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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-KSB

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee required]

For the fiscal year ended June 30, 1997

Commission File No. 0-18410

                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                 ---------------------------------------------- 
                 (Name of Small Business Issuer in Its Charter)

        Delaware                                       95-4233050
------------------------------                       ----------------
(State or Other Jurisdiction of                     (I.R.S. Employer
 Incorporation or Organization)                     Identification No.)

5757 Wilshire Blvd., Los Angeles, California                    90036
--------------------------------------------                  ---------
(Address of Principal Executive Offices)                      (Zip Code)

                                 (213) 634-8634
                             ---------------------
                 Issuer's Telephone Number, Including Area Code

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

Common Stock, par value $.001                    NASDAQ SmallCap Market
-----------------------------                    ----------------------
Redeemable Warrants                              Boston Stock Exchange
-------------------                              ---------------------
(Title of Each Class)                            (Exchange on which registered)

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

Series A Convertible Preferred Stock, par value $.001, Common
Stock, Redeemable Warrants, Class B Warrants

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


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Check if there is no disclosure of delinquent filers in response to Item 405 of 
Regulation S-B is not contained in this form, and no disclosure will be 
contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-KSB or any amendment to this Form 10-KSB. [X]
                                                             Number of Pages:
                                                             Exhibit Index Page:
                            [Cover page 1 of 2 pages]

Issuer's revenues for its most recent fiscal year - $782,181.

The aggregate market value of the voting stock held by non-affiliates based upon
the average of the closing bid and asked prices of such stock as of September
12, 1997 as reported on the National Association of Securities Dealers Automated
Quotation System was $11,743,937.00.

As of September 12, 1997, there were 12,107,152 shares of common stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The following are incorporated by reference into Part III of this Annual Report
on Form 10-KSB:

Registration Statement on Form S-1 declared effective on December 5, 1989.

Form 10-KSB for the fiscal year ended June 30, 1992.

Form 10-KSB for the fiscal year ended June 30, 1996.

Registration Statement on Form 8-A dated November 21, 1994.

Registration Statement on Form SB-2 declared effective on December 14, 1994.

Registration Statement on Form SB-2 declared effective on September 12, 1996.

Form 8-K dated June 18, 1996.
Form 10-QSB for the quarter ended December 31, 1995.

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

            The Producers Entertainment Group Ltd. (the "Company") was organized
under the laws of the State of Delaware on August 10, 1989. On May 30, 1996, the
Company's shareholders approved a one- for-four reverse split of the Company's
Common Stock. All share and per share amounts included herein have been
retroactively adjusted to give effect to this reverse split.

            The Company completed its initial public offering of securities in
December 1989 and, in January 1990, commenced operations. In April 1993,
December 1994, and September 1996 the Company consummated additional public
offerings of its equty securities. The Company's Common Stock is listed on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") and is traded in the NASDAQ's Small Cap Market under the symbol
"TPEG". The Company's Common Stock is also listed on the Boston Stock Exchange
and traded under the symbol "TPG." Units issued pursuant to the Company's
September 1996 public offering are traded on the NASDAQ SmallCap Market under
the symbol "TPEGU" and on the Boston Stock Exchange under the symbol "TPG.U".
Warrants issued pursuant to the Company's September 1996 public offering are
traded on the NASDAQ SmallCap Market under the symbol "TPEGW" and on the Boston
Stock Exchange under the symbol "TPG.WS".

            The Company is engaged in the acquisition, development, production
and distribution of dramatic, comedy, documentary and instructional television
series, made-for-television movies, and mini-series and theatrical motion
pictures. The Company also engages in personal management of performers and
writers. Unless the context indicates otherwise, the term "Company" includes The
Producers Entertainment Group Ltd. and all of its subsidiaries.

            The Company's offices are located at 5757 Wilshire Boulevard,
Penthouse One, Los Angeles, California 90036. Its telephone number is (213)
634-8634.



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HISTORY

            Prior to fiscal 1992, the Company's activities were limited to
acquiring rights to literary properties, engaging writers to write or rewrite
screenplays or teleplays, and submitting these screenplays and teleplays to
various studios, production companies and television and cable networks for
development as theatrical motion pictures or made-for-television movies.
Commencing with the year ended June 30, 1992, the Company's activities expanded
to produce made-for-television movies, a theatrical motion picture, television
series and providing personal management services.


OVERVIEW

            The Company's business of developing and producing made-for-
television movies, television series and theatrical motion pictures
(collectively and individually referred to as "projects") is conducted through
several different methods. There are certain activities that the Company must
perform to have a project developed and produced. These activities include the
acquisition of the literary property, the development of the property into a
saleable project, the financing and sale of the project to broadcasters, studios
and/or other investors and, finally, the production of the project.

            The market for projects includes theatrical, video, pay television,
cable television and standard non-pay television release, including both network
and syndication. Projects are generally exploitable throughout the world.
Typically, distribution rights are granted in various media for limited periods
of time and in specified geographical areas in exchange for financial guarantees
which may be used to finance the cost of the related project. These projects
become part of a company's library and may be relicensed when the initial
distribution licenses have expired.

            There is an active market for made-for-television movies. The
Company has found that the production of these features is profitable. The
primary reason for this profitability is that the Company has been able (and
believes it will continue to be able) to develop and produce made-for-television
movies for an amount which does not significantly exceed the initial television
license fee. This license fee, whether it be from a network or a cable company,

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generally enables the licensee to broadcast the made-for-television movie a
limited number of times during a specific time period. After the licensee has
broadcast the made-for-television movie in accordance with this arrangement, all
of the remaining rights belong to the producer. Additional profits may be
realized from the exploitation of made-for-television movies in other markets.

            Television series represent a major source of current and future
revenue for the Company. As with made-for-television movies, the cost of a
television series is financed (in whole or in part) from licensing fees. These
fees are derived from domestic television networks and/or foreign distribution
companies in exchange for exclusive rights to broadcast or distribute the series
in specified markets for specified periods of time. After the expiration of
these rights, additional revenues may be derived from relicensing these series
in the same or other markets such as domestic and foreign syndication and home
video.

            The Company also provides producer and executive producer services
to others in connection with the production of projects. The Company receives
fees for these services and is generally entitled to participate in future
profits from these projects. Any such profit participations represent a
potential profit to the Company as there are no costs relating thereto. The
Company received fees for producing the theatrical motion picture What's Love
Got to Do With It and the made-for-television movies Against the Wall and Lily
Dale and has in the past received fees for the television series Dave's World.
The Company was not required to pay any of the production costs of these
projects and is entitled to receive profit participation from each of these
projects.

            The Company may finance the production of a project using its own
resources or by entering into arrangements with third parties for financing part
or all of the production costs. To the extent that the Company utilizes its own
resources to finance a production, in whole or in part, it endeavors to enter
into arrangements whereby it receives funds in exchange for exhibition,
distribution and/or other rights. Entering into such agreements reduces the
Company's financial risk with regard to any particular production. However,
entering into such agreements also reduces the




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Company's potential revenues from such productions. Determinations as to
financing any production, either in whole or in part, and arrangements relating
thereto are made by management on an individual project basis.


ACQUISITION OF EXISTING PROPERTIES

            Properties are usually acquired by options for a nominal fee against
a more substantial purchase price. Options usually enable the Company to develop
the property during the option period before committing to its acquisition.
Having an option also enables the Company to secure a financing or production
commitment, including payment of the purchase price of the property, before
actually acquiring the property. Option periods customarily run for a minimum of
one year and contain provisions that enable the Company to extend the option for
additional periods upon payment of an extension fee. Terms of options vary
significantly and are dependent on, among other factors, the professional
reputation and standing of the author or other owner of the property, the level
of revenues or profits that the Company estimates may be derived from the
exploitation of the property and the estimated costs of further development and
production of the property. Various agreements relating to these projects may
provide for additional payments to writers upon their production. Certain
options also provide for the option or to participate in net profits.

DEVELOPMENT AND PACKAGING OF PROJECTS

            Projects may be developed from true stories or original fictional
material in the form of outlines or first-draft screenplays or teleplays. The
Company is continuously engaged in acquiring and developing new properties. It
is the Company's practice to secure a financing or production commitment from
third parties, including broadcast and cable networks, studios, distributors and
independent financing sources prior to expending substantial sums in the
development process. However, the Company does advance its own funds to meet the
interim costs of development and production of these projects which are then
repaid to the Company pursuant to the production contracts.



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            During the development phase of a project, a screenplay, teleplay or
outline of the program is written, tentative commitments are sought from buyers
or licensees, such as studios, networks and independent financing sources and a
proposed production schedule and budget are prepared. Often, these projects are
created, acquired and developed (including specifically selected talent such as
directors and actors) so that they may be offered to broadcast, financial and
distribution entities as a more attractive project. This process is known in the
entertainment business as "packaging". The Company believes that packaging a
literary property enhances its ability and opportunities to obtain favorable
production, financing and distribution commitments.

PRODUCTION, PRODUCER AND EXECUTIVE PRODUCER SERVICES

            Production of a project is divided into three phases: pre-
production, principal photography and post-production. The Company
is involved in all phases of the production of projects.

            Upon receiving final approval from its buyer or financing source
(such as a television network or studio), the project is put into the
pre-production phase. During this phase, agreements with talent including
performers, a director, and the production staff are completed. Locations are
selected and arrangements are made for sets, props, equipment and other
production requirements are obtained. The pre-production phase may continue for
several weeks for a made-for-television movie and up to several months for a
theatrical motion picture. After pre-production is completed, the production
enters the principal photography phase.

            During the principal photography phase, the project is produced on
tape or film. Actors perform on sets, in the studio and on locations in
accordance with a pre-determined schedule and budget established by the
producer. Principal photography for a made-for-television movie is usually
completed in approximately three to four weeks while principal photography for a
theatrical motion picture could require several months. Upon completion of
principal photography, the project enters the post-production phase.

            During the post-production phase, the film shot during principal 
photography is transformed into a completed project. The

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post-production phase includes editing, addition of sound effects, a musical
scoring and implementing other technical processes required to complete the
project.

            The Company provides producer and executive producer services in
connection with the production of its projects and is involved in all phases of
their production. The Company receives fees for these services and is generally
entitled to a percentage of future profits from these projects. The Company
received producers fees for producing the theatrical motion picture What's Love
Got to Do With It and executive producer fees for each of its made-for-
television movies and for the television series Dave's World and Can't Hurry
Love. The Company was not responsible for any of the production costs of these
projects, but is entitled to participate in profits from each of these projects.

DISTRIBUTION OF COMPLETED PROJECTS

            Pursuant to its agreements with third party financing sources, the
Company generally retains certain rights to distribute its projects in
international and domestic markets. The Company then distributes the projects
after a certain period of time has expired or after the project has been
exhibited or released on a specific number of occasions. Completed projects are
distributed by the Company or by independent third parties who have the right to
distribute these properties in domestic and international markets for specific
periods of time. These distribution companies retain a percentage of the
revenues received from the distribution of the projects and are entitled to
recover expenses relating to such distribution. Where available, the Company
obtains advances against domestic and international licensing revenues. These
advances may be used to finance development and production of the related
projects.

COMPLETED PROJECTS

            Through June 30, 1997, the Company has produced the following
projects:




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MADE-FOR-TELEVISION MOVIES

            Lily Dale - A made-for-television movie produced by the Company for
Showtime, who owns this movie. This movie, which aired in June 1996, was written
by Pulitzer Prize and two time Academy Award winner author Horton Foote and
stars Mary Stuart Masterson, Sam Shepard, Jean Stapleton and Tim Guinee. The
Company received executive producer fees and a continuing profit participation.

            Aqainst The Wall - A made-for-television movie produced by the
Company for Home Box Office, who owns this movie. This movie, which aired in
March 1994, was directed by John Frankenheimer, who received an Emmy for his
direction of this movie, and stars Kyle MacLachlan and Samuel Jackson, Jr. Irwin
Meyer, the President and Chief Executive Officer of the Company was nominated
for the Producer of the Year by The Producers Guild of America for being the
executive producer of this movie. The Company received executive producer fees
and a continuing profit participation.

            The Price She Paid - A made-for-television movie starring Loni
Anderson and Anthony John Denison which was broadcast on the CBS television
network in 1992 and 1993. This movie was put into development by CBS, which paid
all development costs, and was packaged by Creative Artists Agency, Inc. The
Company has licensed this movie to World International Network for broadcast
outside North America under the title Plan of Attack.

            When A Stranger Calls... Back - A made-for-television movie, which
initially aired on Showtime and is owned by MCA Television Entertainment. The
stars of this movie are Carol Kane and Charles Durning. The teleplay was written
by Fred Walton who also directed this movie. The Company received a executive
producer fees and a continuing profit participation.

            The Secret Passion of Robert Clayton - A made-for-television movie
which aired on the USA Network. The Company produced this movie in association
with Wilshire Court Productions, who owns this movie. The stars are John Mahoney
and Scott Valentine. The Company received an executive producer fee and a
continuing profit participation.


TELEVISION SERIES

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            Dave's World - The Company produced 96 half-hour episodes of this
television series which was based on the books by Pulitzer Prize winning,
syndicated columnist Dave Barry and aired on CBS. This series starred Harry
Anderson and was directed by James Widdoes. The Company rendered executive
producer services for this series and received producers' fees and is entitled
to a continuing profit participation.

