SMA REAL TIME INC, SB-2/A, 1999-09-14

SMA REAL TIME INC
SB-2/A, 1999-09-14
MOTION PICTURE & VIDEO TAPE PRODUCTION

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1999

REGISTRATION NO. 333-82581

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2
TO

FORM SB-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
S.M.A. REAL TIME INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
NEW YORK 7812 13-3724883
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER IDENTIFICATION NUMBER)
</TABLE>

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100 AVENUE OF THE AMERICAS, 10TH FLOOR
NEW YORK, NEW YORK 10013
(212) 226-7474
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)
------------------------

MICHAEL J. MORRISSEY, PRESIDENT
100 AVENUE OF THE AMERICAS, 10TH FLOOR
NEW YORK, NEW YORK 10013
(212) 226-7474
(ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------

Copies to:

<TABLE>
<S> <C>
STEPHEN M. ROBINSON LAWRENCE B. FISHER, ESQ.
STEPHEN M. ROBINSON, P.A. ORRICK, HERRINGTON & SUTCLIFFE LLP
172 TUCKERTON ROAD 666 FIFTH AVENUE
MEDFORD, NEW JERSEY 08055 NEW YORK, NEW YORK 10103
(856) 596-5530 (212) 506-5000
(856) 596-3340 FAX (212) 506-5151 FAX
</TABLE>

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

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.

If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. / /

If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE>

SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 1999.

The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.

2,000,000 SHARES

S.M.A. REAL TIME INC.

COMMON STOCK

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

This is an initial public offering of 2,000,000 shares of common stock of
S.M.A. Real Time Inc. We anticipate that the initial public offering price will
be between $8.00 and $10.00 per share.

Prior to this offering, there has been no public market for our common
stock. We have applied to list our common stock on the American Stock Exchange
under the symbol "VTV."

PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to SMA........................... $ $
</TABLE>

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

We have granted the underwriters the right to purchase up to 300,000
additional shares at the initial public offering price minus the underwriting
discount, to cover any over-allotments.

Delivery of the shares of common stock will be made on or about
, 1999, in New York, New York. The underwriters are offering the shares
of common stock on a firm commitment basis.

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

DIRKS & COMPANY, INC.

PROSPECTUS DATED , 1999.

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The inside front cover contains the words, "Virtual Set Technology" and a series
of eight pictures depicting various aspects of a virtual set production
involving Barbara Walters.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary.......................................................................................... 4
Risk Factors................................................................................................ 7
Cautionary Note Regarding Forward-Looking Statements........................................................ 11
Use of Proceeds............................................................................................. 11
Dividend Policy............................................................................................. 12
Capitalization.............................................................................................. 12
Dilution.................................................................................................... 13
Selected Financial Information.............................................................................. 14
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15
Business.................................................................................................... 21
Management.................................................................................................. 29
Certain Transactions........................................................................................ 35
Principal Stockholders...................................................................................... 38
Description of Securities................................................................................... 39
Shares Eligible for Future Sale............................................................................. 40
Underwriting................................................................................................ 42
Legal Matters............................................................................................... 44
Experts..................................................................................................... 44
Financial Statements........................................................................................ F-1
</TABLE>

3
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PROSPECTUS SUMMARY

You should read the following summary together with more detailed
information and SMA's combined financial statements and the notes to those
statements appearing elsewhere in this prospectus.

OUR BUSINESS

SMA is video and film studio that combines traditional video and film
production techniques with state of the art technology and expertise to offer
virtual and digital production and post-production services.

We are equipped to manage every aspect of the production process beginning
with production planning, to the original shoot, through editing to final
commercial release. We provide these services to advertising agencies, creative
editorial companies, Fortune 500 companies, freelance producers, internet
producers, movie studios, production companies, television networks, and
television producers.

We use animation equipment, digital equipment, film cameras, infrared
tracking, pattern recognition, super computers and video cameras. In combination
with our experienced staff, they form the basis for us to offer the following
services:

o Location production
o Film to video transfer
o Studio/stage production
o Computer animation
o Virtual production
o Graphic design services

o Blue/green screen effects production
o On-line editing
o Motion control production
o Videotape duplication services
o Computer program/database creation

OUR STRATEGY

Our goal is to be the leading production and post-production studio for all
types of media including film, internet and television. In order to achieve this
goal, we will implement the following strategies:

o Continue to expand our facilities, production capabilities and service
offerings to strengthen our brand and provide our customers with a
one-stop-shop for all of their video and film production and
post-production needs;

o Continue to make significant investments in state-of-the-art technologies
as a vehicle to enhance product offerings, improve service, increase
sales and foster growth. We are committed to a number of technological
investments in order to capitalize on the developing high definition
television and internet markets;

o Continue to expand our technical talent, focusing on experts in the
field. We are committed to strengthening our talent base by recruiting
individuals who have expertise, are motivated and energetic and
comprehend the notion of teamwork and customer service;

o Increase our marketing and sales efforts to expand our client base and
further solidify and penetrate existing client business;

o Create and accumulate programming to establish new revenue sources;

o Expand our virtual television production capabilities into new
application areas; and

o Capitalize on the opportunities provided by our fully digital facility.

4
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OUR OFFICES

Our executive offices, virtual studio and production facilities are located
at 100 Avenue of the Americas, New York, New York 10013; our telephone number is
(212) 226-7474; and our web site can be accessed at www.smavid.com. Information
contained in our web site is not part of this prospectus.

CORPORATE BACKGROUND

We began business in 1985 under the name SMA Video, Inc. S.M.A. Real Time
Inc. was formed as a New York corporation in May 1993 to be the operating
company for parts of our business. In April 1999, two corporate subsidiaries,
Fly Films, Inc. and SMA Visual Effects Corp. were merged into SMA Video, Inc.,
and SMA Video became a wholly owned subsidiary of S.M.A. Real Time Inc. All
references to "S.M.A. Real Time Inc.," "we," "our," or "us" include the
operations of SMA Video, Inc. and its predecessor entities.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered by us................ 2,000,000 shares

Common stock to be outstanding after this
offering................................ 5,700,000 shares, assuming the underwriters do not exercise their
over-allotment option

Use of proceeds........................... o Expansion and improvements to facilities and other capital
expenditures;

o Expansion of internal operations;

o Sales and marketing expenditures;

o Repayment of promissory notes; and

o Working capital and general corporate purposes

Proposed Amex symbol...................... "VTV"
</TABLE>

Except as noted, all of the information in this prospectus assumes that
neither the warrants that we will issue to the representative of the
underwriters or the underwriter's over-allotment option are exercised, and does
not reflect the issuance of any of our 500,000 shares of common stock available
for future grants pursuant to our 1999 stock incentive plan.

<PAGE>

SUMMARY FINANCIAL DATA

You should read the following summary financial data together with the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
notes thereto included elsewhere in this prospectus.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------ ------------------------
1997 1998 1998 1999
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(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $5,850,308 $6,469,142 $4,895,985 $5,407,482
Cost of revenues..................................... 3,628,295 4,044,591 3,066,416 3,702,220
---------- ---------- ---------- ----------
Gross margin......................................... 2,222,013 2,424,551 1,829,569 1,705,262
Selling, general and administrative.................. 1,652,506 1,611,515 1,226,958 1,320,344
---------- ---------- ---------- ----------
Income from operations............................... 569,507 813,036 602,611 384,918
---------- ---------- ---------- ----------
Interest expense, net of interest income............. 540,795 509,513 385,403 310,146
Amortization of deferred financing costs............. -- -- -- 345,556
Other expense........................................ 5,432 2,219 959 512
---------- ---------- ---------- ----------
Total other expenses................................. 546,227 511,732 386,362 656,214
---------- ---------- ---------- ----------
Income (loss) before income taxes.................... 23,280 301,304 216,249 (271,296)
Provision for (recovery of) income taxes............. 7,998 142,000 97,500 (122,083)
---------- ---------- ---------- ----------
Net income (loss).................................... $ 15,282 $ 159,304 $ 118,749 $ (149,213)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic and diluted earnings (loss) per share.......... $ .01 $ .05 $ .03 $ (.04)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in basic and diluted earnings (loss) per
share.............................................. 3,490,000 3,490,000 3,490,000 3,513,333
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

The pro forma balance sheet below, as of June 30, 1999, has been adjusted
to reflect the sale of common stock offered at an assumed initial public
offering price of $9.00 per share, representing the mid point of the filing
range, and the receipt of the estimated net proceeds.

<TABLE>
<CAPTION>
AS OF AS OF JUNE 30, 1999
SEPTEMBER 30, --------------------------
1998 ACTUAL PRO FORMA
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(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total working capital (deficit)................................. $(1,282,117) $(1,625,260) $13,476,090
Total assets.................................................... $ 6,162,661 $ 7,502,650 $20,693,206
Total liabilities............................................... $ 4,888,100 $ 4,902,302 $ 3,932,419
Total stockholders' equity...................................... $ 1,274,561 $ 2,600,348 $16,760,787
</TABLE>

6
<PAGE>

RISK FACTORS

An investment in our common stock involves a high degree of risk. In addition to
the other information contained in this prospectus, you should carefully
consider the following risk factors and other information in this prospectus
before investing in our common stock.

BECAUSE WE PLAN TO EXPAND OUR FACILITIES, INTERNAL OPERATIONS AND OUR SALES AND
MARKETING EFFORTS, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS OR
CONTINUE TO ACHIEVE PROFITABILITY.

We expect that our sales and marketing, product development and
administrative expenses will increase in the future and, as a result, we will
need to generate significant revenues to achieve and maintain profitability.
Although our revenues have grown in recent quarters, we cannot assure you that
we will achieve sufficient revenues for profitability. To stay profitable, we
must, among other things:

o successfully develop and deliver new products and services;

o respond quickly and effectively to competitive, market and technological
developments;

o expand sales and marketing operations;

o broaden production and post-production capabilities;

o retain and attract highly qualified employees;

o improve customer support; and

o control expenses.

If revenues grow slower than we anticipate, or operating expenses exceed our
expectations or cannot be adjusted accordingly, our business, results of
operations, and financial condition will be materially and adversely affected.

WE ARE CURRENTLY DEPENDENT UPON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION
OF OUR REVENUES.

Our largest customer, ABC News, accounted for approximately 13% and 11% of
our revenues in fiscal year 1998 and 1997. We do not have a contract with this
customer. In fiscal 1998, our five largest customers, ABC News, Berwyn
Editorial, Inc., Orbital Power & Light, Inc., Progressive Image Group, Inc. and
Shoot First Editorial, accounted for 32% of our revenues. In fiscal 1997, our
five largest customers, ABC News, Berwyn Editorial, Inc., Girialdi Suarez
Productions, Inc., Lost Planet Editorial, Inc. and Progressive Image Group, Inc.
accounted for 38% of our revenues. For the nine months ended June 30, 1999, ABC
News and the Children's Television Workshop accounted for approximately 24% of
our revenue. For the nine months ended June 30, 1998, ABC News accounted for
approximately 13% of our revenues. The loss of these customers would likely have
a material adverse effect on our business, financial condition and results of
operations.

Our business and financial condition would be materially adversely affected
if we do not attain substantial additional business from these customers, or if
we lose the business of any of these customers, and if we fail to attain
substantial additional business from other customers.

o technical difficulties with respect to the use of our services;

o management of our growth; and

o general economic conditions.

OUR SERVICES ARE TECHNOLOGY INTENSIVE AND TO BE SUCCESSFUL, WE NEED TO KEEP UP
WITH RAPID TECHNOLOGICAL CHANGE.

Our market is characterized by rapid technological change and frequent new
product announcements. Significant technological changes could render our
existing technology obsolete. We will frequently need to upgrade our facilities
to meet the evolving demands of high definition television, as well as
technological changes arising out of utilization of high definition graphics on

7
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the internet. If we are unable to successfully respond to these developments or
do not respond in a cost-effective way, our business, financial condition and
results of operations will be materially adversely affected. To be successful,
we must adapt to our rapidly changing market by continually improving the
responsiveness, services and features of our products and services and by
developing new features to meet customer needs. Our success will depend, in
part, on our ability to adapt to rapidly changing technologies, to enhance our
existing services and to develop new services and technologies that address the
needs of our customers.

WE CURRENTLY HAVE NO SALES AND MARKETING EMPLOYEES AND WILL NEED TO ESTABLISH AN
IN HOUSE MARKETING AND SALES STAFF IN ORDER TO INCREASE OUR CUSTOMER BASE.

Currently we have no sales and marketing employees and have obtained work
through recommendations by existing clients, the use of demo-reels and limited
participation in trade shows rather than extensive marketing campaigns.
Following the completion of this offering, we intend to hire an in-house sales
and marketing staff, but our efforts to develop a sufficient sales and marketing
group may be inadequate. Our inability to develop a sufficient sales and
marketing group would have a negative effect on our ability to increase and
better penetrate our customer base.

WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS WHICH COULD RESULT IN
US NEEDING TO RAISE ADDITION CAPITAL IN THE FUTURE CAUSING OUR STOCKHOLDERS
DILUTION OR THE CURTAILMENT OF OUR BUSINESS PLAN.

Based on our current operating plan, we anticipate that the net proceeds of
this offering and cash provided by operations will allow us to meet our cash
requirements for at least the 12 months following the date of this prospectus.
We may require additional funding sooner than anticipated. In addition,
unplanned acquisition and development opportunities and other contingencies may
arise, which could require us to raise additional capital. We cannot be certain
that additional financing will be available on commercially reasonable terms, if
at all. If we raise additional capital through the sale of equity, including
preferred stock or convertible debt securities, the percentage ownership of our
then existing stockholders will be diluted.

THERE IS INTENSE COMPETITION FOR PRODUCTION AND POST-PRODUCTION SERVICES.

The production and post-production industry is highly competitive and
constantly evolving. Specifically we face competition from the following
segments in the industry for the services we offer and plan to offer:

o commercial post-production such as: The Tape House, Inc. and Nice Shoes,
LLC.;

o virtual set production such as: LRP Productions and Atlantic Video, Inc.;

o motion film developing lab such as: Technicolor East Coast, Inc. and
Duart Film and Video;

o high definition post-production such as: The Tape House, Inc.;

o video audio design and mixing such as: ToddAO Studios East, Photomagnetic
Sound Studios, Inc. and Eastside Audio and Video;

o high definition production such as: in-house production studios of CBS
and the MSG Network; and

o internet content production, such as: Razor Fish, Concrete Media,
Broadcast.com, and Funny Garbage.

We believe that the principal competitive factors in our markets include the
ability to customize technology to a customer's particular use, cost for
services and service offerings. Many of our current and potential competitors
have substantially greater human and financial resources, experience and brand
recognition than us and may be competitive through other lines of business and
existing relationships. Furthermore, these competitors may introduce new
products and services addressing these markets in the future. There can be no
assurance that our competitors will not

8
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develop services that are superior to our services or that achieve greater
market acceptance than our offerings.

OUR MANAGEMENT WILL CONTROL 50.17% OF OUR COMMON STOCK AFTER THIS OFFERING AND
AS A RESULT, YOU MAY HAVE NO EFFECTIVE VOICE IN OUR MANAGEMENT.

The interests of our management could conflict with the interests of our
other stockholders. Following this offering, our executive officers and
directors will beneficially own a total of approximately 50.17%, and 47.66% if
the underwriter's over-allotment option is exercised in full, of our outstanding
common stock. Accordingly, if they act together, they will have the power to
control the election of all of our directors and the approval of actions for
which the approval of our shareholders is required. If you purchase shares of
our common stock, you may have no effective voice in our management.

OUR SUCCESS DEPENDS ON THE EFFORTS OF, AND OUR ABILITY TO RETAIN, OUR PRESIDENT
AND CHIEF EXECUTIVE OFFICER AND OUR EXECUTIVE VICE PRESIDENT.

We believe the efforts of our executive officers, Michael Morrissey, our
president and chief executive officer, and David Satin, our executive
vice-president, are essential to our operations and growth. The loss of the
services of either Mr. Morrissey or Mr. Satin would have a material adverse
effect on our business. These individuals are responsible for drafting and
implementing our business plan. We maintain key-man life insurance on the lives
of both Mr. Morrissey and Mr. Satin, each policy in the amount of $500,000.
However, the proceeds of such insurance have been assigned to Citibank, N.A. as
collateral for obligations owed to Citibank, N.A. We have made application to
obtain additional life insurance policies of $1,500,000 on the lives of
Mr. Morrissey and Mr. Satin. Mr. Morrissey and Mr. Satin have also personally
guaranteed approximately 27 capital leases and various bank loans.

