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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

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

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

For the transition period from ______________________ to ______________________

                         Commission File number 0-17591
                         KALEIDOSCOPE MEDIA GROUP, INC.
              ----------------------------------------------------
              (Exact name of small business issuer in its charter)

                      Delaware                            93-0957030
          -------------------------------             ------------------
          (State or other jurisdiction of             (I.R.S. Employer
           incorporation or organization)             Identification No.)

(Address of principal executive offices (Zip Code)

Insurer's telephone number (212)  757-0700

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

     Title of each class               Name of each exchange on which registered
------------------------------         -----------------------------------------
Securities registered pursuant
 to Section 12(g) of the Act.

                         Common Stock, $.0001 par value

(Title of Class)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for 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 contained herein, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB, [ ]

         Issuer's revenues for the year ended December 31, 1999 are ($53,668).

         The aggregate market value of the voting and non-voting common stock
held by nonaffiliates of the issuer is $7,028,043 (as of April 13, 2000).

         The number of shares outstanding of the issuer's common stock is
$42,090,960 (as of April 13, 2000).


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Item 1. Description of Business

Corporate History

         Kaleidoscope Media Group, Inc. (the "KMG"), then called BNN Corporation
("BNN") and a publicly traded corporation without operations, acquired all of
the outstanding shares of Kaleidoscope Media Group, a private corporation (now
called HSPSMM, Inc. and referred to herein as "HSPS"), on October 22, 1996. The
transaction was effected by issuing shares of common stock of KMG in an amount
that resulted in the original HSPS shareholders receiving approximately 40.3% of
the then outstanding shares of KMG. For financial reporting purposes, the
transaction was recorded as a recapitalization of HSPS. HSPS is the continuing,
surviving entity for accounting purposes, but KMG is the continuing entity for
legal purposes. On December 3, 1997, KMG, a Nevada corporation, was
reincorporated in the State of Delaware under its present name.

         HSPS was formed on May 3, 1996 when it acquired substantially all the
shares of SeaGull Entertainment, Inc., ("SeaGull") and all of the outstanding
share of two corporations constituting the Kaleidoscope Sports Group ("KSG").

Introduction

         During 1999 we experienced a reduction of revenues because we did not
have significant revenues generated by programming distribution. This in part
arose because we were unable to enter into new arrangements and because the
introduction of programming under existing arrangements was either postponed, or
not delivered at all. The loss also reflects Management's decision to write off
essentially all non-performing assets. The reduction of revenues was a
continuation of problems incurred in 1998 when we also curtailed all significant
operations in our direct marketing and sports division. As a result, we have
continued the plan of action inaugurated in late 1998. Pursuant to this plan of
action we sought to reduce or eliminate costs by reducing the number of
employees, closing the Los Angeles office.

         We also made a decision not to finance production for the foreseeable
future but to act solely as a distributor. We have entered into a strategic
relationship with a firm which performs some of our distribution functions. Most
importantly the Company has entered into several new arrangements to produce
revenues in the current year. The Company, during the first quarter of 2000, has
already received revenues of $542,000 compared to $38,034 for all of 1999. While
we still have substantial liquidity problems, we anticipate sufficient revenues
from operation to meet our expenses. Our business, however, is always subject to
risk of non or late delivery by third parties.

         From April 1999 through December 1999 we received $1,308,468 gross
proceeds in consideration of the sale of convertible notes. Subsequent to the
year-end, additional gross proceeds have been received in the amount of
$378,532.

         The principal executive offices of the Company are located at 244 West
54th Street, New York, New York and its telephone number is (212) 757-0700.

Business Strategy

         KMG focuses primarily on distribution of programming for television;
home video, the Internet and exploiting related licensing and merchandising
opportunities. It also provides consulting services in the development of
specialty television and Internet programming and is involved in the
distribution of specialty television programming and properties from its
entertainment library. KMG attempts to use strategic partnerships, pre-sales of
distribution rights, and advertising time to help third party producers finance
production budgets. We believe that its expertise in domestic and foreign
syndication, home video, and Internet broadcasting is an important factor in its
ability to successfully compete in these areas.

         Our distribution strategy is to become a leader in the domestic and
international distribution of television properties in four categories: (i) one
hour dramas and mini series; (ii) children's programming;



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(iii) documentaries and, (iv) music programming. In furtherance of achieving its
strategic goals, we are seeking to expand our television operations through the
acquisition of distribution and other representation rights to additional
entertainment properties.

Programming Distributed by the Company

         We have added new programs to our line up augmenting our library of
nearly 200 hours of entertainment, sport and fitness programming. We have
entered into agreements which we anticipate will be revenue producing shortly.
All of our arrangements are always subject to the variables beyond our control
like the failure to complete or make timely delivery of product.

         KMG has been name worldwide sales agent for the new David Hasselhoff
weekly one-hour TV series presently scheduled to air in Fall 2000. The new
series has already been cleared in over 80% of the TV markets in the United
States and has been sold in many foreign territories. This new series is
scheduled to premier in the fall of 2000. Advertising units in this program will
be sold by CBS Entertainment's Eyemark Media Sales Division.

         We have also secured distribution rights to two new mini-series. The
first of which is the greatly anticipated remake of the "The Magnificent
Ambersons". This new mini-series is based on the original script developed by
Orson Wells. This 4-hour TV mini-series is to begin production in Ireland in
July and will be available early next year. The KMG distribution agreement
guarantees the company a minimum distribution fee of $500,000 for the year
ending December 31, 2000. Another new mini-series that KMG will be distributing
is "The Diamond Hunters" which is based on the best selling novel by Wilber
Smith. This new mini-series begins production in Africa this summer and will
also be available for distribution in 2001. The long anticipated mini-series
"Shaka Zulu-the Citadel" has been delivered and KMG will begin to distribute in
many territories.

         We have added 70 hours of light entertainment to our library. In
additions we have signed a distribution agreement with Information Television
Network to distribute worldwide, award winning programs which focus on the
latest developments in Medicine, Women and Children's health, Technology and the
Environment.

         We are actively pursuing relationships, which will establish us as a
content provider to the Internet. We have been retained as a programming
consultant to Streamedia Communications, Inc. Streamedia is a provider to
website owners and content publishers services and tools for streaming, or
broadcasting, live and on-demand video and audio content over the Internet.
Streamedia also creates and operate a series of websites, which enables the web
user to enjoy activities such as listening to radio broadcast, watch classic and
independent films, watch music videos on demand or to participate in live
interactive web cast or Internet broadcasts. KMG has also developed a
relationship with another Internet provider, Medium4.Com. This relationship will
result in "Tarzan, The Epic Adventures" to be the first TV series to be
available in its entirety on the Internet. We have also signed an agreement to
continue to provide content and act as a program consultant to Medium4.Com. We
have also entered into an agreement with EFIT Corporation to provide them with
several fitness and sports programs from our library to be broadcast on
www.efit.com, a leading health and fitness web site.

         We have continued our attempt to distribute internationally its made
for television movie "Merlin: The Magic Begins" based on that legendary
character. The title role had been cast with Jason Connery (son of Sean Connery)
and Deborah Moore (daughter of Roger Moore). The movie was distributed for
broadcasting in 1998.

The Television Market

         KMG entered into a Joint Venture with Abrams Gentile Entertainment
("AGE") and Gene Kirkwood. AGE is a creator and producer of animated and live
action series and specials. Mr. Kirkwood has been prominent in feature films
such as "Rocky" The Joint Venture ("The Kirkwood Group") will



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develop and produce feature films and television mini-series. It is not and will
not be liable for any financing associated with those projects.

         The entertainment industry is an approximately $30 billion per year
industry which is presently undergoing strategic changes as new technologies
proliferate in both the development and production of projects and in the
electronic distribution of entertainment programming. The development and growth
of the 500 channel cable system, DBS (Direct Broadcasting Satellite), Pay Cable,
home video, DVD's, CD-ROMs and other interactive multimedia are creating many
more opportunities for the distribution of entertainment programming to the
consumer, while at the same time reducing the overall market share for any one
program. Even with these changes, management believes that the creative content
of programming will continue to drive the market share. Consequently, management
believes there is, and is likely to continue to be, a growing demand for quality
content-based entertainment products that can be produced more efficiently.

         Network-affiliated stations, independent stations and cable TV
operators serve the United States television market. During prime time hours
(primarily 8 pm to 11pm in Eastern and Pacific time zones and 7 pm to 10 pm in
the Central and Mountain time zones), network affiliates primarily broadcast
programming produced for the network. In non-prime time, network affiliates
telecast network programming, off-network programming (reruns), first run
programming (programming produced for distribution on a syndicated basis) and
local programming produced by the local stations themselves. Independent
television stations, during both prime and non-prime time, produce their own
programs, telecast off-network programs or acquire first-run programs form
independent producers or "syndicators." A syndicator is generally a company that
sells programming to independent stations and network affiliates. Programming
acquired by stations on a syndicated basis is generally acquired either for cash
license fees or an exchange commercial advertising time within the program which
is retained by the syndicator for sale ("barter") or for a combination of cash
and barter.

         The international television market continues to grow as the continued
growth and development of international television distribution channels
increases the demand for quality programming. International sales of programming
are made to television distributors on a cash basis. Initial cash down payment
is made upon the agreement of the international channel to display the
programming. The balance of the cash for the licensing fee is generally paid
upon delivery of the programming. The international television networks retain
sales of advertising time.

Television Distribution

         Barter syndication is the process whereby a syndicator obtains
commitments ("clearances") from television stations to broadcast a program at a
cash licensing fee and sells such retained advertising time for its own account
to national advertisers at rates based on projected ratings and viewer
demographics. From time to time, certain stations may require cash consideration
from the Company, in addition to programming, in exchange for advertising time.
By placing the program with televisions stations throughout the United States,
the syndicator creates an "ad hoc" network that has agreed to carry the program.
The creation of the "ad hoc" network of stations, normally represents a
penetration of at least 70% of the total United Stats television households
(calculated by means of generally recognized system as measured by A.C.
Nielsen), enables the syndicator to sell the commercial inventory to sponsors
desiring national coverage. The rates charged by a syndicator for advertising
time are generally lower cost per thousand viewers than those which national
advertisers are normally charged by the networks for similar demographics.

         Fees paid by national advertisers for barter advertising are
established on the basis of a household audience ratings or, more frequently, on
the basis for delivery of a certain demographic category of the viewing
audience, but may vary depending on the conditions in the general market for
television advertising. The desired household rating or demographic delivery, as
the case may be, is negotiated in advance with the advertiser or its
representative. In general, if the television program does not deliver at least
the agreed-upon audience, the distributor is obligated to make available
additional advertising time on


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the same program or other programs at no additional cost or to refund that
portion of the advertising fee attributed to the failure to deliver the
agreed-upon audience.

Cable Network Licenses

         Television programming can be licensed for telecast by cable network
such as the ESPN Lifetime, USA and Arts & Entertainment basis cable networks and
the Disney and HBO pay cable networks. The production and distribution of the
programming for the initial exhibition on cable networks is similar to that for
broadcast networks, although the license fees paid by cable networks are
typically considerably lower than those paid by the broadcast networks.

International Television Production and Distribution

         Based on industry sources, the Company believes revenues from the
distribution of U.S. television programs industry wide to foreign markets have
increased significantly in recent years. Development in the European television
industry, such as the present trend towards increasing the number of privately
owned channels and greater channel capacity might cause foreign sales to become
a more important component of the distribution of programs produced by the
United States television industry. There is no assurance that the programs
distributed by us will reflect such increase.

