<PAGE>

                       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, 1996
                                       OR
/ /         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                         COMMISSION FILE NUMBER 0-25308


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

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


         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 herein 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 (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of
March 24, 1997, (based on the closing sale price on such date as reported on the
OTC Bulletin Board) was $8,065,625.

     The number of shares of Common Stock outstanding as of March 31, 1997 was
5,777,778.

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

<PAGE>

                                     PART I

THIS ANNUAL REPORT ON FORM 10-K (INCLUDING, WITHOUT LIMITATION, PARTS I, II AND
III) CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.  SUCH STATEMENTS MAY CONSIST OF ANY
STATEMENT OTHER THAN A RECITATION OF HISTORICAL FACT AND CAN BE IDENTIFIED BY
THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "EXPECT," "ANTICIPATE,"
"ESTIMATE" 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 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, 1996 ARE NOT NECESSARILY INDICATIVE OF THE
RESULTS THAT MAY BE EXPECTED IN FUTURE PERIODS.  DUE TO QUARTERLY FLUCTUATIONS
IN THE NUMBER OF MOTION PICTURES FOR WHICH THE REGISTRANT ACQUIRES DISTRIBUTION
RIGHTS AND THE NUMBER OF MOTION PICTURES DISTRIBUTED BY REGISTRANT, AS WELL AS
THE UNPREDICTABLE NATURE OF AUDIENCE RESPONSE TO MOTION PICTURES DISTRIBUTED BY
REGISTRANT, THE REGISTRANT'S REVENUES, EXPENSES AND EARNINGS FLUCTUATE
SIGNIFICANTLY FROM QUARTER TO QUARTER AND FROM YEAR TO YEAR.  ADDITIONAL RISKS
AND UNCERTAINTIES ARE DISCUSSED ELSEWHERE IN APPROPRIATE SECTIONS OF THIS REPORT
AND IN OTHER FILINGS MADE BY REGISTRANT WITH THE SECURITIES AND EXCHANGE
COMMISSION.   THE RISKS HIGHLIGHTED ABOVE AND ELSEWHERE IN THIS REPORT SHOULD
NOT BE ASSUMED TO BE THE ONLY THINGS THAT COULD AFFECT FUTURE PERFORMANCE OF THE
REGISTRANT.  THE REGISTRANT DOES NOT HAVE A POLICY OF UPDATING OR REVISING
FORWARD-LOOKING STATEMENTS AND THUS IT SHOULD NOT BE ASSUMED THAT SILENCE BY
MANAGEMENT OF THE REGISTRANT OVER TIME MEANS THAT ACTUAL EVENTS ARE BEARING OUT
AS ESTIMATED IN SUCH FORWARD-LOOKING STATEMENTS.


ITEM 1.  BUSINESS

     Overseas Filmgroup, Inc., a Delaware corporation (the "Company") is an
independent film company which specializes in the acquisition and worldwide
license or sale 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.

BACKGROUND - THE OCTOBER 1996 MERGER

     The Company was incorporated in December 1993 under the name
Entertainment/Media Acquisition Corporation" as a Specified Purpose Acquisition
Company-Registered Trademark-* in order to acquire an operating

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



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

     The aggregate merger consideration paid by the Company to the three
stockholders of Pre-Merger Overseas consisted of (i) 3,177,778 shares of the
Company's common stock, par value $.001 per share ("Common Stock"), (ii)
$1,500,000 in cash, and (iii) a $2,000,000, five year, secured promissory note
(the "Merger Note").  The cash merger consideration was paid from the proceeds
of a trust fund which held approximately 90% of the net proceeds of the
Company's initial public offering.  See "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources".

     In connection with the Merger, the Company entered into a number of
agreements with certain of the former stockholders and executive officers of
Pre-Merger Overseas including a Lock-up and Registration Rights Agreement (see
"Item 12 - Security Ownership of Certain Beneficial Owners and Management"),
employment agreements and non-competition agreements  (see "Item 11 - Executive
Compensation - Employment and Related Agreements"), and a Tax Reimbursement
Agreement (see "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Certain Tax Related Matters").  The
Company also adopted two stock option plans (see "Item 11 - Executive
Compensation - Certain Information Concerning Stock Option Plans") and entered
into certain arrangements regarding management of the Company including a
Stockholders' Voting Agreement among certain stockholders of the Company (see
"Item 10 - Directors and Executive Officers of the Registrant - Management
Arrangements").  Upon consummation of the Merger, the Company adopted new Bylaws
and amended and restated its Certificate of Incorporation to, among other
things, change the Company's name, increase its authorized capital stock, and
enact certain anti-takeover provisions, including, without limitation, a
classified board of directors.  Upon consummation of the Merger, the officers of
the Company resigned their respective positions and new officers, consisting of
the former officers of Pre-Merger Overseas, were appointed by the Company's new
Board of Directors which had been elected at the Company's Special Meeting of
Stockholders in lieu of 1996 Annual Meeting at which the Merger had been
approved by the Company's stockholders (see "Item 4 - Submission of Matters To A
Vote Of Security Holders" and "Item 10 - Directors and Executive Officers of the
Registrant").  Following the Merger, the fiscal year of the Company was changed
from November 30 to December 31 (Pre-Merger Overseas's fiscal year), effective
for the fiscal year ending December 31, 1996.  References in this Report to the
Company's fiscal year are to the twelve month periods beginning January 1 and
ending December 31 of each year.  References in this Report to the Company's
last fiscal year are to the twelve months ended December 31, 1996.


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STRATEGIC OBJECTIVE

     The Company has accumulated a library of distribution rights in various
media and markets to over 200 feature films.  See "The Company's Film Library of
Distribution Rights" below.  Most of such motion pictures have had direct
negative costs between $1,000,000 and $6,000,000.  This is substantially below
the average direct negative cost of films produced by the major studios, which
was approximately $39,800,000 in 1996.  The Company's primary focus has been the
licensing of distribution rights (such as theatrical, video, pay television,
free television, satellite and other rights) to foreign sub-distributors in the
major international territories or regions. These activities accounted for
approximately 72% of the Company's total revenues in 1996. The Company has been
increasingly active, however, in the domestic (United States) market due to its
increasing acquisition of  domestic distribution rights. The Company engages
directly in domestic theatrical distribution (booking motion pictures with
theatrical exhibitors, arranging for the manufacture of release prints from the
film negative, and promoting such motion pictures with advertising and publicity
campaigns) through the Company's domestic theatrical releasing division, First
Look Pictures. First Look Pictures has released such films as ANTONIA'S LINE
(winner of the 1996 Academy Award for Best Foreign Language Film), THE BIG
SQUEEZE (starring Lara Flynn Boyle and Danny Nucci), INFINITY (directed by
Matthew Broderick, starring Matthew Broderick and Patricia Arquette), THE SCENT
OF GREEN PAPAYA (which was nominated for the 1994 Academy Award for Best Foreign
Language Film), THE SECRET OF ROAN INISH (the critically acclaimed film by the
noted director, John Sayles) 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. Currently, the Company generally
acquires from independent producers the distribution rights in a film for a
specified term in one or more territories and media and receives a distribution
fee in connection with its licensing activities. Often the Company commits to
pay an independent producer a minimum guaranteed payment (a "minimum guarantee")
at or after delivery of the completed film to the Company, ranging from
approximately $100,000 to $5,000,000 or more and representing varying portions,
including at times all or substantially all of a film's production costs. These
minimum guarantees may enable the independent producer to obtain financing for
its project and often results in the Company controlling more of the
distribution rights in the film and receiving more favorable distribution terms.
The Company also selectively produces certain of the motion pictures distributed
by it, generally acquiring fully developed projects ready for pre-production and
contracting out pre-production and production activities.

     The Company's primary strategies are to:

-    seek to limit risk by continuing to balance the methods it uses for
     acquiring distribution rights;

-    maintain a cost consciousness in its acquisition, financing, production and
     distribution activities;

-    continue to develop First Look Pictures with the goal of achieving broader
     theatrical distribution and exposure for its releases, which, among other
     things, may increase potential revenues from ancillary media and foreign
     markets;

-    gradually and selectively acquire rights to or produce films which have
     greater production values (often through offering greater creative
     opportunity to talent than major studios offer or as a result of larger
     budgets) and greater potential for more wide-spread audience appeal; and


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

THE MOTION PICTURE INDUSTRY

     The motion picture industry consists of two principal activities which are
described in greater detail below: production, which involves the development,
financing and production of motion pictures; and distribution, which involves
the promotion and exploitation of feature-length motion pictures in a variety of
media, including theatrical exhibition, home video, television and other
ancillary markets, both domestically and internationally. The United States
motion picture industry is dominated by the "major studios," including The Walt
Disney Company, Paramount Pictures Corporation, Warner Brothers Inc., Universal
Pictures, Twentieth Century Fox, Columbia Pictures, Tri-Star Pictures and
MGM/UA. The major studios, which have historically produced and distributed the
vast majority of high grossing theatrical motion pictures released annually in
the United States, are typically large diversified corporations that have strong
relationships with creative talent, theatrical exhibitors and others involved in
the entertainment industry, and also 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' motion picture libraries
provide a stable source of earnings which 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 New Line Cinema Corporation/Fine Line
Features (SHINE, THE MASK, TEENAGE MUTANT NINJA TURTLES and the NIGHTMARE ON ELM
STREET series), now affiliated with Time Warner Entertainment Company, L.P.;
Miramax Films Corporation (SLING BLADE, THE ENGLISH PATIENT, PULP FICTION, IL
POSTINO (the Postman) and LIKE WATER FOR CHOCOLATE), now affiliated with The
Walt Disney Company; October Films (SECRETS & LIES, BREAKING THE WAVES);
Majestic Films, Limited (the international distributor of DANCES WITH WOLVES and
DRIVING MISS DAISY); Gramercy Pictures (FARGO, FOUR WEDDINGS AND A FUNERAL and
DEAD MAN WALKING), now affiliated with PolyGram Filmed Entertainment; and Orion
Pictures (THE SILENCE OF THE LAMBS), now affiliated with Metromedia
International Telecommunications. There are also a large number of other
production and distribution companies that produce or distribute motion
pictures. In contrast to the major studios, the independent production and
distribution companies generally produce or distribute fewer motion pictures and
do not own production studios, national or worldwide distribution organizations,
or associated businesses or extensive film libraries which can generate gross
revenues sufficient to offset overhead, service debt or generate significant
cash flow.

     The motion picture industry is a world-wide industry. In addition to the
production and distribution of motion pictures in the United States, domestic
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 1985 to 1995,
international revenues of U.S. motion picture distributors from filmed
entertainment grew from approximately $1.76 billion (comprising approximately
31.4% of total revenues of U.S. motion picture distributors from filmed
entertainment in


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1985) to approximately $9.5 billion (comprising approximately 49% of total
revenues of U.S. motion picture distributors from filmed entertainment in
1995). This growth has been due to a number of factors, including, among other
things, the general worldwide acceptance of and demand for motion pictures
produced in the United States, the privatization of many foreign television
industries, growth in the number of foreign households with videocassette
players, and growth in the number of foreign theater screens.

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

MOTION PICTURE PRODUCTION

     The production of a motion picture begins with the screenplay adaptation of
a popular novel or other literary work acquired by the producer or the
development of an original screenplay having its genesis in a story line or
scenario conceived by a writer and acquired by the producer. In the development
phase, the producer typically seeks production financing and tentative
commitments from a director, the principal cast members and other creative
personnel. A proposed production schedule and budget are also prepared during
this phase. Upon completing the screenplay and arranging financing commitments,
pre-production of the motion picture begins. In this phase, the producer engages
creative personnel to the extent not previously committed; finalizes the filming
schedule and production budget; obtains insurance and secures completion
guaranties, if necessary; establishes filming locations and secures any
necessary studio facilities and stages; and prepares for the start of actual
filming. Principal photography (the actual filming of the screenplay) generally
extends from seven to 16 weeks for a film produced by a major studio and often
for a significantly shorter period (sometimes as little as four to eight weeks)
for low budget films and films produced by independent production companies,
depending in each case upon such factors as budget, location, weather and
complications inherent to 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 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.


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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 may also finance their
production activities on a picture-by-picture basis. Sources of funds for
independent production companies include bank loans, "pre-licensing" of
distribution rights, foreign government subsidies, equity offerings and joint
ventures. Independent production companies generally attempt to obtain all or a
substantial portion of their financing of a motion picture prior to commencement
of principal photography, at which point substantial production costs begin to
be incurred and require payment.

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

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

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


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MOTION PICTURE DISTRIBUTION

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

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

     ACQUISITION OF DISTRIBUTION RIGHTS. A sales agent does not generally
acquire distribution rights from the producer or other owner of rights in the
motion picture, but instead acts as an agent on behalf of the producer or rights
owner to license distribution rights to such motion picture to distributors on
behalf of the producer or rights owner in exchange for a sales agency fee,
typically computed as a percentage of gross revenues from licenses obtained by
the sales agent. A distributor generally licenses and takes a grant of
distribution rights from the producer or other rights owner of the motion
picture for a specified term in a particular territory or territories and media,
generally in exchange for a distribution fee calculated as a percentage of gross
revenues generated by exploitation of the motion picture by the distributor. The
distributor often agrees to pay the producer of the motion picture a certain
advance or minimum guarantee upon the delivery of the completed motion picture,
which amount is to be recouped by the distributor out of revenues generated from
the exploitation of the motion picture in particular media or territories. In
general, after receiving its ongoing distribution fee and recouping the advance
or minimum guarantee plus its distribution costs, the distributor pays the
remainder of revenues in excess of an ongoing distribution fee to the producer
of such motion picture. Obtaining license agreements with a distributor or
distributors prior to completion of a motion picture and which provide for
payment of a minimum guarantee (often referred to as the "pre-licensing" or
"pre-selling" of film rights), may enable the producer to obtain financing for
its project by using the contractual commitment of the distributor to pay the
advance or minimum guarantee as collateral to borrow production funding. In some
circumstances, the distributor is entitled to recoup any unrecouped costs and
advances from a film licensed to such distributor from the revenues from another
film or films also licensed to the distributor, commonly known as "cross
collateralizing".

     In addition to obtaining distribution rights in a motion picture for a
limited duration, a distributor may also acquire all or a portion of the
copyright in such motion picture or license certain distribution rights in
perpetuity. Both major studios and independent film companies often acquire
motion pictures for distribution through a customary industry arrangement known
as a "negative pickup," under which the studio or independent film company
agrees to pay a specified minimum guaranteed amount to an


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independent production company in exchange for all rights to the film upon
completion of production and delivery of the film. The independent production
company normally finances production of the motion picture pursuant to financing
arrangements with banks and other lenders in which the lender receives an
assignment of the production company's right to payment of the minimum guarantee
and is granted a security interest in the film and in the production company's
rights under its arrangement with the studio or independent film company. When
the major studio or independent film company "picks up" the completed motion
picture, it pays the minimum guarantee or assumes the production financing
indebtedness incurred by the production company in connection with the film. In
addition, the independent production company is paid a production fee and
generally is granted a participation in net revenues from distribution of the
motion picture.

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

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

Domestic theatrical                     --
International theatrical                --
Domestic home video (initial release)   4-6 months
Domestic pay-per-view                   6-9 months
International video (initial release)   6-12 months
Domestic pay television                 12-15 months
International television (pay or free)  18-24 months
Domestic free television*               30-33 months

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

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

     Films often remain in distribution for varying periods of time.  For
example, motion pictures which are released theatrically typically play in
theaters for several weeks following their initial release (for major
studios) or, at times, including for instance in the case of certain
successful independent "art-house" films which are released on a limited
basis, for several months.  Once released on videocassette, a motion picture
may remain available 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
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 holdback periods in the
motion picture industry today .

                                        9

<PAGE>

     In general, if a film is not released theatrically in the United States and
instead is released straight to domestic home video, television exploitation
generally does not commence until six to eight months after such video release.
Thereafter, the same general release patterns indicated in the table above
typically apply. If a film "premieres" on United States pay television (which
generally means that no other distribution of the film in the United States has
occurred), the pay television service typically is licensed a four to six week
exclusive airing period. The license will generally provide for limited airings
(sometimes 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 (typically a 10 to 12-month period) in which the film can be
released on video or sometimes even theatrically and a period when the film may
be broadcast on free television.

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

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

     While arrangements for the exhibition of a film vary greatly, there are
certain economic relationships generally applicable to theatrical distribution.
Theater owners (the "exhibitors") retain a portion of the admissions paid at the
box office ("gross box office receipts"). The share of the gross box office
receipts retained by an exhibitor generally includes a fixed amount per week (in
part to cover overhead), plus a percentage of receipts that escalates over time.
Although these percentages vary widely, in the Company's general experience, an
exhibitor's share of a particular film's revenues will generally be
approximately 60% to 65% of gross box office receipts. The balance ("gross film
rentals") is remitted to


                                       10

<PAGE>

the distributor. The distributor then retains a distribution fee (typically 30-
35%) from the gross film rentals and recoups the costs incurred in distributing
the film, which consist primarily of the cost of marketing and advertising and
the cost of release prints for exhibition. The balance of gross film rentals,
after deducting distribution fees and distribution costs recouped by the
distributors ("net film rentals"), is then applied against the recoupment of any
advance paid for the distribution rights (with interest thereon) and the balance
is remitted to the producer or other rights owner of the film.

     HOME VIDEO.  A motion picture released theatrically typically becomes
available for videocassette distribution within four to six months after its
initial domestic theatrical release. As indicated above, certain films are not
initially released theatrically but may instead be initially released to home
video. This has become less prevalent recently than in the 1980's given the
preference of retail video stores for theatrical releases. Home video
distribution consists of the promotion and sale of videocassettes to local,
regional and national video retailers which rent or sell videocassettes to
consumers primarily for home viewing. Most films are initially made available in
videocassette form at a wholesale price of approximately $50 to $75 per
videocassette and are sold at that price primarily to wholesalers who then sell
to video rental stores at a price of approximately $75 to $105 per
videocassette, which rent the cassettes to consumers. Typically, owners of films
do not share in rental income. Following the initial marketing period, selected
films may be remarketed at a wholesale price of $10 to $15 or less for sale to
consumers. These "sell-through" arrangements are used most often with films that
will appeal to a broad marketplace or to children. A few major releases with
broad appeal may be initially offered by a film company at a price designed for
sell-through rather than rental when it is believed that the ownership demand by
consumers will result in a sufficient level of sales to justify the reduced
margin on each cassette sold. Home video arrangements in international
territories are similar to those in domestic territories except that the
wholesale prices may differ.

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

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


                                       11

<PAGE>

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

MOTION PICTURE DISTRIBUTION BY THE COMPANY

     INTERNATIONAL DISTRIBUTION.  Management of the Company has considerable
expertise in international distribution. Ellen Dinerman Little and Robert B.
Little, the senior executive officers of the Company and founders of its
operations, have substantial experience in the business of licensing motion
pictures for distribution outside the United States and have been active in
international motion picture sales since 1975. Over the past 22 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 (NAPTE, MIP, MIPCOM) and video (VSDA) markets.  The
Company, may also, from time to time, engage independent representatives to
assist the Company in acquiring and/or licensing motion picture rights.

     With respect to international territories, the Company licenses
distribution rights in various media (such as theatrical, video, pay television,
free television, satellite and other rights) to foreign sub-distributors on
either an individual rights basis or grouped in various combinations of rights
(which sometimes includes rights in all media). These rights are licensed by the
Company to numerous sub-distributors in international territories or regions
either on a picture-by-picture basis or, in certain circumstances, with respect
to a number of motion pictures pursuant to output arrangements. Currently, the
most important international territories for the Company are Australia, the
Benelux countries, Brazil, Canada, France, Germany, Italy, Japan, South Korea,
Scandinavia, Spain and the United Kingdom.  See Note 11 of Notes to the
Company's Consolidated Financial Statements for certain geographic information
regarding the Company's foreign distribution activities.

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

     In certain situations, the Company does not receive a minimum guarantee
from the foreign sub-distributor and instead negotiates terms which usually
result, in effect, in an allocation of gross revenues between the
sub-distributor and the Company. Typically the terms of such an arrangement
provide


                                       12

<PAGE>

for the sub-distributor to retain an ongoing distribution fee (calculated as a
percentage of gross receipts of the sub-distributor in the territory), recoup
its expenses and pay remaining receipts in excess of the ongoing distribution
fee to the Company. Alternatively, such as often with respect to video rights,
the terms may provide for a royalty to be paid to the Company calculated as a
percentage of the gross receipts of the sub-distributor from exploitation of the
video rights (without deduction for the sub-distributor's distribution
expenses).

