement Agreement and Mutual Release and executed a dismissal with prejudice
of the entire action. The Company's defense and prosecution costs of this matter
were covered in their entirety by its insurer.

     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.




                                      -19-
<PAGE>   20

                                     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") trades on The
Nasdaq Stock Market, Inc. under the symbol HRVY. 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.

<TABLE>
<CAPTION>

QUARTERLY PERIOD                                                        HIGH         LOW
----------------                                                        ----         ---
<S>                                                                   <C>          <C>
Fiscal year ended December 31, 1998:
         First Quarter...........................................     $15.25       $9.37
         Second Quarter..........................................      14.50        8.75
         Third Quarter...........................................      10.63        5.00
         Fourth Quarter..........................................       9.75        7.00

Fiscal year ended December 31, 1999:
         First Quarter...........................................       8.25        4.38
         Second Quarter..........................................       8.25        4.75
         Third Quarter...........................................       6.38        2.88
         Fourth Quarter..........................................       7.14        3.63

Fiscal year ended December 31, 2000:
         First Quarter ..........................................       6.00        3.13
         Second Quarter (through April 5, 2000)..................       4.19        3.88

</TABLE>

HOLDERS

     As of April 5, 2000, there were approximately 156 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.


                                      -20-
<PAGE>   21

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. 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 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 resulted in the
issuance of a total of 190,488 shares of the Company's Series A Preferred Stock,
par value $100, and 2,689,236 Warrants to purchase shares of the Company's
common stock. Of the Warrants issued, 1,344,618 were Investor Warrants and
1,344,618 were Management Warrants. The Investor Warrants



                                      -21-
<PAGE>   22

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. Management Warrants granted vest and become exercisable
according to schedules set forth in their respective warrant agreements, and are
exercisable at prices ranging from $9.00 to $12.00 per share of common stock.
Terms of the Investor and Management Warrants provide for expiration dates from
2005 through 2007.

     On April 26, 1999, the Company consummated the transactions contemplated by
the Stock Purchase Agreement and received gross proceeds of approximately
$17,900,000, of which approximately $6,226,000 represented value of
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 the note payable on June 30,
1999. The proceeds from the transactions will be used to fund the Company's
filmed production and acquisition activities and for general working capital
purposes.

     The Series A Preferred Stock bears a dividend rate of 7% ($7 per share) per
annum, payable quarterly on March 31, June 30, September 30 and December 31 of
each year. At the Company's election, the quarterly dividend may be paid either
in cash or additional shares of Series A Preferred Stock. For the quarterly
dividends due on June 30, September 30 and December 30, 1999, the Company
elected to pay such dividends in additional shares of Series A Preferred Stock
resulting in an the accrual for the issuance of an additional 8,664 shares of
Series A Preferred Stock at December 31, 1999.

     The Series A Preferred Stock ranks senior to all other classes of stock of
the Company. The Series A Preferred Stock is convertible into 2,950,370 shares
of Common Stock of the Company at December 31, 1999. The number of shares into
which the Series A Preferred Stock is convertible was determined by dividing the
approximate $19,048,000 liquidation preference plus accrued dividends of
approximately $866,000 of the Series A Preferred Stock by $6.75, which is the
Series A Preferred Stock's stated conversion price. Holders of the Series A
Preferred Stock are entitled to vote with the holders of Common Stock generally
with each share entitled to as many votes as the number of shares of Common
Stock into which it may be converted, and are entitled to elect two directors to
the Company's Board of Directors. The Series A Preferred Stock may be redeemed
by the Company at its liquidation amount (as defined) five years from the issue
date, and by the holders of the Series A Preferred Stock in certain
circumstances upon the event of a consolidation, merger or business combination
of the Company with another corporation, whereby the Company is not the
surviving entity.

     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.


                                      -22-
<PAGE>   23

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

INTRODUCTION

     The Company conducts its operations through its wholly-owned subsidiary,
Harvey Comics, Inc. 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

<TABLE>
<CAPTION>

                                                  Year Ended December 31,
                                              ------------------------------
                                                   1999            1998
                                              ------------     ------------
<S>                                           <C>              <C>
Merchandising revenues                        $  1,385,000     $  2,183,000
Publishing revenues, net of returns                129,000           90,000
Filmed entertainment revenues                       24,000       (3,842,000)
                                              ------------     ------------

Total operating revenues                         1,538,000       (1,569,000)

Cost of sales                                      727,000        1,056,000
Selling, general &
  administrative expenses                        6,554,000        8,306,000
Depreciation and
  amortization                                   2,655,000        3,868,000
Equity based charges                               108,000          969,000
                                              ------------     ------------
Loss from operations                            (8,506,000)     (15,768,000)
Other income/(loss)                                (48,000)         331,000
                                              ------------     ------------
Loss before income taxes                        (8,554,000)     (15,437,000)
Income tax benefit/(provision)                      (3,000)       4,199,000
                                              ------------     ------------
Net loss                                        (8,557,000)     (11,238,000)
Preferred stock dividends and deduction
  for beneficial conversion feature             (3,029,000)             -0-
                                              ------------     ------------
Net loss applicable to common stockholders    $(11,586,000)    $(11,238,000)
                                              ------------     ------------

Basic net loss per share                      $      (2.77)    $      (2.77)
                                              ============     ============
Diluted net loss per share                    $      (2.77)    $      (2.77)
                                              ============     ============
</TABLE>


                                      -23-
<PAGE>   24

RESULTS FROM OPERATIONS

Fiscal Year 1999 Compared to Fiscal Year 1998

     The number of projects generating revenues in 1999 has been limited and,
accordingly, the Company's operating results have been and will be adversely
impacted in contrast to prior periods. The Company's newly formulated business
plan is in the process of being implemented. Thus any possible results will not
be realized until subsequent periods, if ever.

     The Company is in production on one animated direct-to-video featuring the
Company's classic character Casper entitled "Casper's Haunted Christmas."
Development and production of all other new products of the Company are subject
to financing and distribution alternatives. The Company has continued to develop
and exploit its licensing and merchandise rights for the Company's portfolio of
classic characters.

REVENUES

     Net merchandising revenues were $1,385,000 and $2,183,000 in 1999 and 1998,
respectively, a decrease of $798,000. The revenues in 1999 and 1998 consist of
new 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. Although merchandising licenses
are generally granted for a period of one to three years, a substantial portion
of the 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 the Company's new monthly magazine were
$129,000 in 1999 and $90,000 1998. 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 new magazine. The publication of the magazine was ceased with
the July 1999 issue, resulting from management's decision to focus on the
Company's core entertainment business operations.

     The Company's net filmed entertainment revenues were $24,000 in 1999
compared to a negative $3,842,000 in 1998. The 1998 revenues reflects an
adjustment of $3,991,000 to reduce the Company's estimate of the lifetime
profitability of the 1997 direct-to-video title "Casper, A Spirited Beginning."
The Company's original forecast of worldwide sales exceeded actual sales as
reported to the Company by the video's distributor, necessitating the adjustment
in the 1998 period. Based on the report by the video distributor, the
realization of overages beyond the original advance on this title would be
contingent upon the completion of a successful participation audit of the
distributor's books and records. Although a second direct-to-video title,
"Casper Meets Wendy", was released on September 22, 1998, the Company does not
expect that


                                      -24-
<PAGE>   25

it will record additional revenues on that title beyond the non-refundable
advance of $3,300,000 received in 1997 until such time (if at all) as the actual
shipments indicate that the Company's profit participation will exceed the
advance. The Company entered into an agreement with Columbia TriStar Home Video,
Inc. ("Columbia") for the distribution of "Baby Huey's Great Easter Adventure"
which was released in March 1999.

COST OF SALES

     Merchandising costs of sales were $334,000 and $584,000 in 1999 and 1998,
respectively. The decrease in cost of sales is due to a decrease in
merchandising activity in 1999.

     Publishing costs of sales were $384,000 in 1999 and $373,000 in 1998.

     Costs of sales relating to filmed entertainment revenues were $9,000 and
$99,000 in 1999 and 1998, respectively. The decrease in cost of sales is due to
a decrease in filmed entertainment activity for the year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses were $6,554,000 and $8,306,000
for 1999 and 1998, respectively, a decrease of $1,752,000. The decrease in
selling, general and administrative expenses in 1999 is primarily due to lower
costs incurred for consulting services throughout the year and an overall
decrease in other overhead expenses.

DEPRECIATION AND AMORTIZATION

     Depreciation expense was $187,000 and $161,000 in 1999 and 1998,
respectively. The increase in depreciation was due to additions of leasehold
improvements and furniture, fixtures and equipment in 1999. Amortization of the
film library was $2,232,000 and $3,516,000 in 1999 and 1998, respectively.
Included in the 1999 film amortization amount is approximately $2,000,000
related to additional amortization recorded to adjust the carrying book value of
certain film properties to their net realizable values as of December 31, 1999.
The film amortization amount in 1998 includes the recognition of an
approximately $3,000,000 estimated loss related to "Baby Huey's Great Easter
Adventure" and write-offs of $500,000 of product development costs capitalized
in 1997 due to uncertainties concerning the recoverability of such costs.
Amortization of trademarks, copyrights and other was $106,000 in 1999 and
$61,000 in 1998. Amortization of goodwill was $130,000 in both 1999 and 1998.

EQUITY BASED CHARGES

     Equity based charges were $108,000 and $969,000 in 1999 and 1998,
respectively, related to the issuance of warrants to consultants to the Company.


                                      -25-
<PAGE>   26

OTHER INCOME

     Other income/(loss) was $(48,000) and $331,000 in 1999 and 1998,
respectively. Other losses in 1999 resulted primarily from interest income of
$252,000, offset by interest expense of $81,000, and $219,000 in currency
exchange losses and costs related to the purchase of certain investment
securities. In 1998, other income resulted from the favorable settlement of
litigation involving the Company of $149,000 and interest income of $241,000,
offset by interest expense of $59,000. Interest expense in 1999 and 1998
represented annual loan fees and borrowings under the Company's line of credit.
See "Liquidity and Capital Resources."

INCOME TAXES

     Income tax benefit/(provision) was $(3,000) and $4,199,000 in 1999 and
1998, respectively. The current tax expense was the result of an assessment of
additional income taxes for the 1997 tax year and current minimum state taxes
due. The income tax benefit for 1998 is due to the use of operating losses
generated in 1998 against the deferred income tax liabilities and prior year
operating income, and the tax effect of stock options exercised. A valuation
allowance was established in 1998 to reduce deferred income tax assets to the
amount expected to be realized. At the end of 1999, an additional valuation
allowance was established to offset the benefit generated by current year's
losses. Realizable income tax benefits from the Company's cumulative tax losses
have been reported as an income tax receivable of $540,000 at the end of the
current period.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash used in operating activities was $6,469,000 and $8,469,000 in 1999
and 1998, respectively. The reduction in cash used in operating activities was
primarily due to the collection of accounts receivable balances and the
reduction of deferred tax liability balances from 1998.

     Net cash used in investing activities was $522,000 and $684,000 in 1999 and
1998, respectively. The decrease in cash used for investing activities was
primarily due to less investment by the Company in its trademarks and copyrights
in 1999.

     Net cash provided by financing activities was $12,365,000 and $3,288,000 in
1999 and 1998, respectively. 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. The 1998 cash provided by
financing activities resulted primarily from the exercise of employee stock
options.

     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


                                      -26-
<PAGE>   27

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.

