<PAGE>
 
================================================================================
                   
                   U. S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-KSB

(MARK ONE)
[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934
     For the fiscal year ended June 30, 1995

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934
     For the transition period from __________ to __________

                        Commission File Number 0-22968

                               FOCAL CORPORATION
                (Name of small business issuer in its charter)

                  UTAH                                  87-0363789
     -------------------------------                ------------------
     (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)                Identification No.)

                518 DWYER DRIVE
              ANAHEIM, CALIFORNIA                         92801
     ---------------------------------------        -------------------
     (Address of principal executive offices)          (Zip Code)

       Issuer's telephone number (including area code):   (714) 635-8821

Securities registered under Section 12(b) of the Exchange Act:

                                     None

Securities registered pursuant to Section 12(g) of the Exchange Act:

                    Common Stock, $0.10 par value per share
                    ---------------------------------------
                                (Title of Class)


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

          Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

          The registrant's revenues for its most recent fiscal year were -0-.

          The aggregate market value of the voting stock held by non-affiliates
of the registrant on June 30, 1996 was approximately $786,847.

          The number of shares outstanding of the registrant's only class of
Common Stock, $0.10 par value per share, was 3,491,576 on June 30, 1996.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None.

================================================================================
<PAGE>
 
                                    PART I

ITEM 1. DESCRIPTION OF BUSINESS.

  Focal Corporation ("Company") was incorporated in Utah on August 12, 1980 as
Petro Funding, Inc., for the purpose of acquiring, exploring and developing
natural resource properties. The Company changed its name to TVM Global
Entertainment, Inc. in November 1982, and to Cinema Features, Inc. in July 1983,
as part of the Company's plan to invest in movie production and distribution
rights. By January 1985, the Company had acquired the movie and video cassette
distribution rights for eight motion pictures. In 1989, the Company's movie
rights were independently appraised for audit purposes and the total cost base
of $2,100,000 was decreased by $770,000 to a revised value of $1,330,000.

  In March 1993, after several years of unprofitable operations, the Company's
Board of Directors entered into negotiations to sell the Company's movie rights.
As a result of a shareholders meeting held on May 17, 1993, and with the
approval of the Company's shareholders, all of the Company's assets relating to
movie production and distribution were sold to an independent marketing firm in
exchange for $1,200,000 worth of restricted stock. See "Management's Discussion
and Analysis or Plan of Operations." Shortly thereafter, the shares of
restricted stock were distributed to the shareholders of the Company, on a pro
rata basis and without consideration, and the Company's Articles of
Incorporation were amended to change the name of the Company to Focal
Corporation. In addition to the name change, the amendment to the Company's
Articles of Incorporation effected a one-for-ten reverse stock split of the
Company's Common Stock, changed the par value of the Company's Common Stock to
$0.10 per share and established a new class of undesignated preferred stock.

  During August 1993, the Company's Board of Directors approved a new business
plan to acquire and develop community shopping centers and other operating real
properties. In connection with the Company's new business plan, the Board of
Directors appointed Howard M. Palmer as President and Chairman of the Board. See
"Certain Relationships and Related Transactions." Through Mr. Palmer's
experience, coupled with a number of experienced consultants, including
independent architects, construction and civil engineers, developers, brokers
and attorneys, the Company initially intends to acquire existing shopping
centers anchored by national retail tenants with operations that generate
positive cash flows. As the Company's financial condition improves, and as
appropriate opportunities arise, the Company also intends to acquire
strategically-located vacant land suitable for the development of discount and
neighborhood shopping centers. The Company has never acquired a discount
shopping center, acquired vacant land suitable for development of a shopping
center or developed a shopping center. Accordingly, there is no assurance that
any shopping centers will be successfully acquired or developed in the future.
However, because the Company's President has over 25 years of experience in the
development, ownership and management of shopping centers, and because the
Company has engaged the services of independent consultants with many years of
experience in site analysis, property acquisition, land use regulations, anchor
tenant negotiations and the development of retail complexes with national
discount-oriented tenants, the Company believes it has in such individuals the
necessary expertise to accomplish the Company's business plan. It is

                                       1
<PAGE>
 
intended that shopping centers which are either acquired or developed by the
Company will be operated, on a day-to-day basis, by professional managers
selected by the Company.

  The Company presently has two properties under contract, one in Mesa, Arizona,
and the other in Barstow, California. The Mesa property consists of 11 acres
improved with a shopping center anchored by a 103,000 square foot HomeBase
store. The purchase price is $9,700,000, with $2,200,000 down, the assumption of
an existing $7,100,000 first trust deed, and the seller taking back a $400,000
second trust deed. The Barstow property consists of 26.8 undeveloped acres on
which the Company plans to develop a Bob's Big Boy restaurant and a 125-unit
Best Western motel. The purchase price is $2,800,000, with $800,000 down. Both
purchase contracts have expired, but the Company is negotiating for, and expects
to obtain, extensions.

ITEM 2. DESCRIPTION OF PROPERTY.

  The Company occupies a small office in Anaheim, California provided by Palmer
Development Company, an affiliate of the Company's President. The Company
presently pays no rent. Management of the Company considers the office space to
be adequate to meet the current demands of the Company's business; however, the
Company is currently looking at larger office space in Orange County,
California, which will accommodate a small property management and
administrative staff. The Company expects to begin paying rent of approximately
$1,800 per month in late 1996.

ITEM 3. LEGAL PROCEEDINGS.

  The Company is not a party to any litigation and is not aware of any pending
or threatened litigation against the Company. James Collins, a former financial
consultant of the Company, has a stipulated judgment against the Company for
$24,000 in unpaid consulting fees. Jackson, DeMarco & Peckenpaugh, the Company's
former counsel, has recorded a $71,000 judgment (and lien against the Company's
assets) for unpaid legal fees.

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

  No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

                                    PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

  Although previously traded in Utah pursuant to a Secondary Trading
Transactional Exemption under old Rule 177-14-2m of the Utah Uniform Securities
Act, there has been no active trading market for the Common Stock of the Company
since 1984. The Company's Common Stock is not listed on any exchange and is not
quoted or traded on the over-the-counter market. No broker maintains a position
or deals in the Company's Common Stock. No bid or asked prices are quoted in the
pink sheets or any local newspaper. Although the Company uses a transfer agent
to maintain

                                       2
<PAGE>
 
its stock transfer ledgers, the Company is typically aware of any transactions
involving changes in record ownership.

  As of June 30, 1996, there were 3,491,576 shares of the Company's Common Stock
issued and outstanding, held of record by 441 shareholders.

  The Company has paid no dividends on its Common Stock and does not expect to
pay dividends in the foreseeable future.