     The Company has entered into several output arrangements with local foreign
distributors in certain territories whereby the foreign sub-distributor receives
the right, typically for a specified period and/or a specified number of motion
pictures, to distribute in a particular territory, in designated media, motion
pictures released by the Company. These output arrangements include agreements
with Medusa Communications Ltd. in the United Kingdom and Ireland, an agreement
with Bealestreet Pictures International B.V. in South Africa and certain
adjoining territories, an agreement with Cinepix Film Properties Inc. in Canada,
an agreement with Polygram Pty Limited in Australia and New Zealand and an
agreement with RCV2001 in Belgium, The Netherlands, Luxembourg and certain ex-
colonies of Belgium and The Netherlands.  In some circumstances, a minimum
guarantee is paid by the foreign sub-distributor to the Company; generally on a
picture-by-picture basis with each minimum guarantee having been either
pre-negotiated or computed as a stipulated percentage of the production cost or
acquisition cost of each picture. The Company enters into output arrangements
with foreign sub-distributors which the Company believes have the ability to
make the recurring payments. Nevertheless, in certain instances foreign
sub-distributors encounter financial difficulties that may preclude timely
payment, and as a result the Company may be forced to terminate or renegotiate
output agreements.  See also "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Exchange Rate Considerations"
for certain additional considerations regarding the Company's international
distribution activities.

     DOMESTIC DISTRIBUTION.  The Company has increasingly obtained domestic
distribution rights to films. During 1996, various distribution rights to
approximately eighteen films, including various domestic distribution rights in
twelve films, became available for the first time to the Company for licensing
or distribution. The Company exploits its domestic distribution rights in a
variety of ways. In 1993, the Company's domestic theatrical releasing operation,
First Look Pictures, was established. Not all of the films distributed by the
Company, however, receive domestic theatrical release by First Look Pictures or
otherwise. Some films are licensed by the Company to domestic sub-distributors
for release initially on video or, in certain circumstances, the Company
licenses initially to the pay television services for "premiere" on pay
television (cable and/or satellite). Of the twelve films which first became
available to the Company in 1996 for licensing or distribution and in which the
Company controls various domestic distribution rights, eight were (or are
currently intended to be) released theatrically (all, but one, by First Look
Pictures), two premiered (or are intended to premiere) on pay television and two
were (or are intended to be) released directly to video.

     In March 1996, the Company entered into an output arrangement for domestic
video rights with BMG Video, an affiliate of the international entertainment
company Bertelsmann Music Group. This arrangement covers, subject to certain
conditions, twelve specified films, including ANTONIA'S LINE and INFINITY, and
also generally any film delivered to the Company prior to December 31, 1996 (or
December 31, 1997 in the event the Company and BMG Video mutually elect to renew
the term for an additional year). Films for which the Company sells all domestic
rights to a single company may be excluded from this arrangement at the
Company's election. BMG Video has released seven motion pictures under this
arrangement through March 15, 1997, ONE GOOD TURN, ANTONIA'S LINE, SHAMELESS
a.k.a. MAD DOGS AND ENGLISHMEN, FIST OF THE NORTHSTAR, INFINITY, THE BIG SQUEEZE
and DOWNHILL WILLIE. Under this agreement,


                                       13

<PAGE>

BMG Video receives exclusive video distribution rights in the United States and
certain related territories, including Puerto Rico and the U.S. Virgin Islands,
with respect to each film for a five-year period following video release. BMG
Video has paid the Company an overall advance, and has agreed to provide minimum
guarantees with respect to each film. Under this arrangement, BMG Video deducts
a varying distribution fee based upon a negotiated percentage of its gross
receipts from exploitation of the video rights of each film, recoups its
distribution costs and the minimum guarantee, and remits any remaining receipts
to the Company in excess of BMG Video's ongoing distribution fee. As of March
31, 1997, the output arrangement with BMG has not been extended although the
parties are in discussions with respect thereto.  In the event this output
arrangement is not extended, management of the Company will seek to obtain
another domestic video output arrangement, although there can be no assurance
that any new arrangement (or an extension of the BMG Agreement), if obtained,
will be on terms similar to the current arrangement with BMG Video.

     In addition to its output arrangement with BMG Video, the Company licenses
distribution rights directly to pay television services including HBO, Showtime
and Encore, as well as smaller services, including pay-per-view services.
Although the Company has not engaged in significant licensing or syndication of
domestic free television rights except as part of a license of rights in
multiple media, it controls these rights to a significant portion of the films
in its library. In those circumstances where the Company has licensed such
television rights separately from other rights, the Company has typically
licensed these rights under terms which provide for no minimum guarantee to be
paid to the Company, but for all revenues to be paid to the Company in excess of
a distribution fee for the sub-distributor.

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

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


                                       14

<PAGE>

     FIRST LOOK PICTURES.  The Company, from its Los Angeles offices, directly
distributes some of the motion pictures for which it controls domestic rights to
theaters throughout the United States under the name First Look Pictures.
Although some of First Look Pictures' upcoming releases are intended to appeal
to a wide audience, many of the thirteen First Look Pictures releases to date
have been foreign language films, "art-house" films and other specialized motion
pictures generally characterized by underlying literary and artistic elements
intended to appeal primarily to sophisticated audiences.

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

     The cost to First Look Pictures to distribute a specialized motion picture
or "art-house" film on a limited-release basis has in the past typically ranged
from approximately $100,000 to $2,000,000, although in the future these costs
may exceed such range. Expenditures for prints, marketing and advertising
represent a substantial portion of the costs of releasing a film. Costs for
prints, marketing and advertising for the four films initially released by First
Look Pictures during 1996 ranged from approximately $350,000 to $1,450,000. In
connection with the acquisition of domestic theatrical rights to a film, the
Company sometimes commits to spend a minimum amount for prints and advertising
costs.  These costs are in addition to the direct production or acquisition
costs and other distribution expenses of such films. Generally, in addition to
receiving a distribution fee, the Company is entitled to recoup its prints and
advertising expenditures.  Although First Look Pictures may at times utilize
standard broadcast television advertising, First Look Pictures typically
supports its limited releases with local newspaper and some cable television
advertising. First Look Pictures also relies on national publicity, such as
reviews or articles in national publications and appearances of the film's
principal artists on radio and television talk shows. In contrast, distributors
of national, wide release films must rely primarily on national advertising
campaigns, including substantial television advertising, to attract
theatergoers.

     The success of a domestic theatrical release by First Look Pictures can be
affected by a number of factors outside of its control, including audience and
critical acceptance, availability of motion picture screens and the success of
competing films in release (see "Competition" below), awards won by First Look
Pictures' releases or that of its competition, inclement weather, and competing
televised events (such as sporting and news events). As a result of the
foregoing, and depending upon audience acceptance of the films distributed
through First Look Pictures, the Company expects that, in many cases, it will
not recoup all of its distribution expenses or derive any profit solely from
domestic theatrical distribution of First Look Pictures' releases, without
taking into account revenues derived from such films in ancillary media and
international markets. In addition, there can be no assurance that total
revenues from any First Look Pictures' release will be sufficient to allow the
Company to recoup all of its costs or to realize a profit on such film.

     Management of the Company, however, believes that it benefits in several
ways by theatrically distributing films in the United States directly through
First Look Pictures. The domestic theatrical success of a motion picture can be
a significant factor in generating revenues from distribution of the motion
picture in ancillary media and foreign markets. For example, retail video stores
have been increasingly purchasing fewer copies of videocassettes of motion
pictures that have not been theatrically released. In addition, the Company
believes it is generally able to obtain more favorable distribution terms in its
agreements with


                                       15

<PAGE>

foreign sub-distributors and domestic sub-distributors in other media with
respect to motion pictures that have been theatrically released in the United
States. Management of the Company 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. The Company
also believes that by theatrically releasing films itself in the United States,
it can manage, often more effectively than an unaffiliated distributor, the
timing and marketing of a film's theatrical release. As a result, even if the
Company does not recoup all of its marketing, advertising and print costs from a
First Look Pictures' release, the Company believes it can often obtain greater
overall revenues and achieve an overall profit on such films through increased
revenues in ancillary and foreign markets.

     From January 1, 1996 through March 15, 1997, First Look Pictures released
the six motion pictures listed in the following chart. First Look Pictures
currently anticipates releasing approximately ten additional films in 1997
including those listed below under "Upcoming Releases".


                                       16

<PAGE>

<TABLE>
<CAPTION>

                                               RELEASED

TITLE           MAJOR CREATIVE ELEMENTS                          STORYLINE                              RELEASE DATE  AND
-----           -----------------------                          ---------                              DOMESTIC BOX OFFICE
                                                                                                        RECEIPTS
                                                                                                        --------
<S>             <C>                                              <C>                                    <C>
ANTONIA'S LINE  Writer/Director:  Marleen Gorris (MRS. DALLOWAY) A celebration of the universal power   Released in February 1996
                Cast: Willeke van Ammelrooy.                     of women and family ties. Winner of    with domestic box office
                                                                 the 1995 Academy Award for Best        receipts of approximately
                                                                 Foreign Language Film.                 $3,843,242.

THE BIG         Writer/Director:   Marcus De Leon                In this modern-day fable, a devilishly Released in September 1996
SQUEEZE         Cast:  Lara Flynn Boyle (THREESOME, "Twin        clever scam twists and turns through   with domestic box office
                Peaks"), Danny Nucci (THE ROCK, ERASER), Peter   love, lust, jealously and betrayal     receipts of approximately
                Dobson (THE FRIGHTENERS).                        until destiny plays its hand.          $35,596.

INFINITY        Director:   Matthew Broderick                    A love story about the brilliant young Released in October 1996
                Cast:  Matthew Broderick (ADDICTED TO LOVE, THE  scientist, Richard Feynman and the     with domestic box office
                CABLE GUY, FERRIS BUELLER'S DAY OFF and          girl of his dreams, Arline Greenbaum,  receipts of approximately
                Broadway's How to Succeed in Business Without    set against the backdrop of World War  $180,834.
                Really Trying), Patricia Arquette (BEYOND        II and his work on the Atomic bomb.
                RANGOON, TRUE ROMANCE, FLIRTING WITH DISASTER)   Feynman won the Nobel Prize for
                                                                 Physics in 1965.

BITTER SUGAR    Co-Writer/Director:  Leon Ichaso (SUGAR HILL)    Living in the volatile, modern-day     Released in October 1996
(AZUCAR         Cast: Rene Lavan ("One Life To Live", TRUE       Havana, an idealistic honor student    with domestic box office
AMARGA)         LIES), Mayte Vilan (THE SPECIALIST).             falls in love with a beautiful dancer  receipts through March 15,
                                                                 with radically opposite political      1997 of approximately
                                                                 views.                                 $430,669.

JOHNS           Writer/Director:  Scott Silver                   A dark comic drama about two hustlers  Released on January 31,
                Cast:  Lukas Haas (MARS ATTACKS!, EVERYONE SAYS  working the dirty, sun-scorched        1997 with domestic box
                I LOVE YOU, WITNESS) and David Arquette (SCREAM, pavement of Hollywood's Santa Monica   office receipts through
                BEAUTIFUL GIRLS, WILD BILL, BUFFY THE VAMPIRE    Boulevard.                             March 15, 1997 of
                SLAYER)                                                                                 approximately $148,899.

JERUSALEM       Director:  Bille August                          When a charismatic and messianic       Released on March 7, 1997,
                Cast:  Maria Bonnevie, Ulf Friberg, Olympia      preacher arrives in a small Swedish    with domestic box office
                Dukakis (MIGHTY APHRODITE, STEEL MAGNOLIAS) and  village, the lives of two young lovers receipts through March 15,
                Max von Sydow (PELLE THE CONQUEROR)              are torn apart.  Based on the novel by 1997 of approximately
                                                                 Nobel Prize winner, Selma Lagerlof.    $18,016.
</TABLE>

<TABLE>
<CAPTION>
                                                UPCOMING RELEASES

TITLE           MAJOR CREATIVE ELEMENTS                          STORYLINE                              ESTIMATED DOMESTIC
-----           -----------------------                          ---------                              THEATRICAL RELEASE DATE
                                                                                                        -----------------------
<S>             <C>                                              <C>                                    <C>
BROTHER'S KISS  Writer/Director:   Seth Zvi Rosenfeld            Headstrong and hot-tempered, a man           Spring 1997
                Cast: Nick Chinlund (ERASER), Michael Raynor     down on his luck falls in with the
                (FEDERAL HILL), Michael Rapaport (METRO,         wrong people. His brother, an NYPD
                BEAUTIFUL GIRLS) John Leguizamo (EXECUTIVE       officer, is torn between loyalty to
                DECISION, TO WONG FOO, THANKS FOR EVERYTHING,    his uniform and the person who
                JULIE NEWMAR), Cathy Moriarty (CASPER, RAGING    protected him as a kid on the tough
                BULL), Rosie Perez (WHITE MEN CAN'T JUMP),       streets of NY.
                Marisa Tomei (UNHOOK THE STARS, MY COUSIN
                VINNY).
</TABLE>


                                        17

<PAGE>

<TABLE>
<CAPTION>

TITLE           MAJOR CREATIVE ELEMENTS                          STORYLINE                              ESTIMATED DOMESTIC
-----           -----------------------                          ---------                              THEATRICAL RELEASE DATE
                                                                                                        -----------------------
<S>             <C>                                              <C>                                    <C>
THE DESIGNATED  Writer:   Wallace Shawn (VANYA ON 42ND STREET,   Straight from the National Theatre in        Spring  1997
MOURNER         MY DINNER WITH ANDRE)                            London and told completely in direct
                Director: David Hare (STRAPLESS, PARIS BY        address to the camera, the film
                NIGHT)                                           captures a three way conversation in
                Cast: Mike Nichols (acclaimed director of THE    which the characters (a snobbish
                GRADUATE, THE BIRDCAGE and POSTCARDS FROM THE    father, pretentious daughter and her
                EDGE), Miranda Richardson (ENCHANTED APRIL, THE  middlebrow husband) debate the
                CRYING GAME, DAMAGE).                            emotional and intellectual bankruptcy
                                                                 of high culture in the modern world.

THE OTHER SIDE  Co-Writer/Director:  Berit Nesheim (BEYOND THE   A story of a young woman coming of           Spring 1997
OF SUNDAY       SKY, FRIDA - STRAIGHT FROM THE HEART)            age in the parochial oppression of a
                Cast:  Marie Theisen, Bjorn Sundquist, Hildegun  small Norwegian town where almost
                                                                 everything is forbidden - especially         Riise
                                                                 the lure of sex, boys and
                                                                 rock'n'roll.

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

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

MRS. DALLOWAY   Director:  Marleen Gorris (ANTONIA'S LINE)       On one summer's day in London, in            Summer/Fall 1997
                Cast:  Vanessa Redgrave (MISSION IMPOSSIBLE,     1923, Clarissa Dalloway remembers
                SMILLA'S SENSE OF SNOW), Rupert Graves (THE      that summer in the country, in 1890,
                MADNESS OF KING GEORGE, A ROOM WITH A VIEW),     when she was young and beautiful and
                Natascha McElhone (THE DEVIL'S OWN, SURVIVING    very much courted.
                PICASSO)

SLAVES TO THE   Director:  Kristine Peterson                     Set against the Seattle "grunge rock"        Fall/Winter 1997
UNDERGROUND     Cast: Molly Gross, Marisa Ryan ("Major Dad")     scene, a young girl named Shelly is
                                                                 growing up in a confused world.
</TABLE>


     There can be no assurance that any of the pictures scheduled for release by
First Look Pictures in 1997 or thereafter will actually be released or released
in accordance with the anticipated schedule set forth above. The motion picture
business is subject to numerous uncertainties, including financing requirements,
personnel availability and the release schedule of competing films. In addition,
there can be no assurance that the motion pictures scheduled for release but
which are not yet completed will necessarily involve all of the creative
elements and artists listed above.

ACQUISITION OF RIGHTS BY THE COMPANY, PRODUCTION AND FINANCING

     The Company acquires distribution rights from a large variety of
independent production companies and producers. The Company generally acquires
distribution rights to single films, as compared to acquiring films pursuant to
multi-picture acquisition agreements with independent film companies or
producers. The Company commits to acquire rights to motion pictures at various
stages in the completion of a film, from films completed and ready for release
to developed (or undeveloped) film projects for which the Company may arrange
financing and/or production services to complete. In acquiring rights, the
Company generally seeks to obtain rights to commercially appealing motion
pictures with substantially lower direct negative costs than motion pictures
released by the major studios. The films distributed by the Company have
generally had direct negative costs ranging from $1,000,000 to $6,000,000.
However, from time to time, the Company may acquire rights to, finance or
produce, motion pictures with direct negative


                                       18

<PAGE>

costs (as well as marketing costs) below or substantially in excess of the
average direct negative costs (as well as marketing costs) of the films
historically distributed by the Company.  In addition, as part of the Company's
overall business strategy it intends to gradually and selectively acquire rights
to, finance or produce films which the Company believes have greater production
values (often as a result of larger budgets) and greater potential for more
widespread audience appeal.

     In certain circumstances, the Company acquires limited distribution or
sales rights and, in other circumstances, acquires worldwide rights (sometimes
including the copyright) to such films. Generally, this depends upon whether the
Company agrees to pay the producer or other owner of rights in the film (the
"rights owner") a substantial minimum guarantee. As part of its acquisition of
theatrical, video and/or television distribution rights, the Company may obtain
rights to exploit ancillary rights, such as music or sound track rights,
merchandising rights, or rights to produce CD-ROMs or other interactive media
products. Although the Company may license such rights to sub-distributors,
historically the Company has not derived any significant revenues from these
ancillary rights.

     The Company is sometimes appointed as the sales agent for a particular
motion picture to license, on behalf of the rights owner, distribution rights in
the film to various distributors for exploitation on a territory-by-territory
basis. In exchange for its services as sales agent, the Company is generally
entitled to a sales agency fee which typically ranges from approximately 10% to
20% of the gross revenues from resulting licenses or sales. In such
circumstances, the Company generally advances limited funds toward the marketing
and distribution of the film (generally ranging from approximately $50,000 to
$150,000).

     In some circumstances, the Company acts in much the same manner as a sales
agent but, rather than licensing or selling distribution rights to a film to a
third party on behalf of the rights owner, the Company itself licenses
distribution rights to the film from the rights owner for exploitation by the
Company for a given term in a given territory (or territories) and media. The
remainder of this arrangement (the fee structure and funds provided for
marketing and distribution) remains similar to that of a sales agency.  The
Company generally prefers to enter into this type of a distribution arrangement
rather than a sales agency arrangement (which it now enters into more
infrequently than in the past) because it receives an actual license of
distribution rights which can serve as collateral for loans and provide other
benefits to the Company.

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


                                       19

<PAGE>

Company, the Company generally receives worldwide distribution rights in all
media and generally will also obtain ownership of the copyright to the film,
with the production company from which the Company acquired the rights receiving
a production fee and generally a participation in net revenues from distribution
of the motion picture.

     The Company's commitment to pay a minimum guarantee with respect to films
that have not begun production often enables the production company or producer
to obtain financing for its project, if needed. In some cases, the Company's
contractual commitment to pay a minimum guarantee upon delivery of a film serves
as sufficient collateral for a bank to lend production funds. The bank will
typically insure delivery of the film to the Company by the purchase of a
completion guaranty. In order to enable the production company or producer to
borrow production funding, or to borrow at preferential bank fees and interest
rates, it may also be necessary for the Company to secure its purchase or
acquisition commitment, which it generally does by obtaining the issuance of a
letter of credit from the Company's primary lenders, Coutts & Co., a subsidiary
of National Westminster Bank plc., and Berliner Bank A.G.  See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."  In certain situations, the
production company or producer of a film may initially obtain certain funds from
other distribution companies which obtain distribution rights in certain media
or territories (for example, the domestic distribution rights or distribution
rights in Japan), from accessing foreign governmental film industry incentive
programs (such as programs offered in the past by England, Canada, Australia and
New Zealand) or by using its own resources or other resources available to it,
and then subsequently approach the Company to supply the remaining funds
necessary to complete or co-finance the film in exchange for the Company's
obtaining the remaining distribution rights to the motion picture. In order to
fund the acquisition costs of the films for which it acquires rights, the
Company relies primarily on: (i) its credit facility with Coutts & Co. and
Berliner Bank A.G.; (ii) other lenders willing to finance the contractual
minimum guarantee obligations of the Company to the film's producers or rights
owner, (iii) working capital; (iv) pre-sales (minimum guarantees obtained from
sub-distributors who have licensed rights to the film from the Company); and (v)
gap financing (where the lender is willing to finance the production costs of
the motion picture based on the Company's estimates of the ultimate sales in
connection with the motion picture).

