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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                 FORM 10-KSB/A2




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

                              For the fiscal year ended December 31, 1999
                                                        -----------------

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

        For the transition period from -------------- to ----------------
        Commission File Number: 000-24706
                                ---------

                        SELECT MEDIA COMMUNICATIONS, INC.
                        ---------------------------------
        (Exact name of small business issuer as specified in its charter)

             New York                                  13-3415331
---------------------------------               -----------------------
 (State or other jurisdiction of                    (IRS Employer
incorporation or organization)                  Identification No.)




                     44 E. 32nd Street, New York, NY 10016
    -------------------------------------------------------------------------
                    (Address of principal executive offices)



                                 (212) 251-8796
                                 --------------
                           (Issuer's telephone number)



                         666 Third Avenue, New York, NY
                         ------------------------------
         (Former name, former address and former fiscal year, if changed
                               since last report)


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

<TABLE>
<CAPTION>
      TITLE OF CLASS              NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S>                               <C>
       None
       ----                       ------------------------------------------
</TABLE>

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

                         Common Stock ($0.01 par value)
-------------------------------------------------------------------------------
                                (Title of Class)

-------------------------------------------------------------------------------
                              (Title of Class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [__]


State issuer's revenues for its most recent fiscal year. $2,310,002


State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by references to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)


Aggregate Market Value of Common Stock held by Non-Affiliates on December 11,
2000: $27,551,960


Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

Check whether Select Media filed all documents and reports required to be filed
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No[X]

                      APPLICABLE ONLY TO CORPORATE ISSUERS


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 9,602,592 shares of common stock.


Transitional Small Business Disclosure Format (Check One): Yes [] No [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

Not applicable.

Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]


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                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS.


Select Media Communications, Inc. (the "Company" or "Select Media"), a New York
media company, was organized in September 1981. The Company's common stock is
traded in the non-Nasdaq over-the-counter market (the "pink sheets") under the
symbol "SMTV.OB." Select Media began operations as a producer and distributor of
"vignettes," which are short-form (thirty-second) informational programs
distributed by particular sponsors for viewing during regular programming. In
1998, Select Media hired personnel to provide services to worldwide news
broadcasters and act as a television news agency under the name "Select
International Television Network" ("SITN") to produce and distribute news
segments for sale to local and foreign news broadcasters. During the period
covered by this report, the Company's principal sources of revenue were the SITN
operations and the production and distribution of video press releases. Because
of an inability to use studio space in a new facility, SITN's business is now
limited to distributing news segments produced by others. As a result of its
landlord dispute and its subsequent move to a new facility, Select Media has
decided to close its SITN business permanently on October 30, 2000. See Item 3,
"Legal Proceedings."


On October 13, 1995, the Company filed a voluntary petition for reorganization
pursuant to Chapter 11 of Title 11 of the United States Bankruptcy Code. The
petition was filed in the United States Bankruptcy Court for the Southern
District of New York and its plan of reorganization was confirmed on August 28,
1997. In the period from the Company's bankruptcy filing in October 1996 until
September 1998, the Company was essentially dormant. In September 1998, the
Company reactivated its marketing efforts, began marketing its vignette products
to advertisers, began production and distribution of video press releases for
General Motors Corporation and began repositioning the Company and its business.
In 1999, the Company was dependent upon one major customer (General Motors
Corporation) for over 35% of its revenues. In 2000, the Company has had minimal
revenues as it has focused on restructuring its business. Thus, in 2000, the
Company has not been dependent on any major customers, and does not reasonably
foresee any such dependence for the balance of the current year. The Company's
current sources of revenues consist of revenues from the distribution of video
news releases, its international news division and revenue from its Sigma Sound
Studio, Inc. subsidiary ("Sigma"). Resale of advertising airtime has never
constituted a major source of the Company's revenues.


In January 2000, Select Media repositioned its business as the owner of
entertainment content providers whose product is marketed through traditional
media and over the Internet. In January 2000, Select Media purchased all the
outstanding stock of Sigma for $1,000,000, of which $400,000 was paid in 1999,
with the balance due in payments of $200,000 on June 30 and January 30 until
paid in full, beginning June 30, 2000. The June 30, 2000 payment was not made
when due, but the Company received a 180 day extension. The Company's obligation
to pay the balance on the Sigma acquisition is secured by a pledge of all of the
Company's assets, including accounts receivable, general intangibles, equipment,
goods, instruments and inventory. The Company also assumed $105,000 of Sigma
accounts payable and other current liabilities (the "Sigma Liabilities"). None
of the Sigma Liabilities are secured by any security interest in any of the
Sigma Assets. Sigma is a full service recording studio that provides services to
record companies, independent artists and record producers. Founded in 1968 by
Joseph Tarsia, Sigma's president, Sigma is a state of the art recording
facility, including both analog and digital capabilities. Sigma and its staff of
engineers assist record



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producers in recording, mixing and editing music and video tracks for sale as
recorded music or videos. In March 2000, Select Media purchased the assets of
After Hours Productions, Inc. ("AHP") for $125,000, which was paid at closing.
AHP creates custom music and video products. These acquisitions were accounted
for as purchases. See Financial Statements and notes to Financial Statements.


SUBSEQUENT EVENTS


On September 11, 2000, the Company entered into a letter of intent to purchase
all the assets and liabilities of Betelgeuse Productions, LLC ("Betelgeuse"), a
full service television and video production and post-production business in New
York, for a total of $10,000,000 in cash, subject to adjustment. On December 6,
2000, Select Media and Betelgeuse signed a definitive Asset Purchase Agreement
(the "Definitive Agreement"); the Company made a down payment of $200,000 to
Betelgeuse, with three additional $100,000 payments due in the following three
months for a total down payment of $500,000. The balance of the purchase price
will be due at a closing to be held within six (6) months of the signing of the
definitive Agreement. The Company has received a firm commitment from Lloyds
Bahamas Securities, Ltd. ("Lloyds") for the $500,000 down payment. Lloyd will
provide the $500,000 down payment when required in exchange for 500,000 shares
of restricted Common Stock of the Company. The Company does not yet have a
commitment from a funding source for the balance of the purchase price.



As part of the Betelgeuse transaction, Select Media will enter into agreements
with John Servidio and Sam Domenico (the principals of Betelgeuse), which
include certain stock options. The options granted to Servidio and Domenico for
1,000,000 shares of Select Media Common Stock at an exercise price of $1.00 per
share, which vest 33 1/3% on the first, second and third anniversaries of the
signing of the definitive agreement.


MARKET SEGMENTS


During the year ended December 31, 1999, the Company's television production
business could be divided into three distinct markets: (1) short and long form
television production and distribution; (2) international news production and
distribution; and (3) entertainment content production and distribution. Thus
far in the year 2000, the Company's international news production and
distribution business has been dormant, due to a dispute with its landlord that
caused an inability to use studio space. On October 30, 2000, the Company
voluntarily vacated its offices at 666 Third Avenue and determined not to revive
the SITN business.


Short and Long Form Television Production and Distribution


The Company's legacy vignette and video press release business comprise this
market segment, along with proposed future television projects. The Company
retains its ability to produce and distribute both short-form and long-form
video productions. These include vignette products, video press releases and
traditional television programming. The Company did not produce any traditional
television programming during the year ended December 31, 1999, although the
Company has produced such programming in the past. During the year ended
December 31, 1999, this segment accounted for over 50% of the Company's
revenues. As a result of the Company's repositioning of its business in 2000,
the Company has focused



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on products other than vignettes and video press releases.


Select Media continues to market its remaining vignette products to large
advertisers directly to the marketing departments of these companies. Select
Media uses its own internal staff for such marketing. Generally, Select Media
purchases "distressed" or unwanted airtime at a discount for use by its
customers. Select Media resells the airtime with a slight mark-up to cover its
costs. Select Media is developing vignettes for radio, and is developing a form
of vignette for on-line advertising. In the period covered by this report, the
Company marketed its video press release services to major manufacturers of
consumer products, which have significant advertising budgets. Given the shift
in the Company's business to that of an entertainment content provider, the
Company no longer markets its video press release service.


International News Production and Distribution


During 1998 and 1999, the SITN business was active and the Company produced and
distributed news segments on behalf of a number of international news operations
with small U.S. presences. During the year ended December 31, 1999, the segment
accounted for approximately 45% of the Company's revenues. The Company marketed
the services of its international news division to foreign journalists stationed
in New York. As a result of the Company's inability to use its studio space at
666 Third Avenue (see Item 3, "Legal Proceedings"), the SITN business was
inactive for most of 2000. On October 30, 2000, Select Media moved to new
premises and the Company decided not to revive its SITN business.


Entertainment Content Production and Distribution.

The Company's entrance into this business segment began in January 2000 with the
acquisition of Sigma by Select Media. In March 2000, Select Media acquired AHP
for this business segment. Sigma owns a state of the art recording facility
staffed by experienced professional sound engineers. AHP produces custom audio
and video content for sale through direct marketers, television shopping
channels and traditional record distributors.


On December 6, 2000, Select Media signed a Definitive Agreement to acquire
Betelgeuse for this business segment. Betelgeuse is a full-service production
and post-production facility located at 44 E. 32nd Street in New York.
Betelgeuse owns several state of the art editing suites containing digital
computer editing equipment, as well as, a number of studios for producing video
programming, voice-overs, dubbing for foreign language productions and the like.


Sigma markets its recording services to independent record producers and
recording artists. Sigma markets its services directly through its principals.
Sigma and AHP have also produced compilation albums sold direct to consumers
through home shopping channels, direct response television and direct mail.


Betelgeuse markets its services to local television channels, cable and
broadcast networks directly through its marketing department. Betelgeuse does
not produce product for sale directly to consumers.



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The Company distributes its products mainly electronically either by tape or via
satellite. The Company's Sigma subsidiary provides its services to independent
record producers and recording artists from throughout the United States.


During the year ended December 31, 1999, the Company sold a substantial portion
of its services to one customer. Sales to this customer totaled $8000,000 (or
35% of revenue for the period). For the year ended December 31, 1998, the
Company sold a substantial portion of its services to two customers, who
accounted for $206,151 (46%) and $72,316 (16%) respectively.


The Company has not and does not in the future expect to have significant
research and development expenses.

                                  RISK FACTORS

Select Media's business is subject to numerous risk factors, including, but not
limited to, the following:

RISKS RELATED TO THE COMPANY'S BUSINESS


CONFLICTS OF INTEREST.



None of the Company's officers or directors have any conflicts of interest with
the Company. Mr. Simmons, the Company's non-employee director, may in the future
participate in business ventures that could be deemed to compete directly with
the Company. Mr. Simmons does not now have any conflicts of interest. Additional
conflicts of interest and non-arms length transactions may also arise in the
future in the event the Company's officers or directors are involved in the
management of any firm with which the Company transacts business. The Company
has adopted a policy that the Company will not seek a merger with, or
acquisition of, any entity in which members of the Company's management serve as
officers, directors or partners, or in which they or their family members own or
hold any material ownership interest.



Mr. Mongiardo and Mr. Simmons are associated with other firms involved in a
range of business activities, as disclosed in Item 9, below. Consequently, there
are potential inherent conflicts of interest in their acting as officers and
directors of the Company Insofar as the non-employee directors are engaged in
other business activities, management anticipates they will devote only a minor
amount of time to the Company's affairs.

The officers and directors of the Company may in the future become stockholders,
officers or directors of other companies that may be engaged in business
activities similar to those conducted by the Company. Accordingly, additional
direct conflicts of interest may arise in the future with respect to such
individuals acting on behalf of the Company or other entities. Moreover,
additional conflicts of interest may arise with respect to opportunities which
come to the attention of such individuals in the performance of their duties or
otherwise. The Company does not currently have a right of first refusal
pertaining to opportunities that come to management's attention insofar as such
opportunities may relate to the Company's business operations.




SELECT MEDIA ANTICIPATES FUTURE LOSSES AND NEGATIVE CASH FLOW; SUBSTANTIAL
ACCUMULATED DEFICIT.


Select Media expects operating losses and negative cash flow to continue for the
foreseeable future. Select Media anticipates the Company's losses will increase
significantly from current levels because the Company expects to incur
additional costs and expenses related to:


-     Brand development, marketing and other promotional activities;



-     Development of new products and services;



-     Expansion of the Company's operations;



-     Integration of the Sigma, AHP and Betelgeuse acquisitions;
-     Potential other acquisitions in the Company's areas of focus;



-     Development of relationships with strategic business partners;



-     Possible costs of litigation; and



-     Possible costs of rescission offer of $1,000,000 plus interest.


As of December 31, 1999, Select Media had an accumulated deficit of $9,747,546.
Select Media incurred net losses of $5,395,781 on gross sales of $2,310,002 for
the fiscal year ended December 31, 1999. These losses were due to an increase in
expenses related to the relocation of the Company's offices, the expansion of
the SITN business in 1999 and expenses related to stock-based compensation. The
Company's ability to become profitable depends on the Company's ability to
generate and sustain substantially higher net sales while


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maintaining reasonable expense levels. If Select Media does achieve
profitability, the Company cannot be certain that the Company would be able to
sustain or increase profitability on a quarterly or annual basis in the future.
See Item 6-"Managements Discussion and Analysis or Plan of Operations."



QUALIFIED REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REGARDING THE
COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN.


