<PAGE>

================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                               -----------------

                                   FORM 10-K

                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
   For the fiscal year ended December 31, 2001
                                      OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
   For the transition period from              to
                       Commission file number 000-29642
                               -----------------

                               FILM ROMAN, INC.
              (Exact name of registrant as specified in charter)

                      Delaware                 95-4585357
                   (State or other          (I.R.S. Employer
                    jurisdiction         Identification Number)
                 of incorporation or
                    organization)

                      12020 Chandler Boulevard, Suite 300
                       North Hollywood, California 91607
              (Address of principal executive offices) (Zip Code)
      Registrant's telephone number, including area code: (818) 761-2544
                               -----------------

              Securities registered pursuant to 12(b) of the Act:
                                     None
              Securities registered pursuant to 12(g) of the Act:
                         Common Stock, $.01 par value
                               (Title of Class)

   Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. YES [X]  NO [_]

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

   As of March 15, 2002, the aggregate market value of Film Roman's common
stock, par value $0.01 per share ("Common Stock") held by nonaffiliates of the
registrant was approximately $1,801,315 (based upon the last reported sales
price of the Common Stock as reported by the National Association of Securities
Dealers Over the Counter Bulletin Board ("NASD OCTBB"). Shares of Common Stock
held by each executive officer, director, holder of greater than 10% of the
outstanding Common Stock of the registrant and persons or entities known to the
registrant to be affiliates of the foregoing have been excluded in that such
persons may be deemed to be affiliates. This assumption regarding affiliate
status is not necessarily a conclusive determination for other purposes.

   As of March 22, 2002, 8,577,690 shares of Common Stock were outstanding.

   The Exhibit Index appears on page 25.

                      Documents Incorporated by Reference

   Portions of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders to be held May 22, 2002 are incorporated by reference to Items 10,
11, 12 and 13 of Part III.

================================================================================

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              Page
                                                                              ----
<C>          <S>                                                              <C>
PART I.......................................................................   1
   Item 1.   BUSINESS........................................................   1
             Overview........................................................   1
             2001 Milestones.................................................   2
             Strategy........................................................   2
             The Company's 2001 Production Schedule..........................   3
             Principal Elements of the Company's Business....................   4
             Government Regulations..........................................   8
             Trademarks......................................................   9
             Employees.......................................................   9
   Item 2.   PROPERTIES......................................................   9
   Item 3.   LEGAL PROCEEDINGS...............................................   9
   Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............   9

PART II......................................................................  10
   Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS.............................................  10
   Item 6.   SELECTED FINANCIAL DATA.........................................  11
   Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS.......................................  12
             General.........................................................  12
             Transaction with Pentamedia Graphics, Ltd.......................  13
             Business Activities.............................................  13
             Industry Accounting Policies....................................  14
             Results of Operations...........................................  14
             Liquidity and Capital Resources.................................  16
             Change in Accounting Principle..................................  17
             Risk Factors....................................................  17
   Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......  20
   Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................  20
   Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE........................................  20

PART III.....................................................................  21
   Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............  21
             Executive Officers and Directors................................  21
   Item 11.  EXECUTIVE COMPENSATION..........................................  23
   Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT......................................................  23
   Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................  23

PART IV......................................................................  23
   Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  23

SIGNATURES...................................................................  24

INDEX TO EXHIBITS............................................................  25
</TABLE>


<PAGE>

   SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION.  This Report contains
statements that constitute "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. The words "expect," "estimate,"
"anticipate," "predict," "believe," "plan," "should," "will," "may," "projects"
and similar expressions and variations thereof are intended to identify
forward-looking statements. Such statements appear in a number of places in
this filing and include statements regarding the intent, belief or current
expectations of the Company, its directors or officers with respect to, among
other things, (a) trends affecting the financial condition or results of
operations of the Company, (b) the business and growth strategies of the
Company, and (c) the Company's objectives, planned or expected activities and
anticipated financial performance. The stockholders of the Company are
cautioned not to put undue reliance on such forward-looking statements. Such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in this Report, for the reasons, among others, discussed in the
Section "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors." The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission, including the Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K filed by the Company.

                                    PART I

Item 1.  BUSINESS

Overview

   Film Roman, Inc. ("Film Roman" or the "Company") develops, produces and
distributes a broad range of television programming for the television network,
cable television, first-run domestic syndication and international markets. The
Company was founded in 1984 and has grown into one of the leading independent
animation studios in the world. Film Roman has produced and is producing some
of the world's best known animated series including The Simpsons, King of the
Hill, X-MEN, The Mask, Bobby's World, The Twisted Tales of Felix the Cat, and
Garfield & Friends. Over the years the Company has primarily produced animation
for television, both on a fee-for-services and a proprietary basis. While the
Company is currently aggressively pursuing both of these areas, the Company is
also continuing expansion of its production capabilities into live action, and
expansion of its animation beyond television, including motion pictures, cable,
direct-to-video, commercials, and the Internet. As the Company moves into these
other areas, it is also responding to the changes that are taking place in the
media and entertainment areas.

   Over the past few years there has been a consolidation of media and
entertainment companies. Management believes that this consolidation has
created both an obstacle and an opportunity for content creators and producers
such as Film Roman. On the one hand, consolidation presents an obstacle because
the many delivery channels are concentrated in few hands; on the other hand, it
represents an opportunity because these distribution outlets have a continuing
need for content, and, with the possible exception of the children's television
market, it has become apparent that these outlets cannot supply all of the
content through their vertically integrated affiliated companies. These
distributors all compete for the content that a limited number of creators and
producers can provide. Most major media distributors have a series of strategic
relationships in order to supply their continually growing need for content.

   As management moves toward creating, selling and producing content for a
wide range of distribution outlets, including television, motion pictures, made
for cable productions, and direct-to-video productions, both in its core
business of animation and in live action, the Company intends to use its
relationships developed from these endeavors to forge a series of strategic
relationships with major distributors. If Film Roman is successful in
establishing one or more of these types of relationships, management believes
the Company will be in a better position to produce its own proprietary
projects as well as produce fee-for-services projects for its partners.


                                      1

<PAGE>

   It is management's goal to more firmly establish Film Roman as a broadbased
developer, packager and producer of programming, whether it is for a 10-second
commercial, a 2-hour motion picture, or a 10-hour mini-series, on both a
fee-for-services and proprietary basis.

2001 Milestones

  .  Continued production and delivery of King of the Hill (20 episodes
     delivered for Twentieth Century Fox, airing on the Fox Broadcast Network)
     and The Simpsons (18 episodes delivered for Twentieth Century Fox, airing
     on the Fox Broadcast Network) and X-MEN (18 episodes delivered for the
     Kids WB Network, airing on The WB Network).

  .  Completed the balance of production of The Oblongs, a new primetime
     animated series, on a work-for-hire basis (2 episodes delivered to Warner
     Bros. Television intended for broadcast on The WB Network).

  .  My First Mister, the Company's first live action film, was distributed
     theatrically by Paramount Classics, and was third party financed.

  .  Produced and delivered to the Disney Channel the Company's second live
     action movie of the week, Motocrossed.

  .  Produced with Universal Family & Home Entertainment Production, Inc.
     ("Universal Home Entertainment") the Company's first action
     direct-to-video two-hour film, Hood Ratz.

  .  Completed production of its first 3D animated television special Santa
     Claus Brothers with Nelvana for the Disney Channel.

  .  Produced and delivered a digitally animated pilot, Werner, for a series
     both on the Internet and via television to be distributed by Platinum
     Studios.

  .  Reached an agreement to produce 13 episodes of Tripping the Rift for one
     of the large cable networks.

  .  Co-sponsored with Direct TV an animation competition with the winners
     being part of an hour-long special, produced by the Company and
     broadcasted by Direct TV.

Strategy

   Building on the cornerstone of its reputation as a quality animation
supplier to the U.S. and international broadcast marketplaces, the Company is
currently pursuing animation development, both on a proprietary and on a
fee-for-services basis with a more aggressive approach on fee-for-services
projects.

  .  Create and Develop Popular Proprietary Productions.  The Company believes
     that it has the capacity to create successful franchises in the animated
     television, computer animation and direct-to-video industries. The Company
     further believes that its reputation for high-quality animation and
     artistic integrity helps it to attract premiere creative artists and
     storytellers whose characters and concepts, when imaginatively developed
     and artistically produced, have the potential of developing into character
     franchises.

  .  Continue to Pursue Work-for-Hire Productions.  Capitalizing on its
     reputation as one of the premiere producers of high quality animation, the
     Company believes that it can pursue work-for-hire animated productions on
     an opportunistic basis to use its production capability to increase the
     Company's revenues and profitability.

  .  Strategically Expand Digital Capabilities.  The Company is expanding its
     ability in the digital and computer generated imaging ("CGI") areas. The
     Company believes that this expansion will enhance its ability to compete
     in a broad range of animation, special effects and graphics. This will put
     the Company in a preferred position in the broad industry that will emerge
     when technology, graphics and animation converge.

                                      2

<PAGE>

  .  Continue to Pursue Live Action Television.  The Company produced two
     one-hour live action television movies, Johnny Tsunami (2000) and
     Motocrossed (2001), for the Disney Channel. The Company is continuing to
     pursue live action television projects and is also developing low budget
     reality programs.

  .  Pursue Production Relationships. The Company intends to continue to pursue
     and evaluate potential opportunities with domestic and international
     co-financing partners, with the goal that risks may be shared,
     complementary skills may be exploited and foreign subsidies may be
     utilized in the production of new entertainment properties.

  .  Establish an Internet Presence. In late 1999, the Company established
     Level 13.net ("Level 13"). Level 13 serves as an experimental site where
     the Company can exhibit its product to obtain audience response. It also
     serves as a site to exhibit the more than 150 animated shorts the Company
     has licensed.

  .  Reduce Overhead and Development Costs. The Company has continued to
     realign its management structure and reduce its general overhead on a go
     forward basis to streamline operations and substantially reduce costs.
     Further, the amount of development money spent on any individual project
     has been greatly reduced and the projects being developed are more
     deliberately targeted at specific buyers, thereby reducing the overall
     costs of development and overhead associated with that development, while
     at the same time increasing the likelihood of selling projects in each
     area of the Company's production objectives.

   The Company believes its reduced overhead, realigned management and focused
development will allow the Company to invest its time and dollars more
successfully in a broad and diverse range of programming. This diverse
production should ultimately lead to strategic distribution relationships that
will generate both proprietary and fee-for-services animation and live action
productions. There can be no assurance that the Company will be successful in
implementing any or all aspects of this strategy. The discussion of the
Company's strategy contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Actual results could differ materially from those
projected in these forward-looking statements as a result of certain risk
factors described elsewhere in this Report or other factors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors."

   The Company is a Delaware corporation with its principal executive offices
located at 12020 Chandler Boulevard, Suite 300, North Hollywood, California
91607, and its telephone number is (818) 761-2544.

The Company's 2001 Production Schedule

   The Company has historically been a major producer of animated primetime,
first run syndicated, and Saturday morning programming. The market for these
programs is composed of television networks (ABC, CBS, NBC, FOX, UPN and Warner
Bros.), syndicators of first run programming that license programming on local
stations nationwide (Columbia-Tristar, Universal, Paramount, Fox, MGM and
Viacom), and cable networks and services (USA, Disney Channel, Fox Family, HBO,
Showtime and TNT).

   The Company is currently scheduled to produce the following programming for
the 2002-2003 broadcast season:

      The Simpsons.  The Company is scheduled to produce 22 new episodes of The
   Simpsons for exhibition over the Fox Broadcasting Network. Entering its
   fourteenth season and still the longest-running prime-time animated series
   in television history, The Simpsons has been honored with a number of
   awards, including a Peabody Award, Emmy Awards, Annie Awards, Genesis
   Awards, International Monitor Awards and Environmental Media Awards, among
   numerous other honors. The Simpsons has transformed the way the television
   industry and audiences perceive animation and comedy series in general.

                                      3

<PAGE>

      King of the Hill.  The Company is currently scheduled to produce 22 new
   episodes of King of the Hill to be exhibited on the Fox Broadcasting
   Network. King of the Hill is the hit half-hour, animated comedy, voted the
   Best Television Show of 1997 by TV Guide and Entertainment Weekly, that
   tells hilarious stories about Hank Hill, his family and their neighbors in
   the fictional suburb of Arlen, Texas, the heartland of America.

      X-MEN.  The Company is currently scheduled to produce 13 episodes of
   X-MEN, which airs Saturday mornings on the WB Network.

      Tripping the Rift.  The Company has a firm order from a major cable
   channel for 13 episodes of Tripping the Rift, which will be produced through
   a Canadian Company, CineGroupe.

      John Waters' Patent Leather Dream House.  The Company is developing this
   late-night half-hour series to be produced through CineGroupe.

      Save Your Ass.  The Company is currently developing this project for MTV.

      Capbusters.  The Company is currently offering this Level 13 original hit
   series to conventional media.

      Hairballs.  The Company is currently developing this late-night half-hour
   series.

      Projects in Development.  The Company is currently developing Twistin'
   Trash and Rex Riders for evening viewers and is developing Jumbies for the
   kids' market.

Principal Elements of the Company's Business

   The Company's business of developing, producing and distributing a broad
range of television programming for the television network, cable television,
direct-to-video, first-run domestic syndication and international markets is
described below.

