SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

 (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, 1999

/  /   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 jurisdiction                      (I.R.S. Employer
    of incorporation or organization)                 Identification No.)

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

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

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

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

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

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

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

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of April 11, 2000, (based on the closing sale price on such
date as reported on the OTC Bulletin Board) was $6,807,200.

     The number of shares of Common Stock outstanding as of April 11, 2000 was
6,295,305.


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                                     PART I

This Annual Report on Form 10-K 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 year
ended December 31, 1999 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

GENERAL

     Overseas Filmgroup, Inc., a Delaware corporation, (the "Company") is an
independent film company that 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.

     In October 1996, the Company merged with Overseas Filmgroup, Inc.
("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.

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     The Company has accumulated a library of distribution rights (including
sales agency rights) in various media and markets to approximately 232 feature
films. See "The Company's Film Library of Distribution Rights" below. Most of
these motion pictures have had direct negative costs of between $1,000,000 and
$7,000,000. This is substantially below the average direct negative cost of
films produced by the major studios, which was approximately $51.5 million. The
Company primarily has focused on licensing 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 67.6% of the Company's total
revenues in 1999. In recent years, the Company has been increasingly active in
acquiring domestic distribution rights. The Company has engaged directly in
domestic theatrical distribution (i.e., 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 films such as A MAP OF THE WORLD
(produced by Kathleen Kennedy and Frank Marshall and starring Sigourney Weaver
and Julianne Moore), MARCELLO MASTRIONI (I REMEMBER) (a documentary featuring
the life and work of Marcello Mastrioni), 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. The Company
occasionally commits to pay an independent producer a minimum guaranteed payment
ranging from approximately $100,000 to $5,000,000 (a "minimum guarantee") at or
after delivery of the completed film to the Company, which represents 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 also has selectively produced certain of the motion pictures
distributed by it, generally acquiring fully developed projects ready for
pre-production and contracting out pre-production and production activities.

RECENT DEVELOPMENTS

     The Company and Coutts & Co. and Bankgesellschaft Berlin A.G. (the "Banks")
have amended (the "2000 Amendment") its existing credit facility (the "Coutts
Facility") such that: (1) the expiration of the Coutts Facility and the maturity
dates of outstanding borrowings have been extended until April 15, 2001; (2) the
borrowing limitations imposed by the 1998 amendment to the Coutts Facility,
which prohibit additional borrowing under the Coutts Facility, remain in full
force and effect through April 15, 2001; (3) $190,000 of accrued and unpaid fees
relating to the 1999 amendment to the Coutts Facility are due upon the earlier
of the date the Company has secured a new credit facility which, as a result,
will refinance the Coutts Facility or July 31, 2000; and (4) the Banks waive
non-compliance by the Company of certain provisions of the Coutts Facility.

     In light of restrictions imposed by the Banks in 1998, the Company has
sought to replace the Coutts Facility and has entered into a commitment letter
(the "Commitment Letter") with Chase Securities, Inc. ("Chase") whereby Chase
has agreed to structure, arrange and use commercially reasonable efforts to
syndicate a senior five-year revolving credit facility in an aggregate amount of
up to $30,000,000 (the "Chase Facility"). Under the terms of the Commitment
Letter, The Chase Manhattan Bank ("CMB") has commited to provide up to
$10,000,000 toward the total Chase Facility. However, it is a condition to CMB's
commitment that the portion of the Chase Facility not provided by CMB shall be
provided by other lenders and no assurance can be given that Chase will secure
the additional lenders. Under the terms of the Commitment Letter, the proceeds
of the Chase Facility are anticipated to be used: (1) to refinance indebtedness


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under the Coutts Facility, (2) to finance the production and/or acquisition of
theatrical, video or television product; and (3) for working capital and other
general corporate purposes. Additionally, under the terms of the Chase Facility,
the Company would be able to borrow, repay and reborrow for five years after the
closing date of the Chase Facility. The collateral to be provided to Chase would
be a first priority security interest in all assets of the Company. No assurance
can be given that the Chase Facility will ultimately be concluded, or if
concluded, will be concluded on terms as outlined above.

     The Company also has sought additional equity capital and, to that end, is
currently involved in negotiations regarding a potential equity investment in
the Company. No assurance can be given that additional capital will be
available or available on terms advantageous to the Company.

     For additional information regarding the Coutts Facility and the Company's
capital needs, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."

STRATEGIC OBJECTIVES

     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 thirteen films (representing an estimated
$65,000,000 of aggregate production costs) which were first available for
distribution in 1999 and an additional three films (representing an estimated
$11,000,000 in aggregate production costs) which are expected to be made
available for distribution in 2000. However, the Company's continued debt level
and related interest costs as well as the restrictions imposed by the Company's
lenders have significantly impacted the Company's cash flow and operations. The
Company also continues to be impacted by (1) changes in the marketplace for
independent films, including the reduced demand by retail video stores and video
subdistributors worldwide for films that have not had significant (or any)
theatrical release, (2) the slow but improving return of demand for film rights
in Asia due to the region's still lingering economic downturn and (3) the
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. To seek to improve the
Company's cash flow and address these changes in the marketplace, as well as in
response to the operating limitations imposed by the Coutts Facility, the
Company has continued to adhere to the following operational strategies:

o    SEEK TO LIMIT RISK BY: (1) LIMITING INVESTMENT IN ACQUISITION COSTS AND
     FILM PRODUCTION AND (2) CONTINUING TO ACQUIRE 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:

     o    Continue to act as sales agent or engage in "straight distribution"
          (i.e., licensing distribution rights to a film from the rights owner
          for exploitation by the Company for a given term in a given territory
          or territories and media without a minimum guarantee commitment)
          whereby a film is produced with funds provided by other parties and
          not by the Company.

     o    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.



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<PAGE>

     o    Limit the instances in which the Company itself produces motion
          picture projects. The Company currently does not have any plans to
          produce any motion picture projects itself in 2000.

     o    Limit the number of films for which the Company provides minimum
          guarantees, and subject to reevaluation in the event that Company
          secures a refinancing and/or equity investment.

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

     o    Limit the number of films First Look Pictures releases annually. In
          1999, First Look Pictures released two motion pictures. The Company
          currently plans for First Look Pictures to release one motion picture
          in 2000. However, the Company currently anticipates that 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.

o    ACQUIRE FILMS THAT THE COMPANY BELIEVES ARE LIKELY TO MERIT A THEATRICAL
     RELEASE OR ARE SUITABLE FOR INITIAL RELEASE ON BASIC AND PAY TELEVISION.
     The Company currently intends to:

     o    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) 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.

     o    Acquire films that are oriented to basic and pay television
          programming needs including films with lower budgets and in
          specifically oriented genres, such as action films.

     o    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.

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

     o    Consider possible additional reductions in overhead.

     o    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.

o    OBTAIN ADDITIONAL SOURCES OF CAPITAL. The Company has explored options
     relating to refinancing of the Coutts Facility and has signed a commitment
     letter with Chase whereby Chase has agreed to structure, arrange and use
     commercially reasonable efforts to syndicate a senior five-year revolving
     credit facility in an aggregate amount of up to $30,000,000. See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations - Liquidity and Capital Resources." In addition to seeking
     alternate debt financing, the Company also has sought additional equity
     capital and, to that end, is currently involved in negotiations regarding a
     potential equity investment in the Company. No assurance can be given that
     such financing, the refinancing of the Coutts Facility or the closing of
     the Chase Facility will ultimately be concluded or available or will be
     available on terms advantageous to the Company.

     For additional information about these operational strategies, see "-Motion
Picture Distribution by the Company," "-Acquisition of Rights by the Company,
Production and Financing" and "Management's Discussion and Analysis of

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<PAGE>

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 the
Company's management to implement these strategies and the availability of
sufficient capital.

THE MOTION PICTURE INDUSTRY

     The motion picture industry consists of two principal activities:
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
historically have 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, Internet service providers,
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 (CIDER HOUSE
RULES, the SCREAM film series and SHAKESPEARE IN LOVE), now affiliated with The
Walt Disney Company; New Line Cinema Corporation/Fine Line Features (the AUSTIN
POWERS films, 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), which, along with Gramercy
Pictures (DEAD MAN WALKING, FARGO) is part of USA Films and USA Network; Orion
Pictures (THE SILENCE OF THE LAMBS), now affiliated with MGM/UA; Artisan
Entertainment Inc. (THE BLAIR WITCH PROJECT); and Lion's Gate Films (DOGMA, GODS
AND MONSTERS and 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 and/or distribute motion pictures which have not been
acquired or become affiliated with the major studios. In contrast to the major
studios, independent production and/or distribution companies generally produce
and/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 1999, international
revenues of motion picture distributors from filmed entertainment grew from
approximately $4.7 billion in 1989 to approximately $30 billion in 1999. This
growth has been due to a number of factors, including 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.

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     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 that are often large, diversified
companies with production and distribution operations. However, like in the
United States, in most of these countries there are also smaller, independent,
motion picture production and distribution companies. Foreign distribution
companies not only distribute motion pictures produced in their countries or
regions but also films licensed or sub-licensed from United States production
companies and distributors. In addition, film companies in many foreign
countries produce films not only for local distribution, but also for export to
other countries, including the United States. While some foreign language films,
such as LIFE IS BEAUTIFUL, LIKE WATER FOR CHOCOLATE, IL POSTINO (the Postman)
and ANTONIA'S LINE, and foreign English-language films, such as WAKING NED
DEVINE, THE FULL MONTY, HILLARY AND JACKIE, 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.

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 also are 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 factors such 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.




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

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

     Major studios and independent film companies in the United States typically
incur obligations to pay residuals to various guilds and unions including the
Screen Actors Guild, the Directors Guild of America and the Writers Guild of
America. Residuals are payments required to be made on a picture-by-picture
basis by the motion picture producer to the various guilds and unions 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 usually is
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 (1) theatrical exhibition, (2)
videocassettes, laser discs and digital video discs (DVD), (3) presentation on
television, including pay-per-view, basic and premium cable, network,
syndication or satellite, (4) marketing of the other rights in the picture and
underlying literary property, which may include books, CD-ROM, merchandising and
soundtracks, (5) non-theatrical exhibition, which includes airlines, hotels and
armed forces facilities and (6) exploitation via the Internet, which is still
evolving. Although releases by the major studios typically are licensed and
fully exploited in all of the foregoing media, films produced or distributed by
independent film companies often 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 instead may be released on home video or
as a pay television 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 selected or
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 in particular
territories and/or media.

     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. This


                                       8
<PAGE>

fee typically is 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, at times, may agree 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 the motion picture. Obtaining license agreements with a
distributor or distributors prior to completion of a motion picture 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 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 generally have not been able to pre-sell as great a percentage of a
film's budget as they have in past years. The producer may also at times be able
to acquire additional production funds through gap financing. Although gap
financing currently is being made available by multiple lenders, certain banks
previously providing such forms of financing no longer do so and many banks that
have provided gap financing have become more conservative in their approach to
such lending practices. As a result, there can be no assurance that lenders will
continue to make funds available on this basis. 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 also may acquire all or a portion of the
copyright in the 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 also may be
released in one or more other international markets. Generally, a motion picture
that is released theatrically is typically available for distribution in other
media during its initial distribution cycle as follows:

                                       9
<PAGE>

         MARKETPLACE (MEDIA)                                 NUMBER OF MONTHS
                                                             FOLLOWING INITIAL
                                                             DOMESTIC THEATRICAL
                                                             RELEASE

         Domestic theatrical                                       --

         International theatrical                                  --

         Domestic home video and DVD (initial release)             4-6 months

         Domestic pay-per-view                                     6-9 months

         International home video and DVD (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

     Films often remain in distribution for varying periods of time. For
example, motion pictures that are released theatrically can play in theaters for
several weeks following their initial release (for major studios) or, at times,
including in the case of certain successful "art-house" films that are released
on a limited basis, for several months. On the other hand, unsuccessful films
may play in theaters only for 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 first released on 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, 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
during which 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 re-licensing 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 media such as home video,
DVD, 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 video and television. For example, retail video stores currently
purchase fewer copies of videocassettes of motion pictures which have not been
theatrically released, and purchase 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 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


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

                                       10

<PAGE>

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. Accordingly, 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 increases
over time. Although these percentages vary widely, an exhibitor's share of a
particular film's revenues generally will be approximately 60% to 65% of gross
box office receipts. The balance ("gross film rentals") is remitted to the
distributor. The distributor then retains a distribution fee (typically 30-35%)
from the gross film rentals and recoups the costs incurred in distributing the
film, which consist primarily of marketing and advertising costs 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,
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 initially be 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 that rent or sell
videocassettes to consumers primarily for home viewing. Most films initially are
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 initially may be 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, video distributors recently have begun
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 generally are licensed in both such media. Certain films

                                       11

<PAGE>

that 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 often are 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 also are 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. Rights also may be
licensed to create novels from a screenplay and to generate other related book
publications, as well as interactive games on platforms such as CD-ROM and CD-I.

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 Company's senior executive officers 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 25 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. From time to time, the Company
also may 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.
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 also
have 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, Korea and other Southeast Asian territories. This has
resulted 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 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


                                       12

<PAGE>

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 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 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, which is often with respect to video rights,
the terms may provide for a royalty to be paid to the Company calculated as a
percentage of the gross receipts of the sub-distributor from exploitation of the
video rights without deduction for the sub-distributor's distribution expenses.