The Internet

         The Internet has evolved for am "information provider" to an
information and entertainment provider. This evolution creates a new and
potentially highly interactive revenue source for programming distributed by
KMG. The introduction of new "streaming" technologies has greatly increases the
need for content, which offers us the opportunity to realize in the form of
license fees, revenue sharing and /or equity producing in the acquiring company.
To date, we have derived little revenue from this service but are actively
pursuing this market.

New Programming

         In general, we earn a fee for distributing programs for others based on
a percentage of the license fees paid by television stations for the right to
broadcast particular programs. In certain domestic cases, all or a portion of
such license fee may be payable in television advertising time. We then sell the
advertising time to national advertisers.

         In additional to United States television broadcast rights, KMG has in
the past acquired, where available on acceptable terms, worldwide broadcast
television and non-standard television distribution rights (such as cable and
videocassette rights) to the program it distributes. Theses acquisitions are
typically on a long-term exclusive basis, often between three and twelve years,
in some cases with various renewal options, and may provide that the Company has
the right to undertake production of the program in the event the producer fails
to deliver the contracted programming. As an example, we have retained the
rights for the worldwide videocassette distribution of the "Tarzan: The Epic
Adventures."

         Entering into arrangements for distribution of new material or
properties for television and new multimedia productions is essential to the
future growth of the Company. The Company may obtain new properties from several
sources: (i) distribution agreement with the owner of a property; (ii)
acquisition of existing properties; (iii) co-development of new properties; and
(iv) development of new properties internally. As long as the Company
experiences capital shortages, it will concentrate on acquiring distribution
rights as opposed to being responsible for financing of a project.

Revenue Sources

         The Company's television programming business generates two significant
sources of revenue, distribution fees and the sale of advertising time.


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Distribution Fees

         In most cases, our distribution revenues are based on a percentage of
the net revenues derived from the sale of advertiser sponsorships or on cash
license fees. Generally, we advance all distribution costs of items such as
advertising, promotion, tape shipping and tape duplication and recover such
expenses from the program revenues. In some instances, these expenses are
assumed by us as part of its distribution fee. Our fee for distribution is
generally between 20% to 30% and is fee for advertiser sales representation is
generally between 5% to 10% of net revenues. However, each fee arrangement is
separately negotiated and may be subject to variation. The sums in excess of our
fees and expenses and profit positions (where applicable) are remitted to the
producers of the programs, which in certain cases may also be KMG.

Sales of Advertising

         Fees for advertising time are established on the basis of a certain
assumed level of audience ratings and, in some cases, an assumed demographic
make-up f the viewing audience. While it is in our interest to establish as high
an assumed rating and as favorable demographic male up as possible, there can be
no assurance in advance that the actual rating or demographic make-up of a
particular program will support the fee initially charged for the advertising
time on such program. If the television programs does not achieve the assumed
rating or demographic make-up (as determined by A.C. Nielsen or similar rating
services), we may be obligated to offer the advertiser additional time ("make
goods") on the same program or other programs to fulfill any short fall in the
actual rating or demographic assumptions. Alternatively, we may be obligated to
refund a portion of the advertising fee. "Make goods" are the predominant means
whereby we satisfy such obligations to advertisers.

         Among the sponsors that have in the past purchased participation in our
programs are General Motors, Proctor & Gamble, Kraft/General Foods, Hershey and
Bristol Meyers. Sales are made through the Company's sales force and through
advertising agencies representing the sponsors. We barter syndication licenses
provide that we retains a negotiated amount of commercial time per program
(usually 7 minutes per hour or 50% of the total commercial time) for sale to
national advertisers, with the remaining commercial time retained by the station
for local sale. Generally, our fee for sales of advertising time is between 5%
and 10% of net revenues.

Competition

         Competition in the production and distribution of television
programming is intense. We are a minor participatant in the television
distribution business. KMG's programming competes with other first run
programming, network reruns and programs produced by local television stations.
We compete with many other companies that have been acquiring, producing and
distributing programs for a longer period to time than us, and most of theses
companies have greater financial resources than ours. These competitors include
large television and film studios such as Paramount Communications Inc.,
Columbia Pictures Television; 20th Century Fox Film Corp., MCA Inc., and Warner
Bros. Inc., as well as other television distribution companies such as King
World Productions, Inc., Pearson Television and Viacom International, Inc. We
compete with other companies for the sale of television advertising time,
including Tribune Broadcasting Co./Entertainment Co., Viacom International,
Inc., Pearson Television and King World.

         Our success is highly dependent upon such various unpredictable factors
as the viewing preferences of television audiences. Public taste is
unpredictable and a shift in demand could cause our programming to lose its
appeal. Television programming also competes for audiences with many other forms
of entertainment and leisure time activities, some of which include new areas of
technology (e.g. video games and home video). The impact of these on our
operations cannot be predicted.

Principal Customers

         No Customers accounted for more than 10% of the Company's net revenues
during the year ended December 31, 1999.


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Employees

         At December 31, 1999, KMG employed five (5) persons all of whom were
full-time employees. We have no collective bargaining agreement with its
employees and we believe that its relationship with its employees is good.

Item 2. Description of Property

         KMG's principal executive offices are located at 244 West 54th Street,
New York, New York and consist of approximately 2,000 square feet at a rental of
$6,000. We sub-lease the space on a month-to-month basis and the lessee's lease
expires in 2002.

Item 3. Legal Proceedings

         On June 21, 1996, an action, entitled International Sports Marketing,
Inc. v. Saatchi & Saatchi, et al. was filed in the Wayne County Circuit Court
against two of the Company's inactive subsidiaries and other unrelated parties
seeking to enforce a default judgment of $21,000,000 entered in 1995 for prior
action in 1998. The subsidiaries have vigorously defended themselves in this
litigation. Furthermore, management believes that if any subsidiary were found
liable for a judgment, its subsidiaries would be able to obtain indemnification
from prior owner of the former affiliate's business, a major advertising agency.

         A default judgment has also been obtained by Darrell N. Griffin against
Paul Siegel, an officer and director of the Company, in the amount of
approximately $166,000 in an action pending in the Supreme Court of the State of
California. The claim arises out of action for salary allegedly payable to a
plaintiff purportedly an employee of the Company's former subsidiary Celebrity
Showcase Network. Judgment was taken after Mr. Siegel's counsel failed to
respond to discovery requests. The court of appeals rejected Mr. Siegel's appeal
of the lower court's decision. Mr. Siegel has commenced an action against his
former attorney for malpractice. The Company is obligated to indemnify Mr.
Siegel in accordance with Delaware law.

         A judgement has been obtained by our former auditor Paneth Haber and
Zimmerman in the amount of $230,373.02. We have settled the indebtedness
underlying the judgement for $75,000 and the judgement will be withdrawn upon
payment of a final installment of $10,000 by July 2000.

         On October 28, 1998 Paul Cioffari commenced an action against the
Company and its subsidiary claiming failure of the Company to perform its
agreement to pay Mr. Cioffari agreed consideration for entertainment property
allegedly delivered by Mr. Cioffari to the Company. Cioffari vs. BNN Company
(Supreme Court New York County). Defendants seek damages up to $700,000 on a
variety of claims. The Company denies all liability. This action is in the
pre-trial stage.

         Prior to March 31, 2000 we settled several actions that were pending.
These actions were:

         The Company ACC Entertainment GMBH Co. v. Kaleidoscope Media Group,
Inc. commenced October 27, 1998 United States District Court for the District of
California by ACC Entertainment GMBH Co. ("ACC") for alleged breach of contract
seeking damages of $250,000. The contract provided for certain rights to the
Company's Merlin film to be produced by the Company in return for an investment
of $375,000. This case has been settled in consideration of $100,000.

         On August 5, 1998 Mr. Barry Synter commenced an action against the
Company in the Supreme Court of the State of New York - County of New York.
(Synter vs. BNN Corporation) Mr. Synter seeks damages of up to $1,500,000 for
the Company's alleged failure to permit transfer by Mr. Synter of stock
certificates allegedly owned by him. The Company has agreed to settle this
action in consideration of the issuance of 900,000 shares of its common stock.


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         An action has also been commenced by Eric Ashenberg a former officer of
Celebrity Showcase Network, its prior subsidiary for damages arising from the
Company's failure to approve the transfer of a certificate allegedly owned by
Mr. Ashenberg. Mr. Ashenberg has also named Henry Siegel and Paul Siegel as
defendants. Mr. Ashenberg sought damages in the amount of $450,000. The Company
has settled this action in consideration of 300,000 shares to Mr. Ashenberg.

         On December 19, 1997, the Company filed an action in the United States
District Court Southern District of New York entitled Kaleidoscope Media Group,
Inc. vs. Entertainment Solutions, Inc., James K. Isenhour, and Andrew S. Varni.
The complaint seeks damages for breach of contract and fraudulent inducement of
contract, among other claims, arising out of a venture that the Company entered
into with defendants to promote a sports tournament of Latin American boxing in
1997 called "Boxcino". The Company seeks damages of at least $500,000 plus
punitive damages in the action. Defendants James Isenhour and Entertainment
Solutions, Inc. has answered the complaint, asserting various affirmative
defenses and two counterclaims, for breach of contract and quantum merit,
seeking damages of not less than $250,000. In September 1999 the Company
obtained a default judgment against all defendants, which also dismissed all
counterclaims. The defendants have declared bankruptcy.

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

         No matter was submitted.

                                     Part II

Item 5.  Market for Common Equity and Related Stockholder Matters

         KMG's common stock (the "Common Stock") is quoted on the OTC Bulletin
Board under the symbol "KMGG".

         Set forth are the approximate high and low bids for the Common Stock on
the OTC Bulletin Board as published by the National Quotation Bureau, Inc. Such
quotations reflect interdealer prices without retail mark-up, mark-down or
commissions, and may not reflect actual transactions.

                                                     Common Stock
                                                     High     Low
         1999
         Fourth Quarter                              .18      .09
         Third Quarter                               .30      .145
         Second Quarter                              .31      .160
         First Quarter                               .65      .22

         1998
         Fourth Quarter                            $ .94     $.42
         Third Quarter                              1.22      .75
         Second Quarter                             2.22      .88
         First Quarter                              2.56      .50

         As of December 31, 1999, there were approximately 192 recordholders of
the Common Stock, although we believe that there are more than 400 beneficial
owners of the Common Stock.

Sales of Securities

         In January and February 1999 we sold 3,725,000 shares to several
investors at prices ranging from $.05 per share to $.10 per share. During the
same period we entered into agreements with Mr. Robert Lancelotti and Mr. Byron
Lerner for the issuance of shares to Messrs. Lerner and Lancelotti. The Company
is obligated to issue a total of 3,150,000 and 2,100,000 shares of Messrs.
Lerner and Lancelotti, respectively. In certain circumstances these shares may
be returned to the Company. The Company

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believes these securities were issued pursuant to an exemption from the
registration requirements of the Securities Act of 1943 pursuant to Section 4(2)
thereof.

         o  In April 1999 we issued eight (8%) percent convertible promissory
            notes aggregating $850,000 to foreign private investors. The Notes
            are convertible into an indeterminate number of shares at a
            conversion price of the lower of fifteen (.15) cents per share or
            70% of the lowest closing price within sixty (60) days of
            conversion. In conjunction with the financing, the Company issued a
            total of 850,000 warrants at an exercise price of nineteen (.19)
            cents. The Company has also issued an additional $1,250,000 of
            principal amount of notes which were to be paid for in installments
            after the Company's registration statement becomes effective. In
            August 1999 we sold an additional $112,000 principal amount of notes
            and issued an additional 1,500,000 warrants to acquire our common
            stock.

         The Company believes these securities were issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933
pursuant to Section 4(2) thereof.

