<PAGE>

                          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, 1997
                                          OR
/ /           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934

                            COMMISSION FILE NUMBER 0-25308

                               OVERSEAS FILMGROUP, INC.
                (Exact name of Registrant as specified in its charter)

                  DELAWARE                                      13-3751702
              (State or other                                (I.R.S. Employer
jurisdiction of incorporation or organization)               Identification No.)

           8800 SUNSET BLVD., THIRD FLOOR, LOS ANGELES, CA           90069
                (Address of principal executive offices)           (zip code)

         Registrant's telephone number, including area code:  (310) 855-1199

         Securities Registered Pursuant to Section 12(b) of the Act:  None

            Securities Registered Pursuant to Section 12(g) of the Act:

                      Common Stock, par value $.001 per share
                                  (title of class)
                         Warrants to Purchase Common Stock
                                  (title of class)

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

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

                                (Cover page of Form 10-K continued on next page)


<PAGE>

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of April
21, 1998, (based on the closing sale price on such date as reported on the OTC
Bulletin Board) was $3,762,500.

     The number of shares of Common Stock outstanding as of April 21, 1998 was
5,732,778.

                        DOCUMENTS INCORPORATED BY REFERENCE
         NO DOCUMENTS ARE INCORPORATED BY REFERENCE INTO PARTS I, II OR III


<PAGE>

                                        PART I

THIS ANNUAL REPORT ON FORM 10-K (INCLUDING, WITHOUT LIMITATION, PARTS I, II AND
III) CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.  SUCH STATEMENTS MAY CONSIST OF ANY
STATEMENT OTHER THAN A RECITATION OF HISTORICAL FACT AND CAN BE IDENTIFIED BY
THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "INTEND" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS
THEREON OR COMPARABLE TERMINOLOGY.  THE READER IS CAUTIONED THAT ALL
FORWARD-LOOKING STATEMENTS ARE NECESSARILY SPECULATIVE AND THERE ARE CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER
MATERIALLY FROM THOSE REFERRED TO IN SUCH FORWARD-LOOKING STATEMENTS.  THESE
RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHER THINGS, THE HIGHLY SPECULATIVE AND
INHERENTLY RISKY AND COMPETITIVE NATURE OF THE MOTION PICTURE INDUSTRY.  THERE
CAN BE NO ASSURANCE OF THE ECONOMIC SUCCESS OF ANY MOTION PICTURE SINCE THE
REVENUES DERIVED FROM THE PRODUCTION AND DISTRIBUTION OF A MOTION PICTURE (WHICH
DO NOT NECESSARILY BEAR A DIRECT CORRELATION TO THE PRODUCTION OR DISTRIBUTION
COSTS INCURRED) DEPEND PRIMARILY UPON ITS ACCEPTANCE BY THE PUBLIC, WHICH CANNOT
BE PREDICTED.  THE COMMERCIAL SUCCESS OF A MOTION PICTURE ALSO DEPENDS UPON THE
QUALITY AND ACCEPTANCE OF OTHER COMPETING FILMS RELEASED INTO THE MARKETPLACE AT
OR NEAR THE SAME TIME, THE AVAILABILITY OF ALTERNATIVE FORMS OF ENTERTAINMENT
AND LEISURE TIME ACTIVITIES, GENERAL ECONOMIC CONDITIONS AND OTHER TANGIBLE AND
INTANGIBLE FACTORS, ALL OF WHICH CAN CHANGE AND CANNOT BE PREDICTED WITH
CERTAINTY.  THEREFORE, THERE IS A SUBSTANTIAL RISK THAT SOME OR ALL OF THE
MOTION PICTURES RELEASED, DISTRIBUTED, FINANCED OR PRODUCED BY THE REGISTRANT
WILL NOT BE COMMERCIALLY SUCCESSFUL, RESULTING IN COSTS NOT BEING RECOUPED OR
ANTICIPATED PROFITS NOT BEING REALIZED.  THE REGISTRANT'S RESULTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1997 ARE NOT NECESSARILY INDICATIVE OF THE
RESULTS THAT MAY BE EXPECTED IN FUTURE PERIODS.  DUE TO QUARTERLY FLUCTUATIONS
IN THE NUMBER OF MOTION PICTURES IN WHICH THE REGISTRANT CONTROLS THE
DISTRIBUTION RIGHTS AND WHICH BECOME AVAILABLE FOR DISTRIBUTION (AND THUS, FOR
WHICH REVENUE CAN FIRST BE RECOGNIZED) AND THE NUMBER OF MOTION PICTURES
DISTRIBUTED BY THE REGISTRANT, AS WELL AS THE UNPREDICTABLE NATURE OF AUDIENCE
AND SUBDISTRIBUTOR RESPONSE TO MOTION PICTURES DISTRIBUTED BY THE REGISTRANT,
THE REGISTRANT'S REVENUES, EXPENSES AND EARNINGS FLUCTUATE SIGNIFICANTLY FROM
QUARTER TO QUARTER AND FROM YEAR TO YEAR.  IN ADDITION, FOR SEVERAL REASONS,
INCLUDING (I) THE LIKELIHOOD OF CONTINUED INDUSTRY-WIDE INCREASES IN
ACQUISITION, PRODUCTION AND MARKETING COSTS AND (II) THE REGISTRANT'S INTENT,
BASED UPON ITS ONGOING STRATEGY, TO ACQUIRE RIGHTS TO OR PRODUCE FILMS WHICH
HAVE GREATER PRODUCTION VALUES (OFTEN AS A RESULT OF LARGER BUDGETS), THE
REGISTRANT'S COSTS AND EXPENSES, AND THUS THE CAPITAL REQUIRED BY THE REGISTRANT
IN ITS OPERATIONS AND THE ASSOCIATED RISKS FACED BY THE REGISTRANT MAY INCREASE
IN THE FUTURE. ADDITIONAL RISKS AND UNCERTAINTIES ARE DISCUSSED ELSEWHERE IN
APPROPRIATE SECTIONS OF THIS REPORT AND IN OTHER FILINGS MADE BY THE REGISTRANT
WITH THE SECURITIES AND EXCHANGE COMMISSION. THE RISKS HIGHLIGHTED ABOVE AND
ELSEWHERE IN THIS REPORT SHOULD NOT BE ASSUMED TO BE THE ONLY THINGS THAT COULD
AFFECT FUTURE PERFORMANCE OF THE REGISTRANT.  THE REGISTRANT DOES NOT HAVE A
POLICY OF UPDATING OR REVISING FORWARD-LOOKING STATEMENTS AND THUS IT SHOULD NOT
BE ASSUMED THAT SILENCE BY MANAGEMENT OF THE REGISTRANT OVER TIME MEANS THAT
ACTUAL EVENTS ARE BEARING OUT AS ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS.


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ITEM 1.  BUSINESS

     Overseas Filmgroup, Inc., a Delaware corporation, (the "Company") is an
independent film company which specializes in the acquisition and worldwide
license, sale or distribution of distribution rights to independently produced
feature films in a wide variety of genres (including action, "art-house,"
comedy, drama, foreign language, science fiction and thrillers). The Company's
executive offices are located at 8800 Sunset Boulevard, Third Floor, Los
Angeles, California 90069, and its telephone number is (310) 855-1199.

     The Company was incorporated in December 1993 under the name
"Entertainment/Media Acquisition Corporation" as a Specified Purpose Acquisition
Company-Registered Trademark-* in order to acquire an operating business in the
entertainment and media industry by merger or other similar type of transaction.
From inception until the October 1996 merger hereafter described, its operations
were limited to organizational activities, completion of an initial public
offering in February 1995, and the evaluation and negotiation of possible
business combinations.  On October 31, 1996, pursuant to an Agreement of Merger
dated as of July 2, 1996, as amended as of September 20, 1996, among the
Company, Overseas Filmgroup, Inc. - a privately-held Delaware corporation
("Pre-Merger Overseas"), and Ellen Dinerman Little and Robert B. Little (as
amended, the "Merger Agreement"), the Company merged with Pre-Merger Overseas
(the "Merger"), with the Company as the surviving corporation in the Merger.
Upon consummation of the Merger, the Company changed its name to "Overseas
Filmgroup, Inc.", and succeeded to the business and operations of Pre-Merger
Overseas which had been established in 1980.  Unless otherwise specifically
indicated or the context otherwise requires, the term "Company," refers to the
Registrant, Overseas Filmgroup, Inc., and its wholly owned subsidiaries and
references to the operations of the Company are to the operations of Pre-Merger
Overseas through the date of the Merger and to the combined company following
the Merger.  In addition, the term "EMAC" is sometimes used herein to refer to
the Registrant during the period from its inception as "Entertainment/Media
Acquisition Corporation" until the Merger.

RECENT DEVELOPMENTS

     In mid-1997, in order to address an anticipated need for additional 
liquidity occasioned by the disappointing worldwide performance of recent 
films acquired by the Company and the maturity of various film facilities 
under the Company's credit facility, the Company began discussions with the 
lenders providing the Company's credit facility to make additional amounts 
available under the operating facility portion of the credit facility and to 
extend the commitment to lend under the credit facility. On April 14, 1998, 
the Company and such lenders entered into an agreement pursuant to which they 
amended the credit facility to extend the commitment to lend until April 9, 
1999, subject to continued compliance by the Company with the terms of the 
credit facility and establishment of the guarantee described below. The 
Company and the lenders also agreed to make up to an additional $1,325,660 
available under the operating portion of the Company's credit facility above 
the $5,908,340 then outstanding and agreed to extend the maturity dates of 
certain film facilities established under the film facilities portion of the 
credit facility. However, the Company and the lenders also agreed that the 
film facilities portion of the credit facility (a significant primary source 
of funds for acquisition of distribution rights by the Company) will no 
longer be a revolving credit line and that sums repaid by the Company cannot 
be reborrowed. The Company also agreed to additional covenants and operating 
restrictions, including obtaining written approval of the lenders prior to 
entering into any new rights acquisitions or commitments or committing to 
spend amounts in connection with distribution expenses or costs for prints 
and advertising. In connection with the extension of the commitment to lend 
and these changes to the credit facility, the Company's principal 
stockholders and executive officers, Ellen Dinerman Little and Robert B. 
Little, agreed to personally guarantee for the benefit of the lenders under 
the credit facility amounts in excess of $6,000,000 outstanding under the 
operating portion of the credit facility (up to a maximum guarantee amount of 
$618,000) and to defer payments under the promissory note that they received 
in connection with the Merger. See "Item 7--Management's Discussion and 
Analysis of Financial Condition and Results of Operations--Liquidity and 
Capital Resources" for additional information regarding this agreement 
between the Company and the lenders which provide its credit facility.

STRATEGIC OBJECTIVES

     The Company has accumulated a library of distribution rights (including 
sales agency rights) in various media and markets to approximately 220 
feature films. See "The Company's Film Library of Distribution Rights" below. 
 Most of such motion pictures have had direct negative costs between 
$1,000,000 and $6,000,000.  This is substantially below the average direct 
negative cost of films produced by the major studios, which was approximately 
$53,400,000 million in 1997.  The Company's primary focus has been the 
licensing of distribution rights (such as theatrical, video, pay television, 
free television, satellite and other rights) to foreign sub-distributors in 
the major international territories or regions. These activities accounted 
for approximately 77% of the Company's total revenues in 1997. In recent 
years, the Company has been increasingly active in acquiring domestic 
distribution rights. The Company has engaged directly in domestic theatrical 
distribution (booking motion pictures with theatrical exhibitors, arranging 
for the manufacture of release prints from the film negative, and promoting 
such motion pictures with advertising and publicity campaigns) through the 
Company's domestic theatrical releasing division, First Look Pictures. First 
Look Pictures has released such films as MRS. DALLOWAY (starring Vanessa 
Redgrave, Rupert Graves, and Natascha McElhone), ANTONIA'S LINE (winner of 
the 1996 Academy Award for Best Foreign Language Film), THE DESIGNATED 
MOURNER (starring Mike Nichols, Miranda Richardson and Daivd De Keyser), 
INFINITY

-------------------------
  *  "Specified Purpose Acquisition Company" is a registered servicemark of GKN
Securities Corp.


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(directed by Matthew Broderick, starring Matthew Broderick and Patricia 
Arquette), THE SECRET OF ROAN INISH (the critically acclaimed film by the 
noted director, John Sayles), THE SCENT OF GREEN PAPAYA (which was nominated 
for the 1994 Academy Award for Best Foreign Language Film) and PARTY GIRL 
(which the Company believes was the first theatrical motion picture broadcast 
over the Internet).

     The Company began its operations by acting primarily as a foreign sales
agent, licensing distribution rights in markets outside the United States to
independently produced films which were fully financed and continued to be owned
by others, in exchange for a sales agency fee. In addition, the Company now
acquires from independent producers the distribution rights in a film for a
specified term in one or more territories and media and receives a distribution
fee in connection with its licensing activities. Often the Company commits to
pay an independent producer a minimum guaranteed payment (a "minimum guarantee")
at or after delivery of the completed film to the Company, ranging from
approximately $100,000 to $5,000,000 or more and representing varying portions,
including at times all or substantially all of a film's production costs. These
minimum guarantees may enable the independent producer to obtain financing for
its project and often results in the Company controlling more of the
distribution rights in the film and receiving more favorable distribution terms.
The Company has also selectively produced certain of the motion pictures
distributed by it, generally acquiring fully developed projects ready for
pre-production and contracting out pre-production and production activities.

      The films distributed by the Company in 1997 generally performed 
disappointingly, in part due to (i) changes in the marketplace for 
independent films including the reduced demand by retail video stores and 
video subdistributors for films which have not had significant (or any) 
theatrical release (none of the six films released theatrically in the United 
States by the Company through First Look Pictures generated more than 
$211,000 in United States box office receipts and seven films first available 
for distribution by the Company in 1997 had no or are expected to have no 
theatrical release) (ii) the failure of films released theatrically by the 
Company in the U.S. to achieve significant audience and subdistributor 
acceptance, and (iii) the weakened demand for film rights in Asia due to the 
region's recent financial crisis. In order to seek to improve the Company's 
cash flow and address the factors which led to the disappointing performance 
of the Company's films in 1997, as well as in response to the operating 
limitations imposed by the recent agreement between the Company and its 
commercial lenders with respect to the Company's credit facility, the Company 
has been implementing changes in its operational strategies. Currently, the 
Company's primary strategies are to:

--    SEEK TO LIMIT RISK BY CONTINUING TO BALANCE THE METHODS IT USES FOR 
      ACQUIRING DISTRIBUTION RIGHTS. The Company is altering the frequency in 
      which it engages in various acquisition, distribution and financing 
      arrangements. The Company presently intends to:

      -    Reduce the number of films for which the Company provides minimum 
           guarantees which represent the majority of the final production 
           costs of a film or for which the Company otherwise finances 
           all or substantially all of the film's production costs.

      -    Act as sales agent or engage in "straight distribution" (i.e., 
           licensing distribution rights to a film from the rights owner for 
           exploitation by the Company for a given term in a given territory or 
           territories and media without a minimum guarantee commitment) more 
           frequently than in recent years (including under "gap financing" 
           arrangements where a lender lends a portion of the 
           acquisition or production funds based upon the Company's estimated 
           value of unsold distribution rights).

      -    Limit the instances in which the Company itself produces motion 
           picture projects. The Company does not presently have plans to 
           produce any motion picture projects itself in 1998.

      -    Reduce the number of films First Look Pictures releases annually. 
           From January 1, 1997 through April 15, 1998, First Look Pictures 
           released seven motion pictures. First Look Pictures may release up 
           to approximately three additional films in 1998 assuming the 
           availability of funding for print and advertising costs associated 
           therewith. The Company currently anticipates that, in most 
           circumstances, it will not proceed with a First Look Pictures release
           unless outside sources of funds for print and advertising costs are 
           available to the Company in connection with such release.

      -    Increasingly participate in co-financing arrangements whereby the 
           Company, in combination with other equity providers (including 
           producers, distributors in various territories, various international
           governmental programs designed to incentivize film production and 
           other equity providers), commits to fund a portion of a particular
           film's production costs.  For example, ALEGRIA and ILLUMINATA, two 
           films the Company currently anticipates that it will distribute in 
           1998, are co-production arrangements with The Cirque Du Soleil, 
           Mainstream S.A. and Egmond Film & Television BV;  and with Victor
           Company of Japan (JVC) and Sogepaq S.A. and Compagnia Distribuzione 
           Internazionale SRL respectively.

 --   MAINTAIN A COST CONSCIOUSNESS IN ITS ACQUISITION, FINANCING AND 
      DISTRIBUTION ACTIVITIES. The Company currently intends to:

      -    Consider possible additional reductions in overhead. In the last 
           fiscal year, the Company reduced the number of its employees by 20%.

      -    Further develop relationships with major studios and expand the 
           Company's executive producing role in connection with motion 
           pictures produced and distributed by other companies. For example, 
           in May 1997, the Company concluded an executive producing arrangement
           with The Walt Disney Company with respect to a project optioned by 
           the Company entitled "EMILY."

      -    Emphasize films with more recognizable cast, directors and 
           producers and greater production values (often through offering 
           greater creative opportunity to talent than major studios offer or 
           as a result of larger budgets) and which may accordingly have 
           broader appeal in the competitive theatrical market while 
           attempting to limit the Company's exposure with respect to 
           production and/or acquisition costs through "gap financing" and 
           co-production arrangements.

      -    Seek to develop relationships with emerging and established talent 
           and to maintain relationships with independent producers with 
           reputations for producing high quality films while also controlling 
           costs.

 -    EXPLORE OBTAINING ADDITIONAL SOURCES OF CAPITAL. The Company is 
      currently exploring obtaining additional sources of capital 
      (including equity and debt financing). There can be no assurance, 
      however, that such additional capital will be available or available on 
      terms advantageous to the Company.

      For additional information on these operational strategies, See "Motion 
      Picture Distribution by the Company," and "Acquisition of Rights by the 
      Company, Production and Financing" below and "Item 7 -- Management's 
      Discussion and Analysis of Financial Condition and Results of 
      Operations." No assurances can be given that any or all of such strategies
      will be fully or partially realized, as their successful implementation 
      depends upon, among other things, the ability of management of the 
      Company to implement such strategies and the availability of 
      sufficient capital.

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THE MOTION PICTURE INDUSTRY

     The motion picture industry consists of two principal activities which 
are described in greater detail below: production, which involves the 
development, financing and production of motion pictures; and distribution, 
which involves the promotion and exploitation of feature-length motion 
pictures in a variety of media, including theatrical exhibition, home video, 
television and other ancillary markets, both domestically and 
internationally. The United States motion picture industry is dominated by 
the "major studios," including The Walt Disney Company, Paramount Pictures 
Corporation, Warner Brothers Inc., Universal Pictures, Twentieth Century Fox, 
Columbia Pictures, and MGM/UA. The major studios, which have historically 
produced and distributed the vast majority of high grossing theatrical motion 
pictures released annually in the United States, are typically large 
diversified corporations that have strong relationships with creative talent, 
television broadcasters and channels, theatrical exhibitors and others 
involved in the entertainment industry. The major studios also typically have 
extensive national or worldwide distribution organizations and own extensive 
motion picture libraries. Motion picture libraries, consisting of motion 
picture copyrights and distribution rights owned or controlled by a film 
company, can be valuable assets capable of generating revenues from worldwide 
commercial exploitation in existing media and markets, and potentially in 
future media and markets resulting from new technologies and applications. 
The major studios also may own or are affiliated with companies that own 
other entertainment related assets such as music and merchandising operations 
and theme parks. The major studios' motion picture libraries and other 
entertainment assets may provide a stable source of earnings which can offset 
the variations in the financial performance of their new motion picture 
releases and other aspects of their motion picture operations.

     During the past 15 years, "independent" production and distribution 
companies (many with financial and other ties to the major studios) have 
played an important role in the production and distribution of motion 
pictures for the worldwide feature film market, including Miramax Films 
Corporation (GOOD WILL HUNTING, SCREAM, SLING BLADE, THE ENGLISH PATIENT, 
PULP FICTION, IL POSTINO (the Postman) and LIKE WATER FOR CHOCOLATE), now 
affiliated with The Walt Disney Company; New Line Cinema Corporation/Fine 
Line Features (LOST IN SPACE, SHINE, THE MASK, TEENAGE MUTANT NINJA TURTLES 
and the NIGHTMARE ON ELM STREET series), now affiliated with Time Warner 
Entertainment Company, L.P.; October Films (SECRETS & LIES, BREAKING THE 
WAVES) now affiliated with Universal Pictures; and Orion Pictures (THE 
SILENCE OF THE LAMBS), now affiliated with MGM/UA. As a result of 
consolidation in the domestic motion picture industry, a number of previously 
independent producers and distributors have been acquired or are otherwise 
affiliated with major studios. However, there are also a large number of 
other production and distribution companies that produce or distribute motion 
pictures which have not been acquired or become affiliated with the major 
studios. In contrast to the major studios, the independent production and 
distribution companies generally produce or distribute fewer motion pictures 
and do not own production studios, national or worldwide distribution 
organizations, or associated businesses or extensive film libraries which can 
generate gross revenues sufficient to offset overhead, service debt or 
generate significant cash flow.

     The motion picture industry is a world-wide industry. In addition to the
production and distribution of motion pictures in the United States, motion
picture distributors generate substantial revenues from the exploitation of
motion pictures internationally. In recent years, there has been a substantial
increase in the amount of filmed entertainment revenue generated by U.S. motion
picture distributors from foreign sources. From 1989 to 1996, international
revenues of motion picture distributors from filmed entertainment grew from
approximately $4.7 billion in 1989 to approximately $8.7 billion in 1996. This
growth has been due to a number of factors, including, among other things, the


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general worldwide acceptance of and demand for motion pictures produced in the
United States, the privatization of many foreign television industries, growth
in the number of foreign households with videocassette players, and growth in
the number of foreign theater screens.

     Many countries and territories, such as Australia, Canada, China, 
France, Germany, Hong Kong, India, Italy, Russia, Japan, Spain, and the 
United Kingdom have substantial indigenous film industries. In a number of 
these countries, as in the United States, the film (and in some cases the 
entertainment) industry is dominated by a small number of companies, often 
large, diversified companies with production and distribution operations. 
However, like in the United States, in most of such countries there are also 
smaller, independent, motion picture production and distribution companies. 
Foreign distribution companies not only distribute motion pictures produced 
in their countries or regions but also films licensed or sub-licensed from 
United States production companies and distributors. In addition, film 
companies in many foreign countries produce films not only for local 
distribution, but also for export to other countries, including the United 
States. While some foreign language films, such as LIKE WATER FOR CHOCOLATE, 
IL POSTINO (the Postman) and ANTONIA'S LINE, and foreign English-language 
films, such as WINGS OF THE DOVE, THE ENGLISH PATIENT, SHINE, FOUR WEDDINGS 
AND A FUNERAL, THE CRYING GAME and CROCODILE DUNDEE appeal to a wide U.S. 
audience, most foreign language films distributed in the United States are 
released on a limited basis as such films draw a specialized audience for 
which the appeal of such films has decreased recently.

MOTION PICTURE PRODUCTION

     The production of a motion picture begins with the screenplay adaptation of
a popular novel or other literary work acquired by the producer or the
development of an original screenplay having its genesis in a story line or
scenario conceived by a writer and acquired by the producer. In the development
phase, the producer typically seeks production financing and tentative
commitments from a director, the principal cast members and other creative
personnel. A proposed production schedule and budget are also prepared during
this phase. Upon completing the screenplay and arranging financing commitments,
pre-production of the motion picture begins. In this phase, the producer engages
creative personnel to the extent not previously committed; finalizes the filming
schedule and production budget; obtains insurance and secures completion
guaranties, if necessary; establishes filming locations and secures any
necessary studio facilities and stages; and prepares for the start of actual
filming. Principal photography (the actual filming of the screenplay) generally
extends from eight to sixteen weeks for a film produced by a major studio and
often for a significantly shorter period (sometimes as little as four to eight
weeks) for low budget films and films produced by independent production
companies, depending in each case upon such factors as budget, location, weather
and complications inherent in the screenplay. Following completion of principal
photography (the post-production phase), the motion picture is edited, opticals,
dialogue, music and any special effects are added, and voice, effects and music
sound tracks and pictures are synchronized. This results in the production of a
negative from which release prints of the motion picture are made.

     Production costs consist primarily of acquiring or developing the
screenplay, compensation of creative and other production personnel, film studio
and location rentals, equipment rentals, film stock and other costs incurred in
principal photography, and post-production costs, including the creation of
special effects and music. Distribution expenses, which consist primarily of the
costs of advertising and preparing release prints, are not included in direct
production costs. The major studios generally fund production costs from cash
flow generated by motion pictures and related activities or, in some cases, from
unrelated businesses or through off-balance sheet methods. Substantial overhead
costs, consisting largely of salaries and related costs of the production staff
and physical facilities maintained by the major studios, also must


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be funded. Independent production companies generally avoid incurring 
overhead costs as substantial as those incurred by the major studios by 
hiring creative and other production personnel and retaining the other 
elements required for pre-production, principal photography and 
post-production activities on a picture-by-picture basis. As a result, these 
companies do not own sound stages and related production facilities, and, 
accordingly, do not have the fixed payroll, general administrative and other 
expenses resulting from ownership and operation of a studio. Independent 
production companies also may finance their production activities on a 
picture-by-picture basis. Sources of funds for independent production 
companies include bank loans, "pre-licensing" of distribution rights, foreign 
government subsidies, equity offerings and joint ventures. Independent 
production companies generally attempt to obtain all or a substantial portion 
of their financing of a motion picture prior to commencement of principal 
photography, at which point substantial production costs begin to be incurred 
and require payment.

     As part of obtaining financing for its films, the independent production
company is often required by its lenders and distributors who advance production
funds to obtain a completion bond or production completion insurance from an
acceptable completion guarantor which names the lenders and applicable
distributors as beneficiaries. The guarantor assures the completion of the
particular motion picture on a certain date, and if the motion picture cannot be
completed for the agreed upon budgeted cost, the completion guarantor is
obligated to pay the additional costs necessary to complete the picture by the
agreed upon delivery date. If the completion guarantor fails to timely complete
and deliver such motion picture on or before the agreed upon delivery date, the
completion guarantor is required to pay the lenders and distributor, if
applicable, an amount equal to the aggregate amount the lenders and distributor
have loaned or advanced to the independent producer.

     In connection with the production and distribution of a motion picture,
major studios and independent production companies generally grant contractual
rights to actors, directors, screenwriters, owners of rights and other creative
and financial contributors to share in net revenues from a particular motion
picture. Except for the most sought-after talent, these third-party
participations are generally payable after all distribution fees, marketing
expenses, direct production costs and financing costs are recouped in full.

     Major studios and independent film companies in the United States typically
incur obligations to pay residuals to various guilds and unions including the
Screen Actors Guild, the Directors Guild of America and the Writers Guild of
America. Residuals are payments required to be made by the motion picture
producer to the various guilds and unions (on a picture-by-picture basis)
arising from the exploitation of a motion picture in markets other than the
primary intended market for such picture. Residuals are calculated as a
percentage of the gross revenues derived from the exploitation of the picture in
these ancillary markets. The guilds and unions typically obtain a security
interest in all rights of the producer in the motion picture being exploited to
ensure satisfaction of the residuals obligation. This security interest is
usually subordinate to the security interest of the lenders financing the
production cost of the motion picture and the completion bond company
guaranteeing completion of the motion picture. Under a producer's agreement with
the guilds and unions, the producer of a motion picture may transfer the
obligation to pay the residuals to a distributor if the distributor assumes the
obligation to make the residual payment. If the distributor does not assume
those obligations, the producer is obligated to pay those residuals.

MOTION PICTURE DISTRIBUTION

     GENERAL. Distribution of a motion picture involves domestic and
international licensing of the picture for (a) theatrical exhibition, (b)
videocassettes, laser discs and digital video discs, (c) presentation


                                          6
<PAGE>

on television, including pay-per-view, basic and premium cable, network,
syndication, or satellite, (d) marketing of the other rights in the picture and
underlying literary property, which may include books, CD-ROM, merchandising and
soundtracks, and (e) non-theatrical exhibition, which includes airlines, hotels
and armed forces facilities. Although releases by the major studios typically
are licensed and fully exploited in all of the foregoing media, often films
produced or distributed by independent film companies are not exploited in all
such media. For example, certain films may not receive theatrical exhibition in
the United States or various other territories and may instead go straight to
home video release or instead first "premiere" or otherwise be exploited on a
pay television service (in certain limited circumstances followed by a
theatrical release).

     Production companies with distribution divisions, such as the major
studios, typically distribute their motion pictures themselves. Production
companies without distribution divisions may retain the services of sales agents
or distributors to exploit the motion pictures produced by them in various media
and territories, or in all media and territories. Distribution companies may
directly exploit distribution rights licensed to, or otherwise acquired by them,
for example, by booking motion pictures with theatrical exhibitors or selling
videocassettes to video retailers. Alternatively, they may grant sub-licenses to
domestic or foreign sub-distributors to exploit completed motion pictures.

     ACQUISITION OF DISTRIBUTION RIGHTS. A sales agent does not generally 
acquire distribution rights from the producer or other owner of rights in the 
motion picture, but instead acts as an agent on behalf of the producer or 
rights owner to license distribution rights to such motion picture to 
distributors on behalf of the producer or rights owner in exchange for a 
sales agency fee, typically computed as a percentage of gross revenues from 
licenses obtained by the sales agent. A distributor generally licenses and 
takes a grant of distribution rights from the producer or other rights owner 
of the motion picture for a specified term in a particular territory or 
territories and media, generally in exchange for a distribution fee 
calculated as a percentage of gross revenues generated by exploitation of the 
motion picture by the distributor. The distributor often agrees to pay the 
producer of the motion picture a certain advance or minimum guarantee upon 
the delivery of the completed motion picture, which amount is to be recouped 
by the distributor out of revenues generated from the exploitation of the 
motion picture in particular media or territories. In general, after 
receiving its ongoing distribution fee and recouping the advance or minimum 
guarantee plus its distribution costs, the distributor pays the remainder of 
revenues in excess of an ongoing distribution fee to the producer of such 
motion picture. Obtaining license agreements with a distributor or 
distributors prior to completion of a motion picture and which provide for 
payment of a minimum guarantee (often referred to as the "pre-licensing" or 
"pre-selling" of film rights), may enable the producer to obtain financing 
for its project by using the contractual commitment of the distributor to pay 
the advance or minimum guarantee as collateral to borrow production funding. 
Although pre-sales had provided a means for financing film production in the 
past, no assurance can be given that certain territories and/or regions will 
continue to acquire films on such basis. The producer may also at times be 
able to acquire additional production funds through "gap financing", whereby 
a lender loans a portion of the production funds based on a distributor's 
estimate of the value of world distribution rights. Although "gap financing" 
is currently being made available by multiple lenders, there can be no 
assurance such lenders will continue to make funds available on this basis. 
Recently the Company has had indications that certain gap financiers may be 
altering the frequency and manner of providing such funds. In some 
circumstances, the distributor is entitled to recoup any unrecouped costs and 
advances from a film licensed to such distributor from the revenues from 
another film or films also licensed to the distributor, commonly known as 
"cross collateralizing."