Our independent certified public accountants' report on our financial statements
for the year ended December 31, 1999 states that the Company's working capital
deficiency of $3,637,572, stockholders' deficiency of $2,424,076 and losses from
operations of $5,070,464 raise substantial doubt about Select Media's ability to
continue as a going concern. See Note 15 to the Company's Financial Statements.


POSSIBLE SECURITIES LAW VIOLATIONS AND COSTS OF REGISTRATION.



In October 1999, the Company engaged in the sale of 4,500,000 shares of its
Common Stock in a private placement under the Securities Act of 1933 (the
"Securities Act"). Although the Company offered and sold the securities in good
faith, it is possible that the Company did not have a valid exemption for such
sales. If the Company made rescission offers to these investors, and the
investors accepted, the Company could be forced to pay $1,000,000 plus interest
to these investors. The Company has undertaken to register these shares under
the Securities Act in the near future, which it intends to do once the Company's
Common Stock regains its OTC Bulletin Board listing. This registration will
entail substantial costs for the Company and distract the Company's management
from other duties. The Securities and Exchange Commission (the "SEC") could
bring an action to sanction the Company, which could entail fines or limits on
the Company's securities activities.



IF THE COMPANY LOSES THE PENDING LAWSUIT WITH ITS LANDLORD, SUCH A LOSS WILL
HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S FINANCIAL STATEMENTS.



The Company is in a dispute with its landlord over a number of issues relating
to the Company's lease and leasehold improvements at its prior offices at 666
Third avenue. See Item 3, "Legal Proceedings." If the Company loses this
dispute, it could result in substantial liability to the Company of up to
$681,000 plus interest, which will have a material adverse effect on the
Company's business and financial statements.



THE COMPANY HAS A SUBSTANTIAL PAYROLL TAX LIABILITY THAT IS CURRENTLY BEING
NEGOTIATED WITH THE INTERNAL REVENUE SERVICE.



Included in the liabilities on the balance sheet found in the Company's audited
financial statements is an accrued expense of approximately $879,000 that
represents past due federal payroll taxes and estimated penalties and interest.
The Company is attempting to negotiate with the Internal Revenue Service (the
"IRS") for a reasonable payment plan. If the Company is unable to negotiate a
payment plan with the IRS, the IRS could file a tax lien on the Company's
assets, which would have a material adverse effect on the Company's business.



THE COMPANY'S OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF SELECT
MEDIA



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FAILS TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE
MARKET PRICE OF THE COMPANY'S COMMON STOCK MAY DECREASE SIGNIFICANTLY.


The Company's annual and quarterly operating results may fluctuate significantly
in the future due to a variety of factors, many of which are outside of the
Company's control, including, among other things, the unpredictability of
consumer trends. Because the Company's operating results are volatile and
difficult to predict, Select Media believes that quarter-to-quarter comparisons
of the Company's operating results are not a good indication of the Company's
future performance. It is likely that in some future quarter the Company's
operating results may fall below the expectations of securities analysts and
investors. In this event, the trading price of the Company's Common Stock may
fall significantly. Factors that may harm the Company's business or cause the
Company's operating results to fluctuate include the following:

-     The Company's inability to obtain new customers at reasonable cost and
      retain existing customers;

-     Decreases in the funds available for marketing and promoting the Company's
      services;

-     The Company's inability to manage integration of acquisitions;

-     The Company's inability to adequately maintain, upgrade and develop the
      Company's technical systems;

-     The ability of the Company's competitors to offer competitive services or
      products;

-     Price competition;

-     The termination of existing, or failure to develop new, strategic
      marketing relationships;

-     Increases in the cost of marketing; and

-     The amount and timing of operating costs and capital expenditures relating
      to expansion of the Company's operations.

A number of factors will cause the Company's gross margins to fluctuate in
future periods, including the mix of services provided by the Company and its
subsidiaries, the market for the Company's products, the Company's ability to
keep up with technical innovations and efficiencies and the like. Any change in
one or more of these factors could harm the Company's gross margins and
operating results in future periods.


THE COMPANY HAS MOVED ITS OFFICES TO A NEW FACILITY.

On October 30, 2000 the Company vacated the facility at 666 Third Avenue due to
the dispute with its landlord. See Item 3, Legal Proceedings. The Company is now
subletting space from Betelgeuse. The Company incurred substantial costs in the
move, and the move has caused some disruption in its activities. The Company
also determined that the time of the move to cease SITN operations. The move
itself, the disruption caused by the move and the decision to cease SITN
operations will have a material adverse effect on the Company for the current
year.



IF SELECT MEDIA IS UNABLE TO OBTAIN CONTRACTS FOR USE OF ITS VIGNETTES FROM THE
COMPANY'S CUSTOMERS, THE COMPANY'S NET SALES WOULD BE ADVERSELY AFFECTED.


The cost of advertising airtime has the greatest impact on whether the Company
can sell its vignette products. For each airing of a vignette, the customer has
to purchase sufficient airtime to broadcast both the vignette and the customer's
own advertisement. The greater the cost of airtime, the higher the cost to the
customer. The Company only resells airtime to its vignette customers to air
vignettes. The Company is not in the business of reselling airtime to third
parties. If Select Media were unable to sell the use of its vignettes to its
customers because of airtime costs of other factors, the Company's net sales and
results of operations would be harmed.


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TO MANAGE THE COMPANY'S GROWTH AND EXPANSION, SELECT MEDIA NEEDS TO INTEGRATE
ITS ACQUISITIONS. IF SELECT MEDIA IS UNABLE TO DO SO SUCCESSFULLY, THE COMPANY'S
BUSINESS WOULD BE SERIOUSLY HARMED.


The Company's growth in operations and possible acquisitions will place a
significant strain on the Company's management, information systems and
resources. In order to manage this growth effectively, Select Media needs to
continue to improve the Company's financial and managerial controls and
reporting systems and procedures. The Company's failure to successfully
implement, improve and integrate these systems and procedures would harm the
Company's results of operations.


IF SELECT MEDIA IS UNABLE TO OBTAIN FINANCING, THE COMPANY WILL BE UNABLE TO
COMPLETE THE ACQUISITION OF BETELGEUSE, WHICH WOULD SERIOUSLY AFFECT THE
COMPANY'S BUSINESS PLAN.



Although the Company has secured a commitment from Lloyds for the down payment
on its acquisition of Betelgeuse, the Company does not yet have financing
committed for the balance of the purchase price of $9,500,000. If the Company is
unable to complete the acquisition because it is unable to raise sufficient
financing, the Company may lose any monies given to Betelgeuse as a down payment
on this transaction. The Company expects to raise the balance of the purchase
price through a public or private offering of its securities. The Company has
not yet obtained a firm commitment for this proposed offering.



SELECT MEDIA MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.



Select Media faces competition from some of the largest entertainment companies
in the United States. With regard to its television production business, it is
difficult to estimate the size of the vignette market. The Company is not aware
of any other reporting companies involved in the vignette business. The Company
believes that competition in this business segment comes not from other
producers of vignettes, but from other users of scarce airtime. One of the most
significant developments in the broadcast television industry in the 1990's has
been the growth of alternative broadcast networks, such as Fox, WB and UPN.
Before this development, television stations that were not affiliates of the
three large television networks (CBS, NBC, ABC) were independent local stations,
each of which had substantial amounts of airtime to sell to the Company and its
customers. Today, most formerly independent stations are affiliated with one of
the new networks. As a result, the network, in exchange for providing
programming, gets to sell a significant portion of the affiliate's broadcast
airtime. Therefore, the affiliate has less airtime to sell itself. Scarcity of a
commodity tends to increase the price. As a result, the cost of airtime has
dramatically increased. The entertainment market is rapidly evolving and
intensely competitive. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
seriously harm the Company's net sales and results of operations. Select Media
expects competition to intensify in the future, as additional distribution
channels for entertainment product are opened.


In its International News business segment, the Company faces competition from
other independent video production businesses. The Company's main attractions
for international news operations are its studio space, video equipment and
Midtown Manhattan location.


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Because of a dispute with its landlord, described below in Item 3, "Legal
Proceedings," the Company is unable to provide the necessary studio and office
space to its SITN international news partners. Without the needed studio space,
the Company is unable to compete with its competition in this business segment.
Because of the delay in obtaining its necessary studio space and its subsequent
move to a new facility, Select Media has decided to close its SITN business
permanently.


In its Entertainment Content business, Sigma competes with numerous recording
studios located throughout the United States. Sigma can successfully compete
with these competitors because of its central location on the eastern seaboard,
its state of the art equipment and its facility and its staff of experienced
professional engineers.

AHP competes with a large number of independent record and video producers on
the basis of expertise and creativity.


Betelgeuse competes with a large number of independent video and film
production, post-production and editing facilities throughout the United States.
Betelgeuse competes with these competitors based on its state of the art
equipment and its staff of experienced editors, producers and technicians.


Many of the Company's competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than does Select Media. Many of these competitors
can devote substantially more resources to marketing and promotion than can
Select Media. In addition, larger, well-established and well-financed
entertainment companies may try to offer competing products. The Company's
competitors may be able to adopt more aggressive pricing policies than can
Select Media.


IF SELECT MEDIA DOES NOT SUCCESSFULLY EXPAND THE COMPANY'S PRODUCT OFFERINGS,
THE COMPANY'S BUSINESS COULD BE SERIOUSLY HARMED.



If Select Media does not successfully expand the Company's product offerings,
including video press releases and services of its subsidiaries, Select Media
will not be able to increase the Company's net sales in accordance with the
expectations of securities analysts and investors. In such an event, the
Company's business will be harmed. The Company's success depends on the
Company's ability to expand the Company's product and service offerings rapidly
in order to accommodate a significant increase in customer orders. The Company's
planned expansion may cause disruptions that could harm the Company's business,
results of operations and financial condition.



IF SELECT MEDIA DOES NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, THE COMPANY'S
SERVICES COULD BECOME OBSOLETE AND THE COMPANY'S BUSINESS WOULD BE SERIOUSLY
HARMED.


If Select Media faces material delays in introducing new services, products and
enhancements, the Company's customers may forego the use of the Company's
services and use those of the Company's competitors. To remain competitive,
Select Media must continue to improve and expand its product choices and
value-added services. The entertainment industry is rapidly changing as a result
of technology improvements, new distribution channels and new customer demands.
If competitors introduce new products and services embodying new


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technologies, or if new industry standards and practices emerge, the Company's
existing products and services may become obsolete. Developing, enhancing and
upgrading the Company's technology entails significant technical and business
risks. Select Media may use new technologies ineffectively or Select Media may
fail to adapt the Company's existing technology and the Company's computer
network to customer requirements or emerging industry standards.


IF THE PROTECTION OF THE COMPANY'S TECHNOLOGY, TRADEMARKS AND PROPRIETARY RIGHTS
IS INADEQUATE, THE COMPANY'S BUSINESS WILL BE SERIOUSLY HARMED.



The Company depends on copyright protection to protect the content of its
products. This need will increase in the future because the Company is now
dedicated to creating new product. In addition, the Company intends to seek
trademark protection for its logo. With the addition of Sigma, the Company will
face significant challenges in the changing distribution systems under
development for prerecorded music product over the Internet. These challenges
may include incompatible file formats, inadequate copy protection software and
pricing regimes. Betelgeuse must also use copyright protection to protect its
entertainment products. The steps Select Media takes to protect the Company's
proprietary rights may be inadequate. Select Media regards the Company's
copyrights, trademarks, trade dress, trade secrets and similar intellectual
property, especially its new entertainment products, as critical to the
Company's success. Select Media relies on trademark and copyright law, trade
secret protection and confidentiality or license agreements with the Company's
employees, customers, partners and others to protect the Company's proprietary
rights. Sigma and AHP depend on copyright protection for their proprietary
products.



THE LOSS OF THE SERVICES OF ONE OR MORE OF THE COMPANY'S KEY PERSONNEL, OR THE
COMPANY'S FAILURE TO ATTRACT, ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED
PERSONNEL IN THE FUTURE WOULD SERIOUSLY HARM THE COMPANY'S BUSINESS.


The loss of the services of one or more of the Company's key personnel could
seriously harm the Company's business. Select Media depends on the continued
services and performance of the Company's senior management and other key
personnel, particularly Mitch Gutkowski. Mr. Gutkowski and all of the Company's
key employees are bound by employment agreements. Select Media does not have
"key person" life insurance policies covering any of the Company's employees.


RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS.


If Select Media is presented with appropriate opportunities, Select Media
intends to make investments in complementary companies, products or
technologies. Select Media may not realize the anticipated benefits of any
acquisition or investment. If Select Media buys a company, Select Media could
have difficulty in assimilating that company's personnel and operations. In
addition, the essential personnel of the acquired company may decide not to work
for the Company. If Select Media makes other types of acquisitions, Select Media
could have difficulty in assimilating the acquired technology or products into
the Company's operations. These difficulties could disrupt the Company's ongoing
business, distract the Company's management and employees and increase the
Company's expenses. Furthermore, Select Media may have to incur debt or issue
equity securities to pay for any future


                                       11
<PAGE>   12
acquisitions or investments, the issuance of which could be dilutive to the
Company or the Company's existing stockholders.


EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER SELECT
MEDIA.


