ODYSSEY PICTURES CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                     Page
                                                                     ----
Report of Independent Accountants                                     F-2

Financial Statements:
    Consolidated Balance Sheets
     as of June 30, 1999 and 1998                                     F-3

    Consolidated Statements of Operations for the
     Years Ended June 30, 1999, 1998 and 1997                         F-4

    Consolidated Statements of Changes in Shareholders'
     Equity (Deficit) for the Years Ended June 30,
     1999, 1998 and 1997                                              F-5

    Consolidated Statements of Cash Flows for the
     Years Ended June 30, 1999, 1998 and 1997                         F-6 - F-7

    Notes to Consolidated Financial Statements                        F-8 - F-24




All  schedules  have been  omitted  because  the  requested  information  is not
required,  or,  because the  information  required is included in the  financial
statements or notes thereto.



                                      F-1
<PAGE>
                             WANT & ENDER, CPA, P.C.
                        386 PARK AVENUE SOUTH, SUITE 1618
                               NEW YORK, NY 10016

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Odyssey Pictures Corporation

In our  opinion,  the  accompanying  consolidated  balance  sheets  and  related
consolidated  statement of  operations,  shareholders'  equity and of cash flows
present  fairly,  in all material  respects,  the financial  position of Odyssey
Pictures  Corporation  and its  subsidiaries  at June 30,  1999 and 1998 and the
results of their  operations  and their cash flows for the period ended June 30,
1999 and 1998 in conformity with generally accepted accounting principles. These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
generally accepted auditing standards 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 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.

As  discussed in Note 7 to the  financial  statement,  the Company  defaulted on
payments  due August and October  1996  relating to notes  payable.  The Company
proposed  to the  noteholders  to  defer  maturity  of the  notes  and  exchange
exisiting  warrants  for shares,  or cancel the notes and  existing  warrants in
their  entirety in  exchange  for shares.  The Company  offered to register  any
shares  issued in  exchange  for the notes as of  August  12,  1997 the date the
registration  becomes  effective,  and all but one of the noteholders  agreed to
exchange their notes for registered stock. The remaining notes for $50,000 (held
by a single  investor) have not been paid and are in default.  Additionally,  an
unsecured  note of  $179,000  is also in  default.  At this time,  the  ultimate
outcome of this matter cannot be determined.

As  discussed  in Note 8, the Company is a defendant  in various  lawsuits.  The
Company  has  filed   counteractions  and  preliminary  hearings  and  discovery
proceedings  on several  actions are in progress.  The  ultimate  outcome of the
litigation cannot be determined at present.  Not all liabilities that may result
upon adjudication have been accrued in the accompanying financial statements.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 3 to the
financial statements, the Company has suffered recurring losses from operations,
has a net capital  deficiency and has  insufficient  working capital to meet its
current  obligations and liquidity needs.  These factors raise substantial doubt
about the Company's ability to continue as a going concern.  Management's  plans
in  regard  to  these  matters  are  also  described  in Note 3.  The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


New York City, New York

/s/ Want & Ender, CPA, P.C.
---------------------------
Want & Ender, CPA, P.C.
October 13, 1999

                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                             ODYSSEY PICTURES CORPORATION

                                             CONSOLIDATED BALANCE SHEETS

                                                                                      June 30,            June 30,
ASSETS                                                                                  1999                1998
------                                                                             ----------------    ----------------
<S>                                                                              <C>                 <C>

      Cash                                                                                 $ 4,715             $ 4,331
      Accounts receivable, net of allowances
      of $0 and $0                                                                          81,986               9,500
      Notes receivable                                                                     131,272             100,000
      Film costs, net                                                                    4,383,629             110,422
      Prepaid expenses and other                                                           380,906               1,200
      Investments                                                                          456,600             450,000
                                                                                   ----------------    ----------------

            TOTAL ASSETS                                                               $ 5,439,108           $ 675,453
                                                                                   ================    ================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Liabilities

      Accounts payable and accrued expenses                                              $ 805,071           $ 865,923
      Accrued wages                                                                        839,185             457,794
      Accrued interest                                                                     163,198              77,168
      Due to producers and participants                                                    250,000             250,000
      Deferred revenues                                                                     29,000              29,000
      Notes and loans payable                                                            1,192,081           1,079,000
                                                                                   ----------------    ----------------

      Total Liabilities                                                                  3,278,535           2,758,885
                                                                                   ----------------    ----------------

      Commitments and contingencies

Shareholders' Equity (Deficit)

      Preferred stock, Series A, par value $.10;
      Authorized - 10,000,000 shares

      Issued - 500,000 shares                                                               50,000              50,000
      Preferred stock, Series B, par value $.10
      Authorized - 10,000,000 shares

      Issued - 4,500,000 shares                                                            450,000
      Common stock, par value $.01;
      Authorized - 40,000,000 shares
      Issued and outstanding -

      8,284,728 and 5,029,285                                                               82,847              50,293
      Capital in excess of par value                                                    32,704,197          27,552,973
      Accumulated deficit                                                              (31,126,471)        (29,736,698)
                                                                                   ----------------    ----------------
      Total shareholders' deficit                                                        2,160,573          (2,083,432)
                                                                                   ----------------    ----------------

            TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                       $ 5,439,108           $ 675,453
                                                                                   ================    ================


                         The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                              F-3
<PAGE>
<TABLE>
<CAPTION>
                                            ODYSSEY PICTURES CORPORATION

                                       CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                          For the Years Ended June 30,

                                                                   1999                1998                1997
                                                             -----------------    ----------------    ---------------
<S>                                                         <C>                 <C>                 <C>

Revenue

                                                                    $ 288,430            $ 42,630          $ 141,202
Expenses

        Costs related to revenues                                     261,050              20,019            565,610
        Selling, general and
          administrative expenses                                   1,282,553           1,073,134          1,678,450
                                                             -----------------    ----------------    ---------------
                                                                    1,543,603           1,093,153          2,244,060
                                                             -----------------    ----------------    ---------------

        Operating income (loss)                                    (1,255,173)         (1,050,523)        (2,102,858)

Other income (expenses)

        Other income
        Interest income                                                15,004
        Interest expense                                             (149,604)            (68,891)           (91,435)
        Loss on sale of joint venture interests                             -
        Other income                                                                                       2,263,101
                                                             -----------------    ----------------    ---------------

        Income (loss) from operations
          before provision for income taxes                        (1,389,773)         (1,119,414)            68,808
        Provision / Benefit for income taxes                                -                   -                  -

        NET INCOME (LOSS)                                        $ (1,389,773)       $ (1,119,414)          $ 68,808
                                                             =================    ================    ===============

Basic income (loss) per share                                         $ (0.22)            $ (0.25)            $ 0.02

        Weighted average common
        shares outstanding                                          6,459,396           4,403,435          2,993,809
                                                             =================    ================    ===============

Diluted income (loss) per share                                       $ (0.22)            $ (0.25)            $ 0.02

        Weighted average common
        shares outstanding                                          6,459,396           4,403,435          2,993,809
                                                             =================    ================    ===============


                         The accompanying notes are an integral part of these financial statements.
</TABLE>
                                                                 F-4
<PAGE>
<TABLE>
                                                                ODYSSEY PICTURES CORPORATION
                                             Consolidated Statements Of Changes in Shareholders' Equity (Deficit)



<CAPTION>
<S>                                     <C>          <C>        <C>           <C>         <C>            <C>           <C>

                                               Preferred Stock           Common Stock                                      Total
                                                       Amount                   Amount    Capital in                   Shareholders'
                                                     ($.10 Par                ($.01 Par    Excess of       Accumulated     Equity
                                          Shares       Value)     Shares        Value)     Par Value       Deficit        (Deficit)
                                          ------     ---------    ------       -------    ----------     ------------- -------------
Balances - June 30, 1996                     -           -       2,591,242       25,913    25,911,366    (28,686,092)    (2,748,813)
     Issuance of shares to officers
        in payment of notes                                         78,948          789        44,211                        45,000
     Re-issue of unexchanged shares
       shares previously cancelled                                  65,825          659          (659)                            0
     Issuance of shares in consideration
        for services rendered                                       43,500          435        33,665                        34,100
     Sale of shares to equity
        investors                                                  500,000        5,000       370,000                       375,000
     Net income                                                                                                68,808        68,808
                                       ------------  --------- ------------  -----------  ------------  -------------   ------------

