FIRST LOOK MEDIA INC - 10-K Annual Report

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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, 2001

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

Commission File Number 0-25308

FIRST LOOK MEDIA, INC.
(Exact name of Registrant as specified in its charter)

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

8000 Sunset Blvd., Penthouse East,
Los Angeles, CA 90046
(Address of principal executive offices) (zip code)

Registrant's telephone number, including area code: (323) 337-1000

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)

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

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

The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of April 12, 2002, (based on the closing sale price on such
date as reported on the OTC Bulletin Board) was $1,193,265.

The number of shares of common stock outstanding as of April 12, 2002
was 11,909,139.

PART I

ITEM 1. BUSINESS

General

First Look Media, Inc. specializes in the acquisition and direct
distribution of, and worldwide license and sale of distribution rights to,
independently produced feature films in a wide variety of genres. These genres
include:

o action;
o art-house;
o comedy;
o drama;
o foreign language;
o science fiction; and
o thrillers.

We have accumulated a library of distribution rights, including sales agency
rights, in various media and markets to more than 310 feature films.

We operate in numerous capacities, including as:

o a distributor. We acquire the distribution rights to films for
specified terms, territories and media from independent
producers. In this capacity, we receive distribution fees. In
exchange for these distribution rights, we may commit to pay
the independent producer a minimum guaranteed payment ranging
from approximately $100,000 to $5,000,000 at or after delivery
of the completed film. These minimum guaranteed payments
represent varying portions of the films' production costs,
including, on occasion, substantially all of such costs. These
minimum guaranteed payments may enable the independent
producer to obtain financing for the production and/or
completion of the film. By providing these minimum guaranteed
payments, we are often able to secure more extensive
distribution rights on more favorable terms. Additionally, we
are able to distribute pictures directly in the United States
both theatrically through our First Look Pictures division and
on video and DVD through our First Look Home Entertainment
division.

o a producer. We selectively produce motion pictures that we
distribute, generally acquiring fully developed projects ready
for pre-production and contracting out pre-production and
production activities. Additionally, we have established a
television commercial production division.

Historically, we have focused on licensing theatrical, video, pay
television, free television, satellite and other distribution rights to foreign
sub-distributors in major international territories and regions. These
activities accounted for approximately 66.3% of our total revenues in 2000 and
approximately 53.4% of our total revenues in 2001.

Recently, we have become more active with distribution activities in
the U.S. where we engage directly in domestic theatrical distribution through
our First Look Pictures division and domestic video distribution through our
First Look Home Entertainment division. Our theatrical distribution activities
include booking motion pictures for exhibition at movie theaters, arranging for
the manufacture of release prints from film negatives, and promoting motion
pictures with advertising and publicity campaigns. Our video distribution
activities include the promotion and sale of videocassettes to local, regional
and national video retailers.

In 2001, we launched a television commercial production division which
generated $263,000 of gross revenue. In connection with this division, we have
hired experienced management and engaged two experienced directors of television
commercial productions. We have begun producing commercials that are broadcast
on domestic television.

Corporate Information

Our company was incorporated in Delaware in December 1993 under the
name "Entertainment/Media Acquisition Corporation" in order to acquire an
operating business in the entertainment and media industry. We consummated our
initial public offering in February 1995, and in October 1996, we merged with
Overseas Filmgroup, Inc., a privately-held Delaware corporation ("Overseas
Private") that had been operating since February 1980. Our company was the
surviving corporation in the merger. Upon consummation of the merger, we changed
our name to "Overseas Filmgroup, Inc." We operated under the name "Overseas
Filmgroup, Inc." until January 2001. In January 2001, we changed our name to
"First Look Media, Inc." in order to reflect the broadening of our operations
beyond foreign distribution of independently produced feature films to
additional areas such as theatrical and video distribution in the United States
and television commercial production.

Our principal executive offices are located at 8000 Sunset Boulevard,
Penthouse East, Los Angeles, California 90046, and our telephone number is (323)
337-1000.

Recent Developments

Warrant Exchange

On November 8, 2001, we commenced a tender offer in which we offered to
exchange .0714 of a share of our common stock for every one of our outstanding
warrants that we issued in our initial public offering in February 1995. The
exchange offer was completed on January 11, 2002. 4,135,579 of our 4,500,000
outstanding warrants were tendered and accepted by us in exchange for 295,291
shares of our common stock. The warrant holders who elected not to participate
in the exchange retained their right to purchase one share of our common stock
for $5.00, for each warrant held. These warrants expired on February 16, 2002.

Strategic Objectives

We seek to become a more significant player in the entertainment
industry, while at the same time managing our risk and cash flow so as to be
able to effectively respond to continuing changes in the entertainment industry.
Our strategy to achieve our objectives includes:

Expanding our domestic theatrical distribution activities. We believe
there is great opportunity in the U.S. theatrical distribution market. In the
past year, we released Bread and Tulips, an Italian language film which won
seven "Donatello" awards (the Italian equivalent of an Oscar). The film
generated approximately $4,500,000 in U.S. box office gross receipts.
Previously, we have had domestic success with films such as John Sayles's The
Secret of Roan Inish and the Academy Award-winning Antonia's Line. Limited
financial resources has kept us from becoming a more active company in this
area, however, we intend to utilize our expanded financial resources, including
our Chase facility, to become increasingly more active in this market.

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Expanding our home entertainment division. In 2000, we created a home
entertainment division called "First Look Home Entertainment." This division
directly distributes films on videocassette and DVD. In 2001, we released
seventeen films in the U.S. video/DVD market. We plan to release approximately
twenty-seven films in the U.S. video/DVD market in 2002.

Expanding our television commercial production division. We have
established a television commercial production division called "First Look
Artists." This division seeks to exploit the current trend in the industry of
utilizing talent not typically associated with advertising, such as high-profile
feature film directors. In this regard, we are assembling a roster of
accomplished feature filmmakers who we believe can successfully cross over to
the medium of television commercials. We also believe that we can attract proven
television commercial directors to our division's projects by offering them
access to potential film projects.

Building upon our reputation and relationships with foreign sources. We
believe that we enjoy a prominent position in the international independent film
marketplace. We intend to capitalize on our reputation and relationships to
exploit opportunities in the areas of production and acquisition financing,
especially through private equity and international sources. These efforts will
enable us to access films at lower cost and risk to us and to access
increasingly higher profile (which generally means higher budget) films with
commercial potential at reduced cost and risk to us.

Reducing our risk by limiting our direct investment in acquisition
costs and film production. As part of this strategy, we:

o act as distributor or license distribution rights for films
that are produced with funds provided by other parties and not
by us; and

o act on behalf of producers to locate and arrange equity
sources, co-production and co-financing sources, pre-sales,
gap financing and other resources for the production of motion
pictures in exchange for sales and distribution rights to the
films and negotiated fees.

Acquiring films that we believe are likely to merit theatrical release,
are suitable for initial release on pay and basic television or are suitable for
initial release on videocassette or DVD. As part of this strategy, we:

o acquire films that have recognizable cast and experienced
directors and producers and which embody greater production
values, which we believe enhances their audience appeal in the
competitive theatrical market. We attempt to accomplish this
by offering more incentives to talent than is offered by major
studios, such as greater creative and financial opportunity
tied to film performance;

o acquire films that are oriented to basic and pay television
programming needs as well as video and DVD markets, such as
films with lower budgets and which target specific genres,
such as horror and "monster" films; and

o develop relationships with major studios and seek to expand
our executive producing role in connection with motion
pictures that other companies produce and/or distribute.

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The Motion Picture Industry

Generally

The motion picture industry consists of two principal activities:

o production, which encompasses the creation, development and
financing of motion pictures; and

o distribution, which involves the promotion and exploitation of
feature-length motion pictures in a variety of media,
including theatrical exhibition, home video, television and
other ancillary markets, both domestically and
internationally.

The United States motion picture industry is dominated by the major
studios, including The Walt Disney Company, Paramount Pictures Corporation,
Warner Brothers Inc., Universal Pictures, Twentieth Century Fox, Sony Pictures
Entertainment, and MGM/UA. The major studios, which historically have produced
and distributed the vast majority of high-grossing theatrical motion pictures
released annually in the United States, are typically large, diversified
corporations that have strong relationships with creative talent, television
broadcasters and channels, Internet service providers, movie theater owners and
others involved in the entertainment industry. The major studios also typically
have extensive national or worldwide distribution organizations and own
extensive motion picture libraries.

Motion picture libraries, consisting of motion picture copyrights and
distribution rights owned or controlled by a film company, can be valuable
assets capable of generating revenues from worldwide commercial exploitation in
existing media and markets, and potentially in future media and markets
resulting from new technologies and applications. The major studios also may own
or be affiliated with companies that own other entertainment related assets such
as music and merchandising operations and theme parks. The major studios' motion
picture libraries and other entertainment assets may provide a stable source of
earnings which can offset the variations in the financial performance of their
new motion picture releases and other aspects of their motion picture
operations.

During the past 15 years, independent production and distribution
companies, many with financial and other ties to the major studios, have played
an important role in the production and distribution of motion pictures for the
worldwide feature film market. These companies include:

o Miramax Films Corporation, now owned by The Walt Disney
Company, which produced Scary Movie, the Scream film series,
Shakespeare in Love and Chocolat;

o New Line Cinema Corporation/Fine Line Features, now owned by
AOL/Time Warner, which produced Lord of the Rings: The
Fellowship of the Ring, the Austin Powers films, The Mask,
Teenage Mutant Ninja Turtles and the Nightmare on Elm Street
series;

o USA Films (formerly October Films and now owned by
Vivendi/Universal), which produced Traffic, Secrets & Lies and
Breaking the Waves together with Gramercy Pictures, which
produced Dead Man Walking and Fargo, is part of USA Films and
USA Network;

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o Orion Pictures, now affiliated with MGM/UA, which produced The
Silence of the Lambs;

o Artisan Entertainment Inc., which distributed The Blair Witch
Project; and

o Lion's Gate Films, which produced and distributed Frailty,
Monster's Ball and American Psycho and which distributed
Dogma, Gods and Monsters and Affliction.

As a result of consolidation in the domestic motion picture industry, a
number of previously independent producers and distributors have been acquired
or are otherwise affiliated with major studios. However, there are also a large
number of other production and distribution companies that produce and
distribute motion pictures that have not been acquired or become affiliated with
the major studios. In contrast to the major studios, independent production and
distribution companies generally produce and distribute fewer motion pictures
and do not own production studios, national or worldwide distribution
organizations, associated businesses or extensive film libraries which can
generate gross revenues sufficient to offset overhead, service debt or generate
significant cash flow.

The motion picture industry is a world-wide industry. In addition to
the production and distribution of motion pictures in the United States, motion
picture distributors generate substantial revenues from the exploitation of
motion pictures internationally. In recent years, there has been a substantial
increase in the amount of filmed entertainment revenue generated by U.S. motion
picture distributors from foreign sources. International revenues of motion
picture distributors from filmed entertainment grew from approximately $1.1
billion in 1990 to approximately $2.6 billion in 2000. This growth has been due
to a number of factors, including the general worldwide acceptance of and demand
for motion pictures produced in the United States, the privatization of many
foreign television industries, growth in the number of foreign households with
videocassette players and growth in the number of foreign theater screens.

Many countries and territories, such as Australia, Canada, China,
France, Germany, Hong Kong, India, Italy, Japan, Russia, Spain and the United
Kingdom have substantial indigenous film industries. As in the United States, in
a number of these countries the film industry, and in some cases, the
entertainment industry, in general, is dominated by a small number of companies
that maintain large and diversified production and distribution operations.
However, like in the United States, in most of these countries, there are also
smaller, independent, motion picture production and distribution companies.
Foreign distribution companies not only distribute motion pictures produced in
their countries or regions but also films licensed or sub-licensed from United
States production companies and distributors. In addition, film companies in
many foreign countries produce films not only for local distribution, but also
for export to other countries, including the United States. While some foreign
language films and foreign English-language films appeal to a wide U.S.
audience, most foreign language films distributed in the United States are
released on a limited basis because they draw a specialized audience.

Motion Picture Production

Motion picture production begins with the screenplay adaptation of a
popular novel or other literary work acquired by the producer or the development
of an original screenplay having its genesis in a story line or scenario
conceived by a writer and acquired by the producer. In the development phase,
the producer typically seeks production financing and tentative commitments from
a director, the principal cast members and other creative personnel. A proposed
production schedule and budget also are prepared during this phase.
Pre-production begins upon completing the screenplay and arranging financing
commitments. In this phase, the producer:

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o engages creative personnel to the extent not previously
committed;
o 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
o prepares for the start of actual filming.

Principal photography, which is the actual filming of the screenplay,
generally extends from eight to sixteen weeks for a film produced by a major
studio and for as little as four to eight weeks for low budget films and films
produced by independent production companies. The length of filming depends in
each case upon factors such as budget, location, weather and complications
inherent in the screenplay. Following completion of principal photography, the
film enters the post-production phase. During this phase, the motion picture is
edited, opticals, dialogue, music and any special effects are added, and voice,
effects and music sound tracks and pictures are synchronized. This results in
the production of a negative from which release prints of the motion picture are
made.

Production costs consist primarily of:

o acquiring or developing the screenplay;
o compensating creative and other production personnel;
o film studio and location rentals;
o equipment rentals;
o film stock and other costs incurred in principal photography;
and
o post-production costs, including the creation of special
effects and music.

Distribution expenses, which consist primarily of the costs of
advertising and preparing release prints, are not included in direct production
costs. The major studios generally fund production costs from cash flow
generated by motion pictures and related activities or, in some cases, from
unrelated businesses or through off-balance sheet methods. Substantial overhead
costs, consisting largely of salaries and related costs of the production staff
and physical facilities maintained by the major studios, also must be funded.
Independent production companies generally avoid incurring overhead costs as
substantial as those incurred by the major studios by hiring creative and other
production personnel and retaining the other elements required for
pre-production, principal photography and post-production activities on a
picture-by-picture basis. As a result, these companies do not own sound stages
and related production facilities, and, accordingly, do not have the fixed
payroll, general administrative and other expenses resulting from ownership and
operation of a studio. Independent production companies also may finance their
production activities on a picture-by-picture basis. Sources of funds for
independent production companies include bank loans, pre-licensing of
distribution rights, foreign government subsidies, equity offerings and joint
ventures. Independent production companies generally attempt to obtain all or a
substantial portion of their financing of a motion picture prior to commencement
of principal photography, at which point substantial production costs begin to
be incurred and require payment.

As part of obtaining financing for its films, an independent production
company often is required by its lenders and distributors who advance production
funds to obtain a completion bond or production completion insurance from an
acceptable completion guarantor which names the lenders and applicable
distributors as beneficiaries. The guarantor assures the completion of the
particular motion picture on a certain date. 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 the 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.

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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 recovered in full.

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

Motion Picture Distribution

General

Motion picture distribution involves domestic and international
licensing of the picture for:

o theatrical exhibition;

o videocassettes and digital video discs (DVD);

o presentation on television, including pay-per-view, basic and
premium cable, network, syndication or satellite; o marketing
of the other rights in the picture and underlying literary
property, which may include books, merchandising and
soundtracks;

o non-theatrical exhibition, which includes airlines, hotels and
armed forces facilities; and

o exploitation via the Internet, which is still evolving.

Although releases by the major studios typically are licensed and fully
exploited in all of the foregoing media, films produced or distributed by
independent film companies are often not exploited in all of the media. For
example, some films may not receive theatrical exhibition in the United States
or various other territories and instead may be released directly on home video
or as a pay television premiere or otherwise exploited on a pay television
service. In limited circumstances, these films may then be released in theaters.

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

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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. Instead, he acts as an
agent for the producer or rights owner, licensing the distribution rights to
distributors on behalf of the producer or rights owner in exchange for a sales
agency fee. This fee typically is computed as a percentage of gross revenues
from licenses obtained by the sales agent. A distributor generally licenses and
takes a grant of distribution rights from the producer or other rights owner of
the motion picture for a specified term in a particular territory or territories
and media, generally in exchange for a distribution fee calculated as a
percentage of gross revenues generated by the distribution of exploitation of
the motion picture. The distributor may agree to pay the producer of the motion
picture an advance or a minimum guarantee upon the delivery of the completed
motion picture. This amount is to be recouped by the distributor out of revenues
generated from the exploitation of the motion picture in particular media or
territories. After receiving its ongoing distribution fee and recouping the
advance or minimum guarantee plus its distribution costs, the distributor
generally pays the remainder of revenues in excess of an ongoing distribution
fee to the producer of the motion picture.

Obtaining license agreements with a distributor or distributors prior
to completion of a motion picture which provide for payment of a minimum
guarantee is often referred to as the pre-licensing or pre-selling of film
rights. This pre-selling may enable the producer to obtain financing for its
project by using the contractual commitment of the distributor to pay the
advance or minimum guarantee as collateral to borrow production funding. In the
past, pre-selling of film rights provided a means for financing film production.
However, the ability to pre-sell film rights in various territories and media,
the amount of pre-sales that can be obtained in certain territories and media
and thus, the percentage of a film's budget that can be covered with pre-sales,
fluctuates. In recent years, independent film companies generally have not been
able to pre-sell as great a percentage of a film's budget as they have in past
years.

