<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, 1998
                                         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  /  /


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


<PAGE>

     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.  / /

     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
March 31, 1999, (based on the closing sale price on such date as reported on the
OTC Bulletin Board) was $6,181,537.

     The number of shares of Common Stock outstanding as of March 31, 1999 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", INCLUDING THOSE 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, 1998 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.


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* 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

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


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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

     On April 9, 1999 the Company and the lenders providing the Company's 
credit facility agreed to amend the credit facility to extend the expiration 
of the credit facility and the maturity date of the outstanding borrowings 
thereunder, until April 9, 2000, subject to certain additional reporting 
obligations and restrictions.  In light of the inability of the Company to 
borrow additional amounts under the credit facility, the Company is actively 
seeking an equity infusion and the refinancing of the credit facility.  See 
"Item 7--Management's Discussion and Analysis of Financial Condition and 
Results of Operations Liquidity and Capital Resources" for additional 
information regarding the credit facility and the Company's capital needs.

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 $52.7 million in
1998.  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 70% of the Company's
total revenues in 1998.  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 David De
Keyser), INFINITY (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, sometimes the
Company 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.  At times 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


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motion pictures distributed by it, generally acquiring fully developed projects
ready for pre-production and contracting out pre-production and production
activities.

     Certain films distributed and/or licensed by the Company in 1998 
performed well, especially Waking Ned Devine (released by Fox Searchlight in 
the U.S. where the film has generated approximately $25,000,000 at the box 
office, however, at this time the Company does not estimate amounts will be 
payable by Fox Searchlight to the Company as a result of such performance in 
excess of the $5,000,000 advance paid to the Company in 1998).  Additionally, 
although the Company has operated under the constraints of having little or 
no available debt financing from its current lender, the Company has acquired 
the sales or distribution rights to approximately seven films (representing 
an estimated $12,000,000 of aggregate production costs) which were first 
available for distribution in 1998 and an additional approximately nine films 
(representing an estimated $53,000,000 in aggregate production costs) which 
are expected to be first made available for distribution in 1999, including 
TITUS, the directorial debut of the much acclaimed stage director Julie 
Taymor (THE LION KING on Broadway) starring Anthony Hopkins and Jessica 
Lange.  However, the continued debt level of the Company and the related 
interest costs as well as the restrictions imposed by the Company's lenders 
have significantly impacted the cash flow and operations of the Company. 
Additionally, the Company continues to be impacted by (i) changes in the 
marketplace for independent films including the reduced demand by retail 
video stores and video subdistributors worldwide for films which have not had 
significant (or any) theatrical release (in 1998, the Company released two 
films theatrically in the United States through First Look Pictures, MRS. 
DALLOWAY and A MERRY WAR and had one film, WAKING NED DEVINE, released by 
another party, Fox Searchlight); and (ii) the weakened demand for film rights 
in Asia due to the region's recent economic downturn. Additionally, the 
marketplace for independent films has been impacted by an overabundance of 
lower budget independent film product made available in part due to the 
availability of financing sources for such films including "gap financing" 
and insurance backed financing structures. In order to seek to improve the 
Company's cash flow and address the changes in the marketplace identified 
above, as well as in response to the operating limitations imposed by the 
lenders under the Company's credit facility, the Company in 1998 made certain 
changes in its operational strategy, and is actively investigating and 
pursuing potential equity infusions, and is seeking to refinance its debt.  
See Management's Discussion and Analysis of Financial Condition and Results 
of Operations.  There can be no assurance, however, that the Company will be 
able to conclude any such equity infusion and/or refinance the Company's 
credit facility. Currently, the Company's primary strategies are to:

-    SEEK TO LIMIT RISK BY LIMITING ITS INVESTMENT IN ACQUISITION COSTS AND FILM
     PRODUCTION, AND CONTINUING TO USE METHODS FOR ACQUIRING SALES AND 
     DISTRIBUTION RIGHTS WHICH DRAW UPON THE COMPANY'S EXPERTISE IN SALES AND 
     ABILITY TO ARRANGE EQUITY AND OTHER FINANCING FOR THE PRODUCTION OF FILMS, 
     INCLUDING PRE-SALES.  In early 1998, the Company began to alter the 
     frequency in which it engages in various acquisition, distribution and 
     financing arrangements.  The Company presently intends to:

     -    Continue to act in many instances 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) whereby the related film is produced with funds
          provided by other parties and not by the Company.

     -    Continue to act on behalf of producers to locate and arrange equity
          sources (including investors, producers, distributors in various
          territories, various international governmental programs designed to
          incentivize film production and other equity providers), co-production
          and co-financing sources, pre-sales, "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), insurance backed financing arrangements (arrangements where
          an insurance company insures a lender or other financier against loss
          from the sales of unsold rights) and other resources available for
          production of motion pictures in exchange for the sales and/or
          distribution rights to the related films and/or fees.

     -    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 1999.


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     -    Limit the number of films for which the Company provides minimum
          guarantees.

     -    Limit the situations in which the Company participates in co-financing
          arrangements, whereby the Company, in combination with other equity
          providers, commits to fund a portion of a particular film's production
          costs.

     -    Reduce the number of films First Look Pictures releases annually.  In
          1998, First Look Pictures released two motion pictures.  First Look 
          Pictures may release one film in 1999, assuming the availability of 
          funding for print and advertising costs associated with such release. 
          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.

-    ACQUIRE FILMS WHICH THE COMPANY BELIEVES ARE LIKELY TO MERIT A THEATRICAL
     RELEASE OR ARE SUITABLE FOR INITIAL RELEASE ON TELEVISION 
     (INCLUDING PAY TELEVISION).  The Company currently intends to:

     -    Acquire films with 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 acquisition and/or production costs through
          pre-sales, "gap financing," insurance backed production structures and
          other third party equity sources.

     -    Acquire films which are oriented to television (including pay
          television) programming needs including, at times, films with lower
          budgets and in specifically oriented genres, such as action films.

     -    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.



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

     -    Consider possible additional reductions in overhead.

     -    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) and the refinancing of its credit facility.  There can be 
     no assurance, however, that such additional capital (and including the 
     refinancing of its credit facility) 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.

THE MOTION PICTURE INDUSTRY


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     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, Sony Pictures Entertainment, 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 (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
(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. Artisan
Entertainment Inc. (PERMANENT MIDNIGHT, RINGMASTER); and Lion's Gate Films (GODS
AND MONSTERS, AFFLICTION). 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 1998, international
revenues of motion picture distributors from filmed entertainment grew from
approximately $4.7 billion in 1989 to approximately $10.3 billion in 1998.  This
growth has been due to a number of factors, including, among other things, the
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


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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 HILLARY AND JACKIE, WAKING NED
DEVINE, 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 substantially in recent years.


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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 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.


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     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 (DVD), (c) presentation 
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. In the
past pre-selling of film rights had provided a means for financing film
production; however, the ability to pre-sell film rights in various territories
and media, the amount of pre-sales that can be obtained in certain territories
and media and thus the percentage of a film's budget that can be covered with
pre-sales fluctuates.  In recent years, independent film companies have not
generally been able to pre-sell as great a percentage of a film's budget as they
have in past


                                          8
<PAGE>

years. 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.  The Company believes that certain gap
financiers may be reducing the frequency of providing such funds as well as
reducing the amount of funds generally provided.  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 a production company in
exchange for all rights to the film upon completion of production and delivery
of the film.  The 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 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 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:

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

     International theatrical                                     --

     Domestic home video (initial release)                4-6 months

     Domestic pay-per-view                                6-9 months

     International home 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>

     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

--------------------
(*) Includes network, barter syndication, syndiation and basic cable.


                                          9
<PAGE>

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 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.

     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


                                          10
<PAGE>

("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 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.  In the past owners of films did not share in rental income;
however, recently, video distributors are beginning to enter into revenue
sharing arrangements with certain retail stores.  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 motion pictures may be licensed to merchandisers for the manufacture
of products such as toys, T-shirts, posters and other merchandise.


                                          11
<PAGE>

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 24 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, Canada, France, Germany, Italy, Scandinavia, Spain and the
United Kingdom.  Japan and South Korea have also been important territories to
the Company in the past; however, the economic downturn in Asia in recent years
has resulted in significantly decreased demand in Japan and Korea (as well as
other Southeast Asian territories) resulting in fewer sales and licensing
transactions with respect to those territories than in prior years and,
significantly less advantageous terms to the Company when deals are concluded,
compared to prior 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 renegotiated 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 of the
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


                                          12
<PAGE>

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 term ending December 20, 2000 and, in certain
circumstances, is obligated to pay a minimum guarantee for a particular picture.
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 1998, various distribution rights to
approximately eleven films, including various domestic distribution rights in
five 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).  The Company does not
anticipate that First Look Pictures will release any of the five films which
first became available to the Company in 1998 for licensing or distribution and
in which the Company controls various domestic distribution rights.  Of the five
films which first became available to the Company in 1998 for licensing or
distribution in the domestic market, two were licensed to third party domestic
distributors for theatrical and other exploitation and three were (or are
intended to be) released straight to video.

     The Company also has determined to have the First Look Pictures 
operation broaden its role in order to maximize the value of the Company's 
growing film library of over 220 titles. First Look Pictures will also seek 
to acquire and distribute films from third party providers. The Company is 
currently licensing domestic video rights to films 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. The Company intends to 
continue such practices, however, additionally, the Company currently has 
plans, on a limited basis, to release certain films on video itself.

     The Company licenses distribution rights directly to pay television
services including HBO, Showtime and Encore, as well as smaller services,
pay-per-view services and basic cable services, including Lifetime.  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
and has licensed these rights in certain films to third parties.

     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 past.  In addition, even if the Company does obtain minimum
guarantees from


                                          13
<PAGE>

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.

     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 March 31, 1999, nineteen films have been released through
First Look Pictures (including two in 1998).  Although some of First Look
Pictures' future releases may appeal to a wide audience, many of the nineteen
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 purchase few 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) 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, in 1998 the 
Company reduced the number of First Look Pictures films released as part of 
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 one 
1999 First Look Picture release compared to two in 1998.  As described in 
Item 13, "Certain Relationships and Related Transactions," the funds for 
print and advertising costs of First Look Pictures' 1998 release of "MRS. 
DALLOWAY" were provided by pre-selling United States video rights and a loan 
from the Company's principal shareholders, Ellen Dinerman Little and Robert 
B. Little.  The funds for print and advertising costs of First Look Pictures' 
other 1998 release, "A MERRY WAR", were provided by a unaffiliated third 
party investor and such funds are to be repaid from revenues generated by the 
film in the U.S. market and are secured by such revenues.  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 two films initially released by First
Look Pictures during 1998 were approximately $980,000 and $164,000,
respectively.  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.

     From January 1, 1998 through March 31, 1999, First Look Pictures released
the two motion pictures listed in the following chart.  First Look Pictures
currently has plans to release one film in 1999 (as set forth below under
"Anticipated Releases") assuming the availability of funding for the print and
advertising costs associated therewith.