     Of the eighteen completed films which first became available to the Company
for distribution in 1996, six films, with average direct negative costs of
approximately $2,600,000, were produced by the Company through various
production companies controlled by the Company and to which the Company provided
all or substantially all of the production funds through various financing
arrangements such as minimum guarantee commitments and negative pickups.
Typically, the Company's production subsidiaries obtain production financing by
obtaining production loans using the Company's minimum guarantee commitment as
collateral, at times secured by a letter of credit issued under the Company's
credit facility. The Company attempts to minimize the risks associated with its
development and production activities in a variety of ways. The Company does not
maintain a substantial staff of creative or technical personnel. The Company
also does not own or operate sound stage and related production facilities
generally referred to as a "studio" and does not have the fixed payroll, general
and administrative and other expenses resulting from ownership of a studio. In
addition, 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 Company typically will arrange
for a production services company or a producer with whom the Company has
previously worked to be


                                       20

<PAGE>

engaged to provide such production services on the project. The Company has and
seeks relationships with emerging talent and with independent producers with
reputations and experience producing quality films efficiently with controlled
costs.

     The following chart provides certain information regarding completed motion
pictures first made available to the Company for distribution during 1996. For
purposes of the chart, "Sales Agency" refers to those situations where the
Company licenses distribution rights to third parties on behalf of the rights
owner; "Straight Distribution" refers to those situations where the Company
itself licenses distribution rights to a film from the rights owner for
exploitation by the Company for a given term in a given territory (or
territories) and media; "Minimum Guarantee" refers to those situations where the
Company acquires rights to a film in exchange for an agreement by the Company to
pay a minimum guaranteed amount upon (or after) delivery of the film to the
Company for exploitation; "Negative Pickup" refers to those situations where,
upon payment of the minimum guarantee, the Company acquires worldwide rights in
all media, including copyright ownership; and "Minimum P&A Commitment" refers to
those situations where, as part of its acquisition of rights, the Company
commits to spend a minimum amount on prints and advertising in connection with
domestic theatrical release of the film. The chart includes acquisitions of
rights from unaffiliated production companies or other rights owners, as well as
from production companies owned or controlled by the Company.

<TABLE>
<CAPTION>


MOTION               GENRE      TYPE OF ACQUISITION          TERRITORIES ACQUIRED          SELECTED CAST
PICTURE TITLE        -----      -------------------          --------------------          -------------
-------------
<S>                  <C>        <C>                          <C>                           <C>

AL CENTRO DELL'AREA  Comedy     Straight Distribution        World, excluding Germany,     Marzia Aquilani, Christina Capone,
DI RIGORE                                                    Austria, and Italy            Guillaume Fantannaz

BACK TO BACK         Action     Negative Pickup              World, excluding Japan and    Michael Rooker (THE TRIGGER EFFECT,
                                                             Hong Kong                     MALLRATS, CLIFFHANGER), Danielle Harris
                                                                                           (DAYLIGHT, FREE WILLY, THE LAST BOY
                                                                                           SCOUT), Bobcat Goldthwait (DESTINY TURNS
                                                                                           ON THE RADIO)

BITTER SUGAR         Spanish    Minimum P&A Commitment       World, excluding Cuba and     Rene Lavan (TRUE LIES, "One Life To
                     Language                                the Dominican Republic        Live"), Mayte Vilan (THE SPECIALIST)
                     drama

A BROTHER'S KISS     Drama      Minimum Guarantee plus       World                         Nick Chinlund (ERASER), Rosie Perez
                                Minimum P&A Commitment                                     (WHITE MEN CAN'T JUMP), John Leguizamo
                                                                                           (EXECUTIVE DECISION, TO WONG FOO, THANKS
                                                                                           FOR EVERYTHING, JULIE NEWMAR), Michael
                                                                                           Rapaport (METRO, BEAUTIFUL GIRLS), Cathy
                                                                                           Moriarty (RAGING BULL)

COUNTDOWN            Thriller   Negative Pickup              World                         Lori Petty (TANK GIRL, FREE WILLY, A
                                                                                           LEAGUE OF THEIR OWN), Jason London
                                                                                           (LEARNING CURVES), James LeGros (THE
                                                                                           DESTINY OF MARTY FINE, INFINITY, SAFE)

DOWNHILL WILLIE      Comedy     Minimum Guarantee            World, excluding Canada       Keith Coogan (DON'T TELL MOM THE
                                                                                           BABYSITTER'S DEAD, TOY SOLDIERS), Staci
                                                                                           Keanan (LISA, "Step By Step")

DRIVE                Action     Negative Pickup              World                         Mark Dacascos (CRYING FREEMAN), Kadeem
                     Adventure                                                             Hardison (PANTHER, VAMPIRE IN BROOKLYN)

GRIND                Drama,     Straight Distribution        World, excluding the United   Adrienne Shelly (SLEEP WITH ME, THE
                     Romance                                 States and English-speaking   UNBELIEVABLE TRUTH), Billy Crudup
                                                             Canada                        (SLEEPERS, EVERYONE SAYS I LOVE YOU)

ILLEGALLY YOURS      Comedy     Negative Pickup *            World, excluding the United   Rob Lowe (MULHOLLAND FALLS, TOMMY BOY),
                                                             States                        Collen Camp (HOUSE ARREST, DIE HARD WITH
                                                                                           A VENGEANCE)
</TABLE>


                                        21

<PAGE>

<TABLE>
<CAPTION>


MOTION               GENRE      TYPE OF ACQUISITION          TERRITORIES ACQUIRED          SELECTED CAST
PICTURE TITLE        -----      -------------------          --------------------          -------------
-------------
<S>                  <C>        <C>                          <C>                           <C>

INFINITY             Drama      Negative Pickup              World                         Matthew Broderick (ADDICTED TO LOVE, THE
                                                                                           CABLE GUY, FERRIS BUELLER'S DAY OFF),
                                                                                           Patricia Arquette (BEYOND RANGOON, TRUE
                                                                                           ROMANCE, FLIRTING WITH DISASTER)

JOHNS                Drama      Minimum Guarantee, plus      World                         Lukas Haas (MARS ATTACKS!, RAMBLING
                                Minimum P&A Commitment                                     ROSE, WITNESS), David Arquette (Scream,
                                                                                           BEAUTIFUL GIRLS, WILD BILL, BUFFY THE
                                                                                           VAMPIRE SLAYER), Elliott Gould (BUGSY)

MESMER               Period     Straight Distribution        World, excluding Canada,      Alan Rickman (SENSE AND SENSIBILITY, DIE
                     Drama                                   German-speaking Europe and    HARD), Amanda Ooms
                                                             Poland

PUMPKINHEAD          Horror     Negative Pickup *            World, excluding the United   Lance Henriksen (POWDER, THE QUICK AND
                                                             States                        THE DEAD), John D'Aquino, Kerry Remsen

RED HOT              Drama      Minimum Guarantee            World, excluding South        Balthazar Getty (LOST HIGHWAY, WHITE
                                                             Africa, South America, Japan  SQUALL), Carla Gugino (SHE'S THE ONE,
                                                             Italy and the UK              MIAMI RHAPSODY)

SCORPION SPRING      Drama      Sales Agency                 World, excluding South        Matthew McConaughey (A TIME TO KILL,
                                                             Africa, United States and     LONE STAR), Ruben Blades (COLOR OF
                                                             Canada                        NIGHT, THE SUPER), Alfred Molina
                                                                                           (SPECIES)

SLAVES TO THE        Drama      Negative Pickup              World                         Marisa Ryan ("Major Dad"), Molly Gross
UNDERGROUND                     Minimum P&A
                                Commitment

THIS IS THE SEA      Drama      Negative Pickup              World, excluding the          Richard Harris (SMILLA'S SENSE OF SNOW,
                                                             United Kingdom                THE FIELD, PATRIOT GAMES), Gabriel Byrne
                                                                                           (SMILLA'S SENSE OF SNOW, THE USUAL
                                                                                           SUSPECTS, LITTLE WOMEN), John Lynch (IN
                                                                                           THE NAME OF THE FATHER, THE SECRET OF
                                                                                           ROAN INISH)
</TABLE>

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

* The Company acquired the copyright to this film, but the film was acquired
subject to pre-existing license agreements which were entered into prior to
acquisition of the film by the Company.

THE COMPANY'S FILM LIBRARY OF DISTRIBUTION RIGHTS

     The Company's film library consists of rights to a broad range of films,
most of which were produced since 1980. As of March 15, 1997, the Company had
various distribution rights to approximately 200 motion pictures (including
approximately 72 motion pictures in which the Company owns an interest in the
copyright and approximately 55 motion pictures for which the Company acts as
sales agent on behalf of the producer or other owner of rights in the film). The
Company's distribution rights generally range from 12 to 25 years or more from
the date of acquisition, and typically extend to many, if not all, media of
exhibition worldwide or in specified territories.

     In addition to exploitation of distribution rights to motion pictures in
its library in the major media (theatrical, video and television), in certain
situations the Company is able to exploit various ancillary rights in such
films. For example, in March 1996 the Company sold the rights to produce a
sequel of The


                                       22

<PAGE>

Prophecy for $675,000. Additionally, Party Girl, a motion picture released by
First Look Pictures in 1995, was the basis for a short-lived Fox Television
series produced by Warner Bros. Television in which the Company earned a total
of $30,000 comprised of a pilot fee and per episode royalties.  The Company has
also arranged for the music in several motion pictures it has distributed to be
released as soundtrack recordings (including The Secret of Roan Inish, Party
Girl, The Big Squeeze, and Infinity). Although exploitation of these soundtrack
and other ancillary rights has not generated significant revenues for the
Company to date, the Company's ownership or control of ancillary rights to
motion pictures in its library (including interactive rights, remake rights and
merchandising rights, among others) may provide future sources of additional
revenues.

MAJOR CUSTOMERS

     Since January 1, 1994, only five customers have accounted for more than
10% of the Company's revenues (including for this purpose revenues of
Pre-Merger Overseas) in any full fiscal year: three in 1996 (BMG Video with
$3,068,000 or 10.7%, Helkon Media Filmvertrieb gmbH with $3,940,000 or 12.2%
and Columbia TriStar and its affiliates with $2,490,000 or 10.3%); one in
1995 (Columbia TriStar and its affiliates in 1995 with $4,366,000 or 20.1%);
and one in 1994 (Miramax Film Corporation with $3,000,000 or 14.5%).

EMPLOYEES

     At March 15, 1997, the Company employed a total of 40 full-time employees
and two part-time employees. Certain subsidiaries of the Company are, for
certain films, subject to the terms in effect from time to time of various
industry-wide collective bargaining agreements, including the Writers Guild of
America, the Directors Guild of America, the Screen Actors Guild and the
International Alliance of Theatrical Stage Employees. In certain circumstances,
the Company also assumes a production company's obligation to pay residuals to
these various guilds and unions. A strike, job action or labor disturbance by
the members of any of these organizations could have a material adverse effect
on the production of a motion picture within the United States, and,
consequently, on the business, operations and results of operations of the
Company. These organizations have all engaged in strikes and similar activities.
The Company believes that its current relationship with its employees is
satisfactory.

COMPETITION

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


                                       23

<PAGE>

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.
 The number of motion pictures released theatrically in the United States has
increased in recent years, thereby increasing competition for exhibition
outlets and audiences. In addition, there have also been rapid technological
changes over the past fifteen years. Although technological developments have
resulted in the creation of additional revenue sources from the licensing of
rights with respect to such new media, such developments have also resulted
in the popularity and availability of alternative and competing forms of
leisure time entertainment, including pay/cable programming, and home
entertainment equipment such as videocassettes, interactive games and
computers.

REGULATION

     In 1994, the United States was unable to reach agreement with its major
international trading partners to include audio-visual works, such as television
programs and motion pictures, under the terms of the General Agreement on Trade
and Tariffs Treaty ("GATT"). The failure to include audiovisual works under GATT
allows many countries (including members of the European Union, which consists
of Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and the United Kingdom) to continue enforcing quotas
that restrict the amount of United States produced television programming which
may be aired on television in such countries. The Council of Europe has adopted
a directive requiring all member states of the European Union to enact laws
specifying that broadcasters must reserve a majority of their transmission time
(exclusive of news, sports, game shows and advertising) for European works. The
directive does not itself constitute law, but must be implemented by appropriate
legislation in each member country. In addition, France requires that original
French programming constitute a required portion of all programming aired on
French television. These quotas generally apply only to television programming
and not to theatrical exhibition of motion pictures, but quotas on the
theatrical exhibition of motion pictures could also be enacted in the future.
There can be no assurance that additional or more restrictive theatrical or
television quotas will not be enacted or that countries with existing quotas
will not more strictly enforce such quotas. Additional or more restrictive
quotas or more stringent enforcement of existing quotas could materially and
adversely affect the business of the Company by limiting the ability of the
Company to exploit fully its rights in motion pictures internationally and,
consequently, to assist or participate in the financing of such motion pictures.

     Distribution rights to motion pictures are granted legal protection under
the copyright laws of the United States and most foreign countries, which laws
provide substantial civil and criminal sanctions for unauthorized duplication
and exhibition of motion pictures. Motion pictures, musical works, sound
recordings, art work, still photography and motion picture properties are
separate works subject to copyright


                                       24

<PAGE>

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.
The major broadcast networks and the major television production companies
(which consist primarily of the "major" films studios referred to in
"Competition" above) have recently begun to implement a system to rate
television programs.  It is not possible to predict what impact such a
television rating system ultimately will have 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 exhibit
certain motion pictures in certain territories and media.

ITEM 2.  PROPERTIES.

     The Company's principal executive offices are located at 8800 Sunset
Boulevard, Third Floor, Los Angeles, California 90069 and consist of
approximately 10,000 square feet leased by the Company,


                                       25

<PAGE>

the lease for which expires in September 1997. The Company has reached an
agreement in principle with the landlord to renew the lease for an additional
five years at a monthly rate of $2.00 per square foot (currently the monthly
rate is $1.65 per square foot).  Under the terms of the agreement in principle,
the Company would also pay a percentage of  operating costs, above a base year
calculation, beginning in the third year of the renewed lease. No assurances can
be given that a definitive lease renewal will be entered into or entered into on
the foregoing terms.  If a definitive lease renewal is not entered into, the
Company believes that it will be able to locate comparable space on lease terms
similar to that of the foregoing agreement in principle, however, such terms may
differ from those of the agreement in principle depending on the location of the
space and conditions in the real estate market at the time.  The Company does
not maintain any studio facilities or own any real estate, and its lease is with
an unaffiliated party.

ITEM 3.  LEGAL PROCEEDINGS.

     The Company is not, as of March 31, 1997,  a party to any litigation.

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

     In order to seek approval of the Merger and certain related matters, on
October 25, 1996, the Company held a Special Meeting of Stockholders in lieu of
its 1996 Annual Meeting (the "Special Meeting").  At the Special Meeting, the
Company's stockholders approved the proposal to approve the Merger Agreement
(2,184,902 votes in favor, 16,620 votes against, no abstentions and 342,877
broker non-votes).  In addition, at the Special Meeting, (i) Robert B. Little
and Stephen K. Bannon were elected to serve as Class I Directors of the Company
until the 1997 Annual Meeting of Stockholders and until their successors are
elected and have qualified, (ii) Ellen Dinerman Little and Scot K. Vorse were
elected to serve as Class II Directors of the Company until the 1998 Annual
Meeting of Stockholders and until their successors are elected and have
qualified, and (iii) William F. Lischak, Jeffrey A. Rochlis and Alessandro
Fracassi were elected to serve as Class III Directors of the Company until the
1999 Annual Meeting of Stockholders and until their successors are elected and
have qualified, in each case by a vote of 2,543,779 votes in favor of such
person's election and 620 votes withheld.

     At the Special Meeting, the Company's stockholders also approved (i) a
proposal to amend and restate the Company's Certificate of Incorporation to,
among other things, change its name to "Overseas Filmgroup, Inc.", increase
the Company's authorized capital stock and enact certain anti-takeover
provisions (2,183,302 votes in favor, 8,220 votes against, 10,000 abstentions
and 342,877 broker non-votes); (ii) a proposal to approve the Company's 1996
Basic Stock Option and Stock Appreciation Rights Plan (2,182,302 votes in
favor, 19,220 votes against, no abstentions and 342,877 broker non-votes);
(iii) a proposal to approve the 1996 Special Stock Option Plan and Agreement
(2,180,802 votes in favor, 20,720 votes against, no abstentions and 342,877
broker non-votes); and (iv) a proposal to ratify the Company's appointment of
Price Waterhouse LLP as independent accountants for 1996 (2,542,779 votes in
favor, 1,620 votes against, no abstentions and no broker non-votes).

                                       26

<PAGE>

                                     PART II

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

MARKET PRICE

     The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol "OSFG." The Company's 4,500,000 Warrants to Purchase Common Stock (each
warrant entitling the registered holder to purchase one share of Common Stock at
an exercise price of $5.00 per share, subject to adjustment, until 5:00 p.m. New
York City time on February 16, 2002) (the "Warrants") are also quoted on the OTC
Bulletin Board under the Symbol "OSFGW."  The following table sets forth the
high and low closing bid quotations for the periods indicated since the Common
Stock and Warrants commenced public trading on February 17, 1995.  The
quotations represent prices between dealers and do not include retail markups or
markdowns or commissions.  They may not necessarily represent actual
transactions.

                                               COMMON STOCK        WARRANTS

FISCAL 1995                                   HIGH       LOW    HIGH      LOW

First Quarter (beginning February 17, 1995)   4-3/4     4-3/8   1-1/4     7/8
Second Quarter                                4-3/4     4-1/4   1-1/4      1/2
Third Quarter                                 4-3/4     4-3/8      1       1/2
Fourth Quarter                                4-3/4     4-3/8   97/100    9/16

FISCAL 1996

First Quarter                                 4-3/4     4-3/5      1       5/8
Second Quarter                               5-5/16     4-5/8    1-3/8    11/16
Third Quarter                                5-5/16     5-1/8    1-3/8     7/8
Fourth quarter                                5-3/8     4-5/8    1-3/8     1/2

FISCAL 1997

First Quarter (through March 20, 1997)        4-5/8     3-1/2      1       3/8


HOLDERS

     As of March 20, 1997, there were approximately twelve holders of record
of the Company's Common Stock, and there were 5,777,778 shares of Common
Stock issued and outstanding of the 25,000,000 shares authorized.  As of
March 20, 1997, there were approximately eight holders of record of the
Company's Warrants. See Note 8 of the Notes to the Company's Consolidated
Financial Statements for information regarding certain additional securities
which have been issued by the Company.

DIVIDENDS

     The Company has not paid cash dividends on its Common Stock either prior to
or since the Merger (other than S Corporation distributions made by Pre-Merger
Overseas to its stockholders prior to the Merger), 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


                                       27

<PAGE>

dividends in the future would be at the discretion of the Company's Board of
Directors and would be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
at that time by the Company's Board of Directors.  In addition, certain
covenants in the Company's credit facility substantially restrict payment of
cash dividends.

RECENT SALES OF UNREGISTERED SECURITIES

     Pursuant to the terms of the Merger, on October 31, 1996, the Company
issued an aggregate of 3,177,778 shares of the Company's Common Stock to the
former shareholders of Pre-Merger Overseas as part of the merger consideration.
See "Item 1 - Background - The October 1996 Merger".  Such shares were issued to
the three former shareholders of Pre-Merger Overseas in reliance upon the
exemption from registration under the Securities Act of 1933, as amended (the
"Securities Act"), provided by Section 4(2) thereof.  On the same date, as part
of the compensation to Jefferson Capital Group, Ltd. for serving as financial
advisor to Pre-Merger Overseas in connection with the Merger, the Company issued
to Jefferson Capital Group, Ltd. a warrant to purchase 62,500 shares of Common
Stock at an exercise price of $5.00 per share.  The warrant was issued in
reliance upon the exemption from registration under the Securities Act provided
by Section 4(2) thereof.


