TEAM COMMUNICATION GROUP INC, 424B1, 1998-07-31

TEAM COMMUNICATION GROUP INC
424B1, 1998-07-31
MOTION PICTURE & VIDEO TAPE DISTRIBUTION

Previous: TOTAL ENTERTAINMENT RESTAURANT CORP, 10-Q, 1998-07-31

Next: VAIL BANKS INC, SB-2, 1998-07-31

<PAGE> 1
As filed pursuant to Rule 424(b)(1)
under the Securities Act of 1933
Registration No. 333-26307

TEAM COMMUNICATIONS GROUP, INC.
1,500,000 SHARES

Team Communications Group, Inc. (the "Company") hereby offers 1,500,000
shares of its Common Stock, no par value, ("Common Stock"). Prior to this
offering (the "Offering"), there has been no public market for the Common Stock
of the Company, and there can be no assurance that an active market will
develop. The offering price is $5.50 per share. The offering price of the Common
Stock has been determined by negotiation between the Company and National
Securities Corporation ("NSC"), the representative (the "Representative") of the
several underwriters (the "Underwriters") and is not necessarily related to the
Company's asset value or any other established criteria of value. For the method
of determining the initial offering price of the Common Stock, see "Risk
Factors" and "Underwriting." Application has been made to have the Common Stock
approved for listing on the NASDAQ SmallCap Market under the symbol "TMTV."

The Company is also registering 795,026 shares of Common Stock issuable upon
exercise of certain outstanding warrants and the conversion of a promissory note
that may be resold from time to time in the future by certain securityholders
(the "Selling Securityholders"). The 795,026 shares of Common Stock underlying
such warrants and to be issued upon conversion of the promissory note are
subject to a 12 month lock-up beginning on the date of this Prospectus. The
Company has covenanted to use its best efforts to keep the Registration
Statement of which this Prospectus is a part effective with the Securities and
Exchange Commission in order to permit such resales, and it is expected that
such resales will be made from time to time on the Nasdaq SmallCap Market, or
otherwise. Such resales are subject to prospectus delivery and other
requirements of the Securities Act of 1933, as amended (the "Securities Act").
The Company will not receive any proceeds from the market sales of the shares of
Common Stock issuable upon exercise of such warrants other than proceeds
relating to the exercise price of such warrants. The Company is paying all costs
and expenses of registering these shares of Common Stock. See "Offering by
Selling Securityholders."
------------------------

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE HIGHLY SPECULATIVE, INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED
ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................... $5.50 $.495 $5.005
- --------------------------------------------------------------------------------------------------------------
Total(3)....................................... $8,250,000 $742,500 $7,507,500
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Does not include additional compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance of
$165,000 (or $189,750 if the Underwriters' over-allotment option described
in footnote (3) is exercised in full) and (ii) a warrant to purchase up to
150,000 shares of Common Stock at $7.425 per share (that being 135% of the
initial public offering price of $5.50 per share), exercisable over a period
of four years, commencing one year from the date of this Prospectus (the
"Representative's Warrant"). In addition, the Company has agreed to
indemnify the Underwriters against certain civil liabilities under the
Securities Act. See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company, estimated
at $906,201, including the Representative's non-accountable expense
allowance.

(3) The Company and Joseph Cayre (the "Selling Shareholder") have granted to the
Underwriters an option (together, the "Underwriters' over-allotment
option"), exercisable within 45 days of the date of this Prospectus, to
purchase up to 225,000 additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over-allotments, if any.
If all such additional shares of Common Stock are purchased, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be increased to $9,487,500, $853,875 and $8,483,475, respectively, and
the proceeds to the Selling Shareholder will be $150,150. See "Underwriting"
and "Principal Shareholders."

The 1,500,000 shares of Common Stock offered hereby are offered on a "firm
commitment" basis by the Underwriters, subject to prior sale when, as and if
delivered to and accepted by the Underwriters, and subject to the right of the
Underwriters to reject any order in whole or in part. It is expected that
delivery of the certificates representing the shares of Common Stock will be
made at the offices of National Securities Corporation, 1001 Fourth Avenue,
Suite 2200, Seattle, Washington 98154 on or about August 5, 1998.
------------------------

NATIONAL SECURITIES CORPORATION
The date of this Prospectus is July 29, 1998.
<PAGE> 2

PICTURES

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------

The Company intends to furnish its shareholders with annual reports containing
audited financial statements with a report thereon by independent accountants
and quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
<PAGE> 3

PROSPECTUS SUMMARY

The following summary does not purport to be complete and is qualified in
its entirety by, and should be read in conjunction with, the more detailed
information and financial data appearing elsewhere in this Prospectus. Each
prospective investor is urged to read this Prospectus in its entirety. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

Since its formation in February 1995, Team Communications Group, Inc. (the
"Company") has focused its efforts on the development, production and
distribution of a variety of television programming, including series, specials
and made-for-television movies for exploitation in the domestic and
international television market. The Company derives substantially all of its
revenues from production fees earned in connection with Company-originated
productions, distribution fees from the exploitation of product acquired from
others, and the exploitation of Company-owned programming.

The Company's production activities have focused on (i) family programming
produced for U.S. cable and network television channels such as The Discovery
Channel, The Family Channel, USA Network, and the Public Broadcasting System
("PBS"), and (ii) "how-to" instructional series, such as "Simply Style," a
60-episode series which debuted during the third quarter of 1995 on The Learning
Channel. In addition, the Company co-developed and co-produced a reality based
five-day per week ("strip") syndicated series, called "Strange Universe," with
United/Chris-Craft television stations and Rysher Entertainment. This series,
which aired on United/Chris-Craft stations, involved the production of 130
episodes over its two, thirteen week commitments. The Company has also completed
the production of a series of 22 half hour episodes entitled "Amazing Tails," a
reality based series focusing on extraordinary pets, which has been financed in
conjunction with Friskies Pet Foods, a division of Nestles Food, and advertising
leader The Interpublic Group of Companies ("Interpublic"). All episodes of
Amazing Tales have been produced and delivered to Interpublic, and the series is
currently airing on Discovery Communications' newest channel, Animal Planet. The
Company has also entered into an agreement with Discovery Communications for a
second season of 26 new episodes of "Amazing Tails", which is currently
completing production. Additionally, the Company is party to a joint venture
agreement with Interpublic for the production, subject to certain criteria, of a
minimum of four pilots over the next year for non-fiction and light
entertainment programming. The Company maintains a dramatic development and
production department which is developing and will produce movies-of-the-week
and drama series for exhibition on network television, cable or ad hoc networks
of independent stations which sometimes form to air special programming. The
Company also maintains an international sales force and currently has
distribution rights to approximately 335 half-hours of family and documentary
series and specials, and 190 hours of dramatic series and films.

In July 1996, the Company acquired the rights to produce a weekly dramatic
television series based on the motion picture "Total Recall," which in 1990
grossed over $320 million in worldwide box office receipts. The Company has
entered into an agreement with Alliance Productions, Ltd. ("Alliance"), a
leading Canadian production company, pursuant to which Alliance will co-produce
and finance an initial 22 episodes of the series with the Company. The Company
has also entered into an agreement with Polygram Television, L.L.C.
("PolyGram"), pursuant to which PolyGram will co-finance and acquire television
distribution rights to the series in the United States. Miramax Film Corp.
("Miramax"), which acquired the theatrical sequel rights to "Total Recall," has
also acquired worldwide home video rights to the series from the Company. "Total
Recall" has recently been pre-sold by PolyGram to the U.S. pay television
service, Showtime Network. The series is scheduled to debut in late 1998 on the
Showtime Network, with "first run" domestic syndication to be handled by
PolyGram in 1999. In addition to reducing the Company's financial exposure, the
Company anticipates that by co-producing the series with Alliance, the series
will qualify for certain Canadian co-production and tax benefits. It is the
intention of the parties that each episode will be produced for

3
<PAGE> 4

approximately $1,100,000, with the Company receiving 40% of the profits derived
from the worldwide exploitation of television and home video, as well as
merchandising tie-ins.

The Company is also developing a wide variety of family, dramatic,
reality-based and children's programing including a new pre-school series,
tentatively entitled "LoCoMoTioN," which the Company hopes to place on domestic
and international television in fall 1998. Although no assurance can be given
that the Company will obtain a domestic timeslot, the Company is currently
interviewing potential female celebrities to co-host this series, which will
introduce toddlers to dance and exercise through contemporary urban music.

The global television market has experienced substantial growth since 1985
and the Company believes this market will continue to experience substantial
growth during the foreseeable future as foreign state television monopolies end
and commercial broadcast outlets expand to provide increasingly varied and
specialized content to consumers throughout the world. In the U.S. alone, there
have been numerous new television channels which have commenced operation since
1985. Such growth has led to the development and commercialization of
specialized cable and satellite channels and distribution outlets, which, in
turn, has led to increased demand for top quality and cost efficient programming
in many categories and subjects. Europe, Latin America and the Pacific Rim are
all experiencing similar growth with respect to satellite and cable channels.

The Company's operating strategy is to fulfill the demand for programming
by: (i) expanding the activities of its three operating departments, development
and production, distribution and licensing and merchandising and
direct-marketing; (ii) implementing strategic acquisitions of film, television
and video libraries and smaller production companies; and (iii) entering into
joint ventures with, or acquisitions of, unaffiliated third parties, with the
intention that such acquisitions or joint ventures would lower the Company's
financial risk should it expand, as anticipated, into related activities, such
as direct marketing and interactive programming. The Company intends to acquire,
co-produce and co-finance other series, movies and specials from third party
producers in order to increase its programming library and self distribute such
product on an worldwide basis.

The Company believes that there are business opportunities to acquire other
emerging companies, as well as more established production and distribution
entities, which are engaged in programming development, production, distribution
and other related media investments. While the number of distribution channels
has been increasing, the Company believes there are economic incentives,
including economies of scale and depth of financial and programming capability,
for programmers and distribution entities to consolidate. No assurance can be
given that the Company will be successful in obtaining the financing necessary
for these acquisitions or that, if consummated, such acquisitions would prove
financially successful.

The Company was incorporated under the laws of the State of California in
February 1995. The Company's executive offices are located at 12300 Wilshire
Boulevard, Suite 400, Los Angeles, California 90025, and its telephone number is
(310) 442-3500.
------------------------

NOTICE TO CALIFORNIA, MISSOURI, OREGON AND SOUTH CAROLINA INVESTORS

Each purchaser of shares of Common Stock in California, Missouri and Oregon
must meet one of the following suitability standards: (i) a liquid net worth
(excluding home, furnishings and automobiles) of $250,000 or more and gross
annual income during 1997, and estimated during 1998, of $65,000 or more from
all sources or (ii) a liquid net worth (excluding home, furnishing and
automobiles) of $500,000 or more. Each California, Missouri and Oregon resident
purchasing shares of Common Stock offered hereby will be required to execute a
representation letter that it comes within one of the aforementioned categories.

4
<PAGE> 5

SUMMARY OF FINANCIAL INFORMATION

<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE PERIOD FROM
THREE THREE FEBRUARY 27,
MONTHS MONTHS FOR THE FOR THE 1995
ENDED ENDED YEAR ENDED YEAR ENDED TO
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996 1995
----------- ----------- ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA: (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................... $1,573,400 $ 708,400 $6,875,600 $5,749,800 $ 1,245,300
Cost of revenues................... 379,000 415,300 2,355,300 2,895,900 946,900
---------- --------- ---------- ---------- -----------
Gross profit....................... 1,194,400 293,100 4,520,300 2,853,900 298,400
General and administrative
expenses......................... 541,500 601,500 2,129,300 2,323,800 1,288,200
Allowance for doubtful accounts.... -- -- 1,115,600 -- --
---------- --------- ---------- ---------- -----------
Net income from operations......... 652,900 (308,400) 1,275,400 530,100 (989,800)
Interest expense................... 263,000 271,800 1,040,100 677,700 42,700
Interest income.................... 48,000 72,000 211,800 58,300 --
Other income....................... -- -- -- 90,100 --
---------- --------- ---------- ---------- -----------
Net income (loss) before income
taxes............................ 437,900 (508,200) 447,100 800 (1,032,500)
Provision for income taxes......... -- -- -- -- --
---------- --------- ---------- ---------- -----------
Net income (loss).................. $ 437,900 $(508,200) $ 447,100 $ 800 $(1,032,500)
========== ========= ========== ========== ===========
Net income (loss) per common share
basic(1)......................... $ 0.39 $ (0.45) $ 0.40 $ -- $ (0.91)
========== ========= ========== ========== ===========
Weighted average number of shares
outstanding basic(1)............. 1,131,344 1,131,344 1,131,344 1,131,344 1,131,344
========== ========= ========== ========== ===========
Net income (loss) per common share
diluted(1)....................... $ 0.24 $ (0.28) $ 0.25 $ -- $ (0.57)
========== ========= ========== ========== ===========
Weighted average number of shares
outstanding diluted(1)........... 1,821,800 1,821,800 1,821,800 1,821,800 1,821,800
========== ========= ========== ========== ===========
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------
ACTUAL PRO-FORMA(2) AS ADJUSTED(3)
BALANCE SHEET DATA: ----------- ------------ --------------
<S> <C> <C> <C>
Liquidity capital (deficit)(4)..................... $(4,541,600) $(4,681,600) $ 1,955,100
Total assets....................................... 13,620,500 14,570,500 16,628,500
Notes payable(5)(6)................................ 5,487,700 7,282,700 3,369,900
Accrued interest(5)(6)............................. 1,061,700 1,061,700 640,700
Shareholder loan and note payable(5)(6)............ 740,000 740,000 500,000
Accumulated deficit(6)............................. (146,700) (146,700) (243,500)
Shareholders' equity............................... 1,084,400 1,084,400 7,588,900
</TABLE>

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

(1) See Note 2 of Notes to Consolidated Financial Statements for information
regarding the calculation of net income (loss) per share.

(2) Pro-forma amounts reflect the addition of $1,107,000 in interim financing
that occurred in April and May 1998, less $100,000 of principal amount that
was repaid with respect to prior indebtedness and an additional $715,000 in
production financing that occurred in May, June and July 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Reserves" for a discussion of Company
borrowings between December 1997 and May 1998.

(3) As adjusted to reflect: (i) the estimated net proceeds of the Offering,
after deducting Underwriters' discounts and commissions and estimated
offering expenses; (ii) the conversion of a note (the "Conversion Note"), in
the principal amount of $322,000 into approximately 105,000 shares of Common

5
<PAGE> 6

Stock upon the closing of the Offering; (iii) the accrual of interest
expense of approximately $98,000 from March 31, 1998 through July 15, 1998
from the debt to be repaid from the Offering; (iv) the pro-forma amount; and
(v) the Extraordinary Loss (see footnote 6 below). See "Use of Proceeds,"
"Capitalization" and "Description of Securities."

(4) Represents (i) cash and cash equivalents plus accounts receivable (net), and
the amount due from an officer of the Company, less (ii) accounts payable,
accrued expenses and other liabilities, deferred revenue, accrued
participations, notes payable, shareholder loan and note payable, and
accrued interest.

(5) See Notes 5 and 7 of Notes to Consolidated Financial Statements.

(6) An aggregate of $4,034,400 principal amount of indebtedness outstanding as
of March 31, 1998 will be repaid with the proceeds of the Offering. Of this
amount, $2,819,000 was issued concurrently with warrants, and therefore, the
notes are recorded on the Company's financial statements at a lesser value
and a value is ascribed to the warrants which management believes reflects
the market value of the warrants; this value is reflected as a debt issuance
discount and is amortized over the term of all such notes resulting in an
effective interest rate of approximately 25%. Upon repayment of such debt,
the Company will recognize an extraordinary loss equal to the value ascribed
to such warrants. While the entire $2,819,000 principal amount of
indebtedness will actually be repaid from the Offering, as adjusted reflects
the repayment of the recorded value of such debt as of July 15, 1998 -- a
value of $2,722,200 will be ascribed to said debt and a value of $96,800
will be ascribed to the warrants, resulting in the recognition of
extraordinary loss of $96,800 (the "Extraordinary Loss") which becomes part
of accumulated deficit.

6
<PAGE> 7

THE OFFERING

Common Stock Offered by the
Company............................. 1,500,000 shares

Common Stock Outstanding after the
Offering............................ 2,831,092 shares(1)

Use of Proceeds..................... Repayment of loans, accrued interest on
loans, acquisition of foreign
distribution rights to made for
television movies, acquisition of
foreign distribution rights to existing
television series and corporate
overhead and working capital, including
salaries and wages.

Proposed Nasdaq SmallCap Market
Symbol.............................. "TMTV"
- ---------------

(1) Includes up to 199,748 shares which will be issued to a shareholder to
satisfy certain contractual anti-dilution rights. See "Certain
Transactions -- Transactions with Morris Wolfson and Others."
------------------------

RISK FACTORS

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BELOW.
------------------------

Except as otherwise specified, all information in this Prospectus: (i)
assumes no exercise of the Underwriters' over-allotment option, the
Representative's Warrant, outstanding warrants to purchase 595,278 shares of
Common Stock, 206,750 stock options outstanding or 130,750 stock options
reserved for issuance under the Company's stock option plans; (ii) assumes no
conversion of outstanding convertible notes except the Conversion Note; and
(iii) gives effect to a 2.2776-for-1 reverse stock split which occurred in
January 1997 and a 1.0277-for-1 reverse stock split which occurred in April
1997. See "Management," "Description of Securities" and "Underwriting."

7
<PAGE> 8

RISK FACTORS

An investment in the Common Stock offered hereby is speculative, involves a
high degree of risk and should only be made by persons who can afford the loss
of their entire investment. In addition to the other information in this
Prospectus, each prospective investor should carefully consider the following
factors in evaluating the Company and its business before purchasing any shares
of Common Stock offered hereby. No investor should participate in the Offering
unless such investor can afford a complete loss of his or her investment. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and discussed elsewhere
in this Prospectus.

GOING CONCERN ASSUMPTION. The Company's independent accountants' report on
the Company's financial statements for the fiscal years ended December 31, 1995,
December 31, 1996 and December 31, 1997 contains an explanatory paragraph
indicating that the Company's financial condition raises substantial doubt as to
the Company's ability to continue as a going concern. There can be no assurance
that future financial statements will not include a similar explanatory
paragraph if the Company is unable to raise sufficient funds or generate
sufficient cash flow from operations to cover the cost of its operations. The
existence of such an explanatory paragraph, which states that there exists doubt
as to the Company's ability to operate as a going concern, may have a material
adverse effect on the Company's relationship with third parties who are
concerned about the ability of the Company to complete projects that it is
contractually required to develop or produce, and could also impact the ability
of the Company to complete future financings.

LIMITED OPERATING HISTORY; LIQUIDITY DEFICIT. The Company, which was formed
in February 1995, has a limited operating history. Accordingly, prospective
purchasers hereunder have limited information upon which an evaluation of the
Company's business and prospects can be based. Although the Company has
generated profitable operations during the fiscal years ended December 31, 1996
and 1997 and the first quarter of 1998, it has experienced a negative cash flow
from operations during such periods. No assurance can be given that the Company
will continue to be profitable in the foreseeable future or that it will be able
to generate positive cash flow from its operations. The Company will be unable
to implement its business plan without the proceeds of the Offering.
Implementation of the Company's business plan is subject to all the risks
inherent in the establishment of a new business enterprise, including potential
operating losses. In addition, the Company will be subject to certain factors
affecting the entertainment industry generally, such as sensitivity to general
economic conditions, critical acceptance of its products and intense
competition. The likelihood of the success of the Company must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with the formation of a new business.
Accordingly a purchase of the shares of Common Stock offered hereby should be
considered to be a highly speculative investment.

As of March 31, 1998, the Company had an accumulated deficit of ($146,700)
and a liquidity deficit of ($4,541,600), such deficit being defined as (i) cash
and cash equivalents plus accounts receivable (net), and the amount due from
officer less (ii) accounts payable, accrued expenses and other liabilities,
deferred revenue, accrued participations, notes payable, shareholder loan and
note payable, and accrued interest.

ADDITIONAL CAPITAL REQUIREMENTS; ENCUMBRANCE OF ASSETS; NO ASSURANCE OF
FUTURE FINANCINGS. The entertainment industry is highly capital intensive.
Management believes that if the Offering is completed, the net proceeds thereof,
together with projected cash flow from operations, will be sufficient to permit
the Company to conduct its operations as currently contemplated for only the
next 12 months. Such belief is based upon certain assumptions, including
assumptions regarding: (i) anticipated level of operations of the Company; (ii)
the anticipated sales of the Company's original and acquired programming; and
(iii) anticipated expenditures required by the Company for the development and
production of additional programming, including "Total Recall." However, if
anticipated operations require additional financing, or the anticipated level of
sales does not materialize, the Company will be forced to seek additional
financing during this 12 month period. There can be no assurance that any
additional financing will be available on acceptable terms, or at all, when
required by the Company. Moreover, if additional financing is not available, the

8
<PAGE> 9

Company could be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to investors purchasing the shares of Common Stock
offered hereby. Certain of these transactions would require the approval of the
Representative if they occurred within 13 months from the effective date of the
Offering. The Company has in the past, and may continue to experience,
operational difficulties or delays in development or production due to working
capital constraints. Any such difficulties or delays could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Going Concern Assumption," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 11 of Notes to
Consolidated Financial Statements.

At the conclusion of the Offering, and after giving effect to the Company's
planned use of the proceeds of the Offering, the Company will have approximately
$3,869,900 of indebtedness, which indebtedness is secured by substantially all
of the assets of the Company. The Company intends to enter into multiple lines
of credit with Imperial Bank (the "Proposed Bank Facility"), which lines of
credit would permit borrowings pursuant to specified borrowing bases made up of
the value of the Company's library, accounts receivable and other assets,
including cash. The Company currently intends to repay and replace a portion of
the $3,869,900 of indebtedness (which indebtedness matures between July 15, 1998
and January 10, 2000) remaining after the Offering with a portion of the
proceeds from the Proposed Bank Facility, subject to the terms of the Proposed
Bank Facility. The $3,869,900 is comprised of: (i) $1,189,900 which is
technically in default as of July 22, 1998; (ii) $765,000 which is not in
default, but which is due within the next twelve months; and (iii) $1,915,000
which is not in default and is not due within the next twelve months. It is
currently anticipated that, approximately $2,700,000 principal amount of
indebtedness will remain outstanding after utilization of approximately
$1,200,000 of the proceeds of the cash collateralized portion of the Proposed
Bank Facility to repay approximately $1,200,000 principal amount of the
Company's indebtedness. No assurance can be given that the Proposed Bank
Facility will be entered into or that the Company will be able to use proceeds
from such facility as indicated herein.

COMPETITION. The entertainment industry is highly competitive. The Company
competes with, and will compete with, many organizations, including major film
studios, independent production companies, individual producers, and others,
including networks, who are seeking the rights to literary properties, the
services of creative and technical personnel, the financing for production of
film and television projects, and favorable arrangements for the distribution of
completed films. Many of the Company's present and future competitors are
organizations of substantially larger size and capacity, with far greater
financial, human and other resources and longer operating histories than the
Company. Moreover, the entertainment industry is currently evolving into an
industry in which certain multi-national, multi-media entities, including
Viacom/Paramount Pictures, The News Corporation, The Walt Disney Company/Cap
Cities-ABC, Time Warner/Turner Broadcasting and Westinghouse/CBS are anticipated
to be in a position, by virtue of their control over key film, magazine, and/or
television content, and their control of key network and cable outlets, to
dominate certain communications industries activities. These competitors have
numerous competitive advantages, including the ability to acquire and attract
superior properties, personnel, actors and/or celebrity hosts and financing.

DEPENDENCE ON EMERGING MARKETS; DEPENDENCE ON FOREIGN SALES. A substantial
portion of the Company's revenues to date have been, and for the foreseeable
future may be, derived from the sale or license of its products to recently
established domestic television or cable networks such as the WB Network, UPN,
The Discovery Channel and The Learning Channel, (i.e., not the traditional free
network markets of CBS, NBC, ABC and Fox), and the growing specialized pay
market, as well as the foreign television networks. The Company's success will
depend in large part upon the development and expansion of these markets. The
Company cannot predict the size of such markets or the rate at which they will
grow. If the television market serviced by the Company fails to grow, grows more
slowly than anticipated, or becomes saturated with competitors, the Company's
business, financial condition, and results of operations would be materially
adversely affected.

In addition to the foregoing, a substantial portion of the Company's
revenues are dependent on sales to sub-licensees and sub-distributors not
domiciled in the U.S. The marketing and distribution efforts of these entities
could impact the ability of the Company to realize overages with respect to its
product. Moreover, the collectibility of receivables from these customers is
subject to all of the risks associated with doing business
9
<PAGE> 10

with foreign companies including rapid changes in the political and economic
climates of such countries. Should the Company be involved in a protracted
dispute with respect to the manner in which its product is distributed, or
should the Company be forced to initiate collection activities in order to
enforce the terms of the applicable sub-license or sub-distributor agreement,
the potential profitability of any particular product may be adversely effected.

Included in receivables as of March 31, 1998 are trade receivables (less
the allowance for doubtful accounts) from entities domiciled outside the United
States of $7,690,700. These receivables represent 100% of all trade receivables
and 57% of the total assets of the Company. Any difficulty or delay in the
collection of these receivables would have a material adverse effect on the
Company. Of this amount, $5,953,000 of such receivables are from: (i) Latin
America Programming-TV; (ii) 1291873 Ontario Limited, an affiliate of Micro
Entertainment, a Canadian distribution company; and (iii) Beyond Entertainment,
a publicly held Australian company. In each case, management also has a
pre-existing relationship with such licensees, and believes that all amounts
owing from these licensees will be paid in a satisfactory timely manner. The
payment from Beyond is currently past due, although management believes that it
will be paid shortly after the completion of this Offering. For additional
information regarding the Company's reliance on customers, see "Risk
Factors -- Reliance on Significant Customers."

The recent and ongoing economic crisis in Southeast Asia may impact the
Company's future sales for South Korea, Thailand and Indonesia. The Company is
unable to predict future levels of sales in this region. At this time, the
Company does not have any sales in this region which would be affected by the
economic condition of this region.

RELIANCE ON SIGNIFICANT CUSTOMERS. Revenues for the fiscal year ended
December 31, 1997 included approximately $3,156,500 from Beyond Distribution
Pty., Ltd. ("Beyond Distribution"), which accounted for 46% of the Company's
revenues for the year ended December 31, 1997. Revenues in the year ended
December 31, 1996 included approximately $680,000 recognized from the license
and related guaranty from The Gemini Corporation and Mel Giniger and Associates
(collectively, the "Giniger Entities"), relating to the Company's current
library and certain future product for Latin America and Europe. The revenues
attributable to the guaranty (the "Giniger Guaranty") were 12% of the applicable
revenues for the year ended December 31, 1996. Alliance, which licenses a
variety of product from the Company's library for Canada, and King Records
Company, Ltd., which acquired various library products for Japan, were obligated
to pay the Company the sums of $764,100 and $996,300 respectively, or 13% and
17% of revenues, respectively, for the year ended December 31, 1996.