     At times, the Company enters into output arrangements with local foreign
distributors whereby the foreign sub-distributor receives the right, typically
for a specified period and/or 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 on a picture-by-picture basis with each minimum
guarantee having been either pre-negotiated or computed as a stipulated
percentage of the production or acquisition cost of each picture. The Company is
currently a party to an output arrangement with Polygram Pictures Limited which
has been bought by Universal Pictures (Australasia) Pty. Ltd. Under this
arrangement, Polygram Pictures Limited has the right to distribute the Company's
motion pictures in all media in Australia and New Zealand for a term ending on
December 20, 2000 and, in certain circumstances, is obligated to pay a minimum
guarantee for a particular picture. For a discussion of additional
considerations regarding the Company's international distribution activities,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Exchange Rate Considerations."

     DOMESTIC DISTRIBUTION. In addition to obtaining foreign distribution
rights, the Company has in recent years been increasingly active in acquiring
domestic distribution rights. During 1999, various distribution rights to
approximately thirteen films, including various domestic distribution rights in
nine 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 films initially to pay television services to premiere on pay
television (cable and/or satellite). In 1999, the Company released one of the
films that first became available to the Company in 1999 theatrically through
First Look Pictures and anticipates that First Look Pictures only will release
one other film theatrically that first became available to the Company in 1999
for licensing or distribution and for which the Company controls various
domestic distribution rights. Of the nine films that first became available to
the Company in 1999 for licensing or distribution in the domestic market, one
was licensed to a third party domestic distributor for theatrical and other
exploitation and six were or are intended to be released straight to video.

     The Company currently is licensing domestic video rights to films on a
film-by-film basis or in small groupings of films to various subdistributors,
including Blockbuster, Inc., USA Films, Win-Star TV & Video and Unapix
Entertainment, Inc. In addition, the Company has broadened First Look Pictures'
role in the video market. First Look Pictures released six films in 1999 and
currently plans to release twenty films in 2000 on video itself. The Company
will continue to evaluate the benefits of having First Look Pictures release
films on video itself on a film-by-film basis in order to maximize the value of
the Company's growing film library of 232 titles.

                                       13
<PAGE>

     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 USA, Lifetime, Bravo
and the Independent Film Channel. 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 these 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 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 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 also may 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 has directly distributed some of the
motion pictures for which it controls domestic rights to theaters throughout the
United States under the name First Look Pictures. Through April 11, 2000, 21
films have been released through First Look Pictures (including two in 1999).
Although some of First Look Pictures' future releases may appeal to a wide
audience, many of the 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 (e.g., 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 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.


                                       14

<PAGE>

     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
print and advertising costs, the restrictions imposed by the Coutts Facility
(which does 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 Company's desire to
improve cash flow, since 1998 the Company has reduced the number of First Look
Pictures films released. In most circumstances, the Company 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.
The Company presently anticipates one First Look Pictures release in 2000
compared to two in 1999. The funds for print and advertising costs of one of
First Look Pictures' releases, A MAP OF THE WORLD, were provided by an
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.

     Films distributed theatrically in the United States by First Look Pictures
typically have been 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 typically ranged from
approximately $100,000 to $2,000,000. 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 1999 were approximately $1,000,000 and $75,000,
respectively. In connection with the acquisition of domestic theatrical rights
to a film, the Company occasionally 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 print 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 the Company's control, including
audience and critical acceptance, availability of motion picture screens and the
success of competing films in release, 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, 1999 through April 11, 2000, First Look Pictures released
the two motion pictures listed in the following chart. As described below under
"Anticipated Releases", First Look Pictures currently plans to release one film
in 2000, assuming the availability of funding for the print and advertising
costs.

                                       15
<PAGE>

<TABLE>
                                                           RELEASED

                                                                                                         RELEASE DATE AND
                                                                                                         DOMESTIC BOX
TITLE                               MAJOR CREATIVE ELEMENTS                     STORYLINE                OFFICE RECEIPTS
<S>                                 <C>                                         <C>                       <C>
A MAP OF THE WORLD                  Producers: Kathleen Kennedy and Frank       A journey to discover    Released on December 3,
                                    Marshall (THE SIXTH SENSE, THE COLOR        the meaning of           1999 for a one week Oscar
                                    PURPLE, E.T.)                               friendship, the          qualifying run and then
                                    Director:  Scott Elliott                    strength of family and   re-released January 21,
                                    Cast:  Sigourney Weaver (the ALIEN          the power of             2000 with domestic box
                                    series, GORILLAS IN THE MIST, WORKING       forgiveness              office receipts of
                                    GIRL), Julianne Moore (THE END OF THE                                approximately $250,000 to
                                    AFFAIR, BOGGIE NIGHTS), Chloe Sevigny                                date.
                                    (BOYS DON'T CRY, THE LAST DAYS OF DISCO).

MARCELLO MASTROIANNI:  I REMEMBER   Director:  Anna Maria Tato                  A documentary about      Released on August 13, 1999
                                                                                Marcello Mastroianni's   with domestic box office
                                                                                memories, joy of         receipts of approximately
                                                                                living, and love of      $93,000.
                                                                                cinema recorded by his
                                                                                companion during the
                                                                                shooting of his last
                                                                                movie VOYAGE AU DEBUT
                                                                                DU MONDE.


                                                 ANTICIPATED RELEASES

                                                                                                         ANTICIPATED
TITLE                               MAJOR CREATIVE ELEMENTS                     STORYLINE                RELEASE DATE

THE OPPORTUNISTS                    Executive Producer: Jonathan Demme          An ex-con is having a    Summer 2000
                                    (PHILADELPHIA, THAT THING YOU DO)           hard time making ends
                                    Director: Myles Connell                     meet.  An alleged
                                    Cast: Christopher Walken (THE DEER          long-lost Irish cousin
                                    HUNTER, PULP FICTION), Peter McDonald       convinces him to go
                                    (FELICIA'S JOURNEY), Cyndi Lauper (MRS.     along on one more
                                    PARKER AND THE VICIOUS CIRCLE)              heist.
</TABLE>


There can be no assurance that the motion picture scheduled for release by First
Look Pictures in 2000 or any motion pictures thereafter actually will 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.


                                       16

<PAGE>

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 has relied primarily on: (1) the film facilities provided
under the Coutts Facility; (2) other lenders willing to finance the contractual
minimum guarantee obligations of the Company to the films' producers or rights
owners; (3) working capital; (4) pre-sales; (5) gap financing; (6) insurance
backed financing structures; and (7) other third party equity sources such as
private investors. The lenders under the Coutts Facility have the right to
approve each acquisition by the Company. In addition, the film facilities
portion of the Coutts Facility (a significant primary source of funds for
acquisition of distribution rights by the Company prior to 1998) is, since April
1998, no longer a revolving credit line and sums repaid by the Company cannot be
re-borrowed under the Coutts Facility (except that a film facility with respect
to the motion picture ILLUMINATA was funded by the Banks). 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 thirteen films, representing an
estimated $65,000,000 of aggregate production costs, which were first available
for distribution in 1999 and an additional three films, representing an
estimated $11,000,000 in aggregate production costs, which are expected to be
first made available for distribution in 2000. However, 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.

     The films distributed by the Company generally have had direct negative
costs ranging from $1,000,000 to $7,000,000. However, from time to time, the
Company may acquire rights to, finance or produce motion pictures with direct
negative costs and marketing costs below or substantially in excess of the
average direct negative costs and marketing costs of the films historically
distributed by the Company. 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 these rights to sub-distributors,
historically the Company has not derived any significant revenues from these
ancillary rights.

     The Company is occasionally 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, it 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.

                                       17


<PAGE>

     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 fee structure and funds provided for marketing and distribution
remain 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 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 Company's success 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 may 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 these amounts. Depending upon the particular arrangement, a minimum
guarantee may be payable in full at the time of delivery of the completed film
to the Company, as in a typical negative pickup arrangement, or in installments
following complete delivery of the film to the Company. The rights owner also
may 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 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 also will 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, during 1999, the Company did not provide 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 typically
will 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 also may be necessary for the Company to secure its
purchase or acquisition commitment, which, it generally has done by obtaining
the issuance of a letter of credit from the Banks. However, as part of the 1998
changes to the Coutts Facility, the Banks are no longer making such letters of
credit available, which has limited the Company's ability to act in this
capacity and may limit the Company's ability to continue this practice in the
future unless the Company can locate other lenders willing to provide such
letters of credit. See "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 initially may
obtain funds from: (1) other distribution companies that obtain distribution
rights in certain media or territories (e.g., the domestic distribution rights
or distribution rights in Japan), (2) accessing foreign governmental film
industry incentive programs (such as programs offered in the past by England,
the Benelux, Germany, Canada, Australia and New Zealand) or (3) 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 it
participates in a co-financing arrangement, the Company, in combination with
other equity providers (including producers, distributors in various


                                       18
<PAGE>

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. 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 13 completed films which first
became available to the Company for distribution in 1999, and the Company
currently does not have plans to produce motion pictures itself in 2000. In
those circumstances where the Company has produced a film, the Company's
production subsidiaries typically have 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 the Coutts
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 and does not accordingly have the fixed payroll, general
and administrative and other expenses resulting from such ownership. 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 information regarding completed motion
pictures first made available to the Company for distribution during 1999 other
than those films described under "- Motion Picture Distribution by the Company -
First Look Pictures" above. 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; 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>
MOTION PICTURE                                      TYPE OF                 TERRITORIES
TITLE                        GENRE                  ACQUISITION             ACQUIRED                    SELECTED CAST
<S>                         <C>                   <C>                       <C>                         <C>
ESMERALDA COMES BY NIGHT     Romantic Comedy        Straight Distribution   Universe excluding the      Maria Rojo, Claudio Obregon,
                                                                            United States, Canada,      Martha Navarro
                                                                            Latin America, Spain and
                                                                            Portugal

JUST ONE NIGHT               Romantic Comedy        Sales Agency            Universe, excluding the     Timothy Hutton (ORDINARY
                                                                            United States and Canada    PEOPLE, TAPS), Maria Grazia
                                                                                                        Cucinotta (WORLD IS NOT
                                                                                                        ENOUGH, IL POSTINO)

LOVER'S PRAYER               Drama                  Straight Distribution   Universe                    Kristen Dunst (INTERVIEW
                                                                                                        WITH THE VAMPIRE, WAG THE
                                                                                                        DOG), Nick Stahl (THE THIN
                                                                                                        RED LINE, DISTURBING
                                                                                                        BEHAVIOR), Julie Waters
                                                                                                        (EDUCATING RITA, PRICK UP
                                                                                                        YOUR EARS)
</TABLE>

                                       19
<PAGE>


<TABLE>
MOTION PICTURE                                      TYPE OF                 TERRITORIES
TITLE                        GENRE                  ACQUISITION             ACQUIRED                    SELECTED CAST
<S>                         <C>                   <C>                       <C>                         <C>
MADE MEN                     Action                 Sales Agency            Universe excluding United   James Belushi (WAG THE DOG,
                                                                            States, Canada, Japan and   LAST ACTION HERO), Timothy
                                                                            Germany                     Dalton (JAMES BOND SERIES)


MY FIVE WIVES                Comedy                 Distribution            Universe                    Rodney Dangerfield
                                                                                                        (CADDYSHACK, BACK TO SCHOOL)


THE NIGHT FLIER              Horror                 Sales Agency            United Kingdom, South       Miguel Ferrer (ROBOCOP),
                                                                            Africa and Latin America    Julie Entwisle (IN & OUT)


PARTNERS                     Thriller               Straight Distribution   Universe                    Casper Van Dien (STARSHIP
                                                                                                        TROOPERS, SLEEPY HOLLOW)


RUNNER                       Thriller               Sales Agency/Gap        Universe                    John Goodman (BIG LEBOWSKI,
                                                    Financing                                           RAISING ARIZONA), Courtney
                                                                                                        Cox (THE SCREAM SERIES, ACE
                                                                                                        VENTURA:PET DETECTIVE), Ron
                                                                                                        Eldard (DEEP IMPACT,
                                                                                                        SLEEPERS), Joe Mantegna
                                                                                                        (SEARCHING FOR BOBBY
                                                                                                        FISCHER, GODFATHER PART III)

SECRET LIFE OF GIRLS         Comedy                 Sales Agency            Universe                    Linda Hamilton (THE
                                                                                                        TERMINATOR SERIES, DANTE'S
                                                                                                        PEAK), Eugene Levy (AMERICAN
                                                                                                        PIE, SPLASH)

TITUS                        Drama                  Straight Distribution   Universe                    Anthony Hopkins (SILENCE OF
                                                                                                        THE LAMBS, NIXON, REMAINS OF
                                                                                                        THE DAY), Jessica Lange
                                                                                                        (BLUE SKY, TOOTSIE), Alan
                                                                                                         Cumming (EYES WIDE SHUT,
                                                                                                         GOLDENEYE, EMMA)
</TABLE>


                                       20

<PAGE>

THE COMPANY'S FILM LIBRARY OF DISTRIBUTION RIGHTS

     The Company's film library consists of rights to a broad range of films,
most of which were produced since 1980. As of April 11, 2000, the Company had
various distribution rights to approximately 232 motion pictures (including
approximately 80 motion pictures in which the Company owns an interest in the
copyright and approximately 65 motion pictures for which the Company acts as
sales agent on behalf of the producer or other owner of rights in the film). The
Company's distribution rights generally range from 12 to 25 years or more from
the date of acquisition, and typically extend to many, if not all, media of
exhibition worldwide or in specified territories.