COMPETITION FOR EXPERIENCED PERSONNEL IN OUR INDUSTRY IS HIGHLY COMPETITIVE AND
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO RECRUIT ADDITIONAL PERSONNEL, OUR
BUSINESS MAY SUFFER.

In addition to our senior management personnel, we are dependent upon
several key employees with artistic talent and graphics expertise, namely Leslie
Rudner, our chief engineer; Todd Ruff, our director of graphics; Jim Suhre, our
virtual set designer and 3D graphics designer; and Eli Friedman, our senior
colorist. Our success is dependent upon our ability to retain our key employees
and to attract, assimilate and retain other highly qualified employees. If we do
not succeed in retaining or motivating our current personnel or in hiring
additional qualified employees, our business will be adversely affected and our
services will be impaired. Competition for personnel in our industry,
particularly those with expertise, is intense, and we do not know if we will be
able to attract and retain the necessary personnel. In addition, we do not have
employment agreements with all of our key personnel.

OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS OF THIS
OFFERING AND MAY NOT APPLY THEM EFFECTIVELY.

Our management will have significant flexibility in applying the net
proceeds of this offering and may apply the proceeds in ways with which you do
not agree. The failure of our management to apply these funds effectively could
materially harm our business. The proposed allocation of the net proceeds of
this offering represents our management's best estimate of the expected
utilization of funds to finance our activities in accordance with our
management's current objectives and market conditions.

9
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OUR STOCK PRICES MAY FLUCTUATE, WHICH MAY MAKE IT DIFFICULT TO RESELL YOUR
SHARES AT ATTRACTIVE PRICES.

The market price of our common stock may be highly volatile. The market
prices of securities of other production companies are highly volatile. Factors
that could cause volatility in our stock price include:

o fluctuations in our quarterly operating results;

o changes in the market valuations of other production companies and stock
market price and volume fluctuations generally;

o economic conditions specific to the production and post-production
industry;

o announcements by us or our competitors relating to new services or
technologies, significant acquisitions, strategic relationships, joint
ventures or capital commitments;

o regulatory developments; and

o additions or departures of our key personnel.

THE REPRESENTATIVE OF THE UNDERWRITERS WILL CONTINUE TO HAVE INFLUENCE OVER US,
INCLUDING THE OWNERSHIP OF OUR SECURITIES AND THE RIGHT TO DESIGNATE AN
INDIVIDUAL TO OUR BOARD OF DIRECTORS, FOLLOWING THE COMPLETION OF THIS OFFERING.

Dirks & Company, the representative of the underwriters, has been given the
right, for a period of five years from the completion of this offering, to
designate a person to our board of directors. Upon completion of this offering,
the representative will also receive, for nominal consideration, warrants to
purchase 200,000 shares of our common stock. The representative was also given
21,000 warrants to purchase 21,000 shares of our common stock as compensation in
connection with our May private placement. Accordingly, the representative will
continue to have influence over our operations following the completion of this
offering.

OUR FAILURE TO PROTECT OUR PROPRIETARY RIGHTS COULD IMPAIR OUR COMPETITIVE
POSITION AND PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY
LITIGATION.

We regard our trade secrets and similar intellectual property as important
to our success. However, our efforts to establish and protect our proprietary
rights may be inadequate to prevent misappropriation or infringement of our
proprietary property. We need to safeguard our intellectual property rights, in
order to safeguard our name and goodwill. We do not know if third parties will
bring claims of copyright or trademark infringement against us or claim that our
use of certain technologies violates a patent. Further, do not know if third
parties will claim that we misappropriated their creative ideas or formats or
otherwise infringed on their proprietary rights in connection with the content
we have or will create. Any claims of infringement, with or without merit, could
be time consuming to defend, result in costly litigation, divert management
attention, require us to enter into costly royalty or licensing arrangements or
prevent us from using important technologies or methods, any of which could
damage our business and financial condition.

YEAR 2000 RISKS COULD NEGATIVELY IMPACT OUR BUSINESS.

Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Thus, the year 2000 will appear as
"00," which the system might consider to be the year 1900 rather than the year
2000. This could result in system failures, delays or miscalculations causing
disruptions to our operations. The failure of systems maintained by third
parties to be Year 2000 compliant could cause us to incur significant expense to
remedy any problems, reduce our revenues from such third parties or otherwise
seriously damage our business. Our failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, some of our normal
business activities or operations and thus, damage our client's confidence in
us.

10
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, our beliefs and
assumptions. Words including "may," "could," "would," "will," "anticipates,"
"expects," "intends," "plans," "projects," "believes," "seeks," "estimates" and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus.

We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We are not obligated to update these statements or publicly release
the result of any revisions to them to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events.

USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $15,100,000
from our sale of the 2.0 million shares of common stock offered hereby, assuming
an initial public offering price of $9.00, the mid-point of the filing range. If
the underwriters exercise their over-allotment option in full, we will receive
net proceeds of approximately $17,400,000. That amount is after deducting
estimated underwriting discounts and commissions and after fees and expenses of
approximately $560,000 payable by us.

<TABLE>
<CAPTION>
NET PROCEEDS PERCENT OF TOTAL
------------ ----------------
<S> <C> <C>
Expansion and improvements to facilities....................................... $ 8,450,000 56.0%
Expansion of internal operations............................................... 1,650,000 10.9%
Sales and marketing expenditures............................................... 2,600,000 17.2%
Repayment of promissory notes.................................................. 735,000 4.9%
Working capital and general corporate purposes................................. 1,665,000 11.0%
------------ ------
Total........................................................................ 15,100,000 100.0%
------------ ------
------------ ------
</TABLE>

Expansion and improvements to facilities. We intend to design, purchase and
install high definition television and data equipment, a new motion picture lab,
a new HDTV virtual studio, and a digital audio mixing and design studio which we
intend to locate in approximately 50,000 square feet of space in Manhattan which
we intend to rent and fit out for these purposes. We are negotiating for
sufficient additional space in the 100 Avenue of the Americas building where our
corporate headquarters are located. If this negotiation is not successful, we
will continue our efforts to locate space as close to our offices as feasible.

Expansion of internal operations. We intend to create a new division which
will focus upon developing content. Although we have experience developing
content, this development was primarily in response to requests from our
customers, and the material we produced was generally the property of our
customers. The new division will develop an inventory of content which will be
our property, not only for the purpose of permitting us to more readily respond
to the requests from broadcast, theatrical and Internet customers for
programming, but also for the purpose of producing our own television shows and
motion pictures. Furthermore, we intend to repackage existing programming, which
we intend to purchase, into new shows.

Sales and marketing expenditures. We intend to create a new sales and
marketing division with additional sales and marketing staff, and to increase
advertising and trade show related activities. We intend that this staff will
consist of a director of marketing who will supervise three to four sales people
who will promote our new services to existing clients and the full range of our
services to potential clients under the one-stop-shop umbrella.

Repayment of promissory notes. We intend to repay $700,000 of promissory
notes, issued during May 1999 plus accrued interest at 10% per annum of
approximately $35,000.

Working capital and general corporate purposes. Working capital may be
used, among other things, to pay salaries and wages, professional fees, rent and
other operating expenses.

11
<PAGE>

We anticipate that the net proceeds from this offering and cash provided by
operations will be sufficient to fund our operations and cash requirements for
at least the 12 months following the date of this prospectus. We cannot assure
you, however, that such funds will not be expended earlier due to unanticipated
changes in economic conditions or other circumstances that we cannot foresee. In
the event our plans or assumptions change or prove to be inaccurate, we might
seek additional financing sooner than currently anticipated. Any net proceeds
from the sale of the underwriter's over-allotment option will be allocated to
working capital and general corporate purposes.

The proposed allocation of the net proceeds represents our management's
best estimate of and the current intentions concerning the expected use of funds
to finance our activities in accordance with our management's current objectives
and market conditions. Our management and board of directors may allocate the
funds in significantly different proportions, depending on their needs at the
time. Pending application of the net proceeds in the manner mentioned above, we
intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any cash or stock dividends on our capital
stock. We presently intend to reinvest earnings to fund the development and
expansion of our business and, therefore, do not anticipate paying cash
dividends on our common stock in the foreseeable future. The declaration of
dividends will be at the discretion of our board of directors and will depend
upon our earnings, capital requirements and financial position, general economic
conditions and other pertinent factors.

CAPITALIZATION

The following table sets forth our:

o actual capitalization as of June 30, 1999;

o pro forma capitalization as of June 30, 1999 which gives effect to the
sale of 2,000,000 shares of common stock in this offering at an assumed
initial public offering price of $9.00 per share, representing the mid
point of the filing range, after deducting estimated underwriting
discounts, the underwriter's non-accountable expense allowance and
estimated offering expenses, and the application of the net proceeds
which includes the repayment of the face amount of the promissory notes
issued in the May 1999 private placement of $700,000. Pro forma retained
earnings reflects the amortization of the remaining deferred financing
costs of $1,209,444, net of an estimated tax benefit limited to the
deferred tax liability at June 30, 1999 of $269,883.

This table should be read in conjunction with the financial statements and
notes thereto appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
--------------------------
ACTUAL PRO FORMA
----------- -----------
(UNAUDITED)
<S> <C> <C>
Notes payable and capital lease obligations, less current maturities............... $ 1,455,342 $ 1,455,342
----------- -----------
Promissory notes--private placement................................................ $ 700,000 $ --
----------- -----------
Stockholders' equity:
Preferred stock--$.0001 par value; (10,000,000 shares authorized and -0- shares
outstanding at June 30, 1999).................................................... $ -- $ --
Common stock--$.0001 par value; 50,000,000 shares authorized; 3,700,000 shares
outstanding, actual; and 5,700,000 shares outstanding, pro forma................. 370 570
Additional paid-in capital......................................................... 1,515,390 16,615,190
Retained earnings.................................................................. 1,084,588 145,027
----------- -----------
Total stockholders' equity....................................................... $ 2,600,348 $16,760,787
----------- -----------
Total capitalization............................................................. $ 4,755,690 $18,216,129
----------- -----------
----------- -----------
</TABLE>

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<PAGE>

The preceding table excludes:

o 21,000 shares issuable upon exercise of outstanding placement agent
warrants;

o 300,000 shares issuable upon exercise of the underwriter's over allotment
option;

o 200,000 shares issuable upon exercise of the representative's warrants;
and

o 500,000 shares reserved for issuance under our 1999 stock incentive plan.

DILUTION

As of June 30, 1999, our net tangible book value was $1,155,274, or
approximately $.31 per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock issued and outstanding.

After giving effect to the sale of the 2,000,000 shares of common stock
offered, and after deducting estimated underwriting discounts and offering
expenses, our pro forma net tangible book value at June 30, 1999 would have been
$16,760,787, or $2.94 per share of common stock. This represents an immediate
increase in net tangible book value of $2.63 per share of common stock to
existing stockholders and an immediate dilution in net tangible book value of
$6.06 per share of common stock, or approximately 67%, to new investors. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of common stock...................... $9.00
Net tangible book value per share prior to the offering.............................. $0.31
Increase in net tangible book value per share attributable to the offering........... 2.63
-----
Pro forma net tangible book value per share after the offering....................... 2.94
-----
Dilution of net tangible book value per share to investors in the offering........... $6.06
-----
-----
</TABLE>

If the over-allotment option is exercised in full, our pro forma net
tangible book value after the offering would have been $19,100,787, or $3.18 per
share of common stock. This represents an immediate increase in net tangible
book value of $2.87 per share of common stock to existing stockholders and an
immediate dilution in net tangible book value of $5.82 per share of common
stock, or approximately 65%, to new investors.

The following table summarizes on a pro forma basis, as of June 30, 1999,
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid by existing stockholders of common
stock and the investors in the offering, assuming the sale of the 2,000,000
shares offered by this prospectus, assuming an initial public offering price of
$9.00 per share. The calculations are based upon total consideration given by
new investors and existing stockholders before any deduction of underwriting
discounts and offering expenses payable by us.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 3,700,000 65% $ 40,760 .2% $ .01
New investors.......................... 2,000,000 35% 18,000,000 99.8% $9.00
--------- --- ----------- -----
Total............................. 5,700,000 100% $18,040,760 100%
--------- --- ----------- -----
--------- --- ----------- -----
</TABLE>

13
<PAGE>

SELECTED FINANCIAL INFORMATION

The historical selected financial data as of September 30, 1998 and for the
years ended September 30, 1997 and 1998 are derived from and should be read in
conjunction with our audited financial statements and accompanying notes
included elsewhere in the prospectus. The historical selected financial data as
of June 30, 1999 and for the nine months ended June 30, 1998 and 1999 are
derived from and should be read in conjunction with our unaudited financial
statements included elsewhere in the prospectus. In the opinion of management,
the unaudited financial statements include all material adjustments, consisting
of only normal, recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the period. The data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and accompanying notes appearing elsewhere in the prospectus.

Shares of common stock outstanding have been restated to reflect the stock
splits and other reorganization transactions described in Note 10 to the
accompanying financial statements.

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<PAGE>

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

The following management's discussion and analysis of the financial
condition and results of operations should be read in conjunction with our
financial statements and the accompanying notes appearing elsewhere in this
prospectus. In addition to historical information, this management discussion
and analysis of financial condition and results of operations contain
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements as a result of factors,
including those set forth under "Risk Factors" and in other parts of this
prospectus.

OVERVIEW

Revenues are generated at our video and film studios, where we provide a
wide range of production and post-production services to companies that produce
commercials, television programs, music videos and feature films.

We combine traditional video and film production techniques with state of
the art technology and expertise in the fields of virtual and digital
production. Our services include

o studio production,

o film to video transfer,

o creation of high-end computer visual effects (computer animation),

o on-line editing and

o videotape duplication services. Most of our services are performed at our
headquarters in lower Manhattan, New York.

Our two largest customers, ABC News and the Children's Television Workshop,
accounted for 24% of our revenues for the nine month period ended June 30, 1999.
ABC News accounted for 13% of our revenues for the nine month period ended
June 30, 1998. For the fiscal years ended September 30, 1998 and 1997, ABC News
accounted for 13% and 11% of revenues. We anticipate that ABC News and the
Children's Television Workshop will continue to account for a significant
portion of our revenues in the future.

Over the last 14 years, we have invested significant resources and capital
in the acquisition of new equipment and the design and construction of our
studios. Our goal is to be the leading production and post-production studio for
all types of media including film, internet and television. To that end, we
intend to continue to allocate a major portion of our capital to technological
development.

RESULTS OF OPERATIONS

COMPARISON OF NINE MONTHS ENDED JUNE 30, 1999 TO NINE MONTHS ENDED JUNE 30, 1998

Revenues. Revenues increased to approximately $5,407,000 for the nine
months ended June 30, 1999 from approximately $4,896,000 for the nine months
ended June 30, 1998. The increase of $511,000, or 10%, was primarily due to an
increase in revenue from virtual studio production services. For the nine months
ended June 30, 1999, post production revenue and virtual studio and other
production revenue accounted for approximately 62% and 31% of revenue,
respectively. For the nine months ended June 30, 1998, post production revenue
and virtual studio and other production revenue accounted for approximately 71%
and 20% of revenue, respectively.

Cost of revenues. Cost of revenues consist primarily of facility and
production costs, production salaries, depreciation expense, outside contracting
services and supplies. Cost of revenues increased to approximately $3,702,000,
or 68% of revenues, for the nine months ended June 30, 1999 from approximately
$3,066,000, or 63% of revenues, for the nine months ended June 30, 1998. The
increase of $636,000, or 21%, was primarily due to the 10% increase in revenues
during the period and an increase in labor costs related to a joint venture,
Flicker FX at

15
<PAGE>

SMA LLC, entered into in November 1998 to provide production of television, film
and multimedia graphics products. For the nine months ended June 30, 1999,
depreciation and amortization, salaries, and contract labor accounted for
approximately 24%, 22% and 11% of revenues, respectively. For the nine months
ended June 30, 1998, depreciation and amortization, salaries and contract labor
accounted for approximately 26%, 24% and 4% of revenues, respectively. We expect
our cost of revenues to continue to increase in dollar amount while declining as
a percentage of revenues as Flicker expands its customer base and from increases
in revenues from our higher margin virtual studio services.

