SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

            (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

                   For the fiscal year ended December 31, 1997

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                           Commission file #: 33-87714

                        OLYMPIC ENTERTAINMENT GROUP, INC.
             (Exact name of registrant as specified in its charter)

           Nevada                                               88-0271810
           ------                                               ----------
(State or other jurisdiction                                  (IRS Employer
      of incorporation)                                   Identification Number)

             2550 E. Desert Inn Road, Suite 338, Las Vegas, NV 89121
             -------------------------------------------------------
               (Address of principal executive offices)(Zip Code)

                  Registrant's telephone number: (702) 369-2588
                                                 ---------------

           Securities registered pursuant to Section 12(b) of the Act:

                        Common Stock $0.01 Par Value NONE
                        ---------------------------------
                     (Title of Class)(Name of Each Exchange
                              on Which Registered)

           Securities registered pursuant to Section 12(g) of the Act:

                                      NONE
                                      ----
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. (1) Yes  X   No         (2) Yes  X    No
                                           ---                     ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  X
          -----

At June 1, 1998 there were  2,169,785  shares of common stock  outstanding.  The
aggregate  market  value  of the  common  stock  held by  non-affiliates  of the
registrant  (i.e.,  excluding shares held by executive  officers,  directors and
control persons as defined in rule 405) on that date was $339,028.

Documents incorporated by reference:  None.
<PAGE>

                                     PART I

Item 1. Business
----------------

(a) General Development of Business
    -------------------------------

Olympic  Entertainment  Group, Inc. (the "Company") is a multimedia  educational
company and was incorporated on May 21, 1987 in the State of Nevada. The Company
was originally  formed to finance,  produce  co-produce  and  distribute  motion
pictures and television  shows and pursued various  opportunities  through 1993,
when the Company's  management  decided to focus upon the development of a cable
television  network for the  distribution  of children's  nonviolent  television
programming.  From 1993 through 1995 the Company  developed  this concept and in
1995,  launched the Children's Cable Network  ("CCN").  To date, the Company has
had success in several markets but has experienced marginal or poor results from
the efforts of licensees and has  determined it to be in the Company's  interest
to seek to recapitalize the Company and to seek other venues of distribution.

(b) Narrative Description of Business
    ---------------------------------

The Company has created a  children's  educational  division  called  Children's
Cable  Network  ("CCN" or the  "Network").  Prior to January  1998,  the Company
acquired,  purchased,  and licensed  educational  programming for the Children's
Cable Network; specializing in nonviolent, educational,  informative and special
interest  preschool  programming,   children's  classics  programs  and  G-rated
children's  motion pictures.  The Company's  present lack of any revenue and any
cash reserves has resulted in cessation of these activities.

All  reference  to the  Company  in the  following  discussion  of the  business
activities of the Company includes Children's Cable Network.

Children's Cable Network

CCN provides  award-winning,  nonviolent,  educational,  informative and special
interest  children's  programming for television and in the process of providing
this   programming,   creates   business   opportunities   for  individuals  and
syndications looking to get into the cable television broadcasting business.

Federal Legislation

The Federal  Communications  Act of 1984  requires  cable  operators  to provide
channels  for lease to the  public in an attempt to  enhance  the  diversity  of
program choices available to cable  subscribers.  Generally,  such allocation of
channels is referred to as "leased  access."  Section 612 of the  Communications
Act of 1984  established  a federal  scheme  through  channel  leasing to assure
access to cable systems by third parties  unaffiliated  with the cable operator.
Under the  amendments to Section 612,  cable  operators  were also  permitted to
place programming from a qualified minority or educational programming source on
up to 33 percent of the cable system's designated leased access channels.

Additionally,  the Cable Act of 1992  mandated that every cable system with more
than  thirty-six  channels  and less than  fifty-five  activated  channels  must
designate 10 percent of their  capacity to leased  access.  Systems with greater
than 55 activated channels must set aside 15 percent of their capacity to leased
access. In addition, the Federal Communications Act of 1984 provides individuals
and groups the opportunity to use the public,  educational and government access
channels  offered by the cable  companies.  Systems with fewer than 36 activated
channels  are not  required  to make lease  channel  capacity  available  unless
otherwise  required to do so by terms of the franchise in effect on December 29,
1994.  The Cable  Television Act of 1992 renewed  government  supervision of the
franchised cable  television  industry which was deregulated by the Cable Act of

                                       2
<PAGE>


1984.  Both Acts are  amendments to the  Communications  Act of 1934.  The Cable
Television  Act of 1992 ("1992 Act")  authorized  the FCC to implement  rate and
service  regulation  for certain basic cable  television  services and to create
regulations that will increase  competition to franchised  cable  operators.  On
April 1, 1993,  the FCC  announced  several  features of the rules it planned to
implement in connection with the 1992 Act. Most of the announced rules concerned
rate  regulation for franchised  services as well as a temporary rate freeze and
rollback.  In order to promote competition with franchised cable operators,  the
FCC announced  program access  regulations as part of the Act. These  provisions
essentially allow competitive cable operators to purchase television programming
at fair prices.  Management believes that these provisions of the Act may result
in lower  operating  costs for the Company,  however,  there can be no guarantee
that revisions in said regulation will not materially affect the Company.

The  cable  television  industry  is  subject  to both  regulatory  restrictions
implemented primarily by the Federal Communications Commission, ("FCC") and also
legislation which affects communications/broadcast industries in general.

The Children's  Television Act of 1990  established new  requirements  including
that each broadcasting  station must provide programs that serve the educational
and informational needs of young viewers.  Accordingly,  broadcasters must limit
the amount of advertising aired during  children's  programming and must provide
programs that meet the educational and informational needs of children.

Cable Affiliates

Prior to  January  1,  1998,  the  Company  licensed  its  programming  to Cable
Affiliates  who would  cablecast  this  programming on their local cable systems
through the purchase of time on a leased  access  channel.  The Company  obtains
Cable Affiliates  through business  opportunity shows and seminars,  direct mail
and business  opportunity  advertisements  in national  publications  and on the
internet.  The Company  licensed  only one Cable  Affiliate in each cable system
market.

Employees

The Company  currently has two  employees in the corporate  office in Las Vegas,
Nevada,  having  reduced its staff from  eighteen  employees  in order to reduce
costs. None of the Company's employees are represented by a labor union.

Competition

The Company's  business is very competitive.  The Company is in competition with
many  cable  companies  none of  which  specialize  in  nonviolent,  educational
programming.  Many  competitors  exist which have  greater  financial  resources
and/or more  experience  in the delivery of  programming  than the Company.  The
Company competes with all other broadcasters of children's programming. On cable
television  competitors include The Family Channel,  The Learning Channel,  PBS,
Nickelodeon,  and The Disney Channel.  The Company intends to offer  programming
Monday through  Friday,  6:00 AM to 12:00 Noon which is potentially  more weekly
air  time  of  nonviolent,   educational  programming  than  all  of  the  other
competitors.

Programming

The  programs  consist  of  nonviolent,  educational,  informative  and  special
interest programming which teach positive character  development,  morality, and
introduction to numbers,  letters and music.  Each program is  approximately  25
minutes in length,  which  leaves 5 minutes of time for the Cable  Affiliate  to
sell commercial advertisements,  sponsorships, and/or create and produce locally
originated programming.

The Company, through its own research, has located many award-winning children's
series  produced  since 1950,  some of which the Company plans to obtain through
direct  acquisition  or  licensing,  provided  the  Company is able to raise the
capital  necessary so to do. The programming for children includes puppet shows,
live action and animated  characters,  children's classic stories and music that
is designed to teach children in a fun and entertaining way.

                                       3
<PAGE>

Library

The library of programs,  many of which are award-winning,  focus on educational
value as well as character  and morality  development.  To date,  each series of
programs  is  aimed  at the 12 to 6 year old  audience  assisting  them in their
preparation  for school.  The Company owns outright or licenses  under long term
leases each of the following programs.