            Can't Hurry Love - The Company has produced 19 half-hour episodes of
this series that began airing on CBS in September 1995. The Company rendered
executive producer services for this series and received producers' fees and is
entitled to a profit participation. This series has not been renewed.

            Future Quest - A 22 half-hour episode series which is owned by the
Company and is hosted by Jeff Goldblum. Experts in several science disciplines
compare the futuristic visions of pop culturists with the current breakthrough
advances in science and technology. This series aired on the Public Broadcasting
Station ("PBS") and continues to be licensed internationally.

            Laurie Cooks Light & Easy - A 65 half-hour episode series which is
owned by the Company and is hosted by cookbook author Laurie Burrows Grad. This
series features celebrities such as Wolfgang Puck, Jill St. John and Florence
Griffith Joyner who prepare meals in the light and easy way. This series
initially aired on the Learning Channel and is being distributed internationally
by Unipix International.

            Home Green Home - A 10 half-hour series which is owned by the
Company and is hosted by Kelly Shaye Smith. This instructional series focuses on
home planting and gardening and aired on PBS and is being distributed
internationally by Unipix International.

            Superstars of Action - A 26 half-hour episode action series which is
owned by the Company and was produced for German broadcaster Beta-Taurus. This
biography series is hosted by Robert Wagner and profiles actions of stars
including Steve McQueen and Arnold Schwarzenegger. This series is licensed to
The Learning Channel.




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            Hollywood Stuntmakers I and II - A 26 half-hour episode series which
was produced for The Discovery Channel and stars James Coburn. This series
features stunts by Hollywood's best stuntmen and women in action and initially
aired on The Learning Channel.

            FX Masters - A 13 episode series which was produced for The Learning
Channel. Hosted by Christopher Reeve, this series takes a behind the scenes look
at how special effects and movie magic are made and is currently licensed to the
Discovery Network.

            Mysterious Forces Beyond - A 26 half-hour episode series which aired
on The Learning Channel and has been pre-sold to Canadian Broadcaster Western
International Communications. This series employs its news gathering resources
to uncover the facts behind some of the world's most confounding mysteries,
including telekinesis, psychic healing and ghosts. The Company is entitled to
receive distribution fees from this series.

            Hollywood Babylon - A 26 half-hour series which is based on the
original international best selling book of the same name by Kenneth Anger and
is hosted by Tony Curtis. This series explores the hidden underside of Hollywood
through live re-creations and archival film footage and photographs.

            A Day With - A one hour interview show which aired on the Fox
Broadcasting Network in June 1996.

TELEVISION PILOTS AND PRESENTATIONS

            The Company is currently developing the following projects:

            The Lost Ark - a reality series about "cryptozoology" or the
discovery of new animal species.

            Where Women Dare - a reality series about women who participate in
"extreme" sports.

            Death American Style - a reality series about American's obsession
with death.

            Deep Blue - a dramatic series based on the true stories of a police
scuba team.

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            The Fido Chronicles - an animated series based on the cartoon
character "Fido Dido."

            The Nobel Prize - a reality series chronicling the lives of Nobel
Prize winners.

THEATRICAL MOTION PICTURE

            What's Love Got To Do With It - A theatrical motion picture produced
by the Company for Disney's Touchstone Pictures. Based on the life story of rock
superstar Tina Turner, this film was released in June 1993. Stars Angela Bassett
and Larry Fishburne received Academy Awards nominations for their roles. The
director was Brian Gibson. The Company received executive producer fees and a
profit participation.

PROJECTS IN DEVELOPMENT

            The Company has projects in various stages of development on a
continuing basis. These projects consist of television series,
made-for-television movies and theatrical motion pictures. The Company
periodically evaluates the expected use of its projects in development to
determine if they will be further developed or produced (either by itself or
with others), sold or abandoned. Decisions as to projects in development are
made by management on a case-by-case basis after considering all relevant
factors. See also "Pending Grosso-Jacobson Transaction", infra.

PERSONAL MANAGEMENT

            The Company's wholly owned subsidiary, TPEG Management, Inc.,
entered into an exclusive agreement with M2 Melamed Management, LLC involving
the management of the careers of many performers and writers at various stages
in their professional careers. The Company receives compensation based on the
income generated by such clients, including Julia Louis-Dreyfus (Seinfeld),
George Newborn (Father of the Bride), Rosaline Allen (Seaquest), Michael
Stoyanov (Blossom), Nancy Allen and Douglas Sills.

            The Company's production and development capabilities may

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provide a source of projects and opportunities for the actors and writers whose
careers it manages. Personal management complements the Company's production and
development capabilities by providing sources of talent for the "packaging" of
projects, an increasingly important aspect of the entertainment industry.
Personal managers often function as producers or executive producers with
respect to projects for which their clients have been engaged, realizing a
greater amount of revenue in the form of producer and executive producer fees,
in lieu of a management fee, as well as potentially obtaining a profit
participation in such projects.

EMPLOYEES

            The Company employs 14 persons on a full-time basis including 2
independent contractors. Of such persons, 3 are officers, 2 are producers and
the balance are clerical and administrative employees. The Company estimates
that its new or expanded operations will require eight new employees. None of
the Company's employees are represented by a labor union and the Company
believes that it has good relationships with its employees.

            In connection with certain of its activities, such as development
and production of projects, the Company has and expects to continue to utilize
the services of independent third parties. The extent of the Company's
utilization of these services will be determined on a project-by-project basis.
The Company believes that such services are available from numerous sources at
competitive rates.

            The Company is a party to collective bargaining agreements with the
Directors Guild of America, the Screen Actors Guild and the Writers Guild of
America. The Company is not a party to any other collective bargaining
agreement. In connection with its production and other activities, the Company
may employ personnel, such as writers, directors and performing artists who are
members of unions that are parties to collective bargaining agreements. The
Company has never experienced any labor difficulties. However, it is possible
that some of the Company's future business activities will be affected by the
existence of collective bargaining agreements relating to persons whom it may
employ who are members of unions. Strikes by members of these unions could delay
or disrupt the Company's activities, but the extent to which the

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existence of collective bargaining agreements may effect the Company in the 
future is not currently determinable.

COMPETITION

            The Company is subject to intense competition in all phases of its
operations. The television and feature film industries are highly competitive
and involve a substantial degree of risk. The Company's competitors include
major motion picture studios, United States television and cable networks and
numerous independent production companies. Most of the Company's competitors
have greater financial and other resources than those currently or, in the
foreseeable future, likely to become available to the Company and are in a
better position than the Company to obtain literary properties, attract talent,
produce projects and effect broad market distribution of their completed
projects. The Company competes with numerous companies for available literary
properties, writers and other creative talent, production financing, and
distribution of completed projects.

REGULATION OF MOTION PICTURE AND TELEVISION INDUSTRY

            The Code and Ratings Administration of the Motion Picture
Association of America, an industry trade association, decides ratings for age
group suitability for domestic theatrical distribution of motion pictures.
United States television stations and networks, as well as foreign governments,
impose restrictions on the content of motion pictures and television
programming. To the extent that the Company's projects do not comply with
certain of these regulations, they may be effectively prohibited from exhibition
on applicable television stations, networks and in foreign territories.

            The television industry is subject to governmental regulation by the
Federal Communications Commission ("FCC"). The networks are currently limited by
the Financial Interest and Syndication Rules of the FCC in the amount of
programming they may produce and the rights which they may retain in programs.
These rules were recently revised in favor of the networks, which could
adversely impact the Company as a result of potential increased competition from
the networks.

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PENDING GROSSO-JACOBSON TRANSACTION

            On September 15, 1997, the Company signed definitive agreements with
respect to a transaction first announced in late April 1997, to acquire 100% of
the outstanding stock of the three entities that comprise the New York, Los
Angeles and Toronto based Grosso-Jacobson Companies (the "Pending
Grosso-Jacobson Transaction"). The acquired companies are: The Grosso-Jacobson
Entertainment Corporation, Grosso-Jacobson Productions, Inc. and Grosso-Jacobson
Music Company, Inc. (the "Grosso-Jacobson Companies"). To implement the Pending
Grosso-Jacobson Transaction, the Company formed three new subsidiaries which,
upon closing, will merge with and into the Grosso-Jacobson Companies pursuant to
three substantially identical merger agreements (the "Merger Agreements"). The
total consideration to be paid upon closing to Salvatore Grosso and Lawrence S.
Jacobson, the sole shareholders of the Grosso-Jacobson Companies, pursuant to
the Merger Agreements will be $8,000,000, payable through the issuance of an
aggregate of 6,666,666 shares of the Company's Common Stock valued at an issue
price of $1.20 per share (the "Merger Shares"). Pursuant to the Merger
Agreements, Messrs. Grosso and Jacobson have been given registration rights with
respect to the Merger Shares and have agreed to certain restrictions over the
next two years on their ability to sell or otherwise dispose of the Merger
Shares. The Company anticipates closing the Pending Grosso-Jacobson Transaction
during October 1997.

            Upon the closing of the Pending Grosso-Jacobson Transaction, the
Company's management structure will undergo significant change. Under the new
structure Irwin Meyer, will remain the Company's Chief Executive Officer.
Lawrence S. Jacobson will become the Company's President and Salvatore Grosso
will become the Company's Chief Operating Officer. In addition, Messrs. Grosso
and Jacobson will have the right to designate three individuals to serve as
directors of the Company. Current management of the Company will also designate
three individuals to serve as directors of the Company and then the six so
designated individuals will jointly choose a seventh director. Simultaneously
with the closing of the Pending Grosso-Jacobson Transaction, it is anticipated
that Michael Dempsey will resign as Chairman of the Board and as a director, and
that Benjamin Lichtenberg will resign as a director of the Company.


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            Upon the closing, the Grosso-Jacobson Companies will function as
wholly owned subsidiaries of the Company responsible for all of the Company's
television production activity. Grosso-Jacobson Productions, Inc. was founded in
1980 and (along with the other Grosso-Jacobson Companies) has produced more than
750 hours of television programming, including "The Big Easy," the made-for-
television series based on the hit movie and created for the USA Network. Known
for their wide variety of primetime series and made-for-television movies, the
Grosso-Jacobson Companies have offices in New York and Los Angeles and operate a
70,000 sq. ft. production facility and office complex in Toronto, Canada.
Included in the Toronto studio is a wardrobe business containing 37,000 costumes
and an extensive prop inventory.

            Management of the Company believes that by combining the
Grosso-Jacobson Companies' successful and ongoing business of producing
primarily series television with the Company's past record of theatrical feature
and television movies, it can now take on an expanded role in the industry.
While the primary objective will be to focus its strengths in expanding the
Company's movie- of-the-week and series production for television with name
talent and significant creative personnel, the Company will continue to explore
new areas of business and expand its corporate operations into other synergistic
enterprises.

            Upon signing the Merger Agreements, the Company announced a number
of new projects in development and in production, including: the new series
"Arresting Women" for the Lifetime Network which revolves around the true life
stories of female cops; "Knights of the Millennium," a one-hour series in
development for the USA Network; and "Stops Along the Way," a newly-acquired
series based on the archival selection of celebrated writer, Rod Serling
(Twilight Zone, Planet of the Apes). Other television series in development
includes "The Border," a one-hour dramatic series in association with Edward
James Olmos' Productions for CBS. This project will star Jason Gedric as the
head of a special government crime unit located on the borders of Texas and
Mexico, to be written by Bobby Moresco (Millennium).

            Movies-of-the-week currently in production for the Company include 
the Mary Higgins-Clark projects "Moonlight Becomes You" starring Donna Mills 
and "Let Me Call You Sweetheart" starring Meredith Baxter, both for The Family 
Channel.  John Badham will

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direct "Sorrow Floats," starring Rosanna Arquette and Paul Hogan, and
Christopher Menaul directs "The Passion of Ayn Rand" starring Helen Mirren, both
for the Showtime Network. Additional network telefeatures in development are
"The Wade Burnett Story" for ABC with writer Ann Powell (The Drug Wars, Night
Owl), "White Slave" for CBS with writer L. Virginia Browne (Zoya, Secrets), and
"Big Girls Don't Cry" in association with NBC Studios with writer Virginia
Gilbert. "Marabunta" starring Eric Lutes, Julia Campbell, and Mitch Pillegi is
currently in post production for FOX Broadcasting.

            While management of the Company believes that the acquisition of the
Grosso-Jacobson Companies will significantly increase its revenues and enable
the Company to derive net income from its operations, there can be no assurance
that such positive revenue and earnings results will be achieved.

            Upon the closing of the Pending Grosso-Jacobson Transaction, the
Company will file a Current Report of Form 8-K setting forth a comprehensive
description of the terms of the Merger Agreements, employment agreements,
production agreements and other related agreements arising out of the Pending
Grosso-Jacobson Transaction. Included in such Current Report shall be the
Grosso-Jacobson Companies financial statements for periods required to be
reported upon under provision SEC Regulation S-B.

ITEM 2. DESCRIPTION OF PROPERTY.

            The Company leases approximately 13,725 square feet located at 5757
Wilshire Boulevard, Los Angeles, California for its corporate offices pursuant
to a lease which expires on November 30, 1999. The annual rent is approximately
$214,110. The Company believes that its current facilities are sufficient for
its needs.