Gross margin. Gross margin decreased approximately $125,000, or 7%, to
approximately $1,705,000 for the nine months ended June 30, 1999 from
approximately $1,830,000 for the nine months ended June 30, 1998. As a
percentage of revenues, gross margin was approximately 32% and approximately 37%
for the nine months ended June 30, 1999 and 1998, respectively. The primary
reason for the decrease was an increase in fixed labor costs related to the
Flicker joint venture.

Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries, employee benefits, rent
and utilities. Selling, general and administrative expenses increased to
approximately $1,320,000, approximately $93,000, or 8%, for the nine months
ended June 30, 1999 from approximately $1,227,000 for the nine months ended
June 30, 1998. As a percentage of revenues, selling, general and administrative
expenses was 24% for the nine months ended June 30, 1999 as compared to 25.0%
for the nine months ended June 30, 1998. The increase consisted primarily of
increases in health insurance and professional fees of $38,000 and $79,000,
respectively, in the same periods. These increases are related to the Flicker
joint venture. We anticipate that we will incur significant increases in
selling, general and administrative expenses as we continue to hire personnel
and incur various expenses related to the growth of our business and operations.

Interest expense, net of interest income. Interest expense includes
interest income from our cash balances and interest expense related to our
financing obligations including bank loans and capital leases. Interest expense,
net of interest income decreased to approximately $310,000 for the nine months
ended June 30, 1999 from approximately $385,000 for the nine months ended
June 30, 1998. The decrease of approximately $75,000, or 20%, is attributable to
the repayment of principal portions of capital leases and long term debt.

Amortization of deferred financing costs. Amortization of deferred
financing cost consist of (i) a non-cash cost valued at $1,470,000, attributable
to the issuance of 210,000 shares of common stock in connection with a Private
Placement completed in May of 1999 and (ii) expenses related to such financing
approximating $85,000. The deferred financing costs are being amortized over the
nine-month period commencing May 1, 1999. Amortization of the deferred financing
costs for the period ended June 30, 1999 was $345,556. The unamortized deferred
financing costs at June 30, 1999 approximates $1,209,000 and will be charged to
operations over the earlier of the effective date of the closing of an initial
public offering of the Company's securities or the period ending February 1,
2000.

Net income. Net income was approximately $118,000 for the nine months ended
June 30, 1998 as compared to a net loss of $149,000 for the nine months ended
June 30, 1999. The decrease was due primarily to the loss of approximately
$170,000 from the Flicker joint venture and a non-cash charge to earnings of
approximately $346,000 from the amortization of the deferred financing costs.
Our fourth quarter ended September 30, 1999 is expected to result in a net loss
due to the amortization of the deferred financing costs.

COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1998 TO FISCAL YEAR ENDED
SEPTEMBER 30, 1997

Revenues. Revenues increased to approximately $6,469,000 for fiscal 1998
from approximately $5,850,000 for fiscal 1997. The increase of $619,000, or
10.6%, was primarily due to an increase in revenues from the virtual studio
production services of approximately $407,000. For fiscal 1998, post production
revenues and virtual studio and other production revenues accounted for

16
<PAGE>

approximately 75.4% and 22.2% of revenues, respectively. For fiscal 1997, post
production revenues and virtual studio and other production revenues accounted
for approximately 77.1%, and 15.6% of revenues, respectively.

Cost of revenues. Cost of revenues increased to approximately $4,045,000,
or 62.5% of revenues, for fiscal 1998 from approximately $3,628,000, or 62.0% of
revenues, for fiscal 1997. The increase of $417,000, or 11.5%, was primarily due
to an increase in depreciation and amortization, salaries and wages and contract
labor with an offsetting decrease in facility and production costs. For fiscal
1998, depreciation and amortization, salaries and contract labor accounted for
approximately 26.2%, 24.5% and 4.0% of revenues, respectively. For fiscal 1997,
depreciation and amortization, salaries and contract labor accounted for
approximately 23.0%, 25.7% and 3.4% of revenues, respectively.

Gross margin. Gross margin for fiscal 1998 increased approximately
$203,000, or 9.1%, to approximately $2,425,000 from approximately $2,222,000 for
fiscal 1997. As a percentage of revenues, gross margin was 37.5 % and 38.0% for
fiscal 1998 and 1997, respectively. The primary reason for the increase in gross
margin was due to an increase in virtual studio production revenue offset by an
increase in depreciation expense.

Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1998 decreased $41,000, or 2.5%, to
approximately $1,612,000 from approximately $1,653,000 for fiscal 1997. As a
percentage of revenues, such expenses decreased to 24.9% for fiscal 1998 as
compared to 28.2% for fiscal 1997. The decrease consisted primarily of decreases
in utilities costs, office expenses and bad debts aggregating approximately
$27,000.

Interest expense, net of interest income. Interest expense, net of interest
income for fiscal 1998, decreased 5.8% to approximately $510,000 compared to
approximately $541,000 for fiscal 1997. The decrease of approximately $31,000,
or 5.7%, is attributable to the repayment of principal portions of capital
leases and long-term debt.

Net income. Net income increased from approximately $15,000 for the fiscal
year ended September 30, 1997 to approximately $159,000 for the fiscal year
ended September 30, 1998 due primarily to an increase in virtual studio
production revenue and related gross margin contributions.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations through bank debt,
capital lease financing arrangements and from a $700,000 private placement
completed in May, 1999. As of June 30, 1999, we had approximately $509,000 in
cash.

Net cash provided by operating activities. Net cash provided by operating
activities decreased to approximately $1,365,000 for the nine months ended
June 30, 1999 from approximately $1,452,000 for the nine months ended June 30,
1998. The decrease was primarily due to the decrease in net income and an
increase in accounts receivable and prepaid expenses offset by an increase in
accounts payable. For the year ended September 30, 1998, our net cash provided
by operating activities increased to approximately $1,866,000 from approximately
$1,260,000 for the year ended September 30, 1997. The increase was primarily due
to an increase in net income of approximately $144,000 and an increase in
depreciation expense for the year ended September 30, 1998 of approximately
$345,000.

Net cash used in investing activities. Cash flows used in investing
activities decreased to approximately $114,000 for the nine months ended
June 30, 1999 from approximately $118,000 for the nine months ended June 30,
1998. Cash flows used in investing activities decreased primarily because of an
increase in proceeds received from the sale of equipment in the nine months
ended June 30, 1999 as compared to the nine months ended June 30, 1998. Cash
flows used in investing activities increased to approximately $174,000 for
fiscal 1998 from approximately $148,000 for fiscal 1997. The increase was
primarily due to an increase in purchases of property and equipment and a
decrease in proceeds from disposals for the year ended September 30, 1998.
During these

17
<PAGE>

periods, most of our new equipment acquisitions were pursuant to capital lease
transactions requiring a minimal initial outlay of cash.

Net cash used in financing activities. Cash flows used in financing
activities decreased from approximately $1,167,000 for the nine months ended
June 30, 1998 to $864,000 for the nine months ended June 30, 1999. The decrease
was primarily due to the receipt of $700,000 of gross proceeds from the
completion of a private placement in May of 1999 offset by a reduction in
proceeds received from the line of credit of approximately $28,000 and costs
incurred in connection with this offering and the private placement offering of
approximately $316,000. Net cash used in financing activities increased during
fiscal 1998 to approximately $1,570,000 from approximately $1,150,000 in fiscal
1997. The increase was primarily due to an increase in repayments of term loans
of approximately $85,000 and an increase in repayments of principal under
capital lease obligations of approximately $345,000.

As explained in Note 5 to the accompanying financial statements, we had a
$250,000 revolving line of credit with a bank, of which $223,000 was
outstanding, as of June 30, 1999, three-term loans, with total outstanding
balances of $113,000, as of June 30, 1999, and various obligations under
twenty-four capital leases, which aggregate $2,999,000, as of June 30, 1999. The
indebtedness outstanding under the revolving line of credit and term loans are
collateralized by all of our assets. The obligations under capital leases are
collateralized by the underlying equipment for each loan. Substantially all of
our obligations are personally guaranteed by our two principal shareholders.

In May 1999, we completed a private placement whereby we sold seven units
for aggregate gross proceeds of $700,000. Each unit consists of:

(a) a $100,000 promissory note bearing interest at 10% per annum,
payable the earlier of nine months from the issuance date, or upon closing
of this offering; and

(b) 30,000 shares of our common stock. The 210,000 shares of common
stock issued in connection with this financing were valued at $1,470,000
and have been reflected on our June 30, 1999 balance sheet as an increase
to non-current assets entitled deferred financing costs and an increase to
common stock for $21 and an increase to additional paid-in capital of
$1,469,979. Such deferred financing costs are being amortized as interest
expense over the nine-month term of the notes commencing May 1, 1999.

Costs incurred in connection with the private placement include a $70,000
fee to the placement agent, approximately $10,000 in legal fees and warrants to
the placement agent to purchase 21,000 shares of our common stock at an exercise
price equal to 120% of the initial public offering price.

In November 1998, we entered into a joint venture agreement with an
unrelated corporation and organized Flicker FX at SMA, LLC to provide the
production of television, film and multimedia graphics products. The agreement
provides for, among other things:

(a) that until the joint venture achieves sufficient revenues to fund
its operations, we shall contribute start-up capital funds and guaranteed
annual salaries and benefits aggregating $550,000, of which $50,000 is to
be compensation to each of our two principal shareholders;

(b) use of our equipment and facilities; and

(c) that the operating profits, as defined, shall be allocated 60% to
us. The agreement also provides that we may terminate the agreement in the
event that the joint venture does not achieve certain defined financial
goals as of the first anniversary date of the agreement.

In May 1999, we entered into five-year employment agreements with our two
principal shareholders, which commence upon the closing of this offering. Each
employment agreement provides for, among other things, a base salary of $250,000
per year and annual increases for costs of living.

18
<PAGE>

In addition, in May 1999, we also entered into employment contracts with
two of our key technicians, one for a five-year term providing for a base salary
of $175,000 per year and a second contract for a three-year term providing for a
base salary of $230,000 per year.

In May 1999, we entered into a six-month consulting agreement with an
unrelated individual to assist us in our sales and marketing efforts in the area
of digital audio. The agreement commences on June 1, 1999 and provides for
minimum payments aggregating $140,000 through November 30, 1999 and commissions
based on new clients and new business generated during the term of the agreement
and for the five-year period thereafter.

In July 1999, we entered into an agreement with a consultant providing for
the supervision of the design, construction and operation of an audio post
production facility. The agreement provides for weekly payments of $2,500
beginning July 15, 1999 until completion and reimbursement of expenses. Upon
completion of the facility, it is agreed that the consultant performing the
services will enter into an employment agreement with us at terms to be then
determined.

Our capital requirements have grown since our inception consistently with
the growth of our operations and staffing. We expect our capital requirements to
continue to increase in the future in order to maintain our state of the art
facility and to remain a competitive force in this industry. We intend to use
approximately $8,450,000 of the net proceeds from this initial public offering
for expansion and improvements to our facilities and purchase of related
equipment. We believe that the cash flow from operations, combined with our
borrowing capabilities and the net proceeds from this offering will be
sufficient to meet our anticipated working capital and capital expenditure
requirements for at least the twelve month-period following this offering.

RECENTLY ISSUED ACCOUNTING STANDARDS

Effective October 1, 1997, we adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income, defined as all changes in equity from non-owner
sources. Adoption of SFAS No. 130 did not have a material effect on our
financial position or net income.

Effective October 1, 1997, we adopted the provisions of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way public enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to stockholders. Adoption of SFAS No. 131 did not have
a material effect on our financial position or net income.

Effective October 1, 1997, we adopted American Institute of Certified
Public Accountants Statement of Position 97-2, "Software Revenue Recognition."
SOP 97-2 generally requires revenue earned on software arrangements involving
multiple elements, such as software products, upgrades, enhancements,
post-contract customer support, installation and training to be allocated to
each element based on the relative fair values of the elements. The adoption of
SOP 97-2 did not have an effect on our financial position or net income.

Effective December 29, 1997, we adopted Statement of Financial Accounting
Standards (SFAS) No. 132, "Employers' Disclosures About Pensions and
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits. The Statement addresses disclosure
only. It does not address liability measurement or expense recognition. There
was no effect on our financial position or net income as a result of adopting
SFAS No.132.

In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which revises the accounting for software
development costs and will require the capitalization of certain costs. The
adoption of SOP 98-1 did not have an effect on our financial position or net
income.

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<PAGE>

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.

State of readiness

We have made an assessment of our Year 2000 readiness of our operating,
financial and administrative systems, including the hardware and software that
support our systems. Our assessment consisted of:

o quality assurance testing of our internally developed proprietary
software and hardware;

o contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related
to the delivery of our products and services;

o contacting vendors of third-party systems;

o assessing repair or replacement requirements;

o implementing repair or replacement; and

o creating contingency plans in the event of Year 2000 failures.

We have confirmed our Year 2000 compliance by obtaining representations by
third party vendors of their products' Year 2000 compliance, as well as specific
testing of our products.

Costs

We have not incurred significant costs to date complying with Year 2000
requirements and we do not believe that we will incur significant costs for
these purposes in the foreseeable future. However, should products or systems
maintained by third parties or our products and systems fail to be Year 2000
compliant, despite the representations of third parties and the testing of our
products, we could incur significant expenses to remedy any problems. Such
expenses could have a material adverse effect on our business, results of
operations and financial condition.

Risks

Our failure to identify and correct a Year 2000 problem could result in an
interruption of normal business activities and operations. Although there is an
inherent uncertainty in the Year 2000 issue, we believe the impact on our
business will not be material. Most of the equipment involved in delivering our
product to our clients does not make use of date information at all. We believe
our greatest risk to be suppliers and utilities whose Year 2000 programs are
outside of our control. A disruption caused by a utility or supplier whose
systems are not compliant may have a direct and negative effect on our business.

Contingency plan

We make use of redundancy as part of our general business model in order to
provide the best and most reliable service to our clients as possible. We
believe this model will continue to serve us in reducing business risks
associated with the Year 2000 problem. We have identified alternate sources for
critical supplies where alternate sources exist and we have created a task force
led by our chief technical and financial personnel to address any Year 2000
issues as they arise. We will continue to develop a contingency plan throughout
the first three quarters of 1999, and expect to be fully compliant at such time.

20
<PAGE>

BUSINESS

OVERVIEW

SMA is a video and film studio that offers virtual and digital production
and post-production services to (a) advertising agencies, (b) creative editorial
companies, (c) Fortune 500 companies, (d) freelance producers, (e) Internet
producers, (f) movie studios, (g) production companies, (h) television networks,
and (i) television producers.

SERVICES

Location production. Location production involves the transportation of
equipment, crew, talent, clients and support facilities to an indoor or outdoor
location for the purpose of using the location as part of a production. All of
the elements required for a production need to be on-site and available while
shooting. Our role in this process is multifaceted. We generally arrange for
transportation for the crew and talent and provide lighting, grip (the rigging
apparatus for lights and scenery), electrical generators, camera supplies and
other support facilities such as catering, wardrobe, makeup trailers, and rest
rooms. We are also responsible for the shooting.

We believe location production often presents unique challenges and
requires a balance between creative and logistical concerns. For example, we
took over an entire MCI Facility in Phoenix, Arizona while working on a
production for an MCI advertising campaign. Prior to filming, the MCI facility
had to be made "camera ready." Fourteen days were required to modify this
facility for the shoot. We installed lighting grids and trusses and arranged for
additional air conditioning and power. Transporting lighting and grip equipment
alone required three 48-foot trailers. Throughout the preparation, shoot and
clean-up, we were responsible for providing three meals a day for over 300
people, and accommodations and amenities for 120 crew people. We were
responsible for a scene that required a snowstorm that extend over the entire
50,000 square feet facility. After the shoot, we spent five days restoring the
facility to its original condition.

Studio/stage production. Studio/stage production takes place in a film or
television studio/stage. Stages and studios are production-friendly environments
equipped with the electrical, air-conditioning and technical requirements for
production. Most of the lighting and grip equipment required for production is
on site as well as support areas for production departments. Additional
equipment and support is readily available.

The major expense of stage production is set creation. Set designers and
construction crews generally have a limited amount of time to construct a
realistic-looking environment in what is essentially a bare space. Complex sets
usually are built first on construction stages, and when completed, are broken
down and reconstructed on the shooting stage. We have the ability to construct
sets.