Balances - June 30, 1997                      -           -      3,279,515      $32,796   $26,358,583    ($28,617,284)  ($2,225,905)

     Issuance of shares of preferred
        stock to equity investors          500,000     50,000                                 450,000                       500,000
     Issuance of shares of common stock
        in exchange for cancellation
        notes payable and other
        liabilities                                              1,010,455       10,104       529,235                       539,339
     Issuance of shares of common stock
        to equity investors                                         66,667          667        49,333                        50,000
     Issuance of shares of stock in
        exchange for cancellation of
        deferred compensation notes                                667,648        6,676       165,823                       172,499
     Issuance of shares of common stock
        in consideration for service
        rendered                                                     5,000           50                                          50
     Net loss                                                                                             (1,119,414)    (1,119,414)
                                       ------------  --------- ------------  -----------  ------------  -------------   ------------

Balances - June 30, 1998                   500,000    $50,000    5,029,285      $50,293   $27,552,973   ($29,736,698)   ($2,083,432)
                                       ============  ========= ============  ===========  ============  =============  =============



                              The accompanying notes are an integral part of these statements.
</TABLE>

                                                                 F-5
<PAGE>
<TABLE>
<CAPTION>

                                    ODYSSEY PICTURES CORPORATION

                                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                      For the Years Ended June 30,

                                                                                  1999             1998           1997
                                                                              --------------  --------------- --------------
<S>                                                                          <C>               <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

       Net income (loss)                                                       $ (1,389,773)    $ (1,119,414)      $ 68,808
       Adjustments to reconcile net income (loss)
       to net cash used in
       operating activities:
          Amortization of film costs                                                162,931           36,976      1,660,440
          Additions to film costs                                                  (153,179)         (26,926)      (779,944)
          Other depreciation and amortization                                        21,500           10,961         18,963
          Issuance of shares of common stock in consideration
          for services rendered                                                      76,816               50         34,100
       Changes in assets and liabilities:
          Accounts receivable, net                                                  (72,486)         282,751        704,323
          Notes receivable                                                          (31,272)         200,000       (300,000)
          Prepaid expenses and other                                                (10,165)           5,837           (536)
          Accounts payable and accrued expenses                                     (60,852)         272,240        219,035
          Due to producers and participants                                               -         (310,499)    (2,924,643)
          Deferred revenues                                                               -            9,200         16,800
          Accrued wages                                                             381,391          121,798        318,624
          Accrued interest                                                          113,255           12,567         18,329
                                                                              --------------  --------------- --------------

              Net cash used in operating activities                                (961,834)        (504,459)      (945,701)
                                                                              --------------  --------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES:

       Purchase of stock in E-3 Sports New Mexico, Inc.                              (6,600)
       Acquisition of fixed assets                                                                                   (8,480)

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

              Net cash used in investing activities                                  (6,600)               -         (8,480)
                                                                              --------------  --------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES:

       Payment of note payable in settlement of Generale Bank litigation                  -          (25,000)             -
       Net proceeds from private placement sale of common stock                     440,693                -        375,000
       Net proceeds/payments - notes and loans payable                              528,125          (25,000)       125,000
       Issuance of shares of preferred stock to equity investors                          -          500,000              -
       Issuance of shares of common stock to equity investors                             -           50,000              -
                                                                              --------------  --------------- --------------

       Net cash provided by financing activities                                    968,818          500,000        500,000
                                                                              --------------  --------------- --------------

       Net increase (decrease) in cash                                                  384           (4,459)      (454,181)
       Cash at beginning of period                                                    4,331            8,790        462,971
                                                                              --------------  --------------- --------------

       Cash at end of period                                                        $ 4,715          $ 4,331        $ 8,790
                                                                              ==============  =============== ==============

                         The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                                 F-6
<PAGE>
<TABLE>
<CAPTION>

                                             ODYSSEY PICTURES CORPORATION

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                     For the Years Ended June 30,

                                                                                 1999             1998            1997
                                                                            ---------------  ---------------  -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S>                                                                        <C>              <C>               <C>

Non-cash transactions:

       Issuance of shares of preferred stock for purchase of
           Kimon film library and other assets                                  $4,500,000
                                                                            ===============
       Issuance of shares in consideration for services rendered and to
           be rendered                                                           $ 250,816             $ 50       $ 34,100
                                                                            ===============  ===============  =============
       Issuance of shares of common stock in full satisfaction of
           loans and accrued interest                                            $ 162,225        $ 539,338
                                                                            ===============  ===============
       Issuance of shares of common stock as partial consideration
           for loans made to company                                              $ 19,800
                                                                            ===============
       Issuance of shares to officers in payment of notes (1999) and
           deferred compensation (1998 and 1997)                                 $ 260,244        $ 172,499       $ 45,000
                                                                            ===============  ===============  =============
       Issuance of note payable to purchase stock in
           E-3 Sports New Mexico, Inc.                                                            $ 135,000
                                                                                             ===============
       Issuance of note payable to purchase stock in
           Media Trust S.A.                                                                       $ 315,000
                                                                                             ===============

Cash paid during the year for:

       Interest                                                                        $ -         $ 18,476       $ 48,240
                                                                            ===============  ===============  =============

       Income taxes                                                                    $ -              $ -            $ -
                                                                            ===============  ===============  =============

                           The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                                 F-7
<PAGE>
                          ODYSSEY PICTURES CORPORATION
                   Notes to Consolidated Financial Statements


1.  Summary of Significant Accounting Policies:

a)   Organization and Nature of Operations:

     Odyssey Pictures Corporation (the "Company") was organized in December 1989
     as  a  Nevada  corporation.   The  Company  is  currently  engaged  in  the
     international distribution of motion pictures.

b)   Principles of Consolidation:

     The consolidated  financial statements include the accounts of the Company,
     its  wholly-owned  subsidiaries  and  majority  owned or  controlled  joint
     ventures. All significant intercompany accounts have been eliminated.

     Certain  reclassifications  have been made to prior year amounts to conform
     to the current year presentation.

c)   Revenue Recognition:

     Revenues from foreign theatrical, home video, television and pay television
     licensing   contracts  are  recognized  when  the  film  is  available  for
     exhibition  by the  licensee  and when certain  other  conditions  are met.
     Revenues from domestic  theatrical  distribution of films are recognized as
     the films are exhibited.

     Virtually all of the Company's  revenues for the fiscal year ended June 30,
     1999, 1998 and 1997 were from foreign distribution rights.

d)   Film Costs:

     Film costs include (1) cost of production,  (2) investment in  distribution
     rights, (3) marketing and distribution expenses, and (4) development costs.
     Film costs are amortized,  and estimated  residual and participation  costs
     are  accrued,  on an  individual  film basis in the ratio that the  current
     year's gross film revenues bear to management's  estimate of total ultimate
     gross film revenues from all sources.

     Film  costs are  stated at the lower of cost or  estimated  net  realizable
     value on an individual film basis.  Ultimate revenue and cost forecasts for
     films are periodically reviewed by management and revised when warranted by
     changing  conditions.  When  estimates of total revenues and costs indicate
     that a film will result in an ultimate  loss,  additional  amortization  is
     provided to fully recognize such loss.

e)   Investments:

     Investments  consist  of  shares  of  common  stock of two  privately  held
     corporations,   representing   9%  and  18%   ownership   of  each  of  the
     corporations. These investments are accounted for using the cost method.

f)   Earnings (Loss) Per Share:

     Earnings (loss) per share are computed using the weighted average number of
     common shares outstanding during the respective  periods,  adjusted for the
     dilutive effect, if any, of outstanding stock options and warrants.

g)   Use of Estimates:

     The  preparation  of financial  statements  in  accordance  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amounts and disclosures in financial
     statements. Actual results could differ from those estimates.

                                      F-8
<PAGE>
h)   Fair Value of Financial Instruments:

     The carrying  value of cash,  notes  receivable and notes and loans payable
     approximates  fair  value  because  of the  short-term  maturity  of  these
     instruments.


i)   Impact of Recently Issued Accounting Standards:


2. Change in Management Control:
-------------------------------

     In March 1998, the Board of Directors  appointed Mr. Johan Schotte as Chief
     Executive Officer and Chairman of the Board of the Company,  and Mr. Pierre
     Koshakji as President and Director of the Company. Former management agreed
     to terminate  their existing  employment  agreement in exchange for revised
     employment and consulting agreements. An affiliate of Mr. Schotte purchased
     convertible   deferred   compensation  notes  from  former  management  and
     converted a portion of those  notes into  667,648  shares of the  Company's
     common stock in April 1998. The balances of these notes were converted into
     176,050 shares of common stock in October 1998.