Revenues in the year ended December 31, 1996 also included a license fee
from Interpublic of $1,441,700 and a license fee from Eurolink of $618,400. Both
such licenses relate to the series "Amazing Tails." Revenues attributed to the
Interpublic and Eurolink agreements respecting "Amazing Tails" constituted 25%
and 11%, respectively, of revenues during the year ended December 31, 1996.

Neither the revenues relating to the Giniger Guaranty nor the revenues
related to the production of "Amazing Tails" should be considered to be
recurring revenues. If the Company does not produce a series in fiscal 1998, or
obtain other significant foreign sales, the Company's revenues will be
materially reduced.

Investors should note that three customers represent 100% of the Company's
sales for the three months ended March 31, 1998. The receivables corresponding
to the sales to these three customers represent 9.5% of the Company's total
assets at March 31, 1998. While management believes that each of the licensees
are reasonable credit risks (and are, in fact, leading distributors in their
respective territories) any failure to pay could have a material adverse impact
on the Company. For additional information, see Note 2 to the Company's
Consolidated Financial Statements and "Risk Factors -- Allowance for Doubtful
Accounts."

ALLOWANCE FOR DOUBTFUL ACCOUNTS. In the year ended December 31, 1997, the
Company wrote off as an allowance for doubtful accounts the aggregate sum of
$1,115,600, which amount consisted of: (i) $660,000 relating to a license
agreement with Eurolink, a Middle Eastern entity; (ii) $170,600 relating to the
Giniger Guaranty (for a discussion of the significance of each of those
agreements, see "Risk-Factors -- Reliance on Significant Customers"); and (iii)
$285,000 relating to the license of certain of the Company's product to
Alliance. When the Company is required to discontinue a licensee who has
defaulted under a license agreement, the Company has the right to cancel the
defaulted agreement and re-license the product. With

10
<PAGE> 11

respect to the Eurolink reserve, the Company was able to make an alternative
license arrangement with another third party distributor requiring the payment
to the Company of an identical $660,000 license fee. The Alliance reserve
relates to an overall restructuring of the Company's agreements with Alliance,
including extensions on the Company's obligation to repay certain amounts which
have been advanced by Alliance in connection with the pre-production financing
of "Total Recall". See "Management Discussion and Analysis of Financial
Condition and Results of Operations -- year ended December 31, 1997 verses year
ended December 31, 1996."

As of March 31, 1998, the Company had $7,690,700 in receivables; 32%, 29%
and 17% of which relates to Beyond Distribution, Latin American
Programming -- TV and 1291873 Ontario Limited, an affiliate of Micro
Entertainment, a Canadian distribution company, respectively. Should the Company
be required to make an additional allowance for doubtful accounts with respect
to these receivables, the Company's results of operations and financial
condition in future periods could be adversely affected.

PRODUCTION RISKS. There can be no assurance that once the Company commits
to fund the production of a series licensed to a network, that such network will
order and exhibit a sufficient number of episodes to enable the Company to
syndicate the series. Typically, at least 65 episodes of a series must be
produced for it to be "stripped" or syndicated in the daily re-run market.
Networks generally can cancel a series at stated intervals and, accordingly, do
not commit in advance to exhibit a series for more than a limited period. If a
series is cancelled (or not carried for the period necessary to create enough
episodes for syndication purposes), there is a significant chance that the
production costs of the project will not be fully recovered. In that event, the
financial condition of the Company could be materially and adversely affected.
Similar risks apply even if a series is produced for a non-network medium. See
"Business -- Operations" for a discussion of the financing of series and how
deficits are potentially recouped. In addition, for the three month periods
ended March 31, 1998 and 1997, respectively, the Company had approximately
$1,553,500 and $2,040,800, respectively, in development costs associated with
projects for which the Company is actively pursuing production commitments, but
which have not been set for principal photography. See "Risk
Factors -- Development Costs" for a discussion of the potential impact if such
costs were to be written off or otherwise amortized on an accelerated basis.

FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and results of
operations are significantly dependent upon the timing and success of the
television programming it distributes, which cannot be predicted with certainty.
Revenues may not be recognized for any particular program until such program has
been delivered to the licensee and is available (i.e., there are no contractural
restrictions (otherwise referred to as "holdbacks") requiring the delays in the
release of programming for a particular market) for exploitation in the market
in which it has been licensed. Production delays may impact the timing of when
revenues may be recognized under generally accepted accounting principles. The
majority of the Company's product is sold at the industry's major selling
markets, the most important of which are MIP-TV and MIPCOM-TV (the International
Film and Program Market for TV, Video, Cable & Satellite) which take place in
France in the second and fourth quarters, respectively. Finally, production
commitments are typically obtained from networks in the spring (second) quarter,
although production activity and delivery may not occur until subsequent
periods. As a result of the foregoing, the Company may experience significant
quarterly variations in its operations, and results in any particular quarter
may not be indicative of results in subsequent periods.

The Company's results will also be affected by the allocation of revenue
between Company-owned product as compared to product owned by third party
producers but distributed by the Company, for which the Company receives a sales
commission. In the latter instance, the Company's expenses as a percentage of
revenue will typically be higher, because the Company records, as an expense,
the participations owing to the copyright owners. In instances where the Company
is exploiting product which it has either produced or acquired on an outright
basis, the Company does not record such expenses, and its margins will typically
be higher than margins on product it is distributing on an agency basis.

SPECULATIVE NATURE OF ENTERTAINMENT BUSINESS. Substantially all of the
Company's revenues are derived from the production and distribution of its
television series and made-for-television features. The entertainment industry
in general, and the development, production and distribution of television
programs, in particular, is highly speculative and involves a substantial degree
of risk. Since each project is an individual

11
<PAGE> 12

artistic work and its commercial success is primarily determined by audience
reaction, which is volatile and unpredictable, there can be no assurance as to
the economic success of any entertainment property. Even if a production is a
critical or artistic success, there is no assurance that it will generate
sufficient audience acceptance to become profitable.

DEPENDENCE UPON KEY PERSONNEL. The Company is, and will be, heavily
dependent on the services of Drew S. Levin, its Chairman of the Board, President
and Chief Executive Officer. The loss of the services of Mr. Levin for any
substantial length of time would materially adversely affect the Company's
results of operations and financial condition. Mr. Levin is party to an
employment agreement with the Company which expires in the year 2002. See
"Management -- Employment Agreements." The Company has also obtained a "key-man"
insurance policy covering Mr. Levin in the amount of $1,000,000.

In addition, the Company is highly dependent upon its ability to attract
and retain highly qualified personnel. Competition for such personnel is
intense. There can be no assurance that persons having the requisite skills and
experience will be available on terms acceptable to the Company or at all.

ABILITY TO MANAGE GROWTH. Subject to obtaining sufficient financing, the
Company intends to pursue a strategy which management believes may result in
rapid growth. As the Company's anticipated development, production and
distribution activities increase, it is essential that the Company maintain
effective controls and procedures regarding critical accounting and budgeting
areas, as well as obtain and/or retain experienced personnel. There can be no
assurance that rapid growth will occur or that, if such growth does occur, that
the Company will be able to attract qualified personnel or successfully manage
such expanded operations.

DEVELOPMENT COSTS. Included in the Company's assets as of March 31, 1998
and March 31, 1997, are approximately $1,553,500 and $2,040,800, respectively,
in television program costs in respect of projects for which the Company is
actively pursuing production commitments, but which have not been set for
principal photography. As of March 31, 1998, approximately $789,300 of this
amount relates to the acquisition of the rights to produce a television series
based on the feature film "Total Recall" and approximately $451,000 relates to
expenditures in respect of "LoCoMoTioN." The Company intends, consistent with
the standards set by the Financial Accounting Standards Board, including
Statement of Financial Accounting Standards ("SFAS") No. 53, to write off the
costs of all development projects when they are abandoned or, even if still
being developed, if they have not been set for principal photography within
three years of their initial development activity. In the event the Company is
unable to produce either "Total Recall" or "LoCoMoTioN," the Company would incur
a significant write-down with respect to the development costs of such projects,
which, in turn, may adversely affect ongoing financing activities.

REPAYMENT OF INSIDER DEBT; PROCEEDS OF OFFERING TO BENEFIT AFFILIATES OR
SHAREHOLDERS. Upon the closing of the Offering, a non-management shareholder of
the Company will receive approximately $250,000 for repayment of indebtedness.
Concurrently with, or shortly after the closing of the Offering, other
shareholders are also anticipated to receive approximately $865,000. It is
anticipated that the amounts used to effectuate such repayments will be obtained
from the Proposed Bank Facility. See "Use of Proceeds" and "Certain
Transactions."

PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER
PROVISIONS. Certain provisions of the Company's Articles of Incorporation and
Bylaws and certain other contractual provisions could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire control of the Company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. Certain of these provisions allow the
Company to issue preferred stock with rights senior to those of the Common Stock
without any further vote or action by the shareholders, and impose various
procedural and other requirements which could make it more difficult for
shareholders to affect certain corporate actions. These provisions could also
have the effect of delaying or preventing a change in control of the Company.
The issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to the holders of Common Stock or could adversely
affect the rights and powers, including voting rights, of the holders of the
Common Stock. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Common Stock. The Company has agreed that for
a 13 month period following the closing of the Offering it will not, without the
prior written consent of the Representative, issue any equity securities.

12
<PAGE> 13

VOLATILITY OF SHARE PRICE; LACK OF ACTIVE TRADING MARKET. The trading price
of the Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results, general trends in the entertainment
industry and other factors. Although the Company has applied to list the Common
Stock on the Nasdaq SmallCap Market, there can be no assurance that such listing
application will be approved. Furthermore, should such application be approved,
there can be no assurance that an active trading market will develop in the
Common Stock or that purchasers of the shares of Common Stock will be able to
resell their shares at prices equal to or greater than the initial public
offering price. The market for the Common Stock will depend upon, among other
things, the number of holders thereof, the interest of securities dealers in
maintaining a market for the Common Stock and other factors beyond the control
of the Company. The limited number of freely tradeable shares available in the
Offering may have a negative impact in the development of an active trading
market. The Nasdaq SmallCap Market requires a minimum of three market makers in
the Company's Common Stock and the Company has been advised by the
Representative that it intends to seek market makers for the Common Stock. There
can be no assurance that the Representative will be able to find any market
makers for the Company's Common Stock or that such market makers, once found,
will continue to make a market in the Company's Common Stock. See
"Underwriting."

ARBITRARY DETERMINATION OF OFFERING PRICE. The initial public offering
price of the Common Stock has been arbitrarily determined by negotiations
between the Company and the Representative and bears no relationship to such
established valuation criteria such as assets, book value or prospective
earnings of the Company. No assurance can be given that the initial offering
price will be sustained or that, in the absence of an active trading market,
that shareholders will have sufficient liquidity to readily dispose of their
shares. The trading price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results, changes
in earnings estimates by analysts following the Company, if any, and general
factors affecting the entertainment industry, as well as general economic,
political and market conditions, and other factors and such factors could cause
the market price of the Common Stock to fluctuate substantially. Due to
analysts' expectations of continued growth, if any, and the high price/earnings
ratio at which the Common Stock may trade, any shortfall in expectations could
have an immediate and significant adverse effect on the trading price of the
Common Stock. In addition the stock markets of the U.S. have, from time to time,
experienced significant price and volume fluctuations that are unrelated or
disproportionate to the operating performance of any individual company. Such
fluctuations could adversely affect the price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Description of Securities" and "Underwriting."

IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF SHARE CONSIDERATION; NO
DIVIDENDS ANTICIPATED. Purchasers of the shares of Common Stock offered hereby
will experience immediate substantial dilution of $2.82 per share, or 51% of
their investment, based upon the net tangible book value of the Company at March
31, 1998. As a result, the purchasers of the shares of Common Stock offered
hereby will bear a disproportionate part of the financial risk associated with
the Company's business while effective control will remain with the existing
shareholders and management. Also, there will be a substantial disparity between
the total consideration and the average price per share paid by the Company's
existing shareholders ($1,231,000 and $0.92, respectively), and that paid by new
investors in the Offering ($8,250,000 and $5.50, respectively). See "Dilution."

The Company has not paid dividends since its inception and does not intend
to pay any dividends to its shareholders in the foreseeable future. No assurance
can be given that it will pay dividends at any time. The Company presently
intends to retain future earnings, if any, for the development and expansion of
its business. See "Dividend Policy."

SHARES ELIGIBLE FOR ADDITIONAL SALE; EXERCISE OF REGISTRATION RIGHTS. Sale
of substantial amounts of the Company's Common Stock in the public market or the
prospect of such sales could materially adversely affect the market price of the
Common Stock. Upon completion of the Offering, the Company will have outstanding
approximately 2,831,092 shares of Common Stock. Of these shares, approximately
1,331,092 shares are restricted shares ("Restricted Shares") under the
Securities Act. The 1,500,000 shares of Common Stock offered hereby will be
immediately eligible for sale in the public market without restriction on the
date of this

13
<PAGE> 14

Prospectus, subject to the lockup agreements described below. In addition, the
Company has issued options and warrants which entitle the holders thereof to
purchase 768,278 shares of Common Stock (collectively referred to herein as the
"Warrant Shares"), 595,728 shares of which are being currently registered (the
"Registered Warrant Shares"), pursuant to the Registration Statement of which
this Prospectus is a part. Holders of substantially all of the Restricted Shares
and the Warrant Shares have entered, or are expected to enter, into lockup
agreements under which the holders of such shares agree not to sell or otherwise
hypothecate or dispose of any of their shares for 13 and 12 months,
respectively, after the date of this Prospectus without the prior written
consent of the Representative. The Representative may release some or all of the
shares from the lockup at its discretion from time to time without notice to the
public. The Representative has no formal policy with respect to such
determinations, and may elect to release such shares or decline to release such
shares as it may determine in its sole and absolute discretion, however, the
Representative has no present intention to release any of the shares subject to
the lockup agreements during the lockup periods. Additionally, the
Representative's Warrant may be exercised at any time during the four year
period beginning 12 months after the closing of the Offering, in which case up
to 150,000 shares of Common Stock would be eligible for sale in the public
markets. The Company also intends to file a registration statement on Form S-8
under the Securities Act to register the sale of approximately 337,500 shares of
Common Stock reserved for issuance under its 1995 and 1996 Stock Plans. Shares
of Common Stock issued upon exercise of options after the effective date of the
registration statement on Form S-8 will be available for sale in the public
market, subject in some cases to volume and other limitations, including
limitations imposed by the lockup agreements referred to above. Sales in the
public market of substantial amounts of Common Stock (including sales in
connection with an exercise of certain registration rights by one or more
holders) or the perception that such sales could occur could depress prevailing
market prices for the Common Stock. See "Shares Eligible for Future Sale,"
"Underwriting" and "Description of Securities."

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time, should the Company
complete the Offering and a market price for its securities be established.
Should a market in the Company's securities develop, sales of substantial
amounts of Common Stock, or the perception that such sales may occur, could
adversely affect prevailing market prices for the Common Stock in the event a
market does develop.

BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS. The Company
expects that the proceeds of the Offering will be used for repayment of loans,
accrued interest on loans, acquisition of foreign distribution rights to made
for television movies and television series, corporate overhead and general
working capital. The Company is not currently able to estimate precisely the
allocation of the proceeds among such uses, and the timing and amount of
expenditures will vary depending upon numerous factors. The Company's management
will have broad discretion to allocate the proceeds of the Offering and to
determine the timing of expenditures. See "Use of Proceeds."

FORWARD-LOOKING STATEMENTS. Although not applicable as a safe harbor to
limit the Company's liability for sales made in the Offering, this Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). Such forward-looking statements may be deemed to include, among
other things, the Company's plans to produce "Total Recall" and "LoCoMoTioN" in
1998 or 1999, and establish new strategic alliances and business relationships
and acquire additional libraries of films and television series or companies.
Such forward-looking statements also may include the Company's planned uses of
the proceeds of the Offering. Actual results could differ from those projected
in any forward-looking statements for the reasons detailed in the other sections
of this "Risk Factors" portion of this Prospectus, as well as elsewhere in this
Prospectus. The forward-looking statements are made as of the date of this
Prospectus and the Company assumes no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ from those
projected in the forward-looking statements.

14
<PAGE> 15

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,500,000 shares
offered by the Company hereby at the initial public offering price of $5.50 per
share, are estimated to be approximately $6,601,400, after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company currently intends to use the estimated net proceeds of the Offering as
follows:

<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
NET PROCEEDS OF NET PROCEEDS
------------- ---------------
<S> <C> <C>
Repayment of loans(1)......................... $4,034,000 61%
Accrued interest on loans..................... 519,000 8%
Acquisition of foreign distribution rights to
made for television movies and existing
television series(2)........................ $1,750,000 26%
Corporate overhead and general working
capital, including salaries and wages....... $ 298,000 5%
</TABLE>

Also being registered pursuant to this Registration Statement are approximately
595,000 shares of Common Stock issuable upon the exercise of certain outstanding
warrants, which warrants have an exercise price of $1.00 per share, 150,000
shares of Common Stock underlying the Representative's Warrant, having an
exercise price of $7.425 per share (that being 135% of the initial public
offering price per share), and 199,748 shares of Common Stock issuable upon the
conversion of a promissory note. The aggregate proceeds which could be derived
from the exercise of all of the above described warrants and the conversion of
the promissory note are approximately $2,000,000. If received by the Company,
such funds would be applied to general working capital and the reduction of any
secured debt.
- ---------------
(1) The Company currently has outstanding approximately $7,298,000 of
indebtedness (excluding $740,000 of shareholder loans and notes payable).
Approximately $4,034,000 of such indebtedness will be repaid from the
proceeds of the Offering as follows: (i) $964,000 for repayment of the 10%
convertible secured notes issued between February and April 1997 (the
"February 1997 Notes"); (ii) $880,000 for repayment of the 12% secured notes
issued between February and June 1996 (the "February 1996 Notes"); (iii)
$975,000 for repayment of the 10% convertible secured notes issued between
June and October 1996 (the "June 1996 Notes"); (iv) $250,000 for repayment
of indebtedness owed to Joseph Cayre, a shareholder of the Company; and (v)
$965,000 for the repayment of $245,000 in principal and fees from a secured
note issued in March, and $720,000 of principal, interest and fees from a
12% secured note issued in April of 1998. The February 1997 Notes, the
February 1996 Notes and the June 1996 Notes are referred to herein as the
"Bridge Notes." The maturity date on the February 1996 Notes has been
extended until the earlier of July 15, 1998 or the completion of an initial
public offering. The balance of Company indebtedness (or approximately
$3,869,900) matures between July 15, 1998 and January 10, 2000, although it
is anticipated that a portion of such indebtedness will be repaid from and
replaced with the proceeds of the Proposed Bank Facility. The $3,869,900 is
comprised of: (i) $1,189,900 which is technically in default as of July 22,
1998; (ii) $765,000 which is not in default, but which is due within the
next twelve months; and (iii) $1,915,000 which is not in default and is not
due within the next twelve months. If the Proposed Bank Facility is not in
place by the closing of the Offering, the Company may need to allocate a
greater percentage of the proceeds of the Offering to repay the debt
obligations that would have been repaid by virtue of such facility. It is
currently anticipated that, approximately $2,700,000 principal amount of
indebtedness will remain outstanding after utilization of approximately
$1,200,000 of the proceeds of the cash collateralized portion of the
Proposed Bank Facility to repay approximately $1,200,000 principal amount of
the Company's indebtedness. As described in footnote (2) to
"Capitalization," the ascribed value of the indebtedness to be repaid from
the proceeds of the Offering on the Company's financial statements is less
than the outstanding principal balance of said indebtedness. The foregoing
repayment schedule assumes conversion of the Conversion Note as well as the
waiver of all conversion rights by the holders of the Bridge Notes which
have convertibility rights. See "Risk Factors -- Additional Capital
Requirements; Encumbrance of Assets; No Assurance of Future Financings" and
"Certain Transactions." The loan proceeds which are being repaid through the
funds being raised hereby were used primarily by the Company for working
capital, the acquisition of library product and the acquisition of the right
to produce television product based on the feature film "Total Recall."

15
<PAGE> 16

(2) Until specific acquisitions are identified, and the borrowing base portion
of the Proposed Bank Facility is implemented, the Company intends to use up
to approximately $1,200,000 of this money to provide cash collateral for
that portion of the Proposed Bank Facility which will be used to repay
indebtedness after the Offering as indicated in Note 1 above.

As of July 22, 1998, the Company was in technical default in respect of
obligations of 44 noteholders aggregating approximately $5,536,300, exclusive of
interest. The Company believes that it will cure such defaults on or about the
closing of the Offering through the proceeds of this Offering and the Proposed
Bank Facility. Prior to the closing of this Offering, the Company and the
Representative will have received written or oral confirmation from
substantially all of the holders of the obligations that are in technical
default that they intend to take no action with respect to such technical
default. However, the Company and the Representative intend to proceed with the
Offering whether or not they receive such confirmations. See "Use of Proceeds,"
for a discussion of the amounts of the Company's indebtedness to be paid from
the proceeds of the Offering and the Proposed Bank Facility.

The Company believes that there are a number of libraries and single or
multiple television series, movies or special programming owned by unrelated
third parties of which the Company may be able to acquire either ownership of,
or long-term distribution rights to. At this date, the Company has not entered
into any discussions with respect to any such acquisition with any such third
party.

The Company anticipates that the net proceeds of the Offering, together
with projected cash flow from operations will be sufficient to permit the
Company to conduct its operations as currently contemplated for only the next 12
months. Such belief is based upon certain assumptions, including assumptions
regarding the sales of the Company's original programming and anticipated
expenditures required for the development and production of additional
programming, and there can be no assurance that such resources will be
sufficient for such purpose. The Company will be required to raise substantial
additional capital in the future in order to further expand its production and
distribution capabilities. There can be no assurances that additional financing
will be available, or if available, that it will be on acceptable terms. In
addition, contingencies may arise which may require the Company to obtain
additional capital prior to such planned expansion.

The foregoing uses of proceeds are estimates only, and there may be
significant variations in the use of proceeds due to changes in current economic
and industry conditions, as well as changes in the Company's business and
financial condition. The amount and timing of expenditures will vary depending
on a number of factors, including changes in the Company's contemplated
operations and industry conditions. In addition, to the extent that favorable
acquisition opportunities present themselves, both with respect to the
acquisition of product or entities in allied fields, the use of proceeds
contemplated hereunder may be varied significantly.

These contingencies could also include a changing environment for the
production of syndicated television series and a deterioration in the
anticipated pricing structure with respect to the sales of the Company's product
in certain foreign territories. Alternative uses of the proceeds could include
increasing development of Company-owned product, increasing the number of
co-productions with other entities, and financing movies of the week or new
television series, to the extent that the budgets for such programing are not
otherwise covered by distribution commitments.

Pending use of the proceeds from the Offering as set forth above, the
Company intends to invest all or a portion of such proceeds in short-term
certificates of deposit, U.S. government obligations, money market investments
and short-term investment grade securities.

DIVIDEND POLICY

The Company has not paid any dividends on its Common Stock since its
inception and does not intend to pay any dividends in the foreseeable future.
The Company currently intends to retain earnings, if any, in the development and
expansion of its business. The declaration of dividends in the future will be at
the election of the Board of Directors and will depend upon the earnings,
capital requirements, cash flow and financial condition, general economic
conditions, and other pertinent factors, including contractual prohibitions with
respect to the payment of dividends, which are expected to be included in the
Proposed Bank Facility.
16
<PAGE> 17

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
the Company (i) at March 31, 1998, and (ii) as adjusted to reflect: (a) the sale
of 1,500,000 shares of Common Stock pursuant to the Offering at the initial
public offering price of $5.50 and the application of the estimated net proceeds
therefrom; (b) the issuance through July 15, 1998 of $1,822,000 in loans; and
(c) the conversion of the Conversion Note and the Extraordinary Loss. See "Use
of Proceeds."

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Short-term debt(1).......................................... $6,227,700 $ 1,954,900
========== ===========
Long-term debt(2)........................................... 0 1,915,000
---------- -----------
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding actual,
pro forma and as adjusted.............................. -- --
Common stock, no par value; 18,000,000 shares authorized,
1,131,344 issued and outstanding actual, and 2,831,092
issued and outstanding as adjusted..................... 1,000 1,000
Paid-in capital(2)..................................... 1,230,100 7,831,400
Accumulated deficit(2)................................. (146,700) (243,500)
---------- -----------
Total shareholders' equity........................ 1,084,400 7,588,900
---------- -----------
Total capitalization........................................ $7,312,100 $11,458,800
========== ===========
</TABLE>

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

(1) See Notes 5 and 7 of Notes to Consolidated Financial Statements.

(2) An aggregate of $4,034,400 principal amount of indebtedness outstanding as
of March 31, 1998 will be repaid with the proceeds of the Offering. Of this
amount, $2,819,000 was issued concurrently with warrants and therefore, the
notes are recorded on the Company's financial statements at a lesser value
and a value is ascribed to the warrants which management believes reflects
the market value of the warrants. This value is reflected as a debt issuance
discount and is amortized over the term of all such notes resulting in an
effective interest rate of approximately 25%. Upon repayment of such debt,
the Company will recognize an extraordinary loss equal to the value ascribed
to such warrants. While this entire $2,819,000 principal amount of
indebtedness will actually be repaid from the Offering, the "as adjusted"
column reflects the repayment of the recorded value of such debt as of July
15, 1998 -- a value of $2,722,200 will be ascribed to said debt and a value
of $96,800 will be ascribed to the warrants, resulting in the recognition of
the Extraordinary Loss of $96,800 which becomes part of accumulated deficit.

17
<PAGE> 18

DILUTION

At March 31, 1998, the Company had an adjusted net tangible book value of
$1,084,400, or $0.96 per share of Common Stock. After giving effect: (i) to the
sale by the Company of 1,500,000 shares of Common Stock offered hereby at the
initial public offering price of $5.50 per share, and the initial application of
the estimated net proceeds therefrom; (ii) the issuance of an additional 199,748
shares to an investor upon satisfaction of certain contractual anti-dilution
rights (See "Certain Transactions -- Transactions with Morris Wolfson and
Others"); (iii) the conversion of the Conversion Note; and (iv) the
Extraordinary Loss, the net tangible book value of the Company at such date
would have been approximately $7,588,900 or $2.68 per share. This represents an
immediate increase in net tangible book value of $1.72 per share to the current
shareholders and an immediate dilution of $2.82 per share to new shareholders.
Dilution represents the difference between the initial public offering price
paid by purchasers in the Offering and the net tangible book value per share
immediately after completion of the Offering. The following table illustrates
this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $5.50
Pro forma net tangible book value per share before the
Offering............................................... $0.96
Increase in net tangible book value per share
attributable to the sale of the Common Stock offered
hereby................................................ 1.72
-----
Adjusted net tangible book value per share after the
Offering.................................................. 2.68
-----
Dilution per share to new shareholders(1)................... $2.82
-----
</TABLE>

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

(1) Represents dilution of approximately 51% to purchasers of Common Stock
offered hereby.