                          CCN's Library Of Programming

     The Shari Show
     26 1/2 hour episodes
     The Shari Show takes  place in the TV station  called  Bearly  Broadcasting
     where all of the  positions  are  manned  by  puppets.  Shari  Lewis is the
     secretary to the station manager, Mr. Bearly. As they put on the full range
     of  typical  shows at  Bearly  Broadcasting,  human  interaction  and value
     judgments are explored and revealed.  More than an  entertainment  show for
     children  of all  ages,  The Shari  Show  stimulates  children's  senses of
     curiosity and humor,  which creates  involvement...  a basic measurement of
     the educational process.  Shari Lewis and The Shari Show have won seven (7)
     Emmys,  the  Peabody  award  and  numerous  other  prestigious  awards  for
     excellence. Programming on license.


     Bill Cosby's PicturePages
     80 1/2 hour episodes
     Bill Cosby's PicturePages, winner of a Golden Globe award and Gold Medalist
     of the  International  Film Festival of New York,  helps  children  develop
     important skills like following directions, drawing, hand-eye coordination,
     clear  thinking  and  numbers.  PicturePages  is the  epitome of  educating
     children  with love and  laughter.  Bill  Cosby's  unique  approach,  which
     delights  children and adults,  is  recommended  by the National  Education
     Association. Programming on license.



     Dusty's Treehouse
     260 1/2 hour episodes
     Dusty's Treehouse is a children's show designed for ages 2-6. The show uses
     both adult and children  mixed with puppets.  Winner of eight (8) Emmys and
     the  coveted  George  Foster  Peabody  award,  Dusty's  Treehouse  is  very
     entertaining,  while at the same  time  teaches  children  how to cope when
     someone  was  injured,  what love is, to look both ways when  crossing  the
     street,  never let strangers  into the house and other social and practical
     skills for dealing with today's world. Owned by the Company.

     Achievements In African-American History
     10 1/2  hour programs
     Achievements in  African-American  History  documents in a ten part series,
     the  historical  achievements  of  black  women  and men in the  fields  of
     literature and poetry, cinema, religion,  medicine and science. This series
     features  noted  black  personalities  such as Abbey  Lincoln,  Roscoe  Lee
     Browne, Brock Peters and Lou Gossett,  Jr., who document through narration,
     dramatic   scenes  and   readings,   some  of  the   important   historical
     contributions made by African- Americans. Owned by the Company.

                                       4
<PAGE>

     The Chuck Jones Collection
     6 1/2 hour episodes
     The  Chuck  Jones   Collection   is  comprised  of   beautifully   animated
     stories/fairy tales written by such authors as Rudyard Kipling. Chuck Jones
     is one of the leading  award  winning  animators of our time. As creator of
     such characters as Road Runner,  Wile E. Coyote, Pepe Le Pew and co-creator
     of Bugs Bunny,  Porky Pig and Daffy Duck,  this series portrays the beauty,
     creativity and quality of its Academy Award winning creator. Programming on
     license.

     Hot Fudge
     75 1/2 hour episodes
     Hot  Fudge  is the  recipient  of  two  national  honors,  the  Action  for
     Children's  Television Award for Outstanding  Contribution to Mental Health
     Programming for children, and the San Francisco State College Excellence in
     Broadcasting  Award. This nationally  recognized program that combines live
     action and a delightful  cast of puppets with lessons,  music and fun. Join
     the Hot Fudge Gang as they learn about the  complexities of  relationships,
     friendship,  self esteem,  feelings,  and  cooperation,  among many others,
     through  song,  live action  skits,  and game shows.  Each  energetic  show
     follows a single  theme with  engaging  dialogue  And lively  performances.
     Owned by the Company.

     KidStreet
     130 1/2 hour episodes
     This highly exciting game show for children is also family oriented.  Three
     pairs of siblings,  the red team, the blue team and the green team, vie for
     victory  and  prizes  by  guessing  how one  sibling  will  answer a set of
     questions.  Points are awarded  for  correct  answers and the team with the
     most points wins the chance to solve the final puzzle.  The show  motivates
     kids to learn problem solving skills and to better understand their sisters
     and brothers. Programming on license.

     Gigglesnort Hotel
     80 1/2 hour episodes
     The  Gigglesnort  Hotel  brings kids  worthwhile  story  lines  filled with
     comedy, action and surprises.  The Hotel has a very funny human desk clerk,
     B.J.,  presiding over a crew of puppets such as Hotel guests Mrs.  Plumtree
     and the old  Professor,  Hotel  Detective W.C.  Cornfield,  and the Janitor
     Dirty Dragon.  Through the everyday running of the Hotel,  concepts such as
     love,  hope  anger,   and  trust  are  presented  in  ways  that  are  both
     thought-provoking  and highly entertaining.  The Gigglesnort Hotel garnered
     two (2) Chicago  Emmys and the Iris award for program  excellence  from the
     National Association of Program Executives. Programming on license.

     Coming To Ametrica
     2 1/2 hour episodes
     Coming To Ametrica is a combination  of live action and animation  designed
     to teach  children  as well as adults  the  metric  system of  weights  and
     measures.  In this series, a spaceship kidnaps Admiral Gordon and six young
     people  who have  been  chosen  to  teach  America  the  metric  system  of
     measurements.  While  detained  aloft in the  spaceship the Admiral and his
     young crew learn everything there is to know about the metric system.

     The spaceship computer uses lively and entertaining  animation to teach the
     skeptical  Americans about liters,  meters,  and grams. They learn that the
     metric system is used worldwide, and that once understood,  it is easier to
     use than gallons,  yards and pounds.  The series is fun,  entertaining  and
     most of all, highly educational. Owned by the Company.

     Metric Series
     38  15 minute episodes
     (approximately 600 minutes of animation)
     A series of  animation  programs  designed  to teach  children,  as well as
     adults,  the  metric  system of weights  and  measures.  The Metric  Series
     features a mild mannered  character named Newton Joule who, when conversion
     problems arise, turns into the superhero Metric Man to teach children about
     liters,  meters and grams.  They learn the metric system is used worldwide,
     and that  once  understood,  it is easier  to use then  gallons,  yards and
     pounds.   The  series  is  fun,   entertaining  and  most  of  all,  highly
     educational.

                                       5
<PAGE>

     Scott McGrout Inside Out
     1  30 minute special
     A  highly  informative  and  entertaining  film  on  body  awareness.  This
     beautifully animated story introduces Scott McGrout who takes a fascinating
     journey  through the human body.  This film teaches the child how important
     each part of the body is and how each part works  together to keep the body
     healthy and strong. Owned by the Company.

     Kerchoo - What Really Happens When You Catch A Cold
     1  10 minute film short
     In this  imaginative  film,  Scott  McGrout  learns  about the common cold.
     Experiencing cold spells and sneeze quakes,  Scott and the viewer watch the
     body fight off Elvirus and her vacation  companion,  Common Cold.  Owned by
     the Company.

     Rod Rocket
     135  5 minute episodes (675 minutes of animation)
     The  exciting  adventures  of two  astronauts  in outer space in  wonderful
     animation. Owned by the Company.


Item 2. Properties
------------------

The Company  presently  leases no space and during the report period  terminated
its leases in Burbank, California, and subsequently in Las Vegas, Nevada.


Item 3. Legal Proceedings
-------------------------

The Company is currently involved in the following legal matters:

The  Company  is a  Defendant  in Civil  Action  96 CV 1930,  Capital  Funding &
Financial  Group,  Inc., et al. vs. Olympic  Entertainment  Group,  Inc. In this
cause,  Plaintiff seeks refund of approximately  $120,000 paid to the Company as
licensing  fees in 1996.  The  Company  intends to defend  itself and pursue its
claims for licensing  fees owed in excess of $100,000 and for damages  caused by
Capital Funding through tortuous interference with various contracts.

The Company is a Defendant  in Lee Van Dyke,  Judy Lynn  Kloepfer and William G.
Chandler vs.  Olympic  Entertainment  Group,  Inc.,  et al.,  which was filed in
Superior Court of Los Angeles County,  Case No.  BC189116,  seeking class action
status and alleging  various  allegations of violation of California  securities
laws,  breach  of  contract  and  violation  of  the  California   Business  and
Professions  Code. The Company intends to vigorously defend itself and deny that
it ever offered or sold any  securities  nor did it  participate  in the sale of
securities.  The Company  further intends to assert its rights to indemnity from
the other defendants which were licensed broadcast rights by the Company.


Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter ended December 31, 1997.

                                       6
<PAGE>
                                     PART II

Item 5. Market for Registrant's Common Equity & Related Stockholder Matters
---------------------------------------------------------------------------

(a) Market Information
----------------------

     (1)  (i)   None
          (ii)  Not applicable
          (iii)                 Fiscal Year End              Fiscal Year End
                               December 31, 1996            December 31, 1997
                               -----------------           -------------------
                               High Bid  Low Bid           High Bid    Low Bid
                               --------  -------           -------------------
     First Quarter              $3.38     $1.75             1.125       0.5625
     Second Quarter             $3.63     $1.75             1.125       0.53125
     Third Quarter              $2.38     $0.75             0.8125      0.40625
     Fourth Quarter             $1.19     $0.50             1.125       0.4375

          (iv)  Not applicable
          (v)   Not applicable

     (2)  (a) Not applicable

(b) Holders
-----------

          (1)   Title of Class                     Number of Record Holders
                --------------                     ------------------------
                Common Stock,                      Approximately 138
                $0.01 Par Value

          (2)   Not applicable

(c) Dividends
-------------

          (1)  There have never been any dividends declared by the Registrant.
     
          (2)  Registrant's  losses do not currently indicate the ability to pay
               cash dividends.


Item 6. Selected Financial Data
-------------------------------
<TABLE>
<CAPTION>

                                            1997               1996                 1995               1994                1993
                                        -------------------------------------------------------------------------------------------
Income statement data:

<S>                                     <C>                 <C>                 <C>                 <C>                 <C>      
Revenues                                $ 1,736,491         $ 2,518,253         $   358,932         $      --           $      --

Income (loss)
  from Operations                          (402,646)            378,090            (545,396)         (2,170,003)           (102,899)

Net interest expense                        (28,680)            (23,234)            (33,605)            (36,546)            (31,646)

Income (loss)
  before income taxes                      (431,326)            355,856            (579,001)         (2,176,549)           (134,545)

Income taxes                                   --                  --                  --                  --                  --

Net income
  (loss)                                $  (431,326)        $   355,856            (579,001)         (2,176,549)           (134,545)
                                        ===========         ===========         ===========         ===========         ===========

 
                                       7

<PAGE>

                                                 1997              1996              1995               1994               1993
                                             --------------------------------------------------------------------------------------

Per share data:
Primary:
Net income (loss)                            $      (.16)       $      0.14       $      (.30)       $     (1.92)       $      (.15)
                                             ===========        ===========       ===========        ===========        ===========

Weighted average shares
  outstanding                                  2,626,390          2,626,390         1,915,038          1,132,125            900,000

Fully diluted:
Net income (loss)                            $      (.16)       $      0.12       $      (.30)       $     (1.92)       $      (.15)
                                             ===========        ===========       ===========        ===========        ===========

Weighted average shares
  outstanding                                  2,626,390          2,922,390         1,915,038          1,132,125            900,000

Balance sheet data:

Working capital
  (deficiency)                                  (404,694)           162,296       $  (872,167)       $    10,305        $   465,138

Total assets                                   1,093,232          1,368,723           545,152            260,354            245,760

Long-term debt                                    16,623               --                --                 --                 --

Redeemable preferred stock                       203,000            203,000           213,000            213,000               --

Total stockholders' equity
  (deficiency)                                   350,676            782,004          (492,441)            86,560           (225,229)

</TABLE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations
--------------------------------------------------------------------------------

The Company has continued to experience severe cash flow problems  occasioned by
(i) no revenue from license renewal fees or new Broadcast  Affiliates  licenses;
(ii) the failure of the Optimist Group  licensing  program  initiated in January
1998,  and  terminated by mutual consent on April 1, 1998; and (iii) the failure
of the TSR program to produce  significant  new revenue from its cause marketing
initiatives.  Since January 1998, the Company has sought to reduce  overhead and
expenditures  by (i)  reducing  personnel  from twelve to two as of June 1, 1998
(reduced  from  eighteen to twelve prior to 1997 year end);  (ii) ceasing to pay
salaries to corporate officers; and (iii) terminating its leasehold office space
at 2755 East Desert Inn Road, Suite 200, Las Vegas, Nevada 89121.

In order to generate  revenue,  the  Company has  retained a firm to license its
library  of  children's  programming  to  non-competitive  venues of  broadcast.
Additionally,  the Company is seeking a strategic  financial  partner to provide
the necessary capital so that CCN can be delivered to homes via direct broadcast
satellite  (Primestar  and Direct TV are  examples  of DBS).  Revenue  from this
method of  delivery  can be  substantial  and would be  derived  from  potential
national advertisers or fees based on the number of subscribers serviced. Should
the Company be  unsuccessful  in the next 30-45 days in either of the foregoing,
it would seek to reorganize  its debt and to sell its  programming in an orderly
proceeding under the protection of the Bankruptcy Court.


                                       8

<PAGE>
<TABLE>
<CAPTION>



Results of Operations

The following  table sets forth,  for the fiscal years ended  December 31, 1997,
1996, and 1995 certain items from the Company's Statement of Operations.

                                                    1997                     1996                   1995
-----------------------------------------------------------------------------------------------------------

<S>                                              <C>                        <C>                 <C>        
Revenues                                         $1,736,491             $ 2,518,253             $   358,392
Expenses                                          2,139,137               2,140,163                 903,788

Income (loss) from Operations                      (402,646)                378,090                (545,396)

Other income (expense)                              (28,680)                (22,234)                (33,605)
                                                                        -----------             -----------

Income before taxes                                (431,326)                355,856                (579,001)

Provision for income taxes                             --                      --                      --

Net income (loss)                                  (431,326)            $   355,856             $  (579,001)
                                                ===========             ===========             ===========

Earnings per Share
Primary:
   Weighted Average
   Common Shares Outstanding                      2,626,390               2,626,390               1,915,038
                                                ===========             ===========             ===========


   Income (Loss) per Common Share                      (.16)            $       .14             $      (.30)
                                                ===========             ===========             ===========

Fully Diluted:
Earnings per Share
   Weighted Average
   Common Shares Outstanding                      2,626,390               2,922,390               1,915,038
                                                ===========             ===========             ===========

   Income (Loss) per Common Share                      (.16)            $       .12             $      (.30)
                                                ===========             ===========             ===========

</TABLE>

Comparison of 1997 to 1996

The  Company's  activities  during 1997 and 1996  consisted  of  developing  the
Company's products,  licensing cable affiliates and negotiating  acquisitions of
rights to various children's television programs.  Revenues were down thirty-one
percent (31%) in 1997 versus 1996 due to the fact that cable  affiliates did not
renew their licensing  rights and there were fewer new  affiliates.  The Company
recognizes  revenue  from the  network  license  agreements  when all  specified
conditions have been made. During 1997 and 1996, the bulk of the Company's sales
were attributed to the sale of network license agreements.  The selling, general
and  administrative  expenses  were almost the same from  $2,140,163  in 1996 to
$2,139,137 in 1997.

Comparison of 1996 to 1995

Revenues in 1996 were up 584% versus 1995.  The fees charged  during 1995 ranged
from  $10,000  to  $40,100  per  affiliate  based  on the  number  of  potential
customers,  whereas  in 1996  affiliate  licenses  were  selling  for as much as
$100,000 in the large cable  markets.  During  1996,  the bulk of the  Company's
sales were  attributable to the sale of television  program rights to affiliates
which increased the Company's 1996 recorded sales.

Selling,  general and administrative expenses were up 146% from $903,788 in 1995
to  $2,140,163  in 1996.  Interest  expense  was down in 1996 due to the partial
repayment of debt in early 1996.

                                       9
<PAGE>


Capital Resources & Sources of Liquidity

During 1997, the Company's working capital decreased to a deficiency of $404,694
compared  to  $162,296  at December  31,  1996,  primarily  due to a decrease in
affiliate sales in the fourth quarter.