ITEM 3. LEGAL PROCEEDINGS.

            In the normal course of its business, the Company is subject to
various claims and legal actions. The Company believes that it will not be
materially adversely effected by the ultimate outcome of any of these matters
either individually or in the aggregate.



                                       17

<PAGE>   18

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

            NONE

                                       18

<PAGE>   19



                                     PART II

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

            The Company's Common Stock is traded in the NASDAQ Small Cap Market
under the symbol "TPEG" and is also traded on the Boston Stock Exchange under
the symbol "TPG." The following table sets forth the high and low bid price per
share of the Common Stock as reported by NASDAQ for each quarter within the last
two fiscal years, retroactively adjusted for the May 1996 one-for-four reverse
stock split.

<TABLE>
<CAPTION>

                                     High               Low
                                     Bid                Bid
                                     ---                ---

<S>                                 <C>                 <C> 
Fiscal Year - 1996:

            Quarter Ended
            September 30, 1995      3.00                2.25
            December 31, 1995       3.00                1.50
            March 31, 1996          2.75                 .88
            June 30, 1996           1.37                 .87

Fiscal Year - 1997

            Quarter Ended
            September 30, 1996      1.34                1.13
            December 31, 1996       1.47                1.13
            March 31, 1997          1.53                1.13
            June 30, 1997           1.44                0.75

</TABLE>

            On September 12,1997, the closing prices of the Common Stock as
reported by NASDAQ were $.94 bid and $1.00 asked. On such date there were
approximately 162 holders of record of the Common Stock. The number of
shareholders does not take into account shareholders for whom shares are being
held in the name of brokerage firms or clearing agencies.

            The Company has never declared or paid cash dividends on its Common
Stock. The Company has outstanding 1,000,000 shares of Series A Preferred Stock
which is entitled to annual dividends aggregating $425,000. No dividends may be
paid on the Common Stock

                                       19

<PAGE>   20
unless all dividends on the Series A Preferred Stock have been paid or provision
has been made for such payment. Pursuant to the terms of the Company's
outstanding Series A Preferred Stock, which it issued in a public offering
consummated in December 1994, the Company, at its option, may pay dividends on
such stock in cash or in shares of its Common Stock when, as and if declared by
the Company's Board of Directors out of funds legally available therefor. The
Company has agreed that it will not pay dividends on the Series A Preferred
Stock in shares of its Common Stock without the consent of the underwriter of
the Company's September 1996 public offering for all dividend periods until
March 1998. No cash dividends are expected to be paid on the Common Stock in the
foreseeable future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

            The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and notes thereto appearing
elsewhere herein.

            The Notes to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set
forth herein contain certain forward looking statements with respect to the
Company and its operations that are subject to certain risks and factors, which
could cause the Company's future actual results of operations and future
financial condition to differ materially from those described herein. These risk
factors include, but are not limited to, the number of the Company's products in
development that result in completed productions that yield revenues, the timing
of such production expenditures and related revenues, the intensity of
competition from other television and motion picture producers and distributors,
the status of the Company's liquidity in future fiscal periods and other factors
that generally affect the entertainment industry such as changes in management
at the major studios, broadcast and distribution companies, as well as economic,
poitical, regulatory, technological and public taste environments.

            The Company's revenues are principally derived from the production
and distribution of completed projects, producers fees

                                       20

<PAGE>   21

and personal management fees. The amount of revenues derived by the Company in
any one period is dependant on, among other factors, projects completed during
any such period and the distribution of completed projects. Revenues from
producers and other fees are primarily dependent on the number of projects being
produced and the agreements relating to such projects. Accordingly, the amount
of revenues in any period are not necessarily indicative of revenues to be
derived by the Company in future periods.

            Amount received as license fees for projects in production are
deferred until the project becomes available for broadcast in accordance with
the terms of the licensing agreement and are recognized as revenues at such
time. Additional licensing and distribution fees are recognized as earned in
accordance with the terms of the related agreements. Revenues from the sale of
completed projects are recognized upon their sale.

            Revenues from completed projects owned by the Company are recognized
when the project becomes contractually available for telecasting or exhibition
by the licensee. Amortization of film costs is charged to operations on an
project-to-project basis. The cost charged per period is determined by
multiplying the remaining unamortized costs of the project by a fraction, whose
numerator is the income generated by the project during the period and whose
denominator is management's estimate of total gross revenue to be derived from
the project over is useful live from all sources. This is commonly referred to
as the individual-film forecast method under FASB 53. The effects on
amortization of completed projects resulting from revisions of estimates of
total gross revenues are reflected in the year when such revisions are made.

RESULTS OF OPERATIONS

YEAR ENDED JUNE 30, 1997 AS COMPARED TO YEAR ENDED JUNE 30, 1996

            For the years ended June 30, 1997 and 1996, the Company incurred net
losses of $4,642,043 and $1,447,666, respectively. Revenues for the year ended
June 30, 1997 were $782,181 compared to $5,367,498 for the year ended June 30,
1996. Revenues for the year ended June 30, 1997 primarily consisted of fees from
the continuing international distribution of completed projects and from
personal management fees. This significant decrease from Fiscal 1996 was the
result of lower levels of, and delays in project production and

                                       21

<PAGE>   22



delivery. Revenues for the year ended June 30, 1996 primarily consisted of
revenues from the distribution of completed projects, producers fees from the
then airing television series Dave's World, personal management fees, and
amounts received related to the completion of the made-for-television movie,
Lily Dale that was sold.

            Amortization of film costs for the years ended June 30, 1997 and
1996 was $503,552 and $857,199, respectively, and was computed using the
Individual Film Forecast Method. The difference in amortization as a percentage
of total revenues related to the distribution of projects reflects the mix of
projects in which the Company has no expectation of additional revenues that are
amortized at 100% of cost and projects in which the Company has retained
distribution rights held for future sale that are amortized according to the
Individual Film Forecast Method. Write-offs of projects in development were
$212,920 and $103,404 for the years ended June 30, 1997 and 1996, respectively.

            General and administrative expenses increased to $4,151,252 in
fiscal 1997 from $3,567,611 in fiscal 1996 or an increase of $583,641. This
increase was primarily attributable to the expansion of staff in the television
development and accounting departments, the addition of professional consultants
and the payment of substantial legal fees.

            Interest income during the year ended June 30, 1997 was $224,570 and
primarily consisted of amortization of the imputed interest discount on notes
received from the sale of common stock by the Company to related parties,
interest related to a trade note receivable and dividends earned on a portion of
the cash proceeds from the Company's September 1996 public offering. On June 30,
1997 the Company and Mountaingate Productions LLC ("Mountaingate") mutually
agreed to terminate the Stock Purchase Agreement and promissory note described
in Item 12. This termination resulted in the Company writing off the
non-recourse portion of the interest on the note totaling $129,141. Mountaingate
has executed a new note for the recourse portion of the interest in the amount
$50,631.

            Interest and financing expense in fiscal 1997 amounted to ($156,975)
and primarily consisted of deferred financing charges which were expensed to
operations upon repayment of the $500,000 aggregate principal amount of 10%
promissory notes described in

                                       22

<PAGE>   23

Note 3 (see page F-12 of the Consolidated Financial Statements accompanying this
report) to the Financial Statements accompanying this report. Interest and
financing expense in fiscal 1996 primarily consisted of interest on notes
payable.

            Expense due to settlement of litigation during the year ended June
30, 1997, amounted to $160,479. The Company agreed to pay $50,000 in cash and
issue 32,500 shares of the Company's Common Stock valued at $1.125 per share to
Cypress Entertainment LP in connection with the DSL Entertainment JV litigation.

            On November 4, 1996, the Company settled its litigation with a
former officer and Director in a negotiated stipulated settlement filed with the
Los Angeles County Superior Court that required the Company to make aggregate
payments of $575,000 in exchange for an agreement by this individual not to
compete with the Company through December 31, 1998.

YEAR ENDED JUNE 30, 1996 AS COMPARED TO YEAR ENDED JUNE 30, 1995

            Revenues for the year ended June 30, 1996 were $5,387,498 compared
to $5,290,745 for the year ended June 30, 1995. Revenues for the year ended June
30, 1996 primarily consisted of revenues from the distribution of completed
projects, producers fees from currently airing television series, personal
management fees, and production fees received upon the completion of the
made-for- television movie, Lily Dale. Revenues for the year ended June 30, 1995
primarily consisted of distribution fees from completed projects, fees from the
television series Dave's World which is airing on CBS and personal management
fees. Included in revenues for the year ended June 30, 1995 is approximately
$3,650,000 related to the completion of the television series Future Quest which
aired on PBS.

            Amortization of film costs for the years ended June 30, 1996 and
1995 was $857,199 and $3,076,728, respectively. Amortization of film costs in
fiscal 1996 and 1995 included $112,000 and $729,000, respectively, related to
revisions in estimates of amounts to be received in the future from certain
completed projects. Costs related to revenues consist of costs incurred in the
production of a made-for-television movie that was sold. Write-offs of projects
in development were $103,404 and $335,233 for the years ended June 30, 1996 and
1995, respectively.

                                       23

<PAGE>   24

            General and administrative expenses decreased to $3,567,611 in
fiscal 1996 from $4,696,554 in fiscal 1995 or a decrease of $1,128,943. This
decrease was primarily attributable to the termination of certain unprofitable
operations of DSL, including related compensation and other expenses, somewhat
offset by legal fees incurred in connection with lawsuits with the former
President and owner of DSL.

            Interest income during the year ended June 30, 1996 primarily
consisted of amortization of the imputed interest discount on notes received
from the sale of common stock by the Company to related parties. Exclusive of
this amortization of imputed interest discount, the decrease in interest income
was primarily due to reduced funds available for investment. Interest and
financing expense in fiscal 1996 represents interest on notes payable. Interest
and financing expense in fiscal 1995 primarily consisted on interest paid on the
Company's 7% subordinated notes and $275,000 representing the market value of
the shares of common stock issued to the noteholders upon repayment of these
notes.

            Income from settlement of lawsuits in fiscal 1996 resulted from the
settlement of various litigation relating to DSL. The provision for note
receivable in fiscal 1995 related to a loan made to the then President of DSL
which was secured by stock options previously granted to this individual. Due to
the market price of the Company's common stock being substantially below the
exercise price of these options, the Company established an allowance for the
entire amount of this note in fiscal 1995. Reduction in deferred participations
in fiscal 1995 represents the adjustment relating to the estimated amount
payable based on certain revenues to be received from certain completed projects
based on projections of these revenues. The remaining balance of deferred
participations was eliminated in connection with the settlement of various
litigation relating to DSL during fiscal 1996. During the year ended June 30,
1996, the Company forgave the advance and accrued interest thereon (aggregate -
$68,016) that was due from a company that provided the Company with the services
of one of its officers.


LIQUIDITY AND CAPITAL RESOURCES

             During fiscal year ended June 30, 1997 and 1996, net cash used in
operating activities was $816,076 and $1,030,924,

                                       24

<PAGE>   25

respectively. At June 30, 1997, the Company had cash, short-term investments and
accounts receivable aggregating $3,839,593 and accounts payable, accrued
expenses and dividends payable aggregating $439,825. At June 30, 1997 the
Company had shareholders equity of $3,710,228 including an accumulated deficit
of $17,824,753.

            At June 30, 1997, the Company had cash and cash equivalents
aggregating $1,037,130 and short term cash investments agregating $2,698,568. At
such date, the Company also had notes payable, accounts payable and accrued
expenses aggregating $227,325.

            In September 1996, the Company completed a public offering of its
securities, selling 2,000,000 units at a price of $4.00 each. At that time the
underwriter of the public offering excersided it over-allotment option to
purchase an additional 300,000 units at a net price of $3.60 per unit. Net
proceeds to the Company from this offering were approximately $7,600,008. Each
unit consisted of four shares of Common Stock (aggregate - 8,000,000) and two
Redeemable Warrants (aggregate - 2,000,000). Each Redeemable Warrant is
exercisable for one share of Common Stock at a price of $1.75 through September
2001 and is subject to redemption by the Company at a price of $.05 under
certain circumstances commencing in September 1997.

            The Company's cash commitments for the year ending June 30, 1997
include payment of its current liabilities of $439,825, compensation to officers
and key independent contractors and payment of it base office rent aggregating
approximately $1,016,000. The Company also incurs other costs such as salaries,
related benefits, professional fees and office and other expenses. For the year
ended June 30, 1997, general and administrative expenses, which includes
compensation and rent, aggregated $4,151,252. Dividends on the Company's Series
A Preferred Stock aggregate $425,000 annually. The Company's operations have
been financed in large part by the net proceeds from prior public offerings of
its securities and proceeds received from the exercise of stock options and
warrants. At June 30, 1997, substantially all of the Company's outstanding stock
options and warrants were exercisable at prices substantially above the market
price of the Company's common stock.



                                       25

<PAGE>   26



            The Company has no arrangements for external sources of liquidity
such as bank lines of credit and has no commitments for capital expenditures.

            The Company is in the process of consummating the Pending
Grosso-Jacobson Transaction (See "Item 1. Business - Pending Grosso-Jacobson
Transaction"). Management of the Company anticipates that the combined
operations of the Company and the Grosso-Jacobson Companies are expected to
generate net income and positive cash flows for the fiscal year ending June 30,
1998, although no assurance can be given that these results will be achieved.