The following table sets forth: (i) the number of shares of Common Stock
purchased from the Company by new shareholders pursuant to the Offering and
acquired from the Company by the current shareholders of the Company (including
the shares to be obtained upon conversion of the Conversion Note); (ii) the
total consideration paid to the Company; and (iii) the respective average
purchase price per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Current shareholders.............. 1,331,092 47.0% $ 1,231,100 13.0% $0.92
New shareholders.................. 1,500,000 53.0% 8,250,000 87.0% 5.50
--------- ----- ----------- -----
Total................... 2,831,092 100% $ 9,481,100 100%
========= ===== =========== =====
</TABLE>

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

(1) The information set forth above does not reflect 337,500 shares of Common
Stock reserved for issuance under the Company's 1995 and 1996 Stock Option
Plans (of which approximately 206,750 shares are issuable upon exercise of
stock options outstanding as of the date of this Prospectus) and 150,000
shares of Common Stock issuable upon exercise of the Representative's
Warrant. See "Management -- Stock Option Plans" and "Underwriting."

18
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data for the period ended
December 31, 1995, the years ended December 31, 1996 and December 31, 1997, the
three months ended March 31, 1997 and March 31, 1998 and the consolidated
balance sheet data at such dates are derived from the Company's Consolidated
Financial Statements included elsewhere in this Prospectus that have been
audited by Stonefield Josephson, Inc., for 1996 and 1997, indicated in their
respective reports which are also included elsewhere in this Prospectus. Such
selected consolidated financial data should be read in conjunction with those
Consolidated Financial Statements and Notes thereto. For a discussion of the
appointment of Stonefield Josephson, Inc., see "Experts."

<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
THREE THREE PERIOD FROM
MONTHS MONTHS FOR THE FOR THE FEBRUARY 1995
ENDED ENDED YEAR ENDED YEAR ENDED THROUGH
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996 1995
----------- ----------- ------------ ------------ -------------
STATEMENT OF OPERATIONS DATA: (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................... $1,573,400 $ 708,400 $6,875,600 $5,749,800 $ 1,245,300
Cost of revenues................... 379,000 415,300 2,355,300 2,895,900 946,900
---------- --------- ---------- ---------- -----------
Gross profits...................... 1,194,400 293,100 4,520,300 2,853,900 298,400

General and administrative
expenses......................... 541,500 601,500 2,129,300 2,323,800 1,288,200
Allowance for doubtful accounts.... -- -- 1,115,600 -- --
---------- --------- ---------- ---------- -----------

Net income from operations......... 652,900 (308,400) 1,275,400 530,100 (989,800)

Interest expense................... 263,000 271,800 1,040,100 677,700 42,700
Interest income.................... 48,000 72,000 211,800 58,300 --
Other income....................... -- -- -- 90,100 --
---------- --------- ---------- ---------- -----------
Net income (loss) before income
taxes............................ $ 437,900 $(508,200) 447,100 800 (1,032,500)
---------- --------- ---------- ---------- -----------
Net income (loss).................. $ 437,900 $(508,200) $ 447,100 $ 800 $(1,032,500)
========== ========= ========== ========== ===========

Net income (loss) per common share
basic(1)......................... $ 0.39 $ (0.45) $ 0.40 $ -- $ (0.91)
========== ========= ========== ========== ===========

Weighted average number of shares
outstanding basic(1)............. 1,131,344 1,131,344 1,131,344 1,131,344 1,131,344
========== ========= ========== ========== ===========

Net income (loss) per common share
diluted(1)....................... $ 0.24 $ (0.28) $ 0.25 $ -- $ (0.57)
========== ========= ========== ========== ===========

Weighted average number of shares
outstanding diluted.............. 1,821,800 1,821,800 1,821,800 1,821,800 1,821,800
========== ========= ========== ========== ===========
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------------
ACTUAL PROFORMA(2) AS ADJUSTED(3)
BALANCE SHEET DATA: ----------- ----------- --------------
<S> <C> <C> <C>
Liquidity capital (deficit)(4)..................... $(4,541,600) $(4,676,600) $ 1,955,100
Total assets....................................... 13,620,500 14,570,500 16,628,500
Notes payable(5)(6)................................ 5,487,700 7,282,700 3,369,900
Accrued interest(5)(6)............................. 1,061,700 1,061,700 640,700
Shareholder loan and note payable.................. 740,000 740,000 500,000
Accumulated deficit(6)............................. (146,700) (146,700) (243,500)
Shareholders' equity............................... 1,084,400 1,084,400 7,588,900
</TABLE>

19
<PAGE> 20

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

(1) See Note 2 of Notes to Consolidated Financial Statements for information
regarding the calculation of net income (loss) per share.

(2) Pro-forma amounts reflect the addition of $1,107,000 in interim financing
that occurred in April and May 1998, less $100,000 that was repaid in
respect of prior indebtedness and an additional $715,000 in production
financing that occurred in May, June and July 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Reserves" for a discussion of Company
borrowings between December 1997 and April 1998.

(3) As adjusted to reflect: (i) the estimated net proceeds of the Offering,
after deducting Underwriter's discounts and commissions and estimated
offering expenses; (ii) the conversion of a note (the "Conversion Note"), in
the principal amount of $322,000 into approximately 105,000 shares of Common
Stock upon the closing of the Offering; (iii) interest of approximately
$98,000 which accrued from March 31, 1998 through July 15, 1998 from the
debt to be repaid from the Offering; (iv) the pro-forma amounts; and (v) the
Extraordinary Loss (see footnote 6 below). See "Use of Proceeds,"
"Capitalization" and "Description of Securities."

(4) Represents (i) cash and cash equivalents plus accounts receivables (net),
and the amount due from officer, less (ii) accounts payable, accrued
expenses and other liabilities, deferred revenue, accrued participations,
notes payable, shareholder loan and note payable, and accrued interest.

(5) See Notes 5 and 7 of Notes to Consolidated Financial Statements.

20
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following discussion in "Risk Factors" and
elsewhere in this Prospectus. The following discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.

GENERAL

The Company derives substantially all of its revenues from production fees
earned in connection with Company originated productions, distribution fees from
the exploitation of product acquired from others, and the exploitation of
Company-owned programming. The Company was incorporated in February 1995 and
commenced operations in March 1995.

The Company is engaged in developing concepts and acquiring literary and
other story properties, the most promising of which serve as the basis for the
production of series, pilot films, or made-for-television features. If a script
is accepted for production as a television feature or pilot, or if a pilot is
accepted for production as a series, the Company and the network or distributor
negotiate a license fee or distribution advance. This fee is a flat sum payment
through which the Company generally attempts to cover a significant portion of
its production costs and overhead. If programming is produced for an entity like
PBS, which does not pay significant license fees or distribution advances (and
in fact, may not pay any fee), the Company attempts to provide corporate
sponsors or agreements for the license of ancillary rights such as foreign or
home video distribution.

With respect to series for the networks or pay cable channels, the Company
generally attempts to negotiate significant license fees for both series and
movies of the week. In many cases, the Company may invest additional sums in
excess of network license fees to produce the best possible made-for-television
features, as such features are an essential sales tool in gaining network
acceptance of a projected series, if applicable. In these cases, the Company
will attempt to cover the excess of production costs from working capital,
third-party financing, sales of the episodes in the foreign marketplace, or a
combination of these financing techniques. Where necessary or desirable, the
Company may seek to obtain funding in excess of network license fees from a
studio or a third party who will provide such financing in return for a share of
the profits from the syndication of such programming. Similarly, for television
series, the Company may invest amounts in excess of network license fees in
order to gain audience acceptance for the series and to enhance the potential
value of future syndication rights.

The Company recognizes revenues from licensing agreements covering
entertainment product when the product is available to the licensee for
telecast, exhibition or distribution, and other conditions of the licensing
agreements have been met in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 53 "Financial Reporting by Producers and Distributors of
Motion Picture Films."

The Company, as required by SFAS No. 53, values its film cost at the lower
of unamortized cost or net realizable value on an individual title basis. Film
costs represent those costs incurred in the development, production and
distribution of television projects. These costs have been capitalized in
accordance with SFAS No. 53. Amortization of film cost is charged to expense and
third party participations are accrued using the individual film forecast method
whereby expense is recognized in the proportion that current year revenues bear
to an estimate of ultimate revenues. These estimates of revenues are prepared
and reviewed by management. The Company anticipates that a majority of its
production or acquisition costs for its projects will be amortized within three
years from the completion or acquisition of such project, with the balance
amortized over an additional two years.

The Company's trade receivables historically increase as revenue increases.
The Company, in accordance with SFAS No. 5, records an allowance for doubtful
accounts based, in part, on historical bad debt experience. In 1997, the Company
recorded as an allowance for doubtful accounts, $1,115,600. See "Risk Factors --
Allowance for Doubtful Accounts" and "Results of Operations -- The year ended
December 31, 1997 versus the year ended December 31, 1996"). Typically, when the
Company makes a sale of a product, the purchaser
21
<PAGE> 22

of such product agrees to a payment schedule, usually based upon a time table
which is either tied to milestones in the development of the product or the time
period of the contract. If customers fail to make scheduled payments, the
Company's license agreements provide that the Company can repossess and resell
such product. Because these payments often are spread out over a period of time,
up to two years, the payments to be made in the future are recorded as
discounted trade receivables. As sales increase, the Company's trade receivables
balance will increase accordingly. The Company believes it has adequate
resources to collect its trade receivables.

As of July 22, 1998, the Company was in technical default in respect of
obligations of 44 noteholders aggregating approximately $5,536,300, exclusive of
interest. The Company believes that it will cure such defaults on or about the
closing of this Offering through the proceeds of this Offering and the Proposed
Bank Facility. Prior to the closing of this Offering, the Company and the
Representative will have received written or oral confirmation from
substantially all of the holders of the obligations that are in technical
default that they intend to take no action with respect to such technical
default. However, the Company and the Representative intend to proceed with the
Offering whether or not they receive such confirmations. See "Use of Proceeds,"
for a discussion of the amounts of the Company's indebtedness to be repaid from
the proceeds of the Offering and the Proposed Bank Facility.

RESULTS OF OPERATIONS

The three months ended March 31, 1998 versus the three months ended March
31, 1997. Revenues for the three months ended March 31, 1998 were $1,573,400
compared with $708,400 for the three months ended March 31, 1997. Revenues for
the three months ended March 31, 1998 were comprised of $825,000 from the sale
of an acquired library of 11 movies of the week acquired from Beyond
Entertainment, which was resold to Latin American Programming-TV for all
territories in Latin America (except Brazil) and $748,400 from the recognition
of revenue from the sale of the second season of "Amazing Tails" to both the
Discovery Channel's Animal Planet Network and 1291873 Ontario Limited, an
affiliate of Micro Entertainment, a Canadian distribution company. Revenues for
the three months ended March 31, 1997 included: (i) $510,000 from the
distribution of the Company's acquired library, 97% of which were derived from
sales to Beyond Distribution; (ii) $140,000 from the sale of the first season of
"Amazing Tails", 87% of which were derived from sales to Beyond Distribution;
and (iii) $60,000 as royalty revenue from the series "Strange Universe". For the
three months ended March 31, 1997 approximately 92% of revenues were
attributable to the exploitation of product outside the domestic (i.e., U.S. and
Canadian) market. The concentration of sales in the foreign market is
attributable to the absence of any programming being produced by the Company
directly for the domestic market in such period. Within the foreign market,
allocations among the four principal geographic regions in which the Company
does business, Europe, South America, Asia and Australia and Africa, vary from
period to period. The variations in revenue relate to the type of product being
offered, as well as local economic trends and conditions, and the emergence of
multiple broadcasting channels in the applicable territory. See Note 8 to the
Consolidated Financial Statements for a breakdown of the geographic distribution
of sales of the Company's product.

Cost of revenues was $379,000 for the three months ended March 31, 1998, as
compared to $415,300 for the three months ended March 31, 1997, such slight
decrease attributable to the Company deriving more of its revenue from
distribution activity relating to its own product (or products acquired on an
outright basis), rather than product acquired from third parties under license
agreements. Third party distribution activity has a lower gross margin because
distribution fees of up to 70% are paid to the producers of the product.
However, amortization expense, as calculated under FASB 53 has comparatively
lower rates. For the period ended March 31, 1997, the Company's revenue
attributable to product produced by others, for which producers are allocated a
higher percentage of revenue as a participation expense, was more than similar
product in the comparable period in 1998, when the Company distributed more
product which it either owned outright or which was produced by the Company. For
this product, the Company's margins are typically higher as no participation
expenses need to be paid to the product's copyright owners. For a discussion in
how the product mix may affect quarterly results, see "Risk
Factors -- Fluctuations in Operating Results."

Gross profit margins improved from 41% for the three months ended March 31,
1997 to 76% for the three months ended March 31, 1998, primarily because of
increased margins attributable to product produced by the Company.
22
<PAGE> 23

General and administrative expenses were $541,500 for the three months
ended March 31, 1998, as compared to $601,500 for the three months ended March
31, 1997. The decrease was primarily due to the amortization expense relating to
the capitalized costs of the February 1996 loan having been fully amortized by
year end 1997, and as such no related amortization expense was taken in 1998.

Interest expense was $263,000 for the three months ended March 31, 1998, as
compared to $271,000 for the three months ended March 31, 1997.

Interest income was $48,000 for the three months ended March 31, 1998, as
compared to $72,000 for the three months ended March 31, 1997. The decrease is
due to more interest income derived from amortization of the discount taken
under the guidelines of APB 21. Less income was taken in 1998 because a majority
of discount has already been amortized.

Net income was $437,900 for the three months ended March 31, 1998 as
compared to a net loss of $(508,200) for the three months ended March 31, 1997.
The increase is attributable to an increase in sales and significantly higher
gross margin on product sold during 1998.

Trade receivables increased by $950,000 for the three months ended March
31, 1998 due to increased revenues. Included in receivables as of March 31, 1998
are receivables from entities domiciled outside the United States of $7,754,500.
These receivables represent approximately all receivables and 57% of the total
assets of the Company. This represents an increase of 14% from the $6,740,800 of
receivables as of December 31, 1997. The Company's receivables are typically in
excess of one year, and thus will tend to grow at a rate in excess of any
increase in revenues. The Company believes that these receivables will be
collected as they mature, and that all outstanding amounts with respect to such
obligations will be collected within two years. Any difficulty or delay in the
collection of these receivables would have a material adverse effect on the
Company. Of this amount, $5,953,000 of such receivables are from Latin America
Programming-TV, 1291873 Ontario Limited, an affiliate of Micro Entertainment, a
Canadian distribution company, and Beyond Entertainment, a publicly held
Australian company. In each case, management also has a pre-existing
relationship with such licensees, and believes that all amounts owing from these
licensees will be paid in a timely manner. For additional information regarding
the Company's reliance on customers see "Risk Factors -- Reliance on Significant
Customers" and "Allowance for Doubtful Accounts", as well as Note 2 to the
Company's Consolidated Financial Statements. For a further description of the
Company's treatment of its trade receivables, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General." The
Company believes its existing allowance for doubtful accounts reserve is
adequate and that it has adequate resources to collect its trade receivables.

Year ended December 31, 1997 versus year ended December 31, 1996. Revenues
for the twelve months ended December 31, 1997 were $6,875,600 compared with
$5,749,800 for the twelve months ended December 31, 1996. Revenues for the year
ended December 31, 1996 included: (i) $1,441,700 from the recognition of
revenues from Interpublic for the completion of the series "Amazing Tails",
which accounted for 25% of revenues during such period; (ii) a revenue guarantee
received from the sale of certain library rights; and (iii) revenue from the
sales generated by the existing library. Included in this amount are revenues of
approximately $680,000 arising from a license of a certain portion of the
Company's film library to the Giniger Entities, with respect to the sale of a
certain portion of the Company's library in certain Latin America countries and
Europe. These revenues were 12% of all revenues in such period. Finally,
revenues in the period included $618,000 from Eurolink respecting additional
sales of "Amazing Tails", which was approximately 11% of the Company's revenue
during such period. For the twelve month period ended December 31, 1997,
approximately 80% of the Company's revenues were attributed to the exploitation
of product outside the domestic (i.e. U.S. and Canadian) market. The
concentration relative to the foreign market is attributable to less programming
being produced by the Company directly for the domestic market in such period.
In prior periods, revenues were generated approximately 40% from the domestic
market and 60% from the foreign market. Within the foreign market, allocations
among the four principal geographic regions in which the Company does business,
Europe, Asia and Australia, South America and Africa, vary from period to
period. The variations in revenues relate to the type of product being offered,
as well as local economic trends and conditions, and the emergence of multiple
broadcasting channels in the applicable

23
<PAGE> 24

territory. See Note 8 to the Consolidated Financial Statements for a breakdown
of the geographic distribution of sales of the Company's product.

Cost of revenues was $2,355,300 for the twelve months ended December 31,
1997, as compared to $2,895,900 for the twelve months ended December 31, 1996.
As a percentage of revenue, however, cost of revenue was 34% of revenue for the
twelve months ended December 31, 1997 compared to 50% of revenue to the
comparable period in 1996. This decrease is attributable to the Company deriving
more of its revenue from distribution activity relating to its own product
rather than product acquired from third parties under license agreements. Third
party distribution activity has a lower gross margin because distribution fees
of up to 70% are paid to the producers of the product. However, amortization
expense, as calculated under FASB 53, has comparatively lower rates. For the
period ended December 31, 1996, the Company's revenue attributable to product
produced by others, for which producers are allocated a higher percentage of
revenue as a participation expense, was less than similar product in the
comparable period in 1997, when the Company distributed more product which it
either owned outright or which was produced by the Company. For this product,
the Company's margins are typically higher as no participation expenses need be
paid to the product's copyright owners. For a discussion in how the product mix
may affect quarterly results, see "Risk Factors -- Fluctuations in Operating
Results."

Gross profit margin improved from 50% for the twelve months ended December
31, 1996 to 66% for the twelve months ended December 31, 1997, primarily because
of higher profit margins on produced and acquired product.

General and administrative expenses were $2,129,300 for the twelve months
ended December 31, 1997, as compared to $2,323,800 for the twelve months ended
December 31, 1996. The decrease was principally attributable to the Company
having more debt issuance costs associated with two bridge notes in 1996, as
compared to debt issuance costs associated with only one bridge note in 1997.

Allowance for doubtful accounts was $1,115,600 for the twelve months ended
December 31, 1997, as compared to no allowance for doubtful accounts for the
twelve months ended December 31, 1996. The allowance for doubtful accounts
consists of the following: (i) $660,000 for the write off of the Eurolink
receivable; (ii) $170,600 for the write off of the Giniger Guaranty; and (iii)
$285,000 for the write off of the Alliance receivable. Regarding the Eurolink
receivable, the Company had sold the rights to "Amazing Tails" for a majority of
the Western European territories to Eurolink, a London based company. Eurolink
subsequently experienced financial difficulties and was unable to pay amounts
due to the Company under the contract for "Amazing Tails." The Company therefore
reasserted its rights to "Amazing Tails" and wrote off the entire receivable
under the Eurolink contract. Eurolink and the Company are unrelated entities and
had an arms length relationship. The write down of the Alliance receivable
occurred as a result of a restructuring of the Company's obligations to
Alliance. Pursuant to such agreements, Alliance and the Company agreed to: (i)
extend the "Total Recall" promissory note; and convert the minimum guarantee to
a profit sharing arrangement, which allows Alliance to recoups its advance of
$225,000, plus entitles Alliance to receive a 30% distribution fee and actual
distribution materials costs prior to the Company and Alliance splitting the
remaining receipts. Although the Company believes that it will receive more than
the $225,000 that it has already received from licensing such programing,
because of this new structure, the Company will be unable to recognize any more
revenue with respect to its license agreements with Alliance until Alliance
recoups its advance and costs. The write down of the Giniger Guaranty was due to
the Company selling the rights to Water Rats I, prior to the Giniger Entities
doing so.

Interest expense was $1,040,100 for the twelve months ended December 31,
1997, as compared to $677,700 for the twelve months ended December 31, 1996. The
increase was principally attributable to an increase in debt and the related
interest expense, and the expenses associated with the discount of long term
receivables calculated under the guidelines of APB 21.

Interest income was $211,800 for the twelve months ended December 31, 1997,
as compared to $58,300 for the twelve months ended December 31, 1996. The
increase in interest income was due to the amortization of the discount taken
under the guidelines of APB 21.

24
<PAGE> 25

Net income for the twelve months ended December 31, 1997 was $447,100, as
compared with net income of $800 for the twelve months ended December 31, 1996.
This increase relates to an increase in sales and a decrease in debt issuance
costs as described above.

Trade receivables increased to $6,740,800 for the twelve months ended
December 31, 1997, as compared to $3,342,100 for the twelve months ended
December 31, 1996, which increase was due to increased revenues. For a
description of the Company's treatment of its trade receivables, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- General." The Company believes its existing bad debt reserve is
adequate and that it has adequate resources to collect its trade receivables.

Year ended December 31, 1996 versus the period from inception (February 27,
1995) to December 31, 1995. Revenues for the year ended December 31, 1996 were
$5,749,800 compared with $1,245,300 in the period from inception (February 27,
1995) through December 31, 1995 (the "95 Period"). The revenues from the 95
Period were primarily attributable to the completion and delivery of the series
"Simply Style." Revenues for the year ended December 31, 1996 included
$1,441,700 from the recognition of revenues from Interpublic for the completion
of the series "Amazing Tails," which revenues accounted for 25% of revenues
during such period, a revenue guarantee received from the sale of certain
library rights and revenue from the sales generated by the existing library.
Included in this amount are revenues of approximately $680,000 arising from a
license of a certain portion of the Company's film library to the Giniger
Entities, with respect to the sale of a certain portion of the Company's library
in certain Latin America countries and Europe. These revenues were 12% of
revenues in that period. Finally, revenues in the period included $618,400 from
Eurolink respecting additional sales of "Amazing Tails." This sale was
approximately 11% of the Company's revenue during the period. Revenue from the
Giniger Entities, Eurolink, and the production of "Amazing Tails" should not be
considered to be recurring. See "Risk Factors -- Accounts Receivable; Reliance
on Significant Customers" for a further discussion of the non-recurring nature
of these revenues, and recognition of future revenues from the Giniger Entities.

Cost of revenues was $2,895,900 for the year ended December 31, 1996, as
compared to $946,900 for the 95 Period, such increase being principally
attributable to the increase in amortization of the product produced and
acquired by the Company.

Gross profit margin improved from 24% for the 95 Period to 50% for the year
ended December 31, 1996 primarily because the profit margin on "Amazing Tails"
and revenues recognized from the Giniger Entities was greater than the profit
margin on "Simply Style."

General and administrative expenses were $2,323,800 for the year ended
December 31, 1996, as compared to $1,288,200 for the 95 Period, resulting
primarily from increased personnel costs. As a percentage of revenues, however,
general and administrative expenses decreased from 103% to 40%. The debt
issuance costs were treated as an expense and not capitalized because the
expected maturity dates were within one year. See "-- Liquidity and Capital
Resources."

Interest expense for the year ended December 31, 1996 was $677,700, as
compared to $42,700 for the 95 Period reflecting the issuance of Bridge Notes in
the period.

Net income for the year ended December 31, 1996 was $800 compared with a
net loss of ($1,032,500) incurred during the 95 Period, resulting primarily from
an increase in sales activity in 1996. The 95 Period had limited sales activity,
as the Company was in a start-up phase, but it included the costs associated
with the Company's initial exhibition at trade shows, acquisition costs for
programming and distribution, professional costs, and increases in personnel to
accommodate future production activities and distribution.

LIQUIDITY AND CAPITAL RESOURCES

The entertainment industry is highly capital intensive. As of March 31,
1998, the Company had a liquidity deficit of ($4,541,600). Liquidity deficit is
defined as (i) cash and cash equivalents, accounts receivable (net), and the
amount due from officer less (ii) accounts payable, accrued expenses and other
liabilities, deferred revenues, accrued participations, notes payable,
shareholder loan and note payable and accrued interest.

25
<PAGE> 26

Included in the Company's assets as of March 31, 1998, are approximately
$1,553,500 relating to projects under development but which have not been set
for principal photography. As of March 31, 1998, approximately $789,000 of this
amount relates to the acquisition of the rights to produce a television series
based on the feature film "Total Recall" and approximately $451,000 relates to
expenditures for "LoCoMoTioN."

Included in the Company's assets as of December 31, 1997, are approximately
$1,502,100 relating to projects under development but which have not been set
for principal photography. As of December 31, 1997, approximately $789,000 of
this amount relates to the acquisition of the rights to produce a television
series based on the feature film "Total Recall" and approximately $451,000
relates to expenditures for "LoCoMoTioN."

The Company intends, consistent with the standards set by the Financial
Accounting Standards Board, including SFAS No. 53, to write off the costs of all
development projects when they are abandoned or, even if not abandoned, if they
have not been set for principal photography within three years of their initial
development activity. Development activity with respect to LoCoMoTioN began in
September 1995 and with respect to Total Recall in July 1996. In the event the
Company is unable to produce either "Total Recall" or "LoCoMoTioN," the Company
would incur a significant write-down with respect to the development costs of
such projects, which, in turn, may effect ongoing financing activities.

The Company has received a term sheet from Imperial Bank for multiple lines
of credit of up to $5,000,000 (the "Proposed Bank Facility"), which lines of
credit would permit borrowings pursuant to specified borrowing bases made up of
the value of the library (including a value for "Total Recall"), accounts
receivable and other assets, including cash. The term sheet is non-binding and
any bank arrangement is subject to additional due diligence, the satisfaction of
a number of conditions, including the approval of Credit Committee and the
execution of definitive documents. The accounts receivable and library portion
of the facility would be limited to $1,500,000. The Company currently intends to
repay approximately $1,200,000 of indebtedness remaining after the Offering with
proceeds from the Proposed Bank Facility. The Proposed Bank Facility will also
contain covenants relating to the Company's tangible net worth, debt to equity
ratio and profitability. No assurance can be given that the Proposed Bank
Facility will be entered into or that the Company will be able to use proceeds
from such facility as indicated herein. See "Use of Proceeds."

The Company has financed its operations from its own sales and production
activities, loans aggregating $2,758,700, the sale of the Bridge Notes
aggregating $2,819,000, the special financing obtained with respect to "Total
Recall" (the "Total Recall Financing") in the principal amount of $650,000, and
interim financing (the "Interim Financing") discussed below of $1,822,000 which
financing was required as a result of delays in completing the Offering.

A portion of the shareholder loans are from: (i) Joseph Cayre (two loans
aggregating $740,000); (ii) Morris Wolfson and entities which may be affiliates
of Mr. Wolfson (including the Wolfson Family Limited Partnership) (two loans
aggregating $822,000, as more fully described below); and (iii) Affida Bank (one
loan in the amount of $300,000). The Cayre loans, which were made in April and
August 1995, bear interest at the prime rate established by Republic National
Bank, New York, New York, plus 2% per year and 14% per year, respectively, and
are subject to an agreement requiring the payment of $250,000 from the net
proceeds of the Offering and the pledge of certain assets to cover the unpaid
amount due thereunder. If the Offering is consummated on or before July 30,
1998, Mr. Cayre has extended the maturity date under the $500,000 note until
thirteen months from the closing date of this Offering. See "Certain
Transactions -- Transactions with Joseph Cayre."