  Oxford Transfer & Registrar Agency, Inc. in Portland, Oregon serves as
transfer agent for the Common Stock of the Company.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

Plan of Operations

  In May 1993, the Company discontinued its operations relating to movie
distribution and sold substantially all of its assets to Maverick Marketing
Management, Inc., a Nevada corporation ("Maverick"), in exchange for shares of
common stock of Maverick and shares of common stock of Interdec Corporation, a
Colorado corporation ("Interdec"), which were held by Maverick. All of the
shares of common stock of Maverick and Interdec were subsequently distributed to
the Company's shareholders on a pro rata basis and for no consideration. The
Company realized a $271,000 net gain on the sale of the assets to Maverick.

  The Company's current plan of operations is to acquire commercial shopping
centers in the Western United States. The Company expects to target centers
anchored by long-term leases with national, credit-rated retail tenants and
which generate positive cash flows. The Company intends to acquire existing
shopping centers of approximately eight to 20 acres, which are expected to
include a major discount department store, a major supermarket and several
credit-rated retailers strategically spaced between the larger anchors. Some
complexes also will include separate out-lots suitable for family type
restaurants. In addition, as the Company's financial condition improves and as
appropriate opportunities arise, the Company plans to option or contract for
strategically-located vacant land suitable for the development of shopping
centers, such options or contracts to be subject to negotiating pre-building
leases with major retail tenants.

  The Company's investment objective in considering each potential acquisition
is to achieve long-term capital appreciation through increased cash flow and
increased value of the acquired property. The Company will seek to accomplish
this investment objective through (i) selective acquisitions of shopping centers
which are strategically located and which generally provide positive cash flows,
(ii) improved operations of the shopping centers and lease-up of unleased space,
and (iii) where deemed appropriate, expansions, renovations and redevelopments
of these properties. A key criterion for property investments will be that they
offer the opportunity for growth in revenues from operations. The Company may
purchase or lease properties for long-term investment or sell such properties,
in whole or in part, when circumstances warrant. The Company may also
participate with other entities in property ownership, through joint ventures or
other types of co-ownership. Equity

                                       3
<PAGE>
 
investments may be subject to existing mortgage financing and other indebtedness
which have priority over the equity interest of the Company.

  Currently, the Company does not own or manage any shopping centers or other
real properties. In addition, the Company does not have funds necessary for the
acquisition or development of shopping centers. However, the Company intends to
rely on its new management to successfully negotiate the acquisition of existing
shopping centers and vacant land in exchange for shares of the Company's Common
Stock or Convertible Preferred Stock. It is anticipated that each such
acquisition will be separately negotiated based on the owner's equity or tax
base in the subject property. The Company presently has one improved and one
unimproved property under contract. See "Description of Business."

  The Company currently intends to adhere to a policy of limiting the incurrence
of debt so that the Company's ratio of total debt to total equity on its
portfolio of shopping center properties does not exceed 70%. The Company may
from time to time modify its debt policy in light of then current economic
conditions, relative costs of debt and equity capital, the market value of
acquired properties, general conditions in the market for debt and equity
securities, fluctuations in the fair market value of the Company's Common Stock
and Convertible Preferred Stock, growth and acquisition opportunities and other
factors. Accordingly, the Company may increase or decrease the total debt to
total equity ratio beyond the limits described above.

  Although the Company currently intends to acquire shopping centers in exchange
for shares of the Company's Common Stock or Convertible Preferred Stock, if the
Board of Directors determines that additional or other funding is required to
acquire the shopping centers, the Company may raise such funds through equity
offerings, debt financing or retention of cash flow, or a combination of these
methods. If the Board of Directors determines to raise equity capital, it has
the authority, without shareholder approval, to issue shares of Common Stock or
Convertible Preferred Stock in any manner (and on such terms and for such
consideration) it deems appropriate, including in exchange for property.
Existing shareholders have no preemptive right to purchase shares issued in any
offering, and any such offering might cause a dilution of a shareholder's
investment in the Company. Indebtedness incurred by the Company may be in the
form of bank borrowings, purchase money obligations to the sellers of
properties, secured and unsecured, and publicly and privately placed debt
investments. Such indebtedness may be recourse to all of the properties of the
Company or may be limited to the particular property to which the indebtedness
relates. The proceeds from any borrowings by the Company may be used for working
capital, to refinance existing indebtedness or to finance acquisitions,
expansions or development of new properties.

Results of Operations

  The Company had no revenue from operations during the fiscal years ended June
30, 1995 and 1994.

  The Company's expenses during the fiscal years ended June 30, 1995 and 1994
amounted to $511,625 and $472,322, respectively. Expenses increased by $39,303
(8.3%) primarily as a result of costs associated with due diligence
investigations of various real properties in California, Arizona,

                                       4
<PAGE>
 
Nevada and other areas. Fees and advances to professional advisors and real
estate and financial consultants accounted for a substantial portion of these
increased expenses.

  The Company had a net loss of $512,625 for the fiscal year ended June 30,
1995, and a net loss of $473,122 for the fiscal year ended June 30, 1994.
Because there was no revenue generated during those periods, these losses
represent the Company's operating expenses plus income tax.

Liquidity and Capital Resources

  The Company's liquidity over the past two years has been materially and
adversely affected by continuing operating losses. The Company has experienced
total net losses of $985,757 for the two years ended June 30, 1995. As described
in Note 11 to the Company's financial statements, the Company currently has no
operations and is dependent on private debt and equity financing to fund its day
to day cash requirements. Accordingly, the independent auditors' report covering
the Company's financial statements is qualified as to the Company's ability to
continue as a going concern.

  The Company is in the process of attempting to raise approximately $500,000
("Offering") for working capital. The offering is expected to consist of Common
Stock and Warrants to purchase Common Stock, and will be made to "accredited
investors" only pursuant to Regulation D under the Securities Act of 1933.

  At June 30, 1995, the Company had total liabilities of $656,933, of which (i)
$80,412 represented expense reimbursements and loans payable to officers and
directors and their families (all of whom have agreed to defer payment until
such time as the Company is financially able to pay such payments), (ii)
$347,730 represented accounts payable to others (principally professional
advisors and real estate and financial consultants) and (iii) $35,074
represented accrued taxes. On that same date, the Company had assets totaling
$123,702, of which $3,702 represented cash and $120,000 represented prepaid
fees.

  Management believes that proceeds from the Offering will generate sufficient
working capital to conduct the business of the Company during the period that
the Company negotiates for and closes the acquisition of its first shopping
center. Once the Company has acquired a shopping center that meets the Company's
investment criteria, which include among other things, the ability to generate
positive cash flows, management believes that such cash flows will provide the
liquidity and capital resources necessary to conduct the business of the
Company. Management of the Company believes that between the funds generated by
the Offering and any cash flows resulting from the acquisition of a shopping
center, the Company will generate enough cash to support its operations over the
next twelve months.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  The financial statements of the Company are submitted as a separate section of
this Form 10-KSB on pages F-1 through F-14.