     In addition to exploitation of distribution rights to motion pictures in
its library in the major media (theatrical, video and television), in certain
situations the Company is able to exploit various ancillary rights in such
films. 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.

     Additionally, the Company has granted to Yahoo!, Inc. the right to exploit
on the Internet approximately fifty titles from the Company's film library on a
revenue sharing basis.

MAJOR CUSTOMERS

     Since January 1, 1997, only two customers have accounted for more than 10%
of the Company's revenues in any full fiscal year: none in 1997, one in 1998
(Fox Searchlight with $5,000,000 or 20.3%) and one in 1999 (Buena Vista with
$3,500,000 or 10.4%).

EMPLOYEES

     At April 11, 2000, the Company employed of 33 full-time employees and 3
part time employees. For certain films, certain subsidiaries of the Company are
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 Company's business, operations and results of
operations. 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


                                       21

<PAGE>

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 previously independent companies such as
Miramax and New Line Cinema which are dominant in the motion picture industry.
The Company also competes with numerous independent and foreign motion picture
production and distribution companies. Many of the organizations with which the
Company competes have significantly greater financial and other resources than
the Company. The Company's ability to compete successfully depends upon the
continued availability of independently produced, domestic and foreign motion
pictures and the Company's ability to identify and acquire distribution rights
and to distribute motion pictures successfully. A number of formerly independent
motion picture companies have been acquired in recent years by major
entertainment companies. These transactions have significantly increased
competition for the acquisition of distribution rights to independently produced
motion pictures by eliminating some available sources of independently produced
films and providing greater financial resources to other previously independent
companies engaged in the business of acquiring distribution rights to
independently produced films and distributing such films.

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

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 Company's business by limiting the Company's ability to
exploit fully its rights in motion pictures internationally and, consequently,
to assist or participate in the financing of such motion pictures.


                                       22
<PAGE>

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

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

     The Code and Ratings Administration of the MPAA assigns ratings indicating
age-group suitability for theatrical distribution of motion pictures. The
Company sometimes, although not always, submits its motion pictures for such
ratings. In certain circumstances, motion pictures that the Company does not
submit for rating to the Code and Ratings Administration of the MPAA might have
received restrictive ratings had such motion pictures been submitted for rating,
including, in some circumstances, the most restrictive rating, which prohibits
theatrical attendance by persons below the age of seventeen. Unrated motion
pictures (or motion pictures receiving the most restrictive rating) may not be
exhibited by certain theatrical exhibitors or in certain locales, thereby
potentially reducing the total revenues generated by such films. United States
television stations and networks, as well as foreign governments, impose
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. This
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 of space leased by the Company. The lease
expires on September 30, 2002 and the Company's lease payments are approximately
$20,000 per month. Under the terms of the lease, the Company became responsible
in October 1999 for a percentage of operating costs, above a base year


                                       23

<PAGE>

calculation. 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.

     As of April 11, 2000, the Company is not a party to any litigation.

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

     At the Company's 1999 Annual Meeting of Shareholders held on October 28,
1999, William Lischak, Alessandro Fracassi and Gary Stein were re-elected to
serve as directors of the Company until the Company's 2002 Annual Meeting of
Stockholders and/or until their successors are elected and have qualified, in
each case by a vote of 4,332,838 votes in favor of such person's re-election,
no votes against such person's reelection and 9,150 votes withheld.

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

MARKET PRICE

     The Company's common stock ("Common Stock") is quoted on the OTC Bulletin
Board under the symbol "OSFG." The Company's warrants to purchase an aggregate
of 4,500,000 shares of 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 February 16, 2002) (the "Warrants") also are
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>
                              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
Third Quarter              3-3/8            2-1/4                      9/16             1/8
Fourth Quarter             2-3/4            2-1/4                      5/16             1/8
</TABLE>


                                       24
<PAGE>

     As of April 11, 2000, there were 6,295,305 shares of Common Stock
outstanding and 4,500,000 Warrants outstanding held of record by 16 and 8
holders, respectively. The Company believes that there are in excess of 250
beneficial holders of each of its publicly traded securities.

DIVIDENDS

     The Company has not paid cash dividends on its Common Stock 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 Coutts Facility substantially restrict
payment of cash dividends.

ITEM 6.  SELECTED FINANCIAL DATA.

     The following tables set forth selected financial data for the Company
which has been derived from the Company's financial statements as of and for
each of the five years ended December 31, 1999 which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The selected financial data
set forth below should be read in conjunction with the Company's Consolidated
Financial Statements, together with the related notes thereto included elsewhere
herein, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

<TABLE>
                                                                  YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                        1995             1996            1997             1998         1999
                                        ----             ----            ----             ----         ----
<S>                                  <C>            <C>               <C>             <C>            <C>
STATEMENT OF OPERATIONS DATA:

Revenues                            $21,672,510      $28,677,571       $22,494,256    $25,585,476    $33,783,836
Film costs                           16,320,694       23,058,000       19,152,847      21,014,728     30,887,786
Selling, general and administrative   2,721,745        3,595,660        3,509,122       2,960,383      2,983,224

Income (loss) from operations         2,630,071        2,023,910         (167,713)      1,610,365        (87,174)
Income (loss) before income taxes     2,894,066        1,665,269         (837,277)        112,472     (1,988,568)
Income taxes(1)                         432,905        3,131,367         (293,357)         53,000       (736,000)
Net income (loss)                     2,461,161       (1,466,098)        (543,920)         59,472     (1,252,568)

Basic and diluted net income (loss)
   per share                                .77            (0.41)           (0.09)            .01          (0.21)
Weighted average number of shares
outstanding                           3,177,778        3,611,111        5,747,778       5,732,778      5,990,153


                                                                   AS OF DECEMBER 31,
                                                                   -----------------
                                          1995           1996            1997            1998         1999
                                          ----           ----            ----            ----         ----
BALANCE SHEET DATA:
Film costs, net of accumulated
 amortization                       $17,349,071     $28,358,324       $29,740,567    $29,003,201     $28,363,419
Total assets                         28,954,796      40,803,685        46,560,320     50,208,688      62,646,894
Notes payable                         7,421,893      16,607,137        23,142,184     22,013,281      19,764,175
Total liabilities                    17,506,422      28,611,919        34,999,208     38,588,104      49,346,572
Total shareholders' equity           11,448,374      12,191,766        11,561,112     11,620,584      13,300,322
</TABLE>

                                       25
<PAGE>

     (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
         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 historically has been the Company's primary focus, accounting for a
substantial portion of the Company's total revenues. In fiscal 1997, 1998 and
1999, approximately 77%, 70% and 68% of the Company's revenues were derived from
such activities.

     The Company licensed rights to eight motion pictures, each of which
generated over $1,000,000 in revenue during 1999 and which in the aggregate
generated approximately $22,947,000 in revenue, compared to 1998, in which the
Company licensed rights only six films, each of which generated over $1,000,000
in revenue during 1998 and which in the aggregate generated approximately
$16,472,000 in revenue. Although the Company has operated under the constraints
of having little or no available debt financing available from its current
lender, the Company has acquired the sales or distribution rights to thirteen
films (representing an estimated $65,000,000 of aggregate production costs)
which were first available for distribution in 1999 and an additional three
films (representing an estimated $11,000,000 in aggregate production costs)
which are expected to be made available for distribution in 2000. However, the
Company's continued debt level and related interest costs as well as the
restrictions imposed by the Company's lenders have significantly impacted the
Company's cash flow and operations. The Company also continues to be impacted by
(1) changes in the marketplace for independent films, including the reduced
demand by retail video stores and video subdistributors worldwide for films that
have not had significant (or any) theatrical release (in 1999, the Company
released two films theatrically in the United States through First Look
Pictures, A MAP OF THE WORLD and MARCELLO MASTRIONI (I REMEMBER) and had two
films, TITUS and ILLUMINATA, released by other parties, Fox Searchlight and
Artisan, respectively); (2) the slow but improving return of demand for film
rights in Asia due to the region's still lingering economic downturn; and (3)
the 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. To seek to improve the
Company's cash flow and address these changes in the marketplace, as well as in
response to the operating limitations imposed by the Coutts Facility, the
Company has continued to adhere to its operational strategies, is actively
seeking to refinance its debt and is pursuing a potential equity infusion. There
can be no assurance, however, that such refinancing of the Coutts Facility or an
equity infusion will be concluded. See "- Liquidity and Capital Resources".

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
when the motion picture is available for release by the sub-distributor. In most
other cases, revenue is recognized when 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 are made after revenue is recognized.


                                       26

<PAGE>

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 often is not
made for four to nine months after initial release for successful releases, or
longer. Revenues from the direct license by the Company of distribution rights
to a pay television service generally are recognized when the motion picture is
available for telecast by such service and the license agreement begins. Cash
payments to the Company from such services generally are 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.

     The following table sets forth the Company's unamortized film costs as of
December 31, 1997, 1998 and 1999:

                                                  As of December 31,
                                                  -----------------
                                         1997           1998           1999
                                         ----           ----           ----

Films in release, net of
  accumulated amortization           $26,781,682     $26,169,723    $26,432,519
Films not yet available for release    2,958,885       2,833,478      1,930,900
                                    ------------     -----------    -----------
                                      29,740,567     $29,003,201    $28,363,419
                                     ===========     ===========    ===========

Based upon the Company's estimate as of December 31, 1999 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, 2002.

     The Company typically acquires distribution rights in a motion picture for
a specified term in one or more territories and media. See "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. In 1999, the Company did not commit to pay an advance or minimum
guarantee or advance any print and advertising costs with respect to any film
and has no current plans to commit to any significant minimum guarantees in 2000
or advance print and advertising costs, subject to reevaluation in the event
that Company secures a refinancing and/or equity investment. 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 2000). While the Company may, in certain
circumstances, reduce some of these 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



                                       27
<PAGE>

greater the Company's "investment" in a motion picture. This "investment"
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.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Revenues increased by $8,198,360 (32%) to $33,783,836 for the year ended
December 31, 1999 from $25,585,476 for the year ended December 31, 1998. The
increase in revenues was due in part to more films each generating in excess of
$1,000,000 in revenue in 1999 compared to 1998. The Company licensed rights to
eight motion pictures which each generated over $1,000,000 in revenue during
1999 and which in the aggregate generated approximately $22,947,000 in revenue
compared to only six films which each generated over $1,000,000 in revenue
during 1998 and which in the aggregate generated approximately $16,472,000 in
revenue.

     Film costs as a percentage of revenues increased to 91.4% for the year
ended December 31, 1999, compared to 82.1% for the year ended December 31, 1998.
The increase was primarily due to lower gross margin on the titles released in
the year ended December 31, 1999 compared to the year ended December 31, 1998
and the write off of development costs (approximately $1,100,000) relating to
three films which, although the Company continues to actively attempt to arrange
for the production of such films, have not been set for production within the
three-year guideline provided in SFAS 53.

     Selling, general and administrative expenses, net of amounts capitalized to
film costs, increased by $22,841 (0.8%) to $2,983,224 for the year ended
December 31, 1999 from $2,960,383 for the year ended December 31, 1998. The
Company capitalizes certain overhead costs incurred in connection with its
acquisition of rights to a motion picture and creation of marketing materials
for a motion picture by adding such costs to the capitalized film costs of the
motion picture. The increase in selling, general and administrative expenses,
net of amounts capitalized to film costs, was partially the result of fewer
expenses being capitalized ($1,229,222 for the year ended December 31, 1998
compared to $1,088,811 for the year ended December 31, 1999). Other increases
included a $22,110 increase in accounting expenses, a $129,178 increase in bad
debt expense, a $62,678 increase in consulting fees, a $27,685 increase in
contract labor and a $28,621 increase in legal fees. The increases were
partially offset by decreases in certain selling, general and administrative
expenses from the prior year including a $15,390 decrease in equipment leases, a
$19,326 decrease in directors and officers insurance premiums, a $26,814
decrease in officer life insurance premiums, a $76,517 decrease in employee
benefits, a $20,360 decrease in expenses related to the company being a publicly
traded company, a $46,919 decrease in publicity, a $25,050 decrease in reader
and research expenses, a $102,326 decrease in compensation costs, and $41,603
decrease in telephone and fax costs.

     Other expense increased by $403,502 (26.9%), to $1,901,395 for the year
ended December 31, 1999, compared to $1,497,893 for the year ended December 31,
1998, primarily due to decreased capitalized interest costs ($136,204 for the
year ended December 31, 1999, compared to $649,005 for the year ended December
31, 1998). Interest costs and fees, before capitalization, decreased by $138,626
to $2,154,532 for the year ended December 31, 1999 compared to $2,293,158 for
the year ended December 31, 1998, primarily as the result of lower outstanding
balances on various notes and loans payable to banks and the Company's principal
shareholders, Ellen and Robert Little. 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 a loss before income tax benefits
of $1,988,568 for the year ended December 31, 1999 compared to a income before
income taxes of $112,472 for the year ended December 31, 1998.