   Fee-for-Services Productions.  Production work on a fee-for-services basis
has historically accounted for the largest and most reliable portion of the
Company's revenues. The Company intends to continue to pursue production work
on a fee-for-services basis, primarily for prime-time animated television
programming, as well as in the other new areas of production. During 2001, the
Company was engaged to produce 22 episodes of King of the Hill, 22 episodes of
The Simpsons, and 17 episodes of X-MEN. In 2001 the Company delivered
20 episodes of King of the Hill, 18 episodes of The Simpsons, 2 episodes of The
Oblongs and 23 episodes of X-MEN. In addition, the Company has been marketing
its commercial production services and during 2001 produced commercials for
Nestle, Suntory and Burger King. Management believes that the fee-for-services
business, with a particular emphasis on prime-time animation shows, will remain
a cornerstone of the Company's business, and intends to pursue additional work
as such shows become available.

   Acquisition, Creation and Development of Proprietary Programming.   The
Company pursues ideas and properties it believes contain unique and commercial
story lines and/or characters. These ideas and properties may originate from a
variety of sources. As a result of the Company's reputation and position in the
entertainment industry, many creators, rights holders, writers, broadcasters
and studios bring new concepts to the Company for development and production.
The Company may enter into an option agreement to acquire rights to an existing
property, which the Company may then develop internally into either an
animation or live action program. The Company will then take the project to the
networks or the studios for further development, financing and/or distribution.

   Once the Company has created this new idea or acquired the rights to the
existing property, the Company continues the development process by preparing a
presentation to "pitch" the project to a domestic buyer (and, on some
occasions, to international broadcasters). These presentations generally
consist of treatments, story premises, scripts, artwork, designs and/or
character designs and/or test animation or presentations. With respect to
television production, if a broadcaster or cable network is interested in
developing the idea further, the

                                      4

<PAGE>

broadcaster will generally acquire an exclusive option to order the production
of a certain number of episodes based on the idea and will agree to reimburse
the Company for all or a portion of the development costs if it does not
ultimately order production of any episodes. A broadcaster generally
collaborates in the later stages of development and will have the right to
approve the selection of the writers, directors, artists, and actors, and the
creation of a pilot script. The creation, acquisition and development of a new
program can take three to twelve months, and sometimes longer.

   In the case of the Company's animated shorts acquisition program, the
Company may determine that it is in its best interest to finance 100% of the
programming that the Company may make available to Level 13, or produce a
particular program in its own facility.

   The Company is currently developing:

  .  A slate of proprietary animated programs including prime-time, Saturday
     morning, and teen-oriented projects. These projects will depend, in
     varying degrees, on the Company's ability to arrange for U.S. broadcast,
     worldwide distribution, and/or international co-production.

  .  Live action series and specials, ranging from prime-time dramas and
     comedies to Saturday morning children's programs.

  .  A number of computer animated short films, which the Company believes can
     be utilized as character tests and concept trials. These shorts, in
     addition to those acquired from third parties, may serve as the basis for
     new television series or feature films, and can be distributed via the
     Company's website, www.level13.net (See "Distribution of Proprietary
     Programming--Animation Acquisition/Alternative Distribution").

   Securing Funding for Proprietary Programming.  Historically, the Company
produced animated programming almost exclusively on a "fee-for-services" basis.
In 1995 the Company began producing proprietary animated programming. The
Company generally does not commence production on proprietary programming,
whether animated or live action, unless the Company has obtained commitments to
cover a portion of the Company's direct production costs. The Company generally
secures these commitments in one or both of the following ways: (i) a
combination of network, cable, syndication, or other license fees for
exploitation of the program in the United States, and (ii) pre-sale to
distributors and/or co-production partners in foreign territories. The Company
typically funds the balance of the production costs on a current basis. Since
the Company began producing proprietary programming in 1995, the Company has
delivered 96 half-hour episodes and 12 one-hour episodes of proprietary
programming.

   The Company intends to approach the development and production of live
action proprietary programming in much the same way as it does animated
programming. In most cases the Company intends to have pre-negotiated
distribution for the project, which distribution commitments will be an
integral factor in financing and commencing production of such programming. The
Company currently intends only to invest in the production of a program if the
Company secures a guaranteed distribution agreement from a major television
network, cable network, syndication company or substantial co- production
partner.

   While the Company generally seeks to limit its financial risk associated
with its proprietary programming by obtaining commitments from third parties
prior to production to cover a portion of its direct production costs, there
can be no assurance that the Company will be able to cover the balance of its
production costs and overhead costs relating to production, licensing and
distribution through the exploitation of its remaining rights. The Company may
not cover its costs for the following reasons: (i) a proprietary program may be
cancelled; (ii) a proprietary program and/or its related licensed products may
not appeal to the Company's targeted audience or may not appeal to the same
audience targeted by a licensee; (iii) the Company and/or its licensee may not
effectively market and distribute the Company's programming domestically or
internationally; or (iv) the actual production costs may exceed the original
budget. Moreover, since certain international distribution arrangements and
other domestic and international licensing activities are conditioned upon the
United States broadcast of a

                                      5

<PAGE>

minimum number of programming episodes on a network or cable channel, no
assurance can be given that any series will be broadcast in the United States
for a sufficient period in order to meet these contractual conditions.

  Production

   Animated Television Production.  The Company generally commences production
of animated television programs during the first and second quarters of any
calendar year for delivery commencing during the third quarter, and to a
greater extent, the fourth quarter of that same year. The Company typically has
seven to nine months to produce and deliver an order of thirteen (13) half-hour
episodes (the number of episodes commonly ordered for the first year of a
program). As discussed above, the Company's animation strategy is to continue
to pursue both fee-for-services and proprietary production opportunities. While
the processes involved in producing an animated show are similar for both
proprietary and fee-for-services programs, the Company may not be responsible
(especially in the case of fee-for-services work) for the entire production
process as outlined below.

   The first step of the Company's production process is generally the creation
of the script. The Company will generally select a story editor to supervise
the preparation of each episode's script by various freelance scriptwriters.
The artists depict the story and action in storyboards, which provide a
blueprint for the animation process. Voices and songs are recorded and the
recordings are analyzed and timed so that the animation can be synchronized to
the voice track. Based on the script and storyboard, the Company's artists
create character designs, as well as key background drawings and paintings.
These essential elements are assembled into a pre-production package for each
episode that is then shipped to an overseas subcontractor. Subcontractors use
the pre-production materials to perform most of the labor-intensive aspects of
production. Most of these subcontractors are located in low-cost labor
countries in the Far East, including South Korea, Taiwan, China and the
Philippines. The subcontractor ships the negative and work print for each
episode to the Company. The film is then taken through a post-production
process, which includes editing the picture and dialogue, transferring the
filmed images to videotape, creating sound effects, composing and producing the
musical score and mixing and synchronizing the sound to the picture. After the
postproduction process, an episode is ready for delivery.

   Live Action Television Production.  Live action television productions
typically follow a production process similar to animation. Independent
producers such as the Company generally make sales presentations to the
broadcast networks and cable channels during the spring and fall seasons and
receive orders for production beginning in the early summer or early winter.
Once an initial series or pilot script has been ordered, the independent
producer hires a writer approved by the broadcaster, syndication company or
cable channel, that is, the distributor, to write the initial episodes of a
series or a pilot. Once the pilot script is delivered to the distributor, the
distributor decides whether to order a pilot or episodes to be produced. Most
broadcasters and cable channels order pilots before ordering multiple episodes
of a series, while a syndication company usually orders multiple episodes.
Generally the broadcast networks order a small number such as six (6) to eight
(8) episodes for a new series, while the cable networks or syndication company
order thirteen (13) to twenty-two (22) episodes. Once a pilot or multiple
episodes are ordered, the independent producer hires the staff of actors,
writers and directors and a sound stage with the light, camera and grip
equipment necessary to produce a live action series. All of the staff and the
equipment involved in a live action production are assigned to the specific
production. The independent producer edits the footage shot on the sound stage,
mixing the video images with sound and music, and delivers a finished program
to the distributor.

   Computer Animation Production.  The Company has the ability and computer
equipment to produce 2D, 3D and CGI animation. The Company has produced a
digitally animated pilot, Werner, for Platinum Studios, an animated opening
title sequence for Busch Entertainment's live action theme park film, R.L.
Stine's Haunted Lighthouse and a commercial spot, PDFA, for Partnership for a
Drug Free America.

   Feature Film Production.  The Company no longer funds development of feature
films and has closed that department. The Company continues to passively
participate in two action films: My First Mister and Hood Ratz, and three
motion pictures: The Greatest American Hero being developed by Disney, Monkey
in the Hole being developed by SpyGlass Entertainment, and Heist being
developed with Hyde Park Entertainment.

                                      6

<PAGE>

  Distribution of Proprietary Programming

   Domestic Television Distribution.  Prior to commencing production of its
proprietary programming, the Company generally licenses broadcast rights to a
United States broadcaster. See "Securing Funding Production for Proprietary
Programming." License fees paid by networks and cable networks for the
Company's proprietary programming can cover as much as 50% of the Company's
direct production costs. In some cases, notably for Saturday morning children's
programs, the license fees can be less than 20% of the Company's direct
production costs. License fees paid by first-run syndicators for the Company's
proprietary programming generally cover less than 50% of the Company's direct
production costs, and, under certain circumstances, first-run syndicators pay
no license fees. The Company may choose to enter into such a no-license-fee
arrangement when it can share in a portion of the revenues generated from the
sale of advertising aired by a syndicator during the broadcast of the Company's
programming and when the Company has obtained financing to cover a portion of
its direct production costs from sources other than the syndicator. If the
Company's program is highly rated in syndication, the Company may earn more in
revenues from advertisers (since those advertisers will often be willing to pay
higher fees to have their commercials aired during the broadcast of the
Company's program) than the Company would have earned in revenues from a
license fee arrangement with a syndicator that does not require the syndicator
to share advertising revenues with the Company. Conversely, if the Company's
program is poorly rated in syndication, the Company will likely earn less in
revenues than if it had negotiated to receive a license fee.

   The license agreement typically includes provisions governing the license
fee, the term during which the program will be broadcast, the number of
episodes and the territories in which the episodes will be broadcast. Upon the
expiration of an initial broadcast license, the exhibition rights for the
applicable program revert to the Company and are available for re-licensing.

   International Distribution.  Recently the international market for American
filmed entertainment has become increasingly fractionalized and competitive,
similar to the changes experienced in the U.S. In the face of an increasingly
difficult international marketplace, the Company believes that owning and
controlling the international distribution rights to its programming will be
necessary to (i) successfully finance projects; (ii) generate significant
revenue from the licensing of such programming; and (iii) support its related
international licensing and merchandising efforts. Furthermore, a strong
international division provides the Company with direct access to market
information and feedback, which is increasingly necessary to produce programs
that are marketable on a worldwide basis. In light of the fact that the
Company's library has not increased in some time, for most of 2001 the Company
has used a third party to distribute its library to reduce distribution costs.

   Home Video Distribution.  As described above, one part of the Company's
strategy to expand its product base is to enter the direct-to-video animation
and live action production and distribution business. The Company's first
direct-to-video production was Hood Ratz. The Company may provide, in some
cases, a portion of the production funds in return for distribution guarantees
and/or a substantial portion of the production funds from a major home video
distributor. The Company believes that it can create and develop high quality
popular direct-to-video animated and live action programming that can be
economically produced and exploited domestically and internationally.

   Animation Acquisition/Alternative Distribution.  In late 1999, the Company's
wholly owned subsidiary, Level 13 Entertainment, Inc., launched its website,
www.level13.net. The site is primarily targeted to adults in their twenties,
and focuses almost exclusively on animated short films, some of which were
acquired, some of which were commissioned and others of which were produced by
Level 13 or the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risk Factors--Risk Associated With
Possible New Businesses."

                                      7

<PAGE>

   Library.  The Company owns a library of proprietary entertainment and
intends to add future product by continuing to produce high quality
programming, including broadcast television, cable and direct-to-video
productions, which can be licensed and re-licensed in the world-wide
television, film and video marketplaces. Programming is typically licensed for
five-year cycles. A library of proprietary programming can provide a future
revenue stream, as such programs are re-licensed for broadcast after the
expiration of the initial broadcast license, but such revenue is typically at
reduced rates compared to the initial broadcast license. Programs in the
Company's library can also be licensed to new channels and outlets in emerging
markets around the world. Distribution of the library is currently handled
through an independent sales agent.

   The following matrix lists the titles currently in the Company's library,
along with the rights the Company possesses for each such title.

<TABLE>
<CAPTION>
                                           Domestic Distribution                       International Distribution
                                   -------------------------------------- ----------------------------------------------------
                                    Number of
                                    Episodes                    Home                      Home       Licensing &
           Series Title             Produced         TV         Video          TV         Video     Merchandising Interactive
           ------------            ------------ ------------ ------------ ------------ ------------ ------------- ------------
<S>                                <C>          <C>          <C>          <C>          <C>          <C>           <C>
The Twisted Tales of Felix the Cat 21 (x 2 hr.) (check mark) (check mark) (check mark) (check mark)      *
C-Bear and Jamal.................. 13 (x 2 hr.) (check mark) (check mark) (check mark) (check mark) (check mark)  (check mark)
BRUNO the Kid..................... 36 (x 2 hr.) (check mark) (check mark) (check mark) (check mark) (check mark)  (check mark)
Mortal Kombat..................... 13 (x 2 hr.) (check mark) (check mark) (check mark) (check mark)
The Mr. Potato Head Show.......... 13 (x 2 hr.) (check mark) (check mark) (check mark) (check mark)      *
</TABLE>
--------
*  The Company is entitled to certain licensing, merchandising, and toy revenue
   associated with The Twisted Tales of Felix the Cat and The Mr. Potato Head
   Show but does not control those rights.

   In addition to the series listed above, the Company owns approximately 149
animated short subjects ("shorts") of various lengths for which the Company has
Internet distribution or exhibition rights. The Company has also obtained
options to acquire all of the underlying proprietary rights on a number of
these shorts. Revenue from such projects has not been significant.