INFLATION

            Inflation has not had a material effect on the Company.

ITEM 7.  FINANCIAL STATEMENTS.

            The Company's consolidated financial statements are included
elsewhere herein.

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

            During the last two fiscal years, there were no changes in or
disagreements with the Company's accountants on any matter of accounting or
financial disclosure.

                                       26

<PAGE>   27



                                    PART III

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

            The following table sets forth certain information with respect to
each of the directors and executive officers of the Company.

<TABLE>
<CAPTION>

            Name                      Age          Position with Company
            ----                      ---          ---------------------

<S>                                   <C>          <C>                                    
Irwin Meyer                           62           President, Chief Executive
                                                   Officer and Director

Arthur Bernstein                      34           Senior Vice President and
                                                   Director

Rhonda Bloom                          45           Vice President -
                                                   Development

Michael D. Dempsey                    54           Chairman of the Board and
                                                   Director

Michael I. Levy(1)                    56           Director

Ben Lichtenberg                       42           Director


</TABLE>

----------
   (1)  Resigned as of May 22, 1997.

            Upon the closing of the Pending Grosso-Jacobson Transaction, (See
"Item 1. Business - Pending Grosso-Jacobson Transaction.") Messrs. Salvatore
Grosso and Lawrence Jacobson will have the right to designate three individuals
to serve as directors of the Company. Current management of the Company will
also designate three individuals to serve as directors of the Company and then
the six so designated individuals will jointly choose a seventh director.
Simultaneously with the closing of the Pending Grosso- Jacobson Transaction, it
is anticipated that Michael Dempsey will resign as Chairman of the Board and as
a director, and that Ben Lichtenberg will resign as a director of the Company.


                                       27

<PAGE>   28



            Directors are elected to an annual term that expires at the
Company's annual meeting of stockholders.

            There are no family relationships between any of the officers,
directors and key independent contractors of the Company.

Officers and Directors

            IRWIN MEYER has served as a director of the Company since its
inception, President and Chief Executive Officer since February 1995 and
Chairman of the Board from April 1996 to May 1997. In February 1990, Mr. Meyer
became Co-Chairman of the Board of the Company and, in January 1991, became
Chairman of the Board of the Company, a position he held until June 1992. From
May 1988 to July 1994, Mr. Meyer was a director of Ventura Entertainment Group
Ltd., the former parent of the Company, ("Ventura") and, from May 1988 to
December 1990, he was President of Ventura. Mr. Meyer was an Executive Producer
of five of the Company's made-for-television movies and the television series,
Hollywood Babylon. He was also executive producer of the made-for-television
movie Against the Wall which was produced by the Company for Home Box Office.
Mr. Meyer was nominated for the Producer of the Year by the Producers Guild of
America for being the executive producer of this movie. In 1977, he co-produced
the musical Annie for which he received the Antoinette Perry ("Tony") Award, the
New York Drama Critics Circle Award, the Drama Desk Award, the Outer Critics
Circle Award and the Cue Magazine Golden Apple Award. Mr. Meyer is a member of
the Academy of Motion Picture Arts and Sciences and the Academy of Television
Arts and Sciences. He received a Bachelor of Science degree from New York
University.

            ARTHUR BERNSTEIN has served as a director of the Company since March
1995, served as Vice President - Business and Legal Affairs of the Company from
September 1991 to June 1992, and then as Senior Vice President since June 1992.
From July 1989 to August 1991, Mr. Bernstein was Director of Legal and Business
Affairs for New World Entertainment Ltd. Previously, he was Assistant General
Counsel of Four Star International, Inc. Mr. Bernstein received a Bachelor of
Science degree in finance and marketing from Philadelphia College of Textiles
and Sciences and a Juris Doctorate degree from Temple University.



                                       28

<PAGE>   29



            RHONDA BLOOM has served as Vice President - Development of the
Company since June 1995. From 1990 to 1995, Ms. Bloom was Vice President -
Development of the Larry Thompson Organization. Ms. Bloom received a Bachelor of
Arts degree in Film from Wesleyan University and a Master of Arts degree in Film
Production from the University of Southern California.

            MICHAEL D. DEMPSEY has served as a director of the Company since May
1996 and Chairman of the Board since May 1997. Mr. Dempsey is a senior partner
of the law firm of Dempsey & Johnson, P.C., Los Angeles, California. Prior to
his founding such firm, he was a partner at various other law firms including
Lillick, McHose & Charles (now merged into Pillsbury, Madison & Sutro): Finley,
Kumble, Wagner, Heine, Underberg, Manley, Meyerson & Casey; Meyerson & Casey;
Meyerson & Kuhn; and Shea & Gould. Mr. Dempsey has been a practicing attorney
for over 25 years. He graduated magna cum laude from San Fernando Valley State
College (now California State University - Northridge) and holds a Juris Doctor
degree from the University of California Los Angeles School of Law. Mr. Dempsey
will resign as a director of the Company upon the closing of the Pending
Grosso-Jacobson Transaction. See "Item 1. Description of Business - Pending
Grosso-Jacobson Transaction."

            MICHAEL I. LEVY served as a director of the Company from
February 1995 to May 22, 1997. Mr. Levy resigned as a director of
the Company on May 22, 1997.

            BEN LICHTENBERG has served as a director of the Company since
May 1996. Mr. Lichtenberg is currently a Managing Director of First
Colonial Securities Group, an investment banking and brokerage firm
headquartered in New Jersey. Prior to joining First Colonial in
1992, Mr. Lichtenberg served in similar capacities with other
investment firms, including Butcher & Singer and Bryn Mawr
Investment Group. Prior thereto, he was employed as a certified
public accountant. Mr. Lichtenberg is a graduate of the Wharton
School of the University of Pennsylvania. Mr. Lichtenberg will
resign as a director of the Company upon the closing of the Pending
Grosso-Jacobson Transaction. See "Item 1. Description of Business -
Pending Grosso-Jacobson Transaction."

            The Delaware Supreme Court has held that directors duty of care to a
corporation and its stockholders requires the exercise of an informed business
judgment. Having become informed of all

                                       29

<PAGE>   30



material information reasonably available to them, directors must act with
requisite care in the discharge of their duties. The Delaware General
Corporation Law permits a corporation through its Certificate of Incorporation
to exonerate its directors from personal liability to the corporation or its
stockholders for monetary damages for breach of fiduciary duty of care as a
director, with certain exceptions. The exceptions include a breach of the
director's duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, improper declarations of
dividends, and transactions from which the directors derived an improper
personal benefit. The Company's Certificate of Incorporation exonerates its
directors, acting in such capacity, from monetary liability to the extent
permitted by this statutory provision. The limitation of liability provision
does not eliminate a stockholder's right to seek nonmonetary, equitable remedies
such as injunction or rescission to redress an action taken by directors.
However, as a practical matter, equitable remedies may not be available in all
situations and there may be instances in which no effective remedy is available.

            The Company believes that it is the position of the Securities and
Exchange Commission that insofar as the foregoing provisions may be invoked to
disclaim liability for damages arising under the Securities Act of 1933, the
provision is against public policy as expressed in the Act and is therefore
unenforceable.




                                       30

<PAGE>   31



COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

            Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Company with copies of Section 16(a)
forms they file.

            To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the two fiscal years ended June 30, 1995 and June
30, 1996, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were satisfied.


ITEM 10.  EXECUTIVE COMPENSATION.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
                                                                     Long Term
                                                                   Compensation
                                   Annual Compensation                 Awards    
                        --------------------------------------     -------------    
   (a)                   (b)       (c)      (d)       (e)              (g)
Name and                Fiscal                                        Options/
Principal               Year     Salary    Bonus      Other            SARs
Position                Ended    $         $         $                  #
--------                -----    ------    ------     -----           -----
<S>                     <C>      <C>       <C>        <C>             <C>
Irwin Meyer             1997     312,000     -0-      18,000(3)         -0-
 President and
 Chief Executive        1996     281,000     -0-      68,016(2)         (5)
 Officer (1)                                          18,000(3)
                        1995     281,000     -0-      13,500(8)         -0-
                                                      18,000(3)
                                                      17,250(4)
Arthur Bernstein,       1997     160,000     -0-      12,000(3)     150,000
 Senior Vice            1996     109,040     -0-       9,000(3)         -0-
 President              1995      96,587   12,000      6,625(3)      25,000

</TABLE>



                                       31

<PAGE>   32



William Melamed(7)      1997     250,000   307,928        -0-           -0-
 Jr., Senior Vice       1996     325,007(6)  -0-       12,000(3)      12,500
 President, TPEG        1995     129,878     -0-          -0-           -0-
 Management, Inc.

----------
(1)  Includes amounts paid to Mountaingate Productions LLC ("Mountaingate") 
     which provided or currently provide the Company with the services of Mr. 
     Meyer and others. Also includes amounts paid to Mr. Meyer directly in his 
     capacity as President and Chief Executive Officer of the Company.

(2)  Forgiveness of note receivable due from Mountaingate.

(3)  Automobile reimbursement.

(4) Advance against future compensation.

(5)  The Company has granted options to purchase 75,000 shares of Common Stock 
     at $2.00 per share to each of Alison and Patricia Meyer who are sisters 
     and the adult children of Mr. Meyer. Mr. Meyer disclaims beneficial 
     ownership of the stock options and the underlying shares of Common Stock 
     held by Alison Meyer and Patricia Meyer. The Company has sold 500,000 
     shares of Common Stock to Mountaingate in exchange for promissory notes. 
     See "Stock Sales" below. Alison Meyer and Patricia Meyer are the sole 
     members of Mountaingate. Mr. Meyer disclaims beneficial ownership of the 
     shares of Common Stock held by Mountaingate. The difference between the 
     imputed interest rate and the stated interest rate on the notes receivable 
     from Mountaingate may be deemed to be additional compensation to 
     Mountaingate. During the year ended June 30, 1996, the Company entered into
     employment agreements with Mountaingate and Mr. Meyer.

(6)  Includes commissions of $194,902.

(7)  Resigned from the Company on June 30, 1997.

(8)  Participations in producer fees and net profits on projects produced.





                                       32

<PAGE>   33



                             OPTION/SAR GRANTS TABLE
<TABLE>
<CAPTION>


              OPTIONS/SAR GRANTS IN FISCAL YEAR ENDED JUNE 30, 1997

                   Individual Grants
 -------------------------------------------------

(a)                       (b)         (c)           (d)            (e)
                                      % of
                                      Total
                                      Options
                                      Granted
                                      in
                          Options     Fiscal       Exercise        Expiration
Name                      Granted     Year           Price             Date
----                      -------     ----           -----             ----
<S>                       <C>          <C>           <C>           <C> 
Arthur Bernstein(1)       150,000      75            $1.375        10/22/2001
Michael Dempsey(2)         25,000      12.5          $1.25          5/26/2000
Ben Lichtenberg(2)         25,000      12.5          $1.25          5/26/2000

</TABLE>


----------
(1)  On October 22, 1996, Arthur Bernstein was granted options to purchase 
     150,000 shares of common stock at an exercise price of $1.375 per share. 
     These options represent 75% of the options granted during the year and 
     expire on October 22, 2001.

(2)  On May 26, 1997, Michael Dempsey and Ben Lichtenberg, as directors of the 
     Company, were each granted options to purchase 25,000 shares of common 
     stock at an exercise price of $1.25 per share. These options represent 
     12.5% each of the options granted during the year and expire on May 26, 
     2000.



                                       33

<PAGE>   34



                 OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE

<TABLE>
<CAPTION>

AGGREGATED OPTIONS/SAR EXERCISES IN FISCAL YEAR ENDED JUNE 30, 1997
AND FISCAL YEAR-END OPTION/SAR VALUE

(a)           (b)         (c)               (d)               (e)

                                           Number of          Value of
                                           Unexercised        In-the-Money
                                           Options/SARS       Options/SARs
                                           at FY-End (#)      at FY-End ($)
              Shares     Value
Name          Acquired  Realized      Exercisable (E)      Unexercisable (UE)
----          --------  --------      ---------------      ------------------
<S>           <C>       <C>           <C>                  <C>   
Irwin
 Meyer(1)

Arthur
 Bernstein      -0-       $-0-        168,750 (E)        $   -0-        (E)

William
 Melamed(2)     -0-       $-0-         12,500 (E)        $   -0-        (E)

</TABLE>

----------
(1)    Does not include 75,000 exercisable options held by each of Alison
       Meyer and Patricia Meyer, who are sisters, and the adult children of
       Irwin Meyer. Mr. Meyer disclaims beneficial ownership of the options
       and the underlying shares of Common Stock held by Alison Meyer and
       Patricia Meyer.

(2)   Mr. Melamed resigned from the Company on June 30, 1997.