     The Company recorded income tax benefits of $736,000 for the year ended
December 31, 1999 (reflecting a 37.0% effective tax rate), compared to a tax
provision of $53,000 for the year ended December 31, 1998.



                                       28
<PAGE>

     As a result of the above, the Company had a net loss of $1,252,569 for the
year ended December 31, 1999, compared to net income of $59,472 for the year
ended December 31, 1998.

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
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 was 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 a $514,566 decrease in payroll
related expenses, a $108,045 decrease in accounting expenses, a $67,411 decrease
in legal expenses, a $52,548 decrease in business entertainment expenses and a
$40,066 decrease in costs associated with a sales consultant based in Italy. The
decreases were partially offset by increases in certain selling, general and
administrative expenses over those in the prior year including a $108,337
increase in contract labor, a $36,707 increase in rent, a $36,456 decrease in
communication expenses and a $28,017 decrease in bad debt expense.

     Other expense increased by $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.

     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 of $837,277, for the year ended December 31, 1997.

     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 of $543,920, for the year
ended December 31, 1997.

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. The principal sources of funds for the
Company's operations have been cash flow from operations and bank borrowings,
primarily through the Coutts Facility described below.


                                       29

<PAGE>

     The Company's cash flows provided by/(used in) operating, investing and
financing activities in 1997, 1998 and 1999 were as follows:

                                    Year Ended December 31,
                                    -----------------------
                        1999                  1998                   1997
                        ----                  ----                   ----

     Operating        $14,057,262          $10,564,552           $11,749,969
     Investing        (11,873,946)         (10,190,535)          (16,322,468
     Financing         (2,450,397)          (1,015,498)            6,397,944

     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 increase in cash flows provided by operating
activities in 1999 compared to 1998 and the reduction in cash flows provided by
operating activities in 1998 compared to 1997 generally represents increased or
decreased (as the case may be) cash flows provided by sales and licensing of
distribution rights by the Company. 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 in 1999 compared to 1998 and in 1998 compared to 1997 generally
represent varying investment in film costs relating to availability of funds for
such purpose. The reduction in cash flows from financing activities in 1999
compared to 1998 and in 1998 compared to 1997 generally represent net reductions
in debt balances in 1999 and 1998 and significant net borrowings in 1997.

     Since 1994, the Company has had a credit facility (the "Coutts Facility")
with Coutts & Co. ("Coutts"), as an agent and lender, and Bankgesellschaft
Berlin A.G., formerly Berliner Bank A.G. London Branch ("Bankgesellschaft"), as
a lender (collectively, the "Banks"). The terms of the credit facility agreement
(the "Syndication Agreement"), provides for borrowings relating to the Company's
acquisition of motion pictures or to fund distribution costs, including print
and advertising costs, associated with the motion pictures acquired by the
Company (the "Film Facilities"); borrowings for the Company's working capital
needs (the "Operating Facility") and up to $1,000,000 available to be issued as
letters of credit (the "Local Facility") to secure a local bank line of credit
(the "Local Line"). Under the terms of the Syndication Agreement, the Company
borrowed funds under Film Facilities' on a film-by-film basis, with each Film
Facility treated as a separate loan, initially maturing 12 months after the
first draw down. The Syndication Agreement required the Banks to approve each
separate Film Facility, such approval to be granted in their sole discretion.
Under terms of an amendment dated April 9, 2000 (the "2000 Amendment"), the
Banks have extended the maturity dates for the Coutts Facility and each
outstanding Film Facility until April 15, 2001. Although the Film Facilities
were originally made available on a revolving basis, the Syndication Agreement
was amended on April 14, 1998 (the "1998 Amendment") to provide for no further
borrowings. Additionally, the Company and the Banks 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 of
December 31, 1999, an aggregate of approximately $10,069,048, relating to 15
unpaid Film Facilities, was outstanding.

     Under the terms of the 1998 Amendment, the borrowing limit under the
Operating Facility was increased from approximately $1,234,000 to a maximum of
$7,234,000; provided that such increases shall be substantially in line with a
projected cash flow schedule provided to Coutts during its most recent review of
the Company. The balance drawn under the Operating Facility as of December 31,
1999 was approximately $7,234,000 and the most recent cash flow projection
provided by the Company to the Banks project that this amount will continue to
be outstanding through April 15, 2001. The Operating Facility will mature on
April 15, 2001.

     As of December 31, 1999, $1,000,000 in face amount of letters of credit
also had been issued under the Local Facility to secure a line of credit that
the Company has received from City National Bank (under which $750,000 was
outstanding as of December 31, 1999 bearing interest at 7.25% per annum). If the
letters of credit are drawn upon, the Company must repay the amounts advanced by
the Banks upon demand.

                                       30
<PAGE>

     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 advanced, 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 1999 amounted to an aggregate of
approximately $900.

     Under the Syndication Agreement, as amended, which is secured by
substantially all of the assets of the Company and its subsidiaries, the Company
is required to (1) provide a series of monthly financial reports to the Banks,
(2) obtain written approval of the Banks prior to entering into any new rights
acquisitions or commitments; (3) obtain written approval of the Banks prior to
committing to spend amounts in connection with distribution expenses and costs
for print and advertising requirements; (4) maintain a certain consolidated net
worth; and (5) collateralize by cash or receivables acceptable to the Banks 30%
of the amount outstanding under the Film Facilities. The Syndication Agreement
also restricts the creation or incurrence of indebtedness and the issuance of
additional securities and requires aggregate key man life insurance of
$6,750,000 on Ms. Little, Mr. Little and Mr. Lischak. 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 "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.

     As part of the 1998 Amendment, Ms. Little and Mr. Little agreed to
personally guarantee for the benefit of the Banks 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. Additionally, as part of the 1998 Amendment, Ms. Little
and Mr. Little agreed to defer payments under a note (the "Merger Note") issued
to the Littles as part of the consideration given relating to the merger of
Overseas Filmgroup, Inc. and Entertainment/Media Acquisition Corporation in
October of 1996. Payments under the Merger Note continue to accrue but are being
deferred with interest thereon until (1) outstanding borrowings under the
Operating Facility are reduced to at least $5,000,000 and (2) the Company and
the Banks view that such reduction is permanent. However, pursuant to a later
amendment to the Syndication Agreement since 1999, an amount equal to the
Littles' aggregate weekly salary without interest has been paid to the Littles
on a weekly basis towards repayment of the Merger Note. 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 11, 2000, an aggregate
of $1,963,652 in principal and interest was outstanding under the Merger Note
(including an aggregate of $1,143,154 in previously deferred payments of
principal and interest).

     Under the terms of the 2000 Amendment, $190,000 in deferred fees relating
to the prior extension of the term of the Coutts Facility shall be payable upon
the earlier of the date the Company has secured a new credit facility which
re-finances the Banks or July 31, 2000. In addition, the Banks have imposed an
extension fee of $20,833 per month or part thereof until further notice by the
Banks. Additionally, the Banks waived certain non-compliance with various
covenants under the Syndication Agreement including (i) any non-compliance by
the Company to provide required financial information; (ii) any non-compliance
with respect to 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 previous annual
overhead budgets 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. The Banks also established an agreement with respect to
the Company's overhead levels for the twelve months beginning April 9, 2000 and
reinstated a requirement for the Company to maintain a minimum net worth of
$12,000,000 (which had previously been reduced to $11,000,000 under the 1998
Amendment). As of December 31, 1999, the Company's net worth calculated in
accordance with this provision was $13,300,322.

                                       31
<PAGE>

     As of April 11, 2000, an aggregate of $9,730,121 was outstanding under the
Film Facilities, 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 $214,971 was then outstanding).

     In addition to the amounts outstanding under the Coutts 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 plus 1.5% (8.5% at December 31, 1999) and is
collateralized by amounts due under distribution agreements from the specific
film. The Note Payable matures on May 29, 2001 and requires a $400,000 principal
reduction in July 2000.

     The Company has entered into the Commitment Letter with Chase whereby Chase
has agreed to structure, arrange and use commercially reasonable efforts to
syndicate a senior five-year revolving credit facility in an aggregate amount of
up to $30,000,000 (the "Chase Facility"). Under the terms of the Commitment
Letter, CMB has committed to provide up to $10,000,000 toward the total Chase
Facility. However, it is a condition to CMB's commitment that the portion of the
Chase Facility not being provided by CMB shall be provided by other lenders. No
assurance can be given that Chase will secure the additional lenders. In the
event the Chase Facility is concluded, the proceeds of the Chase Facility are
anticipated to be used (1) to refinance indebtedness under the Coutts Facility,
(2) to finance the production and/or acquisition of theatrical, video or
television product and (3) for working capital and other general corporate
purposes. Additionally, under the terms of the Chase Facility, the Company would
be able to borrow, repay and reborrow for five years after the closing date of
the Chase Facility. The collateral to be provided to Chase would be a first
priority security interest in all assets of the Company. No assurance can be
given that the Chase Facility will ultimately be concluded, or if concluded,
will be concluded on terms as outlined above.

     As of December 31, 1999, certain other amounts were due to the Littles,
including an aggregate of $150,000 in bonuses earned by them in 1997, 1998 and
1999, reimbursement of approximately $104,626 in expenses as provided in their
employment agreements with the Company, accrued salaries of approximately
$386,129 which salary is being deferred. Additionally, the Company and the
Littles have agreed that an aggregate of $200,000 is due to the Littles under
the provisions of a tax reimbursement agreement (the "Tax Reimbursement
Agreement"), which amount is currently 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 Banks declined to loan
such funds. The loan is secured by an assignment of domestic revenues of MRS.
DALLOWAY (currently subordinate to the Banks security interest), bears interest
at the rate of 9% per annum, and is to be repaid 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 Banks with respect to DIFFERENT FOR GIRLS or at
such time as the Banks allow repayment from other sources). At April 10, 2000,
the aggregate amount outstanding (including accrued interest) pursuant to such
loan was approximately $480,600. Other than the guarantee provided by the
Littles in connection with the 1998 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 Coutts Facility or any borrowings of
the Company in the future.

     As of December 31, 1999, the Company had cash and cash equivalents of
$270,031 compared to cash and cash equivalents of $537,652 as of December 31,
1998. The difference relates primarily normal fluctuations in the ongoing
business of the Company. Additionally, at December 31, 1999, the Company had
restricted cash of $88,176 held by the Company's primary lender, to be applied
against various Film Facilities. The restricted cash balance as of December 31,
1998 was $159,614.


                                       32

<PAGE>

     Additionally, as of December 31, 1999 the Company owns 17,454 shares of
Yahoo!, Inc. common stock which it received as part of a share-for-share
exchange done with broadcast.com (broadcast.com was subsequently acquired by
Yahoo!, Inc.). Under the terms of the share-for-share agreement, the Yahoo!,
Inc. shares held by the Company may not be sold, transferred, assigned, pledged,
hypothecated, or otherwise disposed of on or before July 18, 2000. Similarly,
the 562,527 Company shares issued to broadcast.com (now held by Yahoo!, Inc.)
are unregistered shares and are restricted for a similar one year period.

     As of December 31, 1999, the Company also had deferred revenue relating to
distribution commitments and guarantees from sub-distributors of approximately
$918,500.

     In 1999, the Company acquired rights to thirteen 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 two First Look
Pictures releases (exclusive of films where the Company acquires primarily
re-issue rights). As the amended Syndication Agreement provides that no new Film
Facilities will be established and requires the consent of the Banks 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 Company's ability to achieve these goals will depend on the
Banks' willingness 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 Company's ability to obtain other sources of funds for its
operational activities, including obtaining pre-sale commitments, co-production
funds, funds from gap financing and third party equity sources. However, there
can be no assurance as to the future availability of pre-sales, co-production
funds, gap financing and third party equity. In addition, the Company currently
anticipates releasing films through First Look Pictures, 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 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 and fees imposed by the Banks 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
sub-distributors 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 also has sought additional equity capital and, to that end, is
currently involved in negotiations regarding a potential equity investment in
the Company. No assurance can be given that 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 the Company 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


                                       33

<PAGE>

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.

YEAR 2000 COMPLIANCE

     The Year 2000 problem is the result of certain computer programs being
written using two digits, rather than four digits, to define the applicable
year. Any computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, or not recognize the
date at all. If not corrected, this could result in system failures or
miscalculations that could result in service or other interruptions. To date,
the Company has not experienced any significant Year 2000 problems. Testing and
compliance monitoring as part of the Company's Year 2000 program will continue
into 2000 to ensure proper operating and that system changes and additions are
Year 2000 compliant.

EXCHANGE RATE CONSIDERATIONS

     A significant portion of the Company's revenue (approximately 85% in 1999)
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 factors such 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 "Business-Motion
Picture Distribution by the Company." Because the Company's contracts typically
are 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, generally are 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 also could 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 "Business-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. In
connection with the Merger, the Company entered into the Tax Reimbursement
Agreement with Ms. Little, Mr. Little and Mr. Lischak pursuant to which 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. 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 Tax Reimbursement Agreement also provides that the Company will
indemnify Ms. Little, Mr. Little and Mr. Lischak 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 corporate income tax returns of the
Company for the two month period ended December 31, 1996 following the Merger
were audited by the Internal Revenue Service ("IRS") and returns for the ten
months ended October 31, 1996 (Pre-Merger Overseas) and the 1997, 1998 and 1999
fiscal years (the latter of which is currently on extension for filing) remain
open to audit. As a result of prior IRS audits, the Company and the Littles have
agreed that $200,000 is payable to the Littles by the Company. For purposes of





                                       34

<PAGE>

the Consolidated Financial Statements of the Company, accrued expenses as of
December 31, 1997, 1998 and 1999 included a $200,000 estimate of the aggregate
payments to be made to the the Littles pursuant to the Tax Reimbursement
Agreement. No payments have been made under the Tax Reimbursement Agreement
through April 11, 2000. The IRS audit of the two-month period ended December 31,
1996 resulted in the Company's foreign tax credit carryforward being increased
by approximately $10,000. There were no other adjustments resulting from this
audit.