                                          15
<PAGE>

                                      RELEASED


<TABLE>
<CAPTION>
                                                                                                        RELEASE DATE AND
                                                                                                        DOMESTIC BOX OFFICE
 TITLE                MAJOR CREATIVE ELEMENTS                   STORYLINE                               RECEIPTS
<S>                   <C>                                       <C>                                     <C>
 MRS. DALLOWAY        Director:  Marleen Gorris (ANTONIA'S      On one summer's day in London, in 1923, Released on February 20,
                      LINE)                                     Clarissa Dalloway remembers that summer 1998 with domestic box
                      Cast:  Vanessa Redgrave (MISSION          in the country, in 1890, when she was   office receipts of
                      IMPOSSIBLE, SMILLA'S SENSE OF SNOW),      young and beautiful and very much       approximately $2,273,753.
                      Rupert Graves (THE MADNESS OF KING        courted.
                      GEORGE, A ROOM WITH A VIEW), Natascha
                      McElhone (THE DEVIL'S OWN, SURVIVING
                      PICASSO).

 A MERRY WAR F/K/A    Director:  Bob Bierman (VAMPIRE'S KISS)   In this touching romantic comedy, the   Released on August 20,
 KEEP THE ASPIDISTRA  Cast:  Helena Bonham Carter (WINGS OF     beautiful and charming Rosemary tries   1998 with domestic box
 FLYING               THE DOVE), Richard E. Grant (TWELFTH      desperately to maintain appearances and office receipts of
                      NIGHT, MIGHTY APHRODITE, PORTAIT OF A     avoid scandal, but she is constantly    approximately $277,747
                      LADY, THE AGE OF INNOCENCE).              frustrated by her eccentric and         through March 31, 1999.
                                                                rebellious boyfriend Gordon, who
                                                                flaunts his outrageous behavior in the
                                                                face of stuffy British middle-class
                                                                hypocrisy.
</TABLE>


                                          16
<PAGE>



                                ANTICIPATED RELEASES



<TABLE>
<CAPTION>
                                                                                                        ANTICIPATED
 TITLE                MAJOR CREATIVE ELEMENTS                   STORYLINE                               RELEASE DATE
<S>                   <C>                                       <C>                                     <C>
 MARCELLO             Director:  Anna Maria Tato                A documentary about Marcello            Summer 1999
 MASTROIANNI:  I                                                Mastroianni's memories, joy of living,
 REMEMBER                                                       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 the motion picture scheduled for release by First
Look Pictures in 1999 or any motion pictures 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 sales and/or distribution rights from a large variety
of independent production companies and producers.  The Company generally
acquires such sales and/or 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); (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); (vi) insurance backed financing structures (arrangements where an 
insurance company insures a lender or other financier against loss from the 
sales of unsold rights); and (vii) other third party equity sources such as 
private investors.  The lenders under the credit facility have the right to 
approve each acquisition by the Company.  In addition, the film facilities 
portion of the credit facility (a significant primary source of funds for 
acquisition of distribution rights by the Company prior to 1998) is, since 
April 14, 1998, no longer a revolving credit line and 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 have necessitated the Company's seeking out 
and utilizing alternate resources and structures to carry on its acquisition 
activities. The Company has been able to acquire the sales or distribution 
rights to approximately seven films, representing an estimated $12,000,000 of 
aggregate production costs, which were first available for distribution in 
1998 and an additional approximately nine films,  representing an estimated 
$53,000,000 in aggregate production costs, which are expected to be first 
made available for distribution in 1999 - including TITUS, the directorial 
debut of the much acclaimed stage director Julie Taymor (THE

                                          17
<PAGE>

LION KING on Broadway) starring Anthony Hopkins and Jessica Lange, there is 
no assurance that the alternate sources of financing and equity, including 
"gap financing", pre-sales and/or other sources of capital, currently being 
utilized by the Company will continue to be available to the extent necessary 
to fund the Company's planned acquisition and distribution goals.  As 
described below, the Company has, as part of the changes in its operational 
strategy, altered 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 $15,000,000 and $20,000,000 (the production funds for
which are currently being provided by a third party equity provider 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,
insurance backed financing structures and accessing equity sources such as
private investors.

     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
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 implemented in
1998, the Company has acted in this manner, or as a sales agent, more frequently
since April 1998 than in prior 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


                                          18
<PAGE>

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 implemented in 1998, the Company since early 1998 has
not provided any minimum guarantees which represented the majority of the final
production costs of a film or for which the Company otherwise financed all or
substantially all of the films' production costs.  Additionally, the Company
currently intends to limit the number of films for which the Company provides
minimum guarantees.

     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 Bank
A.G.  However, as part of the 1998 changes to the Company's credit facility,
such lenders are no longer making such letters of credit available, which has
limited the ability of the Company acting in this capacity and may limit this
practice in the future 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 limit the
situations in which the Company participates in co-financing arrangements. In
those situations where the Company participates in a co-financing arrangement,
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.  By comparison, ALEGRIA
and ILLUMINATA, two films first made available 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.

     The Company did not produce any of the 11 completed films which first
became available to the Company for distribution in 1998, and the Company does
not presently have plans to produce motion pictures itself in 1999; however, it
may do so from time to time in the future.  In those circumstances where the
Company has produced a film, the Company's production subsidiaries have
typically obtained 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


                                          19
<PAGE>

the Company's credit facility. 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.

     The following chart provides certain information regarding completed motion
pictures first made available to the Company for distribution during 1998.  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; and "Gap Financing" 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. 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                       TYPE OF                TERRITORIES
 TITLE               GENRE            ACQUISITION            ACQUIRED               SELECTED CAST
<S>                  <C>              <C>                    <C>                    <C>
 ALEGRIA             Drama            Minimum Guarantee      Universe               Frank Langella (LOLITA,
                                                                                    EDDIE), Julie Cox (FRANZ
                                                                                    KAFKA'S WHAT A WONDERFUL
                                                                                    WORLD)


 A,B,C..,            Drama            Straight Distribution  Universe excluding     Lucy Knight, Erin Norris,
 MANHATTAN                                                   the United States      Sara Paul
                                                             and Canada

 ILLUMINATA          Romantic Comedy  Minimum Guarantee      Universe               John Turturro (BIG LEBOWSKI,
                                                                                    ROUNDERS), Christopher
                                                                                    Walken (PULP FICTION, MOUSE
                                                                                    HUNT), Susan Sarandon (DEAD
                                                                                    MAN WALKING, STEPMOM)


 THE OTHER SIDE OF   Drama            Straight Distribution  United States and      Marie Theisen, Bjorn
 SUNDAY                                                      Canada                 Sundquist

 PERFECT PREY        Action           Sales Agency/Gap       Universe, excluding    Kelly McGillis (TOP GUN, THE
 (a.k.a PERFECT                       Financing              the United States      ACCUSED), David Keith (AN
 LADY)                                                       and homevideo in       OFFICER AND A GENTLEMAN,
                                                             Canada                 MAJOR LEAGUE II), Bruce Dern
                                                                                    (THAT CHAMPIONSHIP SEASON,
                                                                                    LAST MAN STANDING)


                                          20
<PAGE>



<CAPTION>
 MOTION PICTURE                       TYPE OF                TERRITORIES
 TITLE               GENRE            ACQUISITION            ACQUIRED               SELECTED CAST
<S>                  <C>              <C>                    <C>                    <C>
 SILENT CRADLE       Drama            Straight Distribution  United States and      Lorraine Bracco (GOODFELLAS,
                                                             various foreign        MEDICINE MAN), Jason Gedrick
                                                             territories            (BACKDRAFT), Margot Kidder
                                                                                    (SUPERMAN)


 SOCCER DOG          Family           Straight Distribution  Various foreign        Olivia D'Abo (POINT OF NO
                                                             territories            RETURN), James Marshall (A
                                                                                    FEW GOOD MEN)


 SWEET JANE          Drama            Straight Distribution  Universe, excluding    Samantha Mathis (LITTLE
                                                             the United States      WOMEN, BROKEN ARROW), Joseph
                                                             and Canada             Gordon-Levitt (HALLOWEEN
                                                                                    H2O)


 WAKING NED DEVINE   Comedy           Straight Distribution  Universe, excluding    Ian Bannen (GANDHI, GORKY
                                                             the United Kingdom     PARK, HOPE AND GLORY), David
                                                                                    Kelly (INTO THE WEST, THE
                                                                                    MATCHMAKER)


 WHATEVER IT TAKES   Action           Straight Distribution  Universe, excluding    Don "the Dragon" Wilson
                                                             the United States      (BLOODFIST, DELTA FORCE 2),
                                                             and English-speaking   Andrew Dice Clay (FORD
                                                             Canada                 FAIRLANE)


 WHO KILLED PIXOTE   Drama            Straight Distribution  Universe, excluding    Cassiano Carneiro (SEE THIS
                                                             Brazil, Canada and     SONG), Luciana Riueira (FICA
                                                             the United States      COMIDA)
</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  March 31, 1999, 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.


                                          21
<PAGE>

     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.  The Company has 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 soundtracks 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, 1996, only four 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: one in 1998 (Fox Searchlight with $5,000,000
or 20.3%), none in 1997, and 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%).

EMPLOYEES

     At March 31, 1999, the Company employed a total of 24 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 strike, job action or labor disturbance by the members of any of these
entertainment guilds and unions 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

     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, Sony Pictures Entertainment, 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


                                          22
<PAGE>

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, 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


                                          23
<PAGE>

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
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  March 31, 1999, a party to any litigation.

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

     At the Company's 1998 Annual Meeting of Shareholders held on October 14,
1998, Ellen Dinerman Little and Scot K. Vorse were re-elected to serve as
directors of the Company until the Company's 2001 Annual Meeting of Stockholders
and until their successors are elected and have qualified, in each case by a
vote of 5,297,600 votes in favor of such person's re-election, 500 votes against
such person's reelection and no votes withheld.

     At the 1998 Annual Meeting of Stockholders, the Company's stockholders also
approved a proposal to ratify the Company's selection of PricewaterhouseCoopers
LLP as the Company's independent auditors for the fiscal year ended December 31,
1998.  The number of votes cast with respect to such proposal were 5,297,100
votes in favor of such proposal and 500 votes against such proposal, with 500
abstentions and no broker non-votes.

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


                                          24
<PAGE>

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 1997                          HIGH              LOW            HIGH           LOW
<S>                                <C>               <C>              <C>            <C>
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                       2-1/8            1-21/32          3/16           3/16
Third Quarter                       2-13/16             2             15/32           1/8
Fourth Quarter                       2-3/8             1-1/2           7/16           1/16

FISCAL 1999

First Quarter                         3-1/8           2-1/16           1/2            1/4
Second Quarter                       2-15/16          2-11/16          1/4            3/16
   (through April 13, 1999)
</TABLE>



HOLDERS

     As of  March 31, 1999, there were approximately 17 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  March 31, 1999,
there were approximately 8 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

     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.


                                          25
<PAGE>

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, 1998 which have been audited by
PricewaterhouseCoopers 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."