Mr. Gutkowski, Chairman and Chief Executive Officer of Select Media, and Mr.
Sartorio, an employee of the Company, each own approximately 21% of the
Company's common stock and, along with the Company's other executive officers,
directors, employees and entities affiliated with them, if acting together,
would be able to significantly influence all matters requiring approval by the
Company's stockholders, including the election of directors and the approval of
mergers or other business combination transactions. These stockholders, taken
together, beneficially own approximately 43% of the Company's outstanding common
stock and can effectively elect all directors and pass any action requiring
stockholder approval at a meeting. Mr. Sartorio is an employee of the Company
responsible for mergers and acquisitions and corporate structure issues. He is
not an officer of Select Media. See Item 11, "Security Ownership of Certain
Beneficial Owners and Management" and Item 9 "Directors, Executive Officers,
Promoters and Control Persons."

RISKS RELATED TO SECURITIES MARKETS


SELECT MEDIA MAY BE UNABLE TO MEET THE COMPANY'S FUTURE CAPITAL REQUIREMENTS.



Select Media cannot be certain that additional financing will be available to
the Company on favorable terms when required, or at all. The Company does not
have a commitment for financing the balance of the Betelgeuse Acquisition costs.
If Select Media raises additional funds through the issuance of equity,
equity-related or debt securities, such securities may have rights, preferences
or privileges senior to those of the rights of the Company's Common Stock and
the Company's stockholders may experience additional dilution. Select Media
requires substantial working capital to fund the Company's business. Since the
Company's emergence from Chapter 11 bankruptcy proceedings, Select Media has
experienced negative cash flow from operations and expects to experience
significant negative cash flow from operations for the foreseeable future.
Except for the $9,500,000 needed to close the Betelgeuse Acquisition, Select
Media currently anticipates that the Company's available funds will be
sufficient to meet the Company's anticipated needs for working capital and
capital expenditures through at least the next 12 months. The Company does not
yet have a commitment for the $9,500,000 balance of the purchase price.
"Available Funds" include the balance of the $116,000 due from Lloyds on its
initial financing commitment, an additional $1.5 million best efforts letter of
intent from Lloyds contingent upon the Company's relisting on the OTC Bulletin
Board and expected revenues. Select Media will need to raise additional funds
before the expiration of such period to cover the Betelgeuse acquisition and any
unexpected expenses. The $1.5 million best efforts financing letter from Lloyds
is a written letter of intent contingent upon the relisting of the Company's
common stock on the OTC Bulletin Board.


In addition, although the Company has a commitment to cover the $500,000 down
payment on the Betelgeuse acquisition, the Company does not have a commitment
for the balance of $9,500,000 of the purchase price. If the Company is unable to
secure financing, the Company could forfeit any monies paid to Betelgeuse as a
down payment.


                                       12
<PAGE>   13

BROKER-DEALER SALES OF SHARES.


The Company's Common Stock is quoted in the "pink sheets." The Nasdaq Stock
Market, Inc. has recently revised the entry and maintenance criteria for listing
eligibility on The Nasdaq SmallCap Market(TM) to require at least $4 million
in net tangible assets or $750,000 net income in two of the last five years, a
public float of at least 1 million shares, $5 million market value of public
float, a minimum bid price of $4.00 per share, at least three market makers, and
at least 300 stockholders. The maintenance standards (as opposed to entry
standards) require at least $2 million in net tangible assets or $500,000 in net
income in two of the last three years, a public float of at least 500,000
shares, a $1 million market value of public float, a minimum bid price of $1.00
per share, at least two market makers, and at least 300 stockholders.

The Company can give no assurances that the Common Stock will ever qualify for
inclusion on the Nasdaq System. Until the Company's shares qualify for inclusion
in the Nasdaq system, the Common Stock will continue to be traded in the
over-the-counter markets through the "pink sheets", as the common stock is
currently traded, or on the OTC Bulletin Board.


If the Company's stock price falls below $5.00 per share, the Company's Common
Stock would be covered by SEC Rule 15g-9 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that imposes additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $2,500,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by Rule 15g-9, the broker-dealer
must make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction before the sale. The
broker-dealer must also provide the purchaser with specific disclosures
regarding the risks of investing in "penny stocks," customer rights and broker
responsibilities. Consequently, Rule 15g-9 may affect the ability of
broker-dealers to sell the Company's securities and may affect the ability of
the stockholders to sell their shares in the secondary market. Before the sale
or purchase of a penny stock, the broker-dealer must provide the customer with
the current bid and offer quotations for the penny stock, must disclose the
brokerage firm's compensation for the trade, including markups and markdowns,
and must disclose the salesperson's compensation for the trade, including cash
or other compensation. In addition, the brokerage firm must sent to the
investor:



            (a)   monthly account statements giving an estimate of the value of
                  each penny stock in the customer's portfolio, if there is
                  enough information to make such an estimate; and



            (b)   a written statement of the investor's financial situation and
                  investment goals, which must be signed and returned to the
                  brokerage firm.



The effect of Rule 15g-9 can be to decrease liquidity by making it more
difficult for investors to purchase or sell shares of the Company's Common Stock
in the market. If the Company's Common Stock became subject to this Rule, the
difficulties involved in buying or selling the Common Stock could force the
price of the Common Stock down.


At this time, the Company has not had any discussions with any party to request
or encourage any broker-dealer to act as a market maker in the Company's stock,
nor has the Company any plans to do so in the future, either directly or
indirectly. The Company has not engaged any


                                       13
<PAGE>   14
consultants to act on its behalf in this matter, nor does the Company have any
present intention to do so. Once the Company's stock is eligible for quotation
on the OTC Bulletin Board, the Company expects to provide any interested market
makers (upon request) with the information necessary to file the required
documents with regulatory authorities. The Company intends to notify the firms
that now make a market in the Company's stock on the pink sheets of its
eligibility for inclusion on the OTC Bulletin Board when that occurs.


THE COMPANY'S COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INDIVIDUAL STOCKHOLDERS.


The market price for the Company's common stock is likely to be highly volatile
and subject to wide fluctuations in response to factors including the following,
some of which are beyond the Company's control:

-     Actual or anticipated variations in the Company's quarterly operating
      results;

-     Announcements of new products or services by the Company or the Company's
      competitors;

-     Changes in financial estimates by securities analysts;

-     Conditions or trends in the entertainment industry;

-     Changes in the economic performance and/or market valuations of other
      independent entertainment companies;

-     Announcements by the Company or the Company's competitors of significant
      acquisitions, strategic partnerships, joint ventures or capital
      commitments;

-     Additions or departures of key personnel;

-     Release of lock-up or other transfer restrictions on the Company's
      outstanding shares of common stock or sales of additional shares of common
      stock; and

-     Potential litigation.


IF THE COMPANY'S STOCK PRICE IS VOLATILE, SELECT MEDIA COULD FACE A SECURITIES
CLASS ACTION LAWSUIT.


In the past, following periods of volatility in the market price of their stock,
many companies have been the subjects of securities class action litigation. If
disgruntled stockholders sued Select Media in a securities class action, it
could result in substantial costs and a diversion of management's attention and
resources and would harm the Company's stock price.


SUBSTANTIAL SALES OF THE COMPANY'S COMMON STOCK COULD CAUSE THE COMPANY'S STOCK
PRICE TO FALL.


If the Company's stockholders sell substantial amounts of the Company's Common
Stock in the public market, the market price of the Company's Common Stock could
fall. Such sales also might make it more difficult for the Company to sell
equity or equity-related securities in the future at a time and price that
Select Media deems appropriate. The Company's stock is thinly traded and small
volume fluctuations can have major impacts on price.


REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION.



Sections 13 and 15(d) of the Exchange Act require companies subject thereto to
provide certain information about significant acquisitions,



                                       14
<PAGE>   15

including certified financial statements for the company acquired, covering one,
two, or three years, depending on the relative size of the acquisition. The time
and additional costs that may be incurred by some target entities to prepare
such statements may significantly delay or essentially preclude consummation of
an otherwise desirable acquisition by the Company. Acquisition prospects that do
not have or are unable to obtain the required audited statements may not be
appropriate for acquisition so long as the reporting requirements of the
Exchange Act are applicable.


ITEM 2.  DESCRIPTION OF PROPERTY.


During the year ended December 31, 1999 and until October 30, 2000, the Company
leased a facility as its headquarters located at 666 Third Avenue, New York, NY.
This facility contained studio space, editing equipment and offices. The
facility contained approximately 16,700 square feet total, of which 11,000
square feet were used for office space, 4,000 square feet were to be used for
studios and 1,200 square feet were used to house equipment. The lease on this
facility expires February 15, 2015 and the annual lease payments in 2000 were
$522,951 for the entire facility. However, because of its dispute with its
landlord, the Company vacated this facility on October 30, 2000. See Item 3,
"Legal Proceedings." Select Media is now using excess space leased by
Betelgeuse. Unless the Landlord re-lets the space at 666 Third Avenue to a new
tenant, the Company may be responsible for future payments on the lease.



As part of the Sigma transaction, the Company leases a facility located at North
12th Street, Philadelphia, Pennsylvania as the recording studio and offices of
Sigma. This facility contains recording studio space, editing equipment and
offices. The facility contains approximately 3,000 square feet total, of which
1,000 square feet are used for office space and 2,000 square feet are used for
studios. The lease on this facility expires January 31, 2005 and the annual
lease payments are $76,000 for the entire facility.


ITEM 3.  LEGAL PROCEEDINGS.

In November, 1999, 405 Lexington, L.L.C. (the "Landlord") began an action in New
York City Landlord-Tenant Court alleging that Select Media had breached its
lease and seeking the payment of use and occupancy. The Landlord is seeking up
to $600,000 in additional payments based on an alleged breach of the lease. The
Company is defending this action and believes the allegations of the Landlord
are without merit. On a motion by the Company, this action has been consolidated
with the Supreme Court Action discussed in the following paragraph.

In May, 2000, Select Media began an action in New York Supreme Court against the
Landlord seeking an injunction to permit completion of the build-out of the
studios to be used for SITN and surrounding space in its leased premises, the
release of $706,880 of Landlord's contributions toward build-out already
completed and for damages in excess of $10 million for loss of the SITN
business. On a motion by Select Media, the Court has consolidated this action
with the Landlord-Tenant Court action. The Court has ordered discovery in this
action beginning November 20, 2000.


As part of the Bankruptcy Proceeding, the New York City Department of Finance
has filed alleged unsecured priority tax claims in the amount of $229,899,
including interest to



                                       15
<PAGE>   16

December 31, 1999.


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

No matters were submitted for a stockholder vote during the period covered by
this report.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Price quotations for the Company's Common Stock are posted presently on the
"pink sheets" and have been since April 2000. From August 1997 to March 2000,
the Company's common stock was quoted on the OTC Bulletin Board. The symbol for
the Company's stock was originally "SMTV." When the Company's stock was no
longer eligible for inclusion on the OTC Bulletin Board on April 5, 2000, the
stock became traded on the "pink sheets." In the period from March 10, 2000 to
April 14, 2000, the OTC Compliance Unit of the NASD affixed the letter "E" to
the symbol. When the Company's shares were no longer eligible for OTC Bulletin
Board inclusion, the shares became quoted on the "pink sheets" and the symbol
reverted to "SMTV." The suffix ".OB" is now affixed to all non-NASDAQ
over-the-counter stocks.

As soon as the Company becomes eligible, the Company intends to request a
listing for the common stock on the Nasdaq SmallCap Market(TM). This listing
requires certain asset, earnings and per share price standards that the Company
does not now meet. The Company can give no assurance that it will meet these
standards in the foreseeable future, it at all.

(a)   Market Price.


The historical prices, both actual prices and as adjusted for a 1 for 300
reverse stock split effective November 15, 1999, for the Company's Common Stock
on the OTC Bulletin Board and the "pink sheets" are as follows:



                                       16
<PAGE>   17

<TABLE>
<CAPTION>
                                                 Adjusted       Adjusted      Actual         Actual
             Period                                High           Low          High            Low
             ------                                ----           ---          ----            ---
<S>                                              <C>           <C>            <C>            <C>
             1997
             First Quarter                        $ 52.50        $33.00         $ .175        $ .111
             Second Quarter                       $ 46.50        $30.00         $ .155        $ .100
             Third Quarter                        $204.00        $30.00         $ .680        $ .100
             Fourth Quarter                       $144.00        $36.00         $ .480        $ .120

             1998
             First Quarter                        $ 51.00        $15.00         $ .170        $ .050
             Second Quarter                       $300.00        $16.50         $ 1.00        $ .055
             Third Quarter                        $267.00        $45.00         $ .890        $ .150
             Fourth Quarter                       $108.00        $30.00         $ .360        $ .100

             1999
             First Quarter                        $ 84.00        $42.00         $ .290        $ .180
</TABLE>



                                       17
<PAGE>   18

<TABLE>
<S>                                              <C>           <C>            <C>            <C>
             Second Quarter                       $183.00        $52.50         $ .610        $ .175
             Third Quarter                        $ 60.00        $27.00         $ .200        $ .090
             Fourth Quarter                                                     $30.00        $ 2.00

             2000
             First Quarter                                                      $ 6.50        $ 5.00
             Second Quarter                                                     $ 6.25        $ 4.75
             Third Quarter                                                      $ 6.00        $ 5.50
</TABLE>



The foregoing information was obtained from the National Quotation Bureau and
reflects inter-dealer prices, without retail markup, markdown or commission, and
may not represent actual transactions.