     For federal income tax purposes, as reported on the Company's 1998 fiscal
year income tax return, the Company has available tax loss carryforwards of
approximately $137,417 (which tax loss carryforwards expire in 2011) and foreign
tax credit carryforwards of approximately $536,517 (which foreign tax credit
carryforwards expire between 2001 and 2003). The Company currently anticipates
additional tax losses and foreign tax credits being reported on its 1999 federal
income tax return, increasing such carryforward amounts.

NEW ACCOUNTING GUIDANCE

     In December 31, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"), which will be effective for the Company in the second quarter of fiscal
2000. SAB 101 clarifies certain existing accounting principles for the
recognition and classification of revenues in financial statements. While the
Company's existing revenue recognition policies are consistent with the
provisions of SAB 101, the new rules are expected to result in changes as to how
the filmed entertainment industry classifies its revenues relating to the
license to sub-distributors of rights to exploit motion picture product.
Currently, the Company, consistent with the filmed entertainment industry,
classifies as revenue the gross amount of revenues it receives from licenses to
sub-distributors and records as film cost expense the related producers' share
of revenues. Under SAB 101, in certain circumstances the Company will only
recognize as revenues its net distribution fees. As a result, the Company is in
the process of evaluating the overall impact of SAB 101 on its consolidated
financial statements. It is expected that both annual revenues and film costs in
the Company's consolidated financial statements will be reduced by an equal
amount as a result of these classification changes, which will not result in any
change to income/(loss) from operations or net income/(loss).

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 "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>
                                                                  Expected Maturity Date
                                                                  ----------------------
                                                                        (000's)

                                             2000             2001        2002        2003      2004    thereafter
                                             ----             ----        ----        ----      ----    ----------
         Liabilities
        ------------
<S>                                       <C>            <C>            <C>        <C>         <C>     <C>
Fixed Rate:
Notes payable to related
         Party *                            $650,000      $ 250,000      $250,000   $250,000   $250,000  $89,229
         Average Interest Rate                 9%             9%            9%         9%         9%       9%


Variable Rate:
Notes Payable                               $400,000     $19,364,176        0          0          0        0
         Average Interest Rate                 10%          8.84%
</TABLE>

* Represents amounts payable to Ellen and Robert Little which are currently
being paid in amounts equal to deferred compensation, pursuant to an arrangement
with the Banks and an agreement between the Company and the Littles. See
"Certain Relationships and Related Transactions."

                                       35


<PAGE>

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.

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

         Not applicable.


<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:

NAME                       AGE      CURRENT POSITION WITH THE COMPANY

Robert B. Little           55       Co-Chairman of the Board and Co-Chief
                                    Executive Officer

Ellen Dinerman Little      58       Co-Chairman of the Board, Co-Chief Executive
                                    Officer  and President

Stephen K. Bannon          46       Vice Chairman of the Board, Chairman of the
                                    Executive Committee of the Board

William F. Lischak         42       Chief Operating Officer, Chief Financial
                                    Officer, Secretary and Director

MJ Peckos                  45       Senior Vice President, Domestic Distribution
                                    and Marketing

Alessandro Fracassi        48       Director

Gary M. Stein              43       Director

Scot K. Vorse              39       Director


     The directors of the Company are divided into three classes having terms
expiring at the annual meeting of the Company's stockholders in 2000 (Robert B.
Little and Stephen K. Bannon), in 2001 (Ellen Dinerman Little and Scot K.
Vorse), and 2002 (William F. Lischak, Gary M. Stein and Alessandro Fracassi) 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





                                       37
<PAGE>

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. Mr. Little is an executive producer
of TITUS, which was nominated for an Academy Award in 1999.

     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 a number of its committees. Ms. Little
is executive producer of RICHARD III, which was nominated for two Academy Awards
and is an executive producer of TITUS, which was nominated for an Academy Award
in 1999.

     STEPHEN K. BANNON has been a director of the Company since its inception 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.
From inception until the October 1996 Merger, he served as the Company's
Chairman of the Board. 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. In July
1998, Bannon & Co., Inc. was acquired by SG Cowen Securities Corporation, an
integrated, full service U.S. securities and investment banking firm. Mr. Bannon
served as Managing Director and Co-Head of SG Cowen Securities Corporation's
media and entertainment group from July 1998 until March 2000. As part of an
investment banking assignment, from April 1994 to December 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"). Mr Bannon is an executive producer of TITUS, which was
nominated for an academy award in 1999.

     WILLIAM F. LISCHAK became Chief Operating Officer, Chief Financial Officer,
Secretary and a director of the Company upon consummation of the Merger in
October 1996. Mr. Lischak served as Chief Operating Officer of Pre-Merger
Overseas from September 1990 until October 1996 and its Chief Financial Officer
from September 1988 until October 1996. 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. From January 1992 to November 1994 she served as Senior
Vice President of Marketing & Distribution for Academy Entertainment, an
independent film company, and from July 1991 to December 1992 she served as
Co-Managing Director of CLG Films, also an independent film company. Ms. Peckos
also previously served with several other companies in the motion picture
industry including The Samuel Goldwyn Company, MGM and Warner Bros.

     ALESSANDRO FRACASSI became a director of the Company upon consummation of
the Merger in October 1996. In 1976, Mr. Fracassi founded Racing Pictures s.r.l.
("Racing Pictures"), an Italian motion picture production and distribution
company, 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 has served as a director of the Company from December 1994
until the Merger in October 1996 and since September 1998. Since January 1997,
Mr. Stein has served as general partner of Britten and Stone Music, a
Nashville-based consulting and publishing business, which he co-founded with his
wife. From March 1990 to 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. Mr. Stein





                                       38
<PAGE>

has also served on the Board of Directors of Seventh Generation, Inc., a
supplier of environmentally-friendly household products and was part of a group
which took this company private in 2000. 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 the Company, and from January 1995 until November 1996, he served
as Vice President of the Company. 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. In July 1998, Bannon & Co.,
Inc., was acquired by SG Cowen Securities Corporation, an integrated, full
service U.S. securities and investment banking firm. Mr. Vorse served as
managing director and Co-Head of SG Cowen Securities Corporation's media and
entertainment group from July 1998 until March 2000. 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
"Executive Compensation-Stock Option Plans."

AUDIT COMMITTEE

     The Audit Committee of the Company currently consists of Messrs. Bannon and
Vorse. The functions of the Audit Committee are 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

     In connection with the Merger in October 1996, a Stockholders' Voting
Agreement, dated as of October 31, 1996, was entered into among the Company,
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"). To the best of the Company's knowledge, Jeffrey A.
Rochlis and Barbara Boyle no longer own any shares of the Company's Common
Stock. The parties to the Stockholders' Voting Agreement agreed to use their





                                       39
<PAGE>

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 75% of the
authorized number of directors of the Company: (i) any amendment to the Restated
Certificate of Incorporation or Bylaws that would change the voting rights of
stockholders, the number or classes of directors, or the notice and quorum
requirements for meetings of the Board of Directors, its committees or the
shareholders; (ii) a merger or sale of all or substantially all of the assets of
the Company; (iii) the designation or issuance of any preferred stock and (iv)
any amendments to the operating guidelines described below (collectively, the
"Supermajority Provisions"). The Stockholders' Voting Agreement terminates on
April 30, 2005 or sooner if Ms. Little's, or Messrs. Little and Mr. Lischak's
employment with the Company 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 connection with the Merger, operating guidelines for
the Board of Directors and management of the Company were established 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.

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, 1999, all Section 16(a)
filing requirements applicable to the Company's executive officers, directors
and 10% Stockholders were complied with.

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, 1999 whose total salary and
bonus compensation during fiscal 1999 from the Company exceeded $100,000
(William F. Lischak and M.J. Peckos). These 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, 1997, 1998
and 1999, 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 1999 and includes the number and value of
unexercised options held by the Named Executives at December 31, 1999.

                                       40
<PAGE>



                   SUMMARY COMPENSATION TABLE
<TABLE>
                                                                                                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                      1999      125,000(1)       25,000(2)       11,852(3)                         34,791(4)
CO-CHAIRMAN OF THE                    1998      125,000(5)       25,000(2)       26,985(6)           0             48,101(7)
BOARD AND CO-CHIEF
  EXECUTIVE OFFICER                   1997        125,000        27,404(2)       40,511(8)           0             16,695(9)

ELLEN DINERMAN LITTLE                 1999       125,000(1)      25,000(2)            0                            22,638(10)
CO-CHAIRMAN OF THE                    1998       125,000(11)     25,000(2)       17,203(12)          0             19,642(13)
BOARD, CO-CHIEF EXECUTIVE OFFICER
AND PRESIDENT                         1997       125,000         27,404(2)       27,134(14)          0             23,892(15)

WILLIAM F. LISCHAK                    1999        200,000        50,000               -(20)     10,000             12,528(16)
CHIEF OPERATING                       1998        193,209        50,000               -(20)          0             10,675(17)
OFFICER,CHIEF FINANCIAL OFFICER
AND SECRETARY                         1997        175,000       53,365                -(20)          0              9,410(18)

MJ PECKOS                             1999       150,000           0                  -(20)     10,000              5,081(19)
SENIOR VICE PRESIDENT,                1998       153,224           0                  -(20)          0              4,985(19)
DOMESTIC DISTRIBUTION                 1997       156,483        20,000                -(20)          0              2,923(19)
AND MARKETING
</TABLE>

1)   Represents salary earned by each of the Named Executives pursuant to their
     respective Employment Agreements, the payments of which have been deferred
     in accordance with the arrangement described in "Management's Discussion
     and Analysis of Financial Condition and Results of Operations - Liquidity
     and Capital Resources."

2)   Includes bonus of $25,000 earned by the Named Executive, payment of which
     has been deferred until a date to be agreed upon by the Company and the
     Named Executive.

3)   Represents $10,987 for automobile lease payments and $865 in automobile
     expenses.

4)   Represents $32,480 in life insurance premiums paid or accrued by the
     Company for the benefit of the Named Executive and $2,311 in disability
     insurance premiums paid by the Company for the benefit of the Named
     Executive.

5)   Represents salary earned by the Named Executive pursuant to his Employment
     Agreement, the payment of $68,066 has been deferred in accordance with the
     arrangement described in "Management's Discussion and Analysis of Financial
     Condition and Results of Operations - Liquidity and Capital Resources."

6)   Represents $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.



                                       41
<PAGE>

7)   Represents $2,266 in contributions made by the Company on behalf of the
     Named Executive pursuant to the Company's 401(k) Plan, $34,258 in life
     insurance premiums paid or accrued by the Company for the benefit of the
     Named Executive, $2,123 in disability insurance premiums paid by the
     Company for the benefit of the Named Executive and $9,454 in tax
     preparation fees for 1996 for which the Named Executive is entitled to
     reimbursement.

8)   Represents $13,499 for automobile lease payments, $25,301 in business
     management and accounting fees and $1,711 in automobile expenses paid on
     behalf of such Named Executive by the Company.

9)   Represents $2,625 in contributions made by the Company on behalf of the
     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 the Named Executive and $11,939 in life insurance premiums for
     which the Named Executive is entitled to reimbursement by the Company.

10)  Represents $20,225 in life insurance premiums paid or accrued by the
     Company for the benefit of the Named Executive and $2,413 in disability
     insurance premiums paid by the Company for the benefit of the Named
     Executive.

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

12)  Represents $10,700 of business management and accounting fees paid on
     behalf of the Named Executive, $2,203 in automobile expenses 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.

13)  Represents $2,267 in contributions made by the Company on behalf of the
     Named Executive pursuant to the Company's 401(k) Plan, $15,100 in life
     insurance premiums paid or accrued by the Company for the benefit of the
     Named Executive and $2,275 in disability insurance premiums paid by the
     Company for the benefit of the Named Executive.

14)  Represents $25,301 of business management and accounting fees paid on
     behalf of such Named Executive by the Company and $1,833 in automobile
     expenses.

15)  Represents $2,633 in contributions made by the Company on behalf of the
     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 the Named Executive and $18,906 in life insurance premiums for
     which the Named Executive is entitled to reimbursement by the Company.

16)  Represents $3,569 in contributions made the Company on behalf of the Named
     Executive pursuant to the Company's 401(k) Plan, $7,295 in life insurance
     premiums for which the Named Executive is entitled to reimbursement by the
     Company and $1,664 in disability insurance premiums paid by the Company for
     the benefit of the Named Executive.

17)  Represents $3,077 in contributions made by the Company on behalf of the
     Named Executive pursuant to the Company's 401(k) Plan, $5,135 for life
     insurance premiums paid by the Company for the benefit of the Named
     Executive and $2,463 for disability insurance premiums paid by the Company
     for the benefit of the Named Executive.