                                       5
<PAGE>
 
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

  Kelly & Company ("Kelly") resigned as the Company's Certifying Accountant
effective September 9, 1995.

  The reports of Kelly on the Company's financial statements for the past two
fiscal years did not contain an adverse opinion or a disclaimer of opinion.
However, the financial statements were prepared to reflect the uncertainty as to
the Company's ability to continue as a going concern.

  In connection with the audit of the Company's financial statements for the
year ended June 30, 1994 and the interim period through the date of dismissal,
there was no disagreement between the Company and Kelly on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, and there was no reportable event required to be disclosed.

  The Company requested that Kelly furnish it a letter addressed to the
Commission stating whether it agrees with the above statements. A copy of that
letter, dated September 8, 1995, was filed as Exhibit 16 to the Company's Form
8-K dated September 25, 1995.

  On September 25, 1995, the Company appointed Caldwell, Becker, Dervin, Petrick
& Company ("CBDP") as its new Certifying Accountant. The Company did not consult
with CBDP or any other accounting firm regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of opinion that might be rendered regarding the Company's financial statements,
nor did the Company consult with CBDP with respect to any accounting
disagreement or any reportable event at any time prior to the appointment of
such firm.

                                       6
<PAGE>
 
                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

  The directors*, executive officers and significant personnel of the Company
and their ages are as follows:
<TABLE>
<CAPTION>
          Name              Age            Position
-------------------------   ---   ---------------------------
<S>                         <C>   <C>
Howard M. Palmer             63   Chairman of the Board,
                                  President and Director
 
Leroy Hardy                  59   Vice President and Director
 
Gerald W. May                57   Director
 
A. G. Kading                 47   Treasurer
 
Rosemary Palmer              58   Secretary
</TABLE>
_______________
* The Company's Board of Directors have been operating with two vacancies
  and will continue to do so until suitable candidates can be identified
  and agree to join the Board.

  HOWARD M. PALMER has been Chairman of the Board, President and a director of
the Company since 1993. In addition to his positions with the Company, Mr.
Palmer has been the owner of Palmer Development Company, a real estate
development and investment firm in Anaheim, California, for the last five years.
Mr. Palmer has over 25 years of experience developing neighborhood and discount
shopping centers throughout the Western United States. Mr. Palmer is a licensed
real estate broker in California and a graduate of the University of Southern
California. Mr. Palmer is the husband of Rosemary Palmer.

  LEROY HARDY has been a director and the Vice President of the Company since
1993. In addition to his positions with the Company, Mr. Hardy has been
operating a computer accounting service firm in Denver, Colorado for the last
five years. Mr. Hardy also has served as an assistant vice president of
operations for the First National Bank and Trust Company of Wyoming and an
independent oil and gas landman. Mr. Hardy attended the University of Wyoming.

  GERALD W. MAY has been a director of the Company since 1993 and was the
Treasurer of the Company from 1993, to 1995. Mr. May has been an independent
accountant since 1977 and is a graduate of Creighton University, with a B.S. in
business administration.

                                       7
<PAGE>
 
  A. G. KADING has been Treasurer of the Company since 1995. From 1990 to 1995
he was president of Kading Company, a real estate development and construction
company. Prior to that he held various positions with real estate management,
development and construction companies.

  ROSEMARY PALMER has been Secretary of the Company since 1995. She is and has
for the past five years been a homemaker. Ms. Palmer is the wife of Howard M.
Palmer.

  All directors hold office until the next annual meeting of shareholders of the
Company and the election and qualification of their successors. Officers are
elected annually by, and serve at the discretion of, the Board of Directors.

  All directors are reimbursed for out-of-pocket expenses in connection with
attendance at Board of Directors' meetings and receive a $100 per meeting
director's fee.

Compliance with Beneficial Ownership Reporting Rules

  Section 16(a) of the Securities Act of 1934, as amended ("Exchange Act"),
requires the Company's executive officers and directors, and persons who
beneficially own more than 10% of a registered class of the Company's Common
Stock to file initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission ("Commission"). Such officers,
directors and shareholders are required by Commission regulations to furnish the
Company with copies of all such reports that they file.

  Based solely upon a review of copies of such reports furnished to the Company
during its fiscal year ended June 30, 1995 and thereafter, or any written
representations received by the Company from a director, officer or beneficial
owner of more than 10% of the Company's Common Stock ("reporting persons") that
no other reports were required, the Company believes that, during the Company's
1995 fiscal year, all Section 16(a) filing requirements applicable to the
Company's reporting persons were complied with.

ITEM 10. EXECUTIVE COMPENSATION.

  Effective October 1, 1993, Howard Palmer entered into an employment agreement
with the Company, pursuant to which Mr. Palmer is entitled to base cash
compensation of $120,000 per year. Currently, this salary is being accrued. The
Board of Directors is exploring the future possibility of exchanging some or all
of this accrued salary for Common Stock of the Company. The Company also
maintains a reimbursement policy whereby executive officers are reimbursed for
actual expenses incurred in connection with the management of the Company and
its business.

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<PAGE>
 
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

  The following table sets forth as of June 30, 1996, certain information with
respect to the beneficial ownership of the Company's Common Stock held by each
director and officer and by all directors and officers as a group, as well as
the identity of each person known to the Company to be the beneficial owner of
more than 5% of the Company's Common Stock and the respective beneficial
ownerships of those persons.
<TABLE>
<CAPTION>
 
                                           Amount and Nature
          Name and Address              of Beneficial Ownership     Percent of
      of Beneficial Owner(1)(2)             of Common Stock       Common Stock(3)
-------------------------------------   -----------------------   ---------------
<S>                                     <C>                       <C>
 
Howard M. and                                   986,000                     25.3%
  Rosemary Palmer(4)
 
Julia Murray(5)                                 800,000                     22.9%
 
Robert and Lynda Cullen(6)                      470,792                     12.3%
1050 N. Anaheim Blvd.
Anaheim, California  92801
 
Estate of James T. Hays(7)                      302,018                      8.5%
518 Dwyer Drive
Anaheim, California  92801
 
Don Zink(8)                                     254,500                      6.9%
2100 Sepulveda Blvd., #24
Manhattan Beach, California  90266
 
William Jones                                   200,000                      5.7%
P. O. Box 27282
Tempe, Arizona  85285
 
Leroy Hardy(9)                                   79,783                      2.3%
 
Gerald W. May(10)                                79,783                      2.3%
 
All Directors and Officers                    1,145,566                     29.0%
as a Group (4 persons)
</TABLE>

__________________
(1)      The address of each officer and director is c/o Focal Corporation, 518
         Dwyer Drive, Anaheim, California 92801.
(2)      Except as indicated in the footnotes to this table and pursuant to
         applicable community property laws, the persons named in this table
         have sole voting and investment power with respect to all shares of
         Common Stock.