Government Regulations

   The Federal Communications Commission ("FCC") repealed its financial
interest and syndication rules, effective as of September 21, 1995. Those FCC
rules, which were adopted in 1970 to limit television network control over
television programming and thereby foster the development of diverse
programming sources, had restricted the ability of the three established, major
United States television networks (ABC, CBS and NBC) to own (or to be owned by)
a syndicated television programmer and to own financial interests in
programming aired on their networks. As a consequence, broadcasters have
continued to increase in-house productions of television programming for the
networks' own use and in the network programs in which a network holds a
financial interest. The Company believes that this change, compounded by the
vertical integration discussed above, has had a significant negative impact on
the Company's core animation business to the extent that the networks target
children's programming.

   Broadcast customers of the Company are subject to the provisions of the
Children's Television Act of 1990 and the implementing rules issued by the FCC.
These rules, which were amended in August 1996 and became fully effective in
September 1997, require television broadcast station licensees, over the term
of their licenses, to serve the educational and informational needs of children
through their overall programming and programming specifically designed to
serve such needs. The FCC strongly encourages broadcasters (through the license
renewal process) to air between the hours of 7:00 AM and 10:00 PM at least
three hours per week of regularly-scheduled programs each at least 30 minutes
in length that have as a significant purpose serving the educational and
informational needs of children aged 16 and under. Such programming must be
specifically identified as educational or informational programming. While the
Company is not subject to the direct jurisdiction of the FCC, these FCC
requirements may influence the content of the Company's programming in order
for the Company to place programs on FCC-licensed stations.

                                      8

<PAGE>

   The Company may be subject to local content and quota requirements in the
international markets, which effectively prohibit or limit access to particular
markets. The Company also seeks to comply with self-regulatory rules relating
to children's programming of the Children's Advertising Review Unit of The
Council of Better Business Bureaus and of the national television networks by
reviewing the proposed content of each property prior to acquisition and
acquiring rights to and distributing only those children's properties for which
there will be no material restrictions on exhibition to children.

Trademarks

   The Company has a registered service mark for the Film Roman name and logo.
The Company also has applications pending with the United States Patent and
Trademark Office to register several trademarks and service marks and the Level
13 name and logo. Pursuant to arrangements with the owners of the programs it
produces, the Company utilizes certain trademarks and copyrighted materials,
including The Simpsons, Garfield, Bobby's World, Felix the Cat, The Mask,
Richie Rich, Mortal Kombat, Mighty Max and King of the Hill.

Employees

   As of December 31, 2001, the Company had approximately 330 full-time
employees. The Company also regularly engages numerous freelance creative staff
and other independent contractors on a project-by-project basis. The Company is
subject to the terms in effect from time to time of various industry-wide
collective bargaining agreements, including agreements with the Screen Actors
Guild. The Company believes that its relations with its employees are good.

Item 2.  PROPERTIES

   The Company conducts its operations at its 87,000 square foot studio and
headquarters located in North Hollywood, California. These facilities are
occupied pursuant to a lease that expires in August 2003 (and contains a
renewal option). The Company also leases certain other production facilities
nearby its headquarters, none of which is considered material. The Company
believes that its current studio and headquarters' facilities are adequate to
meet its needs for the foreseeable future.

Item 3.  LEGAL PROCEEDINGS

   The Company is not a party to any material legal proceedings and is not
aware of any pending or threatened litigation that, if decided adversely to the
Company, would have a material adverse effect upon the Company's business,
results of operations or financial condition.

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

   No matters were submitted to a vote of security holders during the quarter
ended December 31, 2001.

                                      9

<PAGE>

                                    PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   The Company's Common Stock is quoted under the symbol "ROMN" on the NASD
OTCBB (Over the Counter Bulletin Board). The following table sets forth the
high and low closing sale price per share for the Common Stock for each quarter
since the quarter ended December 31, 1999.

<TABLE>
<CAPTION>
                                                    High     Low
                                                   ------- -------
              <S>                                  <C>     <C>
              2000
              1st Quarter......................... $2.3750 $1.4375
              2nd Quarter......................... $1.6250 $0.9375
              3rd Quarter......................... $1.3750 $0.7500
              4th Quarter......................... $1.0625 $0.3125

              2001
              1st Quarter......................... $1.0000 $0.3100
              2nd Quarter......................... $1.1500 $0.5000
              3rd Quarter......................... $1.0300 $0.5000
              4th Quarter......................... $0.6300 $0.3000

              1st Quarter (through March 15, 2002) $0.3000 $0.1800
</TABLE>

   On March 26, 2002, there were 47 stockholders of record, excluding the
number of beneficial owners whose shares were held in street name. The Company
believes that the number of beneficial holders is significantly in excess of
this amount.

   The Company has not paid dividends on the Common Stock since its inception
and does not anticipate paying dividends in the foreseeable future. Management
anticipates that all earnings and other cash resources of the Company, if any,
will be retained by the Company for investment in the business.

                                      10

<PAGE>

Item 6.  SELECTED FINANCIAL DATA

   The following selected financial data are derived from the Company's
consolidated financial statements. The selected financial data presented below
and under "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" should be read in conjunction with the Company's
consolidated financial statements, related notes, and other financial
information appearing elsewhere in this Report.

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                             ----------------------------------------------------------
                                                1997        1998        1999        2000        2001
                                             ----------  ----------  ----------  ----------  ----------
                                                   (in thousands, except per share and share data)
<S>                                          <C>         <C>         <C>         <C>         <C>
Statement of Operations Data:
Revenue..................................... $   42,296  $   32,946  $   48,605  $   44,552  $   44,088
Expenses:
   Cost of revenue..........................     43,013      32,670      48,684      43,106      45,345
   Selling, general and administrative
     expenses...............................      4,745       7,715       7,756       4,308       4,338
                                             ----------  ----------  ----------  ----------  ----------
Operating loss..............................     (5,462)     (7,439)     (7,835)     (2,862)     (5,595)
Interest income (expense), net..............        649         707         359         278          82
                                             ----------  ----------  ----------  ----------  ----------
Loss before cumulative effect of a change in
  accounting principle and provision for
  income taxes..............................     (4,813)     (6,732)     (7,476)     (2,584)     (5,513)
Cumulative effect of a change in accounting
  principle.................................         --          --          --          --        (364)
Provision for income taxes..................         --        (145)        (17)         (2)         --
                                             ----------  ----------  ----------  ----------  ----------
Net loss.................................... $   (4,813) $   (6,877) $   (7,493) $   (2,586) $   (5,877)
                                             ==========  ==========  ==========  ==========  ==========
Loss before cumulative effect of a change in
  accounting principle, per common share
  basic and diluted (1)..................... $    (0.57) $    (0.81) $    (0.88) $    (0.30) $    (0.64)
                                             ==========  ==========  ==========  ==========  ==========
Net loss per common share basic and
  diluted (1)............................... $    (0.57) $    (0.81) $    (0.88) $    (0.30) $    (0.69)
                                             ==========  ==========  ==========  ==========  ==========
Weighted average number of shares
  outstanding basic and diluted.............  8,453,440   8,507,026   8,523,609   8,523,682   8,571,560
                                             ==========  ==========  ==========  ==========  ==========
</TABLE>

<TABLE>
<CAPTION>
                                                As of December 31,
                                     ---------------------------------------
                                      1997    1998    1999    2000    2001
                                     ------- ------- ------- ------- -------
                                                  (in thousands)
   <S>                               <C>     <C>     <C>     <C>     <C>
   Balance Sheet Data:
   Cash and cash equivalents........ $15,986 $11,287 $ 7,558 $ 4,203 $ 2,777
   Film costs, net of amortization..  16,084  20,904  18,703  24,559  22,030
   Total assets.....................  34,379  34,749  28,150  30,400  26,173
   Stockholders' equity (deficiency)  18,974  12,098   4,611   2,084  (3,783)
</TABLE>
--------
(1) Common equivalent shares, consisting of outstanding stock options have not
    been included since they are
   antidilutive.


                                      11

<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

General

   Film Roman was founded in 1984 by renowned animator, Phil Roman, and has
grown into one of the leading independent animation studios in the world. Film
Roman has produced and is producing some of the world's best known animated
series, including The Simpsons, King of the Hill, X-MEN, The Mask, Bobby's
World, The Twisted Tales of Felix the Cat, and Garfield and Friends. Over the
years the Company has primarily produced animation for television, both on a
fee-for-service and a proprietary basis.

   Production work on a fee-for-services basis has historically accounted for
the largest and most reliable portion of the Company's revenues. Fees paid to
the Company for these production services generally range from $300,000 to
$800,000 per episode and typically cover all direct production costs plus a
profit margin. The Company also produces programming for which it controls some
of the proprietary rights associated with such programming (including, for
example, international distribution and licensing and merchandising rights).
Fees paid to the Company for these production services typically do not cover
all direct production costs. Generally, the Company seeks to cover a portion of
its production costs prior to production of its proprietary programs and seeks
to cover the remaining production costs through the exploitation of the
proprietary rights associated with these programs. As a result, the Company may
recognize revenue associated with its proprietary programming over a period of
years. Revenue from proprietary programming has not been material over the last
several years.

   The Company produces a limited number of animated television series in any
year and is substantially dependent on revenues from licensing these programs
to broadcasters and from fees from producing programs for third parties. The
Company's future performance will be affected by issues facing all producers of
animated programming, including risks related to the limited number of time
slots allocated to children's and/or animated television programming, the
intense competition for those time slots, the limited access to distribution
channels (particularly for programs produced by independent studios), the
declining license fees paid to producers of programming by broadcasters and the
regulations implemented by the FCC governing program content. While the Company
seeks to limit its financial risk associated with its proprietary programming
by obtaining commitments from third parties prior to production to cover a
portion of its direct production costs, there can be no assurance that the
Company will be able to cover the balance of its production costs and overhead
costs relating to production, licensing and distribution through the
exploitation of its proprietary rights. As a result of the foregoing risks,
there can be no assurance that the Company will be able to generate revenues
that exceed its costs.

   The Company is also continuing expansion of its production capabilities into
live action, and expansion of its intended markets beyond television, including
cable, direct-to-video, commercials, and the Internet. The Company's future
performance will be affected by unpredictable and changing factors that
influence the success of an individual television program or direct-to-video
release such as personal taste of the public and critics as well as public
awareness of a production and the successful distribution of a production.
Although the Company intends to attempt to limit the risks involved with
television and direct-to-video production, the Company will likely be unable to
limit all financial risk, and the level of marketing, promotional and
distribution activities and expenses necessary for such production cannot be
predicted with certainty. The Company has a recent history of developing,
producing or distributing live action television or computer generated
animation and there can be no assurance that the Company can compete
successfully with more established persons or entities. Live action production
involves many of the risks associated with animation production as well as
additional risks inherent to live action that are outside of the Company's
control. These risks include, but are not limited to, the risk of strike by
actors and film crew, increased union activity, delay in production, weather
and other local conditions, inability to obtain proper permitting at a desired
site, at desired times and/or under desired terms, and accidents or injury to
actors and film crew. No assurance can be given that the Company will produce
any live action television, film or direct-to-video productions or that, if
produced, such productions will be profitable.


                                      12

<PAGE>

Transaction with Pentamedia Graphics, Ltd.

   The Company had anticipated the receipt of approximately $10,000,000 to
$15,000,000 in cash from the issuance and sale of Common Stock to Pentamedia
Graphics, Ltd. ("Pentamedia"). However, after several attempts to restructure
the stock purchase transaction between the two companies, and two closing date
extensions, Pentamedia continued to provide no satisfactory evidence of its
ability to deliver the agreed upon purchase price in the agreed upon manner.
Consequently, on May 18, 2001, Film Roman terminated the transaction between
the two companies and later submitted a demand for arbitration on the grounds
that Pentamedia had breached the agreements between the two companies. Film
Roman is no longer constrained from pursuing other strategic alliances and
financing sources. On July 9, 2001, the Company received $350,000 in cash from
Pentamedia as a result of the Settlement Agreement entered into by the two
companies. Additional terms of the Settlement Agreement include each party's
release of the other party from any past or future claims arising out of the
prior agreements between the companies.

Business Activities

   Animation-For-Hire.  Film Roman is a leading producer of for-hire animation.
Film Roman is continuing to build its for-hire business and currently is
negotiating for two additional projects with major entertainment companies.

   Animation-Proprietary.  Film Roman is developing and selling proprietary
animation projects to major studios, television and cable networks, video
companies and Internet sites. Film Roman has substantial ownership in all the
projects it is developing. Film Roman is partnered with Nelvana to develop
Loretta for Warner Bros. and to produce Santa Claus Brothers for the Disney
Channel. Film Roman is developing other animated series projects in both the
primetime and daytime areas utilizing its wealth of animated experience and
expertise.

   Live Action Television.  Film Roman entered the live action market with the
highly successful Johnny Tsunami for the Disney Channel. Using this as a
beginning, Film Roman has been able to expand its live action television
production. The second project was Motocrossed, a 2-hour television movie that
premiered in February 2001, also for the Disney Channel. Film Roman is
developing for MTV a reality project, Save Your Ass. Film Roman plans to create
further projects for other outlets.

   Motion Pictures.  In 1999 Film Roman put together the motion picture My
First Mister that is distributed by Paramount Classics. Other motion picture
projects of which Film Roman previously developed and has a passive interest
include Greatest American Hero in development with Disney, Monkey In The Hole
in development in partnership with George Clooney at Spyglass Entertainment and
Heist in development with Hyde Park Entertainment. Film Roman also produced a
direct-to-video film, Hood Ratz for distribution through Universal Home
Entertainment. Film Roman took none of the risks inherent in production and
distribution of motion pictures, but rather develops the projects and finds a
distributor or financier to fund the production and distribution. Film Roman
receives a production fee and a participation in the profits of each project.
In 2001, the Company ceased actively developing motion pictures and has closed
that department.