     In addition to obtaining distribution rights in a motion picture for a
limited duration, a distributor may also acquire all or a portion of the
copyright in such motion picture or license certain distribution rights in
perpetuity. Both major studios and independent film companies often acquire
motion pictures for distribution through a customary industry arrangement known
as a "negative pickup," under which the studio or independent film company
agrees to pay a specified minimum guaranteed amount to an independent production
company in exchange for all rights to the film upon completion of production and
delivery of the film. The independent production company normally finances
production of the motion picture pursuant to financing arrangements with banks
and other lenders in which the lender receives an assignment of the production
company's right to payment of the minimum guarantee and is granted a


                                          7
<PAGE>

security interest in the film and in the production company's rights under its
arrangement with the studio or independent film company. When the major studio
or independent film company "picks up" the completed motion picture, it pays the
minimum guarantee or assumes the production financing indebtedness incurred by
the production company in connection with the film. In addition, the independent
production company is paid a production fee and generally is granted a
participation in net revenues from distribution of the motion picture.

     THE DISTRIBUTION CYCLE. Concurrently with their release in the United
States, motion pictures generally are released in Canada and may also be
released in one or more other international markets. As a general matter, a
motion picture which is released theatrically is typically available for
distribution in other media during its initial distribution cycle as follows:
<TABLE>
<CAPTION>

     MARKETPLACE (MEDIA)                     NUMBER OF MONTHS FOLLOWING INITIAL DOMESTIC
                                             THEATRICAL RELEASE
     <S>                                     <C>


     Domestic theatrical                                          --

     International theatrical                                     --

     Domestic home video (initial release)                       4-6 months

     Domestic pay-per-view                                       6-9 months

     International video (initial release)                       6-12 months

     Domestic pay television                                     9-10 months

     International television (pay or free)                      18-24 months

     Domestic free television*                                   30-33 months
</TABLE>

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

     *  Includes network, barter syndication, syndication and basic cable.

     Films often remain in distribution for varying periods of time.  For
example, motion pictures which are released theatrically can play in theaters
for several weeks following their initial release (for major studios) or, at
times, including for instance in the case of certain successful "art-house"
films which are released on a limited basis, for several months.  Unsuccessful
films, on the other hand, may play in theaters for only a short period of time.
Once released on videocassette, a motion picture may remain available on
videocassette for many years. Similarly a motion picture can be licensed to
various forms of television for many years after its first release.  The release
periods set forth above represent standard "holdback periods".  A holdback
period with respect to a certain media in which the motion picture is being
released represents a stipulated period of time during which release of the
motion picture in other media is prevented to allow the motion picture to
maximize its value in the media in which it is currently being released.
Holdback periods are often specifically negotiated with various distributors on
a media-by-media basis; however the periods set forth above represent the
Company's estimate of typical current holdback periods in the motion picture
industry.

     In general, if a film is not released theatrically in the United States and
instead is released straight to domestic home video, television exploitation
generally does not commence until four to eight months after such video release.
Thereafter, the same general release patterns indicated in the table above
typically apply. If a film "premieres" on United States pay television (which
generally means that no other


                                          8
<PAGE>

distribution of the film in the United States has occurred), the pay 
television service typically is licensed a four to six week exclusive airing 
period. The license will generally provide for limited airings (defined as 
five to eight "exhibition days" with multiple airings permitted on each 
"exhibition day"). The provisions of such license also usually provide for 
the pay television service to receive subsequent airing periods following a 
period in which the film can be released on video (or sometimes even 
theatrically) and a period when the film may be broadcast on free television.

     A substantial portion of a film's ultimate revenues are generated in a 
film's initial distribution cycle (generally the first five years after the 
film's initial domestic release), which typically includes theatrical, video, 
and pay and free television. Commercially successful motion pictures, 
however, may continue to generate revenues after the film's initial 
distribution cycle from the relicensing of distribution rights in certain 
media, including television and home video, and from the licensing of 
distribution rights with respect to new media and technologies and in 
emerging markets.  Although there has been a substantial increase over the 
past fifteen years in the revenues generated from the licensing of rights in 
ancillary (other than domestic theatrical) media, such as home video, cable 
and pay-per-view,  the theatrical success of a motion picture remains a 
significant factor in generating revenues in foreign markets and in other 
media such as television and videocassettes. For example, retail video stores 
have been increasingly purchasing fewer copies of videocassettes of motion 
pictures which have not been theatrically released, and purchasing more 
copies of major studio theatrical hits. Industry-wide purchases of 
homevideos in 1997 decreased by 10% over 1996 while homevideo rentals in 1997 
decreased by 3% as compared to 1996.

     THEATRICAL. The theatrical distribution of a motion picture, whether in the
United States or internationally, involves the licensing and booking of the
motion picture to theatrical exhibitors (movie theatres), the promotion of the
picture through advertising and publicity campaigns and the manufacture of
release prints from the film negative. Expenditures on these activities,
particularly on promotion and advertising, are often substantial and may have a
significant impact on the ultimate success of the film's theatrical release. In
addition, such expenditures can vary significantly, depending upon the markets
and regions where the film is distributed, the media used to promote the film
(newspaper, television and radio), the number of screens on which the motion
picture is to be exhibited and the ability to exhibit motion pictures during
peak exhibition seasons. With a release by a major studio, the vast majority of
these costs (primarily advertising costs) are incurred prior to the first
weekend of the film's domestic theatrical release, so there is not necessarily a
correlation between these costs and the film's ultimate box office performance.
In addition, the ability to distribute a picture during peak exhibition seasons,
including the summer months and the Christmas holidays, and in the most popular
theaters may affect the theatrical success of a picture. Films distributed
theatrically by an independent film company are sometimes released on a more
limited basis which in some circumstances allows the distributor to defer
certain marketing costs until it is able to assess the initial public acceptance
of the film.

     While arrangements for the exhibition of a film vary greatly, there are
certain economic relationships generally applicable to theatrical distribution.
Theater owners (the "exhibitors") retain a portion of the admissions paid at the
box office ("gross box office receipts"). The share of the gross box office
receipts retained by an exhibitor generally includes a fixed amount per week (in
part to cover overhead), plus a percentage of receipts that generally escalates
over time. Although these percentages vary widely, in the Company's general
experience, an exhibitor's share of a particular film's revenues will generally
be approximately 60% to 65% of gross box office receipts. The balance ("gross
film rentals") is remitted to the distributor. The distributor then retains a
distribution fee (typically 30-35%) from the gross film rentals and recoups the
costs incurred in distributing the film, which consist primarily of the cost of
marketing and advertising and the cost of release prints for exhibition. The
balance of gross film rentals, after deducting distribution fees and
distribution costs recouped by the distributors ("net film


                                          9
<PAGE>

rentals"), is then applied against the recoupment of any advance paid for the
distribution rights (with interest thereon) and the balance is remitted to the
producer or other rights owner of the film.

     HOME VIDEO.  A motion picture released theatrically typically becomes 
available for videocassette distribution within four to six months after its 
initial domestic theatrical release. As indicated above, certain films are 
not initially released theatrically but may instead be initially released to 
home video. Given the increasing preference of retail video stores for 
successful theatrical releases, it has become increasingly difficult to 
secure the initial release of a film directly to home video, and the economic 
opportunity for such films where such a release is obtained has greatly 
diminished. 

     Home video distribution consists of the promotion and sale of 
videocassettes to local, regional and national video retailers which rent or 
sell videocassettes to consumers primarily for home viewing. Most films are 
initially made available in videocassette form at a wholesale price of 
approximately $50 to $75 per videocassette and are sold at that price 
primarily to wholesalers who then sell to video rental stores at a price of 
approximately $75 to $105 per videocassette, which rent the cassettes to 
consumers. Following the initial marketing period, selected films may be 
remarketed at a wholesale price of $10 to $15 or less for sale to consumers. 
These "sell-through" arrangements are used most often with films that will 
appeal to a broad marketplace or to children. A few major releases with broad 
appeal may be initially offered by a film company at a price designed for 
sell-through rather than rental when it is believed that the ownership demand 
by consumers will result in a sufficient level of sales to justify the 
reduced margin on each cassette sold. Typically, owners of films do not share 
in rental income; however, video distributors are beginning to enter into 
revenue sharing arrangements with certain retail stores in some 
circumstances. Under such arrangements, videocassettes are sold at a reduced 
price to video rental stores (usually $8 to $10 per videocassette) and a 
percentage of the rental revenue is then shared with the owners (or 
licensors) of the films. Home video arrangements in international territories 
are similar to those in domestic territories except that the wholesale prices 
may differ.

     TELEVISION. Television rights for films initially released theatrically
are, if such films have broad appeal, generally licensed first to pay-per-view
for an exhibition period within six to nine months following initial domestic
theatrical release, then to pay television approximately 12 to 15 months after
initial domestic theatrical release, thereafter in certain cases to network
television for an exhibition period, and then to pay television again. These
films are then syndicated to either independent stations or basic cable outlets.
Pay-per-view allows subscribers to pay for individual programs. Pay television
allows cable television subscribers to view such services as HBO/Cinemax,
Showtime/The Movie Channel, Encore Media Services or others offered by their
cable system operators for a monthly subscription fee. Pay-per-view and pay
television is now delivered not only by cable, but also by satellite
transmission, and films are generally licensed in both such media. Certain films
which are not initially released in the domestic theatrical market may
"premiere" instead on pay television followed in some limited circumstances by
theatrical release. Groups of motion pictures are often packaged and licensed as
a group for exhibition on television over a period of time and, therefore,
revenues from these television licensing "packages" may be received over a
period that extends beyond five years from the initial domestic theatrical
release of a particular film. Motion pictures are also licensed and "packaged"
by producers and distributors for television broadcast in international markets
by government owned or privately owned television studios and networks. Pay
television is less developed outside the United States, but is experiencing
significant international growth. The prominent foreign pay television services
include Canal+, Premiere, STAR TV, British Sky Broadcasting and the
international operations of several U.S. cable services including HBO, the
Disney Channel and Turner Broadcasting.

     NON-THEATRICAL AND OTHER RIGHTS. Films may be licensed for use by airlines,
schools, public libraries, community groups, the military, correctional
facilities, ships at sea and others. Music contained in a film may be licensed
for sound recording, public performance and sheet music publication. Rights in


                                          10
<PAGE>

motion pictures may be licensed to merchandisers for the manufacture of products
such as toys, T-shirts, posters and other merchandise. Rights may also be
licensed to create novels from a screenplay and to generate other related book
publications, as well as interactive games on such platforms as CD-ROM, CD-I or
other proprietary platforms.

MOTION PICTURE DISTRIBUTION BY THE COMPANY

     INTERNATIONAL DISTRIBUTION.  Management of the Company has considerable
expertise in international distribution. Ellen Dinerman Little and Robert B.
Little, the senior executive officers of the Company and founders of its
operations, have substantial experience in the business of licensing motion
pictures for distribution outside the United States and have been active in
international motion picture sales since 1975. Over the past 23 years, they have
developed, through their foreign sales activities, relationships with
distributors in most significant territories. In addition, the Company is a
founding member of the American Film Marketing Association which sponsors the
American Film Market, one of the three major annual international film markets
attended by significant international and regional distributors. The Company
generally participates annually with a sales office at all three major film
markets (the American Film Market, the Cannes Film Festival and MIFED), as well
as the major television (NATPE, MIP, MIPCOM) and video (VSDA) markets.  The
Company, may also, from time to time, engage independent representatives to
assist the Company in acquiring and/or licensing motion picture rights.

     With respect to international territories, the Company licenses 
distribution rights in various media (such as theatrical, video, pay 
television, free television, satellite and other rights) to foreign 
sub-distributors on either an individual rights basis or grouped in various 
combinations of rights (which sometimes includes rights in all media). These 
rights are licensed by the Company to numerous sub-distributors in 
international territories or regions either on a picture-by-picture basis or, 
in certain circumstances, with respect to a number of motion pictures 
pursuant to output arrangements. Currently, the most important international 
territories for the Company are Australia, the Benelux countries, Brazil, 
Canada, France, Germany, Italy, Japan, Scandinavia, Spain and the United 
Kingdom. South Korea has also been an important territory to the Company in 
the past; however, the economic crisis in Asia has resulted in significantly 
decreased demand in Korea (as well as other Southeast Asian territories) 
resulting in fewer sales and licensing transactions with respect to those 
territories than in recent years and, significantly less advantageous terms 
to the Company when deals are concluded, compared to recent years.  As a 
result the Company is generally unable to depend on such Southeast Asian 
territories (especially South Korea) for any significant pre-sales (or other 
collateral value) for use in arranging financing for production of motion 
pictures. In addition certain contracts the Company had with subdistributors 
for these territories have been re-negotiated or cancelled. See Note 11 of 
Notes to the Company's Consolidated Financial Statements for certain 
geographic information regarding the Company's foreign distribution 
activities.

     The terms of the Company's license agreements with foreign sub-distributors
vary depending upon the territory and media involved and whether the agreement
relates to a single motion picture or multiple motion pictures. Most of the
Company's license agreements provide that the Company will receive a minimum
guarantee from the foreign sub-distributor with all or a majority of such
minimum guarantee paid prior to, or upon delivery of, the film to the
sub-distributor for release in the particular territory. The remainder of any
unpaid minimum guarantee is generally payable at specified intervals after
delivery of the film to the sub-distributor. The minimum guarantee is recouped
by the sub-distributor out of the revenues generated from exploitation of the
picture in such territory. The foreign sub-distributor retains a negotiated
distribution fee (generally measured as a percentage of the gross revenues
generated from its distribution of the motion picture), recoups its distribution
expenses and the minimum guarantee and ultimately (after recoupment by the
sub-distributor of the minimum guarantee and recovery of its


                                          11
<PAGE>

distribution expenses) remits to the Company the remainder of any receipts in
excess of the distributor's ongoing distribution fee. The Company must rely on
the foreign sub-distributor's ability to successfully exploit the film in order
to receive any proceeds in excess of the minimum guarantee.

     In certain situations, the Company does not receive a minimum guarantee
from the foreign sub-distributor and instead negotiates terms which usually
result, in effect, in an allocation of gross revenues between the
sub-distributor and the Company. Typically the terms of such an arrangement
provide for the sub-distributor to retain an ongoing distribution fee
(calculated as a percentage of gross receipts of the sub-distributor in the
territory), recoup its expenses and pay remaining receipts in excess of the
ongoing distribution fee to the Company. Alternatively, such as often with
respect to video rights, the terms may provide for a royalty to be paid to the
Company calculated as a percentage of the gross receipts of the sub-distributor
from exploitation of the video rights (without deduction for the
sub-distributor's distribution expenses).

     At times, the Company enters into output arrangements with local foreign 
distributors whereby the foreign sub-distributor receives the right, 
typically for a specified period and/or specified number of motion pictures, 
to distribute in a particular territory, in designated media, motion pictures 
released by the Company. In some circumstances, a minimum guarantee is paid 
by the foreign sub-distributor to the Company; generally on a 
picture-by-picture basis with each minimum guarantee having been either 
pre-negotiated or computed as a stipulated percentage of the production cost 
or acquisition cost of each picture.  The Company is currently a party to an 
output arrangement with Polygram Pictures Limited.  Under such arrangement, 
Polygram Pictures Limited receives the right to distribute the Company's 
motion pictures in all media in Australia and New Zealand for a twelve year 
term and, in certain circumstances, is obligated to pay a minimum guarantee 
for a particular picture. The Company's previous output arrangements with 
respect to the United Kingdom and Ireland, South Africa and certain adjoining 
territories, Canada, and Belgium, the Netherlands, Luxembourg and certain 
ex-colonies of Belgium and the Netherlands, have expired. The Company is 
currently exploring obtaining output arrangements with respect to certain of 
these territories, although there can be no assurance that the Company will 
obtain such arrangements or that such arrangements will be on terms as 
advantageous as the prior arrangements. If output arrangements are not 
obtained for such territories, the Company intends to seek agreements with 
respect to such territories on a film-by-film basis. The Company enters into 
output arrangements with foreign sub-distributors which the Company believes 
have the ability to make the recurring payments. Nevertheless, in certain 
instances foreign sub-distributors encounter financial difficulties that may 
preclude timely payment, and as a result the Company may be forced to 
terminate or renegotiate output agreements.  See also "Item 7 - Management's 
Discussion and Analysis of Financial Condition and Results of Operations - 
Exchange Rate Considerations" for certain additional considerations regarding 
the Company's international distribution activities.

     DOMESTIC DISTRIBUTION. In addition to obtaining foreign distribution 
rights, the Company has in recent years been increasingly active in acquiring 
domestic distribution rights. During 1997, various distribution rights to 
approximately sixteen films, including various domestic distribution rights 
in thirteen films, became available for the first time to the Company for 
licensing or distribution. The Company exploits its domestic distribution 
rights in a variety of ways. In 1993, the Company's domestic theatrical 
releasing operation, First Look Pictures, was established. Not all of the 
films distributed by the Company, however, receive domestic theatrical 
release by First Look Pictures or otherwise. Some films are licensed by the 
Company to domestic sub-distributors for release initially on video or, in 
certain circumstances, the Company licenses initially to the pay television 
services for "premiere" on pay television (cable and/or satellite). Of the 
thirteen films which first became available to the Company in 1997 for 
licensing or distribution and in which the Company controls various domestic 
distribution rights, eight were (or are currently intended to be) released 
theatrically by First Look Pictures and five were (or are intended to be) 
released directly to video.

                                          12
<PAGE>

     The Company's previous domestic video output arrangement with BMG Video 
has expired, however, three films the Company has released (including MRS. 
DALLOWAY) or currently anticipates releasing will be distributed on video in 
the United States and certain related territories by BMG Video under the 
prior arrangement with BMG Video. In addition, BMG Video's domestic video 
distribution rights to films released by it under such arrangement 
(approximately ten films through April 15, 1998) continue for a five year 
period following initial video release.  The Company is currently licensing 
domestic video rights to films not covered by the BMG Video output 
arrangement on a film-by-film basis or in small groupings of films to various 
subdistributors, including BMG Video, Fox-Lorber Associates and Unapix 
Entertainment, Inc. Although the Company has explored (and may explore in the 
future) the possibility of obtaining a new domestic video output arrangement, 
given the recent changes in the market for domestic video distribution rights 
(including the decreased demand for films which have not achieved significant 
theatrical success), the Company believes it unlikely that it can obtain a 
multi-picture output arrangement with a domestic video subdistributor which 
would provide for significant minimum guarantees to be paid to the Company.

     As part of the strategic changes in its operations, the Company is 
seeking to expand its sales and licensing of television distribution rights 
and, in connection therewith, has recently hired an additional sales person 
to focus on exploiting the Company's library of motion picture distribution 
rights in television, as well as newly acquired distribution rights.  The 
Company licenses distribution rights directly to pay television services 
including HBO, Showtime and Encore, as well as smaller services, including 
pay-per-view services. Although the Company has not engaged in significant 
licensing or syndication of domestic free television rights except as part of 
a license of rights in multiple media, it controls these rights to a 
significant portion of the films in its library.

     In some cases, the Company will license the right to distribute a film
domestically in multiple media to a major studio, a division of a major studio,
or an independent distributor. Although the terms of such licenses vary,
typically the Company will be paid a minimum guarantee. The sub-distributor then
retains a distribution fee (measured as a percentage of the gross receipts
received by the sub-distributor from exploitation of the film), recoups its
distribution costs and the advance paid to the Company, and ultimately remits to
the Company the remainder of any receipts in excess of an ongoing distribution
fee.

     The Company does not always receive a minimum guarantee from the 
licensing of distribution rights to foreign and domestic sub-distributors, 
thus increasing the Company's reliance on the actual financial performance of 
the film being distributed.  In some circumstances, whether the Company 
receives a minimum guarantee depends upon the media.  For example, the 
Company is increasingly (particularly with respect to motion pictures which 
have not been theatrically released) entering into video distribution 
arrangements with sub-distributors where no minimum guarantee is paid to the 
Company or where the minimum guarantee paid to the Company is significantly 
smaller than those paid to the Company for similar films in the recent past. 
In addition, even if the Company does obtain minimum guarantees from its 
sub-distributors, such minimum guarantees do not assure the profitability of 
the Company's motion pictures or the Company's operations.  Additional 
revenues may be necessary from distribution of a motion picture in order to 
enable the Company to recoup any investment in such motion picture in excess 
of the aggregate minimum guarantees obtained from such sub-distributors, pay 
for distribution costs, pay for ongoing acquisition and development of other 
motion pictures by the Company and cover general overhead. While the 
pre-licensing of distribution rights to sub-distributors in exchange for 
minimum guarantees may reduce some of the risk to the Company from 
unsuccessful films, it may also result in the Company receiving lower 
revenues with respect to highly successful films than if such licensing of 
distribution rights were made upon different terms that, for example, might 
have provided lower minimum guarantees to the Company but also provided a 
lower distribution fee (i.e., a lower percentage of gross revenues) to the 
sub-distributor.

                                          13
<PAGE>

     FIRST LOOK PICTURES.  The Company, from its Los Angeles offices, has 
directly distributed some of the motion pictures for which it controls 
domestic rights to theaters throughout the United States under the name First 
Look Pictures. Through April 15, 1998, eighteen films have been released 
through First Look Pictures (including six in 1997). Although some of First 
Look Pictures' future releases may appeal to a wide audience, many of the 
eighteen First Look Pictures releases to date have been specialized motion 
pictures generally characterized by underlying literary and artistic elements 
intended to appeal primarily to sophisticated audiences including foreign 
language films and so called "art-house" films.

     Management of the Company believes that the Company can benefit in 
several ways by theatrically distributing films in the United States directly 
through First Look Pictures. The domestic theatrical success of a motion 
picture can be a significant factor in generating revenues from distribution 
of the motion picture in ancillary media and foreign markets. For example, 
retail video stores have been increasingly purchasing significantly fewer 
copies of videocassettes of motion pictures that have not been theatrically 
released. In addition, the Company believes it is generally able to obtain 
more favorable distribution terms in its agreements with foreign 
sub-distributors and domestic sub-distributors in other media (for example, 
pay television) with respect to motion pictures that have been theatrically 
released in the United States. Management of the Company also believes that, 
in some cases, its First Look Pictures operations enable the Company to 
achieve domestic theatrical release for films that might not otherwise be 
released in U.S. theaters. In addition, management of the Company believes 
that its ability to release a film theatrically in the U.S. enables the 
Company to attract more recognizable talent, higher profile producers and 
more promising motion picture projects to the Company generally (for both 
domestic and foreign distribution) and that by theatrically releasing films 
itself in the United States, the Company can retain a significantly greater 
share of the revenue from domestic media in the event of a highly successful 
theatrical release. 

     Despite the significant potential advantages to distributing motion 
pictures directly in the domestic theatrical market, given the disappointing 
results of the six 1997 First Look Pictures releases (none of which generated 
more than $211,000 in domestic box office receipts), the increased 
industry-wide cost of prints and advertising, the restrictions imposed by the 
recent changes to the Company's credit facility (which do not permit 
borrowing under the credit facility for prints and advertising costs and 
which require the consent of the Company's lenders before print and 
advertising commitments can be made), and the desire of the Company to 
improve cash flows, the Company currently intends to reduce the number of 
First Look Pictures films released annually as part of the changes in its 
operational strategies. The Company currently anticipates that, in most 
circumstances, it will not proceed with a First Look Pictures release unless 
outside sources of funds for print and advertising costs are available to the 
Company in connection with such release. Assuming such funds become available 
to the Company, the Company presently anticipates a total of three 1998 First 
Look Picture releases compared to the six in 1997. As described in "Item 
7--Management's Discussion and Analysis of Financial Condition and Results of 
Operations--Liquidity and Capital Resources," the funds for the print and 
advertising costs of First Look Pictures' one 1998 release to date (through 
April 15, 1998), "MRS. DALLOWAY", were provided by pre-selling United States 
video rights and a loan from the Company's principal stockholders, Ellen 
Dinerman Little and Robert B. Little. See Item 13, "Certain Relationships and 
Related Transactions" below. The Company is currently in discussions with 
various third parties to obtain other possible sources of funds for print and 
advertising expenses, however, there can be no assurance that any such 
sources will be available to the Company.

                                      14

<PAGE>

     Films distributed theatrically in the United States by First Look Pictures
have been typically released on a limited basis (initially less than 100
screens) and in selected cities, expanding to new cities or regions based upon
the performance of the film.  In some circumstances, films are released in new
cities as prints become available from cities where the engagement has closed,
reducing the number of prints needed and the aggregate cost of such prints. In
select circumstances, the Company may release appropriate films with more mass
market appeal on a wide release basis either through First Look Pictures or,
more likely, by licensing such film to a domestic distributor with more
significant financial and distribution resources.

     The cost to First Look Pictures to distribute a specialized motion 
picture or "art-house" film on a limited-release basis has in the past 
typically ranged from approximately $100,000 to $2,000,000, although in the 
future these costs may exceed such range. Expenditures for prints, marketing 
and advertising represent a substantial portion of the costs of releasing a 
film. Costs for prints, marketing and advertising for the six films initially 
released by First Look Pictures during 1997 ranged from approximately 
$382,000 to approximately $780,000. In connection with the acquisition of 
domestic theatrical rights to a film, the Company sometimes commits to spend 
no less than a specified minimum amount for prints and advertising costs. 
These costs are in addition to the direct production or acquisition costs and 
other distribution expenses of such films. Generally, in addition to 
receiving a distribution fee, the Company is entitled to recoup its prints 
and advertising expenditures. Although First Look Pictures may at times 
utilize standard broadcast television advertising, First Look Pictures 
typically supports its limited releases with local newspaper and, in certain 
instances, some cable television advertising. First Look Pictures also relies 
on local and national publicity, such as reviews or articles in local and 
national publications and appearances of the film's principal artists on 
radio and television talk shows. In contrast, distributors of national, wide 
release films must rely primarily on national advertising campaigns, 
including substantial television advertising, to attract theatergoers.

     The success of a domestic theatrical release by First Look Pictures can 
be affected by a number of factors outside of its control, including audience 
and critical acceptance, availability of motion picture screens and the 
success of competing films in release (see "Competition" below), awards won 
by First Look Pictures' releases or that of its competition, inclement 
weather, and competing televised events (such as sporting and news events). 
As a result of the foregoing, and depending upon audience acceptance of the 
films distributed through First Look Pictures, the Company expects that, in 
many cases, it will not recoup all of its distribution expenses or derive any 
profit solely from domestic theatrical distribution of First Look Pictures' 
releases. In addition, there can be no assurance that total revenues from any 
First Look Pictures' release, including revenues derived from such film in 
ancillary media and international markets, will be sufficient to allow the 
Company to recoup all of its costs or to realize a profit on such film. For 
example, of the six motion pictures released by the Company in 1997 four 
(JERUSALEM, THE DESIGNATED MOURNER, JOHNS and ALIVE & KICKING) resulted in 
write downs to net realizable values (after taking into account total 
anticipated revenue including revenue from ancillary media). 

                                          15
<PAGE>

     From January 1, 1997 through April 15, 1998, First Look Pictures 
released the seven motion pictures listed in the following chart. First Look 
Pictures may release up to approximately three additional films in 1998 
(consisting of those listed below under "Anticipated Releases") assuming the 
availability of funding for the print and advertising costs associated 
therewith.

                                     RELEASED
<TABLE>
<CAPTION>

TITLE           MAJOR CREATIVE ELEMENTS                          STORYLINE                              RELEASE DATE  AND
-----           -----------------------                          ---------                              DOMESTIC BOX OFFICE
                                                                                                        RECEIPTS
                                                                                                        --------
<S>             <C>                                              <C>                                    <C>
JOHNS           Writer/Director:  Scott Silver                   A dark comic drama about two hustlers  Released in January 1997
                Cast:  Lukas Haas (MARS ATTACKS!, EVERYONE SAYS  working the dirty, sun-scorched        with domestic box office
                I LOVE YOU, WITNESS) and David Arquette (SCREAM, pavement of Hollywood's Santa Monica   receipts  of $202,596.
                BEAUTIFUL GIRLS, WILD BILL, BUFFY THE VAMPIRE    Boulevard.
                SLAYER)

JERUSALEM       Director:  Bille August                          When a charismatic and messianic       Released in March  1997,
                Cast:  Maria Bonnevie, Ulf Friberg, Olympia      preacher arrives in a small Swedish    with domestic box office
                Dukakis (MIGHTY APHRODITE, STEEL MAGNOLIAS) and  village, the lives of two young lovers receipts of  $92,089.
                Max von Sydow (PELLE THE CONQUEROR)              are torn apart.  Based on the novel by
                                                                 Nobel Prize winner, Selma Lagerlof.

A BROTHER'S     Writer/Director:   Seth Zvi Rosenfeld            Headstrong and hot-tempered, a man     Released in April 1997 with
KISS            Cast: Nick Chinlund (ERASER), Michael Raynor     down on his luck falls in with the     domestic box office
                (FEDERAL HILL), Michael Rapaport (METRO,         wrong people. His brother, an NYPD     receipts of $65,674.
                BEAUTIFUL GIRLS) John Leguizamo (EXECUTIVE       officer, is torn between loyalty to
                DECISION, TO WONG FOO-THANKS FOR EVERYTHING-     his uniform and the person who
                JULIE NEWMAR), Cathy Moriarty (CASPER, RAGING    protected him as a kid on the tough
                BULL), Rosie Perez (WHITE MEN CAN'T JUMP),       streets of NY.
                Marisa Tomei (UNHOOK THE STARS, MY COUSIN VINNY)

THE DESIGNATED  Writer:   Wallace Shawn (VANYA ON 42ND STREET,   Straight from the National Theatre in  Released in May 1997 with
MOURNER         MY DINNER WITH ANDRE)                            London and told completely in direct   domestic box office
                Director: David Hare (STRAPLESS, PARIS BY NIGHT) address to the camera, the film        receipts of $210,082.
                Cast: Mike Nichols (acclaimed director of THE    captures a three way conversation in
                GRADUATE, THE BIRDCAGE and POSTCARDS FROM THE    which the characters (a snobbish
                EDGE), Miranda Richardson (ENCHANTED APRIL, THE  father, pretentious daughter and her
                CRYING GAME, DAMAGE).                            middlebrow husband) debate the
                                                                 emotional and intellectual bankruptcy
                                                                 of high culture in the modern world.