Set construction, from design to completion, generally takes a week to
30 days. After the set is in place, crews install lighting and prepare the set
for production followed by the actual shooting. Upon completion of shooting, the
set is broken down, and all lights are taken from the lighting grid and
returned. Rentals of props and equipment are sorted and returned to the vendors.
In our experience, this process may involve as many as 25 to 30 separate
deliveries.

A recent example of our studio/stage production work is our current
production of Elmo's World, for the Children's Television Workshop. This shoot
required a television facility including a studio equipped with a video control
room, engineering support and cameras. Since we own the majority of the
equipment necessary for this production, we rented a regular stage and installed
the components required for the production. Our contract with the Children's
Television Workshop dated April 15, 1999 is for production and post-production
of up to ten segments of Elmo's World. Our work on Elmo's World includes all
phases of the (a) computer graphics, (b) imaging, (c) real time animation
process, (d) all color correction, (e) compositing, (f) rotoscoping and
(g) blue-screen clean-up. We have completed the production phase of Elmo's World
for which we have been paid

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$662,141, and we have started the post-production phase and have completed one
segment of Elmo's World for which we have been paid $18,500. This contract prov
ides that we will post-produce nine additional segments of Elmo's World at
$18,500 per segment.

Virtual production. Virtual production is the creation of sets and scenery
by computer graphic artists using super computers to replace conventional sets.
In virtual productions, super computers integrate virtual sets stored in the
computer on screen with live performances. As the camera moves, the computer
changes the angle of the scene as if the set was actually there. Since virtual
production sets are three-dimensional computer models, actors moving around a
specially equipped virtual production stage appear, on screen, to be on stage
with the virtual objects and the scenery of the virtual set. The virtual
illusion allows an actor to appear to walk behind a virtual object. Generally,
only a limited number of physical props are needed for virtual production,
usually when there must be some physical interaction between the object and the
actor, for example, when a newscaster sits at a desk during a television news
broadcast.

Using virtual sets, we believe most physical scenes and locations can be
replicated and the need for expensive location production is reduced or
eliminated. Our virtual scenery is high definition television compatible and its
quality is limited primarily by the skill of the virtual set designer.

As we continue to design virtual scenes, we are building a library of
common virtual elements which can be used in future productions, as is, or with
modifications. Furthermore, virtual sets exist only in a computer, a much
smaller space than is required for a similar physical set. In addition, a
virtual production stage need only be large enough for the physical objects and
action of the scene. We believe virtual sets can be superior visually, quicker
to create and substantially less expensive than physical sets. Based on our
experience to date, physical sets on the average cost five (5) times more than
their virtual counterparts. A recent example of our virtual production is the
set for ESPN's Fifty Greatest Athletes which was taped in our virtual studio.
Our contract with ESPN dated October 15, 1998 provides that we will supply the
facilities, equipment and manpower necessary for the production of shows for
ESPN's 50 Greatest Athletes. The contract expires on January 31, 2000. We have
completed 31 shows under this contract, for which we have received $371,733.

Blue/green screen effects production. Blue/green screen effects production
is the addition of background scenes not present during shooting. The actor is
placed before a blue or green screen and the camera remains fixed. The blue and
green colors are electronically removed and replaced with pre-filmed
backgrounds. Our recent productions in this format were commercials for the
plays Footloose, and A Christmas Carol.

Motion control production. Motion control production uses robotic special
effects photography to replicate specific shots by computer programing of the
motion of the shots. The position of the camera is controlled by motors which
are controlled by a computer, so that movement of the camera may be replicated
from shot to shot. We own both studio and portable robotic camera systems which
allows film or video shot on location to be combined with models in the studio.
This system also can be used when an actor plays multiple characters in a shot.
We used this technique for a music video in which T-Boz played multiple
characters within the same scene. We also used motion control photography for
MCI's Big Board campaign in which over 185 layers of camera shots were combined
to make the finished commercial.

Computer program/database creation. Computer program/database creation is
the programming and creation of custom software for specific production
specifications such as the generation of virtual graphics. When computer
software packages are not available or tailored for specific production needs,
our computer engineers write computer programs to accomplish the needed effects.
We were employed by the USA Network for the 1997 US Open tennis tournament where
we created a custom computer database to update scores and feature the winners
of each match using graphics generated in real time for live television.

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Graphic design services. Graphic design services involve the creation of
signature graphic design for the titling of movies, television shows,
commercials, websites and plays. Examples of our graphic design work are the
logos created for the Cartoon Network and the plays Jekyll and Hyde and Rent.

Computer animation. Computer animation is the electronic creation of
high-end computer visual effects. We use super computers and animation systems
to create animations for commercials, television shows and movies. Our recent
computer animation work included the titles and floating Cupids for a Cover Girl
commercial, and the floating in space effects and the effects of eyes changing
into laser discs for a Panasonic commercial.

Film to video transfer. Film to video transfer is an integral component of
every film post-production project and is the transfer of film to videotape. Our
colorist has the ability to take motion picture footage and enhance the images
on our film to tape telecine machine. The overall palette, tonality and coloring
of a project is created and transferred to a digital format. A color corrector
is also used to correct video tape in a video to video process.

On-line editing. On-line editing is the process by which video tape,
animations, audio and transferred film footage are assembled to a broadcast
format. It is at this point that any post-effects editing or layering will be
added. We perform this service in one of our digital editing suites and this
layering may take the form of compositing work created in our computer graphics
departments or by utilizing our special effects equipment. This is the final
step before presentation.

Videotape duplication services. Videotape duplication is the process of
making multiple copies of existing videotapes. We have the capability of making
duplicates in both NTSC (a standard used in North America, portions of South
America and Japan) and PAL. PAL formatting is required for material that will be
broadcast overseas (Europe, Asia, and portions of South America and Africa).
Some production needs require multiple copies of tapes. For example, completed
commercials will require multiple copies for distribution to many television
stations across the country.

INDUSTRY BACKGROUND

The production and post-production industry in New York City for which we
provide our segment of services includes commercial production, television
production and feature films. The total gross estimated revenues in 1998 for the
entire segment, from which we could receive a small fraction of these revenues,
was $2.6 billion according to the New York Mayor's Office of Film, Theatre and
Broadcasting. Growth in overall production between 1997 and 1998 was 11% and
segments of this industry have shown steady growth, television 113% (1993-1998)
and feature films 189% (1993-1998).

The key cost components of video/film production are:

o Labor
o Equipment rental
o Studio rental
o Set design and construction
o Talent costs

o Film/video stock
o Location expense
o Film development
o Post-production and finishing costs

TRENDS--We believe that two communications trends, the advent of HDTV and
the expansion of broad band internet access, will impact the commercial video
and film production services industry in the next decade. Our expansion plans
are intended to target opportunities arising from these trends.

o The advent of high definition television--The Telecommunications Act of
1996 mandated that all television stations implement digital TV and return their
analog channel space not later than 2006. Furthermore, the United States House
of Representatives Telecommunications Subcommittee mandated that the major
networks standard broadcast be HDTV no later than 2006. In his September 15,
1998 remarks to the International Radio and Television Society, William E.

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Kennard, Chairman of the Federal Communications Commission, stated that 175
stations had filed applications with the FCC to begin digital TV broadcasting.

Digital television is expected to become the television broadcast norm. The
FCC November 1998 Digital Television Consumer Information Bulletin states that
50% of households in the United States are projected to be able to receive this
service by the end of 1999 and 100% by 2002. Furthermore, the bulletin states
that television stations will relinquish their analog service and make the
change to all digital television service by the end of 2006. ABC has announced
that the next Superbowl will be broadcast in HDTV.

Currently, traditional production sets are generally constructed with the
least expensive materials necessary to convey the scene. For example, if a scene
requires the use of a marble counter top, television productions may represent
the surface with a wooden mock-up which is painted to give the appearance of
real marble as it would be prohibitively expensive to use actual marble for a
temporary set. In many productions, entire rooms are represented using this faux
construction. The illusion works because the low resolution of traditional
television masks fine details and construction flaws. The higher resolution of
HDTV images shows the flaws of current set construction. Following the
implementation of the HDTV standard, television producers will be forced to
either build sets of much higher quality or rely on location production. We
believe both options will significantly increase the production costs of
television programs currently relying on traditional sets.

Virtual sets present producers with a third option. Since virtual sets are
constructed on supercomputers as high resolution images, they are compatible
with HDTV production. We intend to use a portion of the net proceeds of this
offering to construct a virtual studio to enable us to replace traditionally
constructed physical sets with virtual sets that provide sufficient detail to be
used for HDTV.

o The expansion of broad band internet access--We believe an important
factor in driving the growth of overall consumer demand to log on to the
internet will be the development of the visual/audio quality and download speed
of content on the Web, i.e. broad band solutions such as digital subscriber line
(DSL) and cable modems. Increased bandwidth will allow the internet to offer
real-time video and sound capabilities of television. Media providers will be
able to broadcast movies, commercials, live news and other television-style
content directly over the internet.

We also believe that the convergence of television and the internet will
increase the need for digital content (programming), of which we have extensive
experience over the past fourteen years. In April 1997, FCC Chairman Reed E.
Hunt stated, "As a result of the revised standard, computer manufacturers have
already announced plans to build massive numbers of digital television
compatible computers so that by the time television manufacturers will have made
one million digital television sets, computer manufacturers will have sold 20 to
50 million digital television compatible computers." If the demand for digital
television content increases, we believe the demand for our existing content
library as well as for our services to create new content, will also increase.

INTENDED PRODUCTS AND SERVICES

Our one-stop-shop approach is designed to provide our customers with a
total solution for their production and post-production needs. To execute our
one-stop-shop strategy, capitalize on the emerging HDTV and internet markets and
build on our current business, we intend to:

o Purchase and install high definition television and data equipment -
Although our current studio complex has the infrastructure required to
post-produce high definition television projects, we intend to expand our
facilities and invest in new technologies to meet the HDTV demands of our
customers.

o Design, purchase, build and install a new motion picture lab--Our film to
tape transfer department currently works on an excess of 70 film projects
per month. We believe that the

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establishment of a new "state of the art" film lab will further solidify
our client base, and should open up new client prospects as well. We
believe the creation of a film lab will provide us with an opportunity to
increase our film to tape revenue.

o Design, purchase, build and install a new HDTV virtual studio--The higher
resolution of HDTV images show the flaws, usually from inferior
construction, of current sets. Virtual sets are constructed with
supercomputers as high resolution images and therefore are compatible
with HDTV production. A new virtual studio will enable us to replace
traditional sets with virtual sets that have a much more realistic look.
We intend to acquire additional space in Manhattan for this purpose.

o Design, create and build a digital audio facility--We intend for this to
be a THX Certified 5.1 channel surround sound digital audio mixing and
design studio. 5.1 channel surround sound is the format selected for
HDTV. We intend that the new digital audio facility will include mix to
picture capabilities, foley pit, automatic dialogue replacement with
sound design and sound effects production capabilities. We intend for
this facility to be flexible, with the capability to mix both long form
productions, e.g. movies, and short form productions, e.g. commercials,
quickly and efficiently.

o Create a new division for content development, accumulation, and
programming for our broadcast, theatrical and Internet business,
concentrating on building and improving web sites and enhancing virtual
elements on Internet sites utilizing high resolution technology.

CUSTOMERS

We have a diverse customer base, with approximately 300 accounts during
1998. We provided our production and post-production services for commercials,
television programs, special events and music videos to Fortune 500 companies in
the entertainment, communications, manufacturing and services fields. During our
14 year history, we have been engaged to work on projects including or for the
following:

o TV commercials--AT&T, Coca Cola, Cover Girl Cosmetics, Domino's Pizza,
GE, Heineken Beer, Intel, Kodak, MCI, Molson Ale, Nike, Panasonic, Pepsi
Cola, Pizza Hut and Visa;

o Broadcast--ABC, CBS, NBC, ESPN, Home Box Office, ShowTime, The Movie
Channel, The Cartoon Network and The Classic Sports Network;

o Music videos--Alanis Morissette, Natalie Cole, Kenny G., Hanson and
T-Boz;

o Feature films--A New Life, Blue Steel, Big, Joe's Apartment and Money
Train;

o Virtual sets--ABC News, CBS, The Discovery Channel, ESPN, The Learning
Channel and Madison Square Garden;

o Advertising agencies--BBDO Worldwide, Cliff Freeman & Partners, Grey
Advertising, Inc., J. Walter Thompson Co., McCann-Erickson Worldwide,
Inc., Messner Vetere Berger McNamee Schmetterer/Euro RSCG, Saatchi &
Saatchi North America Inc. and Uni-World Group, Inc.

SALES AND MARKETING

Our marketing goal is to position SMA as the leading production and
post-production company providing a one-stop-shop for all media. We currently
sell our services to advertising agencies, cable television program suppliers,
independent producers, local television stations, motion picture studios,
national television networks, program distributors and program syndicators.
Historically, we have not engaged in marketing campaigns but rather obtained new
clients from recommendations of existing clients, the use of demo-reels based on
an inventory of work produced over our 14 year history and limited participation
in video and film trade shows. We believe the demo reels have provided us with
an authority image as such reels demonstrate our work with

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Fortune 500 companies and recognized media celebrities including Danny Glover,
Bryant Gumbel, Dennis Hopper and Barbara Walters.

We believe that building a strong brand recognition of our services is
critical to attracting and expanding our client base. Following the completion
of this offering, we intend to hire an in-house marketing and sales staff. We
intend that this staff will consist of a director of marketing who will
supervise three to four sales people who will promote our new services to
existing clients and the full range of our services to potential clients under
the one-stop-shop umbrella. Our marketing efforts will be intended to further
penetrate our current existing client base by targeting new divisions and
subsidiaries as well adding to the services which we currently provide to such
clients. In such efforts, we intend to explore the use of print media and other
promotional campaigns. We also intend to use our website as well as links to
other complementary sites to increase our Internet communications client base.
We believe our in-house design team gives us the additional advantage of
creating customized advertising and targeted promotional material to support our
branding efforts.

COMPETITION

The production and post-production industry is highly competitive and
constantly evolving. Specifically, we face competition from the following
segments in the industry for the services we offer and plan to offer:

o Commercial post-production such as: The Tape House, Inc. and Nice Shoes,
LLC.

o Virtual set production such as: LRP Productions and Atlantic Video, Inc.

o Motion film developing lab such as: Technicolor East Coast, Inc. and
Duart Film and Video, Inc.

o High definition post-production such as: The Tape House, Inc.

o Audio design and mixing such as: Todd-AO Studios East, Photomagnetic
Sound Studios, Inc. and Eastside Audio and Video, Inc.

o High definition production such as: the in-house production studios of
CBS and the MSG Network

o Internet content producers such as: Razor Fish, Inc., Concrete Media,
Inc., Broadcast.com, Inc. and Funny Garbage, Inc.

We believe that the principal competitive factors in our markets include
the ability to customize technology to a customer's particular use, cost and
service offerings. Many of our current and potential competitors have
substantially greater human and financial resources, experience and brand
recognition than us and may have competitive advantages through other lines of
business and existing relationships. Furthermore, our competitors may introduce
new products and services addressing our markets in the future. Some of our
customers also have the in-house capability to provide a portion of the services
which we offer. Specifically, CBS and the MSG Network have in-house
high-definition production facilities, and CBS runs a virtual studio for in-
house use. There can be no assurance that our competitors will not develop
products and/or services that are superior to our products and/or services or
that achieve greater market acceptance than the services which we offer or plan
to offer. Competition could have a material adverse effect on our business,
financial condition and results of our operations.

INTELLECTUAL PROPERTY

Our success and ability to compete depends in part on the protection of our
proprietary technology and on the good will associated with our trade names,
service marks and other proprietary rights. We rely on copyright laws to protect
the content that we develop for our

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website. We have registered the following internet domain names: "smavid.com,"
"hdvtv.com," "smavtv.com," "flickerfx.com" and "smarealtime.com."

We rely on trade secret and copyright laws to protect the proprietary
technologies that we may develop, but there can be no assurance that those laws
will provide us with sufficient protection, that others will not develop
technologies that are similar or superior to ours, or that third parties will
not copy or otherwise obtain or use our technologies without our authorization.
We have no patents or patent applications filed or pending.

In addition, we rely on certain technology licensed from third parties and
may be required to license additional technologies in the future. There can be
no assurance that these third party licenses will be available or will continue
to be available to us on acceptable commercial terms or at all. The inability to
enter into and maintain any of these licenses could negatively affect our
business.