         We also sold 350,000 shares of our common stock to an investor in July
1999 at approximately seven (.07) cents per share and 200,000 shares to another
investor in October 1999 at a price of ten (.10) cents per share. The Company
believes these securities were issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof.

         In December 1999 and January 2000 we received an additional $500,000
from the sale of our convertible Notes. Many of the same investors who purchased
our prior notes in connection, with financing completed in April and August 1999
purchased these notes. These notes are exercisable at the lower of market price
as defined in the notes or ten (.10) cents. The notes are due in January 2001.
At the time we also issued warrants to purchase 30,000,000 of our shares of
common stock at $.10 per share. In connection with the sale of these notes we
modified the existing notes and related warrants as follows:

         o  The maturity date was extended to January 1, 2001.

         o  The maximum conversion price of these notes were reduced to ten
            cents.

Dividends

         KMG plans to retain any future earnings for use in its business and,
accordingly, we do not anticipate paying dividends in the foreseeable future to
the holders of the Common Stock. Payment of dividends is within the discretion
of KMG's Board of Directors ("Board of Directors") and will depend, among other
factors, upon our earnings financial condition and capital requirements.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

         Reference is made to Note 2 of KMG's Consolidated Financial Statements
for a discussion of significant accounting policies, including revenue
recognition.

Forward Looking Statements

         The following statements and certain other statements contained in this
annual report on Form 10-K are based on current expectations. Such statements
are forward looking statements that involve a number of risks and uncertainties.
Factors that could cause actual results to differ materially include the
following (i) general economic conditions, (ii) competitive market influences,
(iii) audience appeal and critical reviews of its television programs and (iv)
the ability to identify, acquire the distribution rights to, and to develop
quality properties (v) the failure of third parties to complete or timely
delivery product.


<PAGE>

Results of Operations

         Year ended December 31, 1999 as Compared with Year Ended December 31,
1998

         Revenue reduction was in part attributable to refunded amounts in 1999
that were deposits that were recorded in prior periods. The refund resulted from
the failure to produce a program to which the deposit related.

         Net revenues consist of total billings (less any agency fees and media
costs), and accruals for earned fees. Net revenues decreased by $1,191,343 or
105%, to ($53,668) in 1999 from $1,137,675 in 1998. The lower revenue in 1999
was resulted from the above xxxxxxx and because we did not enter a new
arrangement for distribution of programs during 1999 and programs under prior
arrangement either were not delivered or postponed in 1999. We had anticipated
the delivery of "Shaka Zulu " which did not happen until April 2000. We also had
expected sales of the movie "Merlin: The Quest Begins". Even though we have made
efforts to sell the library that existed in 1999, we were unable to sell those
products, which aided in management's decision to write-off essentially all
non-performing assets. Revenue losses were also derived from the requirement to
refund several international television distributors due to the non-production
of a program sold to the distributor as a pre-production sale.

         Amortization of program costs and other direct project costs decreased
by $3,242,839 from $4,571,399 in 1998 to $1,328,560 in 1999. The decrease is a
direct result in the management's decisions to no longer be directly responsible
for the financing and production of any programs and to reduce expenses.

         Salaries and benefits decreased by $109,619, or by 9%, to $1,073,736 in
1999 from $1,183,355 in 1998. This decrease is due to additional reduction in
personnel.

         General and administrative expenses decreased by $471,708, or 27%, to
$1,244,011 in 1999 from $1,715,719 in 1998. This decrease is largely due to the
closing of the Los Angeles office and the moving of the New York location to a
small space. The balance of the decreases attributable to the reduction of
professional services.

         Amortization of goodwill was decreased by $831,414 to zero in 1999 from
$831,414 in 1998. This decreased was derived from the complete write-off taking
place in 1998 with the sale of the sports division and the suspension of the
sports operations.

         Interest expense was increased by $41,495 to $82,585 in 1999 from
$41,090 in 1998. This increased is due to the financing from outside investors
as well as loans from, officers. The Company capitalized all cost related to the
financing and is amortizing the costs over the life of the loans.

         Loss from operations decreased $3,578,346 from a loss of $7,393,960 in
1998 to a loss of $3,815,614 in 1999. The decrease is largely due to the
reduction of cost, the change in the amortization of capitalized cost, and the
complete write-off of goodwill in 1997.

         Company's equity in the income from its joint venture decreased
$254,838 from a loss of $188,658 in 1998 to a loss of $443,476 in 1999. The
joint venture's only revenue producing project to date has been "Tarzan: The
Epic Adventures" which earned most of its revenues in 1996 when it was first
released. Management's estimate of the ultimate revenues from "Tarzan: The epic
Adventures" have been revised downward.

         Income before income taxes decreased by $3,130,395 from a loss of
$7,393,960 in 1998 to a loss of $4,259,090 in 1999. This decrease was a result
of the factors described above.

         The Company had no provision for income tax benefit in 1999 to loss
carryforwards.

         The Company's net loss amounted to $4,259,090, or $.10 per share, for
the year ended December 31, 1998, as compared to net loss of $8,065,915, or
$0.27 per share, for the year ended December 31, 1998.


<PAGE>

Net Operating Loss Carryforwards

         Because of its losses the Company has written off deferred income
benefit. Nevertheless, at December 31, 1998, NOLs of the Company amounted to
approximately $8,537,500 for federal income tax purposes. The NOLs are not
available for state income tax purposes. The NOLs begin to expire starting in
2011. The Company's subsidiaries file separate income tax returns in various
states and localities. The losses of one subsidiary cannot be used to offset the
losses of another subsidiary for state purposes. Certain of the Company's
subsidiaries have substantial NOLs available for state and local income tax
purposes. In addition, certain of the Company's subsidiaries have approximately
$175,000 of NOLs that can only be used to offset future taxable income (for
federal and certain state purposes) of the specific subsidiaries to which they
pertain. These NOLs are further limited by the operation of Section 382 of the
Internal Revenue Service Code. The subsidiaries are only allowed to use a
maximum of approximately $27,000 of these Carryforwards each year.

Liquidity and Capital Resources

         As of December 31, 1999 the Company had a working capital deficit of
$4,087,940 compared to a working capital deficit of $1,361,067 as of December
31, 1998. The decrease in working capital was primarily due to a reduction in
value of program cost inventory as a result of write-offs in 1998 and 1999 as
well as a decrease in net income. As of December 31, 1999, the Company had cash
of $45,650 compared with $4,865 as of December 31, 1998. Operating activities
generated a net cash outflow of $1,502,940. The principle source of cash during
1999 was from the notes issued in the amount of $1,308,468.

         The Company has taken steps to reverse the Company's history of losses
that contributed to its liquidity problem. First it has reduced costs
particularly in overhead. As a result the Company closed its Los Angeles office,
terminated several employees, and reduced the amount of fees paid for
professional services. It also has entered into arrangement with an independent
third party to perform certain services for the distribution formerly performed
by the Company.

         During 1999 and early 2000 the Company received $1,308,468 from the
sale of convertible notes. A portion of present loans are in default because the
Company failed to timely file a registration statement. These notes are,
therefore, demands notes. If demand were to be made for payment of the loans the
Company would not be able to pay the loans and may not be able to continue in
business.

         The Company has experienced chronic cash shortfalls and through March
31, 2000 has relied upon equity and debt financing. The Company has recently
entered into several distribution arrangements which the Company believes may
generate sufficient cash to cover operational expenses for the balance of the
year 2000. The foregoing assumes that present notes outstanding will not be
accelerated. We are always at risk that product will not be timely delivered or
otherwise delivered. If the Company does not obtain sufficient funds the Company
will not be able to operate.

         Net cash used in operating activities was $1,502,940 in 1999 compared
with $3,617,953 in 1998. An increase of advance from clients in the amount of
$1,001,315 and a decrease in the write-off of program costs.

         Net cash used by investing activities in 1999 was $84,081 compared to
the net cash used by investing activities of $7,983 in 1998. This change was
primarily due to cash received from proceeds from joint venture that was offset
by cash used for expenditures for programs costs.

         Net cash provided by financing activities amounted to $1,627,767 for
the year ended December 31, 1999 as compared to $3,378,531 net cash provided by
financing activities for the year ended December 31, 1998. The decrease in cash
provided by financing activities was primarily the result of financings
involving notes and warrants.


<PAGE>

Inflation

         The Company believes that the relatively moderate rates of inflation in
recent years have not had a significant impact on its net revenue or its
profitability.

Year 2000 Compliance

         The Company's accounting programs have been upgrade to be Y-2K
compliant. The Company has plans to upgrade all other programs by the end of
2000.

Item 7.  Financial Statements

         Reference is made to index to financial statements comprising a portion
of this Annual Report on Form 10-KSB.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

         There have been no changes in accountants due to disagreements on
accounting and financial disclosure during the 24 months prior to December 31,
1999.


                                    Part III

Item 9.  Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16 (a) of the Exchange Act.

         As March 31, 2000 the directors and executive officers of the Company
were as set forth below.

Name                       Age              Position
----                       ---              --------
Henry Siegel               59               Chief Executive Officer,
                                            Chairman of the Board

Myron A. Hyman             60               President, Chief Operating Officer

Paul Siegel                59               Director

Richard Kostyra            59               Director

Kevin Eastman              37               Director

Ann F. Collins             35               Secretary

         Henry Siegel has been Chairman of the Board, Chief Executive Officer
and Director of the Company since 1995 and has been an officer of SeaGull, a
wholly owned subsidiary, since that company's inception in 1994. Mr. Siegel
began his career at Grey Advertising and in 1974 was placed in charge of its
media operation, managing all areas of media planning, research and execution.
In 1976, Mr. Siegel founded Lexington Broadcasting Services ("LBS"), where he
pioneered the concept of barter syndication (advertiser-supported television).
As Chairman and Chief Executive Officer of LBS, he launched numerous successful
television series, including "Fame" and "Baywatch". In 1988, Mr. Siegel, with
Warburg, Pincus Capital Company, purchased Grey Advertising's interest in LBS.
LBS entered into bankruptcy in 1991 and emerged from bankruptcy in 1993, soon
after merging with All American Communications in 1992. In July 1994, Mr. Siegel
formed SeaGull.

         Myron A. Hyman has been President and Chief Operating Officer of the
Company since December 1999. Mr. Hyman was formerly General Counsel to CBS
Records Group and Associate General Counsel for CBS, Inc. from 1977 to 1979. He
was President of MGM/UA Home Video from 1980 to 1983 and the President of
Tomorrow Entertainment from 1984 to 1986 before going into his own law



<PAGE>

practice specializing in the entertainment industry. His firm represented
clients in film, music, television, home video, and product licensing.

         Paul Siegel has been a director of the Company since 1995. In 1964, Mr.
Siegel started work at S&S, a direct marketing firm that manufactured and
distributed toy and craft products. Mr. Siegel left S&S in 1982 to establish
another direct marketing toy and hobby company known as Creative Crafts. In
1994, Mr. Siegel changed the name of his company to Creative Discovery and
expanded the product line to include educational software products. Paul Siegel
joined his brother Henry Siegel at LBS in 1986 to serve as Executive Vice
President. LBS entered into bankruptcy in 1991 and emerged from bankruptcy in
1993. LBS was merged with AAC in 1992, and Mr. Siegel served as Executive Vice
President of its All American Television subdivision until he left in 1994 to
form SeaGull.

         Ann F. Collins has been Secretary since December 1999. Ms. Collins
started her career in Accounting with Dancer Fitzgerald and Sample ("DFS) after
her gradation from Mercy College with a degree in Accounting. After the merger
of DFS with Saatchi & Saatchi Advertising she continued her position to Senior
Accountant. When Lifestyle Marketing Group (a division of S&S) left and merged
with People & Properties, Inc. she became Director of Finance until its merger
with SeaGull Entertainment and the formation of Kaleidoscope Media Group, Inc.
when she then became Controller.