The Company's  primary cash requirements are for operating  expenses  (primarily
labor and general and administrative expenses) and for the acquisition of rights
to additional  television  series. The Company's primary source of cash was from
revenue which  accounted for  approximately  93 percent of all cash brought into
the Company. The Company did obtain $125,000 in financing during the year.

During 1996, the Company's  working capital  increased to $162,296 compared to a
deficiency  of $872,167 at December  31,  1995.  This was  primarily  due to the
significant  increase in  affiliate  sales in 1996 in addition to  approximately
$913,000 in proceeds from various equity financings during 1996.

The Company's primary cash requirements were for operating  expenses,  primarily
labor and general and administrative expenses, and for the acquisition of rights
to additional  television  series. In 1996, the Company's primary source of cash
was from revenues which accounted for  approximately  67% of all cash brought in
to the  Company.  The  Company  also  brought in  approximately  33% of its cash
inflows from equity  financing.  Historically,  the Company's  primary source of
cash has been through program licensing.

In 1995,  the Company's  primary source of cash was from revenues as the revenue
stream accounted for approximately 96% of all cash brought in to the Company.

Related Party Transactions

The  deferred  compensation  features of the  employment  contract  with Dominic
Orsatti were cancelled by mutual consent during the report period.

In 1997, the Company also received legal services from firms in which another of
the Company's directors is a principal.  Such services totaled $83,635 for 1997,
and the amount of $29,696 was payable at December 31, 1997.

The Company  believes  that such  amounts  represented  the fair market value of
comparable  products and services that could have been obtained  elsewhere under
similar terms and circumstances.

Major customers

The  Company  made  sales in  excess of 10% of total  revenues  in 1997 to major
customers as follows:

Customer:                                 Sales/% of total
---------                                 ----------------
Carousel Media Marketing                  $1,750,000  99%


Employment Contract

During  1997,  Mr.  Orsatti and the Company  mutually  agreed to  terminate  all
deferred compensation features and the grant of options pursuant to the terms of
the hereinafter  described  employment  contract  because of marginal results of
operations. On January 15, 1997, the Company entered into a five year employment
agreement with Mr. Orsatti, its chief executive officer, whereby Mr. Orsatti was
to receive base  compensation  of $480,000 per year,  and a bonus of $10,000 for
each  new  affiliate  added  to the  Company's  cable  television  network.  The
agreement  also  granted the  executive  options to purchase  800,000  shares of
common  stock at an exercise  price of 80% of the fair value of the stock at the
grant date. The options vest at a rate of 20% per year during the contract term.
The  agreement  also provided for  termination  payments to the executive of all
accrued but unpaid  salary and bonus,  the rights to vested stock  options and a
cash payment of $5,000,000 if  termination  (as defined in the contract)  occurs
during the first  contract  year. The cash payment after the first contract year
was an amount equal to twice the remaining  base salary that would be due during
the remaining contract term.

                                       10
<PAGE>

Item 8. Financial Statements
----------------------------

The  following  financial  statements  are filed  with this  report as pages F-1
through F-15 following the signature page

                                                                      Reference
                                                                      ---------
     Report of independent public accountants                            F-1
     Balance sheets                                                      F-2
     Statements of operations                                            F-4
     Statements of stockholders' equity                                  F-5
     Statements of cash flows                                            F-7
     Notes to financial statements                                       F-9

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.
--------------------------------------------------------------------------------

There  were no changes or  disagreements  with  accountants  on  accounting  and
financial disclosures.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------

The following table sets forth the name, age, and position held of each director
and officer of Olympic Entertainment Group, Inc.:

Name                           Age       Position
----                           ---       --------

Dominic Orsatti                66        Chief Executive Officer and Chairman of
                                         the Board of Directors
Michael E. Marcovsky(1)        53        President, Chief Operating Officer and
                                         Director
John Holt Smith                57        Secretary and Director
H. C. Hernandez(2)             66        Executive Vice President
Kathleen Hitt(3)               48        Vice President - Public Affairs
Bonnie Houldsworth             44        Treasurer and Chief Financial Officer
Jack E. Rhodes(4)              73        Director

---------------
(1)  Resigned effective June 10, 1997
(2)  Passed away April 24, 1997
(3)  Resigned effective April 1, 1998
(4)  Resigned effective June 30, 1997

Officers and Directors

Pursuant to the Bylaws,  each Director  shall serve until the annual  meeting of
the stockholders,  or until his or her successor is elected and qualified. It is
the intent of the  Company to support the  election  of a majority of  "outside"
directors at such meeting. The Company's basic philosophy mandates the inclusion
of  directors  who  will be  representative  of  management,  employees  and the
minority shareholders of the Company. Directors may only be removed for "cause".
The term of office of each  officer  of the  Company is at the  pleasure  of the
Company's Board.

                                       11

<PAGE>

             BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS

Dominic Orsatti, Chairman of the Board, Chief Executive Officer and Founder, was
formerly  President  of  Orsatti  Productions,   Inc.,  a  leading  producer  of
educational  films.  Among Orsatti  Productions  credits were an NBC  Children's
Television Special,  "All About Me", a musical television  special,  AGet Down",
hosted by Milton  Berle,  more than 100  educational  films and two  educational
children's  record  albums.  Mr.  Orsatti is the recipient of more than 18 major
industry  awards,  including  four gold and three silver medal awards by the New
York  International  Film  Festival  and two Golden Babe  awards  awarded at the
Chicagoland Film Festival.  Mr. Orsatti  co-wrote and was executive  producer of
the first place Telly  award-winning  "Coming To Ametrica" in 1993. He is also a
member of the Writer's Guild of America.

John Holt Smith,  Corporate Secretary and Director, is a senior partner of Smith
&  Associates  and was  formerly  a partner  in the Fort  Worth,  Texas  firm of
McDonald, Sanders, Ginsburg, Phillips, Maddox & Newkirk. As a partner, he served
as Vice  President of the United  States  Trust  Company of New York and in that
capacity opened the Beverly Hills,  California office of the company.  Mr. Smith
subsequently  returned to the practice of law to ultimately  head the securities
department of the Los Angeles firm of Bushkin,  Gaims,  Gaines & Jonas.  In that
capacity,   Mr.  Smith  represented  clients  including  Johnny  Carson,  Kareem
Abdul-Jabbar, Diane Keaton, Joan Rivers, Bill Cosby, David Letterman, Neil Simon
and many NBC  personalities.  Mr.  Smith is  currently  engaged  in the  private
practice of law  representing  broker-dealers,  individuals and entities raising
capital as well as preparing private placements and subsequent public offerings.
Mr. Smith is a two-time  graduate of Vanderbilt  University  (B.A.  1963,  LL.B.
1966) and a member of the State Bars in Texas and California.

Bonnie  Houldsworth,  Treasurer and Chief Executive Officer,  started her public
accounting  career at Laventhol & Horwath.  Ms.  Houldsworth has been a founding
principal in a Las Vegas public accounting firm since 1987, Houldsworth, Russo &
Company,  which is a full service  accounting  firm in which she  specializes in
accounting and auditing for highly regulated industries such as banks,  mortgage
companies and gaming companies.  Ms. Houldsworth  obtained a Bachelor of Science
in Accounting in June 1984 from the University of Nevada,  Las Vegas, and became
a licensed Certified Public Accountant in Nevada and California.

Item 11. Executive Compensation
-------------------------------

The table below sets forth the payroll and  consulting  compensation  for fiscal
1997 for the executive officers and directors of the Company.

Name of Individual        Capacities in Which Served                Compensation
--------------------------------------------------------------------------------
Dominic Orsatti           Chairman and Chief Executive Officer          $235,000
Michael E. Marcovsky      President, Chief Operating Officer 
                          and Director                                   $60,000
John Holt Smith           Secretary and Director                        *$83,635
Bonnie Houldsworth        Treasurer and Chief Financial Officer        **$36,568
H. C. Hernandez           Vice President                                 $12,000
Kathleen Hitt             Vice President, Public Affairs                 $56,200
Jack Rhodes               Director                                   ***$103,700

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

*    Represents moneys paid to law firms in which Mr. Smith is a principal.

**   Represents moneys paid to Houldsworth, Russo & Company, a firm in which Ms.
     Houldsworth is a principal and an accountant.