(footnotes continued at bottom of following page)

                                       9
<PAGE>
 
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

  In connection with the reorganization of the Company and the Board of
Directors' desire to acquire real estate assets, operating funds and additional
management personnel, the Company entered into an agreement dated July 29, 1993
among the Company, Focal Development Corporation of Nevada ("FDCN") (a Nevada
corporation controlled by the estate of James T. Hays) and Howard M. Palmer.
Pursuant to the agreement, Mr. Palmer became President of the Company and began
the process of locating and negotiating for shopping center properties through
his independent network of experienced retail site selectors, lease negotiators
and property managers. Each acquisition will be negotiated and approved by the
Company's Board of Directors on an individual basis. In connection with the
agreement, FDCN transferred its 404,839 shares of the Company's Common Stock as
follows:  160,000 shares to Mr. Palmer, 80,000 shares to Don Zink and the
balance to Mr. Hays. Mr. Zink subsequently transferred his 80,000 shares to a
business associate. Mr. Hays subsequently gifted his shares to various
individuals, including 64,054 shares to his wife. In addition, Coast Advisors,
Inc., an affiliate of Mr. Palmer, was issued 10,000 shares of the Company's
Common Stock in exchange for a $5,000 capital contribution.

  In August 1993, Howard M. Palmer was issued 250,000 shares of the Company's
Common Stock in connection with his appointments as Chairman of the Board and
President of the Company. Mr. Palmer subsequently transferred these shares to
Coast Advisors, Inc., a Nevada corporation affiliated with Mr. Palmer.

__________________
(3)      All percentages have been calculated to include warrants which are
         immediately exercisable into shares of Common Stock by the particular
         shareholder.
(4)      Includes 316,000 shares which Mr. Palmer owns of record. Also includes
         (i) 260,000 shares held by Coast Advisors, Inc., a Nevada corporation
         affiliated with Mr. Palmer and (ii) warrants to purchase 410,000 shares
         of Common Stock. Mr. Palmer is the President and Chairman of the Board
         of Directors of the Company, and his wife, Rosemary, is the Secretary.
(5)      Consists of 800,000 shares of Common Stock held in an informal escrow
         pending performance by Ms. Murray with respect to obtaining a
         $5,000,000 loan for the Company.
(6)      Includes (i) 200,000 shares held of record by the Cullen Family Trust,
         a trust administered by the Cullens, and (ii) warrants to purchase
         260,000 shares of Common Stock held by the Cullen Family Trust.
(7)      Prior to his death on July 17, 1994, Mr. Hays was the Secretary and a
         director of the Company. Mr. Hays owned the Company's Common Stock as
         follows: (i) 4,637 shares held directly by Mr. Hays, (ii) 50,000 shares
         held by Mr. Hays and his wife as joint tenants, (iii) 27,568 shares
         held directly by Mr. Hays' wife, (iv) 135,393 shares held by Focal
         Development Corporation, a Colorado corporation controlled by Mr. Hays'
         wife ("FDC") and (v) 29,783 shares held by Interdec Corporation, a
         Colorado corporation affiliated with Mr. Hays ("Interdec"), and (vi)
         warrants to purchase 54,637 shares of Common Stock.
(8)      Includes (a) 54,500 shares held by 1st S. I. Fund Trust, a trust
         administered by Mr. Zink and (b) 200,000 shares which Mr. Zink has the
         right to acquire upon exercise of warrants granted to him in connection
         with financial and real estate services rendered to the Company.
(9)      Includes 25,000 shares which Mr. Hardy owns of record. Also includes
         (i) 29,783 shares held by Interdec, for which Mr. Hardy serves as an
         officer and director and (ii) warrants to purchase 25,000 shares of
         Common Stock.
(10)     Includes 25,000 shares which Mr. May owns of record.  Also includes (i)
         29,783 shares held by Interdec, for which Mr. May serves as an officer
         and director and (ii) warrants to purchase 25,000 shares of Common
         Stock.

                                       10
<PAGE>
 
   In September 1993 and for services rendered to the Company, the directors of
the Company were issued warrants to purchase shares of Common Stock as follows:
Howard M. Palmer, 410,000 shares; James T. Hays, 54,637 shares; Gerald W. May,
25,000 shares; and Leroy Hardy, 25,000 shares. The warrants issued to the
Company's directors are exercisable into Common Stock at $1.00 per share through
December 31, 1999. Other than the exercise price, the terms and conditions of
the warrants issued to the directors are identical to the warrants issued in the
Company's private placement of Common Stock and warrants in October 1993 through
June 1994. The fair market value of the Company's Common Stock, as determined by
the Company's Board of Directors, was $0.50 per share on the date of the grant
of the warrants.

   In September 1993, Don Zink was issued warrants to purchase 200,000 shares of
the Company's Common Stock for financial and real estate services previously
rendered to the Company. The warrants issued to Mr. Zink contain the same terms
and conditions as those issued to directors of the Company and described above.
The fair market value of the Company's Common Stock, as determined by the
Company's Board of Directors, was $0.50 per share on the date of the grant of
the warrants. In addition, Mr. Zink was issued an additional 40,000 shares of
the Company's Common Stock pursuant to a consulting arrangement with the
Company, whereby Mr. Zink had rendered financial and real estate services to the
Company.

   In November 1993, Robert and Lynda Cullen, as trustees for the Cullen Family
Trust, purchased 60,000 shares of Common Stock at $0.50 per share and warrants
to purchase an additional 60,000 shares of Common Stock at an exercise price
between $1.00 and $3.00 per share pursuant to the Company's private placement.
In April 1994, the Cullen Family Trust purchased 140,000 shares of Common Stock
and warrants to purchase an additional 140,000 shares of Common Stock on
identical terms as those described above. In addition, in April 1994, the Cullen
Family Trust was issued warrants to purchase an additional 60,000 shares of
Common Stock at an exercise price between $1.00 and $3.00 per share for
consulting services rendered to the Company by Mr. and Mrs. Cullen.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>
     (a) EXHIBITS

     <C>                <S>
     3.1.............   Articles of Incorporation of the Company.*

     3.2.............   Amendment to the Articles of Incorporation changing the
                        Company's name to TVM Global Entertainment, Inc.*

     3.3.............   Amendment to the Articles of Incorporation changing the
                        Company's name to Cinema Features, Inc.*

     3.4.............   Amendment to the Articles of Incorporation changing the
                        Company's name to Focal Corporation.*