The main cause of the most extreme of these fluctuation is the effect of
recasting historical stock prices to account for the Company's 1 for 300 reverse
stock split. Small changes in the prior periods are magnified when the stock
prices are adjusted. In addition, the Company's stock is very thinly traded,
with few shares traded on any given day. This lack of volume tends to make price
fluctuations more volatile.

For the initial listing in the Nasdaq SmallCap Market(TM), a company must have
net tangible assets of $4 million or market capitalization of $50 million or a
net income (in the latest fiscal year or two of the last fiscal years) of
$750,000, a public float of 1,000,000 shares with a market value of $5 million.
The minimum bid price must be $4.00 and there must be three market makers. In
addition, there must be 300 stockholders holding 100 shares or more, and the
company must have an operating history of at least one year or a market
capitalization of $50 million. For continued listing in the Nasdaq SmallCap
Market(TM), a company must have net tangible assets of $2 million or market
capitalization of $35 million or a net income (in the latest fiscal year or two
of the last fiscal years) of $500,000, a public float of 500,000 shares with a
market value of $1 million. The minimum bid price must be $1.00 and there must
be two market makers. In addition, there must be 300 stockholders holding 100
shares or more. The Company can give no assurances that it will qualify its
securities for listing on Nasdaq or some other national securities exchange, or
be able to maintain the maintenance criteria necessary to insure continued
listing. The failure of the Company to qualify its securities or to meet the
relevant maintenance criteria after such qualification in the future may result
in the discontinuance of the inclusion of the Company's securities on a national
exchange. In such events, trading, if any, in the Company's securities may then
continue in the non-Nasdaq over-the-counter market. Consequently, a stockholder
may find it more difficult to dispose


                                       18
<PAGE>   19
of, or to obtain accurate quotations as to the market value of, the Company's
securities.


(b) Holders. There are approximately 258 holders of the Company's Common Stock.
During 1998 and 1999, the Company issued 36,199 shares and 9,520,666 shares,
respectively, to investors for cash, in exchange for services, or to extinguish
debt. The Company's outstanding stock includes shares issued in the Company's
initial public offering in 1994, shares issued as part of the Company's
reorganization under Chapter 11 of the Bankruptcy Code and shares issued in
accordance with exemptions from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").


In 1998, the Company issued shares of common stock as follows:

<TABLE>
<CAPTION>
       Date                 Number of Shares      Consideration
       ----                 ----------------      --------------
<S>                         <C>                   <C>
      4/09/98                           204       Services
      7/14/98                         8,333       Services
      8/03/98                         1,200       Warrant Exercise
      8/04/98                            80       Conversion of Debt
      8/06/98                            88       Conversion of Debt
      8/26/98                           540       Conversion of Debt
      8/27/98                           188       Conversion of Debt
      9/08/98                         7,867       Conversion of Debt
      9/09/98                           489       Conversion of Debt
      9/10/98                         2,167       Services
      9/14/98                           500       Conversion of Debt
      9/16/98                           907       Conversion of Debt
      9/28/98                         2,270       Conversion of Debt
      9/28/98                         4,667       Warrant Exercise
     10/12/98                         5,035       Conversion of Debt
     12/02/98                         1,667       Conversion of Debt
</TABLE>


                                       19
<PAGE>   20

In 1998, the Company issued a total of 10,704 shares of Common Stock directly to
third parties for services in lieu of cash. In addition, the Company issued
5,867 shares of Common Stock to two separate third parties who exercised
outstanding warrants. Finally, also in 1998, the Company issued 17,961 shares of
Common Stock in conversion of $1,151,900 in debt. There were no underwriters or
broker-dealers involved in the sale of these shares in 1998. The Company sold
these shares in transactions intended to be exempt from registration under the
Securities Act by virtue of the exemption for registration under Section 4(2),
as transactions not involving any public offering. The shares issued for
services were issued to third parties who were not affiliates of the Company.
The shares issued in conversion of debt were issued to third parties who were
not affiliates of the Company. The shares issued in exercise of warrants were
issued to third parties who were not affiliates of the Company.


In 1999, the Company issued shares of common stock as follows:

<TABLE>
<CAPTION>
    Date                 Number of Shares       Consideration
    ----                 ----------------       -------------
<S>                      <C>                    <C>
     1/02/99                        6,667       Stock-based Compensation
     1/02/99                        5,000       Shares issued in connection
                                                with bankruptcy
     3/03/99                          333       Services
     3/03/99                        5,000       Conversion of Debt
     4/29/99                          333       Services
     4/29/99                        1,667       Conversion of Debt
     6/11/99                        1,666       Conversion of Debt
    10/22/99                    4,000,000       Stock-based Compensation
    10/22/99                    1,000,000       Finders Fee
    10/22/99                    4,500,000       Cash ($1,000,000)
</TABLE>


In 1999, the Company issued 2,000,000 shares of Common Stock to Mitch Gutkowski,
its President and C.E.O. (described below) and to 2,006,667 shares to Dominick
Sartorio, an employee. Mitch Gutkowski provided substantial services to the
Company from the period beginning before the Company filed for bankruptcy court
protection in November, 1995 to up to and including October 24, 1999. For much
of that period, Mr. Gutkowski did not take a salary, or took a reduced salary.
Mr. Gutkowski was responsible for bringing in the consultants and new employees
who brought the Company back into business after the bankruptcy. Mr. Gutkowski
brought in Mr. Sartorio initially as a consultant and then as an employee to
assist in restructuring the Company.



In connection with the Company's refinancing in late 1999, a number of
stockholders agreed to execute written lock-up agreements for periods of six
months to one year. These lock-up agreements require that the stockholder not
sell or otherwise dispose of any common stock until the lock-up period expires.
The Company has no other restrictions of stock held by stockholders, except as
required by Regulation D, Section 4(2) of the Securities Act or Rule 144.


As of the date of this report, 4,603,419 shares of the Company's Common Stock
held by non-affiliates are eligible for sale, including 62,692 shares eligible
under Rule 144 promulgated under the Securities Act of 1933, as amended, subject
to certain limitations included in such Rule. In general, under Rule 144, a
person (or persons whose shares are aggregated), who has satisfied a one year
holding period, under certain circumstances, may sell within any three-


                                       20
<PAGE>   21
month period a number of shares which does not exceed the greater of one percent
of the then outstanding Common Stock or the average weekly trading volume during
the four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity limitation by a person
who has satisfied a two-year holding period and who is not, and has not been for
the preceding three months, an affiliate of the Company.

(c) Dividends. The Company has not paid any dividends to date, and has no plans
to do so in the immediate future.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

OVERVIEW


Select Media is a New York corporation whose common stock is currently traded in
the "pink sheets" under the symbol "SMTV.OB." Select Media began in the business
of producing and distributing "vignettes," which are short-form (thirty-second)
informational programs distributed by particular sponsors for viewing during
regular programming. In 1998, Select Media hired personnel to provide services
to worldwide news broadcasters and act as a television news agency under the
name "Select International Television Network" ("SITN") to produce and
distribute news segments for sale to local and foreign news broadcasters.
Because of an inability to use studio space in a new facility, the Company has
ceased operations of SITN as of October 30, 2000. In general, in the period
covered by this report, the Company's sources of revenues consisted of revenues
from the distribution of video news releases and from its international news
division. Resale of advertising airtime has never constituted a major source of
the Company's revenues.


In the period from the Company's bankruptcy filing in October 1996 until
September 1998, the Company was essentially dormant. In 1999, the Company was
dependent upon one major customer (General Motors Corporation) for over 35% of
its revenues, most of which were received in the first six months of the year.
Beginning in the fall of 1999, the Company began its restructuring and moved its
offices. Thus far in 2000, the Company has had minimal revenues as it has
focused on restructuring its business and acquiring Sigma and AHP. Thus, in
2000, the Company has not been dependent on any major customers, and does not
reasonably foresee any such dependence for the balance of the current year.


In January 2000, Select Media repositioned itself as the owner of entertainment
content providers whose product can be marketed through traditional media and
over the Internet. In January 2000, Select Media purchased all the outstanding
stock of Sigma. Sigma is a full service recording studio that provides services
to record companies, independent artists and record producers. In March 2000,
Select Media purchased the assets of AHP. AHP creates custom music and video
products. These acquisitions were accounted for as purchases. The principals of
Sigma and AHP were not affiliated with Select Media or Lloyds prior to their
acquisition by Select Media. Lloyds' financing was not contingent upon these
particular acquisitions. See Financial Statements and notes to Financial
Statements.



                                       21
<PAGE>   22

The company believes that, given the changes in the structure of television
broadcasting, including, but not limited to, the creation of a number of
alternative television networks and the resulting scarcity of advertising
airtime available to local television stations, the Company can better serve its
stockholders by becoming the owner of entertainment content providers. By owning
content providers, the Company can take advantage of the changing distribution
systems offered by broadcast, cable and Internet distribution of its product.


COMPETITION

Select Media faces competition from some of the largest entertainment companies
in the United States. It is difficult to estimate the size of the vignette
market. The Company is not aware of any other reporting companies involved in
the vignette business. The Company believes that competition in its business
comes not from other producers of vignettes, but from other users of scarce
airtime. One of the most significant developments in the broadcast television
industry in the 1990's has been the growth of alternative broadcast networks,
such as Fox, WB and UPN. Before this development, television stations that were
not affiliates of the three major television networks (CBS, NBC and ABC) were
independent local stations, each of which had substantial amounts of airtime to
sell to the Company and its customers. Today, most formerly independent stations
are affiliated with one of the new networks. As a result, the network, in
exchange for providing programming, gets to sell a significant portion of the
affiliate's broadcast airtime. Therefore, the affiliate has less airtime to sell
itself. Scarcity of a commodity tends to increase the price. As a result, the
cost of airtime has dramatically increased.

The entertainment market is rapidly evolving and intensely competitive.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm Select
Media's net sales and results of operations. Select Media expects competition to
intensify in the future as additional distribution channels for entertainment
product are opened. In particular, Select Media believes that the use of the
Internet for distribution of entertainment product is both an opportunity and a
challenge. With so many entertainment choices, Select Media faces the challenge
of adapting its core business to Internet entertainment. Select Media expects
that its acquisition of content providers will enable it to adapt to the
Internet entertainment challenge, because Select Media believes that Internet
technology is developing faster than content can be produced. Although the
technology exists to provide a rich entertainment experience via the Internet,
Select Media believes that there is not sufficient high quality content
available for users. Select media intends to provide that content.


In line with this strategy, in 2000 Select Media acquired Sigma and AHP. Select
Media has also signed a letter of intent to purchase all the assets and
liabilities of Betelgeuse. Betelgeuse has the ability to create entertainment
content for broadcast, cable and Internet and to adapt existing product for use
as Internet content. On December 6, 2000, Select Media signed the Definitive
Agreement to acquire all the assets and liabilities of Betelgeuse.


MARKET STRATEGY


Select Media markets its remaining vignette products to large advertisers
directly to the marketing departments of these companies. Select Media uses its
own internal staff for such



                                       22
<PAGE>   23
marketing. Select Media is developing vignettes for radio, and is developing a
form of vignette for on-line advertising. The cost of advertising airtime has
the greatest impact on whether the Company can sell its vignette product. For
each airing of a vignette, the customer has to purchase sufficient airtime to
broadcast both the vignette and the customer's own advertisement. The greater
the cost of airtime, the higher the cost to the customer. The Company only
resells airtime to its vignette customers to air vignettes. The Company is not
in the business of reselling airtime to third parties.

Sigma markets its services directly through its principals. Sigma and AHP have
also produced compilation albums sold through home shopping channels, direct
response television and direct mail.

Select Media intends to create its own web site on the Internet for sale of
Select Media, Sigma and AHP custom product. The website development is in the
planning stage and completion of this project is contingent upon available
funding.

The Company has its Internet distribution system under development. The Company
is in discussion with another entity for sales of compact disks ("CDs") directly
over the internet to consumers, but has not entered into any firm agreement or
understandings as of yet. However, the Company does not intend implement any
downloadable music distribution strategy until issues of copyright protection
and payment are standardized in the industry.

Select Media has 11 full time and 2 part time employees and during the period
covered by this report, operated a facility at 666 Third Avenue, New York, New
York, which was used as the principal corporate office and the site of its
studio facilities. As a result of the Sigma acquisition, Select Media also
leases a sound recording studio facility at North 12th Street in Philadelphia,
Pennsylvania.

RESULTS OF OPERATIONS

REVENUES

The following table sets forth certain items from Select Media's consolidated
statements of operations as a percentage of net revenues for the periods
indicated:


                                       23
<PAGE>   24
<TABLE>
<CAPTION>
                                                       For the Year ended
                                                          December 31,
                                                   ------------------------
                                                     1999            1998
                                                   ------------------------
<S>                                                <C>             <C>
      Net revenues                                  100.0%          100.0%
                                                   ------          ------
      Cost of revenues                               56.1%           48.9%
                                                   ------          ------
      Gross profit                                   43.9%           51.1%
                                                   ------          ------

      Operating expenses:
        Marketing and selling                           0%              0%
        General and administrative                  201.2%          291.1%
        Nonrecurring costs                           38.2%          453.0%
        Amortization of acquisition-related
        intangible assets                               0%              0%

          Total operating expenses                  239.3%          744.1%

      Operating income (loss)                      (195.4)%          (693)%
      Other income and expense, net                 (38.2)%        (259.9)%

      Income (loss) before income taxes            (233.4)%        (952.9)%
      Provision for  (benefit from)
        income taxes                                    0%              0%

      Net income (loss)                            (233.4)%        (952.9)%
                                                   ------          ------

      Net Revenues                                 (233.4)%        (952.9)%
</TABLE>


Before the Sigma acquisition, Select Media's net revenues were derived mainly
from the sales of vignettes, video press releases and SITN. In the year ended
December 31, 1999, net revenues increased by $1,861,879, or 415%, to $2,310,002
from $448,123 in the year ended December 31, 1998. The increase in net revenues
during 1999 was primarily attributable to revenues from its international news
operations and video press releases for General Motors Corporation. Select Media
expects SITN revenues in the coming year to be significantly lower than 1999
levels, due to the inability to use studio space at its facility caused by a
dispute with its landlord and the subsequent decision to cease SITN operations
on October 30, 2000.