                                       28

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

     The following tables set forth selected financial data for the Company
which has been derived from the Company's financial statements as of and for
each of the five years ended December 31, 1996 which have been audited by
Price Waterhouse LLP, independent accountants. The pro forma statement of
income data set forth below and described in footnote (1) to this section
does not purport to be indicative of the results of operations that would
have occurred had the Merger Note been issued on January 1, 1995 or had the
Company's S corporation status terminated prior to January 1, 1992, or which
may be expected to occur in future periods.  The selected financial data set
forth below should be read in conjunction with the Consolidated Financial
Statements of the Company, together with the related notes thereto included
elsewhere herein, and "Item 7 -Management's Discussion and Analysis of
Financial Condition And Results Of Operations."

<TABLE>
<CAPTION>

                                                                              YEAR ENDED DECEMBER 31,
                                                                              -----------------------

                                                          1992           1993           1994           1995           1996
                                                          ----           ----           ----           ----           ----
<S>                                                   <C>            <C>            <C>            <C>            <C>
Statement of Income Data:

Revenues                                              $14,722,483    $17,951,977    $20,734,094    $21,672,510    $28,677,571
Film costs                                             10,683,951     13,962,255     16,395,902     16,320,694     23,449,114
Selling, general and administrative                     2,234,774      2,401,509      2,151,214      2,721,745      3,595,660
Income from operations                                  1,803,758      1,588,213      2,186,978      2,630,071      1,632,797
Income before income taxes                              2,074,926      1,997,872      2,441,960      2,894,066      1,665,269
Income taxes                                              511,937        300,628        296,487        432,905      3,131,367
Net income (loss)                                       1,562,989      1,697,244      2,145,473      2,461,161     (1,466,098)
Pro forma net income (1)                                1,327,953      1,278,638      1,562,854      1,745,610        998,168
Pro forma net income per
 share (1)(2)                                                                                           .42            .22
Weighted average number of shares outstanding (2)                                                    4,177,778      4,444,445

</TABLE>


<TABLE>
<CAPTION>

                                                                                AS OF DECEMBER 31,
                                                                                ------------------

                                                          1992           1993           1994           1995           1996
                                                          ----           ----           ----           ----           ----
<S>                                                   <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:

Film costs, net of accumulated amortization            $7,837,619    $10,808,032    $12,377,123    $17,349,071    $28,358,324
Total assets                                           19,506,942     20,311,146     24,684,518     28,954,796     40,803,685
Notes payable, banks                                    3,000,000      3,700,000      6,058,279      7,421,893     16,607,137
Total liabilities                                      12,020,416     11,993,609     14,874,057     17,506,422     28,611,919
Total equity                                            7,486,526      8,317,537      9,810,461     11,448,374     12,191,766

</TABLE>


                                       29

<PAGE>

NOTES TO SELECTED FINANCIAL DATA

     (1)  From January 1, 1989 to October 31, 1996, Pre-Merger Overseas
operated as an S Corporation under Subchapter S of the Internal Revenue Code.
The amounts shown reflect a pro forma charge which represents the estimated
income taxes, at an effective tax rate of 36% for both federal and state
income taxes (but excluding the one-time, non-recurring deferred federal
income tax charge relating to termination of the S Corporation status upon
consummation of the Merger) that would have been reported under FAS No. 109
had Pre-Merger Overseas been a C Corporation during the periods presented.
Additionally, the 1995 and 1996 amounts shown reflect a pro forma interest
charge related to the Merger Note as described in Note 2 to the Consolidated
Financial Statements of the Company.

     (2)  Pro forma net income per share is not indicative of what actual net
income per share would have been if the events described in note (1) had
occurred. Pro forma net income per share is computed by dividing pro forma
net income by the weighted average number of shares outstanding during the
period, adjusted to reflect (i) 3,177,778 shares which represents the
post-Merger equivalent of the 100 pre-Merger outstanding shares of Pre-Merger
Overseas as if they had been recapitalized and (ii) 1,000,000 shares
representing the number of new shares that would have to be issued at the
October 31, 1996 at an assumed price of $5.20 per share (which approximates
the market price at October 31, 1996) to pay the pro forma distribution of
$5,200,000 described in Note 2 to the Consolidated Financial Statements of
the Company. Historical earnings per share has not been presented in view of
the prior periods' S corporation status.

                                       30

<PAGE>

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

OVERVIEW

     As described under "Item 1 - Business - Background - The October 1996
Merger," on October 31, 1996, the Company, a publicly-held company then known
as "Entertainment/Media Acquisition Corporation" ("EMAC") which was formed in
December 1993 in order to acquire an operating business in the entertainment
and media industry, succeeded by the merger (the "Merger") to the operations
of Overseas Filmgroup, Inc. ("Pre-Merger Overseas"), a privately-held
independent film company, the operations of which were established in 1980.
The three former shareholders of Pre-Merger Overseas received consideration
in the Merger consisting of 3,177,778 shares of the Company's Common Stock,
$1,500,000 in cash and the Merger Note (a $2,000,000, five-year, secured
promissory note), and also entered into various agreements with the Company.
See "Item 1 - Business -Background - The October 1996 Merger" and the other
sections of this Report referenced in such section for additional information
regarding the Merger and certain agreements entered into in connection
therewith.

     For accounting and financial reporting purposes, the Merger was considered
a reverse acquisition of EMAC with Pre-Merger Overseas as the acquirer.
Specifically, the Merger was treated as a recapitalization of Pre-Merger
Overseas by an exchange of Common Stock for the net assets of EMAC, which
consisted primarily of the cash proceeds of EMAC's initial public offering then
held in trust.  The Company has reflected in its consolidated financial
statements, the assets, liabilities and equity of Pre-Merger Overseas at their
historical book values.  Assets and liabilities of EMAC were reflected at their
fair market value at the effective time of the Merger, which approximated their
historical book values.  Accordingly, the results of operations and financial
position of the Company, for periods and dates prior to the Merger, are the
historical results of operations and financial position of Pre-Merger Overseas
for such periods and dates.  All direct costs of the Merger, consisting
primarily of legal, accounting, consulting and certain other fees, have been
charged to paid in capital.  Following the Merger, the fiscal year of the
Company was changed from November 30 to December 31 (Pre-Merger Overseas' fiscal
year).

     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.
The licensing of distribution rights to foreign distributors and
sub-distributors in the major international territories or regions has
historically been the Company's primary focus, accounting for a substantial
portion of the Company's total revenues. In fiscal 1994, 1995 and 1996,
approximately 74%, 66% and 72% of the Company's revenues were derived from such
activities.

     In situations where, prior to the availability of a motion picture, the
Company is paid a minimum guarantee or other payment from the licensing of
distribution rights to foreign or domestic sub-distributors, the minimum
guarantee or other payment is recorded as deferred revenue and is recognized at
such time as the motion picture is available for release by the sub-distributor.
In most other cases, revenue is recognized at such time as the motion picture is
available for release by the sub-distributor and revenues are earned pursuant to
the terms of the Company's agreement with the sub-distributor. The timing of
actual cash payments by sub-distributors to the Company of minimum


                                       31

<PAGE>

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

     Film costs represent a major component of the Company's assets. Film costs
represent those costs incurred in the acquisition and distribution of motion
pictures or in the acquisition of distribution rights to motion pictures. This
includes minimum guarantees paid to producers or other owners of film rights,
recoupable distribution and production costs, and capitalized interest and
overhead. The Company amortizes film costs using the individual film forecast
method under which film costs are amortized for each film in the ratio that
revenue earned in the current period for such film bears to management's
estimate of the total revenue to be realized from all media and markets for such
film. Management of the Company regularly reviews its revenue and cost forecasts
and revises such estimates for each film, as necessary, when warranted by
management's appraisal of current market conditions. This may result in a change
in the rate of amortization and write-downs to net realizable value. Net income
in future years is in part dependent upon the Company's amortization of its film
costs and may be significantly affected by periodic adjustments in such
amortization.

     The following table sets forth the Company's unamortized film costs as of
December 31, 1994, 1995 and 1996:


                                                  As of December 31,
                                                  ------------------

                                          1994           1995           1996

Films in release,
  net of accumulated amortization      $ 9,456,441    $12,162,975    $25,838,106
Films not yet available for release      2,920,682      5,186,096      2,520,218
                                         ---------      ---------      ---------

                                       $12,377,123    $17,349,071    $28,358,324
                                        ----------     ----------     ----------
                                        ----------     ----------     ----------

The increases in unamortized film costs from fiscal 1994 to 1995 and from
fiscal 1995 to 1996 generally reflect expansion of the Company's operations,
including increased acquisition of motion picture rights, and financing of
motion picture production.  In addition, of the increase from fiscal 1995 to
1996, a significant portion was due to three of the Company's motion picture
production subsidiaries, each of which commenced operations in 1996.

                                       32

<PAGE>

Based upon the Company's estimate as of December 31, 1996 of projected gross
revenues, approximately 75% of unamortized film costs applicable to films
released as of such date are expected to be amortized over the three-year period
ending December 31, 1999.

     The Company directly distributes certain motion pictures in the domestic
theatrical market under the name "First Look Pictures." Prior to June 1995, the
Company's domestic theatrical operations were conducted by First Look Pictures,
Inc. ("FLP Inc."), which was wholly owned by Ellen Dinerman Little and Robert B.
Little.  In anticipation of a merger of FLP Inc. with Pre-Merger Overseas, in
January 1995 Pre-Merger Overseas entered into a sales agency arrangement with
FLP Inc. whereby Pre-Merger Overseas advanced all costs of overhead as well as
distribution and releasing costs on behalf of FLP Inc. in exchange for FLP
Inc.'s assignment of all income relating to the motion pictures it released.
FLP Inc. was merged into Pre-Merger Overseas in June 1995.

     The Company typically acquires distribution rights in a motion picture
for a specified term in one or more territories and media.  See "Item 1 -
Business -Acquisition 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 often
includes the Company agreeing to pay an advance or minimum guarantee for the
rights acquired and/or agreeing to advance print and advertising costs,
obligations which are independent of the actual financial performance of the
motion picture being distributed.  The risks incurred by the Company
dramatically increase to the extent the Company takes such actions.  The
Company committed to pay an advance or minimum guarantee or advance print and
advertising costs with respect to approximately 13 films initially released
in 1996 (for an aggregate commitment in excess of the aggregate "pre-sale" or
"pre-license" commitments obtained from sub-distributors with respect to such
films of approximately $16,575,000). While the Company generally works with
independent producers who have already developed projects, the Company also
incurs significant risk to the extent it engages in development or production
activities itself, given the costs and risks associated with such activities,
including the uncertainty of whether any particular development project will
eventually result in a completed film. Although the Company may, in certain
circumstances, reduce some of the foregoing risks by sub-licensing certain
distribution rights in exchange for minimum guarantees from sub-licensees
such as foreign sub-distributors, the risks incurred by the Company are
generally greater the greater the "investment" by the Company in a motion
picture.  This "investment" by the Company in a motion picture includes the
cost of acquisition of the distribution rights (including any advance or
minimum guarantee paid to the producer), the amount of the production
financed, and the marketing and distribution costs borne.  For a variety of
reasons, including (i) the likelihood of continued industry-wide increases in
acquisition, production and marketing costs (See "Inflation and Other
Considerations" below); (ii) the Company's intent to gradually and
selectively acquire rights to or produce films which have greater production
values (often as a result of larger budgets); and (iii) the Company's
increasing role as the principal financier of a greater portion of the motion
pictures it distributes by providing minimum guarantee commitments, the
"investment" by the Company in the motion pictures it distributes in the
future and the associated risks faced by the Company are likely to increase.

RESULTS OF OPERATIONS

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

     Revenues increased by $7,005,061 (32.3%) to $28,677,571 for the year ended
December 31, 1996 from $21,672,510 for the year ended December 31, 1995. The
increase was primarily due to a greater number of larger budget films (generally
reflecting higher production values) becoming available for distribution and
generating relatively greater revenues than some of the Company's smaller budget
films,


                                       33

<PAGE>

generally reflecting a marketplace preference during such period for films with
greater production values. During the year ended December 31, 1996, 21 motion
pictures each generated in excess of $200,000 in revenues, with an aggregate of
$24,426,627, or 85.2%, of total revenues for such year attributable to those
films. For the year ended December 31, 1995, 20 motion pictures each generated
in excess of $200,000 in revenues, with an aggregate of $16,584,445, or 76%, of
total revenues, for such year attributable to those films.

     Film costs as a percentage of revenues increased to 81.8% for the year
ended December 31, 1996 from 75.3% for the year ended December 31, 1995. This
increase was primarily due to a write down of approximately $674,000 in the film
"Infinity" and approximately $88,000 in the film "The Big Squeeze."
Additionally, although the Company recognized $4,568,774 in gross revenues
relating to these two films, no gross margin resulted from either film.  Gross
margins vary from film to film based upon many factors including the amount of
the Company's investment in a particular film. In some cases, the Company is
entitled to only a distribution fee based upon a percentage of the film's gross
revenues in a particular territory or territories and media.  In other
circumstances, the Company may have a substantial investment in the film (for
example, as a result of minimum guarantee commitments, rights acquisition costs,
or print and advertising commitments) and is dependent upon the film's actual
performance in order to generate a positive gross margin. Other factors that
impact gross margins include market acceptance of a film, the budget of the
film, and management's analysis of the motion picture's prospects (which under
the individual film forecast method impacts the rate of amortization).

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

     Other income decreased by $231,523 (88%) to $32,472 for the year ended
December 31, 1996 from $263,995 for the year ended December 31, 1995. The
decrease was primarily the result of increased interest expense, net of
capitalized interest, of $88,432 over the prior year, as well as decreased
discounts from suppliers of approximately $85,000 in the year ended December
31, 1996 compared to December 31, 1995 and approximately $44,000 less income
from the rental of certain editing equipment that was sold in 1995.  The
Company capitalizes interest associated with its acquisition of motion
pictures to the applicable motion picture's film costs.

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

     Pre-Merger Overseas was an S-Corporation for federal income tax purposes
and, accordingly, was not subject to federal income taxes for periods from 1989
through the date of the Merger. See  "Certain Tax Related Matters" below.  The
Company's tax provision for 1996 includes a one-time, non-recurring deferred
federal income tax charge of approximately $2,600,000 relating to the
termination of Pre-Merger


                                       34

<PAGE>

Overseas's S corporation status which occurred immediately upon the Merger.
The balance of the income tax provision for the year ended December 31, 1996
represents federal income tax of approximately $190,000 on income of the
Company for the two months following the Merger, state income taxes for the
year of approximately $110,000 and foreign tax withholdings of approximately
$231,000 on revenues generated in certain countries during the year that are
required to withhold taxes on film royalties paid to a U.S. company. As a
result of the federal income taxes for the two months following the Merger,
the Company's effective tax rate, exclusive of the one-time, non recurring
deferred federal income tax charge, increased to approximately 32% for the
year ended December 31, 1996 compared to 15% for the year ended December 31,
1995.

     As a result of the foregoing including the one time, non-recurring deferred
federal income tax charge, the Company had a net loss for the year ended
December 31, 1996 of $1,446,098.  This is in comparison to net income of
$2,461,161 for the year ended December 31, 1995.

     On a pro forma basis, giving effect to the Merger Note being issued on
January 1, 1995, and concurrent termination of S Corporation status as if it
had occurred January 1, 1995 (by giving effect to assumed additional interest
expense relating to the Merger Note and a pro forma effective tax rate of
36%, but exclusive of  the one-time non-recurring deferred federal income tax
charge), pro forma net income for the year ended December 31, 1996 was
$998,168 compared to pro forma net income for the year ended December 31,
1995 of $1,745,610.  See "Item 6 - Selected Financial Information" and the
notes thereto as well as Note 2 to the Company's Consolidated Financial
Statements for additional information with respect thereto including pro
forma net income per share and the calculation thereof.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

     Revenues increased by $938,416 (4.5%) to $21,672,510 for the year ended
December 31, 1995 from $20,734,094 for the year ended December 31, 1994. This
increase was primarily due to domestic theatrical revenues generated by the two
motion pictures released by the Company through First Look Pictures in 1995, The
Secret of Roan Inish and Party Girl. The operations of First Look Pictures,
previously independent of the Company, were combined with the Company in 1995.
See "Overview" above. During the year ended December 31, 1995, 20 motion
pictures each generated in excess of $200,000 in revenues, with an aggregate of
$16,584,445, or 76%, of total revenues for such period attributable to those
films. During the comparable period in 1994, 15 motion pictures each generated
in excess of $200,000 in revenues, with an aggregate of $13,725,942, or 66%, of
total revenues for such period attributable to those films.

     Film costs as a percentage of revenues decreased to 75.3% for the year
ended December 31, 1995 from 79.1% for the year ended December 31, 1994. The
decrease in the ratio of film costs to revenues was primarily due to both
higher distribution fees associated with those motion pictures generating
significant revenues released theatrically in the year ended December 31,
1995 (including motion pictures released theatrically in the United States by
First Look Pictures) compared to the prior year, as well as higher gross
profit margins generated by the Company during the fiscal year ended December
31, 1995 on motion pictures in which the Company owned an interest in the
copyright compared to the gross margins on such films in the prior year.

     Selling, general and administrative expenses, net of amounts capitalized to
film costs, increased by $570,531 (26.5%) to $2,721,745 for the year ended
December 31, 1995 from $2,151,214 for the year ended December 31, 1994. This
increase was primarily due to the Company's absorption of the operations of
First Look Pictures, including space and personnel costs. Also, primarily as a
result of a general expansion in the


                                       35

<PAGE>

Company's operations, including an increase in the number of films financed by
the Company, the Company hired additional staff and leased additional office
space in the year ended December 31, 1995.

     Interest expense, net of capitalized interest, decreased by $90,113 (50.1%)
to $89,637 for the year ended December 31, 1995 from $179,750 for the year ended
December 31, 1994. The decrease was primarily due to interest rate reductions on
certain borrowings and capitalization of certain interest costs which previously
had been expensed.

     Other income decreased by $116,161 (26.8%) to $317,917 for the year ended
December 31, 1995 from $434,078 for the year ended December 31, 1994. Other
income in such periods represented primarily volume rebates from suppliers,
equipment usage fees relating to computerized editing systems and, in 1994, a
one-time, non-recurring reversal of excess state income tax accrual. The
decrease was primarily due to the reversal in 1994 of the excess state income
tax accrual.

     The Company's effective tax rate was 15% in 1995 compared to 12.1% in 1994.

     As a result of the above, the Company had net income for the year ended
December 31, 1995 of $2,461,161 compared to net income of $2,145,473 for the
prior year.

LIQUIDITY AND CAPITAL RESOURCES

     The Company requires capital for the acquisition of film rights, the
funding of distribution costs and expenses, the payment of ongoing overhead
costs and the repayment of debt. Apart from the funds provided as a result of
the Merger of Pre-Merger Overseas with EMAC, the principal sources of funds
for the Company's operations have been cash flow from operations and bank
borrowings, primarily through the Company's revolving credit facility
described below.  Immediately preceding consummation of the Merger, EMAC held
cash of approximately $11,153,000 in a trust account, to be used exclusively
in connection with any concluded business combination.  Upon consummation of
the Merger, $1,500,000 was paid from the trust account to the existing
shareholders of Pre-Merger Overseas as part of the Merger consideration and
the remainder of approximately $9,653,000 was released to the Company for its
unrestricted use. After consummation of the Merger, the Company repaid a
$3,500,000 loan from Coutts & Co., used to fund a $3,500,000 distribution to
the Pre-Merger Overseas shareholders, as more fully described below.
Additionally, the Company used funds provided by the Merger to pay expenses
of the Merger and to repay additional debt.