     Effective as of April 3, 2000 the Company entered into a new five year,
$25,000,000 revolving credit facility with The Chase Manhattan Bank (the "Chase
Credit Facility") to provide operating funds and a portion of the acquisition
financing of the PM Entertainment acquisition. Borrowings under the Chase Credit
Facility are limited to $15,000,000 until additional participant lenders are
added to the Chase Credit Facility, at which time the borrowings available will
be increased to a maximum of $25,000,000. Borrowings under the Chase Credit
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 and PM
Entertainment. Outstanding borrowings under the Chase Credit Facility will bear
interest at the rate of either 1.5% per annum above the prime rate (as defined)
or 2.5% per annum above the London Interbank Offered Rate ("LIBOR"), at the
Company's election, payable monthly. The Chase Credit Facility requires the
Company to meet certain financial ratios.

     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 $10,000,000,
$6,500,000 of which was paid in cash at closing and the balance provided through
the issuance by the Company of: (1) $1,450,000 in shares of the Company's common
stock and (2) a $2,050,000 subordinated note to be paid over five future
quarterly periods. 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. PM Entertainment
operates out of a 120,000 square foot office, production and post-production
facility located just outside the Los Angeles area. As part of the PM
Entertainment acquisition, the Company has entered into a two-year lease
arrangement with a purchase option for the facilities. No 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,
1999 and 1998. In accordance with the Accounting Principles Board Opinion No. 16
("APB 16"), this acquisition will be accounted for under the purchase method of
accounting.


                                      -27-
<PAGE>   28

     On April 26, 1999, the Company consummated the transactions contemplated by
the 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 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 will provide adequate liquidity for the Company's operating
financial needs for at least the next twelve months. In addition to the
acquisition of PM Entertainment noted above, from time to time the Company
considers acquisition and investment possibilities, including film libraries and
companies ancillary to the Company's business, subject to the availability of
financing as necessary. No assurance can be given that such financing will be
available or, if available, will be at costs comparable to current financings or
on terms acceptable to the Company.

INFLATION AND SEASONALITY

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

YEAR 2000

     The Company utilizes various computer software packages as tools in running
its operations, and would suffer material adverse consequences if those systems
malfunctioned due to year 2000 issues. Management believes it has implemented
any necessary vendor upgrades and modifications to ensure continued
functionality with respect to the software problems associated with the year
2000. Management did not incur material incremental costs, or dedicate
significant Company resources in 1999, to become year 2000 compliant and does
not believe any of the Company's internal systems suffered any material year
2000 compliance problems. The Company's customers and vendors, or potential
customers and vendors, may be affected by year 2000 issues that may, in part,
cause a delay, reduction or cancellation of vendor, retailer or customer
activities. The Company has not developed a contingency plan related to the
failure of its, or a third party's, year 2000 remediation efforts.


                                      -28-
<PAGE>   29


THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


ITEM 7. FINANCIAL STATEMENTS
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                       PAGE
                                                                       ----

<S>                                                                  <C>
REPORT OF INDEPENDENT ACCOUNTANTS                                    F-2 to F-3


CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998

Consolidated Balance Sheets                                          F-4 to F-5

Consolidated Statements of Operations                                   F-6

Consolidated Statements of Stockholders' Equity                         F-7

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

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


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS                         F-22
</TABLE>


                                      F-1
<PAGE>   30

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES



REPORT OF INDEPENDENT ACCOUNTANTS

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


In our opinion, the accompanying consolidated balance sheet as of December 31,
1999 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, 1999, and the results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 7 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.




PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
March 30, 2000




                                      F-2
<PAGE>   31

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


INDEPENDENT AUDITORS' REPORT

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


We have audited the accompanying consolidated balance sheet of The Harvey
Entertainment Company and subsidiaries (the "Company") as of December 31, 1998,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. Our audit also included the financial
statement schedule listed in the index at Item 7. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

The accompanying financial statements as of December 31, 1998 have been prepared
assuming that the Company will continue as a going concern. The Company's loss
from operations, negative cash flows, limited cash balance and lack of available
credit raise substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.



DELOITTE & TOUCHE LLP
Los Angeles, California
April 9, 1999


                                      F-3

<PAGE>   32

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                              --------------------------------------
ASSETS                                                                             1999                     1998
                                                                               -------------            ------------
<S>                                                                             <C>                     <C>
  Cash and cash equivalents                                                     $ 5,825,000             $    451,000

  Marketable securities                                                           2,037,000                        -

  Accounts receivable, net of allowance for doubtful accounts
    of $235,000 and $298,000 in 1999 and 1998, respectively                         634,000                1,689,000

  Prepaid expenses and other assets                                                 907,000                  505,000

  Income tax receivable                                                             540,000                  567,000

  Film inventory, net of accumulated amortization of $9,124,000
    and $6,894,000 in 1999 and 1998, respectively                                 9,398,000               10,873,000

  Fixed assets, net of accumulated depreciation of $755,000
    and $658,000 in 1999 and 1998, respectively                                     432,000                  501,000

  Goodwill, net of accumulated amortization of $1,352,000
    and $1,222,000 in 1999 and 1998, respectively                                 1,243,000                1,373,000

  Trademarks, copyrights and other intangibles net of
    accumulated amortization of $401,000 and $295,000 in 1999
    and 1998, respectively                                                        1,283,000                1,075,000
                                                                              -------------            -------------
TOTAL ASSETS                                                                  $  22,299,000            $  17,034,000
                                                                              =============            =============


                            See accompanying notes to consolidated financial statements.
                                                   (Continued)

</TABLE>

                                      F-4



<PAGE>   33

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                             Years Ended December 31,
                                                                                        ---------------------------------
                                                                                            1999                 1998
                                                                                        ------------         ------------
<S>                                                                                     <C>                  <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Accounts payable and accrued expenses                                                 $    440,000         $    871,000
  Accrued marketing expenses                                                               1,200,000            1,200,000
  Participations payable                                                                     556,000              861,000
  Accrued rent                                                                                37,000              170,000
  Line of credit                                                                                --                250,000
                                                                                        ------------         ------------
          Total liabilities                                                                2,233,000            3,352,000
                                                                                        ------------         ------------

Series A convertible preferred stock, $100 stated value, 300,000
   shares authorized, 199,000 shares issued and outstanding at
   December 31, 1999, liquidation preference of $19,915,000 at
   December 31, 1999                                                                      16,376,000                 --
                                                                                        ------------         ------------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDERS' EQUITY:
  Preferred stock, $1 par value, 3,000,000 shares authorized (300,000 shares
   have been designated as Series A convertible preferred stock)                                --                   --
  Common stock, no par value, 30,000,000 and 10,000,000 shares
    authorized in 1999 and 1998, respectively, 4,187,000 issued and
    outstanding at December 31, 1999 and 1998                                             22,268,000           22,160,000
  Additional paid in capital                                                               4,523,000                 --
  Accumulated other comprehensive income/(loss)                                           (3,037,000)                --
  Accumulated deficit                                                                    (20,064,000)          (8,478,000)
                                                                                        ------------         ------------
          Total stockholders' equity                                                       3,690,000           13,682,000
                                                                                        ------------         ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              $ 22,299,000         $ 17,034,000
                                                                                        ============         ============



                           See accompanying notes to consolidated financial statements
</TABLE>



                                      F-5

<PAGE>   34

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                        Years Ended December 31,
                                                                                 --------------------------------------
                                                                                     1999                      1998
                                                                                 ------------              ------------
<S>                                                                              <C>                       <C>
OPERATING REVENUES:
  Merchandising                                                                  $  1,385,000              $  2,183,000
  Publishing                                                                          129,000                    90,000
  Filmed entertainment                                                                 24,000                (3,842,000)
                                                                                 ------------              ------------
           Net operating revenues                                                   1,538,000                (1,569,000)
                                                                                 ------------              ------------
OPERATING EXPENSES:
  Cost of sales                                                                       727,000                 1,056,000
  Selling, general and administrative expenses
    (exclusive of equity based charges)                                             6,554,000                 8,306,000
  Amortization of film inventory                                                    2,232,000                 3,516,000
  Amortization of goodwill, trademarks, copyrights and other                          236,000                   191,000
  Depreciation expense                                                                187,000                   161,000
  Equity based charges                                                                108,000                   969,000
                                                                                 ------------              ------------
           Total operating expenses                                                10,044,000                14,199,000
                                                                                 ------------              ------------

LOSS FROM OPERATIONS                                                               (8,506,000)              (15,768,000)
OTHER INCOME/(EXPENSES)                                                              (219,000)                  149,000
INTEREST INCOME, NET                                                                  171,000                   182,000
                                                                                 ------------              ------------
LOSS BEFORE INCOME TAXES                                                           (8,554,000)              (15,437,000)
INCOME TAX BENEFIT/(PROVISION)                                                         (3,000)                4,199,000
                                                                                 ------------              ------------
NET LOSS                                                                         $ (8,557,000)             $(11,238,000)
Preferred stock dividends and deduction for
   beneficial conversion feature                                                   (3,029,000)                     --
                                                                                 ------------              ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS                                       $(11,586,000)             $(11,238,000)
                                                                                 ============              ============
NET LOSS PER SHARE OF COMMON STOCK:
  Basic and Diluted                                                              $      (2.77)             $      (2.77)
                                                                                 ============              ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic and Diluted                                                                 4,187,000                 4,059,000
                                                                                 ============              ============

</TABLE>

        See accompanying notes to consolidated financial statements.

                                      F-6




<PAGE>   35

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                        ADDITIONAL    ACCUM. OTHER       RETAINED
                                                  COMMON STOCK            PAID IN     COMPREHENSIVE      EARNINGS/
                                             SHARES         AMOUNT        CAPITAL      INCOME/(LOSS)    ACCUM. DEFICIT      TOTAL
                                           ----------    ------------   -----------   --------------   --------------   ------------
<S>                                        <C>           <C>            <C>          <C>               <C>             <C>
BALANCE, DECEMBER 31, 1997                  3,573,000    $ 18,153,000                                   $  2,760,000   $ 20,913,000

Exercise of stock options                     614,000       3,038,000                                                     3,038,000

Equity based charges                                          969,000                                                       969,000

Net Loss                                                                                                 (11,238,000)   (11,238,000)
                                            ---------    ------------    ----------   -----------       ------------    ------------
BALANCE, DECEMBER 31, 1998                  4,187,000      22,160,000             0             0         (8,478,000)    13,682,000

Issuance of warrants                                                     $2,360,000                                       2,360,000

Beneficial conversion feature on
  Convertible Preferred Stock                                             2,163,000                       (2,163,000)             0

Equity based charges                                          108,000                                                       108,000

Stock dividends declared                                                                                    (866,000)      (866,000)

Components of comprehensive
  income/(loss):
  Unrealized holding loss
    on equity securities                                                              $(4,189,000)                       (4,189,000)
  Gain on derivative
    financial instruments                                                               1,152,000                         1,152,000
  Net loss                                                                                                (8,557,000)    (8,557,000)
                                                                                                                        -----------
Total comprehensive income/(loss)                                                                                       (11,594,000)
                                            ---------    ------------    ----------   -----------       ------------    ------------
BALANCE, DECEMBER 31, 1999                  4,187,000    $ 22,268,000    $4,523,000   $(3,037,000)      $(20,064,000)   $ 3,690,000
                                            =========    ============    ==========   ============      ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       F-7