ALIVE AND       Director:  Nancy Meckler (SISTER MY SISTER)      A tender, funny and passionate love    Released in August 1997
KICKING (a/k/a  Cast:  Jason Flemyng (STEALING BEAUTY, ROB ROY), story of a talented young dancer       with domestic box office
INDIAN SUMMER)  Antony Sher (Broadway's "Stanley")               living positively with AIDS.           receipts of $199,220.


DIFFERENT FOR   Director:  Richard Spence (YOU, ME AND MARLEY);  A romantic gender-bender about two     Released in September 1997
GIRLS           Cast: Rupert Graves (THE MADNESS OF KING GEORGE, young school boys, Karl and Paul, who  with domestic box office
                DAMAGE, A ROOM WITH A VIEW) and Steven           meet again, accidentally, twenty years receipts of $154,753.
                Mackintosh (GENTLEMEN DON'T EAT POETS, MEMPHIS   later.  Paul does not recognize Karl
                BELLE).                                          who is now an attractive transsexual
                                                                 named Kim.

MRS. DALLOWAY   Director:  Marleen Gorris (ANTONIA'S LINE)       On one summer's day in London, in      Released on February 20,
                Cast:  Vanessa Redgrave (MISSION IMPOSSIBLE,     1923, Clarissa Dalloway remembers that 1998 with domestic box 
                SMILLA'S SENSE OF SNOW), Rupert Graves (THE      summer in the country, in 1890, when   office receipts of 
                MADNESS OF KING GEORGE, A ROOM WITH A VIEW),     she was young and beautiful and very   approximately $1,578,981 
                Natascha McElhone (THE DEVIL'S OWN, SURVIVING    much courted.                          through April 14, 1998.
                PICASSO)
</TABLE>


                                       16
<PAGE>


                               ANTICIPATED RELEASES
<TABLE>
<CAPTION>

TITLE           MAJOR CREATIVE ELEMENTS                         STORYLINE                                ESTIMATED DOMESTIC
-----           -----------------------                         ---------
<S>             <C>                                             <C>                                      <C>
                                                                                                         THEATRICAL RELEASE DATE

THE MERRY WAR   Director:  Bob Bierman (VAMPIRE'S KISS)         In this touching romantic comedy, the    Spring 1998
F/K/A KEEP THE                                                  beautiful and charming Rosemary tries
ASPIDISTRA      Cast:  Helena Bonham Carter (WINGS OF THE       desperately to maintain appearances
FLYING          DOVE), Richard E. Grant (TWELFTH NIGHT,         and avoid scandal, but she is
                MIGHTY APHRODITE, PORTRAIT OF A LADY,           constantly frustrated by her
                THE AGE OF INNOCENSE)                           eccentric and rebellious boyfriend,
                                                                Gordon, who flaunts his outrageous
                                                                behavior in the face of stuffy
                                                                British middle-class hypocrisy.

THE OTHER SIDE  Director:  Berit Nesheim (BEYOND THE SKY,       A story of a young woman coming of       Spring 1998
OF SUNDAY       FRIDA-STRAIGHT FROM THE HEART)                  age in the parochial oppression of a
                                                                small Norwegian town where almost
                Cast:  Marie Theisen (BLESSED ARE THOSE WHO     everything is forbidden- especially
                THIRST), Bjorn Sundquist (BLESSED ARE THOSE     the lure of sex, boys and
                WHO THIRST, BLIND GODDESS), Hildegun Riise      rock'n'roll.
                (FOR THE DAYS ARE EVIL)

MARCELLO        Director:  Anna Maria Tato                      A documentary about Marcello             Summer 1998
MASTROIANNI:                                                    Mastroianni's memories, joy of
I REMEMBER                                                      living, and love of cinema recorded
                                                                by his companion during the shooting
                                                                of his last movie VOYAGE AU DEBUT DU
                                                                MONDE.
</TABLE>



There can be no assurance that any of the pictures scheduled for release by 
First Look Pictures in 1998 or thereafter will actually be released or 
released in accordance with the anticipated schedule set forth above. The 
motion picture business is subject to numerous uncertainties, including 
financing requirements, personnel availability and the release schedule of 
competing films. As indicated above, the Company currently anticipates 
releasing films through First Look Pictures, in most situations, only if 
outside sources of funds are available for print and advertising expenses.

ACQUISITION OF RIGHTS BY THE COMPANY, PRODUCTION AND FINANCING

     The Company acquires distribution rights from a large variety of
independent production companies and producers. The Company generally acquires
distribution rights to single films, as compared to acquiring films pursuant to
multi-picture acquisition agreements with independent film companies or
producers. The Company commits to acquire rights to motion pictures at various
stages in the completion of a film, from films completed and ready for release
to developed (or undeveloped) film projects for which the Company may arrange
financing and/or production services to complete. In acquiring rights, the
Company generally seeks to obtain rights to commercially appealing motion
pictures with substantially lower direct negative costs than motion pictures
released by the major studios. 

     In order to fund the acquisition costs of the films for which it 
acquires rights, the Company, in the past, has relied primarily on: (i) the 
film facilities provided under the Company's credit facility with Coutts & 
Co. and Berliner Bank A.G.; (ii) other lenders willing to finance the 
contractual minimum guarantee obligations of the Company to the films' 
producers or rights owners; (iii) working capital; (iv) pre-sales (minimum 
guarantees obtained from subdistributors who have licensed rights to the film 
from the Company); and (v) "gap financing" (where a lender is willing to 
finance the production and/or acquisition costs of the motion picture based 
on the Company's estimate of the value of unsold distribution rights to the 
motion picture). The lenders under the credit facility have the right to 
approve each acquisition by the Company. In addition, the Company and the 
lenders have agreed that the film facilities portion of the credit facility 
(a significant primary source of funds for acquisition of distribution rights 
by the Company in the past) will no longer be a revolving credit line and 
that sums repaid by the Company cannot be re-borrowed (provided, however, 
that one pending film facility with respect to the motion picture ILLUMINATA 
will still be funded by the lenders). These provisions could substantially 
limit the Company's acquisition activities, unless the Company is able to 
exploit its other sources of rights acquisition funding to a greater extent 
including "gap financing", pre-sales and/or obtain additional sources of 
capital. As described below, the Company also intends, as part of the changes 
in its operational strategy, to alter the frequency in which it engages in 
various acquisition and distribution arrangements. The Company is also 
exploring obtaining additional sources of capital, although there can be no 
assurance that such additional capital will be available or available on 
terms advantageous to the Company.

     The films distributed by the Company have generally had direct negative 
costs ranging from $1,000,000 to $6,000,000. However, from time to time, the 
Company may acquire rights to, finance or produce, motion pictures with 
direct negative costs (as well as marketing costs) below or substantially in 
excess of the average direct negative costs (as well as marketing costs) of 
the films historically distributed by the Company.  For instance, an upcoming 
film expected to be distributed by the Company is anticipated to have a 
direct negative cost of between $10,000,000 and $15,000,000 (the production 
funds for which are currently expected to be provided by third party equity 
providers and pre-sales). In addition, as part of the Company's overall 
business strategy it intends to emphasize films with more recognizable cast, 
directors and producers and greater production values and which may 
accordingly have broader appeal in the competitive theatrical market while 
attempting to limit the Company's exposure with respect to production and 
acquisition costs through gap financing and co-production arrangements as 
described below.

     In certain circumstances, the Company acquires limited distribution or
sales rights and, in other circumstances, acquires worldwide rights (sometimes
including the copyright) to such films. Generally, this depends upon whether the
Company agrees to pay the producer or other owner of rights in the film (the
"rights owner") a substantial minimum guarantee. As part of its acquisition of
theatrical, video and/or television distribution rights, the Company may obtain
rights to exploit ancillary rights, such as music or sound track rights,
merchandising rights, or rights to produce CD-ROMs or other interactive media


                                          17
<PAGE>

products. Although the Company may license such rights to sub-distributors,
historically the Company has not derived any significant revenues from these
ancillary rights.

     The Company is sometimes appointed as the sales agent for a particular 
motion picture to license, on behalf of the rights owner, distribution rights 
in the film to various distributors for exploitation on a 
territory-by-territory basis. This often occurs in many gap financing 
arrangements, where a lender lends a portion of the production and/or 
acquisition funds based upon the Company's estimated value of unsold 
distribution rights. When the Company acts as a sales agent, in exchange for 
its services as sales agent, the Company is generally entitled to a sales 
agency fee which typically ranges from approximately 10% to 20% of the gross 
revenues from resulting licenses or sales. In such circumstances, the Company 
generally advances limited funds toward the marketing and distribution of the 
film (generally ranging from approximately $50,000 to $150,000). In gap 
financing arrangements a portion, or sometimes all, of the sales agency fee 
(and some or all of the distribution expenses) may be deferred as part of the 
sales agency arrangement until a specified level of revenues from sale and/or 
licensing of the particular distribution rights is achieved.

     In some circumstances, the Company acts in much the same manner as a 
sales agent but, rather than licensing or selling the distribution rights of 
a particular film to a third party on behalf of the rights owner, the Company 
itself licenses the distribution rights in the film from the rights owner for 
exploitation by the Company for a given term in a given territory (or 
territories) and media. The remainder of this arrangement (the fee structure 
and funds provided for marketing and distribution) remains similar to that of 
a sales agency. As part of the changes in its operational strategy, the 
Company currently intends to act in this manner, or as a sales agent, more 
frequently than in recent years.

     In both a sales agency arrangement and the distribution arrangement 
described above, the amounts payable by the Company to the rights owner 
depend upon the success of the Company in distributing the film and the 
financial performance of the film itself. In acquiring distribution rights to 
a completed or incomplete film, however, the Company will sometimes agree to 
pay the rights owner a minimum guarantee that is independent of the financial 
performance of the film. Historically, these minimum guarantees paid by the 
Company have ranged from approximately $100,000 to $5,000,000, although in 
some circumstances they may exceed such amounts. A minimum guarantee may be 
payable in full at the time of delivery of the completed film to the Company, 
as in a typical negative pickup arrangement, or in installments following 
complete delivery of the film to the Company, depending upon the particular 
arrangement. The rights owner may also receive additional payments as a 
result of the Company's exploitation of the distribution rights to the film. 
After receiving a distribution fee (generally a percentage of gross receipts 
from exploitation of the distribution rights) and recovering its distribution 
expenses and minimum guarantee, the Company pays the remainder of revenues in 
excess of an ongoing distribution fee to the rights owner. The Company 
typically receives a larger share of gross receipts from the distribution of 
motion pictures for which it has provided a minimum guarantee than when it 
does not. In addition, at times the minimum guarantee paid by the Company may 
represent, in amount, all or a substantial portion of the film's production 
costs. In those circumstances, such as a typical negative pickup entered into 
by the Company, the Company generally receives worldwide distribution rights 
in all media and generally will also obtain ownership of the copyright to the 
film, with the production company from which the Company acquired the rights 
receiving a production fee and generally a participation in net revenues from 
distribution of the motion picture. As part of the changes in its operational 
strategy, the Company presently intends to reduce the number of films for 
which the Company provides minimum guarantees which represent the majority of 
the final production costs of a film or for which the Company otherwise 
finances all or substantially all of the films' production costs.

     The Company's commitment to pay a minimum guarantee with respect to 
films that have not begun production often enables the production company or 
producer to obtain financing for its project, if needed. In some cases, the 
Company's contractual commitment to pay a minimum guarantee upon delivery of 
a film serves as sufficient collateral for a bank to lend production funds. 
The bank will typically insure delivery of the film to the Company by 
requiring the producer to purchase a completion guaranty. In order to enable 
the production company or producer to borrow production funding, or to borrow 
at preferential bank fees and interest rates, it may also be necessary for 
the Company to secure its purchase or acquisition commitment, which, in the 
past, it has generally done by obtaining the issuance of a letter of credit 
from the Company's primary lenders, Coutts & Co., a subsidiary of National 
Westminster Bank plc., and Berliner
                                          18
<PAGE>

Bank A.G.  However, as part of the recent change to the Company's credit 
facility, such lenders will no longer make such letters of credit available, 
which may limit this practice unless the Company can locate other lenders 
willing to provide such letters of credit. See "Item 7 - Management's 
Discussion and Analysis of Financial Condition and Results of Operations - 
Liquidity and Capital Resources."  In certain situations, the production 
company or producer of a film may initially obtain certain funds from other 
distribution companies which obtain distribution rights in certain media or 
territories (for example, the domestic distribution rights or distribution 
rights in Japan), from accessing foreign governmental film industry incentive 
programs (such as programs offered in the past by England, Canada, Australia 
and New Zealand) or by using its own resources or other resources available 
to it, and then subsequently approach the Company to supply the remaining 
funds necessary to complete or co-finance the film in exchange for the 
Company's obtaining the remaining distribution rights to the motion picture. 
As part of the changes in the Company's operational strategy, the Company 
presently intends to seek to increasingly participate in co-financing 
arrangements whereby the Company, in combination with other equity providers 
(including producers, distributors in various territories, various 
international governmental programs designed to incentivize film production 
and other equity providers) commit to fund a portion of a particular film's 
production costs.  For example, ALEGRIA and ILLUMINATA, two films currently 
slated for distribution by the Company in 1998, were co-production 
arrangements of The Cirque de Soleil, Mainstream S.A. and Egmond Film & 
Television BV; and of Victor Company of Japan (JVC), sogePaq S.A., and 
Compagnia Distribuzione Internazionale SRL respectively. In addition, the 
Company also intends to seek to further develop relationships with major 
studios and expand the Company's executive producing role in connection with 
motion pictures produced and distributed by other companies.  For example in 
May 1997, the Company concluded an executive producing arrangement with The 
Walt Disney Company with respect to a project optioned by the Company 
entitled "EMILY," whereby the Company will provide the services of Ellen 
Little, its Co-Chairman, Co-Chief Executive Officer and President, in 
exchange for an executive producer fee.

     Of the 16 completed films which first became available to the Company 
for distribution in 1997, only one film, MRS. DALLOWAY,  was produced by the 
Company (through a production company controlled by the Company). The Company 
does not presently have plans to produce motion pictures itself in 1998. In 
those circumstances where the Company produces a film, the Company's 
production subsidiaries typically obtain production financing by obtaining 
production loans using the Company's minimum guarantee commitment as 
collateral, at times secured by a letter of credit issued under the Company's 
credit facility. However, with respect to MRS. DALLOWAY, the Company provided 
an unsecured minimum guarantee ($500,000 for domestic distribution rights to 
both MRS. DALLOWAY and DIFFERENT FOR GIRLS) and substantially all of the 
remaining production funds were provided by pre-sales and gap financing 
provided by an unaffiliated motion picture financier.  The Company attempts 
to minimize the risks associated with any development and production 
activities that it conducts, in a variety of ways. The Company does not 
maintain a substantial staff of creative or technical personnel. The Company 
also does not own or operate sound stage and related production facilities 
generally referred to as a "studio" and does not have the fixed payroll, 
general and administrative and other expenses resulting from ownership of a 
studio. In addition, in those circumstances where the Company produces a 
film, the Company generally attempts to acquire fully developed projects 
ready for pre-production with, when feasible, completed scripts and directors 
and/or cast members who are committed to or are interested in the project. 
Many projects also have a producer involved or committed. However, if at the 
time of acquisition by the Company of rights in a project, a producer is not 
formally or informally committed to a project, the Company also may engage a 
production services company or a producer to supervise and arrange all 
pre-production, production and post-production activities in exchange for a 
production fee and a participation in net revenues from the film.

                                          19
<PAGE>


     The following chart provides certain information regarding completed motion
pictures first made available to the Company for distribution during 1997.  For
purposes of the chart, "Sales Agency" refers to those situations where the
Company licenses distribution rights to third parties on behalf of the rights
owner; "Straight Distribution" refers to those situations where the Company
itself licenses distribution rights to a film from the rights owner for
exploitation by the Company for a given term in a given territory (or
territories) and media; "Minimum Guarantee" refers to those situations where the
Company acquires rights to a film in exchange for an agreement by the Company to
pay a minimum guaranteed amount upon (or after) delivery of the film to the
Company for exploitation; "Negative Pickup" refers to those situations where,
upon payment of the minimum guarantee, the Company acquires worldwide rights in
all media, including copyright ownership; "Gap Financed" refers to those
situations where a lender has lent a portion of the production funds based upon
the Company's estimated value of unsold distribution rights; and "Minimum P&A
Commitment" refers to those situations where, as part of its acquisition of
rights, the Company commits to spend a minimum amount on prints and advertising
in connection with domestic theatrical release of the film.  The chart includes
acquisitions of rights from unaffiliated production companies or other rights
owners, as well as from production companies owned or controlled by the Company.

<TABLE>
<CAPTION>

MOTION PICTURE     GENRE        TYPE OF ACQUISITION        TERRITORIES ACQUIRED       SELECTED CAST
TITLE              -----        -------------------        --------------------       -------------
-----
<S>                <C>          <C>                        <C>                        <C>
ALIVE AND KICKING  Drama        Minimum Guarantee          The United States          Jason Flemyng (STEALING BEAUTY, ROB ROY),
A/K/A INDIAN                                                                          Antony Sher
SUMMER

THE DESIGNATED     Drama        Minimum Guarantee          The United States          Mike Nichols (director of THE GRADUATE, THE
MOURNER                                                                               BIRDCAGE and POSTCARDS FROM THE EDGE),
                                                                                      Miranda Richardson
</TABLE>


                                       20
<PAGE>

<TABLE>

<S>                <C>          <C>                        <C>                        <C>
                                                                                      (ENCHANTED APRIL, THE
                                                                                      CRYING GAME, DAMAGE)

DIFFERENT FOR      Romantic     Minimum Guarantee          The United States          Rupert Graves (THE MADNESS OF KING GEORGE,
GIRLS              Comedy                                                             DAMAGE, A ROOM WITH A VIEW), Steven
                                                                                      Mackintosh (GENTLEMEN DON'T EAT POETS,
                                                                                      MEMPHIS BELLE)

EAT YOUR HEART     Comedy       Straight Distribution/Gap  Universe, excluding all    Linda Hunt (YEAR OF LIVING DANGEROUSLY),
OUT                             Financed                   rights in the following    Christian Oliver, Laura San Giacomo (PRETTY
                                                           German-speaking countries: WOMAN), Pamela Segall
                                                           Austria, Germany,
                                                           Liechtenstein, Luxembourg
                                                           and Switzerland and the
                                                           television rights to the
                                                           German dubbed version for
                                                           Europe, including the
                                                           former Soviet Union

GODS AND MONSTERS  Drama        Sales Agency/Gap Financed  World, excluding the       Ian McKellen (BENT, RICHARD III, SIX DEGREES
(A.K.A FATHER OF                                           United States and Canada   OF SEPARATION), Brendan Fraser (GEORGE OF THE
FRANKENSTEIN)                                                                         JUNGLE, MRS. WINTERBOURNE, AIRHEADS), Lolita
                                                                                      Davidovich (JUNGLE TO JUNGLE, NOW AND THEN,
                                                                                      INTERSECTION, COBB, RAISING CAIN, BLAZE,
                                                                                      ADVENTURES IN BABYSITTING), Lynn Redgrave
                                                                                      (SHINE, MIDNIGHT)

FIRST TO GO        Comedy       Minimum Guarantee          World, excluding the       Mark Harmon (THE LAST SUPPER, WYATT EARP),
                                                           United States and English- Zach Galligan (CUPID, ICE), Laurel Hollomon,
                                                           speaking Canada            Corin Nemec (THE WAR AT HOME)

GODMONEY           Drama        Minimum Guarantee          World                      Christi Allen (QUIZ SHOW, CLOCKERS, BOXED
                                                                                      MOONLIGHT), Rick Rodney, Bobby Field

JERUSALEM          Drama        Straight Distribution      United States and Canada   Marie Bonnerie, Vif Friberg, Lena Endre,
                                                                                      Pernilla August, Olympia Dukakis (MIGHTY
                                                                                      APHRODITE, MR. HOLLAND'S OPUS, STEEL
                                                                                      MAGNOLIAS, MOONSTRUCK), Max Von Sydow  (A
                                                                                      KISS BEFORE DYING, AWAKENING, HANNAH AND HER
                                                                                      SISTERS)

LIFEBREATH         Drama        Minimum Guarantee          World                      Luke Perry (BUFFY THE VAMPIRE SLAYER, THE
                                                                                      FIFTH ELEMENT), Francie Swift (THE SCARLET
                                                                                      LETTER), Gia Carides (PRIMARY COLORS)

MARCELLO
MASTROIANNI: I     Documentary  Straight Distribution      The United States          Documentary on Marcello Mastroianni
REMEMBER

A MERRY WAR A/K/A  Romantic     Minimum Guarantee          World excluding the UK     Helena Bonham Carter (WINGS OF THE DOVE),
KEEP THE           Comedy                                                             Richard E. Grant (TWELFTH NIGHT, MIGHTY
ASPIDISTRA FLYING                                                                     APHRODITE, PORTRAIT OF A LADY, AGE OF
                                                                                      INNOCENCE)

MRS. DALLOWAY      Drama        Minimum Guarantee/Gap      World excluding The        Vanessa Redgrave (MISSION IMPOSSIBLE,
                                Financed                   Netherlands and certain    SMILLA'S SENSE OF SNOW), Rupert Graves (THE
                                                           rights in the UK           MADNESS OF KING GEORGE, A ROOM WITH A VIEW),
                                                                                      Natascha McElhone (THE DEVIL'S OWN, SURVIVING
                                                                                      PICASSO)

QUIET DAYS IN      Drama        Straight Distribution      World, excluding German-   Peter Dobson (THE FRIGHTENERS, BIG SQUEEZE,
HOLLYWOOD                                                  speaking Europe            FORREST GUMP), Chad Lowe (FLOATING, DO ME A
                                                                                      FAVOR), Daryl Mitchell (WHITE LIES, SGT.
                                                                                      BILKO), Meta Golding (KISS THE GIRLS),
                                                                                      Natasha Gregson Wagner (TWO GIRLS AND A GUY,
                                                                                      LOST HIGHWAY), Bill Cusack (CON AIR, ED WOOD,
                                                                                      THE FUGITIVE), Stephen Mailer (A LEAUGE OF
                                                                                      THEIR OWN, REVERSAL OF FORTUNE)


SIX-STRING         Action       Sales Agency/Gap Financed  World, excluding United    Justin McGuire, Jeffrey Falcon
SAMURAI                                                    States and English-
                                                           speaking Canada

STAND-INS          Drama        Negative Pick-Up           World                      Daphne Zuniga (CITY SCRAPES, NAKED IN THE
                                                                                      COLD SUN, MAD AT THE MOON), Costas Mandylor
                                                                                      (JUST WRITE, VIRTUOSITY, THE DOORS, TRIUMPH
                                                                                      OF THE SPIRIT), Jordan Ladd (NETNAPPED,
                                                                                      NOWHERE, EMBRACE OF THE VAMPIRE), Sammi Davis
                                                                                      (FOUR ROOMS, HOPE AND GLORY, A PRAYER FOR THE
                                                                                      DYING, MONA LISA), Missy Crider (BUGBUST),
                                                                                      Katherine Heigl (WISH UPON A STAR, UNDER
                                                                                      SEIGE 2, KING OF THE HILL), Charlotte Chatton
                                                                                      (TITANIC, HELLRAISER -BLOODLINE, DAKOTA
                                                                                      ROAD).
</TABLE>


                                       21
<PAGE>

<TABLE>

<S>                <C>          <C>                        <C>                        <C>
THE TIC CODE       Drama        Straight Distribution/Gap  World                      Gregory Hines (THE PREACHER'S WIFE, WAITING
                                Financed                                              TO EXHALE, RENAISSANCE MAN, THE COTTON CLUB),
                                                                                      Polly Draper (HUDSON RIVER BLUES, THE PICK-UP
                                                                                      ARTIST, MAKING MR.RIGHT) Christopher George
                                                                                      Marquette (ALWAYS SAY GOODBYE)
</TABLE>


THE COMPANY'S FILM LIBRARY OF DISTRIBUTION RIGHTS

     The Company's film library consists of rights to a broad range of films, 
most of which were produced since 1980. As of  April 15, 1998, the Company 
had various distribution rights to approximately 220 motion pictures 
(including approximately 77 motion pictures in which the Company owns an 
interest in the copyright and approximately 58 motion pictures for which the 
Company acts as sales agent on behalf of the producer or other owner of 
rights in the film). The Company's distribution rights generally range from 
12 to 25 years or more from the date of acquisition, and typically extend to 
many, if not all, media of exhibition worldwide or in specified territories.

     In addition to exploitation of distribution rights to motion pictures in 
its library in the major media (theatrical, video and television), in certain 
situations the Company is able to exploit various ancillary rights in such 
films. For example, in September 1997 the Company sold the rights to produce 
a second sequel and a television series of The Prophecy for $750,000. The 
Company has also arranged for the music in several motion pictures it has 
distributed to be released as soundtrack recordings (including KEEP THE 
ASPIDISTRA FLYING, MRS. DALLOWAY, THE SECRET OF ROAN INISH, PARTY GIRL, THE 
BIG SQUEEZE, and INFINITY). Although exploitation of these soundtrack and 
other ancillary rights has not generated significant revenues for the Company 
to date, the Company's ownership or control of ancillary rights to motion 
pictures in its library (including interactive rights, remake rights and 
merchandising rights, among others) may provide future sources of additional 
revenues.

MAJOR CUSTOMERS

     Since January 1, 1995, only three customers have accounted for more than
10% of the Company's revenues (including for this purpose revenues of Pre-Merger
Overseas) in any full fiscal year: none in 1997, three in 1996 (BMG Video with
$3,068,000 or 10.7%, Helkon Media Filmvertrieb gmbH with $3,490,000 or 12.2% and
Columbia TriStar and its affiliates with $2,940,000 or 10.3%); and one in 1995
(Columbia TriStar and its affiliates with $4,366,000 or 20.1%).

EMPLOYEES

     At April 15, 1998, the Company employed a total of 28 full-time 
employees. Certain subsidiaries of the Company are, for certain films, 
subject to the terms in effect from time to time of various industry-wide 
collective bargaining agreements, including the Writers Guild of America, the 
Directors Guild of America, the Screen Actors Guild and the International 
Alliance of Theatrical Stage Employees. In certain circumstances, the Company 
assumes a production company's obligation to pay residuals to these various 
entertainment guilds and unions. A new industry-wide collective bargaining 
agreement with the Screen Actors Guild is scheduled for a ratification vote 
by the board of the Guild and, assuming board passage, by the members of the 
Guild. A strike, job action or labor disturbance by the members of any of 
these entertainment guilds and unions (including potentially by the members 
of the Screen Actors Guild in the event the proposed agreement is not 
ratified) could have a material adverse effect on the production of a motion 
picture within the United States, and, consequently, on the business, 
operations and results of operations of the Company. These organizations have 
all engaged in strikes and similar activities. The Company believes that its 
current relationship with its employees is satisfactory.

COMPETITION


                                          22
<PAGE>

     Motion picture distribution, finance and production are highly 
competitive businesses. The competition comes both from companies within the 
same business and from companies in other entertainment media which create 
alternative forms of leisure entertainment. The Company competes with major 
film studios (including The Walt Disney Company, Paramount Pictures 
Corporation, Universal Pictures, Columbia Pictures, Twentieth Century Fox, 
Warner Brothers Inc. and MGM/UA) and their affiliates (including such 
previously independent companies as Miramax, October, and New Line Cinema) 
which are dominant in the motion picture industry. The Company also competes 
with numerous independent motion picture production and distribution 
companies, as well as numerous foreign motion picture production and 
distribution companies. Many of the organizations with which the Company 
competes have significantly greater financial and other resources than does 
the Company. The Company's ability to compete successfully depends upon the 
continued availability of independently produced, domestic and foreign motion 
pictures and the Company's ability to identify and acquire distribution 
rights and to distribute motion pictures successfully. A number of formerly 
independent motion picture companies have been acquired in recent years by 
major entertainment companies. These transactions have significantly 
increased competition for the acquisition of distribution rights to 
independently produced motion pictures by eliminating some available sources 
of independently produced films and providing greater financial resources to 
other previously independent companies engaged in the business of acquiring 
distribution rights to independently produced films and distributing such 
films.

     Films distributed or financed by the Company also compete for audience 
acceptance and exhibition outlets with motion pictures distributed and 
produced by other companies. As a result, the success of any of the films 
distributed or financed by the Company is dependent not only on the quality 
and acceptance of that particular film, but also on the quality and 
acceptance of other competing films released into the marketplace at or near 
the same time.  With respect to the Company's domestic theatrical releasing 
operations, a substantial majority of the motion picture screens in the 
United States are typically committed at any one time to films distributed 
nationally by the major film studios, which generally buy large amounts of 
advertising on television and radio and in newspapers and can command greater 
access to available screens.  Although some exhibitors specialize in the 
exhibition of independent, specialized motion pictures and "art-house" films, 
there is intense competition for screen availability for these films as well. 
Given the substantial number of motion pictures released theatrically in the 
United States each year, competition for exhibition outlets and audiences is 
intense. In addition, there have also been rapid technological changes over 
the past fifteen years. Although technological developments have resulted in 
the creation of additional revenue sources from the licensing of rights with 
respect to such new media, such developments have also resulted in the 
popularity and availability of alternative and competing forms of leisure 
time entertainment, including pay/cable programming, and home entertainment 
equipment such as videocassettes, interactive games and computers.