***  Paid to Encore  Entertainment,  Inc.,  a company  in which Mr.  Rhodes is a
     principal, for video production services.

Item 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

As of December 31, 1997,  there were 2,824,552  Common Shares  outstanding.  The
following tabulates holdings of Common Shares of the Company by each person who,
subject to the above,  are holders of record or are known by  Management  to own
beneficially  more than 5.0% of the  Common  Shares  and,  in  addition,  by all
directors and officers of the Company individually and as a group.

                                       12
<PAGE>


                                         Table I - Common Stock
Name and Address                         Number of Shares of        Percentage
of Beneficial Owner                      Common Stock Owned(1)     of Ownership
-------------------                      ---------------------     ------------

Dominic Orsatti(2)                             800,000             28.32 Percent
2550 E. Desert Inn Road #338
Las Vegas, Nevada  89121

Nevada Entertainment Partners, Ltd.(2)         800,000             28.32 Percent
2550 E. Desert Inn Road #338
Las Vegas, Nevada  89121

John Holt Smith                                  8,000             .0028 Percent
1925 Century Park East #1600
Los Angeles, California  90067

All Directors and Officers as a Group (3)      808,000           28.3228 Percent

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

(1)  Pursuant  to Rule  13d-3  under the  Securities  Exchange  Act of 1934,  as
     amended,  beneficial  ownership  of a security  consists  of sole or shared
     voting power (including the power to vote or direct the voting) and/or sole
     or shared  investment  power  (including the power to dispose or direct the
     disposition)  with  respect  to a  security  whether  through  a  contract,
     arrangement,  understanding,  relationship or otherwise.  Unless  otherwise
     indicated,  each person  indicated above has sole power to vote, or dispose
     or direct the  disposition  of all shares  beneficially  owned,  subject to
     applicable community property laws.

(2)  Includes Nevada  Entertainment  Partners,  Ltd., and Dominic  Orsatti,  the
     managing  general partner  thereof,  who together  constitute a "group," as
     that term is defined in Section 13D of the Securities Exchange Act of 1934,
     as amended.

The following  tabulates  holding of Series "C" Preferred  Shares of the Company
owned beneficially by all directors and officers of the Company individually and
as a group.

                      Table 2 - Series "C" Preferred Shares
                      -------------------------------------

                                        Number of Series "C"         Percent of
Name and Address                        Preferred Shares(1)             Class
----------------                        -------------------             -----

Dominic Orsatti(2)                            12,000                    36.58%
2550 East Desert Inn Road, Suite 338
Las Vegas, Nevada  89121

Nevada Entertainment Partners Ltd.(2)         12,000                    36.58%
2550 East Desert Inn Road, Suite 338
Las Vegas, Nevada  89121

John Holt Smith                                8,000                    24.39%
1925 Century Park East #1600
Los Angeles, California  90067

All Directors & Officers
as a group (3)                                20,000                    60.97%

----------

                                       13
<PAGE>



(1)  Pursuant  to Rule  13d-3  under the  Securities  Exchange  Act of 1934,  as
     amended,  beneficial  ownership  of a security  consists  of sole or shared
     voting power (including the power to vote or direct the voting) and/or sole
     or shared  investment  power  (including the power to dispose or direct the
     disposition)  with  respect  to a  security  whether  through  a  contract,
     arrangement,  understanding,  relationship or otherwise.  Unless  otherwise
     indicated,  each person  indicated above has sole power to vote, or dispose
     or direct the  disposition  of all shares  beneficially  owned,  subject to
     applicable community property laws.

(2)  Includes  Nevada  Entertainment  Partners,  Ltd. and Dominic  Orsatti,  the
     managing  general partner  thereof,  who together  constitute a "group," as
     that term is defined in Section 13D of the Securities Exchange Act of 1934,
     as amended.

                      Table 3 - Series "D" Preferred Shares
                      -------------------------------------

                                           Number of Series "D"      Percent of
Name and Address                           Preferred Shares(1)         Class
----------------                           -------------------         -----

Dominic Orsatti(2)                              98,000                  100%
2755 East Desert Inn Road, Suite 200
Las Vegas, Nevada  89121

Nevada Entertainment Partners Ltd.(2)           98,000                  100%
2755 East Desert Inn Road, Suite 200
Las Vegas, Nevada  89121

All Directors & Officers
as a group (3)                                  98,000                  100%

                                     PART IV

Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
----------------------------------------------------------------

(a)  Financial Statements
     
                                                             Reference
                                                             ---------
     Report of independent public accountants                   F-1
     Balance sheets                                             F-2
     Statements of operations                                   F-4
     Statements of stockholders' equity                         F-5
     Statements of cash flows                                   F-7
     Notes to financial statements                              F-9

(b)  Reports on form 8-K
     None

(c)  Exhibits
     None


                                       14

<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the  undersigned,  thereunto duly  authorized this ____ day of ______,
1998:

Olympic Entertainment Group, Inc.


By:  /s/ Dominic Orsatti                 
   -----------------------------------           Date:
         Dominic Orsatti, Chairman and                --------------------------
         Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  person on behalf of the  Registrant and in the
capacity and on the date indicated.

NAME & POSITION                                               DATE


/s/ Dominic Orsatti
-------------------------------------                ----------------------
Dominic Orsatti,
Chairman & Chief Executive Officer


/s/  John Holt Smith
-------------------------------------                ----------------------
John Holt Smith
Corporate Secretary & Director


/s/  Bonnie Houldsworth
-------------------------------------                ----------------------
Bonnie Houldsworth
Treasurer and Chief Financial Officer


                                       15

<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                                  Balance Sheet
                                December 31, 1997
                                   (unaudited)



                                     Assets
                                     ------


Current assets:
   Cash and cash equivalents                                        $    15,504
   Accounts receivable - trade                                           15,535
   Accounts receivable - officer                                         87,200
                                                                    -----------

     Total current assets                                               118,239
                                                                    -----------

   Property and equipment, at cost                                      178,707
     Less accumulated depreciation                                      (35,046)
                                                                    -----------

                                                                        143,661
Other assets:
   Film library                                                         817,557
   Deposits and other assets                                             13,775
                                                                    -----------

                                                                        831,332
                                                                    -----------

     Total assets                                                   $ 1,093,232
                                                                    ===========


                             See accompanying notes.

                                       F-2
<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                                  Balance Sheet
                                December 31, 1997
                                   (unaudited)
                                   (continued)

                      Liabilities and Stockholders' Equity
                      ------------------------------------

Current liabilities:
   Notes payable                                                    $   135,000
   Current portion of long term debt                                     22,164
   Accounts payable-trade                                               234,778
   Accrued expenses                                                     101,295
   Amounts due related party                                             29,696
                                                                    -----------

     Total current liabilities                                          522,933

Long term debt                                                           16,623

Redeemable preferred stock:
   Preferred stock, 10% cumulative convertible,
     $.01 par value, 650,000 shares authorized,
     101,500 and 106,500 shares issued and
     outstanding, in 1996 and 1995 liquidating
     preference $1 per share                                            203,000

   Preferred stock, convertible, $.01 par value
     5,000,000 total shares authorized,
   Preferred stock, convertible, 40,000 shares
     authorized, 32,800 shares issued and outstanding,
     $10 per share liquidating preference (Series C)                     65,600

Preferred stock, convertible, 98,000 shares
   authorized, issued and outstanding
   $3 par share liquidating preference (Series D)                       196,000

Common stock, $.01 par value, 20,000,000
   shares authorized, 2,824,552 shares issued
   and outstanding                                                       28,246
Paid in capital                                                       3,306,979
Accumulated deficit                                                  (3,246,149)
                                                                    -----------

                                                                        350,676
                                                                    -----------

       Total liabilities and stockholders' equity                   $ 1,093,232
                                                                    ===========



                             See accompanying notes.