<PAGE>   36

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                Years Ended December 31,
                                                                              ----------------------------
                                                                                  1999            1998
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                      $ (8,557,000)   $(11,238,000)
Adjustments to reconcile net loss to net cash used in operating activities:
  Write-off of accounts receivable                                                    --         5,071,000
  Depreciation                                                                     187,000         161,000
  Loss on disposition of fixed assets                                               90,000            --
  Amortization of film inventory                                                 2,232,000       3,516,000
  Amortization of goodwill, trademark, copyrights and other                        236,000         191,000
  Deferred income taxes                                                               --        (3,788,000)
  Equity based charges                                                             108,000         969,000
  Premium on derivative financial instruments, net                                 181,000            --
Changes in operating assets and liabilities:
  Accounts receivable, net                                                       1,055,000       1,253,000
  Prepaid expenses and other assets                                               (402,000)        (52,000)
  Income taxes receivable, net of income taxes payable                              27,000      (1,065,000)
  Investment in film inventory                                                    (757,000)     (2,958,000)
  Accounts payable and accrued expenses                                           (441,000)         15,000
  Participations payable                                                          (305,000)       (583,000)
  Accrued rent and other liabilities                                              (123,000)         39,000
                                                                              ------------    ------------
           Net cash used in operating activities                                (6,469,000)     (8,469,000)
                                                                              ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of furniture and equipment                                             (208,000)       (179,000)
  Investments in trademarks and copyrights                                        (314,000)       (505,000)
                                                                              ------------    ------------

           Net cash used in investing activities                                  (522,000)       (684,000)
                                                                              ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from exercise of stock options, net of tax effect                          --         3,038,000
  Repayment on line of credit, net                                                (250,000)        250,000
  Proceeds from issuance of convertible preferred stock, net                    11,644,000            --
  Proceeds from sale of derivative financial instruments, net                      971,000            --
                                                                              ------------    ------------

           Net cash provided by financing activities                            12,365,000       3,288,000
                                                                              ------------    ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                             5,374,000      (5,865,000)

CASH AND CASH EQUIVALENTS, Beginning of period                                     451,000       6,316,000
                                                                              ------------    ------------

CASH AND CASH EQUIVALENTS, End of period                                      $  5,825,000    $    451,000
                                                                              ============    ============
</TABLE>

       See accompanying notes to consolidated financial statements.

                               (Continued)



                                       F-8

<PAGE>   37

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                              Years Ended December 31,
                                                           ----------------------------
                                                               1999            1998
                                                           ------------      ----------

<S>                                                         <C>               <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION :
 Cash received/(paid) during the year for:
      Interest                                              $ (81,000)        $ 241,000
      Income taxes                                          $  (3,000)        $(119,000)

</TABLE>


 NON-CASH FINANCING ACTIVITY:

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


                                      F-9

<PAGE>   38

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     GENERAL - The Harvey Entertainment Company is incorporated in the state of
     California and is primarily engaged in filmed entertainment production and
     merchandise licensing of its classic characters.

     BACKGROUND AND OPERATIONS - The Harvey Entertainment Company, together with
     its wholly-owned subsidiaries Harvey Comics, Inc. and Baby Huey
     Productions, Inc. (the "Company") owns and exploits a library of widely
     recognized classic characters and other intellectual property assets,
     including a related film inventory of animated short features. The Company
     is the successor to Harvey Comics, Inc. which was founded in 1939 by the
     Harvey family. In 1989, the Company's predecessor purchased Harvey Comics,
     Inc. to exploit its intellectual property and in 1993 the Company completed
     its initial public offering of common stock. The roster of the Company's
     classic characters includes the well know characters Casper the Friendly
     Ghost, Richie Rich, Baby Huey, Wendy the Good Little Witch, and Hot Stuff,
     among many others.

     BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION - The consolidated
     financial statements include the accounts of The Harvey Entertainment
     Company and its wholly owned subsidiaries, Harvey Comics, Inc. and Baby
     Huey Productions, Inc. All significant intercompany accounts and
     transactions have been eliminated in 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.

     FINANCIAL INSTRUMENTS - In the year ended December 31, 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, and
     accounts receivable. The carrying values of cash and cash equivalents and
     accounts receivable 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 the Statement of Financial
     Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
     in Debt and Equity Securities."


                                      F-10
<PAGE>   39

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


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

     FILM INVENTORY- Film inventory is stated at the lower of cost less
     accumulated amortization or estimated net realizable value. Film inventory
     consists of direct production costs, production overhead, and capitalized
     interest and is amortized using the individual film forecast computation
     method. The individual film forecast method amortizes costs 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.

     FIXED ASSETS - Fixed assets are stated at cost and are depreciated using
     the straight-line method over three to seven 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. over the estimated fair value of its assets. Goodwill
     is being amortized on a straight-line basis over twenty years.

     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 - As of each balance sheet date, the Company evaluates
     the recovery of its long-lived assets and recognizes impairment if it is
     probable that the recorded amounts are not recoverable based upon future
     undiscounted cash flows or if there is an event or change in circumstances
     which indicates that the carrying amount of an asset may not be
     recoverable.

     REVENUE RECOGNITION - The majority of the Company's licensing agreements
     for merchandising and filmed entertainment call for nonrefundable
     guaranteed fees, which are recognized when the license period begins,
     provided certain conditions have been met. Additional merchandising and
     film licensing revenues are recognized when earned based on royalty
     statements.

     The Company recognizes revenue related to videotape sales upon shipment of
     the videotapes. At the time it recognizes the revenue, the Company
     estimates returns and records a corresponding reduction of revenue. During
     1998, the Company experienced a large difference between the amount of
     returns it had estimated for a particular product and the actual return
     rate. As a result, it recorded a change in its estimated returns, which
     caused a reduction of revenue. The reduction was equal to the difference
     between the previously estimated returns and the actual returns. As the
     difference was greater than other sources of revenue generated in 1998, the
     Company had negative revenues for the year ended December 31, 1998.

     CONCENTRATION OF CREDIT RISK - The Company at times maintains cash balances
     at certain financial institutions in excess of federally insured deposits.
     The Company's trade receivables result primarily from licensing agreements
     for merchandising and the animation film library, throughout the world. The
     Company performs ongoing credit evaluations of its customers and generally
     does not require collateral. Although the Company has a diversified
     customer base, a


                                      F-11
<PAGE>   40

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

     substantial portion of its debtor's ability to honor their contracts is
     dependent upon the merchandising and filmed entertainment 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.

     EQUITY-BASED CHARGES - In fiscal 1997, the Company adopted the
     disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
     Compensation." The Company continues to account for its stock compensation
     arrangements using the intrinsic value method as defined by Accounting
     Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
     Employees."

     COMPREHENSIVE INCOME - Effective January 1, 1998, the Company adopted the
     provisions 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 INCOME (LOSS) PER SHARE - Basic earnings per share is based upon the
     net earnings applicable to common shares and upon the weighted average
     number of shares outstanding during the period. Diluted earnings per share
     reflects the effect of the assumed exercise of stock options and warrants
     only in the periods in which such effect would be dilutive.

     Stock option and warrants representing common shares of 620,150 and
     3,140,236, respectively, were excluded from the average number of common
     and common equivalent shares outstanding in the diluted EPS calculation for
     the year then ended December 31, 1999 because they were anti-dilutive.

     RECLASSIFICATIONS - Certain reclassifications have been made to the 1998
     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
     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. The Company is
     currently evaluating the impact of adopting SFAS No. 133 on its financial
     statements.


2.   1999 REFINANCING

     On April 7, 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, on June 30, 1999 the
     Company issued a convertible subordinated note (the "Note") in the amount
     of approximately $2,049,000. On September 2, 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.


                                      F-12
<PAGE>   41

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

     The Company recorded a deduction for the beneficial conversion feature
     associated with the issuance of Series A Preferred Stock based on the
     stock's deemed fair value at the date of issuance. The deduction was
     recorded ratably over a six-month period from April 26, 1999 until the
     convertibility provision of the Series A Preferred Stock became effective
     on October 26, 1999.

     The Series A Preferred Stock bears a dividend rate of 7% ($7 per share) per
     annum, payable quarterly on March 31, June 30, September 30 and December 31
     of each year. At the Company's election, the quarterly dividend may be paid
     either in cash or additional shares of Series A Preferred Stock. For the
     quarterly dividends due on June 30, September 30 and December 31, 1999, the
     Company elected to pay such dividends in additional shares of Series A
     Preferred Stock, resulting in the accrual for the issuance of an additional
     8,664 shares of Series A Preferred Stock at December 31, 1999 for a total
     value of approximately $866,000.

     The Series A Preferred Stock ranks senior to all other classes of stock of
     the Company. The Series A Preferred Stock is convertible into 2,950,000
     shares of Common Stock of the Company at December 31, 1999. Holders of the
     Series A Preferred Stock are entitled to elect two directors to the
     Company's Board of Directors and to vote with the holders of common stock
     with the number of votes determined on an as converted basis. The Series A
     Preferred Stock may be redeemed by the Company at its liquidation amount
     five years from the issue date, and by the holders of the Series A
     Preferred Stock in certain circumstances upon the event of a consolidation,
     merger or business combination of the Company with another corporation,
     whereby the Company is not the surviving entity.


3.   MARKETABLE SECURITIES

     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. As the Company is currently holding the Kushner-Locke shares as
     available-for-sale securities, in accordance with SFAS No. 115, the
     unrealized loss from this investment is being recorded as a component of
     accumulated comprehensive income.

     During the year, 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 as of December 31, 1999.



                                      F-13
<PAGE>   42

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


4.   FILM INVENTORY

     Film inventory consist of the following at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                           1999           1998
                                                        -----------    -----------
     <S>                                                <C>            <C>
     Films released, net of accumulated amortization    $ 8,641,000    $10,873,000
     Development                                            757,000           --
                                                        -----------    -----------

     Total film inventory                               $ 9,398,000    $10,873,000
                                                        ===========    ===========
</TABLE>

     Based upon the Company's estimates of future gross revenues at December 31,
     1999, approximately 15% of the unamortized released film inventory will be
     amortized during the three-year period ending December 31, 2002. In
     addition, the Company estimates that approximately 85% of the unamortized
     released film inventory will be amortized over the next 10 years. Because
     of inherent uncertainties in estimating the remaining ultimate gross film
     revenues, it is at least reasonably possible that the Company's estimates
     of amortization will change in the near term.

     Future commitments to the development of film inventory as of December 31,
     1999 is $1,798,000.


5.   INCOME TAX

     Deferred income tax assets and liabilities are computed annually for
     differences between the financial statement and income tax bases of assets
     and liabilities that will result in taxable or deductible amounts in the
     future. Such deferred income tax asset and liability computations are based
     on enacted tax laws and rates applicable to periods in which the
     differences are expected to reverse. A valuation allowance had been
     established, for the years ended December 31, 1999 and 1998, to reduce
     deferred income tax assets to the amount expected to be realized. Income
     tax expense is the tax payable or refundable for the period plus or minus
     the change during the period in the deferred income tax assets and
     liabilities.