GROSS PROFIT

Cost of revenues consists primarily of costs associated with studio time and
transmission of signal for SITN and with producing vignettes and video press
releases and marketing the finished product, including scriptwriting, filming,
salaries and post-production processing and editing. The resulting gross profit
fluctuates based on factors such as salary expense, editing and marketing.
Re-use of vignettes and portions thereof increases profits. Gross margin
decreased to 44% in 1999, compared to 51% in 1998. The decrease during 1999 was


                                       24
<PAGE>   25
primarily due to for expenses of starting the international news bureau
operation. The Company currently expects gross margins during 2000 to be
consistent with the 1999 levels. In the current year, the Company expects the
Sigma acquisition to have a positive effect on both revenues and gross margin.

EXPENSES

Selling, general and administrative expenses were $4,646,808 in 1999 and
$1,304,615 in 1998, for an increase of $3,342,193, or 256%. This increase was
attributable to large salary and rent expenses for the expansion of the
Company's new SITN business and relocation of the Company's offices. Building
the international news division increased costs of sales and so lowered gross
profits for the periods discussed. The Company's expenses in 1999 also include a
non-recurring stock based compensation expense of $881,466, which had a material
impact on expenses for the year ended December 31, 1999.

The reasons for the significant increase in our allowance for doubtful accounts
during 1999 is that the accounts receivable balance showed an increase in age
and slower subsequent collections. As a result, management increased this
allowance to reflect the deterioration of the credit quality.

LOSSES


The Company incurred losses from operations of $(5,070,464) in 1999 compared to
$(3,105,497) in 1998, for an increase of $(1,964,967) or 45%. The increase in
losses was due primarily to non-recurring stock based compensation expense of
$(881,466) in 1999, caused by issuances of stock to the Company's principals and
employees, stock issued in extinguishments of debt in the amount of ($______),
and to a loss on capital improvements receivable of $(557,303). The
non-recurring stock-based compensation costs were vital to the Company's
remaining viable in its industry; these costs related to compensation to Mr.
Gutkowski and an employee, Dominick Sartorio, whose services were necessary to
the Company remaining in business. At that time, the Company did not have the
cash resources to pay these persons to remain with the Company. New investors
were unwilling to invest funds in the Company unless a portion of the Company's
debt was converted to equity. Existing creditors exchanged $_____ in debt for
_____ shares of Common Stock. Without these new funds, and without the services
of these independent contractors and consultants, the Company would have been
unable to continue in business. Net other expenses were $(325,317) in 1999 and
$(1,164,798) in 1998, for a decrease of $(839,481) or 72%. Not including the
non-recurring 1999 stock-based compensation expense of $(881,466), Select Media
expects an increase in losses in 2000 due primarily to the decrease in SITN
business caused by its inability to use its studio space in its new facility,
the expenses of the Sigma and AHP acquisitions and the non-recurring stock based
compensation expense of $825,000 in the quarter ended March 31, 2000, caused by
issuances of stock to two other of Select Media's employees.


LIQUIDITY AND CAPITAL RESOURCES

Select Media has significant capital needs, which to date Select Media has met
through


                                       25
<PAGE>   26

private sales of its equity and loans. Select Media will continue to need
substantial infusions of capital, which it expects to continue to fund primarily
from private sales of its equity, loans, or by a public offering of its equity
or debt securities. Select Media received a commitment from Lloyds Bahamas
Securities, LTD ("Lloyds") for $2 million in additional financing for the year
2000 and is continuing in efforts to increase capital resources. Of the $2
million additional committed financing, the Company has received $2,299,000 by
September 30, 2000, part of which was used in the Sigma and AHP acquisitions.
$1,000,000 of this amount was raised in a private placement in October 1999 for
4,500,000 shares of Common Stock at $0.22 per share, with the balance in the
form of convertible notes in 2000. The notes convert into shares of restricted
common stock at $0.22 per share. Sales of common stock by the Company at less
than the current trading price could tend to depress prices in the pink sheet
market. Except for the $9,500,000 needed to close the Betelgeuse transaction for
which the Company does not have a commitment, together with anticipated revenue,
the Company estimates that this funding will be sufficient to fund the Company's
business plan until March 2001, not including Betelgeuse. The Company has also
received a separate commitment from Lloyds for the $500,000 down payment on the
Betelgeuse transaction. The Company does not have a committed source of
financing for the balance of the purchase price of the Betelgeuse acquisition.
The Company has received a separate commitment from Lloyds for an additional
$1.5 million in financing once the Company's common stock is relisted on the OTC
Bulletin Board.


The Company has also received a non-binding letter of intent from Bryn Mawr
Investment Group, Inc. to provide up to $10 million in financing to the Company
through private or public offerings of securities, to be used for working
capital and acquisitions.


None of the Company's committed or proposed financing is contingent on removing
the "going concern" language from the Company's audit report. However, the
Company has received a commitment from Lloyds for an additional $1,500,000 in
financing contingent upon the Company's stock being relisted on the OTC Bulletin
Board.



In October, 1999, a stockholder forgave a note of the Company totaling in the
amount of $560,000, in consideration of a payment of $1.00. In order to induce
this stockholder to cancel the Company's debt to him, Lloyds agreed to exchange
the stockholder's 3,334 shares of unrestricted Common Stock for 200,000 of
restricted Common Stock owned by Lloyds. At the time of this transaction, the
stockholder was not an officer, director or employee of Select Media.



Select Media owes its counsel in its bankruptcy proceeding professional fees of
$798,000. However, under the agreement between select Media and its counsel,
this amount is payable only from the Company's profits. When the Company's
operations become profitable, the Company will begin making payments on this
obligation.


ITEM 7.  FINANCIAL STATEMENTS.


                                       26
<PAGE>   27
                        SELECT MEDIA COMMUNICATIONS INC.

                              FINANCIAL STATEMENTS

                 For the Years Ended December 31, 1999 and 1998
<PAGE>   28
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                                        CONTENTS
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                                     Page
                                                                     ----
<S>                                                                  <C>
INDEPENDENT AUDITORS' REPORT                                            1


FINANCIAL STATEMENTS

  Balance Sheet                                                       2-3
  Statements of Operations                                            4-5
  Statement of Stockholders' Deficit                                    6
  Statements of Cash Flows                                            7-8


NOTES TO FINANCIAL STATEMENTS                                        9-18

</TABLE>
<PAGE>   29
                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors of
Select Media Communications Inc.


We have audited the accompanying balance sheet of Select Media Communications
Inc. as of December 31, 1999 and the related statements of operations, changes
in stockholders' deficit and cash flows for the years ended December 31, 1999
and 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Select Media Communications
Inc. as of December 31, 1999, and the results of its operations and cash flows
for the years ended December 31, 1999 and 1998 in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $5,395,781 during the year ended December 31,
1999, and, as of that date, had a working capital deficiency of $3,637,572 and a
stockholders' deficiency of $2,424,676. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plan in
regard to these matters is discussed in Note 15. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

                                                        s/ Marcum & Kliegman LLP


April 6, 2000, (except for Note 14) as to which the date is November 14, 2000
Woodbury, New York


                                                                               1
<PAGE>   30
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                                   BALANCE SHEET

                                                               December 31, 1999
-------------------------------------------------------------------------------

<TABLE>
<S>                                                                 <C>           <C>
                            ASSETS
CURRENT ASSETS
  Cash                                                              $      344
  Accounts receivable, less allowance for doubtful accounts
    of $243,114                                                        365,200
  Prepaid expenses and other current assets                             64,507
  Due from stockholders                                                166,000
                                                                    ----------

       Total Current Assets                                                       $  596,051


PROPERTY AND EQUIPMENT, Net                                                          539,235

OTHER ASSETS
Reorganization value, net of accumulated
  amortization of $570,304                                           1,873,854
  Deposit on acquisition                                               400,000
                                                                    ----------

       OTHER ASSETS                                                                2,273,854
                                                                                  ----------

       TOTAL ASSETS                                                               $3,409,140
                                                                                  ==========
</TABLE>


      The accompanying notes are an integral part of these financial statements.

                                                                               2
<PAGE>   31
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                                   BALANCE SHEET

                                                               December 31, 1999
-------------------------------------------------------------------------------
<TABLE>

              LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<S>                                                             <C>               <C>
CURRENT LIABILITIES
 Accounts payable                                               $  1,315,977
 Accrued expenses                                                  2,194,656
 Notes payable                                                       567,500
 Current portion of capital lease obligation                          55,490
 Reorganization liabilities, current portion                         100,000
                                                                ------------


       Total Current Liabilities                                                   $  4,233,623


OTHER LIABILITIES
 Capital lease obligation, net of current portion                    120,224
 Reorganization liabilities, net of current portion                1,479,969
                                                                ------------


       Total Other Liabilities                                                        1,600,193
                                                                                   ------------


       TOTAL LIABILITIES                                                              5,833,816


COMMITMENTS


STOCKHOLDERS' DEFICIENCY
 Common stock - $.001 par value; 35,000,000 shares
  authorized, and 9,607,592 shares issued and outstanding              9,608
 Additional paid-in capital                                        7,313,262
 Accumulated deficit                                              (9,747,546)
                                                                ------------


       TOTAL STOCKHOLDERS' DEFICIENCY                                                (2,424,676)
                                                                                   ------------

       TOTAL LIABILITIES AND
         STOCKHOLDERS' DEFICIENCY                                                  $  3,409,140
                                                                                   ============
</TABLE>

      The accompanying notes are an integral part of these financial statements.

                                                                               3
<PAGE>   32
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                        STATEMENTS OF OPERATIONS

                                  For the Years Ended December 31, 1999 and 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                           1999                1998
                                                       -----------          -----------
<S>                                                    <C>                  <C>
SALES                                                  $ 2,310,002          $   448,123

COST OF SALES                                            1,294,889              219,005
                                                       -----------          -----------

       GROSS PROFIT                                      1,015,113              229,118

OPERATING EXPENSES
  Selling, general and administrative expenses           4,646,808            1,304,615
  Loss on capital improvements receivable                  557,303                 --
  Stock-based compensation expense                         881,466            2,030,000
                                                       -----------          -----------

       TOTAL OPERATING EXPENSES                          6,085,577            3,334,615
                                                       -----------          -----------

       OPERATING LOSS                                   (5,070,464)          (3,105,497)

OTHER INCOME (EXPENSE)
  Other income                                              32,476                 --
  Interest expense                                        (357,793)          (1,164,798)
                                                       -----------          -----------

       TOTAL OTHER EXPENSE                                (325,317)          (1,164,798)
                                                       -----------          -----------

       LOSS BEFORE INCOME TAXES                         (5,395,781)          (4,270,295)

INCOME TAXES                                                  --                   --
                                                       -----------          -----------


       NET LOSS                                        $(5,395,781)         $(4,270,295)
                                                       ===========          ===========

PER SHARE DATA
 Basic and diluted net loss per common share           $     (2.82)         $    (68.57)
                                                       ===========          ===========

 Weighted Average Common Shares Outstanding              1,915,582               62,277
                                                       ===========          ===========
</TABLE>



      The accompanying notes are an integral part of these financial statements.
                                                                               4
<PAGE>   33
                                                SELECT MEDIA COMMUNICATIONS INC.

                                              STATEMENT OF STOCKHOLDERS' DEFICIT

                                  For the Years Ended December 31, 1999 and 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                         Par       Additional
                                                        Value       Paid-in         Accumulated
                                           Shares       $0.001      Capital           Deficit            Total
                                       --------------------------------------------------------------------------
<S>                                    <C>           <C>         <C>             <C>                <C>
BALANCE - January 1, 1998                  50,727      $   51      $  281,949      $    (81,470)      $   200,530

Issuance of stock for services             10,704          11       2,029,989                           2,030,000

Exercise of warrants                        5,867           6         479,994                             480,000

Conversion of debentures                   17,961          18       1,151,882                           1,151,900

Issuance of stock as finance
 Costs                                      1,667           2         257,498                             257,500

Net loss                                     --          --              --          (4,270,295)       (4,270,295)
                                        ---------      ------      ----------      ------------       -----------

BALANCE - December 31, 1998
                                           86,926          88       4,201,312        (4,351,765)         (150,365)

Sale of common stock                    4,500,000       4,500         995,500                           1,000,000

Issuance of stock as finance costs          5,000           5                                                   5

Stock compensation                      4,006,666       4,006         877,460                             881,466

Issuance of stock for services          1,004,000       1,004         258,273                             259,277

Issuance of stock as payment of
   reorganization liabilities               5,000           5         420,718                             420,723

Gain on extinguishment of debt               --          --           559,999                             559,999

Net loss                                     --          --              --          (5,395,781)       (5,395,781)
                                        ---------      ------      ----------      ------------       -----------

BALANCE - December 31, 1999
                                        9,607,592      $9,608      $7,313,262      $ (9,747,546)      $(2,424,676)
                                        =========      ======      ==========      ============       ===========
</TABLE>

      The accompanying notes are an integral part of these financial statements.