The producer also may be able to acquire additional production funds
through gap financing. Although gap financing currently is being made available
by multiple lenders, certain banks have ceased providing this type of financing,
and many banks that provide gap financing are becoming more conservative in
their approach to these lending practices. As a result, there can be no
assurance that lenders will continue to make funds available on this basis. In
some circumstances, the distributor is entitled to recover any unrecouped costs
and advances from a film licensed to the distributor from the revenues from
another film or films also licensed to the distributor. This is commonly known
as cross collateralizing.

In addition to obtaining distribution rights in a motion picture for a
limited duration, a distributor also may acquire all or a portion of the
copyright in the motion picture or license certain distribution rights in
perpetuity. Both major studios and independent film companies often acquire
motion pictures for distribution through a customary industry arrangement known
as a negative pickup, under which the studio or independent film company agrees
to pay a specified minimum guaranteed amount to a production company in exchange
for all rights to the film upon completion of production and delivery of the
film. The production company normally finances production of the motion picture
pursuant to financing arrangements with banks and other lenders in which the
lender receives an assignment of the production company's right to payment of
the minimum guarantee and is granted a security interest in the film and in the
production company's rights under its arrangement with the studio or independent
film company. When the major studio or independent film company picks up the
completed motion picture, it pays the minimum guarantee or assumes the
production financing indebtedness incurred by the production company in
connection with the film. In addition, the production company is paid a
production fee and generally is granted a participation in net revenues from
distribution of the motion picture.

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The distribution cycle

Concurrently with their release in the United States, motion pictures
typically are released in Canada and also may be released in one or more other
international markets. Generally, a motion picture that is released theatrically
is available for distribution in other media during its initial distribution
cycle as follows:
Number of months following
initial Domestic
Marketplace (Media) theatrical release
- ------------------------ --------------------------
International theatrical Concurrent
Domestic home video and DVD (initial release) 4-6 months
Domestic pay-per-view 6-9 months
International home video and DVD (initial release) 6-12 months
Domestic pay television 12-15 months
International television (pay or free) 18-24 months
Domestic free television (network, barter syndication,
syndication and basic cable) 30-33 months

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

In general, if a film is not released theatrically in the United States
and is instead first released on domestic home video, television exploitation
does not commence until four to eight months after the video release.
Thereafter, the same general release patterns indicated in the table above
typically apply. If a film premieres on United States pay television, the pay
television service is typically licensed for a four to six week exclusive airing
period. The license generally will provide for limited airings made up of five
to eight exhibition days with multiple airings permitted on each exhibition day.
The provisions of the license also usually provide for the pay television
service to receive subsequent airing periods following a period in which the
film can be released on video or sometimes even theatrically and a period during
which the film may be broadcast on free television.

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A substantial portion of a film's ultimate revenues are generated in
its initial distribution cycle. The initial distribution cycle usually consists
of the first five years after the film's initial domestic release and includes
theatrical, video, and pay and free television. Commercially successful motion
pictures, however, may continue to generate revenues after the film's initial
distribution cycle from the re-licensing of distribution rights in certain media
and from the licensing of distribution rights with respect to new media and
technologies and in emerging markets. Although there has been a substantial
increase over the past fifteen years in the revenues generated from the
licensing of rights in ancillary media such as home video, DVD, cable and
pay-per-view, the theatrical success of a motion picture remains a significant
factor in generating revenues in foreign markets and in other media such as
video and television. For example, retail video stores currently purchase fewer
copies of videocassettes of motion pictures that have not been theatrically
released, and purchase more copies of major studio theatrical hits.

Theatrical

The theatrical distribution of a motion picture, whether in the United
States or internationally, involves the licensing and booking of the motion
picture to movie theaters, 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, expenditures can
vary significantly depending upon a number of factors including:

o the markets and regions in which the film is distributed;

o the media used to promote the film such as newspaper,
television and radio;

o the number of screens on which the motion picture is to be
exhibited; and

o the ability to exhibit motion pictures during peak exhibition
seasons.

With a release by a major studio, the vast majority of these costs,
which primarily consist of advertising costs, are incurred prior to the first
weekend of the film's domestic theatrical release. Accordingly, there is not
necessarily a correlation between these costs and the film's ultimate box office
performance. In addition, the ability to distribute a picture during peak
exhibition seasons, including the summer months and the Christmas holidays, and
in the most popular theaters, may affect the theatrical success of a picture.
Films distributed theatrically by an independent film company are sometimes
released on a more limited basis which allows the distributor to defer 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 retain a portion of the admissions paid at the box office,
typically referred to as gross box office receipts. The share of the gross box
office receipts retained by a theater owner generally includes a fixed amount
per week, in part to cover overhead, plus a percentage of receipts that usually
increases over time. Although these percentages vary widely, a theater owner's
share of a particular film's revenues will normally be approximately 50% to 65%
of gross box office receipts. The balance of the gross box office receipts (50%
to 35%), referred to as gross film rentals, is paid to the distributor. The
distributor then retains a distribution fee, which is typically 25% to 35%, from
the gross film rentals. This percentage is used to recover the costs incurred in
distributing the film, which consist primarily of marketing and advertising
costs and the cost of release prints for exhibition. The balance of gross film
rentals, after deducting distribution fees and distribution costs recouped by
the distributors, is then applied against the recoupment of any advance paid for
the distribution rights plus interest and the balance is paid to the producer or
other rights owner of the film.

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Home video, DVD

A motion picture released theatrically typically will become available
for videocassette and digital video disc ("DVD") distribution within four to six
months after its initial domestic theatrical release. Certain films are not
initially released theatrically but may instead be released directly to home
video and DVD. Given the increasing preference of retail video stores for films
which have achieved successful theatrical releases, it has become increasingly
difficult to generate significant revenues from films first released directly on
video/DVD.

Home video distribution consists of the promotion and sale of
videocassettes to local, regional and national video retailers that rent or sell
videocassettes to consumers primarily for home viewing. Recently, the market for
videocassettes has been supplemented by, and in some ways replaced by, the
market for DVD's. DVD units are typically available both to rental markets and
sell-through markets at the same time and today are priced between $14 to $20
per unit. Impacted by this, per unit pricing on videocassettes has dropped over
the past years quite dramatically as consumers convert from videocassette
players to DVD players. Additionally, revenue sharing arrangements (arrangements
whereby retail stores and chains pay little or nothing for each cassette, but
rather shares the revenue generated from renting such cassette, with the
licensor), have significantly impacted the business. In such arrangements,
revenue related to a particular video release is earned over a period of time
(generally up to one year), rather than on the first day of video release.
Following the initial marketing period, selected films may be remarketed at a
wholesale price of $10 to $15 or less for sale to consumers. A few major
releases with broad appeal may be initially offered by a film distribution
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. Today, most
home video distribution contracts in international territories are arranged
similarly to those in domestic territories, although the wholesale prices may
differ.

Television

Television rights for films initially released theatrically that have
broad appeal generally are licensed:

o first to pay-per-view for an exhibition period within six to
nine months following initial domestic theatrical release;

o then to pay television approximately 12 to 15 months after
initial domestic theatrical release;

o thereafter to basic cable broadcasters or in certain cases to
network television for an exhibition period; and

o then to syndication or "free" television.

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 are now delivered not only by cable, but also by satellite
transmission, and films are usually licensed in both of these media. Films that
are not initially released in the domestic theatrical market may premiere
instead on pay television followed in some limited circumstances by theatrical
release. Groups of motion pictures often are packaged and licensed as a group
for exhibition on television over a period of time and, therefore, revenues from
these television licensing packages may be received over a period that extends
beyond the initial distribution cycle of a particular film. Motion pictures also
are licensed and packaged by producers and distributors for television broadcast
in international markets by government 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, Turner Broadcasting and DirecTV.

11

Non-theatrical and other rights

Films may be licensed for use by airlines, schools, public libraries,
community groups, the military, correctional facilities, ships at sea and
others. Music contained in a film may be licensed for sound recording, public
performance and sheet music publication. Rights in motion pictures may be
licensed to merchandisers for the manufacture of products such as toys,
T-shirts, posters and other merchandise. Rights also may be licensed to create
novels from a screenplay and to generate other related book publications, as
well as interactive games on platforms such as CD-ROM and CD-I.

Our Motion Picture Distribution

International distribution

Our management has considerable expertise in international
distribution. Robert B. Little, our co-chairman of the board and president, has
substantial experience in licensing motion pictures for distribution outside the
United States and has been active in international motion picture sales since
1975. Over the past 25 years, he has developed relationships with distributors
in most territories through his foreign sales activities. In addition, we are a
founding member of the American Film Marketing Association, which sponsors the
American Film Market. The American Film Market, along with the Cannes Film
Festival and MIFED, are the major annual international film markets that are
attended by distributors worldwide. We participate annually with a sales office
at all three major film markets, as well as three major television and two major
video markets. We also attend many film festivals throughout the world including
Sundance, the Toronto Film Festival and others. From time to time, we also may
engage independent representatives to assist us in acquiring and licensing
motion picture rights.

We license distribution rights internationally in various media such as
theatrical, video/DVD, pay television, free television, satellite and other
rights to foreign sub-distributors on either an individual rights basis or
grouped in combinations of rights. We license these rights to sub-distributors
in international territories either on a picture-by-picture basis or
occasionally pursuant to output arrangements. Currently, our most important
international territories are Australia, the Benelux countries, Canada, France,
Germany, Italy, Japan, Scandinavia, Spain and the United Kingdom.

The terms of our license agreements with foreign sub-distributors vary
depending upon the territory and media involved and whether the agreement
relates to a single or multiple motion pictures. Most of our license agreements
provide that we will receive a minimum guarantee from the foreign
sub-distributor with all or a majority of the 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 generally is
payable at specified intervals after delivery of the film to the
sub-distributor. The minimum guarantee is recovered by the sub-distributor out
of the revenues generated from exploitation of the picture in the 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, recovers its distribution expenses and the minimum
guarantee and ultimately pays us the remainder of any receipts in excess of the
distributor's ongoing distribution fee. We 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.

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We occasionally do not receive a minimum guarantee from the foreign
sub-distributor and instead negotiate terms that usually result in an allocation
of gross revenues between the sub-distributor and us. Typically, the terms of
these types of arrangements provide for the sub-distributor to retain an ongoing
distribution fee, calculated as a percentage of the sub-distributor's gross
receipts in the territory, recover its expenses and pay remaining receipts in
excess of the ongoing distribution fee to us. Alternatively, often with respect
to video rights, the terms may provide for a royalty to be paid to us calculated
as a percentage of the sub-distributor's gross receipts from exploitation of the
video rights without deduction for the sub-distributor's distribution expenses.

At times, we enter into output arrangements with local foreign
distributors whereby the foreign sub-distributor receives the right, typically
for a specified period and number of motion pictures, to distribute motion
pictures that we have released in a particular territory and designated media.
In some circumstances, the foreign sub-distributor pays us a minimum guarantee
on a picture-by-picture basis with each minimum guarantee having been either
pre-negotiated or computed as a stipulated percentage of the production or
acquisition cost of each picture.

Domestic distribution

In addition to obtaining foreign distribution rights, we have been
active in acquiring domestic distribution rights. We exploit our domestic
distribution rights in a variety of ways. In 1993, we established First Look
Pictures, our domestic theatrical releasing operation, and in 1999 we began
releasing films directly on video under First Look Home Entertainment. Some of
the films we license or distribute receive domestic theatrical release by First
Look Pictures or video release by First Look Home Entertainment. We may license
films initially to television broadcasters for release initially on television.
We also license to third party distributors, such as Fox Searchlight, who may
release a picture theatrically and distribute the film in other media as well.

We occasionally license domestic video rights of a film to
sub-distributors, including Blockbuster, Inc., USA Films and Columbia TriStar
Home Video. In addition, we have created First Look Home Entertainment, which
released seventeen films on video in 2001, and we expect to release
approximately twenty-seven films during 2002.

We license distribution rights directly to pay television services
including HBO, Showtime and Encore, as well as smaller services, pay-per-view
services and basic cable services, including USA, Lifetime, Bravo and the
Independent Film Channel. Although we have not engaged in significant licensing
or syndication of domestic free television rights except as part of a license of
rights in multiple media, we control these rights to a significant portion of
the films in our library and have licensed these rights in certain films to
third parties.

In some cases, we will license the right to distribute a film
domestically in multiple media to a major studio, a division of a major studio
or an independent distributor. Although the terms of these licenses vary, we
typically 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, recovers its distribution costs
and the advance paid to us, and ultimately pays us the remainder of any receipts
in excess of an ongoing distribution fee.

We do not always receive a minimum guarantee from the licensing of
distribution rights to foreign and domestic sub-distributors. This has caused us
to rely more heavily on the actual financial performance of the film being
distributed. In some circumstances, whether we receive a minimum guarantee
depends upon the media. For example, in the case of motion pictures that have
not been theatrically released, we may enter into video/DVD distribution
arrangements with sub-distributors where no minimum guarantee is paid to us or
where the minimum guarantee paid to us is significantly less than those paid to
us for similar films in the past. In addition, even if we do obtain minimum
guarantees from our sub-distributors, the minimum guarantees do not assure the
profitability of our motion pictures or our operations. Additional revenues may
be necessary from distribution of a motion picture to enable us to recover any
investment in the motion picture in excess of the aggregate minimum guarantees
obtained from sub-distributors, pay for distribution costs, pay for ongoing
acquisition and development of other motion pictures by us and cover general
overhead. While the pre-licensing of distribution rights to sub-distributors in
exchange for minimum guarantees may reduce some of our risk from unsuccessful
films, it also may result in us receiving lower revenues with respect to highly
successful films.

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First Look Pictures

Some of the motion pictures for which we control domestic rights are
directly distributed to theaters throughout the United States through First Look
Pictures. During 2001, First Look Pictures released seven films (Chopper, Ed
Gein, Question of Faith, Bread and Tulips, Lisa Picard is Famous, Bangkok
Dangerous and Asoka). Although some of First Look Pictures' future releases may
appeal to a wide audience, many of our releases to date have been foreign
language and art-house films intended to appeal primarily to sophisticated
audiences.

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

Films distributed theatrically in the United States by First Look
Pictures typically have been released on a limited basis to initially less than
100 screens and in selected cities, expanding to new cities or regions based
upon the performance of the film. Some films that 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 the prints. We may release
appropriate films with more mass market appeal on a wide release basis either
through First Look Pictures or, more likely, by licensing the film to a domestic
distributor with more significant financial and distribution resources.

The cost to First Look Pictures to distribute a specialized motion
picture or art-house film on a limited-release basis has typically ranged from
approximately $100,000 to $2,000,000. Expenditures for prints, marketing and
advertising represent a substantial portion of the costs of releasing a film. In
connection with the acquisition of domestic theatrical rights to a film, we
occasionally commit to spend no less than a specified minimum amount for prints
and advertising costs. These costs are in addition to the direct production or
acquisition costs and other distribution expenses of the films.

Generally, in addition to receiving a distribution fee, we are entitled
to recover our print and advertising expenditures. Although First Look Pictures
may at times utilize standard broadcast television advertising, First Look
Pictures typically supports its limited releases with local newspaper and, in
certain instances, some cable television advertising. First Look Pictures also
relies on local and national publicity, such as reviews or articles in local and
national publications and appearances of a film's principal artists on radio and
television talk shows. In contrast, distributors of national, wide release films
rely primarily on national advertising campaigns, including substantial
television advertising, to attract theatergoers.

14

The success of a domestic theatrical release by First Look Pictures can
be affected by a number of factors outside our control. These factors include:

o audience and critical acceptance;

o the availability of motion picture screens;

o the success of competing films in release;

o awards won by First Look Pictures' releases or that of its
competition;

o inclement weather; and

o 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, we expect that in some cases
we may not recover all of our distribution expenses or derive any profit solely
from domestic theatrical distribution revenue of First Look Pictures' releases.
In addition, we cannot assure you that total revenues from any First Look
Pictures' release, including revenues derived from the film in ancillary media
and international markets, will be sufficient to allow us to recover all of our
costs or to realize a profit.

During 2001, First Look Pictures released the following seven motion
pictures:

We anticipate the release of the following films by First Look Pictures
in 2002:

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We cannot assure that the motion pictures scheduled for release by
First Look Pictures in 2002 or any motion pictures thereafter will actually be
released or released in accordance with its anticipated schedule. The motion
picture business is subject to numerous uncertainties, including financing
requirements, personnel availability and the release schedule of competing
films.

Our Acquisition of Rights, Production and Financing

We acquire sales and distribution rights from a wide variety of
independent production companies and producers. We generally acquire rights to
single films, as compared to acquiring films pursuant to multi-picture
acquisition agreements with independent film companies or producers. We commit
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 we may arrange financing or production services to
complete. In acquiring rights, we generally seek to obtain rights to
commercially appealing motion pictures with substantially lower direct negative
costs than motion pictures released by the major studios.