     3.5.............   Restated Bylaws of the Company.*
</TABLE>

                                       11
<PAGE>
 
<TABLE>
<CAPTION>

     <C>                <S>
     3.6.............   Amendment to the Articles of Incorporation authorizing
                        the Series A Convertible Preferred Stock.*

     4.1.............   Specimen stock certificate of the Company.*

     10.1............   Form of Warrant Certificate issued to directors of the
                        Company (schedule of directors receiving Warrants
                        attached thereto).*

     10.2............   Employment Agreement dated October 1, 1993 between the
                        Company and Howard M. Palmer.*

     10.3............   Agreement dated July 29, 1993 between the Company and
                        Howard M. Palmer, whereby the Company acquired operating
                        funds, management expertise and potential real estate
                        assets in exchange for Common Stock and future
                        consideration.*

     10.4............   Bill of Sale and Transfer of Rights in Movie Properties
                        dated June 27, 1993 between the Company and
                        Maverick Marketing Management, Inc.*

     10.5............   Form of Convertible Promissory Note.

     10.6............   Purchase Agreement dated June 18, 1996, between the
                        Registrant and Gilbert Arizona Development
                        Corporation.

     10.7............   Amendment to Purchase Agreement and Escrow Instructions
                        dated June 26, 1995, between the Registrant and
                        Myung Hee Lee.
</TABLE>
_______________
* Filed as an exhibit to the Company's Registration Statement on Form 10-SB
  dated November 26, 1993 or amendment thereto dated March 28, 1994
  (Registration No. 0-22968) and incorporated herein by reference.

     (b) REPORTS ON FORM 8-K.

     Inapplicable.

                                       12
<PAGE>
 
                                  SIGNATURES

  In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                               FOCAL CORPORATION



Dated: October 31, 1996       By: /s/ HOWARD M. PALMER
                                  -------------------------------------
                                      Howard M. Palmer, Chairman of the
                                      Board and President

  In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE> 
<CAPTION> 
        Name                       Title                      Date
        ----                       -----                      ----
<S>                      <C>                          <C>  
/s/ HOWARD M. PALMER      Chairman of the Board and    October 31, 1996
--------------------                                                
Howard M. Palmer          President (Principal
                          Executive Officer)


/s/ A. G. KADING          Treasurer                    October 31, 1996
----------------                                                    
A. G. Kading              (Principal Financial
                          and Accounting Officer)


/s/ LEROY HARDY           Vice President and           October 29, 1996
---------------                                                     
Leroy Hardy               Director


/s/ GERALD W. MAY         Director                     October 29, 1996
-----------------                                                   
Gerald W. May
</TABLE> 

                                       13
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                             FINANCIAL STATEMENTS
                                 JUNE 30, 1995



                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
 
                                                              Page
<S>                                                        <C>
Independent Auditors' Report                                  F-2
 
Prior Independent Auditors' Report                         F-3 - F-4
 
Balance Sheet as of June 30, 1995                             F-5
 
Statements of Operations
 For the Years Ended June 30, 1995 and 1994                   F-6
 
Statement of Operations
 From Inception of Development Stage to June 30, 1995         F-7
 
Statement of Shareholders' Equity (Deficit)
 From Inception of Development Stage to June 30, 1995         F-8
 
Statements of Cash Flows
 For the Years Ended June 30, 1995 and 1994                   F-9
 
Statement of Cash Flows
 From Inception of Development Stage to June 30, 1995         F-10
 
Notes to Financial Statements                              F-11 - F-14
 
</TABLE>

                                      F-1
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT


November 20, 1995


To the Board of Directors
Focal Corporation
Anaheim, California

We have audited the accompanying balance sheet of Focal Corporation (a
development stage company) as of June 30, 1995, and the related statements of
operations, shareholders' equity (deficit), and cash flows for the year ended
June 30, 1995.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on the
financial statements based on our audit.  The financial statements of Focal
Corporation (a development stage company) from inception (July 1, 1993) to June
30, 1994 were audited by other auditors whose report has been furnished to us
and is included in these financial statements.  Our opinion insofar as it
relates to the amounts included for Focal Corporation (a development stage
company) for the period stated above, is based solely on the report of the other
auditors.

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

In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Focal Corporation  (a development stage company) as of
June 30, 1995, and the results of their operations and their cash flows for the
years ended June 30, 1995 and 1994 and from inception (July 1, 1993) to June 30,
1995, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern.  As discussed in Note 11 to the
financial statements, there is doubt about the ability of the company to
continue as a going concern.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



/s/ Caldwell, Becker, Dervin, Petrick & Company
-----------------------------------------------
CALDWELL, BECKER, DERVIN, PETRICK & COMPANY
Woodland Hills, California

                                      F-2
<PAGE>
 
                        REPORT OF INDEPENDENT AUDITORS
                        ------------------------------


To the Board of Directors
Focal Corporation

We have audited the accompanying consolidated balance sheet of Focal Corporation
and subsidiary as of June 30, 1994, and the consolidated statements of 
operations, shareholders' equity and cash flows for the year then ended. 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 audit. The financial statements of Focal Corporation as of June 30, 1993 
were audited by other auditors whose report dated August 2, 1993 on those 
financial statements included an explanatory paragraph that described the going 
concern issue and management's plan in Note 2(b) of those financial statements.

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

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the consolidated financial position of Focal 
Corporation as of June 30, 1994, and the results of its operations and cash 
flows for the year then ended in conformity with generally accepted accounting 
principles.

The accompanying consolidated financial statements have been prepared assuming 
that the Company will continue as a going concern. As discussed in Note 5 to the
consolidated financial statements, the Company has no operations, and has 
negative working capital and a stockholders' deficit at June 30, 1994. The 
Company's ability to achieve the described elements of its management plan are 
uncertain due to the lack of any identifiable sources of capital necessary to 
meet the required fiscal demands. The Company's financial position and operating
results raise substantial doubt about its ability to continue as a going 
concern. Management's plan in regard to these matters is also described in Note 
5. The consolidated financial statements do not include any adjustments that 
might result from the outcome of this uncertainty.

                                      F-3
<PAGE>
 
In addition, in our opinion, the financial statement schedules referred to 
above, when considered in relation to the basic financial statements taken as a 
whole, present fairly, in all material respects, the information required to be
included therein.