Policing the unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense. In addition,
there can be no assurance that third parties will not bring claims of copyright
or trademark infringement against us or claim that our use of certain
technologies violates a patent. Any claims of infringement with or without
merit, could be time consuming to defend, result in costly litigation, divert
management attention, require us to enter into costly royalty or licensing
arrangements or prevent us from using important technologies or methods. The
occurrence of any of these could negatively affect our business.

INSURANCE

We believe that our insurance coverage for our business is generally in
accordance with industry standards and is adequate in light of our business and
the risks to which we are subject. We maintain insurance policies on the lives
of Mr. Morrissey and Mr. Satin in the amounts of $500,000 each. The proceeds of
such insurance policies have been assigned to Citibank N.A. as collateral for
obligations owed to Citibank, N.A. We have made application to obtain additional
life insurance policies of $1,500,000 each on the lives of both Mr. Morrissey
and Mr. Satin. We intend to obtain directors and officers liability insurance
prior to or upon completion of this offering.

EMPLOYEES

As of August 31, 1999, we had 35 full-time employees of whom 3 are in
accounting and finance, 4 are administrative, 16 are in creative and technical,
3 are in engineering, 7 are in operations, and 2 are in production. All
employees are based at our offices in New York City. Our future success will
depend in part, upon our ability to attract, retain and motivate qualified
personnel. While several of our employees are union members for the purpose of
facilitating union production on union projects, we are a non-union facility.
None of our employees are covered by a collective bargaining agreement and our
management considers relations with our employees to be good. We regularly enter
into subcontracts with free-lance personnel as production technicians from union
guilds. When using freelance personnel, it is our practice to use payroll
services which are recognized as the employer of record.

FACILITIES

Our principal executive offices, virtual studio and production facility are
located in New York, New York, where we lease approximately 25,000 square feet
of space at a current monthly rental of $27,084. The lease terminates on
December 31, 2005.

We also lease 2,500 square feet of space for a production studio and for
storage, in New York, New York at a current monthly rental of $2,800. The lease
terminates on May 31, 2000.

We also lease 3,000 square feet of warehouse space in Little Ferry, New
Jersey. We lease this space on a month to month basis, at a current monthly
rental of $995. To effect our expansion program, we anticipate that we will
require an additional 50,000 square feet of unfinished industrial

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space located in Manhattan. Based upon our recent search for such space, we
believe that such facilities are available at market rates ranging from $10 to
$50 per square foot. We are negotiating for sufficient additional space in the
100 Avenue of the Americas building where our corporate headquarters are
located. If this negotiation is not successful, we will continue our efforts to
locate space as close to our offices as feasible. We occasionally rent temporary
space based on production needs and generally such costs are passed on to our
clients.

LEGAL PROCEEDINGS

We are not involved in any pending, or to our knowledge, threatened legal
proceedings. We may from time to time become a party to various legal
proceedings arising in the ordinary course of business.

HOW TO GET MORE INFORMATION ABOUT US

We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act regarding the securities offered
by this prospectus. This prospectus, which forms a part of the registration
statement, does not contain all the information in the registration statement,
as permitted by the rules and regulations of the Commission.

For further information about us and the securities offered by this
prospectus, reference is made to the registration statement. Statements
contained in this prospectus as to the contents of any contract or other
document that we have filed as an exhibit to the registration statement are
qualified in their entirety by reference to the exhibits for a complete
statement of their terms and conditions.

The registration statement and other information may be read and copied at
the Commission's Public Reference Room at 450 Fifth Street N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York, 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois, 60661. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.

Upon effectiveness of the registration statement, we will be subject to the
reporting and other requirements of the Securities Exchange Act of 1934 and we
intend to furnish our shareholders annual reports containing financial
statements audited by our independent auditors and to make available quarterly
reports containing unaudited financial statements for each of the first three
quarters of each year.

We have applied for the listing of our common stock on the American Stock
Exchange under the symbol "VTV." After this offering is effective, you may
obtain information about us on AMEX's Internet site
(http://www.Nasdaq-Amex.com).

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our executive officers and directors, and their ages at August 31, 1999,
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Michael J. Morrissey........................... 42 Chief Executive Officer, President, Director
David Satin.................................... 39 Executive Vice President, Secretary, Treasurer,
Director
Rafael A. Estevez, Jr.......................... 35 Chief Financial Officer and Principal
Accounting Officer
Darryl J. Kramer............................... 52 Director Nominee
Richard P. Aschman............................. 49 Director Nominee
Marc Goodman................................... 51 Director Nominee
</TABLE>

Michael J. Morrissey has served as our president, chief executive officer
and a director since our inception in 1985. From 1983 to 1985, Mr. Morrissey
served as vice-president of operations for RVI Industries Inc., a production and
post-production company. During part of 1981, Mr. Morrissey served as a
technical consultant for the construction of Movielab Video Inc., and for the
remainder of 1981 through 1983, as operations manager for Movielab Video Inc.
From 1977 to 1981, Mr. Morrissey was a freelance producer/technical director
working in commercials, art videos, documentaries, television, cable and feature
films, including special effects for the movie Swamp Thing in 1979.
Mr. Morrissey won an ANDY Award in 1992 for the production of the MCI commercial
"Earthquake." In 1993, Mr. Morrissey won Adsweek Magazine's award for Best of
1993, for the MCI commercial "Communicating." Mr. Morrissey received a BAA
degree from Bergen Community College in 1977.

David Satin has served as our executive vice president, director of
engineering and a director since our inception in 1985, and currently serves as
the managing director of the SMA Virtual Programming Division. From 1983 to
1985, Mr. Satin served as vice president of engineering for RVI Industries Inc.
From 1982 to 1983, Mr. Satin was a consultant to Panavision, Inc. for the
development of the Panacam, a video camera that uses film lenses. From 1982 to
1986, Mr. Satin served on the advisory board of CMX Corp., a technology company
that manufactures editing systems. In 1988, Mr. Satin was nominated for an Emmy
Award for Outstanding Technical Direction for a Mini-Series or Special for the
PBS special "Dance in America: Gregory Hines Tap Dance in America." Mr. Satin
attended Syracuse University from 1978 to 1980.

Rafael A. Estevez, Jr. has served as our chief financial officer and
principal accounting officer since 1995. From 1994 to 1995, Mr. Estevez was
employed as an accountant for the firm of Jack Kane and Company. From 1989 until
1994, Mr. Estevez held various positions at the advertising agency of Rosenfeld,
Sirowitz, Humphrey and Strauss, including Controller. From 1986 to 1989,
Mr. Estevez was employed as Assistant Controller at HBM/Creamer Inc., a division
of Euro/RSCG, Worldwide. Mr. Estevez received a B.B.A degree in accounting from
Iona College in 1988.

Darryl J. Kramer has agreed to serve as one of our directors upon
completion of this offering. Since 1990, Mr. Kramer has been a partner of Kramer
& Kramer, a law firm located in New York, New York. Mr. Kramer received a B.A.
from the University of Pennsylvania in 1969 and a J.D. from Columbia University
School of Law and a joint masters degree in business administration from the
Columbia Graduate School of Business in 1973.

Richard P. Aschman has agreed to serve as one of our directors upon
completion of this offering. Mr. Aschman is vice president of Eastman Kodak
Company and president and chief operating officer of Kodak's Professional Motion
Imaging Division. Mr. Aschman has been employed by Eastman Kodak since 1972. In
1991, Mr. Aschman was appointed regional business general manager and vice
president for Kodak's commercial imaging group in the Asia Pacific

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region. In 1996, Mr. Aschman was appointed president and chief operating officer
of Kodak's Professional Motion Imaging division, or PMI, and became president of
the division in January 1997. Mr. Aschman is also chairman of the board of
Cinesite, a PMI subsidiary which is a leading visual effects organization.
Mr. Aschman has served on the board and executive committee of the Computer and
Business Equipment Manufacturer Association, and is currently a member of the
Academy of Motion Picture Arts and Sciences, the Academy of Television Arts and
Sciences, and the American Society of Cinematographers. Mr. Aschman received a
B.S. degree in marketing from Ohio State University in 1972.

Marc Goodman has agreed to serve as one of our directors upon completion of
this offering. Mr. Goodman is president and a co-founder of Kenmar Advisory
Corp., a global investment management firm formed in 1983, and headquartered in
Greenwich, Connecticut. From 1974 to 1983, Mr. Goodman was a vice president and
director of Pasternak, Baum & Co., Inc., an international cash commodity firm.
Mr. Goodman is chairman of the board of the Stacy Joy Goodman Memorial
Foundation, a non-profit charity committed to finding a cure for juvenile
diabetes; and is a member of the Board of Diabetes Research Institute
Foundation, a not for profit organization affiliated with the University of
Miami School of Medicine. Mr. Goodman sits on the New York Advisory Board of
Youth EnterNet of America, Inc., a non-profit organization working to improve
the lives of America's youth. Mr. Goodman received a B.B.A. in 1969 and an
M.B.A. in Finance and Investments in 1971 from the Bernard M. Baruch School of
Business of the City University of New York.

KEY EMPLOYEES

In addition to our directors and executive officers, we employ the
following key employees:

Leslie Rudner has been our chief engineer since 1989. In addition to
supervising our daily technical operations, Mr. Rudner develops new technologies
for us and our clients. From 1987 to 1989, Mr. Rudner served as president of JNL
Technologies, designing peripherals for computers. From 1984 to 1987,
Mr. Rudner was employed as electronic technician for Inscom Electronics,
responsible for final testing and troubleshooting of electronic sub-systems.
While employed at SMA, Mr. Rudner developed image tracking software that
integrated virtual elements into footage shot with sensor or motion control
data, and a database and front end GUI control system for the live 3D graphics
for scores and statistics presented throughout the 1997 U.S. Open. Mr. Rudner
attended Adelphi University from September 1985 through June 1987.

Todd Ruff has been our director of graphics since 1995. From 1990 through
1995, Mr. Ruff was director of graphics for Caesar's Video Graphics, Inc.
Mr. Ruff has been nominated for seven Emmy Awards and won four Emmy Awards for
animation design including three for Adam Smith (PBS) and one for Nick News
(Nickelodeon). Mr. Ruff received a B.A. degree from Yale University in 1975.

Jim Suhre has been our virtual set designer and 3D graphics designer since
1993. From 1993 to 1996, Mr. Suhre was also employed as a graphics design artist
for MTV. From 1989 to 1993, Mr. Suhre was a graphics designer for Young &
Rubicam. Mr. Suhre's credits include the creation of virtual sets currently used
by ABC News, PBS, Madison Square Garden Network, and the Discovery Channel.
Mr. Suhre received a B.A. degree from Stanford University in 1988.

Eli Friedman has been our senior colorist since 1996. Mr. Friedman has
17 years' experience as a colorist at various companies in the New York City
area, including Devlin, Magno Video, TVC Video and Editel. In 1993,
Mr. Friedman received a Monitor Award for AT&T's Tree of Life Spot.
Mr. Friedman received a BA degree from Queens College in 1979.

Larry Trosko has been with our colorist since 1998. Over the past
23 years, Mr. Trosko has been a colorist at many of New York City's
post-production facilities, including Teletronics, Editel NY and Manhattan
Transfer. In 1994, Mr. Trosko was presented a Monitor Award for his work on a
campaign for Corning Ware. Mr. Trosko received a BA degree from Pace University
in 1973.

30
<PAGE>

BOARD COMPOSITION

At each annual meeting of our stockholders, all of our directors will be
elected to serve from the time of election and qualification until the next
annual meeting following election. In addition, our bylaws provide that the
authorized number of directors, which is a minimum of two and a maximum of ten,
may be changed only by resolution of the board of directors.

We have also granted to the representative of the underwriters the right,
for a period of 5 years from the closing of this offering, to nominate a
designee of the representative for election to our board of directors. The
representative has not yet exercised its right to designate this person. If the
representative elects not to exercise this right, then the representative may
designate one person to attend meetings of our board of directors.

Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than non-employee
directors, devotes his full time to our affairs. Our non-employee directors
devote such time to our affairs as is necessary to discharge their duties. There
are no family relationships among any of our directors, officers or key
employees.

BOARD COMMITTEES

Upon completion of this offering, we intend to appoint both a compensation
committee and an audit committee composed of members of our board of directors.
The audit committee will review with our independent public accountants the
scope and adequacy of the audit to be performed by the independent public
accountants, the accounting practices, our procedures and policies, and all
related party transactions. The compensation committee will recommend to our
board of directors, the compensation to be paid to our officers and directors,
administer our stock option plan and approve the grant of options under the
stock option plan. We have not determined who will serve as the members of these
committees, although we will appoint non-employee directors to serve as members
of each committee.

DIRECTORS' COMPENSATION

Directors who are also our employees receive no additional compensation for
attendance at board meetings. Non-employee directors will receive $500 for
attendance at each board meeting or any committee of the board that they attend
and will be reimbursed for their travel, lodging and other out-of-pocket
expenses in connection with their attendance at board and commitee meetings. No
directors' fees have been paid to date. We anticipate that our board of
directors will hold regularly scheduled meetings quarterly.

EXECUTIVE COMPENSATION

The following table sets forth the total compensation paid to our president
and chief executive officers and each other executive officer whose 1998
compensation exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY
- ---------------------------------------------------------------------------------------------- ---- --------
<S> <C> <C>
Michael J. Morrissey,
president and chief executive officer....................................................... 1998 $110,589
1997 $101,720
1996 $101,198
David Satin,
executive vice president.................................................................... 1998 $110,589
1997 $101,570
1996 $101,198
</TABLE>

31
<PAGE>

The aggregate compensation paid to all persons who served in the capacity
of director or executive officer during our fiscal year ended September 30, 1998
(3 persons) was approximately $287,178.

OPTION GRANTS

No options have ever been granted to any of our directors, officers,
employees or consultants.

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with Michael J. Morrissey, our
chief executive officer and president, and David J. Satin, our executive vice
president and director of engineering, which will commence upon the completion
of this offering, and will continue for a five-year period. Following the
initial five year period, the agreements will automatically renew for one-year
terms, unless terminated by either party upon ninety days written notice prior
to the end of any term, or for cause.

Under the terms of their respective employment agreements, Mr. Morrissey
and Mr. Satin have agreed to work for us full time, and will each receive an
annual base salary of $250,000, with annual percentage increases equal to the
percentage of increase in the cost of living, and an annual bonus at the
discretion of our board of directors. The agreements also provide for health
insurance benefits and contain non-competition provisions that prohibit them
from competing with us. The period covered by the non-competition provisions
will end either one year after the expiration of the agreement or one year after
their resignation or termination.

In addition, the agreements provide that if either Mr. Morrissey or
Mr. Satin is terminated without cause, they will receive a severance
consideration of three months' salary. A state court may determine not to
enforce, or only partially to enforce, certain provisions of these agreements.

Furthermore, Mr. Morrissey and Mr. Satin are each to be compensated in the
amount of $50,000 per annum for their efforts in connection with our joint
venture with Flicker FX Corp. As per the joint venture agreement, we will
guarantee these annual salaries until the joint venture achieves sufficient
revenues to fund its operations and pay the salaries.

We have entered into an employment agreement with our senior colorist, Eli
Friedman, for a term of three years commencing May 11, 1999. Mr. Friedman has
agreed to provide film-to-tape and tape-to-tape color correction services
exclusively for us on a full time basis. We have agreed to pay Mr. Friedman an
annual salary of $230,000. We have also agreed to pay Mr. Friedman a commission
based on our billings to customers for work performed by Mr. Friedman at a rate
of 10% of the first $1 million billed per year, and 20% of any billings in
excess of $1 million per year. Mr. Friedman's employment agreement also contains
health insurance benefits, vacation benefits and sick leave.

We have also entered into an employment agreement with Larry Trosko, one of
our colorists, for a term of five years commencing May 12, 1999. Mr. Trosko has
agreed to provide film-to-tape and tape-to-tape color correction services
exclusively for us on a full time basis. We have agreed to pay Mr. Trosko an
annual salary of $175,000. We have also agreed to pay Mr. Trosko a commission
based on our billings to customers for work performed by Mr. Trosko at a rate of
10% of such billings in excess of $350,000 per year. Mr. Trosko's employment
agreement also contains health insurance benefits, vacation benefits and sick
leave.