                                       F-3
<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                             Statements of Operation
                 For the years ended December 31, 1997 and 1996
                                   (unaudited)



                                                       1997             1996
                                                   -----------      -----------

Revenue                                            $ 1,736,491      $ 2,518,253

Costs and expenses:

   General and administrative                        2,139,137        1,955,163
   General and administrative - related
     parties                                                 0          185,000
                                                   -----------      -----------

     Total expenses                                  2,139,137        2,140,163
                                                   -----------      -----------

Income (loss) from operations                         (402,646)        (378,090)

Other income and (expenses):
     Interest expense                                  (28,680)         (23,234)
     Other                                                   0            1,000
                                                   -----------      -----------

                                                       (28,680)         (22,234)
                                                   -----------      -----------

Net income before income taxes                        (431,326)         355,856
Provision for income taxes                                --               --
                                                   -----------      -----------

Net income (loss)                                  $  (431,326)     $   355,856
                                                   ===========      ===========

Net income (loss) per share                        $     (0.16)     $      0.14
                                                   ===========      ===========

Weighted average shares                              2,626,390        2,626,390
                                                   ===========      ===========


                             See accompanying notes.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>



                               OLYMPIC ENTERTAINMENT GROUP, INC.
                               Statement of Stockholders' Equity
                        For the years ended December 31, 1997 and 1996
                                          (unaudited)


                                                                                                
                                         Common                      Preferred                  
                                         Shares         Amount         Shares         Amount    
                                      -----------    -----------    -----------    -----------  

<S>                                    <C>          <C>            <C>            <C>        
Balance December 31, 1995               1,978,500    $    19,785    $   163,300    $   586,600

Issuance of common shares for cash        218,181          2,182           --             --   
Exercise of common stock warrants         320,500          3,205           --             --   
Issuance of common shares
    for services                           91,500            915           --             --   
Conversion of Series A preferred
    stock                                 325,000          3,250        (32,500)      (325,000)
Conversion of redeemable preferred
   stock                                    5,000             50           --             --   
Compensation attributed to stock
   options                                   --             --             --             --   
Net income for the year                      --             --             --             --   
                                      -----------    -----------    -----------    -----------

Balance December 31, 1996               2,938,681         29,387        130,800        261,600

Cancellation of shares at par value          --         (114,129)        (1,141)          --    

Net (loss) for the year                      --             --             --             --   
                                      -----------    -----------    -----------    -----------

Balance December 31, 1997               2,824,552    $    28,246        130,800    $   261,600
                                      ===========    ===========    ===========    ===========


(Continued)

                                      Additional                              
                                      Paid - In    Accumulated                
                                       Capital       Deficit         Total      
                                     -----------   -----------    ----------- 

Balance December 31, 1995            $ 1,858,853   $(3,170,679)   $  (705,441)

Issuance of common shares for cash        280,605          --          282,787
Exercise of common stock warrants         637,795          --          641,000
Issuance of common shares
    for services                          182,085          --          183,000
Conversion of Series A preferred
    stock                                 321,750          --             --
Conversion of redeemable preferred
   stock                                    9,950          --           10,000
Compensation attributed to stock
   options                                 14,800          --           14,800
Net income for the year                      --         355,856        355,856
                                      -----------   -----------    -----------

Balance December 31, 1996               3,305,838    (2,814,823)       782,002

Cancellation of shares at par value          --           1,141          --     

Net (loss) for the year                      --        (431,326)      (431,326)
                                      -----------   -----------    -----------

Balance December 31, 1997             $ 3,306,979   $(3,246,149)   $   350,676
                                      ===========   ===========    ===========

                             See accompanying notes

                                       F-5
</TABLE>

<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                            Statements of Cash Flows
                 For the years ended December 31, 1997 and 1996
                                   (unaudited)

                                                            1997         1996
                                                         ---------    ---------
Operating activities                                     $(431,326)   $ 355,856

Net income (loss)
Adjustments to reconcile net income
   (loss) to net cash:
   Depreciation                                             20,197        7,300
   Amortization of film costs                              128,355        9,473
   Common stock issued for services                           --        197,800
   Film masters rights charged off                          74,876      198,218
   Debt issued in lawsuit settlement                          --         73,880
   (Increase) decrease in accounts receivable              304,465     (320,000)
   (Increase) decrease in prepaid expenses                  12,145       26,114
   (Increase) in other assets                                  248         (531)
   Increase (decrease) in accrued expenses                  34,725      (21,467)
   Increase (decrease) in deferred revenue                    --       (607,008)
   Increase (decrease) in accounts payable                  95,230     (103,702)
   Increase in accounts payable - related party            (76,956)     102,667
                                                         ---------    ---------

     Total adjustments                                     593,285     (437,256)
                                                         ---------    ---------

Net cash provided by (used in) operating activities        161,959      (81,400)
Cash flows from investing activities:
   (Increase) in film library                             (275,287)    (592,829)
   Purchase of property and equipment                      (61,887)     (94,874)
                                                         ---------    ---------
Net cash provided by (used in)
   Investing activities                                   (337,174)    (687,703)
Cash flows from financing activities:
   Decrease in deferred offering costs                        --           --
   Common stock sold for cash                                 --        923,787
   Advances to stockholder                                 (87,200)        --
   Repayment of stockholder loans                             --        (78,313)
   Proceeds from notes payable                             125,000         --
   Repayment of notes payable                                 --        (10,000)
   Repayment of long-term debt                             (22,164)     (12,929)
                                                         ---------    ---------
Net cash provided by (used in)
   financing activities                                     15,636      825,545
Net increase in cash and cash equivalents                 (159,579)      56,442

Beginning cash                                             175,083      118,641
                                                         ---------    ---------

Ending cash                                              $  15,504    $ 175,083
                                                         =========    =========


                             See accompanying notes.

                                       F-6
<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

     Organization
     ------------
     The Company was  incorporated on May 21, 1987, in the State of Nevada,  and
     is in the business of  acquiring,  licensing and  distributing  non-violent
     educational,  informational and special interest television programming for
     children.  The Company  does  business as the  "Children's  Cable  Network"
     ("CCNII"),  which  is  comprised  of  individuals  or  entities,  known  as
     Broadcast  Affiliates,  who  license the  Company's  programs to air in the
     various cable markets  throughout the United States.  The Company commenced
     the sale of broadcast licenses to such affiliates during 1995.

     Estimates
     ---------
     Timely  preparation  of financial  statements in conformity  with generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions that affect certain  reported amounts and disclosures,  some of
     which may require revision in future periods.

     Fixed assets
     ------------
     Property and equipment are carried at cost.  Depreciation is computed using
     the  straight-line  method over the  estimated  useful lives of the assets.
     When assets are retired or otherwise  disposed of, the cost and the related
     accumulated  depreciation are removed from the accounts,  and any resulting
     gain or loss is  recognized  in  operations  for the  period.  The  cost of
     repairs  and   maintenance   is  charged  to  operations  as  incurred  and
     significant renewals or betterments are capitalized.

     The Company  depreciates its office  equipment  utilizing the straight line
     method over a period of five years.  The Company has  recorded  $20,197 and
     $9,473 of  depreciation  expense for the years ended  December 31, 1997 and
     1996, respectively.

     Film Library
     ------------
     The Company  amortizes  the costs of its film  library  over the  estimated
     economic life of the film using the film forecast method in accordance with
     SFAS  #53.  The  amortization  periods  begin  at the time  the  films  are
     available  for  showing by the  Company's  Broadcast  Affiliates.  When the
     Company  concludes that any such costs will not benefit future periods said
     costs are  charged to  operations  for the  period.  During the years ended
     December  31, 1997 and 1996,  the Company  made  adjustments  to reduce the
     carrying value of its film library of $74,876 and $198,218, respectively.

     Amortization charged to operations during 1997 and 1996 aggregated $128,355
     and $9,473, respectively (See Note 6).

                                       F-7
<PAGE>

                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997
                                   (continued)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Revenue recognition
     -------------------
     The Company  recognizes revenue from network license agreements not related
     to specific  programming over the term of the agreements.  Revenue from the
     sale of licenses for  television  program  rights is recorded in accordance
     with SFAS #53, which  provides for  recognition of revenue at the beginning
     of the license period when specific conditions have been met.

     Cash and cash equivalents
     -------------------------
     Cash and cash  equivalents  consist of cash and other  highly  liquid  debt
     instruments with a maturity of less than three months.