18)  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 the Named
     Executive and $1,532 for disability insurance premiums paid by the Company
     for the benefit of the Named Executive.



                                       42
<PAGE>

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

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


<PAGE>

                     AGGREGATED OPTION/SAR EXERCISES IN LAST
                FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
                            SHARES                      NUMBER OF SECURITIES
                          ACQUIRED ON        VALUE     UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                           EXERCISE         REALIZED      OPTIONS/SARS AT          IN-THE-MONEY OPTIONS/SARS
NAME                          (#)              ($)       DECEMBER 31, 1999          AT DECEMBER 31, 1999

                                                          EXERCISABLE                 EXERCISABLE
                                                         /UNEXERCISABLE              /UNEXERCISABLE
                                                             (#)                          ($)
<S>                            <C>           <C>        <C>                              <C>
Ellen Dinerman Little          0               0        700,000/400,000                  0/0

Robert B. Little               0               0        700,000/400,000                  0/0

William F. Lischak             0               0               10,000/0                  0/0

MJ Peckos                      0               0               10,000/0                  0/0
</TABLE>

DIRECTOR COMPENSATION

     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 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.

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 the Company during 1996 until consummation of the Merger
and currently serves as Vice Chairman of the Board of Directors and Chairman of
the Executive Committee. Mr. Vorse served as Vice President, Treasurer, and
Secretary of the Company 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.

                                       44
<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 Coutts Facility requires 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. 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 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.

     Since May 1997, payment of salary to Ms. Little and Mr. Little pursuant to
the terms of their respective employment agreements has been deferred. For a
more detailed discussion of the terms of such deferral, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."

     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





                                       45
<PAGE>

relationship of the Company with any employee, customer, supplier or lessee. The
non-competition obligations terminate earlier than the five-year term 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.

     MJ PECKOS. MJ Peckos does not have a written employment agreement and she
currently receives an annual base salary of $150,000. She is entitled to the
same benefits that other employees generally receive.

STOCK OPTION PLANS

     The Company has two stock-based incentive compensation plans (together, the
"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 primarily provides equity incentives to Ellen
Dinerman Little and Robert B. Little, the Company's Co-Chief Executive Officers.
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 April 11, 2000,
options to purchase an aggregate of 149,500 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 as of April 11, 2000
with respect to the Common Stock ownership of (i) those persons or groups known
to beneficially own more than 5% of the Company's voting securities, (ii) each
director of the Company, (iii) each Named Executive and (iv) all current
executive officers and directors of the Company as a group. Beneficial ownership
is determined in accordance with Rule 13d-3 under the Exchange Act. The
information concerning the stockholders is based upon information furnished to
the Company by such stockholders. Except as otherwise indicated, all of the
shares of Common Stock are owned of record and beneficially and the persons
identified have sole voting and investment power with respect thereto.



                                       46
<PAGE>

      NAME OF                     AMOUNT AND NATURE OF     PERCENT OF CLASS
BENEFICIAL OWNER                  BENEFICIAL OWNERSHIP     OF VOTING SECURITIES
----------------                  --------------------     --------------------

Ellen Dinerman Little                4,602,778 (1)(2)              59.8%
Robert B. Little                     4,602,778 (1)(2)              59.8%
Stephen K. Bannon                      141,324 (3)                  2.2%
William F. Lischak                     259,560 (1)(4)               4.0%
MJ Peckos                               10,000 (1)(5)                *
Alessandro Fracassi                     20,000 (6)                   *
Gary M. Stein                          187,000 (7)                  3.0%
Scot K. Vorse                          146,323 (8)                  2.2%
Dolphin Offshore Partners, L.P.      1,262,500 (9)                 19.1%
Jay Goldman                            620,300 (10)                 9.0%
Yahoo! Inc.                            562,527 (11)                 8.9%
All current executive officers
  and directors as a
  group (8 persons)                  5,117,425 (12)                65.6%

---------------------
* 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) 700,000 shares of Common Stock issuable upon exercise of immediately
     exercisable options granted to such person under the Management Option Plan
     and (iv) 700,000 shares of Common Stock issuable upon immediate exercise of
     immediately exercisable options granted to such person's spouse under the
     Management Option Plan which generally only may 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)
     400,000 shares of Common Stock issuable upon exercise of options granted to
     such person under the Management Option Plan or (b) 400,000 shares of
     Common Stock issuable upon exercise of 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; provided, however,
     that such proxy terminates earlier if the Littles own or control less than
     5% 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
     October 30, 2001, Ms. Little and Mr. Little also have, under certain
     circumstances, certain rights to acquire the 249,560 shares of Common Stock
     held by Mr. Lischak while he holds such shares. See footnote (4) below.

(3)  Includes 20,000 shares of Common Stock issuable upon exercise of
     immediately exercisable options granted under the Basic Plan. Mr. Bannon's
     business address is c/o Bannon, Vorse and Company, 202 North Canon Drive,
     Beverly Hills, California 90210.

(4)  Represents (i) 10,000 shares of Common Stock issuable upon exercise of
     immediately exercisable options granted under the Basic Plan and (ii)
     249,560 shares of Common Stock which 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 October 30, 2001. 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 October 30, 2001, subject to earlier
     termination in certain circumstances. See footnote (2) above.



                                       47
<PAGE>

(5)  Represents 10,000 shares of Common Stock issuable upon exercise of
     immediately exercisable options granted under the Basic Plan.

(6)  Represents 20,000 shares of Common Stock issuable upon exercise of
     immediately exercisable options granted under the Basic Plan. Mr.
     Fracassi's business address is Via Dei Tre Orologi, 10 Rome 00197 Italy.

(7)  Includes (i) 10,000 shares of Common Stock issuable upon exercise of
     immediately exercisable options granted under to the Basic Plan and (ii)
     10,000 shares of Common Stock issuable upon exercise of immediately
     exercisable non-plan options. Mr. Stein's business address is 900 19th
     Avenue South, Unit 411, Nashville, Tennessee 37212.

(8)  Represents (i) 20,000 shares of Common Stock issuable upon exercise of
     immediately exercisable options granted under 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. Mr. Vorse's business
     address is c/o Bannon, Vorse and Company, 202 North Canon Drive, Beverly
     Hills, California 90210.

(9)  Includes 328,000 shares of Common Stock issuable upon exercise of Warrants.
     Information provided herein was obtained from the General Partner of
     Dolphin Offshore Partners, L.P. and is included in a Schedule 13D/A dated
     December 31, 1998 filed with the Comission. 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.

(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 Mr. Goldman's spouse's IRA
     Account. Information provided was obtained from Mr. Goldman's Form 13G
     dated November 23, 1998 filed by Mr. Goldman with the Commission. Mr.
     Goldman's address is 40 Kean Road, Short Hills, New Jersey 07078.

(11) Yahoo! Inc.'s business address is 3420 Central Expressway, Santa Clara.
     California 95051.

(12) Includes (i) 700,000 shares of Common Stock issuable upon exercise of
     immediately exercisable options granted to Ellen Dinerman Little under the
     Management Option Plan, (ii) 700,000 shares of Common Stock issuable upon
     exercise of immediately exercisable options granted to Robert B. Little
     under the Management Option Plan, (iii) an aggregate of 90,000 shares of
     Common Stock issuable upon exercise of immediately exercisable options
     granted to Messrs. Lischak, Bannon, Fracassi, Vorse and Stein and Ms.
     Peckos under the Basic Plan and (iv) 10,000 shares of Common Stock issuable
     upon exercise of immediately exercisable non-plan options.

     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, 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 shares received by them in the Merger (2,928,218
shares held by the Littles and 249,560 held by Mr. Lischak). 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.



                                       48
<PAGE>


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 May 1997, in order to address what the Company had anticipated was a
need for additional working capital availability, Ms. Little and Mr. Little
agreed to defer payments to them under the Merger Note. In April 1998, the
Company and the Banks amended the Coutts Facility, as well as extended the date
of the Bank's annual review of the facility and the expiration of their
commitment to lend under the facility. As part of the amendments to the Coutts
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 are being deferred with interest until
outstanding borrowings under the operating facility portion of the Coutts
Facility are reduced to at least $5,000,000 and the Company and the Banks view
such reduction as permanent (the "Deferral Lapse Date"); provided, however,
that, prior to such time, 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). 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 11, 2000, the aggregate amount outstanding
(including accrued interest) under the Merger Note was approximately $1,963,652
(including an aggregate of $1,143,154 in previously deferred payments of
principal and interest).

     As part of the April 1998 amendments to the Coutts Facility, Ms. Little and
Mr. Little also agreed to personally guarantee for the benefit of the Banks
under the Coutts 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.

     In connection with the Merger, the Company entered into a Tax Reimbursement
Agreement with Ellen Dinerman Little, Robert B. Little and William F. Lischak.
During 1999, no payments were made pursuant to the Tax Reimbursement Agreement,
although the Company and the Littles have agreed that $200,000 is due by the
Company to the Littles under the provisions of the Tax Reimbursement Agreement.
See "- 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




                                       49
<PAGE>

the rate of 9% per annum, and is to be repaid as and when revenues from MRS.
DALLOWAY and DIFFERENT FOR GIRLS are received by the Company (after repayment of
a Film Facility related to the acquisition of domestic rights to both DIFFERENT
FOR GIRLS and MRS. DALLOWAY and print and advertising costs lent by the lenders
with respect to DIFFERENT FOR GIRLS). At April 11, 2000, the aggregate amount
outstanding (including accrued interest) pursuant to such loan was approximately
$480,600.

     Neo Motion Pictures, Inc., a California corporation ("Neo") involved in the
production of motion pictures, provided production services on a non-exclusive
basis 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 1999, no consulting fees were paid by Neo to Mr. Little, although, at
April 10, 2000, Neo owed Mr. Little $269,121 in accrued but unpaid consulting
fees. In September 1996, Mr. Little and Neo entered into an agreement pursuant
to which Neo granted Mr. Little an option to acquire a 50% interest in Neo for a
purchase price of less than $60,000. Also in September 1996, Mr. Little and the
Company entered into an agreement pursuant to which the Company has the option
to purchase 50% of the shares that Mr. Little receives from Neo. The Company has
guaranteed payment by Neo of a $324,000 principal amount promissory note payable
to a third party in September 2000 (extended originally from May 9, 1997), which
was paid in full on August 11, 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 1999, sales or licenses of distribution rights to
such films by the Company generated approximately $20,100 of gross revenues to
the Company.

     Mr. Fracassi is also the President and owner of Racing Pictures, an Italian
corporation which is engaged in the production and distribution of motion
pictures. In 1990 and 1991, Pre-Merger Overseas licensed to Racing Pictures
various distribution rights (primarily Italian television and video distribution
rights) to approximately 86 motion pictures which the Company owns or for which
the Company controls various distribution or sales agency rights. The licenses,
which generally have terms of six to twelve years, obligated Racing Pictures to
pay aggregate minimum guarantees of approximately $2,900,000 to Pre-Merger
Overseas. With respect to video distribution rights granted to Racing Pictures
pursuant to such licenses, the Company generally is 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. During 1998,
$264,000 was paid by Racing Pictures to the Company. As of April 11, 2000,
$149,000 remains outstanding. In 1999, no portion 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 1999, sales or
licenses of distribution rights to such films by the Company generated $18,815
in total revenues, of which the Company retained approximately $7,500 in fees.

                                       50
<PAGE>


                                     PART IV

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

         (a)(1)   INDEX TO FINANCIAL STATEMENTS

                                                                   Page(s) in
                                                                   Form 10-k
                                                                   ---------
         Report of Independent Accountants                            F-1

         Consolidated Financial Statements:

         Consolidated Balance Sheets - December 31, 1999
           and 1998                                                   F-2

         Consolidated Statements of Operations - Years Ended
           December 31, 1999, 1998 and 1997                           F-3

         Consolidated Statements of Cash Flows - Years
           Ended December 31, 1999, 1998 and 1997                     F-4

         Consolidated Statements of Shareholders' Equity -
           Years Ended December 31, 1999, 1998 and 1997               F-5

         Notes to Consolidated Financial Statements                   F-6


         (a)(2)   INDEX TO FINANCIAL STATEMENTS SCHEDULES

     The schedules for which provision is made in the applicable accounting
regulations of 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)   EXHIBIT

         EXHIBIT
         NUMBER                             DESCRIPTION

           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.



                                       51
<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. Incorporated by reference to Exhibit
                    10.7 to the Company's Current Report on Form 10-K, dated
                    December 31, 1998, filed with the Commission on April 15,
                    1999.



                                       52
<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, 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.




                                       53
<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 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 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 the Company. 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 the Company. Incorporated by reference to
                    Exhibit 10.27 to the Company's Annual Report on Form 10-K
                    for the year ended December 31, 1998.

_______________________
*    Confidential treatment has been granted for portions of such exhibit.


                                       54
<PAGE>

             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.

              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. Incorporated by
                    reference to Exhibit 10.33 to the Company's Current Report
                    on Form 10-K, dated December 31, 1998, filed with the
                    Commission on April 15, 1999.