<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                              -----------------------
                                                          1994           1995           1996           1997           1998
                                                          ----           ----           ----           ----           ----
<S>                                                   <C>            <C>            <C>            <C>            <C>
Statement of Operations Data:

Revenues                                              $20,734,094    $21,672,510    $28,677,571    $22,494,256    $25,585,476
Film costs                                             16,395,902     16,320,694     23,058,000     19,152,847     21,014,728
Selling, general and administrative                     2,151,214      2,721,745      3,595,660      3,509,122      2,960,383

Income (loss) from operations                           2,186,978      2,630,071      2,023,910       (167,713)     1,610,365
Income (loss) before income taxes                       2,441,960      2,894,066      1,665,269       (837,277)       112,472
Income taxes(1)                                           296,487        432,905      3,131,367       (293,357)        53,000
Net income (loss)                                       2,145,473      2,461,161     (1,466,098)      (543,920)        59,472

Basic and diluted net income (loss) per share                 .68            .77           (.41)          (.09)           .01
Weighted average number of shares
outstanding                                             3,177,778      3,177,778      3,611,111      5,747,778      5,732,778
</TABLE>

<TABLE>
<CAPTION>
                                                                                   AS OF DECEMBER 31,
                                                                                   ------------------
                                                          1994           1995           1996           1997           1998
                                                          ----           ----           ----           ----           ----
<S>                                                   <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
Film costs, net of accumulated
 amortization                                         $12,377,123    $17,349,071    $28,358,324    $29,740,567    $29,003,201
Total assets                                           24,684,518     28,954,796     40,803,685     46,560,320     50,208,688
Notes payable, banks                                    6,058,279      7,421,893     16,607,137     23,142,184     20,013,281
Total liabilities                                      14,874,057     17,506,422     28,611,919     34,999,208     38,588,104
Total equity                                            9,810,461     11,448,374     12,191,766     11,561,112     11,620,584
</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.


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


                                          26
<PAGE>

          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 1996, 1997 and
1998, approximately 72%, 77% and 70% of the Company's revenues were derived from
such activities.

     Certain films distributed and/or licensed by the Company in 1998 
performed well, especially Waking Ned Devine (released by Fox Searchlight in 
the U.S. where the film has generated approximately $25,000,000 at the box 
office, however, at this time the Company does not estimate amounts will be 
payable by Fox Searchlight to the Company as a result of such performance in 
excess of the $5,000,000 advance paid to the Company in 1998).  Additionally, 
although the Company has operated under the constraints of having little or 
no available debt financing from its current lenders, the Company has 
acquired the sales or distribution rights to approximately seven films 
(representing an estimated $12,000,000 of aggregate production costs) which 
were first available for distribution in 1998 and an additional approximately 
nine films (representing an estimated $53,000,000 in aggregate production 
costs) which are expected to be first made available for distribution in 
1999. However, the continued debt level of the Company and the related 
interest costs as well as the restrictions imposed by the Company's lenders 
have significantly impacted the cash flow and operations of the Company.  
Additionally, the Company continues to be impacted by (i) changes in the 
marketplace for independent films including the reduced demand by retail 
video stores and video subdistributors worldwide for films which have not had 
significant (or any) theatrical release (in 1998, the Company released two 
films theatrically in the United States through First Look Pictures, MRS. 
DALLOWAY, which generated approximately $2,271,221 at the box office, and A 
MERRY WAR, which generated approximately $277,416 at the box office, one 
film, WAKING NED DEVINE, was released by another party generating 
approximately $25,000,000 in box office receipts and eight films first 
available for distribution in 1998 were not released theatrically) and (ii) 
the weakened demand for film rights in Asia due to the region's recent 
economic downturn.  Additionally, the marketplace for independent films has 
been impacted by an overabundance of lower budget independent film product 
made available in part due to the availability of  financing sources 
including "gap financing" and insurance backed financing structures.  In 
order to seek to improve the Company's cash flow and address the changes in 
the marketplace identified above, as well as in response to the operating 
limitations imposed by the lenders under the Company's credit facility, the 
Company in 1998 has made certain changes in its operational strategy, and is 
actively investigating and pursuing potential equity infusions and is seeking 
to refinance its debt.

     The Company has altered the frequency in which it engages in various
acquisition, distribution and financing arrangements and presently intends to
(i) continue to act, in many cases, just as a sales agent or engage in "straight
distribution" whereby the related film is produced with funds provided by other
parties and not by the Company; (ii) continue to act on behalf of producers to
locate and arrange equity sources (including investors, producers, distributors
in various territories, various international governmental programs designed to
incentivize film production and other equity providers), co-production and
co-financing sources, pre-sales, "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), insurance backed financing
arrangements and other sources available for production of motion pictures in
exchange for the sales and/or distribution rights to the related films and or
fees; (iii) limit the instances in which the Company itself produces motion
picture projects; (iv) limit the number of films for which the Company provides
minimum guarantees; (iv) limit the number of films for which the Company
participates in co-financing arrangements and (v) limit the number of films
First Look Pictures releases annually (two in 1998 and possibly one in 1999).
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 (i) acquire films rights
with respect to films with more recognizable cast, directors and producers and
greater production values (often through offering greater creative opportunity
to talent than


                                          27
<PAGE>

major studios offer or as a result of larger budgets) and which may 
accordingly have broader appeal in the competitive theatrical market; (ii) 
acquire films which are oriented to television (including pay television) 
programming needs including, at times, lower budgets and in specifically 
oriented genres; (iii) further develop relationships with major studios; (iv) 
expand the Company's executive producing role in connection with motion 
pictures produced and distributed by other companies and (v) 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 also actively 
pursuing additional and/or alternate sources of capital including potential 
equity infusions as well alternatives for the refinancing of the Company's 
existing credit facility.  There can be no assurance, however, that such 
additional capital (including any refinancing of the Company's credit 
facility) 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 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 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.


                                          28
<PAGE>

     The following table sets forth the Company's unamortized film costs as of
December 31, 1996, 1997 and 1998:



<TABLE>
<CAPTION>
                                                      AS OF DECEMBER 31,
                                                      ------------------
                                            1996                1997                1998
                                            ----                ----                ----
<S>                                     <C>                 <C>                 <C>
Films in release, net of
  accumulated amortization              $ 25,838,106        $ 26,781,682        $ 27,192,856
Films not yet available for release        2,520,218           2,958,885           1,810,345
                                        ------------        ------------        ------------

                                        $ 28,358,324        $ 29,740,567        $ 29,003,201
                                        ------------        ------------        ------------
                                        ------------        ------------        ------------
</TABLE>

Based upon the Company's estimate as of December 31, 1998 of projected gross
revenues, approximately 65% 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, 2001.

     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 two
films initially released in 1998 (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 $3,900,000) and has no current plans
to commit to any significant minimum guarantees in 1999 or advance print and
advertising costs.  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
1999).  While the Company may, in certain circumstances, reduce some of the
foregoing risks by sub-licensing certain distribution rights in exchange for
minimum 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 7,422,500, 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, 1998, 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, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     Revenues increased by $3,091,220 (13.7%) to $25,585,476 for the year 
ended December 31, 1998 from $22,494,256 for the year ended December 31, 
1997.  The increase in revenues was due in part to the license of North and 
Latin American

                                          29
<PAGE>

rights to WAKING NED DEVINE for $5,000,000 and to increased U.S. theatrical
revenues ($1,005,131 for the year ended December 31, 1998 compared to $358,081
for the year ended December 31, 1997) primarily resulting from the Company's
release (through First Look Pictures) of MRS. DALLOWAY in February 1998.

     Film costs as a percentage of revenues decreased to 82.1% for the year
ended December 31, 1998, compared to 85.1% for the year ended December 31,
1997.  The decrease is primarily due to fewer write-downs to net realizable
value of film costs in the year ended December 31, 1998 compared to the year
ended December 31, 1997 (approximately $1,205,123 for the year ended December
31, 1998 compared to approximately $1,926,506 for the year ended December 31,
1997).

     Selling, general and administrative expenses, net of amounts capitalized to
film costs, decreased by $548,739 (15.6%) to $2,960,383 for the year ended
December 31, 1998 from $3,509,122 for the year ended December 31, 1997.  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.  Decreases in certain selling, general and administrative
expenses over those in the prior year include payroll related expenses (which
decreased approximately $514,566), accounting expenses (which decreased
approximately $108,045), legal expenses (which decreased approximately $67,411),
business entertainment expenses (which decreased approximately $52,548) and
costs associated with a sales consultant based in Italy (which decreased
approximately $40,066).  The decreases were partially offset by increases in
certain selling, general and administrative expenses over those in the prior
year including contract labor (which increased approximately $108,337), rent
(which increased approximately $36,707), communication expenses (which increased
approximately $36,456) and bad debt expense (which increased approximately
$28,017).

          Other expense increased $828,329 (123.7%) to $1,497,893 for the year
ended December 31, 1998 compared to $669,564 for the year ended December 31,
1997 primarily as a result of increased interest expense of $1,644,153 for the
year ended December 31, 1998 compared to $853,666 for the year ended December
31, 1997.  Interest expense for the year ended December 31, 1998 increased over
the prior year primarily as the result of less interest being capitalized to
film costs.  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 had net income before income taxes of
$112,472 for the year ended December 31, 1998 compared to a loss, before tax
benefit, for the year ended December 31, 1997 of $837,277.

     The Company recorded a tax provision of $53,000 for the year ended 
December 31, 1998 (reflecting a 47.1% effective tax rate), compared to a tax 
benefit of $293,357 for the year ended December 31, 1997 resulting from the 
expected future tax benefit of recognizing the reported loss for such year 
for tax purposes.  The tax benefit for the year ended December 31, 1997 was 
calculated assuming an effective tax rate of 35.0%.

     As a result of the above, the Company had net income of $59,472 for the
year ended December 31, 1998 compared to a net loss for the year ended December
31, 1997 of $543,920.

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


                                          30
<PAGE>

$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.

     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
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 incurred 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 Securities and Exchange
Commission ("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.

     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.   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


                                          31
<PAGE>

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 from
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.

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 1996, 1997 and 1998 were as follows:


<TABLE>
<CAPTION>
                                      YEAR ENDED DECEMBER 31,
                                      -----------------------
                            1996                  1997                1998
                            ----                  ----                ----
<S>                      <C>                  <C>                 <C>
Operating                $18,276,355          $14,517,735         $20,686,197
Investing                (33,923,848)         (20,090,234)        (20,312,180)
Financing                 13,480,620            6,524,404         ( 1,028,382)

</TABLE>

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 1996 to 1997 and the increase in cash flows provided by
operating activities from 1997 to 1998 generally represents decreased or
increased (as the case may be) cash flows provided by sales and licensing of
distribution rights by the Company.  As part of certain changes in its
operational strategy, which began in 1997 and continued through 1998, and in
order to improve cash flow, the Company has implemented certain reductions in
overhead including reductions in personnel (the Company had 24 full time
employees at  April 14, 1999, a reduction of 4 full time employees from April
14, 1998 and a reduction of 16 full time employees from April 14, 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 1996 to 1997 and from 1997 to
1998 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 bears interest at the rate
of 9% per annum, 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 and originally provided that it was payable in
monthly installments of principal and interest of $41,517 over a five year
period ending October 1, 2001.  As described below, payments on the Merger Note
are currently being deferred.