     Advertising
     -----------
     Advertising  expenses  are charged to expense upon first  showing.  Amounts
     charged to expense  were  $39,937 and $12,017 for the years ended  December
     31, 1997 and 1996, respectively.

     Fair value of financial instruments
     -----------------------------------
     The Company's  short-term  financial  instruments  consist of cash and cash
     equivalents,  accounts  and loans  receivable,  and  accounts  payable  and
     accruals. The carrying amounts of these financial instruments  approximates
     fair value because of their short-term  maturities.  Financial  instruments
     that  potentially  subject  the Company to a  concentration  of credit risk
     consist principally of cash and accounts receivable, trade. During the year
     the Company maintained cash deposits at financial institutions in excess of
     the $100,000 limit covered by the Federal  Deposit  Insurance  Corporation.
     The Company has several major  customers,  (see Note 9) the loss of any one
     of which could have a material negative impact upon the Company.

     Stock-based compensation
     ------------------------
     The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
     123), Accounting for Stock-Based  Compensation beginning with the Company's
     first quarter of 1996.  Upon adoption of FAS 123, the Company  continued to
     measure  compensation  expense for its  stock-based  employee  compensation
     plans using the intrinsic value method prescribed by APB No. 25, Accounting
     for  Stock  Issued  to  Employees,  and has  provided  in Note 2 pro  forma
     disclosures  of the effect on net income and  earnings  per share as if the
     fair value-based method prescribed by FAS 123 had been applied in measuring
     compensation expense.

     Earnings (loss) per share
     -------------------------
     In February 1997, the Financial  Accounting Standards Board (AFASB") issued
     SFAS No.128,  AEarnings Per Share." SFAS No. 128  supersedes and simplifies
     the existing  computational  guidelines under  Accounting  Principles Board
     (AAPB") Opinion No. 15, "Earnings Per Share."

                                       F-8
<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997
                                   (continued)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Earnings (loss) per share (continued)
     -------------------------------------
     The  statement is effective  for  financial  statements  issued for periods
     ending  after  December  15,  1997.  Among  other  changes,  SFAS  No.  128
     eliminates the  presentation of primary  earnings per share and replaces it
     with basic  earnings per share for which common stock  equivalents  are not
     considered in the  computation.  It also revises the computation of diluted
     earnings  per share.  The Company has adopted  SFAS No. 128 and there is no
     material impact to the Company's earnings per share,  financial  condition,
     or  results  of  operations.  The  Company's  earnings  per share have been
     restated for all periods presented to be consistent with SFAS No. 128.

     The earnings  per share is computed by dividing  the net income  (loss) for
     the period by the weighted average number of common shares  outstanding for
     the period.  Common stock  equivalents are excluded from the computation if
     their effect would be antidilutive.

     Recent Pronouncements
     ---------------------
     SFAS No. 130, AReporting Comprehensive Income",  establishes guidelines for
     all  items  that  are  to  be  recognized  under  accounting  standards  as
     components  of  comprehensive  income  to  be  reported  in  the  financial
     statements.  The  statement is effective  for all periods  beginning  after
     December 15, 1997 and reclassification of financial statements of financial
     statements for earlier periods will be required for  comparative  purposes.
     To date, the company has not engaged in transactions  which would result in
     any significant  difference between its reported net loss and comprehensive
     net loss as defined in the statement.

NOTE 2. STOCKHOLDERS' EQUITY

     During the periods covered by these financial statements the Company issued
     securities  in  reliance  upon an  exemption  from  registration  with  the
     Securities and Exchanges Commission. Although the Company believes that the
     sales did not  involve a public  offering  and that it did comply  with the
     exemptions  from  registration,  it could be liable for  recession  of said
     sales if such  exemption  was  found  not to  apply.  The  Company  has not
     received a request for  rescission  of shares nor does it believe  that its
     probable that its shareholders  would pursue rescission nor prevail if such
     action were undertaken.

     The  Company  issued  4,000,000  common  stock  purchase  warrants  to  its
     shareholders  during August 1994.  The warrants were  exercisable  into one
     common share at a purchase  price of $2 per share for a period of 18 months
     from issue and were redeemable by the company at $.001 per warrant.  During
     1996,  the Company issued 320,500 shares of common stock and received gross
     proceeds of $641,000  pursuant to warrants  exercised by its  shareholders.
     The remaining warrants have expired.

                                       F-9

<PAGE>


                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997
                                   (continued)

NOTE 2. STOCKHOLDERS' EQUITY (CONTINUED)

     During  October,  1994 the Company issued 32,500 shares of its 7% preferred
     stock in  settlement  of a note  payable for  $325,000.  These  shares were
     convertible into 325,000 shares of the Company's common stock at the option
     of the holder. The holder exercised his conversion rights during May 1996.

     During May 1996,  the Company  issued 91,500 to a shareholder  for services
     provided to the Company. The shares were valued at a market price of $2 per
     share. Also, during May 1996, the Company sold 218,181 shares of its common
     stock pursuant to Regulation S of the US Securities and Exchange Commission
     for cash aggregating  $282,787,  net of expenses of $15,020.  Also,  during
     September  1996,  a holder  of the  Company's  redeemable  preferred  stock
     converted 5,000 shares of preferred stock into 5,000 shares of common stock
     at a conversion price of $2 per share.

     During May 1996, in connection with a lawsuit  settlement (see Note 8), the
     Company  issued  common stock  purchase  warrants for 329,500  shares to an
     individual.  The warrants are  exercisable  for a period of eighteen months
     from the date of issue at a price  of $2 per  share.  The  Company  has not
     recorded any expense related to the warrants as the estimated fair value of
     the warrants is less than the exercise price at the grant date.

     During the year  ended  December  31,  1997,  the  Company  reacquired  and
     canceled  certain of its  shares  issued  for  services  which had not been
     completed. The shares were retired at their par value.

     During July 1996,  the Company  adopted the 1996 Employee Stock Option Plan
     for the benefit of certain employees,  officers, directors and consultants.
     The Company  also filed a  Registration  Statement  of form S-8 to register
     these  shares.  The  number of  common  shares  reserved  under the plan is
     800,000.  The plan  provides  that the option price on the grant date shall
     not be less than the fair market  value on such date.  During July 1996 the
     Company  issued  360,000  options  exercisable at $1.40 per share under the
     plan which expire after ten years unless  exercised.  During December 1996,
     the Company  granted  additional  options under the plan for 370,000 shares
     exercisable at $.60 for a ten year period.


                                      F-10
<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997
                                   (continued)

NOTE 2. STOCKHOLDERS' EQUITY (CONTINUED)

     The following is a summary of the transactions in the plan:

                                                     Range of      Weighted
                                      Shares         exercise       Average
                                                      prices         Price
                                    ----------        ------         -----

Balance December 31, 1995
   Granted                             730,000     $ .60 - 1.40     $  .99
   Canceled                               --            --             --
   Exercised                              --            --             --
                                    ----------     ------------     ------

Balance December 31, 1996
   and 1997                            730,000     $ .60 - 1.40     $  .99

Options available at
   December 31, 1996 and 1997           70,000

     As of the date of the  financial  statements  none of the  options had been
     exercised.

     The weighted  average  fair value at the date of grant for options  granted
     during 1996 was $1.00 per option. The fair value of the options at the date
     of grant was estimated using the  Black-Scholes  model with  assumptions as
     follows:

      Month of grant                 July              December
      --------------                 ----              --------

       Market value                $   1.75            $   .75
       Expected life                     10                 10
       Interest rate                   6.96%              6.29%
       Volatility                     57.30%             76.34%
       Dividend yield                  0.00%              0.00%

     Stock based compensation costs would have reduced pretax income by $730,000
     in 1996 ($.28 per share) if the fair value of the  options  granted  during
     1996 had been recognized as compensation expense.

NOTE 3. INCOME TAXES

     Deferred income taxes may arise from temporary  differences  resulting from
     income and expense items reported for financial accounting and tax purposes
     in  different  periods.   Deferred  taxes  are  classified  as  current  or
     non-current,  depending on the  classification of assets and liabilities to
     which they relate.  Deferred taxes arising from temporary  differences that
     are not  related  to an asset or  liability  are  classified  as current or
     non-current depending on the periods in which the temporary differences are
     expected to reverse.