              10.34 Movie and Motion Picture Programming Agreement, dated July
                    19, 1999, between broadcast.com inc. and the Company.
                    Incorporated by reference to Exhibit 10.34 to the Company's
                    Quarterly Report on Form 10-Q for the quarter ended June 30,
                    1999.*

              10.35 Amendment dated as of April 9, 2000 to Restated and Amended
                    Syndication Agreement among Coutts & Co., Bankgesellschaft
                    Berlin A.G. and the Company. Filed herewith.

              21    Subsidiaries of the Registrant. Filed herewith.

              23    Consent of PricewaterhouseCoopers LLP. Filed herewith.

              27.1  Financial Data Schedule. Filed herewith.

     (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

_____________________________
*    Confidential treatment has been granted for portions of such exhibit.




                                       55
<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.

Dated:  April 14, 2000                 OVERSEAS FILMGROUP, INC.

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

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>
           SIGNATURE                        TITLE                               DATE
           ---------                        -----                               ----
<S>       <C>                                <C>                                <C>
         /s/ Ellen Dinerman Little          Co-Chairman of the Board            April 14, 2000
         -------------------------          of Directors, Co-Chief
         Ellen Dinerman Little              Executive Officer, and
                                            President (Co-Principal
                                            Executive Officer)

         /s/ Robert B. Little               Co-Chairman of the Board of         April 14, 2000
         --------------------               Directors and Co-Chief
         Robert B. Little                   Executive Officer (Co-
                                            Principal Executive Officer)

         /s/ William F. Lischak             Chief Operating Officer,            April 14, 2000
         ----------------------             Chief Financial Officer
         William F. Lischak                 Secretary, and Director
                                            (Principal Financial and
                                            Accounting Officer)

         /s/ Stephen K. Bannon              Director                            April 14, 2000
         ---------------------
         Stephen K. Bannon

         /s/ Alessandro Fracassi            Director                            April 14, 2000
         -----------------------
         Alessandro Fracassi

         /s/ Gary M. Stein                  Director                            April 14, 2000
         -----------------
         Gary M. Stein

         /s/ Scot K. Vorse                  Director                            April 14, 2000
         -----------------
         Scot K. Vorse
</TABLE>

                                       56
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 51 present fairly, in all material
respects, the financial position of Overseas Filmgroup, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
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 financial statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audits 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 discussed in Note 6 to the consolidated financial statements, the Company has
obtained an extension on the terms of its Credit Facility until April 15, 2001.
Management intentions in regard to obtaining additional sources of long term
finance are also described in Note 6.

PricewaterhouseCoopers LLP
Los Angeles, California

March 31, 2000 except for Note 6, which is as of April 10, 2000



                                      F-1

<PAGE>

                            OVERSEAS FILMGROUP, INC.
                           CONSOLIDATED BALANCE SHEETS

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

                                     ASSETS:
Cash and cash equivalents                       $    270,031   $    537,652
Restricted cash                                       88,176        159,614
Accounts receivable, net                          30,088,951     19,724,817
Related party receivable                             149,000        149,000
Investment available-for-sale                      2,908,383              0
Film costs, net of accumulated
   amortization                                   28,363,419     29,003,201
Fixed assets, net of
   accumulated depreciation                          282,856        293,858
Other assets                                         496,078        340,546
                                                ------------   ------------
         Total assets                           $ 62,646,894   $ 50,208,688
                                                ============   ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY:

Accounts payable and accrued
   expenses                                     $  1,146,677   $  1,271,818
Payable to related parties                         1,334,624        924,921
Accrued interest payable                             272,583        470,386
Payable to producers                              22,462,179      9,180,186
Notes payable to related parties                   1,989,229      2,262,498
Notes payable                                     19,764,175     22,013,281
Deferred income taxes                              1,458,605      2,332,764
Deferred revenue                                     918,500        132,250
                                                ------------  -------------
         Total liabilities                        49,346,572     38,588,104
                                                ------------  -------------
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;
   6,340,305 and 5,777,778 shares issued;
   6,295,305 and 5,732,778 shares
    outstanding,                                      6,340          5,778
Additional paid-in capital                       12,107,058     10,652,731
Retained (deficit) earnings                        (203,760)     1,048,809
Cumulative unrealized gain on
   investment available-for-sale                  1,477,418              0
Treasury stock at cost, 45,000
   shares                                           (86,734)       (86,734)
                                               ------------   ------------
Total shareholders' equity                       13,300,322     11,620,584
Total liabilities and                          ------------   ------------
   shareholders' equity                        $ 62,646,894   $ 50,208,688
                                               ============   ============

The accompanying notes are an integral part of these statements.

                                      F-2
<PAGE>



                            OVERSEAS FILMGROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                              Year Ended December 31,
                                              -----------------------
                                          1999           1998          1997
                                          ----           ----          ----
Revenues                             $ 33,783,836  $  25,585,476 $  22,494,256

Expenses:
  Film costs                           30,887,786     21,014,728    19,152,847
  Selling, general and
    administrative                      2,983,224      2,960,383     3,509,122
                                     ------------  ------------- -------------
          Total expenses               33,871,010     23,975,111    22,661,969
                                     ------------  ------------- -------------
(Loss) income from operations             (87,174)     1,610,365      (167,713)
                                     ------------  ------------- -------------
Other income (expense):
  Interest income                           6,682         27,410         4,923
  Interest expense                     (2,018,328)    (1,644,153)     (853,666)
  Other income                            110,252        118,850       179,179
                                     ------------  ------------- -------------
          Total other expense          (1,901,394)    (1,497,893)     (669,564)
                                     ------------  ------------- -------------
(Loss) income before income
   taxes                               (1,988,568)       112,472      (837,277)
Income tax (benefit) provision           (736,000)        53,000      (293,357)
                                    -------------  ------------- -------------
Net income (loss)                   $  (1,252,568) $      59,472   $  (543,920)
                                    =============  ============= =============

Basic and diluted net (loss)
   income per share                 $       (0.21) $        0.01   $     (0.09)


Weighted average number of
  common shares outstanding             5,990,153      5,732,778     5,747,778
                                     ============  ============= =============

The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>

                            OVERSEAS FILMGROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 Year Ended December 31,
                                                 -----------------------
                                             1999       1998          1997
                                             ----       ----          ----
Cash flows from operating
   activities:

  Net (loss) income                      $(1,252,568)   $ 59,472   $ (543,920)

Adjustments to reconcile net
   (loss) income to net
   cash provided by operating
   activities
      Amortization of film costs         14,339,574   21,014,728    18,696,333
      Depreciation of fixed assets          121,056      149,645       160,099
      Equity based charge                    23,934            -             -
Change in assets and liabilities
  Increase in accounts receivable       (10,364,134)  (5,308,277)   (3,688,301)
  Decrease in related party
   receivables                                    -      132,000       132,000
  (Increase) decrease in other assets      (155,532)      21,351       (14,628)
  Increase (decrease) in accounts
   payable and accrued expenses              86,759      727,549      (683,508)
  Increase in payable to producers       13,281,993    4,727,165       740,210
  Decrease  in deferred income taxes       (874,159)    (169,436)     (527,800)
  Increase (decrease) in deferred
   revenue                                  786,250     (668,000)      247,250
                                       ------------  -----------  ------------

     Net cash provided by operating
      activities                         15,993,173   20,686,197    14,517,735
                                       ------------  -----------  ------------
Cash flows from investing activities:
  Additions to film costs               (13,699,792) (20,277,362)  (20,078,577)
  Purchases of fixed assets                (110,065)     (34,818)      (11,657)
                                       ------------  -----------  ------------
     Net cash used in investing
      activities                        (13,809,857) (20,312,180)  (20,090,234)
                                       ------------  -----------  ------------
Cash flows from financing activities:
  Net (paydown) borrowings under
   Credit Facility                       (1,959,893)  (3,128,903)    6,535,047
  Net (paydown) borrowings
   under other notes payable               (289,213)   2,000,000             -
  Net issuance (paydown) of notes
   payable to related party                (273,269)     100,521       (76,091)
  Decrease (increase) in restricted
   cash position                             71,438       12,884       126,460
  Purchase of treasury stock                      -            -       (86,734)
                                       ------------  -----------  ------------
  Net cash (used in) provided by
   financing activities                  (2,450,937)  (1,015,498)    6,508,682
                                       ------------  -----------  ------------
Net (decrease) increase in cash,
   cash equivalents                        (267,621)    (641,481)      936,183
Cash, cash equivalents
   at beginning of period                   537,652    1,179,133       242,950
                                       ------------  -----------  ------------
Cash, cash equivalents
   at end of period                       $ 270,031   $ 537,652    $ 1,179,133
                                       ============  ==========   ============
Supplemental disclosure of cash flow
   information:
  Cash paid during the period for:
     Interest                            $2,198,601 $ 1,763,441    $ 2,185,532
                                       ============  ==========   ============
     Income taxes                        $   22,016 $    12,382    $     4,800
                                       ============  ==========   ============
     Foreign withholding taxes           $  196,449 $   117,348    $   231,243
                                       ============  ==========   ============

The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                            OVERSEAS FILMGROUP, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
                              Common Stock         Additional                         Retained     Accumulated Other
                              ------------          Paid-In          Treasury         (Deficit)     Comprehensive
                          Number        Amount      Capital           Stock           Earnings         Income           Total
                        -----------   ---------   ------------      ----------       ------------  ---------------   ------------
 <S>                       <C>            <C>       <C>               <C>             <C>            <C>             <C>
Balance at December
     31, 1996             5,777,778    $ 5,778    $ 10,652,731        $       -       $ 1,533,257   $            -   $ 12,191,766

Purchase of treasury
     stock                        -          -               -          (86,734)                -                -        (86,734)
Net loss                          -          -               -                -          (543,920)               -       (543,920)
                       ------------  ---------   -------------       ----------      ------------   --------------   -------------
Balance at December
     31, 1997             5,777,778      5,778      10,652,731          (86,734)          989,337                -     11,561,112

Net income                        -          -               -                -            59,472                -         59,472
                       ------------  ---------   -------------       ----------      ------------   --------------   ------------
Balance at December
     31, 1998             5,777,778      5,778      10,652,731          (86,734)        1,048,809                -     11,620,584

Issuance of common
     stock                  562,527        562       1,430,393                -                 -                -      1,430,955

Equity based charges              -          -          23,934                -                 -                -         23,934

Components of compre-
     hensive income:
Net loss                          -          -               -                -        (1,252,569)               -     (1,252,569)
Unrealized holding
    gain in investments
    available-for-sale            -          -               -                -                 -        1,477,418      1,477,418
Total comprehensive                                                                                                   -----------
    income                        -          -               -                -                 -                -        224,849
                       ------------  ---------   -------------       ----------     ------------   --------------     ===========
Balance at December
     31, 1999            6,340,305   $  6,340    $  12,107,058       $  (86,734)     $   (203,760)  $    1,477,418   $ 13,300,322
                       ============  =========   =============       ==========      ============   ==============   ============
</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") 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
$1,100,000, for the years ended December 31, 1999, 1998 and 1997.

FIXED ASSETS

Fixed assets are recorded at cost. Depreciation is provided over the estimated
useful lives of the assets which range from 5 to 7 years using the straight line
method.

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 as 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 financial 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. Following the merger of Overseas Filmgroup, Inc. and
Entertainment/Media Acquisition Corporation in October 1996 (the "Merger"), 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.

BASIC INCOME (LOSS) PER SHARE

Basic earnings (loss) per share is based upon the net earnings applicable to
common shares and upon the weighted average number of shares outstanding during
the period. Diluted earnings per share reflects the effect of the assumed
exercise of stock options and warrants only in the periods in which such effect
would be dilutive.

Stock options and warrants representing common shares of 7,598,000, 7,422,500
and 7,402,500 were excluded from the average number of common and common
equivalent shares outstanding in the diluted EPS calculation for the years ended
December 31, 1999, 1998 and 1997 respectively because they were anti-dilutive.

                                      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 123"). SFAS 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 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 of measurement is elected, SFAS 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. As of December 31, 1999 only one customer with an accounts
receivable balance of $3.5 million had an outstanding balance of over 10% or
more of the Company's total accounts receivable.

COMPREHENSIVE INCOME

The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
equity during a period from non-owner sources.

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 of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amount of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

NEW ACCOUNTING GUIDANCE

     In December 31, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"), which will be effective for the Company in the second quarter of fiscal
2000. SAB 101 clarifies certain existing accounting principles for the
recognition and classification of revenues in financial statements. While the
Company's existing revenue recognition policies are consistent with the
provisions of SAB 101, the new rules are expected to result in changes as to how
the filmed entertainment industry classifies its revenues relating to the
license to sub-distributors of rights to exploit motion picture product.
Currently, the Company, consistent with the filmed entertainment industry,
classifies as revenue the gross amount of revenues it receives from licenses to
sub-distributors and records as film cost expense the related producers' share
of revenues. Under SAB 101, in certain circumstances the Company will only
recognize as revenues its net distribution fees. As a result, the Company is in
the process of evaluating the overall impact of SAB 101 on its consolidated
financial statements. It is expected that both annual revenues and film costs in
the Company's consolidated financial statements will be reduced by an equal
amount as a result of these classification changes, which will not result in any
change to income/(loss) from operations or net income/(loss).