                        LONG-TERM INCENTIVE AWARDS TABLE

EMPLOYMENT AGREEMENTS AND RESIGNATIONS

            The Company has entered into an agreements with Irwin Meyer, for his
services as Chief Executive Officer of the Company, and with Mountaingate
Productions LLC ("Mountaingate") for the services of Mr. Meyer and others as
producers and/or executive producers and to perform other duties. Mountaingate
is a California limited liability company of which Alison Meyer and Patricia
Meyer, the adult children of Mr. Meyer are the sole members. The agreement

                                       34

<PAGE>   35



with Mountaingate provides for annual compensation of $262,000 plus a $1,500
monthly automobile reimbursement. The agreement with Mr. Meyer provides for
annual compensation of $50,000. Both of these agreements expire on June 30,
1998. (As part of the pending Grosso- Jacobson Transaction, the Company has
agreed to extend Mr. Meyer's employment agreement until June 30, 2002. See "Item
1. Description of Business - Pending Grosso-Jacobson Transaction."). The
agreements are terminable by the Company in the event of Mr. Meyer's death or
disability. In such event, the Company shall pay Mountaingate a guarantee fee of
$262,000 for one year. The Company may also terminate these agreements "for
cause" (as defined in these agreements). Mountaingate and Mr. Meyer may
terminate their respective agreements in the event of a material breach thereof
by the Company or for "good reason" (as defined in the agreements). In such
event, the Company shall be obligated to pay all amounts due thereunder for the
balance of their respective terms. In the event that the Company materially
breaches either agreement after a "change in control" (as defined in these
agreements), Mountaingate and Mr. Meyer, respectively, shall be entitled to a
lump sum payment equal to three times their then current total annual
compensation. These agreements replaced an agreement with AliPat Productions
Ltd. ("AliPat") which provided the same services of Irwin Meyer and others. The
agreement with AliPat was to expire on June 30, 1996 and provided for an annual
base guarantee fee of $260,000 plus a $1,500 monthly automobile reimbursement.
The Company also sold 500,000 shares of its Common Stock to Mountaingate in
exchange for promissory notes. See "Item 12. Certain Relationships and Related
Transactions".

            Mr. Arthur Bernstein is employed as Senior Vice President of the 
Company pursuant to an employment agreement, as amended, which expires on 
December 31, 1998. Mr. Bernstein's annual compensation is $160,000 plus a $1,000
monthly automobile reimbursement. In connection with the amendment of his 
employment agreement, Mr. Bernstein received a $12,000 bonus. (As part of the 
pending Grosso-Jacobson Transaction, the Company has agreed to extend Mr.
Bernsteins's employment agreement until June 30, 2002. See "Item 1 Description 
of Business - Pending Grosso-Jacobson Transaction."). The agreement is 
terminable by the Company in the event of Mr. Bernstein's death or disability. 
In such event, the Company is obligated to pay the aforesaid compensation for 
one year. The Company may also terminate the employment agreement "for cause" 
(as defined in this agreement). Mr. Bernstein may terminate this

                                       35

<PAGE>   36



agreement in the event of a material breach by the Company or for "good reason"
(as defined in this agreement). In such event, the Company will be obligated to
pay him all amounts due thereunder for the balance of its term and all unvested
stock options held by him shall vest. In the event of a "change in control" (as
defined in this agreement) of the Company, all stock options issued to Mr.
Bernstein shall vest and the Company shall, at Mr. Bernstein's option, purchase
shares of Common Stock owned by him at the then market price and shall acquire
all of his stock options for the difference between the exercise price of such
options and the greater of the price at which the new controlling entity
acquired its interest in the Company or the then market price of the Common
Stock.

            Mr. William Melamed was employed as Senior Vice President of TPEG
Management, Inc., a wholly-owned subsidiary of the Company, pursuant to an
employment agreement, as amended, that expired on June 30, 1997 and provided for
annual compensation of $250,000. Mr. Melamed was also entitled to receive a
bonus equal to 65% of the gross commissions collected by TPEG Management, Inc.
during the period from June 1, 1996 to June 30, 1997 in excess of $450,000. In
May 1996, all of the existing options to purchase an aggregate of 6,875 shares
of Common Stock at prices of $9.75 and $13.00 per share held by Mr. Melamed were
cancelled and the Company granted to him options to purchase 12,500 shares of
Common Stock at an exercise price of $1.12 per share.

            Mr. Melamed resigned from the Company on June 30, 1997 and in lieu
thereof the Company and Mr. Melamed's newly formed company, M2 Melamed
Management LLC entered into an exclusive agreement in connection with the
personal manangement activities described in Item 1.

            Ms. Lenore Nelson served as the Company's Vice President of
Finance and Chief Financial Officer from July 1996 until June 1997.
Ms. Nelson resigned from the Company on June 2, 1997.


STOCK SALES

            In November 1995, the Company sold 500,000 shares of Common Stock to
Mountaingate in exchange for $1,000,000 principal amount of promissory notes. 
Alison Meyer and Patricia Meyer, who are

                                       36

<PAGE>   37



sisters, and the adult children of Mr. Meyer, are the sole members of
Mountaingate. The principal amounts of the promissory notes received by the
Company from Mountaingate are payable as follows: April 1, 1997 - $125,000;
October 1, 1998 - $125,000; and October 1, 2000 - $750,000. Interest on these
notes is computed at an annual rate of 7%, compounded semi-annually, and is
payable with the principal of the notes. The notes are secured by the purchased
shares with the personal liability of Mountaingate limited to 25% of the
principal amount ($250,000) plus accrued interest thereon.

            A portion of the shares purchased by Mountaingate were subject to
forfeiture and return to the Company (with a corresponding reduction in the
related promissory note) in the event of, among other things, the termination of
the employment of Mr. Meyer prior to the vesting date of such shares. Through
June 30, 1996, 375,000 of the shares vested and the remaining 125,000 shares
vested on June 30, 1997. Reference is made to Item 12 "Certain Relationships and
Related Transactions" for information concerning the agreement be Mountaingate
to return all of such shares to the Company in exchange for the cancellation of
the promissory notes referred to above subject to Mountaingate's obligation to
repay certain accured interest described therein.

COMPENSATION OF DIRECTORS

            No fees are paid to members of the Board of Directors of the Company
for their services as members of the Board of Directors.


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

            As of September 12, 1997, the Company had 12,107,152 shares of
Common Stock outstanding. The following table sets forth the number of shares of
Common Stock of the Company beneficially owned as of such date by: (i) each
person known to the Company to be the beneficial owner of more than five percent
of the Company's Common Stock; (ii) each of the officers and directors of the
Company; and (iii) all officers and directors of the Company as a group. Except
as indicated, shares beneficially owned by the persons listed in the following
table are issuable upon exercise of immediately exercisable stock options.


                                       37

<PAGE>   38


<TABLE>
<CAPTION>

                                       AMOUNT AND
                                       NATURE OF             PERCENT OF
NAME AND ADDRESS                       BENEFICIAL            OUTSTANDING
OF BENEFICIAL OWNER(1)                 OWNERSHIP(2)          COMMON STOCK
-----------------------                -------------         ------------
<S>                                     <C>                      <C> 
Alison Meyer(3)                          650,000                  5.6%
Patricia Meyer(3)                        650,000                  5.6%
Mountaingate Productions LLP(3)          500,000                  4.4%
Arthur Bernstein(7)                      168,750                  1.2%
Michael D. Dempsey(8)                     31,250                   *
Michael I. Levy(6)                        18,750                   *
Ben Lichtenberg (4)                       55,090                   *

All officers and directors
    as a group (5 persons)(5)            273,841                 2.0%

</TABLE>

* Less than 1%
----------
(1)    The address of Alison Meyer, Patricia Meyer, Mountaingate Productions 
       LLC and Messrs. Bernstein and Levy is 5757 Wilshire Boulevard, Penthouse 
       One, Los Angeles, California 90036. The address of Mr. Dempsey is 1925 
       Century Park East, Suite 2350, Los Angeles, California 90067. The address
       of Mr. Lichtenberg is 401 N. Route 73, Marlton, New Jersey 08053.

(2)    Beneficial owners of Common Stock possess sole voting and investment
       power with respect to the shares listed opposite their names.

(3)    Includes options to purchase 75,000 shares of Common Stock held by each 
       of Alison Meyer and Patricia Meyer by virtue of them being sisters. Also 
       includes 500,000 shares of Common Stock owned by Mountaingate by virtue 
       of Alison Meyer and Patricia Meyer being the sole members of 
       Mountaingate, however, such 500,000 shares were returned by Mountaingate 
       to the Company for cancellation as of June 30, 1997 are no longer deemed 
       outstanding.

(4)    Consists of 303 shares of Common Stock and 6,250 shares of Common Stock 
       issuable upon exercise of currently exercisable stock options and owned 
       by First Colonial Securities Profit Sharing Plan FBO Ben Lichtenberg, 
       3,288 shares of Common Stock issuable upon conversion of the Company's 
       Series A Preferred

                                       38

<PAGE>   39



      Stock, 25,000 shares of Common Stock issuable upon the exercise of
      options granted to Mr. Lichtenberg on May 26, 1997 and 20,250 shares of 
      Common Stock issuable upon the exercise of underwriter s options held by 
      Mr. Lichtenberg and conversion and exercise of the securities to be 
      received upon such exercise.

(5)   Does not include shares listed as being held by Alison Meyer, Patricia 
      Meyer and Mountaingate as Irwin Meyer disclaims beneficial ownership of 
      such options and shares of Common Stock.

(6)   Mr. Levy resigned as a director of the Company on May 22, 1997.

(7)   Includes options to purchase 150,000 shares of Common Stock granted on 
      October 22, 1996 and which expire on October 22, 2001.

(8)   Includes options to purchase 25,000 shares of Common Stock granted on 
      May 26, 1997 and which expire on May 26, 2000.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

            During the year ended June 30, 1996, an agreement to provide the
services of the present Chief Executive Officer was terminated and the
outstanding balance of advances, including accrued interest, in the aggregate
amount of $68,016 was forgiven by the Company. During the year ended June 30,
1996, the Company entered into an agreement to provide substantially similar
services with Mountaingate Productions, LLC, a company of which the adult
children of this Chief Executive Officer are the sole members ("Mountaingate").
This agreement provides for base compensation and other direct payments through
June 30, 1998 in the annual amount of $280,000. The Company also entered into an
employment agreement with its Chief Executive Officer which provides for annual
compensation of $50,000 through June 30, 1998.

            During the year ended June 30, 1996, the Company sold an aggregate
of 525,000 shares of its common stock to related parties in exchange for an
aggregate of $1,050,000 principal amount of

                                       39

<PAGE>   40



promissory notes. Of these shares, 500,000 were sold to Mountaingate for
$1,000,000 principal amount of promissory notes and 25,000 shares were sold to a
then officer and director of the Company for $50,000 principal amount of
promissory notes. The principal amounts of the promissory notes received by the
Company are payable as follows: April 1, 1997- $131,250; October 1, 1998 -
$131,250; and October 1, 2000 - $787,500. Interest on these notes is computed at
an annual rate of 7%, compounded semi-annually and is payable with the principal
of the notes. The notes are secured by the purchased shares with the personal
liability of the purchaser limited to 25% of the principal amount (aggregate -
$262,500) plus accrued interest thereon.

            The 500,000 shares purchased by Mountaingate were subject to
forfeiture and return to the Company (together with the related promissory note)
in the event of, among other things, the termination of the employment of the
Company's Chief Executive Officer.

            Effective June 30, 1997 Mountaingate agreed to return the shares to
the Company to be canceled and the Company agreed to cancel the promissory
notes. Mountaingate has agreed to pay to the Company the 25% maximum recourse
liability of $50,631 in accrued interest at June 30, 1997 and the balance of
$129,142 accrued interest was written off.

            The former officer and Director of the Company has not paid the
first installment due on April 1, 1997, of $6,250 principal plus accrued
interest under his $50,000 promissory note related to the purchase of the 25,000
shares of Common stock described above. The Company made demand for this payment
and foreclosed on the 25,000 shares of Common Stock which were the collateral
securing the promissory note. The note balance including $4,000 of interest has
been written off as of June 30, 1997 and the 25,000 shares of common stock have
been canceled.

            During the year ended June 30, 1994, the Company acquired DSL
Productions, Inc. and its affiliates ("DSL") in exchange for 32,500 shares of
its previously unissued common stock. Prior to its acquisition by the Company,
DSL had made unsecured loans to its President. These loans bore interest at 4.5%
and aggregated (including accrued interest) approximately $402,000. The former
owner of DSL had made advances to DSL prior to its acquisition by

                                       40

<PAGE>   41



the Company. These advances aggregated $2,687,000 at the date of acquisition of
DSL by the Company. A total of $1,887,000 of these advances were subsequently
repaid. The $800,000 balance of these advances was payable out of revenues, as
defined, received from certain completed projects.

            During the year ended June 30, 1996, the Company, the former
President of DSL and the former owner of DSL settled all litigation between
them. In pertinent part, this settlement provided for the payment to the Company
of $308,000, elimination of the note receivable from the former President of
DSL, the transfer of a completed project with a carrying amount of $222,980 to
DEG and the release of the Company's obligation to pay the former owner of DSL a
portion of future revenues from certain completed projects. In connection with
this settlement, the Company reduced its accounts payable and accrued expenses
by $255,455 representing the amounts previously recorded related to DSL and this
litigation and also sold its investment in DEG for $209,500 in cash. The effect
of this settlement has been reflected in the accompanying June 30, 1996
consolidated statement of operations as a separate item.

            In January 1997, the Company agreed to compensate Michael I. Levy, a
former outside Board member, for his executive producer services on a television
movie project entitled "Marabunta". At June 30, 1997 the project is in
production and the Board Member is being paid $75,000 and is entitled to 60% of
the project's net profit (as defined).