In order to fund the acquisition costs of the films for which we
acquire rights, we have primarily relied on:

o our credit facility;
o other lenders willing to finance our contractual minimum
guarantee obligations to the films' producers or rights
owners;
o working capital;
o pre-sales;
o gap financing;
o insurance backed financing structures; and
o other third party equity sources such as private investors and
international partnerships receiving tax incentives through
film investment activities.

The films that we sell, license and distribute generally have direct
negative costs ranging from $1,000,000 to $7,000,000. We may acquire rights to
finance or produce motion pictures with direct negative costs and marketing
costs below or substantially in excess of the average direct negative costs and
marketing costs of the films that we have distributed. As part of our overall
business strategy, we intend to emphasize films with more recognizable cast,
directors and producers and greater production values and which may accordingly
have broader appeal in the competitive theatrical market. We also will attempt
to limit our exposure with respect to production and acquisition costs through
accessing third party equity sources such as private investors.

We sometimes acquire limited distribution or sales rights and at other
times acquire worldwide rights, occasionally including the copyright, to films.
The rights we acquire may depend upon whether we agree to pay the producer or
other rights owner a minimum guarantee. Additionally, as part of our acquisition
of theatrical, video and television distribution rights, we may obtain the right
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 we may license these rights to sub-distributors, we historically have
not derived any significant revenues from these ancillary rights.

In distribution arrangements where we do not pay a minimum guarantee,
the amounts payable by us to the rights owner will depend upon our success in
licensing the film and the financial performance of the film itself. In
acquiring distribution rights to a completed or incomplete film, however, we may
agree to pay the rights owner a minimum guarantee that is independent of the
financial performance of the film. Historically, the minimum guarantees paid by
us have ranged from approximately $25,000 to $5,000,000, although in some
circumstances they may exceed these amounts. Depending upon the particular
arrangement, a minimum guarantee may be payable in full at the time of delivery
of the completed film or in installments following complete delivery of the
film. The rights owner also may receive additional payments as a result of our
exploitation of the distribution rights to the film. After receiving a
distribution fee and recovering our distribution expenses and minimum guarantee,
we pay the remainder of revenues in excess of an ongoing distribution fee to the
rights owner.

17

We typically receive a larger share of gross receipts from the license
and distribution of motion pictures for which we have provided a minimum
guarantee. At times, the minimum guarantee paid by us may represent all or a
substantial portion of the film's production costs. In those circumstances, we
may receive worldwide distribution rights in all media and may also obtain
ownership of the copyright to the film with the producer. In 2001, we provided
minimum guarantees for twelve films ranging from $25,000 to $1,000,000,
including one which represented a majority of the final production costs of the
film. Additionally, with respect to three films, we provided guarantees that
sales, net of our fees and expenses, would achieve specified levels within a
period of three years following commencement of principal photography of the
related film.

Our 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, our contractual
commitment to pay a minimum guarantee upon delivery of a film serves as
sufficient collateral for a bank to lend production funds. The bank typically
will insure delivery of the film to us by requiring the producer to purchase a
completion guaranty. To enable the production company or producer to borrow
production funding, or to borrow at preferential bank fees and interest rates,
we also may have to secure our purchase or acquisition commitment, which we
generally have done by obtaining a letter of credit from our lenders. In some
situations, the production company or producer of a film initially may obtain
funds:

o from other distribution companies that obtain distribution
rights in specified media or territories, for example, the
domestic distribution rights or distribution rights in Germany
or the United Kingdom;

o by accessing foreign governmental film industry incentive
programs such as programs offered in the past by the Isle of
Man, the United Kingdom, Canada, Germany, Australia and New
Zealand; or

o by using its own resources or other resources available to it,
and subsequently approaching us to supply the remaining funds
necessary to complete or co-finance the film in exchange for
our obtaining the remaining distribution rights to the motion
picture.

We also have been actively involved in co-financing arrangements. When
we participate in co-financing arrangements, we will commit to fund a portion of
a particular film's production costs in combination with others.

In June 2000, we entered into a "first look" agreement with The Little
Film Company, Inc. and Ellen Dinerman Little, our former co-chairman, co-chief
executive officer and president. The agreement provides for a three-year term
ending in June 2003. Under this agreement, we will have an exclusive "first
look" on any project that The Little Film Company owns or controls or which it
has the right to submit to us or any project that it has the right to acquire or
may wish to acquire for development or production. The agreement also provides
for us to pay The Little Film Company annual overhead for office space and
related expenses, an annual fee and a discretionary revolving development fund.
We also will compensate The Little Film Company on a project-by-project basis.

In connection with the purchase of certain of our securities by
Rosemary Street in June 2000, Rosemary Street assigned to us a first look
agreement with Grandview Pictures LLC and Jon Kilik. The agreement provides for
a three-year term ending in May 2002, which we may renew for an additional
two-year term. Under the agreement, we will have an exclusive "first look" on
any project that Grandview Pictures wants to produce and which it owns or
controls or which it has the right to submit to us under the agreement or which
it has the right to acquire or may wish to acquire for development and/or
production, or has been authorized by third parties to submit to us for
development and/or production, as a feature length theatrical motion picture or
television production. The agreement also provides for us to pay to Grandview
Pictures annual overhead for its New York office, including an annual salary for
Jon Kilik and fees for Kilik's production services based on the cash budget of
the applicable pictures. We also will compensate Grandview Pictures for each
theatrical or television motion picture produced by Kilik. Skins is the first
film to be produced under our "first look" agreement with Grandview Pictures.

18

During 2001, we were involved in arranging and/or providing a
significant portion of the production financing for ten motion pictures (Bark,
Quicksand, My Kingdom, Bundy, Between Strangers, Evelyn, Julie Walking Home,
Skins, Snapshots and Triggermen) four of which were completed by the end of 2001
and six of which were in post-production. We attempt to minimize the risks
associated with any development and production activities that we conduct in a
variety of ways. We do not maintain a substantial staff of creative or technical
personnel. We also do not own or operate sound stage and related production
facilities and, accordingly, do not have the fixed payroll, general and
administrative and other expenses resulting from such ownership. In addition, in
those circumstances where we produce a film, we generally attempt to acquire
fully developed projects ready for pre-production with, when feasible, completed
scripts, directors and 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 our acquisition of rights in a project, a producer is not
formally or informally committed to a project, we may also engage a production
services company or a producer to supervise and arrange all pre-production,
production and post-production activities in exchange for a production fee and a
participation in net revenues from the film.

The following chart provides information regarding completed motion
pictures first made available to us for distribution during 2001, other than
those films described under "Our Motion Picture Distribution -First Look
Pictures."

Our Film Library of Distribution Rights

Our film library consists of rights to a broad range of films, most of
which were produced since 1980. At December 31, 2001, we had various
distribution rights to more than 310 motion pictures, including more than 73
motion pictures in which we own an interest in the copyright. With respect to
these films where we do not own the copyright, the term of our 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 for exhibition worldwide or in
specified territories.

In addition to exploitation of distribution rights to motion pictures
in our library in the major media, we are able to exploit various ancillary
rights in the films under certain situations. We have arranged for the music in
several motion pictures that we have distributed to be released as soundtrack
recordings, including Waking Ned Devine, A Merry War, Mrs. Dalloway, The Secret
of Roan Inish, Party Girl, The Big Squeeze and Infinity. Although exploitation
of these soundtracks and other ancillary rights have not generated significant
revenues for us to date, our ownership or control of ancillary rights to motion
pictures in our library, including interactive rights, remake rights and
merchandising rights, may provide future sources of additional revenues.

Additionally, we have granted to Yahoo! Inc. the right to exploit on
the Internet approximately fifty titles from our film library on a revenue
sharing basis.

Major Customers

In 1999, Buena Vista accounted for $3,500,000 or 10.4% of our revenues.
In 2000, USA Network accounted for $3,014,000 or 13.3% of our total revenues.
During the year ended December 31, 2001, no single customer accounted for more
than 10% of our revenues.

Employees

As of April 12, 2002, we employed 51 full-time employees and 3
part-time employees. Some of our subsidiaries are or may become 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. We may assume a production company's obligation to pay
residuals to these various entertainment guilds and unions. A strike, job action
or labor disturbance by the members of any of these entertainment guilds and
unions could have a material adverse effect on the production of a motion
picture within the United States, and, consequently, on our business, operations
and results of operations. These organizations all have engaged in strikes and
similar activities. We believe that our current relationship with our employees
is satisfactory.

21

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 that create
alternative forms of leisure entertainment. We compete with major film studios
including:

o The Walt Disney Company including Miramax;
o Paramount Pictures Corporation;
o Universal Pictures;
o Sony Pictures Entertainment;
o Twentieth Century Fox; and
o Warner Brothers Inc. including New Line Cinema.

We also compete with numerous independent and foreign motion picture
production and distribution companies. Many of the organizations with which we
compete have significantly greater financial and other resources than us. Our
ability to compete successfully depends upon the continued availability of
independently produced, domestic and foreign motion pictures and our ability to
identify and acquire distribution rights to, and successfully license and
distribute, motion pictures with commercial potential. A number of formerly
independent motion picture companies have been acquired in recent years by major
entertainment companies. These transactions have significantly increased
competition for the acquisition of distribution rights to independently produced
motion pictures.

Films that we distribute or finance also compete for audience
acceptance and exhibition outlets with motion pictures that other companies
distribute and produce. As a result, the success of any of the films that we
distribute or finance 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
our domestic theatrical releasing operations, a substantial majority of the
motion picture screens in the United States typically are 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 movie theaters
specialize in the exhibition of independent, specialized motion pictures and
art-house films, there is intense competition for screen availability for these
films as well. Given the substantial number of motion pictures released
theatrically in the United States each year, competition for exhibition outlets
and audiences is intense. In addition, there also have been rapid technological
changes over the past fifteen years. Although technological developments have
resulted in the creation of additional revenue sources from the licensing of
rights with respect to new media, these developments also have resulted in
increased popularity and availability of alternative and competing forms of
leisure time entertainment including pay/cable television programming and home
entertainment equipment such as videocassettes, interactive games and
computer/Internet use.

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Regulation

In 1994, the United States was unable to reach an 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. The failure to include audio-visual works
under the treaty allows many countries to continue enforcing quotas that
restrict the amount of United States-produced television programming which may
be aired on television in those 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. We
cannot assure you 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
our business by limiting our ability to fully exploit our rights in motion
pictures internationally and, consequently, to assist or participate in the
financing of these motion pictures.

Distribution rights to motion pictures are granted legal protection
under the copyright laws of the United States and most foreign countries. These
laws provide substantial civil and criminal sanctions for unauthorized
duplication and exhibition of motion pictures. Motion pictures, musical works,
sound recordings, art work, still photography and motion picture properties are
separate works subject to copyright under most copyright laws, including the
United States Copyright Act of 1976, as amended. We are aware of reports of
extensive unauthorized misappropriation of videocassette rights to motion
pictures which may include motion pictures distributed by us. Motion picture
piracy is an industry-wide problem. The Motion Picture Association of America,
an industry trade association, operates a piracy hotline and investigates all
reports of such piracy. Depending upon the results of 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 also an international 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 Motion Picture
Association, 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 that do not prevent copyright infringement of United
States produced motion pictures. We cannot assure you that voluntary industry
embargoes or United States government trade sanctions will be enacted. If
enacted, these actions could impact the amount of revenue that we realize from
the international exploitation of motion pictures depending upon the countries
subject to and the duration of such action. If not enacted or if other measures
are not taken, the motion picture industry as a whole, and our business in
particular, may continue to lose an indeterminate amount of revenues as a result
of motion picture piracy.

23

The Code and Ratings Administration of the Motion Picture Association
assigns ratings indicating age-group suitability for theatrical distribution of
motion pictures. We sometimes, although not always, submit our motion pictures
for these ratings. In certain circumstances, motion pictures that we did not
submit for rating might have received restrictive ratings, 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 in certain
movie theaters or in certain locales, thereby potentially reducing the total
revenues generated by these films. United States television stations and
networks, as well as foreign governments, impose additional restrictions on the
content of motion pictures which may restrict in whole or in part theatrical or
television exhibition in particular territories. In 1997, the major broadcast
networks and the major television production companies implemented a system to
rate television programs. This television rating system has not had a material
adverse effect on the motion pictures distributed by us. 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. We cannot assure you that current and
future restrictions on the content of motion pictures may not limit or adversely
affect our ability to exploit certain motion pictures in particular territories
and media.

ITEM 2. PROPERTIES

Our principal executive offices are located at 8000 Sunset Boulevard,
Penthouse East, Los Angeles, California 90046 and consist of 15,491 square feet
of office space. Our payments under the lease are approximately $34,000 per
month. The lease expires on May 31, 2007.

During 2001, we also occupied approximately 1,500 square feet of office
space in New York City, which space was located at 222 East 44th Street, New
York, New York 10017. This space was in a building owned by EUE/Screen Gems (a
company owned in part by Christopher Cooney, our CEO). We have agreed with
EUE/Screen Gems that no rent will be paid for the use of this space. In February
2002, our New York operations were relocated to 603 Greenwich Street, New York,
New York 10014. This space is approximately 4,000 square feet and is in a
building owned, in part, by Christopher Cooney. As of April 12, 2002, no formal
arrangements have been made regarding any rent to be paid with respect to these
premises, however, we anticipate entering into a formal arrangement whereby
approximately $15,000 per month would be payable as rent. As a part of such
arrangement it is anticipated that we would share the space with people and
companies that are synergestic with our own operations and which would bear some
or all of the rental costs.

In May 2001, we entered into a sublease for 4,000 square feet of office
space located at 2932 Nebraska Avenue, Santa Monica, California for our
television commercial production operations. We have since relocated the
operations to our offices in New York and have further sublet the premises. The
lease expires on March 31, 2003 and we have subleased the location through the
end of the lease.

ITEM 3. LEGAL PROCEEDINGS

We are engaged in legal proceedings incidental to our normal business
activities. In the opinion of management, none of these proceedings are material
in relation to our financial position.

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

Not applicable.

24

PART II

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

Our common stock has been quoted on the OTC Bulletin Board under the
symbol "FRST" since January 11, 2001, and our warrants were quoted on the OTC
Bulletin Board under the symbol "FRSTW" from January 11, 2001 until February 16,
2002, the date the warrants expired. Prior to January 11, 2001, our common stock
and warrants were quoted on the OTC Bulletin Board under the symbols "OSFG" and
"OSFGW," respectively. The following table sets forth the high and low closing
bid quotations for the periods indicated. The quotations represent prices
between dealers and do not include retail markups or markdowns or commissions.
They may not necessarily represent actual transactions.

As of April 12, 2002, there were approximately 26 holders of record of
the Company's common stock and there were 11,909,139 shares of common stock
issued and outstanding. We believe that there are more than 250 beneficial
owners of our common stock. Our warrant exchange offer, which was completed on
January 11, 2002, is described in this report under the caption "Business -
Recent Developments."

On April 12, 2002, the last reported sale price of our common stock as
reported on the OTC Bulletin Board was $0.38.

Dividends

We have not paid cash dividends on our common stock and we presently
intend to retain future earnings to finance the expansion and development of our
business and not pay dividends on our common stock. Any determination to pay
cash dividends in the future would be at the discretion of the board of
directors and would be dependent upon our results of operations, financial
condition, contractual restrictions and other factors deemed relevant at that
time by the board of directors. In addition, certain covenants in our credit
facility with The Chase Manhattan Bank substantially restrict payment of cash
dividends.

25

Recent Sales of Unregistered Securities

Preferred Stock Conversion

Pursuant to the terms of the securities purchase agreement related to
the Rosemary Street transaction dated May 3, 2000, Rosemary Street Productions,
LLC, Rosemary Street purchased from the Company 904,971 shares of Series A
Preferred Stock, each share of which automatically converted into two shares of
our common stock on October 15, 2001. The shares of common stock were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933.

Warrant Exchange

On November 8, 2001, we commenced a tender offer in which we offered to
exchange .0714 of a share of our common stock for every one of our outstanding
warrants that we issued in our initial public offering in February 1995. The
exchange offer was completed on January 11, 2002. 4,135,579 of our 4,500,000
outstanding warrants were tendered and accepted by us in exchange for 295,291
shares of our common stock. The warrant holders who elected not to participate
in the exchange retained their right to purchase one share of our common stock
for $5.00, for each warrant held. These warrants expired on February 16, 2002.
The shares of our common stock issued upon exchange of the warrants were issued
pursuant to an exemption from registration under Section 3(a)(9) of the
Securities Act of 1933.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data as of and for each
of the years in the five-year period ended December 31, 2001 are derived from
our consolidated financial statements. The selected consolidated financial data
set forth below should be read in conjunction with our consolidated financial
statements and the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," each included elsewhere in this
report.

(1) During the year ended December 31, 2000, we recorded a one-time,
pre-tax non-cash charge of $15,582,000 ($14,123,000 after taxes)
relating to our adoption of new film accounting standards in June 2000
pursuant to SOP 00-2, which is discussed in detail in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Relevant Accounting Provisions."