     The Company's cash flows provided by/(used in) operating, investing and
financing activities in 1994, 1995 and 1996 were as follows:


                                      Year Ended December 31,

                                 1994           1995           1996

Operating. . . . . . . .      $16,471,868    $21,352,387    $18,697,203
Investing. . . . . . . .      (17,199,813)   (21,376,982)   (34,344,696)
Financing. . . . . . . .        1,705,730        540,366     13,480,620


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. Investing activities consist primarily of additions
to film costs, but also include expenditure on property and equipment and other


                                       36

<PAGE>

activities that utilize cash. Financing activities include the funds provided
by the Merger as described above, as well as bank or other borrowings, and
other activities that give rise to additional cash to the Company (decreased
for periods prior to the Merger by distributions to the stockholders of
Pre-Merger Overseas and decreased for periods after the Merger by payments on
the Merger Note (the $2,000,000, five year, secured promissory note issued as
part of the Merger Consideration)).

     From January 1, 1989 to October 31, 1996, Pre-Merger Overseas was treated
for federal income tax purposes as an S corporation under the Internal Revenue
Code of 1986, as amended. During the fiscal years ended December 31, 1994, 1995
and from January 1, 1996 through October 30, 1996, Pre-Merger Overseas declared
aggregate S corporation distributions to its stockholders of $652,549, $823,248
and $4,252,991, including a $3,500,000 distribution in July 1996 as described
below.  No distributions have been made since the Merger. Management of the
Company presently intends to retain  future earnings to finance the expansion
and development of its business and not pay dividends on its capital stock. In
addition, certain covenants in the Company's Credit Facility, described below,
substantially restrict the payment of cash dividends. See also "Item 5 - Market
for Registrant's Common Equity and Related Stockholder Matters - Dividends."

     During the next twelve months, the Company currently intends to acquire
rights to and distribute approximately 12 to 18 films (including
approximately eight films to be distributed by the Company in the domestic
theatrical market through its First Look Pictures operations). The Company,
alone or in conjunction with others, currently intends to selectively finance
(typically by agreeing to pay a minimum guarantee in connection with
acquisition of distribution rights by the Company) all or a portion of the
production costs of, or produce, approximately six to ten of such films. As
the motion picture business is subject to numerous uncertainties, including,
among other things, financing requirements, personnel availability, and the
release schedule of competing films, no assurance can be given that such
goals will be met (or that such goals will not be exceeded).  In addition to
the Company's obligations reflected on the balance sheet as of December 31,
1996, as of such date the Company had contractual obligations for advances,
minimum guarantee payments, and prints and advertising spending of $2,108,000
contingent upon completion and delivery of certain motion pictures.  The
Company also has guaranteed a $325,000 loan from a bank to Neo Motion
Pictures, the balance of which at December 31, 1996 was approximately
$290,000 in principal and accrued interest.  See "Item 13 - Certain
Relationships and Related Transactions." As of December 31, 1996, the Company
also had deferred revenue relating to distribution commitments and guarantees
from sub-distributors of approximately $553,000. For several reasons,
including (i) the likelihood of continued industry-wide increases in
acquisition, production and marketing costs (see "Inflation and Related
Considerations" below), (ii) the Company's intent to gradually and
selectively acquire rights to or produce films that have greater production
values (often as a result of larger budgets), and (iii) the Company's
increasing role as the principal financier of a greater portion of the motion
pictures it distributes by providing minimum guarantee commitments, the
Company's costs and expenses, and thus the capital required by the Company in
its operations are likely to increase in the future. See "Overview", above.

     The Company has a revolving credit facility (the "Credit Facility") under
an agreement (the "Syndication Agreement") with Coutts & Co. ("Coutts"), as an
agent and lender, and Berliner Bank A.G. London Branch ("Berliner"), as a
lender. The Syndication Agreement provides for total borrowings of $27,000,000
(increased from $23,000,000 upon consummation of the Merger), of which up to
$5,000,000 may be borrowed on a revolving basis for the Company's working
capital needs (the "Operating Facility"), up to $1,000,000 (the "Local
Facility") is available to be issued as letters of credit to secure a local bank
line of credit (the "Local Line"), and up to $21,000,000 may be borrowed to fund
the acquisition of motion pictures or to fund distribution costs, including
print and advertising costs, associated with motion pictures


                                       37

<PAGE>
acquired by the Company (the "Film Facilities"). The interest rate payable on
borrowings under the Syndication Agreement is 3% above the London Inter-Bank
Offered Rate ("LIBOR") in effect from time to time for one, three or six months,
as requested by the Company. In addition to an annual management fee, there is a
commitment fee on the daily unused portion of the Operating Facility of 1% per
annum, and fees with respect to the Local Facility of 2% of the face amount of
issued letters of credit.  Fees on the Film Facilities include 2% of the amount
of cash advances or, in most circumstances, 2% of the face amount of each letter
of credit issued under the Film Facilities, as well as a percentage of gross
receipts of the film acquired or financed payable from the Company's net
earnings from the film, which amounted in 1996 to less than $10,000.

     The Company borrows funds under Film Facilities' on a film-by-film basis,
with each such Film Facility treated as a separate loan, generally maturing 12
months after the first drawdown. Coutts and Berliner must approve each separate
Film Facility, such approval to be granted in their sole discretion. Amounts
available under the Film Facilities are also available to be issued as letters
of credit or bank guarantees. As of March 15, 1997, an aggregate of
approximately $17,416,972 was outstanding under the Film Facilities and
Operating Facility at an average interest rate on the outstanding amounts of
approximately 8.5% per annum.  As of March 15, 1997, $1,000,000 in face amount
of letters of credit had also been issued under the Local Facility to secure a
line of credit that the Company has received from City National Bank (under
which $679,000 was outstanding as of March 15, 1997 bearing interest at 7.0% per
annum). If the letters of credit are drawn upon, the Company must repay the
amounts advanced by the banks upon demand.

     Amounts outstanding under the Operating Facility must be repaid on the date
that the commitment to lend under the Syndication Agreement expires. The
commitment to lend under the Syndication Agreement is reviewed by Coutts and
Berliner on an annual basis and will expire on May 9, 1997, the date of the next
annual review. Based upon management's discussions with the lenders under the
Credit Facility, the Company currently anticipates that the Credit Facility
will be renewed for a one or two year period. In the event that the
commitment to lend under the Credit Facility is not renewed by Coutts and
Berliner upon its expiration, management of the Company anticipates that the
Company will seek to refinance the Credit Facility by obtaining a replacement
facility from another lender or group of lenders or enter into alternative
financing arrangements, although no assurances can be given that a
replacement facility or any alternative financing arrangements will be
entered into or that a replacement facility (or a renewal of the Credit
Facility or any alternative financing arrangements) will be entered into on
terms or in amounts similar to the Credit Facility.

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

     In July 1996, Pre-Merger Overseas borrowed $3,500,000 from Coutts (the
"July Loan"). Such loan, which had a maturity of December 31, 1996, bore
interest at approximately 6.5% per annum and was secured by the personal
guarantees of the former stockholders of Pre-Merger Overseas (the Littles and
Mr. Lischak) and $3,500,000 in funds on deposit with Coutts provided by such
stockholders.  Proceeds of the loan were used to make a distribution to the
stockholders of Pre-Merger Overseas in July 1996. At December 31, 1996, the
entire principal amount of the July Loan as well as approximately $12,250 in
accrued interest had been fully repaid and fees of $8,750 were accrued but
unpaid (which were paid as of March 15, 1997). None of such stockholders of
the Company are obligated to provide any funds to the Company or to guarantee
or secure the Credit Facility or any borrowings of the Company in the future.

                                       38

<PAGE>

     As of December 31, 1996, the Company had cash and cash equivalents of
$353,689 compared to cash and cash equivalents of $2,433,153 as of December 31,
1995.  The difference relates primarily to lower borrowings on the Operating
Facility as of December 31, 1996 as compared to December 31, 1995. Additionally,
at December 31, 1996, the Company had restricted cash of $46,037 held by the
Company's primary lender, to be applied against various Film Facilities.

     The Company believes that its existing capital, funds from operations,
borrowings under the Credit Facility, and other available sources of capital
will be sufficient to enable the Company to fund its planned acquisition,
distribution and overhead expenditures for the next 12 months.

INFLATION AND RELATED CONSIDERATIONS

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

EXCHANGE RATE CONSIDERATIONS

     A significant portion of the Company's revenue (approximately 72% in 1996)
is from the distribution of motion pictures and the licensing of distribution
rights in territories outside the United States.  The Company's financial
results and results of operations could be negatively affected by such factors
as changes in foreign currency exchange rates and currency controls, as well as
trade protection measures, motion picture piracy, content regulation. longer
accounts receivable collection patterns, changes in regional or worldwide
economic or political conditions or natural disasters.  Because the Company's
contracts are typically denominated in U.S. dollars, advances and minimum
guarantees of sublicense fees payable to the Company by foreign sub-
distributors, and advances and minimum guarantees to be paid by the Company to
foreign producers in connection with the acquisition of distribution rights, are
generally unaffected by exchange rate fluctuations.  However, to the extent the
Company's agreements with foreign sub-distributors require such sub-distributors
to pay the Company a percentage of revenues in excess of any advance or minimum
guarantee, fluctuations in the currencies in which such revenues are received by
the sub-distributor may affect the amount of U.S. dollars received by


                                       39

<PAGE>

the Company in excess of any minimum guarantee.  Exchange rate fluctuations
could also affect the ability of sub-distributors to bid for and acquire rights
to motion pictures distributed by the Company.  Management of the Company does
not believe exchange rate fluctuations have had a material effect on the
Company's results of operations in the past, although no assurances can be given
that these fluctuations will not have a material impact on its results of
operations in the future.

CERTAIN TAX RELATED MATTERS

     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, the Pre-Merger Overseas's taxable income during this period was taxed
for federal purposes directly to the Pre-Merger Overseas stockholders (Ellen
Dinerman Little, Robert B. Little and William F. Lischak), rather than to Pre-
Merger Overseas. Pursuant to the Merger Agreement, the Company entered into a
Tax Reimbursement Agreement, dated October 31, 1996, with Ms. Little, Mr. Little
and Mr. Lischak (the "Tax Reimbursement Agreement").  Under the Tax
Reimbursement Agreement, the Company agreed to reimburse these individuals for
up to $400,000 of federal income taxes payable for the short 1996 S corporation
taxable year of Pre-Merger Overseas ending at the time of the Merger (the "1996
Reimbursement Amount").  As of March 31, 1997, neither Pre-Merger Overseas nor
the Pre-Merger Overseas stockholders had filed their tax returns for the short
1996 S corporation taxable year of Pre-Merger Overseas and no amounts had been
paid under the Tax Reimbursement Agreement.

     The corporate income tax returns of Overseas Filmgroup for its 1992 and
1993 fiscal years are currently under audit by the Internal Revenue Service
("IRS") and returns for the 1994 and 1995 fiscal years and the 1996 fiscal
year (which is currently on extension for filing) remain open to audit. In
the absence of the Tax Reimbursement Agreement, the stockholders of
Pre-Merger Overseas during such periods, and not the Company, would be
responsible for any tax liability assessed as a result of any federal income
tax audits of pre-Merger periods because of the S corporation status for such
periods. Under the Tax Reimbursement Agreement, the Company agreed to
indemnify the three stockholders of Pre-Merger Overseas for any federal
income tax liabilities of theirs (including penalties and interest) arising
from any adjustment to the income, deductions or credits of Pre-Merger
Overseas for periods prior to the Merger, together with any federal and state
income tax arising from such indemnity payments. The Company's reimbursement
obligations are limited to $150,000 (plus any of the $400,000 1996
Reimbursement Amount not used to reimburse such individuals for their federal
income taxes for the short 1996 S Corporation taxable year), except with
respect to adjustments to the Company's income, deductions or credits which
are reasonably expected to result in decreases to the Company's income or
increases in its deductions or credits after the Merger.  For purposes of the
Consolidated Financial Statements of the Company, accrued expenses as of
December 31, 1996, include a $200,000 estimate of the aggregate payments to
be made to the shareholders of Pre-Merger Overseas pursuant to the Tax
Reimbursement Agreement.  No such payments have been made under the Tax
Reimbursement Agreement through March 31, 1997.  The actual amounts
ultimately paid under such agreement may be materially different from the
estimate based upon the tax returns of Pre-Merger Overseas and the
stockholders thereof for the short S Corporation taxable year once such
returns are filed and depending upon the results of audits of S Corporation
periods.

     As a result of the termination of Pre-Merger Overseas's S corporation
status at the time of the Merger, the Company experienced a one-time,
non-recurring $2,600,000 accounting charge to income for deferred income taxes
resulting from such termination.  The Company is now 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.


                                       40

<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.
See the Index to Financial Statements under "Item 14 - Exhibits, Financial
Statement Schedules, and Reports on Form 8-K."

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

Not applicable.


                                       41

<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              51        Co-Chairman of the Board and Co-Chief
                                        Executive Officer

Ellen Dinerman Little         54        Co-Chairman of the Board, Co-Chief
                                        Executive Officer and President

Stephen K. Bannon             43        Vice Chairman of the Board, Chairman of
                                        the Executive Committee of the Board

William F. Lischak            39        Chief Operating Officer, Chief Financial
                                        Officer, Secretary and Director

Richard S. Guardian           41        Senior Vice President, Worldwide
                                        Distribution

MJ Peckos                     42        Senior Vice President, Domestic
                                        Distribution and Marketing

Mansour Mostaedi              45        Senior Vice President, Finance and
                                        Accounting

Alessandro Fracassi           45        Director

Jeffrey A. Rochlis            51        Director

Scott K. Vorse                36        Director

     The directors of the Company are divided into three classes having terms
expiring at the annual meeting of the Company's stockholders in 1997 (Robert B.
Little and Stephen K. Bannon),  1998 (Ellen Dinerman Little and Scot K. Vorse)
and 1999 (William F. Lischak, Jeffrey A. Rochlis 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

                                       42

<PAGE>

University of California at Los Angeles (UCLA) Archive Film Preservation
Program, and a member of the Board of Directors of the Antonio David Blanco
Scholarship Fund, an endowment fund that annually benefits deserving students
in the UCLA Department of Film and Television.

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

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

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

     RICHARD S. GUARDIAN became Senior Vice President, Worldwide Distribution,
of the Company upon consummation of the Merger, having served since August 1994
in the same position with Pre-Merger Overseas. He joined Pre-Merger Overseas as
General Manager, Sales and Marketing in January 1991 and became Vice President,
Sales and Marketing in August 1992. Mr. Guardian also previously served in a
variety of other positions in the motion picture industry, including as
Distribution and Marketing Manager for the independent film company, De
Laurentiis Entertainment Group, Ltd., and North American Manager for the
Australian Film Commission.

     MJ PECKOS became Senior Vice President, Domestic Distribution and Marketing
of the Company upon consummation of the Merger, having served since May 1995 in
the same position with Pre-Merger Overseas.  From January 1995 through April
1995, Ms. Peckos served as Vice President of Advertising for Dazu Advertising, a
graphic design firm which is active in the entertainment industry. Prior to
that,


                                       43

<PAGE>

she served from January 1992 to November 1994 as Senior Vice President of
Marketing & Distribution for Academy Entertainment, an independent film
company, and from July 1991 to December 1992 as Co-Managing Director of CLG
Films, also an independent film company. Ms. Peckos also previously served
with several other companies in the motion picture industry including The
Samuel Goldwyn Company, MGM and Warner Bros.

     MANSOUR MOSTAEDI became Senior Vice President, Finance and Accounting of
the Company upon consummation of the Merger, having served since March 1996 in
the same position with Pre-Merger Overseas. Previously, he served as Vice
President, Finance and Accounting of Pre-Merger Overseas (beginning October
1994) and Controller (beginning March 1991).

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

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

     SCOT K. VORSE became a Director of EMAC in January 1995 and continued to
serve as a Director of the Company following the Merger. From January 1995 until
the Merger, he served as Treasurer and Secretary of the EMAC, and from January
1995 until November 1996, he served as Vice President of the EMAC.  Since June
1991, Mr. Vorse has been an Executive Vice President, Managing Director and the
Chief Financial Officer of Bannon & Co. Mr. Vorse is a registered principal with
the NASD. On October 1, 1996, Bannon & Co. entered into an alliance agreement
with  Societe Generale a private French bank.  From 1985 to May 1991, Mr. Vorse
was employed in various capacities by Goldman, Sachs & Co., most recently as
Vice President -- Corporate Finance, where his responsibilities included
advising clients on mergers and acquisitions and private and public financings.

EXECUTIVE COMMITTEE

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


                                       44

<PAGE>

COMPENSATION COMMITTEE

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

AUDIT COMMITTEE

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

MANAGEMENT ARRANGEMENTS

     In accordance with the Merger Agreement, the current directors of the
Company were elected at the Special Meeting of Stockholders in lieu of Annual
Meeting held in connection with the Merger.  The current directors consist of
four persons designated prior to the Merger by Pre-Merger Overseas (Ellen
Dinerman Little, Robert B. Little, William F. Lischak and Alessandro Fracassi)
and three persons designated prior to the Merger by the Company (Stephen K.
Bannon, Jeffrey A. Rochlis and Scot K. Vorse).  Pursuant to the Merger
Agreement, upon consummation of the Merger 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,
John Hyde, Sparta Partners III, Stephen K. Bannon, Scot K. Vorse and Gary M.
Stein - collectively, the "Initial Stockholders").  The parties to the
Stockholders' Voting Agreement have agreed to use their best efforts to cause
the Board of Directors of the Company to consist of seven members during the
term of such agreement, including four individuals designated by Ms. Little and
Mr. Little and three individuals designated by the Initial Stockholders.  Each
party to the Stockholders' Voting Agreement also agreed that the following
actions shall require the affirmative vote of at least seventy-five percent of
the authorized number of directors of the Company: (i) any amendment to the
Restated Certificate of Incorporation of the Company or the Company's Bylaws
that would change the voting rights of stockholders, the number or classes of
directors, or the notice and quorum requirements for meetings of the Board of
Directors, its committees or the shareholders; (ii) a merger or sale of all or
substantially all of the assets of the Company; (iii) the designation or
issuance of any preferred stock and (iv) any amendments to the operating
guidelines described below (collectively, the "Supermajority Provisions").  The
Stockholders' Voting Agreement terminates eight and one-half years from the date
of the Merger or sooner if the employment of Ms. Little, Mr. Little and Mr.
Lischak is terminated.  In addition, the right of Ms. Little and Mr. Little, and
of the Initial Stockholders, to designate directors (but not the obligation to
vote for the designees of others) will terminate (i) as to Ms. Little and Mr.
Little, (A) if they (and Mr. Lischak) own less than 794,444 shares of the
Company's Common Stock, they will be entitled to designate only two directors,
and (B) if they (and Mr. Lischak) own less than 20,000 shares, they will not be
entitled to designate any director; or (ii) as to the Initial Stockholders, (A)
if they own less than 175,000 shares of the Company's Common Stock, they will be
entitled to designate only two directors, (B) if they own less than 125,000
shares, they will be entitled to designate only one director, and (C) if they
own less than 20,000 shares, they will not be entitled to designate any
director.


                                       45

<PAGE>

     In connection with the Merger, operating guidelines for the Board of
Directors and management of the Company were established setting forth certain
general guidelines with respect to the authority and responsibilities of
officers of the Company, the structure and responsibilities of the Board of
Directors and the Executive Committee of the Company, and certain other general
business matters.  The Board of Directors has also adopted operating resolutions
implementing the Supermajority Provisions.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers and
persons who own more than 10% of the Company's Common Stock ("10% Stockholders")
to file with the Securities and Exchange Commission (the "Commission") initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company.  Executive officers, directors and 10%
Stockholders of the Company are required by Commission regulations to furnish
the Company with copies of Section 16(a) forms they file. To the Company's
knowledge based solely upon a review of the Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, the Forms 5
furnished to the Company with respect to its most recent fiscal year, and
written representations of the Company's directors, executive officers and 10%
Stockholders, during the fiscal year ended December 31, 1996, all Section 16(a)
filing requirements applicable to the Company's executive officers, directors
and 10% Stockholders were complied with.