A loan in the principal amount of $322,000 was made in January 1996 by AMAE
Ventures, an affiliate of Mr. Wolfson, which was used by the Company for general
overhead purposes and bears interest at 12% per year. This note is due on the
earlier to occur of July 15, 1998 or the closing of the Offering. The holder of
such note has the right to convert the principal amount into approximately
105,000 shares of the Company's Common Stock on a fully diluted basis through
the completion of the Offering, and has indicated that it intends to convert
such note. An April 1996 loan by South Ferry #2 L.P., a Delaware limited
partnership, in the principal amount of $500,000 was used for the pre-production
of "LoCoMoTioN." This loan bears interest

26
<PAGE> 27

at 10% per year and is currently due on July 15, 1998, however, if one-half of
the principal under the loan is paid by July 31, 1998, the remainder of the
principal and all interest due under the loan will be extended until August 20,
1999. South Ferry #2 L.P. is entitled to receive a 2% net profit participation
from the series. Finally, the Chana Sasha Foundation, an entity controlled by
Mr. Wolfson, extended the Company a $400,000 line of credit on a secured basis
in November 1996, which credit line has been used and subsequently repaid by
funds from the Company's operations. This line of credit bore interest at 10%
per year. See "Certain Transactions" for additional information regarding these
transactions.

The July 1996 proceeds from the sale of the note in the Total Recall
Financing were used to acquire the rights to produce a television series based
on "Total Recall." This note, which was secured by the Company's underlying
rights to the "Total Recall" series bore interest at 10% per year. The principal
amount of this note has been repaid. In addition, the holders of this note
received an aggregate of 53,403 shares of Common Stock, warrants to acquire
21,362 shares of Common Stock at an exercise price of $.43 per share and a 15%
net profit participation in the Company's interest in the series. See "Certain
Transactions" for a description of the consideration paid to the Morris Wolfson
Family Limited Partnership in connection with this transaction.

In November 1996, the Company obtained a $300,000 loan from Affida Bank,
which loan carries interest at 8% per year, and matures upon the earlier to
occur of the closing of the Offering or July 15, 1998. Affida Bank also received
warrants to acquire 25,634 shares of the Company's Common Stock at an exercise
price of $.43 per share in connection with this loan. The proceeds of this loan
were used for working capital.

In February 1996, the Company commenced a private placement of its secured
notes and sold to accredited investors $900,000 in principal amount of secured
promissory notes which bear interest at 12% per year and are due at the earlier
to occur of the closing of the Offering or July 15, 1998. This offering was
changed pursuant to its original terms with respect to subsequent investors in
June 1996 when the Company completed the sale to accredited investors of
$975,000 principal amount of secured notes which bear interest at 10% per year
and are due at the earlier to occur of the closing of the Offering or July 15,
1998. In December 1996, the Company obtained a $150,000 loan from an outside
investor, which loan carries interest at 10% per year and matures upon the
earlier to occur of the closing of the Offering or July 15, 1998. The proceeds
of this loan were used for working capital. In February and March 1997, the
Company completed the sale of $969,350 of convertible secured notes to
accredited investors (the "February 1997 Notes"). Each of the foregoing notes
are secured, pro-rata and pari passu, by liens on substantially all of the
Company's assets, except that the February 1997 Notes are junior to the other
bridge notes.

In December 1997, the Company obtained a loan in the amount of $315,000
from Venture Management Consultants, LLC ("VMC"), which loan carries interest at
12% per year, and matures upon the earlier to occur of the closing of the
Offering or July 15, 1998. Because the loan was not repaid in full by February
15, 1998, the Company is required to pay VMC an additional fee of $15,000.
Included in the principal to be repaid is a $15,000 loan origination fee. As of
the date hereof, $150,000 has been repaid on this note.

Between March 1998 and May 1998, the Company arranged for short term loans
(the "Interim Financing") of an aggregate of $1,642,000. A majority of such
loans were made by present security holders of the Company and their affiliates.
These loans mature as follows: (i) $642,000 on July 15, 1998; (ii) $235,000 on
June 15, 1998; (iii) $115,000 on November 15, 1998; (iv) $150,000 on March 16,
1999; (v) $250,000 on April 1, 1999; and (vi) $250,000 on April 18, 1999. These
loans, other than the $642,000, $115,000, and $235,000 loans, accrue interest at
12% per year. The $235,000 loan includes a $35,000 origination fee, and a
$10,000 late fee as the note was not paid at June 15, 1998. The note does not
accrue interest. The $642,000 loan has a fixed interest amount of $78,000 and
includes a $42,000 loan origination fee. The $115,000 loan includes a $15,000
loan origination fee and begins to accrue interest at 18% per year if the loan
goes into default. The Company intends to repay the $235,000 and $642,000 loans
upon the closing of the Offering. The Company currently does not intend to repay
any other amounts owing in respect of the Interim Financing at the conclusion of
the Offering. Rather, the Company intends to negotiate with the Interim
Financing noteholders terms pursuant to which the Interim Financing will be
replaced or exchanged for permanent subordinated debt. No such arrangements have
been negotiated. If such negotiations are unsuccessful, the Company will pay all
such indebtedness at their respective maturities.

27
<PAGE> 28

In May, June and July 1998, the Company also arranged for long term loans
from 10 parties of an aggregate of $715,000 for specific production financing.
These loans mature as follows: (i) $375,000 on January 10, 2000; and (ii)
$340,000 on August 1, 1999. The $375,000 loans accrue interest as 12% per year
and the $340,000 loan accrues interest at 16% per year. Of the $375,000, there
are two loan origination fees, one for $8,000 and one for $8,500. If any
payments under the $340,000 loan are not paid within three days of being due, a
late fee of 8% of the delinquent amount will be assessed for each month the
payment is delinquent. In addition, if the loan is in default, at the lender's
option, the unpaid principal and accrued interest shall thereafter bear interest
at the lesser of 25% per year or the maximum legal rate. The loan may be
prepaid. However, in order to prepay the loan, the Company will have to pay the
lender the lesser of all of the interest which would have accrued through the
maturity of the loan or $42,000.

Assuming the repayment of short-term indebtedness as specified under the
caption "Use of Proceeds," at the conclusion of the Offering, the Company will
have approximately $3,869,900 of indebtedness, which indebtedness is due between
July 15, 1998 and January 10, 2000 and is secured by substantially all of the
assets of the Company. The $3,869,900 is comprised of: (i) $1,189,900 which is
technically in default as of July 22, 1998; (ii) $765,000 which is not in
default, but which is due within the next twelve months; and (iii) $1,915,000
which is not in default and is not due within the next twelve months.

Management believes that if the Offering is completed, the net proceeds
thereof, together with projected cash flow from operations, will be sufficient
to permit the Company to conduct its operations as currently contemplated for
only the next 12 months. Such belief is based upon certain assumptions,
including assumptions regarding (i) the sales of the Company's original and
acquired programming and (ii) anticipated expenditures required for the
development and production of additional programming, including "Total Recall."
After such time period, the Company has assumed that its operations will be
financed by cash flow from operations, proceeds from the Proposed Bank Facility
(if obtained) and/or additional financings. See "Risk Factors -- Going Concern
Assumption," "-- Additional Capital Requirements; Encumbrance of Existing
Assets; No Assurance of Future Financing," "Capitalization" and "Description of
Securities."

The Company's management believes that the Company's management information
systems will not be affected by the "Year 2000" issue. The Company's management
also believes that inflation has not had any significant effect on the Company's
operations since inception.

28
<PAGE> 29

BUSINESS

The following Business section contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" as
well as elsewhere in this Prospectus.

GENERAL

Since its formation in February 1995, the Company has focused its efforts
on the development, production and distribution of a variety of television
programming, including series, specials and made-for-television movies for
exploitation in the domestic and international television market. The Company
derives substantially all of its revenues from production fees earned in
connection with Company-originated productions, distribution fees from the
exploitation of product acquired from others, and the exploitation of
Company-owned programming. References to the Company after December 1995 refers
to Team Communications Group, Inc. (formerly known as DSL Entertainment, Inc.)
and its wholly-owned subsidiaries. In December 1995, two companies under common
control of the shareholders of the Company were contributed to the Company
without additional consideration. References to the Company prior to December
1995 refer to those three entities on a combined basis.

The Company's development and production activities have focused on: (i)
family programming produced for U.S. cable and network television channels such
as The Discovery Channel, The Family Channel, USA Network, and PBS; (ii)
"how-to" instructional series, such as "Simply Style," a 60-episode series which
debuted during the third quarter of 1995 on The Learning Channel; and (iii)
reality based weekly and five-day per week ("strip") syndicated programming,
such as "Strange Universe," a reality based series exploring abnormal
occurrences which the Company co-produced with the United/Chris-Craft television
stations and Rysher Entertainment. This series, which aired on
United/Chris-Craft stations, involved the production of 130 episodes over its
two, thirteen week commitments and has been completed. The Company has also
completed production of a series of 22 half hour episodes entitled "Amazing
Tails," a reality based series focusing on extraordinary pets, which has been
financed in conjunction with Friskies Pet Foods, a division of Nestles Food, and
advertising leader Interpublic. All episodes of "Amazing Tails" have been
produced and delivered to Interpublic, and the series is airing on Discovery
Communications' newest channel, Animal Planet. The Company has recently entered
into an agreement with Discovery Communications for a second season of 26 new
episodes of Amazing Tails, which is currently completing production.
Additionally, the Company is party to a joint venture agreement with Interpublic
for the production, subject to certain criteria, of a minimum of four pilots
over the next year for non-fiction and light entertainment programming. The
Company also maintains a dramatic development and production unit which is
developing and will produce movies of the week and drama series for exhibition
on network television, cable or ad hoc networks of independent stations which
sometimes form to air special programming.

The Company is also developing a wide variety of family, dramatic,
reality-based and children's programming including a new pre-school series,
tentatively entitled "LoCoMoTioN," which the Company hopes to place on domestic
and international television in the fall of 1998. Although no assurance can be
given that the Company will obtain a domestic timeslot, the Company is currently
interviewing for female celebrities to co-host the series, which will introduce
toddlers to dance and exercise through contemporary urban music.

29
<PAGE> 30

The Company also maintains an international sales force and currently has
distribution rights to approximately 335 half-hours of family and documentary
series and specials, and 190 hours of dramatic series and films.

The global television market has experienced substantial growth since 1985
and the Company believes this market will continue to experience substantial
growth during the foreseeable future as foreign state television monopolies end
and commercial broadcast outlets expand to provide increasingly varied and
specialized content to the consumer. In the U.S. alone, 60 new television
channels have commenced operation since 1985. Such growth has led to the
development and commercialization of specialized cable and satellite channels
and distribution outlets, which, in turn, has led to increased demand for top
quality and cost efficient programming in many categories and subjects.

The Company's operating strategy is to fulfill the demand for programming
by: (i) expanding the activities of each of its operating departments; (ii)
implementing strategic acquisitions of video libraries and smaller production
companies; and (iii) entering into joint ventures with, or acquisitions of,
unaffiliated third parties with the intention that such acquisitions or joint
ventures would lower the Company's financial risk should it expand, as
anticipated, into related activities, such as direct marketing and interactive
programming. The Company intends to acquire, co-produce and co-finance other
series, movies and specials from third party producers in order to increase its
programming library and self distribute such product on a worldwide basis.

The Company believes that there are unique business opportunities to
acquire other emerging companies, as well as more established production and
distribution entities, which are engaged in programming development, production,
distribution and other related media investments. While the number of
distribution channels has been increasing, the Company believes there are
powerful economic incentives, including economies of scale and depth of
financial and programming capability, for programmers and distribution entities
to consolidate. No assurance can be given that the Company will be successful in
obtaining the financing necessary for these acquisitions or that any such
acquisitions will prove financially successful. No specific acquisitions have
been identified and no assurance can be given that any transactions will be
affected or if such acquisitions are consummated that they will be successful.
In addition, a significant acquisition of product or another company could
require the Company to obtain additional financing. No assurance can be given
that such financing will be available at all, or that it will be on terms that
are favorable to the Company.

The Company anticipates that the net proceeds of the Offering, together
with projected cash flows from operations, will be sufficient to permit the
Company to conduct its operations as currently contemplated for only the next 12
months. Such belief is based upon certain assumptions, including assumptions
regarding, (i) the sales of the Company's original and acquired programming, and
(ii) anticipated expenditures required for the development and production of
additional programming, including "Total Recall." After such time period, the
Company has assumed that its operations will be financed by internally generated
funds and proceeds from additional financings. See "Risk Factors -- Going
Concern Assumption," "-- Additional Capital Requirements, Encumbrance of
Existing Assets; No Assurance of Future Financing," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of
Securities -- Notes."

OPERATIONS

The Company currently operates three principal departments: (i) development
and production; (ii) distribution; and (iii) licensing, merchandising, and
direct-marketing.

PRODUCTION

The production of television programming involves the development of a
creative concept into a television script or teleplay, the selection of talent
(including actors, directors, and other creative personnel), and the filming,
technical, and post-production work necessary to create a finished product ready
for exhibition. Such programming is generally produced for initial prime-time
exhibition on one of the major U.S. networks, which include CBS, NBC, ABC and
Fox. Such programming may also be produced for new networks such as United
Paramount ("UPN"), and Warner Bros. ("WB"), first-run pay television exhibition
or directly for syndication (i.e., independent or non-network) television,
including PBS, as well as a number of basic and pay cable

30
<PAGE> 31

channels or services, including HBO, Showtime, the Disney Channel, The Learning
Channel, The Discovery Channel, Arts and Entertainment Network and the History
Channel.

The Company is engaged in developing concepts and acquiring literary and
other story properties, the most promising of which serve as the basis for the
production of series, pilot films, or made-for-television features. Once an idea
has been commissioned by the Company, it is presented to a network or other
distributor for acceptance. If a script is accepted for production as a
television feature or pilot, or if a pilot is accepted for production as a
series, the Company and the network or distributor negotiate a license fee or
distribution advance. This fee is a flat sum payment through which the Company
generally attempts to cover a significant portion of its production costs and
overhead.

Entertainment companies in general attempt to finance the development costs
for television programming from their working capital and seek to cover a
substantial portion of their production costs, including overhead, through
license fees. If programming is produced for an entity like PBS, which does not
pay significant license fees or distribution advances (and in many instances,
may not pay any fee), the Company attempts to provide corporate sponsors or
agreements for the license of ancillary rights such as foreign or home video
distribution. Even without a fee or advance, the Company believes that it can
defray a significant portion of the production costs of PBS programming using
these alternative financing methods, thus availing itself of the key
demographics of PBS viewership, particularly in children's programming.

With respect to series for the networks or pay cable channels, the Company
generally attempts to negotiate significant license fees for both series and
movies of the week. In many cases, the Company may invest additional sums in
excess of network license fees to produce the best possible made-for-television
feature, as such features are an essential sales tool in gaining network
acceptance of a projected series, if applicable. In these cases, the Company
will attempt to cover the excess of production costs from working capital,
third-party financing, sales of the episodes in the foreign marketplace, or a
combination of these financing techniques. Where necessary or desirable, the
Company may seek to obtain funding in excess of network license fees from a
studio or a third party who will provide such financing in return for a share of
the profits from the syndication of such programming. Similarly, for television
series, the Company may invest amounts in excess of network license fees in
order to gain audience acceptance for the series and to enhance the potential
value of future syndication rights.

There can be no assurance, however, that once the Company commits to fund
production of a series licensed to a network, the network will order and exhibit
sufficient episodes to enable the Company to syndicate the series. Typically, at
least 65 episodes of a series must be produced for it to be "stripped" or
syndicated in the daily re-run market. Generally, networks can cancel a series
at stated intervals and, accordingly, do not commit in advance to exhibit a
series for more than a limited period. If a series is canceled (or not carried
for the period necessary to create enough episodes for syndication purposes),
there is a significant chance that the production costs of the project will not
be fully recovered. Similar risks apply even if the series is produced for a
non-network medium. The Company believes, however, that foreign pre-sales and
international co-production opportunities will provide sufficient options to
obtain production financing and additional revenue potential. Moreover, basic
cable channels continue to provide outlets of series of between 13 to 26
episodes per season.

The Company intends to focus its production activity in the following areas
or genres:

Movies of the Week and Mini-Series; Drama Series. It is the Company's
intention to expand the production of dramatic programming, over the next 24
months. Such programming, if any, will be licensed in foreign markets through
the Company's sales personnel where the Company does not have foreign partners.
The Company has acquired the rights to produce a weekly dramatic television
series based on the motion picture "Total Recall," which generated over $320
million in world-wide box office receipts in 1990. The Company has entered into
an agreement with Alliance, a leading Canadian production company, pursuant to
which Alliance will co-produce and co-finance an initial 22 episodes of the
series with the Company. The Company has also entered into an agreement with
PolyGram, pursuant to which PolyGram will co-finance and acquire television
distribution rights to the series in the U.S. only. The domestic deal with
PolyGram includes a 22 episode commitment in exchange for a license fee and a
percentage of the net profits of the series. PolyGram has recently pre-sold the
series to the U.S. pay television network, ShowTime Network. The
31
<PAGE> 32

series is scheduled to debut late 1998 with "first run" domestic syndication to
be handled by PolyGram in 1999. Miramax, which acquired the theatrical sequel
rights to "Total Recall," has also acquired worldwide home video rights to the
series from the Company. Based upon the initial pre-sales of the series with
Polygram, Miramax and various international broadcasters, the financial
conditions contained in the co-production agreement with Alliance have been
satisfied. In addition to reducing the Company's financial exposure, the Company
anticipates that by co-producing the series with Alliance, the series will
qualify for certain Canadian co-production and tax benefits. The proceeds from
the foreign distribution of the series, after recoupment of production costs,
will be allocated 40% to the Company and 60% to Alliance. It is the intention of
the parties that each episode will be produced for approximately $1,100,000 per
episode, with the Company receiving 40% of the profits derived from the
exploitation of the series on worldwide television, home video and merchandising
rights to the series.

As of the date hereof, television and home video pre-sales of approximately
$15 million have been made with respect to "Total Recall" for the U.S.
(Polygram), all of Asia and the Middle East, and parts of Europe, Latin America
and Canada. Still remaining for licensing, among other areas, are most of the
European territories, and parts of Latin America. "Total Recall" has recently
been pre-sold to the U.S. pay television service, Showtime Network. The series
is scheduled to debut in July 1998 with domestic syndication to be handled by
PolyGram in 1999. As a result of the Showtime Network sale, the Company
anticipates that its U.S. revenues should be significantly higher for 1999
versus 1998.

The Company has entered into agreements with the Family Channel for the
development of two movies of the week. The first, "Quake" is a story about an
earthquake in New York City. The script for "Quake" has been approved and paid
for by the Family Channel, and is currently in production by Northquake
Productions, Inc., a special purpose production company established to produce
this project. The Company will receive an advance against its ownership interest
in the profit participation in this project, and an executive producing fee.
This movie of the week is scheduled to air on the Family Channel in August 1998.
The second movie of the week, "Down Fall" is about an avalanche at an exclusive
ski resort. The script for "Down Fall" which has already been written, was paid
for by the Family Channel. "Down Fall" is in the final stages of development and
the Company anticipates that it will commence preproduction on this project in
time to utilize some of the production staff from "Quake" as it concludes
production. The Company has advanced approximately $90,000 for the "Quake"
production, and expects to recoup a majority of these costs. No funds have been
advanced for the "Down Fall" production as of this date.

The acquisition of the one hour dramatic series "Water Rats", a high
suspense police action drama set in Sydney, Australia (52 episodes delivered for
the first and second season), and the one hour dramatic series "Cover Story",
which takes place on the set of a television entertainment magazine program (26
episodes delivered), both of which were acquired from the Australian production
company Southern Star, are examples of the Company's strategy to acquire
programming from third parties. The Company has the rights for distribution in
all Latin American countries, including Mexico and Puerto Rico, and has
cumulative sales of approximately $1.0 million for Mexican broadcast television
and pan-Latin American satellite broadcast television with the majority of
terrestrial broadcast rights remaining available for sale.

The Company has also recently acquired Latin American home video and
television distribution rights to 78 hours of dramatic series from Beyond
Distribution PTY Ltd., a leading Australian production company. Such acquisition
brings the total hours of dramatic programming licensed by the Company in Latin
America to 156.

Live Action and Animated Children's Programming. To take advantage of what
it believes is a significant television market for children's programming, the
Company intends to develop and produce inventive and original shows, including
both animated series and live-action series. The Company has commenced
pre-production of "LoCoMoTioN," a program which incorporates, songs, games and
exercise to stimulate both the bodies and the minds of preschool children, and
hopes to sell the show to domestic and international television markets in the
fall of 1998. If the show is successful, it is anticipated that it will provide
the Company with licensing and merchandising opportunities.

The Company continues to acquire programming on an ongoing basis. In
October 1996, the Company acquired certain additional foreign distribution
rights to three family movies from Feature Films for Families.
32
<PAGE> 33

In December 19, 1996, the Company acquired thirteen half-hour episodes for
international distribution of the series "Jelly Bean Jungle," a children's
series featuring live action and puppets.

Non-Fiction/Light Entertainment Programming. With the rapid expansion of
national cable and network programming outlets, consumer demand for non-fiction,
reality based "docudrama" programming has increased. Channels such as Fox,
United Paramount, the Warners' Brothers Network, TBS, The Discovery Channel, The
Learning Channel and Lifetime have found quality non-fiction programming to be a
mainstay of their programming portfolio. The Company intends to capitalize upon
the programming expertise developed by management prior to the formation of the
Company, including the work by Mr. Levin in the production and distribution of
"Future Quest," a 22 episode, half-hour PBS-TV series which explores technology,
science and pop culture, to develop innovative programming of this genre.
"Future Quest" is hosted by film actor Jeff Goldblum and presents, on a weekly
basis, a gallery of futurists, scientists and social commentators. The show was
underwritten with a corporate grant from AT&T Corp. Other programming previously
produced by Mr. Levin and previously distributed by the Company in this genre
includes "Hollywood Stuntmakers," "FX Masters," "Legends of Hollywood" and
"Mysterious Forces Beyond."

The Company has an extensive development slate of new series which are
currently being pre-sold in the international marketplace. Such new programs
include "Strange Universe," a 130 half-hour five day per week ("strip")
syndicated series which was produced in association with United/Chris-Craft
television stations and Rysher Entertainment. "Amazing Tails," a weekly series
of 22 half hours featuring people and their pets, was initially financed by a
presale for approximately $1,441,700 to Interpublic for domestic distribution
and broadcast. To date, the Company has also licensed "Amazing Tails" in Japan
for $300,000 and in the United Kingdom, France, Italy, Spain, Portugal and
Greece for an aggregate of $595,000. The Company has entered into an agreement
with Discovery Communications for a second season of 26 new episodes of "Amazing
Tails," which is currently completing production.

The Company has entered into a "first look" arrangement with Interpublic
pursuant to which the Company and Interpublic have agreed to fund, subject to
the conditions contained therein, a minimum of four non-fiction or light
entertainment pilots. Series which are developed from the pilots will be
co-financed by each entity, and Interpublic will use its best efforts to seek an
advertising sponsor for each series.

Current co-productions include "America's Scenic Railway Journeys," a six
hour documentary mini-series devoted to famous railway journeys. The Company has
co-produced this series with Oregon Public Television for the PBS Network and
has paid Oregon Public Television an advance for the international distribution
rights to the mini-series.

Syndicated Strip Shows. The Company is making a significant creative and
development effort to provide syndicated daily programming, especially talk
shows and reality series. The Company is currently developing a talk show
"strip" anticipated for the fall 1998 season entitled "Chrystal Rose." Ms. Rose
is a noted British talk show personality whose series was aired on the United
Kingdom's ITV Network. No assurance can be given that the Company will be able
to obtain sufficient station clearances to produce this show in the U.S. The
Company has also successfully licensed formats for such game shows as "Young
Matchmakers,"which has been successfully launched on Holland's RTL4 channel, and
is now being presented to domestic broadcasters.

"How To" and Instructional Programming. From gardening and style to cooking
and home repair, "how to" and instructional programming is an expanding market
in which the Company has strived to develop, produce, and distribute a variety
of programs which both entertain and educate. "Simply Style," a 60 episode
"strip" created by the Company for The Discovery Channel and hosted by fashion
expert Leah Feldon, is the first such series produced by the Company. Within the
"how to" genre, Mr. Levin previously produced "Laurie Cooks Light and Easy,"
which consists of 65 one-half hour episodes previously distributed by the
Company. Hosted by Laurie Burrows Grad, this daily strip presented simple
recipes prepared in a healthy manner. The show attracted celebrities such as
Jill St. John, Steve Sax, Dom Deluise, Wolfgang Puck, Michael Tucker and Jill
Eikenberry.

33
<PAGE> 34

DISTRIBUTION

An active part of the Company's business is the presentation of its own
product and product acquired from third-party producers to the international
marketplace. The Company's current library includes 335 half hours of reality
based series, mini-series and specials and 190 hours of dramatic series and film
programming. This includes drama and non-fiction programming as well as movies
of the week, and children's animation. With the rapid increase of networks and
channels, there is an expanding demand for top-quality programming. To access
these markets, the Company's distribution personnel attend such major
international trade shows as MIPCOM-TV, Monte Carlo Television Festival, MIP-TV
and NATPE.

In territories such as Latin America, the Company uses subdistributors such
as the Giniger Entities. The Company uses agents in such territories because it
believes that these agents typically have long-standing relationships in those
territories where the Company might have difficulty accessing purchasers or in
obtaining favorable prices from such purchasers.

The Company has also entered into an agreement with Australia's Southern
Star to distribute its successful drama series "Water Rats" in Latin America,
including Mexico and Puerto Rico, through the Giniger Entities.

In addition, the Company has an active "format" business overseas, where it
represents and "reformats" successful foreign shows for the domestic marketplace
and vice versa. The Company also currently represents several other custom
formats which are under consideration in numerous territories.

LICENSING, MERCHANDISING AND DIRECT MARKETING

The Company's strategic objectives encompass the exploitation of additional
revenue streams through licensing and merchandising efforts. The Company hopes
to generate new profit centers from toy, publishing, CD-ROM, housewares,
stationary, video, apparel, and other product category licenses. Although no
assurance can be given that this strategy can be successfully implemented, the
Company and Alliance, the co-producer of "Total Recall," have begun to focus on
the marketing and merchandising rights that are available with respect to the
"Total Recall" series.

The Company also intends to focus on certain types of instructional or "how
to" programming that can be translated into direct marketing opportunities. By
their design, aspects of each how to, or instructional program can be extended
into a continuity club, infomercial, and retail products. For example, should it
have sufficient financing, the Company intends to develop from the series
"Amazing Tails" a pet "fan" club, with commercial tie-ins with its sponsors.

POSSIBLE ACQUISITIONS; JOINT VENTURES

The Company believes that there are numerous opportunities to acquire other
production and distribution companies, as well as existing programming
libraries. The Company believes that these acquisitions, if successful, will
result in synergistic opportunities, and may increase the Company's revenue and
income growth. No specific acquisition candidates have been identified, and no
assurance can be given that any transactions will be effected, or if effected,
will be successful.