                                          32
<PAGE>

     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 1998 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
1998 amounted to an aggregate of approximately $10,000.

     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, 1998, an aggregate of approximately $11,778,940 was outstanding under the
Film Facilities and $7,234,340 was outstanding under the Operating Facility, at
an average interest rate on all such outstanding amounts of approximately 8.4%
per annum.  As of December 31, 1998, $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, 1998 bearing interest at 6.50% 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.

     On April 14, 1998, the Company and the Lenders entered into an agreement
(the "1998 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 (scheduled to expire May 9,
1998) to April 9, 1999, subject to continued compliance by the Company with the
Syndication Agreement and the terms of the 1998 Facility Amendment, and
establishment of the guarantee detailed below.  Pursuant to the 1998 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 1998 Facility Amendment) with
the timing of the availability to be substantially in accordance with agreed
cash flow schedules.  Pursuant to the 1998 Facility Amendment, the Company

                                          33
<PAGE>

and the Lenders also agreed that the Film Facilities would no longer be a
revolving credit line and sums repaid cannot be reborrowed.  As part of the
1998 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 matured or would
otherwise have matured in 1998. 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 had been
repaid.  As part of the 1998 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.  As part of the 1998 Facility Amendment, the Lenders
reduced the minimum net worth required to be maintained by the Company to
$11,000,000 subject to further review on April 14, 1999 and waived any prior
non-compliance with such covenant.

     As part of 1998 Facility Amendment, Ms. Little and Mr. Little 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 would be extinguished when the
amounts outstanding under the Operating Facility were permanently reduced to
less than $6,000,000.

     As part of the 1998 Facility Amendment, Ms. Little and Mr. Little agreed 
to continue deferral of payments under the Merger Note which the Company had 
begun to defer in May 1997.  Payments under the Merger Note accrue but are 
being deferred with interest thereon until outstanding borrowings under the 
Operating Facility are reduced to at least $5,000,000, the Company and the 
Lenders view that such reduction is permanent, and not before May 1999 (the 
"Deferral Lapse Date"); provided, however, that prior to the Deferral Lapse 
Date, pursuant to the recent amendment to the Syndication Agreement described 
below, an amount equal to the Littles' aggregate weekly salary can be paid to 
the Littles on a weekly basis towards repayment of the Merger Note so long as 
the Littles defer such weekly salary payments until the Deferral Lapse Date. 
As described below the Littles' salary is currently being deferred and 
amounts are currently being applied towards the Merger Note on such basis. As 
salary becomes due and payable to the Littles on a weekly basis, such amounts 
are accruing, but payment of such salary is being deferred, without interest. 
The Merger Note is being extended for the period of time payments are 
deferred, the deferred Merger Note payments 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, 1999, an aggregate of approximately 
$2,122,406 in principal and interest was outstanding under the Merger Note 
(including an aggregate of approximately $954,884 in previously deferred 
payments of principal and interest).

     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 scheduled to expire on April 9, 1999, the date of 
the annual review, however, on April 9, 1999, the Company and the Lenders 
entered into an agreement (the "1999 Facility Amendment") pursuant to which 
they amended the Syndication Agreement to extend the date of the annual 
review and the expiration of the credit facility under the Syndication 
Agreement to April 9, 2000, subject to continued compliance by the Company 
with the Syndication Agreement and the terms of the 1999 Facility Amendment. 
Additionally, the Lenders agreed to extend the maturity dates on all film 
facilities to April 9, 2000, except for two film facilities for which the 
maturity dates are May 30, 1999 and October 31, 1999 respectively. The 
lenders have indicated their desire that the Company fully repay amounts 
outstanding under the existing credit facility and instead seek an alternate 
financing source and have imposed additional fees on the Company to encourage 
refinancing of the credit facility. In addition, the terms of the Syndication 
Agreement, as amended, provide that 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 of the date of the 1999 Facility Amendment, an 
aggregate of approximately $11,460,963 was outstanding under the Film 
Facilities, an aggregate of approximately $7,234,340 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 $1,000,000 was then outstanding).  
Pursuant to the 1999 Facility Amendment, the Company has agreed to provide 
additional information to the Lenders and to engage in additional 
consultation with the Lenders and their advisors.  Additionally,

                                          34
<PAGE>

the Lenders have imposed additional fees of up to an aggregate of $250,000 in 
additional fees to be paid by the Company if the credit facility is not 
refinanced on or prior to April 9, 2000. Additionally, the Banks waived 
certain non-compliance with various covenants under the Syndication Agreement 
including (i) the continued waiver of the requirement to maintain a net worth 
of $12,000,000, reducing such requirement to $11,000,000 (at December 31, 
1998 the Company's net worth, calculated in accordance with this provision, 
was $11,620,584); (ii) any non-compliance with certain ordinary course 
liabilities; (iii) the Company not having secured letters of credit or bank 
guarantees for license agreements with certain sub-distributors; (iv) the 
Company's non-compliance with the annual overhead budget established during 
the 1998 Amendment; and (v) the Company's non-compliance with a requirement 
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.  Additionally, the Lenders established 
an agreement with respect to the Company's overhead levels for the twelve months
beginning April 9, 1999.

     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 bore interest at the rate of 9% per annum, 
originally matured on October 31, 1997 and was repaid by February 1999. 
Certain other amounts are currently due to the Littles, including an 
aggregate of $100,000 in bonuses to the Littles earned by them in 1996 and 
1997, reimbursement of approximately $129,626 in expenses as provided in 
their employment agreements with the Company, accrued salary payments of 
approximately $136,129 which salary is being deferred. As salary becomes due 
and payable to the Littles on a weekly basis such amounts are accruing, but 
payment of such salary is being deferred, without interest, until a date to 
be mutually agreed upon by the Littles and the Company. At the same time, an 
amount equal to the Littles' aggregate weekly salary is being applied on a 
monthly basis to amounts owed to the Littles under the Merger Note (such 
amounts were previously applied to the life Insurance Note, until it was 
fully repaid). Payments under the Merger Note are subject to certain 
restrictions as provided in the 1999 Facility Amendment between the Company 
and its Lenders. 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 14, 1999, the aggregate amount
outstanding (including accrued interest) pursuant to such loan was approximately
$44,600.  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, 1998, the Company had cash and cash equivalents of
$537,652 compared to cash and cash equivalents of $1,179,133 as of December 31,
1997.  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, 1998, the Company had restricted cash of $159,614 held by the
Company's primary lender, to be applied against various Film Facilities.  The
restricted cash balance as of December 31, 1997 was $172,498.

                                          35
<PAGE>

     As of December 31, 1998, the Company also had deferred revenue relating 
to distribution commitments and guarantees from sub-distributors of 
approximately $132,250.

     The Company has guaranteed a loan from a bank to Neo Motion Pictures due 
on September 11, 2000, the principal balance of which at March 31, 1999 was 
approximately $111,961 in principal and accrued interest.

     The Company estimated that it would acquire rights to and distribute or 
act as sales agent with respect to approximately 10 to 12 films in 1998, 
including up to approximately three First Look Pictures releases. In 1998 the 
Company acquired rights to eleven films and First Look Pictures released two 
films. During the next twelve months, the Company currently intends to 
acquire rights to and distribute or act as sales agent with respect to 
approximately eight to twelve films, including one First Look Pictures 
release (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, gap financing, insurance backed financing structures and equity 
sources) will be sufficient to enable the Company to fund its presently 
planned acquisition, distribution and overhead expenditures for the next 
twelve months.  However, the restrictions imposed by the Company's current 
lenders as well as the additional fees imposed by such lenders on the 
Company, as described above, has resulted in the Company actively seeking to 
refinance its current debt arrangements.  Additionally, 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, gap 
financing, insurance backed financing structures and other equity) 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 investments in the Company and the refinancing of it credit 
facility).  There can be no assurance, however, that such additional capital 
will be available or available on terms advantageous to the Company. In the 
event such additional capital is not available, the Company may need to 
further exploit other sources of capital (such as pre-sales, gap financing, 
insurance backed financing structures and other equity), or significantly 
reduce its currently planned level of activities and overhead.

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 may 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.

                                          36
<PAGE>

IMPACT OF YEAR 2000

          Impact of the Year 2000 Issue - Introduction.  The term "Year 2000
issue" is a general term used to describe the various problems that may result
from the improper processing of dates and date-sensitive calculations by
computers and other machinery as the Year 2000 is approached and reached.  These
problems generally arise because most of the world's computer hardware and
software have historically used only two digits to identify the year in a date,
often meaning that the computer will fail to distinguish dates in the 2000's
from dates in the 1900's.  Year 2000 issues also may arise from other sources as
well, such as the use of special codes and conventions in software that make use
of the date field.

     State of Readiness.  The Company has assessed its computer systems
(software, hardware, including embedded microprocessors and other technology) in
order to determine whether such systems recognize the year 2000.  Based upon
such assessment the Company ascertained that all of the Company's computer
systems were year 2000 compliant except for the Company's accounting system.  As
a result of such assessment, the Company has upgraded its accounting system.
The upgrade has both expanded the capabilities of the system and resolved the
year 2000 issues associated with the current system. The Company does not
currently anticipate that any additional material changes will be required or
that the Year 2000 issue will pose significant operational problems for the
Company.  If any unanticipated problems arise, the Year 2000 issue may take
longer for the Company to address and could have a material adverse effect on
the Company's financial condition and results of operations.

     The Company has primarily focused on its own internal systems.  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.

          Costs to Address the Year 2000 Issue. The cost to the Company in
connection with the upgrade of its accounting system, was approximately $10,000.
Such amount was funded from the Company's existing capital from operations.  The
Company does not believe that the costs of solving the internal Year 2000 issues
has had or will have a material adverse effect on its liquidity or financial
condition.  However, if unanticipated problems arise, certain additional costs
may be identified.  There can be no assurance that such additional costs will
not have a material adverse effect on the Company's financial condition and
results of operations.

     Risks of Year 2000 Issues.  To date, the Company has not identified any 
of its computer systems which present a material risk of not being Year 2000 
ready in a timely fashion or for which a suitable alternative cannot be 
implemented. The failure of the Company to identify systems which require 
Year 2000 conversion that are important to the Company's operations or the 
failure of others with which the Company does business to become Year 2000 
ready in a timely manner could disrupt the Company's operations and have a 
material adverse effect on the Company's financial condition and results of 
operations. Such disruption may include, among other things, the inability to 
process transactions or information, record and access data relating to the 
availability of titles in the Company's library for licensing and 
distribution, send invoices or engage in similar normal business activities.  
There can also be no assurance that other parties will not suffer a Year 2000 
business disruption that may adversely effect the Company's financial 
condition and results of operations.  For example, in the event third parties 
experience Year 2000 business disruptions, payments to the Company may be 
delayed.