   Commercials and Other Special Projects.  Film Roman has historically
produced commercials featuring animated characters from for-hire series the
Company is producing. Film Roman continues to expand its commercial division to
bid for and produce commercials for the general commercial market as well as
producing short programming for Internet sites. The Company is currently
producing commercials for Suntory, Sabritas (a Mexican food concern) and
Kellogg. Film Roman has commissioned agents to represent the commercial
division around the United States and expects considerable growth in this area.

   International Distribution.  With the current schedule of programs in all
areas that need foreign licensing, Film Roman will handle its foreign sales
through an independent sales agent.

                                      13

<PAGE>

Industry Accounting Policies

   Revenue and Cost Recognition.  Effective January 1, 2001, the Company
recognizes revenue based on Statement of Position 00-2 "Accounting by Producers
and Distributors of Films" ("SOP 00-2").

   Revenue earned from fee-for-service productions is the principal source of
revenue earned by the Company. During 2000 and 2001, such revenues accounted
for more than 90% of the Company's total revenues. License fees received by the
Company for its work on fee-for-service productions are recognized on
an episode-by-episode basis as each episode is completed and delivered to the
customer in accordance with the terms of the existing arrangement.

   Revenue earned from proprietary programs is recognized as such programs are
exploited in the markets in which the Company has retained ownership rights,
typically upon the receipt of statements from the Company's licensees. In the
event that a licensee pays the Company a nonrefundable minimum guarantee at the
beginning of a license term, the Company will record this amount as revenue if
all of the criteria for recognition pursuant to SOP 00-2 is met.

   Costs incurred in connection with the acquisition of story rights, the
development of stories, production and allocable overhead are capitalized as
film costs. Film costs are stated at the lower of unamortized cost or fair
value. The costs of fee-for-service produced episodes are capitalized and
subsequently amortized to cost of revenues at the time revenue is recognized.
If the costs of an episode are expected to exceed the corresponding license
fee, all costs incurred in excess of this license fee will be expensed to cost
of revenues as incurred. The cost of each proprietary program is capitalized
and is amortized in the proportion that revenue realized relates to
management's estimate of the total revenue expected to be realized from such
programs.

   The Company's cash flow is not necessarily related to revenue recognition
and amortization of production costs. Cash is received and costs are incurred
(and paid) throughout the year. Historically, in the fourth quarter, and to a
lesser extent the third quarter, cash used in operations typically exceeded
cash generated by operations as completed shows were delivered to broadcasters.
The Company expects that cash used in or provided by operations will fluctuate
greatly from quarter to quarter.

   Overhead Allocation.  Overhead is allocated to particular productions on the
basis of the total allocable overhead times the ratio of direct production
costs incurred on a program to total production costs incurred during the
period. Total allocable overhead is determined on the basis of management's
estimates of the percentage of overhead costs that can be attributed to the
productions in progress during the period.

Results of Operations

  Year Ended December 31, 2001 Compared with Year Ended December 31, 2000

   Total revenue decreased by 1%, or $0.5 million, to $44.1 million for the
year ended December 31, 2001, from $44.6 million for the prior year. Total
revenue decreased because the Company delivered fewer prime-time
fee-for-services episodes offset by more Saturday morning fee-for-services
episodes, a movie-of-the-week and a live action direct-to-video two-hour film.

   The Company delivered 71 fee-for-services episodes during the year ended
December 31, 2001, compared to 64 episodes in 2000 as a result of providing
services on more shows in 2001 compared to 2000. Fee-for-services revenue
decreased 16%, or $6.8 million, to $35.8 million for the year ended December
31, 2001, from $42.6 million in 2000 as a result of the decrease in prime-time
episodes delivered. This decrease in revenue was partially offset by an
increase in Saturday morning episodes delivered.

   The Company delivered no proprietary episodes for years ended December 31,
2001 and 2000. Proprietary revenue consists of revenue derived from the U.S.
license fees paid upon the initial delivery of a

                                      14

<PAGE>

new episode of proprietary programming to a U.S. broadcaster and from the
exploitation of the proprietary rights (e.g., merchandising, licensing and/or
international distribution rights) associated with the proprietary episodes in
the Company's library that were initially delivered in prior periods.
Proprietary revenue increased $0.4 million, to $0.8 million for the year ended
December 31, 2001, from $0.4 million in 2000.

   Other revenue increased to $7.5 million for the year ended December 31, 2001
compared to $1.6 million for the prior year. This increase is primarily due to
the delivery of a movie-of-the-week special and a live action direct-to-video
2-hour film.

   Total cost of revenue increased by 5%, or $2.2 million, to $45.3 million
from $43.1 million in the prior year. Total cost of revenue as a percentage of
sales increased by 6%, to 103% for the year ended December 31, 2001, from 97%
for the year ended December 31, 2000. Cost of revenue increased primarily due
to a write-down to fair value of certain of the Company's library episodic
programming of $690,000 as a result of changes in estimated future revenues and
a write-down of development projects of $1.9 million as a result of
management's evaluation of the development slate after the selling season. The
majority of these costs were incurred prior to 2000.

   Total selling, general and administrative expenses for the year ended
December 31, 2001 remained constant at $4.3 million as compared to 2000. The
Company continued to lower its general and administrative costs, however this
decrease was offset by an increase of expensing excess film overhead costs.
Such costs, which typically are reduced from selling, general and
administrative expenses and allocated to the Company's film inventory, would
have overburdened the inventory due to the slowdown in production activity of
the Company.

   Taking into account these write-downs, operating loss was $5.6 million for
the year ended December 31, 2001, as compared to a loss of $2.9 million for the
year ended December 31, 2000.

  Year Ended December 31, 2000 Compared with Year Ended December 31, 1999

   Total revenue decreased by 8%, or $4.0 million, to $44.6 million for the
year ended December 31, 2000, from $48.6 million for the prior year. Total
revenue decreased primarily because the Company delivered fewer episodes of
programming in 2000 as compared to 1999. The Company delivered a total of 64
episodes of programming for the year ended December 31, 2000 as compared to 73
episodes delivered in 1999.

   The Company delivered 64 fee-for-services episodes during the year ended
December 31, 2000, compared to 73 episodes in 1999 as a result of providing
services on fewer shows in 2000 compared to 1999. Fee-for-services revenue
decreased 5%, or $2.4 million, to $42.6 million for the year ended December 31,
2000, from $45.0 million in 1999 as result of delivering fewer episodes of
programming.

   The Company delivered no proprietary episodes for the years ended December
31, 2000 and 1999. Proprietary revenue consists of revenue derived from the
U.S. license fees paid upon the initial delivery of a new episode of
proprietary programming to a U.S. broadcaster and from the exploitation of the
proprietary rights (e.g., merchandising, licensing and/or international
distribution rights) associated with the proprietary episodes in the Company's
library that were initially delivered in prior periods. Proprietary revenue
decreased by 56%, or $0.5 million, to $0.4 million for the year ended December
31, 2000, from $0.9 million in 1999. This decrease resulted from lower
international sales of the Company's library programming in 2000.

   Other revenue decreased by approximately $1.0 million for the year ended
December 31, 2000, as compared to the prior year, due primarily to lower
revenues from commercials, net profit participations and other creative
services revenue.

   Total cost of revenue decreased by 11%, or $5.6 million, to $43.1 million
for the year ended December 31, 2000, from $48.7 million for the year ended
December 31, 1999. Total cost of revenue as a percentage of sales

                                      15

<PAGE>

decreased by 3%, to 97% for the year ended December 31, 2000, from 100% for the
year ended December 31, 1999. Costs as a percentage of revenue decreased
primarily because the costs for the twelve months ended December 31, 1999
included a write-down to net realizable value as a result of changes in the
Company's estimated future revenues from certain of its episodic programming.

   Total selling, general and administrative expenses for the year ended
December 31, 2000 decreased by $3.7 million to $4.3 million from $7.8 million
for the comparable period in 1999, due primarily to a decrease in the cost of
the Company's development infrastructure and a decrease in the expense of
certain development costs and administrative charges.

   Operating loss was $2.9 million for the year ended December 31, 2000, as
compared to a loss of $7.8 million for the year ended December 31, 1999.

Liquidity and Capital Resources

   At December 31, 2001, the Company had cash and cash equivalents of
approximately $2.8 million compared to $4.2 million at December 31, 2000. The
Company's cash and cash equivalent balances have continued to decline since
December 31, 2000, and the Company would expect cash balances to decline
further during fiscal 2002.

   Throughout 2001, the Company has taken a substantial number of actions in
order to implement significant cost reductions. Company management has taken
these steps without severely impacting operations.

   Management believes that its existing cash balances and cash equivalents,
combined with anticipated cash flows will be sufficient to meet its cash
requirements through at least the next 12 months. In the event that cash flows
are not as anticipated, the Company may implement further cost reductions.
Accordingly, the consolidated financial statements have been prepared on the
basis that the Company will continue as a going concern.

   The Company may need to secure additional equity or debt financing during
fiscal 2003 in order to fund its operations and/or fulfill its growth
strategies. However, recent operating losses, the Company's declining cash
balances, trends in the entertainment industry adversely affecting independent
production companies similar to the Company and the Company's historical stock
performance may make it difficult for the Company to attract equity investments
on terms that are deemed to be favorable to the Company. In addition, the
Company's losses may make it more difficult for the Company to attract debt
financing. As a consequence, there can be no assurance that the Company would
be successful in arranging for additional equity or debt financing at levels
sufficient to meet its planned needs, should it be required to do so. The
failure to obtain such financing could have an adverse effect on the
implementation of the Company's growth strategies and its ability to
successfully run its operation.

   For the fiscal year ended December 31, 2001, net cash used in operating
activities was approximately $1.3 million, principally due to cash used in
connection with film production activities. Cash used in investing activities
for the year ended December 31, 2001 was $0.1 million. Cash provided by
financing activities for the year ended December 31, 2001 was insignificant.

   Cash collected in advance of revenue recognition is recorded as deferred
revenue. As of December 31, 2001, the Company had a balance in its deferred
revenue account of $26.3 million. There will be an approximate net cost to the
Company (future receipts less future expenditures) of $4.3 million to finish
the programs for which cash has been collected in advance and included in
deferred revenue.

                                      16

<PAGE>

   The following table summarizes the contractual obligations and commitments
the Company has over the next 5 years:

<TABLE>
<CAPTION>
                                    2002      2003     2004    2005    2006
                                 ---------- -------- -------- ------- ------
   <S>                           <C>        <C>      <C>      <C>     <C>
   Operating Lease Agreements... $1,320,156 $898,544 $ 24,372 $19,428 $1,532
   Employment Agreements........ $  729,058 $450,975 $187,979      --     --
</TABLE>

Change in Accounting Principle

   In June 2000, Statement of Position 00-2 "Accounting by Producers or
Distributors of Films" ("SOP 00-2") was issued. SOP 00-2 establishes new
financial accounting and reporting standards for producers and distributors of
films, including changes in accounting for advertising, development and
overhead costs. The Company adopted the provisions of SOP 00-2 as of January 1,
2001.

   SOP 00-2 requires that certain indirect overhead costs and development costs
for abandoned projects be charged directly to expense, instead of those costs
being capitalized to film costs as was required under the previous accounting
model. In connection with the adoption of SOP 00-2, the Company recorded a non
cash charge of $364,000 to reduce the carrying value of its film inventory.
Such amount is primarily due to the expensing of certain indirect overhead
costs and development costs for abandoned projects, which were previously
capitalized. The non-cash charge is reflected as a cumulative effect of a
change in accounting principle in the accompanying consolidated statement of
operations for the year ended December 31, 2001.

Risk Factors

   The Company's business is subject to numerous risk factors, not all of which
can be known or anticipated and any one of which could adversely impact the
Company or its financial condition. Some of those risk factors are as follows:

   Failure to Renew Licenses or Production Agreements.  There can be no
assurance that any of the programs being produced by the Company will be
relicensed for additional broadcast seasons or renewed for production or, if so
relicensed or renewed, that the terms of the license agreements or production
agreements will be as favorable to the Company as those of existing licenses or
production agreements.

   Dependence on a Limited Number of Television Programs.  The Company's
revenue has historically come from the production of a relatively small number
of animated television programs. King of the Hill, The Simpsons and X-MEN
accounted for approximately 33%, 30%, and 16%, respectively, of the Company's
total revenue for the year ended December 31, 2001. Film Roman cannot assure
that broadcasters will continue to broadcast the Company's "proprietary" or
"fee-for-services" programs or that Film Roman will continue to be engaged to
produce such programs.

   Company Has a History of Losses and Declining Cash Balances and There Can Be
No Assurance That It Will Be Able to Execute on Its Business Strategy.  The
Company has accumulated losses of approximately $40.2 million through December
31, 2001. Because substantial portions of the Company's expenses are fixed and
its gross margin is relatively low, achieving profitability and positive cash
flows depends upon the Company's ability to generate and sustain substantially
higher revenues. Although the Company's revenues are relatively predictable and
its strategy is to increase revenues and gross margin, it is not assured that
it will be able to do so and consequently the Company may experience additional
losses and a further decline in its cash balances in 2002.

   Risks of Vertical Integration.  Over the last decade, broadcasters,
distributors and producers of television and motion picture programming have
become increasingly integrated vertically through mergers, acquisitions,
partnerships, joint ventures or other affiliations. Film Roman has not entered
into any of these relationships. As a result, the number of time slots
available for children's and/or animated programming and, specifically, for

                                      17

<PAGE>

animated programming supplied by independent animation studios, may decrease,
making it more difficult to compete successfully for available time slots.