KELLY & COMPANY

/s/ Kelly & Company
-------------------
Tustin, California
October 7, 1994

                                      F-4
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                                 JUNE 30, 1995



                                     ASSETS
                                     ------
<TABLE>
<CAPTION> 
CURRENT ASSETS
<S>                                           <C>
  Cash                                        $  3,702
                                              --------
  Total Current Assets                           3,702
                                              --------
REFUNDABLE LOAN COMMITMENT FEE (Note 2)        120,000

DEFERRED TAX ASSET (Note 3)                         --
                                              --------
       Total Assets                           $123,702
                                              ========
 
</TABLE>

                LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
 
 
CURRENT LIABILITIES
<S>                                                                 <C>
  Accounts payable                                                  $   347,730
  Accrued expenses - related parties (Note 10)                           65,412
  Accrued taxes (Note 4)                                                 35,074
  Accrued vacation (Note 4)                                               6,230
  Interest payable                                                        2,487
  Notes payable (Note 5)                                                 30,000
  Loans payable - related parties (Note 6)                               15,000
  Loan payable (Note 7)                                                 150,000
  Loan fee payable                                                        5,000
                                                                    -----------
       Total Current Liabilities                                        656,933
                                                                    -----------
 
SHAREHOLDERS' EQUITY (DEFICIT)
  Preferred stock; 100,000,000 shares authorized, no shares
   outstanding, no par value                                                 --
  Common stock; 40,000,000 shares authorized, 2,690,676 shares
   issued and outstanding, $0.10 par value (Note 12)                    269,068
  Additional paid in capital                                          1,923,393
  Deficit accumulated before the development stage                   (1,739,945)
  Deficit accumulated during the development stage                     (985,747)
                                                                    -----------
       Total Shareholders' Equity (Deficit)                            (533,231)
                                                                    -----------
       Total Liabilities and Shareholders' Equity (Deficit)         $   123,702
                                                                    ===========
 
</TABLE>

The Accompanying Footnotes are an Integral Part of These Financial Statements

                                      F-5
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                           STATEMENTS OF OPERATIONS
                  FOR THE YEARS ENDED JUNE 30, 1995 AND 1994



<TABLE>
<CAPTION>
 
                                                        1995         1994
                                                     ---------    ---------
<S>                                                  <C>          <C> 
REVENUES (Note 1)                                    $       0    $       0
 
OPERATING COSTS AND EXPENSES                           511,625      472,322
                                                     ---------    ---------
       (Loss) Before Income Taxes                     (511,625)    (472,322)
 
PROVISION FOR INCOME TAXES                               1,000          800
                                                     ---------    ---------
       Net (Loss)                                    $(512,625)   $(473,122)
                                                     =========    =========
       (Loss) per common share and common share
       equivalent (Note 8)                           $    (.21)   $    (.25)
                                                     =========    =========
 
</TABLE>

The Accompanying Footnotes are an Integral Part of These Financial Statements

                                      F-6
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF OPERATIONS
             FROM INCEPTION OF DEVELOPMENT STAGE TO JUNE 30, 1995



<TABLE>
<CAPTION>
 
<S>                                    <C>
REVENUES                               $       0
 
OPERATING COSTS AND EXPENSES             983,947
                                       ---------
       (Loss) Before Income Taxes       (983,947)
 
PROVISION FOR INCOME TAXES                 1,800
                                       ---------
       Net (Loss)                      $(985,747)
                                       =========
 
</TABLE>

The Accompanying Footnotes are an Integral Part of These Financial Statements

                                      F-7
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                 STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
             FROM INCEPTION OF DEVELOPMENT STAGE TO JUNE 30, 1995

<TABLE>
<CAPTION>

                                                                                                  Total
                                                                                                  Share-
                       Common Stock        Preferred Stock      Additional                        holders'
                   -------------------    -----------------       Paid-in        Accumulated      Equity
                     Shares    Amount      Shares    Amount       Capital         Deficit        (Deficit)
                   ---------  ---------   --------  --------   ------------    --------------   ----------- 
<S>                <C>        <C>         <C>       <C>        <C>             <C>              <C>

July 1, 1993 -
 Balance at
 beginning of
 development
 stage             1,526,396  $ 152,640         --  $     --   $  1,576,181    $   (1,739,945)  $   (11,124)
 
    Stock issued   
     for services    349,960     34,996                              21,484                          56,480
 
    Sale of stock    414,120     41,412                             165,648                         207,060

    Net (Loss)                                                                       (473,122)     (473,122)
                   ---------  ---------   --------  --------   ------------    --------------   ----------- 
Balance at
 June 30, 1994     2,290,476    229,048         --        --      1,763,313        (2,213,067)     (220,706)
 
    Stock issued
     for services    114,800     11,480                              45,920                          57,400
 
    Stock issued
     to officer
     in lieu of
     salary          200,000     20,000                              80,000                         100,000
 
    Sale of stock     75,400      7,540                              30,160                          37,700

    Stock issued
     for payment
     of note          10,000      1,000                               4,000                           5,000
 
    Net (Loss)                                                                       (512,625)     (512,625)
                   ---------  ---------   --------  --------   ------------    --------------   -----------  
Balance at
 June 30, 1995     2,690,676  $ 269,068         --  $     --   $  1,923,393    $   (2,725,692)  $  (533,231)
                   =========  =========   ========  ========   ============    ==============   ===========
</TABLE>

The Accompanying Footnotes are an Integral Part of These Financial Statements

                                      F-8
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED JUNE 30, 1995 AND 1994



<TABLE>
<CAPTION>
                                                                       1995          1994
                                                                    -----------   -----------
<S>                                                                 <C>           <C>
CASH FLOWS PROVIDED (USED) BY OPERATING
 ACTIVITIES:
    Net (loss)                                                      $  (512,625)  $  (473,122)
    Adjustments to reconcile net (loss) to net cash provided
     (used) by operating activities:
      Non-cash compensation and promotion                                    --        83,960
      Operating expenses paid by issuance of stock                       57,400            --
      Compensation to officer paid by issuance of stock                 100,000            --
      Operating expenses paid by reduction of loan
       commitment fee                                                    30,000            --
      Loss on write-off of assets                                            --       (18,250)
      Decrease in prepaid expenses                                       10,000            --
      Increase in accounts payable and accrued expenses                 218,282       210,810
                                                                    -----------   ----------- 
               Net Cash Flows (Used) by Operating Activities            (94,456)     (196,602)
                                                                    -----------   -----------
CASH FLOWS (USED) BY INVESTING ACTIVITIES:
    Refundable loan commitment fee                                     (150,000)           --
                                                                    -----------   -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
    Issuance of notes payable                                            50,000            --
    Issuance of common stock                                             37,700       207,060
    Issuance of loan payable                                            150,000            --
                                                                    -----------   -----------
               Net Cash Flows Provided by Financing Activities          237,700       207,060
                                                                    -----------   -----------
NET INCREASE (DECREASE) IN CASH                                          (6,756)       10,458
 