         Richard Kostyra became a member of the Board of Directors in December
1999. Mr. Kostyra is the President and Founder of Media First International.
Prior to founding Media First International, Inc. Mr. Kostyra was Executive Vice
President and Director of Media Services of J. Walter Thompson. A media
planning, buying and consulting company with offices in New York, Boston, and
Minneapolis, Media First International has billings in excess of $300 million
and includes among its entertainment industry clients cable networks Outdoor
Channel and Speedvision, and a host of motion picture distributors including
Lions Gate, Trimark, Stratosphere and Palm Pictures. Media First International
has been the winner of numerous awards for excellence in media planning and
buying including the prestigious Media Week Magazine's "Media Plan of The Year"
competition for the best use of radio, network TV, and newspaper.

         Mr. Kevin Eastman became a member of the Board of Directors in February
2000. Mr. Eastman is the co-creator of the "Teenage Mutant Ninja Turtles" and
owner of Heavy Metal Magazine. The "Teenage Mutant Ninja Turtles", a worldwide
toy and media phenomenon, literally revolutionized the children's licensing
industry. Mr. Eastman has continued his activities as a creator of children's
properties. Sony Family Entertainment is currently developing an Eastman
property, "Underwhere," as an animated feature film. Mr. Eastman's varied
business interests include ownership of Heavy Metal Magazine, a publication in
existence since 1977, recognized as being the cutting edge of pop culture. He is
the creator and co-producer of "Heavy Metal 2000" the follow-up to "Heavy Metal:
The Movie," the animated cult film produced by Ivan Reitman. "Heavy Metal 2000"
is slated for release by Columbia Picture this summer.

         Executive officers serve at the discretion of the Board of Directors.

         Henry Siegel and Paul Siegel are brothers.

Compliance with Section 16(a) of the Exchange Act.

         Forms 3, 4 and 5 have not yet been filed by any officer, director or
beneficial owner of more than ten (10%) percent of our common stock. The Company
has no securities registered under the Exchange Act prior to its last fiscal
year and, therefore, no such reporting person was required to file reports under
Section 16(a) of the Exchange Act in prior years. In reports for officers and
directors will be filed by May 31, 2000. The Company will encourage beneficial
owners of more than ten (10%) percent of the Company's common stock to file
their reports by the same date.

<PAGE>

Item 10. Executive Compensation

         The following table sets forth information concerning compensation paid
or accrued by the Company or its subsidiaries for services rendered during the
fiscal years ended December 31, 1997, 1998, and 1999 to the Company's Chief
Executive Officer and to each executive officer whose compensation exceeded
$100,000 during its fiscal year ended December 31, 1999:

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                  Annual Compensation     Long Term Compensation
                                                  -------------------     ----------------------
Name and Principal Position                 Year         Salary                 Shares
<S>                                         <C>        <C>                    <C>
Henry Siegel - Chief Executive Office       1999        $350,000 *             2,037,420
                                            1998         350,000 *
                                            1997         350,000

Paul Siegel - President                     1999        $ 75,000               3,500,000
                                            1998         275,000 *
                                            1997         275,000

Irving Greenman - Chief Financial Officer
                                            1998        $164,215               2,000,000
</TABLE>

* Partial 1998 and 1999 were not paid but accrued.

         The following table sets forth all grants of stock options to each of
the named executive officers of KMG during the fiscal year ended December 31,
1999.

                        Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>

                  Number of Shares          Percent of Total
                  Of Common Stock           Options Granted to
                  Underlying Options        Employees in Fiscal
Name              Granted                   Year                       Exercise Price      Expiration Date
<S>               <C>                       <C>                        <C>                <C>
Henry Siegel           2,037,420                  46%                        .10           April 15, 2009
Paul Siegel              350,000                   8%                        .10           April 15, 2009
Irving Greenman        2,000,000                  46%                        .10           April 15, 2009
</TABLE>

         The following table sets forth information as to options exercised by
each of the named executives during the fiscal year ended December 31, 1999 and
the value of in-the-money options held by such executives at December 31, 1999

     Option Exercised in Last Fiscal Year and Fiscal Year End Option Values
<TABLE>
<CAPTION>
                  Number of
                  Shares of
                  Common
                  Stock                           Number of Shares of Common
                  Acquired on         Value       Stock Underlying Unexercised        Value of In-the-Money Options at
Name              Exercise          Realized         Options at 12/31/99                            12/31/99
----------------------------------------------------------------------------------------------------------------------
                                                 Exercisable     Unexercisable        Exercisable       Unexercisable
                                                 -----------     -------------        -----------       -------------
<S>               <C>               <C>          <C>             <C>                  <C>               <C>
Henry Siegel          0               --           3,500,000           --                 7,000               --
Paul Siegel           0               --           3,500,000           --                 7,000               --
Irving Greenman       0               --           2,000,000           --                40,000               --
</TABLE>


<PAGE>
Represents difference between exercise price and market value of $.12 on such
date. The foregoing excludes some options held by Siegel Pension Trust.

Employment Agreements

         KMG entered into employment agreements as of January 1, 1997 with Henry
Siegel, Chief Executive Officer of the Company, and Paul Siegel, President of
the Company. The agreement with Mr. Paul Siegel was terminated by mutual consent
in July 2000. The agreement had a three year term and expired in December 31,
2000, and provided for an annual base compensation of $350,000. Mr. Paul Siegel
resigned as officer in 1999. The Agreement also provided for the payment of
benefits, including payment of automobile expenses. In the event of the death or
total disability of either executive, we have agreed to pay his estate or the
executive the unpaid portion of his annual base compensation, but in no event
less than six months base compensation. The agreement also contains a
non-competition provision covering the term of the agreement plus two years
following termination or expiration of the agreement. We did not pay salary
under the agreement From November 1998 to March 31, 1999. From April 1, 1999 to
June 30, 1999 each received salary payments at a reduced rate of $20,000 per
month. No salary payments were made subsequent to that date during the year. As
of December 31, 1999, the Company owed Mr. Siegel $215,875.07 for accrued salary
through December 31, 1999.

         On July 1, 1999 Mr. Paul Siegel ceased to be an employee and through a
corporation controlled by him became a consultant. That firm is receiving fees
of $10,000 per month plus an automobile allowance. His employment agreement has
been terminated. We owe Mr. Siegel $215,875.07 in accrued salary under his
former employment agreement.

         In December 1999 Myron Hyman, as President and Chief Operating Officer
of Kaleidoscope, entered into a thirty-seven (37) month employment agreement
with us at a salary of $150,000 increasing to $200,000 for months 13 through 25
and $250,000 for the balance of the term. Effective January 3, 2000 the
agreement provides for payments of bonus at the sole discretion of the board
additional life insurance and an automobile allowance. The agreement provides
for severance in certain circumstances including a change of control. Mr. Hyman
was granted an option to purchase shares of the Company as described below.

         Our chief executive officer entered into a new three year agreement
upon the expiration of his existing employment agreement on December 21, 1999.
Mr. Siegel is to receive an annual salary $150,000 which increase to 200,000 in
the second year and $250,000 in the third year. The agreement provides for
payments of bonus at the sole discretion of the board additional life insurance
and an automobile allowance. The agreement provides for severance in certain
circumstances including a change of control. In connection with his employment
agreement he received options to purchase shares of common stock described
below.

Stock Option Plan

         KMG has adopted a 1996 Stock Option Plan (the "1996 Plan") for
officers, employees and consultants of KMG or any of its subsidiaries and other
entities in which KMG has an interest. The 1996 Plan provides for the granting
of options which are intended to qualify either as incentive stock options (the
"incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986 or as options which are not intended to meet requirements
of such section (the "Nonstatutory Stock Options"). As of December 31, 1997,
Options to purchase 835,000 shares of Common Stock had been granted.

         The 1996 is administered by the Board if Directors or a committee of
the Board of Directors (the "Administrator"). The Administrator has
discretionary authority (subject to certain restrictions) to determine, among
other things the individuals to whom and the times at which the Options will be
granted;


<PAGE>
the number of shares co Common Stock underlying the Options; and the exercise
price and the vesting periods of the Options.

         The Options are evidenced by a written agreement containing the above
terms and such other terms and conditions consistent with the 1996 Plan as the
Administrator may impose. The exercise price in Incentive Stock Options may not
be less than 100% of fair market value of the Common Stock at the date of grant
(110% in the case of the Incentive Stock Options granted to holders of 10% of
the voting power of the Company's capital stock). The aggregate fair market
VALUE OF common Stock (determined at the time of option grant) with respect to
which Incentive Stock Options become exercisable for the first time any year
cannot exceed $100,000. Each Option, unless sooner terminated, shall expire no
later than 10 years from the date of the grant (five years in the case of
Incentive Stock Options granted to holders of 10% of the voting power of the
Company's capital stock), as the Administrator my determine.

         The 1996 Plan (but not Options previously granted hereunder) shall
terminate on December 2001. Subject to certain limitations, the 1996 Plan may be
amended or terminated at an earlier date by the Board of Directors or by a
majority of the outstanding shares entitled to vote thereon.

         Recently, we have issued options outside of the Plan.

         As compensation in April 1999 and October 1999 our board granted
options to Henry Siegel, Paul Siegel and Ray Volpe in the amounts of 2,037,420,
350,000 and 437,500 respectively at an exercise price of $.10 per share. Mr.
Henry Siegel has transferred 1,687.420 options issued to him to a related trust.
The optionees have indicated that they may set off indebtedness owed to them
against the exercise price. Indebtedness includes the Henry Siegel Pension Fund
against accrued interest and principal of a Note.

         In connection with their employment agreements we granted Mr. Siegel
and Mr. Hyman options to purchase shares of the Company's common stock.

         Mr. Siegel's employment agreement requires that Mr. Siegel be awarded
an option to purchase 4,125,340 shares of common stock at ten ($.10) cents per
share. It is contemplated that the options may be exercised against accrued
salary. Mr. Siegel is to receive additional options to purchase an
indeterminate number of shares at eleven ($.11) cents per share. The number of
shares he is entitled to purchase shall be equal to six (6%) percent of the
outstanding shares less any options outstanding on the date of employment
(including the aforesaid options to purchase 3,775,340 shares). The options are
to be vested in annual installments on December 31, 2001 and 2002, they are
exercisable for a period of five (5) years after vesting Mr. Hyman's options to
be issued.

         Mr. Hyman's employment agreement provides that he is to receive as of
January 3, 2000 options to purchase a number of shares equal to five (5%)
percent of the outstanding shares on December 31, 2000. The options vest as to
one-third (1/3) of the shares on each December 31, 2000, 2001 and 2002. The
number of shares shall be based on the number of outstanding shares on the
vesting date less the number of shares, if any, previously invested. The
exercise price shall be market price at the time of vesting and the exercise
period is to be five (5) years after vesting.