     The provision for income taxes for the years ended December 31, 1999 and
     1998 consist of the following:

<TABLE>
<CAPTION>

                                                  1999            1998
                                               -----------     -----------
<S>                                            <C>             <C>
     Current                                   $    (3,000)    $  (565,000)

     Deferred                                    2,595,000       6,551,000

     Valuation allowance                        (2,595,000)     (1,787,000)
                                               -----------     -----------

     Benefit / (provision) for income taxes    $    (3,000)    $ 4,199,000
                                               ===========     ===========
</TABLE>



                                      F-14
<PAGE>   43

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

     Income tax computed at the statutory federal income tax rate of 34% and the
     provision for income taxes in the financial statements for the years ended
     December 31, 1999 and 1998 differ as follows:

<TABLE>
<CAPTION>

                                                                 1999             1998
                                                              -----------     -----------
     <S>                                                      <C>             <C>
     Provision computed at the statutory rate                 $ 2,909,000     $ 5,153,000
     State income taxes, net of federal income tax benefit           --           351,000
     Change in valuation allowance                             (2,595,000)     (1,787,000)
     Other                                                       (317,000)        482,000
                                                              -----------     -----------

     Benefit / (provision) for income taxes                   $    (3,000)    $ 4,199,000
                                                              ===========     ===========
</TABLE>

     The following are the components of the Company's deferred tax assets and
     (liabilities) at December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                   1999             1998
                                                -----------     -----------
<S>                                             <C>             <C>
     Federal net operating loss carryforward    $ 3,304,000     $ 1,922,000
     State net operating loss carryforward          416,000         351,000
     Accounts receivable                            124,000          77,000
     Equity based charges                           427,000         294,000
     Deferred revenue                               169,000            --
     Other                                          374,000         148,000
                                                -----------     -----------

     Total deferred tax asset                     4,814,000       2,792,000
                                                -----------     -----------

     Film inventory                                (432,000)       (395,000)
     Trademarks and copyrights                         --          (304,000)
     Deferred revenue                                  --          (306,000)
                                                -----------     -----------

     Total deferred tax liability                  (432,000)     (1,005,000)
                                                -----------     -----------

     Valuation allowance                         (4,382,000)     (1,787,000)
                                                -----------     -----------

     Net deferred tax asset/(liability)         $      --       $       --
                                                ===========     ===========
</TABLE>

     At December 31, 1999, the Company has a net operating loss carryforward of
     $9,717,000 and $6,935,000 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. 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. Realizable
     income tax benefits from the Company's cumulative tax losses have been
     reported as an income tax receivable of $540,000 as of year end.


6.   DEBT

     The Company's revolving loan and security agreement that allowed maximum
     borrowings of up to $2,500,000 expired on April 30, 1999. Borrowings under
     the line of credit were collateralized


                                      F-15
<PAGE>   44

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES


     by substantially all of the assets of the Company and bore interest at the
     lenders' prime rate (8.75% at December 31, 1998) plus 1% per annum. The
     agreement was subject to certain requirements, including, but not limited
     to, the maintenance of minimum net worth, and disallowed the payment of
     dividends.


7.   COMMITMENTS AND CONTINGENCIES

     LEASES - The Company generally conducts its operations through leased
     office facilities. The Company also leases automobiles and office
     equipment. Most leases require that the Company perform all necessary
     repairs and maintenance, provide insurance and pay taxes assessed against
     the leased property. The remaining terms of leases range from
     month-to-month to seven years, some of which have renewal options. Certain
     rents are adjusted for increases in the Consumer Price Index or on
     structured annual increases. The leases are classified as operating leases.
     Future minimum operating lease payments for the Company, as of December 31,
     1999 (exclusive of real estate taxes and maintenance expenses) are as
     follows:

<TABLE>
<CAPTION>

             YEAR ENDING                      GROSS              SUBLEASE
             DECEMBER 31,                    RENTALS              INCOME              NET
            -------------                  ------------         ----------         ---------

            <S>                            <C>                  <C>                  <C>
              2000                          $   781,000          $(425,000)         $ 356,000
              2001                              731,000           (126,000)           605,000
              2002                              642,000                  -            642,000
              2003                              653,000                  -            653,000
              2004                              544,000                  -            544,000
            Thereafter                          789,000                  -            789,000
                                              ---------          ---------         ----------
              Totals                         $4,140,000          $(551,000)        $3,589,000
                                             ==========          =========         ==========
</TABLE>

     The effective annual rent expense for the Company is the total rent to be
     paid over the term of the lease, amortized on a straight-line basis. The
     difference between the actual rent amount paid and the effective rent
     recognized for financial statement purposes is reported as accrued rent.

     The Company has entered into certain sublease arrangements for leased
     office space no longer occupied. The terms of the subleases range from
     periods ending in October 2000 to January 2001.

     Rent expense charged to operations was $433,000 and $439,000 for the years
     ended December 31, 1999, and 1998, respectively. Rent expense is recognized
     net of sublease income of $336,000 and $261,000 in 1999 and 1998,
     respectively.

     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.

8.   STOCK OPTIONS AND WARRANTS

     1993 AND 1994 STOCK OPTION PLANS - Under the Company's 1993 Stock Option
     Plan, the


                                      F-16
<PAGE>   45
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

     Company granted options to purchase 400,000 shares of common stock to
     officers and employees. In 1994, the Company adopted the 1994 Stock Option
     Plan, under which the Company can grant options to purchase 200,000 shares
     of common stock. As of December 31, 1999, 200 options remained unissued
     under these plans. The Company has the discretion, subject to the terms of
     the plans, to select the person entitled to receive options, the terms and
     conditions on which options are granted, the exercise price, the time
     period of vesting such shares, and the number of shares subject thereto.

     Options granted to any person who owns stock possessing more than 10% of
     the combined voting power of all classes of the Company's stock shall be at
     an exercise price no less than 110% of fair market value on the date of
     grant. The exercise price in the case of options granted to all other
     persons must be at least equal to the fair market value of the common stock
     as of the date of grant.

     SPECIAL STOCK OPTION PLAN OF 1993 - The Special Stock Option Plan of 1993
     (the "Plan") compensated three executives for their agreement to reduce
     previously agreed-upon compensation. The Plan provided for the grant of
     options to these executives to purchase 200,000 shares and also provided
     options to other employees in similar circumstances. The exercise price for
     the options was $4.40 per share, 100% of the fair market value at the date
     of grant. The options became exercisable in January 1994, after
     commencement of principal photography of a motion picture based on a
     character licensed from the Company, and expired in January 1999.

     STOCK OPTION PLAN OF 1997 - The Stock Option Plan of 1997 initially
     provided for the grant of options to purchase an aggregate of 250,000
     shares of common stock. In April 1998 and August 1999, the Board of
     Directors approved an increase in the number of options that could be
     granted under this plan to 450,000 and 850,000, respectively. As of
     December 31, 1999, 190,000 options remained unissued under the plan.
     Officer, directors, and other key employees are eligible to receive grants
     of either incentive stock options or nonqualified stock options;
     non-employees may be granted only nonqualified stock options. The exercise
     price of each option granted under the 1997 plan must be at least 100% of
     the fair market value per share on the date the option is granted, except
     that options granted to any person who owns stock possessing more than 10%
     of the combined voting power of all classes of the Company's stock shall be
     at an exercise price no less than 110% of fair market value on the date of
     grant.

     The term of each option may not exceed 10 years from the date of grant (5
     years for any 10% stockholder). Vesting of the options is determined on a
     case-by-case basis.

     Under this plan, options to purchase 10,000 shares of common stock were
     issued to key individuals in consideration for services as observers of the
     Board of Directors as of December 31, 1999.

     1999 REFINANCING - As a result of the 1999 Refinancing, the Company granted
     warrants to purchase 1,344,618 shares of common stock ("Management
     Warrants") to employees, officers and directors. These warrants vest on the
     grant date or over three years from the date of grant. The warrants are
     exercisable at prices ranging from $9.00 to $12.00 per share of common
     stock.

     Management Warrants in the amount of 15,000 were granted to a producer in
     consideration of film and television production services.


                                      F-17
<PAGE>   46
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

     The following table summarizes option and Management Warrant transactions
     during the two years ended December 31, 1999 and December 31, 1998 under
     the aforementioned plans:

<TABLE>
<CAPTION>
                                                      WEIGHTED AVERAGE
                                          NUMBER OF       PRICE
                                           SHARES        PER SHARE
                                          ----------  ----------------
   <S>                                    <C>         <C>
     Balance, December 31, 1997             821,000       $ 5.89
     Granted                                264,000       $11.11
     Exercised                             (614,000)      $ 5.21
     Canceled                               (73,000)      $ 7.08
                                          --------

     Balance, December 31, 1998             398,000       $10.00
     Granted                              1,590,000       $ 9.99
     Canceled                               (38,000)      $10.73
                                          --------

     Balance, December 31, 1999           1,950,000       $ 9.99
                                          =========

     Vested as of December 31, 1999       1,311,000       $10.33
                                          =========
</TABLE>

     The following summarizes pricing and term information for options and
     Management Warrants issued to employees and directors and that are
     outstanding as of December 31, 1999:

<TABLE>
<CAPTION>

                                               OPTIONS/MANAGEMENT                         OPTIONS/MANAGEMENT
                                              WARRANTS OUTSTANDING                       WARRANTS EXERCISABLE
                                ----------------------------------------------       -----------------------------
                                 Weighted
                                  Number            Average          Weighted           Number          Weighted
               Range of         Outstanding        Remaining         Average         Exercisable        Average
               Exercise         at December       Contractual        Exercise        at December        Exercise
                Prices            31, 1999           Life             Price            31, 1999          Price
         -------------------    -----------      ------------      -----------       -----------       -----------

         <S>                    <C>              <C>               <C>                <C>              <C>
            $ 4.31 - 5.00          20,000             9.82          $  4.83                 --                --
                     6.69          50,000             9.38             6.69             50,000           $  6.69
              6.75 - 7.25         276,000             7.93             6.91             85,000              7.25
              8.81 - 9.00         463,000             5.22             8.99            315,000              8.99
              9.50 - 9.63         120,000             3.58             9.61            120,000              9.61
                    10.50          30,000             5.61            10.50             30,000             10.50
            11.00 - 12.69         991,000             6.98            11.62            711,000             11.66
                                ---------                                            ---------

            $4.31 - 12.69       1,950,000             6.56          $  9.99          1,311,000          $  10.33
                                =========                                            =========
</TABLE>

     The Company has adopted the disclosure-only provision of SFAS No. 123. The
     estimated fair value of options and Management Warrants granted during 1999
     and 1998 pursuant to SFAS No. 123 was approximately $6,560,000 and
     $292,000, respectively. Had the Company adopted SFAS No. 123, pro forma net
     loss would have been $(16,515,000) and $(11,530,000) and pro forma net loss
     per share would have been $(3.21) and $(2.84) for 1999 and 1998,
     respectively. The fair value of each option and Management Warrant grant
     was estimated using the Black-Scholes option-pricing model with the
     following weighted average assumptions: dividend yield of zero, a



                                      F-18
<PAGE>   47

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

     risk-free interest rate of 5.16% to 6.11%, a volatility of 70% and expected
     lives of four to eight years and three years for 1999 and 1998,
     respectively.

     WARRANTS - In connection with a public offering in 1993, the underwriters
     received warrants to acquire 120,000 shares of the company's common stock
     for 145% of the offering price ($10.88 per share). During 1997, warrants
     were exercised for 5,000 shares of common stock. The warrants expired in
     June 1998 but were extended for an additional three years, until June 2001.
     The Company recorded an expense of $225,000 related to the extension of
     these warrants as of June 30, 1998. At December 31, 1999, warrants to
     acquire 52,000 shares of common stock remained outstanding.