                                       46

<PAGE>

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), EMAC's Chief Executive
Officer until the Merger (Jeffrey A. Rochlis) and four other executive officers
of the Company during the fiscal year ended December 31, 1996 whose total salary
and bonus compensation during fiscal 1996 from the Company (including Pre-Merger
Overseas) was in excess of $100,000 (William F. Lischak, Richard Guardian, MJ
Peckos and Mansour Mostaedi).  Such seven executives are referred to herein as
the "Named Executives." Mr. Rochlis, who served as President and Chief Executive
Officer of EMAC from December 1993 until the Merger, received no compensation
for such services other than reimbursement for out-of-pocket expenses incurred
by him in connection with his activities on behalf of EMAC.  With respect to the
six Named Executives who were executive officers of Pre-Merger Overseas and
became executive officers of the Company upon consummation of the Merger, the
Summary Compensation Table provides compensation information for services
rendered to Pre-Merger Overseas during the fiscal year ended December 31, 1995
and to Pre-Merger Overseas and the Company during the fiscal year ended December
31, 1996.

     Following the Summary Compensation Table are certain additional charts and
tables detailing other aspects of the compensation of the Named Executives
including (i) an Option/SAR Grants Table that includes information regarding
individual grants of options made to the Named Executives during fiscal 1996
along with the grant date present value of such options, and (ii) a table that
indicates whether any of the Named Executives exercised options in fiscal 1996
and includes the number and value of unexercised options held by the Named
Executives at December 31, 1996.

SUMMARY COMPENSATION TABLE*

<TABLE>
<CAPTION>
                                           ANNUAL COMPENSATION                LONG TERM COMPENSATION
                                                                                       AWARDS
                                           ---------------------------------------------------------
                                                                                     SECURITIES
                                                                 OTHER ANNUAL        UNDERLYING
NAME AND                                                         COMPENSATION         OPTIONS/        ALL OTHER
PRINCIPAL POSITION         YEAR    SALARY ($)     BONUS ($)           ($)             SARS(#)       COMPENSATION($)
------------------         ----    ----------     ---------      ------------        ----------     ---------------
<S>                        <C>     <C>            <C>            <C>                 <C>            <C>

ROBERT B. LITTLE           1996       $110,158       $25,000        $    -- (1)        1,100,000        $18,858 (2)
CO-CHAIRMAN OF THE         1995         90,000          0            37,709 (3)             0            16,455 (4)
 BOARD AND CO-CHIEF
 EXECUTIVE OFFICER

ELLEN DINERMAN LITTLE      1996        110,457       $25,000             -- (1)        1,100,000         24,812 (5)
CO-CHAIRMAN OF THE BOARD,  1995         90,000          0            38,720 (6)             0            30,134 (4)
 CO-CHIEF EXECUTIVE
 OFFICER AND PRESIDENT

JEFFREY A. ROCHLIS         1996           0             0              0                   5,000           0
FORMER PRESIDENT AND       1995           0             0              0                    0              0
 CHIEF EXECUTIVE           1994           0             0              0                    0              0
 OFFICER OF EMAC

WILLIAM F. LISCHAK         1996        137,198       212,500             -- (1)             0             2,994 (7)
CHIEF OPERATING OFFICER,   1995        118,933        75,090             -- (1)             0               519 (7)
 CHIEF FINANCIAL OFFICER
 AND SECRETARY

RICHARD GUARDIAN           1996        126,244        81,529             -- (1)             0             2,942 (7)
SENIOR VICE PRESIDENT      1995        110,969        53,636             -- (1)             0             1,648 (8)

MJ PECKOS                  1996        126,100        40,000             -- (1)             0             2,922 (7)
SENIOR VICE PRESIDENT      1995         67,976          0                -- (1)             0               434 (7)

MANSOUR MOSTAEDI           1996         87,923        20,000             -- (1)             0             1,723 (7)
SENIOR VICE PRESIDENT      1995         77,745        21,455             -- (1)             0               350 (7)
</TABLE>

                                       47
<PAGE>

----------
*    This table does not include distributions made to the stockholders of Pre-
     Merger Overseas.  See "Item 7 - Management's Discussion and Analysis of
     Financial Condition and Results of Operations."

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

     (2)  Represents $2,049 for the Company's 1996 contributions on behalf of
such Named executive pursuant to the Company's 401(k) Plan and $16,809 for life
insurance premiums paid by the Company for the benefit of such Named Executive.

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

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

     (5)  Represents $2,049 for the Company's 1996 contribution on behalf of
such Named Executive pursuant to the Company's 401(k) Plan and $22,763 for life
insurance premiums paid by the Company for the benefit of such Named Executive.

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

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

     (8)  Represents $488 for the Company's 1995 contributions on behalf of
such Named Executive pursuant to the Company's 401(k) Plan and $1,160 for
life insurance premiums paid by the Company for the benefit of such Named
Executive.

                                       48

<PAGE>

                                           OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>

                                                                                                         GRANT DATE
                                                       INDIVIDUAL GRANTS                                   VALUE
                                                       -----------------                                   -----

                                                % OF TOTAL
                             NUMBER OF         OPTIONS/SARS
                             SECURITIES         GRANTED TO
                             UNDERLYING        EMPLOYEES IN         EXERCISE OR                         GRANT DATE
                            OPTIONS/SARS          FISCAL            BASE PRICE        EXPIRATION      PRESENT VALUE
         NAME              GRANTED (#)(1)          YEAR               ($/SH)             DATE               ($)
         ----              --------------          ----               ------             ----               ---
<S>                        <C>                 <C>                  <C>               <C>             <C>

Ellen Dinerman Little       537,500 (3)            24%                $5.00            10/30/03        1,424,375 (2)
                            562,500 (4)            26%                $8.50            10/30/03        1,051,875 (2)

Robert B. Little            537,500 (3)            24%                $5.00            10/30/03        1,424,375 (2)
                            562,500 (4)            26%                $8.50            10/30/03        1,051,875 (2)

Jeffrey A. Rochlis            5,000 (5)            (2)                $5.25            10/31/06          $12,950 (2)

William F. Lischak             0                    -                   -                  -                 -

Richard S. Guardian            0                    -                   -                  -                 -

MJ Peckos                      0                    -                   -                  -                 -

Mansour Mostaedi               0                    -                   -                  -                 -

</TABLE>

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

(2)  These values were established using the modified Black-Scholes stock option
     valuation model which modifies the Black-Scholes model to include the
     impact of the right to exercise options prior to their maturity. The actual
     value, if any, an executive may realize upon exercise of such options will
     depend upon the excess of the stock price over the exercise price on the
     date the option is exercised. Therefore, there can be no assurance that the
     value realized by an executive will be at or near the value estimated by
     this Black-Scholes model. The estimated values under the model are based on
     arbitrary assumptions as to variables and as to interest rates, stock price
     volatility and future dividend yield. The above model assumes a period of
     four years after grant until exercise, a volatility of the stock price
     equal to that experienced by a peer company for the four years prior to
     October 31, 1996 (standard deviation 57%), a risk free interest rate of
     6.03% (rate as of the grant date of U.S. Treasury Notes with a term of four
     years) and a dividend yield of 0%.

(3)  The option was exercisable on October 31, 1996 for 100,000 shares of Common
     Stock with the balance vesting in five equal annual installments beginning
     on October 30, 1997.

(4)  The option vests in five equal annual installments beginning on October 30,
     1997.

(5)  This option was granted after Mr. Rochlis resigned as President and Chief
     Executive Officer of EMAC and represents an automatic grant pursuant to the
     Company's 1996 Basic Stock Option


                                       49

<PAGE>

     and Stock Appreciation Rights Plan to Mr. Rochlis as a non-employee member
     of the Company's Board of Directors.  See "Board Fees" below.  The option
     becomes exercisable on October 31, 1997.

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

<TABLE>
<CAPTION>

                                                          NUMBER OF SECURITIES UNDERLYING     VALUE OF UNEXERCISED
                           SHARES                           UNEXERCISED OPTIONS/SARS AT     IN-THE-MONEY OPTIONS/SARS
                         ACQUIRED ON         VALUE              DECEMBER 31, 1996             AT DECEMBER 31, 1996
                          EXERCISE          REALIZED         EXERCISABLE/UNEXERCISABLE      EXERCISABLE/UNEXERCISABLE
NAME                        (#)               ($)                      (#)                             ($)
<S>                      <C>                <C>           <C>                               <C>

Ellen Dinerman Little        0               $ 0                 100,000/1,000,000                    $0/0

Robert B. Little             0                 0                 100,000/1,000,000                     0/0

Jeffrey A. Rochlis           0                 0                      0/5,000                           0

William F. Lischak           0                 0                       0 (2)                            0

Richard S. Guardian          0                 0                       0 (2)                            0

MJ Peckos                    0                 0                       0 (2)                            0

Mansour Mostaedi             0                 0                       0 (2)                            0

</TABLE>
--------------------

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

     (2)  The Named Executive did not hold any options at December 31, 1996.

BOARD FEES

     Pursuant to the Automatic Option Grant Program under the Company's 1996
Basic Stock Option and Stock Appreciation Rights Plan, each individual serving
as a non-employee Board member on the effective date of the Merger (Messrs.
Bannon, Fracassi, Rochlis and Vorse) was automatically granted a non-qualified
option to purchase 5,000 shares of the Company's Common Stock.  In addition,
each member of the Board of Directors who is not employed by the Company
receives an automatic grant of a non-qualified option to purchase 5,000 shares
of the Company's Common Stock (i) upon becoming a Board member after the
effective date of the Merger, 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 (beginning with the
annual meeting in 1997), if such individual is to continue to serve as a Board
member after such meeting.  Each such automatic option grant is, among other
things, exercisable at the fair market value of the Common Stock on the date of
the automatic grant and is generally exercisable after completion of one year of
service to the Board of Directors measured


                                       50

<PAGE>

from the automatic grant date.  In addition, the Company reimburses all
directors for travel and related expenses incurred in connection with their
activities on behalf of the Company. Directors of the Company are not otherwise
compensated for serving on the Board of Directors.

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company's Compensation Committee was established upon consummation of
the Merger and currently consists of Messrs. Bannon and Vorse.  Mr. Bannon was
Chairman of the Board of Directors of EMAC during 1996 until consummation of the
Merger and currently serves as Vice Chairman of the Company's Board of Directors
and Chairman of its Executive Committee.  Mr. Vorse served as Vice President,
Treasurer, and Secretary of EMAC during 1996 through consummation of the Merger.
The Compensation Committee currently administers both of the Company's stock
option plans to the extent contemplated thereby.  Prior to the Merger, no
executive officers of EMAC received any cash compensation for services rendered
to EMAC.  Prior to the Merger, decisions regarding the compensation of executive
officers of Pre-Merger Overseas were made by Pre-Merger Overseas's principal
stockholders, Ellen Dinerman Little and Robert B. Little.  The compensation
arrangements of the senior executive officers of the Company following the
Merger were negotiated between the parties to the Merger.

     Messrs. Bannon and Vorse are officers, directors and stockholders of Bannon
& Co., Inc., which, prior to the Merger, made available to EMAC a small amount
of office space, as well as certain office and secretarial services, as required
by EMAC from time to time in consideration of $5,000 per month (an aggregate of
$50,000 in 1996).  Such arrangement terminated upon consummation of the Merger.
Prior to the Merger, Messrs. Bannon and Vorse also were reimbursed for out-of-
pocket expenses incurred by them in connection with their activities on behalf
of EMAC.

INDEMNIFICATION

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

EMPLOYMENT AND RELATED AGREEMENTS

     ELLEN DINERMAN LITTLE AND ROBERT B. LITTLE. Virtually all decisions
concerning the conduct of the business of the Company, including the motion
picture properties and rights to be acquired by the Company and the arrangements
to be made for the distribution, production and financing of motion pictures by
the Company, are made or are significantly influenced by the Company's senior
executive officers, Ellen Dinerman Little and Robert B. Little.  The loss of
either of their services for any reason would have a material adverse effect on
the Company's business and operations and its prospects for the future.  In
addition, the Company's credit facility contains covenants and similar
provisions, generally requiring Ms. Little and Mr. Little's continued
involvement with, and control of, the Company.  In connection with the Merger,
Ms. Little and Mr. Little each entered into an employment agreement with


                                       51

<PAGE>

the Company with a five year term which commenced on October 31, 1996 and ends
on October 30, 2001.  Ms. Little's and Mr. Little's employment agreements
provide for them to serve as Co-Chairs of the Board of Directors, members of the
Executive Committee of the Board of Directors, and Co-Chief Executive Officers
of the Company.  Under Ms. Little's employment agreement, she also serves as
President of the Company.  Pursuant to these employment agreements, they each
receive fixed annual compensation of $125,000 and an annual bonus of $25,000,
plus such additional bonus, if any, as may be awarded to them by the Company's
Board of Directors or compensation or similar committee, with Ms. Little and Mr.
Little abstaining from any vote thereon.  The employment agreements also provide
for certain benefits including, among other things, life, disability and health
insurance, and an automobile allowance.  In the event that the relevant
employment agreement is terminated by Ms. Little or Mr. Little for Good Reason
(as defined in the employment agreements and which includes certain changes in
control of the Company), or by the Company other than for Cause (as defined in
the employment agreements), she or he will receive (a) a lump-sum payment equal
to 250% of the greater of (i) the aggregate of all fixed annual compensation to
which she or he would otherwise have been entitled through the balance of the
term or (ii) an amount equal to the fixed annual compensation and annual bonus
for one full year; (b) a lump-sum payment equal to 250% of the aggregate of all
annual bonuses to which she or he would otherwise have been entitled through the
balance of the term; (c) such additional payments as may be necessary to take
into account and reimburse her or him for certain excise taxes which may be
applicable to payments and benefits relating to such termination; (d) for the
remainder of the term, life, disability and health insurance and 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 the Merger Note. In
the event of the death or permanent disability of Ms. Little or Mr. Little, she
or he will be entitled to a disability benefit or death benefit to the
deceased's estate equal to the product of two times (i) the aggregate fixed
annual compensation that they were entitled to receive for the full employment
year in which the disability or death occurs, plus (ii) an amount equal to the
annual bonus.

     In addition to their employment agreements, each of Ellen Dinerman Little
and Robert B. Little have entered into a Non-Competition Agreement, pursuant to
which she or he have agreed, for a period of five years commencing October 31,
1996, not to (i) own, manage, operate or control any business that competes with
the business of the Company (other than motion picture production activities and
activities that are specifically permitted under their employment agreements,
and other than the right to hold de minimis investments in publicly-held
companies) or (ii) solicit any Company employee or interfere with the
relationship of the Company with any employee, customer, supplier or lessee.
The non-competition obligations terminate earlier than 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.


                                       52

<PAGE>

Lischak is entitled to terminate the employment agreement and to receive his
base salary, fixed annual bonus, health, life and disability insurance benefits
due under the agreement through the remainder of the five-year term, and any
stock options held by Mr. Lischak will vest on the date of termination.

CERTAIN INFORMATION CONCERNING STOCK OPTION PLANS

     The Company has two stock-based incentive compensation plans for the
Company's employees, directors and certain other persons providing services to
the Company: the 1996 Special Stock Option Plan and Agreement (the "Management
Option Plan") and the 1996 Basic Stock Option and Stock Appreciation Rights Plan
(the "Basic Plan") (collectively, the "Plans"). The Management Option Plan is a
primary vehicle for providing equity incentives to the Company's two principal
executive officers, Ellen Dinerman Little and Robert B. Little.  Under the
Management Option Plan, at the effective time of the Merger, 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 and one option for 562,500 shares at an
exercise price of $8.50 per share.  See the "Option/SAR grants in Fiscal 1996"
table above for additional information regarding such grants.  All 2,200,000
shares of Common Stock initially reserved for issuance under the Management
Option Plan were subject to the options granted to Ms. Little and Mr. Little.
Regular full-time employees of the Company, non-employee members of the
Company's Board of Directors, and independent consultants and other persons who
provide services on a regular or substantial basis to the Company are generally
eligible to participate in the Basic Plan (under which 550,000 shares of Common
Stock are reserved for issuance). As of March 31, 1997, options to purchase an
aggregate of 20,000 shares of Common Stock were outstanding under the Basic
Plan, each with an exercise price of $5.25 per share.  The Plans are currently
administered by the Compensation Committee to the extent contemplated by the
respective Plans.


                                       53

<PAGE>


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

     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 15, 1997 by (i) each person
known to the Company to be the beneficial owner of more than 5% of the Company's
Common Stock, (ii) each current director of the Company, (iii) each of the Named
Executives listed in the Summary Compensation Table under "Item 11 - Executive
Compensation" above, and (iv) all current executive officers and directors of
the Company as a group.  The number of shares and percentages in the table and
accompanying footnotes are based upon 5,777,778 shares of Common Stock
outstanding as of March 15, 1997.  The shares of Common Stock underlying
immediately exercisable options, warrants or rights, or immediately convertible
securities, or shares of Common Stock underlying options, warrants, rights or
convertible securities that become exercisable or convertible within 60 days of
March 15, 1997, are deemed to be outstanding for the purpose of calculating the
number and percentage beneficially owned by the holder of such options,
warrants, rights or convertible securities, but are not deemed to be outstanding
for the purpose of computing the percentage beneficially owned by any other
person.  Unless otherwise indicated in the footnotes following the table, the
person as to whom the information is given had, based upon information furnished
by such persons, sole voting and investment power over the shares of Common
Stock shown as beneficially owned by them, subject to community property laws
where applicable.

                                                                    PERCENT OF
                                                NUMBER OF SHARES   COMMON STOCK
                                                OF COMMON STOCK    BENEFICIALLY
NAME                                           BENEFICIALLY OWNED      OWNED
----                                           ------------------      -----

Ellen Dinerman Little (2). . . . . . . . . .     3,377,778 (1)(4)      56.5%
Robert B. Little (2) . . . . . . . . . . . .     3,377,778 (1)(4)      56.5%
Stephen K. Bannon  . . . . . . . . . . . . .       121,324              2.1%
William F. Lischak . . . . . . . . . . . . .       249,560 (3)          4.3%
Richard Guardian . . . . . . . . . . . . . .             0                0%
MJ Peckos. . . . . . . . . . . . . . . . . .             0                0%
Mansour Mostaedi . . . . . . . . . . . . . .             0                0%
Alessandro Fracassi. . . . . . . . . . . . .             0                0%
Jeffrey A. Rochlis . . . . . . . . . . . . .       132,353              2.3%
Scot K. Vorse. . . . . . . . . . . . . . . .       121,323              2.1%
Kingdon Capital Management Corporation (5) .       747,000 (6)         11.9%
Dolphin Offshore Partners, L.P. (7). . . . .       535,000 (8)          8.9%
All current executive officers
  and directors as a
  group (10 persons) . . . . . . . . . . . .     3,752,778 (9)         62.8%

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


(1)  Includes shares of Common Stock held by Ellen Dinerman Little and Robert B.
     Little as community property, and also includes the right to vote
     approximately 249,560 shares of


                                       54

<PAGE>

     Common Stock pursuant to an irrevocable proxy granted to Ms. Little and Mr.
     Little by Mr. Lischak.  Such proxy will continue during Mr. Lischak's
     ownership of the shares, until the fifth anniversary of the Merger (the
     "Expiration Date"); provided, however, that such proxy terminates earlier
     if the Littles own or control less than five percent of the outstanding
     voting power of the Company, or if the shares to which the proxy relates
     are sold in the public market.  In addition until the Expiration Date, Ms.
     Little and Mr. Little also have, under certain circumstances, certain
     rights to acquire (while the shares are held by Mr. Lischak) the 249,560
     shares of Common Stock held by Mr. Lischak.  See footnote 3 below.

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

(3)  All of the shares indicated are subject in the event of transfer (including
     voluntary and certain involuntary transfers) to a right of first refusal or
     option to purchase at the then current market price (and a right of
     repurchase at $2.00 per share in the event Mr. Lischak's employment with
     the Company terminates for a reason other than death, disability or the
     Company's material breach of Mr. Lischak's employment agreement) in favor
     of Ellen Dinerman Little and Robert B. Little during Mr. Lischak's
     ownership of such shares until the Expiration Date.  In addition, Mr.
     Lischak has granted the right to vote all such shares to the Littles
     pursuant to an irrevocable proxy which continues during Mr. Lischak's
     ownership of the shares until the Expiration Date, subject to earlier
     termination in certain circumstances.  See footnote 1 above.