            During Fiscal 1997, the Company paid the legal firm of which the
current Chairman of the Board is a partner approximately $273,000 for legal
services.

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

            (a) Exhibits - The following documents required by Item 601 of
Regulation S-B are filed as exhibits or are incorporated by reference herein.

            Exhibit
Number      Description
------      -----------
3.1         Restated Certificate of Incorporation of Registrant, dated June 24, 
            1993 (4)

3.2         Certificate of Designation, as filed December 14, 1994

                                       41

<PAGE>   42

             with the Secretary of State of the State of Delaware.(4)

 3.3         Amendment to Certificate of Incorporation, filed June 3, 1996 with 
             the Secretary of State of the State of Delaware. (4)

 3.4         By-Laws of Registrant (5)

 3.5         Amendment No. 1 to By-Laws of Registrant (5)

10.1         Stock Option Plan (1)

10.1 (a)     Amendment to Stock Option Plan (2)

10.20        Production Agreement dated as of October 1, 1996 between The 
             Producers Entertainment Group Ltd. and Mountaingate Productions LLC
             f/s/o/ Irwin Meyer and others (3)

10.21        Employment Agreement dated as of October 1, 1995 between The 
             Producers Entertainment Group Ltd and Irwin Meyer (3)

10.23        Stock Purchase Agreement (including promissory note) dated as of 
             November 14, 1995 between The Producers Entertainment Group Ltd. 
             and Mountaingate Production LLC (3)

10.24        Stock Purchase Agreement (including promissory note) dated as of 
             November 14, 1995 between The Producers Entertainment Group Ltd. 
             and Charles Weber (3)

22.          Subsidiaries of the Registrant (6)

27.          Financial Data Schedule (6)

----------
(1)  Incorporated by reference to the Company's Registration Statement on 
     Form S-1. Registration Number 33-30925.

(2)  Incorporated by reference to the Company s Annual Report on Form 10-KSB for
     the fiscal year ended June 30, 1992.

(3)  Incorporated by reference to the Company s Form 10-QSB for the quarter 
     ended December 31, 1995.

(4)  Incorporated by reference to the Company's Form 8-K dated June 18, 1996.

(5)  Incorporated by reference to the Company's Registration Statement on Form 
     S-1. Registration Number 33-42193.

(6)  Incorporated by reference to the Company's Form 8-K dated June 16, 1996.

(7)  Filed herewith.


                                       42

<PAGE>   43





                                       43

<PAGE>   44



                                   Signatures

            In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                                     The Producers Entertainment Group Ltd.




Dated: October     , 1997            By: /s/ IRWIN MEYER
                                        ------------------------
                                        Irwin Meyer, President


            In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>

     Signature                        Title                            Date
     ---------                        -----                            ----
<S>                            <C>                               <C> 
/s/ IRWIN MEYER                President, and Chief             October   , 1997
------------------------       Executive Officer and
Irwin Meyer                    Director


/s/ ARTHUR H. BERNSTEIN        Senior Vice President,           October   , 1997
------------------------       Secretary, Acting Chief
Arthur Bernstein               Accounting Officer and
                               Director


/s/ MICHAEL DEMPSEY            Chairman of the Board and        October   , 1997
------------------------       Director
Michael Dempsey


------------------------       Director                         October   , 1997
Benjamin Lichtenberg

</TABLE>



                                       44


<PAGE>   45




                     THE PRODUCERS ENTERTAINMENT GROUP LTD.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 1997 AND 1996



<PAGE>   46








                          INDEX TO FINANCIAL STATEMENTS




Report of Independent Auditors..............................................F-2


Consolidated Balance Sheet - June 30, 1997..................................F-3


Consolidated Statements of Operations -
      Years Ended June 30, 1997 and 1996 ...................................F-4


Consolidated Statements of Shareholders' Equity -
     Years Ended June 30, 1997 and 1996 ....................................F-5


Consolidated Statements of Cash Flows -
     Years Ended June 30, 1997 and 1996 ............................F-6 and F-7


Notes to Consolidated Financial Statements.....................F-8 through F-19



                                       F-1


<PAGE>   47







Board of Directors
The Producers Entertainment Group Ltd.
Los Angeles, California


                          Independent Auditors' Report


We have audited the accompanying consolidated balance sheet of The Producers
Entertainment Group Ltd. and Subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended June 30, 1997 and 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Producers Entertainment Group Ltd. and Subsidiaries as of June 30, 1997 and the
results of its operations and its cash flows for the years ended June 30, 1997
and 1996, in conformity with generally accepted accounting principles.








KELLOGG & ANDELSON
ACCOUNTANCY CORPORATION
Sherman Oaks, California
September 17, 1997




                                       F-2


<PAGE>   48





             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 1997
                                    
<TABLE>
<CAPTION>

                                     ASSETS

<S>                                                                 <C>        
Cash and cash equivalents                                           $ 1,037,130
Short-term investments                                                2,698,568
Accounts receivable, less allowance of $12,934                          103,895
Receivables from related parties                                         53,645
Prepaid Expenses                                                         24,895
Film costs, net                                                       2,144,459
Right to receive revenue                                                196,105
Fixed assets, at cost, less accumulated                          
     depreciation and amortization of $217,157                           80,636
Covenant not to compete, less accumulated                        
     amortization of $184,000                                           391,000
Other assets                                                             61,386
                                                                    -----------
            Total assets                                            $ 6,791,719
                                                                    ===========
                                                       

                      LIABILITIES AND SHAREHOLDERS' EQUITY


Accounts payable and accrued expenses                               $   227,325
Dividends Payable                                                       212,500
Deferred Revenue                                                      2,641,666
                                                                    -----------
            Total liabilities                                         3,081,491
                                                                    -----------
COMMITMENTS                                                                 -
                                                     
SHAREHOLDERS' EQUITY:
     Preferred stock, $.001 par value
        Authorized 20,000,000 shares
        Issued and outstanding 1,000,000 shares - Series A                1,000
     Common stock, $.001 par value
        Authorized - 50,000,000 shares
        Issued - 12,387,761
        Outstanding - 12,107,152                                         12,387
     Additional paid-in capital                                      22,531,786
     Accumulated deficit                                            (17,824,753)
                                                                    -----------
                                                                      4,720,420
     Treasury stock, 280,609 shares at cost                          (1,010,192)
                                                                    -----------
            Net shareholders' equity                                  3,710,228
                                                                    -----------
            Total liabilities and shareholders equity               $ 6,791,719
                                                                    ===========
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                       F-3


<PAGE>   49

            THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                   FOR THE YEARS ENDED JUNE 30, 1997 AND 1996



                                                          1997          1996
                                                     -----------    -----------
Revenues                                             $   782,181    $ 5,367,498
                                                     -----------    -----------

Costs related to revenue:
   Amortization of film costs                            503,552        857,199
   Costs of projects sold                                 76,321      2,579,277
                                                     -----------    -----------
         Total costs related to revenue                  579,873      3,436,476
                                                     -----------    -----------
Net revenues                                             202,308      1,931,022

Write-off of projects in development                     212,920        103,404

General and administrative expenses                    4,151,252      3,567,611
                                                     -----------    -----------
                 Operating (loss)                     (4,161,864)    (1,739,993)
                                                     -----------    -----------
Other income (expense):
  Interest and dividend income                           224,570         80,260
  Interest and financing expense                        (156,975)       (22,920)
  Write off of notes receivable and other assets        (387,295)            -
  Settlement of lawsuits                                (160,479)       303,003
  Forgiveness of receivable from related party             -            (68,016)
                                                     -----------    -----------
                 Total other income (expense)           (480,179)       292,327
                                                     -----------    -----------
Net (loss)                                            (4,642,043)    (1,447,666)

Dividend requirement of Series A Preferred Stock        (425,000)      (425,000)
                                                     -----------    -----------
Net (loss) applicable to common shareholders          (5,067,043)   $(1,872,666)
                                                     ===========    ===========
Net (loss) per common share                          $     (0.47)   $     (0.63)
                                                     ===========    ===========
Weighted average number of common 
 shares outstanding                                   10,692,684      2,967,483
                                                     ===========     ==========


                  The accompanying notes are an integral part
                   of the consolidated financial statements.


                                       F-4

<PAGE>   50
              PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                       YEARS ENDED JUNE 30, 1996 AND 1997

<TABLE>
<CAPTION>
                                        Series A                     
                                    Preferred Stock             Common Stock
                                ------------------------    -------------------      Additional
                                  Shares         Amount     Shares      Amount    Paid-in Capital
                                ----------     ---------    -------    --------   ---------------   
<C>                             <C>            <C>         <C>         <C>             
Balance at July 1, 1995         1,000,000      $   1,000   2,847,192   $  2,847    $ 15,329,756    

Issuance of common stock
   in payment of dividends
   on preferred stock                 --                     213,627        214            (214)   

Sale of common stock
   to related parties
   for notes receivable               --                     525,000        525         784,475    

Net (loss)                            --             --           --         --              --    
                                 ---------     --------   ----------   ---------   ------------  
Balance at June 30, 1996         1,000,000        1,000    3,585,819      3,586      16,114,017     

Issuance of common stock
   in payment of  dividends
   on series A preferred
   stock                              --             --       94,442         94             (94)    

Issuance of common stock
   in settlement of lawsuit           --             --       32,500         32          36,530     


Sale of units in Public
   offering,  net proceeds            --             --    9,200,000      9,200       7,590,808     

Cancellation of notes
   receivable from common
   stock                              --             --     (525,000)      (525)       (784,475)    

Dividends paid on Series A
   preferred stock                    --             --           --         --        (425,000)    

Net (loss)                            --             --           --         --              --     
                                 ---------     --------   ----------   ---------   ------------   
Balance at June 30, 1997         1,000,000     $  1,000   12,387,761   $ 12,387    $ 22,531,786    
                                 =========     ========   ==========   =========   ============    
</TABLE>


<TABLE>
<CAPTION>
                                                                       Net
                                  Accumulated      Treasury       Shareholders'
                                    Deficit          Stock           Equity
                                 ------------    ------------    --------------
<S>                              <C>               <C>            <C>         
Balance at July 1, 1995          $(11,735,044)   $(1,010,192)     $ 2,588,367

Issuance of common stock
   in payment of dividends
   on preferred stock                    --             --               --

Sale of common stock
   to related parties
   for notes receivable                  --             --            785,000

Net (loss)                         (1,447,666)          --         (1,447,666)
                                 ------------    -----------      -----------
Balance at June 30, 1996          (13,182,710)    (1,010,192)       1,925,701

Issuance of common stock
   in payment of dividends
   on series A preferred stock           --             --               --

Issuance of common stock
   in settlement of lawsuit              --             --             36,562


Sale of units in Public
   offering,  net proceeds               --             --          7,600,008

Cancellation of notes
   receivable from common
   stock                                 --             --           (785,000)

Dividends paid on Series A
   preferred stock                       --             --           (425,000)

Net (loss)                         (4,642,043)          --         (4,642,043)
                                 ------------    -----------      -----------
Balance at June 30, 1997         $(17,824,753)   $(1,010,192)     $ 3,710,228
                                 ============    ===========      ===========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       F-5


<PAGE>   51

             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>

                                                                                          1 9 9 7             1 9 9 6
                                                                                      -------------        -------------
<S>                                                                                 <C>                     <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss)                                                                         $(4,642,043)           $(1,447,666)
   Adjustments to reconcile net (loss) to net                                                               
      cash (used in) operating activities:                                                                  
         Amortization of film costs                                                       503,552                857,199
         Amortization of covenant-not-to compete                                          184,000                   --
         Depreciation                                                                      34,448                 33,364
         Cancellation of interest receivable                                                4,000                   --
         Write off of notes receivable and other assets                                   387,295                   --
         Unrealized loss on short-term investments                                         22,411                   --
         Write-off of projects in development                                                --                  103,404
         (Gain) from settlement of lawsuits                                                  --                 (303,003)
         Cash received from settlement of lawsuits                                           --                  517,500
         Forgiveness of receivable - related party                                           --                   68,016
         Amortization of imputed interest discount                                       (109,189)               (67,000)
         Issuance of shares of common stock for settlement of lawsuit                      36,562                   --
         Changes in assets and liabilities:                                                                 
            Decrease in accounts receivable                                               118,305                138,633
            Decrease (increase) in notes receivable and interest receivable               140,030               (260,000)
            Decrease (increase) in other assets                                            68,698               (129,281)
            (Decrease) increase in accounts payable and accrued expenses                 (205,811)                56,618
            (Decrease) increase in deferred revenue                                     2,641,666               (598,708)
                                                                                      -----------            -----------
                                                                                                            
   Net cash (used in) operating activities                                               (816,076)            (1,030,924)
                                                                                      -----------            -----------
                                                                                                            
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                       
   Purchase of short-term investments                                                  (2,720,979)                  --
   Additions to film costs                                                             (1,875,234)               (87,479)
   Purchases of equipment                                                                 (64,842)                (7,166)
   (Increase) decrease in receivables from related parties                                (34,662)                29,230
   Acquisition of  covenant not-to-compete                                               (575,000)                  --
                                                                                      -----------            -----------
                                                                                                            
   Net cash (used in) investing activities                                             (5,270,717)               (65,415)
                                                                                      -----------            -----------
                                                                                                            
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                       
   Sale of units in public offering                                                     7,600,008                   --
   Proceeds from borrowings                                                                  --                  700,000
   Repayments of  borrowings                                                             (600,000)              (100,000)
   Payment of dividend on preferred stock                                                (212,500)                  --
                                                                                      -----------            -----------
                                                                                                            
   Net cash provided by financing activities                                            6,787,508                600,000
                                                                                      -----------            -----------
                                                                                                            
   Net (decrease) increase in cash and cash equivalents                                   700,715               (496,339)
                                                                                                            
Cash and cash equivalents:                                                                                  
   Beginning of period                                                                    336,415                832,754
                                                                                      -----------            -----------
                                                                                                            
   End of period                                                                      $ 1,037,130            $   336,415
                                                                                      ===========            ===========
                                                                                                           
                                                                                                           
                SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:


CASH PAID FOR:
   Interest                                                                           $    19,472            $     1,700
                                                                                      ===========            ===========
                                                         
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-6

<PAGE>   52





             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

   As discussed in Note 5, during the year ended June 30, 1997, the Company
   issued 32,500 shares of its common stock in settlement of a lawsuit.