     Contingency Plans.  Because the update of the Company's accounting system
conversion has been completed prior to any potential disruption to the Company's
business, the Company has not yet developed a comprehensive Year 2000 specific
contingency plan.  If the Company determines that its business or a segment
thereof is at material risk of disruption due to the Year 2000 issue, the
Company will work to enhance its contingency plans.

     The discussion above contains certain forward-looking statements.  The
estimated costs of the Year 2000 issues and possible risks associated with the
Year 2000 issue are based on the Company's current estimates and are subject to

                                          37
<PAGE>

various uncertainties that could cause the actual results to differ materially
from the Company's expectations.  Such uncertainties include, among other
things, the success of the Company in identifying its systems that are not Year
2000 compliant, the nature and amount of programming required to upgrade such
systems, consultants and other resources, and the success of the Year 2000
conversion efforts of others.

EXCHANGE RATE CONSIDERATIONS

     A significant portion of the Company's revenue (approximately 70% in 
1998) 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.  
The economic downturn in Asia has had an impact on the Company's results of 
operation in the past year. See Item 1. "Motion Picture Distribution by the 
Company."

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

                                          38
<PAGE>

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.


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

     The Company is exposed to market risk related to changes in interest 
rates. The Company does not use derivative financial instruments.  Because 
very few of the Company's revenues are denominated in foreign currency, the 
Company does not believe there is a significant risk imposed on the Company 
due to the fluctuations in foreign currency exchange rates.  See Item 7. 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations -- Exchange Rate Considerations." The table below provides 
information about the Company's debt obligations including principal cash 
flows and related weighted average interest rates by expected maturity dates:

<TABLE>
<CAPTION>


                                                 Expected Maturity Date
                                                        (000's)

                              1999      2000      2001      2002      2003      thereafter
                              ----      ----      ----      ----      ----      ----------
<S>                           <C>       <C>       <C>       <C>       <C>       <C>
     Liabilities
     -----------

Fixed Rate:
Notes payable to related
     Party *
     Average Interest Rate    9%        9%        9%        9%        9%        9%


Variable Rate:
Notes Payable                 2,359     19,655      0         0         0         0
     Average Interest Rate     9.13       8.34

</TABLE>


* Amounts payable to related parties represent amounts payable to Ellen and 
Robert Little which are currently being deferred pursuant to an agreement 
with the Company's lenders and an arrangement between the Company and 
Littles.  See Item 13. "Certain Relationships and Related Transactions" for 
more information.

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.


                                          39
<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           54               Co-Chairman of the Board and Co-Chief Executive Officer

Ellen Dinerman Little      57               Co-Chairman of the Board, Co-Chief Executive Officer and President

Stephen K. Bannon          45               Vice Chairman of the Board, Chairman of the Executive Committee of
                                              the Board

William F. Lischak         41               Chief Operating Officer, Chief Financial Officer, Secretary and
                                              Director

MJ Peckos                  44               Senior Vice President, Domestic Distribution and Marketing

Alessandro Fracassi        47               Director

Gary M. Stein              42               Director

Scot K. Vorse              38               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 1999 (William F.
Lischak, Gary M. Stein and Alessandro Fracassi), in 2000 (Robert B. Little and
Stephen K. Bannon), and in 2001 (Ellen Dinerman Little and Scot K. Vorse) 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 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.


                                          40
<PAGE>

     ELLEN DINERMAN LITTLE became Co-Chairman of the Board of Directors,
Co-Chief Executive Officer and President of the Company upon consummation of the
October 1996 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 October 1996 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
October 1996 Merger, he served as the Chairman of the Board of Directors of
EMAC.  From June 1991 through July 31, 1998, Mr. Bannon served as the Chief
Executive Officer of Bannon & Co., Inc., an investment banking firm specializing
in the entertainment, media and communications industries.  On July 31, 1998,
Bannon & Co., Inc. was acquired by SG Cowen Securities Corporation, an
integrated, full service U.S. securities and investment banking firm.  Since
such date, Mr. Bannon has been serving as managing director and Co-Head of SG
Cowen Securities Corporation's media and entertainment group.  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.
Mr. Bannon is a registered principal with the National Association of Securities
Dealers, Inc. (NASD).

     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 October 1996 Merger and its Chief Financial Officer from
September 1988 until the October 1996 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.

     MJ PECKOS became Senior Vice President, Domestic Distribution and
Marketing, of the Company upon consummation of the October 1996 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 October 1996 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.

     GARY M. STEIN became a Director of the Company in September 1998.  Since
January 1997, Mr. Stein has served as general partner of Britten and Stone
Music, a Nashville-based publishing and consulting business, which he co-founded
with his wife.  From December 1994 until the October 1996 Merger, Mr. Stein
served on the Board of Directors of EMAC.  Between March 1990 and October 1996,
Mr. Stein served as Executive Vice President - Corporate and Financial
Development for Lancit Media Entertainment, Inc., a leading producer of quality
children's television programming.  During 1995 and 1996, Mr. Stein also served
on the Board of Directors of Strategy Licensing Company, a Lancit subsidiary
engaged in the licensing of popular character-based properties.  Mr. Stein
currently serves on the Board of Directors of Seventh Generation, Inc., a
publicly held supplier of environmentally-friendly


                                          41
<PAGE>

household products.  From 1987 through February 1990, Mr. Stein was an
independent corporate development consultant to a wide variety of media and
entertainment firms.  From 1984 to 1987, Mr. Stein served as Senior Analyst -
Investment Banking at Rosenkrantz, Lyon and Ross, a New York Stock
Exchange-member securities firm (now known as Josephthal & Co.) where he helped
form the firm's corporate finance division.

     SCOT K. VORSE became a Director of the Company in January 1995. From
January 1995 until the Merger in October 1996, he served as Treasurer and
Secretary of EMAC, and from January 1995 until November 1996, he served as Vice
President of EMAC.  From June 1991 through July 31, 1998, Mr. Vorse served as an
Executive Vice President and the Chief Financial Officer of Bannon & Co., Inc.,
an investment banking firm specializing in the entertainment, media and
communications industries.  On July 31, 1998, Bannon & Co., Inc., was acquired
by SG Cowen Securities Corporation, an integrated, full service U.S. securities
and investment banking firm.  Since such date Mr. Vorse has been serving as a
managing director and Co-Head of SG Cowen Securities Corporation's media and
entertainment group. Mr. Vorse is a registered principal with the NASD.

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.

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, Gary M. Stein 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


                                          42
<PAGE>

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.

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 Gary M.
Stein, who became a director on September 3, 1998 was not filed with the
Commission until February 8, 1999, and (ii) the Form 5 for William Lischak with
respect to the Company's fiscal year ended December 31, 1997 failed to reflect a
gift by Mr. Lischak to a third party of 1,000 shares of Common Stock such gift
was reflected on the Form 5 filed by Mr. Lischak for the fiscal year ended
December 31, 1998.

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, 1998 whose
total salary and bonus compensation during fiscal 1998 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, 1996, 1997 and 1998 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 1998 and includes the number
and value of unexercised options held by the Named Executives at December 31,
1998.  No stock options or stock appreciation rights were granted to the Named
Executives in 1998.


                                          43
<PAGE>

                           SUMMARY COMPENSATION TABLE*

<TABLE>
<CAPTION>


                                                                                                 LONG TERM
                                                                                               COMPENSATION
                                      ANNUAL COMPENSATION                                          AWARDS

                                                                            OTHER ANNUAL         SECURITIES
             NAME AND                                                       COMPENSATION         UNDERLYING          ALL OTHER
        PRINCIPAL POSITION      YEAR        SALARY          BONUS               ($)            OPTIONS/SARS (#)     COMPENSATION
        ------------------      ----        ------          -----               ---            ----------------     ------------
<S>                             <C>       <C>              <C>              <C>                <C>                  <C>
ROBERT B. LITTLE                1998      $125,000(14)     $25,000(12)           $29,189(13)          0              $116,165(16)
CO-CHAIRMAN OF THE              1997           125,000      27,404(12)            $40,511(9)          0                16,695(10)
  BOARD AND CO-CHIEF            1996           110,158      25,000(12)                -- (1)      1,100,000            18,858 (2)
  EXECUTIVE OFFICER

ELLEN DINERMAN LITTLE           1998       125,000(15)     $25,000(12)             17,203(8)          0              $106,612(17)
CO-CHAIRMAN OF THE              1997           125,000      27,404(12)             27,184(7)          0                23,892(11)
  BOARD, CO-CHIEF               1996           110,457      25,000(12)               --  (1)      1,100,000            24,812 (3)
  EXECUTIVE OFFICER
  AND PRESIDENT

WILLIAM F. LISCHAK              1998           193,209          50,000               --  (1)          0               10,677  (6)
CHIEF OPERATING                 1997           175,000          53,365               --  (1)          0                9,410  (5)
  OFFICER, CHIEF                1996           137,198         212,500               --  (1)          0                2,994  (4)
  FINANCIAL OFFICER
  AND SECRETARY

MJ PECKOS                       1998           153,224               0               --  (1)          0                4,985  (4)
SENIOR VICE PRESIDENT           1997           156,483          20,000               --  (1)          0                2,923  (4)
                                1996           126,100          40,000               --  (1)          0                2,922  (4)
</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)  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.

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

(5)  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.

(6)  Represents $3,077 in contributions made by the Company on behalf of such
     Named Executive pursuant to the Company's 401(k) Plan, $5,135 for life
     insurance premiums paid by the Company for the benefit of such Named
     Executive, and $2,464 for disability insurance premiums paid by the Company
     for the benefit of such Named Executive.


                                          44
<PAGE>

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

(8)  Includes $10,700 of business management and accounting fees paid on behalf
     of such Named Executive; and $4,300 of business management and accounting 
     fees payment of which has been deferred until a date to be agreed to by the
     Company and the Named Executive.

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

(10) 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.

(11) 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.

(12) Includes bonus of $25,000 earned by each of such Named Executives 
     payment of which has been deferred until a date to be agreed to by the 
     Company and the Named Executive.

(13) Includes $11,985 for automobile lease payments, $10,700 in business
     management and accounting fees and $4,300 in business management and 
     accounting fees to which the Named Executive is entitled to 
     reimbursement, payment of which has been deferred until a date to be 
     agreed to by the Company and the Named Executive.

(14) Represents salary earned by such Named Executive pursuant to his Employment
     Agreement, the payment of $68,065.77 of which has been deferred in 
     accordance with the arrangement described under Item 7. "Management's 
     Discussion and Analysis of Financial Conditions and Results of 
     Operations - Liquidity and Capital Resources."

(15) Represents salary earned by such Named Executive pursuant to her Employment
     Agreement, the payment of $68,063 of which has been deferred in accordance
     with arrangement described under Item 7. "Management's Discussion and 
     Analysis of Financial Conditions and Results of Operations - Liquidity and 
     Capital Resources."