     In connection  with the change in management,  the Company  acquired an 18%
     ownership interest in two corporations  affiliated with Mr. Schotte, one of
     which is the owner of a  professional  soccer team in New  Mexico,  and the
     other of which is a media  production  company in  Luxembourg.  The Company
     issued one-year notes in the aggregate  amount of $450,000 in consideration
     of the purchase of the equity interests in these companies.

     Mr. Ira Smith, one of the Company's  Directors on the Board,  resigned as a
     Director on July 2, 1998 to pursue other business interests.  Mr. Dominique
     Verhaegen  and Mr. Yves Bayle  resigned from the Board in November 1998 for
     personal reasons.  Mr. Ian Jessel and Mr. Patrick Speeckaert were appointed
     to the Board as of January 1, 1999. Mr. Jessel was also appointed as CEO of
     the Company's Motion Picture and Television Division.

     In December 1998,  the Company hired Mr. Ian Jessel,  who is past President
     of Miramax International and who joined the Company's Board of Directors on
     January 1, 1999, to head up its film  division.  In June,  1999, Mr. Jessel
     notified the Company that he discharged  himself from any further  services
     to the Company for failure to pay his compensation and expenses on a timely
     basis. The Company believes it was justified in deferring  certain payments
     due to Mr. Jessel and the parties are negotiating a possible  resolution of
     the matter.

3.  Results of Operations and Management's Plans:

     The Company's  continued existence is dependent upon its ability to resolve
     its liquidity  problems.  The Company must achieve and sustain a profitable
     level of  operations  with  positive cash flows and must continue to obtain
     financing  adequate  to meet  its  ongoing  operation  requirements.  These
     factors raise  substantial doubt about the Company's ability to continue as
     a going concern.

     Net loss  for the year  ended  June 30,  1999 was due to the fact  that the
     Company did not release any new films. Revenues for the twelve months ended
     June 30,  1999  increased  to  $288,430  compared to $42,630 for the twelve
     months ended June 30,  1998.  No new films  became  available  for delivery
     during either period.

     Costs related to revenues increased to $261,050 for the twelve months ended
     June 30, 1999 as compared to $20,019 for the twelve  months  ended June 30,
     1998. The increase is primarily related to costs associated with exploiting
     the Kimon and Hallmark assets.

     Selling,  general  and  administrative  expense  increased  by  $209,419 to
     $1,282,553 for the twelve month period ended June 30, 1999 from  $1,073,134
     for the  comparable  period ending June 30, 1998. The increase is primarily
     due to increases in personnel and related expenses.

                                      F-9
<PAGE>
     There was no other income  recognized in the twelve month period ended June
     30, 1999 and June 30, 1998.

     Net loss  for the year  ended  June 30,  1998 was due to the fact  that the
     Company  did not  release  any new  films  and did not  enter  into any new
     agreements  for the release of existing  rights in films.  Revenues for the
     twelve months ended June 30, 1998 decreased to $42,630 compared to $141,202
     for the twelve  months ended June 30, 1997.  No new films became  available
     for delivery during either period.

     Costs related to revenues  decreased to $20,019 for the twelve months ended
     June 30, 1998 as compared to $565,610 for the twelve  months ended June 30,
     1997.  The decrease is primarily  related to the fact that there were lower
     film revenues in the current year.  Additionally,  during the twelve months
     ended  June 30,  1997,  development  and  festival  costs in the  amount of
     $249,544 were written off,  litigation and settlement  costs related to the
     Film  Bridge  settlement  in the  amount of  $148,174  were  expensed,  and
     $435,102 in inventory  costs related to the picture  Downrange were written
     off. This was primarily  offset by a write-off of $449,163 in participation
     liabilities  related to the Kinnevik library which were settled  subsequent
     to the Kinnevik sale.

     Selling,  general  and  administrative  expense  decreased  by  $605,316 to
     $1,073,134 for the twelve month period ended June 30, 1998 from  $1,678,450
     for the  comparable  period ending June 30, 1997. The decrease is primarily
     due to decreases in personnel and related expenses.

     There was no other income  recognized in the twelve month period ended June
     30, 1998.  Other income for the twelve months ended June 30, 1997 consisted
     of  a   $818,776   gain  from  the  sale  of   certain   distribution   and
     subdistribution rights in certain films to a third party,  recognition of a
     $1,245,758 gain from the cancellation of a contractual  obligation  related
     to  the  Company's   distribution   rights  in  "Wuthering   Heights,"  and
     recognition  of gain in the amount of $198,567  from the  settlement  of an
     outstanding  litigation  with  Generale  Bank  (formerly  known  as  Credit
     Lyonnais Bank Nederland N.V) and Cinecom Entertainment Group Inc.

     Since the change in management  control in March 1998,  new  management has
     embarked on a program to reverse the unfavorable results by taking steps to
     recapitalize the Company,  purchasing film assets,  acquiring  interests in
     new pictures in  development  or  pre-production,  and by acquiring  equity
     interests in two corporations,  one of which is the owner of a professional
     soccer team, and the other of which is a media production company.

     The  Company's  operations  have been  greatly  reduced  as a result of the
     restructuring  of the Company by new  management.  The Company's  principal
     office is located in Dallas, Texas (see "Properties") and, as of October 8,
     1999, the Company had three full-time employees, consisting of Mr. Schotte,
     Mr. Koshakji, and Mr. Greenwald,  the CEO, President, and Managing Director
     of the Company, respectively.

     In September 1997, the Company and Kinnevik Media Properties, Ltd. executed
     a letter agreement pursuant to which Kinnevik agreed, subject to completion
     of due diligence and the approval of Kinnevik's  Board, to purchase 500,000
     shares of convertible, redeemable preferred stock of the Company, par value
     $1.00 per share,  for an aggregate  purchase  price of  $500,000.  Kinnevik
     would  purchase the first  $250,000 of preferred  stock at the closing,  an
     additional $125,000 of preferred stock 90 days after closing, and the final
     $125,000 of preferred  stock 270 days after  closing.  The preferred  stock
     would bear  interest  at the rate of 10% per annum  which  would be paid in
     kind  semi-annually by the issuance of additional shares of preferred stock
     at a par value of $1.00 per share. Kinnevik would have the right for a five
     year period to convert the preferred stock into common stock of the Company
     on a share-for-share  basis. The Company would have the right to redeem the
     preferred stock for $1.25 per share in the event the Company's common stock
     trades at a price of $2.00 per share or more for a period of 20 consecutive

                                      F-10
<PAGE>
     trading days.  The Company  agreed to help secure  television  distribution
     rights for Kinnevik from third parties,  and introduce  various projects to
     Kinnevik  from time to time which may be of  interest to  Kinnevik.  In the
     event Kinnevik acquires any rights as a result of any introductions made by
     the  Company,  the parties  agree to mutually  determine  the value of such
     services  and to redeem  shares of the  preferred  stock at $1.00 per share
     based on the aggregate value of the services so determined.

     In  January  1997,  prior  counsel  to the  Company  agreed to  exchange  a
     promissory  note in the face  amount of $70,000  in  exchange  for  120,000
     Shares of the Company's Common Stock.

     In June 1998, the Company applied for, and was accepted for, trading on the
     Berlin Stock Exchange under the symbol "ODY".  The German company  Berliner
     Freiverkehr  (Aktien) assisted the Company in the application and signed an
     agreement  with the  Company  to serve  as a  market  maker/coordinator  in
     exchange for 200,000  warrants having an exercise price of $1.55 per share,
     exercisable during the two-year period commencing June 23, 1998.

     During the period  between  April,  1999 and  September,  1999, the Company
     completed four private placements to offshore investors, the first of which
     was  completed  for 575,000  shares of common stock at a purchase  price of
     $.30 per share  (resulting  in gross  proceeds to the Company of $172,500),
     and the latter three of which were  completed for an aggregate of 1,600,000
     shares of common stock at a purchase of $.40 per share  (resulting in gross
     proceeds to the Company of $400,000).  The proceeds of these offerings were
     used primarily for debt reduction and working capital for the Company.