                                      F-11
<PAGE>

                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997
                                   (continued)

NOTE 3.  INCOME TAXES (CONTINUED)

     The Company  currently has net  operating  loss  carryforwards  aggregating
     approximately  $1,202,000  which expire  beginning in 2003.  The  principal
     difference  between  the  Company's  book  operating  losses and income tax
     operating losses results from the issuance of and  subscriptions for common
     stock and preferred stock during 1994 and 1996 for services. The effects of
     these  differences  are expected to be  permanent  in nature,  therefore no
     deferred tax asset had been recorded related thereto.

     The  Company  did not  provide  Federal  income  taxes  for the year  ended
     December 31, 1997 due to an operating loss.

     Taxes at the federal  statutory rate of 34% for the year ended December 31,
     1996  amounted  to  $121,000,  however  utilization  of the  Company's  net
     operating loss  carryforward  has reduced the provision for income taxes as
     reported on the accompanying statement of operations to $0.

     The Company is unable to predict future taxable income that would enable it
     to utilize the deferred tax asset  arising from the future value of the net
     operating  loss and  therefore  the  deferred  tax  asset of  approximately
     $408,000   related  thereto  is  fully  reserved.   The  Company   realized
     approximately  $121,000 of deferred tax assets  applicable  to the tax loss
     carryforward used in 1996.

NOTE 4. RELATED PARTY TRANSACTIONS

     During the years ended  December  31, 1994 and 1993,  certain  officers and
     shareholders  made  advances to the Company for working  capital  purposes.
     During 1996 the Company repaid $75,313,  the balance payable by the Company
     of $3,985 at December 31, 1996 was repaid  during 1997.  Additionally,  the
     Company made $87,200 of cash  advances to its  president  during 1997.  The
     advances will be paid out of future bonuses.

     Included in amounts due to  stockholders  at December 31, 1997 is a balance
     due to an entity controlled by one of the Company's directors who is also a
     stockholder.  The Company  received legal services of $108,062 and $185,000
     for the years ended December 31, 1997 and 1996, respectively, provided by a
     firm  associated  with one of its  directors and had a year end balance due
     such firm of $29,696.  Additionally,  the Company  purchased program rights
     and production  costs from another  related entity of $113,625 and $166,511
     during the years ended December 31, 1997 and 1996, respectively. During the
     year ended December 31, 1997, the Company  purchased program rights from an
     officer/stockholder in the amount of $18,000.

                                      F-12

<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997
                                   (continued)


NOTE 5. NOTES PAYABLE AND LONG-TERM DEBT

     Long-term  debt consists of an obligation  arising from the settlement of a
     lawsuit  (see Note 8).  Monthly  payments  of  $2,000,  including  interest
     imputed at 8% per annum,  are due for a 40 month period  beginning  June 1,
     1996.  Principal payments due in the years ended December 31, 1998 and 1999
     are $22,164 and $16,623, respectively.

     Notes payable  consists of a short-term  loan of $10,000 made in March 1993
     from an  individual  pursuant  to a debenture  bearing  interest at 10% per
     annum and originally due on March 30, 1994. The holder of the debenture has
     the right to convert the debenture  into common stock of the Company at the
     rate of one share of common stock for each one dollar due on the debenture.
     During March,  1994,  the holder of the debenture  agreed to extend the due
     date on the debenture to March 30, 1995. The note has not been extended and
     is  considered  to be due on demand by the holder.  Also  included in notes
     payable are a series of four notes  aggregating  $125,000 which were issued
     by the Company in December  1997.  The notes are due during  September 1998
     with interest at 10% per annum payable quarterly.  The notes are secured by
     an aggregate of 250,000 shares of the Company's  common stock controlled by
     an  officer  of the  Company.  The fair  value  of the  pledged  shares  is
     equivalent to the face amount of the notes at the issue date of the notes.

NOTE 6. FILM LIBRARY

     At  December  31,  1997,  the  Company's  film  library  consisted  of  the
     following:

                   License costs                   $ 912,935
                   Mastering costs                    43,235
                                                   ---------

                                                     956,170
                   Less accumulated depreciation    (138,613)
                                                   --------- 

                                                   $ 817,557
                                                   =========


     During  1997 and 1996 the Company  incurred  costs in  connection  with the
     rights to air certain programing,  including film mastering costs,  through
     the medium of cable television.  The costs incurred and amortization are as
     follows:

                                                1997       1996
                                              --------   --------
             Costs incurred                   $275,287   $592,829
             Amortization                      128,355      9,473

     Additionally,  during  1996,  the  Company  charged  off to expense the net
     unamortized cost of programming,  aggregating  $198,218,  acquired in prior
     

                                      F-13
<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997
                                   (continued)

NOTE 6. FILM LIBRARY

     periods that it no longer intends to  distribute.  During 1997, the Company
     charged  off to  expense  the value of film  masters  delivered  to network
     affiliates that have not renewed their license agreements.

NOTE 7. COMMITMENTS AND CONTINGENCIES

     During July, 1996, the Company entered into a lease for office space in Las
     Vegas,  Nevada for a sixty month period ending August 31, 2001 at a monthly
     rental of $10,145, increasing by approximately 3.5% per year throughout the
     lease.  Rent expense was $143,158 and $92,042 for the years ended  December
     31, 1997 and 1996.

NOTE 8. LITIGATION

     Herklotz v. Olympic  Entertainment Group, Inc., et. Al Los Angeles Superior
     Court Case No. BC 127498.

     During May, 1995 the individual  holding the preferred  stock  described in
     Note 2 filed suit against the Company and its officers  seeking recovery of
     his $325,000  investment plus interest of $32,000 and additional damages of
     at least $682,000.

     The Company  settled this claim in 1996 whereby the Company  agreed to make
     cash payments to Herklotz aggregating $125,000 and grant Herklotz an option
     to purchase  329,500  shares of its common  stock at an  exercise  price of
     $2.00  per  share.  Herklotz  agreed to  convert  his  32,500  shares of 7%
     preferred  stock issued to him by the Company  into  325,000  shares of the
     Company's common stock.

NOTE 9. INFORMATION ABOUT MAJOR CUSTOMERS

     The Company,  whose customers arrange for programming to air on local cable
     systems in their respective licensed  territories under leased access rules
     of the  Federal  Communication  Commission,  made sales in excess of 10% of
     total revenues for the years ended December 31, 1997 and 1996 as follows:

              Customer                      Sales/%          Receivable at 12/31
     ----------------------------      ------------------    -------------------
     1996:
     Carousel Media Marketing          $  1,550,000    62%       $  320,000
     Capital Funding                        269,840    11%             --

     1997:
     Carousel Media Marketing          $  1,735,000   100%             --


                                      F-14
<PAGE>



                        OLYMPIC ENTERTAINMENT GROUP, INC.
                          Notes to Financial Statements
                                December 31, 1997
                                   (continued)


NOTE 10. BASIS OF PRESENTATION

     The  accompanying  financial  statements  have  been  prepared  on a "going
     concern"  basis  which  contemplates  the  realization  of  assets  and the
     liquidation of liabilities in the ordinary course of business.

     The Company has incurred  operating  losses during the years ended December
     31, 1995 and 1994 aggregating  $579,001 and $2,176,549,  respectively.  The
     Company had net income for the year ended  December  31, 1996 of  $355,856,
     and a loss from  operations  of $431,326  for the year ended  December  31,
     1997. There can be no assurance that profitable operations will be attained
     due to the  Company's  reliance  on one major  customer,  which  ability to
     generate significant revenues from the use of the company's programming has
     not been demonstrated.

     Profitable   operations  are  dependent  upon,  among  other  factors,  the
     Company's  ability to obtain  equity or debt  financing  and the  Company's
     ability to finance,  produce and/or acquire and distribute its  educational
     films.  Management plans to continue to sell additional  affiliate licenses
     and to renew expiring  licenses and to seek  additional  equity  financing.
     Additionally,  management  is  exploring  plans for a merger of the Company
     with another operating entity.



                                      F-15