(16) Represents $2,266 in contributions made by the Company on behalf of such
     Named Executive pursuant to the Company's 401(k) Plan, $22,318 in life
     insurance premiums paid by the Company for the benefit of such Named
     Executive and $11,939 in life insurance premiums which amount has been
     deferred until a date to be agreed upon by the Company and the Named 
     Executive, and $2,122 in disability insurance premiums paid by the Company
     for the benefit of such Named Executive.

(17) Represents $2,267 in contributions made by the Company on behalf of such
     Named Executive pursuant to the Company's 401(k) Plan, $15,099 in life
     insurance premiums paid by the Company for the benefit of such Named
     Executive and $18,906 in life insurance premiums payment which amount 
     has been deferred until a date to be agreed upon by the Company and the 
     Named Executive, and $2,275 in disability insurance premiums paid by the
     Company for the benefit of such Named Executive.

                                          45
<PAGE>

                     * 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        ($)             OPTIONS/SARS AT             AT DECEMBER 31, 1998
                                  (#)                         DECEMBER 31, 1998                 EXERCISABLE
                                                          EXERCISABLE/UNEXERCISABLE           /UNEXERCISABLE
                                                                      (#)                           ($)
<S>                          <C>             <C>          <C>                           <C>
Ellen Dinerman Little              0          $ 0              500,000/600,000                    $0/0

Robert B. Little                   0            0              500,000/600,000                     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, 1998.

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 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; provided such
individual has served as a non-employee member of the Board of Directors for at
least six months.  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.

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.


                                          46
<PAGE>

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 are each entitled to receive fixed annual
compensation of $125,000 and 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.  As described under Item 7 "Management's Discussion 
and Analysis of Financial Conditions and Results of Operations - Liquidity and 
Capital Resources," payment of salary to Ms. Little and Mr. Little is currently
being deferred.  The employment agreements of Ms. Little and Mr. Little 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 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.

                                          47
<PAGE>

     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 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 March 31, 1999, options to purchase an
aggregate of 60,000 shares of Common Stock were outstanding under the Basic Plan
with exercise prices ranging from $1.875 to $5.25. 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 March 31, 1999 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 March 31, 1999.  The shares of Common Stock underlying
immediately exercisable options, warrants or rights, or immediately


                                          48
<PAGE>

convertible securities, or shares of Common Stock underlying options, warrants,
rights or convertible securities that become exercisable or convertible within
60 days of March 31, 1999, 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.

<TABLE>
<CAPTION>


                                                                     PERCENT OF
                                           NUMBER OF SHARES         COMMON STOCK
                                            OF COMMON STOCK         BENEFICIALLY
NAME                                      BENEFICIALLY OWNED            OWNED
                                          ------------------            -----
<S>                                       <C>                       <C>
Ellen Dinerman Little (1)                   4,202,778 (2)               62.4%
Robert B. Little (1)                        4,202,778 (2)               62.4%
Stephen K. Bannon                             131,324 (3)                2.3%
William F. Lischak                            249,560 (4)                4.4%
MJ Peckos                                           0                      0%
Alessandro Fracassi                            10,000 (3)                   *
Gary M. Stein                                 178,000 (5)                3.1%
Scot K. Vorse                                 136,323 (6)                2.4%
Dolphin Offshore Partners, L.P. (7)         1,262,500 (8)               20.8%
Jay Goldman (9)(11)                          620,300 (10)                9.8%
All current executive officers
  and directors as a
  group (8 persons)                        4,658,425 (12)               68.9%

</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) 500,000 shares of Common Stock subject to immediately exercisable
     options granted to such person under the Management Option Plan, and (iv)
     500,000 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) 600,000 shares of Common Stock
     subject to options granted to such person under the Management Option Plan
     or 600,000 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. 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 shares are held by Mr. Lischak) the 249,560
     shares of Common Stock held by Mr. Lischak.  See footnote (4) below.

(3)  Includes 10,000 shares of Common Stock subject to immediately exercisable
     option granted pursuant to the Basic Plan.


                                          49
<PAGE>

(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)  Includes 16,000 shares of Common Stock owned by Mr. Stein's spouse for
     which he disclaims beneficial ownership.

(6)  Includes (i) 10,000 shares of Common Stock subject to immediately
     exercisable options granted pursuant to the Basic Plan; and (ii) 126,323
     shares of Common Stock contributed by Mr. Vorse to a revocable living trust
     for the benefit of Mr. Vorse's spouse.

(7)  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

(8)  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.

(9)  The address of Mr. Goldman is 40 Kean Road, Short Hills, New Jersey 07078.

(10) Includes (i) 458,000 shares of Common Stock issuable upon exercise of
     Warrants held by Mr. Goldman (including those held in his IRA Account; (ii)
     25,000 shares of Common Stock issuable upon exercise of unit purchase
     options held by Mr. Goldman (each unit consisting of one share of Common
     Stock and two Warrants; (iii) 50,000 shares of Common Stock issuable upon
     exercise of the Warrants issuable upon the exercise of the unit purchase
     options held by Mr. Goldman; (iv) 8,000 shares of Common Stock held of
     record by Mr. Goldman's spouse, and (v) 78,500 shares of Common Stock
     issuable upon exercise of Warrants held in the spouse of Mr. Goldman's IRA
     Account.

(11) Information provided was obtained from Mr. Goldman's Form 13-G dated 
     November 23, 1998 filed by Mr. Goldman with the Securities and Exchange 
     Commission.

(12) Includes 500,000 shares of Common Stock subject to immediately exercisable
     options granted to Ellen Dinerman Little under the Management Option Plan,
     500,000 shares of Common Stock subject to immediately exercisable options
     granted to Robert B. Little under the Management Option Plan, and an
     aggregate of 30,000 shares of Common Stock subject to immediately
     exercisable option granted to Messrs. Bannon, Fracassi, 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.  As of March 31, 1999, 976,073 Merger Shares held by the
Littles and 83,187 Merger Shares held by Mr. Lischak remain subject to the
lock-up. 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  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


                                          50
<PAGE>

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 originally 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 mid-1997, in order to address what the Company had anticipated was a 
need for additional working capital availability occasioned by the 
disappointing worldwide performance of 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 for such lenders to make additional amounts available to the Company 
under the operating facility portion of the credit facility and to extend the 
commitment to lend under the credit facility.  As part of the discussions, 
Ms. Little and Mr. Little agreed to defer payments to them under the Merger 
Note. In April 1998, the Company and the lenders under the credit facility 
amended the Company's credit facility, as well as extended the date of the 
lender's annual review of the facility and the expiration of their commitment 
to lend under the facility. As part of the amendments to the Company's credit 
facility, Ms. Little and Mr. Little agreed to continue deferral of payments 
under the Merger Note. During 1998, no principal and interest was paid to the 
Littles under the Merger Note and an aggregate of $498,200 was deferred.  
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 "Deferral Lapse 
Date"); provided, however, that, prior to such time, pursuant to the 1999 
Facility Amendment, an amount equal to the Littles' aggregate weekly salary 
can be paid to the Littles on a weekly basis towards repayment of the Merger 
Note so long as the Littles defer such weekly salary payments until the 
Deferral Lapse Date. The Littles' weekly salary is currently being deferred, 
without interest, and an amount equal to such weekly salary is being applied 
towards the Merger Note (such amount was previously applied to the Insurance 
Note described below), on such basis.  The Merger Note is being extended for 
the period of time Merger Note 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, 1999, 
the aggregate amount outstanding (including accrued interest) under the 
Merger Note was approximately 2,122,406 (including an aggregate of 
approximately $954,884 in previously deferred payments of principal and 
interest).

     As part of the April 1998 amendments to the Company's credit facility, Ms.
Little and Mr. Little also agreed to personally guarantee for the benefit of the
lenders under the credit facility all amounts in excess of $6,000,000 (up to a
maximum guarantee amount of $618,000) drawn under the operating facility portion
of the credit 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.

     Pursuant to the Merger, on October 31, 1996, the Littles also received an
unsecured promissory note (the "Insurance Note") of the Company in the principal
amount of $137,061, bearing interest at the rate of 9% per annum,  representing
the cash value on such date of certain life insurance policies the ownership of
which was transferred to the


                                          51
<PAGE>

Company on Merger, and under which the Company was named as the beneficiary.
During 1998, an aggregate of $99,480 in principal and an aggregate of $36,649 in
accrued interest was paid to the Littles under such note.  During 1999, an
aggregate of $52,344 in principal and an aggregate of $545 in accrued interest
was paid to the Littles under such note, resulting in the full repayment of such
note in February 1999.

     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 Officer, Chief Financial Officer, Secretary and a
Director of the Company).  During 1998, 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 is 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.

     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"
(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
March 31, 1999, the aggregate amount outstanding (including accrued interest)
pursuant to such loan was approximately $444,601.

     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 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 1998, no consulting fees were paid by Neo to Mr. Little,
although, at March 25, 1999, 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 in
September 2000 (extended originally from May 9, 1997), under which an aggregate
of approximately $111,961 in principal and accrued interest was outstanding as
of March 31, 1999.

     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 1998, sales or licenses of distribution rights to
such films by the Company generated less than $18,800 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


                                          52
<PAGE>

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, which was later extended to April 1, 2000. In 1998, $264,000
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 $149,000 of such minimum guarantees to the Company, the Company
would be entitled to retain approximately $17,800 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 1998, sales
or licenses of distribution rights to such films by the Company generated $6,400
in total revenues, of which, the Company retained less than $1,000 in fees.

          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 $24,657 in 1998.

     As part of the Company's exploration of additional sources of financing for
the Company, on July 28, 1998 (which was prior to Gary Stein's appointment as a
Director of the Company), the Company and Mr. Stein entered into an agreement
whereby Mr. Stein agreed to act as a finder, introducing the Company to a
potential strategic partner.  In the event a transaction with the potential
strategic partner is consummated by the Company, Mr. Stein will receive a cash
fee equal to 1.5% of the total dollar market value of the transaction. The
Company does not anticipate that the proposed transaction will be consummated.
Mr. Stein was appointed to the Board of Directors of the Company on September 3,
1998.

                                          53
<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, 1997
                 and 1998                                               F-2

               Consolidated Statements of Operations - Years Ended
                 December 31, 1996, 1997 and 1998                       F-3

               Consolidated Statements of Shareholders' Equity -
                 Years Ended December 31, 1996, 1997 and 1998           F-4

               Consolidated Statements of Cash Flows - Years
                 Ended December 31, 1996, 1997 and 1998                 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 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.


                                          54
<PAGE>

               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
                         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 September 3, 1998, between
                         the Company and Gary Stein.  (Filed herewith).


                                          55
<PAGE>

               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.

               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.

               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.


                                          56
<PAGE>

               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.

               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.  Incorporated by reference to Exhibit
                         10.26 to the Company's Annual Report on Form 10-K for
                         the year ended December 31, 1997.

               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.  Incorporated by
                         reference to Exhibit 10.26 to the Company's Annual
                         Report on Form 10-K for the year ended December 31,
                         1997.