Compensation of Directors

         Directors who are not employed by KMG will be paid a fee of $100 for
each Board of Directors meeting attended and $100 for each committee meeting
attended. All directors are reimbursed for expenses incurred on behalf of KMG.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of March 15, 2000 by (i) each stockholder known
by us to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each director of KMG, (iii) each executive officer named in the
Summary Compensation Table above and (iv) all directors and executive officers
as a group. Except as

<PAGE>
otherwise indicted, the based information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
Name and address of                 Number of Shares
Beneficial Owner                    Beneficially Owned                 Percentage of Class
----------------                    ------------------                 -------------------
<S>                                 <C>                                <C>
Henry Siegel (1)                            6,680,704                         10%
244 West 54th Street
New York, New York

Myron Hyman (2)                               300,000                          1%
244 West 54th Street
New York, New York

Paul Siegel  (1)
5777 West Century Boulevard                 6,114,114                         13%
Los Angeles, California 90045

Richard Kostyra                               550,000                          1%

Kevin Eastman                                 100,000                          2%

Ray Volpe (1)                               3,342,864                          8%
136 Madison Avenue
New York, New York


Libra Finance, S.A.                        31,975,002                         43%
P.O. Box 4603
Zurich, Switzerland

All directors and executive
officers as a group (5 persons)                                               24%
</TABLE>
---------------------
(1) Includes presently exercisable options to purchase shares of common stock as
    follows: Henry Siegel 4,125,340, Paul Siegel 3,208,750 and Ray Volpe
    437,500, Richard Kostyra 350,000 and Kevin Eastman 100,000. Does not include
    1,687,420 options owned by Siegel Pension Fund.

(2) Exclusive of options not presently exercisable.

(3) Does not reflect ownership of various convertible note holders, many of
    whom own warrants. Had all of these investors converted their notes and
    exercised their warrants would not own more than five (5%) of the shares
    outstanding.
<PAGE>

Item 12.  Certain Relationships and Related Transactions

         Pursuant to an agreement, dated as of April 1, 1997 between the Company
and By-The-Way Corporation ("BTW), a corporation wholly-owned by Ray Volpe, a
former director of the Company. BTW granted to the Company in perpetuity the
right at any time to develop, produce, distribute, market, license or otherwise
exploit (the "Exploitation Rights") all entertainment properties (other than
properties licensed to KS&E) in consideration of an option payment consisting of
$112,500 previously advanced and additional payments to be made by the Company
to BTW of $150,000 per year. Such option payment will be offset against gees or
amounts payable by the Company for any Exploitation Rights granted to the
Company by BTW. During the year ended December 31, 1997, the Company paid BTW
$150,000.

         During 1998 the pension trust for the benefit of Henry Siegel advanced
the Company $150,000. Mr. Siegel or his pension fund received $50,000 in
December 1999 in repayment of a loan.

         The Company has entered into a consulting agreement with an entity
controlled by Henry Siegel. Pursuant to this agreement the consulting firm is
receiving $10,000 per month.

         Mr. Richard Kostyra purchased 200,000 shares of the Company's common
stock in May, 1999 at a price of ten ($.10) cents per share. Mr. Kostyra
subsequently became a director.




<PAGE>








                         KALEIDOSCOPE MEDIA GROUP, INC.
                                AND SUBSIDIARIES

                            FINANCIAL STATEMENTS WITH
                          INDEPENDENT AUDITORS' REPORT

                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998












<PAGE>

                         KALEIDOSCOPE MEDIA GROUP, INC.
                                AND SUBSIDIARIES

                 For the years ended December 31, 1999 and 1998

                                    CONTENTS




                                                                    PAGE #


Independent Auditors' Report                                          1


Financial Statements:

     Consolidated Balance Sheets                                    3 - 4

     Consolidated Statements of Operations                            5

     Consolidated Statements of Stockholders' Deficit                 6

     Consolidated Statements of Cash Flows                          7 - 8

     Notes to Consolidated Financial Statements                     9 - 26








<PAGE>



                          INDEPENDENT AUDITORS' REPORT


Board of Directors
Kaleidoscope Media Group Inc.


We have audited the accompanying consolidated balance sheet of Kaleidoscope
Media Group, Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the two years then ended. 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
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
represent fairly, in all material respects, the financial position of
Kaleidoscope Media Group, Inc. and Subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for the two years then ended 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 discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 11. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.





Liebman Goldberg & Drogin, LLP
Garden City, New York

March 7, 2000

<PAGE>

                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET



                                     ASSETS


                                                               December 31,
Current Assets:                                                    1999
                                                            ----------------
    Cash                                                         $   45,650
    Accounts receivable, less allowance for
        doubtful accounts of $411,428                               213,222
    Program cost inventory - current portion, net
        of accumulated amortization                                 280,119
    Other current assets                                            148,397
                                                                -----------

        Total current assets                                        687,388

Property and Equipment, at cost, less
   accumulated depreciation                                          41,680

Investment in Joint Venture                                         453,826

Other Assets                                                         11,592
                                                                 ----------

                                                                 $1,194,486
                                                                 ==========


                       See notes to financial statements.

                                       3
<PAGE>
                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                                                               December 31,
Current Liabilities:                                                                               1999
                                                                                               -----------
<S>                                                                                           <C>
        Convertible notes payable ..............................................               $ 1,308,468
        Accounts payable and accrued liabilities ...............................                 1,997,475
        Loans payable, officer .................................................                   249,800
        Income taxes payable ...................................................                   906,302
        Deferred income and client advances ....................................                   304,282
        Cash overdrafts ........................................................                    19,308
                                                                                               -----------

            Total current liabilities ..........................................                 4,785,635

Security Deposit Payable .......................................................                    10,552
                                                                                               -----------

            Total liabilities ..................................................                 4,796,187
                                                                                               -----------

Stockholders' Deficit:
        Common stock, $0.001 par value, 100,000,000 shares authorized; and
            41,355,960 issued in 1999 ..........................................                    41,356
        Preferred stock, $0.001 par value, 15,000,000
            shares authorized, none issued in 1999 .............................                         -
        Additional paid-in capital .............................................                 9,103,063
        Accumulated deficit ....................................................               (13,246,120)
                                                                                               -----------

            Total stockholders' deficit ........................................                (3,601,701)
                                                                                               -----------

            Total liabilities and stockholders' deficit ........................               $ 1,194,486
                                                                                               ===========
</TABLE>

                       See note to financial statements.

                                       4
<PAGE>
                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                For the Years ended
                                                                                    December 31,
                                                                             1999                  1998
                                                                         ------------         ------------

<S>                                                                      <C>                    <C>
Net Revenue                                                              $    (53,668)          $1,137,675
                                                                         ------------         ------------

Direct Project Costs:
        Amortization of program costs and
          other direct project costs                                        1,328,560            4,571,399
        Other direct project costs                                             33,054                    -
                                                                         ------------         ------------

            Total direct project costs                                      1,361,614            4,571,399
                                                                         ------------         ------------

Gross Loss                                                                 (1,415,282)          (3,433,724)
                                                                         ------------         ------------

Expenses:
        Amortization of program costs relating to joint venture                     -              188,658
        Salaries and benefits                                               1,073,736            1,183,355
        General and administrative                                          1,274,011            1,715,719
        Amortization of goodwill                                                    -              831,414
        Interest                                                               82,585               41,090
                                                                         ------------         ------------

            Total expenses                                                  2,430,332            3,960,236
                                                                         ------------         ------------

Operating Loss                                                             (3,845,614)          (7,393,960)


Gain on Lease Cancellation                                                          -              193,133
                                                                         ------------         ------------

Loss before Equity in Loss of Joint
        Ventures and Income Taxes                                          (3,845,614)          (7,200,827)

Loss Income of Joint Venture                                                 (443,476)            (188,658)
                                                                         ------------         ------------

Loss before Income Tax Expense                                             (4,289,090)          (7,389,485)

Provision for Taxes                                                                 -              676,430
                                                                            ---------         ------------

Net Loss                                                                 $ (4,289,090)        $ (8,065,915)
                                                                         ============         ============

Basic Loss Per Share                                                          $ (0.10)             $ (0.27)
                                                                         ============         ============

Diluted Loss Per Share                                                        $ (0.10)             $ (0.27)
                                                                         ============         ============
</TABLE>



                       See notes to financial statements.

                                        5

<PAGE>
                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT


<TABLE>
<CAPTION>
                                                                           Additional
                                           Shares              Common        Paid-in             Accumulated
                                            Issued             Stock        Capital                Deficit             Total
                                          ----------          --------     ----------           -------------      ------------

<S>                                      <C>                 <C>          <C>                  <C>                <C>
Balance - January 1, 1998                 26,027,082          $ 26,027     $ 6,197,661          $    (891,115)     $  5,332,573

Issuance of shares                        12,633,878            12,634       3,188,597                      -         3,201,231

Net loss                                           -                 -               -             (8,065,915)       (8,065,915)
                                          ----------          --------     ----------           -------------      ------------

Balance - December 31, 1998               38,660,960            38,661       9,386,258             (8,957,030)          467,889

Issuance of shares                         2,695,000             2,695         216,805                      -           219,500

Net loss                                           -                 -               -             (4,289,090)       (4,289,090)
                                          ----------          --------     -----------          -------------      ------------

Balance - December 31, 1999               41,355,960          $ 41,357     $ 9,603,062          $ (13,246,120)     $ (3,601,701)
                                          ==========          ========     ===========          =============      ============
</TABLE>












                       See notes to financial statements.

                                        6
<PAGE>
                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          For the Years ended
                                                                              December 31,
                                                                      -------------  -------------
Cash Flows from Operating Activities:                                      1999           1998
                                                                      -------------  -------------
<S>                                                                   <C>            <C>
Net (loss)                                                            $ (4,289,090)  $ (8,065,915)
Adjustment to reconcile net (loss) to net cash
    used in operating activities:
        Amortization and depreciation                                      169,529        893,711
        Equity in income of joint venture                                  443,476        188,658
        Expense paid through the issuance of stock                          56,250              -
        Deferred income tax expense                                              -        622,600
        Deferred rent                                                            -       (319,539)
        Change in assets and liabilities:
            Accounts receivable                                            110,103        423,356
            Other current assets                                            (6,333)        74,147
            Investment in joint venture                                          -        198,390
            Security deposits payable                                            -         10,552
            Options payable                                                      -       (143,750)
            Other assets                                                  (241,361)        12,524
            Cash overdraft                                                   6,257       (181,097)
            Accounts payable and accrued liabilities                       615,385       (414,294)
            Write-down of program cost inventory                         1,328,560      3,712,932
            Income taxes payable                                                 -         66,805
            Deferred income and client advances                            304,282       (697,033)
                                                                      ------------   ------------
                         Net cash (used in) operating activities        (1,502,942)    (3,617,953)
                                                                      ------------   ------------

Cash Flows from Investing Activities:
        Distributions from joint venture                                   102,500              -
        Expenditures for program costs                                    (156,744)             -
        Acquisition of property and equipment                              (28,447)        (7,973)
        Loans receivable - officer                                           9,000              -
        Investment in joint venture                                        (10,350)             -
                                                                      ------------   ------------
                         Net cash (used in)
                             investing activities                          (84,041)        (7,973)
                                                                      ------------   ------------
</TABLE>





                       See notes to financial statements.

                                        7

<PAGE>

                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


<TABLE>
<CAPTION>
                                                                      For the Years ended
                                                                          December 31,
                                                                      1999          1998
                                                                   ----------    ----------
<S>                                                                 <C>             <C>
Cash Flows from Financing Activities:
        Repayments of loans payable - stockholders                          -        27,300
        Proceeds from notes payable                                 1,308,468       150,000
        Loans payable to officers                                      99,800             -
        Issuance of common stock                                      219,500     3,201,231
                                                                   ------------- ----------
            Net cash provided by (used in) financing activities     1,627,768     3,378,531
                                                                   ------------- ----------
(Decrease) increase in cash                                            40,785      (247,395)
Cash - January 1,                                                       4,865       252,260
                                                                   ------------- ----------

Cash - December 31,                                                $   45,650    $    4,865
                                                                   ==========    ==========

</TABLE>


                       See notes to financial statements.