                                                                               5
<PAGE>   34
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                        STATEMENTS OF CASH FLOWS

                                  For the Years Ended December 31, 1999 and 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          1999               1998
                                                                      --------------------------------
<S>                                                                   <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                            $(5,395,781)         $(4,270,295)
                                                                      -----------          -----------
  Adjustments to reconcile net loss to net cash
   provided by operating activities:
    Stock-based compensation                                              881,466            2,030,000
    Stock issued for services                                             259,277                 --
    Depreciation and amortization                                         368,035              250,876
    Provision for doubtful accounts                                       243,114                 --
  Changes in assets and liabilities:
    Increase in accounts receivable                                      (313,648)            (294,666)
    Decrease (increase) in note receivable                                194,800             (194,800)
    Decrease (increase) in capital improvement receivable                  53,982              (53,982)
    Decrease (increase) in prepaid expenses and other current
      Assets                                                              244,525              (51,532)
    Increase in accounts payable                                          926,947              389,032
    Increase in accrued expenses                                        2,454,501              300,154
    (Decrease) increase in reorganization liability                      (183,061)              21,595
                                                                      -----------          -----------

       TOTAL ADJUSTMENTS                                                5,129,938            2,396,677
                                                                      -----------          -----------

       NET CASH USED IN OPERATING ACTIVITIES                             (265,843)          (1,873,618)
                                                                      -----------          -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                                    (415,576)             (69,616)
  Deposit on acquisition                                                 (400,000)                --
                                                                      -----------          -----------

       NET CASH USED IN INVESTING ACTIVITIES                             (815,576)             (69,616)
                                                                      -----------          -----------

CASH FLOWS FROM FINANCING ACTIVITIES

  Repayments of capital lease obligation                                   (8,408)                --
  Proceeds from notes payable                                             138,000            1,956,400
  Repayments of notes payable                                                --               (375,000)
  Proceeds from issuance of common stock                                  834,005              480,000
                                                                      -----------          -----------
       NET CASH PROVIDED BY FINANCING
        ACTIVITIES                                                    $   963,597          $ 2,061,400
                                                                      -----------          -----------
</TABLE>


      The accompanying notes are an integral part of these financial statements.

                                                                               6
<PAGE>   35
                                                SELECT MEDIA COMMUNICATIONS INC.

                                             STATEMENTS OF CASH FLOWS, Continued

                                  For the Years Ended December 31, 1999 and 1998
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                  1999               1998
                                                                -----------------------------
<S>                                                             <C>                <C>
       NET (DECREASE) INCREASE IN CASH                          $(117,822)         $  118,166

CASH - Beginning                                                  118,166                --
                                                                ---------          ----------

CASH - Ending                                                   $     344          $  118,166
                                                                =========          ==========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the years for:

  Interest                                                      $  37,865          $   27,196

Noncash investing and financing activities:


  Acquisition of equipment through capital leases               $ 126,831          $   57,291
  Conversion of debentures to common stock                      $    --            $1,151,900
  Stock issued as payment of reorganization liabilities         $ 420,723          $     --
  Deferred financing costs                                      $    --            $  257,500
  Gain on extinguishment of debt                                $ 559,999          $     --
</TABLE>



      The accompanying notes are an integral part of these financial statements.
                                                                               7
<PAGE>   36
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


NOTE 1 - Summary of Significant Accounting Policies

       Nature of Business
       Select Media Communications Inc. ("the Company") is an integrated media
       company engaged in producing and distributing programming.

       Revenue Recognition
       The Company recognizes revenues when services the Company performs are
       complete. Services are considered complete as follows:

       Broadcast Services
       Revenues derived from broadcast services, (including sale of news
       segments, transmission, studio facilities and crewing) are recorded when
       the service has been rendered and the project has been completed.

       Programming Services
       Revenues derived from programming (including the sale of non-cancelable
       license agreements for television programming and vignettes) are
       recognized when the programs and vignettes have been produced, are
       available for airing and all station clearances or acquisitions of media
       time have been obtained. Revenues from other license agreements are
       recorded when the program or vignette airs.

       Property and Equipment and Depreciation
       Property and equipment is stated at cost and is depreciated using a
       straight-line method over the estimated useful lives of the respective
       assets. Routine maintenance and repairs are expensed as incurred and
       improvements that extend the useful life of the assets are capitalized.
       When property and equipment is sold or otherwise disposed of, the cost
       and related accumulated depreciation are eliminated from the accounts and
       any resulting gain or loss is recognized in income.

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

       Net Loss Per Share
       The Company computes per share amounts in accordance with SFAS No. 128,
       "Earnings per Share". SFAS No. 128 eliminates the presentation of the
       primary and fully dilutive earnings per share ("EPS") and requires
       presentation of the basic and diluted EPS. Basic EPS is computed by
       dividing the income (loss) available to common stockholders by the
       weighted-average number of common shares outstanding for the period.
       Diluted EPS is based on the

                                                                               8
<PAGE>   37
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies, continued

       Net Loss Per Share
       weighted-average number of shares of common stock and common stock
       equivalents outstanding during the periods. All prior periods' EPS have
       been restated giving effect to the Company's 1 for 300 reverse stock
       split (see Note 3). Convertible debt and warrants have not been included
       in the computation of diluted EPS as their effect would be antidilutive.

       Stock-Based Compensation
       In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
       Compensation". SFAS No. 123 prescribes accounting and reporting standards
       for all stock-based compensation plans, including employee stock options,
       restricted stock, employee stock purchase plans and stock appreciation
       rights. SFAS No. 123 requires compensation expense to be recorded (i)
       using the new fair value method or (ii) using the existing accounting
       rules prescribed by Accounting Principles Board Opinion No. 25,
       "Accounting for Stock Issued to Employees" ("APB 25") and related
       interpretations with pro forma disclosure of what net income and earnings
       per share would have been had the Company adopted the new fair value
       method. The Company intends to continue to account for future stock based
       compensation in accordance with the provisions of APB 25.


       During November 1999, the Company issued 4,006,666 shares, valued at 0.22
       per share, of its common stock to two employees. The fair value was the
       same per share amount as the contemporaneous cash price received from
       Lloyds (see Note 2). Previously, the Company had valued, and reported,
       the common stock at a price of $20.97 per share. This price represented
       the fair value determined by a three day moving average stock price of
       the common stock on the date of grant. The effect of the adjustment in
       the accounting for the common stock reduced the net loss from $91,630,341
       to $5,395,781 and the net loss per common share from $47.83 to $2,55 for
       the year ended December 31, 1999.


       Comprehensive Income
       In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
       Income", effective for fiscal years beginning after December 15, 1997,
       with reclassification of earlier periods required for comparative
       purposes. SFAS No. 130 establishes standards for the reporting and
       presentation of comprehensive income and its components in the financial
       statements. The Company adopted this standard in 1998 and the
       implementation of this standard did not have any impact on its financial
       statements. To date, the Company has not had any transactions that are
       required to be reported as other comprehensive income (loss).


NOTE 2 - Private Placement


       The Company entered into an agreement on October 22, 1999 and amended
       November 1, 1999 with Lloyds Bahamas Securities, Ltd. ("Lloyds") to sell
       shares of the Company's common stock with Lloyds as their agent. (See
       Note 14). In exchange for $1,000,000, Lloyds'


                                                                              9
<PAGE>   38
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


       investors received 4,500,000 new shares of the Company's common stock
       after a 1 for 300 reverse stock split (See Note 3). As a condition of the
       funding the Company agreed to acquire Nationsmusic.com, Inc.
       ("Nationsmusic") in exchange for 3,000,000 shares of the Company's common
       stock. The Company has not consummated its transaction with Nationsmusic.
       On November 14, 2000, Lloyds, by letter agreement waived the requirement
       to acquire Nationsmusic as a condition to the funding.
    >

NOTE 2 - Private Placement, continued

       In addition, the Company issued 1,000,000 shares of its common stock to
       Lloyds for consulting services rendered and the Company recognized an
       expense of $220,000, related to the issuance of these shares, for the
       year ended December 31, 1999.

       At December 31, 1999, $166,000 was still owed to the Company from Lloyds
       as result of the private placement. The Company received these funds in
       March 2000.


NOTE 3 - Reverse Stock Split

       On November 2, 1999, the Board of Directors authorized a one for three
       hundred reverse stock split, with the number of authorized shares of
       common stock and the par value per share remaining unchanged. The split
       was effective November 30, 1999 and all per share amounts and shares
       issued have been adjusted retroactively to reflect this reverse stock
       split.


NOTE 4 - Loss on Capital Improvements Receivable


       Capital improvements receivable represents amounts paid or accrued by the
       Company for leasehold improvements which are to be reimbursed to the
       Company by the landlord pursuant to the lease agreement. Subsequent to
       December 31, 1999, the Company vacated the premises. Accordingly, the
       Company wrote off the receivable at December 31, 1999 (see Note 14).


       The Company is currently in dispute with its landlord in which the
       landlord is claiming certain lease payments are due on space occupied by
       the Company. The total amount claimed to be due by the landlord is
       approximately $600,000.



NOTE 5 - Property and Equipment

       Property and equipment at December 31, 1999 consist of the following:
<TABLE>

<S>                                                               <C>
       Property and equipment                                     $ 593,444
       Leasehold improvements                                        75,870
                                                                  ---------
</TABLE>

                                                                              10
<PAGE>   39
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
<TABLE>
<S>                                                              <C>
                                                                    669,314
       Less:  accumulated depreciation and amortization            (130,079)
                                                                  ---------

            Property and Equipment, net                           $ 539,235
                                                                  =========
</TABLE>
                                                                              11
<PAGE>   40
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 5 - Property and Equipment, continued

       Depreciation expense for the years ended December 31, 1999 and 1998 was
$123,619 and $6,460, respectively.


NOTE 6 - Capital Leases

       The Company is the lessee of equipment under certain capital leases
       expiring through the year 2002. The assets are being depreciated over the
       life of the lease. Depreciation of assets under capital leases charged to
       expense for the year ended December 31, 1999 and 1998 was $58,944 and
       $4,010, respectively.

       Minimum future lease payments under capital leases as of December 31,
       1999 for each of the next three years, and in the aggregate, are as
       follows:
<TABLE>
<CAPTION>

                 For the Year Ending
                   December 31,                            Amount
               ---------------------------------------------------
<S>                                                      <C>
                         2000                             $ 82,812
                         2001                               72,576
                         2002                               61,762
                                                          --------
               Total minimum lease payments                217,150

               Less: amount representing interest           41,436
                                                          --------

               Present value of minimum lease
                Payments                                  $175,714
                                                          ========

               Current Portion                            $ 55,490

               Long-term Portion                           120,224
                                                          --------

                                  Total                   $175,714
                                                          ========
</TABLE>

       Interest rates on capitalized leases vary from 7.91% to 29.39% and are
       imputed based on the lessor's implicit rate of return.

                                                                              12
<PAGE>   41
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 7 - Notes Payable

       Notes payable at December 31, 1999 consisted of the following:
<TABLE>
<S>                                                                   <C>
               Note payable non-interest bearing, payable upon
                 demand                                                $ 67,500

               Note payable non-interest bearing, payable upon
                 demand                                                 125,000

               Notes payable shareholder                                375,000
                                                                       --------

                      Total                                            $567,500
                                                                       ========
</TABLE>

       The Company has notes payable to a shareholder for $375,000. The notes
       bear interest at 10% and had original maturity dates in November and
       December 1999. These maturity dates were subsequently extended and are
       currently due upon demand. The individual received, 6,667 shares of
       common stock as compensation. The market value of the shares issued were
       treated as debt issuance costs (interest) which was amortized over the
       life of the loan. Debt issuance cost recognized in 1999 and 1998 was
       $243,678 and $11,822 respectively.


NOTE 8 - Letter of Credit

       An individual has signed a letter of credit on behalf of the Company for
       $1,000,000 acting as a security deposit on the office space occupied by
       the Company. If the Company defaults on the lease, money will be drawn
       from this letter of credit. To date, no consideration has been given to
       this individual for signing this letter of credit. During November 2000,
       the Bank has drawn down the $1,000,000 letter of credit to the benefit of
       the previous landlord and the Company has vacated the premises.


NOTE 9 - Income Taxes

       Deferred income taxes reflect the net tax effect of temporary differences
       between the carrying amounts of assets and liabilities for financial
       reporting purposes and the amounts used for income tax purposes.
       Significant components of the deferred tax asset of the Company consist
       primarily of the net operating loss carryforwards, increase in allowance
       for doubtful accounts and accrued expenses that are not currently
       deductible. The Company has recorded a full valuation allowance against
       its deferred tax asset, as it is not assured, it can recognize such an
       asset in the future. At December 31, 1999, the Company has significant
       net operating loss carryforwards of approximately $10,000,000 which will
       expire in 2019.

                                                                              13
<PAGE>   42
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


NOTE 9 - Income Taxes, continued

       In accordance with the provisions of the Internal Revenue Code Section
       382, utilization of the Company's net operating loss carryforward is
       severely limited.