The Company is also committed to establishing joint ventures with strategic
partners in order to expand the Company's operations without significantly
increasing its costs. For example, the Company has completed a "first
negotiation" arrangement with Interpublic which would give Interpublic the first
opportunity to provide sponsorship, commercial underwriting, and financing of
the Company's children's and "how to" series.

COMPETITION

The entertainment industry is highly competitive. The Company competes
with, and will compete with, many organizations, including major film studios,
independent production companies, individual producers and others, including
networks, who are seeking the rights to attractive literary properties, the
services of creative and technical personnel, the financing for production of
film and television projects and favorable arrangements for the distribution of
completed films. Many of the Company's present and future competitors are
organizations of substantially larger size and capacity, with far greater
financial and personnel resources and longer operating history than the Company.
Moreover, the entertainment industry is currently evolving
34
<PAGE> 35

into an industry in which certain multinational, multi-media entities, including
Viacom/Paramount Pictures, The News Corporation/Twentieth Century Fox, The Walt
Disney Company/Cap Cities-ABC, Time Warner/Turner Broadcasting and
Westinghouse/CBS are anticipated to be in a position, by virtue of their control
over key film, magazine, and/or television content and their control of key
network and cable outlets, to dominate certain communications industries
activities. These competitors have numerous competitive advantages, including
the ability to acquire and attract superior properties, personnel, actors and/or
celebrity hosts and financing.

EMPLOYEES

The Company currently employs 12 full-time employees, six of whom are
members of senior management. From time to time, as projects go into production,
temporary employees are also employed by the Company.

PROPERTIES

The Company currently rents its office space at 12300 Wilshire Boulevard,
Los Angeles, California from an unaffiliated third party, pursuant to a 36 month
lease that commenced on May 15, 1995 which was recently extended for an
additional 12 months. The lease terminates on May 14, 1999. The Company rents
approximately 4,600 square feet at a monthly rate of $2.10 per square foot. Mr.
Levin has personally guaranteed the obligations under the lease. The Company
believes that its current offices are adequate for its requirements, and that
additional space, if required, is available throughout the Los Angeles area at
commercially reasonable rates.

LEGAL PROCEEDINGS AND OTHER MATTERS

In May 1997, the Company filed and served a complaint in a matter styled
Team Communications Group, Inc. vs. Michael Jacobs. This action is against a
former employee for, inter alia, unfair competition and breach of fiduciary
duty. Mr. Jacobs filed a complaint on the same day, styled Jacobs vs. Team
Communications Group, Inc. alleging breach of employment contract, fraud, and
also seeking an accounting. The Company intends to vigorously pursue its action,
and to defend itself in the counter-suit. The two actions have been consolidated
by the Court. In respect to the foregoing claim, the Company notes that the
claim is in the early phases of discovery and, accordingly, no reserves have
been taken. The Company's preliminary assessment of the merits of the claim,
even assuming that the allegations therein were to be determined against the
Company, is that this matter is not expected to have a material adverse impact
on the Company's results of operations or liquidity and capital resources.

In April 1998, the Company was served with a complaint in a matter styled
Program Power Entertainment, Inc. vs. Team Communications Group, Inc., filed in
Superior Court for the County of Los Angeles. In the complaint, the plaintiff, a
producer of four hours of programming (the "Programs") distributed
internationally by the Company, alleges, among other things, that the Company
failed to use its best efforts to maximize income from the distribution of the
Programs by licensing the Programs in conjunction with other producers'
programs, allocating revenues from such licenses among the producers to the
detriment of the plaintiff, and that the Company failed to properly account to
the plaintiff for such revenue. The complaint seeks an accounting and damages as
may be established at trial. The Company intends to file an answer and to
vigorously defend itself.

At this time the outcome of any of the above matters cannot be determined
by the Company with any certainty.

35
<PAGE> 36

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company, together with their
respective ages and positions with the Company, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Drew S. Levin 43 President, Chief Executive Officer and Chairman of the Board
Paul Yamamoto 44 Executive Vice President and Director
Eric Elias 43 Senior Vice President, Business and Legal Affairs
Michael Latiner 28 Senior Vice President, Finance and Secretary
Declan O'Brien 32 Vice President, Development
Robert Morhaim 40 Vice President, Development and Production
Bruce P. Vann 42 Nominated Director(1)(2)
Seth M. Willenson 50 Nominated Director(1)(2)
Michael Jay Solomon 60 Nominated Director(1)(2)
</TABLE>

- ---------------
(1) Proposed member of the Compensation Committee.

(2) Proposed member of the Audit Committee.

Drew S. Levin has been President and Chairman of the Board of the Company
since its formation in 1995. From 1987 through 1994, he was President of DSL
Productions, Inc. ("DSP"), a privately held company that was sold to The
Producer's Entertainment Group, Inc. ("TPEG") in 1994. Through February 1995, he
continued to act as president of DSP, which operated as a subsidiary of TPEG.
Mr. Levin has produced and co-produced hundreds of hours of programming,
including "Pop Culture Meets Pure Science," for which Mr. Levin received an Emmy
Award, "Laurie Cooks Light & Easy," "Future Quest" and "Simply Style." Mr. Levin
has extensive experience in international co-productions, including co-producing
a domestic and international version of "Top of the Pops" with the British
Broadcasting Company for the CBS television network.

Paul Yamamoto has been Executive Vice President since September 1996 and a
Director since December 1996. Mr. Yamamoto was a managing partner of the Favored
Artists Agency from 1989 through 1992. From 1992 through July 1995, Mr. Yamamoto
was self employed and ran his own management and production company. In August
1995, Mr. Yamamoto became the executive vice president of the Larry Thompson
Organization, where he served until September 1996. Mr. Yamamoto intends to
resign from the Board of Directors upon effectiveness of the Offering and the
reconstitution of the Board of Directors, as described herein.

Eric Elias has served in the capacity as Senior Vice President, Business
and Legal Affairs since the Company's formation in 1995. Mr. Elias has
previously served as corporate counsel and general manager for a retail and
wholesale leisure electronics firm and, for the past twelve years, has been in
general private practice of law, providing business and legal affairs services
for television production entities similar to the Company.

Michael Latiner has been Senior Vice President, Finance and Secretary since
August 1997. From 1991 to 1994 Mr. Latiner was with Deloitte & Touche LLP where
he was a member of the Audit Group. From 1994 to 1995 Mr. Latiner was with Price
Waterhouse LLP where he was a member of the Entertainment, Media, and
Communications Group. From 1995 to 1997 Mr. Latiner was with 20th Century Fox
where he served as the Manager of Financial Reporting.

Declan O'Brien has been Vice President, Development since April 13, 1998.
For the past 5 years, Mr. O'Brien has worked for several television and motion
picture companies located at The Walt Disney Company Studios. From 1996 to 1998,
Mr. O'Brien served as Director of Development at Goldenring Productions. Prior
to 1996, he was involved in production at Touchstone Pictures. Mr. O'Brien holds
a Bachelor of Arts degree from California State University, Pomona, where he was
graduated with honors.

36
<PAGE> 37

Robert Morhaim has been Vice President, Production since February 1997.
From 1991 until 1994, Mr. Morhaim was Director of Development at Arnold Shapiro
Productions in Los Angeles. From 1994 to February 1997, Mr. Morhaim produced the
one-hour syndicated series, "Sightings," for Paramount Domestic Television.

Bruce P. Vann, who has agreed to become a member of the Board of Directors
upon the conclusion of the Offering and the completion of certain other matters
(including the appointment of a Chief Financial Officer and the acquisition of
directors and officers insurance), is a 1980 graduate of Duke Law School. Mr.
Vann is an attorney who has been in private practice of law in Los Angeles for
over 16 years. From 1989 to 1994, Mr. Vann was a partner in the Los Angeles
office of Keck, Mahin & Cate. He is currently a partner in the firm of Kelly
Lytton Mintz & Vann LLP, counsel to the Company. Mr. Vann also serves as Senior
Vice President, Business and Legal Affairs of Largo Entertainment, Inc., a
subsidiary of The Victor Company of Japan. Mr. Vann is a member of the Board of
Directors of J2 Communications, a company listed on the Nasdaq SmallCap Market.

Seth Willenson, who has agreed to become a member of the Board of Directors
upon the conclusion of the Offering and the completion of certain other matters
(including the appointment of a Chief Financial Officer and the acquisition of
directors and officers insurance), has over 25 years experience in the
entertainment business. For the past seven years, he has been the President of
Seth Willenson, Inc., a marketing and management consulting firm in Los Angeles,
California. Mr. Willenson has produced nine films, including; "Jezebel's Kiss,"
"Delusion," "Gas, Food and Lodging," "Top Dog" and "Pocahontas: The Legend." He
has lectured extensively on the entertainment business, including speaking at
The Sundance Film Festival, the Sundance Producer's Workshop, the University of
California at Los Angeles, the University of Southern California and The Aspen
Institute. Mr. Willenson was graduated from Cornell University in 1968 and
attended the Annenburg School of Communications at the University of
Pennsylvania.

Michael Jay Solomon, who has agreed to become a member of the Board of
Directors upon the conclusion of the Offering and the completion of certain
other matters (including the appointment of a Chief Financial Officer and the
acquisition of directors and officers insurance), has over 41 years experience
in the entertainment business. In 1978, Mr. Solomon founded Telepictures Corp.,
serving as its Chairman of the Board and Chief Executive Officer. In 1985,
Telepictures Corp. merged with Lorimar Inc., with Mr. Solomon being appointed as
the combined companies' President. From 1989 to April 1994, Mr. Solomon was
President of Warner Bros. International Television, heading up that company's
sales and marketing to television, cable and satellite companies outside of the
United States. For the past four years, Mr. Solomon has been Chairman and Chief
Executive Officer of Solomon Broadcasting International, a television
communications company which he formed in April 1994. In 1997, Mr. Solomon
became the U.S. representative of Telefonica, Spain, in its new digital Pay TV,
Pay-Per-View and Basic Cable Television System -- Via Digital. Mr. Solomon
serves on the Boards of Directors of the International Council of the National
Academy of Television Arts and Sciences and the New York University Stern School
of Business.

Directors are elected for one year terms at the Company's annual meeting of
shareholders and serve until the due election and qualification of their
successors. Officers are appointed by the Board of Directors and serve at the
discretion of the Board of Directors.

Although the Company's directors do not receive any compensation for their
services as directors, it is anticipated that, following the Offering,
non-management directors will receive a fee for each Board of Directors meeting
attended, plus reimbursement for expenses. Additionally, certain non-management
members of the Board of Directors will receive mandatory stock option grants
pursuant to the Company's 1996 Directors Plan.

37
<PAGE> 38

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company for
the fiscal years ended December 31, 1995, 1996 and 1997 by the Company's Chief
Executive Officer and the Company's other executive officer whose salary and
bonus exceeded $100,000 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION
------------------------------ ---- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Drew S. Levin(5) 1997 $220,000 $145,000
Chairman of the Board, President 1996 $350,000 $ 45,000(2) (3) $15,000(4)
and Chief Executive Officer 1995 $350,000 $ -- $13,750(4)
Paul Yamamoto 1997 $164,397 $ 20,000
Executive Vice-President
</TABLE>

- ---------------
(1) Other than salary described herein, the Company did not pay the Named
Executive Officers any compensation, including incidental personal benefits
in excess of 10% of such individual Named Executive Officer's salary.

(2) For the fiscal year ended December 31, 1996, Mr. Levin was entitled,
pursuant to the terms of his prior agreement, to a bonus equal to certain
producer's fees relating to the series "Amazing Tails." During such period
Mr. Levin received $45,000 and, pursuant to the terms of his new employment
agreement (which will be effective upon the closing of the Offering), has
agreed to apply the balance of such accrued but unpaid bonus ($175,000) to
repay certain loans made to him by the Company. See "Certain Transactions."
This amount ($175,000) will be reflected in Mr. Levin's compensation for
fiscal 1998. In the future, Mr. Levin will not receive production bonuses.
The loan balance is $147,241 as of the date hereof. Such amount is net of
amounts owed to Mr. Levin for accrued producer fees and the bonus effective
April 1, 1998. See "Certain Transactions."

(3) Pursuant to the terms of Mr. Levin's restated employment agreement, Mr.
Levin will be granted options to acquire 85,000 shares of the Company's
Common Stock, exercisable at the Company's initial public offering price.
These options shall be deemed fully vested.

(4) Mr. Levin was entitled to receive a car allowance of $1,250 each month for
all or a portion of the year. In lieu of these payments, Mr. Levin applied
such amounts to reduce his loan balance.

(5) For the fiscal year ending December 31, 1998, the Company has granted Mr.
Levin a bonus, effective as of April 1, 1998, of $70,000 in respect of his
services for 1997. This amount is in addition to his agreed upon contractual
compensation.

EMPLOYMENT AGREEMENTS

Mr. Levin has entered into an employment agreement with the Company (the
"Levin Agreement") providing for his services to the Company as President and
Chief Executive Officer effective January 1, 1997 through December 31, 2001.
Pursuant to the Levin Agreement, Mr. Levin will receive a salary of $220,000,
plus $145,000 per annum as an advance against a pro-rata portion of producer's
fees earned by Mr. Levin. Producer's fees in excess of $145,000 will be retained
by the Company. Mr. Levin has agreed that any producer's fees relating to
Company produced programming shall be allocated to the Company. Pursuant to the
Levin Agreement, Mr. Levin will receive: (i) from 5% to 7.5% of the Company's
pre-tax profit beginning in 1997 pursuant to a formula based on specified
earnings levels (no such payments were made in 1997); and (ii) options to
acquire an aggregate of 85,000 shares of the Company's Common Stock at a per
share exercise price equal to the initial public offering price, which options
shall be deemed fully vested. The Levin Agreement also provides that certain
unpaid bonus compensation owing to Mr. Levin will be applied to his loan from
the Company. See "Certain Transactions."

Mr. Paul Yamamoto has entered into an employment agreement with the
Company, providing for his services as an Executive Vice President from January
20, 1997 to June 20, 1999, which agreement was

38
<PAGE> 39

amended as of October 4, 1997 (the "Yamamoto Agreement"). Pursuant to the
Yamamoto Agreement, Mr. Yamamoto's compensation is as follows: (i) from January
20, 1997 to June 30, 1997, such compensation was based on an annual rate of
$125,000, plus a performance bonus based on an annual rate of up to $25,000 to
be paid weekly; (ii) from July 1, 1997 to December 31, 1997, such compensation
was based on an annual rate of $125,000 plus a performance bonus at a rate of up
to $50,000 to be paid weekly; and (iii) from January 1, 1998 to June 20, 1999,
his base compensation will be at the annual rate of $200,000. This is in
addition to an additional bonus of 2 1/2% of the Company's pre-tax profits up to
$3,000,000 and then 4% thereafter pursuant to a formula based upon specified
earnings levels, payable annually at the end of each calendar year. Mr. Yamamoto
will also receive options to acquire 20,000 shares of Common Stock per year at
$1.00 per share, such options to vest over the course of his employment on terms
no less favorable than granted to other employees of the Company.

STOCK OPTION PLANS

On December 14, 1995, the Company's Board of Directors approved, and
recommended for adoption by the shareholders, who adopted such plans in March
1996, the 1995 Stock Option Plan and the 1995 Stock Option Plan for Non-Employee
Directors (collectively, the "1995 Plans"). As of the date hereof, 78,000
options were outstanding under the 1995 Plans. In January 1997, the Company's
shareholders voted to freeze the 1995 Plans and adopt two new plans, the Team
Communications Group, Inc. Stock Awards Plan (the "1996 Employee Plan") and the
Team Communications Group, Inc. Directors' Stock Option Plan (the "1996
Directors Plan," and together with the 1996 Employee Plan, (the "1996 Option
Plans").

The following summary is qualified in its entirety by reference to the full
text of the 1996 Option Plans. Unless otherwise indicated, the summary is
applicable to each plan, as well as to the 1995 Plans.

The 1996 Plans. The 1996 Option Plans provide for the granting of awards of
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options ("NSOs"), and stock appreciation rights ("SARs") (awards of ISOs, NSOs,
and SARs are sometimes hereinafter collectively referred to herein as "Awards").

Purpose. The purpose of the 1996 Option Plans is to provide key employees,
officers, and directors with an additional incentive to promote the success of
the Company's business and to encourage employees to remain in the employ of the
Company.

Administration-Employee Plan. The 1996 Employee Plan is to be administered
by a committee of two or more directors of the Company; provided however, that
if the Company becomes subject to Section 12 of the Exchange Act, such directors
shall be "non-employee directors" as such term is used in Rule 16b-3 and, if
feasible, such directors shall be "Outside Directors;" and provided further that
if there are not at least two such "non-employee directors," any grants or
awards hereunder to an individual subject to Section 16 of the Exchange Act
shall also be approved by the Board of Directors of the Company. "Outside
Director" shall have the meaning set forth in Treasury Regulation
sec. 1.162-27(e)(3) as amended from time to time and as interpreted by the
Internal Revenue Service.

1996 Directors Plan. Directors who are not employees of the Company will,
on the effective date of this offering and each annual anniversary thereof,
receive options to purchase 2,500 shares of Common Stock. The option price per
share of Common Stock purchasable upon exercise of such stock options shall be
100% of the fair market value on the date of grant. Such options shall be
exercisable immediately on the date of grant by payment in full of the purchase
price in cash. The aggregate number of shares of Common Stock that may be
granted pursuant to the 1996 Directors Plan is 20,000.

1996 Employee Stock Plan. The aggregate number of shares of Common Stock
that may be granted under the 1996 Employee Plan is 180,000. The Employee Plan
provides for the authority by the Employee Plan Committee to grant ISOs to any
key employee of the Company or any affiliate of the Company and to determine the
terms and conditions of each grant, including without limitation, the number of
shares subject to each ISO. The ISO exercise price will also be determined by
the Committee and will not be less than the fair market value of the Common
Stock on the date of grant. The exercise price will not be less than 110% of

39
<PAGE> 40

such fair market value and the exercise period will not exceed five years if the
participant was the holder of more than 10% of the Company's outstanding voting
securities.

The Manner of Exercise. The exercise price for options granted under the
1996 Option Plans may be paid in cash or shares of Common Stock, including
shares of Common Stock which the participants received upon the exercise of one
or more options provided that, with respect to ISOs, such shares have been held
by the participant for at least the greater of two years from the date the
option was granted or one year after the shares of Common Stock were transferred
to the participant.

The option exercise price may also be paid by the participant's delivery of
an election directing the Company to withhold shares of Common Stock from the
Common Stock otherwise due upon exercise of the option.

CERTAIN TRANSACTIONS

EMPLOYMENT AGREEMENT WITH DREW LEVIN; SHORT TERM BORROWINGS BY MR. LEVIN

See "Management -- Employment Agreements" for a description of the
arrangements between the Company and Mr. Levin relevant to his employment
agreement and the amendment thereof.

The Company had due from officer balances of $214,400, $195,500 and $11,300
at March 31, 1998, December 31, 1997 and December 31, 1996, respectively,
representing short-term interest free loans made by the Company to Mr. Levin,
less producer's fees earned for services on a Company production. At March 31,
1998, December 31, 1997 and December 31, 1996, the amount of such loans owed by
Mr. Levin to the Company (which also represents the highest amount borrowed
during such periods) was $214,400, $195,500 and $11,300, respectively. As of the
date hereof, the amount of such loans is $147,241. Such amount is net of amounts
owed to Mr. Levin for accrued producer fees and bonus effective April 1, 1998.
Mr. Levin was owed producer's fees in the aggregate amount of $175,000 at March
31, 1998, the year ended December 31, 1997 and the year ended December 31, 1996,
respectively. Any future borrowings by any officer of the Company will require
the approval of a majority of the disinterested members of the Board. There is
no interest being charged on the amount Mr. Levin owes the Company and there is
no interest accruing on the producer fees owed by the Company to Mr. Levin.

In connection with the Company's facilities, Mr. Levin has personally
guaranteed the obligations under the Company's lease. See
"Business -- Properties."

TRANSACTIONS WITH JOSEPH CAYRE

As of the date hereof, the Company was indebted to Joseph Cayre, one of its
original shareholders, in respect of loans made in April and August 1995 in the
amount of $500,000 and $240,000, respectively. Interest on these loans currently
accrues at the prime rate established by Republic National Bank, New York, New
York, plus 2% per year and 14% per year, respectively. Mr. Cayre has waived the
interest that accrued on these loans prior to December 31, 1996. This interest
expense, at fair value, was recorded as either a corresponding credit to paid in
capital (in fiscal 1996), or accrued liabilities (in fiscal 1997 and in fiscal
1995), which will be offset against paid in capital upon settlement of the
obligations. Mr. Cayre's loans are currently secured by Mr. Levin's shares and
all of the assets of the Company.

Mr. Cayre and Mr. Levin have agreed that as of the closing of the Offering,
Mr. Cayre will receive payment of $250,000 in respect of the amounts owed to
him, and the remaining debt, if the Offering is consummated on or before July
30, 1998, shall be extended until thirteen months from the closing date of the
Offering. Mr. Cayre also has the right to sell up to 30,000 shares of Common
Stock in the Underwriters' over-allotment option, if such option is exercised by
the Representative. Subject to the foregoing, Mr. Levin and Mr. Cayre have also
agreed, to restructure Mr. Cayre's investment in the Company. Mr. Cayre agreed
that upon the closing of the Offering, Mr. Cayre's interest in the Company would
be reduced to 214,874 shares of the Company's Common Stock by transferring to
Mr. Levin 195,774 shares of the Company's common stock held by Mr. Cayre. Mr.
Cayre will also enter into a consulting agreement with the Company pursuant to
which he will be paid $260,000 for his consulting services to the Company
through September 30, 1998. Payment to Mr. Cayre pursuant to the consulting
agreement shall be made upon the earlier to occur of the Company's initial
public offering or July 15, 1998. In February 1996, in connection with a prior
restructuring of this

40
<PAGE> 41

indebtedness, Mr. Cayre received options to purchase 48,743 shares of Common
Stock at a price of $.43 per share, which options are exercisable at the time of
the Company's initial public offering.

TRANSACTIONS WITH MORRIS WOLFSON AND OTHERS

In January 1996, the Company entered into a transaction with AMAE Ventures,
an affiliate of Mr. Wolfson, pursuant to which AMAE Ventures acquired 4% of the
Company's outstanding Common Stock and lent to the Company the sum of $322,000,
which amount was used by the Company for general overhead purposes and bears
interest at 12% per year. This note is due on the earlier to occur of July 15,
1998 or the closing of the Offering, and will be subject to certain
anti-dilutive provisions. Interest on this line accrues at 10% per year. The
holder of such note has the right to convert the principal amount into 3% of the
Company's Common Stock on a fully diluted basis through the completion of the
Offering, and has indicated that it intends to convert such note. An April 1996
loan by South Ferry #2 L.P., a Delaware limited partnership, in the principal
amount of $500,000 was used for the pre-production of "LoCoMoTioN." This loan
bears interest at 10% per year and is due on the earlier to occur of July 15,
1998 or upon the closing of the Offering. However, if one-half of the principal
under the note is paid by July 31, 1998, the remainder of the principal and all
interest under the loan will be extended until August 20, 1999. In connection
with such loan, South Ferry #2 L.P. received 29,905 warrants exercisable at $.43
per share upon the closing of the Offering and a 5% net profit participation
from the series. South Ferry #2, L.P. is an entity controlled by Mr. Wolfson's
brother and has an arms length relationship with the Company. Finally, the Chana
Sasha Foundation, an entity controlled by Mr. Wolfson, extended the Company a
$400,000 line of credit on a secured basis in November 1996, which credit line
has been used and subsequently repaid by funds from the Company's operations. In
addition the Company issued to Chana Sasha Foundation and others 6,408 shares of
the Company's Common Stock in consideration for such extension of credit.

The terms of AMAE Ventures' original agreement with the Company, as
indicated above, enables such entity (or its investors) to receive up to an
additional 199,748 shares of Common Stock upon the completion of the Offering.

The July 1996 proceeds from the sale of the notes in the Total Recall
Financing were used to acquire the rights to produce a television series based
on "Total Recall." These notes, which were secured by the Company's underlying
rights to the "Total Recall" series, bore interest at 10% per year. In addition,
the holders of these notes received an aggregate of 53,403 shares of common
stock, warrants to acquire 21,361 shares of Common Stock at an exercise price of
$.43 upon the closing of the Offering and a 15% net profit participation in the
Company's interest in the series. This loan was repaid through an advance from
Alliance.

TPEG AGREEMENTS

Beginning in early 1995, The Producer's Entertainment Group, Inc. ("TPEG")
and Mr. Levin entered into a series of agreements (the "TPEG Agreements") which
provided for, among other things: (i) for the formation of the Company and the
retention by TPEG of a 19.9% ownership interest in the Company; (ii) the grant
to the Company of distribution rights to certain product produced by DSP
Productions, Inc. ("DSP"), (DSP was sold by Mr. Levin and other shareholders to
TPEG in 1994); (iii) the assignment to the Company of certain of DSP's entire
new production and development distribution portfolio; and (iv) production
financing for the series "Simply Style." Certain disputes arose between Mr.
Levin and Mr. Cayre, on the one hand, and TPEG on the other hand, which resulted
in the execution of a settlement agreement (the "TPEG Settlement Agreement")
with TPEG pursuant to which TPEG was obligated to complete the transfer of
"Simply Style" to the Company. The Company also agreed to repurchase from TPEG,
for $178,000, a sufficient number of Company shares to reduce TPEG's holding in
the Company to 5%, on a fully diluted basis through the completion of the
Offering. On June 28, 1996, the Company's Board of Directors determined that, in
light of the Company's liquidity position at that time and its inability to
complete the TPEG Settlement Agreement pursuant to its terms, it was advisable
to assign the obligation to effectuate the TPEG Settlement Agreement to Mr.
Levin. Consequently, Mr. Levin and a group of investors repurchased the entire
holdings of TPEG in the Company.

41
<PAGE> 42

LOAN FROM AFFIDA BANK

In November 1996, the Company obtained a $300,000 loan from Affida Bank,
which loan carries interest at 8% per year, and matures upon the earlier of the
closing of the Offering or July 15, 1998. Affida Bank also received warrants to
acquire 25,634 shares of the Company's Common Stock at an exercise price of
$0.43 per share in connection with this loan, which warrants are exercisable
upon the closing of the Offering. The proceeds of this loan were used for
working capital. Affida Bank, domiciled in Switzerland, is a merchant bank and
has an arms length relationship with the Company.

TRANSACTIONS WITH BRUCE P. VANN

Mr. Vann, who has agreed to become a member of the Board of Directors upon
the consummation of the Offering and upon the completion of certain other
matters, including the appointment of a Chief Financial Officer and the
acquisition of directors and officers insurance, acquired in October of 1996
options to purchase 10,000 shares of Common Stock at a price of $1.00 per share,
plus 4,273 shares of Common Stock which he received in lieu of fees relating to
the acquisition of "Total Recall." Kelly Lytton Mintz & Vann LLP, where Mr. Vann
is a partner, is counsel to the Company, and has received fees from the Company
through December 31, 1996 of approximately $46,000, and has received
approximately $78,000 during the fiscal year ended December 31, 1997. As of July
28, 1998, the Company owes Kelly Lytton Mintz & Vann LLP approximately $250,000
in legal fees.