                                       8


<PAGE>

                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


Note 1  -  Organization and Description of Business:

           On October 22, 1996, Kaleidoscope Media Group, Inc. ("KMG"), changed
           its name from BNN Corporation in December 1997 (upon reincorporating
           as a Delaware corporation - it had been a Nevada corporation) and was
           a publicly traded corporation without significant operations,
           acquired all of the outstanding share of HSPSMM, Inc. ("HSPS") which
           changed it name from Kaleidoscope Media Group, Inc. in November 1997.
           The transaction was effected by issuing additional KMG shares in an
           amount that resulted in the original HSPS shareholders receiving
           approximately 40.3% of the outstanding shares of BNN. The original
           HSPS shareholders owned additional shares of KMG from before the
           October 22, 1996 transaction. After the consummation of the
           transaction, they owned approximately 47% of the outstanding shares,
           and with the other 53% scattered, had effective control.

           For financial reporting purposes, the transaction was recorded as a
           recapitalization of HSPS. HSPS is the continuing, surviving, entity
           for accounting purposes, but adopted the capital structure of KMG
           which is the continuing entity for legal purposes. All references to
           shares of common stock have been restated to reflect the equivalent
           number of KMG shares.

           To clarify the corporate names discussed above, the parent company,
           formerly called BNN Corporation, has adopted the name of the former
           subsidiary, Kaleidoscope Media Group, Inc. which in turn changed its
           name to HSPSMM, Inc. All references in these financial statements to
           KMG refer to the "new" KMG; all references to HSPS refer to the "old"
           KMG.

           HSPS was formed in May of 1996, at which time it issued 5,685,688
           common shares to acquire approximately 91% of the outstanding shares
           of SeaGull Entertainment, Inc. ("SeaGull") and 3,814,312 common
           shares to acquire 100% of the outstanding stock of the Kaleidoscope
           Group ("KG"), a marketing and consulting company engaged primarily in
           sports and event marketing. Since, as a result of the transaction,
           stockholders of SeaGull owned a majority of the common stock of HSPS,
           the acquisition of SeaGull by HSPS was accounted for as a
           recapitalization of SeaGull. Accordingly, the historical financial
           statements are those of SeaGull. The acquisition of KG was accounted
           for as a purchase of KG by SeaGull. The shares issued to acquire KG
           were assigned a value of $2,900,000, based upon the fair value of
           KG's net assets. At the date of acquisition, KG had a stockholders'
           deficit of approximately $539,670, resulting in the recording of
           goodwill of $3,439,670. During 1998, KG discontinued operations of
           this division. Any remaining unamortized goodwill related to the
           acquisition was written off.

                                       9


<PAGE>




                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

Note 1  -  Organization and Description of Business (Continued):

           Kaleidoscope Media Group, Inc is primarily engaged in the business of
           the development domestic and international distribution of
           entertainment properties as well as exploiting the related licensing
           and merchandising opportunities, home video distribution and
           distribution of programming for Internet broadcasting. It also
           provides consulting services in the development of specialty
           television programming and is involved in the acquisition and
           distribution of entertainment library properties.

Note 2  -  Summary of Significant Accounting Policies:

           Principles of Consolidation:

           The consolidated financial statements include the accounts and
           transactions of KMG and its wholly owned subsidiaries. All material
           intercompany accounts and transactions have been eliminated. KMG's
           investment includes 50% owned joint venture in Keller Siegel
           Entertainment and is accounted for on the equity method. KMG also has
           an investment of 40% in a joint venture, The Kirkwood Group.
           Accordingly, KMG's share of the loss of the joint ventures are
           included in the consolidated statement of operations.

           Program Cost Inventory:

           Program cost inventory is stated at the lower of amortized cost or
           estimated realizable value. Television productions and participation
           costs are amortized based on the ratio of the current period's gross
           revenues to estimated total gross revenues from all sources (the
           "ultimate" revenue) on an individual production basis. Estimates of
           total gross revenues can, and usually do, change significantly due to
           the level of market acceptance of television products. In addition,
           because of uncertainties inherent in the process of estimating costs,
           estimates of the ultimate costs of episodic television programming
           can change significantly in the near term. Accordingly, the estimates
           of ultimate revenue and costs are reviewed periodically and are
           adjusted upward or downward as additional information is learned.
           Amortization expense is consequently adjusted. Such adjustments could
           have a material effect on results of operations in future periods.

           In the case of episodic television programming, the Company considers
           each season to be a single product for the estimation of ultimate
           revenues and costs.


                                       10


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

Note  2 -  Summary of Significant Accounting Policies (Continued):

           Program Cost Inventory (Continued):

           During 1999, The Company had written off $1,328,560 of program cost
           inventory due to lower estimates of revenues or discontinued
           projects.

           Revenue Recognition:

           Revenue from the licensing or distribution of a television program is
           recognized when the licensee of the program has the legal right to
           exhibit or broadcast the program and the program is deliverable to
           the licensee.

           Revenue from the barter syndications of television programming (the
           sale of television programming in exchange for advertising time) is
           recognized when the program has been licensed, the licensee has the
           legal right to broadcast the program, the program is deliverable to
           the licensee, noncancelable contracts have been signed with both the
           station and the purchaser of the advertising time and appropriate
           allowances can be estimated for rating shortfalls (" make goods").
           The estimation process has inherent uncertainties. Accordingly,
           management's estimate of the allowance for rating shortfalls may
           change in the near term. Such changes could have a material effect on
           results of operations in future periods.

           Expenditures Billable to Clients:

           Expenditures billable to clients represent direct costs incurred by
           the Company, in connection with its various contracts, that are
           either specifically billable to the clients under the contracts, or
           related to contracts for which the fees have not yet been filled or
           earned. Payroll and related costs, including those relating to
           specific client work, are expensed as incurred.

           Deferred Revenue:

           Deferred revenue represents amounts received from or billed to
           clients in accordance with certain contracts prior to the Company's
           completion of the earning process in accordance with its revenue
           recognition policy. Upon completion of the earning process, the
           amounts are included in revenue.

           Depreciation:

           Property and equipment are stated at cost and are depreciated on
           straight-line and accelerated methods over the estimated useful lives
           of the assets. Leasehold improvements are amortized over the term of
           the lease.








                                       11


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

Note 2  -  Summary of Significant Accounting Policies (Continued):

           Cash Overdrafts:

           KMG and the various subsidiaries maintain most of their cash balances
           in the same bank but in separate accounts owned by the different
           corporations. The Company's practice has generally been to view the
           group of accounts at the same bank as one balance and to move funds
           from one account to another, with the bank's cooperation, as funds
           are needed to pay checks as presented. Because there is no legal
           right of offset of one subsidiary's positive balance with another's
           overdraft balance, generally accepted accounting principles require
           that the overdraft balances be shown separately as a liability.

           Incentive Stock Option Plan:

           Stock based compensation is recognized using the intrinsic value
           method under which compensation cost for stock options is measured as
           the excess, if any, of the quoted market price of the Company's stock
           at the measurement date over the exercise price. For disclosure
           purposes, pro-forma net income and earnings per share are provided as
           if the fair value method had been applied.

           Use of Estimates:

           The preparation of financial statements in conformity with generally
           accepted accounting principles requires management to make estimates
           and assumptions that affect the reported amounts of assets and
           liabilities and disclosure of contingent assets and liabilities at
           the balance sheet dates and the reported amounts of revenues and
           expenses during the years then ended. Actual results could differ
           from those estimated.

           Fair Value of Financial Instruments:

           SFAS No. 107, "Disclosures About Fair Value of Financial
           Instruments", requires disclosure of the fair value information,
           whether or not recognized in the balance sheet, where it is
           practicable to estimate that value. The carrying value of cash, cash
           equivalents and accounts receivable approximates fair value.

           Impairment of Long-Lived Assets:

           The Company has not completed it's evaluation of the adoption of SFAS
           121, "Accounting for the Impairment of Long-Lived Assets and for
           Long-Lived Assets to be Disposed of". However, management believes
           any such effect will not be material.

           Accounting Pronouncements:

           The Financial Accounting Standards Board ("FASB") issued SFAS No.
           130, "Reporting Comprehensive Income", which is effective for
           financial statements with fiscal years beginning after December 15,
           1997. SFAS No. 130 establishes standards for reporting and display of
           comprehensive income and its components in a full set of
           general-purpose financial statements. The Company does not expect
           adoption of SFAS No. 130 to have a material effect, if any, on its
           financial position or results of operations.

                                       12


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999




Note 2  -  Summary of Significant Accounting Policies (Continued):

           Loss Per Common Share:

           Basic loss per common share is based upon the weighted average number
           of common shares outstanding during the year. Diluted earnings (loss)
           per common share include the effects of potential dilution that would
           occur if securities (such as warrants) or other contracts (such as
           options) to issue common stock were exercised or converted into
           common stock. Such instruments that are convertible into common stock
           are excluded from the computation in periods in which they have an
           anti-dilutive effect. Inclusion of the contingent shares potentially
           issuable as a result of the KMG transaction would have an
           anti-dilutive effect on earnings (loss) per share. As a result it was
           not used in the earnings per share calculation. The weighted average
           number of common shares used to calculate loss per common share
           during 1999 and 1998 was 40,860,878 and 29,779,026, respectively.

           The Company adopted Financial Accounting Standards Board (FASB)
           Statement No. 128, "Earnings per Share". The Statement establishes
           standards for computing and presenting earnings per share (EPS). It
           replaced the presentation of primary EPS with a presentation of basic
           EPS and also requires dual presentation of basic and diluted EPS on
           the face of the income statement.

           Income Taxes:

           Income tax expense (benefit) consists of income taxes currently due
           or refundable arising from the period's operations as adjusted by the
           deferred tax expense (benefit). The deferred tax expense (benefit)
           arises from those changes in the Company's deferred tax assets and
           liabilities relating to operations. Deferred tax assets and
           liabilities result from temporary differences between the amounts of
           assets and liabilities recorded on the financial statements and the
           amounts recorded for income tax purposes. Deferred tax assets also
           result from certain income attributes existing at the balance sheet
           date that can provide future income tax benefits including net
           operating loss carryforwards which can be used to offset future
           taxable income. The deferred tax assets and liabilities are
           calculated based on the currently enacted tax rates that apply to the
           periods that the temporary differences are expected to reverse or the
           tax attributes are expected to be utilized. Deferred tax assets are
           reduced by a valuation allowance when, in the opinion of management,
           it is likely that some portion or all of the deferred tax assets will
           not be realized.

           The Company files a consolidated Federal income tax returns which
           includes all the subsidiaries. KMG and each of the subsidiaries files
           separate state and local income tax returns in the jurisdictions
           where they are subject to tax. Accordingly, when one subsidiary has
           taxable income, the tax losses of another subsidiary cannot be used
           to offset that subsidiary's taxable income for state and local
           purposes. State and local taxes must be paid even though the
           consolidated entity has a loss.





                                       13



<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999



Note 3  -  Major Customers:

             There were no major customers in 1999 or 1998.

Note 4 -  Program Cost Inventory:

           Program cost inventory consisted of the following:

                                                           December 31,
                                                               1999
                                                               ----
           Released, less accumulated amortization           $      0

           In-process                                         280,119
                                                              -------
                                                              280,119
           Less: Current portion                             (280,119)
                                                             --------
           Noncurrent portion                                $      0
                                                             ========

Note 5 -  Related Party Transactions:

          Mr. Henry Siegel, Chairman of the Board, Chief Executive Officer and
          Director of the Company since 1995, is an officer of Seagull
          Entertainment, a wholly owned subsidiary. Mr. Siegel's brother Paul is
          also a Director of the Company. During 1998, the Pension Trust for the
          benefit of Henry Siegel advanced the Company $150,000. The Company is
          currently accruing interest at a rate of 15% per annum. As of December
          31, 1999 the Company has recorded accrued interest in the amount of
          approximately $34,000 related to the Pension Trust advance to the
          Company. No repayment terms have been established as of December 31,
          1999.