NOTE 10 - Debt Extinguishment

       In October 1999, a note payable to a stockholder in the amount of
       $560,000 was extinguished for $1. As additional consideration the note
       holder exchanged 3,334 unrestricted shares (valued at $.022 per share) of
       the Company's common stock for 200,000 restricted shares (valued at $0.22
       per share) of the Company's common stock held by Lloyds. Since the
       exchange occurred between related parties to the Company, the resulting
       gain has been recorded to additional paid in capita. The gain on
       extinguishment of debt is as follows:
<TABLE>
<S>                                                       <C>         <C>
            Note payable                                  $560,000
            Less: Cash payment                                  (1)
                                                          ---------

                                                                       $559,999
                                                                       ========
</TABLE>


NOTE 11 - Commitments

       Leasing Agreements
       The Company leases office space under an operating lease agreement, which
       expires on February 15, 2015. Rental expense was $560,241 and $93,373 for
       the years ended December 31, 1999 and 1998, respectively.

       Minimum future rental commitments under this lease as of December 31,
       1999 are as follows:
<TABLE>
<CAPTION>

          For the Year Ending
             December 31,                      Amount
         ------------------------------------------------
<S>                                           <C>
                 2000                         $   522,951
                 2001                             522,951
                 2002                             522,951
                 2003                             522,951
                 2004                             522,951
              Thereafter                        5,921,845
                                              -----------

                    Total                     $ 8,536,600
                                              ===========
</TABLE>

                                                                              14
<PAGE>   43
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


NOTE 11 - Commitments, continued

       Leasing Agreements, continued
       In addition, as part of the operating lease describe above, the Company
       has agreed to lease additional premises at the same facility. Occupation
       of the additional premises is pending certain building modifications to
       be performed by the landlord. Upon the commencement date of the
       additional space, rental commitments will be $360,665 per annum for years
       one through five, $387,885 per annum for years six through ten and
       $415,105 per annum for years eleven through the expiration date of the
       lease.

       Sublease Agreement
       The Company entered into lease agreements during the fiscal year ended
       December 31, 1999 wherein customers sublease space from the Company.

       Minimum future payments from subtenants as of December 31, 1999 for each
       of the next two years are as follows:

<TABLE>
<CAPTION>

               December 31,                      Amount
            ----------------------------------------------
<S>                                              <C>
                   2000                            $90,000
                   2001                              7,000
                                                  --------

                   Total                           $97,000
                                                   =======
</TABLE>


       During November 2000, the Company vacated the office space covered by
       this lease (see Note 14).


       In addition, two leases were entered into in February and March 2000.
       Minimum future payments for these two leases for the year ending December
       31, 2000 and December 31, 2001 is $57,500 and $8,500 respectively.

       Payroll Taxes
       At December 31, 1999, past due amounts have been included in accrued
       expenses totaling approximately $879,000 and consist of payroll taxes
       owed and estimated penalties and interest.

       Employment Agreements
       The Company has entered into employment agreements with the chief
       executive officer and three employees, two on October 25, 1999 and two on
       January 1, 2000. Two of these agreements expire in 2002 and two expire in
       2004. Two of these agreements provide for bonuses based on percentages of
       net profits, as specified in their respective employment agreements.

                                                                              15
<PAGE>   44
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 - Commitments, continued

       Employment Agreements, continued Future minimum payments related to these
       agreements for the next five (5) years are as follows:

<TABLE>
<CAPTION>

              For the Year Ending
                 December 31,                      Amount
              -----------------------------------------------
<S>                                              <C>
                     2000                         $   633,333
                     2001                             816,667
                     2002                             916,667
                     2003                             833,333
                     2004                             833,333
                                                  -----------

                        Total                     $ 4,033,333
                                                  ===========
</TABLE>

       For past services performed, the chief executive officer and one of the
       employees that entered into the above employment agreements received
       4,006,666 shares of the Company's common stock during 1999. As a result
       of this issuance, the Company recognized $881,470 of compensation
       expense.


       On January 1, 2000, the Company entered into two employment agreements.
       One of the employees was terminated and the Company entered into a
       separation and release agreement on April 28, 2000. Pursuant to the
       employment and separation and release agreements, the employees were
       issued 100,000 and 50,000 restricted shares, respectively, for past
       services performed. As a result of these issuances, the Company
       recognized $33,000 ($0.22 per share) of stock-based compensation expense.
       The value of these grants have not been included in the Statement of
       Operations for the year ended December 31, 1999. Future minimum
       compensation to the remaining employee under this agreement is $125,000
       for the year ended December 31, 2000 and $100,000 for the years ended
       December 31, 2001 and 2002. There are no further commitments to the
       terminated employee.



NOTE 12 - Major Customer

       During the year ended December 31, 1999 the Company sold a substantial
       portion of its services to one customer. Sales to this customer totaled
       $800,000 (35%). The amount due from this customer included in accounts
       receivable was $200,000. For the year ended December 31, 1998 the Company
       sold a substantial portion of its services to two customers. Sales to
       these customers totaled $206,151 (46%) and $72,316 (16%) respectively.

                                                                              16
<PAGE>   45
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


NOTE 13 - Bankruptcy Proceedings


       On August 28, 1997 the United States Bankruptcy Court of the Southern
       District of New York confirmed the Company's Plan of Reorganization. The
       plan stipulated payments totaling
    >

                                                                              17
<PAGE>   46
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 13 - Bankruptcy Proceedings, continued


       $2,444,158 to be paid to certain secured, administrative and unsecured
       creditors. It was determined that the Company's reorganization value
       computed immediately before August 28, 1997, the date of plan
       confirmation, was equal to the stipulated payments of $2,444,158. Since
       the Company had no other identifiable assets, the Company recorded a long
       lived asset, "Reorganization Value," which is being amortized over a
       period of 10 years. The Company adopted fresh start reporting because
       holders of existing voting shares immediately before filing and
       confirmation of the plan received less than 50% of the voting shares of
       the emerging entity and its reorganization value is less than its post
       petition liabilities and allowed claims.


       The reorganization was determined by discounting future cash flows of the
       reconstituted business that emerged from bankruptcy and the expected
       proceeds from assets and collections from assets not required in the
       reconstituted business.


       As of December 31, 1999, the Company determined that the reorganization
       has not been impaired since the discounted future cash flows from
       operations are in excess of the reorganization value.


       The remaining bankruptcy liabilities at December 31, 1999 consists of the
following:


<TABLE>
<CAPTION>

                  Class of Creditors
       ---------------------------------------------------------
<S>                                                  <C>
        Class 1 - Secured                             $     --
        Class 2 - Priority and Administrative          1,129,969
        Class 3 - Unsecured                              450,000
                                                      ----------
               Total                                  $1,579,969
                                                      ==========
        Short-Term                                    $  100,000
        Long Term                                     $1,479,969
</TABLE>



       In accordance with the Company's confirmed Plan of Reorganization, all of
       the long term liabilities will be paid when the Company becomes
       profitable.


       The Company owes approximately $798,000 in professional fees rendered in
       accordance with the Order entered into by the United States Bankruptcy
       Court in the Southern District of New York. Company has agreed with the
       Claimant to pay this amount in quarterly installments equal to 3% of the
       Company's corresponding quarterly gross receipts less ordinary expenses
       before any cash compensation to officers until paid in full. No part of
       the stated amount has been paid and is included in the accrued amounts
       for class 2 creditors at December 31, 1999.

                                                                              18
<PAGE>   47
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

       The New York City Department of Finance has filed alleged unsecured
       priority tax claims in the amount of $229,899. Included in this amount is
       $37,623 of interest accruing at an annual interest rate of 8.5%. The
       entire amount is included in the accrued amounts for class 2 creditors at
       December 31, 1999.


       All remaining allowed claims will be paid in cash.


                                                                              19
<PAGE>   48
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------


NOTE 14 - Subsequent Events

       On January 18, 2000 the Company purchased all of the issued and
       outstanding common stock of Sigma Sound Services, Inc. ("Sigma") pursuant
       to the terms of a stock purchase agreement (the "Agreement"). The
       purchase price for Sigma's common stock was $1,000,000 of which $400,000
       was paid in 1999. The transaction will be accounted for under the
       purchase method of accounting.

       On March 8, 2000, the Company purchased certain contracts of After Hours
       Production, Inc. Pursuant to the terms of an asset purchase agreement
       ("AHP" Agreement). The purchase price was $125,000. This transaction will
       be accounted for as a purchase of an intangible.

       On September 11, 2000, the Company entered into a non-binding letter of
       intent to purchase all the assets and liabilities of Betelgeuse
       Productions, LLC for a purchase price of $10,000,000, subject to
       adjustment.


       As discussed in Notes 4 and 11, the Company has vacated its office space
       located at 666 Third Avenue, New York, New York. The Company is currently
       involved in litigation with its former landlord. The outcome of this
       litigation is uncertain; however, if the Company obtains an adverse
       judgement, it may sustain a loss up to approximately $600,000. In
       addition, the Company has accrued all unpaid rent through September 30,
       2000 and has accrued costs incurred in renovating the office space of
       approximately $700,000.



       As reflected in Note 2, the Company received proceeds of $1,000,000 in
       exchange for 4,500,000 shares of the Company's Common Stock in October
       1999 in a private placement. However, the Company has determined that the
       exemption relied upon was not available and that the sale may have been
       in violation of the registration provisions of the Securities Act. The
       Company may be required to offer rescission to the investors, which
       allows the investors to obtain a return of their original investment.
       Since the investors have indicated that they will not require a return of
       any part of the original investment, the investment has been classified
       as permanent capital.



NOTE 15 - Going Concern Uncertainty

       As shown in the accompanying financial statements, the Company incurred a
       net loss of $5,395,781 during the year ended December 31, 1999, and, as
       of that date, the Company's current liabilities exceeded its current
       assets by $3,637,572, and the stockholders' deficiency was $2,424,676.
       These factors create substantial doubt as to the Company's ability to
       continue as a going concern.


       The Company is developing a plan to reduce its liabilities through the
issuance of additional




NOTE 15 - Going Concern Uncertainty (continued)


                                                                              20
<PAGE>   49
                                                SELECT MEDIA COMMUNICATIONS INC.

                                                   NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

       common stock through private or public offerings conforming to the
       requirements of Securities Acts. The Company received a non-binding
       letter of intent on October 14, 1999 to raise $10,000,000 on a best
       efforts basis for such offerings. The financial statements do not include
       any adjustments to the financial statements that might be necessary
       should the Company be unable to continue as a going concern.


                                                                              21

<PAGE>   50
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.


As of February 1, 2000, the Company engaged Marcum & Kleigman, LLP as its
independent certified public accountants. On October 30, 2000, the Company filed
a Form 8-K noting the change in accountants. The Company's former accountants,
Ernst & Young, LLP, ceased acting as the Company's auditors at the time that the
Company filed for bankruptcy. The former accountant was unable to report on the
Company's financial statements due to the unpaid liability owed by the Company
to Ernst & Young, LLP, which was discharged in bankruptcy. There were no
disagreements with the former accountants.



The former accountants were not discharged by the Company and the Company's
financial statements for the period audited by the former accountants did not
contain an adverse opinion or a disclaimer of opinion, nor were the financial
statements modified as to uncertainty, audit scope or accounting principles.



                                       27
<PAGE>   51
                                    PART III

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

The directors and officers of the Company are as follows:


<TABLE>
<CAPTION>
                                                                              Position with
Name                    Age   Position                                        Select Media Since
----                    ---   --------                                        ------------------
<S>                     <C>   <C>                                             <C>
Mitch Gutkowski         45    Chairman of the Board, Chief Executive                1981
                              Officer and Director
James Mongiardo         54    Vice Chairman and Director                            1999
Chet Simmons            71    Director                                              1999
Joseph Tarsia           65    President of Sigma                                    2000
Billy Terrell           55    Executive Vice President of Sigma                     2000
</TABLE>



MITCH GUTKOWSKI, Chairman of the Board, Chief Executive Officer and Director
since 1981, founded Select Media in 1981 and as Chairman coordinates the efforts
of the Company's divisions and oversees operations. With the Board of Directors
as a group, Mr. Gutkowski oversees strategic planning for the Company. Before
founding Select Media, Mr. Gutkowski was Vice President for Advertising Sales
for Pro-Sport Entertainment, Inc. Mr. Gutkowski was Chairman of the Board and
Chief Executive Officer of the Company in 1995, when the Company filed for
bankruptcy protection under Chapter 11. See "Description of Business."



JAMES MONGIARDO, Vice Chairman of the Board since 1999, has extensive experience
in building companies and in the banking and securities business. He has served
as Chief Executive Officer for public biotechnology and healthcare services
companies and as head of United States Marketing for Schering-Plough
Corporation. For the past five years, he has been Managing Director of LBC
Capital, an investment banking firm specializing in institutional private
placements for emerging companies.



CHET SIMMONS, Director since 1999, has a distinguished career in helping to
shape modern sports television. In 1957, he joined the group responsible for the
American Broadcasting Company's sports programming, including "ABC's Wide World
of Sports," "The American Sportsman," and ABC's Olympic Games coverage. In 1964,
he moved to NBC, where rose to the position of the first President of NBC
Sports. During his tenure at NBC, that network acquired the rights to televise
Major League Baseball, the National Hockey League, various Olympic Games and
NCAA football. Mr. Simmons left NBC Sports to become the first President and
Chief Executive Officer of ESPN. Mr. Simmons became commissioner of the United
States Football League in 1982 and then went on to serve as a consultant to a
variety of sports/television businesses.