TRANSACTIONS WITH ERIC ELIAS

Mr. Elias, who serves as Senior Vice President, Business and Legal Affairs,
is paid through his private law firm. In 1997 Mr. Elias received approximately
$125,000, including expense reimbursements, for such legal services.

The Company believes that the foregoing transactions were on terms no less
favorable to the Company than those available from unaffiliated parties. It is
the Company's current policy that all transactions with officers, directors, 5%
shareholders and their affiliates will be entered into only if such transactions
are approved by a majority of the disinterested independent directors, and on
terms no less favorable to the Company than could be obtained from unaffiliated
parties and are reasonably expected to benefit the Company.

42
<PAGE> 43

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of June 1, 1998, as adjusted to reflect
the sale of the shares of Common Stock offered hereby and the conversion of the
Conversion Note, the ownership of the Common Stock by: (i) each person who is
known by the Company to own of record or beneficially more than 5% of the
outstanding Common Stock; (ii) each of the Company's directors; and (iii) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, the shareholders listed in the table have sole voting and investment
power with respect to the shares indicated.

<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED
NAME AND ADDRESS NUMBER ---------------------------------
OF BENEFICIAL OWNER(1) OF SHARES(2) BEFORE OFFERING AFTER OFFERING
---------------------- ------------ --------------- --------------
<S> <C> <C> <C>
Drew S. Levin(3).................................. 684,123 48.4 % 23.5 %
Joe Cayre(4)...................................... 263,617 19.1 % 9.2 %
Wolfson Family Limited Partnership(5)............. 131,283 9.9 % 4.6 %
Aaron Wolfson(6).................................. 108,642 8.1 % 3.8 %
Abraham Wolfson(7)................................ 102,233 7.7 % 3.6 %
Affida Bank(8).................................... 82,305 6.2 % 2.9 %
Bruce P. Vann(9).................................. 14,273 1.1 % *
Paul Yamamoto(10)................................. 20,000 1.5 % 1 %
All officers and directors as a group (six
persons, including nominee directors)........... 742,146 51 % 25 %
</TABLE>

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

* Less than 1%

(1) Address is c/o Team Communications Group, Inc., 12300 Wilshire Boulevard,
Suite 400, Los Angeles, California 90025.

(2) Gives effect to the anti-dilution provisions of the sale of 2.5% of the
Company's Common Stock from Mr. Drew Levin to Mr. Morris Wolfson, Mr.
Abraham Wolfson, Mr. Aaron Wolfson and Wedmore Corporation N.V. and the
conversion of the Conversion Note computed on a fully diluted basis.

(3) Includes 249,488 shares which Mr. Cayre has agreed to transfer to Mr. Levin
pursuant to Mr. Levin's arrangements with Mr. Cayre. Mr. Levin has pledged
his shares and his options to Mr. Cayre pursuant to Mr. Cayre's loan
transaction with the Company. Includes options to acquire 85,000 shares of
Common Stock which the Company has agreed to grant to Mr. Levin
concurrently with the execution of his new Employment Agreement. See
"Certain Transactions" and "Employment Agreements."

(4) Includes options, which are exercisable upon the closing of the Offering,
to purchase 48,743 shares of the Company's Common Stock at an exercise
price of $0.43 per share. Mr. Cayre has granted the Underwriters a 45-day
option to purchase up to 30,000 additional shares to cover over-allotments,
if any. If the Underwriters' over-allotment option is exercised in full,
Mr. Cayre will own 7.6% of the outstanding shares of Common Stock of the
Company after the Offering.

(5) Includes 59,966 shares to be issued upon conversion of certain convertible
debt upon the closing of the Offering. Does not include 210,875 shares
owned by Abraham and Aaron Wolfson, Mr. Morris Wolfson's brothers, of which
Morris Wolfson disclaims beneficial ownership. Includes 20,506 shares owned
by Chana Sasha Foundation, of which Mr. Wolfson is the President.

(6) Includes 59,966 shares to be issued upon conversion of certain convertible
debt upon the closing of the Offering. Does not include 213,010 shares
owned by Morris or Abraham Wolfson, Aaron Wolfson's brothers, of which
Aaron Wolfson disclaims beneficial ownership.

(7) Includes 59,966 shares to be issued upon conversion of certain convertible
debt upon the closing of the Offering. Does not include 219,419 shares
owned by Morris or Aaron Wolfson, Abraham Wolfson's brothers, of which
Abraham Wolfson disclaims beneficial ownership.

(8) Includes options to purchase 3,268 shares of Common Stock at an exercise
price of $0.43 per share, which are exercisable upon the closing of the
Offering.

(9) Includes options to purchase 10,000 shares of Common Stock at an exercise
price of $1.00 per share, which are exercisable upon the closing of the
Offering.

(10) Includes options to purchase 20,000 shares of Common Stock at an exercise
price of $1.00 per share, which are exercisable upon the closing of the
Offering.

43
<PAGE> 44

OFFERING BY SELLING SECURITYHOLDERS
AND CONVERTING PROMISSORY NOTE HOLDER

An additional 795,026 outstanding shares (the "Securityholder Shares") of
Common Stock issuable upon exercise of warrants and the conversion of a
promissory note held by the Selling Securityholders have been registered
pursuant to the registration statement under the Securities Act, of which this
Prospectus forms a part, for sale by such holders. The convertible promissory
note holder is entitled to convert the note into 7% of the Company's outstanding
Common Stock on a fully diluted basis through the date of the Company's initial
public offering. The Securityholder Shares may be sold subsequent to the
effective date of the Offering if a current prospectus relating to the
Securityholder Shares is in effect and the Securityholder Shares are qualified
for sale. None of the shares being registered by the Selling Securityholders
pursuant to this registration statement are being offered for sale in connection
with the Offering. The shares of Common Stock underlying any such warrants and
the convertible note are subject to a 12 month lock-up beginning on the date of
this Prospectus. The Company will not receive any proceeds from the market sales
of the Securityholder Shares, although it will receive the proceeds from the
exercise of the warrants held by the Selling Securityholders. The Company is
paying all costs and expenses of registering the Securityholder Shares. Sales of
the Securityholder Shares or the potential of such sales could have an adverse
effect on the market price of the Company's Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale."

The Selling Securityholders and the number of Securityholder Shares held by
each are as listed below.

<TABLE>
<CAPTION>
SECURITYHOLDER
SELLING SECURITYHOLDERS SHARES
----------------------- --------------
<S> <C>
Alan Parnes................................................. 5,000
Arab International Trust Co................................. 10,000
Duck Partners, LP........................................... 20,000
Gary & Paula Wayton......................................... 10,000
Michael Rosenbaum........................................... 20,000
RMK Financial LLC........................................... 15,000
Robert Bain................................................. 20,000
Robert Frankel.............................................. 7,470
Roger Triemstra............................................. 10,000
Roland McAbee............................................... 6,400
Swan Alley (Nominees) Limited............................... 20,000
Van Moer Santerre & Cie..................................... 50,000
Mathew & Barbara Geisser.................................... 3,204
Central Scale Co............................................ 9,613
Vijaya Rani Rekhala/Vijay-Kumar Rekhala, M.D................ 6,408
United Congregation Mesorah................................. 6,408
Samuel F. Marinelli......................................... 3,204
Mildred J. Geiss............................................ 3,204
Jon G. Kastnendieck......................................... 6,408
Cooperative Holding Corporation............................. 12,817
Aaron Wolfson............................................... 72,783
Abraham Wolfson............................................. 66,374
Arielle Wolfson............................................. 6,408
Eli Levitin................................................. 19,850
Morris Wolfson Family Limited Partnership................... 59,966
Levpol...................................................... 6,408
Wellington Corporation, N.V................................. 4,272
Crescent Capital Company, LLC............................... 8,544
Arthur Steinberg IRA Rollover............................... 2,136
</TABLE>

44
<PAGE> 45

<TABLE>
<CAPTION>
SECURITYHOLDER
SELLING SECURITYHOLDERS SHARES
----------------------- --------------
<S> <C>
Robert Steinberg IRA Rollover............................... 2,136
Robert Sam Steinberg -- A Partnership....................... 2,136
Von Graffenried AG.......................................... 4,272
Third World Trust Company LTD............................... 4,272
Alpha Ventures.............................................. 8,544
Tuch Family Trust........................................... 2,136
Alfred Ross................................................. 4,272
Fred Chanowski.............................................. 2,136
Allen Goodman............................................... 4,272
Felix D. Paige.............................................. 8,544
Andrew G. Rogal............................................. 4,272
Mark J. Levine.............................................. 2,136
Joseph Sullivan............................................. 4,272
Robert Gopen................................................ 2,136
Colony Financial Services................................... 2,136
John Carberry............................................... 2,136
Daniel & Thalia Federbush................................... 4,272
Michael S. Berlin, M.D...................................... 4,272
Phillip Tewel............................................... 29,191
Joe Cayre................................................... 48,743
South Ferry #2.............................................. 29,906
ACA Equities................................................ 4,700
D&M Investment Corp......................................... 8,545
Gilbert Karsenty............................................ 1,709
Chana Sasha................................................. 6,408
Affida Bank................................................. 60,950
Bill Nesmith................................................ 681
Mike Sposato................................................ 681
Bob Dorfman................................................. 2,349
Bristol Capital............................................. 20,934
Venture Management Consultants, LLC......................... 20,000
-------
Total............................................. 795,026
=======
</TABLE>

There are no other material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed within the past three years. The Company has been informed by the
Representative that there are no agreements between the Representative and any
Selling Securityholder regarding the distribution of any Securityholder Shares.

The sale of the Securityholder Shares by the Selling Securityholders may be
effected from time to time in transactions (which may include block transactions
by or for the account of the Selling Securityholders) in the over-the-counter
market or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.

Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the Nasdaq
SmallCap Market in negotiated transactions or otherwise. Such broker-dealers, if
any, may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers from whom

45
<PAGE> 46

such broker-dealer may act as agents or to whom they may sell as principals or
otherwise (which compensation as to a particular broker-dealer may exceed
customary commissions).

At the time a particular offer of Securityholder Shares is made by or on
behalf of a Selling Securityholder, to the extent required, a prospectus will be
distributed which will set forth the number of Securityholder Shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for any Securityholder Shares purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.

If any of the following events occurs, this Prospectus will be amended to
include additional disclosure before offers and sales of the Securityholder
Shares are made: (i) to the extent such securities are sold at a fixed price or
by option at a price other than the prevailing market price, such price would be
set forth in this Prospectus; (ii) if the securities are sold in block
transactions and the purchaser wishes to resell, such arrangements would be
described in this Prospectus; and (iii) if the compensation paid to
broker-dealers is other than usual and customary discounts, concessions or
commissions, disclosure of the terms of the transaction would be included in
this Prospectus. This Prospectus would also disclose if there are other changes
to the stated plan of distribution, including arrangements that either
individually or as a group would constitute an orchestrated distribution of the
Securityholder Shares.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of Securityholder Shares may not simultaneously
engage in market making activities with respect to any securities of the Company
for a period of at least two (and up to nine) business days prior to the
commencement of such distribution. Accordingly, in the event that the
Representative is engaged in a distribution of the Securityholder Shares, it
will not be able to make a market in the Company's securities during the
applicable restrictive period. However, the Representative has not agreed to nor
is it obligated to act as broker-dealer in the sale of the Securityholder Shares
and the Selling Securityholders may be required, and in the event that the
Representative is a market maker, will likely be required, to sell such
securities through another broker-dealer. In addition, each Selling
Securityholder desiring to sell Securityholder Shares will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Regulation M, which provisions may
limit the timing of the purchases and sales of shares of the Company's
securities by such Selling Securityholders.

The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities may be deemed underwriting
discounts and commissions under the Securities Act.

DESCRIPTION OF SECURITIES

COMMON STOCK

The Company is authorized to issue up to 18,000,000 shares of Common Stock,
no par value. Holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders. There is
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably, dividends when, as and
if declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution, or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
shares of Common Stock are validly authorized and issued, fully paid, and
nonassessable.

46
<PAGE> 47

PREFERRED STOCK

The Company is authorized to issue up to 2,000,000 shares of Preferred
Stock. The Preferred Stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the Board of Directors,
without further action by shareholders and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights and sinking fund
provisions. The Company has no present plans for the issuance of shares of
Preferred Stock and any issuance of such Preferred Stock for a period of
thirteen months from the date of this Prospectus will require the consent of the
Representative prior to such issuance. The issuance of any Preferred Stock could
adversely affect the rights of the holders of Common Stock and therefore, reduce
the value of the Common Stock. The ability of the Board of Directors to issue
Preferred Stock could also discourage, delay or prevent a takeover of the
Company. See "Risk Factors -- Preferred Stock; Possible Anti-Takeover Effects of
Certain Charter Provisions."

WARRANTS

In connection with the issuance of its prior secured notes, the Company
issued an aggregate of 447,354 warrants, each warrant entitling the holder
thereof to acquire one share of Common Stock; 224,293 warrants are exercisable
at an exercise price equal to $0.43 per share, 29,191 warrants are exercisable
at an exercise price equal to $0.97 per share and 193,870 warrants are
exercisable at $0.97 per share, subject to adjustment as hereinafter provided.
The warrants may be exercised, at the option of the holder thereof, at any time
from the date of this Prospectus and terminating on the earlier to occur of the
third anniversary of the effective date of the Offering or June 30, 2000,
whichever is earlier (the "Termination Date"). Unless previously exercised, the
right to exercise the warrants will terminate on the Termination Date.

The Company has also issued 147,924 warrants to other consultants and
investors in connection with prior financings of the Company. Of these warrants,
21,362 are exercisable at $1.07 per share and 126,562 are exercisable at $0.43
per share, all of which are exercisable upon the closing of the Offering.

The warrantholders have the opportunity to profit from a rise in the market
price of the Common Stock without assuming the risk of ownership of the shares
of Common Stock issuable upon the exercise of the warrants, with a resulting
dilution in the interests of the Company's shareholders by reason of exercise of
warrants at a time when the exercise price is less than the market price for the
Common Stock. Further, the terms on which the Company could obtain additional
capital during the life of the warrants may be adversely affected. The warrant
holders may be expected to exercise their warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital by an offering of
Common Stock on terms more favorable than those provided for by the warrants.

The holders of the warrants will not have any of the rights or privileges
of shareholders of the Company, including voting rights and rights to receive
dividends, prior to exercise of the warrants. The Company will reserve out of
its authorized but unissued shares a sufficient number of shares of Common Stock
for issuance on exercise of the warrants. The Common Stock issuable on exercise
of the warrants will be, when issued, duly authorized and validly issued, fully
paid, and nonassessable.

For a holder to exercise the warrants, there must be a current registration
statement in effect with the Commission and registration or qualification with,
or approval from, various state securities agencies with respect to the shares
or other securities underlying the warrants, or an opinion of counsel for the
Company that there is an exemption from registration or qualification.

Antidilution. In the event that the Company shall at any time: (i) declare
a dividend, or make a distribution, on the outstanding Common Stock payable in
shares of its capital stock; (ii) subdivide the outstanding Common Stock into a
greater number of shares of Common Stock; (iii) combine the outstanding Common
Stock into a smaller number of shares; or (iv) issue any shares of its capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then, in each case, the exercise price
per warrant share in effect at the time of the record date for the determination
of shareholders entitled to receive such dividend or

47
<PAGE> 48

distribution or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying such exercise price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action, and the denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action. Upon such adjustments to
the exercise price, the number of warrant shares issuable upon exercise of each
warrant shall simultaneously be adjusted by multiplying the number of warrant
shares theretofore issuable upon exercise of such warrant by the exercise price
theretofore in effect and dividing the product so obtained by the exercise
price, as adjusted.

Reorganizations. In the event of any reclassification, capital
reorganization or other similar change of outstanding Common Stock, any
consolidation or merger involving the Company (other than a consolidation or
merger which does not result in any reclassification, capital reorganization, or
other similar change in the outstanding Common Stock), or a sale or conveyance
to another corporation of the property of the Company as, or substantially as,
an entirety, each warrant will thereupon become exercisable only for the kind
and number of shares of stock or other securities, assets or cash to which a
holder of the number of shares of Common Stock issuable (at the time of such
reclassification, reorganization, consolidation, merger or sale) upon exercise
of such warrant would have been entitled upon such reclassification,
reorganization, consolidation, merger or sale. In the case above, the effect of
these provisions would be that the holder of a warrant would thereafter be
limited to exercising such warrant at the exercise price in effect at such time
for the amount of cash per share that a warrant holder would have received had
such holder exercised such warrant and received Common Stock immediately prior
to the effective date of such cash merger or transaction. Depending upon the
terms of such cash merger or transaction, the aggregate amount of cash so
received could be more or less than the exercise price of the warrant.

Exercise Procedure. Each holder of a warrant may exercise such warrant by
surrendering the certificate evidencing such warrant, with the subscription form
on the reverse side of such certificate properly completed and executed,
together with payment of the exercise price, to the Company at its executive
offices. Such offices will initially be located at 12300 Wilshire Blvd., Los
Angeles, California 90025. The exercise price will be payable by cash or by
certified or official bank check payable in U.S. Dollars to the order of the
Company. If fewer than all of the warrants evidenced by a warrant certificate
are exercised, a new certificate will be issued for the remaining number of
warrants. Certificates evidencing the warrants may be exchanged for new
certificates of different denominations by presenting the warrant certificates
at the office of the Company.

REPRESENTATIVES' WARRANT

At the closing of the Offering, the Company will issue to the
Representative the Representative's Warrant to purchase for investment a maximum
of 150,000 shares of Common Stock. The Representative's Warrant will be
exercisable for a four-year period commencing one year from the date of this
Prospectus. The exercise price of the Representative's Warrant will be $7.425
per share (that being 135% of the initial public offering price per share). The
Representative's Warrant will not be saleable, transferable, assignable or
hypothecatable prior to its exercise date except to officers of the
Representative and members of the selling group and officers and partners
thereof. The Representative's Warrant will contain anti-dilution provisions. The
Representative's Warrant does not entitle the Representative to any rights as a
shareholder of the Company until such warrant is exercised and shares are
purchased thereunder. The Representative's Warrant and the shares of Common
Stock thereunder may not be offered for sale except in compliance with the
applicable provisions of the Securities Act. The Company has agreed that, if it
shall cause to be filed with the Securities and Exchange Commission either an
amendment to the Registration Statement of which this Prospectus is part or a
separate registration statement (other than a Form S-8, S-4 or comparable
registration statement), the Representative shall have the right during the
seven-year period commencing on the date of this Prospectus to include in such
amendment or Registration Statement the shares of Common Stock issuable upon
exercise of the Representative's Warrant at no expense to the Representative.
Additionally, the Company has agreed that for a period of 5 years from the
closing of the Offering, upon written demand by a holder or holders of a
majority of the Representative's Warrant, the Company will, on one occasion,
register the shares of Common Stock issuable upon exercise of the
Representative's Warrant at the expense of the

48
<PAGE> 49

Company. In addition, the Company has agreed, that during the same 5 year
period, upon the written demand of any holder of the Representative's Warrant,
to promptly register the shares of Common Stock underlying such holder's warrant
at the expense of such holder.

BRIDGE NOTES

To finance its working capital needs, the Company has issued a series of
bridge notes. In February 1997, the Company commenced the placement of Units
consisting off $50,000 principal amount of 10% Convertible Notes (the "February
1997 Notes") and 10,000 common stock purchase warrants. The Company sold an
aggregate of $969,350 principal amount of the February 1997 Notes. The principal
amount of, and interest on, the February 1997 Notes shall be due and payable on
the earlier to occur of (i) five business days after the completion of either an
initial public offering of the Company's Common Stock (the "Initial Public
Offering"), or (ii) the public or private placement of debt or equity securities
with gross proceeds to the Company in excess of $5,000,000 (together with an
Initial Public Offering, a "Financing Event") or the second anniversary of the
Closing Date (as defined therein). The February 1997 Notes are convertible into
shares of Common Stock (the "Conversion Shares") of the Company during the
period commencing 60 days after the Closing Date and continuing through the
effective date of the initial public offering, at which time any February 1997
Notes not so converted will be repaid. The conversion price (the "Conversion
Price") is $5.00 per share, subject to an adjustment in certain events.
Substantially all of the holders of these notes have waived their right to so
convert.

In June 1996 the Company commenced the placement of Units consisting of
$50,000 principal amount of 10% Secured Convertible Notes (the "June 1996
Notes") and 10,000 Common Stock purchase warrants. The Company sold an aggregate
of $975,000 principal amount of the June 1996 Notes. The principal amount of,
and interest on, the June 1996 Notes shall be due and payable, if the holders
thereof do not otherwise notify the Company that they wish to redeem their
conversion feature, on the completion of the Offering. The June 1996 Notes are
secured by substantially all of the assets of the Company. To the extent not
otherwise repaid, the June 1996 Notes are convertible into shares of Common
Stock of the Company, beginning 12 months after the completion of an initial
public offering, at a conversion price of $2.50 per share, subject to an
adjustment in certain events. Substantially all the holders of these notes will
waive, prior to the effective date of the Offering, their right to so convert.

In February 1996, the Company commenced the placement of Units consisting
of $50,000 principal amount of 12% Secured Notes (the "February 1996 Notes") and
10,000 Common Stock purchase warrants. The Company sold an aggregate of $900,000
principal amount of the February 1996 Notes. The principal amount of, and
interest on, the February 1996 Notes shall be due and payable on the second
anniversary of the initial closing date thereof, and were secured by
substantially all of the assets of the Company. These notes were not
convertible.

In December 1997, the Company obtained a loan in the amount of $315,000
from Venture Management Consultants, LLC ("VMC"), affiliates of shareholders of
the Company, which accrues interest at 12% per year, and matures upon the
earlier of the closing of the Offering or July 15, 1998. As the loan was not
repaid by February 15, 1998, the Company is required to pay VMC an additional
fee of $15,000. Included in the principal to be repaid is a $15,000 loan
origination fee. As of the date hereof, $150,000 of principal has been repaid on
this Note.

49
<PAGE> 50

the $235,000 and $642,000 loans at the closing of the Offering. The Company
currently does not intend to repay any other amounts owing in respect of the
Interim Financing at the conclusion of the Offering. Rather, the Company intends
to negotiate with the Interim Financing noteholders terms pursuant to which the
Interim Financing will be replaced or exchanged for permanent subordinated debt.
No such arrangements have been negotiated. If such negotiations are
unsuccessful, the Company will pay all such indebtedness at their respective
maturities.

In May, June and July 1998, the Company arranged for long term loans from
10 parties of an aggregate of $715,000 for specific production financing. These
loans mature as follows: (i) $375,000 on January 10, 2000; and (ii) $340,000 on
August 1, 1999. The $375,000 loans accrue interest as 12% per year and the
$340,000 loan accrues interest at 16% per year. Of the $375,000, there are two
loan origination fees, one for $8,000 and one for $8,500. If any payments under
the $340,000 loan are not paid within three days of being due, a late fee of 8%
of the delinquent amount will be assessed for each month the payment is
delinquent. In addition, if the loan is in default, at the lender's option, the
unpaid principal and accrued interest shall thereafter bear interest at the
lessor of 25% per year or the maximum legal rate. The loan may be prepaid,
however, in order to prepay the loan, the Company will have to pay the lender
the lesser of all of the interest which would have accrued through the maturity
of the loan or $42,000.

TRANSFER AGENT

The transfer agent for the Company's Common Stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, Glendale, California 91204, telephone number
(818) 502-1404, which also is responsible for record keeping functions in
connection with the same.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Common Stock
of the Company. Sales of substantial amounts of Common Stock of the Company in
the public market or the perception that such sales could occur could materially
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.

Upon completion of the Offering, the Company will have outstanding
approximately 2,831,092 shares of Common Stock. Of these shares, 1,331,092 are
Restricted Shares. The 1,500,000 shares of Common Stock that are sold by the
Company to the public in the Offering will be freely tradeable without
restriction under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act.

The remaining shares of Common Stock outstanding upon completion of the
Offering, determined as if all outstanding warrants have been exercised, will be
held by approximately 60 holders and will be "restricted securities" as that
term is defined in Rule 144 as promulgated under the Securities Act ("Restricted
Stock"). Restricted Stock may be sold in the public market only if registered or
if qualified for an exemption from registration under Rule 144 or Rule 701 as
promulgated under the Securities Act, which rules are summarized below, or
pursuant to another exemption from registration. Sales of the Restricted Stock
in the public market, or the availability of such shares for sale, could
materially adversely affect the market price of the Common Stock. In general,
under Rule 144, beginning 90 days after the date of this Prospectus, a person
(or persons whose shares are aggregated) who has beneficially owned Restricted
Stock for at least one year (including the holding period of any prior owner
other than an affiliate of the Company) would be entitled to sell within any

50
<PAGE> 51

three month period a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of notice of such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years (including the holding period
of any prior owner except an affiliate of the Company) is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Unless otherwise restricted, such
shares of Restricted Stock may therefore be sold immediately upon the completion
of the Offering.

Any employee, officer or director of or consultant to the Company who
purchased his or her shares of Common Stock pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates of the Company to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144, as
described above. Rule 701 further provides that nonaffiliated shareholders may
sell such shares in reliance on Rule 144 without having to comply with the
public information, volume limitation or notice provisions of Rule 144. In both
cases, a holder of Rule 701 shares is required to wait until 90 days after the
date of this Prospectus before selling such shares.

The holders of substantially all of the Company's capital stock have
entered, or are anticipated to enter, into contractual "lock-up" agreements
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of the shares of stock owned by them or that
could be purchased by them through the exercise of options to purchase stock of
the Company for 13 months as to the Restricted Shares and 12 months as to the
Warrant Shares after the date of this Prospectus without the prior written
consent of the Representative.

Taking into account the lock-up agreements and the restrictions of Rule 144
and Rule 701 described above, no Restricted Shares or Warrant Shares will be
eligible for sale immediately after the Offering and approximately all
Restricted Shares will be eligible for sale beginning 13 months after the date
of this Prospectus, subject, in some cases, to the volume restrictions of Rule
144.

The Company has agreed that for a period of 13 months from the date of this
Prospectus, it will not sell any securities, with the exception of the shares of
Common Stock issued upon exercise of currently outstanding options, without the
Representative's prior written consent, which consent shall not be unreasonably
withheld.

The Company intends to file a registration statement on Form S-8 under the
Securities Act covering shares of Common Stock reserved for issuance under the
1995 Plans and the 1996 Option Plans. Based on the number of shares reserved for
issuance under such plans, such registration statement would cover approximately
337,500 shares. Such registration statement will automatically become effective
upon filing. Accordingly, shares registered under such registration statement
will, subject to Rule 144 volume limitations applicable to affiliates of the
Company, be available for sale in the open market, subject to vesting
restrictions and the lock-up agreements described above.