   During the years ended June 30, 1997 and 1996, the Company issued 94,442 and
   213,627 shares of its common stock, respectively, in payment of dividends on
   its Series A preferred stock.

   As discussed in Note 5, during the year ended June 30, 1996, the Company sold
   an aggregate of 525,000 shares of its common stock to related parties in
   exchange for an aggregate of $1,050,000 principal amount of promissory notes.
   The stock sales and notes receivable were canceled in the year ended June 30,
   1997.



               The accompanying notes are an integral part of the
                       consolidated financial statements.   



                                       F-7

<PAGE>   53


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1  -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
            ------------------------------------------


             Organization and Operations

             The Producers Entertainment Group Ltd. (the Company) was 
             incorporated under the laws of the State of Delaware on August 10, 
             1989. The Company is engaged in the acquisition, development, 
             production and distribution of dramatic, comedy, documentary and 
             instructional television series, made-for-television movies and 
             theatrical motion pictures. The Company is also engaged in personal
             management of the careers of performers and writers. Unless the 
             context indicates otherwise, the term "Company" includes The 
             Producers Entertainment Group Ltd. and all of its subsidiaries.


             Principles of Consolidation

             The accompanying consolidated financial statements include the 
             accounts of the Company and its subsidiaries. All significant 
             intercompany accounts and transactions have been eliminated in 
             consolidation. Certain reclassifications have been made to the 1996
             financial statements to conform to the 1997 presentation.


             Revenue Recognition

             Amounts received as license fees for projects in production are 
             deferred until the project becomes available for broadcast in 
             accordance with the terms of the licensing agreement and are 
             recognized as revenues at such time. Additional licensing and 
             distribution fees are recognized as earned in accordance with the 
             terms of the related agreements. Revenues from the sale of 
             completed productions are recognized upon their sale.


             Cash and Cash Equivalents

             Cash and cash equivalents include U.S. Treasury Bills, money market
             funds, and certificates of deposit with a maturity of three months 
             or less.



                                       F-8


<PAGE>   54
             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1  -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
             ------------------------------------------------------

             Short-term Investments

             The Company adopted Statement of Financial Accounting Standards 
             (SFAS) No. 115 "Accounting for Certain Investments in Debt and 
             Equity Securities," as of January 1, 1994. The Company determined 
             all of its investments currently held in debt and equity securities
             are trading securities as defined by SFAS 115 and as such are 
             reported at fair value.

<TABLE>
<CAPTION>

                                                 Unrealized      Fair Market
Trading Securities              Cost                Loss            Value
------------------              ----                ----            -----
<S>                             <C>              <C>             <C>        
U.S. Government Securities      $1,720,000       $  (22,411)     $ 1,697,589

Mutual Fund                      1,000,979               --        1,000,979
                                ----------       ----------      -----------
                                $2,720,979       $  (22,411)     $ 2,698,568
                                ==========       ==========      ===========
</TABLE>

             Film Costs and Amortization

             Film costs include the cost of completed projects, costs of 
             projects in production and costs expended on projects in 
             development. Film costs are stated at the lower of amortized cost 
             or estimated net realizable value. Amortization of completed 
             projects is charged to operations on an individual project basis in
             a ratio that the current year's revenue bears to management's 
             estimate of total revenues (current and future years) from all
             sources. This is commonly referred to as the individual-film-
             forecast method. Adjustments of amortization resulting from changes
             in estimates of total revenues are recognized in the current year's
             amortization. When a completed project is fully amortized, its cost
             and related accumulated amortization are removed from the accounts.
             If, in the opinion of management, any property in the development 
             stage is not planned for use, the net carrying value of such 
             property is charged to current year's operations.

             Costs Related to Projects Sold

             Costs related to projects sold consist of direct costs incurred in 
             the production of projects that are subsequently sold to third 
             parties. The Company does not retain any ownership interest in 
             these projects and, accordingly, upon their sale, all incurred 
             costs are charged to operations. Participations in future profits
             from projects that are sold are included in revenues when earned.


                                       F-9


<PAGE>   55


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1  -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
             ------------------------------------------------------

             Depreciation and Amortization

             Depreciation and amortization of fixed assets (consisting of 
             furniture, equipment and leasehold improvements) is provided on the
             straight-line method over the estimated useful lives of the related
             assets which range from three to five years.

             Covenant-not-to Compete

             The covenant-not-to compete was the result of litigation settlement
             with a former officer and is being amortized over the covenant 
             period which ends December 31, 1998.

             Unclassified Balance Sheet

             The Company has elected to present unclassified balance sheets in
             accordance with SFAS No. 53.

             Net (Loss) Per Common Share

             Net (loss) per common share has been computed after deducting (in 
             1997 and 1996) the dividend requirement of the Company's Series A 
             Preferred Stock from net (loss) and is based on the weighted 
             average number of common shares outstanding during the periods. 
             The assumed conversion of the Series A Preferred Stock and the 
             assumed exercise of outstanding stock purchase warrants and options
             have not been included because the effect would be anti-dilutive.

             Reverse Stock Split

             In June 1996, the Company effected a one-for-four reverse split of 
             the outstanding shares of common stock. This reverse stock split 
             has been retroactively reflected for all periods reported on in the
             accompanying consolidated financial statements and notes.

             Concentration of Credit Risk

             Financial instruments that potentially subject the Company to 
             significant credit risks consist of cash and trade receivables. The
             Company places its cash with high credit quality financial 
             institutions or in high quality short-term investments such as 
             insured certificates of deposit. At times, the cash in any one bank
             may exceed the FDIC insured limit of $100,000. With regard to
             receivables, the risk is relatively limited due to most customers 
             being either domestic or foreign broadcasting networks or 
             established domestic and foreign distributors.


                                      F-10


<PAGE>   56


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1  -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
             ------------------------------------------------------

             Management Estimates

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


NOTE 2  -    LIQUIDITY AND CAPITAL RESOURCES
             -------------------------------

             The accompanying consolidated financial statements have been 
             prepared in conformity with generally accepted accounting 
             principles which contemplates the continuation of the Company as a 
             going concern, including the realization of assets and liquidation 
             of liabilities in the ordinary course of business. For the years 
             ended June 30, 1997 and 1996, the Company incurred net losses of
             $4,642,043 and $1,447,666, respectively. During fiscal year ended 
             June 30, 1997 and 1996, net cash used in operating activities was 
             $816,076 and $1,030,924, respectively. At June 30, 1997, the 
             Company had cash, short-term investments and accounts receivable 
             aggregating $3,839,593 and accounts payable, accrued expenses and
             dividends payable aggregating $439,825. At June 30, 1997 the 
             Company had shareholders equity of $3,710,228 including an 
             accumulated deficit of $17,824,753.

             The Company's cash commitments for the year ending June 30, 1998 
             include payment of its current liabilities of $439,825, 
             compensation to officers and key independent contractors and office
             rent of approximately $1,016,000. The Company also incurs other 
             costs such as salaries, related benefits, professional fees, office
             and other expenses. For the year ended June 30, 1997, general and
             administrative expenses, aggregated $4,151,252. Dividends on the 
             Company's Series A Preferred Stock aggregate $425,000 annually. 
             The Company's operations have been financed in large part by the 
             net proceeds received from prior public offerings of its securities
             and proceeds received from exercise of stock options and warrants. 
             At June 30, 1997, substantially all of the Company's outstanding 
             stock options and warrants were exercisable at prices substantially
             above the market price of the Company's common stock. The Company 
             has no arrangements for external sources of liquidity such as bank
             line of credit.

             The Company is releasing a new film project in October 1997 and has
             a number of projects in development.


                                      F-11


<PAGE>   57


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2  -    LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
             -------------------------------------------

             The Company is in the process of acquiring Grosso-Jacobson
             Entertainment Corp. (see Note 4). If the merger is completed, the 
             combined operations of the Companies are expected to generate net 
             income and positive cash flows for the fiscal year ending June 30, 
             1998, although no assurances have been given that these results 
             will be achieved.



NOTE 3  -    PUBLIC OFFERING OF SECURITIES
             -----------------------------

             On December 1994, the Company completed a public offering of its 
             securities, selling 1,000,000 units at a price of $5.00 per unit 
             for net proceeds of $4,176,467. Each unit consisted of one share 
             of nonvoting Series A 8.5% Convertible Preferred Stock (Series A 
             Stock) and one Class B Warrant. In connection with this offering, 
             the underwriter received a five-year option to purchase 100,000 
             units at a price of $7.00 per unit. Each share of Series A Stock 
             has a liquidating preference of $5.00 (aggregate - $5,000,000), is 
             convertible into 1.25 shares of common stock (aggregate 1,250,000 
             shares) at any time and is entitled to cumulative quarterly 
             dividends at the annual rate of $.425 (aggregate - $425,000) and 
             may, at the Company's option, be paid either in cash or in shares
             of the Company's common stock valued at the then market price. In 
             connection with the September 1996 offering (see below), the 
             Company has agreed that it will not pay dividends on the Series A 
             Stock in shares of Common stock without the consent of the 
             underwriter through March 1998. Each Class B warrant is exercisable
             for .25 of a share of common stock at a price of $8.00 per share 
             through December 1997. The Company may redeem the Class B Warrants
             at a price of $.01 each if the defined market price of the
             Company's common stock is at least $10.40 per share.

             In June 1996, the Company issued $500,000 principal amount of 10% 
             promissory notes ("Bridge Notes") together with 500,000 warrants 
             ("Bridge Warrants") for gross proceeds of $500,000. In connection 
             with this transaction, the Company incurred expenses of $137,503 
             which were recorded as deferred financing costs (included in other 
             assets) and were charged to operations over the term of the Bridge
             Notes. The Bridge Notes bore interest at the rate of 10% per annum 
             and were repaid from the proceeds of the Company's September 1996 
             offering of securities. In connection with this offering, the 
             Bridge Warrants were converted to redeemable warrants having terms 
             identical to those sold by the Company in such public offering.


                                      F-12


<PAGE>   58


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3  -    PUBLIC OFFERING OF SECURITIES - CONTINUED
             -----------------------------------------
             
             On September 17, 1996, the Company completed a public offering of 
             its securities, selling 2,000,000 units at a price of $4.00 each 
             and a 45 day option (which was exercised) to the underwriter for 
             300,000 units at a price of $3.60 each. Net proceeds were 
             $7,600,008. Each unit consists of four shares of common stock 
             (aggregate - 9,200,000) and two Redeemable Warrants (aggregate -
             4,600,000). Each Redeemable Warrant is exercisable for one share 
             of common stock at a price of $1.75 through September 2001 and is 
             subject to redemption by the Company at a price of $.05 under 
             certain circumstances commencing in September 1997.

NOTE 4  -    PENDING ACQUISITION OF GROSSO-JACOBSON ENTERTAINMENT CORP.
             ----------------------------------------------------------

             On September 15, 1997 the Company signed definitive agreements 
             with respect to a transaction first announced in late April 1997, 
             to acquire 100% of the outstanding stock of the three entities 
             that comprise the New York, Los Angeles and Toronto based Grosso-
             Jacobson Companies (the "Pending Grosso-Jacobson Transaction"). 
             The acquired  companies are: the Grosso-Jacobson Entertainment
             Corporation, Grosso-Jacobson Productions, Inc. and Grosso-Jacobson 
             Music Company, Inc. (the "Grosso-Jacobson Companies"). To implement
             the Pending Grosso-Jacobson Transaction, the Company formed three 
             new subsidiaries which, upon closing, will merge with Grosso-
             Jacobson Companies pursuant to three substantially identical merger
             agreements (the "Merger Agreements"). The total consideration to 
             be paid upon closing to Salvatore Grosso and Lawrence S. Jacobson, 
             the sole shareholders of the Grosso-Jacobson Companies, pursuant 
             to the Merger Agreements will be $8,000,000, payable through the
             issuance of an aggregate of 6,666,666 shares of the Company's 
             Common Stock valued at an issue price of $1.20 per share 
             (the "Merger Shares").

NOTE 5 -     RELATED PARTY TRANSACTIONS
             --------------------------

             During the year ended June 30, 1996, an agreement to provide the 
             services of the present Chief Executive Officer was terminated and 
             the outstanding balance of advances, including accrued interest, 
             in the aggregate amount of $68,016 was forgiven by the Company.