     In February 1994, the Company issued warrants to purchase 100,000 shares of
     its common stock at $13.48 per share (110% of the average closing price of
     the Company's common stock on ten days preceding the agreement date) to a
     producer of a motion picture featuring one of the Company's characters. The
     warrants expired in fiscal 1999.

     In January 1997, the Company issued warrants to purchase 100,000 shares of
     its common stock at $10.00 per share to advisors of the Company. The
     warrants vested 50% upon date of grant and 50% one year from the date of
     grant. The warrants expire six years from the date of grant. The Company
     recorded an expense of $35,000 in the year ended December 31, 1997 related
     to these warrants.

     In March 1998, the Company issued fully vested warrants to purchase 200,000
     shares of its common stock at $12.75 per share to consultants providing
     certain management services to the Company. The warrants expire five years
     from the date of grant. The Company recorded an expense of $433,000 related
     to the issuance of these warrants and an additional $281,000 related to the
     issuance of options to these same individuals in the year ended December
     31, 1998

     In connection with the 1999 Refinancing and conversion of the Note, the
     Company issued a total of 1,344,618 Investor 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.

     The Company accounts for options and warrants issued to non-employees in
     accordance with SFAS No. 123, and Emerging Issues Task Force 96-18 ("EITF
     96-18"). Management Warrants in the amount of 15,000, granted to a producer
     in consideration of film and television production services have been
     measured and recorded as equity based charges for a total amount of $76,000
     as of December 31, 1999. The options issued to key individuals in
     consideration for services as observers of the Board of Directors, under
     the Stock Option Plan of 1997, resulted in $32,000 of equity based charges
     as of December 31, 1999. Total equity based charges for the years ended
     December 31, 1999 and 1998 are $108,000 and $969,000, respectively.

     STOCK REPURCHASE PROGRAM - In January 1997 the Board of Directors
     authorized a stock repurchase program whereby the Company may, from time to
     time, in market transactions, purchase up to 10% of its outstanding common
     stock. The Company did not repurchase any such shares during the years
     ended December 31, 1999 or 1998.


                                      F-19
<PAGE>   48

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

9.   EARNINGS PER SHARE

     Basic Earnings Per Share ("EPS") excludes dilution and is computed by
     dividing income available to common stockholders by the weighted-average
     number of common shares outstanding for the period. Diluted EPS reflects
     the potential dilution that could occur if securities or other contracts to
     issue common stock were exercised or converted into common stock or
     resulted in the issuance of common stock that then shared in the earning of
     the entity. Due to the loss incurred in 1999 and 1998, the effect of
     potential shares, such as options and warrants, on the Company's EPS would
     be anti-dilutive. Therefore, such effect has not been used to calculate the
     diluted EPS for 1999 and 1998.


10.  SEGMENT INFORMATION

     The Company operates in one segment: the licensing of its intellectual
     property. The Company enters into agreements relating to film production
     and distribution, merchandising, and publishing.

     Worldwide sales by geographic area for the years ended December 31, 1999
     and 1998 are as follows:

<TABLE>
<CAPTION>

                                                 1999              1998
                                             -----------       ------------
          <S>                                <C>              <C>
          U.S./Canada                        $   860,000        $ (1,014,000)
          Asia                                   274,000             165,000
          Europe                                 117,000            (543,000)
          Other                                  287,000            (177,000)
                                             -----------        ------------
                                             $ 1,538,000        $ (1,569,000)
                                             ===========        ============
</TABLE>


11.  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.


12.  PROFIT-SHARING PLAN

     The profit-sharing plan covers 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 1999 or 1998.



                                      F-20
<PAGE>   49
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

13.  SUBSEQUENT EVENTS (UNAUDITED)

     On September 24, 1999, the Company signed a letter of intent for the
     acquisition of all of the outstanding stock of PM Entertainment Group, Inc.
     ("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 $10,000,000, $6,500,000 of which
     was paid in cash at Closing and the balance provided through the issuance
     by the Company of (1) $1,450,000 in shares of the Company's common stock
     and (2) a $2,050,000 subordinated note to be paid over five quarterly
     periods. The Company also assumed existing bank debt 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. In accordance with the APB
     Opinion No. 16, this acquisition will be accounted for under the purchase
     method of accounting.

     Effective as of April 3, 2000, the Company entered into a new five year,
     $25,000,000 revolving credit facility with The Chase Manhattan Bank (the
     "Chase Credit Facility") to provide operating funds and a portion of the
     acquisition financing of the PM Entertainment acquisition. Borrowings under
     the Chase Credit Facility are limited to $15,000,000 until additional
     participant lenders are added to the Chase Credit Facility, at which time
     the borrowings available will be increased to a maximum of $25,000,000.
     Borrowings under the Chase Credit 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 and its subsidiaries. Outstanding borrowings
     under the Chase Credit Facility will bear interest at the rate of either
     1.5% per annum above the prime rate (as defined) or 2.5% per annum above
     the London Interbank Offered Rate ("LIBOR"), at the Company's election,
     payable monthly. The Chase Credit Facility requires the Company to meet
     certain financial ratios.



                                      F-21
<PAGE>   50

THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES

                                                                     Schedule II


VALUATION AND QUALIFYING ACCOUNTS
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

        COLUMN A                         COLUMN B                 COLUMN C                      COLUMN D             COLUMN E
                                                       ------------------------------
                                                                          Charged to
                                       Balance at      Charged to            other                                  Balance at
                                     Beginning of       Cost and           Accounts -         Deductions -            End of
Description                             Period          Expenses            Describe            Describe              Period
-------------------------------      --------------   ------------       -------------      --------------        --------------
<S>                                  <C>              <C>                 <C>               <C>                   <C>

1998 activity:

Allowance for doubtful accounts      $   606,000      $   830,000                            $(1,138,000)(1)      $   298,000

Deferred tax valuation allowance                        1,787,000                                                   1,787,000



1999 activity:

Allowance for doubtful accounts          298,000          860,000                               (923,000)(1)          235,000

Deferred tax valuation allowance       1,787,000        2,595,000                                                   4,382,000
</TABLE>


(1) Decrease to accounts receivable
(2) Decrease to revenues



                                      F-22
<PAGE>   51

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

     On June 25, 1999, the Company selected PricewaterhouseCoopers ("PwC") to
audit its consolidated financial statements for the fiscal year ending December
31, 1999. Deloitte & Touche LLP ("D&T") served as the Company's independent
auditors for the fiscal years ended December 31, 1997 and 1998. The decision to
change auditors was recommended by the Audit Committee and approved by the
Company's entire Board of Directors.

     During the two most recent fiscal years, and any subsequent interim period
prior to June 25, 1999, the Company believes that there were no disagreements
with D&T on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of D&T, would have caused them to make
reference to the subject matter of the disagreements in connection with their
reports.

     D&T's report on the Company's financial statements for the fiscal year
ended December 31, 1998 contained a qualification as to the uncertainty of the
Company's ability to continue as a going concern. At the time of D&T's report,
the Company had not yet completed the 1999 Refinancing which was completed on
April 26, 1999 and, following its completion, the Company had sufficient
liquidity for at least the next twelve months. Other than the "going concern"
qualification, D&T's report for fiscal 1998 did not contain any adverse opinion
or disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. D&T's report on the Company's financial
statements for the fiscal year ended December 31, 1997 did not contain any
adverse opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.

     The Company has provided D&T with a copy of the disclosures it is making in
response to Item 304(a) of Regulation S-B of the Securities Act of 1933, as
amended, and D&T furnished the Company with a letter addressed to the Securities
and Exchange Commission stating that it agreed with the statements made by the
Company. In addition, the Company authorized D&T to respond fully to the
inquiries of PwC concerning the subject matter described in the foregoing
paragraphs.

     During the two most recent fiscal years prior to December 31, 1998, and the
period through June 25, 1999, neither the Company, nor anyone on the Company's
behalf, consulted PwC in connection with the Company's financial statements
regarding either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements or any matter that was
the subject of any potentially reportable event.


                                      -29-
<PAGE>   52


                                    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:

<TABLE>
<CAPTION>

                       Name                  Age                           Position
                       ----                  ---                           --------
<S>                                          <C>    <C>
Roger A. Burlage..........................   57     Chairman of the Board and Chief Executive Officer

Eric S. Mischel...........................   38     President and Chief Operating Officer

Ronald B. Cushey..........................   43     Executive Vice President, Chief Financial Officer and
                                                    Secretary

Glenn R. Weisberger.......................   41     Senior Vice President and General Counsel

Michael R. Burns..........................   41     Director

Michael S. Doherty........................   46     Director

Meyer Gottlieb............................   60     Director

Gary M. Gray..............................   55     Director
</TABLE>

     Each of the directors and executive officers serves in similar positions
for both the Company and its wholly owned subsidiary, Harvey Comics, Inc.
("Harvey"). Directors are currently elected for terms of one year each.

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

     ROGER A. BURLAGE has served as Chairman and Chief Executive Officer of The
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


                                      -30-
<PAGE>   53

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.

     ERIC S. MISCHEL has served as President and Chief Operating Officer of the
Company since April 1999. From October 1997 until April 1999 he served as
President of The Mischel Company, an entertainment company specializing in the
production of feature films, the representation of completed films in the
acquisition marketplace, and the advising of foreign-based companies on the
acquisitions and sales of feature films and animated product throughout the
world. Prior to establishing The Mischel Company, from May 1996 until August
1997, Mr. Mischel was a Senior Vice President of Acquisitions and Production at
LIVE, after serving since September 1994 as Vice President of LIVE's Family Home
Entertainment division. From August 1993 until July 1994 Mr. Mischel was a
Lecturer of Law at the University of California at Los Angeles' School of Law.

     RONALD B. CUSHEY has served as Executive Vice President, Chief Financial
Officer and Secretary of the Company since April 1999. From January 1998 until
joining the Company, Mr. Cushey served as a Financial Consultant to several
entertainment entities, primarily working with Mr. Burlage to establish
Heartland Entertainment, Inc. and to establish a capital and management infusion
into the Company. Mr. Cushey was the Executive Vice President and Chief
Financial Officer of LIVE from January 1995 until December 1997, and served as a
Director of LIVE from November 1993 until July 1997. From April 1992 until
December 1994, Mr. Cushey was an Executive Consultant for Pioneer North America,
overseeing that company's entertainment related investments and activities. Mr.
Cushey served as Executive Vice President and Chief Financial Officer of Nelson
Holdings International Ltd. and Nelson Entertainment Group (collectively
"Nelson") from November 1987 until June 1991, after serving in various financial
management positions since joining Nelson as Controller in October 1995. Mr.
Cushey is a CPA in the state of California, beginning his career as a public
accountant with PricewaterhouseCoopers LLP from 1978 until 1981 and then joining
Ernst & Young LLP from 1981 until 1985.

     GLENN R. WEISBERGER has 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.

     MICHAEL R. BURNS has been a director of the Company since April 1999. In
March 2000, Mr. Burns was named Vice Chairman of Lions Gate Entertainment, an
independent entertainment production and distribution company. Mr. Burns served
as Managing Director and Head of Prudential Securities Incorporated Los Angeles'
Investment Banking office from 1991 until 2000, specializing in the media and
entertainment fields. Prior to joining Prudential Securities,


                                      -31-
<PAGE>   54

Mr. Burns spent nine years at Shearson Lehman Brothers Inc. (now Salomon Smith
Barney). Mr. Burns is the Co-Chairman and Co-Founder of the Hollywood Stock
Exchange, an Internet entertainment site, and is the Chairman of Ignite
Entertainment, a Los Angeles based entertainment content company. A graduate of
Arizona State University, Mr. Burns received his M.B.A. from The John E.
Anderson Graduate School of Management at the University of California at Los
Angeles.