LIMITATION ON LIABILITY OF AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

Overview. Under our certificate of incorporation and New York law, our
directors are not liable for monetary damages for breach of fiduciary duties
except in special situations as described below. In addition, under our
certificate of incorporation, we are required to indemnify our directors and
officers against all losses to the fullest extent permitted by New York law.
Finally, under New York law, we are entitled to obtain insurance on behalf of
our directors and officers to protect them against liabilities that may occur in
their official capacities.

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<PAGE>

Limitations on liability of directors. Under New York law, a corporation
may adopt a charter provision eliminating or limiting the personal liability of
its directors to the corporation or its stockholders for breach of fiduciary
duties except:

o liability if a judgment or other final adjudication adverse to a director
establishes that his or her acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law; or

o liability when the director personally gained a financial profit or other
advantage to which he or she was not legally entitled; or

o liability for any act or omission prior to the adoption by us of the
above indemnity provision; or

o liability when the director's acts violated New York Business Corporation
Law Section 719.

We have adopted a charter provision eliminating the personal liability of
our directors to the fullest extent permitted under New York law except under
the four provisions noted above.

Indemnification for directors and officers. Under New York law, a
corporation may indemnify its present and former directors and officers for a
variety of court or administrative proceedings. We have adopted a provision
which requires us to indemnify and hold harmless any person involved in any
action, suit or proceeding because that person is or was a director or officer
of ours. This provision does not, however, require us to indemnify an officer or
director in a proceeding they initiate without the authorization of our
directors.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of ours,
we have been advised that in the opinion of the Securities and Exchange
Commission, indemnification for liabilities is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.

Insurance for directors and officers. Under New York law, a corporation may
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. We have adopted a provision which permits
us to maintain insurance to protect us and our directors and officers against
expenses, liabilities and losses whether or not we would have the power to
indemnify these persons under New York law. We intend to have in place at or
promptly after the closing of this offering a directors' and officers' liability
and company reimbursement liability insurance policy.

1999 STOCK INCENTIVE PLAN

Purpose. We believe it is in our best interest to provide incentives for
the continued services of key and valuable employees, directors and
non-employees who perform services for us. Our 1999 stock incentive plan,
adopted in May 1999, allows us to award both incentive and non-qualified stock
options to these persons.

We have reserved 500,000 shares of our common stock for issuance under the
stock incentive plan. Shares of common stock covered by expired or terminated
options generally will be available for subsequent awards. No stock options have
been issued to date.

Awards and eligibility. The board of directors (or a committee appointed by
the board of directors) will administer the stock incentive plan.

33
<PAGE>

Exercise price. The option price per share for any option granted under the
plan will be determined by the board of directors. The option price per share
will not be less than 100% of the fair market value of our common stock at the
time of the grant.

Option term. The board of directors determines the term of each option. No
option may be exercised after the expiration of ten years from the date the
option is granted. Incentive stock options may not be exercised after five years
from the date of the grant. The board of directors may determine that all or a
stated percentage of the shares covered by these options will become exercisable
or "vest" in installments after the completion of specified service requirement
by the holder.

Special rules for 10% stockholder. The option price per share of an
incentive stock option granted to an employee who owns more than 10% of the
total combined voting power of all classes of our stock will be at least 110% of
the fair market value of our stock at the time of the grant.

EMPLOYEE BENEFIT PLANS

We have a profit sharing plan, which covers substantially all full time
employees who meet certain service requirements and are not covered by the union
pension plan as disclosed below. During the years ended September 30, 1997 and
1998, and the six-month periods ended March 31, 1998 and 1999, we did not make
any contributions to this plan.

We have several employees covered by a union sponsored, multi-employer
pension plan. We contributed and charged to expense $8,048 and $14,037 for the
years ended September 30, 1997 and 1998, respectively, and $11,115 and $11,916
for the nine months ended June 30, 1998 and 1999, respectively. The
contributions are determined in accordance with provisions of the plan and are
generally based on the number of hours worked.

We adopted a non-contributory 401K plan effective January 1, 1998. The plan
covers all non-union employees who are at least 21 years of age with no minimum
service requirements. There were no contributions to the plan for the year ended
September 30, 1998 and the nine months ended June 30, 1999.

34
<PAGE>

CERTAIN TRANSACTIONS

On March 28, 1994, Mr. Morrissey, our president and chief executive
officer, and Mr. Satin, our executive vice president, secretary and treasurer,
guaranteed (a) a construction loan to CitiBank, N.A. for $300,000, and (b) an
equipment loan to CitiBank, N.A. for $300,000. The construction and equipment
term loan agreements both provided for equal monthly principal payments of
$5,000 each, commencing September 1, 1994. A final payment of the unpaid
principal was made on September 1, 1999, plus interest at 1.5% above the prime
rate (9.75% at September 30, 1998 and 9.50% at June 30, 1999). Substantially all
of our assets had been pledged to collateralize the indebtedness.

On June 1, 1995, Mr. Morrissey and Mr. Satin personally guaranteed the
lease, expiring in December 2005, for our executive offices and production
facilities located at 100 Avenue of the Americas, New York, New York. The lease
provides for monthly rental payments of $25,000 through September 1, 1997,
$27,083 through September 1, 2000 and $29,333.33 thereafter through expiration.

On August 15, 1995, Mr. Morrissey and Mr. Satin jointly borrowed $103,722
from the SMA Video Profit Sharing Plan and SMA Video Money Purchase Pension Plan
and loaned $103,722 to us. We have been repaying the loan in monthly
installments of $2,093.39 including interest at 7% per annum directly to the SMA
Video Profit Sharing Plan and SMA Video Money Purchase Pension Plan in
accordance with the instructions of Mr. Morrissey and Mr. Satin. The loan is due
on November 21, 2000, is unsecured, and as of August 31, 1999, had a balance of
$29,982.

On June 4, 1997, Mr. Morrissey and Mr. Satin personally guaranteed a
$250,000 term loan with CitiBank, N.A. as part of an amendment to our CitiBank
revolving line of credit agreement. We have been repaying the loan in 36 monthly
payments of principal and interest of $8,037.48. The loan bears interest at
9.75% per annum. Substantially all of our assets are pledged to collateralize
this loan.

On June 4, 1997, we assigned our $500,000 William Penn Life insurance
policy on the life of Mr. Morrissey and our $500,000 American Mayflower
insurance policy on the life of Mr. Satin to CitiBank, N.A. as additional
collateral for our $250,000 line of credit.

Mr. Morrissey and Mr. Satin personally guaranteed the following
twenty-seven capital leases, which aggregated $3,762,508, as of June 30, 1999.
The obligations under the capital leases are collateralized by the underlying
equipment for each loan. Such capital leases are for equipment which we use on a
day to day basis in our business, including color television cameras, portable
robotic motion control systems, super computers, videotape recorders, sound
monitoring and mixing equipment and lighting equipment.

o equipment lease with Tilden Financial Corp. dated May 5, 1995 in the
amount of $269,000 payable in forty eight monthly installments (final
payment made April 15, 1999);

o equipment lease agreement with Citicorp Leasing dated June 21, 1994 in
the amount of $142,650, payable in sixty monthly installments (final
payment made May 25, 1999);

o term promissory note (Equipment Loan ) with Citibank, N.A. dated
March 28, 1994 in the amount of $300,000, payable in sixty monthly
installments (final payment made September 1, 1999);

o term promissory note (Leasehold Improvement Loan) with Citibank, N.A.
dated March 28, 1994 in the amount of $300,000, payable in sixty monthly
installments (final payment made September 1, 1999);

35
<PAGE>

o equipment lease agreement with CreditAmerica dated March 1, 1995 in the
amount of $332,880, payable in forty eight monthly installments (final
payment made March 31, 1999);

o equipment lease agreement with WASCO Funding Corp dated March 7, 1995 in
the amount of $45,365.76, payable in 48 monthly installments (final
payment made March 24, 1999);

o business loan agreement with Citibank dated June 7, 1997 in the amount of
$250,000, payable in thirty six monthly installments;

o equipment lease agreement with LCA Leasing Corp dated May 5, 1995 in the
amount of $976,673.40, payable in sixty monthly installments;

o equipment lease agreement with CreditAmerica dated May 12, 1995 in the
amount of $178,800, payable in forty eight monthly installments (final
payment made April 15, 1999);

o equipment lease agreement with CreditAmerica dated May 12, 1995 in the
amount of $239,520, payable in forty eight monthly installments (final
payment made May 11, 1999);

o equipment lease with CIT Group/Equipment Financing, dated June 6, 1995 in
the amount of $339,620.64, payable in forty eight monthly installments
(final payment made May 14, 1999);

o equipment lease with CIT Group/Equipment Financing, dated June 6, 1995 in
the amount of $148,265.28, payable in forty eight monthly installments
(final payment made June 17, 1999);

o equipment lease with Charter Financial dated September 22, 1995 in the
amount of $1,090,080, payable in sixty monthly installments;

o equipment lease with The Terminal Marketing Company, Inc. dated June 26,
1996 in the amount of $467,340 payable in sixty monthly installments;

o equipment lease with Gateway Funding Inc dated October 16, 1996 in the
amount of $50,255.25, payable in forty eight monthly installments;

o equipment lease with Independent Resources, Inc. dated September 12, 1996
in the amount of $1,254,477 payable in 64 monthly installments;

o equipment lease with Independent Resources, Inc. dated September 12, 1996
in the amount of $390,690 payable in 65 monthly installments;

o equipment lease with Independent Resources, Inc. dated September 12, 1996
in the amount of $433,855 payable in 65 monthly installments;

o equipment lease with Independent Resources, Inc. dated September 12, 1996
in the amount of $234,059 payable in 65 monthly installments;

o equipment lease--Charter Financial Inc dated February 5, 1997 in the
amount of $1,076,100, payable in sixty monthly installments;

o purchase order with ORAD, Inc. dated July 16, 1997 in the amount of
$300,000, payable in thirty monthly installments;

o equipment lease with Gateway Funding dated May 18, 1998 in the amount of
$109,250, payable in forty eight monthly installments; and

o equipment lease with Gateway Funding dated November 2, 1998 in the amount
of $115,442.50, payable in forty eight monthly installments.

36
<PAGE>

o equipment lease with Gateway Funding dated April 30, 1999 in the amount
of $291,528, payable in thirty six monthly installments.

o equipment lease with Gateway Funding dated December 10, 1998 in the
amount of $225,984, payable in forty eight monthly installments.

o purchase order with ORAD Inc. dated June 1, 1999 in the amount of
$61,873, payable in thirty monthly installments.

o purchase order with ORAD Inc. dated January 8, 1998 in the amount of
$37,123, payable in thirty monthly installments.

Our board of directors has adopted a policy that all future transactions
with our officers, directors or stockholders owning 5% or more of our
outstanding common stock, and their respective affiliates, will be on terms no
less favorable than could be obtained from unaffiliated third parties and will
be approved by a majority of our independent, disinterested directors with
access to independent counsel.

37
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock, as of the date of this prospectus. The
information in this table provides the ownership information for:

o each person known by us to be the beneficial owner of more than 5% of our
common stock;

o each of our directors and director nominees;

o each of our executive officers; and

o our executive officers, directors and director nominees as a group.

Beneficial ownership has been determined in accordance with the rules and
regulations of the Securities and Exchange Commission and includes voting or
investment power with respect to the shares. Unless otherwise indicated, the
persons named in the table have sole voting and investment power with respect to
the number of shares indicated as beneficially owned by them. The number of
shares of common stock outstanding used in calculating the percentage ownership
for each person listed below includes shares of common stock underlying options
or warrants held by the person that are exercisable within 60 days of the date
of this prospectus, but excludes shares of common stock underlying options or
warrants held by any other person. Common stock beneficially owned and
percentage ownership are based on 3,700,000 shares outstanding before this
offering and 5,700,000 shares to be outstanding after the completion of this
offering, assuming no exercise of the underwriters' over-allotment option.

Unless otherwise indicated, the address of each beneficial owner is c/o
S.M.A. Real Time Inc., 100 Avenue of the Americas, 10th Floor, New York, New
York 10013.

<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
BENEFICIALLY OWNED
NAME, ADDRESS AND TITLE NUMBER OF SHARES ---------------------------------
OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Michael J. Morrissey, CEO, president...................... 1,394,850 37.70% 24.47%
David Satin, executive vice president,
secretary, treasurer.................................... 1,394,850 37.70% 24.47%
Rafael A. Estevez, Jr., chief financial
officer and principal accounting officer................ * * *
Darryl J. Kramer, director nominee
708 3rd Avenue
New York, New York 10017................................ 69,800 1.89% 1.22%
Richard P. Aschman, director nominee
Eastman Kodak Company
343 State Street
Rochester, New York 14650............................... * * *
Marc Goodman, director nominee
2 American Lane
Greenwich, CT 06831-8150................................ * * *
All executive officers, directors, and
director nominees as a group
(6 persons)............................................. 2,859,500 77.28% 50.17%
</TABLE>

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

* Represents beneficial ownership of less than 1% of the common stock

38
<PAGE>

DESCRIPTION OF SECURITIES

Our authorized capital stock consists of (a) 50,000,000 shares of common
stock, par value $.0001 per share, and (b) 10,000,000 shares of preferred stock,
par value $0.0001 per share, the rights and preferences of which may be
established from time to time by our board of directors. Assuming no exercise of
the underwriter's over-allotment option, upon completion of this offering, there
will be (a) 5,700,000 shares of our common stock issued and outstanding, (b) no
preferred stock outstanding, and (c) excluding the representative's warrants,
there will be 21,000 placement agent's warrants outstanding.

The description of our securities are summaries and do not contain all the
information that may be important to you. For more complete information, you
should read our certificate of incorporation and its amendments, the form of
promissory note issued to purchasers of units in May 1999 and the form of
placement agent's warrant agreement which are all filed as exhibits to the
registration statement of which this prospectus forms a part.

COMMON STOCK

Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of our common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any shares of preferred stock outstanding at the time, holders of our common
stock are entitled to receive dividends ratably, if any, as may be declared from
time to time by our board of directors out of funds legally available therefore.
Upon the liquidation, dissolution or winding up of us, the holders of our common
stock are entitled to receive ratably, our net assets available after the
payment of all liabilities and liquidation preferences on any outstanding
preferred stock.

Holders of our common stock have no preemptive, subscription, redemption or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the common stock. The outstanding shares of our common stock are,
and the shares offered by us in this offering will be, when issued and paid for,
validly issued, duly authorized, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock may be adversely affected
by, the rights of the holders of shares of any series of preferred stock which
we may designate and issue in the future.

PREFERRED STOCK

Our board of directors is authorized, without further stockholder approval,
to issue up to 10,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of these shares,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, and to fix the number of shares constituting any
series and the designations of these series. These shares may have rights senior
to our common stock. The issuance of preferred stock may have the effect of
delaying or preventing a change in control of us. 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 our common stock. At
present, we have no plans to issue any shares of our preferred stock.

OUTSTANDING WARRANTS

Prior to the sale of shares in this offering, we issued 21,000 warrants to
a placement agent as compensation in connection with our private placement in
May 1999. Each placement agent warrant is exercisable into one share of common
stock at an exercise price of 120% of the initial public offering price per
share. These placement agent warrants are for a period of five years, and may be
exercised after May 26, 2000. These warrants have demand and piggyback
registration rights. These warrants also have cashless exercise provisions
whereby the holder may, in lieu of

39
<PAGE>

payment of the exercise price in cash, surrender the warrant and receive a net
amount of shares, based on the fair market value of our common stock at the time
of the exercise of the warrant, after deducting the aggregate exercise price.

We have agreed to issue to the representative of the underwriters, for a
total of $200,000, warrants to purchase an aggregate of 200,000 shares of common
stock exercisable for a period of four years commencing one year after the
effective date of the registration statement of which this prospectus is a part,
at a price equal to 120% of the initial public offering price of the shares of
common stock. The representative's warrants contain anti-dilution provisions
providing for automatic adjustments of the exercise price and number of shares
issuable on exercise price and number of shares issuable on exercise of the
representative's warrants upon the occurrence of some events, including stock
dividends, stock splits, mergers, acquisitions and recapitalizations.

The representative's warrants contain demand and piggyback registration
rights relating to the issuance of 200,000 shares of common stock. For the life
of the representative's warrants, the representative will have the opportunity
to profit from a rise in the market price for the 200,000 shares of common
stock. The holders of the representative's warrants will have no voting,
dividend or other stockholder rights with respect to those warrants. The holders
of shares of common stock issued upon exercise of those warrants will have the
voting, dividend, and other stockholder rights of holders of shares of common
stock. The representative's warrants are restricted from sale, transfer,
assignment or hypothecation for the one year period from the date of this
prospectus, except to officers or partners of the underwriters and members of
the selling group and/or their officers or partners.