REGULATION

     In 1994, the United States was unable to reach agreement with its major
international trading partners to include audio-visual works, such as television
programs and motion pictures, under the terms of the General Agreement on Trade
and Tariffs Treaty ("GATT"). The failure to include audiovisual works under GATT
allows many countries (including members of the European Union, which consists
of Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and the United Kingdom) to continue enforcing quotas
that restrict the amount of United States produced television programming which
may be aired on television in such countries. The Council of Europe has adopted
a directive requiring all member states of the European Union to enact laws
specifying that broadcasters must reserve a majority of their transmission time
(exclusive of news, sports,


                                          23
<PAGE>

game shows and advertising) for European works. The directive does not itself
constitute law, but must be implemented by appropriate legislation in each
member country. In addition, France requires that original French programming
constitute a required portion of all programming aired on French television.
These quotas generally apply only to television programming and not to
theatrical exhibition of motion pictures, but quotas on the theatrical
exhibition of motion pictures could also be enacted in the future. There can be
no assurance that additional or more restrictive theatrical or television quotas
will not be enacted or that countries with existing quotas will not more
strictly enforce such quotas. Additional or more restrictive quotas or more
stringent enforcement of existing quotas could materially and adversely affect
the business of the Company by limiting the ability of the Company to exploit
fully its rights in motion pictures internationally and, consequently, to assist
or participate in the financing of such motion pictures.

     Distribution rights to motion pictures are granted legal protection under
the copyright laws of the United States and most foreign countries, which laws
provide substantial civil and criminal sanctions for unauthorized duplication
and exhibition of motion pictures. Motion pictures, musical works, sound
recordings, art work, still photography and motion picture properties are
separate works subject to copyright under most copyright laws, including the
United States Copyright Act of 1976, as amended. Management of the Company is
aware of reports of extensive unauthorized misappropriation of videocassette
rights to motion pictures, which may include motion pictures distributed by the
Company. Motion picture piracy is an industry-wide problem. The Motion Picture
Association of America ("MPAA"), an industry trade association, operates a
piracy hotline and investigates all reports of such piracy. Depending upon the
results of such investigations, appropriate legal action may be brought by the
owner of the rights. Depending upon the extent of the piracy, the Federal Bureau
of Investigation may assist in these investigations and related criminal
prosecutions.

     Motion picture piracy is an international as well as a domestic problem.
Motion picture piracy is extensive in many parts of the world, including South
America, Asia (including Korea, China and Taiwan), the countries of the former
Soviet Union and other former Eastern bloc countries. In addition to the MPAA,
the Motion Picture Export Association, the American Film Marketing Association
and the American Film Export Association monitor the progress and efforts made
by various countries to limit or prevent piracy. In the past, these various
trade associations have enacted voluntary embargoes of motion picture exports to
certain countries in order to pressure the governments of those countries to
become more aggressive in preventing motion picture piracy. In addition, the
United States government has publicly considered trade sanctions against
specific countries which do not prevent copyright infringement of United States
produced motion pictures. There can be no assurance that voluntary industry
embargoes or United States government trade sanctions will be enacted. If
enacted, such actions could impact the amount of revenue that the Company
realizes from the international exploitation of motion pictures depending upon
the countries subject to such action and the duration of such action. If not
enacted or if other measures are not taken, the motion picture industry
(including the Company) may continue to lose an indeterminate amount of revenues
as a result of motion picture piracy.

     The Code and Ratings Administration of the MPAA assigns ratings indicating
age-group suitability for theatrical distribution of motion pictures. The
Company sometimes, although not always, submits its motion pictures for such
ratings. In certain circumstances, motion pictures that the Company does not
submit for rating to the Code and Ratings Administration of the MPAA might have
received restrictive ratings had such motion pictures been submitted for rating,
including, in some circumstances, the most restrictive rating, which prohibits
theatrical attendance by persons below the age of seventeen. Unrated motion
pictures (or motion pictures receiving the most restrictive rating) may not be
exhibited by certain theatrical exhibitors or in certain locales, thereby
potentially reducing the total revenues generated by such films. United States
television stations and networks, as well as foreign governments, impose


                                          24
<PAGE>

additional restrictions on the content of motion pictures which may restrict 
in whole or in part theatrical or television exhibition in particular 
territories. In 1997, the major broadcast networks and the major television 
production companies (which consist primarily of the "major" films studios 
referred to in "Competition" above) implemented a system to rate television 
programs. At this time such television rating system has not had a material 
adverse effect on the motion pictures distributed by the Company. However, 
the possibility exists that the sale of theatrical motion pictures for 
broadcast on domestic free television may become more difficult because of 
potential advertiser unwillingness to purchase advertising time on television 
programs that are rated for limited audiences.  There can be no assurance 
that current and future restrictions on the content of motion pictures may 
not limit or adversely affect the Company's ability to exploit certain motion 
pictures in certain territories and media.

ITEM 2.  PROPERTIES.

     The Company's principal executive offices are located at 8800 Sunset
Boulevard, Third Floor, Los Angeles, California 90069 and consist of
approximately 10,000 square feet leased by the Company, the lease for which
expires on September 30, 2002. Currently the monthly lease rate is $2.00 per
square foot. Under the terms of the lease, the Company will also pay a
percentage of  operating costs, above a base year calculation, beginning in
October 1999.  The Company does not maintain any studio facilities or own any
real estate, and its lease is with an unaffiliated party.

ITEM 3.  LEGAL PROCEEDINGS.

     The Company is not, as of  April 15, 1998,  a party to any litigation.


                                          25
<PAGE>

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

     Not Applicable.


                                          26



<PAGE>

                                      PART II

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

MARKET PRICE

     The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol "OSFG." The Company's 4,500,000 Warrants to Purchase Common Stock (each
warrant entitling the registered holder to purchase one share of Common Stock at
an exercise price of $5.00 per share, subject to adjustment, until 5:00 p.m. New
York City time on February 16, 2002) (the "Warrants") are also quoted on the OTC
Bulletin Board under the Symbol "OSFGW."  The following table sets forth the
high and low closing bid quotations for the periods indicated.  The quotations
represent prices between dealers and do not include retail markups or markdowns
or commissions.  They may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                    COMMON STOCK               WARRANTS

FISCAL 1996                      HIGH          LOW          HIGH        LOW

<S>                             <C>          <C>           <C>         <C>
First Quarter                   $4-3/4       $4-3/5       $1           $5/8
Second Quarter                  5-5/16        4-5/8        1-3/8       11/16
Third Quarter                   5-5/16        5-1/8        1-3/8        7/8
Fourth quarter                   5-3/8        4-5/8        1-3/8        1/2


FISCAL 1997                      HIGH          LOW          HIGH        LOW

First Quarter                    4-5/8        3-1/2          1         19/64
Second Quarter                  3-9/32        1-3/8         1/2         1/8
Third Quarter                   2-13/16      1-13/16        3/8         1/4
Fourth Quarter                   2-3/8          2           3/8         1/4


FISCAL 1998

First Quarter                    2-1/2       1-13/16        5/16        1/8
Second Quarter (through April    2-1/8       1-21/32        3/16        3/16
23, 1998)
</TABLE>

HOLDERS

     As of April 21, 1998, there were approximately fourteen holders of 
record of the Company's Common Stock, and there were 5,732,778 shares of 
Common Stock issued and outstanding of the 25,000,000 shares authorized.  As 
of  April 21, 1998, there were approximately six holders of record of the 
Company's Warrants.  See note 8 of the notes to the Company's Consolidated 
Financial Statements for information regarding certain additional securities 
which have been issued by the Company.

DIVIDENDS


                                          27
<PAGE>

     The Company has not paid cash dividends on its Common Stock (other than S
Corporation distributions made by Pre-Merger Overseas to its stockholders) and
the Company presently intends to retain future earnings to finance the expansion
and development of its business and not pay dividends on its Common Stock.  Any
determination to pay cash dividends in the future would be at the discretion of
the Company's Board of Directors and would be dependent upon the Company's
results of operations, financial condition, contractual restrictions and other
factors deemed relevant at that time by the Company's Board of Directors.  In
addition, certain covenants in the Company's credit facility substantially
restrict payment of cash dividends.

ITEM 6.  SELECTED FINANCIAL DATA.

     The following tables set forth selected financial data for the Company
which has been derived from the Company's financial statements as of and for
each of the five years ended December 31, 1997 which have been audited by Price
Waterhouse LLP, independent accountants. The selected financial data set forth
below should be read in conjunction with the Consolidated Financial Statements
of the Company, together with the related notes thereto included elsewhere
herein, and "Item 7 - Management's Discussion and Analysis of Financial
Condition And Results Of Operations."


                                          28
<PAGE>



<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                                          -----------------------

                                                   1993            1994             1995             1996               1997
                                                   ----            ----             ----             ----               ----
<S>                                             <C>            <C>              <C>               <C>               <C>
Statement of Operations Data:
                                                
Revenues                                        $17,951,977    $20,734,094        $21,672,510      $28,677,571      $22,494,256
Film costs                                       13,962,255     16,395,902         16,320,694       23,058,000       19,152,847
Selling, general and administrative               2,401,509      2,151,214          2,721,745        3,595,660        3,509,122

Income (loss) from operations                     1,588,213      2,186,978          2,630,071        2,023,910        (167,713)
Income (loss) before income taxes                 1,997,872      2,441,960          2,894,066        1,665,269        (837,277)
Income taxes(1)                                     300,628        296,487            432,905        3,131,367        (293,357)
Net income (loss)                                 1,697,244      2,145,473          2,461,161       (1,466,098)       (543,920)

Basic and diluted net income (loss) per share           .53            .68                .77             (.41)           (.09)
Weighted average number of shares outstanding     3,177,778      3,177,778          3,177,778        3,611,111       5,747,778
</TABLE>


<TABLE>
<CAPTION>
                                                                          AS OF DECEMBER 31,
                                                                          ------------------

                                                1993              1994            1995              1996              1997
                                                ----              ----            ----              ----              ----
<S>                                         <C>               <C>              <C>               <C>               <C>
BALANCE SHEET DATA:
Film costs, net of accumulated
 amortization                               $10,808,032       $12,377,123      $17,349,071       $28,358,324       $29,740,567
Total assets                                 20,311,146        24,684,518       28,954,796        40,803,685        46,560,320
Notes payable, banks                          3,700,000         6,058,279        7,421,893        16,607,137        23,142,184
Total liabilities                            11,993,609        14,874,057       17,506,422        28,611,919        34,999,208
Total equity                                  8,317,537         9,810,461       11,448,374        12,191,766        11,561,112
</TABLE>



NOTES TO SELECTED FINANCIAL DATA

     (1) From January 1, 1989 to October 31, 1996, Pre-Merger Overseas 
operated as an S Corporation under Subchapter S of the Internal Revenue Code. 
During the year ended December 31, 1996, the Company recorded a one-time, 
non-recurring deferred federal income tax charge of $2,600,000 relating to 
the termination of Pre-Merger Overseas' S corporation status which occurred 
upon the date of the Merger, October 31, 1996.

                                          29
<PAGE>

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

     The Company specializes in the acquisition and worldwide license or sale 
of distribution rights to independently-produced feature films in a wide 
variety of genres. The Company obtains rights to motion pictures at various 
stages of completion (either completed, in production or in development) and 
licenses distribution rights (including theatrical, video, pay television, 
free television, satellite and other ancillary rights) of such motion 
pictures to various sub-distributors in the United States and in foreign 
markets, as well as directly distributing certain motion pictures in the 
domestic theatrical market under the name "First Look Pictures." The 
licensing of distribution rights to foreign distributors and sub-distributors 
in the major international territories or regions has historically been the 
Company's primary focus, accounting for a substantial portion of the 
Company's total revenues. In fiscal 1995, 1996 and 1997, approximately 66%, 
72% and 77% of the Company's revenues were derived from such activities.

     The films distributed by the Company in 1997 generally performed 
disappointingly, in part due to (i) changes in the marketplace for 
independent films including the reduced demand by retail video stores and 
video subdistributors for films which have not had significant theatrical 
release (none of the six films released theatrically in the United States by 
the Company through First Look Pictures in 1997 generated more than $211,000 
in United States box office receipts and nine films first available for 
distribution by the Company in 1997 had no theatrical release), (ii) the 
failure of films released theatrically by the Company in the U.S. to achieve 
significant audience and subdistributor acceptance, and (iii) the weakened 
demand for film rights in Asia due to the region's recent financial crisis. 
In order to seek to improve the Company's cash flow and address the factors 
which led to the disappointing performance of the Company's films in 1997, as 
well as in response to the operating limitations imposed by the recent 
agreement between the Company and its commercial lenders with respect to the 
Company's credit facility, the Company has been implementing changes in its 
operational strategies.

     The Company presently intends to alter the frequency in which it engages 
in various acquisition, distribution and financing arrangements by (i) 
reducing the number of films for which the Company provides minimum 
guarantees which represent the majority of the final production costs of a 
film or for which the Company otherwise finances all or substantially all of 
the film's production costs; (ii) acting as sales agent or engaging in 
"straight distribution" more frequently than in recent years (including under 
"gap financing" arrangements); (iii) limiting the instances in which the 
Company itself produces motion picture projects; and (iv) reducing the number 
of films First Look Pictures releases annually. The Company currently 
anticipates that, in most circumstances, it will not proceed with a First 
Look Pictures release unless outside sources of funds for print and 
advertising costs are available to the Company in connection with such 
release. In addition, the Company presently intends to increasingly 
participate in co-financing arrangements, further develop relationships with 
major studios and expand the Company's executive producing role in connection 
with motion pictures produced and distributed by other companies, emphasize 
films with more recognizable cast, directors and producers and greater 
production values (often through offering greater creative opportunity to 
talent than major studios offer or as a result of larger budgets) and which 
may accordingly have broader appeal in the competitive theatrical market--and 
seek to develop relationships with emerging and established talent and to 
maintain relationships with independent producers with reputations for 
producing high quality films while also controlling costs. The Company is 
currently exploring obtaining additional sources of capital (including equity 
and debt financing). There can be no assurance, however, that such additional 
capital will be available or available on terms advantageous to the Company. 
For additional information on these operational strategies, See "Item 
1--Strategic Objectives," "Motion Picture Distribution by the Company," and 
"Acquisition of Rights by the Company, Production and Financing" below. No 
assurances can be given that any or all of such strategies will be fully or 
partially realized, as their successful implementation depends upon, among 
other things, the ability of management of the Company to implement such 
strategies and the availability of sufficient capital. In addition, for 
several reasons, including (i) the likelihood of continued industry-wide 
increases in acquisition, production and marketing costs and (ii) the 
Company's intent, based upon its ongoing strategy, to acquire rights to or 
produce films which have greater production values (often as a result of 
larger budgets), the Company's costs and expenses, and thus the capital 
required by the Company in its operations and the associated risks faced by 
the Company may increase in the future.

GENERAL

     In situations where, prior to the availability of a motion picture, the 
Company is paid a minimum guarantee or other payment from the licensing of 
distribution rights to foreign or domestic sub-distributors, the minimum 
guarantee or other payment is recorded as deferred revenue and is recognized 
at such time as the motion picture is available for release by the 
sub-distributor. In most other cases, revenue is recognized at such time as 
the motion picture is available for release by the sub-distributor and 
revenues are earned pursuant to the terms of the Company's agreement with the 
sub-distributor. The timing of actual cash payments by sub-distributors to 
the Company of minimum guarantees and other amounts earned by the Company 
varies in accordance with the contractual terms of each agreement. Certain 
payments to the Company are made prior to the recognition of income while 
other payments to the Company are made after revenue is recognized. When the 
Company distributes a motion picture directly to the domestic theatrical 
market, revenue is recognized over the period of exhibition of the motion 
picture. However, cash payments to the Company by a theatrical exhibitor 
typically are not made until the close of the film's engagement in the 
exhibitor's theaters or chain of theaters. Since the Company's specialized or 
"art-house" releases can at times have extended runs and are often exhibited 
by a substantial number of independent theatre owners for which it can be 
comparatively more difficult to monitor and enforce timely payment than with 
national theatre chains, payment to the Company by theatre chains is often 
not made for four to nine months from initial release for successful 
releases, or longer.  Revenues from the direct license by the Company of 
distribution rights to a pay television service are generally recognized at 
such time as the motion picture is available for telecast by such service and 
the license agreement begins. Cash payments to the Company from such services 
are generally made from between 60 and 90 days after the initial airing of 
the film on the pay television service.

     Film costs represent a major component of the Company's assets. Film costs
represent those costs incurred in the acquisition and distribution of motion
pictures or in the acquisition of distribution rights to motion pictures. This
includes minimum guarantees paid to producers or other owners of film rights,
recoupable distribution and production costs, and capitalized interest and
overhead. The Company amortizes film costs using the individual film forecast
method under which film costs are amortized for each film in the ratio that
revenue earned in the current period for such film bears to management's
estimate of the total revenue to be realized from all media and markets for such
film. Management of the


                                          30
<PAGE>

Company regularly reviews its revenue and cost forecasts and revises such
estimates for each film, as necessary, when warranted by management's appraisal
of current market conditions. This may result in a change in the rate of
amortization and write-downs to net realizable value. Net income in future years
is in part dependent upon the Company's amortization of its film costs and may
be significantly affected by periodic adjustments in such amortization.

     The following table sets forth the Company's unamortized film costs as of
December 31, 1995, 1996 and 1997:


<TABLE>
<CAPTION>
                                                            As of December 31,
                                                            ------------------
                                             1995              1996             1997
<S>                                       <C>               <C>              <C>
Films in release,
   net of accumulated amortization        $12,162,975       $25,838,106      $26,781,682
Films not yet available for release         5,186,096         2,520,218        2,958,885
                                          -----------       -----------      -----------

                                          $17,349,071       $28,358,324      $29,740,567
                                          -----------       -----------      -----------
                                          -----------       -----------      -----------
</TABLE>



The increases in unamortized film costs from fiscal 1995 to 1996 and from 
fiscal 1996 to 1997 generally reflect expansion of the Company's operations, 
including increased acquisition of motion picture rights, and financing of 
motion picture production.  Based upon the Company's estimate as of December 
31, 1997 of projected gross revenues, approximately 75% of unamortized film 
costs applicable to films released as of such date are currently expected by 
the Company to be amortized over the three-year period ending December 31, 
2000.

     The Company typically acquires distribution rights in a motion picture 
for a specified term in one or more territories and media.  See "Item 1 - 
Business -Acquisition of Rights by the Company, Production and Financing."  
In some circumstances, the Company also acquires the copyright to the motion 
picture. The arrangements the Company enters into to acquire rights may 
include the Company agreeing to pay an advance or minimum guarantee for the 
rights acquired and/or agreeing to advance print and advertising costs, 
obligations which are independent of the actual financial performance of the 
motion picture being distributed.  The risks incurred by the Company 
dramatically increase to the extent the Company takes such actions.  The 
Company committed to pay an advance or minimum guarantee or advance print and 
advertising costs with respect to approximately nine films initially released 
in 1997 (for an aggregate commitment in excess of the aggregate "pre-sale" or 
"pre-license" commitments obtained from sub-distributors with respect to such 
films of approximately $5,854,750).  The Company also incurs significant risk 
to the extent it engages in development or production activities itself 
(although the Company does not currently have any plans to produce any motion 
picture projects in 1998). While the Company may, in certain circumstances, 
reduce some of the foregoing risks by sub-licensing certain distribution 
rights in exchange for minimum

                                          31
<PAGE>

guarantees from sub-licensees such as foreign sub-distributors, the risks
incurred by the Company are generally greater the greater the "investment" by
the Company in a motion picture.  This "investment" by the Company in a motion
picture includes the cost of acquisition of the distribution rights (including
any advance or minimum guarantee paid to the producer), the amount of the
production financed, and the marketing and distribution costs borne.

     In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" 
(SFAS No. 128). SFAS No. 128, effective for periods ending after December 15, 
1997, revises the computation, presentation, and disclosure requirements of 
earnings per share. Principal among computation revisions is the replacement 
of primary earnings per share with basic earnings per share, which does not 
consider common stock equivalents.  In addition, SFAS No. 128 modifies 
certain dilutive computations and replaces fully diluted earnings per share 
with diluted earnings per share. Options and warrants representing common 
shares of 7,402,500 and 7,382,500 were excluded from the average number of 
common and common equivalent shares outstanding in the diluted earnings per 
share calculation for the years ended December 31, 1997 and 1996, 
respectively, because they were anti-dilutive.  The Company has adopted SFAS 
No. 128 for the year ended December 31, 1997 and has restated prior periods 
presented to conform to SFAS No. 128.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Revenues decreased by $6,183,315 (21.6%) to $22,494,256 for the year 
ended December 31, 1997 from $28,677,571 for the year ended December 31, 
1996. The decrease in revenues was due in part to the timing of revenue 
recognition under applicable accounting standards and the nature of the films 
first available for distribution in the year ended December 31, 1997 compared 
to films first available for distribution in the year ended December 31, 
1996. In situations where the Company licenses distribution rights of a 
particular film to subdistributors prior to the availability of the motion 
picture in exchange for a minimum guaranteed payment ("pre-sales"), the 
pre-sales are not recognized. Instead, the pre-sales are recognized at such 
time as the motion picture is available for release by the sub-distributor 
and revenues are earned pursuant to the terms of the Company's agreement with 
the sub-distributor.  For the year ended December 31, 1996, of the films 
first available for distribution, four films had pre-sales in excess of 
$2,000,000 each.  By comparison, for the year ended December 31, 1997 one 
film became available with pre-sales in excess of $2,000,000.  The decrease 
in revenues also resulted from an increasing preference of retail video 
stores and video subdistributors in the United States and internationally for 
films which have achieved significant theatrical box-office success, and 
decreased revenues generated by the Company's domestic theatrical releasing 
operation, First Look Pictures (approximately $358,081 for the year ended 
December 31, 1997 compared to approximately $1,490,882 for the year ended 
December 31, 1996). Additionally, included in the revenues for the year ended 
December 31, 1997 were approximately $1,448,000 of revenues from sales and 
licenses of distribution rights to subdistributors relating to the 
territories of Asia, a reduction of 54% from approximately $3,122,000 in 
1996. The decrease is partly due to the general economic difficulties the 
region is currently experiencing which may impact revenues in future periods.

                                          32
<PAGE>

     Film costs as a percentage of revenues increased to 85.1% for the year 
ended December 31, 1997 from 80.4% (after certain reclassifications for the 
year ended December 31, 1996. This increase was primarily due to increased 
write downs to net realizable value of various film costs including JERUSALEM 
($212,711), THE DESIGNATED MOURNER ($895,428), JOHNS ($270,000) and ALIVE AND 
KICKING a.k.a. INDIAN SUMMER ($121,586).  Additionally, although the Company 
recognized approximately $2,439,112 in gross revenues relating to these four 
films as well as two films written down in 1996 (INFINITY and THE BIG 
SQUEEZE), no gross margin resulted from these revenues.  Gross margins vary 
from film to film based upon many factors including the amount of the 
Company's investment in a particular film. In some cases, the Company is 
entitled to only a distribution fee based upon a percentage of the film's 
gross revenues in a particular territory or territories and media.  In other 
circumstances, the Company may have a substantial investment in the film (for 
example, as a result of minimum guarantee commitments, rights acquisition 
costs, or print and advertising commitments) and is dependent upon the film's 
actual performance in order to generate a positive gross margin. Other 
factors that impact gross margins include market acceptance of a film, the 
budget of the film, and management's analysis of the motion picture's 
prospects (which under the individual film forecast method impacts the rate 
of amortization).

     Selling, general and administrative expenses, net of amounts capitalized 
to film costs, decreased by $86,538 (2.4%) to $3,509,122 for the year ended 
December 31, 1997 from $3,595,660 for the year ended December 31, 1996. The 
Company capitalizes certain overhead costs incurred in connection with its 
acquisition of rights to a motion picture and creation of marketing materials 
for a motion picture by adding such costs to the capitalized film costs of 
the motion picture.  The decrease in selling, general and administrative 
expenses, net of amounts capitalized to film costs, was primarily due to 
decreased bad debt expense as well as a reduced bad debt reserve 
(approximately $269,550), reduced compensation as a result of fewer personnel 
(approximately $105,369), the reduction of reimbursed overhead inccurred by a 
sales representative located in the U.K. (approximately $79,696) and general 
cutbacks in various additional operational areas.  The savings were partially 
offset by increased costs in the administrative areas related to compliance 
with SEC reporting requirements as well as other costs associated with the 
Company being a publicly traded corporation, including accounting fees 
(approximately $122,784), legal expenses (approximately $132,570), directors 
and officers insurance (approximately $80,017), corporate publicity 
(approximately $105,014) and other related expenses.

     Net other expense increased by $310,922 (87%) to $669,564 for the year 
ended December 31, 1997 from $358,642 (after certain reclassifications) for 
the year ended December 31, 1996. The increase resulted from increased 
interest expense, net of capitalized interest, of $284,483 over the prior 
year primarily relating to debt associated with film facilities. The Company 
capitalizes interest associated with its acquisition of motion pictures to 
the applicable motion picture's film costs during the film's acquisition 
period which includes creation of marketing materials, until such pictures 
are fully delivered and available.

     As a result of the above, the Company, incurred a loss before income 
taxes for the year ended December 31, 1997 of $837,277 compared to income 
before income taxes of $1,665,269 for the year ended December 31, 1996.

     The Company's tax provision for 1997 includes a federal income tax 
benefit of $505,800 relating to the pre-tax loss recognized in 1997.  The 
balance of the income tax provision includes a state income tax benefit for 
1997 of approximately $18,800 and foreign tax withholdings of approximately 
$231,243 on revenues generated in certain countries during 1997 that are 
required to withhold taxes on film royalties paid to a U.S. company. 

                                          33
<PAGE>

Pre-Merger Overseas was an S-Corporation for federal income tax purposes and, 
accordingly, was not subject to federal income taxes for periods from 1989 
through the date of the Merger. See  "Certain Tax Related Matters" below.  
The Company's tax provision for 1996 includes a one-time, non-recurring 
deferred federal income tax charge of approximately $2,600,000 relating to 
the termination of Pre-Merger Overseas' S corporation status which occurred 
immediately upon the Merger (October 31, 1996). The balance of the income tax 
provision for the year ended December 31, 1996 represents federal income tax 
of approximately $190,000 on income of the Company for the two months 
following the Merger, state income taxes for the year of approximately 
$110,000 and foreign tax withholdings of approximately $231,367.  The 
Company's effective tax rate decreased to approximately 35% for the year 
ended December 31, 1997 to approximately 188% for the year ended December 31, 
1996 primarily as a result of the non-recurring deferred federal income tax 
charges occurring in 1996.

     As a result of the foregoing the Company had a net loss for the year 
ended December 31, 1997 of $543,920 compared to a net loss for the year ended 
December 31, 1996 of $1,466,098.

     YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

     Revenues increased by $7,005,061 (32.3%) to $28,677,571 for the year ended
December 31, 1996 from $21,672,510 for the year ended December 31, 1995. The
increase was primarily due to a greater number of larger budget films (generally
reflecting higher production values) becoming available for distribution and
generating relatively greater revenues than some of the Company's smaller budget
films, generally reflecting a marketplace preference during such period for
films with greater production values. During the year ended December 31, 1996,
21 motion pictures each generated in excess of $200,000 in revenues, with an
aggregate of $24,426,627, or 85.2%, of total revenues for such year attributable
to those films. For the year ended December 31, 1995, 20 motion pictures each
generated in excess of $200,000 in revenues, with an aggregate of $16,584,445,
or 76%, of total revenues, for such year attributable to those films.

     Film costs as a percentage of revenues increased to 80.4% (after certain 
reclassifications) for the year ended December 31, 1996 from 75.3% for the 
year ended December 31, 1995. This increase was primarily due to a write down 
of approximately $674,000 on the film "Infinity" and approximately $88,000 on 
the film "The Big Squeeze." Additionally, although the Company recognized 
$4,568,774 in gross revenues relating to these two films, no gross margin 
resulted from either film.

     Selling, general and administrative expenses, net of amounts capitalized 
to film costs, increased by $873,915 (32.1%) to $3,595,660 for the year ended 
December 31, 1996 from $2,721,745 for the year ended December 31, 1995. The 
increase in selling, general and administrative expenses, net of amounts 
capitalized to film costs, was primarily due to generally greater numbers of 
personnel in the year ended December 31, 1996 over that of the prior year, 
increased personnel costs related thereto, and bonuses of approximately 
$175,000 paid to the Company's executive officers (other than Ellen Dinerman 
Little and Robert B. Little) relating to the Merger. Additionally, bad debt 
expense reflecting subdistributor cancellations for the year ended December 
31, 1996 was approximately $100,000 greater than the year ended December 31, 
1995.

     Other income (expense) decreased by $622,637 (236%) to ($358,642) for the
year ended December 31, 1996 from $263,995 for the year ended December 31, 1995.
The decrease was primarily the result of increased interest expense, net of
capitalized interest, of $479,546 over the prior year, as well


                                          34
<PAGE>

as decreased discounts from suppliers of approximately $85,000 in the year ended
December 31, 1996 compared to December 31, 1995 and approximately $44,000 less
income from the rental of certain editing equipment that was sold in 1995.

     As a result of the above, the Company, had income before taxes for the year
ended December 31, 1996 of $1,665,269 compared to income before taxes of
$2,894,066 for the year ended December 31, 1995.

     Pre-Merger Overseas was an S-Corporation for federal income tax purposes
and, accordingly, was not subject to federal income taxes for periods from 1989
through the date of the Merger. See  "Certain Tax Related Matters" below.  The
Company's tax provision for 1996 includes a one-time, non-recurring deferred
federal income tax charge of approximately $2,600,000 relating to the
termination of Pre-Merger Overseas' S corporation status which occurred
immediately upon the Merger. The balance of the income tax provision for the
year ended December 31, 1996 represents federal income tax of approximately
$190,000 on income of the Company for the two months following the Merger, state
income taxes for the year of approximately $110,000 and foreign tax withholdings
of approximately $231,000 on revenues generated in certain countries during the
year that are required to withhold taxes on film royalties paid to a U.S.
company.  As a result of the federal income taxes for the two months following
the merger, the Company's effective tax rate, exclusive of the one-time, non
recurring deferred federal income tax charge, increased to approximately 32% for
the year ended December 31, 1996 compared to 15% for the year ended December 31,
1995.

     As a result of the foregoing including the one time, non-recurring deferred
federal income tax charge, the Company had a net loss for the year ended
December 31, 1996 of $1,466,098.  This is in comparison to net income of
$2,461,161 for the year ended December 31, 1995.

LIQUIDITY AND CAPITAL RESOURCES

     The Company requires substantial capital for the acquisition of film 
rights, the funding of distribution costs and expenses, the payment of 
ongoing overhead costs and the repayment of debt. Apart from the funds 
provided as a result of the Merger of Pre-Merger Overseas with EMAC, the 
principal sources of funds for the Company's operations in the past have been 
cash flow from operations and bank borrowings, primarily through the 
Company's credit facility described below.