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

Forward-Looking Statements

When used in this Form 10-K and in future filings by our company with
the Securities and Exchange Commission, the words or phrases "will likely
result," "management expects" or "we expect," "will continue," "is anticipated,"
"estimated" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Readers are cautioned not to place undue reliance on any such
forward-looking statements, each of which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. These risks are included in "Business," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
"Exhibit 99: Risk Factors" included in this Form 10-K. We have no obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.

General

The operations of the company were established as a private company in
February 1980 under the name Overseas Filmgroup, Inc. We were formed in December
1993 under the name "Entertainment/Media Acquisition Corporation" for the
purpose of acquiring an operating business in the entertainment and media
industry. We acquired the operations of Overseas Filmgroup, Inc. through a
merger in October 1996 and we were the surviving corporation in the merger.
Immediately following the merger, we changed our name to "Overseas Filmgroup,
Inc." and succeeded to the operations of the private company. In January 2001,
we changed our name to "First Look Media, Inc." in order to reflect the
broadening of our operations beyond foreign distribution of independently
produced feature films to additional areas such as theatrical and video
distribution in the United States, as well as television commercial production.
Although we initially intended to also expand into Internet content development,
we no longer have immediate plans to expand operations into this area.

Today, we are principally involved in the acquisition and worldwide
license or sale of distribution rights to independently produced motion
pictures. We directly distribute certain motion pictures in the domestic
theatrical market under the name "First Look Pictures" and in the domestic video
market under the name "First Look Home Entertainment." Additionally, we have
established a television commercial production operation which operates under
the name "First Look Artists."

27

Relevant Accounting Provisions

In June 2000, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2"). SOP 00-2
establishes new film accounting standards, including changes in revenue
recognition and accounting for advertising, development and overhead costs.
Additionally, in June 2000, the Financial Accounting Standards Board ("FASB")
issued Statement 139 ("SFAS 139") which rescinds FASB 53 on financial reporting
by motion picture film producers or distributors. SFAS 139 requires public
companies to follow the guidance provided by SOP 00-2. We elected early adoption
of SOP 00-2 and, as a result, in 2000, a cumulative charge for the change in
accounting principle of $15,582,000 ($14,123,000 net of income taxes) has been
reflected in our Consolidated Statement of Operations for the year ended
December 31, 2000.

Critical accounting policies and estimates

The SEC recently issued Financial Reporting Release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies" ("FRR60"),
suggesting companies provide additional disclosure and commentary on those
accounting policies considered most critical. FRR 60 considers an accounting
policy to be critical if it is important to our financial condition and
results of operations, and requires significant judgment and estimates on the
part of management in its application. For a summary of our significant
accounting policies, including the critical accounting policies discussed below,
see the accompanying notes to the consolidated financial statements.

The preparation of our financial statements in conformity with GAAP
requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
expenses during the reporting period. On an ongoing basis, we evaluate these
estimates, which are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. The
result of these evaluations forms the basis for making judgments about the
carrying values of assets and liabilities and the reported amount of expenses
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions. The following accounting policies
require significant management judgments and estimates:

Accounting for the production and distribution of motion pictures is in
accordance with SOP 00-2, which requires management's judgment as it relates to
total revenues to be received and costs to be incurred throughout the life of
each film. These judgments are used to determine the amortization of capitalized
film costs associated with revenues earned and any net realizable value
adjustments.

Management is required to make judgments, based on historical
experience and future expectations, as to the collectibility of accounts
receivable. The allowances for doubtful accounts and sales returns represent
allowances for customer trade accounts receivable that are estimated to be
partially or entirely uncollectible. These allowances are used to reduce gross
trade receivables to their net realizable value. We record these allowances
based on estimates related to the following factors: (i) customer specific
allowances; and (ii) an estimated amount, based on our historical experience,
for issues not yet identified.

We assess potential impairment of long-lived assets under the guidance
of SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Company will adopt SFAS 142 in the
first quarter of 2002.

Certain balance sheet liabilities require significant judgments and
estimates by management. We continually evaluate these estimates based on
changes in the relevant facts and circumstances and events that may impact
estimates. While management believes that the current reserves are adequate,
there can be no assurance that these factors will not change in future periods.

We base these estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
There can be no assurance that actual results will not differ from these
estimates.

28

Results of operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues increased by $12,519,000 (55.3%) to $35,144,000 for the year
ended December 31, 2001, compared to $22,625,000 for the year ended December 31,
2000. The increase in revenues was primarily due to the growth of revenue from
our motion pictures segment with respect to direct distribution in the U.S.
($6,007,000 for the year ended December 31, 2001 compared to $1,736,000 for the
year ended December 31, 2000) and increases in ancillary revenue, including
airline revenue and executive producing and other fees ($3,150,000 for the year
ended December 31, 2001 compared to $196,000 for the year ended December 31,
2000). Additionally, the licensing of film rights generated $25,366,000 for the
year ended December 31, 2001 compared to $20,306,000 for the year ended December
31, 2000.

The commercial production segment generated $263,000 for the year ended
December 31, 2001 compared to no income for the year ended December 31, 2000.

In accordance with new accounting standards established pursuant to SOP
00-2, distribution and marketing costs were expensed as incurred during the
years ended December 31, 2001 and 2000. Film costs as a percentage of revenues
decreased to 69.0% for the year ended December 31, 2001, compared to 74.5% for
the year ended December 31, 2000. The decrease was due to generally higher
distribution fee rates (our gross margin) on films generating the greatest
amount of revenue during the year ended December 31, 2001, compared to the year
ended December 31, 2000. Distribution and marketing costs increased to
$7,101,000 for the year ended December 31, 2001 compared to $4,774,000 for the
year ended December 31, 2000. The increase is reflective of increased U.S.
theatrical and video/DVD distribution activities in the year ended December 31,
2001 compared to the year ended December 31, 2000. As a percentage of revenues
distribution and marketing costs decreased to 20.2% for the year ended December
31, 2001, compared to 21.1% for the year ended December 31, 2000.

29

Selling, general and administrative expenses, net of amounts
capitalized to film costs, increased by $474,000 (7.3%) to $6,947,000 for the
year ended December 31, 2001, compared to $6,473,000 for the year ended December
31, 2000. The largest increase was in the area of compensation expense
($1,361,000) related to our expansion of existing and new operational areas,
including U.S. theatrical releasing (First Look Pictures), U.S. video and DVD
operations (First Look Home Entertainment) and the television commercial
production operation (First Look Artists). Other increases included:

o Bank charges of $10,000;
o Dues and subscriptions of $15,000;
o Equipment lease payments of $13,000;
o Insurance of $15,000;
o Employee benefits of $35,000;
o Office overhead relating to commercial directors of $52,000;
o Office and computer supplies of $79,000;
o Parking expenses of $13,000;
o Rent of $33,000;
o Repairs and maintenance of $15,000;
o Screenings and research of $18,000; and
o Shipping and messenger costs of $28,000.

These increases were partially offset by decreases as follows:

o Bad debt expense of $608,000;
o Increased capitalized expenses of $310,000;
o Consulting fees of $18,000;
o Legal fees of $195,000;
o Officer's fringe benefits of $25,000;
o Publicity of $12,000; and
o Franchise taxes of $41,000.

Net other expense decreased by $128,000 (16.9%) to $630,000 for the
year ended December 31, 2001, compared to $758,000 for the year ended December
31, 2000. The decrease in net other expense was primarily due to an increase in
interest income of $49,000, a decrease in interest and financing expenses of
$434,000, increased revenue from the sale of software of $242,000 and increase
miscellaneous income of $22,000 partially offset by the decreased revenue from
the sale of securities of $625,000.

As a result of the above, we had a loss before income taxes and
cumulative effect of accounting change of $3,792,000 for the year ended December
31, 2001, compared to a loss before income tax benefit and cumulative effect of
accounting change of $6,230,000 for the year ended December 31, 2000.

We recorded a one-time charge for the cumulative effect of accounting
change of $14,123,000, net of income tax benefit of $1,459,000 for the year
ended December 31, 2000.

As a result of the above, we had a net loss of $3,854,000 for the year
ended December 31, 2001 (reflecting foreign withholding taxes of $53,000, and
state taxes of $9,000), compared to net loss of $20,490,000 for the year ended
December 31, 2000 (reflecting foreign withholding taxes of $131,000 and states
taxes of $6,000).

30

Year ended December 31, 2000 compared to year ended December 31, 1999

Revenues decreased by $11,159,000 (33.0%) to $22,625,000 for the year
ended December 31, 2000, compared to $33,784,000 for the year ended December 31,
1999. The decrease in revenues was primarily due to lower revenues from the
highest grossing films released in 2000 compared to 1999. For example, the six
highest income-producing films released during the year ended December 31, 2000,
generated approximately $9,410,000 in revenue compared to approximately
$21,180,000 in revenue generated by the six highest income-producing films
released during the year ended December 31, 1999.

In accordance with new accounting standards established pursuant to SOP
00-2, distribution and marketing costs were expensed as incurred during the year
ended December 31, 2000. For the year ended December 31, 1999, distribution and
marketing costs were capitalized and amortized as film costs. Film costs,
distribution and marketing costs as a percentage of revenues increased to 95.6%
for the year ended December 31, 2000, compared to 91.4% for the year ended
December 31, 1999. The increase was in part due to application of the new
accounting standards, and to generally lower distribution fee rates (our gross
margin) on films generating the greatest amount of revenue during the year ended
December 31, 2000, compared to the year ended December 31, 1999.

Selling, general and administrative expenses, net of amounts
capitalized to film costs, increased by $3,490,000 (117.0%) to $6,473,000 for
the year ended December 31, 2000, compared to $2,983,000 for the year ended
December 31, 1999. The largest increases were in the areas of bad debt expense
($1,617,000) and salary and payroll tax expense ($789,000). Bad debt expense
increased as a function of management's decision to write off certain accounts
deemed uncollectible. Salary expense increased due to our expansion of existing
and new operational areas, including expansion related to the equity investment
by Rosemary Street, expansion of our video and DVD operations, creation of a
television commercial production operation and increased staffing of the First
Look Pictures theatrical releasing operation. Additionally, we capitalize some
of our overhead costs incurred in connection with our production activities
related to a motion picture by adding the costs to the capitalized film costs of
the motion picture. The increase in selling, general and administrative expenses
was partially the result of fewer expenses being capitalized ($673,000 in 2000
compared to $1,100,000 in 1999), due to our reduced involvement in production
related activities. Other increases included:

o accounting expenses of $21,000;
o charitable contributions of $10,000;
o consulting fees of $97,000;
o insurance premiums of $132,000;
o legal fees of $222,000;
o office and computer supplies of $21,000;
o officers' fringe and employee benefits of $76,000;
o publicity expenses of $23,000;
o repairs expenses of $19,000;
o business and franchise taxes of $17,000;
o telephone expenses of $33,000; and
o travel and entertainment expenses of $61,000.

These increases were partially offset by decreases in contract labor of
$44,000 and miscellaneous expenses related to being a public company of $23,000.

Net other expense decreased by $1,144,000 (60.1%) to $758,000 for the
year ended December 31, 2000, compared to $1,902,000 for the year ended December
31, 1999. The decrease in net other expense was primarily due to the gain
reported on our sale of shares of common stock of Yahoo! Inc. of $625,000,
decreased interest expense of $448,000, an increase in interest income of
$20,000, and an increase in other miscellaneous revenues of $51,000.

31

As a result of the above, we had a loss before income taxes and
cumulative effect of accounting change of $6,230,000 for the year ended December
31, 2000, compared to a loss before income tax benefit and cumulative effect of
accounting change of $1,989,000 for the year ended December 31, 1999.

We recorded a one-time charge for the cumulative effect of accounting
change of $14,123,000, net of income tax benefit of $1,459,000 for the year
ended December 31, 2000.

As a result of the above, we had a net loss of $20,490,000 for the year
ended December 31, 2000 (reflecting foreign withholding taxes of $131,000, and
state taxes of $6,000), compared to net loss of $1,253,000 for the year ended
December 31, 1999 (reflecting an effective income tax benefit of $736,000).

Liquidity and Capital Resources

We require substantial capital for the acquisition of film rights, the
funding of distribution costs and expenses, the payment of ongoing overhead
costs and the repayment of debt. The principal sources of funds for our
operations has been cash flow from operations, bank borrowings and equity
financings.

June 2000 Private Placement

In June 2000, we consummated a private placement with Rosemary Street,
in which we sold to Rosemary Street for an aggregate cash purchase price of
$17,000,000:

o 5,097,413 shares of our common stock;

o 904,971 shares of our Series A preferred stock, each share of
which automatically converted into two shares of common stock
on October 15, 2001; and

o five-year warrants to purchase up to 2,313,810 shares of our
common stock at an exercise price of $3.40 per share.

As of December 31, 2001, Rosemary Street owned approximately 53.5% of
our voting securities.

JP Morgan (or "Chase") Facility

Concurrently with the consummation of the June 2000 private placement
with Rosemary Street, we entered into a $40 million credit facility (of which
$40 million has been committed) with JP Morgan Securities, Inc. (formerly known
Chase Securities, Inc. and The Chase Manhattan Bank) and other commercial banks
and financial institutions. A portion of the proceeds from this credit facility
was used to refinance outstanding loans and accrued interest under our previous
credit facility with Coutts & Co. and Bankgesellschaft Berlin A.G. The remaining
proceeds are available to finance our production, acquisition, distribution and
exploitation of feature length motion pictures, television programming, video
product and rights and for working capital and general corporate purposes
including our expansion into television commercial production.

Under the Chase facility, we borrow funds through loans evidenced by
promissory notes. The loans are made available through a revolving line of
credit which may be reduced, partially or in whole, at any time and is to be
fully paid on June 20, 2005. The Chase facility also provides for letters of
credit to be issued from time to time upon our request. Amounts available for
drawing (referred to as the "borrowing base") under the Chase facility are
calculated each month, however, cannot exceed the $40 million commitment. The
main components of the borrowing base include a library credit (50% of the value
of our film library, based upon a third party valuation of future cash flows,
which, under the terms of the credit agreement, is required to be updated every
twelve months) and an accounts receivable credit (85% of net accounts receivable
which are acceptable to Chase). At December 31, 2001, we had borrowed an
aggregate of $14,500,000 under the Chase facility and an additional $5,795,000
was available to borrow based upon borrowing base calculations provided to Chase
as of December 31, 2001.

32

The amounts drawn down under the Chase facility bear interest, as we
may select, at rates based on either LIBOR plus 2% or a rate per annum equal to
the greater of (a) the Prime Rate plus 1%, (b) the Base CD Rate plus 2% and (c)
the Federal Funds Effective Rate plus 1.5% (as these terms are defined in the
credit agreement). In addition to an annual management fee of $125,000, we pay a
commitment fee on the daily average unused portion of the Chase facility at an
annual rate of 0.5%. Upon entering the Chase facility, we paid a one-time fee of
approximately $848,000 as a cost of acquiring the Chase facility. Additionally,
in 2001 we added one lender (increasing total commitments to $40,000,000 from
$33,000,000) and paid an additional fee of $42,000. The Chase facility restricts
the creation or incurrence of indebtedness or the issuance of additional
securities. The Chase facility is collateralized by all our tangible and
intangible assets and future revenues.

In May 2001, we entered into an amendment to the Chase facility,
pursuant to which the requisite lenders agreed, effective as of the date of the
amendment, to:

o permit us to obtain financing for one film from another
lender;
o increase our overhead allowance from $5 million to $7.25
million; and
o reduce the minimum level of Consolidated Net Worth (as defined
in the credit agreement) that we are required to maintain from
$28 million to $22 million.

In September 2001, we entered into a second amendment to the Chase
facility, pursuant to which the requisite lenders agreed, effective as of the
date of the amendment, to permit us to obtain financing for one film from
another lender.

Other Loans

In addition to the amounts outstanding under the Chase facility, during
1998 we borrowed $2,000,000 from another lender, the proceeds of such loan were
used to acquire rights to a particular film. This subordinated note bears
interest at the Prime Rate plus 1.5% and is collateralized by amounts due under
distribution agreements from the specific film. The subordinated note matures on
May 29, 2002. As of December 31, 2001, $180,000 was outstanding under the
subordinated note, which amount was fully repaid in March 2002.

Off Balance Sheet Commitments

In addition to direct bank borrowings, we sometimes enter into
contractual arrangements whereby we commit to pay certain amounts for the
acquisition of distribution rights of a film at a date in the future. These
contractual commitments are sometimes used by producers or other rights owners
to access production financing with respect to the given film. These commitments
are generally subject to certain conditions being met by the rights owner
including delivery by the rights owner to us of certain physical materials as
well as legal documents relating to the film which will enable us to properly
exploit the rights we are acquiring. Once these conditions are met, we become
obligated under our contract to pay the amounts called for in the given
contract. We treat these types of commitments as liabilities, includable in our
balance sheet only upon satisfaction of the conditions to our obligation and
disclose these obligations as commitments. As of December 31, 2001, the total of
such outstanding commitments was $4,424,440.