   Declining Value of License Fee Agreements and Increasing Control of
Proprietary Rights by Broadcasters.  Competition created by the emergence of
new broadcasters (such as UPN, WB, Nickelodeon and the USA Network) has
provided television audiences with more choices, thereby generally reducing the
number of viewers watching any one program. As a result, the market share of,
and license fees paid by, FOX, CBS, NBC and ABC may continue to decrease and
make it difficult for Film Roman to finance certain proprietary programs.

   Current Programs May Not Sustain Their Popularity and New Programs May Not
Become Popular.  Film Roman derives substantially all of its revenue from the
production and distribution of animated television programs. Each program is an
individual artistic work, and consumer reaction will determine its commercial
success. Film Roman cannot assure that the Company will be able to continue to
create entertaining episodes for its existing programs or that the Company will
be able to create new programs that are appealing to broadcasters.

   Risks Related to Expansion of Production of Proprietary Programming.  Film
Roman intends to expand its production of programming for which the Company
owns or controls certain licensing and/or distribution rights ("proprietary
programming"). These rights may include domestic and international broadcast
distribution, home video distribution, licensing and merchandising, and
interactive/game development ("proprietary rights"). While Film Roman seeks to
limit the financial risk associated with the development of proprietary
programming by obtaining commitments prior to production to cover a portion of
its direct production costs, the Company cannot be sure that it will be able to
recover the balance of the production and overhead costs through the
exploitation of its remaining rights.

   Risk of Budget and Cost Overruns.  Although Film Roman reviews cost reports
and updates the Company's cost projections regularly and has generally
completed each of the Company's productions within its budget, the Company
cannot assure that the actual production costs for its programming will remain
within budget. Significant cost or budget overruns could negatively impact the
Company's gross margin since the majority of the Company's revenues result from
fixed fee arrangements.

   Revenues and Costs Recognized in Certain Periods May Be Overstated or
Understated Due to the Application of Entertainment Accounting Policies.  In
2001, Film Roman adopted SOP 00-2 regarding revenue recognition and
amortization of production costs. All costs incurred in connection with an
individual program or film, including acquisition, development, production and
allocable production overhead costs, are capitalized as television and film
costs. These costs are stated at the lower of unamortized cost or fair value.
Film Roman amortizes its estimated total production costs for an individual
program or film in the proportion that revenue realized relates to management's
estimate of the total revenue expected to be received from such program or
film. As a result, if revenue or cost estimates change with respect to a
program or film, the Company may be required to write-down all or a portion of
its unamortized costs for the program or film. The Company cannot make
assurances that these write-downs will not have a significant impact on its
results of operations and financial condition.

   Competition.  The creation, development, production and distribution of
television programming, together with the exploitation of the proprietary
rights related to such programming, is a highly competitive business. Film
Roman competes with producers, distributors, licensors and merchandisers, many
of whom are larger and have greater financial resources than does the Company.
Although the number of outlets available to producers of animated programming
has increased with the emergence of new broadcasters, the number of time slots
available to independent producers of children's and animated programming
remains limited. Moreover, because license fees in the United States have
dropped substantially recently, companies that do not rely on U.S. broadcast

                                      18

<PAGE>

license fees to finance the production of animation programming, particularly
international animation companies that receive governmental subsidies, have
achieved a competitive advantage. These companies now serve as an additional
source of competition for the limited slots available to independent animation
companies. As a result of these factors, the Company cannot make assurances
that it will be able to remain competitive.

   Risks Related to International Revenues.  There are many risks inherent in
Film Roman's international business activities. The Company's projects could be
adversely affected by: reversals or delays in the opening of foreign markets to
new competitors, unexpected changes in regulatory requirements, export
controls, tariffs and other barriers, currency fluctuations, investment
policies, nationalization, expropriation and limitations on repatriation of
cash and social and political risks.

   Overseas Subcontractors.  Like other producers of animated programming, Film
Roman subcontracts some of the less creative and more labor-intensive
components of its production process to animation studios located in low-cost
labor countries, primarily in the Far East. As the number of animated feature
films and animated television programs increases, the demand for the services
of overseas studios has increased substantially. This increased demand may lead
overseas studios to raise their fees, which may result in increased production
costs, or an inability to contract with the Company's preferred overseas
studios.

   Risks Associated with Possible New Businesses.  Film Roman has begun live
action television production and direct-to-video production (both live action
and animation). The television and direct-to-video industries are highly
speculative and involve a substantial degree of risk. The success of an
individual television program or direct-to-video release depends upon
unpredictable and changing factors, such as personal tastes of the public and
critics. Therefore, there is a substantial risk that the Company's projects
will not be successful, resulting in costs not being recouped and anticipated
profits not being realized.

   Technological Changes; Possible Changes in Production of Products.  The
proliferation of new production technologies may change the manner in which the
animation industry creates and distributes programming. Recently, certain
animators have begun to use computer-generated animation, including
three-dimensional digital animation, instead of two-dimensional cell animation,
to create their animated programming. Film Roman cannot be sure that the
introduction and proliferation of three-dimensional digital animation or other
technological changes will not cause the Company's historical methods of
producing animation to become less cost competitive or less appealing to its
audiences. In addition, the Company cannot be sure that it will be able to
adapt to such changes in a cost-effective manner.

   Dependence upon Key Personnel.  Film Roman's success depends to a
significant extent upon the expertise and services of John Hyde, President and
Chief Executive Officer. Although the Company has employment agreements with
Mr. Hyde and certain other key management personnel, the loss of services of
Mr. Hyde and/or other key management personnel could have an adverse effect on
the Company's business, results of operations and financial condition. Film
Roman does not currently carry "key man" life insurance policies on any of the
Company's executives.

   Casualty Risks.  Substantially all of the Company's operations and personnel
are located in its North Hollywood headquarters, resulting in vulnerability to
fire, flood, power loss, telecommunications failure or other local conditions,
including the risk of seismic activity. If a disaster were to occur, the
Company's disaster recovery plans may not be adequate to protect the Company
and its business interruption insurance may not fully compensate the Company
for its losses.

   Volatility of Stock Price.  The market price of the Company's Common Stock,
which trades on the NASD OTCBB, could fluctuate significantly in response to
operating results and other factors.

   Impact of FCC Regulations.  The policies of the current FCC indicate a
potential lessening of government restrictions that may facilitate more
vertical integration of companies than in the past, this could have an adverse
effect on the availability of buyers for the Company's product.

                                      19

<PAGE>

   Film Roman Does Not Intend to Pay Dividends.  Film Roman has never paid
dividends and currently does not intend to declare or pay dividends. The
Company plans to follow a policy of retaining earnings to finance the growth of
its business. Whether or not the Company declares or pays dividends is up to
the Board of Directors and will depend on results of operations, financial
condition, contractual and legal restrictions and other factors the Board of
Directors deems relevant at that time.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company does not utilize market risk sensitive instruments (such as
derivative financial instruments) for trading or other purposes.

   The Company has low exposure to interest rate risk. The Company currently
does not have any debt (fixed or floating rate) other than trade liabilities
and invests its cash assets in debt instruments with maturities of less than 90
days. Thus, a decrease (or increase) in future interest rates will directly and
proportionately decrease (or increase, respectively) the Company's future
interest income. For the twelve months ended December 31, 2001, the Company
earned interest income of $82,166.

   The Company is not exposed to significant foreign exchange rate risk. All of
the Company's contracts with foreign subcontractors are dollar-denominated. The
Company makes limited international sales in foreign currencies, the aggregate
of which the Company estimates to be less than one percent of the Company's
yearly revenue.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The financial statements and supplementary data are set forth in this annual
report on Form 10-K commencing on page F-1.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   None.

                                      20

<PAGE>

                                   PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers and Directors

   The directors and executive officers of the Company as of March 1, 2002 are
identified below:

<TABLE>
<CAPTION>
      Name               Age                   Position (1)
      ----               ---                   ------------
   <C>                   <C> <S>
   John W. Hyde......... 61  President, Chief Executive Officer, acting Chief
                               Financial Officer and Director
   Robert Cresci (3).... 58  Director
   Dixon Q. Dern........ 73  Director and Secretary
   Peter Mainstain (3).. 53  Director and Treasurer
   Mike Medavoy (2)..... 61  Director
   Phil Roman........... 71  Director
   Steve Tisch (3)...... 53  Director
   Daniel Villanueva (2) 64  Director
</TABLE>
--------
(1) Each director holds office for one year or until his successor shall have
    been duly elected and qualified. Elections with respect to all directors
    will be held at the Annual Meeting of Stockholders in 2002.

(2) Member of Compensation Committee.

(3) Member of Audit Committee.

   The principal occupations and positions for the past five years, and in
certain cases prior years, of the directors and executive officers named above
are as follows:

   John W. Hyde.  Mr. Hyde joined Film Roman as President and CEO in December
1999. Mr. Hyde is CEO and the principal of Producers Sales Organization, which
holds investments in film negatives, film and television rights, a music
library and agricultural real estate. Mr. Hyde was the Trustee, General Manager
and FCC license holder for KADY-TV from July 1996 through the sale of the
television station in July 1998, since which time Mr. Hyde has remained as
Trustee to disburse the funds from the sale. From August 1994 through July
1998, Mr. Hyde was Trustee and CEO of Cannon Pictures, Inc. and Cannon
Television Inc. Mr. Hyde was CEO of MCEG Sterling, Inc. from December 1990
through December 31, 1995, at which time MCEG was part of a three-way merger
with Orion Pictures, Inc. and Actava Group, Inc. Prior to his term at MCEG, Mr.
Hyde held numerous senior executive positions in the entertainment industry.
Mr. Hyde graduated from New York University in 1963.

   Robert Cresci.  Mr. Cresci has been a Director of Film Roman since August
1995 and has been a Managing Director of Pecks Management Partners Ltd., an
investment management firm, since September 1990. Mr. Cresci currently serves
on the board of directors of Bridgeport Machines, Inc., EIS International,
Inc., Sepracor, Inc., Arcadia Financial, Ltd., Hitox, Inc., Educational
Medical, Inc., Aviva Petroleum, Candlewood Hotel Co., Castle Dental Inc.,
Seracare Inc. and Sound Media Inc.

   Dixon Q. Dern.  Mr. Dern has been a director of Film Roman and general
counsel since August 1995. Mr. Dern has practiced entertainment law for over 40
years and currently owns and operates his own private practice which
specializes in entertainment, copyright and communications law. Mr. Dern also
serves as Secretary of the Company.

   Peter Mainstain.  Mr. Mainstain has been a director of Film Roman since
August 1995. He is a certified public accountant as well as an officer and
shareholder of Tanner, Mainstain, Hoffer & Peyrot, an accountancy corporation,
at which he has been employed since 1976. Mr. Mainstain also serves as
Treasurer of Film Roman.

                                      21

<PAGE>

   Mike Medavoy.  Mr. Medavoy has been a director of Film Roman since May 2000.
Mr. Medavoy, Co-Founder and Chairman of Phoenix Pictures, launched his career
at Universal Studios in 1964. Then in 1965 he became an agent, working at
General Artist Corporation, Creative Management Agency and International
Famous. In 1974, Mr. Medavoy joined United Artists as Senior Vice President of
Production, and then went on to co-found Orion Pictures in 1978. After twelve
years at Orion, Mr. Medavoy became Chairman of Tri-star Pictures before
co-founding Phoenix Pictures. He is a member of the Dean's Advisory Board at
the UCLA School of Theatre, Film, and Television as well as the Chairman of the
Leadership Circle for UCLA's Center for International Relations. Born in
Shanghai in January 1941, Mr. Medavoy lived in Chile for much of his youth
before moving to Los Angeles as a teen. He graduated with honors in History
from UCLA in 1963.

   Phil Roman.  Mr. Roman served as the Company's Chief Executive Officer, and
as a Director, from the founding of the Company until February 5, 1999. Mr.
Roman was re-elected to the board in March 2001. Phil Roman began his animation
career in 1955 at the Walt Disney Company as an assistant animator on Sleeping
Beauty. Over the next thirty years, Mr. Roman worked at many of the major
studios, including MGM Animation and Warner Brothers Cartoons. Mr. Roman has
also directed 13 Emmy-nominated Charlie Brown specials. Since his resignation
as Chief Executive Officer, Mr. Roman has worked at his new company, Phil Roman
Entertainment, and recently joined the Company as an employee/consultant.

   Steve Tisch.  Mr. Tisch has been a director of Film Roman since June 2000.
Mr. Tisch's most recent executive producing credits include Regent
Entertainment's Looking for an Echo, Gramercy Pictures' Lock, Stock and Two
Smoking Barrels, and the critically-acclaimed film American History X (New Line
Cinema). One of Mr. Tisch's most noteworthy achievements is the production of
1994's Academy Award winner for Best Picture, Forrest Gump (Paramount
Pictures). Mr. Tisch began his career at Columbia Pictures where, during his
four-year tenure, Mr. Tisch supervised productions on such films as The Lords
of Flatbush, Tommy, The Last Detail and White Line Fever. In 1976 Mr. Tisch
formed Tisch/Avnet Productions whose credits include Risky Business, Deal of
the Century, and Coast to Coast as well as a number of made-for-television
productions. In 1986, Mr. Tisch formed his own production company, the Steve
Tisch Company. His most recent theatrical releases include: The Postman (Warner
Bros.), Wild America (Warner Bros./Morgan Creek) and The Long Kiss Goodnight
(New Line Cinema). Mr. Tisch was elected to the AIDS Project Los Angeles' Board
of Directors in April 1991 and re-elected in October 1992. During his tenure,
Mr. Tisch served as both Board Chair and Chair of the Development Committee.