CASH AT THE BEGINNING OF THE YEAR                                        10,458             0
                                                                    -----------   -----------
CASH AT THE END OF THE YEAR                                         $     3,702   $    10,458
                                                                    ===========   ===========
 
ADDITIONAL DISCLOSURES:
    Cash paid during each year for:
        Interest                                                    $         0   $         0
                                                                    ===========   ===========
        Income taxes                                                $     1,000   $         0
                                                                    ===========   ===========
NON CASH INVESTING AND FINANCING
 TRANSACTIONS:
    Common stock issued in consideration of loan                    $     5,000   $        --
                                                                    ===========   ===========
</TABLE>

The Accompanying Footnotes are an Integral Part of These Financial Statements

                                      F-9
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF CASH FLOWS
             FROM INCEPTION OF DEVELOPMENT STAGE TO JUNE 30, 1995

<TABLE> 
<CAPTION> 
<S>                                                                     <C>   
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
    Net (loss)                                                          $(985,747)
    Adjustments to reconcile net (loss) to net cash provided
     (used) by operating activities:
      Non-cash compensation and promotion                                  83,960
      Operating expenses paid by issuance of stock                         57,400
      Compensation to officer paid by issuance of stock                   100,000
      Operating expenses paid by reduction of loan commitment fee          30,000
      Loss on write-off of assets                                         (18,250)
      Decrease in prepaid expenses                                         10,000
      Increase in accounts payable and accrued expenses                   429,092
      Increase in interest payable                                          2,487
                                                                        --------- 
               Net Cash Flows (Used) by Operating Activities             (291,058)
                                                                        ---------
CASH FLOWS (USED) BY INVESTING ACTIVITIES
    Refundable loan commitment fee                                       (150,000)
                                                                        ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
    Issuance of notes payable                                              50,000
    Issuance of common stock                                              244,760
    Issuance of loan payable                                              150,000
                                                                        ---------
               Net Cash Flows Provided by Financing Activities            444,760
                                                                        ---------
NET INCREASE IN CASH                                                        3,702
 
CASH AT THE BEGINNING OF THE PERIOD                                             0
                                                                        ---------
CASH AT JUNE 30, 1995                                                   $   3,702
                                                                        =========
ADDITIONAL DISCLOSURES:
    Cash paid during the period for:
      Interest                                                          $       0
                                                                        =========
      Income taxes                                                      $   1,000
                                                                        =========
NON CASH INVESTING AND FINANCING TRANSACTIONS:
    Common stock issued in consideration of loan                        $   5,000
                                                                        =========
</TABLE>

The Accompanying Footnotes are an Integral Part of These Financial Statements



                                      F-10
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 1995



NOTE 1  - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development Stage Company

Focal Corporation was incorporated in the State of Utah in 1980 as Petro-
Funding.  The Company sold and distributed its assets from the movie
distribution business during May and June of 1993.  The Company then changed the
focus of its business on July 1, 1993 to the acquisition, development and
management of commercial real estate, primarily shopping centers.  The Company
has not acquired any properties as of the date of this report, and has not
recognized any income from the date of inception (July 1, 1993) to June 30,
1995.  As the Company was involved in other businesses prior to July 1, 1993, an
accumulated deficit of $1,739,945 had been incurred to the last day of those
operations on June 30, 1993.  Focal Corporation has not generated revenue since
the sale and distribution of assets from the movie distribution business during
May and June of 1993, as such, the accompanying financial statements have been
prepared using the accounting formats described for development stage companies
since July 1, 1993.

Income Taxes

The Company files federal income and state franchise tax returns.  The Company
accounts for deferred income taxes using the liability method in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS No. 109), which it
adopted during 1994.  Deferred income taxes are computed based on the tax
liability or benefit in future years of the reversal of temporary differences in
the recognition of income or deduction of expenses between financial and tax
reporting purposes.  The net difference between tax expense and taxes currently
payable is reflected in the balance sheet as deferred taxes.  Deferred tax
assets and/or liabilities are classified as current and noncurrent based on the
classification of the related asset or liability for financial reporting
purposes, or based on the expected reversal date for deferred taxes that are not
related to an asset or liability.

NOTE 2 - REFUNDABLE LOAN COMMITMENT FEE

The Company has a refundable loan commitment deposit in an account with a bank.
This is a deposit toward a loan commitment fee for a pending project.  The
project, for which the deposit was made, was due to close as of November 21,
1994; however, as of the date of the financial statements the project has not
closed and the deposit remains with the bank.  The original deposit was
$150,000.  As of June 30, 1995 $120,000 remains on deposit (see Note 7).  As of
the date of the financial statements, the Company has incurred approximately
$24,500 of costs associated with this loan commitment.  These costs will be
applied against the refundable deposit.

NOTE 3 - INCOME TAXES

Deferred tax assets and liabilities are recorded based on the difference between
the financial statement and tax return bases of assets and liabilities.
Deferred tax assets and liabilities at the end of each period are determined
using the tax rate expected to be in effect when taxes on these accounts are
expected to be paid or recovered.  Accordingly, the current period tax provision
can be affected by the enactment of new tax rates.

                                      F-11
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 1995



NOTE 3 - INCOME TAXES (CONTINUED)

The net deferred tax amounts included in the accompanying balance sheet include
the following amounts of deferred tax assets and liabilities at June 30, 1995:
<TABLE>
<CAPTION>
<S>                                       <C>
Deferred Tax Asset - Non-Current          $ 393,600
Deferred Tax Liability - Non-Current             --
                                          ---------
                                            393,600
Valuation allowance                        (393,600)
                                          ---------
 
Net Deferred Tax Asset - Non-Current      $       0
                                          =========
</TABLE>

The deferred tax asset results from ordinary loss carryforwards available to
reduce future taxable income.  The valuation allowance account is established to
reduce the tax asset account to $0 because the operating losses may not be
utilized.  The valuation allowance increased by $204,800 from June 30, 1994 to
June 30, 1995 as a result of additional operating losses.

As of June 30, 1995 and 1994, for income tax purposes, the Company had
approximately $984,000 and $472,000, respectively, of ordinary loss carryforward
available to reduce future taxable income through the year 2010.

NOTE 4 - ACCRUED EXPENSES

The Company has $35,074 of accrued payroll taxes which existed as of June 30,
1994 for individuals held out to be employees rather than independent
contractors.  No assessment has been imposed for such taxes.  However, because
at the present time there is no assurance that the taxes or applicable penalties
and interest will not be imposed, the estimated payroll taxes have remained
accrued.

The Company has $6,230 of accrued vacation pay from June 30, 1994 for the
president of the Company.  The president of the Company has waived his rights to
vacation pay earned during fiscal year 1995.  Accrued vacation pay from June 30,
1994 will be paid when funds are available.