     MICHAEL S. DOHERTY has been a Director of the Company since December 1997.
Since November 1999, Mr. Doherty has been President of Doherty, Scotti &
Company, LLC, a firm specializing in venture capital and private equity funding
for development stage companies. From February 1999 to October 1999, Mr. Doherty
served as Senior Managing Director of Spencer Trask Securities Incorporated. Mr.
Doherty served as Managing Director and Director of 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.

     MEYER GOTTLIEB has been a Director of the Company since June 1999. Mr.
Gottlieb co-founded Samuel Goldwyn Films in 1998 and is its President and Chief
Operating Officer. Mr. Gottlieb became the Chief Operating Officer of The Samuel
Goldwyn Company in 1979 and its President in 1987, and assisted Mr. Goldwyn in
the founding of the company. Prior to its sale to Metromedia International
Group, Inc. in 1996 and its subsequent sale to Metro Goldwyn Mayer in 1997, The
Samuel Goldwyn Company was an independent, diversified entertainment company
engaged in the production and worldwide distribution of motion pictures and
television programming and in theatrical exhibition. From 1976 to 1978, Mr.
Gottlieb was associated with Mr. Goldwyn in various executive positions in the
motion picture production and distribution organization that was the predecessor
to The Samuel Goldwyn Company. Prior to 1976, Mr. Gottlieb was a senior manager
with PricewaterhouseCoopers LLP. Mr. Gottlieb is also President of his
wholly-owned feature film and television production services company, Night
Life, Inc.

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

     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


                                      -32-
<PAGE>   55

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 April 1, 2000, Kushner-Locke owns 58,659 shares of the
Company's Series A Preferred Stock, including 3,659 shares in accrued dividends.
The Company owns 468,883 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, 1999, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.





                                      -33-
<PAGE>   56


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, 1999, 1998 and 1997 to the Company's Chief
Executive Officer, and its three other most highly compensated officers for
services rendered during such period to the Company.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                   Long Term Compensation
                                                                 ---------------------------
                                        Annual Compensation      Common Stock
 Name And Principal                  ------------------------     Underlying     All Other
     Position                Year      Salary        Bonus         Options     Compensation
 ------------------          ----      ------     -----------    ------------  -------------
<S>                          <C>     <C>          <C>             <C>          <C>
Roger A. Burlage (1)         1999    $  342,949       N/A            589,309    $    2,500(2)
   Chairman and Chief
   Executive Officer

Eric S. Mischel (1)          1999    $  171,474       N/A            260,000    $   59,000(3)
   President and Chief
   Operating Officer

Ronald B. Cushey (6)         1999    $  102,885       N/A            120,000    $   10,000(4)
   Executive Vice
   President and Chief
   Financial Officer


Anthony J. Scotti (1)        1998        (5)          (5)            271,600          N/A
   (Former) Interim Chief    1997        N/A          N/A              N/A            N/A
   Executive  Officer and
   (Former) Interim
   President

Michael S. Hope (6)          1998        (7)          (7)             67,900          N/A
   (Former) Interim Chief    1997        N/A          N/A              N/A            N/A
   Financial Officer and
   (Former) Interim
   Secretary

Jeffrey A. Montgomery (8)    1998    $   59,150       N/A              N/A      $3,012,379(9)
   (Former) Chief            1997    $  295,000     $275,000          50,000    $   82,333(9)
   Executive Officer,
   (Former) President and
   (Former)  Chairman

</TABLE>

                                      -34-
<PAGE>   57

<TABLE>

<S>                          <C>     <C>            <C>            <C>          <C>
Charles Day                  1999    $  181,250       N/A               N/A     $   15,922(11)
   (Former) Senior Vice      1998    $  147,255       N/A               N/A     $   47,878(11)
   President of Consumer     1997    $  130,000     $ 50,000(10)       5,000    $   80,270(11)
   Products

Don Gold (12)                1998    $  118,750     $ 20,000(13)      20,000    $    6,650(14)
   (Former) Senior           1997         N/A         N/A               N/A            N/A
   Vice President -
   Harvey Home
   Entertainment
</TABLE>

---------------

(1)  On April 26, 1999 Mr. Scotti resigned as Interim Chief Executive Officer
     and Interim President and Roger A. Burlage was appointed Chief Executive
     Officer and shortly thereafter Eric S. Mischel was appointed President and
     Chief Operating Officer.

(2)  Represents benefits paid under Mr. Burlage's employment contract related to
     country club dues.

(3)  Represents amounts paid to The Mischel Company, of which Mr. Mischel was
     previously President, related to the Company's acquisition of all right,
     title and interest in certain film projects owned by The Mischel Company.

(4)  Represents a consulting fee paid to Mr. Cushey for services related to the
     1999 Refinancing prior to his employment by the Company.

(5)  Mr. Scotti did not receive any salary directly from the Company. Instead,
     Mr. Scotti served in his interim management positions pursuant to the
     Company's management services agreement with Global Media Management, LLC.
     See "Certain Relationships and Related Transactions--Global Media
     Management Group, LLC".

(6)  On April 26, 1999 Mr. Hope resigned as Interim Chief Financial Officer and
     Interim Secretary. Shortly thereafter Ronald B. Cushey was appointed
     Executive Vice President, Chief Financial Officer and Secretary.

(7)  Mr. Hope did not receive any salary directly from the Company. Instead, Mr.
     Hope served in his interim management positions pursuant to the Company's
     management services agreement with Global Media Management, LLC. See
     "Certain Relationships and Related Transactions-- Global Media Management
     Group, LLC".

(8)  Effective July 10, 1989, the Company entered into an employment agreement
     with Mr. Montgomery, which agreement was amended in March 1993 and April
     1995. On March 20, 1998, the Company's Board of Directors voted not to
     renew the agreement with Mr. Montgomery. The agreement expired on April 17,
     1998. Mr. Montgomery is no longer an officer of the Company.

(9)  Represents net proceeds from the exercise of stock options, sums advanced
     under the Company's defined contribution plan, which vest over a period of
     five years, an unaccountable business expense allowance, benefits under
     automobile and athletic club plans, and in 1995 the value of a whole life
     insurance policy transferred to Mr. Montgomery in connection with his
     employment agreement.

(10) Represents a bonus in connection with the divisional profit margin as
     negotiated in Mr. Day's


                                      -35-
<PAGE>   58

     employment agreement.

(11) Represents net proceeds from the exercise of stock options and benefits
     under automobile, living and moving allowance plans.

(12) Mr. Gold's employment with the Company terminated at the end of February
     1999.

(13) Represents a signing bonus.

(14) Represents benefits under an automobile allowance plan.

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 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.

<TABLE>
<CAPTION>

                                   Number of
                                   Securities     Percent of Total
                                   Underlying   Options Granted to      Exercise or
                                    Options        Employees in         Base Price
Name                                Granted         Fiscal Year         ($/Share)      Expiration Date
----                                -------      -----------------      ---------      ---------------
<S>                                 <C>          <C>                    <C>            <C>
Roger A. Burlage................... 489,309            31%             $9.00-$12.00     4/26/05-4/26/07
                                    100,000             6%                $6.75             10/12/09

Eric S. Mischel.................... 210,000            13%             $9.00-$12.00     4/26/05-4/26/07
                                     50,000             3%                $6.75             10/12/09

Ronald B. Cushey...................  80,000             5%             $9.00-$12.00     4/26/05-4/26/07
                                     40,000             3%                $6.75             10/12/09

Charles Day........................       0            N/A                 N/A                N/A

</TABLE>


                                      -36-
<PAGE>   59


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

                                                                        Number of
                                                                        Securities          Value of Unexercised
                                                                        Underlying        In-the-Money Options at
                                    Shares                              Unexercised             12/31/99 (1)
                                  Acquired on          Value            Options at            Exercisable (#)/
            Name                 Exercise (#)       Realized ($)         12/31/99            Unexercisable (#)
            ----                 ------------       ------------        -----------       -----------------------
<S>                              <C>                <C>                  <C>                 <C>
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               120,000                   0 / 0

Charles Day...............             0                N/A                12,500                   0 / 0

</TABLE>

--------------
(1)  The Common Stock closed on The Nasdaq Stock Market, Inc. on December 31,
     1999 at $3.813 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. In addition to such fees and options, as
compensation for services as Chairman of the Board, in April 1998 Mr. Gray
received a one-time grant of a fully-vested option under the Company's 1997
Stock Option Plan to purchase 50,000 shares of Common Stock at an exercise price
of $12.6875 per share (the closing price of a share of Common Stock on The
Nasdaq Stock Market's National Market on the grant date).

EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS

     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


                                      -37-
<PAGE>   60

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 withing 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 Eric S. Mischel,
dated April 26, 1999, which provides that he will serve as the Company's
President and Chief Operating Officer for a term of four years. Mr. Mischel is
entitled to an annual salary of $250,000 with minimum annual increases of
7-1/2%, and is also entitled to receive 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 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 is entitled to
receive a profit participation of 60% on certain of the film projects
transferred to the Company, and if Mr. Mischel's employment is terminated other
than for cause, or in certain circumstances of a change in ownership control (as
defined in the agreement), he will be entitled to be paid the remaining balance
of his salary, in accordance with its terms until he shall become employed, in
which case in certain circumstances he shall be paid the difference (if less)
between his new salary and his compensation under his employment agreement with
the Company. Mr. Mischel is 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 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 is entitled to annual salaries of $150,000,
$165,000 and $180,000, in the first, second and third years of the term,
respectively, and is also entitled to receive an annual discretionary bonus as
determined by the Board. Mr. Cushey's annual salary may be 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 is obtained. 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. If Mr. Cushey's
employment is terminated other than for cause, or in certain circumstances of a
change in ownership control (as defined in the agreement), he will be entitled
to be paid the remaining balance of his salary, in accordance with its terms
until he shall become employed, in which case in certain circumstances he shall
be paid the difference (if less) between his new salary and his compensation
under his employment agreement with the Company. Mr. Cushey is 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.


                                      -38-
<PAGE>   61

     On October 1, 1999, the Company entered into an employment agreement with
Glenn R. Weisberger, which provides that he will serve as the Company's Senior
Vice President and General Counsel for a term of three years. Mr. Weisberger is
entitled to annual salaries of $145,000, $155,000 and $165,000, in the first,
second and third years of the term, respectively, and is also entitled to
receive 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 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. If Mr. Weisberger's
employment is terminated other than for cause, or in certain circumstances of a
change in ownership control (as defined in the agreement), he will be entitled
to be paid the remaining balance of his salary, in accordance with its terms
until he shall become employed, in which case in certain circumstances he shall
be paid the difference (if less) between his new salary and his compensation
under his employment agreement with the Company. Mr. Weisberger is 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 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 agreement was amended on May 17, 1999
to increase Mr. Day's annual salary from $139,000 to $149,000 effective 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, 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
at $11.00 per share (adjusted to $7.25 per share in December 1996) vesting over
three years and an option to purchase 5,000 shares 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.