               10.27     Amendment dated as of April 9, 1999 to Restated and
                         Amended Syndication Agreement among Coutts & Co.,
                         Berliner Bank A.G. London Branch and Overseas
                         Filmgroup, Inc.  (Filed herewith)

               10.28     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.
</TABLE>


                                          57
<PAGE>

<TABLE>
               <S>       <C>
               10.29     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.

               10.30     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.

               10.31     Amendment, dated April 1, 1997 to Overseas Filmgroup
                         Lease Agreement.  Incorporated by reference to Exhibit
                         10.31 of the Company's Annual Report on Form 10-K for
                         the year ended December 31, 1997.

               10.32     Loan Agreement dated as of February 15, 1998 between
                         the Company and Ellen Dinerman Little and Robert B.
                         Little.  Incorporated by reference to Exhibit 10.32 of
                         the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997.

               10.33     Security Agreement dated as of April 14, 1998, between
                         the Company, Ellen Dinerman Little, Robert B. Little,
                         Coutts & Co. and Berliner Bank A.G. London Branch.
                         Filed herewith.

               21        Subsidiaries of the Registrant.  Filed herewith.

               23        Consent of PricewaterhouseCoopers LLP.  Filed herewith.

               27.1      Financial Data Schedule 1998.  Filed herewith (Filed
                         electronically only)
</TABLE>
_____________________________________
(*)  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
                                          58
<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 15, 1999


                                          59
<PAGE>

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.

<TABLE>
<CAPTION>

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

    <S>                           <C>                              <C>
     /s/ Ellen Dinerman Little                                      April 15, 1999
     -------------------------

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


     /s/ Robert B. Little                                           April 15, 1999
     --------------------

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


     /s/ William F. Lischak                                         April 15, 1999
     ----------------------

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


     /s/ Stephen K. Bannon                                          April 15, 1999
     ---------------------

     Stephen K. Bannon             Director


     /s/ Alessandro Fracassi                                        April 15, 1999
     -----------------------

     Alessandro Fracassi           Director


     /s/ Gary M. Stein                                              April 15, 1999
     -----------------

     Gary M. Stein                 Director


     /s/ Scot K. Vorse                                              April 15, 1999
     -----------------

     Scot K. Vorse                 Director

</TABLE>

                                          60
<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 52 present
fairly, in all material respects, the financial position of Overseas Filmgroup,
Inc. and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, 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 and April 9, 1999.
Management's commitments to the lending banks with respect to the amended Credit
Facility are also described in Note 6.



PRICEWATERHOUSECOOPERS LLP
Los Angeles,  California
April 15, 1999


                                         F-1
<PAGE>



                              OVERSEAS FILMGROUP, INC.
                            CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                     DECEMBER 31,        DECEMBER 31,
                                                         1998               1997
                                                     ------------        ------------
                                   ASSETS:
<S>                                                 <C>                  <C>
Cash and cash equivalents                             $   537,652         $ 1,179,133
Restricted cash                                           159,614             172,498
Accounts receivable, net                               19,724,817          14,416,540
Related party receivable                                  149,000             281,000
Film costs, net of accumulated amortization            29,003,201          29,740,567
Fixed assets, net of accumulated depreciation             293,858             408,685
Other assets                                              340,546             361,897
                                                      -----------         -----------

     Total assets                                     $50,208,688         $46,560,320
                                                      -----------         -----------
                                                      -----------         -----------


                     LIABILITIES AND SHAREHOLDERS' EQUITY:

Accounts payable and accrued expenses                 $ 1,271,818         $ 1,506,760
Payable to related parties                                924,921             290,577
Accrued interest payable                                  470,386             142,239
Payable to producers                                    9,180,186           4,453,021
Notes payable to related parties                        2,262,498           2,161,977
Notes payable                                          22,013,281          23,142,184
Deferred income taxes                                   2,332,764           2,502,200
Deferred revenue                                          132,250             800,250
                                                      -----------         -----------

     Total liabilities                                 38,588,104          34,999,208
                                                      -----------         -----------

Commitments and contingencies (Note 10)

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                                       1,048,809             989,337
Treasury stock at cost, 45,000 shares                     (86,734)            (86,734)
                                                      -----------         -----------
     Total shareholders' equity                        11,620,584          11,561,112
                                                      -----------         -----------

Total liabilities and shareholders' equity            $50,208,688         $46,560,320
                                                      -----------         -----------
                                                      -----------         -----------
</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,
                                                                      -----------------------

                                                       1998                      1997                           1996
                                                       ----                      ----                           ----
<S>                                               <C>                        <C>                           <C>
Revenues                                          $ 25,585,476               $ 22,494,256                  $ 28,677,571

Expenses:
  Film costs                                        21,014,728                 19,152,847                    23,058,000
  Selling, general and
    administrative                                   2,960,383                  3,509,122                     3,595,660
                                                  ------------               ------------                  ------------
          Total expenses                            23,975,111                 22,661,969                    26,653,660
                                                  ------------               ------------                  ------------
Income/(loss) from operations                        1,610,365                   (167,713)                    2,023,911
                                                  ------------               ------------                  ------------

Other income/(expense):
  Interest income                                       27,410                      4,923                        32,831
  Interest expense                                  (1,644,153)                  (853,666)                     (569,183)
  Other income                                         118,850                    179,179                       177,710
                                                  ------------               ------------                  ------------
          Total other expense                       (1,497,893)                  (669,564)                     (358,642)
                                                  ------------               ------------                  ------------
Income (loss) before income taxes                      112,472                   (837,277)                    1,665,269
Income tax provision/(benefit)                          53,000                   (293,357)                    3,131,367
                                                  ------------               ------------                  ------------
Net income/(loss)                                 $     59,472               $   (543,920)                 $ (1,466,098)
                                                  ------------               ------------                  ------------
                                                  ------------               ------------                  ------------

Basic and diluted net income/(loss) per share     $       0.01               $      (0.09)                 $      (0.41)
                                                  ------------               ------------                  ------------
                                                  ------------               ------------                  ------------

Weighted average number of
  common shares outstanding                          5,732,778                  5,747,778                     3,611,111
                                                  ------------               ------------                  ------------
                                                  ------------               ------------                  ------------
</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,
                                                                                         -----------------------

                                                                                   1998               1997              1996
                                                                                   ----               ----              ----
<S>                                                                             <C>                <C>              <C>
Cash flows from operating activities:
  Net income/(loss)                                                             $    59,472        $  (543,920)     $ (1,466,098)

Adjustments to reconcile net income/(loss) income to net
  cash provided by operating activities -
  Amortization of film costs                                                     21,014,728         18,696,333        22,586,373
  Depreciation of fixed assets                                                      149,645            160,099           155,415
Change in assets and liabilities -
  Increase in accounts receivable                                                (5,308,277)        (3,668,301)       (2,536,687)
  Decrease (increase) in related party receivables                                  132,000            132,000          (413,000)
  Decrease in other receivables                                                           -                  -           314,000
  Decrease (increase) in other assets                                                21,351            (14,628)         (198,015)
  Increase (decrease) in accounts payable
    and accrued expenses                                                            727,549           (683,508)        1,826,176
  Increase (decrease) in payable to producers                                     4,727,165            740,210        (3,263,809)
 (Decrease) increase in deferred income taxes                                      (169,436)          (527,800)        2,900,000
 (Decrease) increase in deferred revenue                                           (668,000)           227,250        (1,628,000)
                                                                                -----------       ------------      ------------

     Net cash provided by operating activities                                   20,686,197         14,517,735        18,276,355
                                                                                -----------       ------------      ------------


Cash flows from investing activities:
  Additions to film costs                                                       (20,277,362)       (20,078,577)      (33,595,627)
  Purchases of fixed assets                                                         (34,818)           (11,657)         (328,221)
                                                                                -----------       ------------      ------------

     Net cash used in investing activities                                      (20,312,180)       (20,090,234)      (33,923,848)
                                                                                -----------       ------------      ------------


Cash flows from financing activities:
  Net (paydown) borrowings under credit facilities                                (3,128,903)        6,535,047         9,185,244
  Note payable borrowings                                                          2,000,000                 -                 -
  Paydown on Notes payable to related party                                          (99,479)         (123,909)          (43,073)
  Issuance of note payable to related party                                          200,000           200,000                 -
Merger cash, net of acquisition costs                                                      -                 -         8,791,440
Purchase of treasury stock                                                                 -           (86,734)                -
Distributions to shareholders                                                              -                 -        (4,452,991)
                                                                                 -----------       -----------       -----------

     Net cash (used in) provided by financing activities                          (1,028,382)        6,524,404        13,480,620
                                                                                 -----------       -----------       -----------


Net (decrease) increase in cash, cash equivalents and restricted cash               (654,365)          951,905       (2,166,873)
Cash, cash equivalents and restricted cash at beginning of period                  1,351,631           399,726         2,566,599
                                                                                 -----------       -----------       -----------
Cash, cash equivalents and restricted cash at end of period                      $   697,266       $ 1,351,631       $   399,726
                                                                                 -----------       -----------       -----------
                                                                                 -----------       -----------       -----------
Supplemental disclosure of cash flow information: 
 Cash paid during the period for:

     Interest                                                                    $ 1,763,441       $ 2,185,532       $ 1,321,178
                                                                                 -----------       -----------       -----------
                                                                                 -----------       -----------       -----------
     Income taxes                                                                $    12,382       $     4,800       $    55,608
                                                                                 -----------       -----------       -----------
                                                                                 -----------       -----------       -----------
     Foreign withholding taxes                                                   $   117,348       $   231,243       $   231,367
                                                                                 -----------       -----------       -----------
                                                                                 -----------       -----------       -----------
</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
                                                  ------------               Paid-In       Retained      Treasury
                                               Shares         Amount         Capital       Earnings       Stock        Total
                                               ------         ------        -----------    --------      --------      -----
<S>                                         <C>              <C>          <C>             <C>            <C>         <C>
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
Net income                                                                                    59,472                      59,472
                                           ---------         ------       -----------     -----------    -------     -----------
Balance at December 31, 1998               5,732,778        $ 5,778      $ 10,652,731    $ 1,048,809    $(86,734)    $11,620,584
                                           ---------         ------       -----------     -----------    -------     -----------
                                           ---------         ------       -----------     -----------    -------     -----------

</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.  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).


                                         F-6
<PAGE>

ACCOUNTS RECEIVABLE

Accounts receivable are stated net of an allowance for doubtful accounts of
$750,000, $750,000 and $1,000,000 for the years ended December 31, 1998, 1997
and 1996, 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 financal statement carrying
amounts and tax basis of assets and liabilities.  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

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. Common equivalent shares from stock options 
and warrants (using the treasury stock method) have been included in the 
computation of diluted earnings per share when dilutive. Options and warrants 
representing common shares of 7,422,500, 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, 
1998, 1997, and 1996 respectively, because they were anti-dilutive.  The 
Company has restated prior periods presented to conform to SFAS No. 128.