(4)  Includes (i) 100,000 shares of Common Stock subject to immediately
     exercisable options granted to such person under the Management Option Plan
     and (ii) 100,000 shares of Common Stock subject to immediately exercisable
     options granted to such person's spouse under the Management Option Plan
     which generally may only be exercised by such person's spouse (although
     such person disclaims beneficial ownership of the shares subject to his or
     her spouse's options).  Does not include 1,000,000 shares of Common Stock
     subject to options granted to such person under the Management Option Plan
     or 1,000,000 shares of Common Stock subject to options granted to such
     person's spouse under the Management Option Plan, the exercisability of
     which, in each case, is subject to certain vesting requirements.

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

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

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

(8)  Includes 200,000 shares of Common Stock issuable upon exercise of Warrants.
     Information provided herein was obtained from the General Partner of
     Dolphin Offshore Partners, L.P.

(9)  Includes 100,000 shares of Common Stock subject to immediately exercisable
     options granted to Ellen Dinerman Little under the Management Option Plan
     and 100,000 shares of Common Stock


                                       55

<PAGE>

     subject to immediately exercisable options granted to Robert B. Little
     under the same stock option plan.

     The shares of Common Stock owned as of the date hereof by Messrs. Bannon,
Rochlis and Vorse, are being held in escrow with Continental Stock Transfer &
Trust Company, as escrow agent, until February 16, 1998.  Until such date,
Messrs. Bannon, Rochlis and Vorse will not be able to sell or otherwise transfer
their respective shares of Common Stock, however, they have each retained the
voting rights with respect to their shares.

     Pursuant to a Lock-Up and Registration Rights Agreement entered into by Ms.
Little, Mr. Little and Mr. Lischak upon consummation of the Merger, each such
person has agreed not to sell, or otherwise dispose of (except for estate
planning purposes and other limited exceptions), any shares received by them in
the Merger (2,928,218 shares held by the Littles and 249,560 shares held by Mr.
Lischak) (the "Merger Shares") for a period which commenced on the date of the
Merger and ends in three equal installments on February 16, 1998, February 16,
1999 and February 16, 2000. The lock-up will terminate earlier (i) with respect
to an individual, if such person's employment with the Company is terminated
Without Cause by the Company or for Good Reason by such person (as such terms
are defined in their respective employment agreements with the Company); (ii)
with respect to 10% of the Merger Shares subject to the Lock-Up and Registration
Rights Agreement if both Littles are deceased; (iii) with respect to any Merger
Shares held by Mr. Lischak that are purchased by Ms. Little or Mr. Little or
their designees pursuant to any right of first refusal or repurchase agreement;
(iv) with respect to any Merger Shares surrendered in satisfaction of any
indemnification obligation under the Merger Agreement; and (v) with respect to a
number of Merger Shares equal in value to the outstanding principal balance
(plus interest) of the Merger Note, if the Company fails to pay any amount due
under such note.

     Pursuant to the Lock-Up and Registration Rights Agreement, the Littles and
Mr. Lischak have the right on three occasions (but not more than once in any
18-month period), on or after February 16, 1998 (or any earlier termination of
the lock-up), to require the Company, at its expense, to file a registration
statement under the Securities Act for the registration of a minimum of 250,000
of the Merger Shares released to them from the lock-up.  These demand rights
terminate, as to one demand, eight years after the Merger date; as to the second
demand, 12 years after the Merger date; and as to the third demand, 15 years the
Merger date.  In addition, the Littles and Mr. Lischak have unlimited
"piggyback" rights in connection with registration statements filed by the
Company under the Securities Act for a period of eight years after the Merger
date.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     On October 31, 1996, as part of the Merger consideration, Ellen Dinerman
Little (Co-Chairman of the Board, Co-Chief Executive Officer and President of
the Company) and Robert B. Little (Co-Chairman of the Board and Co-Chief
Executive Officer of the Company) received the Merger Note, a $2,000,000 secured
promissory note of the Company, bearing interest at the rate of 9% per annum,
with principal and interest payable in monthly installments of $41,517 over a
five year period ending October 1, 2001.  The Merger Note is secured by a
security interest (subordinate to the security interest of the Company's
commercial lenders) in substantially all of the Company's assets.  During 1996,
an aggregate of $83,034 in principal and interest was paid to the Littles under
the Merger Note.  At March 15, 1997, the aggregate amount outstanding (including
accrued interest) under such promissory note was $1,946,768.  Pursuant to the
Merger Agreement, on October 31, 1996, the Littles also received an unsecured
promissory note of the Company in the principal amount of $137,061 representing
the cash value at the time of Merger of certain life insurance policies under
which the Company was named as the


                                       56

<PAGE>

beneficiary.  This promissory note bears interest at the rate of 9% per annum,
with principal and accrued interest payable on October 31, 1997.  At March 15,
1997, the aggregate amount outstanding (including accrued interest) under such
promissory note was $139,117.

     Neo Motion Pictures, Inc., a California corporation ("Neo") involved in the
production of motion pictures, has, on a non-exclusive basis, provided
production services with respect to approximately 12 motion pictures for Pre-
Merger Overseas from 1989 through the date of Merger and may provide production
services to motion pictures for Company in the future.  With respect to each of
the films for which Pre-Merger Overseas arranged for Neo to provide production
services ("Produced Films"), Neo generally received a fee of $75,000 to
$150,000, an overhead allowance, plus in certain instances a net profit
participation. During 1996, Neo received $158,825 as overhead allowance and
$410,666 in production fees with respect to Produced Films. As permitted by his
employment agreement with the Company, Mr. Little performs consulting services
for Neo. During 1996, no consulting fees were paid by Neo to Mr. Little,
although, at March 15, 1997, Neo owed Mr. Little $269,121 in accrued but unpaid
consulting fees.  Mr. Little also has an option to acquire a 50% interest in Neo
for a purchase price of less than $60,000. Mr. Little has granted fifty percent
of his interest in such option to the Company. The Company has guaranteed
payment by Neo of two promissory notes, each payable on May 9, 1997, under which
and aggregate of $290,000 in principal and accrued interest was outstanding as
of March 15, 1997.

     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 1996, sales or licenses of
distribution rights to such films by the Company generated less than $12,000
in gross revenues. Until August 1996, Mr. Little was also a co-owner of
Original.

     Mr. Fracassi is also the President and owner of Racing Pictures s.r.l., an
Italian corporation ("Racing Pictures") which is engaged in the production and
distribution of motion pictures. In 1990 and 1991, Pre-Merger Overseas licensed
to Racing Pictures various distribution rights (primarily Italian television and
video distribution rights) to approximately 86 motion pictures which the Company
owns or for which the Company controls various distribution or sales agency
rights. The licenses, which generally have terms of six to twelve years,
obligated Racing Pictures to pay aggregate minimum guarantees of approximately
$2,900,000 to Pre-Merger Overseas. With respect to video distribution rights
granted to Racing Pictures pursuant to such licenses, the Company is generally
entitled to a 25% royalty on all gross receipts of Racing Pictures relating to
Racing Pictures' exploitation of such video distribution rights. With respect to
television rights granted to Racing Pictures pursuant to such licenses, Racing
Pictures is generally entitled to a distribution fee of 25% of gross receipts
from exploitation of such television rights and recoupment of all Racing
Pictures' distribution expenses. The Company is entitled to the balance of the
gross receipts of Racing Pictures from exploitation of the television rights.
Both the video royalty payable to the Company and the Company's share of the
gross receipts from Racing Pictures' exploitation of the television rights are
applied first to Racing Pictures' recoupment of the minimum guarantees. As of
January 1, 1996, $2,347,000 of the minimum guarantees owed to Pre-Merger
Overseas had been paid, while the remainder of $693,000 was past due. From
January 1, 1996 through September 11, 1996, an additional $140,000 was paid to
Pre-Merger Overseas (including a portion through offset of amounts owed by Pre-
Merger Overseas to Racing Pictures as described below). Pre-Merger Overseas and
Racing Pictures agreed as of September 12, 1996 to terminate Racing Pictures'
distribution rights to five motion


                                       57

<PAGE>

pictures, reduce the $553,000 in remaining past due minimum guarantees to
$413,000, and extend payment of such amount, which is non-interest bearing, to
September 30, 1998. Upon payment by Racing Pictures of the remaining minimum
guarantees to the Company, the Company would be entitled to retain approximately
$70,675 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 1996, sales or
licenses of distribution rights to such films by Pre-Merger Overseas and the
Company generated $109,000 in gross revenues of which $75,000 was offset against
amounts due from Racing Pictures (as described above), $20,000 was retained by
Pre-Merger Overseas and the Company as fees and $14,000 was retained by Pre-
Merger Overseas and the Company as reimbursement for distribution expenses
incurred by Pre-Merger Overseas and the Company on behalf of Racing Pictures.
Racing Pictures has agreed that future revenues generated from licensing such
films will also be offset against the past due minimum guarantees from Racing
Pictures.

     Stephen K. Bannon, Vice Chairman of the Board of Directors of the Company,
and Scot K. Vorse, a Director of the Company, are officers, directors and
stockholders of Bannon & Co., Inc., which, prior to the Merger, made available
to EMAC a small amount of office space, as well as certain office and
secretarial services, as required by EMAC from time to time in consideration of
$5,000 per month (an aggregate of $50,000 in 1996).  Such arrangement terminated
upon consummation of the Merger.  Prior to the Merger, Messrs. Bannon and Vorse
also were reimbursed for out-of-pocket expenses incurred by them in connection
with their activities on behalf of EMAC.

     Pursuant to the Merger Agreement, the Company entered into the Tax
Reimbursement Agreement, with Ellen Dinerman Little, Robert B. Little and
William F. Lischak (Chief Operating Officer, Chief Financial Officer, Secretary
and a Director of the Company). During 1996, no payments were made pursuant to
the Tax Reimbursement Agreement. See "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations Certain Tax Related
Matters" for additional information regarding the Tax Reimbursement Agreement.

     Mr. Lischak and his spouse own BLAH, Inc. which provides the production
executive services of Mr. Lischak's spouse to the Company in accordance with the
a Loan-Out Agreement dated as of March 11, 1996, (the "Loan-Out Agreement"),
pursuant to which, BLAH, Inc. receives $1,200 per week (an aggregate of $48,733
in 1996).


                                       58


<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, 1995
                  and 1996 . . . . . . . . . . . . . . . . . . . . . .    F-2

               Consolidated Statements of Income - Years Ended
                  December 31, 1994, 1995 and 1996 . . . . . . . . . .    F-3

               Consolidated Statements of Shareholders' Equity - Years
                  Ended December 31, 1994, 1995 and 1996 . . . . . . .    F-4

               Consolidated Statements of Cash Flows - Years Ended
                  December 31, 1994, 1995 and 1996 . . . . . . . . . .    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 Securities and Exchange Commission
               (the "Commission") are not required under the related
               instructions or are inapplicable, and therefore have been
               omitted.

     (a)3.     EXHIBITS

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

                 2.1     Agreement of Merger among the Company, Pre-Merger
                         Overseas, and Ellen Dinerman Little and Robert B.
                         Little, dated as of July 2, 1996.  Incorporated by
                         reference to Exhibit 10.7 to the Company's Quarterly
                         Report on Form 10-Q for the quarter ended May 31, 1996.


                                      59

<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

                 2.2     Amendment to Agreement of Merger among the Company,
                         Pre-Merger Overseas and Ellen Dinerman Little and
                         Robert B. Little, dated as of September 20, 1996.
                         Incorporated by reference to Exhibit 10.8 to the
                         Company's Quarterly Report on Form 10-Q for the quarter
                         ended August 31, 1996.

                 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.

                 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.


                                     60


<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

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


                                      61

<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

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

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

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

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

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

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

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

                                     62

<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

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


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

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

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

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

                 10.20   Overseas Filmgroup, Inc. 1996 Basic Stock Option and
                         Stock Appreciation Rights Plan.  Filed herewith.

                 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.

                                       63

<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

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

                 10.23   Form of Stock Escrow Agreement between the Company and
                         Continental Stock Transfer & Trust Company.
                         Incorporated by reference to Exhibit 10.6 to the
                         Company's Registration Statement on Form S-1,
                         Registration No. 33-83624.

                 10.24   Letter Agreement regarding administrative support.
                         Incorporated by reference to Exhibit 10.7 to the
                         Company's Registration Statement on Form S-1,
                         Registration No. 33-83624.

                 10.25   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.  Filed
                         herewith. +

                 10.26   Video Distribution Agreement dated March 15, 1996,
                         between the Company and BMG Video. Filed herewith.  +

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

                 10.28   Agreement dated as of September 12, 1996, between the
                         Company and Racing Pictures s.r.l.  Filed herewith.

                 10.29   Option Agreement dated as of September 13, 1996,
                         between Robert B. Little and the Company.  Filed
                         herewith.

                 10.30   Overseas Filmgroup Lease Agreement dated April 21,
                         1987,as amended. Filed herewith

                    21   Subsidiaries of the Registrant. Filed herewith.

                    23   Consent of Price Waterhouse LLP.  Filed herewith.

                    27   Financial Data Schedule (Filed electronically only)
                         Filed herewith.

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

     (b)  The following reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this Report.

                                      64

<PAGE>

Current Report on Form 8-K, dated October 25, 1996, filed by the Company with
the Commission on November 12, 1996 relating to the Merger and the approval and
consummation thereof.  Such report included Item 1 (Changes in Control of the
Registrant), Item 2 (Acquisition or Disposition of Assets), Item 5 (Other
Events) and Item 7 (Financial Statements and Exhibits).  Financial Statements of
the business acquired (unaudited financial statements for the six months ended
June 30, 1996 and audited financial statements for the years ended December 31,
1995 and 1994 of Pre-Merger Overseas) and pro forma financial information (an
unaudited pro forma combined balance sheet as of June 30, 1996 and unaudited pro
forma combined statements of income for the six months ended June 30, 1996 and
the year ended December 31, 1995) were filed with such Report (with the
financial statements of the business acquired being incorporated by reference
from the Company's definitive proxy statement dated September 25, 1996 filed
with the Commission pursuant to Section 14 of the Securities Exchange Act of
1934, as amended).

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

(d)  Not applicable.

                                    65



<PAGE>

                                   SIGNATURES


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

                    OVERSEAS FILMGROUP, INC.

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

                                       Dated:  March 28, 1997

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

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

 /s/ Ellen Dinerman Little

     Ellen Dinerman Little    Co-Chairman of the Board of         March 28, 1997
                              Directors, Co-Chief Executive
                              Officer, and President (Co-Principal
                              Executive Officer)


 /s/ Robert B. Little

     Robert B. Little         Co-Chairman of the Board of         March 28, 1997
                              Directors and Co-Chief Executive
                              Officer (Co-Principal Executive
                              Officer)


 /s/ William F. Lischak

     William F. Lischak       Chief Operating Officer, Chief      March 28, 1997
                              Financial Officer, Secretary, and
                              Director (Principal Financial and
                              Accounting Officer)


                                       66

<PAGE>

 /s/ Stephen K. Bannon

     Stephen K. Bannon        Director                            March 28, 1997


 /s/ Alessandro Fracassi

     Alessandro Fracassi      Director                            March 28, 1997


 /s/ Jeffrey A. Rochlis

     Jeffrey A. Rochlis       Director                            March 28, 1997


 /s/ Scot K. Vorse

     Scot K. Vorse            Director                            March 28, 1997


                                       67
<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
accompanying index present fairly, in all material respects, the financial
position of Overseas Filmgroup, Inc. and its subsidiaries (the "Company") at
December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.  These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits.  We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Los Angeles,  California
March 7, 1997

                                       F-1

<PAGE>

                            OVERSEAS FILMGROUP, INC.

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                    December 31,
                                                                -------------------
                                                                1996           1995
                                                                ----           ----

                                   ASSETS
<S>                                                      <C>            <C>
Cash and cash equivalents                                 $    353,689   $  2,433,153
Restricted cash (Note 2)                                        46,037        133,446
Accounts receivable, net of allowance for doubtful
  accounts of $1,000,000 in 1996 and 1995                   10,718,239      8,181,552
Related party receivable (Note 9)                              413,000              -
Other receivables                                               10,000        324,000
Film costs, net of accumulated amortization (Note 4)        28,358,324     17,349,071
Fixed assets, net of accumulated depreciation (Note 5)         557,127        384,321
Other assets                                                   347,269        149,253
                                                          ------------   ------------

                                                          $ 40,803,685   $ 28,954,796
                                                          ------------   ------------
                                                          ------------   ------------


                    LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accrued expenses                     $  2,623,084        796,908
Payable to producers                                         3,712,812      6,976,621
Note payable to shareholders (Note 3)                        2,085,886              -
Notes payable (Note 6)                                      16,607,137      7,421,893
Deferred income taxes (Note 7)                               3,030,000        130,000
Deferred revenue                                               553,000      2,181,000
                                                          ------------   ------------

                                                            28,611,919     17,506,422
                                                          ------------   ------------

Commitments and contingencies (Note 10)

Shareholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
   authorized, 0 shares outstanding
Common stock, $.001 par value, 25,000,000 shares
  authorized, 5,777,778 and 3,177,778 outstanding                5,778          3,178
Additional paid-in capital                                  10,652,731        167,322
Retained earnings                                            1,533,257     11,277,874
                                                          ------------   ------------

                                                            12,191,766     11,448,374
                                                          ------------   ------------

                                                          $ 40,803,685   $ 28,954,796
                                                          ------------   ------------
                                                          ------------   ------------
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                       F-2
<PAGE>

                            OVERSEAS FILMGROUP, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                ----------------------------------
                                                                1996           1995           1994
                                                                ----           ----           ----

<S>                                                      <C>            <C>            <C>
Revenues                                                  $ 28,677,571   $ 21,672,510   $ 20,734,094

Expenses:
  Film costs                                                23,449,114     16,320,694     16,395,902
  Selling, general and administrative                        3,595,660      2,721,745      2,151,214
                                                          ------------   ------------   ------------

  Total expenses                                            27,044,774     19,042,439     18,547,116
                                                          ------------   ------------   ------------

Income from operations                                       1,632,797      2,630,071      2,186,978

Other income (expense):
  Interest income                                               32,831         35,715            654
  Interest expense                                            (178,069)       (89,637)      (179,750)
  Other income                                                 177,710        317,917        434,078
                                                          ------------   ------------   ------------

  Total other income                                            32,472        263,995        254,982
                                                          ------------   ------------   ------------

Income before income taxes                                   1,665,269      2,894,066      2,441,960

Income tax provision (Note 7)                                3,131,367        432,905        296,487
                                                          ------------   ------------   ------------

Net (loss) income                                         $ (1,466,098)  $  2,461,161   $  2,145,473
                                                          ------------   ------------   ------------
                                                          ------------   ------------   ------------

Unaudited pro forma data (Note 2)

  Income before income taxes and
    additional interest expense                           $  1,665,269   $  2,894,066   $  2,441,960
  Additional interest expense                                  105,631        166,550              -
                                                          ------------   ------------   ------------
  Income before income taxes                                 1,559,638      2,727,516      2,441,960
  Income tax provision                                         561,470        981,906        879,106
                                                          ------------   ------------   ------------
  Pro forma net income                                    $    998,168   $  1,745,610   $  1,562,854
                                                          ------------   ------------   ------------
                                                          ------------   ------------   ------------

  Pro forma net income per share                          $       0.22   $       0.42
                                                          ------------   ------------
                                                          ------------   ------------

  Weighted average number of shares outstanding              4,444,445      4,177,778
                                                          ------------   ------------
                                                          ------------   ------------
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                       F-3
<PAGE>

                            OVERSEAS FILMGROUP, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 -----------------------------------------------
                              (Shares in thousands)

<TABLE>
<CAPTION>
                                                    Common Stock
                                               ---------------------       Additional      Retained
                                               Shares         Amount     Paid-In Capital   Earnings         Total
                                               ------         ------     ---------------   --------         -----
<S>                                          <C>           <C>           <C>             <C>            <C>
Balance at December 31, 1993                      3,178     $    3,178    $   167,322     $ 8,147,037    $ 8,317,537

Net income                                                                                  2,145,473      2,145,473

Distributions to shareholder                                                                 (652,549)      (652,549)
                                             ----------     ----------    -----------     -----------    -----------

Balance at December 31, 1994                      3,178          3,178        167,322       9,639,961      9,810,461

Net income                                                                                  2,461,161      2,461,161

Distributions to shareholders                                                                (823,248)      (823,248)
                                             ----------     ----------    -----------     -----------    -----------