                                      -39-
<PAGE>   62

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of March 31, 2000, 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 or Series A Preferred Stock, (ii) each of the
Company's directors, (iii) each person who served as the chief executive officer
of the Company during fiscal year 1999, (iv) the other executive officers of the
Company during fiscal year 1999, and (v) the Company's current directors and
executive officers as a group:

<TABLE>
<CAPTION>
                                                                   Number of Shares
Name and Address of                                                  And Nature of
Beneficial Owners                    Title of Class (1)          Beneficial Ownership (2)    Percent of Class (3)
-----------------------              ------------------          ------------------------    --------------------
<S>                                  <C>                         <C>                         <C>
AKAUSA Holdings Limited (4)......    Common Stock                       1,075,000                   25.68%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                      14.95%

Ahmad Bin Khalid Al-                 Common Stock                       1,075,000                   25.68%
Saud (4)........................     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                      14.95%

Roger A. Burlage (5)............     Common Stock                         412,275                    8.98%
                                     Series A Preferred Stock               5,333                    2.63%
                                     Total Voting Power                     --                       6.47%

Anthony J. Scotti (6)...........     Common Stock                         271,600                    6.09%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       3.64%

Michael S. Hope (7).............     Common Stock                          67,900                    1.60%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       0.94%

Eric S. Mischel (8).............     Common Stock                         164,794                    3.74%
                                     Series A Preferred Stock                 800                    0.39%
                                     Total Voting Power                     --                       2.40%

Ronald B. Cushey (9).......          Common Stock                          62,980                    1.39%
                                     Series A Preferred Stock                 853                    0.42%
                                     Total Voting Power                     --                       1.04%

Glenn R. Weisberger (10)........     Common Stock                          21,000                    0.48%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       0.29%

Michael R. Burns (11)...........     Common Stock                         515,308                   10.65%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       6.70%

Michael S. Doherty (12).........     Common Stock                          70,000                    1.64%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       0.96%

</TABLE>


                                      -40-
<PAGE>   63

<TABLE>
<S>                                  <C>                         <C>                         <C>
Meyer Gottlieb (13).............     Common Stock                          14,000                    0.24%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       0.19%

Gary M. Gray (14)...............     Common Stock                         117,500                    2.73%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       1.61%

Charles Day (15)................     Common Stock                          12,500                    0.30%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       0.17%

Don Gold (16)...................     Common Stock                           1,000                    0.02%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       0.01%

Paul Guez (17)..................     Common Stock                         352,941                    7.77%
                                     Series A Preferred Stock              52,802                   26.06%
                                     Total Voting Power                     --                      15.05%

Universal Studios, Inc. (18)....     Common Stock                         374,500                    8.94%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       5.21%

Lord, Abbett & Co. (19).........     Common Stock                         152,200                    3.64%
                                     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       2.12%

Dimension Fund Advisors Inc.         Common Stock                         296,900                    7.09%
(20)............................     Series A Preferred Stock               --                        --
                                     Total Voting Power                     --                       4.13%

The Kushner-Locke Company            Common Stock                           --                        --
(21)..............................   Series A Preferred Stock              58,659                   28.95%
                                     Total Voting Power                     --                      12.09%

All Officers and Directors as a      Commonr Stock                      1,377,857                   24.25%
group (8 persons)(22).........       Series A Preferred Stock               6,986                    3.45%
                                     Total Voting Power                     --                      17.36%
</TABLE>

---------------
(1)  Each share of Series A Preferred Stock is entitled to a number of votes
     equal to the number of shares of Common Stock into which it is convertible.
     The Series A Preferred Stock voting as a separate class is entitled to
     elect two of the Company's five directors and is otherwise entitled to vote
     on all matters (including the election of remaining directors) together
     with holders of Common Stock voting as a class.

(2)  Shares underlying options or warrants to purchase Common Stock exercisable
     within 60 days are deemed to be outstanding for purposes of calculating the
     number of shares owned by the holders of such options or warrants.


                                      -41-
<PAGE>   64

(3)  The percent of Common Stock owned is calculated using the number of shares
     of Common Stock beneficially owned as the numerator, and the sum of (A) the
     total number of shares of Common Stock outstanding on March 31, 2000
     (4,186,941) and (B) the total number of shares issuable upon conversion of
     the beneficial owners convertible securities, as the denominator. The
     percent of Series A Preferred Stock owned is calculated using the number of
     shares of Series A Preferred Stock beneficially owned as the numerator and
     the total number of shares of Series A Preferred Stock and accrued
     dividends outstanding on March 31, 2000 (202,636) as the denominator. The
     percent of Total Voting Power is calculated using the sum of (A) the number
     of shares of Common Stock beneficially owned and (B) the number of shares
     of Common Stock issuable upon conversion of the beneficial owner's Series A
     Preferred Stock as the numerator, and the sum of (A) the total number of
     shares of Common Stock outstanding (4,186,941), (B) the total number of
     shares of Common Stock issuable upon conversion of the Series A Preferred
     Stock (3,002,022) at the initial conversion price of $6.75 per share of
     Common Stock and (C) the total number of shares issuable upon conversion of
     the beneficial owners convertible securities, as the denominator.

(4)  Includes shares held by AKAUSA and Mr. Al-Saud. The United States mailing
     address of AKAUSA and the United States address of Mr. Ahmad Bin Khalid
     Al-Saud is 3535 N. W. 58th Street, Suite 950, Oklahoma City, Oklahoma
     73112. AKAUSA is a Cayman Islands corporation, 100% of whose stock is owned
     by Mr. Ahmad Bin Khalid Al-Saud, a citizen and resident of Saudi Arabia.
     AKAUSA owns 475,000 shares; Mr. Al-Saud owns 600,000 shares directly.

(5)  The address of Mr. Burlage is c/o the Company at 11835 W. Olympic Blvd.,
     Suite 550, Los Angeles, California 90064. Includes warrants to purchase
     402,275 shares of Common Stock at prices ranging from $9.00 to $12.00.

(6)  The address of Mr. Scotti is c/o Doherty, Scotti & Company, LLC, 1999
     Avenue of the Stars, 17th Floor, Los Angeles, California 90067. Mr. Scotti
     resigned as Interim Chief Executive Officer and Interim President on April
     26, 1999. Includes currently exercisable warrants to purchase 155,200
     shares of Common Stock at an exercise price of $12.75 per share, vested
     options to purchase 77,000 shares of Common Stock at an exercise price of
     $9.63 per share and vested options to purchase 38,800 shares of Common
     Stock at an exercise price of $12.69 per share.

(7)  The address of Mr. Hope is 1079 Amalfi Drive, Pacific Palisades, California
     90272. Mr. Hope resigned as Interim Chief Financial Officer and Interim
     Secretary on April 26, 1999. Includes currently exercisable warrants to
     purchase 38,800 shares of Common Stock at an exercise price of $12.75 per
     share, vested options to purchase 19,400 shares of Common Stock at an
     exercise price of $9.63 per share and vested options to purchase 9,700
     shares of Common Stock at an exercise price of $12.67 per share.

(8)  The address of Mr. Mischel is c/o the Company at 11835 W. Olympic Blvd.,
     Suite 550, Los Angeles, California 90064. Includes warrants to purchase
     162,794 shares of Common Stock at prices ranging from $9.00 to $12.00.

(9)  The address of Mr. Cushey is c/o the Company at 11835 W. Olympic Blvd.,
     Suite 550, Los Angeles, California 90064. Includes warrants to purchase
     58,980 shares of Common Stock at prices ranging from $9.00 to $12.00.

(10) The address of Mr. Weisberger is c/o the Company at 11835 W. Olympic Blvd.,
     Suite 550, Los Angeles, California 90064. Includes warrants to purchase
     20,000 shares of Common Stock at prices ranging from $9.00 to $12.00.


                                      -42-
<PAGE>   65

(11) The address of Mr. Burns is c/o the Company at 11835 W. Olympic Blvd.,
     Suite 550, Los Angeles, California 90064. Includes options to purchase
     10,000 shares which became exercisable in May 1999 and warrants to purchase
     489,308 shares of Common Stock at prices ranging from $9.00 to $12.00.

(12) The address of Mr. Doherty is c/o Doherty, Scotti & Company, LLC, 1999
     Avenue of the Stars, 17th Floor, Los Angeles, California 90067. Includes a
     warrant to purchase 50,000 shares which became exercisable in January 1997
     as to 25,000 shares and exercisable in March 1998 as to 25,000 shares.
     Includes options to purchase 10,000 shares which became exercisable in May
     1998 and 10,000 shares which became exercisable in May 1999.

(13) The address of Mr. Gottlieb is c/o the Company at 11835 W. Olympic Blvd.,
     Suite 550, Los Angeles, California 90064. Includes options to purchase
     10,000 shares of Common Stock which became exercisable in June 1999.

(14) The address of Mr. Gray is c/o Milestone Capital Inc., 1800 West Loop
     South, Suite 1075, Houston, Texas 77027. Includes options to purchase 5,000
     shares which became exercisable in May 1994, 2,500 shares which became
     exercisable in each of May 1995 and 1996, 7,500 shares which became
     exercisable in March 1996, 10,000 shares which became exercisable in May
     1997 and May 1998, 20,000 shares which became exercisable in June 1997,
     50,000 shares which became exercisable in April 1998 and 10,000 shares
     which became exercisable in May 1999.

(15) The address of Mr. Day is c/o the Company at 11835 W. Olympic Blvd., Suite
     550, Los Angeles, California 90064. Includes currently exercisable options
     to purchase 12,500 shares of Common Stock.

(16) The address of Mr. Gold is c/o Itsy Bitsy Entertainment Company, 127 North
     Robertson, Los Angeles, California 90048.

(17) The address of Mr. Guez is c/o Azteca Production International, Inc., 5804
     Slauson Avenue, City of Commerce, California. Includes warrants to purchase
     352,941 shares of Common Stock at prices ranging from $9.00 to $12.00.

(18) The address of Universal Studios, Inc. is 100 Universal City Plaza,
     Universal City, California 91608. Universal Studios is controlled by the
     Seagram Company Ltd., a Canadian Company. The address of the Seagram
     Company Ltd. is 375 Park Avenue, New York, New York 10152.

(19) The address of Lord, Abbett & Co. is 90 Hudson Street, Jersey City, New
     Jersey 07302. The number of shares beneficially owned is based on a
     Schedule 13 G filed on January 19, 2000.

(20) The address of Dimension Fund Advisors is 1299 Ocean Avenue, 11th Floor,
     Santa Monica, California 90401. The number of shares beneficially owned is
     based on a Schedule 13 G filed on February 11, 2000.

(21) The address of The Kushner-Locke Company is 11601 Wilshire Boulevard, 21st
     Floor, Los Angeles, California 95205.

(22) Includes the beneficial ownership of Messrs. Burlage, Burns, Gray, Doherty,
     Gottlieb, Mischel, Cushey and Weisberger.


                                      -43-
<PAGE>   66

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

UNIVERSAL STUDIOS

     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. In September 1994,
the Company and Universal Studios entered into the television animation
agreement described below. In May 1997, the Company and Universal Studios
amended their relationship as described below.

     Universal Studios Distribution Agreement And Animation Agreement/May 1997
Amendment/ Related Agreements. The Company and Universal Studios entered into a
Memorandum of Distribution Agreement dated as of December 7, 1990, as amended by
letters dated April 22, 1993 and September 28, 1993 (the "Universal Studios
Distribution Agreement"), pursuant to which Universal Studios was granted
certain limited rights, with no corresponding obligation, to exploit the
Company's 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 Universal Studios 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 ("FN") rights and First Negotiation/First Refusal ("FNFR")
rights, and also retained certain limited rights to exploit the Company's
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 (the
"Merchandising Amendment") in the form of a letter agreement executed
concurrently (collectively, 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 characters (except those related to a Casper or Casper Character
motion pictures produced and/or released by Universal Studios, as further
described below), (ii) FNFR rights and FN rights in all of the Company's
characters other than certain FNFR rights and FN 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 FNFR 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,


                                      -44-
<PAGE>   67

the Company may enter into new licenses with a term beginning after the window
and such pre-existing licenses between the Company and third parties are not
affected by a window).