4. Acquisition of Film Assets:

     On July 14, 1998, the Company entered into an Asset Purchase Agreement with
     Sweden based Kimon Mediarright KB ("Kimon"),  pursuant to which the Company
     acquired  certain  intangible  assets from Kimon valued at  $4,500,000.  In
     exchange,  the  Company  agreed to issue to Kimon  4,500,000  shares of the
     Company's  subordinated  convertible  Preferred  Stock,  Series B, having a
     value for  conversion  purposes of $1.00 per share.  The Series B Preferred
     Stock is subordinate to the Company's Series A Preferred Stock,  consisting
     of  500,000  shares  (plus  accruals   thereunder)   having  a  liquidation
     preference  of $1.00 per  share.  Kimon  will have the right to  convert to
     Odyssey  common  stock  between  June 30, 2000 and  December  31, 2000 on a
     dollar-for-dollar basis based on the price of the Company's common stock at
     the time of conversion.  Kimon assets  purchased  consist of a film library
     with worldwide  and/or  Scandinavian  distribution  rights and Scandinavian
     video distribution rights to certain Hallmark  Entertainment  products. The
     contract was  conditioned on the consent of Hallmark  Entertainment  to the
     assignment of its  distribution  agreement with Kimon to the Company.  Such
     consent was obtained in August 1998. In connection with the acquisition, an
     affiliate of Kimon agreed to render  management  services to the Company in
     connection  with the marketing of the  distribution  rights acquired by the
     Company. In consideration of such management  services,  the affiliate will
     receive  certain  royalties  based  on  sales of the  Hallmark  films  plus
     reimbursement of cost incurred in connection with such management services.

     In April  1999,  the  Company  purchased  an option with the right of first
     refusal  to be the  exclusive  worldwide  distributor  of a motion  picture
     entitled  "HARA." The film is an  action-packed  semi-biographical  martial
     arts love story and is expected to start preproduction in January,  2000. A
     company  affiliated  with  management  of the  Company  owns  a 50%  equity
     interest,  in Red Sun Productions,  Inc., the production company which owns
     all rights to the film "HARA."


                                      F-11
<PAGE>

5.  Film costs:

     Film costs are comprised of the following:

                                                           June 30,
           Component                                1999             1998

           Films released, at cost               $      0         $      0
           Less accumulated amortization                0                0
                                                 --------         --------
                                                        0                0
                                                 ========         ========

           Projects in development              4,383,629          110,422
                                                 --------         --------
            Total film costs                    4,383,629         $110,422
                                                 ========         ========

6.  Income Taxes:

     At June 30,  1999,  the  Company  had a federal  net  operating  loss carry
     forward, for tax purposes, of approximately  $32,000,000,  expiring through
     2011. The utilization of approximately $4,900,000 of these losses in future
     periods is estimated by the Company to be limited to approximately $350,000
     per year (the "annual earnout limitation").

7.  Notes and Loans Payable:

     The following  table  presents notes and loans payable at June 30, 1999 and
     1998:

                                                        1999               1998
                                                        ----               ----
      6% Convertible Subordinated Debentures       $   179,000       $   179,000
      12% Senior Unsecured Promissory Notes            100,000           100,000
      Augustine Note                                   150,000                 -
      Generale Bank Litigation Settlement Note         250,000           250,000
      Media Trust Note                                 315,000           315,000
      E3 Sports Note                                         -           135,000
      Interim Financing Loans                          185,165           100,000
      Visa Loan                                         12,916                 -
                                                    ----------       -----------
      Total                                         $1,192,081       $ 1,079,000
                                                    ==========       ===========


     On July 17, 1997, unsecured long term notes of the Company in the aggregate
     amount of $179,000 matured.  Such notes were not paid on the maturity date.
     The Company  entered into an  installment  payment plan extending over a 15
     month period  through March 1999. The Company has not made any payments and
     is presently in default of the payment schedule.

     In 1995, the Company received net proceeds from the private placement of an
     aggregate of $362,500  principal amount of 12% Senior Unsecured  Promissory
     Notes (the  "Notes").  The Notes are repayable with interest on the earlier
     of (a) the closing of a public offering of the Company's equity  securities
     from which the Company receives gross proceeds of at least $10,000,000,  or
     (b) one year from the  issuance  date.  The  Company  also  granted  to the
     purchasers of the Notes an aggregate of 26,042  warrants (the  "Warrants"),
     20,833 of which are  exercisable  at $2.83 per share and 5,209 of which are
     exercisable at $2.37 per share.  Each of the Warrants is exercisable at any
     time  beginning one year after the date of issuance and expiring four years
     after the date of issuance.


                                      F-12
<PAGE>

     The Notes and interest were not repaid as scheduled.  The Company  proposed
     that note  holders  either  defer  maturity  of their  notes  and  exchange
     existing  warrants  for shares,  or cancel the notes and  warrants in their
     entirety in exchange for a greater number of shares. The Company offered to
     register  any shares  issued in  exchange  for the notes.  As of August 12,
     1997, the date the registration  became  effective,  a total of $262,500 of
     notes were exchanged for 595,455 shares of registered  stock. The remaining
     notes for $100,000  (held by a single  investor) have not been paid and are
     in default.

     The Company  received  $150,000  in funding  from the  Augustine  Fund L.P.
     (Augustine) in July 1998. In exchange for the financing, Augustine received
     a $150,000 convertible note as well as up to 150,000 transferable warrants,
     exercisable  at $1.60 per  share for a three  year  period.  Augustine  can
     convert into restricted  shares of the Company's common stock at a discount
     to the  market  price of the  common  stock  at the time of the  conversion
     (i.e.,  at the lower of the market price on the closing date, or 80% of the
     market  price  prior  to  conversion).   Augustine  and  certain  Augustine
     associated  parties were also issued a total of 45,000 shares of restricted
     common stock in connection with the transaction.

     In December  1996,  the Company  settled the  outstanding  litigation  with
     Generale  Bank  ("Generale")   (formerly  known  as  Credit  Lyonnais  Bank
     Nederland  N.V.) and  Cinecom  Entertainment  Group  Inc.  Pursuant  to the
     settlement  agreement with Generale,  the Company agreed to pay to Generale
     the sum of $275,000 in complete  satisfaction of the claim, $25,000 on each
     of June 30, and December 31 in the years 1997,  1998 and 1999, and $125,000
     on June 30, 2000.  Interest on the  installments (at the rate of LIBOR plus
     1% per annum) will be waived  provided  the Company  remains in  compliance
     with the agreed upon payment  schedule.  The Company and General Bank later
     agreed upon a new payment schedule as follows: $25,000 on or before October
     15, 1997  (payment was made);  $30,000 on each of April 15, 1998,  June 30,
     1998,  December 31, 1998, June 30, 1999 and December 31, 1999; and $125,000
     on June 30, 2000. No amounts have been paid since  October 1997,  and thus,
     the Company is in default.

     In March 1998, the Company  acquired an 18% interest in the common stock of
     E-3 Sports New Mexico,  Inc. and Media Trust S.A. In consideration  for the
     seller's  transfer  and  sale of the  shares,  the  Company  delivered  two
     promissory  notes,  one in the amount of $315,000  (the "Media Trust Note")
     and one in the amount of $135,000 (the "E-3 Note"). The entire principal of
     both  notes are to be repaid  twelve  months  after the date of issue,  and
     shall bear  interest at a rate of (a) 8% for the first three month  period,
     (b) 12% for the second  three  month  period,  (c) 16% for the third  three
     month period and (d) 20% for the final three month period.  Any outstanding
     amount of principal and interest may be repaid, in whole or in part, at any
     time without  penalty.  In June 1999, the seller exchanged the E-3 Note and
     related  accrued  interest of $27,225 for 348,721  shares of Company common
     stock.