                                       14

<PAGE>



                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

Note 6 - Property and Equipment:

            Property and equipment consisted of the following:



                                                              December 31,
                                                              ------------
                                                         1999           1998
                                                         ----           ----

           Automobile                                 $      0        $ 51,543
           Furniture and fixtures                       14,855          14,855
           Computers and office equipment               74,873          46,426
                                                      --------        --------
                                                        89,728         112,824
           Less: accumulated depreciation              (48,048)        (84,366)
                                                      --------         -------

                                                      $ 41,680        $ 28,458
                                                      ========        ========


            Depreciation expense was $15,255 and $62,297 for the years ended
            December 31, 1999 and 1998 respectively.

Note 7 - Investment in Joint Ventures:

            The Company has a 50% ownership interest in Keller-Siegel
            Entertainment LLC ("KSE"). KSE produces Tarzan: The Epic Adventures,
            an hour long action adventure television series that first aired in
            September, 1996. Revenue is derived from both domestic and foreign
            sources. Summarized financial information of KSE as of December 31,
            and the years then ended are as follows:
<TABLE>
<CAPTION>

                                                                                      December 31,
                                                                                      ------------
                                                                               1999                1998
                                                                               ----                ----
<S>                                                                       <C>                   <C>
                  Assets                                                  $   98,027            $ 281,671
                  Liabilities                                                 98,027              281,671
                                                                            --------              -------
                  Members capital                                         $        -            $       -
                                                                            ========              =======
                  Revenue                                                 $   14,575            $  36,865
                                                                            ========              =======
                  Net income                                              $   23,890            $(317,316)
                                                                            ========              =======
                  Company's equity in net (loss) income                   $  188,658            $(188,658)
                                                                            ========              =======
</TABLE>

                                       15


<PAGE>
                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


Note 7 - Investment in Joint Ventures (continued):

            The Company is the domestic distributor of Tarzan: The Epic
            Adventures. Both the Company and the other 50% owner of KSE provide
            production, marketing and administrative services to KSE, the cost
            of which exceeds the reimbursements received from KSE. Certain of
            these production and marketing costs related to Tarzan: The Epic
            Adventures have been capitalized by the Company as program cost
            inventory. The amortization of this program cost inventory, as well
            as the KSE share of administrative and noncapitalizable marketing
            costs are recognized as expenses in the statement of operations. As
            of December 31, 1999, the Company had made a decision to write down
            the investment in KSE by approximately 50%. The Company feels the
            ultimate recognition in revenues from Tarzan series will not be met.

            The production costs for the two part premiere episode along with
            certain pre-release marketing costs were funded by STI Entertainment
            ("STI") under an agreement by which STI was to fund the production
            costs for the entire season's episodes in exchange for significant
            gross profit participation. STI refused to supply the funding for
            the remaining episodes. As a result, KSE incurred significant costs
            in arranging for alternate financing. During 1997, STI asserted a
            claim for an accounting, contending that they were due monies for
            the premiere episode. Management vigorously contests this claim,
            contending that STI materially breached its contract with KSE, which
            material breach excused any further performance of KSE thereunder,
            and also contending that KSE has been damaged in an amount exceeding
            $2,800,000. A complaint has been filed by KSE against STI and others
            seeking damages for breach of contract and to declare that KSE is
            excused from all future performance under the contract. Management
            and STI are now engaged in settlement discussions. Despite
            management's belief that it has a strong case for the damages claim
            against STI and against STI's claim for profit participation, due to
            the uncertainties inherent in litigation, it is at least reasonably
            possible that a material liability could result, although the amount
            cannot be estimated.

Note 8 - Convertible Notes Payable:

            Convertible Notes Payable as of December 31, 1999 as
            summarized as follows:
            8% Convertible Note Payable
            Dated April 1999, 8% Interest Per
            Annum Principal and Interest
            Due January 2, 2001                     $  850,000

            8% Convertible Note Payable
            Dated August 1999, 8% Interest Per
            Annum Principal and Interest Due
            January 2, 2001                            112,000

            8% Convertible Note Payable
            Dated December 1999, 8% Interest
            Per Annum, Principal and Interest
            Due January 2, 2001                        346,468
                                                    ----------
                                                    $1,308,468
                                                    ==========

            In April 1999, the Company issued 8% convertible promissory notes
            payable aggregating $850,000 to non related investors. The Notes
            are convertible into an indeterminate number of shares at a
            conversion price of the lower of fifteen cents per share or 70% of
            the lower closing price within sixty days of conversion. In
            conjunction with the financing, the Company issued 850,000 warrants
            at an exercise price of $.19 per warrant.

            In August 1999, the Company sold an additional $112,000 principal
            amount of notes and issued an additional 1,500,000 warrants to
            acquire our common stock. The Company believes these securities were
            issued pursuant to an exemption from the registration requirements
            of the Securities Act of 1933 pursuant to Section 4(2).

            In December 1999, the Company received an additional amount of
            $346,468 from the sale of the convertible notes. The maturity date
            on all the notes is January 1, 2001.

                                       16


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999



Note 9 - Commitments:

            The Company currently leases the space for its principal office in
            New York, NY under a month-to-month basis with monthly payments of
            $6,000. The Company's month-to-month lease will expire in July 2006.
            The Company is also the lessee of office space, located in Los
            Angeles, California, under a lease which expires in June 2002. In
            1998, the Company signed an agreement with the landlord of its Los
            Angeles office space to re-let its premises. The sublease agreement
            stipulates that the Company will remain primarily liable for the
            payment of all rental amounts. Mr. Paul Siegel and Henry Siegel have
            personally guaranteed the Lease Agreement. The office lease provide
            for future escalation based on certain cost increases.

            Rent expense was $115,697 and $246,811 for the years ended December
            31, 1999 and 1998 respectively. In 1998, rent expense was offset by
            sublease income of $194,053.

            On July 1, 1999, Mr. Paul Siegel ceased to be an employee of the
            Company and became a consultant. He is receiving fees of $10,000 per
            month plus an automobile allowance. The Company has terminated his
            previous employment agreement. As of December 31, 1999, the Company
            owes Mr. Paul Siegel approximately $36,000 which has been accrued at
            the balance sheet date.

            In December 1999, the Company entered into an employment agreement
            with Myron Hyman, President and Chief Operating Officer of the
            Company. The agreement is for thirty-seven months and provides for a
            base salary of $150,000 increasing to $200,000 for months 13 through
            25 and $250,000 for the balance of the term. Effective January 3,
            2000 the agreement provides for payments of bonus at the sole
            discretion of the board additional life insurance and an automobile
            allowance. The agreement provides for severance in certain
            circumstances including a change of control.

            The chief executive officer entered into a new three year agreement
            upon the expiration of his existing employment agreement on December
            21, 1999. Mr. Siegel is to receive an annual salary of $150,000 in
            the first year with an increase to $200,000 in the second year and
            $250,000 in the third year. The agreement provides for payments of
            bonus at the sole discretion of the board additional life insurance
            and an automobile allowance. The agreement provides for severance in
            certain circumstances including a change of control.



                                       17


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999



Note 10 - Contingencies:

            On June 21, 1996, a suit was filed against two of the Company's
            subsidiaries and other unrelated parties in the amount of
            $21,000,000 alleging that they are successors to the alleged
            liability for a default judgment entered against a former affiliate
            of the subsidiaries in April, 1995 for an alleged action taking
            place in 1988. The subsidiaries have vigorously defended themselves
            in this litigation. Management believes that the claim against the
            former affiliate lacks merit and that, in any case, its subsidiaries
            have no responsibility for the debts of the former affiliate.
            Furthermore, management believes that if any judgment were to be
            entered against the subsidiaries, it would be able to obtain
            indemnification from the prior owner of the former affiliate's
            business, a major advertising agency. In a recent decision, the
            court dismissed plaintiff's claim against the subsidiaries and at
            the same time found that the advertising agency may be liable to the
            plaintiff pursuant to aforesaid indemnity agreement. The plaintiff
            and the advertising agency have submitted arguments to reargue and
            the Company believes they intend to appeal in any event. While
            management believes, based on the foregoing, that the litigation
            will not have a material effect on the Company's financial position,
            it is as least reasonably possible that a material liability could
            result, although the amount cannot be estimated.

            At the time of the May, 1996 acquisition of KG, KG had a note
            payable (jointly and severally with a former affiliate that is now
            insolvent) to a former parent company in the amount of $225,000. KG
            was contesting its liability under this note because of various
            claims against the former parent. In accounting for the acquisition,
            the Company valued the liability at $40,000 based on a signed
            settlement agreement with the former parent's bankruptcy trustee.
            Subsequent to the issuance of the 1996 financial statement, the
            settlement was rejected by the creditors of the former parent. No
            efforts have been made by the former parent's bankruptcy estate to
            collect this debt, the Company still intends to assert its
            counterclaims if the matter is litigated. No adjustment has been
            made to the original $40,000 valuation assigned to the debt. It is,
            however, at least reasonably possible that the Company would be
            required to pay the full $225,000, resulting in a loss of $185,000.

            In December 1997, the Company filed an action seeking damages for
            breach of contract and fraudulent inducement of contract, among
            other claims, arising out of a venture that the Company entered
            into, with the defendants in the action to promote a Latin American
            boxing tournament. The Company seeks damages of at least $500,000
            plus punitive damages in the action. Two of the defendants have
            answered the complaint, asserting various affirmative defenses and
            two counterclaims seeking damages of not less than $250,000. In
            September 1999, the Company obtained a default judgment against all
            defendants which also dismissed all counterclaims. In addition the
            defendants have declared bankruptcy.

            Certain former independent contractors, related to each other, who
            performed services for the Company, have expressed a belief that
            they have valid claims against the Company amounting to up to
            $500,000. It is not known whether these former independent
            contractors will press their claims. If they do, management intends
            to contest each case vigorously and to file substantial
            counterclaims.


                                       18


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999




Note 10 - Contingencies (Continued):

            During 1998, various claims were filed against the Company alleging
            breach of contract, failure to pay in accordance with a contract of
            services, alleged failure to permit the transfer of stock
            certificates and unpaid salary to a former subsidiary's employee.
            These claims are in excess of $2,750,000. The Company denies all
            liability and in certain instances has counter-claimed for damages.
            It is not possible to assess the probable outcome of these claims,
            but it is at least reasonably possible that a material gain or loss
            could result.

            In December 1999, the Company had reached an agreement on a claim
            filed in 1998 between ACC Entertainment and the Company. The
            agreement calls for the Company to pay ACC $100,000. As of December
            31, 1999, the Company has recorded a liability for this claim.

            Other contingencies include an action for an alleged unpaid bonus of
            $25,000 and claims for approximately $89,000 arising from a sporting
            event managed by KG in early 1996. Management believes that the
            claims are not valid and no liabilities have been recorded for these
            amounts as management believes that no loss is probable. It is,
            however, reasonably possible that the Company will have to pay these
            claims.

            Going Concern:

            As shown in the accompanying financial statements, the Company
            incurred a net loss of $4,289,090 during the year ended December 31,
            1999, and as of that date, the Company's current liabilities
            exceeded its current assets by $4,098,248. Those factors, create an
            uncertainty about the Company's ability to continue as a going
            concern. However, the Company has recently completed a transaction
            whereby they issued convertible debentures for the sum of $750,000.
            The investors, subject to certain conditions, which the Company
            believes are attainable, have agreed to purchase an additional
            $1,250,000 of convertible debentures. The ability of the Company to
            continue as a going concern is dependent upon the completion of this
            financing. The financial statements do not include any adjustments
            that might be necessary if the Company is unable to continue as a
            going concern.