     Theatrical Motion Pictures. 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. In May 1995, a theatrical motion picture featuring
Casper, the Friendly Ghost was released. To date, the first Casper movie has
grossed approximately $307,000,000 at the box office (of which the Company was
entitled to receive only its contractual share). The Company is entitled to
certain fees, which have already been paid, plus a percentage of gross profits,
if any, derived after initial actual breakeven, and a percentage of the gross
proceeds from merchandising in connection with the Casper Movie, less a
distribution fee and certain costs. Upon commencement of principal photography
of the first Casper movie, Universal Studios became vested with all theatrical
sequel and theatrical remake rights to Casper.

     Pursuant to the Universal Settlement Agreement, Universal retains the
exclusive right to initiate, develop and produce further Casper theatrical
features. The rights fees for the second and subsequent sequels, if produced,
will be negotiated in good faith, and subject to resolution by "baseball"
arbitration. The Company agreed to a theatrical preclusion period ("TPP") around
the theatrical release of the first Casper sequel during which time the Company
may not permit the initial release of any Casper filmed entertainment product.
Universal also has certain rights with respect to non-features and other
pictures in which Casper may make a guest appearance.

     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 characters (other than Casper) expired in
December 1995, it has retained a FN 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 FN right expires on the earlier of (i) December 7, 2000, or (ii)
the date upon which Universal Studios ceases to own at least five percent (5%)
of the outstanding capital stock of the Company.


                                      -45-
<PAGE>   68

     Television. Under the Universal Settlement Agreement, Universal Studios has
FNFR 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. The FNFR rights expire on
December 7, 2003, but if Universal Studios fails to give the Company appropriate
notice of an anticipated release of the first Casper sequel by June 15, 2000 or
fails to release the first Casper sequel by Labor Day 2001, the FNFR rights will
expire on December 7, 2000. With respect to Universal Studios' rights to the
library of product featuring Casper or having the Casper name in the title only,
the expiration date of such rights also will be shortened to December 7, 2000 if
the domestic box office projection for the first Casper sequel does not exceed
$100,000,000.

     Under the Universal Settlement Agreement, Universal Studios also has FNFR
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 FNFR rights with respect to the Casper Characters
(other than Casper) expire on June 30, 2001, but if Universal Studios fails to
give the Company appropriate notice of an anticipated release of the first
Casper sequel by June 2000 or fails to release the first Casper sequel by Labor
Day 2000, the FNFR rights will expire on December 7, 2000.

     On September 22, 1994, Universal Studios and the Company formed an
animation productions services organization ("PSO"), known as the
Universal/Harvey Animation Studios, for the purpose of developing and producing
television motion pictures based on the Harvey Classic Characters or other
characters. In 1996, the venture produced 26 30-minute episodes of "Casper" for
the Fox Kid's Television Network. The venture completed production of another 26
episodes which were delivered to Fox in 1997 and 1998. Fox did not order
additional episodes and lost the right to order additional ones. Universal
Studios was granted merchandising and publishing (except for comic books) agency
rights limited to the animated entertainment produced by the venture. The
venture will not produce any additional animation based on Casper. Under the May
1997 Amendment, if Universal initiates production of a filmed entertainment to
which a TPP does not apply, the Company is precluded from releasing new animated
television product featuring Casper or the Casper Characters for a limited
period of time. Pursuant to the PSO Agreement (as amended by the Term Sheet),
Universal Studios has animated television sequel rights to any Casper Character
starring in television motion pictures produced under the PSO Agreement for a
period of 3 years from the completion of production of the last television
motion picture featuring such character. The PSO Agreement otherwise restricts
the Company's right to produce animated television sequels.

     Home Video. Under the Universal Studios Distribution Agreement, Universal
Studios held certain FNFR 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 Universal Studios 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


                                      -46-
<PAGE>   69

Agreement, Universal Studios released all such rights except a FNFR right to
produce and release the first feature length Casper direct-to-video after the
next Casper theatrical release. This right expires in December 2000.

     In 1992, Universal Studios and the Company reached an agreement in the home
video market pursuant to which Universal Studios paid the Company an advance,
recoupable against the Company's royalty, for the right to package and
distribute one-half hour videos made from the Company's Classic Film Library.
Pursuant to the May 1997 Amendment, the Company repurchased these rights from
Universal.

     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. The agreement has not yet been
completed, but Universal Studios in 1999 released two of the Company's
Harveytoons episodes in the domestic video market and expects to release the new
Casper direct-to-video animated feature in the domestic market in the fall of
2000.

     Merchandising. Pursuant to the Universal Studios Distribution Agreement,
Universal Studios had the right to act as the exclusive worldwide licensing
agent of the Company with respect to all merchandising exploitation of the
Company's characters. Most of these rights expired in April 1996. Pursuant to
the Universal Settlement Agreement, Universal Studios' only remaining
merchandising rights are certain rights to exploit movie merchandising related
to Casper and Casper Characters appearing in permitted feature pictures which
feature or refer in the title to Casper or Casper Characters during
merchandising windows associated with such pictures (such windows are exclusive
except that, during a window, the Company may enter into new licenses with a
term beginning after the window ends and pre-existing licenses between the
Company and third parties are not affected by a window).

     Theme Parks. Under the Universal Settlement Agreement, Universal Studios
has the exclusive right to exploit Casper and the Casper Characters and products
in theme parks in the United States, provided, however, that in certain
circumstances the Company has limited rights to exploit Casper and the Casper
Characters and products in Harvey owned theme parks more than 150 miles away
from any Universal Studios' theme park. Harvey retains "special appearance"
rights for its characters in all locations outside California and Florida.
Additionally, if Universal Studios exploits Casper or the Casper Characters
and/or products in a major attraction in a theme park in the United Kingdom,
France and Japan, Universal Studios shall have exclusive theme park exploitation
rights in that country as long as the character or product is a principal
element in an attraction there; thereafter, Universal Studios shall have
non-exclusive rights. (Universal Studios is not currently exploiting Casper or
the Casper Characters in theme parks in the United Kingdom, France or Japan).
Universal Studios has non- exclusive rights to exploit Casper and the Casper
Characters and products in theme parks in the rest of the world. Prior to the
May 1997 Amendment, Universal Studios held these rights with respect to all of
the Company's characters. The Company is negotiating with Universal Studios with
respect to certain limited rights of the Company to use the Casper Characters to
stroll throughout theme parks in the United States.


                                      -47-
<PAGE>   70

     Security Interest. In order to secure Universal Studios' rights under the
Universal Studios 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.

     Lease. The Company entered into a short-term sublease with MCA Records (a
subsidiary of Universal Studios) on September 22, 1996 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.

PRUDENTIAL SECURITIES INC.

     On April 7, 1999 the Company entered into a Stock Purchase Agreement by and
among the Company and Michael R. Burns, Roger A. Burlage, Ken Slutsky and the
Kushner-Locke Company pursuant to which the Company issued and sold 170,000
shares of its Series A Preferred Stock and warrants to purchase up to 2,400,000
shares of the Company's Common Stock (the "1999 Refinancing"). In connection
with the 1999 Refinancing, Prudential Securities Inc. received fees of
approximately $450,000 for advisory services rendered. Michael R. Burns, a
Director of the Company, was a Managing Director of Prudential Securities Inc.
at the time of the transaction.

GLOBAL MEDIA MANAGEMENT GROUP, LLC

     In March 1998, the Company entered into a management services agreement
(the "Management Agreement") with Global Media Management Group, LLC ("Global
Media"). Pursuant to the Management Agreement, the Company secured the
non-exclusive services of Anthony J. Scotti and Michael S. Hope, as the
Company's Interim Chief Executive Officer/Interim President and Interim Chief
Financial Officer/Interim Secretary, respectively, and Leonard Breijo, as the
head of the Company's business affairs. The Company agreed to pay Global Media a
fee of $75,000 per month for the services of Messrs. Scotti and Hope, and an
additional $10,000 per month for the services of Mr. Breijo.

     In March 1998, in connection with their employment by the Company, the
Company granted Messrs. Scotti, Hope and Breijo five-year warrants to purchase,
in the aggregate, 200,000 shares of Common Stock. The warrants became
exercisable immediately and have an exercise 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 issued). In April 1998 the Company also granted Messrs.
Scotti, Hope and Breijo options under the Company's 1997 Stock Option Plan to
purchase, in the aggregate, 50,000 shares of Common Stock. The options became
exercisable immediately and have an exercise price of $12.6875 per share (the
closing price of a share of Common Stock on The Nasdaq Stock Market, Inc. on the
date the options were granted). Under the Management Agreement, the Company
agreed to indemnify Global Media against all losses except those occasioned by
Global Media's gross negligence or willful misconduct. The Management Agreement
had an initial term of six months. In July 1998, the Management Agreement was
extended for an additional six month term through December 23, 1998. At that


                                      -48-
<PAGE>   71

time the Company granted to Messrs. Scotti, Hope and Breijo options under the
Company's 1997 Stock Option plan to purchase, in the aggregate 100,000 shares of
the Company's Common Stock. The options became exercisable immediately and have
an exercise price of $9.63 per share (the closing price of a share of Common
Stock on The Nasdaq Stock Market, Inc. on the date the options were granted).

     From the expiration of the extension in December 1998 through April 1999,
Global Media provided services to the Company on a month-to-month basis on the
same terms and conditions as set forth in the Management Agreement, as extended.
In April 1999 Messrs. Scotti and Hope resigned from their Interim Management
positions.

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.

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)


                                      -49-
<PAGE>   72

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)

                                      -50-
<PAGE>   73

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)

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)


                                      -51-
<PAGE>   74

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)

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)



                                      -52-
<PAGE>   75


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)

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



                                      -53-
<PAGE>   76

          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)


                                      -54-
<PAGE>   77

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

                                      -55-
<PAGE>   78

         (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)

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*

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)*

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)*

10.76     Lease Agreement dated September 22, 1999 between the Company and
          Douglas Emmett Realty Fund 1997, a California limited partnership*

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)

23.1      Consent of Deloitte & Touche LLP*

27        Financial Data Schedules

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)

* Filed herewith


                                      -56-
<PAGE>   79


                                   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 12, 2000             By: /s/  Roger A. Burlage
                                     ---------------------------------------
                                 Name: Roger A. Burlage
                                 Title: Chairman and Chief Executive Officer

Date: April 12, 2000             By: /s/  Ronald B. Cushey
                                     ----------------------------------------
                                 Name: Ronald B. Cushey
                                 Title: Executive Vice President and Chief
                                        Financial Officer

     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.

<TABLE>
<CAPTION>

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

<S>                             <C>                   <C>

/s/ Michael R. Burns             Director              April 12, 2000
--------------------------
Michael R. Burns


/s/ Michael S. Doherty           Director              April 12, 2000
--------------------------
Michael S. Doherty


/s/ Meyer Gottlieb               Director              April 12, 2000
--------------------------
Meyer Gottlieb


/s/ Gary M. Gray                 Director              April 12, 2000
--------------------------
Gary M. Gray
</TABLE>