   Daniel Villanueva.  Mr. Villanueva has been a director of Film Roman since
April 1998. Mr. Villanueva is chairman of Bastion Capital Corporation, a Los
Angeles based buyout fund. Previously, he was a director and officer of Spanish
International Communications Corporation, and later, director of 7UP Bottling
of Southern California and is currently a trustee of the Metropolitan West
Group of mutual funds and a member of the board of directors of NUMEX Corp. Mr.
Villanueva is a former player in the National Football League for both the Los
Angeles Rams and Dallas Cowboys.

   The balance of the information required by this item is incorporated by
reference to the Company's definitive Proxy Statement filed pursuant to
Regulation 14A under the Exchange Act in connection with the Company's 2002
Annual Meeting of Stockholders.

                                      22

<PAGE>

Item 11.  EXECUTIVE COMPENSATION

   The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement filed pursuant to Regulation 14A under the
Exchange Act in connection with the Company's 2002 Annual Meeting of
Stockholders.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement filed pursuant to Regulation 14A under the
Exchange Act in connection with the Company's 2002 Annual Meeting of
Stockholders.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement filed pursuant to Regulation 14A under the
Exchange Act in connection with the Company's 2002 Annual Meeting of
Stockholders.

                                    PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   (a) Financial Statements required to be filed hereunder are indexed on page
F-1 hereof. All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.

   (b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended December 31, 2001.

   (c) Those Exhibits, and the Index thereto, required to be filed by Item 601
of Regulation S-K are attached hereto. Certain management contracts and other
compensation plans or arrangements required to be filed are identified on the
attached Index with an asterisk.

                                      23

<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized as of the
29th day of March, 2002.

                                              FILM ROMAN, INC.
                                              By:        /s/  JOHN HYDE
                                                  ------------------------------
                                                            John Hyde
                                                   President, Chief Executive
                                                           Officer and
                                                  acting Chief Financial Officer

   KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John Hyde and Dixon Q. Dern, or any one of them,
his attorney-in-fact and agent, with full power of substitution for him, in any
and all capacities, to sign any amendments to this Annual Report on Form 10-K
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitutes, may do or
cause to be done by virtue hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.


      Signature                    Title                  Date
      ---------                    -----                  ----

    /s/  JOHN HYDE     Chief Executive Officer,      March 29, 2002
----------------------   President, Director and
      John Hyde          acting Chief Financial
                         Officer

  /s/  JOAN THOMPSON   Executive Vice President,     March 29, 2002
----------------------   Chief Accounting Officer
    Joan Thompson

   /s/  PHIL ROMAN     Director                      March 29, 2002
----------------------
      Phil Roman

  /s/  ROBERT CRESCI   Director                      March 29, 2002
----------------------
    Robert Cresci

 /s/  PETER MAINSTAIN  Director                      March 29, 2002
----------------------
   Peter Mainstain

  /s/  DIXON Q. DERN   Director                      March 29, 2002
----------------------
    Dixon Q. Dern

/s/  DANIEL VILLANUEVA Director                      March 29, 2002
----------------------
  Daniel Villanueva

  /s/  MIKE MEDAVOY    Director                      March 29, 2002
----------------------
     Mike Medavoy

   /s/  STEVE TISCH    Director                      March 29, 2002
----------------------
     Steve Tisch

                                      24

<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number                                               Description
------                                               -----------
<C>      <S>

    !3.1 Amended and Restated Certificate of Incorporation of Film Roman, Inc., a Delaware corporation
         (the "Company").

    !3.2 Amended and Restated Bylaws of the Company.

    #4.1 Specimen Stock Certificate.

   *10.1 Production Services Agreement, dated as of June 18, 2001, between the Company and Producers
         Sales Organization, furnishing the services of John W. Hyde. (Incorporated by reference to
         Exhibit 10.1(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
         June 30, 2001.)

   *10.2 Executive Engagement Agreement, dated as of June 18, 2001, between the Company and John W.
         Hyde. (Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K
         for the fiscal year ended December 31, 2000.)

   *10.3 Employment Agreement dated as of September 18, 2000 by and between the Company and
         Mr. Michael B. Winchester. (Incorporated by reference to Exhibit 10.2 to the Company's Form
         10-K for the year ended December 31, 2000.)

   *10.4 Transition, Settlement and Release Agreement dated February 5, 1999 by and between the
         Company and Mr. Phil Roman. (As indicated by asterisk, selected text of the agreement has been
         redacted pursuant to a confidentiality request.) (Incorporated by reference to Exhibit 10.51 to the
         Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)

    10.5 Intentionally Omitted.

   *10.6 Amended and Restated 2000 Stock Option Plan of the Company. (Incorporated by reference to
         Annex A to the Company's 2000 Proxy Statement.)

   *10.7 Form of Non-Qualified Stock Option Agreement for Employees Under the Amended and
         Restated 2000 Stock Option Plan. (Incorporated by reference to Exhibit 10.3 to the Company's
         Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)

   *10.8 Form of Option Certificate for Non-Qualified Stock Option for Non-Employee Director.
         (Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
         fiscal year ended December 31, 2000.)

   *10.9 Employment Agreement dated as of July 7, 1999 by and between Film Roman California and
         Mr. Hubert T. Smith. (Incorporated by reference to Exhibit 10.13 to the Company's Annual
         Report on Form 10-K for the fiscal year ended December 31, 2000.)

   10.10 Intentionally Omitted.

  #10.11 Lease for Registrant's headquarters and studio in North Hollywood, California.

10.12-27 Intentionally Omitted.

  #10.28 Agreement dated November 9, 1993 between Film Roman, Inc. and Felix The Cat Creations, Inc.

   10.29 Intentionally omitted.

  #10.30 Agreement dated September 27, 1994 between Felix The Cat Creations, Inc. and Film Roman,
         Inc.

  #10.31 Letter Agreement dated June 6, 1995 between Felix The Cat Corporation and Film Roman, Inc.

  #10.32 Agreement dated September 1, 1995 between Felix Comics, Inc. and Film Roman, Inc.

  #10.33 Agreement dated November 20, 1995 between Felix The Cat Creations, Inc. and Film Roman,
         Inc.
</TABLE>

                                      25

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                              Description
------                                              -----------
<C>     <S>

 10.34  Agreement dated as of February 26, 1998 between Claster Television and Film Roman, Inc. in
        connection with "Mr. Potato Head." (As indicated by asterisk, selected text of the agreement has
        been redacted pursuant to a confidentiality request.) (Incorporated by reference to Exhibit 10.45 of
        the Company's Form 10-Q for the quarter ended June 30, 1998.)

 10.35  Agreement dated as of February 26, 1998 between Fox Kids Worldwide, Inc. and Film Roman, Inc.
        in connection with "Mr. Potato Head." (As indicated by asterisk, selected text of the agreement has
        been redacted pursuant to a confidentiality request.) (Incorporated by reference to Exhibit 10.46 of
        the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998.)

&10.36  Letter Agreement dated March 1, 1994 between Twentieth Television and Film Roman, Inc.
        (Exhibit 10.47)

&10.37  Letter Agreement dated January 31, 2000 between Marvel Entertainment and Film Roman, Inc.
        (Exhibit 10.48)

&10.38  Agreement dated July 25, 1999 between Oblong Productions, Inc. and Film Roman, Inc.
        (Exhibit 10.49)

&10.39  Agreement dated as of March 1, 1996 between Twentieth Century Fox Film Corporation and Film
        Roman, Inc. (Exhibit 10.50)

#10.40  Form of Agreement between Film Roman, Inc. and Threshold Entertainment.

#10.41  Agreement dated as of January 29, 1992 between Film Roman, Inc. and 20th Television.
        (Exhibit 10.43)

 &21.1  Subsidiaries of the Registrant.

  23.1  Consent of Independent Auditors.
</TABLE>

Footnotes

!  Incorporated by reference to a similarly numbered exhibit to the Company's
   Quarterly Report on Form 10-Q as filed with the Securities and Exchange
   Commission on May 14, 2001.

#  Incorporated by reference to a similarly numbered exhibit (or to the exhibit
   number listed in parentheses) to Amendment Number 1 to the Company's
   Registration Statement on Form S-1, on Form S-1/A (Registration No.
   333-03987), as filed with the Securities and Exchange Commission on July 12,
   1996.

&  Incorporated by reference to a similarly numbered exhibit (or to the exhibit
   number listed in parentheses) to the Company's Annual Report on Form 10-K
   for the fiscal year ended December 31, 2000 as filed with the Securities and
   Exchange Commission on March 9, 2001.

*  Management contract or other compensation plan or arrangement.

                                      26

<PAGE>

                               FILM ROMAN, INC.

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>                                                                                               <C>
Index to Consolidated Financial Statements....................................................... F-1

FILM ROMAN, INC.
   Report of Independent Auditors................................................................ F-2
   Consolidated Balance Sheets as of December 31, 2000 and 2001.................................. F-3
   Consolidated Statements of Operations for the Years Ended December 31, 1999, 2000, and 2001... F-4
   Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended December 31,
     1998, 1999, 2000, and 2001.................................................................. F-5
   Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001.... F-6
   Notes to Consolidated Financial Statements.................................................... F-7
</TABLE>

                                      F-1

<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Film Roman, Inc.

   We have audited the accompanying consolidated balance sheets of Film Roman,
Inc. as of December 31, 2000 and 2001, and the related consolidated statements
of operations, stockholders' equity (deficiency), and cash flows for each of
the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Film Roman,
Inc. at December 31, 2000 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

                                          /s/  Ernst & Young LLP

                                          ERNST & YOUNG LLP

Los Angeles, California
March 14, 2002

                                      F-2

<PAGE>

                               FILM ROMAN, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                              --------------------------
                                                                                  2000          2001
                                                                              ------------  ------------
<S>                                                                           <C>           <C>
                                   ASSETS
                                   ------
Cash and cash equivalents.................................................... $  4,203,221  $  2,776,757
Accounts receivable..........................................................      249,893       259,784
Film costs, net of accumulated amortization of $54,322,930 (2000) and
  $50,663,342 (2001).........................................................   24,558,709    22,030,027
Property and equipment, net of accumulated depreciation and amortization of
  $2,437,270 (2000) and $2,797,025 (2001)....................................      735,552       493,552
Deposits and other assets....................................................      652,455       612,492
                                                                              ------------  ------------
Total assets................................................................. $ 30,399,830  $ 26,172,612
                                                                              ============  ============

                              LIABILITIES AND
                     STOCKHOLDERS' EQUITY (DEFICIENCY)
                     --------------------------------
Accounts payable............................................................. $  1,672,785  $  1,678,063
Accrued expenses.............................................................    1,826,860     1,964,982
Deferred revenue.............................................................   24,815,940    26,312,646
                                                                              ------------  ------------
Total liabilities............................................................   28,315,585    29,955,691
Commitments..................................................................
Stockholders' equity (deficiency):...........................................
   Preferred Stock, $.01 par value, 5,000,000 shares authorized, none issued.           --            --
   Common Stock, $.01 par value, 20,000,000 shares authorized, 8,565,190
     shares issued and outstanding in 2000 and 8,577,690 shares issued and
     outstanding in 2001 issued and outstanding in 2001......................       85,652        85,777
Additional paid-in capital...................................................   36,370,365    36,379,615
Accumulated deficit..........................................................  (34,371,772)  (40,248,471)
                                                                              ------------  ------------
Total stockholders' equity (deficiency)......................................    2,084,245    (3,783,079)
                                                                              ------------  ------------
Total liabilities and stockholders' equity (deficiency)...................... $ 30,399,830  $ 26,172,612
                                                                              ============  ============
</TABLE>


                            See accompanying notes.

                                      F-3

<PAGE>

                               FILM ROMAN, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                   -------------------------------------
                                                                      1999         2000         2001
                                                                   -----------  -----------  -----------
<S>                                                                <C>          <C>          <C>
Revenue........................................................... $48,605,144  $44,552,140  $44,088,173
Cost of revenue...................................................  48,683,993   43,106,536   45,345,423
Selling, general and administrative expenses......................   7,756,561    4,308,109    4,337,615
                                                                   -----------  -----------  -----------
Operating loss....................................................  (7,835,410)  (2,862,505)  (5,594,865)
Interest income...................................................     359,118      278,196       82,166
                                                                   -----------  -----------  -----------
Loss before cumulative effect of a change in accounting principle
  and provision for income taxes..................................  (7,476,292)  (2,584,309)  (5,512,699)
Cumulative effect of a change in accounting principle.............          --           --     (364,000)
Provision for income taxes........................................     (16,763)      (1,588)          --
                                                                   -----------  -----------  -----------
Net loss.......................................................... $(7,493,055) $(2,585,897) $(5,876,699)
                                                                   ===========  ===========  ===========
Loss before cumulative effect of a change in accounting principle,
  per common share basic and diluted.............................. $     (0.88) $     (0.30) $     (0.64)
                                                                   ===========  ===========  ===========
Net loss per common share basic and diluted....................... $     (0.88) $     (0.30) $     (0.69)
                                                                   ===========  ===========  ===========
Weighted average number of shares outstanding basic and diluted...   8,523,609    8,563,682    8,571,560
                                                                   ===========  ===========  ===========
</TABLE>


                            See accompanying notes.

                                      F-4

<PAGE>

                               FILM ROMAN, INC.