     In April,  1997,  Stephen R.  Greenwald,  Lawrence I.  Schneider and Robert
     Miller, Jr., all directors of the Company, made loans to the company in the
     amounts  of  $50,000,  $25,000  and  $25,000,  respectively.  Each loan was
     payable on demand and  accrued  interest at the rate of 2 points over prime
     per  annum.  The notes  were  secured  by a  collateral  assignment  of the
     Company's 300,000 note receivable from Kinnevik. In consideration of making
     the loans,  the lenders received  five-year  warrants to purchase shares of
     common  stock of the  Company,  exercisable  at $1.00  per  share.  Messrs.
     Schneider  and Miller  each  received  25,000  warrants  and Mr.  Greenwald
     received  50,000  warrants  as  consideration  for  making the loans to the
     Company.  In addition,  two  independent  unaffiliated  third  parties made
     additional  $25,000  loans to the Company in June and  August,  1997 on the
     same terms and conditions as the loans made by Mr. Greenwald, Schneider and
     Miller.  In  May,  1998,  the  loans  of  Mr.  Schneider  and  one  of  the


                                      F-13
<PAGE>

     unaffiliated   parties   were  paid  from  the  proceeds  of  the  Kinnevik
     receivable.  The  remaining  lenders  agreed to a rollover  of their  loans
     (aggregating  $100,000)  against  a  second  Kinnevik  receivable  and,  in
     consideration, will receive an additional 50,000 warrants in the aggregate,
     exercisable  at $1.00 per share over a three  year  period.  In  September,
     1998,  all but $25,000 of these loans were repaid from the  proceeds of the
     Kinnevik  receivable.  The  remaining  lender,  Robert E.  Miller,  Jr.,  a
     director of the  Company,  agreed to a rollover  of his $25,000  loan on an
     unsecured  basis for an  additional  six month period with  interest at the
     rate of 10% per annum. Thereafter, Mr. Miller agreed to a further six-month
     extension (through September,  1999) in consideration of an increase in the
     interest  rate on the loan to 12% per annum,  the issuance of an additional
     12,500 common stock purchase  warrants at $1.00 per share, and an extension
     of the expiration  date on all warrants  issued to date to the year 2004.

     In August 1998,  three  unaffiliated  investors  loaned  4,000,000  Belgian
     Francs  (approximately  $100,000) and received one year  convertible  notes
     with interest at 10% per annum (the notes are convertible at a 15% discount
     to the market price).  Mr. Johan Schotte and Mr. Pierre  Koshakji each have
     12% Interim Financing Loans to the Company at June 30, 1999, of $21,985 and
     $5,700, respectively.

8.  Commitments and Contingencies:

     Lease Commitments:

     The Company  presently  conducts its operations  out of leased  premises at
     1601 Elm Street,  Dallas,  Texas,  consisting of approximately 2,500 square
     feet. The premises are presently  being made available to the Company as an
     accommodation  by a company  affiliated with Mr. Johan Schotte,  the CEO of
     the Company. Rent expense for each of the fiscal years ended June 30, 1999,
     1998 and 1997 was  $84,939,  $69,002 and  $38,772,  respectively.  In June,
     1998, the Company  entered into a sublease for office space in Los Angeles,
     California with an affiliate of the CEO of the Company. The sublease was on
     a  month-to-month  basis at the  rate of  $1,500  per  month.  The  Company
     utilized  these  premises for the period June through  December,  1998.  In
     January,  1999, the Company entered into a sublease for approximately 5,000
     square feet of office  space at the rate of $12,823 per month for  premises
     located at 2049 Century Park East, Suite 2750, in Los Angeles,  California.
     The Company  relinquished  this sublease in May, 1999 in consideration of a
     lease surrender settlement with the landlord in the amount of $5,000.

     Litigation:

     On December 20, 1990, Hibbard Brown & Company, Inc. ("Hibbard Brown") filed
     a complaint  entitled Hibbard Brown & Company,  Inc. v. Double Helix Films,
     Inc., Odyssey Entertainment Ltd. and Communications and Entertainment Corp.
     in the  Supreme  Court of the  State of New York,  County of New York.  The
     Complaint  sought  payment of $300,000 under an agreement with the Company,
     Odyssey, Double Helix and Hibbard Brown dated December 21, 1989 for certain
     investment banking services allegedly  performed in introducing Odyssey and
     Double Helix and  assisting  them in  consummation  of the Mergers by which
     they  became  wholly-owned  subsidiaries  of the  Company.  A  counterclaim
     seeking  recovery of $50,000  paid to Hibbard  Brown upon  execution of the
     Agreement was asserted.

     Hibbard Brown's motion for summary  judgment was granted in October,  1991.
     On January 30, 1992,  the Company moved,  by order to show cause,  to renew
     and thereupon  deny,  dismiss or stay Hibbard  Brown's  previously  granted
     motion  for  summary   judgment  on  the  ground  that  Hibbard  Brown  had
     intentionally  concealed  the  fact  that  it was an  unauthorized  foreign
     corporation transacting business in New York. By Order dated March 2, 1992,
     the court granted the  Company's  motion in part by renewing the action and
     staying  judgment  pending  Hibbard Brown's  qualification  in New York. On
     October 29,  1992,  Hibbard  Brown moved for an order  vacating the stay of
     judgment,  a declaration that it was now an authorized foreign  corporation
     and  reinstatement of the summary judgment granted in October,  1991 or, in
     the alternative,  to rehear its motion for summary judgment on the original
     papers and grant judgment in its favor.

                                      F-14
<PAGE>

     On January 29, 1993, Double Helix,  Odyssey and the Company cross-moved for
     an order granting  reargument  and/or renewal of Hibbard Brown's motion for
     summary judgment and  consolidating  the litigation with an action that the
     Company had brought against Hibbard Brown (described below), or staying the
     issuance,  entry and execution of judgment pending the resolution and trial
     of the Company's action against Hibbard Brown.

     On March 26, 1993,  the court issued a Decision and Order vacating the stay
     of entry of the  $300,000  judgment  against the Company and  granting  the
     Company's cross-motion for a stay of execution pending the determination of
     the Company's action against Hibbard Brown. The Company's cross-motions for
     reargument and renewal and consolidation were denied.

     By Decision and Order dated June 18, 1993,  the court  affirmed the stay of
     execution  of the  judgment,  but  required the Company to obtain a bond to
     secure the stay. The Company obtained a non-collateral bond.

     On March 5, 1992, the Company instituted an action entitled  Communications
     and  Entertainment  Corp. v. Hibbard Brown & Company in the Supreme  Court,
     New  York  County,  for the  return  of  150,000  shares  of  Common  Stock
     previously  issued on the ground that  Hibbard  Brown failed to perform the
     required services. Hibbard Brown counterclaimed for breach of contract.

     In July 1993,  after  considerable  pre-trial  discovery,  the  Company and
     Hibbard  Brown moved for  summary  judgment.  By  Decision  and Order dated
     August 11, 1993, the court denied both motions.  Both parties appealed.  On
     March 3, 1994, the appellate court affirmed the denial of summary judgment.

     On or about October 14, 1994,  Hibbard Brown filed a voluntary petition for
     relief under Chapter 11, Title 11 of the United States Code with the United
     States Bankruptcy Court, Southern District of New York.  Consequently,  the
     Company's action against Hibbard Brown has been  automatically  stayed. The
     Company  has filed a Proof of Claim.  In January  1998 the U.S.  Bankruptcy
     Court of the Southern  District of New York approved a final  settlement of
     the bankruptcy of Hibbard Brown.

     On or about  September 11, 1992,  Joseph  Duignan  brought an action in the
     Superior  Court of New Jersey,  Mercer County,  entitled  Joseph Duignan v.
     Double Helix Films  Limited  Partnership  No. 1, L.P.,  Double Helix Films,
     Inc.,  Cinecom  International  Films,  Film Gallery,  Inc., Stan Wakefield,
     Jerry  Silva,  Arthur  Altarac and Anthony  Tavone  (MER-L-4262-92).  Jerry
     Silva,  the only  defendant who was served,  is former Vice Chairman of the
     Board of Directors of the Company.  Mr. Silva has demanded that the Company
     indemnify  him  against  any  expenses,  judgments,  and  amounts  paid  in
     settlement of the action.  The Company  contends that it is not required to
     indemnify  Mr.  Silva  because  he  breached  his  fiduciary  duties to the
     Company.

     Mr.  Duignan  claims  that he  invested  $75,000 to  acquire a  partnership
     interest in Double Helix Films Limited Partnership No. 1 and that Mr. Silva
     forged or caused to be forged his  signature  on a  Subscription  Agreement
     dated July 28, 1986. The Complaint  alleges claims for  rescission,  unjust
     enrichment (against Double Helix),  conversion,  fraud, breach of contract,
     breach of  fiduciary  duty and breach of  covenants  of good faith and fair
     dealing (against Mr. Silva and Double Helix).  Mr. Duignan seeks to recover
     compensatory  damages,  including  but not limited to, his alleged  $75,000
     investment,  punitive  damages and attorney's  fees. Mr. Silva has answered
     the Complaint.