RECLASSIFICATIONS

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





                                       F-8
<PAGE>

NOTE 3 - MARKETABLE SECURITIES:

In July 1999 the Company and broadcast.com entered into an agreement whereby
broadcast.com was granted the right to exhibit, via the Internet, certain films
owned by the Company. Additionally, broadcast.com received 562,527 shares of the
Company's common stock in consideration for 11,302 shares in broadcast.com.

In July 1999 the Company received 8,727 shares of common stock of Yahoo!, Inc.
("Yahoo") in exchange for its shares of broadcast.com, following Yahoo's
acquisition of broadcast.com. The number of Yahoo shares held by the Company at
the year end increased to 17,454 shares as a result of a 2 for 1 stock split
effected by Yahoo in 1999.

The Company has accounted for its investment in Yahoo under the provisions of
Statement of Standard Accounting Practice No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). The investment in Yahoo
is classified as an available-for-sale security and is carried on the balance
sheet at fair value. Unrealized gains or losses associated with this investment
are recorded as a component of other comprehensive income.

NOTE 4 - FILM COSTS:

Film costs consist of the following:

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

Films in release                               $192,798,097        $178,195,727
Less:  Accumulated amortization                (166,365,578)       (152,026,004)
                                               -------------       -------------
                                                 26,432,519          26,169,723
                                                 ==========          ==========
Films not yet available for release               1,930,900           2,833,478
                                                  ---------           ---------
                                                $28,363,419         $29,003,201
                                                ===========         ===========

Interest costs capitalized to films were $303,215, $649,005 and $1,211,831
during the years ended December 31, 1999, 1998 and 1997, respectively. Based on
the Company's estimates of projected gross revenues as of December 31, 1999,
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:

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

Furniture and fixtures                     $ 255,497           $ 255,497
Office equipment                             205,838             201,417
Computer equipment                           773,416             678,577
Leasehold improvements                       173,855             176,337
Automobiles                                   14,970              14,970
                                           ---------           ---------
                                           1,423,576           1,326,798
Less accumulated depreciation             (1,140,720)         (1,032,940)
                                          ----------         -----------
Net fixed assets                            $282,856            $293,858
                                          ==========         ===========



                                      F-9
<PAGE>


NOTE 6 - NOTES PAYABLE:

Outstanding balances are summarized as follows:

                                                    December 31,
                                                    -----------
                                               1999               1998
                                               ----               ----
Credit Facility:
  Film Facilities                           $10,069,048       $11,778,940
  Operating Facility                          7,234,341         7,234,341
  Local Line                                    750,000         1,000,000
 Subordinated Note Payable                    1,710,786         2,000,000
                                              ---------         ---------
      Subtotal                               19,764,175        22,013,281
 Notes Payable to Related Parties             1,989,229         2,262,498
                                              ---------         ---------
 Total                                      $21,753,404       $24,275,779
                                            ===========       ===========

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"), April 9, 1999 (the "1999 Amendment")
and April 9, 2000 (the "2000 Amendment," and collectively the "Facility
Amendments"). No additional funds will be available under the operating line of
credit portion of the Credit Facility (the "Operating Facility") or the portion
of the Credit Facility established to finance the production and/or acquisition
of films (the "Film Facilities"). The Company maintains a $1,000,000 working
capital credit line ("Local Line") with another bank, which is guaranteed by
letters of credit issued by the Banks.

Borrowings under the Film Facilities are secured by rights to the individual
films financed by the related Film Facility, cash proceeds and accounts
receivable related to the distribution of such related films as well as all
assets of the Company generally. Repayments under each Film Facility 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 15,
2001 subject to the review of the Banks 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% (5.82%, 5.90%, and 6.00% for one, three and six
month LIBOR, respectively at December 31, 1999). The interest rate is set at the
commencement of each drawdown, based upon the Company's selection of a one,
three or six month borrowing period and is reset upon the renewal of each
borrowing (for one, three or six months as requested by the Company). Interest
on the Local Line is payable monthly at the bank's prime rate less 1.25% (prime
rate was 8.50% at December 31, 1999). 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. Under the terms of the 2000 Amendment certain accrued and deferred fees
become payable upon the earlier of refinancing of the credit facility or July
31, 2000. Also, the 2000 Amendment provides for payment of a monthly extension
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, 1999 the Company was in violation of certain of these
covenants, however the Banks granted a waiver of such violations. The 1998
Amendment, the 1999 Amendment and the 2000 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.




                                       F-10
<PAGE>

In order to effectuate the Facility Amendments, 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 terms of the note (the "Merger Note") issued to the
Co-Chairmen and Co-Chief Executive Officers as part of the Merger until amounts
outstanding under the Operating Facility are reduced, permanently, to
$5,000,000. 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 the 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 (8.5% at December 31, 1999) plus 1.5% and is
collateralized by amounts due under distribution agreements from the specific
film. The Note Payable matures on May 29, 2001 and requires a $400,000 principal
reduction in July 2000.

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

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

                                                              Notes
                      Year                                   Payable
                      ----                                   -------

                      2000                                  $1,050,000
                      2001                                  20,703,404
                      2002                                           -
                      2003                                           -
                      2004                                           -
                                                           -----------
                                                           $21,753,404
                                                           ===========

     The Company's ability to maintain availability under its Local Facility, to
reduce the balances of the Operating Facility and 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 sub-distributors 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.

     The Company's ability to repay the balance of the Operating Facility and
Film Facilities upon maturity will depend upon the Company obtaining new
financing and/or equity. The Company is currently attempting to secure alternate
sources of debt capital and additional sources of equity capital. The Company
has entered into a commitment letter (the "Commitment Letter") with Chase
Securities, Inc. ("Chase") whereby Chase has agreed to structure, arrange and
use commercially reasonable efforts to syndicate a senior five year revolving
credit facility in an aggregate amount of up to $30,000,000 (the "Chase
Facility"). Additionally, under the terms of the Commitment Letter, The Chase
Manhattan Bank ("CMB") has committed to provide up to $10,000,000 of the Chase
Facility. However, it is a condition to CMB's commitment that the portion of the
Chase Facility not being provided by CMB shall be provided by other lenders and
no assurance can be given that Chase will secure such additional lenders.



                                       F-11
<PAGE>

     The Company also has sought additional equity capital and, to that end, is
currently involved in negotiations regarding a potential equity investment in
the Company. No assurance can be given that additional capital will be available
or available on terms advantageous to the Company.

NOTE 7 - INCOME TAXES:

The components of the provision for income taxes on earnings before income taxes
are as follows:

<TABLE>
                                                               Years ended December 31,
                                                               ------------------------
                                                         1999         1998            1997
                                                         ----         ----            ----
<S>                                                     <C>           <C>
Current
  State                                               $       -      $ 53,000       $  3,200
  Foreign withholding                                         -       117,348        231,243
                                                      ---------      --------       --------

                                                              -       170,348        234,443
                                                      ---------      --------       --------

Deferred
  State                                                 (60,000)      (49,000)       (22,000)
  Federal                                              (676,000)      (68,348)      (505,800)
  Deferred tax provision resulting from the
   termination of S corporation status                        -             -              -
                                                      ---------      --------       --------

                                                       (736,000)     (117,348)      (527,800)
                                                       ---------     --------       --------
                                                      $(736,000)    $  53,000      $(293,357)
                                                      ==========    =========      ==========
</TABLE>

     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.

                                      F-12
<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>
                                                                      1999                 1998             1997
                                                                      ----                 ----             ----
<S>                                                                   <C>                   <C>             <C>
Federal statutory rate                                                (34%)                 34%             (34%)

State taxes, net of federal benefit and
  income not subject to tax                                            (3%)                  3%              (3%)
Non-deductible portion of officers' life insurance                      --%                  8%               2%
Other                                                                   --%                  2%               --%
                                                                       ---                  ---              ---
                                                                      (37%)                 47%             (35%)
                                                                      =====                 ===             ====
</TABLE>


For federal income tax purposes, the Company has available net operating loss
carryforwards of approximately $875,000 (which tax loss carryforwards expire
between 2011 and 2014) and foreign tax credit carryforwards of approximately
$733,000 (which foreign tax credit carryforwards expire between 2001 and 2004).

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.

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 Company's
Common Stock, 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, 1999.

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. The fair value of the stock options granted during the year
ended December 31, 1999 was $147,215. Had compensation cost for the Company's





                                       F-13
<PAGE>

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 $1,669,491 and net loss per
share of $0.28 for the year ended December 31, 1999 and the net loss and net
loss per share would have been increased to $275,681 and $0.05, respectively for
the year ended December 31, 1998 and $1,091,399 and $0.19, respectively for the
year ended December 31, 1997. 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 weighted-average
assumptions:

         Risk free interest rate:  6.07%
         Expected life:  4 years
         Volatility:  58%

These proforma 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 1999, 1998 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.


The following table summarizes stock option transactions during the years ended
December 31, 1999, 1998 and 1997:

<TABLE>
                                                 Number of Shares        Weighted Average Price Per Share
<S>                                                    <C>                 <C>
Balance, December 31, 1996                             2,220,000           $    6.77
1997:

              Granted                                     20,000           $    2.38
                                                       ---------
Balance, December 31, 1997                             2,240,000           $    6.73
1998:
              Granted                                     20,000           $    1.88
                                                       ---------
Balance, December 31, 1998                             2,260,000           $    6.69
1999:

              Granted                                     81,500           $    2.42
                                                       ---------
Balance, December 31, 1999                             2,341,500           $    6.54
                                                       =========
Exercisable at December 31, 1999                       1,541,500           $    6.44
</TABLE>


The following summarizes prices and terms of options outstanding at December 31,
1999:

<TABLE>
                                                                                               Stock Options Exercisable
                                         Stock Option Outstanding                              -------------------------
                                         ------------------------                                  Number        Weighted
                                    Number Outstanding  Weighted Average                        Exercisable at   Average
                                      at December 31,      Remaining       Weighted Average     December 31,     Exercise
Exercise Price                            1999          Contractual Life    Exercise Price           1999         Price
--------------                     --------------------------------------------------------------------------------------
<S>   <C>                                <C>               <C>               <C>                    <C>          <C>
      $  1.88                            20,000            8.5 yrs           $  1.88                20,000       $ 1.88
      $  2.25                            20,000            9.5 yrs           $  2.25                20,000       $ 2.25
      $  2.38                            20,000            7.5 yrs           $  2.38                20,000       $ 2.38
      $  2.44                            66,500            9.25 yrs          $  2.44                66,500       $ 2.44
      $  5.00                         1,075,000            3.5 yrs           $  5.00               675,000       $ 5.00
      $  5.25                            15,000            6.5 yrs           $  5.25                15,000       $ 5.25
      $  8.50                         1,125,000            3.5 yrs           $  8.50               725,000       $ 8.50
                                      ---------                                                   --------
                                      2,341,500                                                  1,541,500
                                     ==========                                                  =========
</TABLE>




                                       F-14
<PAGE>

Warrants to purchase 4,500,000 shares of Common Stock are outstanding at
December 31, 1999. 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 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, 1999. The warrants attached to these units are
identical to the warrants described above except that they are exercisable at
$5.85 per share and expired on February 16, 2000. These options and warrants
were issued in connection with the 1996 merger of the Company and Overseas
Filmgroup, Inc.

Overseas also issued a warrant to purchase 62,500 shares of common stock to its
financial advisor in the Merger. The warrant has an exercise price of $5.00 per
share, expires on October 30, 2003 and remains outstanding as of December 31,
1999. On July 12, 1999 the Company issued warrants to purchase 13,000 shares of
common stock to three consultants providing services to the Company. These
warrants have an exercise price of $2.44, vest immediately, and expire on July
12, 2009.

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 1999. 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 Banks with respect to DIFFERENT FOR GIRLS, or at
such time as the Banks allow repayment from other sources.

Payable to related parties consists of the tax indemnity obligation, accrued
interest on the notes payable to related parties, 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 sub-distributor, 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 payable to producers. The Company recognized
approximately $31,900 in revenue on films licensed to the Company by this
sub-distributor (as rights owner) during 1999.

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

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, 1999, 1998 and 1997 amounted to $256,583, $277,495 and
$268,259, respectively. Minimum annual rental payments under non-cancelable
leases are as follows:

                   2000             $253,567
                   2001              248,782
                   2002              186,354



                                       F-15
<PAGE>

NOTE 11 - FOREIGN SALES AND SIGNIFICANT CUSTOMERS:

The Company's foreign revenues are summarized as follows:

<TABLE>
                                                                     Years Ended December 31,
                                                                     --------------------------
                                                               1999                    1998               1997
                                                               ----                    ----               ----
<S>                                                      <C>                       <C>                 <C>
Western Europe                                           $14,281,940               $9,723,275          $10,408,980
Asia                                                       1,701,470                1,298,104            1,447,790
Latin America                                              1,610,339                1,315,930            1,687,295
Eastern Europe                                               469,200                  672,667              539,065
Other                                                      4,774,536                4,124,654            3,150,462
                                                           ---------                ---------            ---------
                                                         $22,837,437              $17,134,630          $17,233,592
                                                         ===========              ===========          ===========
</TABLE>


Customers representing 10% or more of the Company's revenue accounted for
$3,500,000 (one customer) for the year ended December 31, 1999 and $5,000,000
(one customer) for the year ended December 31, 1998.  No customer accounted for
more than 10% of the Company's revenue during the year ended December 31, 1997.



                                      F-16