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
                                                                                         Total
                                            Common Stock    Additional                Stockholders
                                          -----------------  Paid-In    Accumulated      Equity
                                           Shares   Amount   Capital      Deficit     (Deficiency)
                                          --------- ------- ----------- ------------  ------------
<S>                                       <C>       <C>     <C>         <C>           <C>
Balance as of December 31, 1998.......... 8,522,190 $85,222 $36,305,685 $(24,292,820) $12,098,087
Options exercised........................     2,000      20       2,840           --        2,860
Compensation expense relating to employee
  stock options..........................        --      --       3,313           --        3,313
Net loss.................................        --      --          --   (7,493,055)  (7,493,055)
                                          --------- ------- ----------- ------------  -----------
Balance as of December 31, 1999.......... 8,524,190  85,242  36,311,838  (31,785,875)   4,611,205
Options exercised........................    41,000     410      58,527           --       58,937
Net loss.................................        --      --          --   (2,585,597)  (2,585,897)
                                          --------- ------- ----------- ------------  -----------
Balance as of December 31, 2000.......... 8,565,190  85,652  36,370,365  (34,371,772)   2,084,245
Options exercised........................    12,500     125       9,250           --        9,375
Net loss.................................        --      --          --   (5,876,699)  (5,876,699)
                                          --------- ------- ----------- ------------  -----------
Balance as of December 31, 2001.......... 8,577,690 $85,777 $36,379,615 $(40,248,471) $(3,783,079)
                                          ========= ======= =========== ============  ===========
</TABLE>



                            See accompanying notes.

                                      F-5

<PAGE>

                               FILM ROMAN, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                 ----------------------------------------
                                                                     1999          2000          2001
                                                                 ------------  ------------  ------------
<S>                                                              <C>           <C>           <C>
Operating activities:
Net loss........................................................ $ (7,493,055) $ (2,585,897) $ (5,876,699)
 Adjustments to reconcile net loss to net cash used in operating
   activities:
   Depreciation and amortization................................      462,562       415,596       359,755
   Amortization of film costs...................................   48,683,993    43,106,536    45,345,423
   Compensation expense relating to employee stock options......        3,313            --            --
   Cumulative effect of a change in accounting principle........           --            --       364,000
 Changes in operating assets and liabilities:
   Accounts receivable..........................................      608,386       230,939        (9,891)
   Film costs...................................................  (46,483,717)  (48,961,750)  (43,180,741)
   Deposits and other assets....................................       32,112      (195,362)       39,963
   Accounts payable.............................................    1,086,484       (41,920)        5,278
   Accrued expenses.............................................      145,886      (669,721)      138,122
   Deferred revenue.............................................     (344,414)    5,488,687     1,496,706
                                                                 ------------  ------------  ------------
   Net cash used in operating activities........................   (3,298,450)   (3,212,892)   (1,318,084)

Investing activities:
Additions to property and equipment.............................     (434,123)     (200,497)     (117,755)
                                                                 ------------  ------------  ------------
   Net cash used in investing activities........................     (434,123)     (200,497)     (117,755)

Financing activities:
Option and warrants exercised and other.........................        2,860        58,937         9,375
                                                                 ------------  ------------  ------------
   Net cash provided by financing Activities....................        2,860        58,937         9,375
                                                                 ------------  ------------  ------------
Net decrease in cash and cash equivalents.......................   (3,729,713)   (3,354,452)   (1,426,464)
Cash and cash equivalents at beginning of period................   11,287,386     7,557,673     4,203,221
                                                                 ------------  ------------  ------------
Cash and cash equivalents at end of period...................... $  7,557,673  $  4,203,221  $  2,776,757
                                                                 ============  ============  ============

Supplemental disclosure of cash flow information:
Cash paid during the period for:................................
   Interest..................................................... $         --  $         --  $         --
                                                                 ============  ============  ============
   Income taxes................................................. $     16,763  $      1,588  $         --
                                                                 ============  ============  ============
</TABLE>

                            See accompanying notes.

                                      F-6

<PAGE>

                               FILM ROMAN, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 2001

1.  Summary of Significant Accounting Policies

  Business and Organization

   Film Roman, Inc., a Delaware corporation (the "Company"), currently conducts
all of its operations through its wholly owned subsidiaries, Film Roman, Inc.,
a California corporation; Namor Productions, Inc., a California corporation;
Chalk Line Productions, Inc., a California corporation; Diversion
Entertainment, Inc., a Delaware corporation and Level 13 Entertainment, Inc., a
Delaware corporation, and Special Project Films, Inc., a Delaware corporation.
The Company operates in one segment and develops, produces and distributes a
broad range of television programming for the television network, cable
television, first-run domestic syndication and international markets.

  Management Strategies and Basis of Presentation

   At December 31, 2001, the Company had cash and cash equivalents of
approximately $2.8 million compared to $4.2 million at December 31, 2000. The
Company's cash and cash equivalent balances have continued to decline since
December 31, 2000, and the Company would expect cash balances to decline
further during fiscal 2002.

   Throughout 2001, the Company has taken a substantial number of actions in
order to implement significant cost reductions. Company management has taken
these steps without severely impacting operations.

   Management believes that its existing cash balances and cash equivalents,
combined with anticipated cash flows will be sufficient to meet its cash
requirements through at least the next 12 months. In the event that cash flows
are not as anticipated, the Company may implement further cost reductions.
Accordingly, the accompanying consolidated financial statements have been
prepared on the basis that the Company will continue as a going concern.

   The Company may need to secure additional equity or debt financing during
fiscal 2003 in order to fund its operations and/or fulfill its growth
strategies. However, recent operating losses, the Company's declining cash
balances, trends in the entertainment industry adversely affecting independent
production companies similar to the Company and the Company's historical stock
performance may make it difficult for the Company to attract equity investments
on terms that are deemed to be favorable to the Company. In addition, the
Company's losses may make it more difficult for the Company to attract debt
financing. As a consequence, there can be no assurance that the Company would
be successful in arranging for additional equity or debt financing at levels
sufficient to meet its planned needs, should it be required to do so. The
failure to obtain such financing could have an adverse effect on the
implementation of the Company's growth strategies and its ability to
successfully run its operation.

  Cash and Cash Equivalents

   The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less and investments in money market
accounts to be cash equivalents.

                                      F-7

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001


  Concentration of Credit Risk

   Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash equivalents and trade receivables.
The Company places its cash equivalents with high credit, quality financial
institutions. The Company has not incurred any losses relating to these
investments.

   The Company performs production services for various companies within the
entertainment industry and licenses various rights in its product to
distributors throughout the world. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. At December 31, 2001, substantially all of the Company's
trade receivables were from customers in the entertainment industry.
Receivables generally are due within 30 days. Credit losses relating to
customers in the entertainment industry consistently have been within
management's expectations.

  Financial Instruments

   Financial instruments are carried at historical cost which approximates fair
value.

  Revenue Recognition and Film Costs

   Effective January 1, 2001, the Company recognizes revenue based on the new
accounting standard Statement of Position ("SOP") 00-2 (see note 12). Revenue
earned from fee-for-service productions is the principal source of revenue
earned by the Company. During 2000 and 2001, such revenues accounted for more
than 90% of the Company's total revenues. License fees received by the Company
for its work on fee-for-service productions are recognized on an
episode-by-episode basis as each episode is completed and delivered to the
customer in accordance with the terms of the existing arrangement.

   Revenue earned from proprietary programs is recognized as such programs are
exploited in the markets in which the Company has retained ownership rights,
typically upon the receipt of statements from the Company's licensees. In the
event that a licensee pays the Company a nonrefundable minimum guarantee at the
beginning of a license term, the Company will record this amount as revenue if
all of the criteria for recognition pursuant to SOP 00-2 is met.

   Costs incurred in connection with the acquisition of story rights, the
development of stories, production and allocable overhead are capitalized as
film costs. Film costs are stated at the lower of unamortized cost or fair
value. The costs of fee-for-service produced episodes are capitalized and
subsequently amortized to cost of revenues at the time revenue is recognized.
If the costs of an episode are expected to exceed the corresponding license
fee, all costs incurred in excess of this license fee will be expensed to cost
of revenues as incurred. The cost of each proprietary program is capitalized
and is amortized in the proportion that revenue realized relates to
management's estimate of the total revenue expected to be realized from such
programs.

  Depreciation and Amortization

   Property and equipment are recorded at cost. Depreciation on furniture and
equipment is computed by the double-declining balance method over their
estimated useful lives, ranging from five to seven years. Leasehold
improvements are amortized over their estimated useful lives, or the remaining
term of the related lease, whichever is shorter, using the straight-line method.

                                      F-8

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001


  Income Taxes

   The Company uses the liability method required by Financial Accounting
Standards Board Statement (FAS) No. 109, "Accounting for Income Taxes."
Deferred taxes are provided for any differences between the carrying value of
assets and liabilities for financial reporting and tax purposes.

  Stock-based Compensation

   The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock
Issued to Employees" and intends to continue to do so. The Company has adopted
the disclosure provisions of FAS No. 123, "Accounting for Stock-Based
Compensation" (see Note 9).

  Use of Estimates

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

  Net Loss Per Common Share

   The per share data is based on the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares, consisting of outstanding stock options of 1,192,500 (1999), 1,525,250
(2000) and 1,247,000 (2001) are not included since they are antidilutive.

2.  Film Costs

   The components of unamortized film costs consist of the following:

<TABLE>
<CAPTION>
                                                          December 31,
                                                     -----------------------
                                                        2000        2001
                                                     ----------- -----------
   <S>                                               <C>         <C>
   Film productions released, net of amortization... $   678,154 $        --
   Film productions in process......................  22,549,666  21,844,184
   Film productions in development..................   1,300,889     185,843
                                                     ----------- -----------
                                                     $24,558,709 $22,030,027
                                                     =========== ===========
</TABLE>

   Based on management's estimates of future gross revenues as of December 31,
2001, approximately 100% of unamortized film costs applicable to released films
will be amortized during the three years ending December 31, 2004.

3.  Property and Equipment

   Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                          December 31,
                                                    ------------------------
                                                       2000         2001
                                                    -----------  -----------
  <S>                                               <C>          <C>
  Leasehold improvements........................... $   398,577  $   398,577
  Furniture and fixtures...........................     617,109      724,534
  Office equipment.................................   2,157,136    2,167,466
                                                    -----------  -----------
                                                      3,172,822    3,290,577
  Less accumulated depreciation and amortization...  (2,437,270)  (2,797,025)
                                                    -----------  -----------
                                                    $   735,552  $   493,552
                                                    ===========  ===========
</TABLE>

                                      F-9

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001


4.  Income Taxes

   The significant components of the Company's net deferred tax assets
(liabilities), for which a 100% valuation allowance has been provided and which
have not been recognized in the Company's financial statements, are as follows:

<TABLE>
<CAPTION>
                                                  December 31,
                                           --------------------------
                                               2000          2001
                                           ------------  ------------
          <S>                              <C>           <C>
          Film costs...................... $     29,269  $         --
          Property and Equipment..........        4,276        92,915
          Nondeductible accrual...........      171,419       158,576
          Foreign Tax Credit Carryforward.      162,995       162,995
          Other...........................      278,818        48,539
          Net operating loss carryforwards   10,237,618    12,430,722
                                           ------------  ------------
                                             10,884,395    12,893,747
          Valuation allowance.............  (10,884,395)  (12,893,747)
                                           ------------  ------------
                                           $         --  $         --
                                           ============  ============
</TABLE>

   The provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                       December 31,
                                    -------------------
                                     1999    2000  2001
                                    ------- ------ ----
                        <S>         <C>     <C>    <C>
                        Current:
                           Foreign. $16,763 $1,588 $--
                                    ------- ------ ---
                                    $16,763 $1,588 $--
                                    ======= ====== ===
</TABLE>

   A reconciliation of income tax computed at the statutory federal income tax
rate to the effective tax rate for the Company is as follows:

<TABLE>
<CAPTION>
                                                                    December 31,
                                                        -----------------------------------
                                                           1999        2000        2001
                                                        -----------  ---------  -----------
<S>                                                     <C>          <C>        <C>
Benefit for income taxes at statutory rate of 35%...... $(2,655,788) $(905,064) $(2,056,908)
Permanent Differences..................................      59,231     23,440       20,319
Benefit of deferred tax assets not currently recognized   2,596,558    881,624    2,036,589
                                                        -----------  ---------  -----------
                                                        $        --  $      --  $        --
                                                        ===========  =========  ===========
</TABLE>

   At December 31, 2001, the Company had available federal and state tax net
operating loss carryforwards of approximately $32,775,286 and $16,696,340,
respectively, expiring through 2021 and 2011, respectively. At December 31,
2001, the Company had available foreign tax credit carryforwards of
approximately $162,995. Under Section 382 of the Internal Revenue Code, the
utilization of the net operating loss carryforward may be limited based on
changes in the percentage of ownership of the Company.

                                     F-10

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001


5.  Stockholders' Equity (Deficiency)

   The Company's Board of Directors, without the approval of the holders of the
Common Stock, is authorized to designate for issuance up to 5,000,000 shares of
preferred stock, par value $0.01 per share, in such series and with such
rights, privileges and preferences as the Board of Directors may from time to
time determine. Issuance of preferred stock may adversely affect the rights,
privileges and preferences afforded the holders of Common Stock, including a
decrease in the amount available for distribution to holders of the Common
Stock in the event of a liquidation or payment of preferred dividends. Issuance
of shares of preferred stock may also have the effect of preventing or delaying
a change in control of the Company without further action by the stockholders
and could make removal of present management of the Company more difficult. The
Company currently has no plans to designate and/or issue any shares of
preferred stock.

6.  Commitments

   The Company leases facilities for office space and its animation studios
under an operating lease for a five-year period expiring August 31, 2003 with
an option for an additional five-year term. Under the terms of the lease
agreement the Company is required to pay a pro-rata share of the building's
operating expenses, maintenance and property taxes. The lease agreement
includes certain free rent periods and an escalation in the monthly rental
amount, as defined. The accompanying statements of operations for the years
ended December 31, 1999, 2000 and 2001 reflect rent expense on a straight-line
basis over the term of the lease. The Company also has various lease agreements
for equipment and additional office space which expire through 2004. The
following is a schedule of the future minimum lease payments under all
noncancelable operating lease agreements:

<TABLE>
<CAPTION>
                    Year ending December 31
                    -----------------------
                    <S>                          <C>
                    2002........................ $ 1,320,156
                    2003........................     898,544
                    2004........................      24,372
                    2005........................      19,428
                    2006........................       1,532
                                                 -----------
                    Total minimum lease payments $2,264,032
                                                 ===========
</TABLE>

   Rent expense for the years ended December 31, 1999, 2000 and 2001, prior to
any allocation of rent to capitalized film costs, was $1,280,933, $1,224,079,
and $1,237,130, respectively.