     On or about  December 30,  1994,  Krishna  Shah,  who  allegedly  served as
     President  of Double  Helix from about July 1991 until  about  March  1993,
     brought an action in the Superior Court of California,  Los Angeles County,
     entitled Krishna Shah v. Norman Muller,  Communications  and  Entertainment
     Corp., ATC II, Carnegie Film Group, Inc., Jerry Minsky, Perry Scheer, Susan
     Bender, Larry Myers, Robert Hesse, Double Helix Films, Inc. and Does 1-100,
     alleging  claims for breach of an oral  agreement to pay Mr. Shah  $152,000


                                      F-15
<PAGE>

     (which he allegedly  advanced for the benefit of Double  Helix) and to give
     him a 19.5% ownership interest in its corporate  successors.  The Company's
     current management has paid Mr. Shah the sum of $15,000 in July 1998 and in
     full settlement of all claims against the Company.

     In The Private Lessons  Partnership v. Carnegie Film Group, Inc.,  Monogram
     Pictures Corp.,  Filmways  Entertainment  Corp.,  ATC, Inc.,  Krishna Shah,
     Lonnie  Romati,  Gerald  Muller,  Jerry  Minsky and Does 1-100  (California
     Superior  Court,  Los Angeles  County,  Case No.  BC091840),  the plaintiff
     asserted  claims for breach of oral  contract,  fraud in the inducement and
     fraudulent  conveyance  against Mr. Shah,  seeking damages in the amount of
     $315,000,  plus  further  unspecified  compensatory  damages  and  punitive
     damages.  In August  1995,  Mr.  Shah filed a  cross-complaint  against the
     Company,   Double  Helix  Films  and  Norman  Muller  for  indemnification,
     apportionment of fault and declaratory  relief. In addition to compensatory
     damages,  he seeks  punitive  and  exemplary  damages,  emotional  distress
     damages and attorney's fees. The Company has answered the cross-complaint.

     On or about May 15, 1995,  Credit  Lyonnais Bank Nederland N.V. and Cinecom
     Entertainment  Group,  Inc. filed a Complaint in the Superior Court for the
     State of California,  County of Los Angeles, captioned Credit Lyonnais Bank
     Nederland   N.V.  and  Cinecom   Entertainment   Group,   Inc.  v.  Odyssey
     Distributors, Ltd. and Does 1 through 100 (No. BC 127790). They allege that
     Odyssey  Distributors,  Ltd. (a  subsidiary  of the Company)  collected but
     failed to remit to them  assigned  distribution  proceeds  in the amount of
     $566,283.33   from  the  foreign   distribution  of  "Aunt  Julia  and  the
     Scriptwriter"  and "The Handmaid's  Tale." The Complaint alleges claims for
     breach of contract  and breach of  fiduciary  duty and  demands  damages in
     excess of $566,283, attorney's fees, an accounting, a temporary restraining
     order  and a  preliminary  injunction.  In  June  1995,  the  Court  denied
     plaintiffs an attachment and stayed the action  pending  arbitration in New
     York. In September,  1996, the Court dismissed the Complaint.  In December,
     1996, the Company  settled the  outstanding  litigation  with Generale Bank
     ("Generale")  (formerly  known as Credit  Lyonnais Bank Nederland N.V.) and
     Cinecom Entertainment Group Inc. Pursuant to the settlement agreement,  the
     Company  agreed  to  pay  to  Generale  the  sum of  $275,000  in  complete
     settlement of the claim,  payable  $25,000 upon execution of the settlement
     agreement,  $25,000 on each of June 30 and  December  31 in the years 1997,
     1998 and 1999, and $100,000 on June 30, 2000.  Interest on the installments
     (at the  rate of LIBOR  plus 1% per  annum)  will be  waived  provided  the
     Company  remains in compliance with the agreed upon payment  schedule.  The
     Company and Generale  later agreed upon a new payment  schedule as follows:
     $25,000 on or before  October 15, 1997 (payment was made);  $30,000 on each
     of April 15, 1998,  June 30, 1998,  December 31, 1998,  June 30, 1999,  and
     December 31, 1999; and $100,000 on June 30, 2000. The Company is in receipt
     of a demand letter dated May 4, 1998.  The letter  demands that the company
     Cure the non-payment of a $30,000 installment due April 15, 1998. According
     to the agreement between the Company and Generale, the Company had ten days
     after  receipt of the letter to cure the  default.  The default has not yet
     been cured.  The  consequences  of not curing the default is the entry of a
     confession  of judgment  already  executed by the Company for the amount of
     $275,000.  This  confession  of Judgment is against  Odyssey  Distributors,
     Ltd., a wholly owned but non-operating subsidiary of the Company.

     In August 1995, G.P. Productions,  Inc. ("GP") and Greenwich Subject Films,
     Inc. ("Greenwich") commenced an action entitled G.P. Productions,  Inc. and
     Greenwich  Studios,  Inc. v. Double Helix Films,  Inc.,  Communications and
     Entertainment,  Inc.,  Krishna Shaw, Gerald Muller and Norman Muller in the
     United  States  District  Court,  Southern  District  of Florida  (Case No.
     95-1188).  Mr. Muller has demanded  that the Company  indemnify him against
     any expenses,  judgments and amounts paid in settlement of the action.  The
     Company contends that, by virtue of Mr. Muller's breaches of fiduciary duty
     and  violation of his  obligations  to the  Company,  it is not required to
     provide indemnification.

     GP and  Greenwich  allege that they are the  exclusive  owners of the films
     "The  Gallery"  and  "South  Beach".   They  assert  claims  for  copyright
     infringement,   unfair   competition,   breach  of  contract,   accounting,

                                      F-16
<PAGE>
     conversion,   civil  theft,  conspiracy  and  fraudulent  conveyance.   The
     Complaint  demands a recall of the films,  an attachment,  preliminary  and
     permanent injunctive relief, an accounting,  and unspecified  compensatory,
     punitive and treble damages.  The Company's motion to transfer venue of the
     action was granted in November,  1995, and the case was  transferred to the
     United States District Court for the Southern  District of New York.  There
     has been no activity in this matter since the transfer of venue in 1995.

     In  October,  1995,  Canon  Financial  Services  filed a  Complaint  in the
     Superior Court of New Jersey  entitled Canon  Financial  Services,  Inc. v.
     Communications and Entertainment Corp. The plaintiff is claiming that it is
     due $47,499.83,  plus damages,  pursuant to a lease agreement.  The Company
     has filed an Answer in this  action  and  plaintiff's  motion  for  summary
     judgment  has been  denied by the Court.  No trial date has yet been set in
     this matter.

     In December,  1995,  Robert F. Ferraro,  a former  director of the Company,
     brought an action  against the Company in the Supreme Court of the State of
     New York, New York County.  The action was brought on a promissory  note in
     the  amount of $25,000  and  plaintiff  obtained  a  judgment  on a summary
     judgment  motion.  The  plaintiff has not yet moved to enforce the judgment
     and  the  Company  is  considering  whether  or  not  it  has a  claim  for
     indemnification against prior management in connection with the issuance of
     the note. The Company is presently settling with Mr. Ferraro.

     In March,  1996,  an action was filed  against  the  Company in Los Angeles
     Municipal Court by Judy Hart, in which the plaintiff claims that she is due
     $17,920  pursuant to a promissory note. The Company has filed a cross-claim
     seeking offsets against the amount due and other damages.  On May 21, 1998,
     a default  judgment  was  entered on behalf of  plaintiff  in the amount of
     $22,261.  Subsequently,  plaintiff filed a motion to include attorneys fees
     and costs in the aggregate amount of approximately  $17,000. The Company is
     attempting to reach a settlement with plaintiff.