     The Company's cash flows provided by/(used in) operating, investing and
financing activities in 1995, 1996 and 1997 were as follows:

<TABLE>
<CAPTION>
                              Year Ended December 31,
                        1995            1996           1997
<S>                  <C>             <C>            <C>
Operating......      $21,352,387     $18,276,355    $14,517,735
Investing......      (21,376,982)    (33,923,848)   (20,090,234)
Financing......          540,366      13,480,620      6,524,404
</TABLE>


                                          35
<PAGE>

Cash flow from operating activities consists primarily of cash collections 
generated by the sale, license or other exploitation of distribution and 
other film rights by the Company.  The reduction in cash flows provided by 
operating activities from 1995 to 1996 and from 1996 to 1997 generally 
represents decreased cash flows provided by sales and licensing of 
distribution rights by the Company due to general market conditions for video 
rights, as well as an increase in accounts receivable balances.  As part of 
the changes in its operational strategy and in order to improve cash flow, 
the Company has also implemented certain reductions in overhead including 
reductions in personnel (the Company had 28 full time employees at April 15, 
1998, a reduction of 12 full time employees from April 15, 1997). The Company 
is also currently considering additional reductions in overhead. Investing 
activities consist primarily of additions to film costs (primarily 
production, acquisition and distribution costs), but also include 
expenditures on property and equipment and other activities that utilize 
cash. The changes in cash flows used in investing activities from 1995 to 
1996 and from 1996 to 1997 generally represent varying investment in film 
costs relating to availability of funds for such purpose. Financing 
activities include the funds provided by the Merger in 1996, as well as bank 
or other borrowings, and other activities that give rise to additional cash 
to the Company decreased for periods prior to the Merger by distributions to 
the stockholders of Pre-Merger Overseas and decreased for periods after the 
Merger by payments made on the $2,000,000 Merger Note issued to the Company's 
principal stockholders and executive officers, Ellen Dinerman Little and 
Robert B. Little, as part of the consideration to them in the Merger. The 
Merger Note provides that it is payable in monthly installments of principal 
and interest of $41,517 over a five year period ending October 1, 2001, bears 
interest at the rate of 9% per annum, and is secured by a security interest 
(subordinate to the security interest of the lenders under the Company's 
credit facility) in substantially all of the Company's assets. As described 
below, payments on the Merger Note are currently being deferred.

     The Company has a credit facility (the "Credit Facility") under an 
agreement (the "Syndication Agreement") with Coutts & Co. ("Coutts"), as an 
agent and lender, and Berliner Bank A.G. London Branch ("Berliner"), as a 
lender (collectively, the "Lenders"). Prior to the recent amendment of the 
Syndication Agreement, described below which among other things, altered 
availability under the Credit Facility, the Syndication Agreement provided for 
total borrowings of $27,000,000, of which up to $5,000,000 could be borrowed 
on a revolving basis for the Company's working capital needs (the "Operating 
Facility"), up to $1,000,000 (the "Local Facility") is available to be issued 
as letters of credit to secure a local bank line of credit (the "Local 
Line"), and up to $21,000,000 could be borrowed to fund the acquisition of 
motion pictures or to fund distribution costs, including print and 
advertising costs, associated with motion pictures acquired by the Company 
(the "Film Facilities"). The interest rate payable on borrowings under the 
Syndication Agreement is 3% above the London Inter-Bank Offered Rate 
("LIBOR") in effect from time to time for one, three or six months, as 
requested by the Company. In addition to an annual management fee, there is a 
commitment fee on the daily unused portion of the Operating Facility of 1% 
per annum, and fees with respect to the Local Facility of 2% of the face 
amount of issued letters of credit.  Fees on the Film Facilities include 2% 
of the amount of cash advances or, in most circumstances, 2% of the face 
amount of each letter of credit issued under the Film Facilities, as well as 
a percentage of gross receipts of the film acquired or financed payable from 
the Company's net earnings from the film, which percentage fee in 1997 
amounted to an aggregate of approximately $10,000.

                                          36
<PAGE>

     The Company borrowed funds under Film Facilities' on a film-by-film 
basis, with each such Film Facility treated as a separate loan, generally 
maturing 12 months after the first drawdown. The Syndication Agreement 
required Coutts and Berliner to approve each separate Film Facility, such 
approval to be granted in their sole discretion. Amounts available under the 
Film Facilities were also available to be issued as letters of credit or bank 
guarantees. As of December 31, 1997, an aggregate of approximately 
$16,233,844 was outstanding under the Film Facilities (including an aggregate
of approximately $3,874,702 in principal and accrued interest under three 
Film Facilities which had matured and were under review by the lenders and 
$10,592,508 in principal and accrued interest under ten Film Facilities 
scheduled to mature during 1998) and $5,908,340 was outstanding under the 
Operating Facility, at an average interest rate on all such outstanding 
amounts of approximately 8.72% per annum. As of December 31, 1997, $1,000,000 
in face amount of letters of credit had also been issued under the Local 
Facility to secure a line of credit that the Company has received from City 
National Bank (under which $1,000,000 was outstanding as of December 31, 1997 
bearing interest at 7.250% per annum). If the letters of credit are drawn 
upon, the Company must repay the amounts advanced by the banks upon demand.

     The Syndication Agreement which is secured by substantially all of the 
assets of the Company and its subsidiaries, contains a number of covenants 
and other requirements, including requirements that the Company maintain a 
certain consolidated net worth and that 30% of the amount outstanding under 
the Film Facilities (including issued but unexercised letters of credit) be 
collateralized by cash or receivables acceptable to the banks; requirements 
that may substantially restrict the payment of dividends by the Company. The 
Syndication Agreement also, among other things, restricts the creation or 
incurrence of indebtedness and the issuance of additional securities and 
requires aggregate key man life insurance on Ms. Little, Mr. Little and Mr. 
Lischak of $6,750,000. Events of Default under the Syndication Agreement 
include, among other things, a change of control of the Company, the failure, 
in certain circumstances, of Ellen Dinerman Little or Robert B. Little to 
serve as a director or be employed in the capacity set out in their 
respective employment agreements, the failure of the Littles, together with 
their director nominees (See "Item 10 - Directors and Executive Officers of 
the Registrant - Management Arrangements"), to constitute a majority of the 
Board of Directors of the Company, or a decrease in the Little's ownership in 
the Company below certain levels.

     The Syndication Agreement requires that amounts outstanding under the 
Operating Facility be repaid on the date that the commitment to lend under 
the Syndication Agreement expires.  The commitment to lend under the 
Syndication Agreement  was originally scheduled to expire on May 9, 1997, the 
date of the annual review. The Company and the Lenders extended the date of 
the annual review and the expiration of the commitment to lend under the 
Syndication Agreement to November 30, 1997. In addition, in mid-1997, in 
order to address what the Company anticipated as a need for additional 
liquidity occasioned by the disappointing worldwide performance of recent 
films acquired by the Company and the maturity of various Film Facilities 
under the Credit Facility, the Company began discussions with the Lenders for 
the Lenders to make additional amounts available to the Company under the 
Operating Facility and to further extend the commitment to lend. As part of 
the discussions, Ms. Little and Mr. Little agreed to defer payments to them 
under the Merger Note.  During 1997, an aggregate of approximately $207,584 
in principal and interest was paid to the Littles under the Merger Note and 
approximately $290,616 was deferred.

                                          37
<PAGE>

     The Company's discussions with the Lenders continued through 1997 and 
the first quarter of 1998.  During such period, the Lenders permitted 
additional borrowing under the Operating Facility of $908,340 with a 
corresponding reduction in aggregate borrowing availability under the Film 
Facilities.  On April 14, 1998, the Company and the Lenders entered into an 
agreement (the "Facility Amendment") pursuant to which they amended the 
Syndication Agreement to extend the date of the annual review and the 
expiration of the commitment to lend under the Syndication Agreement to April 
9, 1999, subject to continued compliance by the Company with the Syndication 
Agreement and the terms of the Facility Amendment, as well as to Berliner 
Board approval (which was subsequently obtained), and establishment of the 
guarantee detailed below.

     As of the date of the Facility Amendment, an aggregate of approximately 
$15,261,851 was outstanding under the Film Facilities, an aggregate of 
approximately $5,908,340 was outstanding under the Operating Facility, and 
$1,000,000 in face amounts of letters of credit had been issued under the 
Local Facility to secure the City National Bank credit line (under which 
approximately $520,000 was then outstanding). Pursuant to the Facility 
Amendment, the Company and the Lenders also agreed to make up to an 
additional $1,325,660 available under the Operating Facility (above the 
$5,908,340 then outstanding) to a total of $7,234,000 ($50,000 of such amount 
being available to pay the fee to the Lenders in connection with the Facility 
Amendment) with the timing of the availability to be substantially in 
accordance with agreed cash flow schedules.  Pursuant to the Facility 
Amendment, the Company and the Lenders also agreed that the Film Facilities 
would no longer be a revolving credit line and sums repaid cannot be 
reborrowed. The Lenders agreed, however, that in addition to the amounts then 
outstanding under the Film Facilities, the Company can borrow an additional 
$1,850,000 to pay a minimum guarantee with respect to the film ILLUMINATA 
which has been co-financed by the Company and for which production costs were 
funded by Coutts. 

     As part of the Facility Amendment, the Company and the Lenders agreed to 
extend the maturity of nine Film Facilities (under which an aggregate of 
$10,553,465 in principal and accrued interest was then outstanding) which 
have matured or would otherwise mature in 1998.  As a result, the Company 
currently anticipates that during the next twelve months, four Film 
Facilities (under which an aggregate of approximately $2,963,806 in principal 
and accrued interest was outstanding as of the date of the Facility 
Amendment) will mature. Additionally, the Company and the Lenders agreed that 
net receipts from films financed under repaid Film Facilities will be used to 
reduce other Film Facilities after the particular Film Facility has been 
repaid. As part of the Facility Amendment, the Company also agreed to 
additional covenants and requirements, including: (i) providing a series of 
additional monthly financial reports to the Lenders, (ii) obtaining written 
approval of the Lenders prior to entering into any new rights acquisitions or 
commitments and (iii) obtaining written approval of the Lenders prior to 
committing to spend amounts in connection with distribution expenses and 
costs for prints and advertising. The Credit Facility generally requires the 
Company to maintain a net worth of at least $12,000,000. At December 31, 
1997, the Company's net worth calculated in accordance with such provision 
was $11,561,112. As part of the Facility Amendment, the Lenders reduced the 
minimum net worth required to $11,000,000 subject to further review on April 
14, 1999 and waived any prior non-compliance with such covenant. The Lenders 
also waived certain covenant provisions relating to ordinary course 
liabilities.

     As part of the Facility Amendment, Ms. Little and Mr. Little agreed to 
continue deferral of payments under the Merger Note. Payments under the 
Merger Note will accrue but payment shall be deferred until outstanding 
borrowings under the Operating Facility are reduced to at least $5,000,000, 
the Company and the Lenders view such reduction as permanent, and not before 
May 1999.  The Merger Note will be extended for the period of time payments 
are deferred, the deferred payments will continue to bear interest, and the 
monthly payments will be adjusted to compensate for additional interest 
accrued pursuant to the deferral of payments. The rights of Ms. Little and 
Mr. Little under the Merger Note and related security agreement are not 
otherwise affected. At April 15, 1998, an aggregate of approximately 
$1,940,097 in principal and interest was outstanding under the Merger Note 
(including an aggregate of approximately $456,684 in previously deferred 
payments of principal and interest).

     As part of Facility Amendment, Ms. Little and Mr. Little have also 
agreed to personally guarantee for the benefit of the Lenders all amounts in 
excess of $6,000,000 (up to a maximum guarantee amount of $618,000) drawn 
under the Operating Facility; provided that the guarantee will be 
extinguished when the amounts outstanding under the Operating Facility are 
permanently reduced to less than $6,000,000.

                                          38
<PAGE>

     In connection with the Merger, the Littles also received an unsecured 
promissory note (the "Life Insurance Note") of the Company in the principal 
amount of $137,061 representing the cash value on the date of the Merger of 
certain life insurance policies under which the Company was named as the 
beneficiary. The promissory note bears interest at the rate of 9% per annum, 
matured on October 31, 1997, and is currently due and payable. At April 15, 
1998, the aggregate amount outstanding (including accrued interest) under 
such promissory note was approximately $155,455. In addition to the amounts 
payable to the Littles under the Insurance Note, certain other amounts are 
currently due to the Littles currently estimated to be, including an 
aggregate of $100,000 in bonuses to the Littles earned by them in 1996 and 
1997, and reimbursement of approximately $30,845 in expenses as provided in 
their employment agreements with the Company. Additionally, the Company and 
the Littles are discussing the amount of payments due to the Littles under 
the provisions of a tax reimbursement agreement (the "Tax Reimbursement 
Agreement"). The Company currently estimates that $200,000 will be payable to 
the Littles.

     In December 1997 and February 1998, the Littles loaned the Company an 
aggregate of $400,000 in order to provide a portion of the funds required by 
the Company for the print and advertising costs associated with the domestic 
theatrical release by the Company of MRS. DALLOWAY as the Lenders declined to 
loan such funds.  The loan is secured by an assignment of domestic revenues 
of MRS. DALLOWAY (currently subordinate to the security interest of the 
Company's commercial lenders), bears interest at the rate of 9% per annum, 
and is to be repaid as and when revenues from MRS. DALLOWAY, and the 
Company's release, DIFFERENT FOR GIRLS, are received by the Company (after 
repayment of a Film Facility related to the acquisition of domestic rights to 
both DIFFERENT FOR GIRLS and MRS. DALLOWAY and print and advertising costs 
lent by the Lenders with respect to DIFFERENT FOR GIRLS or at such time as 
the Company's primary Lenders allow repayment from other sources). At April 
15, 1998, the aggregate amount outstanding (including accrued interest) 
pursuant to such loan was approximately $407,500.  Other than the guarantee 
provided by the Littles in connection with the Facility Amendment and the 
foregoing loan with respect to MRS. DALLOWAY, the Littles are not obligated 
to provide any funds to the Company or to guarantee or secure the Credit 
Facility or any borrowings of the Company in the future.

     As of December 31, 1997, the Company had cash and cash equivalents of
$1,179,133 compared to cash and cash equivalents of $353,689 as of December 31,
1996.  The difference relates primarily to collections of various substantial
license fees near the end of the year ended December 31, 1997.  Additionally, at
December 31, 1997, the Company had restricted cash of $172,498 held by the
Company's primary lender, to be applied against various Film Facilities.  The
restricted cash balance as of December 31, 1996 was $46,037.

     In addition to the Company's obligations reflected on the balance sheet as
of December 31, 1997, as of such date the Company had contractual obligations
for advances and minimum guarantee payments of $6,437,500 contingent upon
completion and delivery of certain motion pictures.


                                          39
<PAGE>

As of December 31, 1997, the Company also had deferred revenue relating to 
distribution commitments and guarantees from sub-distributors of 
approximately $800,250.

     The Company has guaranteed a loan from a bank to Neo Motion Pictures due 
on September 8, 1998, the principal balance of which at April 15, 1998 was 
approximately $186,613 in principal and accrued interest. 

     During the next twelve months, the Company currently intends to acquire 
rights to and distribute or act as sales agent with respect to approximately 
10 to 12 films, including up to approximately three First Look Pictures 
releases (but exclusive of films where the Company acquires primarily 
re-issue rights). As the Facility Amendment provides that no new Film 
Facilities will be established (except with respect to one designated film) 
and requires the consent of the Lenders prior to the Company entering into 
any new rights acquisitions or commitments to spend amounts in connection 
with distribution expenses and costs for prints and advertising, the ability 
of the Company to achieve such goals will depend on the willingness of the 
Lenders to permit the Company to enter into new rights acquisitions and 
commitments, as well as commitments for distribution expenses and prints and 
advertising, and the ability of the Company to obtain other sources of funds 
for its operational activities, including obtaining pre-sale commitments and 
funds from gap financing. However, there can be no assurance as to the future 
availability of pre-sales and gap financing. In addition, the Company 
currently anticipates releasing films through First Look Pictures, in most 
situations, only if outside sources of funds are available for print and 
advertising expenses. As a result of the foregoing, and because the motion 
picture business and the Company's operations are subject to numerous 
additional uncertainties, including among other things, the specific 
financing requirements of various film projects, the audience response to 
completed films, competition from companies within the motion picture 
industry and in other entertainment media (many of which have significantly 
greater financial and other resources than the Company) and the release 
schedules of competing films, no assurance can be given that the Company's 
acquisition, financing and distribution goals will be met (or that such goals 
will not be exceeded).

     The Company believes that its existing capital, funds from operations, 
and other available sources of capital (including funds obtained through 
pre-sales and gap financing) will be sufficient to enable the Company to fund 
its presently planned acquisition, distribution and overhead expenditures for 
the next twelve months. In the event that the motion pictures released or 
distributed by the Company during such period do not meet with sufficiently 
positive distributor and audience response, sales and licensing of 
distribution rights to films in the Company's film library and films which 
the Company plans to release or make available to subdistributors during such 
period are less than anticipated or the Company is not able to exploit 
various sources of capital (such as pre-sales and gap financing) to the 
extent anticipated, the Company will likely need to significantly reduce its 
currently planned level of acquisitions and distribution activities and 
overhead and will likely need to obtain additional sources of capital. The 
Company is currently exploring obtaining additional sources of capital 
(including equity and debt financing). There can be no assurance, however, 
that such additional capital will be available or available on terms 
advantageous to the Company.

INFLATION AND RELATED CONSIDERATIONS

     Management of Overseas Filmgroup believes that neither the Company's 
operating revenues nor costs materially increased in the last fiscal year due 
to general economic inflation or general price changes. In particular, 
management believes that no material increases in revenue were attributable to 
increases in ticket prices for admission to motion picture theaters. The 
costs associated with the production (such as the salaries of recognizable 
cast) and distribution and marketing (such as print and advertising costs) of 
motion pictures have increased dramatically in recent years. These costs will 
likely continue to increase in the future, thereby increasing the capital 
required for the operations of motion picture producers and distributors, 
including the Company, and the risk borne by such parties.

IMPACT OF YEAR 2000

     The Company has assessed its computer systems in order to determine whether
such systems recognize the year 2000.  All of the Company's systems are year
2000 compliant except for the Company's accounting system.  As a result of such
assessment, the Company intends to upgrade its accounting system. The upgrade is
intended to expand the capabilities of the system and resolve the year 2000
issues associated with the current system.  The Company currently plans to
complete the upgrade of the accounting system by October 1998 at an anticipated
cost to the Company of approximately $10,000.  The Company does not currently
have a basis upon which to estimate the impact on the Company of year 2000
non-compliance by the Company's major licensees and subdistributors.  It is
possible that non-compliance to year 2000 concerns by the Company's major
licensees and subdistributors could have a material adverse effect on the
Company, by, for example, delaying payments by such parties.  At this time, the
Company does not have plans to institute a program to review year 2000
compliance by its major licensees and subdistributors in order to determine
exposure to year 2000 issues.

EXCHANGE RATE CONSIDERATIONS

     A significant portion of the Company's revenue (approximately 77% in 
1997) is from the distribution of motion pictures and the licensing of 
distribution rights in territories outside the United States. The Company's 
financial results and results of operations could be negatively affected by 
such factors as changes in foreign currency exchange rates and currency 
controls, as well as trade protection measures, motion picture piracy, 
content regulation, longer accounts receivable collection patterns, changes 
in regional or worldwide economic or political conditions or natural 
disasters. See Item 1. "Motion Picture Distribution by the Company." Because 
the Company's contracts are typically denominated in U.S. dollars, advances 
and minimum guarantees of sublicense fees payable to the Company by foreign 
sub-distributors, and advances and minimum guarantees to be paid by the 
Company to foreign producers in connection with the acquisition of 
distribution rights, are generally unaffected by exchange rate fluctuations. 
However, to the extent the Company's agreements with foreign sub-distributors 
require such sub-distributors to pay the Company a percentage of revenues in 
excess of any advance or minimum guarantee, fluctuations in the currencies in 
which such revenues are received by the sub-distributor may affect the amount 
of U.S. dollars received by the Company in excess of any minimum guarantee. 
Exchange rate fluctuations could also affect the ability of sub-distributors 
to bid for and acquire rights to motion pictures distributed by the Company. 
Exchange rate fluctuations have had an impact on the Company's results of 
operations in the past year. See Item 1. "Motion Picture Distribution by the 
Company."

                                          40
<PAGE>

CERTAIN TAX RELATED MATTERS

     The Company is subject to federal and state corporate income tax.  In 
addition, certain foreign jurisdictions require tax withholding on revenues 
payable to the Company by foreign sub-distributors in such territories.  From 
January 1989 until October 31, 1996, Pre-Merger Overseas was treated for 
federal (but not state) income tax purposes as an S Corporation.  As a 
result, Pre-Merger Overseas' taxable income during this period was taxed for 
federal purposes directly to the Pre-Merger Overseas stockholders (Ellen 
Dinerman Little, Robert B. Little and William F. Lischak), rather than to 
Pre-Merger Overseas. Pursuant to the Merger Agreement, the Company entered 
into a Tax Reimbursement Agreement, dated October 31, 1996, with Ms. Little, 
Mr. Little and Mr. Lischak.  Under the Tax Reimbursement Agreement, the 
Company agreed to reimburse these individuals for up to $400,000 of federal 
income taxes payable for the short 1996 S corporation taxable year of 
Pre-Merger Overseas ending at the time of the Merger (the "1996 Reimbursement 
Amount").  As Pre-Merger Overseas reported a taxable loss for the short 1996 
S corporation taxable year, no amounts are currently payable to the 
stockholders of Pre-Merger Overseas under this provision in the Tax 
Reimbursement Agreement.

     The corporate income tax returns of Overseas Filmgroup for its 1992 and 
1993 fiscal years were recently audited by the Internal Revenue Service 
("IRS") and returns for the 1994, 1995, 1996 and 1997 fiscal years, (the 
latter of which is currently on extension for filing) remain open to audit. 
As a result of the IRS audit of the 1992 and 1993 fiscal years returns, 
certain foreign tax credits reported by the Company and claimed by Ms. Little 
and Mr. Little, as S corporation shareholders, were denied, and assessment of 
additional federal income tax was made against Ms. Little and Mr. Little in 
the amount of approximately $275,000.  In the absence of the Tax 
Reimbursement Agreement, the stockholders of Pre-Merger Overseas during such 
periods, and not the Company, would be responsible for any tax liability 
assessed as a result of any federal income tax audits of pre-Merger periods 
because of the S corporation status for such periods. Under the Tax 
Reimbursement Agreement, the Company agreed to indemnify the three 
stockholders of Pre-Merger Overseas for any federal income tax liabilities of 
theirs (including penalties and interest) arising from any adjustment to the 
income, deductions or credits of Pre-Merger Overseas for periods prior to the 
Merger, together with any federal and state income tax arising from such 
indemnity payments. The Company's reimbursement obligations are limited to 
$150,000 (plus any of the $400,000 1996 Reimbursement Amount not used to 
reimburse such individuals for their federal income taxes for the short 1996 
S Corporation taxable year), except with respect to adjustments to the 
Company's income, deductions or credits which are reasonably expected to 
result in decreases to the Company's income or increases in its deductions or 
credits after the Merger. The Company and the Littles are discussing the 
amount of payments due to the Littles under the provisions of the Tax 
Reimbursement Agreement. The Company currently estimates $200,000 will be 
payable to the Littles. For purposes of the Consolidated Financial Statements 
of the Company, accrued expenses as of December 31, 1997 include a $200,000 
estimate of the aggregate payments to be made to the shareholders of 
Pre-Merger Overseas pursuant to the Tax Reimbursement Agreement.  No payments 
have been made under the Tax Reimbursement Agreement through April 15, 1998.

     For federal income tax purposes, the company has available tax loss 
carryforwards of approximately $1,812,000 which expire in 2011 and foreign 
tax credits of approximately $336,000 which expire between 2001 and 2002.

                                          41
<PAGE>

ITEM 7A.  QUALITATIVE AND QUANTITATIVE DISLCOSURES ABOUT MARKET RISK.

     Not applicable, as the Securities and Exchange Commission phase-in date for
this Item has not yet occurred.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Report of Independent Accountants, Consolidated Financial Statements
and Notes to the Company's Consolidated Financial Statements appear in a
separate section of this Report (beginning on page F-1) following Part IV.  See
the Index to Financial Statements under "Item 14 - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K."

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

Not applicable.


                                          42
<PAGE>

                                      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The following table sets forth information with respect to the current
directors and executive officers of the Company:



<TABLE>
<CAPTION>

 NAME                     AGE   CURRENT POSITION WITH THE COMPANY
 ----                     ---   ---------------------------------
 <S>                      <C>   <C>
 Robert B. Little         53    Co-Chairman of the Board and Co-Chief Executive Officer

 Ellen Dinerman Little    56    Co-Chairman of the Board, Co-Chief Executive Officer and President

 Stephen K. Bannon        44    Vice Chairman of the Board, Chairman of the Executive Committee
                                of the Board

 William F. Lischak       40    Chief Operating Officer, Chief Financial Officer, Secretary and
                                Director

 MJ Peckos                43    Senior Vice President, Domestic Distribution and Marketing

 Christopher Trunkey      31    Senior Vice President, Finance and Accounting

 Alessandro Fracassi      46    Director

 Jeffrey A. Rochlis       52    Director

 Scot K. Vorse            37    Director
</TABLE>


     The directors of the Company are divided into three classes having terms
expiring at the annual meeting of the Company's stockholders in 1998 (Ellen
Dinerman Little and Scot K. Vorse), 1999 (William F. Lischak, Jeffrey A. Rochlis
and Alessandro Fracassi) and in 2000 (Robert B. Little and Stephen K. Bannon),
or such later dates as their successors are elected and have qualified. At each
annual meeting of stockholders, successors to the class of directors whose terms
expire at such meeting will be elected to serve for three-year terms and until
their successors are elected and have qualified. All officers serve at the
discretion of the Board of Directors, subject to any applicable employment
agreements. See "Employment Agreements" below. See also "Management
Arrangements" below for a description of certain arrangements regarding the
election of directors.  Ellen Dinerman Little and Robert B. Little are married
to each other.

CURRENT DIRECTORS AND EXECUTIVE OFFICERS.

     ROBERT B. LITTLE became Co-Chairman of the Board of Directors and Co-Chief
Executive Officer of the Company upon consummation of the Merger on October 31,
1996. Mr. Little co-founded the predecessor of Pre-Merger Overseas in February
1980 and served as Chairman of the Board of Pre-Merger Overseas from February
1987 until the Merger and its Chief Executive Officer from February 1990 until
the Merger. Mr. Little was a founding member of the American Film Marketing
Association, the organization which established the American Film Market, and
served multiple terms on its Board of Directors. In 1993, Mr. Little served on
the City of Los Angeles Entertainment Industry Task Force, a task force composed
of industry leaders focused on maintaining and enhancing Los Angeles's
reputation as the entertainment capital of the world. Mr. Little is also a
founding member of The Archive Council, an industry support group for the
University of California at Los Angeles (UCLA) Archive Film


                                          43
<PAGE>

Preservation Program, and a member of the Board of Directors of the Antonio
David Blanco Scholarship Fund, an endowment fund that annually benefits
deserving students in the UCLA Department of Film and Television.

     ELLEN DINERMAN LITTLE became Co-Chairman of the Board of Directors,
Co-Chief Executive Officer and President of the Company upon consummation of the
Merger. Ms. Little co-founded the predecessor of Pre-Merger Overseas in February
1980 and served as its President and Director, as well as the President and a
Director of Pre-Merger Overseas since its incorporation in January 1984 until
the Merger. Ms. Little is a founding member of The Archive Council, serves on
the Board of Directors of the Antonio David Blanco Scholarship Fund, and has
been an active participant in the American Film Marketing Association, having
served on various of its committees. Ms. Little is Executive Producer of Richard
III, which was nominated for two Academy Awards.

     STEPHEN K. BANNON has been a director of the Company since its
incorporation as EMAC in December 1993. Since the Merger, he has served as Vice
Chairman of the Board of Directors of the Company and Chairman of its Executive
Committee.  Previously, from the incorporation of EMAC until the Merger, he
served as Chairman of the Board of Directors of EMAC.  Since June 1991, Mr.
Bannon has been the Chief Executive Officer of Bannon & Co., an investment
banking firm that specializes in the entertainment, media and communications
industries. In October 1996, Bannon & Co. entered into an alliance agreement
with Societe Generale, a private French bank, and, since April 1, 1997, the
company has been operating as Societe Generale Bannon, LLC.  As part of an
investment banking assignment, from April 1, 1994 to December 31, 1995, Mr.
Bannon served as acting Chief Executive Officer of SBV, a division of Decisions
Investment Corp., which operates the Biosphere 2 project near Oracle, Arizona.
Societe Generale Bannon, LLC is a registered broker-dealer under the Securities
Exchange Act of 1934, as amended, and Mr. Bannon is a registered principal with
the National Association of Securities Dealers, Inc. ("NASD"). Bannon & Co.
succeeded to the business of Talbott, Bannon & Co., of which Mr. Bannon was a
general partner from January 1990 to June 1991. From 1985 to 1990, Mr. Bannon
was employed in various capacities by Goldman, Sachs & Co., most recently as
Vice President, Investment Banking, where his responsibilities included advising
clients on mergers and acquisitions and corporate finance in the entertainment
and media industry.

     WILLIAM F. LISCHAK became Chief Operating Officer, Chief Financial Officer,
Secretary and a Director of the Company upon consummation of the Merger. Mr.
Lischak served as Pre-Merger Overseas' Chief Operating Officer from September
1990 until the Merger and its Chief Financial Officer from September 1988 until
the Merger. Mr. Lischak, a certified public accountant, previously had worked in
public accounting, including from 1982 to 1988 with the accounting firm of
Laventhol & Horwath. Mr. Lischak has a Masters Degree in Taxation and has taught
courses in the extension program at UCLA in accounting, finance and taxation for
motion pictures and television.