Balance at December 31, 1995                      3,178          3,178        167,322      11,277,874     11,448,374

Pre-merger distributions to
 shareholders                                                                              (4,452,991)    (4,452,991)
Reclassification of earnings
 due to termination of
 S corporation status                                                       3,825,528      (3,825,528)             -

Merger transaction (Note 3)                       2,600          2,600      7,703,682                      7,706,282

Merger costs charged to capital                                            (1,043,801)                    (1,043,801)

Net loss                                                                                   (1,466,098)    (1,466,098)
                                             ----------     ----------    -----------     -----------    -----------

Balance at December 31, 1996                      5,778     $    5,778    $10,652,731     $ 1,533,257    $12,191,766
                                             ----------     ----------    -----------     -----------    -----------
                                             ----------     ----------    -----------     -----------    -----------
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                       F-4
<PAGE>

                            OVERSEAS FILMGROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                ----------------------------------
                                                                1996           1995           1994
                                                                ----           ----           ----
<S>                                                       <C>            <C>            <C>
Cash flows from operating activities:
  Net (loss) income                                        $(1,466,098)   $ 2,461,161    $ 2,145,473
  Adjustments to reconcile net (loss) income to net
     cash provided by operating activities -
     Amortization of film costs                             23,007,221     16,115,927     15,487,542
     Depreciation of fixed assets                              155,415        122,776         81,453
  Change in assets and liabilities -
     (Increase) decrease in accounts receivable              (2,536,687)       926,669     (1,693,153)
     Decrease (increase) in related party receivables         (413,000)       435,088        117,901
     Decrease (increase) in other receivables                  314,000        (24,000)       (82,568)
     (Increase) decrease in other assets                      (198,015)        46,015       (106,949)
     Increase (decrease) in accounts payable
     and accrued expenses                                    1,826,176       (278,783)       243,381
     Increase (decrease) in payable to producers            (3,263,809)     1,121,294        (24,302)
     Increase in deferred income taxes payable               2,900,000         10,000              -
     (Decrease) increase in deferred revenue                (1,628,000)       416,240        303,090
                                                           -----------    -----------    -----------

        Net cash provided by operating activities           18,697,203     21,352,387     16,471,868
                                                           -----------    -----------    -----------
Cash flows from investing activities:
  Additions to film costs                                  (34,016,475)   (21,087,875)   (17,056,633)
  Purchase of fixed assets                                    (328,221)      (289,107)      (143,180)
                                                           -----------    -----------    -----------

        Net cash used in investing activities              (34,344,696)   (21,376,982)   (17,199,813)
                                                           -----------    -----------    -----------
Cash flows from financing activities:
  Net borrowings under credit facilities                     9,185,244      1,363,614      2,358,279
  Merger cash, net of acquisition costs                      8,791,440              -              -
  Distributions to shareholders                             (4,452,991)      (823,248)      (652,549)
  Payments on note payable to shareholders                     (43,073)             -              -
                                                           -----------    -----------    -----------

        Net cash provided by financing activities           13,480,620        540,366      1,705,730
                                                           -----------    -----------    -----------

Net (decrease) increase in cash                             (2,166,873)       515,771        977,785

Cash, cash equivalents and redirected cash
  at beginning of year                                       2,566,599      2,050,828      1,073,043
                                                           -----------    -----------    -----------
Cash, cash equivalents and restricted cash
  at end of year                                           $   399,726    $ 2,566,599    $ 2,050,828
                                                           -----------    -----------    -----------
                                                           -----------    -----------    -----------
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
     Interest                                              $ 1,321,178    $   849,632    $   557,654
     Income taxes                                          $    55,608    $    30,130    $    41,973
     Foreign withholding taxes                             $   231,367    $   352,905    $   226,487
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       F-5
<PAGE>

                            OVERSEAS FILMGROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS:

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

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

REVENUES

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

FILM COSTS AND AMORTIZATION

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

                                       F-6
<PAGE>

NOTE 2:  (Continued)

Film costs are valued at the lower of unamortized cost or estimated net
realizable value.  Revenue and cost forecasts for films are continually 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

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).

FIXED ASSETS

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

PAYABLE TO PRODUCERS

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

INCOME TAXES

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

                                       F-7
<PAGE>

NOTE 2:  (Continued)

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

ACCOUNTING FOR STOCK-BASED COMPENSATION

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

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to credit risk
consist primarily of cash and accounts receivable.  The Company places its cash
with a financial institution and, at times, such amounts may be in excess of the
FDIC insurance limits.  Concentration of credit risk with respect to accounts
receivable is limited due to the large number and general dispersion of trade
accounts which constitute the Company's customer base.  The Company performs
credit evaluations of its customers and generally does not require collateral.
At December 31, 1996 the Company has a trade receivable from two individual
subdistributors which represent approximately 21% and 11% of the Company's
accounts receivable.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

RECLASSIFICATIONS

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

                                       F-8
<PAGE>

NOTE 2:  (Continued)

UNAUDITED PRO FORMA STATEMENT OF INCOME
Pro forma net income reflects pro forma interest expense on the $2,000,000
shareholder note issued in the merger (Note 3), assumed to be outstanding as of
January 1, 1995, and a pro forma income tax provision, using an effective income
tax rate of 36%, to account for the estimated income tax expense of the Company
as if it had been subject to federal and state income taxes at the corporate
level for the period.

Pro forma net income per share has been computed using the weighted average
common  shares outstanding of 4,444,445 and 4,177,778 for 1996 and 1995,
respectively.  Such pro forma shares outstanding have been computed as the
weighted average, as applicable, of (i) 3,177,778 shares reflecting the
recapitalization of common stock as a result of the merger (Note 3) (ii)
1,000,000 shares representing the number of new shares that would have to be
issued at the October 30, 1996 market price of $5.20 per share to pay pro
forma distributions of $3,500,000 representing actual pre-merger
distributions, $1,500,000 representing cash consideration received by the
Overseas Shareholders and $200,000 representing accrual of an estimated
distribution to reimburse the Overseas Shareholders for federal income taxes
payable for S corporation years and (iii) the 2,600,000 EMAC shares issued
prior to the date of the merger, October 31, 1996.  Historical earnings per
share has not been presented in view of the prior periods S corporation
status.

NOTE 3 - MERGERS AND ACQUISITIONS

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

For accounting purposes Overseas is considered the acquirer (reverse
acquisition).  The acquisition has been treated as a recapitalization of
Overseas reflecting the issuance of Overseas common stock for the net assets of
EMAC, which consist primarily of cash.  Pro forma information reflecting the
combined companies had they merged on January 1, 1995, is not presented as the
combination is not considered a business combination for accounting purposes.
Historical shareholders' equity has been retroactively restated to reflect the
equivalent number of shares received in the merger.  The historical financial
statements prior to October 31, 1996 are those of Overseas.

                                       F-9
<PAGE>

NOTE 3:  (Continued)

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

On June 20, 1995 the Company entered into a merger agreement with First Look
Pictures, Inc. ("First Look, Inc."),  a domestic theatrical distributor which
was 100% owned by the Company's shareholders as of that date.  The net assets of
First Look, Inc. of $412,395, primarily consisting of unamortized film costs,
were purchased through the forgiveness of the Company's advance, which
represented the funding of First Look since its inception.  The merger has been
accounted for as a transaction between entities under common control and
therefore the net assets of First Look acquired by Overseas have been recorded
at book value.

NOTE 4 - FILM COSTS:

Film costs consist of the following:
                                                     December 31,
                                                 -------------------
                                                 1996           1995
                                                 ----           ----

  Films in release, net of
    accumulated amortization              $  25,838,106  $  12,162,975
  Films not yet available for release         2,520,218      5,186,096
                                          -------------  -------------

                                          $  28,358,324  $  17,349,071
                                          -------------  -------------
                                          -------------  -------------

Interest costs capitalized to films were $1,223,467, $744,176, and $568,537
during the years ended December 31, 1996, 1995 and 1994, respectively.  Based on
the Company's estimates of projected gross revenues as of December 31, 1996,
approximately 75% of unamortized film costs applicable to films in release are
expected to be amortized during the next three years.

NOTE 5 - FIXED ASSETS:

Fixed assets consist of the following:
                                                     December 31,
                                                  -------------------
                                                  1996           1995
                                                  ----           ----
  Furniture and fixtures                     $  243,520     $  221,360
  Office equipment                              191,023        189,203
  Computer equipment                            657,487        447,038
  Leasehold improvements                        173,324        149,388
  Automobiles                                    14,970         14,970
                                             ----------     ----------
                                              1,280,324      1,021,959
  Less accumulated depreciation                (723,197)      (637,638)
                                             ----------     ----------
  Net fixed assets                           $  557,127     $  384,321
                                             ----------     ----------
                                             ----------     ----------

                                      F-10
<PAGE>

NOTE 6 - NOTES PAYABLE:

The Company has a $27,000,000 credit facility with a two-bank syndicate (the
"Credit Facility").  The Credit Facility provides several levels of credit
including $21,000,000 of film financing ("Film Facilities"), $5,000,000 of
working capital ("Operating Facility") and a $1,000,000 guarantee facility
("Local Facility").  The Company maintains a $1,000,000 working capital credit
line (the "Local Line") with another bank which is guaranteed by the Local
Facility and expires on July 1, 1997.  Outstanding balances are summarized as
follows:

                                                    December 31,
                                                 -------------------
                                                 1996           1995
                                                 ----           ----

  Credit Facility:
    Film Facilities                        $ 14,529,137   $  2,421,893
    Operating Facility                        1,850,000      4,000,000
    Local Facility                                    -              -
  Local Line                                    228,000      1,000,000
                                           ------------   ------------

                                           $ 16,607,137   $  7,421,893
                                           ------------   ------------
                                           ------------   ------------

Borrowings made under the Film Facilities are provided as revolving
facilities. Outstanding amounts from each draw against the Film Facilities
are reviewed by the two-bank syndicate on the one year anniversary of the
first draw for each film and repayment terms are varied as necessary to
ensure that no Film Facility is repaid later than six months from the date of
such review.  Borrowings made under the Operating Facility are provided as
revolving overdraft facilities.  Outstanding amounts are due on May 9, 1997
subject to annual review by the two-bank syndicate.

Interest on the Credit Facility is payable monthly at the London Interbank
Offered Rate ("LIBOR") plus 3% (5.50%, 5.56% and 5.60% for one, three and six
month LIBOR, respectively at December 31, 1996).  The interest rate is set at
the commencement of each drawdown and is revised each one, three or six months
as requested by the Company at the date of the drawdown.  Interest on the Local
Line is payable monthly at the bank's prime rate less 1.25%, (prime rate was
8.25% at December 31, 1996).

The Credit Facility requires the Company to pay closing fees on each Film
Facility drawdown, a commitment fee for unused portions of the Operating
Facility, a fee measured by a portion of the Company's distribution fee
earned on financed films, and an annual management fee.  The Credit Facility
is collateralized by a security interest in the Company's assets and contains
various covenants including restrictions on the payment of dividends and the
maintenance of a minimum consolidated net worth and certain financial ratios.
The Credit Facility is available until May 9, 1997, however its terms will be
reviewed by the two-bank syndicate on an annual basis with a view to
determining whether the Credit Line should remain available after such date.
The carrying value of the Company's notes payable approximates their fair
value due to the fact that the interest rate is reset periodically and the
lack of a specified maturity.

                                      F-11
<PAGE>

NOTE 7 - INCOME TAXES:

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

The historical provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                        Years ended December 31,
                                                                  ----------------------------------
                                                                  1996           1995           1994
                                                                  ----           ----           ----
<S>                                                        <C>            <C>            <C>
Current
  State                                                     $        0     $   70,000     $   70,000
  Foreign withholding                                          231,367        352,905        226,487
                                                            ----------     ----------     ----------

                                                               231,367        422,905        296,487
                                                            ----------     ----------     ----------
Deferred
  State                                                        110,000         10,000              -
  Federal                                                      190,000              -              -
  Deferred tax provision resulting
    from the termination of S corporation
    status                                                   2,600,000              -              -
                                                            ----------     ----------     ----------

                                                             2,900,000         10,000              -
                                                            ----------     ----------     ----------

                                                            $3,131,367     $  432,905     $  296,487
                                                            ----------     ----------     ----------
                                                            ----------     ----------     ----------
</TABLE>

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

<TABLE>
<CAPTION>
                                                                  1996           1995           1994
                                                                  ----           ----           ----

<S>                                                               <C>            <C>            <C>
 Federal statutory rate                                             34%            34%            34%
 State taxes, net of federal benefit                                 2%             2%             2%
                                                                    ---            ---            ---

 Pro forma effective tax rate                                       36%            36%            36%
                                                                    ---            ---            ---
                                                                    ---            ---            ---
</TABLE>

                                      F-12
<PAGE>

NOTE 8 - SHAREHOLDERS' EQUITY


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

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

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

As discussed in Note 2 the Company uses the intrinsic value method prescribed by
APB 25 to account for compensation expense for its stock-based employee
compensation plans.  Had compensation cost for the Company's stock-based
employee compensation plans been determined based on the fair value at the grant
date for options under those plans as consistent with SFAS 123, the Company's
pro forma net income and pro-forma net income per share would have been reduced
to $694,980 and $.16, respectively.  The fair value of each option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:

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

                                      F-13
<PAGE>

NOTE 8:  (Continued)

Warrants to purchase 4,500,000 shares of Common Stock are outstanding at
December 31, 1996.  These warrants have an exercise price of $5.00 per share and
expire on February 16, 2002.  The warrants are callable by the Company at $.01
per warrant if certain market price and other criteria are met.  Options to
purchase 200,000  Overseas (formerly EMAC) Units (each unit consists of 1 share
of common stock and 2 warrants, described below) at an exercise price of $9.90
per unit are outstanding at December 31, 1996.  The warrants attached to these
units are identical to the warrants described above except that they are
execisable at $5.85 per share and expire on February 16, 2000.  These options
and warrants were issued in connection with the initial capitalization of EMAC.

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

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

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company has a receivable of $413,000 from a subdistributor which is owned by
a member of the Company's Board of Directors.  Pursuant to an executed agreement
this amount will be paid on September 30, 1998 and will not bear interest.  The
Company is entitled to retain $70,675 of this receivable with the balance
payable to producers. The Company recognized $109,000 in revenue on film's
licensed to the Company by this subdistributor (as rights owner) during 1996.

During 1996 the Company paid $48,733 to a company owned by a member of the
company's management and has spouse for production executive services of such
spouse.

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

As of December 31, 1996, the Company is committed under agreements with certain
sub-distributors to spend an aggregate of $938,000 for print and advertising on
motion pictures scheduled to be released in the domestic theatrical market which
have not yet been delivered to the Company.  Additionally, the Company is
committed under various acquisition agreements to pay minimum guarantees of
$1,170,000 contingent upon delivery of the respective films to the Company.

The Company has guaranteed payment by an independent motion picture production
company of two promissory notes in the aggregate principal amount of $325,000,
each payable on May 9, 1997.

                                      F-14
<PAGE>

NOTE 10:  (Continued)


Total rental expense under various leases for the years ended December 31, 1996,
1995 and 1994 amounted to $293,279, $228,053 and $168,704, respectively.
Minimum annual rental payments under noncancelable leases are as follows:

                    1997                $206,890
                    1998                  30,421
                    1999                  15,703
                    2000                   4,715


NOTE 11 - FOREIGN SALES AND SIGNIFICANT CUSTOMERS:

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

<TABLE>
<CAPTION>
                                                         Years ended December 31,
                                                 ----------------------------------
                                                 1996           1995           1994
                                                 ----           ----           ----

<S>                                       <C>            <C>            <C>
Western Europe                             $  9,581,698   $  7,475,888   $  7,005,708
Asia                                          4,936,735      2,411,261      3,574,100
Latin America                                 1,839,129      1,446,968      1,491,500
Eastern Europe                                  708,600      1,094,053        728,000
Other                                         2,850,896      1,792,603      2,611,876
                                           ------------   ------------   ------------
                                           $ 19,917,058   $ 14,220,773   $ 15,411,184
                                           ------------   ------------   ------------
                                           ------------   ------------   ------------
</TABLE>

Customers representing 10% or more of the Company's revenue  accounted for
$9,498,000 (three customers), $4,366,246 (one customer) and $3,000,000 (one
customer) for the years ended December 31, 1996, 1995 and 1994, respectively.

                                      F-15
<PAGE>

                           QUARTERLY FINANCIAL SUMMARY

                                   (Unaudited)

<TABLE>
<CAPTION>
          1996 (1)                             March 31        June 30   September 30    December 31
                                               --------        -------   ------------    -----------
<S>                                         <C>            <C>            <C>            <C>
Revenue                                      $6,522,687     $9,229,284     $5,003,263     $7,922,338

Operating income                                571,836      1,011,320        501,124       (451,483)

Income before provision for
 income taxes                                   662,239      1,002,423        588,686       (588,079)

Pro forma net income(loss)(2)                   400,227        619,217        355,726       (589,066)
Pro forma earnings (loss) per share(3)              .10            .15            .09           (.12)

          1995

Revenue                                      $5,412,018     $4,786,879     $3,870,352     $7,630,304

Operating income                                678,380        613,277        484,176        854,279

Income before provision for
 income taxes                                   696,496        659,408        557,361        980,843

Pro forma net income(2)                         417,340        394,767        330,639        602,864
Pro forma earnings per share(3)                     .10            .10            .08            .14
</TABLE>



(1) Results after October 31, 1996 reflect the impact of the merger with EMAC
which is more fully described in Note 3 to the Consolidated Financial
Statements.

(2) Pro forma net income (loss) represents net income (loss) after a pro forma
tax provision reflecting the estimated income tax expense of the Company as if
it had been subject to federal and state income taxes at C corporation rates
and as if the Merger Note were issued on January 1, 1995. See "Notes to
Consolidated Financial Statements - Note 2".

(3) See Note 2 to the Consolidated Financial Statements regarding the
computation of pro forma earnings per share.

                                      F-16

<PAGE>

                                EXHIBIT INDEX

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

                 2.1     Agreement of Merger among the Company, Pre-Merger
                         Overseas, and Ellen Dinerman Little and Robert B.
                         Little, dated as of July 2, 1996.  Incorporated by
                         reference to Exhibit 10.7 to the Company's Quarterly
                         Report on Form 10-Q for the quarter ended May 31, 1996.

                 2.2     Amendment to Agreement of Merger among the Company,
                         Pre-Merger Overseas and Ellen Dinerman Little and
                         Robert B. Little, dated as of September 20, 1996.
                         Incorporated by reference to Exhibit 10.8 to the
                         Company's Quarterly Report on Form 10-Q for the quarter
                         ended August 31, 1996.

                 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.

                 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.




<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

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



<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

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

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

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

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

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

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

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


<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

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


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

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

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

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

                 10.20   Overseas Filmgroup, Inc. 1996 Basic Stock Option and
                         Stock Appreciation Rights Plan.  Filed herewith.

                 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.


<PAGE>

               EXHIBIT
               NUMBER                        DESCRIPTION
               -------                       -----------

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

                 10.23   Form of Stock Escrow Agreement between the Company and
                         Continental Stock Transfer & Trust Company.
                         Incorporated by reference to Exhibit 10.6 to the
                         Company's Registration Statement on Form S-1,
                         Registration No. 33-83624.

                 10.24   Letter Agreement regarding administrative support.
                         Incorporated by reference to Exhibit 10.7 to the
                         Company's Registration Statement on Form S-1,
                         Registration No. 33-83624.

                 10.25   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.  Filed
                         herewith. +

                 10.26   Video Distribution Agreement dated March 15, 1996,
                         between the Company and BMG Video. Filed herewith.  +

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

                 10.28   Agreement dated as of September 12, 1996, between the
                         Company and Racing Pictures s.r.l.  Filed herewith.

                 10.29   Option Agreement dated as of September 13, 1996,
                         between Robert B. Little and the Company.  Filed
                         herewith.

                 10.30   Overseas Filmgroup Lease Agreement dated April 21,
                         1987,as amended. Filed herewith

                    21   Subsidiaries of the Registrant. Filed herewith.

                    23   Consent of Price Waterhouse LLP.  Filed herewith.

                    27   Financial Data Schedule (Filed electronically only)
                         Filed herewith.

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