             During the year ended June 30, 1996, the Company entered into 
             agreement to provide substantially similar services with a company 
             of which the adult children of this Chief Executive Officer are the
             sole members (the "Loan-Out Company"). This agreement provides for 
             base compensation and other direct payments through June 30, 1998 
             in the annual amount of $280,000. The Company also entered into
             an employment agreement with its Chief Executive Officer which 
             provides for annual compensation of $50,000 through June 30, 1998.


                                      F-13


<PAGE>   59


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 -         RELATED PARTY TRANSACTIONS - CONTINUED
                 --------------------------------------

                 During the year ended June 30, 1996, the Company sold an
                 aggregate of 525,000 shares of its common stock to related
                 parties in exchange for an aggregate of $1,050,000
                 principal amount of promissory notes. Of these shares,
                 500,000 were sold to the Loan- Out Company for $1,000,000
                 principal amount of promissory notes and 25,000 shares
                 were sold to a then officer and director of the Company
                 for $50,000 principal amount of promissory notes. The
                 principal amounts of the promissory notes received by the
                 Company are payable as follows: April 1, 1997- $131,250;
                 October 1, 1998 - $131,250; and October 1, 2000 -
                 $787,500. Interest on these notes is computed at an annual
                 rate of 7%, compounded semi-annually and is payable with
                 the principal of the notes. The notes are secured by the
                 purchased shares with the personal liability of the
                 purchaser limited to 25% of the principal amount
                 (aggregate - $262,500) plus accrued interest thereon.

                 Effective June 30, 1997 the Loan-Out company agreed to
                 return the shares to the Company to be canceled and the
                 Company agreed to cancel the promissory notes. The
                 Loan-out company has agreed to pay the Company the 25%
                 maximum personal liability ($50,631) accrued interest at
                 June 30, 1997 and the balance of $129,142 accrued interest
                 was written off.

                 The former officer and Director of the Company has not
                 paid the first installment due on April 1, 1997, of $6,250
                 principal plus accrued interest under his $50,000
                 promissory note related to the purchase of the 25,000
                 shares of Common stock described above. The Company made
                 demand for this payment and foreclosed on the 25,000
                 shares of Common Stock which were the collateral securing
                 the promissory note. The note balance including $4,000 of
                 interest has been written off as of June 30, 1997 and the
                 25,000 shares of common stock have been canceled.

                 During the year ended June 30, 1994, the Company acquired
                 DSL Productions, Inc. and its affiliates ("DSL") in
                 exchange for 32,500 shares of its previously unissued
                 common stock. Prior to its acquisition by the Company, DSL
                 had made unsecured loans to its President. These loans
                 bore interest at 4.5% and aggregated (including accrued
                 interest) approximately $402,000. The former owner of DSL
                 had made advances to DSL prior to its acquisition by the
                 Company. These advances aggregated $2,687,000 at the date
                 of acquisition of DSL by the Company. A total of
                 $1,887,000 of these advances were subsequently repaid. The
                 $800,000 balance of these advances was payable out of
                 revenues, as defined, received from certain completed
                 projects.



                                      F-14


<PAGE>   60


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 5 -         RELATED PARTY TRANSACTIONS - CONTINUED
                 --------------------------------------

                 During the year ended June 30, 1996, the Company, the
                 former President of DSL and the former owner of DSL
                 settled all litigation between them. In pertinent part,
                 this settlement provided for the payment to the Company of
                 $308,000, elimination of the note receivable from the
                 former President of DSL, the transfer of a completed
                 project with a carrying amount of $222,980 to DEG and the
                 release of the Company's obligation to pay the former
                 owner of DSL a portion of future revenues from certain
                 completed projects. In connection with this settlement,
                 the Company reduced its accounts payable and accrued
                 expenses by $255,455 representing the amounts previously
                 recorded related to DSL and this litigation and also sold
                 its investment in DEG for $209,500 in cash. The effect of
                 this settlement has been reflected in the accompanying
                 June 30, 1996 consolidated statement of operations as a
                 separate item.

                 In January 1997, the Company agreed to compensate a
                 present outside Board member for his executive producer
                 services on a television movie project entitled
                 "Marabunta". At June 30, 1997 the project is in production
                 and the Board Member is being paid $75,000 and is entitled
                 to 60% of the project's net profit (as defined).

                 During fiscal year June 30, 1997, the Company paid the
                 legal firm of which the current Chairman of the Board is a
                 partner approximately $273,000 for legal services.



NOTE 6           SETTLEMENT OF LITIGATION

                 During the year ended June 30, 1997, the Company settled
                 certain litigation relating to DSL Entertainment JV by
                 paying $50,000 in cash and issuing 32,500 shares of the
                 Company's Common Stock valued at $1.125 per share to
                 Cypress Entertainment LP.

                 On November 4, 1996, the Company settled its litigation
                 with a former officer and Director in a negotiated
                 stipulated settlement filed with the Los Angeles County
                 Superior Court that required the Company to make aggregate
                 payments of $575,000 in exchange for an agreement by this
                 individual not to compete with the Company through
                 December 31, 1998.




                                      F-15


<PAGE>   61


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 7  -        DISTRIBUTION RIGHTS
                 -------------------

                 During the year ended June 30, 1995, the Company
                 transferred a completed television series with a net
                 carrying value of $291,241 in exchange for the right to
                 receive a portion of the distribution revenue from the
                 series. This amount has been written down by $95,136 to
                 reflect the present value of this right. During the year
                 ended June 30, 1996, the Company sold the domestic
                 distribution rights to one of its fully amortized
                 completed projects in exchange for a $260,000 principal
                 amount promissory note. Required principal payments on
                 this note are as follows: June 14, 1997 - $100,000; June
                 14, 1998 - $100,000; and June 14, 1999 - $60,000. Interest
                 is computed at the annual rate of 12% and is payable with
                 each principal payment. The note is secured by the
                 distribution rights sold and requires mandatory
                 repayments, both as to principal and interest, in an
                 amount equal to 85% of the distribution revenues received
                 from this series. This promissory note is in default since
                 the first installment was not received by the Company and
                 the $260,000 note receivable and accrued interest of
                 $32,159 has been written off as uncollectible as of June
                 30, 1997.


NOTE 8 -         FILM COSTS
                 ----------

                 Film costs consists of the following:


                    Completed projects                           $   5,989,327

                    Less: accumulated amortization                   5,839,327
                                                                 -------------
                    Released, net of amortization                      150,000
 
                    Productions in progress                          1,579,840

                    Projects in development                            414,619
                                                                 -------------
                                                                 $   2,144,459
                                                                 =============
                     
                    During the year ended June 30, 1996, completed projects
                    with a cost of $6,698,227 were fully amortized and their
                    cost and related amortization were removed from the
                    accounts. During the year ended June 30, 1996, the
                    carrying amount of certain completed projects were reduced
                    by $235,662 representing the amount previously recorded as
                    accounts payable and accrued expenses for additional
                    expenditures relating to these projects that were not
                    incurred.


                                      F-16


<PAGE>   62


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 8 -     FILM COSTS - CONTINUED
             ----------------------

             Write-offs of projects in development for the years ended June 30, 
             1997 and 1996 aggregated $212,920 and $335,233, respectively. 
             Based on management's present estimate of future revenues at June 
             30, 1997, substantially all of the unamortized costs of completed 
             projects will be amortized by June 30, 1999.

NOTE 9  -    STOCK OPTIONS AND WARRANTS
             --------------------------

             The Company's stock option plan authorizes the granting of stock 
             options to officers and key employees to purchase an aggregate of 
             250,000 shares of common stock. No options may be granted after 
             August 1999. The Company may also grant other stock options outside
             its stock option plan. As of June 30, 1996, an aggregate of 626,916
             stock options had been granted at prices ranging from $1.12 to 
             $13.00 per share. During the year ended June 30, 1997, an aggregate
             of 260,000 stock options were granted at prices ranging from $1.12 
             to $1.75 per share and 88,333 options at $1.12 to $13.00 expired 
             or were canceled. All of the 798,584 stock options outstanding at 
             June 30, 1997 are exercisable.

             The Company is using APB Opinion No. 25 "Accounting for Stock 
             Issues to Employees" to calculate the compensation expense related 
             to the grant of options to purchase Common Stock under the 
             intrinsic value method. Accordingly, the Company made no 
             adjustments to its compensation expense or equity accounts for the 
             grant of options for the years ended June 30, 1997 and 1996. 

             If the Company had adopted FASB 123 "Accounting for Stock Based
             Compensation" in its accounting treatment for employees, then the
             Company would have recognized compensation expense related to the
             granting of stock options. Using the Black-Scholes pricing model to
             evaluate the fair market value of the options, the Company would
             have recorded a compensation expense of $141,458 for vested options
             in fiscal 1997. This additional expense would have increased the
             net loss to ($5,113,586) or ($.48) per share for the year ended
             June 30, 1997. 

             In addition to the 4,600,000 Redeemable Warrants exercisable at
             $1.75 per share of Common Stock issued in connection with the
             September 1996 public offering, there are approximately 927,554
             other outstanding warrants. As part of a June 1996 private
             placement of $500,000 aggregate principal amount of 10% promissory
             notes ("Bridge Notes"), 500,000 "Bridge Warrants" were issued. Upon
             repayment of the Bridge Notes in September 1996, the Bridge
             Warrants were automatically exchanged for 500,000 Redeemable
             Warrants exercisable at $1.75 per share. The Company has other
             existing warrants outstanding to purchase an aggregate of 427,554
             shares of Common Stock at prices ranging from $7.70 to $14.40 per
             share. There were a total of approximately 5,527,554 warrants
             outstanding as of June 30, 1997.


                                      F-17


<PAGE>   63


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9  -        STOCK OPTIONS AND WARRANTS - CONTINUED
                 --------------------------------------

                 In connection with its December 1994 public offering the
                 Company issued warrants to the underwriter to purchase
                 100,000 units consisting of an aggregate of 100,000 shares of 
                 Series A Stock and 25,000 Class B Warrants at a price of $7.00
                 per unit.


NOTE 10  -       EMPLOYMENT AGREEMENTS
                 ---------------------

                 The Company has entered into agreements for the services of 
                 certain of its officers and others. These agreements expire 
                 through June 30, 1999 and provide for approximate aggregate 
                 base payments as follows for the years ending June 30, 1998 - 
                 $745,000 and 1999 - $212,500 ($1,212,500 including Grosso-
                 Jacobson). Certain of these agreements provide for payments 
                 by the Company in the event of death, disability, termination 
                 or a change in control of the Company.


NOTE 11 -        INCOME TAXES
                 ------------

                 The Company files its income tax returns using an October 31 
                 year-end. At June 30, 1997 the Company has net operating loss 
                 (NOL) carryforwards which, if not used, will expire as follows:
<TABLE>
<CAPTION>


Tax Year End
  October 31,                     Federal               California
  -----------                     -------               ----------
<S>                           <C>                     <C>         
    1997                       $         0            $    377,569
    1998                                 0                 435,994
    1999                                 0               1,690,608
    2000                                 0               1,759,834
    2001                                 0               1,533,133
    2002                                 0               1,236,964
    2005                           755,137                       0
    2006                           871,987                       0
    2008                         3,381,216                       0
    2009                         3,519,668                       0
    2010                         3,066,267                       0
    2011                         2,473,928                       0
                                ----------            ------------

Net operating loss 
    carryforward               $14,068,203            $  7,034,102
                               ===========            ============


</TABLE>

                                      F-18


<PAGE>   64


             THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 -             INCOME TAXES - CONTINUED
                      ------------------------

<TABLE>
<CAPTION>

<S>                                       <C>       
Deferred tax assets                       $5,437,000
Less valuation allowance                  (5,437,000)
                                          ----------

                                          $        0
                                          ==========
</TABLE>

                 Utilization of the NOL carryforwards in any one year may
                 be limited by, among other things, alternative minimum tax
                 rules and restrictions caused by changes in the Company's
                 stock ownership (Internal Revenue Code Section 382). The
                 1996 ownership changes result in an annual Sec. 382 NOL
                 limitation of approximately $945,700.



NOTE 12  -       COMMITMENTS AND CONTINGENCIES
                 -----------------------------

                 During September 1997, the Company relocated its office and 
                 entered into a new operating lease arrangement. The Company's 
                 office lease provides for a minimum annual base rental and 
                 payment of certain defined operating expenses. The old lease 
                 expired September 30, 1997 and the minimum rent payable for the
                 years ending June 30 are as follows: 1998 - $57,195. The new 
                 lease expires November 30, 1999 and the minimum rent payable 
                 for the years are as follows: 1998 - $214,110, 1999 - $214,110,
                 and 2000 - $89,215. Rent expense for the years ended June 30, 
                 1996 and 1997 was $149,607 and $251,171, respectively.

                 The Company is a party to various agreements relating to its 
                 properties that provide for payments to others upon sale, 
                 production and/or distribution of the property. Other 
                 agreements provide for participation by others in the net 
                 revenues and/or profits from completed projects.

                 In the normal course of its business, the Company is subject to
                 various lawsuits and claims. The Company believes that the 
                 final outcome of these matters, either individually or in the 
                 aggregate, will not have a material effect on its consolidated 
                 financial statements.


                                      F-19