     CHRISTOPHER TRUNKEY joined the Company as Senior Vice President, Finance 
and Accounting, in September 1997. From May 1994 to August 1997, Mr. Trunkey 
served as Vice President, Chief financial and Administrative Officer and 
Secretary of Kings Road Entertainment, a film production and distriution 
company. prior thereto, Mr. Trunkey served asController for Ulysee 
Entertainment, a film distribution company, from October 1993 to May 1994. 
From May 1990 through September 1993, Mr. Trunkey served as Director of 
Financial Planning at Reeves Entertainment, a television production and 
distribution companyu. Prior to that, Mr. Trunkey as a Staff Accountant for 
Telautograph Corporation, a manufacturing company, from August 1988 through 
May 1990. Mr. Trunkey resigned from the Company effective May 1, 1998.

                                          44
<PAGE>

     MJ PECKOS became Senior Vice President, Domestic Distribution and
Marketing, of the Company upon consummation of the Merger, having served since
May 1995 in the same position with Pre-Merger Overseas.  From January 1995
through April 1995, Ms. Peckos served as Vice President of Advertising for Dazu
Advertising, a graphic design firm which is active in the entertainment
industry. Prior to that, she served from January 1992 to November 1994 as Senior
Vice President of Marketing & Distribution for Academy Entertainment, an
independent film company, and from July 1991 to December 1992 as Co-Managing
Director of CLG Films, also an independent film company. Ms. Peckos also
previously served with several other companies in the motion picture industry
including The Samuel Goldwyn Company, MGM and Warner Bros.

     ALESSANDRO FRACASSI, became a Director of the Company upon consummation of
the Merger. Mr. Fracassi founded Racing Pictures s.r.l. (an Italian motion
picture production and distribution company) in 1976 and has served as its
President since such date. Mr. Fracassi has extensive experience in the field of
Pan-European motion picture and television production. He has served as a Vice
President of the Italian Producers Association, an Italian entertainment
industry trade group. Additionally, Mr. Fracassi and his family are active
investors in various privately held businesses in Italy.

     JEFFREY A. ROCHLIS has been a Director of the Company since its
incorporation as EMAC in December 1993 and also served from such date until the
Merger as President and Chief Executive Officer of EMAC.  Mr. Rochlis is the
founding principal of Rochlis & Associates, a firm established in 1989 which
specializes in new product/business development in the entertainment and media
industry. From 1987 through 1989, Mr. Rochlis served as the Executive Vice
President of Walt Disney Imagineering, responsible for the development of new
Disney theme parks and attractions around the world. From 1985 through 1987, he
served as Executive Vice President of The Walt Disney Studios, responsible for
finance, administration, operations and new business development for Walt
Disney, Touchstone and Buena Vista motion picture, television and home video
divisions worldwide. From 1983 through 1985, Mr. Rochlis was the President and
Chief Operating Officer of the video game company, Sega Enterprises, Inc. Mr.
Rochlis served as a Director of Paramount Pictures Corporation from 1983 through
1985.

     SCOT K. VORSE became a Director of EMAC in January 1995 and continued to 
serve as a Director of the Company following the Merger. From January 1995 
until the Merger, he served as Treasurer, Secretary and Vice President of 
EMAC.  Since June 1991, Mr. Vorse has been an Executive Vice President, 
Managing Director and the Chief Financial Officer of Bannon & Co., now 
operating as Societe Generale Bannon, LLC. Mr. Vorse is a registered 
principal with the NASD. From 1985 to May 1991, Mr. Vorse was employed in 
various capacities by Goldman, Sachs & Co., most recently as Vice President 
-- Corporate Finance, where his responsibilities included advising clients on 
mergers and acquisitions and private and public financings.

EXECUTIVE COMMITTEE

     Ellen Dinerman Little, Robert B. Little and Stephen K. Bannon currently
serve on the Executive Committee, with Mr. Bannon serving as Chairman of such
committee. During intervals between the meetings of the Board of Directors of
the Company, the Executive Committee exercises all powers of the Board of
Directors (except those powers specifically reserved by Delaware law or the
Company's Bylaws to the full Board of Directors) in the management and direction
of the business and conduct of the affairs of the Company in all cases in which
specific directions have not been given by the Board of Directors.


                                          45
<PAGE>

COMPENSATION COMMITTEE

     Messrs. Bannon and Vorse currently serve on the Compensation Committee. The
Compensation Committee administers the Company's stock option plans to the
extent contemplated thereby and reviews, approves, and makes recommendations
with respect to compensation of officers, consultants and key employees.  See
"Stock Option Plans" under "Item 11 - Executive Compensation"  below.

AUDIT COMMITTEE

     The Audit Committee of the Company currently consists of Messrs. Bannon and
Vorse.  The function of the Audit Committee is, among other things, to review
and approve the selection of, and all services performed by, the Company's
independent auditors; to meet and consult with and to receive reports from, the
Company's independent auditors and the Company's financial and accounting staff;
and to review and act with respect to the scope of audit procedures, accounting
practices and internal accounting and financial controls of the Company.

MANAGEMENT ARRANGEMENTS

     The Company is a party to a Stockholders' Voting Agreement, dated as of
October 31, 1996, with Ellen Dinerman Little, Robert B. Little, William F.
Lischak, and certain persons who were stockholders of the Company prior to
consummation of the Company's initial public offering (Jeffrey A. Rochlis,
Barbara Boyle, the Hoberman Family Trust, Stephen K. Bannon, Scot K. Vorse and
Gary M. Stein - collectively, the "Initial Stockholders").  The parties to the
Stockholders' Voting Agreement have agreed to use their best efforts to cause
the Board of Directors of the Company to consist of seven members during the
term of such agreement, including four individuals designated by Ms. Little and
Mr. Little (currently Ellen Dinerman Little, Robert B. Little, William F.
Lischak, and Alessandro Fracassi) and three individuals designated by the
Initial Stockholders (currently Stephen K. Bannon, Jeffrey A. Rochlis and Scot
K. Vorse).  Each party to the Stockholders' Voting Agreement also agreed that
the following actions shall require the affirmative vote of at least
seventy-five percent of the authorized number of directors of the Company: (i)
any amendment to the Restated Certificate of Incorporation of the Company or the
Company's Bylaws that would change the voting rights of stockholders, the number
or classes of directors, or the notice and quorum requirements for meetings of
the Board of Directors, its committees or the shareholders; (ii) a merger or
sale of all or substantially all of the assets of the Company; (iii) the
designation or issuance of any preferred stock and (iv) any amendments to the
operating guidelines described below (collectively, the "Supermajority
Provisions").  The Stockholders' Voting Agreement terminates May 1, 2004 or
sooner if the employment of Ms. Little, Mr. Little and Mr. Lischak is
terminated.  In addition, the right of Ms. Little and Mr. Little, and of the
Initial Stockholders, to designate directors (but not the obligation to vote for
the designees of others) will terminate (i) as to Ms. Little and Mr. Little, (A)
if they (and Mr. Lischak) own less than 794,444 shares of the Company's Common
Stock, they will be entitled to designate only two directors, and (B) if they
(and Mr. Lischak) own less than 20,000 shares, they will not be entitled to
designate any director; or (ii) as to the Initial Stockholders, (A) if they own
less than 175,000 shares of the Company's Common Stock, they will be entitled to
designate only two directors, (B) if they own less than 125,000 shares, they
will be entitled to designate only one director, and (C) if they own less than
20,000 shares, they will not be entitled to designate any director.  In October
1996, operating guidelines for the Board of Directors and management of the
Company were established setting forth certain general guidelines with respect
to the authority and responsibilities of officers of the Company, the structure
and responsibilities of the Board of Directors and the Executive Committee of
the Company, and certain other general business matters.  The Board of Directors
has also adopted operating resolutions implementing the Supermajority
Provisions.


                                          46
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the 
"Exchange Act") requires the Company's directors and executive officers and 
persons who own more than 10% of the Company's Common Stock ("10% 
Stockholders") to file with the Securities and Exchange Commission (the 
"Commission") initial reports of ownership and reports of changes in 
ownership of Common Stock and other equity securities of the Company.  
Executive officers, directors and 10% Stockholders of the Company are 
required by Commission regulations to furnish the Company with copies of 
Section 16(a) forms they file. To the Company's knowledge based solely upon a 
review of the Forms 3 and 4 and amendments thereto furnished to the Company 
during its most recent fiscal year, the Forms 5 furnished to the Company with 
respect to its most recent fiscal year, and written representations of the 
Company's directors, executive officers and 10% Stockholders, during the 
fiscal year ended December 31, 1997, all Section 16(a) filing requirements 
applicable to the Company's executive officers, directors and 10% 
Stockholders were complied with except:  (i) the Form 3 for Christopher 
Trunkey, who became an executive officer on September 2, 1997 was not filed 
with the Commission until October 1, 1997, and (ii) the Form 5 for William 
Lischak with respect to the Company's last fiscal year failed to reflect a 
gift by Mr. Lischak to a third party of 1,000 shares of Common Stock.

ITEM 11.  EXECUTIVE COMPENSATION

     The following "Summary Compensation Table" sets forth individual
compensation information with respect to the Company's Co-Chief Executive
Officers (Ellen Dinerman Little and Robert B. Little), and two other executive
officers of the Company during the fiscal year ended December 31, 1997 whose
total salary and bonus compensation during fiscal 1997 from the Company was in
excess of $100,000 (William F. Lischak and M.J. Peckos).  Such four executives
are referred to herein as the "Named Executives."  With respect to the four
Named Executives, the Summary Compensation Table provides compensation
information for services rendered to the Company during the fiscal years ended
December 31, 1995, 1996 and 1997 respectively.  The Summary Compensation Table
does not include distributions made to the stockholders of Pre-Merger Overseas.

     Following the Summary Compensation Table is a table that indicates whether
any of the Named Executives exercised options in fiscal 1997 and includes the
number and value of unexercised options held by the Named Executives at December
31, 1997.  No stock options or stock appreciation rights were granted to the
Named Executives in 1997.

                            SUMMARY COMPENSATION TABLE*


                                          47
<PAGE>

<TABLE>
<CAPTION>
                                                                                      LONG TERM 
                                                                                     COMPENSATION
                                                       ANNUAL COMPENSATION              AWARDS
                                             --------------------------------------     ------
                                                                       OTHER ANNUAL   SECURITIES        
                                                                       COMPENSATION   UNDERLYING     
NAME AND                                                                               OPTIONS/        ALL OTHER
PRINCIPAL POSITION                   YEAR    SALARY ($)    BONUS ($)        ($)         SARS(#)     COMPENSATION($)
------------------                   -----   ----------    ---------        ---         -------     ---------------
<S>                                  <C>      <C>           <C>          <C>            <C>            <C>
ROBERT B. LITTLE                      1997    $125,000      $27,404(13)   $40,511(9)         0             $16,695(11)
CO-CHAIRMAN OF THE BOARD              1996     110,158       25,000(14)      --  (1)     1,100,000          18,858(2)
 AND CO- CHIEF EXECUTIVE OFFICER      1995      90,000            0        37,709(3)         0              16,455(4)

ELLEN DINERMAN LITTLE                 1997     125,000       27,404(13)    27,184(10)         0             23,892(12)
CO-CHAIRMAN OF THE BOARD, CO-CHIEF    1996     110,457       25,000(14)      --  (1)     1,100,000          24,812(5)
 EXECUTIVE OFFICER AND PRESIDENT      1995      90,000            0        38,720(6)         0              30,134(4)


WILLIAM F. LISCHAK                    1997     175,000       53,365          --  (1)         0               9,410(8)
CHIEF OPERATING OFFICER, CHIEF        1996     137,198      212,500          --  (1)         0               2,994(7)
 FINANCIAL OFFICER AND SECRETARY      1995     118,933       75,090          --  (1)         0                 519(7)

MJ PECKOS                             1997     156,483       20,000          --  (1)         0               2,923(7)
SENIOR VICE PRESIDENT                 1996     126,100       40,000          --  (1)         0               2,922(7)
                                      1995      67,976            0          --  (1)         0                 434(7)
</TABLE>

--------


     (1)  Perquisites with respect to such Named Executive did not exceed the
lesser of $50,000 or 10% of such executive officer's salary and bonus.

     (2)  Represents $2,049 for the Company's contributions on behalf of such
Named Executive pursuant to the Company's 401(k) Plan and $16,809 for life
insurance premiums paid by the Company for the benefit of such Named Executive.

     (3)  Includes $13,959 for automobile lease payments and maintenance
expenses and $23,750 representing one-half the cost of a home sound system.

     (4)  Represents life insurance premiums paid by the Company for the benefit
of such Named Executive.

     (5)  Represents $2,049 for the Company's contribution on behalf of such
Named Executive pursuant to the Company's 401(k) Plan and $22,763 for life
insurance premiums paid by the Company for the benefit of such Named Executive.

     (6)  Includes $14,970 for automobile payments and $23,750 representing
one-half the cost of a home sound system.

     (7)  Represents the Company's contributions on behalf of such Named
Executive pursuant to the Company's 401(k) Plan.

     (8)  Represents $3,256 in contributions made by the Company on behalf of 
such Named Executive pursuant to the Company's 401(k) Plan, $4,622 for life 
insurance premiums paid by the Company for the benefit of such Named 
Executive, and $1,532 for disability insurance premiums paid by the Company 
for the benefit of such Named Executive.

                                          48
<PAGE>

     (9)  Includes $13,499 for automobile lease payments, $25,301 of business 
management and accounting fees paid on behalf of such Named Executive by the 
Company.

     (10) Includes $25,301 of business management and accounting fees paid on
behalf of such Named Executive by the Company.

     (11) Represents $2,625 in contributions made by the Company on behalf of 
such Named Executive pursuant to the Company's 401(k) Plan, $2,131 
representing reimbursement of disability insurance premiums paid by the 
Company for the benefit of such Named Executive and $11,939 in life insurance 
premiums for which the Named Executive is entitled to reimbursement by the 
Company.

     (12) Represents $2,633 in contributions made by the Company on behalf of 
such Named Executive pursuant to the Company's 401(k) Plan, $2,353 
representing reimbursement of disability insurance premiums paid by the 
Company for the benefit of such Named Executive and $18,906 in life insurance 
premiums for which the Named Executive is entitled to reimbursement by the 
Company.

     (13) Includes bonuses of $25,000 earned by each of such Named Executives 
in 1997 but which have not been paid to the Named Executive as of the date of 
the filing of this Report with the Securities and Exchange Commission.

     (14) Represents bonuses earned by each of such Named Executives in 1996 
but which have not been paid to the Named Executive as of the date of the 
filing of this report with the Securities and Exchange Commission. 

                      * AGGREGATED OPTION/SAR EXERCISES IN LAST
                 FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES(1)

<TABLE>
<CAPTION>
    NAME                        SHARES         VALUE          NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                             ACQUIRED ON      REALIZED       UNDERLYING UNEXERCISED      IN-THE-MONEY OPTIONS/SARS
                                EXERCISE        ($)             OPTIONS/SARS AT            AT DECEMBER 31, 1997
                                  (#)                          DECEMBER 31, 1997                 EXERCISABLE
                                                            EXERCISABLE/UNEXERCISABLE          /UNEXERCISABLE
                                                                     (#)                              ($)
<S>                          <C>             <C>           <C>                           <C>
 Ellen Dinerman Little             0           $ 0              300,000/800,000                      $0/0

 Robert B. Little                  0            0               300,000/800,000                       0/0


 William F. Lischak                0            0                    0 (2)                             0


 MJ Peckos                         0            0                    0 (2)                             0
</TABLE>


     (1)  Although the Company's 1996 Basic Stock Option and Stock Appreciation
          Rights Plan provides for the granting of stock appreciation rights, no
          grant of such rights has been made by the Company.

     (2)  The Named Executive did not hold any options at December 31, 1997.

BOARD FEES

     Pursuant to the Automatic Option Grant Program under the Company's 1996
Basic Stock Option and Stock Appreciation Rights Plan, each individual serving
as a non-employee Board member on October 31, 1996 (Messrs. Bannon, Fracassi,
Rochlis and Vorse) was automatically granted a non-qualified option to purchase
5,000 shares of the Company's Common Stock.  In addition, each member of the
Board of Directors who is not employed by the Company receives an automatic
grant of a non-qualified option to purchase 5,000 shares of the Company's Common
Stock (i) upon becoming a Board member, whether through election at a meeting of
the Company's stockholders or through appointment by the Board of Directors, and
(ii) on the date of each annual meeting of stockholders, if such individual is
to continue to serve as a Board member after such meeting.  Each such automatic
option grant is, among other things, exercisable at the fair market value of the
Common Stock on the date of the automatic grant and is generally exercisable
after completion of one year of service to the Board of Directors measured from
the automatic grant date.  In addition, the Company reimburses all directors for
travel and related expenses incurred in connection with their activities on
behalf of the Company. Directors of the Company are not otherwise compensated
for serving on the Board of Directors.

     Please see "Item 13 - Certain Relationships and Related Transactions" for a
description of certain transactions involving certain directors and their
affiliates and the Company and its affiliates.

                                          49





<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company's Compensation Committee was established in October 1996 and 
currently consists of Messrs. Bannon and Vorse.  Mr. Bannon was Chairman of 
the Board of Directors of EMAC during 1996 until consummation of the Merger 
and currently serves as Vice Chairman of the Company's Board of Directors and 
Chairman of its Executive Committee.  Mr. Vorse served as Vice President, 
Treasurer, and Secretary of EMAC during 1996 through consummation of the 
Merger. The Compensation Committee currently administers both of the 
Company's stock option plans to the extent contemplated thereby.

INDEMNIFICATION

     The Company has entered into indemnification agreements with its 
directors (including those who are also executive officers) providing for 
indemnification by the Company, including in circumstances in which 
indemnification is otherwise discretionary under Delaware law.  These 
agreements constitute binding agreements between the Company and each of the 
parties thereto, thus preventing the Company from modifying its 
indemnification policy in a way that is adverse to any person who is a party 
to such an agreement.

EMPLOYMENT AND RELATED AGREEMENTS

     ELLEN DINERMAN LITTLE AND ROBERT B. LITTLE. Virtually all decisions 
concerning the conduct of the business of the Company, including the motion 
picture properties and rights to be acquired by the Company and the 
arrangements to be made for the distribution, production and financing of 
motion pictures by the Company, are made or are significantly influenced by 
the Company's senior executive officers, Ellen Dinerman Little and Robert B. 
Little.  The loss of either of their services for any reason would have a 
material adverse effect on the Company's business and operations and its 
prospects for the future.  In addition, the Company's credit facility 
contains covenants and similar provisions, generally requiring Ms. Little and 
Mr. Little's continued involvement with, and control of, the Company. Ms. 
Little and Mr. Little each have an employment agreement with the Company with 
a five year term which commenced on October 31, 1996 and ends on October 30, 
2001.  Ms. Little's and Mr. Little's employment agreements provide for them 
to serve as Co-Chairs of the Board of Directors, members of the Executive 
Committee of the Board of Directors, and Co-Chief Executive Officers of the 
Company.  Under Ms. Little's employment agreement, she also serves as 
President of the Company.  Pursuant to these employment agreements, they each 
receive fixed annual compensation of $125,000 and are entitled to an annual 
bonus of $25,000, plus such additional bonus, if any, as may be awarded to 
them by the Company's Board of Directors or compensation or similar 
committee, with Ms. Little and Mr. Little abstaining from any vote thereon.  
The employment agreements also provide for certain benefits including, among 
other things, life, disability and health insurance, and an automobile 
allowance.  In the event that the relevant employment agreement is terminated 
by Ms. Little or Mr. Little for Good Reason (as defined in the employment 
agreements and which includes certain changes in control of the Company), or 
by the Company other than for Cause (as defined in the employment 
agreements), she or he will receive (a) a lump-sum payment equal to 250% of 
the greater of (i) the aggregate of all fixed annual compensation to which 
she or he would otherwise have been entitled through the balance of the term 
or (ii) an amount equal to the fixed annual compensation and annual bonus for 
one full year; (b) a lump-sum payment equal to 250% of the aggregate of all 
annual bonuses to which she or he would otherwise have been entitled through 
the balance of the term; (c) such additional payments as may be necessary to 
take into account and reimburse her or him for certain excise taxes which may 
be applicable to payments and benefits relating to such termination; (d) for 
the remainder of the term, life, disability and health insurance and

                                          50
<PAGE>

other benefits substantially similar to those received prior to termination; 
and (e) automatic vesting of any stock options held.  Such termination of the 
relevant employment agreement would also constitute an event of default under 
a $2,000,000, five-year, secured promissory note issued by the Company to Ms. 
Little and Mr. Little as part of their consideration in the Merger (the 
"Merger Note"). In the event of the death or permanent disability of Ms. 
Little or Mr. Little, she or he will be entitled to a disability benefit or 
death benefit to the deceased's estate equal to the product of two times (i) 
the aggregate fixed annual compensation that they were entitled to receive 
for the full employment year in which the disability or death occurs, plus 
(ii) an amount equal to the annual bonus.

     In addition to their employment agreements, each of Ellen Dinerman 
Little and Robert B. Little have entered into a Non-Competition Agreement, 
pursuant to which she or he have agreed, for a period of five years ending 
October 31, 2001, not to (i) own, manage, operate or control any business 
that competes with the business of the Company (other than motion picture 
production activities and activities that are specifically permitted under 
their employment agreements, and other than the right to hold de minimis 
investments in publicly-held companies) or (ii) solicit any Company employee 
or interfere with the relationship of the Company with any employee, 
customer, supplier or lessee. The non-competition obligations terminate 
earlier than October 31, 2001 if the individual party's employment is 
terminated by him or her for Good Reason or by the Company other than for 
Cause (as such terms are defined in their employment agreements), or if the 
Company fails to pay any amount due under the Merger Note at a time when Ms. 
Little and Mr. Little do not control a majority of the Board of Directors of 
the Company.

     WILLIAM F. LISCHAK.  William F. Lischak has an employment agreement with
the Company with a five year term which commenced on October 31, 1996 and ends
on October 30, 2001 and which provides for his services as Chief Operating
Officer and Chief Financial Officer of the Company.  Under the agreement, Mr.
Lischak receives an annual base salary of $175,000 for each of the first two
years of the term, $200,000 for the third and fourth years of the term and
$225,000 in the final year of the term.  In addition, Mr. Lischak is entitled to
a guaranteed bonus of $50,000 per year payable in quarterly installments, plus
such additional bonus, if any, as may be awarded to Mr. Lischak by the Company's
Board of Directors or compensation or similar committee.  Mr. Lischak also is
entitled to certain benefits including, among other things, certain health, life
and disability insurance benefits, and an automobile allowance.  In the event of
a material uncured breach by the Company of his employment agreement, Mr.
Lischak is entitled to terminate the employment agreement and to receive his
base salary, fixed annual bonus, health, life and disability insurance benefits
due under the agreement through the remainder of the five-year term, and any
stock options held by Mr. Lischak will vest on the date of termination.

CERTAIN INFORMATION CONCERNING STOCK OPTION PLANS

     The Company has two stock-based incentive compensation plans for the
Company's employees, directors and certain other persons providing services to
the Company: the 1996 Special Stock Option Plan and Agreement (the "Management
Option Plan") and the 1996 Basic Stock Option and Stock Appreciation Rights Plan
(the "Basic Plan") (collectively, the "Plans"). The Management Option Plan is a
primary vehicle for providing equity incentives to the Company's two principal
executive officers, Ellen Dinerman Little and Robert B. Little.  Under the
Management Option Plan, on October 31, 1996, each of Ms. Little and Mr. Little
was granted two non-qualified options for a total of 1,100,000 shares each of
Common Stock: one option for 537,500 shares of Common Stock at an exercise price
of $5.00 per share (exercisable on October 31, 1996 for 100,000 shares with the
balance vesting in five equal annual installments beginning on October 30, 1997)
and one option for 562,500 shares at an exercise price of $8.50 per share
(vesting in five equal annual installments beginning on October 30, 1997). All
2,200,000 shares of Common Stock initially reserved for issuance under the
Management Option Plan were subject


                                          51
<PAGE>

to the options granted to Ms. Little and Mr. Little.  Regular full-time 
employees of the Company, non-employee members of the Company's Board of 
Directors, and independent consultants and other persons who provide services 
on a regular or substantial basis to the Company are generally eligible to 
participate in the Basic Plan (under which 550,000 shares of Common Stock are 
reserved for issuance). As of April 15, 1998, options to purchase an 
aggregate of 40,000 shares of Common Stock were outstanding under the Basic 
Plan, of which options to purchase 20,000 shares of Common Stock have an 
exercise price of $5.25 per share and options to purchase 20,000 shares of 
Common Stock have an exercise price of $2.375 per share. The Plans are 
currently administered by the Compensation Committee to the extent 
contemplated by the respective Plans.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information regarding the 
beneficial ownership of the Company's Common Stock as of April 15, 1998 by 
(i) each person known to the Company to be the beneficial owner of more than 
5% of the Company's Common Stock, (ii) each current director of the Company, 
(iii) each of the Named Executives listed in the Summary Compensation Table 
under "Item 11- Executive Compensation" above, and (iv) all current executive 
officers and directors of the Company as a group.  The number of shares and 
percentages in the table and accompanying footnotes are based upon 5,732,778 
shares of Common Stock outstanding as of April 15, 1998.  The shares of 
Common Stock underlying immediately exercisable options, warrants or rights, 
or immediately convertible securities, or shares of Common Stock underlying 
options, warrants, rights or convertible securities that become exercisable 
or convertible within 60 days of April 15, 1998, are deemed to be outstanding 
for the purpose of calculating the number and percentage beneficially owned 
by the holder of such options, warrants, rights or convertible securities, 
but are not deemed to be outstanding for the purpose of computing the 
percentage beneficially owned by any other person.  Unless otherwise 
indicated in the footnotes following the table, the person as to whom the 
information is given had, based upon information furnished by such persons, 
sole voting and investment power over the shares of Common Stock shown as 
beneficially owned by them, subject to community property laws where 
applicable.

                                          52
<PAGE>

<TABLE>
<CAPTION>
 

                                                                               PERCENT OF
                                                    NUMBER OF SHARES          COMMON STOCK
                                                     OF COMMON STOCK          BENEFICIALLY
NAME                                               BENEFICIALLY OWNED             OWNED
----                                               ------------------             -----
<S>                                                <C>                        <C>
Ellen Dinerman Little (1). . . . . . . . . . . . .     3,802,778 (2)               60%
Robert B. Little (1) . . . . . . . . . . . . . . .     3,802,778 (2)               60%
Stephen K. Bannon  . . . . . . . . . . . . . . . .       126,324 (3)              2.2%
William F. Lischak . . . . . . . . . . . . . . . .       249,560 (4)              4.4%
MJ Peckos. . . . . . . . . . . . . . . . . . . . .             0                    0%
Christopher Trunkey. . . . . . . . . . . . . . . .             0                    0%
Alessandro Fracassi. . . . . . . . . . . . . . . .         5,000 (3)                *
Jeffrey A. Rochlis . . . . . . . . . . . . . . . .       137,353 (3)(5)           2.5%
Scot K. Vorse. . . . . . . . . . . . . . . . . . .       131,323 (3)              2.4%
Kingdon Capital Management Corporation (6) . . . .       747,000 (7)               12%
Dolphin Offshore Partners, L.P. (8). . . . . . . .     1,067,000 (9)             17.6%
All current executive officers
  and directors as a
  group (9 persons). . . . . . . . . . . . . . . .     4,201,778 (10)             66.1%
</TABLE>
 

---------------------
* less than one percent

(1)  Such person's business address is in care of the Company, 8800 Sunset
     Boulevard, Third Floor, Los Angeles, California 90069.

(2)  Includes (i) 2,953,218 shares of Common Stock held by Ellen Dinerman Little
     and Robert B. Little as community property in a revocable living trust,
     (ii) the right to vote 249,560 shares of Common Stock pursuant to an
     irrevocable proxy granted to Ms. Little and Mr. Little by Mr. Lischak,
     (iii) 300,000 shares of Common Stock subject to immediately exercicsable
     options granted to such person under the Management Option Plan, and (iv)
     300,000 shares of Common Stock subject to immediately exercisable options
     granted to such person's spouse under the Management Option Plan which
     generally may only be exercised by such person's spouse (although such
     person disclaims beneficial ownership of the shares subject to his or her
     spouse's options).  Does not include (a) 800,000 shares of Common Stock
     subject to options granted to such person under the Management Option Plan
     or 800,000 shares of Common Stock subject to options granted to such
     person's spouse under the Management Option Plan, the exercisability of
     which, in each case, is subject to certain vesting requirements, or (b)
     132,353 shares of Common Stock pledged to Ms. Little and Mr. Little by
     Jeffrey A. Rochlis to secure a loan from the Littles to Mr. Rochlis.  Mr.
     Rochlis has retained the voting rights with respect to the pledged shares.
     See footnote (5) below.  The proxy granted to Ms. Little and Mr. Little by
     Mr. Lischak will continue during Mr. Lischak's ownership of the shares,
     until the October 30, 2001 (the "Expiration Date"); provided, however, that
     such proxy terminates earlier if the Littles own or control less than five
     percent of the outstanding voting power of the Company, or if the shares to
     which the proxy relates are sold in the public market.  In addition until
     the Expiration Date, Ms. Little and Mr. Little also have, under certain
     circumstances, certain rights to acquire (while the


                                          53
<PAGE>

     shares are held by Mr. Lischak) the 249,560 shares of Common Stock held by
     Mr. Lischak.  See footnote (4) below.

(3)  Includes 5,000 shares of Common Stock subject to immediately exercisable
     option granted pursuant to the Basic Plan.

(4)  All the shares indicated are subject in the event of transfer (including
     voluntary and certain involuntary transfers) to a right of first refusal or
     option to purchase at the then current market price (and a right of
     repurchase at $2.00 per share in the event Mr. Lischak's employment with
     the Company terminates for a reason other than death, disability or the
     Company's material breach of Mr. Lischak's employment agreement) in favor
     of Ellen Dinerman Little and Robert B. Little during Mr. Lischak's
     ownership of such shares until the Expiration Date.  In addition, Mr.
     Lischak has granted the right to vote all such shares to the Littles
     pursuant to an irrevocable proxy which continues during Mr. Lischak's
     ownership of the shares until the Expiration Date, subject to earlier
     termination in certain circumstances.  See footnote (2) above.

(5)  Of the shares indicated, 132,353 shares have been pledged to Ms. Little and
     Mr. Little to secure a $50,000 loan from the Littles to Mr. Rochlis, due
     May 31, 1998 and bearing interest at the rate of 10% per annum.  Mr. 
     Rochlis has retained the voting rights with respect to the pledged shares.

(6)  The address of Kingdon Capital Management Corporation is 152 West 57th
     Street, New York, New York 10019.