51
<PAGE> 52

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation ("NSC") is acting as representative (in such capacity,
the "Representative"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement (the "Underwriting Agreement"), to
purchase from the Company and the Company has agreed to sell to the Underwriters
on a firm commitment basis, the respective number of shares of Common Stock set
forth opposite their names:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
National Securities Corporation.............. 820,000
M.H. Meyerson & Co., Inc. ................... 400,000
Joseph Charles & Assoc., Inc. ............... 100,000
Frederick & Company, Inc. ................... 100,000
WestAmerica Investment Company............... 80,000
---------
Total.............................. 1,500,000
=========
</TABLE>

The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares of Common Stock are purchased.

The Company has been advised by the Representative that the Underwriters
propose to offer the Common Stock to the public at the initial public offering
price of $5.50 per share, as set forth on the cover page of this Prospectus and
to certain dealers at such price less concessions not in excess of $0.275 per
share of Common Stock. Such dealers may reallow a concession not in excess of
$0.10 per share of Common Stock to certain other dealers who are members of the
National Association of Securities Dealers, Inc. After the completion of the
Offering, the public offering price, concession and reallowance may be changed.

The Representative has informed the Company that it does not intend to
confirm sales to any account over which it exercises discretionary authority.

The Company has agreed to enter into a one year consulting agreement with
NSC, pursuant to which NSC will act as financial consultant to the Company,
commencing upon the closing date of this Offering. Under the terms of this
agreement, NSC, to the extent reasonably required in the conduct of the business
of the Company and at the prior written request of the President of the Company,
has agreed to evaluate the Company's managerial and financial requirements,
assist in the preparation of budgets and business plans, advise with regard to
sales planning and sales activities, and assist in financial arrangements. NSC
will make available qualified personnel for this purpose. The non-refundable
consulting fee of $6,000 per month for 12 months will be payable, in full, on
the closing date of the Offering.

For a period of 5 years from the closing of the Offering, NSC shall have
the right to select a person to act as an observer to attend all meetings of the
Company's Board of Directors. Such person shall receive all notices and other
correspondence and communications sent by the Company to members of the Board of
Directors, but shall not be entitled to vote at meetings of the Board of
Directors. The Company has agreed to reimburse such observer for all
out-of-pocket expenses incurred in connection with such observer's attendance at
the meetings of the Company's Board of Directors.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that Underwriters may be required to make. The Company has also agreed
to pay to the Representative a non-accountable expense allowance equal to 2% of
the gross proceeds derived from the sale of the Common Stock being underwritten
hereby, of which $10,000 has been paid to date.

The Company has granted to the Underwriters an over-allotment option (the
"Underwriters' over-allotment option"), exercisable during the 45-day period
from the date of this Prospectus, to purchase from the Company up to an
additional 225,000 shares of Common Stock (that being 15% of the total number of
shares of Common Stock being offered to the public hereby) at the initial public
offering price per share, less

52
<PAGE> 53

underwriting discounts. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the sale of the Common Stock
offered hereby. The Underwriters have agreed, if such over-allotment option is
exercised, to purchase, on a pro rata basis, the first 30,000 shares subject to
the Underwriters' over-allotment option from Joe Cayre, an existing shareholder
of the Company. To the extent the Underwriters' over-allotment option is
exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of the additional shares
of Common Stock proportionate to its initial commitment.

In connection with the Offering, the Company has agreed to sell to the
Representative, for $.0001 per warrant, warrants to purchase from the Company up
to 150,000 shares of Common Stock (the "Representative's Warrant"). The
Representative's Warrant is initially exercisable at a price of $7.425 per share
(that being 135% of the initial public offering price per share of Common Stock)
for a period of four years, commencing one year after the date of this
Prospectus and the Representative's Warrant is restricted from being sold,
transferred, assigned or hypothecated for a period of 12 months from the date of
this Prospectus, except to officers of the Representative. The Representative's
Warrant provides for adjustment in the number of securities issuable upon the
exercise thereof as a result of certain subdivisions and combinations of the
Common Stock. The Representative's Warrant grants to the holders thereof certain
rights of registration for the securities issuable upon exercise thereof.

For the period during which the Representative's Warrant is exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other shareholders of the Company. The holder(s) of the Representative's
Warrant can be expected to exercise the warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital from an offering
of its unissued Common Stock on terms more favorable to the Company than those
provided for in the Representative's Warrant. Such facts may materially
adversely affect the terms on which the Company can obtain additional financing.

The Company's directors, executive officers and shareholders have agreed
not to offer, sell, or otherwise dispose of any shares of Common Stock for a
period of 13 months following the date of this Prospectus without the prior
written consent of the Representative. An appropriate legend shall be placed on
the certificates of such persons representing such securities. The holders of
the Warrant Shares have also agreed not to offer, sell, or otherwise dispose of
any shares of the Common Stock underlying the Warrant Shares for a period of 12
months following the date of this Prospectus. While the provisions of these
lockup agreements may be waived by the Representative, the Representative has no
present intention to release any of the shares subject to these lockup
agreements during the lockup periods.

In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M as promulgated under the Securities Act, pursuant
to which such persons may bid for or purchase the Common Stock for the purpose
of stabilizing its market price. The Underwriters also may create a short
position for the account of the Underwriters by selling more Common Stock in
connection with the Offering than they are committed to purchase from the
Company, and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
225,000 Shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, the Representative may impose "penalty
bids" under contractual arrangements with the Underwriters whereby it may
reclaim from an Underwriter (or dealer participating in the Offering) for the
account of other Underwriters, the selling concession with respect to the Common
Stock that are distributed in the Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the prices of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if any such transactions are undertaken, they may be discontinued at any time.

53
<PAGE> 54

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock has
been determined by negotiation between the Company and the Representative and
does not necessarily bear any relationship to the Company's asset value, net
worth or other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital
structure, the market for initial public offerings and certain other factors as
were deemed relevant.

The foregoing is a summary of the principal terms of the agreement
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration Statement
of which this Prospectus is a part. For a more complete description thereof, see
"Additional Information."

LEGAL MATTERS

Certain legal matters in connection with the validity of the shares of
Common Stock being offered hereby will be passed upon for the Company by Kelly
Lytton Mintz & Vann LLP, 1900 Avenue of the Stars, Suite 1450, Los Angeles,
California 90067. Bruce P. Vann, a member of Kelly Lytton Mintz & Vann LLP, is a
nominee director of the Company and the beneficial owner of 4,273 shares of the
Company's Common Stock and options to acquire an additional 10,000 shares of the
Company's Common Stock. Certain legal matters will be passed upon for the
Underwriters by Harter, Secrest & Emery LLP, 700 Midtown Tower, Rochester, New
York 14604-2070 and Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, 9100 Wilshire Boulevard, Beverly Hills, California 90212 with
respect to certain state securities law matters.

EXPERTS

The consolidated financial statements as of December 31, 1996 and December
31, 1997 included in the Prospectus have been so included in reliance on the
report of Stonefield Josephson, Inc., independent accountants, and are so
included in reliance upon their reports given on their authority as experts in
auditing and accounting.

On July 1, 1997, Price Waterhouse LLP (the "Prior Accountants") resigned as
the Company's independent accountants and withdrew their report on the Company's
Financial Statements for the year ended December 31, 1996. On or about August 7,
1997, the Company agreed to accept the resignation of the Prior Accountants. In
connection with such decision, the Company appointed Stonefield Josephson, Inc.
(the "the Stonefield Firm" or "New Accountants") to audit the year ended
December 31, 1996, and review and audit subsequent periods on a going forward
basis. The decision to accept the resignation of the Prior Accountants was
approved by the Board of Directors of the Company. The Company further decided
to restate its financial results for the year ended December 31, 1996, as more
fully described below. There were no disagreements with Prior Accountants on any
matters of accounting principle or practices, financial statement disclosure or
auditing scope or procedure which if not resolved to the Prior Accountant's
satisfaction would have caused it to make reference to the subject matter of the
disagreement in connection with its report.

The Company's decision to restate its results relates to the existence of a
provision of a clause in a security agreement relating to certain licenses to
"Amazing Tales" and "Total Recall" which was provided to the Prior Accountants
subsequent to the date of their audit opinion. The clause related to the
Company's agreements with Miramax, and had the effect of allowing Miramax to
cancel its agreement to pay the minimum guarantee with respect to "Amazing
Tails" if "Total Recall" was not produced. As this cross collateralization was
contained in ancillary documentation, the Company did not realize that the
import of such construction, notwithstanding the fact that all of the conditions
precedent to the financing and production of "Total Recall" under the Alliance,
Polygram and Miramax financing agreements had been fulfilled, could create a
contingency with respect to the revenue recognition under the Miramax-Amazing
Tails agreement. The Company had previously included this income in its
financial statements for the year ended December 31, 1996, and the restatement
had the effect of reducing revenues by $367,000, cost of revenues by $125,800
and net income by $241,200 or $.13 per share. See Note 2 to the Consolidated
Financial Statements. In light of the Company's intention to restate its results
for the year ended December 31, 1996, the Company determined
54
<PAGE> 55

to appoint the New Accountants to complete such audit as well as to audit
subsequent periods. The contingency will have no impact on future earnings or
operations.

The Prior Accountants' opinion for the period ended December 31, 1995
contained an explanatory paragraph relating to the ability of the Company to
function as a going concern.

The engagement of the Stonefield Firm is effective as of August 7, 1997. No
discussion was made with the Stonefield Firm as to application of any specific
accounting principle. The Company has authorized the Prior Accountants to
respond fully to any inquiries of the New Accountants. A copy of the letter from
the Prior Accountants relating to this disclosure is attached as Exhibit 23.2 to
the Registration Statement of which this Prospectus is a part.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington D.C. 20549 a Registration Statement on Form SB-2
(including all amendments and exhibits thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is hereby made to the
Registration Statement, including exhibits, schedules and reports filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement
referred to herein set forth the material terms of such contract or other
document but are not necessarily complete, and in each instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington D.C. 20549, and at the Commission's Regional Offices
located at The Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can also be obtained at prescribed rates by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Registration Statement, including the exhibits and
schedules thereto, can also be accessed through the EDGAR terminals in the
Commission's Public Reference Rooms in Washington, Chicago and New York or
through the World Wide Web at http://www.sec.gov.

55
<PAGE> 56

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Stonefield Josephson, Inc., Independent
Auditors.................................................. F-2
Consolidated Balance Sheet at December 31, 1996, December
31, 1997 and March 31, 1998............................... F-3
Consolidated Statement of Operations for the years ended
December 31, 1996, and December 31, 1997 and, for the
three months ended March 31, 1997 and for the three months
ended March 31, 1998...................................... F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, and December 31, 1997 and, for the
three months ended March 31, 1997 and for the three months
ended March 31, 1998...................................... F-5
Consolidated Statement of Cash Flows Supplemental Schedule
of Non Cash Activities for the years ended December 31,
1996, and December 31, 1997 and, for the three months
ended March 31, 1997 and for the three months ended March
31, 1998.................................................. F-6
Consolidated Statement of Shareholders' Equity (Deficit) for
the years ended December 31, 1996 and December 31, 1997,
and for the three months ended March 31, 1998............. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>

F-1
<PAGE> 57

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Shareholders
Team Communications Group, Inc.

We have audited the consolidated balance sheets of Team Communications
Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the two years then ended and the financial statement schedule listed in the
registration statement for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Team
Communications Group, Inc. and subsidiaries at December 31, 1997 and 1996 and
the consolidated results of its operations and it cash flows for the two years
ended December 31, 1997 and 1996, respectively, in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedule
referred to above presents fairly, in all material respects the information set
forth therein in compliance with the applicable accounting regulations of the
Securities and Exchange Commission.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11, the Company
has had significant losses in the past, has been dependent on outside equity
investors to finance its operations, and certain notes payable are past due.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans with respect to these matters are described
in Note 11 to the financial statements. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.

STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
April 12, 1998

F-2
<PAGE> 58

TEAM COMMUNICATIONS GROUP, INC.

CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 89,400 $ 174,400 $ 214,300
Trade receivables, less allowance for doubtful accounts
of $63,800, 63,800 and 63,800, respectively (Note
2)................................................... 7,690,700 6,740,800 3,342,100
Television program costs, less accumulated amortization
of $3,255,900, 2,846,600 and $1,599,700, respectively
(Note 3)............................................. 4,872,300 4,287,000 3,555,900
Due from officer (Note 5).............................. 214,400 195,500 11,300
Fixed assets, net (Note 2)............................. 25,400 29,000 42,100
Organizational costs and other assets (Note 2)......... 728,300 578,000 144,900
------------- ----------- -----------
Total assets................................. $ 13,620,500 $12,004,700 $ 7,310,600
============= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other
liabilities (Note 2)................................. $ 3,654,400 $ 3,270,500 $ 1,220,200
Deferred revenue (Note 2).............................. 624,000 575,000 4,500
Accrued participations (Note 2)........................ 968,300 984,800 1,428,400
Notes payable (Note 7)................................. 5,487,700 4,889,600 3,762,900
Accrued interest (Note 5 and 7)........................ 1,061,700 898,300 242,000
Shareholder loan and note payable (Note 5)............. 740,000 740,000 740,000
------------- ----------- -----------
Total liabilities............................ 12,536,100 11,358,200 7,398,000
------------- ----------- -----------
Commitments and contingencies (Notes 6 and 10)
Shareholders' deficit:
Preferred stock, no par value; 2,000,000 shares
authorized; no shares issued and outstanding
(Note 10)....................................... 0 0 0
Common stock, no par value; 18,000,000 shares
authorized; 1,131,344, 1,131,344 and 1,131,344
shares issued and outstanding (Note 2).......... 1,000 1,000 1,000
Paid in capital................................... 1,230,100 1,230,100 943,300
Accumulated deficit............................... (146,700) (584,600) (1,031,700)
------------- ----------- -----------
Total shareholders' equity (deficit)......... 1,084,400 646,500 (87,400)
------------- ----------- -----------
Total liabilities and shareholders' equity
(deficit).................................. $ 13,620,500 $12,004,700 $ 7,310,600
============= =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 59

TEAM COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

General and administrative
expense................... 541,500 601,500 2,129,300 2,323,800
Allowance for doubtful
accounts.................. -- -- 1,115,600 --
---------- --------- ---------- ----------
Net income from
operations................ 652,900 (308,400) 1,275,400 530,100

Interest expense (Note 5)... 263,000 271,800 1,040,100 677,700
Interest income............. 48,000 72,000 211,800 58,300
Other income................ -- -- -- 90,100
---------- --------- ---------- ----------
Net income (loss) before
income taxes.............. 437,900 (508,200) 447,100 800
---------- --------- ---------- ----------
Net income (loss)........... $ 437,900 $(508,200) $ 447,100 $ 800
========== ========= ========== ==========
Net income (loss) per common
share basic (Note 2)...... $ 0.39 $ (0.45) $ 0.40 $ --
========== ========= ========== ==========
Weighted average number of
shares outstanding basic
(Note 2).................. 1,131,344 1,131,344 1,131,344 1,131,344
========== ========= ========== ==========
Net income (loss) per common
share diluted (Note 2).... $ 0.24 $ (0.28) $ 0.25 --
========== ========= ========== ==========
Weighted average number of
shares outstanding diluted
(Note 2).................. 1,821,800 1,821,800 1,821,800 1,821,800
========== ========= ========== ==========
</TABLE>

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

F-4
<PAGE> 60

TEAM COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS FOR THE FOR THE
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $ 437,900 $(508,200) $ 447,100 $ 800
Adjustments to reconcile net income to cash used
for operating activities:
Depreciation and amortization.................. 3,600 3,300 13,100 15,600
Amortization of television program costs....... 409,300 142,400 1,455,000 1,100,800
Allowance for doubtful accounts receivable..... -- -- 1,115,600 63,800
Additions to television program costs.......... (994,600) (196,800) (2,186,200) (4,060,600)
Amortization of notes payable discount......... 93,000 93,000 372,000 353,300
Changes in assets and liabilities:
Increase in trade receivables................ (949,900) (530,400) (4,514,300) (3,352,900)
Decrease (increase) in organization costs and
other assets.............................. (150,300) 15,300 (433,100) (123,000)
Increase in accounts payable, accrued expense
and other liabilities..................... 383,900 405,000 2,050,300 939,500
Increase (decrease) in deferred revenue...... 49,000 23,400 570,500 (343,500)
Increase (decrease) in accrued
participations............................ (16,500) 208,200 (443,600) 1,302,300
Increase in accrued interest................. 70,400 55,100 284,300 201,800
--------- --------- ----------- -----------
Net cash used for operating activities.... (664,200) (289,700) (1,269,300) (3,902,100)
--------- --------- ----------- -----------
INVESTING ACTIVITIES -- -- --
purchase of fixed assets......................... -- -- (36,900)
--------- --------- ----------- -----------
Net cash used for investing activities.... -- -- -- -- (36,900)
--------- --------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from shareholder loan and notes
payable........................................ -- -- -- --
Proceeds from issuance of note payable and
warrants....................................... 658,100 401,000 1,423,500 4,747,000
Principal payment on loan due to stockholder..... -- -- -- (10,000)
Principal payment of notes payable............... (60,000) 0 (10,000) (748,600)
Decrease (increase) in due from officer.......... (18,900) (51,800) (184,100) 30,900
Waiver of interest on loan due to stockholder.... -- -- -- 95,000
--------- --------- ----------- -----------
Net cash provided by financing
activities.............................. 579,200 349,200 1,229,400 4,114,300
--------- --------- ----------- -----------
Net change in cash................................. (85,000) 59,500 (39,900) 175,300
Cash at beginning of period........................ 174,400 214,300 214,300 39,000
--------- --------- ----------- -----------
Cash at end of period.............................. $ 89,400 $ 273,800 $ 174,400 $ 214,300
========= ========= =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.................................... $ $ $ -- $ 15,100
========= ========= =========== ===========
Income taxes paid................................ $ $ $ 4,000 $ 4,000
========= ========= =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 61

TEAM COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES

<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ------------------ ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Extinguishment of TPEG
settlement payable by
assignment of the treasury
stock receivable........... -- 178,000 178,000 178,000
Issuance of warrants in
conjunction with notes
payable (Note 7):.......... -- -- 286,600 602,700
Transfer of shares by
principal shareholder to
notes payable holder (Note
7)......................... -- -- -- 45,700
Issuance of shares in
connection with notes
payable (Note 7)........... -- -- -- 84,200
Issuance of shares in
connection with services
provided to Company........ -- -- -- 24,700
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 62

TEAM COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ------------------ TREASURY
NUMBER NUMBER PAID IN STOCK ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT
--------- ------ --------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 27,
1995....................... 0 $ 0 0 $ 0 $ 0 $ 0 $ 0
Common stock issued.......... 1,024,059 1,000
TPEG settlement (Note 10).... (87,000)
Net loss for period from
February 27, 1995 to
December 31, 1995.......... (1,032,500)
---- ----- --------- ------ ---------- -------- -----------
Balance at December 31,
1995....................... 0 0 1,024,059 1,000 0 (87,000) (1,032,500)
Transfer of shares by
principal shareholder to
notes payable holder (Note
7)......................... 45,700
Exchange of treasury stock
receivable with related
party for extinguishment of
TPEG settlement payable
(Note 10).................. 91,000 87,000
Issuance of shares in
connection with notes
payable (Note 7)........... 79,708 0 84,200
Issuance of warrants in
connection with private
placements (Note 7)........ 602,700
Issuance of shares in
connection with
anti-dilution provisions of
convertible promissory note
(Note 7)................... 4,292
Issuance of shares in
connection with services
provided to the Company.... 23,285 24,700
Waiver of interest on loan
due to shareholder......... 95,000
Net income for year ended
December 31, 1996.......... 800
---- ----- --------- ------ ---------- -------- -----------
Balance at 12/31/96.......... 1,131,344 1,000 943,300 0 (1,031,700)
Issuance of warrants in
connection with private
placement.................. 286,800
Net income for year ended
December 31, 1997.......... 447,100
---- ----- --------- ------ ---------- -------- -----------
Balance at December 31,
1997....................... 0 $ 0 1,131,344 $1,000 $1,230,100 $ 0 $ (584,600)
Net income for the three
months ended March 31, 1998
(unaudited)................ 437,900
---- ----- --------- ------ ---------- -------- -----------
Balance at March 31, 1998.... 0 $ 0 1,131,344 $1,000 $1,230,100 $ 0 $ (146,700)
==== ===== ========= ====== ========== ======== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 63

TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- DESCRIPTION OF THE COMPANY:

Team Communications Group, Inc. (formerly known as DSL Entertainment Group,
Inc.) and its wholly owned subsidiaries (collectively, the "Company") are
primarily engaged in developing, producing, and distributing television series,
programs and specials, and made-for-television movies for telecast, exhibition
or distribution in the domestic and foreign television markets. The Company's
focus is on developing and producing children's programming and reality based
programming for alternative cable channels such as the Learning Channel and the
Discovery Channel as well as for channels such as PBS.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated statements include the accounts of Team
Communications Group, Inc. and subsidiaries. All significant intercompany
transactions and accounts have been eliminated.

REVENUE RECOGNITION

Revenue from licensing agreements covering entertainment product owned by
the Company is recognized when the entertainment product is available to the
licensee for telecast, exhibition or distribution, and other conditions of the
licensing agreements have been met in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 53, "Financial Reporting by Producers and
Distributors of Motion Picture Films." The portion of recognized revenue which
is to be shared with the producers and owners of the license program material
(participations payable and due to producers) is accrued as the revenue is
recognized. Deferred revenues consist principally of advance payments received
on television contracts for which program materials are not yet available for
broadcast or exploitation. Such amounts are normally repayable by the Company
only if it fails to deliver the related product to the licensee.

Sales to three customers accounted for 100% of the Company's total
operating revenue for the three months ended March 31, 1998, and sales to two
major customers accounted for 90% of the Company's total operating revenue for
the three months ended March 31, 1997.

Sales to four major customers accounted for approximately 88% of the
Company's total operating revenue for the year ended December 31, 1997. Sales to
six major customers accounted for approximately 81% of the Company's total
operating revenue for the year ended December 31, 1996.

During 1997, the Company became aware of a clause of a security agreement,
which had the potential of creating a contingency with respect to revenue from a
related licensing agreement which the Company had included in its 1996 financial
statements. The clause related to the Company's agreements with Miramax, and had
the effect of allowing Miramax to cancel its agreement to pay the minimum
guarantee with respect to "Amazing Tails" if "Total Recall" was not produced.
Accordingly, the previously issued financial statements for 1996 were restated,
having the effect of reducing revenues by $367,000, cost of revenues by $125,800
and net income of $241,000 ($.13 per share). The contingency will have no impact
on future earnings or operations.

CASH

The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts.

TELEVISION PROGRAM COSTS

Television program costs are valued at the lower of unamortized cost or net
realizable value on an individual title basis. Television program costs
represent those costs incurred in the development, production

F-8
<PAGE> 64
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
and distribution of television projects. These costs have been capitalized in
accordance with SFAS No. 53. Amortization of television program costs is charged
to expense and third-party participations are accrued using the individual film
forecast method whereby expense is recognized in the proportion that current
year revenues bear to an estimate of ultimate revenue. Such estimates of
ultimate revenue are prepared and reviewed by management, and estimated losses,
if any, are provided for in full. Development costs are reviewed by management
and charged to expense when abandoned or, even if still being actively
developed, if not set for principal photography within three years of initial
development activity.

FIXED ASSETS

Fixed assets include office furnishings, fixtures and equipment. Office
furnishings, fixtures and equipment are depreciated over a useful life of five
years. All depreciation expense is calculated using Modified Accelerated Cost
Recovery System. Fixed assets are net of $33,600, $30,000 and $16,700 in
accumulated depreciation at March 31, 1998, December 31, 1997 and December 31,
1996, respectively.

ORGANIZATIONAL COSTS AND OTHER ASSETS

The balance represents security deposits, prepaid expenses and the
unamortized portion of the original costs relating to the incorporation of the
Company and capitalized costs in connection with the Company's initial public
offering. Such capitalized costs were $530,600 and $374,600 at March 31, 1998
and December 31, 1997, respectively.

DEBT WITH STOCK PURCHASE WARRANTS

The proceeds received from debt issued with stock purchase warrants is
allocated between the debt and the warrants, based upon the relative fair values
of the two securities. Fair value of the debt element of the financial
instrument is determined by discounting the future payments of principal and
interest, based upon management's estimate of its borrowing rate for similar
financial instruments of this risk (generally 25%), and the balance of the
proceeds is accounted for as additional paid in capital. The resulting debt
discount is amortized to expense over the term of the debt instrument, using the
interest method. In the event of settlement of such debt in advance of the
maturity date, an expense is recognized based upon the difference between the
then carrying amount (i.e., face amount less unamortized discount) and amount of
payment.

UNCLASSIFIED BALANCE SHEET

In accordance with the provisions of SFAS No. 53, the Company has elected
to present an unclassified balance sheet.

FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including cash and cash
equivalents, short term accounts receivable, accounts payable, loans payable,
and deferred revenue approximated fair value as of March 31, 1998, December 31,
1997 and December 31, 1996 because of the relatively short maturity of these
instruments. The carrying value of long term accounts receivable and notes
payable approximated fair value as of March 31, 1998, December 31, 1997 and
December 31, 1996 because the instruments are valued at the Company's effective
borrowing rate.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-9
<PAGE> 65
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Included in television program costs in development are two projects with
aggregate capitalized costs of $789,000, the development of which commenced in
September of 1995 and July of 1996. In the event the Company is unable to
produce either of these projects, the Company may incur significant write downs
in the future.

COMMON STOCK

In January 1996 the Company effected a 2,397.004 for one stock split for
shareholders of record on February 23, 1996. In addition, authorized shares were
increased from 1,000 to 18,000,000. In January and April of 1997, the Company
effected a 2.2776 and 1.0277 for one share reverse stock splits, respectively.
All share and per share data in the financial statements reflect the stock split
and subsequent reverse stock split for all periods presented.

CONCENTRATION OF CREDIT RISK

Approximately 96%, 95% and 72% of the trade receivable balance at March 31,
1998, December 31, 1997 and December 31, 1996, respectively, were represented by
the same five customers.

NET (LOSS) PER COMMON SHARE

The Company has adopted Statement of Financial Accounting Standard No. 128,
Earnings Per Share ("SFAS No. 128"), which is effective for annual and interim
financial statements issued for periods ending after December 15, 1997. In
accordance with SFAS No. 128, prior years per share amounts have been restated.
SFAS No. 128 was issued to simplify the standards for calculating earnings per
share ("EPS") previously in APB No. 15, Earnings Per Share. SFAS No. 128
replaces the presentation of primary EPS with a presentation of basic EPS. The
new rules also require dual presentation of basic and diluted EPS on the face of
the statement of operations.

For the three months ended March 31, 1998, and the years ended December 31,
1997 and December 31, 1996, the per share data is based on the weighted average
number of common and common equivalent shares outstanding, and are calculated in
accordance with Staff Accounting Bulletin of the Securities and Exchange
Commission (SAB) No. 98 whereby common stock, options or warrants to purchase
common stock or other potentially dilutive instruments issued for nominal
consideration must be reflected in basic and diluted per share calculations for
all periods in a manner similar to a stock split, even if anti-dilutive.
Accordingly, in computing basic earnings per share, nominal issuances of common
stock are reflected in a manner similar to a stock split or dividend. In
computing diluted earnings per share, nominal issuances of common stock and
potential common stock are reflected in a manner similar to a stock split or
dividend.