Additionally, we have entered into certain arrangements with German
film financing partnerships whereby we have guaranteed that within three years
from the commencement of principal photography of the related film, the
licensing and distribution proceeds, net of our fees and expenses, will be no
less than sixty to eighty percent (depending upon the specific arrangement) of
the amount funded toward the production cost of the related film. These
commitments are not recorded as liabilities unless and until management expects
that proceeds from the licensing and distribution of the related film, net of
our fees and expenses, will be insufficient to cover the guarantee within the
agreed upon period for the particular film. As of December 31, 2001, we had
three such commitments outstanding, whereby the total amount committed was
$10,238,000 and the expected uncovered portion of these commitments (amounts not
covered by licensing agreements or pending licensing agreements with minimum
guaranteed payments due to us), was approximately $3,270,000. The commitments
become due, if at all, between September 2003 and September 2004. We currently
believe that none of our guarantees will be called upon because the existing and
projected licensing and distribution proceeds of each film are expected to be
sufficient to fully cover each commitment.

33

Note and Debt Contributions

Concurrently with the June 2000 private placement, we entered into a
note and debt contribution agreement with the Littles. Pursuant to the
agreement, the Littles forgave:

o $1,339,037 principal amount and $480,709 of accrued but unpaid
interest on a note issued by us to the Littles as part of the
consideration for our merger with Overseas Private;

o $78,101 of accrued and unpaid interest on loans in the
aggregate principal amount of $400,000 ("P&A Loans") made by
the Littles to us in December 1997 and February 1998, which
were used to provide a portion of the funds required by us for
the print and advertising costs associated with the domestic
theatrical release of Mrs. Dalloway; and

o $125,131 of accrued salaries that we owed to them.

The Littles also contributed $130,000 in cash and 1,588,812 of their
shares of our common stock to our capital and we paid the Littles $1,430,000.

Yahoo! Inc. Stock Sale

In July and September 2000, we sold for approximately $2,056,000 all
17,454 shares of common stock of Yahoo! Inc. that we received in July 1999 as
part of a share-for-share exchange with broadcast.com, which was subsequently
acquired by Yahoo! Inc.

Resources

At December 31, 2001, we had cash and cash equivalents of $1,673,000,
compared to cash and cash equivalents of $832,000 as of December 31, 2000. At
December 31, 2001, $5,795,000 was available for us to draw down under the Chase
facility.

For the years ended December 31, 2001 and December 31, 2000, we had
operating losses of $3,162,000 and $5,472,000, respectively. These losses
included certain non-cash items, including bad debt expense and film cost
write-downs. Bad debt expense was $1,268,000 for the year ended December 31,
2001 and $1,876,000 for the year ended December 31, 2000. Film cost
write-downs were $1,815,000 for the year ended December 31, 2001 and
$493,000 for the year ended December 31, 2000. Additionally, for our fiscal year
beginning January 1, 2000, we adopted SOP 00-2, which established new accounting
standards for producers or distributors of films. Under SOP 00-2, marketing and
advertising costs are expensed as incurred, film costs generally are amortized
over ten years and development costs relating to films which have not begun
active production within three years are written off rather than capitalized to
other films in development. As a result of our adoption of SOP 00-2, based upon
our calculations, our reported operating losses increased by approximately
$2,136,000 and $2,188,000, respectively, for the years ended December 31, 2001
and December 31, 2000, compared to operating losses that we would have reported
had we not adopted SOP 00-2.

Operating activities used cash of $6,723,000 and $4,833,000,
respectively, for the years ended December 31, 2001 and December 31, 2000. The
increased use of cash reflects our increased investment in film costs of
$9,922,000 for the year ended December 31, 2001 compared to $2,865,000 for the
year ended December 31, 2000. As a result of the $17 million equity investment
by Rosemary Street in June 2000, we have increased our investment in film costs
to secure more attractive film projects, to increase our volume of activity
(including the direct distribution of motion pictures on video and DVD in the
U.S. market) and to increase our margins through increased distribution fees
that are negotiated as a function of providing investments in film projects. We
believe this investment activity will increase operational cash flows in the
future, will increase our library value, and will increase our borrowing
capacity under our Chase facility.

In our opinion, existing cash and available borrowings, totaling
approximately $7,468,000, along with future cash that we anticipate to generate
from operations, will provide us with sufficient resources to fund operations
and execute our current business plan through fiscal 2002. If we are not
successful in generating sufficient future cash flow from operations in
accordance with our current business plan, we will need to raise additional
capital through public or private financings, strategic relationships or other
arrangements. This additional funding, if needed, might not be available on
acceptable terms, or at all. Our failure to raise sufficient capital, if and
when needed, could have a material adverse effect on our business, results of
operations and financial condition.

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ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk related to changes in interest rates. We
do not use derivative financial instruments. Because only a small portion of our
revenues are denominated in foreign currency, we do not believe there is a
significant risk imposed on us due to the fluctuations in foreign currency
exchange rates. The table below provides information about our debt obligations
as of December 31, 2001, including principal cash flows and related weighted
average interest rates by expected maturity dates:

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of independent accountants, consolidated financial
statements and notes to our consolidated financial statements appear in a
separate section of this report (beginning on page F-1) following Part IV.

The following table sets forth selected unaudited quarterly financial
data for each of the quarters in the two years ended December 31, 2001 (amounts
in thousands except for per share data):

The increase in loss from operations during the fourth quarter of 2001
compared to the previous three quarters was due to increases in:

o write-offs of film costs for certain projects under
development;
o write-offs of other film costs;
o bad debt write-offs; and
o lower revenues from the licensing of film rights.

35

The increase in loss from operations during the fourth quarter of 2000
compared to the previous three quarters was due to the expansion of our
operations and increases in:

o write-offs of film costs relating to certain projects under
development;
o marketing and distribution expenses in connection with
preparation for the upcoming film festivals;
o bad debt write-offs; and
o legal and consulting fees relating to valuation of our film
library and capital investment opportunities other than
Rosemary Street.

The lower net loss for the quarter ended September 30, 2000 reflected the
capital gain that we recognized on our sale of 17,454 shares of common stock of
Yahoo!, Inc. during the quarter.

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

Not applicable.

36

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our current directors and executive officers are set forth below.
Biographical information concerning each of the directors and executive officers
is presented on the following pages. Information is presented as of the date of
this report.

Current Officers and Directors

Christopher J. Cooney has served as co-chairman of our board and our
chief executive officer since June 2000. Since August 1999, Mr. Cooney has
served as president of Rosemary Street Productions LLC, a New York-based
entertainment holding company. Since 1986, Mr. Cooney has served in various
positions at EUE/Screen Gems, Ltd. ("EUE/Screen Gems"), a New York-based
television commercial facility and production house, including as head of
production from 1986 to 1988, as vice president in charge of all facilities from
1988 to 1992, and as vice president of physical production from 1992 to 1996. In
1996, Mr. Cooney led EUE/Screen Gems in the acquisition of DeLaurentis Studios.
Since 1996, Mr. Cooney has been responsible for overseeing all commercial and
daytime television production for the North Carolina operations of EUE/Screen
Gems. Mr. Cooney also holds an ownership interest in EUE/Screen Gems. In 1984,
Mr. Cooney formed Total Picture Company to produce concert films, commercials
and videos for record labels and musical instrument manufacturers. Prior to
that, Mr. Cooney was employed by Independent Artists as an assistant producer of
international television commercials. Mr. Cooney received his B.A. from Boston
University. Christopher J. Cooney is the brother of Jeffrey Cooney, our
Executive Vice President Creative Affairs, and a director of our company.

37

Robert B. Little has been president of our company since June 2000 and
co-chairman of our board of directors since our merger with Overseas Private in
October 1996. Mr. Little also served as our co-chief executive officer from
October 1996 to June 2000. Mr. Little co-founded Overseas Private in February
1980 and served as chairman of the board of Overseas Private from February 1987
until October 1996 and its chief executive officer from February 1990 until
October 1996. 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' reputation
as the entertainment capital of the world. Mr. Little is also a founding member
of The Archive Council, an industry support group for the University of
California at Los Angeles 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. Mr. Little was an executive producer of Titus, which was
nominated for an Academy Award(R) in 1999.

William F. Lischak has served as our chief operating officer, chief
financial officer, secretary and a director of our company since October 1996.
Mr. Lischak served as chief operating officer of Overseas Private from September
1990 until October 1996 and its chief financial officer from September 1988
until October 1996. Mr. Lischak, a certified public accountant, previously had
worked in public accounting, including from 1982 to 1988 with the accounting
firm of Laventhol & Horwath. Mr. Lischak has a masters degree in taxation and
has taught courses in the extension program at UCLA in accounting, finance and
taxation for motion pictures and television. Mr. Lischak attended New York
University's Tisch School of Arts and received a bachelor's degree in business
administration from New York University's Leonard N. Stern School of Business.

Jeffrey Cooney has served as our executive vice president-creative
affairs and a director of our company since June 2000. Since August 1999, Mr.
Cooney has served as creative director of Rosemary Street. Mr. Cooney also holds
an ownership interest in EUE/Screen Gems. In 1990, Mr. Cooney formed Jeffrey
Cooney Films and until August 1999 directed commercials for clients such as
Kodak, Mitsubishi, Procter & Gamble and General Mills. Mr. Cooney received a
B.A. in English from Holy Cross College. Jeffrey Cooney is the brother of
Christopher J. Cooney, the co-chairman of our board and our chief executive
officer.

Stephen K. Bannon has been a director of our company and member of our
executive committee since its inception in December 1993. From October 1996 to
June 2000, he served as vice chairman of our board of directors and chairman of
its executive committee. From December 1993 until October 1996, he served as our
chairman of the board. From June 1991 through July 1998, Mr. Bannon served as
the chief executive officer of Bannon & Co., Inc., an investment banking firm
specializing in the entertainment, media and communications industries. Bannon &
Co. formed a joint venture with Societe Generale in 1996 creating Societe
Generale Bannon to undertake media and entertainment investment banking. In July
1998, Societe Gererale purchased the joint venture. Mr. Bannon is currently a
partner of The Firm, one of the largest talent management companies in the
entertainment business. Mr. Bannon is in charge of the Firm's Strategic Advisory
Services division.

38

Scot K. Vorse became a director of our company in January 1995. From
January 1995 until October 1996, he served as our treasurer and secretary, and
from January 1995 until November 1996, he served as our vice president. From
June 1991 through July 1998, Mr. Vorse served as an executive vice president and
the chief financial officer of Bannon & Co., Inc. After the acquisition of
Bannon & Co., Inc. by SG Cowen Securities Corporation in July 1998, Mr. Vorse
served as managing director and co-head of SG Cowen Securities Corporation's
media and entertainment group until March 2000. Since March 2000, Mr. Vorse has
been managing his personal investments.

Barry R. Minsky has served as a director of our company since June
2000. Since 1977, Mr. Minsky has served as president of Wharton Capital
Corporation and since 1996 as chief executive officer of Wharton Capital
Partners, Ltd., a New York-based investment banking firm which, along with its
partners, facilitates financing for public companies and institutional clients.
Mr. Minsky has assisted public and private corporations in merger and
acquisition activities, sourcing financing and developing financial strategies.
Mr. Minsky also has experience in music publishing, film libraries, motion
picture production and distribution. Mr. Minsky received a B.S. in economics and
graduated on the dean's list from the Wharton School, University of
Pennsylvania.

Joseph Linehan has served as a director of our company since June 2000.
Mr. Linehan has been employed in various capacities with The Union Labor Life
Insurance Co. since 1984. Since April 2000, Mr. Linehan has served as vice
president-private capital. Mr. Linehan received a B.A. and M.B.A. from the
University of Maryland.

Nicholas Bavaro has served as a director of our company since June
2000. Mr. Bavaro has served as vice president and chief financial officer of
EUE/Screen Gems since 1983, when Columbia Pictures International ("Columbia")
sold its Screen Gems division. From 1961 to 1983, Mr. Bavaro served in various
positions at Columbia, including as an employee in the financial department from
1961 to 1967, as comptroller of the Screen Gems division from 1967 to 1973 and
as vice president and chief financial officer of that division from 1974 to
1983.

Board of Directors

Our board of directors is divided into three classes, each of which
serves for a term of three years, with only one class of directors being elected
in each year. The term of the first class of directors, consisting of William F.
Lischak, Joseph Linehan and Barry R. Minsky, will expire at the annual meeting
of our stockholders in 2003. The term of the second class of directors,
consisting of Robert B. Little, Stephen K. Bannon and Christopher J. Cooney,
will expire at the annual meeting of our stockholders in 2004. The term of the
third class of directors, consisting of Scot K. Vorse, Nicholas Bavaro and
Jeffrey Cooney, will expire at the annual meeting of our stockholders in 2002.
In each case, each director serves from the date of his election until the end
of his term and until his successor is elected and qualifies.

Committees

Executive Committee. Christopher J. Cooney, Robert B. Little, William
F. Lischak and Stephen K. Bannon currently serve on the executive committee,
with Mr. Cooney serving as chairman of such committee. During intervals between
the meetings of the board of directors, the executive committee exercises all
powers of the board of directors (except those powers specifically reserved by
Delaware law or our Bylaws to the full board of directors) in the management and
direction of the business and conduct of our affairs in all cases in which
specific directions have not been given by the board.

Compensation Committee. William F. Lischak, Joseph Linehan and Stephen
K. Bannon currently serve on the compensation committee, with Mr. Lischak
serving as chairman of such committee. The compensation committee administers
our stock option plans to the extent contemplated thereby and reviews, approves,
and makes recommendations with respect to compensation of officers, consultants
and key employees.

Audit Committee. The audit committee currently consists of Stephen K.
Bannon, Scot K. Vorse and Nicholas Bavaro, with Mr. Bavaro serving as chairman
of such committee. The functions of the Audit Committee are: to review and
approve the selection of, and all services performed by, our independent
auditors; to meet and consult with and to receive reports from, our independent
auditors and our 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.

39

Voting Agreement

In June 2000, our company, Rosemary Street, the Littles, MRCo., Inc. (a
member of Rosemary Street), Christopher J. Cooney and Jeffrey Cooney entered
into a voting agreement, which provides that:

o so long as Robert B. Little is employed as our president, or
the Littles own no less than 5% of our issued and outstanding
voting securities, we will nominate and Rosemary Street will
vote for Robert B. Little to serve as a member of our board;

o so long as Christopher J. Cooney and Jeffrey Cooney own, in
the aggregate, directly or indirectly, no less than 5% of our
issued and outstanding voting securities, we will nominate and
the Littles and other members of Rosemary Street will vote for
Christopher J. Cooney and Jeffrey Cooney to serve as members
of our board; and

o so long as MRCo. owns no less than 5% of our issued and
outstanding voting securities, we will nominate and the
Littles and other members of Rosemary Street will vote for
Joseph Linehan to serve as a member of our board.

The voting agreement further provides that if the size of the board is
increased from nine members to eleven members prior to June 20, 2002, Rosemary
Street has the right to designate for election or appoint as directors the two
persons to fill the vacancies created by the increase. The Littles have agreed
to vote all of their shares of our voting securities for the election of
Rosemary Street's two nominees in this situation.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers and persons who own more than 10%
of our common stock to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of our common stock and
other equity securities. Our executive officers, directors and 10% stockholders
are required by SEC regulations to furnish us with copies of Section 16(a) forms
they file. To our knowledge, based solely upon a review of the Forms 3 and 4 and
amendments thereto furnished to us during our most recent fiscal year, the Forms
5 furnished to us with respect to our most recent fiscal year, and written
representations of our directors, executive officers and 10% stockholders,
during the year ended December 31, 2001, all Section 16(a) filing requirements
applicable to our executive officers, directors and 10% stockholders were
complied with.

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ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the total compensation paid or accrued
during 2001, 2000 and 1999 to our chief executive officer and our two other
executive officers who earned more than $100,000 during those periods :

(1) Represents disability insurance premiums paid by us for the benefit of
Mr. Cooney.

(2) Represents salary earned by Mr. Cooney commencing in June 2000 when he
became co-chairman of the board and chief executive officer in
connection with the closing of the private placement with Rosemary
Street.

(3) Represents bonus earned by Mr. Little pursuant to his employment
agreement, all of which has been deferred.

(4) Represents general expenses allowance payable pursuant to Mr. Little's
employment agreement.

(5) Represents $3,400 in contributions we made on behalf of Mr. Little
pursuant to our 401(k) plan and $2,531 in disability insurance premiums
paid by us for the benefit of Mr. Little.

(6) Represents salary earned by Mr. Little as our co-chairman of the board
and co-chief executive officer through June 2000. In connection with
the closing of the private placement with Rosemary Street in June 2000,
we amended Mr. Little's existing employment agreement to provide for
him to serve as co-chairman of the board and president.

41

(7) Represents bonus earned by Mr. Little pursuant to his employment
agreement, $25,000 of which has been deferred.

(8) Represents $11,852 of auto expense allowance, $3,750 in business
management fees and $20,769 of general expense allowance paid pursuant
to Mr. Little's employment agreement.