(7)  Includes 498,000 shares of Common Stock issuable upon exercise of Warrants.
     Information provided herein was obtained from a Schedule a 13D filed with
     the Securities and Exchange Commission in March 1995 by Kingdon Capital
     Management Corporation.

(8)  The General Partner of Dolphin Offshore Partners is Peter E. Salas, and the
     address of Mr. Salas and Dolphin Offshore Partners, L.P. is c/o Dolphin
     Management, 129 East 17th Street, New York, New York 10003.

(9)  Includes 328,000 shares of Common Stock issuable upon exercise of Warrants.
     Information provided herein was obtained from the General Partner of
     Dolphin Offshore Partners, L.P.

(10) Includes 300,000 shares of Common Stock subject to immediately exercisable
     options granted to Ellen Dinerman Little under the Management Option Plan,
     300,000 shares of Common Stock subject to immediately exercisable options
     granted to Robert B. Little under the Management Option Plan, and an
     aggregate of 20,000 shares of Common Stock subject to immediately
     exercisable option granted to Messrs. Bannon, Fracassi, Rochlis and Vorse
     under the Basic Plan.

     Pursuant to a Lock-Up and Registration Rights Agreement, dated October 31,
1996, by and among the Company, Ms. Little, Mr. Little and Mr. Lischak, each
such person has agreed not to sell, or otherwise dispose of (except for estate
planning purposes and other limited exceptions), any shares received by them in
the Merger (2,928,218 shares held by the Littles and 249,560 shares held by Mr.
Lischak) (the "Merger Shares") for a period which commenced on October 31, 1996
and ends in three equal installments on February 16, 1998, February 16, 1999 and
February 16, 2000. The lock-up will terminate earlier (i) with respect to an
individual, if such person's employment with the Company is terminated Without
Cause by the Company or for Good Reason by such person (as such terms are
defined in their respective employment agreements with the Company); (ii) with
respect to 10% of the Merger


                                          54
<PAGE>

Shares subject to the Lock-Up and Registration Rights Agreement if both Littles
are deceased; (iii) with respect to any Merger Shares held by Mr. Lischak that
are purchased by Ms. Little or Mr. Little or their designees pursuant to any
right of first refusal or repurchase agreement; (iv) with respect to any Merger
Shares surrendered in satisfaction of any indemnification obligation under the
Merger Agreement; and (v) with respect to a number of Merger Shares equal in
value to the outstanding principal balance (plus interest) of the Merger Note,
if the Company fails to pay any amount due under such note.

     Pursuant to the Lock-Up and Registration Rights Agreement, the Littles and
Mr. Lischak have the right on three occasions (but not more than once in any
18-month period) to require the Company, at its expense, to file a registration
statement under the Securities Act for the registration of a minimum of 250,000
of the Merger Shares released to them from the lock-up.  These demand rights
terminate, as to one demand, on October 30, 2004; as to the second demand, on
October 30, 2008; and as to the third demand, on October 30, 2011.  In addition,
the Littles and Mr. Lischak have unlimited "piggyback" rights in connection with
registration statements filed by the Company under the Securities Act until
October 30, 2004.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     On October 31, 1996, as part of the consideration to them in the Merger, 
Ellen Dinerman Little (Co-Chairman of the Board, Co-Chief Executive Officer 
and President of the Company) and Robert B. Little (Co-Chairman of the Board 
and Co-Chief Executive Officer of the Company) received the Merger Note, a 
$2,000,000 secured promissory note of the Company, bearing interest at the 
rate of 9% per annum, with principal and interest payable in monthly 
installments of $41,517 over a five year period ending October 1, 2001.  The 
Merger Note is secured by a security interest (subordinate to the security 
interest of the Company's commercial lenders) in substantially all of the 
Company's assets.  In connection with the Facility Amendment and the 
negotiations for such amendment, Ms. Little and Mr. Little agreed to defer 
receipt of payments under the Merger Note. See Item 7, "Managements 
Discussions and Analysis of Financial Condition and Results of 
Operations--Liquidity and Capital Resources". Payments under the Merger Note 
accrue, but payment is deferred until outstanding borrowings under the 
Operating Facility portion of the Credit Facility are reduced to at least 
$5,000,000, the Company and the Lenders view such reduction as permanent, and 
not before May 1999. The Merger Note will be extended for the period of time 
payments are deferred, the deferred payments will continue to bear interest, 
and the monthly payments will be adjusted to compensate for additional 
interest acrued pursuant to the deferral of payments.  The rights of Ms. 
Little and Mr. Little under the Merger Note and related security agreement 
are not otherwise affected.  During 1997, an aggregate of approximately 
$207,583 in principal and interest was paid to the Littles under the Merger 
Note and an aggregate of approximately $290,616 was deferred. At April 15, 
1998, the aggregate amount outstanding (including accrued interest) under 
such promissory note was approximately $1,940,097 (including an aggregate of 
approximately $456,684 in previously deferred payments of principal and 
interest).

     Pursuant to the Merger, on October 31, 1996, the Littles also received 
an unsecured promissory note of the Company in the principal amount of 
$137,061 representing the cash value on such date of certain life insurance 
policies the ownership of which was transferred to the Company on Merger, and 
under which the Company was named as the beneficiary.  This promissory note 
bears interest at the rate of 9% per annum, with principal and accrued 
interest payable on October 31, 1997. The promissory note matured on October 
31, 1997 and is currently due and payable to the Littles. At April 15, 1998, 
the aggregate amount outstanding (including accrued interest) under such 
promissory note was approximately $155,455. 

     In December 1997 and February 1998, Ms. Little and Mr. Little loaned the 
Company an aggregate of $400,000 in order to provide a portion of the funds 
required by Company for the print and advertising costs associated with the 
domestic theatrical release by the Company of "MRS. DALLOWAY."  The loan is 
secured by a security interest in domestic revenues from "MRS. DALLOWAY"  
(currently subordinate to the security interest of the Company's commercial 
lenders), bears interest at the rate of 9% per annum, and is to be repaid as 
and when revenues from "MRS. DALLOWAY" and "DIFFERENT FOR GIRLS" are received 
by the Company (after repayment of a Film Facility related to the acquisition 
of domestic rights to both DIFFERENT FOR GIRLS and MRS. DALLOWAY and print 
and advertising costs lent by the lenders with respect to DIFFERENT FOR 
GIRLS). At April 15, 1998, the aggregate amount outstanding (including 
accrued interest) pursuant to such loan was approximately $407,500.

     Neo Motion Pictures, Inc., a California corporation ("Neo") involved in 
the production of motion pictures, provided (on a non-exclusive basis) 
production services with respect to approximately 12 motion pictures for 
Pre-Merger Overseas from 1989 through the date of Merger and

                                          55
<PAGE>

may provide production services to motion pictures for Company in the future. 
As permitted by his employment agreement with the Company, Mr. Little 
performs consulting services for Neo. During 1997, no consulting fees were 
paid by Neo to Mr. Little, although, at April 15, 1998, Neo owed Mr. Little 
$269,121 in accrued but unpaid consulting fees.  Mr. Little and the Company 
co-own an option to acquire a fifty percent interest in Neo for a purchase 
price of less than $60,000. The Company has guaranteed payment by Neo of a 
promissory note payable to a third party on September 1998 (extended from May 
9, 1997), under which an aggregate of approximately $223,939 in principal and 
accrued interest was outstanding as of April 15, 1998.

     Alessandro Fracassi, a Director of the Company, is the sole owner of
Original Film Company, an Italian corporation ("Original"), which owns or
controls, together with certain of its affiliates, distribution rights to 13
motion pictures for which the Company acts as sales agent pursuant to various
agreements. In exchange for licensing distribution rights to such films on
behalf of Original and its affiliates, the Company receives a sales agency fee
generally ranging from 5% to 15% of the revenues generated by such licensing,
depending on the film. During 1997, sales or licenses of distribution rights to
such films by the Company generated less than $5,000 of gross revenues to the 
Company.

     Mr. Fracassi is also the President and owner of Racing Pictures s.r.l., 
an Italian corporation ("Racing Pictures") which is engaged in the production 
and distribution of motion pictures. In 1990 and 1991, Pre-Merger Overseas 
licensed to Racing Pictures various distribution rights (primarily Italian 
television and video distribution rights) to approximately 86 motion pictures 
which the Company owns or for which the Company controls various distribution 
or sales agency rights. The licenses, which generally have terms of six to 
twelve years, obligated Racing Pictures to pay aggregate minimum guarantees 
of approximately $2,900,000 to Pre-Merger Overseas. With respect to video 
distribution rights granted to Racing Pictures pursuant to such licenses, the 
Company is generally entitled to a 25% royalty on all gross receipts of 
Racing Pictures relating to Racing Pictures' exploitation of such video 
distribution rights. With respect to television rights granted to Racing 
Pictures pursuant to such licenses, Racing Pictures is generally entitled to 
a distribution fee of 25% of gross receipts from exploitation of such 
television rights and recoupment of all Racing Pictures' distribution 
expenses. The Company is entitled to the balance of the gross receipts of 
Racing Pictures from exploitation of the television rights. Both the video 
royalty payable to the Company and the Company's share of the gross receipts 
from Racing Pictures' exploitation of the television rights are applied first 
to Racing Pictures' recoupment of the minimum guarantees. In September 1996, 
the Company and Racing Pictures agreed that $413,000 in then past due minimum 
guarantees owed by Racing Pictures to the Company were to be paid to the 
Company, without interest, by September 30, 1998.  In 1997, $132,000 of such 
amount was paid by Racing Pictures to the Company, all with respect to films 
for which the Company owns the copyright. Upon payment by Racing Pictures of 
the remaining $281,000 of such minimum guarantees to the Company, the Company 
would be entitled to retain approximately $48,575 of the total amount as 
distribution fees, with the remainder of such amount to be paid to the 
various parties from which distribution rights to the films licensed to 
Racing Pictures were acquired.

     Racing Pictures also owns or controls distribution rights to three 
motion pictures for which the Company acts as sales agent or distributor 
pursuant to various agreements. In exchange for licensing distribution rights 
in such films, the Company receives a fee generally ranging from 10% to 20% 
of the revenues generated by such licensing, depending on the film. During 
1997, sales or licenses of distribution rights to such films by the Company 
generated $258,800 in total revenues, of which, the Company retained $165,000 
($33,000 as fees and $132,000 as an offset against the minimum guarantees due 
from Racing Pictures as described above).

     In connection with the Merger, the Company entered into the Tax
Reimbursement Agreement with Ellen Dinerman Little, Robert B. Little and
William F. Lischak (Chief Operating


                                          56
<PAGE>

Officer, Chief Financial Officer, Secretary and a Director of the Company). 
During 1997, no payments were made pursuant to the Tax Reimbursement 
Agreement, although the Company and the Littles are discussing the amount of 
payments due the Littles under the provisions of the Tax Reimbursement 
Agreement. The Company currently estimates $200,000 will be payable to the 
Littles. See "Item 7 -- Management's Discussion and Analysis of Financial 
Condition and Results of Operations -- Certain Tax Related Matters" for 
additional information regarding the Tax Reimbursement Agreement and the 
payment due to the Littles. 
 

      Mr. Lischak and his spouse own BLAH, Inc. which, until March 1, 1998
provided the production executive services of Mr. Lischak's spouse to the
Company in accordance with a Loan-Out Agreement dated as of March 11, 1996,
(the "Loan-Out Agreement"). Pursuant to the Loan-Out Agreement, BLAH, Inc. 
received an aggregate of $73,200 in 1997.  By agreement of BLAH, Inc. and the 
Company, an additional $6,400 payable to BLAH, Inc. with respect to 1997 was 
deferred without interest, until January 7, 1998 when it was paid in full.

                                          57
<PAGE>

                                       PART IV

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

     (a)1.     INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                      Page(s) in
                                                                       Form 10-k
                                                                       ---------
               <S>                                                    <C>
               Report of Independent Accountants . . . . . . . . .        F-1

               Consolidated Financial Statements:

               Consolidated Balance Sheets - December 31, 1996
                 and 1997. . . . . . . . . . . . . . . . . . . . .        F-2

               Consolidated Statements of Operations - Years Ended
                 December 31, 1995, 1996 and 1997. . . . . . . . .        F-3

               Consolidated Statements of Shareholders' Equity -
                 Years Ended December 31, 1995, 1996 and 1997. . .        F-4

               Consolidated Statements of Cash Flows - Years
                 Ended December 31, 1995, 1996 and 1997. . . . . .        F-5

               Notes to Consolidated Financial Statements. . . . .        F-6
</TABLE>


     (a)2.     INDEX TO FINANCIAL STATEMENTS SCHEDULES


               The schedules for which provision is made in the
               applicable accounting regulations of the Securities
               and Exchange Commission (the "Commission") are included 
               in the respective financial statements or notes thereto 
               or are not required under the related instructions or 
               are inapplicable, and therefore have been omitted.

     (a)3.     EXHIBITS

<TABLE>
<CAPTION>
                    EXHIBIT
                    NUMBER                        DESCRIPTION
                    ------                        -----------
                    <S>       <C>
                     3.1      Restated Certificate of Incorporation.
                               Incorporated by reference to Exhibit 3.1 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                     3.2      Bylaws.  Incorporated by reference to Exhibit 3.2
                               to the


                                          58
<PAGE>
<CAPTION>
                    EXHIBIT
                    NUMBER                        DESCRIPTION
                    ------                        -----------

                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                     4.1      Form of Common Stock Certificate.  Incorporated by
                               reference to Exhibit 4.1 to the Company's Current
                               Report on Form 8-K, dated October 25, 1996, filed
                               with the Commission on November 12, 1996.

                     4.2      Form of Warrant Certificate.  Incorporated by
                               reference to Exhibit 4.2 to the Company's
                               Registration Statement on Form S-1, Registration
                               No. 33-83624.

                     4.3      Form of Unit Purchase Option.  Incorporated by
                               reference to Exhibit 4.3 to the Company's
                               Registration Statement on Form S-1, Registration
                               No. 33-83624.

                     4.4      Warrant Agreement between Continental Stock
                               Transfer & Trust Company and the Company.
                               Incorporated by reference to Exhibit 4.4 to the
                               Company's Registration Statement on Form S-1,
                               Registration No. 33-83624.

                     4.5      Letter agreement, dated October 28, 1996, amending
                               the Unit Purchase Options.  Incorporated by
                               reference to Exhibit 4.5 to the Company's Current
                               Report on Form 8-K, dated October 25, 1996, filed
                               with the Commission on November 12, 1996.

                     4.6      Form of Warrant issued in the Company's bridge
                               financing.  Incorporated by reference to Exhibit
                               10.4 to the Company's Registration Statement on
                               Form S-1, Registration No. 33-83624.

                     4.7      Warrant, dated October 31, 1996, for Jefferson
                               Capital Group, Ltd. to purchase shares of Common
                               Stock of the Company.  Incorporated by reference
                               to Exhibit 4.6 to the Company's Current Report on
                               Form 8-K, dated October 25, 1996, filed with the
                               Commission on November 12, 1996.

                    10.1      Secured Promissory Note of the Company, dated
                               October 31, 1996, payable to Robert B. Little and
                               Ellen Dinerman Little.  Incorporated by reference
                               to Exhibit 10.1 to the Company's Current Report on
                               Form 8-K, dated October 25, 1996, filed with the
                               Commission on November 12, 1996.

                    10.2      Indemnity Agreement, dated October 31, 1996,
                               between the Company and Ellen Dinerman Little.
                               Incorporated by


                                          59
<PAGE>
<CAPTION>
                    EXHIBIT
                    NUMBER                        DESCRIPTION
                    ------                        -----------

                               reference to Exhibit 10.2 to the Company's
                               Current Report on Form 8-K, dated October 25,
                               1996, filed with the Commission on November 12,
                               1996.

                    10.3      Indemnity Agreement, dated October 31, 1996,
                               between the Company and Robert B. Little.
                               Incorporated by reference to Exhibit 10.3 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.4      Indemnity Agreement, dated October 31, 1996,
                               between the Company and William F. Lischak.
                               Incorporated by reference to Exhibit 10.4 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.5      Indemnity Agreement, dated October 31, 1996,
                               between the Company and Stephen K. Bannon.
                               Incorporated by reference to Exhibit 10.5 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.6      Indemnity Agreement, dated October 31, 1996,
                               between the Company and Scot K. Vorse.
                               Incorporated by reference to Exhibit 10.6 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.7      Indemnity Agreement, dated October 31, 1996,
                               between the Company and Jeffrey A. Rochlis.
                               Incorporated by reference to Exhibit 10.7 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.8      Indemnity Agreement, dated October 31, 1996,
                               between the Company and Alessandro Fracassi.
                               Incorporated by reference to Exhibit 10.8 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.9      Employment Agreement, dated as of October 31,
                               1996, between the Company and Ellen Dinerman
                               Little.  Incorporated by reference to Exhibit
                               10.9 to the Company's Current Report on Form 8-K,
                               dated October 25, 1996, filed with the Commission
                               on November 12, 1996.


                                          60
<PAGE>
<CAPTION>
                    EXHIBIT
                    NUMBER                        DESCRIPTION
                    ------                        -----------

                    10.10     Employment Agreement, dated as of October 31,
                               1996, between the Company and Robert B. Little.
                               Incorporated by reference to Exhibit 10.10 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.11     Employment Agreement, dated as of October 31,
                               1996, between the Company and William F. Lischak.
                               Incorporated by reference to Exhibit 10.11 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.12     Security Agreement, dated as of October 31, 1996,
                               between the Company and Ellen Dinerman Little and
                               Robert B. Little.  Incorporated by reference to
                               Exhibit 10.12 to the Company's Current Report on
                               Form 8-K, dated October 25, 1996, filed with the
                               Commission on November 12, 1996.

                    10.13     Tax Reimbursement Agreement, dated as of October
                               31, 1996, between the Company, Ellen Dinerman
                               Little, Robert B. Little and William F. Lischak.
                               Incorporated by reference to Exhibit 10.13 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.14     Promissory Note (the "Insurance Note"), dated
                               October 31, 1996, payable to Ellen Dinerman
                               Little and Robert B. Little.  Incorporated by
                               reference to Exhibit 10.14 to the Company's
                               Current Report on Form 8-K, dated October 25,
                               1996, filed with the Commission on November 12,
                               1996.


                                          61
<PAGE>
<CAPTION>
                    EXHIBIT
                    NUMBER                        DESCRIPTION
                    ------                        -----------

                    10.15     Stockholders' Voting Agreement, dated as of
                               October 31, 1996, by and among the Company, Ellen
                               Dinerman Little, Robert B. Little, William F.
                               Lischak, Jeffrey A. Rochlis, Barbara Boyle, the
                               Hoberman Family Trust, John Hyde, Sparta Partners
                               III, Stephen K. Bannon, Scot K. Vorse and Gary M.
                               Stein.  Incorporated by reference to Exhibit
                               10.15 to the Company's Current Report on Form
                               8-K, dated October 25, 1996, filed with the
                               Commission on November 12, 1996.

                    10.16     Lock-Up and Registration Rights Agreement, dated
                               as of October 31, 1996, between the Company and
                               Ellen Dinerman Little, Robert B. Little and
                               William F. Lischak.  Incorporated by reference to
                               Exhibit 10.16 to the Company's Current Report on
                               Form 8-K, dated October 25, 1996, filed with the
                               Commission on November 12, 1996.

                    10.17     Non-Competition Agreement, dated as of October 31,
                               1996, between the Company and Ellen Dinerman
                               Little.  Incorporated by reference to Exhibit
                               10.17 to the Company's Current Report on Form
                               8-K, dated October 25, 1996, filed with the
                               Commission on November 12, 1996.

                    10.18     Non-Competition Agreement, dated as of October 31,
                               1996, between the Company and Robert B. Little.
                               Incorporated by reference to Exhibit 10.18 to the
                               Company's Current Report on Form 8-K, dated
                               October 25, 1996, filed with the Commission on
                               November 12, 1996.

                    10.19     Overseas Filmgroup, Inc. 1996 Special Stock Option
                               Plan and Agreement.  Incorporated by reference to
                               Exhibit 99.1 to the Company's Current Report on
                               Form 8-K, dated October 25, 1996, filed with the
                               Commission on November 12, 1996.

                    10.20     Overseas Filmgroup, Inc. 1996 Basic Stock Option
                               and Stock Appreciation Rights Plan. Incorporated
                               by reference to Exhibit 10.20 to the Company's
                               Annual Report on Form 10-K for the fiscal year
                               ended December 31, 1996.

                    10.21     Agency Agreement, dated as of December 10, 1993,
                               between the Company and GKN Securities Corp., and
                               amendments thereto (without schedules).
                               Incorporated by reference to Exhibit 10.1 to the
                               Company's Registration Statement on Form S-1,
                               Registration No. 33-83624.


                                          62
<PAGE>
<CAPTION>
                    EXHIBIT
                    NUMBER                        DESCRIPTION
                    ------                        -----------

                    10.22     Letter Agreement among certain stockholders of the
                               Company, the Company and GKN Securities Corp.
                               (without schedules).  Incorporated by reference
                               to Exhibit 10.2 to the Company's Registration
                               Statement on Form S-1, Registration No. 33-83624.

                    10.23     Restated and Amended Syndication Agreement dated
                               as of October 31, 1996, among Coutts & Co.,
                               Berliner Bank A.G. London Branch, Overseas
                               Filmgroup, Inc. and Entertainment Media
                               Acquisition Corporation.  Incorporated by
                               reference to Exhibit 10.25 to the Company's
                               Annual Report on Form 10-K for the fiscal year
                               ended December 31, 1996.+

                    10.24     Amendment dated as of April 14, 1998 to 
                               Restated and Amended Syndication Agreement 
                               among Coults & Co., Berliner Bank A.G. London 
                               Branch and Overseas Filmgroup, Inc. Filed 
                               herewith.

                    10.25     Loan Out Agreement dated as of March 11, 1996
                               between the Company and BLAH, Inc. Incorporated
                               by reference to Exhibit 10.27 to the Company's
                               Annual Report on Form 10-K for the year ended
                               December 31, 1996.

                    10.26     Restated Loan Out Agreement dated as of March 11,
                               1996 between the Company and BLAH, Inc. Filed 
                               herewith.

                    10.27     Agreement dated as of September 12, 1996, between
                               the Company and Racing Pictures s.r.l.
                               Incorporated by reference to Exhibit 10.28 to the
                               Company's Annual Report on Form 10-K for the year
                               ended December 31, 1996.

                    10.28     Option Agreement dated as of September 13, 1996,
                               between Robert B. Little and the Company.
                               Incorporated by reference to Exhibit 10.29 to the
                               company's Annual Report on Form 10-K for the year
                               ended December 31, 1996.

                    10.29     Overseas' Filmgroup Lease Agreement dated April 
                               21, 1987, as amended. Incorporated by reference 
                               to Exhibit 10.30 of the Company's Annual Report 
                               on Form 10-K for the year ended December 31, 
                               1996.

                    10.30     Amendment, dated April 1, 1997 to Overseas Filmgroup 
                               Lease Agreement. Filed herewith.

                    10.31     Loan Agreement dated as of February 15, 1998 between 
                              the Company and Ellen Dinerman Little and Robert B.
                              Little. Filed herewith.

                    21        Subsidiaries of the Registrant. Filed herewith.

                    23        Consent of Price Waterhouse LLP.  Filed herewith.

                    27.1      Financial Data Schedule 1997.  Filed herewith 
                               (Filed electronically only)

                    27.2      Restated Financial Data Schedule 1996.  Filed 
                               herewith (Filed electronically only)

</TABLE>

                                          63
<PAGE>

--------------------------
+ Confidential treatment has been granted for portions of such exhibit.

     (b)  No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this Report.

     (c)  See Item 14(a)3 above.

     (d)  Not applicable.


                                          64
<PAGE>

                                      SIGNATURES


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

                                      OVERSEAS FILMGROUP, INC.

                                  By: /s/ Ellen Dinerman Little
                                      --------------------------
                                      Ellen Dinerman Little,
                                      Co-Chairman of the Board of Directors,
                                      Co-Chief Executive Officer, and President

                                      Dated: April 27, 1998

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

            SIGNATURE                     TITLE                      DATE
            ---------                     -----                      ----

    /s/ Ellen Dinerman Little
    -------------------------

      Ellen Dinerman Little        Co-Chairman of the Board      April 27 , 1998
                                   of Directors, Co-Chief
                                   Executive Officer, and
                                   President (Co-Principal
                                   Executive Officer)


       /s/ Robert B. Little
       --------------------

         Robert B. Little          Co-Chairman of the Board of   April 27, 1998
                                   Directors and Co-Chief
                                   Executive Officer (Co-
                                   Principal Executive Officer)



      /s/ William F. Lischak
      ----------------------

        William F. Lischak         Chief Operating Officer,      April 27, 1998
                                   Chief Financial Officer,
                                   Secretary, and Director
                                   (Principal Financial and
                                   Accounting Officer)


                                          65
<PAGE>

      /s/ Stephen K. Bannon
      ---------------------

        Stephen K. Bannon          Director                      April 27, 1998


     /s/ Alessandro Fracassi
     -----------------------

       Alessandro Fracassi         Director                      April 27, 1998


      /s/ Jeffrey A. Rochlis
      ----------------------

        Jeffrey A. Rochlis         Director                      April 27, 1998


         /s/ Scot K. Vorse
         -----------------

           Scot K. Vorse          Director                       April 27, 1998


                                          66


<PAGE>

                          REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and
Shareholders of Overseas Filmgroup, Inc.

In our opinion, the financial statements listed in the index on page 58
present fairly, in all material respects, the financial position of Overseas
Filmgroup, Inc. and its subsidiaries (the "Company") at December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.  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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

As described in Notes 6 and 12 to the consolidated financial statements, the 
Company amended its Credit Facility on April 14, 1998. Management's 
commitments to the lending banks with respect to the amended Credit Facility 
are also described in Note 6.



PRICE WATERHOUSE LLP
Los Angeles,  California
April 21, 1998


                                      F-1

<PAGE>

                               OVERSEAS FILMGROUP, INC.
                             CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
 

                                                                     DECEMBER 31,        DECEMBER 31,
                                                                        1997                1996
                                                                    -------------       -------------
                                                       ASSETS:
                                                       -------
<S>                                                                <C>                 <C>         
Cash and cash equivalents                                           $  1,179,133        $    353,689
Restricted cash                                                          172,498              46,037
Accounts receivable, net of allowance for doubtful
  accounts of $750,000 in 1997 and $1,000,000 in 1996                 14,416,540          10,728,239
Related party receivable                                                 281,000             413,000
Film costs, net of accumulated amortization                           29,740,567          28,358,324
Fixed assets, net of accumulated depreciation                            408,685             557,127
Other assets                                                             361,897             347,269
                                                                    -------------       -------------
                    Total assets                                    $ 46,560,320        $ 40,803,685
                                                                    -------------       -------------
                                                                    -------------       -------------
</TABLE>

<TABLE>
<CAPTION>

                                     LIABILITIES AND SHAREHOLDERS' EQUITY:
                                     -------------------------------------
<S>                                                                <C>                 <C>         
Accounts payable and accrued expenses                               $  1,939,576        $  2,623,084
Payable to producers                                                   4,453,021           3,712,812
Notes payable to related parties                                       2,161,977           2,085,886
Notes payable                                                         23,142,184          16,607,137
Deferred income taxes                                                  2,502,200           3,030,000
Deferred revenue                                                         800,250             553,000
                                                                    -------------       -------------
                    Total liabilities                                 34,999,208          28,611,919
                                                                    -------------       -------------

Shareholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
  Authorized, 0 shares outstanding                                          --                  --
Common stock, $.001 par value, 25,000,000 shares authorized;
  5,777,778 shares issued; 5,732,778 shares outstanding                    5,778               5,778
Additional paid-in capital                                            10,652,731          10,652,731
Retained earnings                                                        989,337           1,533,257
Treasury stock at cost, 45,000 shares                                    (86,734)                 - 
                                                                    -------------       -------------
                    Total shareholders' equity                        11,561,112          12,191,766
                                                                    -------------       -------------
           Total liabilities and shareholders' equity               $ 46,560,320        $ 40,803,685
                                                                    -------------       -------------
                                                                    -------------       -------------

</TABLE>
 

The accompanying notes are an integral part of these statements.

                                         F-2

<PAGE>

                               OVERSEAS FILMGROUP, INC.
                        CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
 

                                                                Year Ended December 31,
                                                          --------------------------------
                                                         1997           1996          1995
                                                         ----           ----          ----

<S>                                                 <C>            <C>           <C>
Revenues                                             $ 22,494,256   $ 28,677,571  $ 21,672,510

Expenses:                                                        
  Film costs                                           19,152,847     23,058,000    16,320,694
  Selling, general and administrative                   3,509,122      3,595,660     2,721,745
                                                    -------------  -------------  -------------
      Total expenses                                   22,661,969     26,653,660    19,042,439
                                                    -------------  -------------  -------------
(Loss)/Income from operations                            (167,713)     2,023,911     2,630,071
                                                    -------------  -------------  -------------

Other income/(expense):                                          
  Interest income                                           4,923         32,831        35,715
  Interest expense                                       (853,666)      (569,183)      (89,637)
  Other income                                            179,179        177,710       317,917
                                                    -------------  -------------  -------------
      Total other (expense)/income                       (669,564)      (358,642)      263,995
                                                    -------------  -------------  -------------
(Loss)/Income before income taxes                        (837,277)     1,665,269     2,894,066
Income tax (benefit) provision                           (293,357)     3,131,367       432,905
                                                    -------------  -------------  -------------
Net (loss) income                                    $   (543,920)  $ (1,466,098) $  2,461,161
                                                    -------------  -------------  -------------
                                                    -------------  -------------  -------------

Basic and diluted net (loss)/income per share        $      (0.09)  $      (0.41) $       0.77
                                                    -------------  -------------  -------------
                                                    -------------  -------------  -------------


Weighted average number of common
  shares outstanding                                    5,747,778      3,611,111     3,177,778
                                                    -------------  -------------  -------------
                                                    -------------  -------------  -------------

</TABLE>
 

           The Accompanying Notes Are An Integral Part Of These Statements.