     In March,  1996, a class  action  complaint  was filed  against the Company
     entitled Dennis Blewitt v. Norman Muller, Jerry Minsky,  Dorian Industries,
     Inc. and Communications and Entertainment Corp. The complaint seeks damages
     in connection with the Company's  treatment in its financial  statements of
     the disposition of its subsidiary,  Double Helix Films, Inc. in June, 1991.
     The  complaint  seeks  unspecified  damages  on behalf of all  persons  who
     purchased shares of the Company's common stock from and after June, 1992. A
     second  action,  alleging  substantially  similar  grounds,  was  filed  in
     December 1996 in Federal Court in the United States  District Court for the
     Southern   District  of  California   under  the  caption   heading  "Diane
     Pfannebecker v. Norman Muller,  Communications and Entertainment Corp., Jay
     Behling,  Jeffrey S. Konvitz, Tom Smith, Jerry Silva, David Mortman,  Price
     Waterhouse & Co., Todman & Co., and Tenato Tomacruz."  Following the filing
     of the second action,  the first action was dismissed by stipulation in May
     1997.  The Company  filed a motion to dismiss the  complaint  in the second
     action and after a hearing on the motion in July, 1997, the Court dismissed
     the federal  securities  law claims as being  time-barred by the applicable
     statute of limitations,  and dismissed the state  securities law claims for
     lack of subject matter  jurisdiction.  The lower court's  dismissal of this
     action was upheld on appeal by the Ninth Circuit. Messrs. Muller, Smith and
     Mortman,  former  directors  of  the  Company,  have  asserted  claims  for
     indemnification  against the Company. The Company has advised the claimants
     that it will not provide  such  indemnification  based upon their  wrongful
     actions and failure to comply with various obligations to the Company.  The
     case was refiled in  California  state court in August 1998 and the Company
     has retained counsel to represent itself.  The Court has granted motions to
     dismiss two of the  complaints  filed by the Plaintiff who has also filed a
     third complaint.  Counsel expects a further motion to dismiss to be granted
     by the court.


                                      F-17

<PAGE>
     In December,  1997,  the  Directors  Guild of America  ("DGA")  obtained an
     arbitration  award  against  Down Range  Productions,  Inc., a wholly owned
     subsidiary of Odyssey ("Down Range"),  on behalf of Kahn Brothers  Pictures
     fso Michael  Kahn,  Charles  Skouras,  and Scott C. Harris.  Down Range was
     ordered to pay Kahn  Brothers  Pictures the total sum of $155,041;  Charles
     Skouras  the sum of  $32,360;  and Scott C. Harris the total sum of $8,868;
     plus interest at 18% per annum on each of these amounts from April 1, 1997.
     Down  Range was also  ordered  to pay the DGA  $2,500.  Down Range was also
     ordered to assign to the DGA all of Down Range's right,  title and interest
     in the motion picture "Down Range," including the screenplay for the motion
     picture,  and Down Range was enjoined from  licensing the motion picture or
     the  screenplay  to any third party other than the DGA. Down Range was also
     ordered to pay the arbitrator $2,250.

     Kahn  Brothers  Pictures fso Michael  Kahn also filed a claim  against Down
     Range  Productions,  Inc. and the Company with the Writers Guild of America
     West (WGA) for unpaid writing services on "Down Range." That claim has been
     settled by the current management for the amount of $15,000 in July 1998.

     The Screen  Actors Guild  ("SAG") has also  asserted that there are amounts
     owing to several  actors  arising out of "Down Range." In September,  1999,
     SAG obtained an arbitration  award against Down Range for a total amount of
     $96,183,   inclusive  of  salaries  to  the  actors,   pension  and  health
     contributions and late fees. Down Range was also ordered to pay $200 to the
     arbitrator.  Additionally,  there were two actors,  Corbin Bernsen and Jeff
     Fahey,  who had pay-or-play  contracts.  The outcome of these contracts and
     the actors' claims have not been resolved.

     In April,  1998,  an action was  commenced  against the Company by Siegel &
     Gale, a provider of brochure  materials,  seeking payment of $48,695,  plus
     costs,  related to work done by Siegel & Gale for the Company.  The Company
     settled this matter in October 1999 for the amount of $25,000.


9.   Shareholders' Equity:

     On March  6,  1996  the  Board  of  Directors  of the  Company  approved  a
     one-for-six  reverse stock split of the outstanding shares of the Company's
     Common Stock (the "Common Stock"). The Reverse Stock Split was effective as
     of March 18, 1996 (the "Record Date").  On the Record Date, each six shares
     of the Company's  then  outstanding  Common Stock (the "Old Common  Stock")
     were  automatically  converted into one share of the new Common Stock,  par
     value $.01 per share (the "New Common Stock").

     No fractional  shares of New Common Stock were issued.  Rather,  holders of
     Old  Common  Stock who are  entitled  to receive  fractional  shares of New
     Common  Stock will be rounded up to the  nearest  whole share of New Common
     Stock.

     The Reverse  Stock Split  resulted in a net  reduction of 11,408,973 in the
     number on Common Shares outstanding, including 1,995 shares issuable due to
     the rounding up of fractional shares.

     Except  for the  number of shares of  Common  Stock  outstanding  after the
     Reverse  Stock  Split,  the Old Common  Stock and the New Common  Stock are
     identical.

     On February 14, 1995, the then Board of Directors of the Company declared a
     dividend  payable to holders of record on February 24, 1995 ("the  Dividend
     Record Date") of the Company's common stock and Class A stock. The dividend
     consisted of 1,700,000 shares of common stock, $.01 par value per share, of
     Global  Intellicom,  Inc.  that were owned by the  Company.  Holders of the
     Company's  common stock and Class A stock  received .1233 and .0786 shares,
     respectively, of Global common stock for each share of the Company's stock.
     The dividend was recorded as a reduction of capital in excess of par value.

     The shares of Global  common stock were  distributed  to an escrow agent on
     the Dividend Record Date pending registration of the shares. The Securities
     and Exchange Commission declared Global's registration  statement effective
     as of September 1, 1995 and,  accordingly,  the escrow agent was authorized
     to distribute the dividend shares.

                                      F-18
<PAGE>
     Communications and Entertainment  Corp. was originally formed to consummate
     the  mergers of Double  Helix  Films,  Inc.  ("Double  Helix")  and Odyssey
     Entertainment  Ltd.  pursuant  to the  Agreement  and Plan of Merger  dated
     September  22, 1989 ("the  Merger  Agreement").  On  September  6, 1990 the
     shareholders  of Double Helix and Odyssey  approved  the Merger  Agreement.
     Pursuant to the terms of the Merger  Agreement,  each share of common stock
     of Odyssey was  convertible  into one share of Class A stock of the Company
     and each share of Double Helix common stock was convertible  into one share
     of the  Company's  common stock.  Prior  management's  instructions  to the
     transfer  agent  required  that any  shares  of  Odyssey  or  Double  Helix
     outstanding  at the  time  of the  Merger  not  tendered  to the  Company's
     transfer  agent  for  exchange  by  March  31,  1995  should  be  canceled.
     Accordingly,  86,790  shares of the Class A stock and 10,496  shares of the
     common  stock  reserved for exchange  were  canceled.  The par value of the
     shares  canceled,  of $5,837,  was transferred to capital in excess of par.
     Upon further research by counsel to the Company,  the instructions of prior
     management were reversed,  and all cancelled shares were  reinstated,  with
     the result that $5,837 was transferred back to stated capital.

     Additionally,  in accordance  with the Company's  charter,  all outstanding
     shares of the Company's Class A stock,  automatically  converted,  on March
     31,  1995,  into shares of the  Company's  common  stock at a rate of .6375
     shares of common stock for each share of Class A stock.

10. Stock Options and Warrants:

     The Company has an Incentive  Stock Option Plan (The "Option Plan") for its
     key  employees  providing  for the  granting  of options to acquire  common
     stock.  The maximum  number of shares of common stock subject to the Option
     Plan is 75,000,  plus 5% of any  increase  in the  number of issued  shares
     after the effective date of the Merger, excluding any increase due to stock
     awards to key  employees or as result of the  conversion  of Class A stock.
     The price for the shares  covered by each option will not be less than 100%
     of the fair  market  value at the date of grant  (110% for  holders of more
     than 10% of the company's  common stock).  Options granted expire ten years
     from the date of grant  (five  years  for  holders  of more than 10% of the
     Company's common stock).

     No options were outstanding at June 1999, 1998 or 1997.

     During the fiscal year ended June 30, 1997,  a total of 1,153,333  warrants
     were  issued  to  officers,  directors,  employees,  consultants  and third
     parties,  exercisable  at prices ranging from $ .625 per share to $1.06 per
     share.  The warrants are exercisable for periods ranging from three to five
     years. None of such warrants was exercised during fiscal year 1999 or 1998.

     During the fiscal  year ended June 30,  1998,  a total of 254,260  warrants
     were issued to third parties,  exercisable at prices ranging from $1.00 per
     share to $1.65 per share.  The warrants are exercisable for periods ranging
     from two to five years.  None of such warrants was exercised  during fiscal
     year 1999 or 1998.