   At December 31, 2001, the Company had outstanding employment agreements with
various employees with initial terms ranging from one to two years. Under the
terms of the agreements, the Company is obligated to pay the following amounts:

<TABLE>
<CAPTION>
                       Year ending December 31
                       -----------------------
                       <S>                     <C>
                                2002.......... $  729,058
                                2003..........    450,975
                                2004..........    187,979
                                               ----------
                                               $1,368,012
                                               ==========
</TABLE>

                                     F-11

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001


7.  401(k) Profit Sharing Plan

   The Company has a defined contribution Profit Sharing 401(k) Savings Plan
which covers substantially all of its employees. The plan became effective on
January 1, 1991 and was amended effective January 1, 1992. Under the terms of
the plan, employees can elect to defer up to 15% of their wages, subject to
certain Internal Revenue Service (IRS) limitations, by making voluntary
contributions to the plan. Additionally, the Company, at the discretion of
management, can elect to match up to 100% of the voluntary contributions made
by its employees. The Company has received determination letters from the IRS
indicating that the above plan is qualified within the terms of the applicable
provisions of the Employee Retirement Income Security Act of 1974.

   For the years ended December 31, 1999, 2000, and 2001 the Company
contributed $167,881, $180,395 and $155,020, respectively, to the plan on
behalf of its employees.

8.  Significant Customers and Properties

   In 1999, the Company earned revenue from two significant customers of
$37,620,000 (77%) and $5,930,000 (12%). In 2000, the Company earned revenue
from two significant customers of $31,420,000 (71%) and $11,110,000 (25%). In
2001, the Company earned revenue from three significant customers of
$27,590,000 (62%), $8,190,000 (19%) and $3,820,000 (9%).

   In 1999, the Company earned revenue from four significant properties of
$16,260,000 (33%), $14,740,000 (30%), $6,620,000 (14%) and $5,930,000 (12%). In
2000, the Company earned revenue from three significant properties of
$15,750,000 (35%), $15,560,000 (35%), and $6,940,000 (16%). In 2001, the
Company earned revenue from four significant properties of $14,390,000 (33%),
$13,190,000 (30%), $6,950,000 (16%) and $3,550,000 (8%).

9.  Stock Option Plan

   In 1996 the Company adopted a stock option plan (the "1996 Plan"). All
regular salaried employees of the Company may, at the discretion of the
compensation committee of the Board of Directors, be granted incentive and
non-qualified stock options to purchase shares of Common Stock at an exercise
price not less than 100% of the fair market value of such shares on the grant
date. Directors of the Company, consultants and other persons who are not
regular salaried employees of the Company are not eligible to receive incentive
stock options, but are eligible to receive non-qualified stock options.

   The maximum number of shares subject to the 1996 Plan is 2,100,000 and the
1996 Plan will terminate on August 7, 2005, unless sooner terminated by the
Board of Directors. The options generally vest over a five-year period and
expire ten years from the date of issuance.

   On June 16, 1999, the shareholders ratified the 1999 Non-Employee Director's
Stock Option Plan (A1999 Plan"). As amended by the Board of Directors the 1999
Plan provides that on the date of each annual meeting of the Company, each
non-employee Director who is then serving on the Board shall be granted options
to purchase 5,000 shares of Common Stock with an effective date of grant as of
the date such annual meeting. The exercise price for such option shall be 100%
of the fair market value of such shares on the grant date. The maximum number
of shares subject to the 1999 Plan is 100,000 and the 1999 Plan will terminate
on June 16, 2009, unless sooner terminated by the Board of Directors. The
options vest upon issuance and expire ten years from the date of issuance.

                                     F-12

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001


   In June 2000, the Company combined both the 1996 Plan and 1999 Plan into one
combined plan called the Amended and Restated 2000 Stock Option Plan ("2000
Plan"). The maximum number of shares subject to the 2000 Plan is the 2,200,000
shares that were subject to the previous plans. Options granted under the 2000
Plan vest in the same manner as the 1996 Plan and the 1999 Plan and expire ten
years from the date of issuance. The 2000 Plan will terminate on June 14, 2010,
unless sooner terminated by the Board of Directors.

   The Company applies Accounting Principles Board Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock options. Accordingly, no compensation cost has been recognized. Had
compensation cost been determined based on the fair value at the grant date for
such awards, as set forth under FASB Statement No. 123, Accounting for
Stock-Based Compensation (FAS 123), the Company's net loss and net loss per
common share would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                     Year ended December 31,
                              -------------------------------------
                                 1999         2000         2001
                              -----------  -----------  -----------
           <S>                <C>          <C>          <C>
           Net loss
              As reported.... $(7,493,055) $(2,585,897) $(5,876,699)
              Pro forma...... $(7,831,169) $(2,805,502) $(6,345,587)

           Net loss per share
              As reported.... $     (0.88) $     (0.30) $     (0.69)
              Pro forma...... $     (0.92) $     (0.33) $     (0.74)
</TABLE>

   Since compensation expenses associated with option grants is recognized over
the vesting period, the initial impact of applying FAS 123 on pro forma net
loss and pro forma net loss per share is not representative of the potential
impact on pro forma amounts in future years, when the effect of the recognition
of a portion of compensation expenses from multiple awards would be reflected.

   The weighted average fair value of options granted during the year was
$2.09, $1.18 and $0.77 for the years ended December 31, 1999, 2000 and 2001.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                          Year ended December 31,
                                          ----------------------
                                           1999      2000   2001
                                          ----      ----   -----
                  <S>                     <C>       <C>    <C>
                  Dividend yield.........   --        --      --
                  Expected volatility.... 96.8%     96.1%  102.1%
                  Risk-free interest rate 6.38%     6.52%   5.33%
                  Expected term (years)..    8         8       8
</TABLE>

                                     F-13

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001


   A summary of stock option activity under the Plan is as follows:

<TABLE>
<CAPTION>
                                                                                             Weighted
                                                                                             Average
                                                                                             Exercise
                                                                                   Shares     Price
                                                                                  ---------  --------
<S>                                                                               <C>        <C>
Balance at December 31, 1998 (including 780,009 options exercisable at a weighted
  average exercise price of $1.32 per share)..................................... 1,829,034

Granted..........................................................................   203,000   $2.457
Exercised........................................................................   (69,500)  $0.049
Cancelled........................................................................  (770,034)  $1.607
                                                                                  ---------
Balance at December 31, 1999 (including 631,817 options exercisable at a weighted
  average exercise price of $1.53 per share)..................................... 1,192,500
                                                                                  ---------

Granted..........................................................................   630,000   $1.367
Exercised........................................................................   (41,000)  $1.529
Cancelled........................................................................  (256,250)  $1.585
                                                                                  ---------
Balance at December 31, 2000 (including 936,450 options exercisable at a weighted
  average exercise price of $1.51 per share)..................................... 1,525,250
                                                                                  ---------

Granted..........................................................................   255,000   $0.877
Exercised........................................................................   (12,500)  $0.750
Cancelled........................................................................  (520,750)  $1.370
                                                                                  ---------
Balance at December 31, 2001 (including 810,669 options exercisable at a weighted
  average exercise price of $1.51 per share)..................................... 1,247,000
                                                                                  =========
</TABLE>

   Exercise prices for options outstanding as of December 31, 2001, ranged from
$0.72 to $2.94. The weighted-average remaining contractual life of these
options is 7.3 years.

   As of December 31, 2000 and 2001, shares available under the 2000 Plan for
future grants of options were 631,280 and 897,030, respectively.

10.  Related Party Transactions

   A firm in which an outside director of the Company is a shareholder provides
accounting and tax services to the Company and fees paid to that firm during
2000 and 2001 amounted to $2,500 and $6,750 respectively. A firm in which an
outside director of the Company is the principal acts as a legal consultant to
the Company and fees paid to that firm during 1999, 2000 and 2001 amounted to
$87,615, $140,706 and $250,296, respectively.

11.  Change in Accounting Principle

   In June 2000, Statement of Position 00-2 "Accounting by Producers or
Distributors of Films" ("SOP 00-2") was issued. SOP 00-2 establishes new
financial accounting and reporting standards for producers and distributors of
films, including changes in accounting for advertising, development and
overhead costs. The Company adopted the provisions of SOP 00-2 as of January 1,
2001.

                                     F-14

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001


   SOP 00-2 requires that certain indirect overhead costs and development costs
for abandoned projects be charged directly to expense, instead of those costs
being capitalized to film costs as was required under the previous accounting
model. In connection with the adoption of SOP 00-2, the Company recorded a non
cash charge of $364,000 to reduce the carrying value of its film inventory.
Such amount is primarily due to the expensing of certain indirect overhead
costs and development costs for abandoned projects, which were previously
capitalized. The non-cash charge is reflected as a cumulative effect of a
change in accounting principle in the accompanying consolidated statement of
operations for the year ended December 31, 2001.

12.  Pentamedia Transaction

   The Company had anticipated the receipt of approximately $10,000,000 to
$15,000,000 in cash from the issuance and sale of common stock to Pentamedia
Graphics, Ltd. ("Pentamedia"). However, after several attempts to restructure
the stock purchase transaction between the two companies, and two closing date
extensions, Pentamedia continued to provide no satisfactory evidence of its
ability to deliver the agreed upon purchase price in the agreed upon manner.
Consequently, on May 18, 2001, Film Roman terminated the transaction between
the two companies and later submitted a demand for arbitration on the grounds
that Pentamedia had breached the agreements between the two companies. Film
Roman is no longer constrained from pursuing other strategic alliances and
financing sources. On July 9, 2001, the Company received $350,000 in cash from
Pentamedia as a result of the Settlement Agreement entered into by the two
companies. The $350,000 was offset against costs incurred under selling,
general and administrative expenses. Additional terms of the Settlement
Agreement included each party's release of the other party from any past or
future claims arising out of the prior agreements between the companies.

14.  Quarterly Information (Unaudited)

<TABLE>
<CAPTION>
                                                                              2001
                                                                       Three months ended
                                                        -----------------------------------------------
                                                         March 31    June 30    September 30 December 31
                                                        ----------  ----------  ------------ -----------
                                                        (In thousands, except per share and share data)
<S>                                                     <C>         <C>         <C>          <C>
Statement of Operations Data:
Revenue................................................
Expenses:                                               $   19,199  $    9,401   $    3,715  $   11,773
   Cost of revenue.....................................     18,254       9,287        4,405      13,399
   Selling, general and administrative expenses........        923       1,416        1,342         657
                                                        ----------  ----------   ----------  ----------
Operating loss.........................................         22      (1,302)      (2,032)     (2,283)
Interest income (expense), net.........................         40           8           19          15
                                                        ----------  ----------   ----------  ----------
Loss before cumulative effect of a change in accounting
  principle and provision for income taxes.............         62      (1,294)      (2,013)     (2,268)
Cumulative effect of a change in accounting principle..        364          --           --          --
Provision for income taxes.............................         --          --           --          --
                                                        ----------  ----------   ----------  ----------
Net loss............................................... $     (302) $   (1,294)  $   (2,013) $   (2,268)
                                                        ==========  ==========   ==========  ==========
Loss before cumulative effect of a change in accounting
  principle, per common share basic and diluted........ $     0.01  $    (0.15)  $    (0.23) $    (0.26)
                                                        ==========  ==========   ==========  ==========
Net loss per common share basic and diluted............ $    (0.04) $    (0.15)  $    (0.23) $    (0.26)
                                                        ==========  ==========   ==========  ==========
Weighted average number of shares outstanding basic and
  diluted..............................................  8,565,190   8,565,465    8,577,690   8,577,690
                                                        ==========  ==========   ==========  ==========
</TABLE>

                                     F-15

<PAGE>

                               FILM ROMAN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                               December 31, 2001

<TABLE>
<CAPTION>
                                                                              2000
                                                                       Three months ended
                                                        -----------------------------------------------
                                                         March 31    June 30    September 30 December 31
                                                        ----------  ----------  ------------ -----------
                                                        (In thousands, except per share and share data)
<S>                                                     <C>         <C>         <C>          <C>
Statement of Operations Data:
Revenue................................................
Expenses:                                               $   12,686  $    7,936   $    5,040  $   18,880
   Cost of revenue.....................................     12,910       7,935        4,652      17,909
   Selling, general and administrative expenses........      1,307         872          834       1,295
                                                        ----------  ----------   ----------  ----------
Operating loss.........................................     (1,221)       (871)        (446)       (324)
Interest income (expense), net.........................         71          71           71          65
                                                        ----------  ----------   ----------  ----------
Loss before provision for income taxes.................     (1,150)       (800)        (375)       (259)
Provision for income taxes.............................          2          --           --          --
                                                        ----------  ----------   ----------  ----------
Net loss............................................... $   (1,152) $     (800)  $     (375) $     (259)
                                                        ==========  ==========   ==========  ==========
Net loss per common share basic and diluted............ $    (0.13) $    (0.09)  $    (0.04) $    (0.03)
                                                        ==========  ==========   ==========  ==========
Weighted average number of shares outstanding basic and
  diluted..............................................  8,559,124   8,565,190    8,565,190   8,565,190
                                                        ==========  ==========   ==========  ==========
</TABLE>

                                     F-16