                                         F-7
<PAGE>

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts for employee stock options or similar equity instruments in
accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123").  SFAS No. 123
defines a fair-value based method of accounting for employee stock options or
similar equity instruments.  This statement gives entities a choice to recognize
related compensation expense by adopting the new fair-value method or to measure
compensation using the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25, the former standard.  If the former standard for
measurement is elected, SFAS No. 123 requires supplemental disclosure to show
the effect of using the new measurement criteria.  The Company has used the
intrinsic value method prescribed by APB Opinion No. 25.  See Note 8 for
supplemental disclosure.

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's customers
are located in several geographic regions throughout the world (See Note 11).
The Company performs credit evaluations of its customers and generally does not
require collateral.  At December 31, 1998 no single customer represents 10% or
more 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.

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 this indemnity obligation, which is
included in payable to related parties as of December 31, 1998.  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
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,


                                         F-8
<PAGE>

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,
                                                            ------------
                                                        1998            1997
                                                      --------        --------
<S>                                                <C>             <C>
Films in release                                    $ 178,195,727   $ 164,517,404
Less: accumulated amortization                       (152,026,004)   (137,735,722)
                                                    -------------   -------------
                                                       26,169,723      26,781,682
Films not yet available for release                     2,833,478       2,958,885
                                                    -------------   -------------
                                                    $  29,003,201   $  29,740,567
                                                    -------------   -------------
                                                    -------------   -------------

</TABLE>

Interest costs capitalized to films were $649,005, $1,211,831 and $767,067
during the years ended December 31, 1998, 1997 and 1996, respectively.  Based on
the Company's estimates of projected gross revenues as of December 31, 1998,
approximately 65% 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,
                                                        ------------
                                                    1998             1997
                                                  -------          -------
<S>                                            <C>                <C>
Furniture and fixtures                           $255,497          $255,497
Office equipment                                  201,417           201,417
Computer equipment                                678,577           643,760
Leasehold improvements                            176,337           176,337
Automobiles                                        14,970            14,970
                                               -----------        ----------
                                                1,326,798         1,291,981
Less accumulated depreciation                  (1,032,940)         (883,296)
                                               -----------        ----------
Net fixed assets                                 $293,858          $408,685
                                               -----------        ----------
                                               -----------        ----------

</TABLE>

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 "1998 Amendment") and subsequently on April 9, 
1999 (the "1999 Amendment") (collectively the "Facility Amendment").  Under 
the 1999 Amendment, the Operating Facility and all but two of the individual 
Film Facilities have been extended until April 9, 2000 (the remaining two 
film facilities will mature in 1999, one film facility with a balance owing 
of $34,038 will mature on May 31, 1999 and one film facility with a balance 
owing of $324,542 will mature on October 31, 1999).  No additional funds will 
be available under the Operating Facility or the Film Facilities. The Company 
maintains a $1,000,000 working capital credit line ("Local Line") with 
another bank, which is guaranteed by a letter of credit issued under the 
Guarantee Facility.


                                         F-9
<PAGE>


Outstanding balances are summarized as follows:

<TABLE>
<CAPTION>

                                                 December 31,

                                          1998                  1997
<S>                                    <C>                   <C>
Credit Facility:
  Film Facilities                      $11,778,940           $16,233,844
  Operating Facility                     7,234,341             5,908,340
  Local Facility                               -                     -

  Local Line                             1,000,000             1,000,000
  Subordinated Note Payable              2,000,000                   -
                                       -----------           -----------
                                       $22,013,281           $23,142,184
                                       -----------           -----------
                                       -----------           -----------

</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.

Outstanding amounts payable under the Operating Facility are due on April 9, 
2000 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% (5.44%, 5.07%, and 5.07% for one, three and six
month LIBOR, respectively at December 31, 1998).  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
7.75% at December 31, 1998).  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. 
Additionally, the 1999 amendment also provides for a monthly 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, 1998 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 1999 
Amendment and the 1998 Amendment to the Credit Facility include 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, pursuant to 
the 1998 Amendment 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.

Pursuant to the 1999 Amendment, the Company's Co-Chairmen and Co-Chief 
Executive Officers agreed to defer receipt of their weekly salaries as set 
forth in their Employment Agreements and instead be paid an amount equal to 
the deferred salary toward reduction of: i)  cash value of certain life 
insurance policies the ownership of which was transferred to the Company; and 
ii) amounts owed under the Merger Note until such time as the Merger Note has 
been fully repaid.  All amounts payable to the Co-Executive Officers in the 
form of salary will be accrued and become payable when the balance of the 
Operating Facility has been permanently reduced to $5,000,000.

In addition to amounts outstanding under the Company's Credit Facility, the 
Company has borrowed $2,000,000 from another lender, the proceeds of such 
loan being used to acquire rights to a particular film. The Subordinated Note 
Payable bears interest at the Prime Rate 7.75%, plus 1.5% at December 31, 
1998 and is collateralized by amounts due under distribution agreements from 
the specific film.  The Note Payable matures on May 29, 1999.

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.


                                         F-10

<PAGE>

The following table sets forth the maturities of debt for the next five years:

<TABLE>
<CAPTION>

                                   Notes
        Year                      Payable
       ------                     -------
      <S>                        <C>
        1999                    $ 2,358,580
        2000                     19,654,701
        2001                          -
        2002                          -
        2003                          -
                                -----------
                                 22,013,281
                                -----------
                                -----------

</TABLE>

The Company's ability to maintain availability under its Operating Facility 
and Local Facility, to pay down the Film Facilities prior to maturity and to 
generate sufficient cash flow to fund operations 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.

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 income tax 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,
                                                            ------------------------
                                                  1998                1997              1996
                                                  ----                ----              ----
<S>                                              <C>               <C>                 <C>
Current
  State                                         $53,000              $3,200          $      -
  Foreign withholding                           117,348             231,243             231,367
                                                 -------           --------           ---------
                                                170,348             234,443             231,367
                                                 -------           --------           ---------
Deferred
  State                                         (49,000)            (22,000)            110,000
  Federal                                       (68,348)           (505,800)            190,000
  Deferred tax provision resulting from the
  termination of S corporation status                                   -             2,600,000
                                                 -------           --------           ---------
                                               (117,348)           (527,800)          2,900,000
                                                 -------           --------           ---------
                                                $53,000           $(293,357)         $3,131,367
                                                 -------           --------           ---------
                                                 -------           --------           ---------

</TABLE>


                                         F-11
<PAGE>


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>


                                                                   1998               1997                1996
                                                                   ----               ----                ----
<S>                                                                <C>                <C>                 <C>
Federal statutory rate                                              34%               (34%)                34%

State taxes, net of federal benefit and
  income not subject to tax                                          3%                (3%)                 2%
Non-deductible portion of officers' life insurance                   8%                 2%                  1%
Foreign taxes, net of federal benefit                               --                 --                  12%
Deferred tax provision resulting from the
  termination of S Corporation status                               --                 --                 156%
Income not subject to federal tax                                   --                 --                 (21%)
Other                                                                2%                --                   4%
                                                                   ---                ---                 ---
                                                                    47%               (35%)               188%
                                                                   ---                 ---                ---
                                                                   ---                 ---                ---


</TABLE>


For federal income tax purposes, the Company has available foreign tax 
credits of approximately $65,000 which expire between 2001 and 2003.

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 non-qualified 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
which have an exercise price of $2.38 and $5.25, respectively. On October 14,
1998, 5,000 non-qualified stock options were granted to each of three
non-employee directors with an exercise price of $1.875.  A separate grant of
5,000 non-qualified stock options was made to a new non-employee director on 
September 3, 1998.  These options are exercisable at $2.16 per share and are 
similar in terms to the non-employee director options described above.

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. All of the $5.00 Options
and the $8.50 Options remain outstanding as of December 31, 1998.


                                         F-12
<PAGE>

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
would have had a pro forma net loss of $275,681 and net loss per share of $0.05
for the year ended December 31, 1998 and the 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%

These pro forma amounts may not be representative of future disclosures since 
the estimated fair value of the options is amortized to expense over the 
options' vesting periods.  The pro forma effect on net income/(loss) for 
1998, 1997 and 1996 is not representative of the pro forma effect on net 
income in future years because it reflects expense for only one year's 
vesting.  Pro forma information in future years will also reflect the 
amortization of any stock options granted in succeeding years.

Warrants to purchase 4,500,000 shares of Common Stock are outstanding at 
December 31, 1998.  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 above) at an exercise price 
of $9.90 per unit are outstanding at December 31, 1998.  The warrants 
attached to these units are identical to the warrants described above except 
that they are excisable 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, expires on October 30, 2003 and remains
outstanding as of December 31, 1998.

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 and January 1998, the majority shareholders and Co-Chief 
Executive Officers and Co-Chairmen made loans to the Company of an aggregate 
of $400,000 to provide funds for a portion of the print and advertising costs 
associated with a feature film which was released by First Look Pictures in 
February 1998.  The loans are secured by an assignment of domestic revenues 
from the film, bear interest at the rate of 9% per annum. These loans are 
anticipated 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.

Payable to related parties consists of the tax indemnity obligation (see Note
3), accrued interest on the notes payable to related parties (see Note 3 and
above), accrued compensation and accrued employee related expense reimbursements
due to the Company's Co-Chief Executive Officers and Co-Chairmen.

The Company has a receivable of $149,000 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 April 1, 2000 and does not bear interest.
The Company will be entitled to retain $17,800 of this receivable upon
collection with the balance


                                         F-13
<PAGE>

payable to producers.  The Company recognized approximately $18,800 in revenue
on films licensed to the Company by this subdistributor (as rights owner) during
1998.

During 1998 the Company paid $24,657 (including $6,400 which was payable at 
December 31, 1997) to a corporation owned by a member of the Company's 
management and his spouse for production executive services of such spouse. 

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

The Company has guaranteed payment by an independent motion picture production
company of a promissory note in the aggregate principal amount of $130,624,
maturing on September 11, 2000.

The Company leases office space and office equipment under various leases 
which expire between 2000 and 2002. Total rental expense under these leases 
for the years ended December 31, 1998, 1997 and 1996 amounted to $277,495, 
$268,259 and $293,279 respectively.  Minimum annual rental payments under 
noncancelable leases are as follows:

<TABLE>
<CAPTION>

     <S>                  <C>
     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,
                                         ------------------------
                                    1998            1997              1996
                             -----------      -----------      -----------
<S>                          <C>              <C>              <C>
Western Europe                $9,723,275     $10,408,980        $9,581,698
Asia                           1,298,104       1,447,790         4,936,735
Latin America                  1,315,930       1,687,295         1,839,129
Eastern Europe                   672,667         539,065           708,600
Other                          4,124,654       3,150,462         2,850,896
                             -----------      -----------      -----------
                             $17,134,630     $17,233,592       $19,917,058
                             -----------      -----------      -----------
                             -----------      -----------      -----------

</TABLE>

Customers representing 10% or more of the Company's revenue accounted for 
$5,000,000 (one customer) for the year ended December 31, 1998 and $9,498,000 
(three customers including $3,068,000 from one customer; $3,490,000 from a 
second customer; and $2,940,000 from a third customer) for the year ended 
December 31, 1996.  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 9, 1999.


                                         F-14