     During the fiscal  year ended June 30,  1999,  a total of 467,660  warrants
     were  issued  to  officers,   directors  and  holders  of  notes   payable,
     exercisable  at  prices  ranging  from  $.55 to  $1.65.  The  warrants  are
     exercisable  for periods  ranging  from two to five  years,  except for two
     officers'  issuances  which have no expiration  date. None of such warrants
     were exercised during fiscal year 1999.

11.  Related Party Transactions:

     The  Company  has  entered  into  a  "first  look"  agreement  with  Presto
     Productions, a production company in which Stephen R. Greenwald, a Director
     of the Company, has an interest.  Mr. Greenwald's interest in Presto varies
     on a  film-by-film  basis.  The  Company  believes  that  the  terms of its
     arrangement  with Presto are no less  favorable than could be arranged with
     other independent third party producers.

                                      F-19
<PAGE>

     In April,  1997,  Stephen R.  Greenwald,  Lawrence I.  Schneider and Robert
     Miller, Jr., all directors of the Company, made loans to the company in the
     amounts  of  $50,000,  $25,000  and  $25,000,  respectively.  Each loan was
     payable on demand and  accrued  interest at the rate of 2 points over prime
     per  annum.  The notes  were  secured  by a  collateral  assignment  of the
     Company's 300,000 note receivable from Kinnevik. In consideration of making
     the loans,  the lenders received  five-year  warrants to purchase shares of
     common  stock of the  Company,  exercisable  at $1.00  per  share.  Messrs.
     Schneider  and Miller  each  received  25,000  warrants  and Mr.  Greenwald
     received  50,000  warrants  as  consideration  for  making the loans to the
     Company.  In addition,  two  independent  unaffiliated  third  parties made
     additional  $25,000  loans to the Company in June and  August,  1997 on the
     same terms and conditions as the loans made by Mr. Greenwald, Schneider and
     Miller.  In  May,  1998,  the  loans  of  Mr.  Schneider  and  one  of  the
     unaffiliated   parties   were  paid  from  the  proceeds  of  the  Kinnevik
     receivable.  The  remaining  lenders  agreed to a rollover  of their  loans
     (aggregating  $100,000)  against  a  second  Kinnevik  receivable  and,  in
     consideration, will receive an additional 50,000 warrants in the aggregate,
     exercisable  at $1.00 per share over a three  year  period.  In  September,
     1998,  all but $25,000 of these loans were repaid from the  proceeds of the
     Kinnevik  receivable.  The  remaining  lender,  Robert E.  Miller,  Jr.,  a
     director of the  Company,  agreed to a rollover  of his $25,000  loan on an
     unsecured  basis for an  additional  six month period with  interest at the
     rate of 10% per annum. Thereafter, Mr. Miller agreed to a further six-month
     extension (through September,  1999) in consideration of an increase in the
     interest  rate on the loan to 12% per annum,  the issuance of an additional
     12,500 common stock purchase  warrants at $1.00 per share, and an extension
     of the expiration  date on all warrants  issued in connection with his loan
     to the Company to the year 2004.

     In August 1998,  three  unaffiliated  investors  loaned  4,000,000  Belgian
     Francs  (approximately  $100,000) and received one year  convertible  notes
     with interest at 10% per annum (the notes are convertible at a 15% discount
     to the market price).  Mr. Johan Schotte and Mr. Pierre  Koshakji each have
     12% Interim Financing Loans to the Company at June 30, 1999, of $21,985 and
     $5,700, respectively.

     In June 1998,  the Company  entered into a sublease for office space in Los
     Angeles with an  affiliate of the CEO of the Company.  The sublease is on a
     month-to-month  basis at the rate of $1,500  per  month and ended  December
     1998.

     In November  1998,  the Company  entered into the  following  related party
     transaction  with E 3  Sports  New  Mexico,  Inc.,  a  company  which is an
     affiliate of Mr.  Schotte and Mr.  Koshakji  (the CEO and  President of the
     Company,  respectively) and in which the Company holds a minority interest:
     (i) the  Company  purchased  a  $25,000  sponsorship  from the  Albuquerque
     Geckos, the professional  soccer team owned by the affiliate;  and (ii) the
     Board  authorized  the  Company to loan up to  $100,000  to the  affiliate,
     payable no later  than July 15,  1999 with  interest  at 15% per annum (the
     loan is secured by 10,000 shares of E 3 Sports New Mexico, Inc.).

     In July  1998,  the  Company  entered  into  the  following  related  party
     transactions  with Media Trust S.A., a company which is an affiliate of Mr.
     Schotte and in which the Company holds a minority interest: (i) the Company
     has agreed to make a $2,500 loan to the affiliate, payable in one year with
     interest  at 15% per annum;  (ii) the  Company  engaged  the  affiliate  to
     introduce  prospective  investors to the Company, in exchange for which the
     affiliate  will  receive  10% of any  investments  made in the  Company  by
     persons or entities  introduced by the  affiliate,  together with five-year
     warrants (100 warrants per $1,000  invested) at an exercise  price equal to
     the market price of the Company's stock on the date of the  investment.  In
     connection  with  convertible  loans made to the Company in 1998 by Belgian
     investors  in the  aggregate  amount  of  approximately  $100,000,  and the
     purchase  of 625,000  shares of common  stock of the  Company by  Lecoutere
     Finance,  S.A. in December,  1998 (see below),  a total of 29,537 five-year
     warrants will be issued to Media Trust,  S.A. with exercise  prices ranging
     from $ .38 per share to $ .98 per share.

                                      F-20
<PAGE>
     In December  1998,  Lecoutere  Finance  S.A., a affiliate of the CEO of the
     Company,  purchased  625,000 shares of common stock from the Company for an
     aggregate  consideration of $187,500 ($.30 per share).  The price was based
     on the average  price of the  Company's  common stock for the 30 day period
     preceding the date of purchase (i.e., $ .37 per share), less a 20% discount
     due to the restricted nature of the shares purchased.

     On December 1, 1998, a total of 50,000  three-year  warrants were issued to
     three   parties   (one  of  which  is  an  affiliate  of  the  Company)  in
     consideration  of extending the maturity date of loans to the Company.  The
     warrants have an exercise price of $1.00 per share.

     In April  1999,  the  Company  purchased  an option with the right of first
     refusal  to be the  exclusive  worldwide  distributor  of a motion  picture
     entitled  "HARA." The film is an  action-packed  semi-biographical  martial
     arts love story and is expected to start pre-production in January, 2000. A
     company  affiliated  with  management  of the  Company  owns  a 50%  equity
     interest,  in Red Sun Productions,  Inc., the production company which owns
     all rights to the film "HARA."


12.  Subsequent Events:

     In August 1999, the assignee of a former director of the Company elected to
     convert  accrued  wages  owed by the  Company  in the  amount of $81,103 to
     300,678 shares of Company common stock.

     In April,  1998,  an action was  commenced  against the Company by Siegel &
     Gale, a provider of brochure  materials,  seeking payment of $48,695,  plus
     costs,  related to work done by Siegel & Gale for the Company.  The Company
     settled this matter in October 1999 for the amount of $25,000.

     During the period  between  April,  1999 and  September,  1999, the Company
     completed four private placements to offshore investors, the first of which
     was  completed  for 575,000  shares of common stock at a purchase  price of
     $.30 per share  (resulting  in gross  proceeds to the Company of $172,500),
     and the latter three of which were  completed for an aggregate of 1,600,000
     shares of common stock at a purchase of $.40 per share  (resulting in gross
     proceeds to the Company of $400,000).  The proceeds of these offerings were
     used primarily for debt reduction and working capital for the Company.

     In September,  1999, Mr. Greenwald resigned as a Director of the Company to
     pursue other interests.  He also agreed to settle all outstanding  payments
     due to him  under his  employment  agreement,  and to resign as a  Managing
     Director of the Company,  provided the Companys pays to him the  settlement
     amount of $75,000 on or before  October  31,  1999,  together  with  75,000
     shares of restricted common stock. If payment is delayed beyond October 31,
     1999,  then the  number of shares to be  delivered  to Mr.  Greenwald  will
     increase by 25,000 shares for each week of delayed payment.  The settlement
     agreement  with Mr.  Greenwald  is subject to the  approval of the Board of
     Directors of the Company.



                                      F-21