NOTE 5 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consisted of the following at June 30, 1995:
<S>                                                                       <C>
Note payable - David Pamintuan, with interest at 12%, currently due       $15,000

Notes payable - various individuals, with interest at 10%, currently due   15,000
                                                                          -------
                                                                          $30,000
                                                                          =======
</TABLE> 
Neither of these notes is collateralized.  Renewal of these notes is at the
discretion of the holders.  However, management expects renewals to occur in the
normal course of business for the foreseeable future.

                                      F-12
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 1995



NOTE 6 - LOANS PAYABLE - RELATED PARTIES

Loans payable - related parties consisted of the following at June 30, 1995:
<TABLE>
<CAPTION>
<S>                                                                           <C>
Loan payable - K. Palmer, son of Howard Palmer, no stated terms               $10,000
 
Loan payable - Howard Palmer, president of the Company, no stated terms         5,000
                                                                              -------
                       Total Loans Payable                                    $15,000
                                                                              =======
</TABLE>

Neither of these loans is collateralized.  Renewal of these loans is at the
discretion of the holders.  However, management expects renewals to occur in the
normal course of business for the foreseeable future.

NOTE 7 - LOAN PAYABLE

The Company received an unsecured loan from a non-related third party.  The loan
was due on November 21, 1994 (the anticipated closing date of the pending
project as referenced in Note 2); however, as of the date of the financial
statements, the pending project has not closed and the loan has not been paid.
Upon either closing or termination of the pending project, the full $150,000 is
payable to the non-related third party.  Interest is not accruing on this
payable.
 
NOTE 8 - LOSS PER COMMON SHARE

Primary loss per common and common equivalent share, assuming no dilution, is
computed based on the weighted average number of shares of common stock and
common stock equivalents outstanding during each year.  The number of weighted
average common and common equivalent shares, as applicable, outstanding during
the years ended June 30, 1995 and 1994 was 2,453,368 and 1,863,386,
respectively.  Fully diluted per share data is not presented as the effects
would be antidilutive.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

The Company has entered into an employment contract with its president that
provides for a monthly salary and annual vacation pay.  The contract expires at
June 30, 1996.  At the present time, due to lack of Company funds, this amount
is being accrued.  However, the president of the Company has elected to waive
his rights to all vacation pay earned during fiscal year 1995 and, as such, no
amounts have been accrued for that period.

The Company has been named in lawsuits for unpaid expenses to vendors.  These
expenses have been accrued by the Company.

NOTE 10 - RELATED PARTY TRANSACTIONS

The Company has accrued expenses of $65,412 due to officer and directors of the
Company at June 30, 1995.  The Company issued stock valued at $100,000 to Howard
Palmer, president of the Company, in lieu of salary during fiscal year 1995.

                                      F-13
<PAGE>
 
                               FOCAL CORPORATION
                         (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 30, 1995



NOTE 11 - UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN

The financial statements have been prepared assuming the Company will continue
as a going concern.  The Company currently has no operations and is dependent
upon funds from a private placement for funding its day-to-day cash
requirements.  The Company has been directing its efforts to acquiring well-
leased, existing ten to twenty acre discount shopping centers, anchored by major
national retail tenants.  The Company has located properties in Arizona,
California and Nevada that fit its investment criteria and is exploring ways to
finance the acquisition of these properties.  If the Company is able to acquire
these properties, the properties may generate adequate revenues for the Company
to finance its operations.  The Company's president, who has been in the
discount shopping center development business for over twenty-five years, is
currently working with representatives of national retail chains to select
possible sites in various areas for future development of shopping centers.  The
Company proposes to construct the facilities and lease them back to the
retailers on long term leases.  At the present time there is no assurance that
these events will take place.  The effect of the foregoing matters raises
substantial doubt about the ability of the Company to continue as a going
concern.  As discussed in Notes 5 and 6, the Company is also dependent upon
creditors not calling the loans.

NOTE 12 - WARRANTS TO PURCHASE COMMON STOCK

In connection with the restructuring of the Company, 774,637 warrants were
issued to certain officers and key employees of the Company to purchase common
stock.  Each warrant represents the right to purchase one share of the Company's
common stock for $1 per share.  The warrants expired on December 31, 1995.

In connection with the private placement that took place during 1994, the
Company issued 234,120 warrants to the investors to purchase common stock at $2
per share through December 31, 1994 and $3 per share from January 1, 1995 to
December 31, 1995.  There are certain provisions in the warrant for adjustment
of the exercise price if certain events occur.  It is not possible to determine
at this time if the exercise price would be adjusted.  The warrants expired on
December 31, 1995.

In connection with the issuance of stock and notes payable during 1995, the
Company issued 425,200 warrants to purchase common stock at prices ranging from
$1.00 per share to $3.00 per share.  The warrants expire at different times
through July 31, 1998.

                                      F-14
<PAGE>
 
                                 EXHIBIT INDEX

<TABLE> 
<CAPTION> 
Exhibit No.                   Description                               Page No.
-----------                   -----------                               --------
  <C>           <S>                                                     <C> 
 
    3.1         Articles of Incorporation of the Company.*

    3.2         Amendment to the Articles of Incorporation changing
                the Company's name to TVM Global Entertainment, Inc.*

    3.3         Amendment to the Articles of Incorporation changing
                the Company's name to Cinema Features, Inc.*

    3.4         Amendment to the Articles of Incorporation changing
                the Company's name to Focal Corporation.*

    3.5         Restated Bylaws of the Company.*

    3.6         Amendment to the Articles of Incorporation authorizing
                the Series A Convertible Preferred Stock.*

    4.1         Specimen stock certificate of the Company.*

   10.1         Form of Warrant Certificate issued to directors of
                the Company.*

   10.2         Employment Agreement dated October 1, 1993 between
                the Company and Howard M. Palmer.*

   10.3         Agreement dated July 29, 1993 between the Company and
                Howard M. Palmer, whereby the Company acquired operating
                funds, management expertise and potential real estate
                assets in exchange for Common Stock and future
                consideration.*

   10.4         Bill of Sale and Transfer of Rights in Movie Properties
                dated June 27, 1993 between the Company and Maverick
                Marketing Management, Inc.*

   10.5         Form of Convertible Promissory Note.

   10.6         Purchase Agreement dated June 18, 1996, between the
                Registrant and Gilbert Arizona Development Corporation.

   10.7         Amendment to Purchase Agreement and Escrow Instructions
                dated June 26, 1995, between the Registrant and
                Myung Hee Lee.

   27           Financial Data Schedule 

</TABLE> 
_______________
*      Filed as an exhibit to the Company's Registration Statement on Form 10-SB
       dated November 26, 1993 or amendment thereto dated March 28, 1994
       (Registration No. 0-22968) and incorporated herein by reference.

                                       1