The convertible debt was not included in the calculation of weighted
average shares because the President and principal shareholder has personally
guaranteed to the Company that he will assume any convertible debt where the
debt holder wishes to convert in exchange for his own personal shares. The total
number of shares that the convertible debt may convert into is approximately
199,748.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:

On April 1, 1997, the Company adopted the provision of FASB No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This statement requires that long-lived

F-10
<PAGE> 66
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amounts of the assets exceed the fair values of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of this statement did not have a material impact on
the Company's financial position, results of operations, or liquidity.

INTERIM FINANCIAL STATEMENTS (UNAUDITED)

The accompanying unaudited condensed financial statements for the interim
periods ended March 31, 1998 and 1997 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.

NOTE 3 -- TELEVISION PROGRAM COSTS:

Television program costs consist of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
In process and development................................ $1,553,500 $1,502,000 $1,977,000
Released, less accumulated amortization................... 3,318,800 2,785,000 1,578,900
---------- ---------- ----------
Total television program costs.................. $4,872,300 $4,287,000 $3,555,900
========== ========== ==========
</TABLE>

Based on management's estimates of future gross revenue as of March 31,
1998, approximately 60% of the $3,318,800 in unamortized released television
program costs will be amortized during the three years ending March 31, 2001 and
80% will be amortized during the four years ending March 31, 2002.

NOTE 4 -- INCOME TAXES:

During the period ended December 31, 1995, the Company generated a net loss
before taxes on a consolidated basis, however, since the individual subsidiaries
were not eligible for consolidation until December 31, 1995, the tax provision
is calculated on the individual companies, separately. One company's loss does
not offset another company's income, as the companies are not consolidated for
tax purposes. For the period ended March 31, 1998, March 31, 1997, December 31,
1997 and December 31, 1996, the tax provision is calculated on the consolidated
basis.

Deferred tax expense results from temporary differences in the recognition
of expense for tax and financial statement reporting purposes.

F-11
<PAGE> 67
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- INCOME TAXES: (CONTINUED)
A reconciliation of the difference between the statutory federal income tax
rate and the Company's effective income tax rate applied to income (loss) before
income taxes are as follows for the periods ending:

<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statutory federal tax (benefit) rate.......... 34% 34% 34% 34%
State income tax provision, net of federal
benefit..................................... 0% 0% 0% 0%
Benefits of operating loss carryforward....... (34)% (34)% (34)% (34)%
Increase in valuation reserve against deferred
tax asset................................... 0% 0% 0% 0%
--- --- --- ---
Effective tax rate............................ 0% 0% 0% 0%
=== === === ===
</TABLE>

The Company accounts for taxes under SFAS No. 109, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

The components of the net deferred tax asset are as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Net operating loss (carryforward)........................ $ 35,700 $ 184,605 $ 336,620
Valuation allowance...................................... $ (35,700) $(184,605) (336,620)
--------- --------- ---------
Net deferred tax asset......................... $ 0 $ 0 $ 0
========= ========= =========
Total current and deferred taxes payable................. $ 0 $ 0 $ 0
========= ========= =========
</TABLE>

At March 31, 1998, December 31, 1997, and December 31, 1996, the Company
has a federal net operating loss carryforward of $105,000, $542,958, and
$990,058, respectively, which will begin to expire in 2010.

NOTE 5 -- RELATED PARTY TRANSACTIONS:

The due from officer balances of $214,400, $195,500 and $11,300 at March
31, 1998, December 31, 1997 and December 31, 1996, respectively, represent
payments made by the Company on behalf of and short-term interest free loans
made to the President and principal shareholder, less producer's fees earned by
the president and principal shareholder for services on a company production.

The shareholder loan and note payable balance are comprised of the
following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
--------- ------------ ------------
<S> <C> <C> <C>
Promissory notes:
12% secured promissory note due July 15, 1998(i)...... $500,000 $500,000 $500,000
14% secured promissory note due July 15, 1998(ii)..... 240,000 240,000 240,000
-------- -------- --------
$740,000 $740,000 $740,000
======== ======== ========
</TABLE>

- ---------------
(i) In April 1995, the Company entered into a $500,000 promissory note with a
shareholder. The notes accrued interest at 10% through December 31, 1995
and at 12% thereafter. The note and all unpaid interest are due July 15,
1998, as amended. The note is secured by all of the President and principal
shareholders' shares and the assets of the Company. The shareholder has
waived all accrued interest relating to this note totaling $165,000,
$150,000 and $90,000 as of March 31, 1998, December 31, 1997

F-12
<PAGE> 68
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 -- RELATED PARTY TRANSACTIONS: (CONTINUED)
and as of December 31, 1996, respectively. This interest expense, at fair
value, was recorded as either a corresponding credit to paid-in capital
(1996) or accrued liabilities (1997) which will be offset against paid-in
capital upon settlement of the obligations.

(ii) In August 1995, the Company entered into a $250,000 promissory note with a
shareholder. The note accrues interest at 12% through November 1, 1995 and
at 14% thereafter. The note and all unpaid interest are due July 15, 1998,
as amended. The note is secured by all of the President and principal
shareholder's shares and the assets of the Company. The shareholder has
waived all accrued interest relating to this note totaling $79,000, $70,000
and $35,000 as of March 31, 1998, December 31, 1997 and December 31, 1996,
respectively. This interest expense, at fair value, was recorded as either
a corresponding credit to paid-in capital (1996) or accrued liabilities
(1997) which will be offset against paid-in capital upon settlement of the
obligations. The Company issued 48,743 warrants exercisable at $0.43 in
connection with the extension of the maturity date of the loan to July 1,
1996.

NOTE 6 -- COMMITMENTS AND CONTINGENCIES:

The Company has entered into a new employment agreement with the president
of the Company requiring payment, effective January 1, 1997 through December 31,
2001, of annual compensation of $220,000 plus $145,000 per annum as an advance
against a pro-rata portion of producer's fees earned by Mr. Levin.

The Company has obtained a distribution guarantee from Mel Giniger &
Associates for the Latin American territories and The Gemini Corporation for the
European territories (collectively the "Giniger Entities"). This guarantee
relates to the Company's current library and certain future product planned for
distribution in Latin America and Europe. For the year ended December 31, 1996,
revenue of $680,000, was recognized against this guarantee, which represents 11%
of revenue for 1996. The Company believes that the Giniger Entities ability to
deliver on this distribution guarantee is predicate on its licensing the
Company's product to unaffiliated third parties. As such, at December 31, 1996,
the Company only recognized the portion of the guarantee for which the Giniger
Entities have entered into sales agreements with unaffiliated third parties for
such rights and for which program materials were available to the Giniger
Entities. As of March 31, 1998, all rights held by the Giniger Entities have
been conveyed back to the Company, and no revenue was recognized through this
transaction for the three months then ended.

The Company leases office space and certain office equipment. The total
lease expense was $24,000, $28,000, $96,300 and $113,700 for the periods ended
March 31, 1998, March 31, 1997, December 31, 1997 and December 31, 1996,
respectively. The various operating leases to which the Company is presently
subject require minimum lease payments for the years ending December 31, as
follows:

F-13
<PAGE> 69
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- NOTE PAYABLE:

Notes payable consists of the following at March 31, 1998, December 31,
1997 and December 31, 1996:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Private placements:
12% secured notes due July 1998(i)...................... $ 880,000 $ 900,000 $ 900,000
10% secured convertible notes due July 1998(ii)......... 938,400 839,000 657,000
10% secured convertible notes due February 1999(iii).... 827,400 788,700
Promissory notes:
12% convertible secured promissory note due July
1998(iv)............................................ 322,000 322,000 322,000
10% secured promissory note due July 1998(v)............ 500,000 500,000 500,000
10% secured promissory note due June 1997(vi)........... 0 0 885,000
8% secured note due July 1998(vii)..................... 300,000 300,000 239,900
10% secured note due July 1998(viii).................... 150,000 150,000 124,100
11% unsecured promissory note past due(ix).............. 124,900 124,900 134,900
10% secured note due on July 1998(x).................... 650,000 650,000 --
12% secured note due July 1998(xi)...................... 265,000 315,000 --
12% secured note due April 1, 1999(xii)................. 145,000 -- --
12% secured note due March 16, 1999(xiii)............... 150,000 -- --
Secured note due June 15, 1998(xiv)..................... 235,000 -- --
---------- ---------- ----------
$5,487,700 $4,889,600 $3,762,900
========== ========== ==========
</TABLE>

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

(i) During February - June 1996, the Company participated in a private
placement offering. The Company sold 18 placement units to the following
investors: Matthew and Barbara Geisser, Central Scale Co., Vijaya Kani
Rehala, Vijay-Kumar Rekhala, M.D., United Congregation Mesorah, Samuel
Marinelli, Mildred Geiss, Jon Kastendieck, Bank Leumi-Affida Bank,
Cooperative Holding Corporation, Aaron Wolfson, Abraham Wolfson, Arielle
Wolfson, and LEVPOL. Each unit consisted of a $50,000 note payable with
interest of 12% per annum, compounded quarterly, and 6,408 Common Stock
Purchase warrants. The accrued interest balance was $229,600, $202,600 and
$88,400 at March 31, 1998, December 31, 1997 and December 31, 1996
respectively. Each warrant entitles the holder to buy one share of common
stock at an exercise price of $0.43. The warrants are exercisable
commencing two business days following the effective date of the
registration statement relating to an initial public offering and
terminating on the third anniversary of that date. Through this private
placement, the Company raised $900,000 and issued 115,351 warrants.
Principal and interest are due no later than July 15, 1998, as amended.
The notes are secured by substantially all of the assets of the Company.
The fair value of the notes and the carrying amount and fair value of the
associated warrants were determined by the market rate, approximately 25%,
based upon management's estimate of its borrowing rate in an arm's length
transaction for a financial instrument of this risk. The notes were
discounted at this market rate. The value of the warrants amounted to
$128,272 and is included in paid in capital.

(ii) During June - October 1996, the Company participated in a second private
placement offering. The Company sold 19.5 placement units to the following
investors: Wellington Corporation, Crescent Capital Company, LLC, Arthur
Steinberg IRA Rollover, Robert Steinberg IRA Rollover, Robert Ram
Steinberg, A Partnership, Von Graffenried AG, Alpha Ventures, Tuch Family
Trust, Third World Trust Company LTD., Alfred Ross, Fred Chanowski, Allen
Goodman, Felix Paige, Rogal America, Mark Levine, Joseph Sullivan, Robert
Gopen, Colony Financial Services, John Carberry, Daniel and Thalia
Federbush, and Michael Berlin. Each unit consisted of a $50,000 senior
convertible note payable with interest of 10% per annum, compounded
quarterly, and 4,272 Common Stock Purchase warrants.

F-14
<PAGE> 70
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- NOTE PAYABLE: (CONTINUED)
The notes are convertible at their principal amount into common stock of
the Company at any time one year after the initial public offering through
maturity at the conversion price of $5.00 per share subject to adjustment
in certain circumstances. Each warrant entitles the holder to buy one
share of common stock at an exercise price of $0.43. The warrants are
exercisable commencing two business days following the effective date of
the registration statement relating to an initial public offering and
terminating on the third anniversary of that date. As of December 31,
1996, the Company raised $975,000 and issued 83,308 warrants. Principal
and interest are due no later than July 15, 1998. The accrued interest
balance was $184,400, $160,200 and $36,800 at March 31, 1998, December 31,
1997 and December 31, 1996, respectively. The notes are secured by
substantially all of the assets of the Company. The carrying amount and
fair value of the notes and associated warrants were determined by the
market rate, approximately 25%, for a financial instrument of this risk.
The notes were discounted at this market rate. The value of the warrants
amounted to $381,928 and is included in paid in capital.

(iii) During January 1997, the Company participated in a third private
placement offering. The Company sold 19.4 units to the following
investors: Alan Parness, Arab International Trust Co., Duck Partners, LP,
Gary and Paula Wayton, Michael Rosenbaum, RMK Financial LLC, Robert Bain,
Robert Frankel, Roger Triemstra, Roland McAbee, Swan Alley Limited, and
Van Moer Santerr & Cie. Each unit consisted of a $50,000 senior
convertible note payable with interest of 10% per annum, payable at six
month intervals, and 10,000 Common Stock Purchase warrants. The notes are
convertible at their principal amount into common stock of the Company at
any time before the initial public offering at the conversion price of
$5.00 per share subject to adjustment in certain circumstances. The
maturity date of the notes will be no later than two years. Each warrant
entitles the holder to buy one share of common stock at an exercise price
of $.97. The warrants are exercisable commencing two business days
following the effective date of the registration statement relating to an
initial public offering and terminating on the third anniversary of that
date. As of September 30, 1997, the Company raised $969,000 and issued
193,870 warrants. Principal and interest are due no later than February
1999. The accrued interest balance was $105,000 and $80,800, at March 31,
1998, December 31, 1997, respectively. The notes are secured by
substantially all of the assets of the Company. The carrying amount and
fair value of the notes and associated warrants were determined by the
market rate, approximately 25%, for a financial instrument of this risk.
The notes were discounted at this market rate. The value of the warrants
amounted to $286,797 and is included in paid-in capital.

(iv) In January 1996, the Company entered into an agreement with AMAE Ventures,
an outside investor. The Company received $322,000 in exchange for (i) a
convertible secured promissory note, convertible into 3% of the Company's
outstanding stock on a fully diluted basis through an initial public
offering, and (ii) the transfer from the principal shareholder of 4% of
the Company's issued and outstanding stock on a fully diluted basis
through an initial public offering. The note accrues interest at 12% per
annum and is due July 15, 1998. The accrued interest balance was $121,000,
$93,000 and $36,200 at March 31, 1998, December 31, 1997 and December 31,
1996, respectively. The fair value of the note and carrying value and fair
value of the associated shares were determined by the market rate for a
financial instrument of this risk.

(v) In April 1996, the Company entered into a $500,000 promissory note with
South Ferry #2, L.P., an outside investor, to finance a television
program. The note accrues interest at 10% per annum and is due on July 15,
1998, as amended. The accrued interest balance was $96,800, $84,300, and
$29,600 at March 31, 1998, December 31, 1997 and December 31, 1996,
respectively. The note is secured by certain assets and rights associated
with the television program. There were 29,906 warrants (exercisable at
$0.43 per warrant) issued in connection with this note. The fair value of
the note was estimated

F-15
<PAGE> 71
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- NOTE PAYABLE: (CONTINUED)
using discounted cash flow methods based on the Company's borrowing rates,
approximately 25%, for similar types of borrowing arrangements with
comparable terms and maturities.

(vi) In July 1996, the Company entered into a $1,200,000 promissory note with 3
outside investors, ACA Equities, D&M Investments and Gilbert Karsenty, to
acquire the television rights to "Total Recall." The note accrued interest
at 10% per annum. As of March 31, 1998 and December 31, 1997, there had
been $1,200,000 repaid in respect to this debt. As of December 31, 1996
there had been $315,000 repaid in respect to this debt. The accrued
interest balance was $83,100 at March 31, 1998 and December 31, 1997 and
$47,800 at December 31, 1996. There were 53,403 shares of common stock
issued in connection with the origination of this debt and 21,362 warrants
(exercisable at $0.43 per warrant) were issued to extend the loan. The
outside investors are also entitled to 15% of any net profits earned from
the exploitation of these rights. The fair value of the notes was
estimated using discounted cash flow methods based on the Company's
borrowing rates, approximately 25%, for similar types of borrowing
arrangements with comparable terms and maturities.

(vii) In November 1996, the Company entered into a $300,000 promissory note
with Affida Bank. The note bears interest at 8% per annum, compounding
quarterly, and is due the sooner of an initial public Offering or July
15, 1998. The accrued interest balance was $34,200, $8,500, $27,700, and
$2,800 at March 31, 1998, December 31, 1997 and December 31, 1996,
respectively. The note is secured by substantially all of the assets of
the Company. There were 25,634 Common Stock Purchase warrants issued in
connection with this note. Each warrant entitles the note holder to buy
one share of common stock at an exercise price of $.43. The warrants are
currently exercisable and terminate on the earlier to occur of the third
anniversary of the effective date of an initial public offering or June
30, 2000. The note is secured by substantially all of the assets of the
Company. The carrying amount and fair value of the notes and associated
warrants were determined by the market rate, approximately 25%, for a
financial instrument of this risk. The notes were discounted at this
market rate. The value of the warrants amounted to $66,000 and is
included in paid in capital.

(viii) In December 1996, the Company entered into a $150,000 promissory note
with Phillip Tewel. The note bears interest at 10% per annum, compounding
quarterly, and is due the sooner of an initial public offering or July
15, 1998. The accrued interest balance was $20,100, $16,050, and $400 at
March 31, 1998, December 31, 1997 and December 31, 1996, respectively.
The note is secured by substantially all of the assets of the Company.
There were 29,191 Common Stock Purchase warrants issued in connection
with this note. Each warrant entitles the note holder to buy one share of
common stock at an exercise price of $.43. The warrants are currently
exercisable and terminate on the earlier to occur of the third
anniversary of the effective date of an initial public offering or June
30, 2000. The note is secured by substantially all of the assets of the
Company. The carrying value of the warrants amounted to $26,500 and is
included in paid-in capital.

(ix) In September 1996, the Company entered into a $150,000 unsecured
promissory note with Time Life to repay an advance provided to the Company
in October 1995. The note bears interest at 11% per annum from October
1995 and required payments such that the note would be repaid by March 31,
1997. As of March 31, 1998, December 31, 1997 and December 31, 1996, there
was $18,500, $14,800 and $6,810, respectively, of accrued interest. During
1997, the Company made a $10,000 principal payment. During 1996, the
Company made a $30,250 payment, of which $15,125 was applied to the
principal balance, and $15,125 was applied to accrued interest. The holder
of the note has not filed a notice of default and the Company is
negotiating an extension of the payment terms.

(x) In June 1997, the Company entered into a $650,000 secured promissory note
with Alliance. The note bears interest at the prime rate plus one per cent
per annum from June 1996 and required payments such that the note, as
amended, would be repaid by July 15, 1998. As of March 31, 1998 and

F-16
<PAGE> 72
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- NOTE PAYABLE: (CONTINUED)
December 31, 1997 there was $50,800 and $34,500, respectively of accrued
interest. The note is secured by all the television rights and interest
owned with regards to the "Total Recall" project. The Company intends to
enter into a line of credit with Mercantile National Bank in order to repay
this outstanding note.

(xi) In December 1997, the Company obtained a loan in the amount of $315,000
from Venture Management Consultants LLC ("VMC"), which carries interest at
12% per annum, and matures at the earlier of the closing of the offering
or July 15, 1998. As the loan was not repaid in full by February 15, 1998,
the Company is required to pay VMC an additional $15,000. Included in the
principal balance is a $15,000 loan origination fee. As of December 31,
1997 there was accrued interest of $2,000. As of March 31, 1998, $50,000
of the principal under this note has been repaid. The note is secured
substantially by all the assets of the Company.

(xii) In March 1998, the Company obtained a loan in the amount of $150,000 from
Arab Commerce Bank, which carries interest at 12% per annum and matures
on April 1, 1999. As of March 31, 1998 there was accrued interest of
$750. The note is secured substantially by all the assets of the Company.

(xiii) In March 1998, the Company obtained a loan in the amount of $150,000 from
Nick Kahla, which carries interest at 12% per annum and matures on March
16, 1999. As of March 31, 1998 there was accrued interest of $750. The
note is secured substantially by all the assets of the Company.

(xiv) In March 1998, the Company obtained a loan in the amount of $235,000 from
David Tresley, which matures on June 15, 1998. Included in the principal
balance is a $35,000 loan origination fee.

NOTE 8 -- GEOGRAPHIC INFORMATION:

The Company operates in a single industry segment, the development,
production and distribution of television programming. All of the Company's
operations are conducted in the United States.

A summary of the Company's revenues by geographic area is presented below:

<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
North America.................... $ 748,000 $ 60,000 $1,383,600 $2,221,900
Europe........................... 307,100 1,332,900
South America.................... 825,000 3,798,900 732,400
Asia............................. 136,000 1,306,500
Australia and Africa............. 648,400 1,250,000 156,100
---------- -------- ---------- ----------
Total.................. $1,573,400 $708,400 $6,875,600 $5,749,800
========== ======== ========== ==========
</TABLE>

NOTE 9 -- STOCK OPTION PLANS:

The Company has established stock option plans for its employees and
consultants (the "1995 Stock Option Plan") and for its non-employee directors
(the "1995 Stock Option Plan for Non-Employee Directors").

The 1995 Stock Option Plan allows for options (including Incentive Stock
Options) to be granted to employees and consultants at less than fair market
value at date of grant. These options may be immediately exercisable and expire
over a period determined by the Stock Option Committee of the Board of Directors
(the "Committee"). The Committee is comprised of two members of the Board of
Directors. The total number of options available to grant under this plan is
270,000.

F-17
<PAGE> 73
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
The 1995 Stock Option Plan for Non-Employee Directors allows for a set
number of immediately exercisable options to be granted at fair market value to
non-employee members of the Board of Directors. The total number of options
available to grant under this plan is 67,500. There were no options granted
exercised, forfeited, expired or outstanding pursuant to the Director Plan for
the nine months ended September 30, 1997 and the year ended December 31, 1996.

A summary of the Key Employee Plan as of and for the three months ended
March 31, 1998 and the years ended December 31, 1997 and December 31, 1996 is
presented below:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
KEY EMPLOYEE PLAN SHARES EXERCISE PRICE
----------------- ------- ----------------
<S> <C> <C>
Outstanding as of January 1, 1996.................... -- --
Granted............................................ 35,000 $1.14
Exercised.......................................... -- --
Forfeited/Expired.................................. -- --
-------
Outstanding as of March 31, 1998, December 31, 1997
and December 31, 1996.............................. 35,000
=======
Weighted-average fair value of options granted during
the year........................................... $ 1.14
=======
</TABLE>

The following table summarizes information about options outstanding at
March 31, 1998, December 31, 1997 and December 31, 1996:

<TABLE>
<CAPTION>
SHARES EXERCISABLE AT
MARCH 31, 1998,
DECEMBER 31, 1997
AND DATE
TOTAL SHARES EXERCISE PRICE DECEMBER 31, 1996 OPTIONS EXPIRE
- ------------ -------------- --------------------- --------------
<S> <C> <C> <C>
30,000 $1.00 10,000 July 1, 2006
5,000 $2.00 5,000 June 6, 2006
------ ------
35,000 15,000
====== ======
</TABLE>

The Company has elected, as permitted by FASB Statement No. 123,
"Accounting for Stock Based Compensation" ("FASB 123"), to account for its stock
compensation arrangements under the provisions of Accounting Principles Board
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

Pro forma information regarding net income and earnings per share is
required by FASB 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of such pronouncement.
The fair value for these options was estimated at the date of grant using the
binomial option pricing model with the following weighted average assumptions:
risk-free interest rate of 6.33%, no dividend yield, expected lives of two and a
half years, and volatility of 0%.

For purposes of pro forma disclosure, the estimated fair value of the
options is zero, hence neither pro forma net income nor earnings per share are
presented.

During the period, the Company issued 21,362 warrants exercisable at $1.07
and 23,283 warrants exercisable at $0.43 and 2,777 shares of Common Stock to
four outside parties for services provided in raising outside debt. The Company
also issued 23,000 warrants exercisable at $1.00 and 20,000 warrants exercisable
at $2.50 to two outside parties for services rendered to the Company, one of
such parties assisted in raising capital for the Company by introducing Morris
Wolfson and entities affiliated therewith to invest in the

F-18
<PAGE> 74
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
Company, none of whom were in any way involved with this Offering and the other
serves as legal counsel to the Company. The Company recognized $5,000 in
compensation related to these warrants during the year ended December 31, 1996.

In January 1997, the Company's shareholders voted to freeze the 1995 Stock
Option Plans and adopt two new plans, the Team Communications Group, Inc. Stock
Awards plan (the "1996 Employee Plan") and the Team Communications Group, Inc.
Directors' Stock Option Plan (the "1996 Director's Plan").

The 1996 Directors Plan allows Directors who are not employees of the
Company, on the effective date of an initial public offering and each annual
anniversary thereof, to receive options to purchase 2,500 shares. The option
price per share of Common Stock purchasable upon exercise of such stock options
shall be 100% of the fair market value on the date of grant. Such options shall
be exercisable immediately on the date of grant by payment in full of the
purchase price in cash. The aggregate number of shares of Common Stock that may
be granted pursuant to the 1996 Directors Plan is 20,000.

The aggregate number of shares of Common Stock that may be granted under
the 1996 Employee Plan is 180,000. The Employee Plan provides for the authority
by the Employee Plan Committee to grant ISO's to any key employee of the Company
or any affiliate of the Company and to determine the terms and conditions of
each grant, including without limitation, the number of shares subject to each
ISO. The ISO exercise price will also be determined by the Committee and will
not be less than the fair market value of the Common Stock on the date of grant.
The exercise price will not be less than 110% of such fair market value and the
exercise period will not exceed five years if the participant was the holder of
more than 10% of the Company's outstanding voting securities.

NOTE 10 -- SUBSEQUENT EVENTS:

In January 1997, the Board of Directors reduced the authorized common stock
shares from 20,000,000 to 18,000,000 and authorized 2,000,000 shares of
preferred stock. All references in the financial statements to number of shares
of the Company's common stock and preferred stock have been retroactively
restated.

The Company has signed a letter of intent with an underwriter for the sale
of its common stock to the public.

NOTE 11 -- GOING CONCERN:

The Company's financial statements for the years ended December 31, 1997
and December 31, 1996 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company expects to incur
substantial expenditures to produce television programs and/or acquire
distribution rights to television programs produced by third parties. The
Company's working capital plus limited revenue from the licensing of its current
inventory of television programs will not be sufficient to fund the Company's
ongoing operations, including completing projects that the Company is
contractually required to develop or produce.

F-19
<PAGE> 75
TEAM COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 -- GOING CONCERN: (CONTINUED)
Management recognizes that the Company must generate additional resources
to enable it to continue operations. Management's plans include the sale of
additional equity securities. Towards this goal management has engaged an
underwriter to assist in the initial public offering of the Company's common
stock. However, no assurance can be given that the Company will be successful in
raising additional capital. Further, there can be no assurance, assuming the
Company successfully raises additional equity, that the Company will achieve
profitability or positive cash flow.

F-20
<PAGE> 76

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 15
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 29
Management............................ 36
Certain Transactions.................. 40
Principal Shareholders................ 43
Offering by Selling Securityholders... 44
Description of Securities............. 46
Shares Eligible for Future Sale....... 50
Underwriting.......................... 52
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 55
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

- --------------------------------------------
UNTIL AUGUST 23, 1998 (25 CALENDAR DAYS
AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------
- --------------------------------------------

- ------------------------------------------------------
- ------------------------------------------------------
1,500,000 SHARES
COMMON STOCK

TEAM COMMUNICATIONS GROUP, INC.
------------------------------

PROSPECTUS
------------------------------

NATIONAL SECURITIES

CORPORATION

JULY 29, 1998

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