(9) Represents $3,115 in contributions we made on behalf of Mr. Little
pursuant to our 401(k) plan, $32,966 in life insurance premiums and
$2,634 in disability insurance premiums paid by us for the benefit of
Mr. Little.

(10) Represents salary earned by Mr. Little pursuant to his employment
agreement, the payment of which was made or forgiven in
June 2000.

(11) Represents bonus of $25,000, payment of which was made or forgiven in
June 2000.

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

(13) Represents $32,480 in life insurance premiums we paid or accrued for
the benefit of Mr. Little and $2,311 in disability
insurance premiums we paid for the benefit of Mr. Little.

(14) Prerequisites with respect to the executive officer did not exceed the
lesser of $50,000 or 10% of the executive officer's salary and bonus.

(15) Represents $4,500 in contributions we made on behalf of Mr. Lischak
pursuant to our 401(k) plan, $5,135 in life insurance premiums and
$2,935 in disability insurance premiums we paid for the benefit of Mr.
Lischak.

(16) Represents $4,260 in contributions we made on behalf of Mr. Lischak
pursuant to our 401(k) plan, $6,139 in life insurance premiums and
$1,887 in disability insurance premiums we paid for the benefit of Mr.
Lischak.

(17) Represents $3,569 in contributions made on behalf of Mr. Lischak
pursuant to our 401(k) Plan, $7,295 in life insurance premiums for
which Mr. Lischak is entitled to reimbursement and $1,664 in disability
insurance premiums we paid for the benefit of Mr. Lischak.

There were no options granted to the executive officers named above
during the year ended December 31, 2001.

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The following table summarizes the number of exercisable and
unexercisable options held by the executive officers named above at December 31,
2001, and their value at that date if such options were in-the-money:

AGGREGATED OPTION EXERCISES IN 2001 AND
FISCAL YEAR-END OPTION VALUES

Director Compensation

Pursuant to the automatic option grant program under our 1996 Basic
Stock Option and Stock Appreciation Rights Plan, each individual serving as a
non-employee board member on October 31, 1996 was granted a non-qualified option
to purchase 5,000 shares of common stock. In addition, each member of the board
who is not employed by us receives an automatic grant of a non-qualified option
to purchase 5,000 shares of the common stock (i) upon becoming a board member,
whether through election at a meeting of our stockholders or through appointment
by the board of directors and (ii) on the date of each annual meeting of
stockholders, if such individual is to continue to serve as a board member after
such meeting; provided such individual has served as a non-employee member of
the board of directors for at least six months. Each such automatic option grant
is, among other things, exercisable at the fair market value of the common stock
on the date of the automatic grant and is generally exercisable after completion
of one year of service to the board of directors measured from the automatic
grant date. In addition, we reimburse all directors for travel and related
expenses incurred in connection with their activities on our behalf. Our
directors are not otherwise compensated for serving on the board.

Compensation Committee Interlocks And Insider Participation

Our compensation committee was established in October 1996 and
currently consists of William Lischak, Joseph Linehan and Stephen K. Bannon,
with William F. Lischak serving as chairman of such committee. Mr. Lischak has
served as chief operating officer, chief financial officer, secretary and one of
our directors since October 1996. Mr. Linehan has served as one of our directors
since June 2000. Mr. Bannon was our chairman of the board of directors during
1996 until consummation of the merger with Overseas Private and served as vice
chairman of the board of directors and chairman of the executive committee from
October 1996 to June 2000. The compensation committee currently administers both
of our stock option plans to the extent contemplated thereby.

Indemnification

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

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Compensation Arrangements For Current Executive Officers

Christopher J. Cooney

In June 2000, we entered into an employment agreement with Christopher
J. Cooney, which provided for Mr. Cooney to serve as our co-chairman of the
board and the chief executive officer for a one-year term ending in June 2001.
Under the terms of the agreement, Mr. Cooney received a base salary of $200,000
and was entitled to receive an annual $25,000 bonus if our pre-tax profits
exceeded $500,000 in any year during the term. Mr. Cooney also was entitled to
an additional bonus, if any, as established by the board at the beginning of the
employment term based on our achieving certain profit targets. The agreement
contained a non-compete clause whereby Mr. Cooney agreed not to compete with us
for the duration of the agreement. We are currently in the process of amending
and extending this agreement.

Robert B. Little

In June 2000, we entered into an amended and restated employment
agreement with Robert B. Little, which provides for Mr. Little to serve as our
co-chairman of the board and the president for a three-year term ending in June
2003. Mr. Little receives a base salary of $300,000 and a guaranteed bonus of
$50,000, which will be increased by $25,000 on a cumulative basis for each year
of the employment term in which our pre-tax profits exceed $500,000. Mr. Little
also will be entitled to an additional bonus, if any, as may be established by
the board at the beginning of each year of the employment term based on our
achieving certain profit targets. If we achieve these targets, Mr. Little's
employment agreement will be automatically renewed on the same terms for an
additional two-year term. Regardless of whether we achieve the targets, we may
give Mr. Little written notice at least six months prior to the expiration of
the initial employment term that we elect to extend the initial term for an
additional two years. If the initial term is not renewed, Mr. Little will be
entitled to receive $400,000 in cash, payable in six equal monthly installments
of $66,666, with the first payment to be made within 30 days after termination
of the initial term. The agreement contains a non-compete clause whereby Mr.
Little agreed not to compete with us for the duration of the agreement and for
one year after its termination.

William F. Lischak

In June 2000, we entered into an amended and restated employment
agreement with William F. Lischak, which provides for Mr. Lischak to serve as
our chief operating officer and chief financial officer for a three-year term
ending in June 2003. Mr. Lischak receives a base salary of $225,000 and a
guaranteed bonus of $50,000, which will be increased by $15,000 on a cumulative
basis for each year of the employment term in which our pre-tax profits exceed
$500,000. Mr. Lischak also will be entitled to an additional bonus, if any, as
may be established by the board at the beginning of each year of the employment
term based on our achieving certain profit targets. If we achieve these targets,
Mr. Lischak's employment agreement will be automatically renewed on the same
terms for an additional two-year term. Regardless of whether we achieve the
targets, we may give Mr. Lischak written notice at least six months prior to the
expiration of the initial employment term that we elect to extend the initial
term for an additional two years. If the initial term is not renewed, Mr.
Lischak will be entitled to receive $300,000 in cash, payable in six equal
monthly installments of $50,000, with the first payment to be made within 30
days after termination of the initial term. The agreement contains a non-compete
clause whereby Mr. Lischak agreed not to compete with us for the duration of the
agreement and for one year after its termination.

In connection with the June 2000 private placement, we granted Mr.
Lischak an option under our 1996 Basic Stock Option Plan to purchase 75,000
shares of common stock at an exercise price of $3.40 per share. As of December
31, 2001, 41,672 options were exercisable. 2,083 options will become exercisable
on the last day of each of the next 16 consecutive months thereafter. Once
exercisable, the options will remain exercisable until April 2005.

44

Jeffrey Cooney

In June 2000, we entered into an employment agreement with Jeffrey
Cooney, which provides for Mr. Cooney to serve as our executive vice
president-creative affairs for a three-year term ending in June 2003. Mr. Cooney
receives a base salary of $60,000 and will receive a $25,000 bonus for each year
of the employment term in which our pre-tax profits exceed $500,000. Mr. Cooney
also will be entitled to an additional bonus, if any, as may be established by
the board at the beginning of each year of the employment term based on our
achieving certain profit targets. If we achieve these targets, Mr. Cooney's
employment agreement will be automatically renewed on the same terms for an
additional two-year term. Regardless of whether we achieve the targets, we may
give Mr. Cooney written notice at least six months prior to the expiration of
the initial employment term that we elect to extend the initial term for an
additional two years. If the initial term is not renewed, Mr. Cooney will be
entitled to receive $100,000 in cash, payable in six equal monthly installments
of $16,666.67, with the first payment to be made within 30 days after
termination of the initial term. The agreement contains a non-compete clause
whereby Mr. Cooney agreed not to compete with us for the duration of the
agreement and for one year after its termination.

Stock Option Plans

Amended and Restated 1996 Special Stock Option Plan and Agreement

The Amended and Restated 1996 Special Stock Option Plan and Agreement
primarily provides equity incentives to each of Robert B. Little and Ellen
Dinerman Little. Under the Special Option Plan, on October 31, 1996, each of Ms.
Little and Mr. Little was granted two non-qualified options to purchase a total
of 1,100,000 shares of common stock:

o one option to purchase 537,500 shares of common stock at an
exercise price of $5.00 per share, exercisable on October 31,
1996 for 100,000 shares with the balance vesting in five equal
annual installments beginning on October 30, 1997; and

o one option to purchase 562,500 shares of common stock at an
exercise price of $8.50 per share, vesting in five equal
annual installments beginning on October 30, 1997.

All 2,200,000 shares of common stock initially reserved for issuance
under the Special Option Plan were subject to the options granted to the
Littles.

In June 2000, we amended the Special Option Plan. Pursuant to this
amendment, we cancelled all of the options outstanding under the Special Option
Plan and granted each of Ms. Little and Mr. Little an option to purchase 250,000
shares of common stock at an exercise price of $3.40 per share. The options are
immediately exercisable and expire in June 2005.

1996 Basic Stock Option Plan

In October 1996, our stockholders approved the 1996 Basic Stock Option
and Stock Appreciation Rights Plan under which a total of 550,000 shares of
common stock are available for grant to our regular full-time employees,
non-employee members of the board of directors, independent consultants and
other persons who provide services to us on a regular or substantial basis.
Awards consist of stock options (both non-qualified options and options intended
to qualify as incentive stock options under Section 422 of the Internal Revenue
Code) and stock appreciation rights. As of December 31, 2001, options to
purchase an aggregate of 33,328 shares of common stock were outstanding under
the basic option plan, with exercise prices ranging from $1.75 to $5.25 per
share.

2000 Performance Equity Plan

In November 2000, our stockholders approved the 2000 Performance Equity
Plan, under which a total of 1,000,000 shares of common stock are available for
grant to our key employees, officers, directors and consultants. Awards consist
of stock options (both non-qualified options and options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code),
restricted stock awards, deferred stock awards, stock appreciation rights and
other stock-based awards, as described in the 2000 plan. As of December 31,
2001, options to purchase an aggregate of 10,000 shares of common stock were
outstanding under the 2000 plan at an exercise price of $1.75 per share.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of April 12, 2002
with respect to the common stock ownership of:

o those persons or groups known to beneficially own more than 5%
of our voting securities;
o each director;
o each executive officer whose compensation exceeded $100,000 in
2001; and
o all current directors and executive officers as a group.

Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. The information concerning the stockholders is
based upon information furnished to us by these stockholders. Except as
otherwise indicated, all of the shares of common stock are owned of record and
beneficially and the persons identified have sole voting and investment power
with respect to the shares. Except as otherwise indicated in the table below,
the business address of each of the persons listed is care of First Look Media,
Inc., 8000 Sunset Boulevard, Penthouse East, Los Angeles, California 90046.

* Less than 1%

(1) Represents shares of common stock beneficially owned by Rosemary
Street, of which Christopher J. Cooney is one of the two designated
managers and president and of which Jeffrey Cooney is one of the two
designated managers and creative director.

(2) Represents (i) 1,364,406 shares of common stock held by the Littles as
community property in a revocable living trust, (ii) 250,000 shares of
common stock issuable upon exercise of immediately exercisable options
and (iii) 250,000 shares of common stock issuable upon exercise of
immediately exercisable options granted to such person's spouse which
generally only may be exercised by such person's spouse. Such person
disclaims beneficial ownership of the shares subject to his or her
spouse's options.

47

(3) Includes (i) 60,004 shares of common stock issuable upon exercise of
immediately exercisable options and (ii) 4,166 shares of common stock
issuable upon exercise of options exercisable on or before June 30,
2002. Excludes 20,830 shares of common stock issuable upon exercise of
options, 2,083 of which become exercisable during each of the 10 months
beginning July 2002.

(4) Includes 25,000 shares of common stock issuable upon exercise of
immediately exercisable options.

(5) Represents (i) 25,000 shares of common stock issuable upon exercise of
immediately exercisable options and (ii) 126,323 shares of common stock
contributed by Mr. Vorse to a revocable living trust for the benefit of
Mr. Vorse's spouse.

(6) Represents (i) 690,735 shares of common stock owned by Wharton Capital
Partners Ltd., a New York corporation of which Mr. Minsky holds a 50%
interest, (ii) 295,000 shares of common stock issuable upon exercise of
immediately exercisable warrants, 95,000 of which are held by Mr.
Minsky's spouse and (iii) 5,000 shares of common stock issuable upon
exercise of immediately exercisable options.

(7) Represents 5,000 shares of common stock issuable upon exercise of
immediately exercisable options.

(8) Represents (i) 20,000 shares of common stock issuable upon exercise of
immediately exercisable warrants and (ii) 5,000 shares of common stock
issuable upon exercise of immediately exercisable options.

(9) Includes 1,613,810 shares of common stock issuable upon exercise of
immediately exercisable warrants.

(10) Includes shares referred to as being included in notes 1 through 8.
Excludes shares referred to in such notes as being excluded.

48

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Until June 2000, Ellen Dinerman Little was employed as our co-chairman
of the board, co-chief executive officer and president. In June 2000, our
existing employment agreement with Ms. Little was terminated and we entered into
a "first look" agreement with The Little Film Company and Ms. Little. The
agreement provides for a three-year term ending in June 2003. Pursuant to the
"first look" agreement, the Little Film Company receives:

o an annual fee of $100,000;

o a discretionary revolving development fund of $100,000 for The
Little Film Company's use in the option/acquisition of
literary properties, engagement of writers and other customary
development costs; and

o customary overhead, including office space, staff, telephone
and reasonable travel costs, limited to $150,000 per year.

The Little Film Company also will be compensated on a
project-by-project basis , through fixed producer fees equal to 3.5% of the all
inclusive budget of each picture produced with a minimum of $150,000 and maximum
of $500,000 per picture. Additionally, The Little Film Company may earn certain
contingent compensation based upon the performance of the given picture. We will
have an exclusive "first look" on any project that The Little Film Company owns
or controls or any project that it has the right to acquire or may wish to
acquire for development or production. The Little Film Company will furnish us
with the services of Ms. Little in connection with the development and possible
production of theatrical motion pictures based upon accepted artist submissions
meeting certain criteria. We did not compensate The Little Film Company relative
to the production of any films during 2001 and 2000.

In October 2000, we entered into a consulting agreement with Wharton
Capital Partners Ltd. Barry R. Minsky, one of our directors, is the chief
executive officer and a 50% stockholder of Wharton. Under the agreement, Wharton
received a one-time fee of $100,000 and is entitled to receive a monthly fee of
$4,166 for 24 months. If Wharton introduces us to a financing source and we
consummate any public or private equity and/or debt financing with the source
during the term of the consulting agreement or during the two-year period
following the expiration of the agreement, then we also will pay Wharton an
amount equal to (i) 5% of all funds received by us from such public or private
equity financing and (ii) 3% of all funds received by us from such public or
private debt financing. Additionally, upon completion of an equity-based
financing, we will issue to Wharton warrants to purchase shares of common stock
equal to 5% of the common stock or common stock equivalents issued in the
financing at an exercise price equal to 120% of the five-day average closing bid
price prior to the closing of such financing. The warrants will be exercisable
on a cashless basis and will have registration rights.

49

PART IV

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

(a)(3) EXHIBITS

EXHIBIT
NUMBER DESCRIPTION

3.1 Restated Certificate of Incorporation. Incorporated by
reference to Exhibit 3.1 to our Current Report on Form 8-K,
dated October 25, 1996, filed with the SEC on November 12,
1996.

3.2 Bylaws, as amended on June 20, 2000. Incorporated by reference
to Exhibit 3.2 to our Amended Current Report on Form 8-K/A
filed with the SEC on June 29, 2000.

3.3 Certificate of Designations for Series A Preferred Stock.
Incorporated by reference to Exhibit 3.3 to our Amended
Current Report on Form 8-K/A, filed with the SEC on June 29,
2000.

50

3.4 Amendment to our Restated Certificate of Incorporation.
Incorporated by reference to Exhibit 3.4 to our Annual Report
on Form 10-K for the fiscal year ended December 31, 2000.

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

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

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

4.4 Form of Warrant issued in our bridge financing. Incorporated
by reference to Exhibit 10.4 to our Registration Statement on
Form S-1, Registration No. 33-83624.

4.5 Warrant, dated October 31, 1996, for Jefferson Capital Group,
Ltd. to purchase shares of our common stock. Incorporated by
reference to Exhibit 4.6 to our Current Report on Form 8-K,
dated October 25, 1996, filed with the SEC on November 12,
1996.

4.6 Form of Warrant dated June 20, 2000. Incorporated by reference
to Exhibit 4.8 to our Amended Current Report on Form
8-K/A, filed with the SEC on June 29, 2000.

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

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

10.3 Indemnity Agreement, dated October 31, 1996, between us and
Stephen K. Bannon. Incorporated by reference to Exhibit 10.5
to our Current Report on Form 8-K, dated October 25, 1996,
filed with the SEC on November 12, 1996.