JOE TARSIA, President of Sigma, started his recording career in 1958, building
and maintaining local Philadelphia recording studios. In 1961, he joined Cameo
Parkway Records, where he quickly rose to the position of Chief Engineer for
such artists as Bobby Rydell, Chubby


                                       28
<PAGE>   52
Checker, the Dovells and the Orlons. In 1968, Mr. Tarsia founded Sigma Sound
Studios as an independent recording studio, which became the home of major
record producers Kenny Gamble, Leon Huff and Thom Bell, and the birthplace of
THE SOUND OF PHILADELPHIA. Two producers, Ken Gamble and Thom Huff of
Philadelphia International Records, and other independent producers, working
with Joe Tarsia and the staff of Sigma, shared ideas on what constituted good
and innovative music that became extremely popular and influential in the 1970's
and became known as the Sound of Philadelphia. This particular style influenced
the development of Disco, R&B and Soul, as well as mainstream pop music.

Sigma earned Gold and Platinum record awards for recordings by Jerry Butler, The
Intruders, Harold Melvin and The Blue Notes, The Ojays, Teddy Pendergrass, The
Stylistics, The Delfonics, Lou Rawls and The Jacksons. Artists and producers who
recorded at Sigma included Stevie Wonder, B. B. King, Grace Jones, Gladys Knight
and The Pips, David Bowie, Robert Palmer and The Four Tops.

In 1976, Mr. Tarsia expanded Sigma to include three studios in Manhattan's music
district. Sigma New York attracted the likes of Whitney Houston, Madonna, Steely
Dan, The Village People, Talking Heads, Paul Simon, Ashford and Simpson and
Billy Joel.

Mr. Tarsia has won many industry awards for his engineering accomplishments,
including over 150 Gold and Platinum records from the Recording Industry
Association of America.


Mr. Tarsia is President of Sigma and began his association with Select Media in
2000.



BILLY TERRELL, Executive Vice President of Sigma, has spent the last 30 years in
the music business. Over the course of his career, he has written, arranged or
produced over 300 works released by Frankie Avalon, Helen Reddy, David
Clayton-Thomas, LeVert, The Manhattans, The Moments and others. Mr. Terrell has
written or produced works for Columbia Records, Atlantic, Polydor, Mercury, RCA
and Paramount, among others. His hits span many genres, from pop to R & B to
jazz. He continues to write, arrange and produce musical works through Sigma and
AHP. Mr. Terrell began his association with Select Media in 2000.


The above listed directors will serve until the next annual meeting of the
stockholders or until their death, resignation, retirement, removal, or
disqualification, and until their successors have been duly elected and
qualified. Our executive officers serve at the discretion of the Board of
Directors. Vacancies in the existing Board of Directors are filled by majority
vote of the remaining Directors. Officers of the Company serve at the will of
the Board of Directors. There are no agreements or understandings for any
officer or director to resign at the request of another person and no officer or
director is acting on behalf of or will act at the direction of any other
person. There is no family relationship between any executive officer or
director of the Company.

Board Committees. The Board of Directors has not yet established any committees.
The Board intends to establish a Compensation Committee and an Audit Committee
at the next meeting of the Board of Directors.


Compensation Committee Interlocks and Insider Participation. The Board has not
yet established a Compensation Committee. The Board of Directors as a whole
performs this function.



                                       29
<PAGE>   53

Director Compensation. Select Media's directors do not receive any cash
compensation for their service as members of the Board of Directors, although
they are reimbursed for travel and lodging expenses in connection with
attendance at Board meetings.



SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING CHANGES



In the period covered by this report, Mr. Gutkowski is late in filing one (1)
Form 4 and Mr. Sartorio and Mr. Mongiardo are each late in filing one (1) Form
3. Mr. Gutkowski had one (1) transaction in 1999. Mr. Sartorio and Mr. Mongiardo
each became subject to reporting requirements in October 1999 and failed to file
timely Form 3's.


ITEM 10.  EXECUTIVE COMPENSATION.


Executive Compensation.


The following table sets forth the compensation received for services rendered
to the Company during the fiscal year ended December 31, 1999 by our Chief
Executive Officer. Except for the CEO, the Company had no officers who earned
more than $100,000 during the fiscal year ended December 31, 1999.

                             SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                               Long-Term Compensation
                                                                                    ------------------------------------------
Name And Principal                    Annual Compensation         Other Annual      Awards                           All Other
Position                   Year     Salary($)      Bonus($)       Compensation      Restricted Stock     Options       Awards
--------                   ----     ---------      --------       ------------      ----------------     -------       ------
<S>                        <C>      <C>         <C>               <C>               <C>                <C>             <C>
Mitch Gutkowski            1999     $252,000          $0               None               $440,000           None
                                                                       None
Chief Executive Officer
                           1998     $200,000          $0               None               None               None       None
                           1997     $      0          $0               None               None               None       None
</TABLE>


The Company did not pay to our Chief Executive Officer or any executive officer
any compensation intended to serve as incentive for performance to occur over a
period longer than one year pursuant to a long-term incentive plan in the fiscal
year ended December 31, 1999. The Company does not have any defined benefit or
actuarial plan with respect to our Chief Executive Officer or any executive
officer under which benefits are determined primarily by final compensation and
years of service. On October 25, 1999, Mr. Gutkowski was issued 2,000,000 shares
of restricted common stock for prior services to the Company. Mr. Gutkowski
provided substantial services to the Company from the period beginning before
the Company filed for bankruptcy court protection in November, 1995 to up to and
including October 24, 1999. For much of that period, Mr. Gutkowski did not take
a salary, or took a reduced salary. The $440,000 value placed on the stock
issued to Mr. Gutkowski is based on sales made by the Company that took place
just before the issuance to Mr. Gutkowski. Mr. Gutkowski was responsible for
bringing in the consultants and independent contractors who brought the Company
back into business after the bankruptcy. On October 25, 1999, the Company
reduced Mr. Gutkowski's salary from $300,000 per year to $200,000 per year in
order to conserve the Company's cash resources.


                                       30
<PAGE>   54
OPTION GRANTS

The Company granted no stock options in the fiscal year ended December 31, 1999.


EMPLOYMENT CONTRACTS

The Company has an employment contract with Mr. Gutkowski to act as the
Company's president and chief executive officer, which provides for a yearly
salary of $200,000 in 2000, $300,000 in 2001, $350,000 in 2002, $400,000 in 2003
and $450,000 in 2004, with a bonus of 2% of the Company's net profits,
determined and paid quarterly. This agreement has a term of 5 years and expires
October 2004. For the


Mr. Mongiardo and Mr. Simmons, the Company's non-employee directors, are
associated with other firms involved in a range of business activities, as noted
in Item 9, above. Consequently, there are potential inherent conflicts of
interest in their acting as directors of the Company. Insofar as these directors
are engaged in other business activities, management anticipates they will
devote only a minor amount of time to the Company's affairs. However, as of the
date of this filing, no actual or potential conflicts of interest exist between
the Company and either Mr. Mongiardo or Mr. Simmons.


The officers and directors of the Company are now and may in the future become
stockholders, officers or directors of other companies that may be engaged in
business activities similar to those conducted by the Company. Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of the Company or other entities. Moreover,
additional conflicts of interest may arise with respect to opportunities which
come to the attention of such individuals in the performance of their duties or
otherwise. The Company does not currently have a right of first refusal
pertaining to opportunities that come to management's attention insofar as such
opportunities may relate to the Company's business operations.

None of the Company's directors receives any compensation for their respective
services rendered to the Company as directors, nor have they received such
compensation in the past. They all have agreed to act without compensation until
authorized by the Board of Directors. Further, none of the directors accrued any
compensation during the period covered by this report under any agreement with
the Company.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(a) Security Ownership of Certain Beneficial Owners.

The following table sets forth the beneficial ownership for the Company's sole
class of Common Stock of the Company beneficially owned by all directors,
officers and 5% or more holders.


                                       31
<PAGE>   55

<TABLE>
<CAPTION>
Name and
Address of                       Nature of
Beneficial                       Beneficial        Number of
Owner                            Ownership         Shares            Percent
-----                            ---------         ------            -------
<S>                              <C>               <C>               <C>
Mitch Gutkowski(1)               Record            2,000,000         20.8%

James Mongiardo(1)               Record              100,000
                                                                        1%

Chet Simmons (1)                 Record               11,600           (2)

Dominick Sartorio                Record            2,000,000         20.8%
215 Route 110
Huntington, NY 11746

All officers and directors as
    a group (3 persons)                            2,111,600         22.0%
</TABLE>



(1)   Address c/o the Company at 44 E. 32nd Street, New York, New York.


(2)   Less than 1%.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


In the period from the Company's bankruptcy filing in October 1995 until October
1999, Mr. Gutkowski provided substantial services to the Company. For much of
that period, Mr. Gutkowski did not take a salary or took a reduced salary. In
October 1999, the Company issued Mr. Gutkowski 2,000,000 shares as compensation
for these prior services, valued for reporting purposes at $440,000.



In 1996, Mr. Gutkowski contributed $100,000 in cash to the Company's
reorganization plan as part of the Company's emergence form bankruptcy. The
Company repaid this contribution to Mr. Gutkowski in January 2000.



In October 1999, a note payable to a stockholder in the amount of $560,000 was
extinguished for $1. As additional consideration the noteholder exchanged
3,334 unrestricted shares (valued at $0.22 per share) of the Company's common
stock for 200,000 restricted shares (valued at $0.22 per share) of the
Company's common stock held by Lloyds. This stockholder was not an officer,
director or 5% or greater stockholder of the Company.

An individual has signed a letter of credit on behalf of the Company for
$1,000,000 acting as a security deposit on the lease for the Company's facility
at 666 Third Avenue. If the Company defaults on the lease, money will be drawn
from this letter of credit. To date, no consideration has been given to this
individual for signing this letter of credit. During November 2000, the bank has
drawn down the entire amount of the $1,000,000 letter of credit to the benefit
of the previous landlord and the Company has vacated the premises.

The Company has notes payable to a shareholder for $375,000. The notes bear
interest at 10% and had original maturity dates in November and December 1999.
These maturity dates were subsequently extended and are currently due upon
demand. The individual received 6.667 shares of common stock as compensation.
The market value of the shares issued were treated as debt issuance costs
(interest) which was amortized over the life of the loan. Debt issuance cost
recognized in 1999 and 1998 was $243,678 and $11,822 respectively.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

      Item 1.  Exhibit Index

<TABLE>
<CAPTION>
   Exhibit  No
   -------  --
<S>         <C>
      (3)   Articles of Incorporation and Bylaws

            3.1   Articles of Incorporation *

            3.2   Bylaws*

      (10)  Material Contracts

      10.1  Employment Agreement with Mitch Gutkowski ***
</TABLE>


                                       32
<PAGE>   56

<TABLE>
<S>         <C>
      10.2  Stock Purchase Agreement for the Purchase of all the outstanding
            Common Stock of Sigma Sound Studio, Inc. **

      10.3  Letter of Intent for the purchase of all the assets and liabilities
            of Betelgeuse Productions, LLC.***

      10.4  Agreements with Lloyds regarding Financing ***

      10.5  Non-Binding Letter of Intent with Bryn Mawr Investment Group
            regarding Financing ***

      10.6  Agreement with Lloyds to Fund Down Payment****

      10.7  Agreement with Lloyds regarding Financing****

      10.8  Definitive to Purchase the Assets and Liabilities of Betelgeuse
            Productions****

      10.9  Registration Rights Agreement****

      (21)  Subsidiaries of the Registrant

      21.1  Subsidiaries of the Registrant****

      (27)  Financial Data Schedule

      27.1  Financial Data Schedule ****
</TABLE>



* Incorporated by reference to Exhibits to Registrant's original Registration
Statement Number 33-80412 filed under the Securities Act of 1933 on August 19,
1994.


** Incorporated by reference to Exhibits to Registrant's Form 10KSB filed under
the Securities Exchange Act of 1934 on July 27, 2000.



*** Incorporated by reference to Exhibits to Registrant's Form 10KSB/A1 filed
under the Securities Exchange Act of 1934 on November 15, 2000.



**** Filed herewith.



Item 2 Reports on Form 8-K.

      During the period covered by this report, the Company did not file any
reports on Form 8-K.


                                       33
<PAGE>   57
                                   SIGNATURES

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


                        SELECT MEDIA COMMUNICATIONS, INC.


                              By: /s/ MITCH GUTKOWSKI.
                                  --------------------
                                    Mitch Gutkowski, Chief Executive Officer


Date: 12/11/2000




In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.



By /s/ MITCH GUTKOWSKI
   -----------------------------------------------------
      Mitch Gutkowski, Chief Executive Officer, Director



Date:  12/11/2000




By: /s/ ANTHONY URBANO
   -----------------------------------------------------
      Anthony Urbano, Controller



Date: 12/11/2000



By: /s/ JAMES MONGIARDO
   -----------------------------------------------------
      James Mongiardo, Director



Date: 12/11/2000




By:  /s/ CHET SIMMONS
    -----------------------------------------------------
      Chet Simmons, Director



Date:




                                       34