REGISTRATION RIGHTS

During a five year period commencing 12 months after May 21, 1999, a
majority of the holders of 210,000 shares of common stock issued in connection
with our May 1999 private placement will be entitled to demand that we file a
registration statement with respect to the registration of such shares under the
Securities Act if we are subject to the reporting requirements of the Exchange
Act of 1934.

Such holders are also entitled to "piggy-back" registration rights in
connection with any registration by us of our securities for our own account or
for the account of other security holders. In the event that we propose to
register any shares of common stock under the Securities Act, the holders are
entitled to receive notice and are entitled to include their shares in the
registration statement. The placement agent's warrants and the representative's
warrants also have demand and piggyback registration rights.

TRANSFER AGENT AND REGISTRAR

We intend to appoint Continental Stock Transfer and Trust Company as
transfer agent for our common stock.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our
securities and we do not know if a significant public market for any of our
securities will be developed or sustained after this offering. Sales of
substantial amounts of our common stock in the public market after this
offering, or the possibility of those sales occurring, could adversely affect
prevailing market prices of our common stock or our future ability to raise
capital through an offering of equity securities. We are unable to predict the
number of shares of our common stock that will be sold after this offering,
whether in the public markets or under Rule 144 under the Securities Act or
otherwise, as this will depend on the market price of our securities, personal
circumstances of the seller, and other factors.

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<PAGE>

Upon completion of this offering, we will have outstanding 5,700,000 shares
of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these 5,700,000 shares of common stock, 2,000,000 shares will be
freely tradeable without restriction under the Securities Act, except for any
shares purchased by an "affiliate" of ours, as that term is defined under the
rules and regulations of the Securities Act, which will be governed by the
resale limitations of Rule 144 under the Securities Act.

The remaining 3,700,000 shares are "restricted securities" as defined under
Rule 144. These restricted securities were issued and sold by us in private
transactions in reliance upon exemptions from registration under the Securities
Act. In general, under Rule 144, beginning 90 days after the completion of this
offering, a person, or persons whose shares are aggregated, who has beneficially
owned restricted securities for at least one year, including the holding period
of any prior owner who is not an affiliate of ours, would be entitled to sell
within any three-month period a number of common shares that does not exceed the
greater of (a) one percent of the then outstanding common shares, approximately
57,000 shares following this offering, or (b) the average weekly trading volume
of our common stock during the four calendar weeks preceding that sale. Sales
under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about us.

Under Rule 144(k), a person who is not deemed to have been an affiliate of
ours at any time during the 90 days 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 who is not an affiliate of ours, is entitled
to sell such common stock without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

Holders of an aggregate of 210,000 shares of our common stock have certain
piggyback registration rights with regard to the resale of these shares.
Following the completion of this offering, these holders could require us to
register for resale their shares, and the shares would then be freely tradeable,
subject to the lock-up agreements described below.

Holders of placement agent's warrants to purchase an aggregate of 21,000
shares of our common stock have certain demand and piggyback registration rights
with regard to the resale of the shares issuable upon exercise of their
warrants. Following the completion of this offering, these holders could require
us to register for resale the shares issuable upon exercise of the warrants, and
these shares would then be freely tradeable, subject to the lock-up agreements
described below.

41
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the form
of which is filed as an exhibit to the registration statement filed with the
Commission of which this prospectus is a part, the underwriters named below
have, severally and not jointly, agreed through Dirks & Company, Inc., as the
representative of the underwriters, to purchase from us, and we have agreed to
sell to the underwriters, the aggregate number of shares of our common stock set
forth opposite their respective names:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
- ------------------------------------------------------------------------ ----------------
<S> <C>
Dirks & Company, Inc....................................................
----------
Total................................................................. 2,000,000
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters under that agreement depend upon certain conditions, including the
absence of any material adverse change in our business and the receipt of
certificates, opinions and letters from our counsel and our independent public
accountants. The underwriters are committed to take and to pay for all of the
shares offered hereby, if any are purchased. In the event of a default by any of
the underwriters, purchase commitments of the non-defaulting underwriters may be
increased or the underwriting agreement may be terminated.

The underwriters have advised us that they propose to offer all or part of
the shares of common stock offered hereby directly to the public initially at
the price set forth on the cover page of this prospectus. They have also advised
us that they may offer shares of common stock to certain dealers at a price that
represents a concession of not more than $. per share, and that the
underwriters may allow, and these dealers may reallow, a concession of not more
than $. per share to certain other dealers. After the completion of this
offering, the price to the public and the concessions may be changed.

We have granted the underwriters an option, exercisable within 45 days
after the effective date of the registration statement of which this prospectus
is a part, to purchase up to an additional 300,000 shares of our common stock at
the same price per share as the initial 2,000,000 shares of common stock to be
purchased by the underwriters. The underwriters may exercise this option only to
cover over-allotments, if any. If the underwriters exercise this option, each of
the underwriters will have a firm commitment, subject to some conditions, to
purchase the same percentage of the additional shares of common stock as the
percentage of the initial 2,000,000 shares of common stock to be purchased by
that underwriter.

We have agreed to indemnify the underwriters and their controlling persons
against certain liabilities, including liabilities under the Securities Act, and
to contribute to payments the underwriters and their controlling persons may be
required to make.

We have agreed to pay the representative of the underwriters a
non-accountable expense allowance equal to 3% of the gross proceeds of this
offering, of which none has been paid as of the date of this prospectus. We have
also agreed to pay all expenses in connection with qualifying the securities
under the laws of those states the representative may designate, including fees
and expenses of counsel retained for such purposes by the representative and the
costs and disbursements in connection with qualifying the offering with the
National Association of Securities Dealers, Inc.

We have agreed to issue to the representative of the underwriters, for a
total of $20.00, warrants to purchase an aggregate of 200,000 shares of common
stock exercisable for a period of four years commencing one year after the
effective date of the registration statement of which this prospectus is a part,
at a price equal to 120% of the initial public offering price of the shares of
common stock. The representative's warrants contain anti-dilution provisions
providing for automatic adjustments of the exercise price and number of shares
issuable on exercise price and

42
<PAGE>

number of shares issuable on exercise of the representative's warrants upon the
occurrence of some events, including stock dividends, stock splits, mergers,
acquisitions and recapitalizations.

The representative's warrants contain certain demand and piggyback
registration rights relating to the 200,000 shares of common stock issuable
thereunder. For the life of the representative's warrants, the representative
will have the opportunity to profit from a rise in the market price for the
200,000 shares of common stock. The holders of the representative's warrants
will have no voting, dividend or other stockholder rights with respect to those
warrants. The holders of shares of common stock issued upon exercise of those
warrants will have the voting, dividend, and other stockholder rights of holders
of shares of common stock. The representative's warrants are restricted from
sale, transfer, assignment or hypothecation for the one year period from the
date of this prospectus, except to officers or partners of the underwriters and
members of the selling group and/or their officers or partners.

We have also granted to the representative of the underwriters the right,
for a period of 5 years from the closing of this offering, to nominate a
designee of the representative for election to our board of directors. The
representative has not yet exercised their right to designate this person. If
the representative elects not to exercise this right, then the representative
may designate one person to attend meetings of our board of directors.

We and our officers, directors and present shareholders have agreed that,
for a period of 365 days after the completion of this offering, without the
prior written consent of the representative of the underwriters, none of us will
sell or otherwise dispose of any of our respective equity securities or
securities convertible into our equity securities, except for the sale of shares
to the underwriters under the terms of the underwriting agreement.

The representative of the underwriters has informed us that the
underwriters do not expect any sales of the shares of common stock offered by
this prospectus to be made to discretionary accounts controlled by the
underwriters.

Prior to this offering, there has been no established market in the United
States or elsewhere for our securities. The public offering price will be
determined by us in consultation with the representative of the underwriters. It
is expected that the price determination will take several factors into account,
including our results of operations, our future prospects and the prevailing
market and economic conditions at the time of this offering.

The representative, on behalf of the underwriters, may engage in
(a) over-allotment, (b) stabilizing transactions, (c) syndicate covering
transactions and (d) penalty bids. Over-allotment involves syndicate sales in
excess of this offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the shares of common stock
being offered so long as the stabilizing bids do not exceed a specified maximum.

Syndicate covering transactions involve purchases of the shares of common
stock in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the representative to
reclaim a selling concession from a syndicate member when the shares of common
stock originally sold by the syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions.

Stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the shares of common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the AMEX or otherwise and, if commenced, may be discontinued at any
time. In addition, the underwriters may engage in passive market making
transactions in our securities on the AMEX in accordance with Rule 103 of
Regulation M. Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the securities offered by this
prospectus.

43
<PAGE>

Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock
offered in this prospectus. These actions include purchasing common stock to
cover some or all of a short position of common stock maintained by the
representative and the imposition of penalty bids.

LEGAL MATTERS

The legality of the common stock offered by this prospectus will be passed
upon for us by Stephen M. Robinson, P.A., Medford, New Jersey, our legal
counsel. Certain legal matters will be passed upon for the underwriters by
Orrick, Herrington & Sutcliffe LLP, New York, New York.

EXPERTS

Our financial statements for the periods ended September 30, 1997 and
September 30, 1998 included in this prospectus and registration statement have
been audited by Tabb, Conigliaro & McGann, P.C., independent certified public
accountants, as set forth in their report contained herein. The financial
statements have been included in reliance upon the report of Tabb, Conigliaro &
McGann, P.C., given upon the authority of such firm as experts in accounting and
auditing.

<PAGE>

INDEX TO COMBINED FINANCIAL STATEMENTS
S.M.A. REAL TIME INC. AND AFFILIATES

<TABLE>
<CAPTION>
PAGE NOS.
---------

<S> <C>
PART I--FINANCIAL INFORMATION:

ITEM I--FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS................................................................. F-2

COMBINED BALANCE SHEETS
At September 30, 1998 (Audited)
At June 30, 1999 (Unaudited)................................................................... F-3

COMBINED STATEMENTS OF INCOME
For the Years Ended September 30, 1997 and 1998 (Audited)
For the Nine Months Ended June 30, 1998 and 1999 (Unaudited)................................... F-4

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1997 and 1998 (Audited)
For the Nine Months Ended June 30, 1999 (Unaudited)............................................ F-5

COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1997 and 1998 (Audited)
For the Nine Months Ended June 30, 1998 and 1999 (Unaudited)................................... F-6

NOTES TO COMBINED FINANCIAL STATEMENTS............................................................ F-7
</TABLE>

F-1

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders
S.M.A. Real Time Inc.
New York, NY

We have audited the accompanying combined balance sheet of S.M.A. Real Time Inc.
and Affiliates as of September 30, 1998, and the related combined statements of
income, stockholders' equity and cash flows for the years ended September 30,
1997 and 1998. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of S.M.A. Real Time Inc.
and Affiliates as of September 30, 1998, and the combined statements of income,
stockholders' equity and cash flows for the years ended September 30, 1997 and
1998 in conformity with generally accepted accounting principles.

TABB, CONIGLIARO & MCGANN, P.C.

New York, NY
December 9, 1998
(Except as to Note 10 dated as of May 28, 1999)

F-2

<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
1998 1999
---------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 123,543 $ 509,486
Accounts receivable (net of allowance for doubtful accounts of $34,669 at
both September 30, 1998 and June 30, 1999, respectively).................. 941,725 944,118
Prepaid expenses and other current assets.................................... 27,034 94,213
---------- -----------
Total Current Assets...................................................... 1,092,302 1,547,817
Property and equipment--at cost, net of accumulated depreciation............... 4,882,014 4,302,507
Deferred offering costs........................................................ -- 235,630
Deferred financing costs....................................................... -- 1,209,444
Other assets................................................................... 188,345 207,252
---------- -----------
Total Assets.............................................................. $6,162,661 $ 7,502,650
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Line of credit--bank......................................................... $ 223,000 $ 223,000
Current maturities of long-term debt and capital lease obligations........... 1,506,643 1,656,619
Note payable--Private Placement.............................................. -- 700,000
Accounts payable and accrued liabilities..................................... 472,992 568,179
Income taxes payable......................................................... 6,132 429
Deferred taxes payable....................................................... 143,350 1,350
Current portion of shareholders loans........................................ 22,302 23,500
---------- -----------
Total Current Liabilities................................................. 2,374,419 3,173,077
Long-term debt, less current maturities........................................ 2,221,880 1,455,342
Deferred taxes payable......................................................... 268,533 268,533
Shareholders' loans............................................................ 23,268 5,350
---------- -----------
Total Liabilities......................................................... 4,888,100 4,902,302
---------- -----------
Commitments, Contingencies and Other Matters (Notes 4, 5, 7, 9, and 10)

STOCKHOLDERS' EQUITY:
Common stock--.0001 par value; 50,000,000 shares authorized;
3,490,000 and 3,700,000 shares issued and outstanding at September 30,
1998 and June 30, 1999, respectively (Note 10)............................ 349 370
Paid-in capital.............................................................. 40,411 1,515,390
Retained earnings............................................................ 1,233,801 1,084,588
---------- -----------
Total Stockholders' Equity................................................ 1,274,561 2,600,348
---------- -----------
Total Liabilities and Stockholders' Equity..................................... $6,162,661 $ 7,502,650
---------- -----------
---------- -----------
</TABLE>

See notes to financial statements.

F-3
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------ ------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................. $5,850,308 $6,469,142 $4,895,985 $5,407,482
Cost of Revenues..................................... 3,628,295 4,044,591 3,066,416 3,702,220
---------- ---------- ---------- ----------
Gross margin....................................... 2,222,013 2,424,551 1,829,569 1,705,262
Selling, general and administrative expenses......... 1,652,506 1,611,515 1,226,958 1,320,344
---------- ---------- ---------- ----------
Income from operations............................... 569,507 813,036 602,611 384,918
---------- ---------- ---------- ----------
Other expenses:
Interest expense, net of interest income........... 540,795 509,513 385,403 310,146
Amortization of deferred financing costs........... -- -- -- 345,556
Other expense...................................... 5,432 2,219 959 512
---------- ---------- ---------- ----------
Total Other Expenses............................ 546,227 511,732 386,362 656,214
---------- ---------- ---------- ----------
Income (loss) before income taxes.................... 23,280 301,304 216,249 (271,296)
Provision for (recovery of) income taxes............. 7,998 142,000 97,500 (122,083)
---------- ---------- ---------- ----------
Net Income (loss).................................... $ 15,282 $ 159,304 $ 118,749 $ (149,213)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic and diluted earnings (loss) per share.......... $ .01 $ .05 $ .03 $ (.04)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares used in basic and
diluted earnings (loss) per share.................. 3,490,000 3,490,000 3,490,000 3,513,333
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

See notes to financial statements.

F-4

<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1998 AND
THE NINE MONTHS ENDED JUNE 30, 1999

COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- ---------- ----------
(1)
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1997:
Balance--September 30, 1996................ 3,490,000 $349 $ 40,411 $1,059,215 $1,099,975
--------- ---- ---------- ---------- ----------
Balance--September 30, 1997................ 3,490,000 $349 $ 40,411 $1,074,497 $1,115,257
--------- ---- ---------- ---------- ----------
--------- ---- ---------- ---------- ----------
Year Ended September 30, 1998:
Balance--September 30, 1997................ 3,490,000 $349 $ 40,411 $1,074,497 $1,115,257
Net income................................. -- -- -- 159,304 159,304
--------- ---- ---------- ---------- ----------
Balance--September 30, 1998................ 3,490,000 $349 $ 40,411 $1,233,801 $1,274,561
--------- ---- ---------- ---------- ----------
--------- ---- ---------- ---------- ----------

Nine Months Ended June 30, 1999:
(Unaudited)
Balance--September 30, 1998................ 3,490,000 $349 $ 40,411 $1,233,801 $1,274,561
Issuance of stock pursuant to
Private Placement........................ 210,000 21 1,469,979 -- 1,470,000
Value assigned to issuance of 21,000
placement agent warrants................. -- -- 5,000 -- 5,000
Net loss................................... -- -- -- (149,213) (149,213)
--------- ---- ---------- ---------- ----------
Balance--June 30, 1999 (Unaudited)......... 3,700,000 $370 $1,515,390 $1,084,588 $2,600,348
--------- ---- ---------- ---------- ----------
--------- ---- ---------- ---------- ----------
</TABLE>

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

(1) Share amounts have been restated to reflect the stock splits and other
reorganization transactions effected in April and May of 1999 (Note 10).