10.4 Indemnity Agreement, dated October 31, 1996, between us and
Scot K. Vorse. Incorporated by reference to Exhibit 10.6 to
our Current Report on Form 8-K, dated October 25, 1996, filed
with the SEC on November 12, 1996.

51

10.5 1996 Basic Stock Option and Stock Appreciation Rights Plan.
Incorporated by reference to Exhibit 10.20 to our Annual
Report on Form 10-K for the year ended December 31, 1996.

10.6 Lease Agreement dated April 21, 1987, as amended. Incorporated
by reference to Exhibit 10.30 to our Annual Report on Form
10-K for the year ended December 31, 1996.

10.7 Amendment, dated April 1, 1997 to Lease Agreement, dated April
21, 1987. Incorporated by reference to Exhibit 10.31 to our
Annual Report on Form 10-K for the year ended December 31,
1997.

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

10.9 Securities Purchase Agreement, dated May 3, 2000, between our
company and Rosemary Street Productions, LLC ("Rosemary
Street"). Incorporated by reference to Exhibit 10.35 to our
Amended Current Report on Form 8-K/A, filed with the SEC on
June 29, 2000.

10.10 Assignment and Assumption Agreement between our company and
Rosemary Street. Incorporated by reference to Exhibit 10.36 to
our Amended Current Report on Form 8-K/A, filed with the SEC
on June 29, 2000.

10.11 Amended and Restated 1996 Special Stock Option Plan and
Agreement among Robert Little, Ellen Little and our company.
Incorporated by reference to Exhibit 10.37 to our Amended
Current Report on Form 8-K/A, filed with the SEC on June 29,
2000.

10.12 Stock Option Agreement between us and William Lischak.
Incorporated by reference to Exhibit 10.38 to our Amended
Current Report on Form 8-K/A, filed with the SEC on June 29,
2000.

10.13 Amended and Restated Employment Agreement between Robert
Little and us. Incorporated by reference to Exhibit 10.39 to
our Amended Current Report on Form 8-K/A, filed with the SEC
on June 29, 2000.

10.14 Amended and Restated Employment Agreement between William
Lischak and us. Incorporated by reference to Exhibit 10.40 to
our Amended Current Report on Form 8-K/A, filed with the SEC
on June 29, 2000.

52

10.15 Employment Agreement between Christopher Cooney and us.
Incorporated by reference to Exhibit 10.41 to our Amended
Current Report on Form 8-K/A, filed with the SEC on June 29,
2000.

10.16 Employment Agreement between Jeffrey Cooney and us.
Incorporated by reference to Exhibit 10.42 to our Amended
Current Report on Form 8-K/A, filed with the SEC on June 29,
2000.

10.17 First Look Agreement between The Little Film Company, Inc. and
us. Incorporated by reference to Exhibit 10.43 to our Amended
Current Report on Form 8-K/A, filed with the SEC on June 29,
2000.

10.18 Note and Debt Contribution Agreement among Robert Little and
Ellen Little and us. Incorporated by reference to Exhibit
10.44 to our Amended Current Report on Form 8-K/A, filed with
the SEC on June 29, 2000.

10.19 Form of Management Letter between each of Robert Little and
Ellen Little and us. Incorporated by reference to Exhibit
10.45 to our Amended Current Report on Form 8-K/A, filed with
the SEC on June 29, 2000.

10.20 Voting Agreement among our company, Rosemary Street, Robert
Little, Ellen Little, MRCo., Inc., Christopher Cooney and
Jeffrey Cooney. Incorporated by reference to Exhibit 10.46 to
our Amended Current Report on Form 8-K/A, filed with the SEC
on June 29, 2000.

10.21 Form of Credit, Security, Guaranty and Pledge Agreement, dated
as of June 20, 2000, among our company, as Borrower, the
Guarantors named therein and the Lenders named therein, with
The Chase Manhattan Bank, as Administrative Agent, and The
Chase Manhattan Bank, as Issuing Bank (without schedules and
exhibits). Incorporated by reference to Exhibit 10.47 to our
Amended Current Report on Form 8-K/A, filed with the SEC on
June 29, 2000.

10.22 Copyright Security Agreement, dated as of June 20, 2000
(without schedules and exhibits). Incorporated by reference to
Exhibit 10.48 to our Amended Current Report on Form 8-K/A,
filed with the SEC on June 29, 2000.

10.23 Consulting Agreement, dated October 1, 2000, between us and
Wharton Capital Partners, Ltd. Incorporated by reference to
Exhibit 5 to the Schedule 13D filed by Wharton with the SEC on
November 28, 2000.

10.24 2000 Performance Equity Plan. Incorporated by reference to
Exhibit 10.27 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.

10.25 Amendment No. 1, dated May 16, 2001 to the Credit, Security,
Guaranty and Pledge Agreement, dated as of June 20, 2000,
among our company, as Borrower, the Guarantors named therein
and the Lenders named therein, with The Chase Manhattan Bank,
as Administrative Agent, and The Chase Manhattan Bank, as
Issuing Bank. Incorporated by reference to Exhibit 10.28 to
our Quarterly Report on Form 10-Q for the quarter ended March
31, 2001.

10.26 Amendment No. 2, dated as of September 17, 2001 to the Credit,
Security, Guaranty and Pledge Agreement, dated as of June 20,
2000, as amended, among our company, as Borrower, the
Guarantors named therein and the Lenders named therein, with
The Chase Manhattan Bank, as Administrative Agent, and The
Chase Manhattan Bank, as Issuing Bank. Filed Herewith

10.27 Agreement of Sublease dated November 15, 2001 between Scott
Mednick & Associates, Inc. and First Look Media, Inc. Filed
herewith.

21 Subsidiaries of the Registrant. Filed herewith.

23 Consent of PricewaterhouseCoopers LLP. Filed herewith.

99 Risk Factors. Filed Herewith.

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

53

SIGNATURES

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

Dated: May 6, 2002 FIRST LOOK MEDIA, INC.

By: /s/ Christopher J. Cooney
---------------------------------
Christopher J. Cooney
Chairman of the Board of Directors
and Chief Executive Officer

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/ Christopher J. Cooney Co-Chairman of the Board May 6, 2002
- ------------------------- of Directors and Chief
Christopher J. Cooney Executive Officer
(Principal Executive Officer)

/s/ Robert B. Little Co-Chairman of the Board of May 6, 2002
- --------------------------- Directors and President
Robert B. Little

/s/ William F. Lischak Chief Operating Officer, May 6, 2002
- --------------------------- Chief Financial Officer,
William F. Lischak Secretary and Director
(Principal Financial and
Accounting Officer)

/s/ Jeffrey Cooney Executive Vice President - May 6, 2002
- --------------------------- Creative Affairs and Director
Jeffrey Cooney

/s/ Stephen K. Bannon Director May 6, 2002
- ---------------------------
Stephen K. Bannon

/s/ Scot K. Vorse Director May 6, 2002
- ---------------------------
Scot K. Vorse

/s/ Barry R. Minsky Director May 6, 2002
- ---------------------------
Barry R. Minsky

Director __________, 2002
- ---------------------------
Joseph Linehan

/s/ Nicholas Bavaro Director May 6, 2002
- ---------------------------
Nicholas Bavaro

54

Schedule II - Valuation and Qualifying Accounts

All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.

S-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of First Look Media, Inc.
(formerly known as Overseas Filmgroup, Inc.):

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of First Look
Media, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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 our opinion.

As discussed in Note 1, the Company has had losses and negative cash flows from
operations for each of the last two years and will need to generate sufficient
cash flow from operations or raise additional capital to achieve its intended
business objectives.

/s/ PricewaterhouseCoopers LLP
Century City, California
April 25, 2002

F-1

FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.

F-2

FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS

F-3

FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)

The accompanying notes are an integral part of these consolidated financial
statements.

F-5

FIRST LOOK MEDIA, INC.
(formerly known as Overseas Filmgroup, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS:

General

First Look Media, Inc. (formerly known as Overseas Filmgroup, Inc.) ("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", and in the domestic video market
under the name "First Look Home Entertainment. The Company also produces
television commercials under the name "First Look Artists".

Liquidity and Capital Resources

For the two years ended December 31, 2001, the Company had operating losses of
$8,634,000 and its operating activities used $11,556,000 of cash. As of December
31, 2001, the Company had cash and cash equivalents of $1,673,000 and, based on
its calculations, approximately $5,795,000 available for borrowing under its
Chase Credit Facility (see Note 6). In management's opinion, existing cash and
available borrowings, totaling approximately $7,468,000, along with future cash
anticipated to be generated from operations, will provide the Company with
sufficient resources to fund operations and execute its current business plan
through at least January 1, 2003. If the Company is not successful in generating
sufficient future cash flow from operations in accordance with its current
business plan, raising additional capital through public or private financings,
strategic relationships or other arrangements will be necessary. This additional
funding, if needed, might not be available on acceptable terms, or at all.
Failure to raise sufficient capital, if and when needed, could have a material
adverse effect on the business, results of operations and financial condition of
the Company.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements of the Company include the financial
position, results of operations and cash flows of the Company and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated.

Revenues

Revenues from nonrefundable guarantees payable by sub-distributors are
recognized when the film becomes available for release and certain other
conditions are met in accordance with Statement of Position 00-2, "Accounting by
Producers or Distributors of Films" ("SOP 00-2"). 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.
Revenues from home video market are recognized, net of a reserve for returns,
upon availability of product to retailers.

Film Costs and Amortization

The Company accounts for film costs in accordance with SOP 00-2. Film costs
include the direct costs of acquiring and producing motion picture product.
Capitalized costs are amortized using the individual film forecast method
whereby expense is recognized in the proportion that current year revenues for
each film bear to management's estimate of ultimate revenues. Film costs are
stated at the lower of net unamortized cost or net realizable value.

In June 2000, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 00-2, which replaces SFAS
No. 53. SOP 00-2 was adopted for the Company's fiscal year beginning January 1,
2000. SOP 00-2 establishes new accounting standards for producers or
distributors of films, including changes in revenue recognition and accounting
for advertising, development and overhead costs. Under the new standard, all
exploitation costs such as advertising and marketing costs for theatrical and
television products will be expensed as incurred, whereas under the previous
standards, these costs were capitalized and amortized over the products'
lifetime revenues. In addition, the new standard requires that development costs
for abandoned projects be charged directly to expense rather than being included
in production overhead and reestablished as film costs. The Company elected
early adoption of SOP 00-2 and, as a result, in 2000, a cumulative charge for
the change in accounting principle of $15,582,000 ($14,123,000 net of income
taxes) has been reflected in the Company's Consolidated Statement of Operations
for the year ended December 31, 2000.

F-6

Payables to Producers

The Company accounts for participations due to producers in accordance with SOP
00-2. Management's estimate of ultimate participations is accrued as an expense
using the individual film forecast method whereby expense is recognized in the
proportion that current year revenues for each film bear to management's
estimate of ultimate revenues. In the year ending December 31, 2002, management
expects to make payments of approximately $15,600,000 to settle producer
liabilities outstanding at December 31, 2001.

Cash and Cash Equivalents

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

Fixed Assets

Fixed assets are stated at cost less accumulated depreciation. Depreciation is
provided over the estimated useful lives of assets, which range from 5 to 7
years using the straight line method. Leasehold improvements are amortized over
the shorter of the useful lives of assets or the term of the lease.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of such assets may not be
recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. If such assets are considered
impaired, the amount of the impairment loss recognized is measured as the amount
by which the carrying value of the asset exceeds the fair value of the asset,
fair value being determined based upon discounted cash flows. The Company has
recorded write-downs of film costs amounting to $1,815,000, $494,000 and
$1,271,000 for the years ended December 31, 2001, 2000 and 1999 respectively, as
a result of downward adjustments of projected ultimate revenues. These
write-downs are included in film cost amortization in the Consolidated
Statements of Operations.

Fair Value of Financial Instruments

The recorded value of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities and payable to producers
approximate their fair value due to the relative short maturities of these
instruments. The fair value of notes payable approximates the recorded value due
to the stated interest rate on such instruments.

Segment Reporting

The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information"
effective January 1, 2000. SFAS No. 131 establishes standards for the way
companies report information about operating segments in interim and annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company's
management has determined that the Company operated within two discrete
reportable business segments for the year ended December 31, 2001 and one
discrete reportable business segment for the year ended December 31, 2000.

F-7

Income Taxes

The Company records income taxes in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes". The standard requires, among other
provisions, an asset and liability approach to recognize deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and tax basis of
assets and liabilities. Valuation allowances are provided if, based upon the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.

Basic and Diluted Loss per Share

Basic and diluted net loss per share is computed by dividing the net loss
applicable to common stockholders by the weighted average number of shares of
common stock and common equivalent shares outstanding. Common equivalent shares
related to all stock options, warrants and convertible preferred stock during
the three years ended December 31, 2001 have been excluded from the computation
below because their effect is anti-dilutive.

The following table sets forth common stock equivalents (potential common stock)
that are not included in the diluted net loss per share calculations above
because their effect would be anti-dilutive for the years indicated:

Accounting for Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and FASB Interpretation ("FIN") No.
28 "Accounting for Stock Appreciation Rights and Other Variable Stock Option
Award Plans an Interpretation of APB Opinions No. 15 and 25" and complies with
the disclosure requirements of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation cost, if any, is recognized over the respective vesting period
based on the difference, if any, on the date of grant, between the fair value of
the Company's common stock and the grant price. The Company accounts for stock
issued to non-employees in accordance with the provisions of SFAS No. 123 and
EITF 96-18, "Accounting for Equity Instruments that are issued to other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

In March 2000, the Financial Accounting Standards Board issued FIN No. 44,
"Accounting for Certain Transactions involving Stock Compensation." FIN No. 44
provides guidance for issues arising in applying APB No. 25. FIN No. 44 applies
specifically to new awards, exchanges of awards in a business combination,
modification to outstanding awards, and changes in grantee status that occur on
or after July 1, 2000, except for the provisions related to repricing and the
definition of an employee which apply to awards issued after December 15, 1998.
The Company's financial statements have been prepared under the guidance
provided by FIN No. 44.

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 associated with accounts
receivable is limited due to the large number of customers, as well as their
dispersion across geographic areas. The Company performs credit evaluations of
its customers and generally does not require collateral. As of December 31,
2001, only one customer had an outstanding balance that exceeded 10% or more
($3.6 million) of the Company's total accounts receivable.

F-8

Comprehensive Income

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

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Reclassifications

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

Recent Accounting Pronouncements

In October 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. The FASB's new rules
on asset impairment supersede FAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", and portions of
APB Opinion No. 30, "Reporting the Results of Operations". FAS 144 provides a
single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value and carrying amount. FAS No. 144 also requires expected future
operating losses from discontinued operations to be displayed in the period(s)
in which the losses are incurred, rather than as of the measurement date as
presently required. The Company is in the process of determining the impact of
adopting SFAS No. 144.

NOTE 3 - AGREEMENT WITH ROSEMARY STREET PRODUCTIONS, LLC:

In June 2000, the Company consummated a Securities Purchase Agreement with
Rosemary Street in which the Company sold to Rosemary Street for an aggregate
cash price of $17,000,000 (i) 5,097,413 shares of common stock, (ii) 904,971
shares of Series A convertible preferred stock and (iii) five-year warrants to
purchase up to 2,313,810 shares of common stock for an exercise price of $3.40
per share. Direct expenses associated with the issuance of stock and warrants
amounted to $580,000 through December 31, 2000, which were charged to equity. As
of December 31, 2001, Rosemary Street owned approximately 53.5% of the Company's
voting securities.

In accordance with the terms of the Securities Purchase Agreement with Rosemary
Street, in June 2000, Robert B. Little and Ellen Dinerman Little (collectively,
"the Littles"), former co-chairs of the Board of Directors, co-chief executive
officers and significant stockholders of the Company, forgave $2,023,000 in
notes and other payables owed to them by the Company. In addition, the Littles
contributed to the Company $130,000 in cash and 1,588,812 shares of the
Company's common stock they owned. In return, in accordance with the terms of
the Securities Purchase Agreement, the Company paid $1,430,000 to the Littles.

F-9

NOTE 4 - MARKETABLE SECURITIES:

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

In July 1999, the Company received 17,454 shares of common stock of Yahoo!, Inc.
("Yahoo!"), reflecting a 2 for 1 stock split, in exchange for its shares of
broadcast.com, following Yahoo!'s acquisition of broadcast.com

The Company accounted for its investment in Yahoo! under the provisions of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The
investment in Yahoo! was classified as an available-for-sale security and was
carried on the balance sheet at fair value.

During 2000, the Company sold all its shares of Yahoo! common stock for
approximately $2,056,000.

NOTE 5 - FILM COSTS:

Film costs consist of the following:

December 31,
2001 2000
---- ----
(in thousands)
Films in release net of accumulated amortization $ 13,167 $ 11,702
Films not yet available for release 5,137 1,691
-------- --------
$ 18,304 $ 13,393
======== ========

Interest costs capitalized to films were $191,000, $186,000 and $303,000 during
the years ended December 31, 2001, 2000 and 1999, respectively. Based on the
Company's estimates of projected gross revenues as of December 31, 2001,
approximately 35% and 81% of unamortized film costs applicable to films in
release, are expected to be amortized during the next year and next three years,
respectively.