                                       19


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999



Note 11 - Income Taxes:

          The tax benefit for the year ended December 31, 1999 and the provision
          for income taxes for the year ended December 31, 1998 consist of the
          following components:

                                                        Year Ended December 31,
                                                      --------------------------
                                                          1999            1998
                                                          ----            ----
                Current
                  Federal                             $         -      $       -
                  State                                     4,530         53,830
                                                      -----------      ---------
                                                            4,530         53,830
                                                      -----------      ---------
                Deferred
                  Federal                               1,007,990        334,336
                  State                                   755,884        228,264
                                                      -----------      ---------
                                                        1,763,874        622,600
                                                      -----------      ---------

                                                      $ 1,768,404      $ 676,430
                                                      ===========      =========

          The income tax expense (benefit) for the year exclusive of the benefit
          from the change in tax status, does not bear the expected relationship
          between pretax income and the federal corporate income tax rate of 34%
          because of the effect of state and local income taxes and the fact
          that the company's amortization of goodwill and certain other expenses
          are not deductible for income tax purposes.

          Deferred income taxes as reported on the balance sheet consists of:

                                                           December 31,
                                                   ----------------------------
                                                       1999             1998
                                                       ----             ----
                Deferred tax assets                $ 6,178,347      $ 4,730,257
                Deferred tax liabilities                     -                -
                Valuation allowance                 (6,178,347)      (4,730,257)
                                                   -----------      -----------

                                                   $         -      $         -
                                                   ===========      ===========

          As of December 31, 1999, the Company had net operating loss ("NOL")
          carryforwards of approximately $11,800,000 available to offset future
          federal taxable income; the carryforwards are not available for state
          income tax purposes. These carryforwards begin to expire in 2011. The
          Company has provided a full 100% valuation allowance on the deferred
          tax assets as at December 31, 1999 to reduce such deferred income tax
          assets to zero as it is managements belief that realization of such
          amounts do not meet the criteria required by generally accepted
          accounting principles. Management will review the valuation allowance
          requirement periodically and make adjustments as warranted.




                                       20


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999



Note 12 - Capital Structure:

          During 1998, the Company issued 12,633,878 shares of common stock to
          various non-related parties. The Company received $3,201,231 in
          capital for 11,943,868 shares; the remaining 690,010 shares were for
          services rendered.

          In January and February 1999, the Company sold 3,725,000 shares to
          various investors at prices ranging from $.05 to $.10 per share.
          During the same period, the Company entered into agreements with Mr.
          Robert Lancelotti and Mr. Bryon Lerner for the issuance of shares. The
          Company is obligated to issue a total of 3,150,000 and 2,100,000
          shares to Mr. Lancelotti and Lerner respectively. The Company believes
          these securities were issued pursuant to an exemption from the
          registration requirements of the Securities Act

Note 13 - Stock Options:

          In December 1997, the shareholders authorized the implementation of an
          Incentive Stock Option plan which granted employees 835,000 options.
          The options vested one-third each on January 2, 1997, 1998 and 1999.
          The 1997 options, although vesting retroactively to January 1997, were
          not effective until the shareholder approval. Each option entitles the
          holder to purchase one share of Common Stock at $.62. Each option can
          be exercised at any time over a five year period.

          Stock option activity was as follows:

                                                                December 31,
                                                           --------------------
                                                            1999          1998
                                                            ----          ----
                Balance at January 31,                     828,333            -
                  Granted                                        -      835,000
                                                                        -------
                  Exercised                                      -            -
                  Forfeited                                      -            -
                  Expired                                        -       (6,667)
                                                           -------      -------

                Balance at December 31,                    828,333      828,333
                                                           =======      =======

           As described in Note 2, the Company accounted for the granting of
           stock options under the intrinsic value method and, accordingly, no
           compensation cost has been recognized for stock options in the
           financial statements. Had the Company determined compensation cost
           based on the fair value at the grant date for its stock options, the
           company's net loss would have been increased to the pro forma amounts
           indicated below:

                Net loss:
                    As reported                            $(4,289,090)
                                                           ===========
                    Pro forma                              $(4,289,090)
                                                           ===========

                Net loss per share:
                    As reported                            $     (0.10)
                                                           ===========
                    Pro forma                              $     (0.10)
                                                           ===========








                                       21


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999




Note 14 - Fair Value of Financial Instruments:

          Statement of Financial Accounting Standards No. 107, Disclosures about
          Fair Value of Financial Instruments ("SFAS 107") requires entities to
          disclose the fair values of financial instruments except when it is
          not practicable to do so. Under SFAS 107, it is not practicable to
          make this disclosure when the costs of formulating the estimated
          values exceed the benefit when considering how meaningful the
          information would be to financial statement users.

          The Company's financial instruments, and the related amounts recorded
          on the balance sheet, to which SFAS 107 would be applied include the
          following:

                                                               Carrying Amount
                                                                 Year Ended
                                                                December 31,
                                                            1999           1998
                                                            ----           ----
                Assets:
                  Cash                                                $   45,560
                  Loans and advances receivable -
                    officers and stockholders                 -            9,000

                Liabilities:
                  Cash overdraft                       $   19,308         13,051
                  Notes payable                               -             -

          As a result of the difficulties presented in the valuation of the
          loans receivable and payable from the officers and shareholders
          because of their related party nature, estimating the fair value of
          these financial instruments is not considered practicable. The fair
          value of the cash, notes receivable, cash overdraft and notes payable
          do not differ materially from their carrying amounts.

          None of the above are derivative financial instruments and none are
          held for trading purposes.

Note 15 - Supplemental Statement of Cash Flows Disclosure:

          Interest and Income Taxes Paid

          Cash payments for the following were:

                                                              December 31,
                                                          1999            1998
                                                          ----            ----

                  Interest                             $        -     $   36,568
                                                       ==========     ==========

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






                                       22


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999



Note 16 - Segment Information:

          As described in Note 1, the Company's operations have been classified
          into two segments, the Entertainment Division and the Sports Division.
          Summarized information by business segment for 1999 is as follows:

<TABLE>
<CAPTION>
                                                                                           Direct
                                                   Entertainment        Sports           Marketing         Other           Total
                                                   -------------        ------           ---------         -----           -----
<S>                                                <C>               <C>               <C>               <C>            <C>
          Revenue                                  $   (53,668)      $         -       $         -       $      -       $   (53,888)
                                                   ===========       ===========       ===========       ========       ===========
          Operating loss                           $   (53,688)      $         -      $          -       $      -       $   (53,888)

          Equity in Loss from joint ventures          (443,476)                -                 -              -          (443,476)
                                                   -----------       -----------       -----------       --------       -----------
          Pretax loss                              $(4,289,090)      $         -       $         -       $      -       $(4,289,090)
                                                   ===========       ===========       ===========       ========       ===========
          Total identifiable assets                $   740,660       $         -       $         -       $      -       $   740,660
                                                   ===========       ===========       ===========       ========       ===========
          Depreciation and amortization            $   169,529       $         -       $         -       $      -       $   169,523
                                                   ===========       ===========       ===========       ========       ===========

</TABLE>

          As described in Note 1, the Company's operations have been classified
          into two segments, the Entertainment Division and the Sports Division.
          Summarized information by business segment for 1998 is as follows:

<TABLE>
<CAPTION>
                                                                                           Direct
                                                   Entertainment        Sports           Marketing         Other           Total
                                                   -------------        ------           ---------         -----           -----
<S>                                                <C>               <C>               <C>               <C>            <C>
          Revenue                                  $   748,249       $         -       $         -       $389,426       $ 1,137,675
                                                   ===========       ===========       ===========       ========       ===========
          Operating loss                           $(5,611,304)      $(7,221,773)      $(1,040,231)      $(19,652)      $(7,393,960)

          Gain on lease cancellation                         -                 -                 -        193,133           193,133

          Equity in Loss from joint ventures          (188,658)                -                 -              -          (188,658)
                                                   -----------       -----------       -----------       --------       -----------
          Pretax loss                              $(5,799,962)      $  (722,773)      $(1,040,231)      $173,481       $(7,389,485)
                                                   ===========       ===========       ===========       ========       ===========
          Total identifiable assets                $ 1,884,181       $         -       $         -       $      -       $ 1,884,181
                                                   ===========       ===========       ===========       ========       ===========
          Depreciation and amortization            $   893,711       $         -       $         -       $      -       $   893,711
                                                   ===========       ===========       ===========       ========       ===========
          Capital expenditures                     $         -       $         -       $         -       $      -       $         -
                                                   ===========       ===========       ===========       ========       ===========
</TABLE>


                                       23


<PAGE>


                         KALEIDOSCOPE MEDIA GROUP, INC.

                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999




Note 17 - Subsequent Events:

          As discussed in Note 11, the Company in March 2000, issued $225,000 of
          8% convertible notes maturing on March 9, 2001. Common Stock Purchase
          Warrants were issued for the right to purchase 2,765,000 shares of the
          company. The Agreement stipulates that the use of the funds are to be
          used for working capital and expenses of the offering.





















                                       24



<PAGE>
Item 13.      Exhibits and Reports on Form 8-K

(a)           Exhibits
<TABLE>
<CAPTION>
<S>           <C>
20.1          Plan and Agreement of Reorganization, dated as of October 22, 1996, among the Company and the shareholders of
              HSPS (1)

3.01(5)       Certificate of Incorporation of the Company

3.02(5)       By-laws of the Company

4.01(5)       Specimen Certificate

10.01*        1996 Stock Option Plan. (2)

10.02*(5)     Employment Agreement entered into between the Company and Henry Siegel

10.03*(5)     Employment Agreement entered into between the Company and Paul Siegel.

10.06(5)      Joint Venture Agreement, dated as of October 1, 1995, between SeaGull Entertainment, Inc. and Keller Entertainment
              Group, Inc.

10.07         Amended and Restated Limited Liability Company Agreement, dated as of April 30, 1997, among the Company,
              Interpublic Group of Companies, Inc., 345 Park Avenue PAS Sports, Inc. and People and Properties, Inc. (3).

10.08         Agreement dated as of August 20, 1997, among, Interpublic Group of Companies, Inc., 345 PAS Sports, Inc., and
              People and Properties, Inc. (4)

10.9(5)       Vendor Agreement, dated December 18, 1996, between the Company and HSN Direct Int. LTD and addendum thereto, dated
              March 31, 1997.

10.10(5)      Joint Venture Agreement dated as of June 1995, between the Company and BV Sports Marketing, Inc.

10.11         Distribution Agreement between Global Entertainment Productions and Kaleidoscope Media Group Incorporated, dated
              November 19, 1998.

21.01         Subsidiaries of the Company

23.1          Consent of Independent Accountants

27.01         Financial Data Schedule
</TABLE>

--------------
* Management contract or compensatory plan or arrangement.

(1) Such Exhibit was filed with the Company's Current Report, dated October 22,
    1996, and is incorporated herein by reference.

(2) Such Exhibit was filed with the Company's Proxy Statement for the Annual
    Meeting held on December 2, 1997 and is incorporated herein by reference.

(3) Such Exhibit was filed with the Company Current Report, dated May 5, 1997,
    and is incorporated herein by reference.

(4) Such Exhibit was filed with the Company's Current Report, dated August 20,
    1997, and is incorporated herein by reference.

(5) Such Exhibits were filed with Company's Annual Report on 10K, for 1997 and
    are incorporated herein by reference.

Roberts on Form 8-K.