                                         F-3

<PAGE>

                               OVERSEAS FILMGROUP, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
 

                                                                                           Year ended December 31,
                                                                                      --------------------------------
                                                                                 1997               1996              1995
                                                                                  ----               ----              ----
<S>                                                                         <C>                <C>                <C>
Cash flows from operating activities:                                                    
  Net (loss) income                                                          $   (543,920)      $ (1,466,098)      $  2,461,161
  Adjustments to reconcile net (loss) income to net
    cash provided by operating activities -
    Amortization of film costs                                                 18,696,333         22,586,373         16,115,927
    Depreciation of fixed assets                                                  160,099            155,415            122,776
  Change in assets and liabilities -
    (Increase) decrease in accounts receivable                                 (3,688,301)        (2,536,687)           926,669
    Decrease (increase) in related party receivables                              132,000           (413,000)           435,088
    Decrease (increase) in other receivables                                            -            314,000            (24,000)
    (Increase) decrease in other assets                                           (14,628)          (198,015)            46,015
    (Decrease) increase in accounts payable
      and accrued expenses                                                       (683,508)         1,826,176           (278,783)
    Increase (decrease) in payable to producers                                   740,210         (3,263,809)         1,121,294
    (Decrease) increase in deferred income taxes                                 (527,800)         2,900,000             10,000
    Increase (decrease) in deferred revenue                                       247,250         (1,628,000)           416,240
                                                                              -------------      -------------     -------------
      Net cash provided by operating activities                                14,517,735         18,276,355         21,352,387
                                                                              -------------      -------------     -------------
  
Cash flows from investing activities:                                                    
  Additions to film costs                                                     (20,078,577)       (33,595,627)       (21,087,875)
  Purchase of fixed assets                                                        (11,657)          (328,221)          (289,107)
                                                                              -------------      -------------     -------------
      Net cash used in investing activities                                   (20,090,234)       (33,923,848)       (21,376,982)
                                                                              -------------      -------------     -------------
  
Cash flows from financing activities:                                                    
  Net borrowings under credit facilities                                        6,535,047          9,185,244          1,363,614
  Payments on notes payable to related party                                     (123,909)           (43,073)                - 
  Issuance of note payable to related party                                       200,000                  -                 - 
  Merger cash, net of acquisition costs                                                 -          8,791,440                 -
  Purchase of treasury stock                                                      (86,734)                 -                 - 
  Distributions to shareholders                                                         -         (4,452,991)          (832,248)
                                                                              -------------      -------------     -------------
      Net cash provided by financing activities                                 6,524,404         13,480,620            540,366
                                                                              -------------      -------------     -------------
  
Net increase (decrease) in cash, cash equivalents and restricted cash             951,905         (2,166,873)           515,771

Cash, cash equivalents and restricted cash                                               
  at beginning of period                                                          399,726          2,566,599          2,050,828
                                                                              -------------      -------------     -------------

Cash, cash equivalents and restricted cash                                               
  at end of period                                                           $  1,351,631       $    399,726       $  2,566,599
                                                                              -------------      -------------     -------------
                                                                              -------------      -------------     -------------

Supplemental disclosure of cash flow information:                                        
  Cash paid during the period for:
    Interest                                                                 $  2,185,532       $  1,321,178       $    849,632
                                                                              -------------      -------------     -------------
                                                                              -------------      -------------     -------------
    Income taxes                                                             $      4,800       $     55,608       $     30,130
                                                                              -------------      -------------     -------------
                                                                              -------------      -------------     -------------
    Foreign withholding taxes                                                $    231,243       $    231,367       $    352,905
                                                                              -------------      -------------     -------------
                                                                              -------------      -------------     -------------

</TABLE>
 

           The accompanying notes are an integral part of these statements.


                                         F-4

<PAGE>

                               OVERSEAS FILMGROUP, INC.
                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
 

                                                  Common Stock   
                                                  ------------          Additional       Retained       Treasury
                                               Shares       Amount    Paid-In Capital    Earnings        Stock          Total
                                               ------       ------    ---------------    --------        -----          -----
<S>                                         <C>           <C>        <C>              <C>               <C>          <C>
Balance at December 31, 1994                 3,177,778     $3,178        $167,322      $9,639,961           --        $9,810,461
                                                      
Net Income                                          --         --              --       2,461,161           --         2,461,161
                                                      
Distributions to shareholders                       --         --              --        (823,248)          --          (823,248)
                                           ------------   --------   -------------     -----------    ----------    --------------
                                                      
Balance at December 31,  1995                3,177,778      3,178         167,322      11,277,874           --        11,448,374
                                                      
Pre-Merger distributions to shareholders            --         --              --      (4,452,991)          --        (4,452,991)
                                                      
Reclassification of earnings due to                   
termination of S corporation status                 --         --       3,825,528      (3,825,528)          --             --
                                                      
Merger transaction                           2,600,000      2,600       7,703,682              --           --         7,706,282
                                                      
Merger costs charged to capital                     --         --      (1,043,801)             --           --        (1,043,801)
                                                      
Net loss                                            --         --              --      (1,466,098)          --        (1,466,098)
                                           ------------   --------   -------------     -----------    ----------    --------------
                                                      
Balance at December 31, 1996                 5,777,778      5,778      10,652,731       1,533,257           --        12,191,766
                                                      
Purchase of treasury stock                     (45,000)        --              --              --      (86,734)          (86,734)
                                                      
Net loss                                            --         --              --        (543,920)          --          (543,920)
                                           ------------   --------   -------------     -----------    ----------    --------------

Balance at December 31, 1997                 5,732,778     $5,778     $10,652,731        $989,337     ($86,734)      $11,561,112
                                           ------------   --------   -------------     -----------    ----------    --------------
                                           ------------   --------   -------------     -----------    ----------    --------------

</TABLE>
 

           The accompanying notes are an integral part of these statements.

                                         F-5

<PAGE>

                               OVERSEAS FILMGROUP, INC.
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS:

Overseas Filmgroup, Inc. ("Overseas" or the "Company") was formed on February 
11, 1980, and operated as a privately held company through October 30, 1996.  
As discussed in Note 3, on October 31, 1996 the Company was acquired, through 
merger, by Entertainment/Media Acquisition Corporation ("EMAC"), a publicly 
traded company.  Concurrent with the merger, EMAC changed its name to 
Overseas Filmgroup, Inc. 

The Company is principally involved in the acquisition and worldwide license or
sale of distribution rights to independently produced motion pictures.  Certain
motion pictures are directly distributed by the Company in the domestic
theatrical market under the name First Look Pictures ("First Look").

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company include the accounts of
Overseas and its wholly owned subsidiaries.  All significant intercompany
balances and transactions have been eliminated. 

REVENUES

Revenues from nonrefundable guarantees payable by subdistributors are recognized
when the film becomes available for release and certain other conditions are met
in accordance with Statement of Financial Accounting Standards No. 53 ("SFAS
53"), "Financial Reporting by Producers and Distributors of Motion Picture
Films".  Amounts received in advance of the film being available are recorded as
deferred revenue.  Revenues from direct theatrical distribution of films are
recognized on the dates of exhibition.

FILM COSTS AND AMORTIZATION

Film costs represent those costs incurred in the acquisition and distribution of
motion pictures or in the acquisition of distribution rights to motion pictures
which include advances, minimum guarantees paid to producers, recoupable
distribution and production costs, legal expenses, interest and overhead costs. 
These costs have been capitalized in accordance with SFAS 53.  Film costs are
amortized using the individual film forecast method whereby expense is
recognized in the proportion that current year revenues bear to management's
estimate of ultimate revenue from all markets.


                                       F-6


<PAGE>

NOTE 2:  (Continued)

Film costs are valued at the lower of unamortized cost or estimated net
realizable value.  Revenue and cost forecasts for films are regularly reviewed
by management and revised when warranted by changing conditions.  When estimates
of total revenues and costs indicate that a film will result in an ultimate loss
additional amortization is provided to fully recognize such loss.  

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with a maturity of
less than three months to be cash equivalents.  The carrying value of the
Company's cash and cash equivalents approximate fair value due to their
short-term nature.

RESTRICTED CASH

Restricted cash consists of cash held in a collection account which is
restricted for the payment of film facilities in compliance with the Credit
Facility (Note 6).

ACCOUNTS RECEIVABLE

Accounts receivable are stated net of an allowance for doubtful accounts of 
$750,000, $1,000,000 and $1,000,000 for the years ended December 31, 1997, 
1996 and 1995, respectively. During the year ended December 31, 1997, the 
Company reduced its allowance for doubtful accounts by $250,000. Of this 
amount, $62,500 was recorded as a credit to bad debt expense and $187,500 was 
recorded as an increase in the payable to producers. These amounts represent 
the respective shares of the Company and of producers of the increase in 
anticipated collections of accounts receivable.

FIXED ASSETS

Fixed assets are recorded at cost and include improvements that significantly
add to the productive capacity or extend the useful life of the asset.  Costs of
maintenance and repairs are charged to expense.  Depreciation is provided over
the estimated useful lives of the assets which range from 5 to 7 years using
methods which approximate straight line.

PAYABLE TO PRODUCERS

Payable to producers represents an accrual on a film-by-film basis of the
producers' share of revenues recognized by the Company net of the recoupable
costs incurred by Overseas.  The producers' share of revenue is expensed in
conjunction with the amortization of film costs.  Payments to producers are
typically made on a quarterly basis based on actual cash collections.

INCOME TAXES

The Company records income taxes in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".  The
standard requires, among other provisions, an asset and liability approach to
recognize deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities.


                                       F-7

<PAGE>

NOTE 2:  (Continued)

Effective January 1, 1989 (and terminating October 31, 1996 as described 
below) the Company elected to be treated as an S Corporation for federal 
income tax purposes.  Accordingly, subject to the Tax Reimbursement Agreement,
all federal income tax liability was the responsibility of the shareholders.  
The Company remained subject to income tax in the state of California, the 
principal state of operation for the Company.  As a result of the merger 
described in Note 3, the Company's S Corporation status was terminated 
effective October 31, 1996.  The Company is liable for federal and state 
income taxes from that date forward (Note 7).

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed using the weighted average number of
shares of common stock outstanding.  Common equivalent shares from stock options
and warrants (using the treasury stock method) have been included in the
computation when dilutive.

In February 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 
128"). SFAS No. 128, effective for periods ending after December 15, 1997, 
revises the computation, presentation, and disclosure requirements of 
earnings per share. Principal among computation revisions is the replacement 
of primary earnings per share with basic earnings per share, which does not 
consider common stock equivalents.  In addition, SFAS No. 128 modifies 
certain dilutive computations and replaces fully diluted earnings per share 
with diluted earnings per share. Options and warrants representing common 
shares of 7,402,500 and 7,382,500 were excluded from the average number of 
common and common equivalent shares outstanding in the diluted EPS 
calculation for the years ended December 31, 1997 and 1996, respectively, 
because they were anti-dilutive.  The Company has adopted SFAS No. 128 for 
the year ended December 31, 1997 and has restated prior periods presented to 
conform to SFAS No. 128.

ACCOUNTING FOR STOCK-BASED COMPENSATION

As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock Based Compensation", the Company has elected to use
the intrinsic value method prescribed by APB Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" to account for compensation expense
for its stock-based employee compensation plans.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to credit risk
consist primarily of cash and accounts receivable.  The Company places its cash
with a financial institution and, at times, such amounts may be in excess of the
FDIC insurance limits.  Concentration of credit risk with respect to accounts
receivable is limited due to the large number and general dispersion of trade
accounts which constitute the Company's customer base.  The Company performs
credit evaluations of its customers and generally does not require collateral. 
At December 31, 1997 the Company has a trade receivable from one customer which
represents approximately 12% of the Company's accounts receivable.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. 
Management estimates ultimate revenues and costs for motion pictures for each
market based on public acceptance and historical results for similar products. 
Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to amounts reported in prior periods to
conform with the current year presentation.


                                       F-8

<PAGE>

NOTE 3 - MERGERS AND ACQUISITIONS

On October 31, 1996 Entertainment/Media Acquisition Corporation ("EMAC"), a 
public company formed for the sole purpose of acquiring an operating company 
in the entertainment and media industry, acquired all of the outstanding 
common stock of Overseas (the "Overseas Shares").  The shareholders of the 
Overseas Shares received 3,177,778 shares of EMAC Common Stock, $1,500,000 in 
cash and a $2,000,000 5-year secured promissory note which is payable 
monthly, subject to the deferment described in Note 6, and bears interest at 
the rate of 9% per year.  EMAC also agreed to indemnify the shareholders of 
the Overseas Shares from any potential losses with respect to additional 
taxes (including interest and penalties) resulting from the Company's 
operations during periods in  which it was an S corporation, up to a 
specified limit.  The Company has estimated a liability of $200,000 with 
respect to its indemnity obligation, which is included in accrued expenses as 
of December 31, 1997.  The issuance of the $2,000,000 secured promissory note 
was a non-cash item and therefore was not reflected in the Consolidated 
Statement of Cash Flows.

For accounting purposes Overseas was considered the acquirer (reverse
acquisition).  The acquisition has been treated as a recapitalization of
Overseas reflecting the issuance of Overseas common stock for the net assets of
EMAC, which consisted primarily of cash.  Pro forma information reflecting the
combined companies had they merged on January 1, 1995, is not presented as the
combination is not considered a business combination for accounting purposes. 
Historical shareholders' equity has been retroactively restated to reflect the 


                                       F-9


<PAGE>

NOTE 3:  (Continued)

equivalent number of shares received in the merger.  The historical financial
statements prior to October 31, 1996 are those of Overseas.  

Concurrent with the acquisition, EMAC changed its name to Overseas Filmgroup,
Inc. and  changed its fiscal year-end from November 30 to December 31.  All
direct costs of the acquisition, consisting primarily of legal, accounting,
consulting and certain other fees have been charged to paid-in capital.


NOTE 4 - FILM COSTS:

Film costs consist of the following:

<TABLE>
<CAPTION>
 

                                                                 December 31,
                                                                 ------------
                                                           1997             1996
                                                           ----             ----
  <S>                                                 <C>               <C>
  Films in release, net of accumulated amortization    $26,781,682       $25,838,106
  Films not yet available for release                    2,958,885         2,520,218
                                                       -----------       -----------
                                                       $29,740,567       $28,358,324
                                                       -----------       -----------
                                                       -----------       -----------

</TABLE>
 
Interest costs capitalized to films were $1,211,831, $767,067 and $744,176
during the years ended December 31, 1997, 1996 and 1995, respectively.  Based on
the Company's estimates of projected gross revenues as of December 31, 1997,
approximately 75% of unamortized film costs applicable to films in release are
expected to be amortized during the next three years.

NOTE 5 - FIXED ASSETS:

Fixed assets consist of the following:

<TABLE>
<CAPTION>
 

                                                                  December 31,
                                                                  ------------
                                                             1997             1996
                                                             ----             ----
     <S>                                               <C>               <C>
     Furniture and fixtures                             $  255,497        $  243,520
     Office equipment                                      201,417           191,023
     Computer equipment                                    643,760           657,487
     Leasehold improvements                                176,337           173,324
     Automobiles                                            14,970            14,970
                                                        -----------       -----------
                                                         1,291,981         1,280,324
     Less accumulated depreciation                        (883,296)         (723,197)
                                                        -----------       -----------
     Net fixed assets                                   $  408,685        $  557,127
                                                        -----------       -----------
                                                        -----------       -----------

</TABLE>
 

                                      F-10


<PAGE>

NOTE 6 - NOTES PAYABLE:

The Company has a credit facility (the "Credit Facility") with a two bank 
syndicate (the "Banks"). The Credit Facility originally provided for up to 
$27,000,000 of credit, however, it was amended and extended (as provided below)
on April 14, 1998 (the "Facility Amendment") such that several levels of 
credit are provided, including approximately $17,863,716 of film financing 
(the "Film Facilities"), up to $7,234,000 of working capital (the "Operating 
Facility") and a $1,000,000 guarantee facility (the "Local Facility"). The 
terms of the Facility Amendment provide that additional funds may be drawn 
under the Operating Facility so long as such amounts do not exceed 
$7,234,000. The Facility Amendment provides for availability under the 
Operating Facility and the Local Facility until April 9, 1999, however, apart 
from a Film Facility needed to acquire the rights to one film which is 
currently in post production, no additional Film Facilities will be provided 
and amounts repaid cannot be reborrowed until such time as the two-bank 
syndicate determines, in its sole discretion. The Company maintains a 
$1,000,000 working capital credit line (the "Local Line") with another bank, 
which is guaranteed by letters of credit issued under the Local Facility. 
These letters of credit, as well as the Local Line, have been extended until 
April 9, 1999 under the terms of the Facility Amendment. Outstanding balances 
are summarized as follows:

<TABLE>
<CAPTION>
                                           December 31,
                                     1997                1996
                                     ----                ----
<S>                              <C>                 <C>
Credit Facility:
     Film Facilities             $16,233,844         $14,529,137
     Operating Facility            5,908,340           1,850,000
     Local Facility                    -                   -

Local Line                         1,000,000             228,000
                                 -----------         -----------
                                 $23,142,184         $16,607,137
                                 -----------         -----------
                                 -----------         -----------
</TABLE>

Borrowings under the Film Facilities are secured by rights to the individual 
film financed by the related Film Facility, cash proceeds and accounts 
receivable related to the distribution of such related film as well as all 
assets of the Company generally. Repayments under each Film Facility and are 
made first from collections on sales related to the specific film and, 
pursuant to the terms of the Facility Amendment, from collections on sales of 
films financed under Film Facilities which have been repaid. Pursuant to the 
terms of the Facility Amendment, the maturities of certain Film Facilities 
are extended until dates the Company has projected full repayment to occur 
based upon projected sales and collections with respect to the respective 
film. Film Facilities not projected to be repaid by October 1999 shall be 
subject to review by the two-bank syndicate on such date.

Borrowings under the Operating Facility are provided as revolving overdraft 
facilities. Outstanding amounts are due on April 9, 1999 subject to the 
review of the two-bank syndicate with a view to determining whether the 
Credit Facility will be available after that date.

Interest on the Credit Facility is payable monthly at the London Interbank 
Offering Rate ("LIBOR") plus 3% (5.72%, 5.75%, and 5.81% for one, three and 
six month LIBOR, respectively at December 31, 1997). The interest rate is set 
at the commencement of each drawdown and is revised each one, three or six 
months as requested by the Company at the date of the drawdown. Interest on 
the Local Line is payable monthly at the bank's prime rate less 1.25% (prime 
rate was 8.5% at December 31, 1997). The Credit Facility also requires the 
Company to pay closing fees on each Film Facility drawdown, a commitment fee 
for unused portions of the Operating Facility, a fee measured by a portion of 
the Company's distribution fee earned on financed films, and an annual 
management fee.

The Credit Facility is collateralized by a security interest in substantially 
all of the Company's assets and contains various covenants including, among 
other provisions, restrictions on the payment of dividends and the 
maintenance of a minimum consolidated net worth and certain financial ratios. 
For the year ended December 31, 1997 the Company was in violation of certain 
of these covenants, however the Banks granted a waiver of these violations 
and amended the net worth covenant for a period of one year. The amendment to 
the Credit Facility included certain additional covenants including certain 
reporting requirements and written approval by the Banks for any new 
acquisitions and planned distribution expenses prior to the Company's 
commitment.

In order to effectuate the Facility Amendment, the Company's Co-Chairmen and 
Co-Chief Executive Officers (and majority owners of the Company) were 
required to provide a joint and several personal guarantee, in the amount of 
$618,000 for the benefit of the Banks. The guarantee shall automatically be 
released and extinguished when amounts outstanding under the Operating 
Facility are reduced, permanently, to $6,000,000. Additionally, the Company's 
Co-Chairmen and Co-Chief Executive Officers agreed to defer receipt of 
payment pursuant to the Merger Note (see Note 3) until amounts outstanding 
under the Operating Facility are reduced, permanently, to $5,000,000, 
however, in no case will such deferment expire prior to May 1999. Interest on 
the Merger Note will continue to accrue during the deferment period.

The carrying value of the Company's notes payable approximates their fair 
value due to the fact that the interest rate is reset periodically and the 
lack of a specified maturity.

The Company's ability to maintain availability under its Operating Facility 
and Local Facility and to pay down the Film Facilities prior to maturity is 
primarily dependent upon the timing of collections on existing sales during 
the next twelve months and the amount and timing of collection on anticipated 
sales of the Company's current library and films which the Company plans to 
release or make available to subdistributors over the next twelve months. 
Management believes that existing capital, cash flow from operations and 
availability under the Company's amended Credit Facility and Local Facility 
will be sufficient to enable the Company to fund its planned acquisition, 
distribution and overhead expenditures for a reasonable period of time. In 
the event that the Company's sales and collections during the next twelve 
months are less than currently anticipated, the Company will need to either 
alter planned acquisition and distribution activities, seek additional 
availability under its current Credit Facility or seek alternate sources of 
financing.

                                      F-11

<PAGE>

NOTE 7 - INCOME TAXES:

As discussed in Note 2, on October 31, 1996 the Company changed its tax 
reporting status from S corporation to C corporation for federal income tax 
purposes as a result of the merger with EMAC.  As a result, the Company 
recorded a non-recurring net charge to earnings of $2,600,000 in the fourth 
quarter of fiscal 1996 for additional federal income tax expense related to 
the net charge required to adjust the deferred tax assets and liabilities to 
their appropriate value utilizing C corporation rates.  The deferred taxes 
relate primarily to differences arising from the amortization of film costs 
for book and tax purposes and the benefits associated with tax loss and 
foreign withholding tax credit carryforwards.  The foreign withholding taxes 
are substantially recouped from the producers share of revenue.

The historical provision for income taxes consists of the following:

<TABLE>
<CAPTION>
 

                                                                 Years ended December 31,
                                                                 ------------------------
                                                       1997              1996                1995
                                                       ----              ----                ----
<S>                                               <C>               <C>                 <C>
Current
  State                                            $    3,200        $       --          $   70,000
  Foreign withholding                                 231,243           231,367             352,905
                                                   -----------       -----------         -----------

                                                      234,443           231,367             422,905
                                                   -----------       -----------         -----------

Deferred
  State                                               (22,000)          110,000              10,000
  Federal                                            (505,800)          190,000                   -
  Deferred tax provision resulting
    from the termination of S corporation
    status                                                  -         2,600,000                   -
                                                   -----------       -----------         -----------

                                                     (527,800)        2,900,000              10,000
                                                   -----------       -----------         -----------

                                                   $ (293,357)       $3,131,367          $  432,905
                                                   -----------       -----------         -----------
                                                   -----------       -----------         -----------

</TABLE>

The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory income tax rates to income before
taxes as a result of the following differences:

<TABLE>
<CAPTION>
                                                                           1997        1996         1995
                                                                           ----        ----         ----
  <S>                                                                     <C>         <C>          <C>
  Federal statutory rate                                                   (34%)        34%           --

  State taxes, net of federal benefit and income not subject to tax         (3%)         2%           3%
  Foreign taxes, net of federal benefit                                      --         12%          12%
  Deferred tax provision resulting from 
    the termination of S Corporation status                                  --        156%           --
  Income not subject to federal tax                                          --        (21%)          --
  Other                                                                      2%          5%           --
                                                                           ----       -----         ----
Effective tax rate                                                         (35%)       188%          15%
                                                                           ----       -----         ----
                                                                           ----       -----         ----
</TABLE>
 

For federal income tax purposes, the Company has available tax loss carry
forwards of approximately $1,812,000 which expire in 2011 and foreign tax
credits of approximately $336,000 which expire between 2001 and 2002.


                                      F-12


<PAGE>

NOTE 8 - SHAREHOLDERS' EQUITY

The Company is authorized to issue 2,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined by
the Board of Directors.

On October 31, 1996 the Company created a stock option plan under which 
incentive and nonqualified stock options and stock appreciation rights may be 
granted to certain employees and directors to purchase up to a maximum of 
550,000 shares of common stock.  The grant of options and option price shall 
be determined by the Company's Board of Directors or applicable committee 
thereof in accordance with the plan.  In the case of an incentive stock 
option the option price shall not be less than 100% of the fair market value 
of the common stock on the date the incentive stock option is granted.  Each 
option may be granted subject to various terms and conditions established on 
the date of grant including exercise and expiration provided, however, that 
all options will expire no later than 10 years from their date of grant.  The 
plan calls for annual grants to non-employee directors of 5,000 shares at an 
exercise price equal to the fair market value of the common stock on the date 
of grant, which is the date of the Annual Stockholders meeting.  These 
options are exercisable one year after the date of grant and expire on the 
earlier of ten years from the date of grant or three years from the date on 
which the Director ceases to be a director of the Company.  On September 25, 
1997,  and October 31, 1996, 5,000 non-qualified stock options were granted 
to each of four non-employee directors. The 1997 and 1996 grants have an 
exercise price of $2.38 and $5.25, respectively. 

During 1996, the Company granted options to purchase 1,075,000 shares of 
common stock at $5.00 per share ("$5.00 Options") and 1,125,000 shares of 
common stock at $8.50 per share, ("$8.50 Options") to the majority owners of 
the Overseas Shares, all of which expire on October 31, 2003.  The $5.00 
Options vest 200,000 on October 31,1996 and 175,000 on each anniversary date 
thereafter through 2001. The $8.50 Options vest in equal increments of 
225,000 beginning on October 31, 1997 and each anniversary date thereafter 
through 2001.  

As discussed in Note 2 the Company uses the intrinsic value method prescribed by
APB 25 to account for compensation expense for its stock-based employee
compensation plans.  Had compensation cost for the Company's stock-based
employee compensation plans been determined based on the fair value at the grant
date for options under those plans as consistent with SFAS 123, the Company's
net loss and net loss per share would have been increased to $1,091,399 and
$0.19, respectively for the year ended December 31, 1997 and $1,769,286 and
$0.49, respectively for the year ended December 31, 1996.  For purposes of pro
forma disclosures, the estimated value of the options is amortized over the
options' vesting period.  The fair value of each option grant was estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions:

     Risk Free interest rate: 6.03%
     Expected life:  4 years
     Volatility:  57%


                                     F-13

<PAGE>

NOTE 8:  (Continued)

Warrants to purchase 4,500,000 shares of Common Stock are outstanding at
December 31, 1997.  These warrants have an exercise price of $5.00 per share and
expire on February 16, 2002.  The warrants are callable by the Company at $.01
per warrant if certain market price and other criteria are met.  Options to
purchase 200,000  Overseas (formerly EMAC) Units (each unit consists of 1 share
of common stock and 2 warrants, described below) at an exercise price of $9.90
per unit are outstanding at December 31, 1997.  The warrants attached to these
units are identical to the warrants described above except that they are
execisable at $5.85 per share and expire on February 16, 2000.  These options
and warrants were issued in connection with the initial capitalization of EMAC.

Overseas also issued a warrant to purchase 62,500  shares of common stock to 
its financial advisor in the Merger described in Note 3.  The warrant has an 
exercise price of $5.00 per share and expires on October 30, 2003.

The exercise of outstanding options and warrants was not assumed in the
calculation of earnings per share because the effect would have been anti-
dilutive.

During 1997, the Company adopted a share repurchase program pursuant to which 
the repurchase of up to 75,000 shares, at management's discretion, was 
authorized through July 31, 1997.  During the year ended December 31, 1997, 
the Company repurchased 45,000 shares of its outstanding common stock 
pursuant to this program for $86,734.

NOTE 9 - RELATED PARTY TRANSACTIONS

In December 1997 the majority shareholders and Co-Chief Executive Officers 
and Co-Chairman loaned the Company $200,000 (and an additional $200,000 in 
January 1998) to provide funds for a portion of the print and advertising 
costs associated with a feature film which was scheduled for release by First 
Look Pictures in February 1998. The loan is secured by an assignment of 
domestic revenues from the film and bears interest at the rate of 9% per 
annum and is to be repaid after repayment of a Film Facility related to the 
acquisition of domestic rights for both DIFFERENT FOR GIRLS and MRS. DALLOWAY 
and print and advertising costs lent by the Lenders with respect to DIFFERENT 
FOR GIRLS, or at such time as the Company's primary lenders allow repayment 
from other sources.

The Company has a receivable of $281,000 from a subdistributor which is owned 
by a member of the Company's Board of Directors.  Pursuant to an executed 
agreement this amount is required to be paid on September 30, 1998 and does 
not bear interest.  The Company will be entitled to retain $48,575 of this 
receivable upon collection with the balance payable to producers.  The 
Company recognized approximately $259,000 in revenue on films licensed to the 
Company by this subdistributor (as rights owner) during 1997.

During 1997 the Company paid $73,200 to a corporation owned by a member of 
the Company's management and his spouse for production executive services of 
such spouse.   By agreement of BLAH, Inc. and the Company, an additional 
$6,400 payable to BLAH, Inc. was deferred without interest, until January 7, 
1998.

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

The Company is committed under various acquisition agreements to pay minimum
guarantees of  $6,437,500 contingent upon delivery of the respective films to
the Company.

The Company has guaranteed payment by an independent motion picture production
company of a promissory note in the aggregate principal amount of $223,939,
payable on September 8, 1998.


                                     F-14

<PAGE>

NOTE 10:  (Continued)

Total rental expense under various leases for the years ended December 31, 1997,
1996 and 1995 amounted to $268,259, $293,279 and  $228,053, respectively. 
Minimum annual rental payments under noncancelable leases are as follows:

<TABLE>
         <S>            <C>
          1998           277,495
          1999           262,776
          2000           251,789
          2001           247,074
          2002           185,704

</TABLE>

NOTE 11 - FOREIGN SALES AND SIGNIFICANT CUSTOMERS:

The Company's foreign export revenues are summarized as follows:

<TABLE>
<CAPTION>

                           Years Ended December 31,
                           ------------------------
                      1997           1996           1995
                      ----           ----           ----
<S>              <C>            <C>            <C>
Western Europe    $ 10,408,980   $  9,581,698   $  7,475,888
Asia                 1,447,790      4,936,735      2,411,261
Latin America        1,687,295      1,839,129      1,446,968
Eastern Europe         539,065        708,600      1,094,053
Other                3,150,462      2,850,896      1,792,603
                  ------------   ------------   ------------
                  $ 17,233,592   $ 19,917,058   $ 14,220,773
                  ------------   ------------   ------------
                  ------------   ------------   ------------
</TABLE>

Customers representing 10% or more of the Company's revenue  accounted for
$9,498,000 (three customers), and $4,366,246 (one customer) for the years ended
December 31, 1996 and 1995, respectively.  No customer accounted for more than
10% of the Company's revenue during the year ended December 31, 1997.

NOTE 12 - SUBSEQUENT EVENT

As more fully described in Note 6, the Company amended the terms of its 
Credit Facility on April 14, 1998.

                                     F-15