NOTE 6 - NOTES PAYABLE:

Notes payable consist of the following:

2001 2000
---- ----
(in thousands)

Borrowing under credit facility $ 14,500 $ 6,500
Subordinated note payable 180 616
----------- ------------
$ 14,680 $ 7,116
=========== ============

F-10

Concurrently with the consummation of the Securities Purchase Agreement with
Rosemary Street (Note 3), in June 2000 the Company entered into a five-year $40
million revolving credit facility (the "Chase Credit Facility") with The Chase
Manhattan Bank (now JP Morgan Securities, Inc.) and other commercial banks and
financial institutions. A portion of the proceeds from this credit facility was
used to repay outstanding loans and accrued interest under the Company's
previous credit facility with Coutts & Co. and Bankgesellschaft Berlin A.G. (the
"Coutts/Bankgesellschaft Credit Facility"). The remaining proceeds have been
used to finance the Company's production, acquisition, distribution and
exploitation of motion pictures, and for working capital and general corporate
purposes, including the Company's expansion into television commercial
production (Note 14). During the years ended December 31, 2001 and 2000, the
Company borrowed $8,000,000 and $6,500,000, respectively, under the Chase Credit
Facility.

The amounts borrowed under the Chase Credit Facility bear interest, as the
Company may select, at rates based on either LIBOR plus 2% or a rate per annum
equal to the greater of (a) the Prime Rate plus 1%, (b) the Base CD Rate plus 2%
and (c) the Federal Funds Effective Rate plus 1.5% (as these terms are defined
in the Chase Credit Facility Agreement). In addition to an annual management fee
of $125,000, the Company pays a commitment fee on the daily average unused
portion of the Chase Credit Facility at an annual rate of 0.5%. Upon entering
the Chase Credit Facility, the Company was required to pay a one-time fee of
approximately $890,000. The Chase Credit Facility Agreement also restricts the
creation or incurrence of indebtedness and the issuance of additional
securities. The Chase Credit Facility is collateralized by all tangible and
intangible assets, and future revenues of the Company.

In May 2001, the Company entered into an amendment to the Chase Credit Facility,
pursuant to which the requisite lenders agreed, effective as of the date of the
amendment, to:

o permit the Company to obtain financing for one film from
another lender;
o increase the Company's overhead allowance from $5 million to
$7.25 million excluding bad debt; and
o reduce the minimum level of Consolidated Net Worth (as defined
in the credit agreement) that the Company is required to
maintain from $28 million to $22 million.

As of December 31, 2001, the Company was in compliance with all covenants of the
credit agreement.

In addition to the amounts outstanding under the Chase Credit Facility
Agreement, during 1998 the Company borrowed $2,000,000 from another lender, the
proceeds of such loan were used to acquire rights to a particular film. This
subordinated note bears interest at the Prime Rate plus 1.5% and is
collateralized by amounts due under distribution agreements from the specific
film. The outstanding remaining obligation of $180,000 was fully repaid in March
2002.

Expected maturity dates and effective interest rates of the notes payables are
as follow:

F-11

NOTE 7 - INCOME TAXES:

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

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

The deferred taxes relate primarily to differences arising from the amortization
of film costs for book and tax purposes and the benefits associated with tax
loss and foreign withholding tax credit carryforwards. The foreign withholding
taxes are substantially recouped from the producers' share of revenue.

The Company has provided a valuation allowance for the full amount of its net
deferred tax assets since realization of any future benefit from deductible
temporary differences and net operating loss and tax credit carryforwards cannot
be sufficiently assured at December 31, 2001.

At December 31, 2001, the Company had net operating loss carryforwards for both
federal and state income tax purposes of approximately $24,000,000 and
$4,400,000, respectively, which expire at various dates between 2004 and 2021,
respectively. The net operating losses can be carried forward to offset future
taxable income, if any. Utilization of the carryforwards may be subject to
utilization limitations which may inhibit the Company's ability to use
carryforwards in the future.

F-12

NOTE 8 - SHAREHOLDERS' EQUITY:

Common Stock

During 2000, the Company increased the number of authorized shares of common
stock, $.001 par value, from 25,000,000 to 50,000,000 shares.

Preferred Stock

During 2000, the Company increased the number of authorized shares of preferred
stock, $.001 par value, from 2,000,000 to 10,000,000 shares.

Series A Preferred Stock

In accordance with the terms of the Securities Purchase Agreement with Rosemary
Street (Note 3), in June 2000, the Company issued 904,971 shares of Series A
Preferred Stock. Pursuant to the agreement, all shares of Series A Preferred
Stock were automatically converted into common stock on a 2:1 basis in October
2001.

Stock Option Plans

In October 1996, the Company's stockholders approved the 1996 Basic Stock Option
and Stock Appreciation Rights Plan ("1996 Plan"), under which incentive and
non-qualified stock options and stock appreciation rights may be granted to
certain employees, directors, independent consultants and certain other persons
who provide services to the Company to purchase up to a maximum of 550,000
shares of common stock. The 1996 Plan calls for annual grants to non-employee
directors of 5,000 shares at an exercise price equal to the fair market value of
the common stock on the date of grant, which is the date of the Annual
Stockholders meeting. These options are exercisable one year after the date of
grant and expire on the earlier of ten years from the date of grant or three
years from the date on which the director ceases to be a director of the
Company.

As part of the Securities Purchase Agreement with Rosemary Street (Note 3), the
Company cancelled all outstanding stock options granted to the Littles. Under
the terms of the Company's 1996 Special Stock Option Plan, the Littles held
options to purchase up to 2.2 million shares of common stock at exercise prices
ranging from $5.00 to $8.50 per share. These stock options were issued in 1996
and vested over a five-year period. The Company subsequently granted the Littles
fully vested stock options to purchase 500,000 shares of common stock at an
exercise price of $3.40 per share.

In November 2000, the Company's stockholders approved the 2000 Performance
Equity Plan ("2000 Plan"), under which a total of 1,000,000 shares of common
stock are available for grant to the Company's key employees, directors and
independent consultants. Awards consist of stock options, restricted stock
awards, deferred stock awards, stock appreciation rights and other stock-based
awards, as described in the 2000 plan.

The Board of Directors is responsible for administration of the 2000 Plan. The
Board determines the term of each award, including the option exercise price,
the number of shares for which each option is granted and the rate at which each
option is exercisable. Incentive stock options granted pursuant to the Plan
cannot be granted with an exercise price of less than 100% of the fair market
value on the date of grant (110% if the award is issued to a 10% or more
shareholder). The term of the options granted under the Plan cannot be greater
than 10 years; 5 years for certain optionees who have an ownership interest in
the Company or one if its subsidiaries. Options granted under the Plan are
exercisable at times and increments as specified by the Board of Directors.

An aggregate of 1,550,000 shares of common stock were reserved for grant under
the 1996 Plan and the 2000 Plan of which 1,280,000 shares were available for
future grant at December 31, 2001.

F-13

The following table summarizes stock option transactions during the years ended
December 31, 2001, 2000 and 1999:

Weighted Average
Number of Shares Price Per Share
------------------ ------------------
Balance at December 31, 1998 2,260,000 $ 6.69
Granted during 1999 120,000 2.40
------------------ ------------------
Balance at December 31, 1999 2,380,000 $ 6.48
Granted during 2000 650,000 3.20
Cancelled during 2000 2,200,000 6.78
------------------ ------------------
Balance at December 31, 2000 830,000 $ 3.22
Cancelled during 2001 60,000 1.88
------------------ ------------------
Balance at December 31, 2001 770,000 $ 3.18
================== ==================
Exercisable at December 31, 2001 736,000 $ 3.17
================== ==================

The following summarizes prices and terms of options outstanding at December 31,
2001:

Stock Options Outstanding
-------------------------
Weighted Average
Remaining Number Exercisable
Number Outstanding Contractual Life at December 31,
Exercise Price at December 31, 2001 in Years 2001
- -------------- ----------------- -------- ----

$ 1.75 10,000 9.08 10,000
$ 1.88 20,000 3.84 20,000
$ 2.25 20,000 4.34 20,000
$ 2.38 30,000 6.42 30,000
$ 2.44 100,000 6.9 100,000
$ 3.40 575,000 3.5 542,000
$ 5.25 15,000 4.4 15,000
--------- ---------
770,000 4.17 736,000
========= =========

The Company applies APB No. 25 and related interpretations to account for stock
options granted to employees and directors. Had compensation cost been
recognized pursuant to the fair value approach of SFAS No. 123, the Company's
pro forma net loss and net loss per share applicable to common stockholders
would have been as follows:

F-14

The fair value of each stock option granted has been estimated on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions:

Risk-free interest rate 3.5%
Expected life (in years) 4 years
Dividend yield 0%
Expected volatility 50%

Warrants

In accordance with the terms of the Securities Purchase Agreement with Rosemary
Street (Note 3), the Company granted Rosemary Street warrants to purchase
2,313,810 shares of common stock. The Company also granted warrants to purchase
600,000 shares of common stock to individuals as compensation for services
rendered in connection with closing of the Securities Purchase Agreement. The
Company also granted warrants to purchase 75,000 shares of common stock to an
individual in consideration of his consent to the assignment by Rosemary Street
to the Company of his first look agreement. These warrants have an exercise
price of $3.40 per share, are fully vested, expire in June 2005 and remain
unexercised at December 31, 2001.

Additionally, warrants to purchase 4,500,000 and 62,500 shares of common stock,
issued in 1995 and 1996, at an exercise price of $5.00 per share remained
unexercised at December 31, 2001. These warrants are fully vested and expire in
February 2002 and October 2003, respectively.

As discussed in Note 14, the Company issued 295,291 shares of its common stock
in exchange for 4,135,579 of 4,500,000 of outstanding warrants subsequent to
December 31, 2001.

NOTE 9 - RELATED PARTY TRANSACTIONS:

Through June 2000, Ellen Dinerman Little was employed by the Company as its
co-chairman of the board, co-chief executive officer and president. In June
2000, the Company and Ms. Little terminated Ms. Little's existing employment
agreement and the Company entered into a first look agreement with The Little
Film Company, Inc. and Ms. Little. The agreement provides for a three-year term
ending in June 2003. Pursuant to the first look agreement, The Little Film
Company receives (i) an annual fee of $100,000; (ii) a discretionary revolving
development fund of $100,000 for The Little Film Company's use in the
option/acquisition of literary properties, engagement of writers and other
customary development costs; and (iii) customary overhead, including office
space, staff, telephone and reasonable travel costs of up to $150,000. The
Company capitalized capitalized film costs of $250,000 and $125,000 during the
years ended December 31, 2001 and 2000, respectively.

The Little Film Company also will be compensated on a project-by-project basis.
The Company will have an exclusive "first look" on any project that The Little
Film Company owns or controls or any project that it has the right to acquire or
may wish to acquire for development or production. The Little Film Company will
furnish the Company with the services of Ms. Little in connection with the
development and possible production of theatrical motion pictures based upon
accepted artist submissions meeting certain criteria. The Company recorded no
compensation expenses relative to development of any films during the years
ended December 31, 2001 and 2000.

In October 2000, the Company entered into a consulting agreement with Wharton
Capital Partners Ltd. ("Wharton"). Barry Minsky, a director of the Company, is
the chief executive officer and a 50% shareholder of Wharton. Under the
agreement, Wharton received a one-time fee of $100,000, and is entitled to
receive a monthly fee of $4,166 for 24 months starting in November 2000.
According to the agreement, if Wharton introduces the Company to a financing
source and the Company consummates any public or private equity and/or debt
financing with the source during the term of the consulting agreement or during
the two-year period following the expiration of the agreement, then the Company
also will pay Wharton an amount equal to (i) 5% of all funds received by the
Company from such public or private equity financing and (ii) 3% of all funds
received by the Company from such public or private debt financing.
Additionally, upon completion of an equity-based financing, the Company will
issue to Wharton warrants to purchase shares of the Company's common stock equal
to 5% of the common stock or common stock equivalents issued in the financing at
an exercise price equal to 120% of the five-day average closing bid price prior
to the closing of such financing. The warrants will be exercisable on a cashless
basis and will have registration rights. During the years ended December 31,
2001 and 2000, the Company recorded expenses of $50,000 and $112,500,
respectively related to services rendered by Wharton.

F-15

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

The Company leases office space and office equipment under various operating
leases, which expire between 2002 and 2007. Total rental expense under these
leases for the years ended December 31, 2001, 2000 and 1999 amounted to
$278,000, $255,000 and $257,000, respectively. Minimum annual rental payments
under non-cancelable leases are as follows:

2002 $ 408,000
2003 507,000
2004 505,000
2005 503,000
2006 503,000
Thereafter 205,000
-------------
$ 2,631,000
=============

As of December 31, 2001, the Company was committed to pay minimum guarantees of
approximately $4,424,000 contingent upon delivery of certain films to the
Company.

Additionally, the Company has entered into certain arrangements with German film
financing partnerships whereby the Company has guaranteed that within three
years from the commencement of principal photography of the related film, the
licensing and distribution proceeds, net of the Company's fees and expenses,
will be no less than sixty to eighty percent (depending upon the specific
arrangement) of the amount funded toward the production cost of the related
film. These commitments are not recorded as liabilities unless and until
management expects that proceeds from the licensing and distribution of the
related film, net of the Company's fees and expenses, will be insufficient to
cover the guarantee within the agreed upon period for the particular film. As of
December 31, 2001, the Company had three such commitments outstanding, whereby
the total amount committed was $10,238,000 and the expected uncovered portion of
these commitments (amounts not covered by licensing agreements or pending
licensing agreements with minimum guaranteed payments due to the Company), was
approximately $3,270,000. The commitments become due, if at all, between
September 2003 and September 2004. Management currently believes that none of
these guarantees will be called upon because the existing and projected
licensing and distribution proceeds of each film are expected to be sufficient
to fully cover each commitment.

Management expects that the possibility of having to honor its contingent
obligations under these agreements is remote. The Company's contingent
obligations are largely dependent upon future sales performance and on the
collection of the related accounts receivable. Should a reserve be required, it
would be recorded at the time the obligation was determined to be probable. As
of December, 31, 2001, the Company's maximum exposure under these agreements was
approximately $10 million. Included in the December 31, 2001 balance sheet item,
"Payable to Producers", is approximately $2,000,000 of accrued participation
costs with respect to these films, reflecting amounts due toward these
contingencies based on recognized revenues relating to such films through
December 31, 2001.

F-16

NOTE 11 - FOREIGN SALES AND SIGNIFICANT CUSTOMERS:

The Company's foreign revenues are summarized as follows:

Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
(in thousands)
Western Europe $ 11,782 $ 9,289 $ 14,282
Asia 2,420 1,999 1,701
Latin America 1,684 1,139 1,610
Eastern Europe 641 806 469
Other 2,238 1,775 4,775
------ ------ ------
$ 18,765 $ 15,008 $ 22,837
======= ======= =======

Customers representing 10% or more of the Company's revenues accounted for none
for the year ended December 31, 2001, $3,014,000 (one customer) for the year
ended December 31, 2000 and $3,500,000 (one customer) for the year ended
December 31, 1999.

NOTE 12 - 401(K) PLAN

The Company has a 401(K) plan, which covers substantially all
employees. Each participant is permitted to make voluntary contributions not to
exceed the lesser of 20% of his or her respective compensation or the applicable
statutory limitation. The Company matches one-half of the first 4% contributed
by the employee. Amounts contributed by each employee are immediately vested and
amounts contributed by the Company vest over a five-year period at the rate of
20% per year. The Company's contributions to the plan were $35,000, $24,000 and
$21,000 in 2001, 2000 and 1999, respectively.

NOTE 13 - SEGMENT INFORMATION

The Company manages its business in two operating segments: Motion Picture
Distribution and Television Commercial Production. The segments were determined
based upon the types of products and services provided and sold by each segment.

The Motion Picture Distribution segment acquires licenses, distributes, sells
and otherwise exploits distribution rights to motion pictures. Activities
include direct theatrical, video and DVD distribution in the U.S. as well as
licensing of rights to other theatrical, video and DVD distributors and to pay,
basic and free television broadcasters throughout the world. The Television
Commercial Production segment produces commercials for manufacturers and service
providers who use the commercial to promote their products and services. There
were no inter-segment transactions during the years reported. The Company
evaluates performance based on income or loss from operations before interest
expense and taxes.

F-17

Financial information by operating segment is set forth below:

NOTE 14 - SUBSEQUENT EVENTS:

In January 2002, pursuant to a Form S-4 shelf registration filed on November 5,
2001 with the Securities and Exchange Commission, the Company exchanged
4,135,579 of 4,500,000 outstanding warrants that had been issued in the
Company's initial public offering in February 1995, for 295,291 shares of the
Company's common stock. The remaining 364,421 warrants expired in February 2002.

F-18