See notes to financial statements.

F-5
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income.......................................... $ 15,282 $ 159,304 $ 118,749 $ (149,213)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,347,353 1,693,114 1,278,210 1,285,271
(Gain) loss from sale of equipment............... (4,278) -- -- 5,057
Deferred income taxes............................ 2,876 128,004 87,000 (142,000)
Amortization of deferred financing costs......... -- -- -- 345,556
Changes in assets and liabilities:
(Increase) decrease in accounts receivable--
net......................................... (210,937) 58,839 20,021 (2,393)
Decrease in prepaid expenses and other current
assets...................................... 44,582 9,781 10,133 (67,179)
Increase (decrease) in accounts payable and
accrued liabilities......................... 63,676 (181,148) (58,718) 95,187
Increase (decrease) in income taxes payable.... 1,624 (1,624) (3,598) (5,703)
----------- ----------- ----------- -----------
Net cash provided by operating activities........ 1,260,178 1,866,270 1,451,797 1,364,583
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment.................. (130,025) (171,539) (115,336) (128,272)
Increase in other assets............................ (34,427) (2,720) (2,720) (18,907)
Proceeds from sale of property and equipment........ 15,802 -- -- 32,860
----------- ----------- ----------- -----------
Net cash used in investing activities............ (148,650) (174,259) (118,056) (114,319)
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from Private Placement..................... -- -- -- 700,000
Expenditures for Private Placement.................. -- -- -- (80,000)
Expenditures for offering costs..................... -- -- -- (235,630)
Principal payments under capital lease
obligations...................................... (1,004,972) (1,353,219) (1,032,561) (1,079,483)
Net change under revolving line of credit........... (5,000) 28,000 28,000 --
Repayments of term loans............................ (137,398) (222,146) (147,053) (152,488)
Repayments of loans--stockholders................... (10,962) (21,103) (15,462) (16,720)
----------- ----------- ----------- -----------
Net cash used in financing activities............ (1,158,332) (1,568,468) (1,167,076) (864,321)
----------- ----------- ----------- -----------
(Decrease) Increase in cash and cash equivalents...... (46,804) 123,543 166,665 385,943

Cash and cash equivalents--beginning.................. 46,804 -- -- 123,543
----------- ----------- ----------- -----------
Cash and cash equivalents--ending..................... $ -- $ 123,543 $ 166,665 $ 509,486
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................... $ 546,868 $ 499,751 $ 388,499 $ 289,054
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Corporate income taxes........................... $ 3,498 $ 15,620 $ 14,376 $ 25,620
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosure of non-cash investing
activities:
Purchase of property and equipment under capital
leases........................................... $ 2,929,057 $ 150,995 150,995 $ 615,409
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

See notes to financial statements.

F-6
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Combined Statements

The accompanying financial statements include the accounts of S.M.A. Real
Time Inc. and its affiliates, SMA Video, Inc., SMA Visual Effects Corp. and Fly
Films, Inc. (collectively, the "Company"), all of which were incorporated in the
state of New York and are related through common ownership and management. The
Company commenced operations in 1985 under the name SMA Video, Inc. Commencing
November 9, 1998, the financial statements include the accounts of Flicker FX at
SMA, LLC, a joint venture controlled by the Company (Note 10).

As discussed in Note 10, the companies were reorganized during April and
May of 1999. As a result of the reorganization, SMA Visual Effects Corp. and Fly
Films, Inc. were merged into SMA Video, Inc. and SMA Video, Inc. became a
wholly-owned subsidiary of S.M.A. Real Time Inc. All common shares and related
per share data, reflected in the accompanying financial statements and notes
thereto, have been adjusted to give retroactive effect to the reorganization
transactions.

All material intercompany transactions and balances have been eliminated in
combination.

Description of Business

The Company provides a wide range of production and post-production
services to companies that produce commercials, television programs, music
videos and feature films. The Company's principal activities include studio
videotape recording, film to videotape transfer, computer generated visual
effects and the coloring, creation of customized virtual studio sets, editing
and dubbing of various form of emerging media, including film and video. Most of
the Company's services are performed at its headquarters in lower Manhattan, New
York.

Unaudited Interim Information

The information presented as of June 30, 1999 and for the nine-month
periods ended June 30, 1998 and 1999 has not been audited. In the opinion of
management, the unaudited interim financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
information set forth therein. The net income for the nine months ended
June 30, 1999 is not necessarily indicative of the results for the year ended
September 30, 1999.

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 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.

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and loans payable are reflected in the accompanying balance sheets at
amounts considered by management to reasonably approximate fair value.

F-7
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization
are provided by accelerated and straight line methods over the estimated useful
lives of the assets as follows:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
Machinery and equipment........................................................ 5
Furniture and fixtures......................................................... 7
Computers and office equipment................................................. 5
Leasehold improvements......................................................... 10
</TABLE>

Maintenance and repairs are charged to income as incurred. The asset and
related accumulated depreciation accounts are relieved in respect of items
replaced, retired or otherwise disposed of.

The inherent uncertainties in the estimates of the useful lives and pattern
of usage, make it at least reasonably possible that the Company's estimates of
depreciation and amortization could change in the near term.

Income Taxes

The provision for income taxes for the years ended September 30, 1997 and
1998 is based on the elements of income and expenses as reported in the
accompanying statements of income and retained earnings.

Deferred tax liabilities and assets are determined based on the difference
between the financial statements carrying amounts and tax bases of assets and
liabilities using enacted rates in effect in the years in which the differences
are expected to reverse.

Deferred Offering Costs

Deferred offering costs relate to costs incurred through June 30, 1999 with
respect to a proposed initial public offering of the Company's securities
discussed in Note 10 to the financial statements. In the event the proposed
initial public offering of the Company's securities is not consummated, the
deferred offering costs will be expensed.

Deferred Financing Costs

Deferred financing costs consist of (i) a non-cash cost valued at
$1,470,000, attributable to the issuance of 210,000 shares of common stock in
connection with a Private Placement completed in May of 1999 and (ii) expenses
related to such financing approximating $85,000. The deferred financing costs
are being amortized over the nine-month period commencing May 1, 1999.
Amortization of the deferred financing costs for the period ended June 30, 1999
was $345,556.

F-8
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Revenue Recognition

Substantially all revenues are derived from the performance of video and
commercial film production and post production work. Revenue is recognized at
the time services are rendered.

Advertising

Advertising costs are charged to operations when incurred. Advertising
expense for the years ended September 30, 1997 and 1998 approximated $3,100 and
$1,000, respectively, and for the nine months ended June 30, 1998 and 1999
approximated $850 and $1,000, respectively.

Stock-Based Compensation

As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company accounts for its stock-based compensation arrangements pursuant to
APB Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance
with the provisions of SFAS No. 123, the Company discloses the pro forma effects
of accounting for these arrangements using the minimum value method to determine
fair value.

Earnings Per Share

Basic earnings per share ("Basic EPS") is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share ("Diluted EPS") gives
effect to all dilutive potential common shares outstanding during a period. In
computing Diluted EPS, the treasury stock method is used in determining the
number of shares assumed to be purchased from the conversion of common stock
equivalents.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of long-lived assets by measuring
the carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values. Based on these evaluations, there were no adjustments to the
carrying value of long-lived assets.

Impact of Recently Issued Accounting Standards

Effective October 1, 1997, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income, defined as all changes in equity from
non-owner sources. Adoption of SFAS No. 130 did not have a material effect on
the Company's financial position or net income.

Effective October 1, 1997, the Company adopted the provisions of SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way public enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to stockholders. Adoption of SFAS No. 131 did
not have a material effect on the Company's financial position or net income.

Effective October 1, 1997, the Company adopted American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"). SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements, such

F-9
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

as software products, upgrades, enhancements, post-contract customer support,
installation and training to be allocated to each element based on the relative
fair values of the elements. The adoption of SOP 97-2 did not have an effect on
the Company's financial position or net income.

Effective December 29, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 132, "Employers' Disclosures About Pensions and
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits. The Statement addresses disclosure
only. It does not address liability measurement or expense recognition. There
was no effect on financial position or net income as a result of adopting SFAS
No. 132.

Reclassifications

Certain prior year balances have been reclassified to conform with the
current year presentation.

NOTE 2. PROPERTY AND EQUIPMENT--NET

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, JUNE 30,
1998 1999
------------- -----------
<S> <C> <C>
Property held under capital leases.................................... $ 6,468,682 $ 7,084,091
Machinery and equipment............................................... 2,588,067 2,600,029
Leasehold improvements................................................ 1,390,584 1,390,934
Office equipment...................................................... 198,857 228,338
Furniture and fixtures................................................ 108,771 109,053
------------- -----------
10,754,961 11,412,445
Less: Accumulated depreciation........................................ (5,872,947) (7,109,938)
------------- -----------
Property and Equipment--Net......................................... $ 4,882,014 $ 4,302,507
------------- -----------
------------- -----------
</TABLE>

The property under capital leases had a net book value of $3,438,872 and
$3,054,258 at September 30, 1998 and June 30, 1999, respectively.

Depreciation and amortization of property and equipment for the years ended
September 30, 1997 and 1998 amounted to $1,347,353 and $1,693,114, respectively,
and $1,278,210 and $1,285,271 for the nine months ended June 30, 1998 and 1999,
respectively.

NOTE 3. OTHER ASSETS

In connection with an operating lease for its office space, the Company has
$58,936 in a non-interest bearing account with the landlord as security.

In connection with the purchase of equipment under a capital lease, the
Company placed $100,000 on deposit with the lender. The agreement provides that
the lender shall accrue interest at the rate of 3.5% per annum. Included in
other assets is $106,543 related to this deposit at September 30, 1998 and
June 30, 1999.

F-10
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 4. REVOLVING LOAN--BANK

On June 4, 1997, the Company amended its revolving credit facility
providing for a revolving line of credit of up to $250,000 and a term loan of
$250,000 as described below in Note 5. The revolving loan bears interest at 1%
above prime (9.25% at September 30, 1998 and 9.0% at June 30, 1999), and is
collateralized by substantially all of the assets of the Company. As of
September 30, 1998 and June 30, 1999, there was $27,000 of available credit
remaining under this credit facility.

The credit agreement provides for, among other things, the maintenance of
minimum tangible net worth, restrictions and limitations on additional
indebtedness and the maintenance of defined current and leverage ratios.

The agreement provides for a personal guarantee by the two principal
shareholders of the Company and additional security guarantee through the
assignment of a $500,000 keyman life insurance policy on each of the two
principal shareholders.

NOTE 5. LONG-TERM DEBT

On March 28, 1994, the Company entered into two term loan agreements, one
for $300,000, which funded costs in connection with the construction of a studio
and other facility improvements and one for $300,000, which funded the purchase
of equipment.

The construction and equipment term loan agreements both provide for equal
monthly principal payments of $5,000 each, commencing September 1, 1994, and a
final payment of the unpaid principal due on September 1, 1999, plus interest at
1.5% above the prime rate (9.75% at September 30, 1998 and 9.5% at June 30,
1999), payable monthly. Substantially all of the assets of the Company are
pledged to collateralize the indebtedness.

As part of the amendments to the revolving credit agreement, discussed in
Note 4, on June 4, 1997, $250,000 of indebtedness outstanding under the
Company's revolving line of credit was converted to a term loan. The term loan
agreement provides for 36 equal monthly payments of principal and interest of
$8,037.48. The loan bears interest at 9.75% per annum. Substantially all of the
assets of the Company are pledged to collateralize the indebtedness.

Each of these obligations have been personally guaranteed by the two
principal shareholders of the Company.

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, JUNE 30,
1998 1999
------------- ----------
<S> <C> <C>
$300,000 term loan--bank, principal payments of $5,000 payable monthly, plus
interest at 1.5% above prime.................................................... $ 55,000 $ 10,000
$300,000 term loan--bank, principal payments of $5,000 payable monthly, plus
interest at 1.5% above prime.................................................... 55,000 10,000
$250,000 term loan--bank, with interest at 9.75% requiring monthly payments of
principal and interest of $8,037.48 for 36 months............................... 155,455 92,968
Obligations under capital leases collateralized the by related equipment (see
Note 9)......................................................................... 3,463,068 2,998,993
----------- ----------
Total........................................................................... 3,728,523 3,111,961
Less: Current maturities.......................................................... 1,506,643 1,656,619
----------- ----------
Long-Term Debt.................................................................. $ 2,221,880 $1,455,342
=========== ==========
</TABLE>

F-11
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 5. LONG-TERM DEBT--(CONTINUED)

Aggregate maturities required on long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
- ------------------------------------------------------
<S> <C>
1999.................................................. $ 1,506,643
2000.................................................. 1,175,581
2001.................................................. 716,233
2002.................................................. 330,066
2003.................................................. --
-----------
$ 3,728,523
-----------
-----------
</TABLE>

NOTE 6. INCOME TAXES

Components of the provision for (recovery of) income taxes are as follows:

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
SEPTEMBER 30, JUNE 30,
------------------- ---------------------
1997 1998 1998 1999
------ -------- ------- ---------
<S> <C> <C> <C> <C>
Current:
Federal........................................ $ -- $ -- $ -- $ --
State and local................................ 5,122 13,996 10,500 19,917
------ -------- ------- ---------
5,122 13,996 10,500 19,917
------ -------- ------- ---------
Deferred:
Federal........................................ 2,876 82,000 56,000 (91,000)
State and local................................ -- 46,004 31,000 (51,000)
------ -------- ------- ---------
2,876 128,004 87,000 (142,000)
------ -------- ------- ---------
Totals...................................... $7,998 $142,000 $97,500 $(122,083)
------ -------- ------- ---------
------ -------- ------- ---------
</TABLE>

The effects of the significant temporary differences that comprise the
deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, JUNE 30,
1998 1999
------------- --------
<S> <C> <C>
Assets:
Accounts receivable.................................................... $ 15,602 $ 15,602
Net operating loss carryforward........................................ -- 149,515
--------- --------
Total deferred tax assets........................................... 15,602 165,117
--------- --------
Liabilities:
Property and equipment................................................. 427,485 435,000
--------- --------
Net deferred tax liabilities..................................... $ 411,883 $269,883
--------- --------
--------- --------
</TABLE>

F-12
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 6. INCOME TAXES--(CONTINUED)

A reconciliation of the federal statutory income tax rate to the Company's
effective tax rate as reported is as follows:

<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
SEPTEMBER 30,
-----------------
1997 1998
---- ----
<S> <C> <C>
Taxes at federal statutory rate.................................................. 34% 34%
State and local income taxes--net of federal tax benefit......................... 19 13
Effect of graduated federal tax rates............................................ (19) --
---- --
Effective income tax rate........................................................ 34% 47%
---- --
---- --
</TABLE>

NOTE 7. EMPLOYEE BENEFIT PLANS

The Company has a profit sharing plan, which covers substantially all full
time employees who meet certain service requirements and are not covered by the
union pension plan as disclosed below. During the years ended September 30, 1997
and 1998, and the nine-month periods ended June 30, 1998 and 1999, the Company
did not make any contributions to this plan.

The Company has several employees covered by a union sponsored,
multi-employer pension plan. The Company contributed and charged to expense
$8,048 and $14,037 for the years ended September 30, 1997 and 1998,
respectively, and $11,115 and $11,916 for the nine months ended June 30, 1998
and 1999, respectively. The contributions are determined in accordance with
provisions of the plan and are generally based on the number of hours worked.

The Company adopted a non-contributory 401K plan effective January 1, 1998.
The plan covers all non-union employees who are at least 21 years of age with no
minimum service requirements. There were no contributions to the plan for the
year ended September 30, 1998 and the nine months ended June 30, 1999.

NOTE 8. SHAREHOLDERS' LOANS PAYABLE

In August 1995, pursuant to one promissory note agreement, the two
principal shareholders of the Company loaned the Company $103,772. The
promissory note provides for 60 monthly payments of $2,093.39, inclusive of
interest at 7% per annum, commencing December 1995 and is unsecured. Interest
paid on such debt during the years ended September 30, 1997 and 1998 amounted to
$5,725 and $4,019, respectively. During the nine months ended June 30, 1998 and
1999, the interest expense related to this debt amounted to $3,379 and $2,261,
respectively.

F-13
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

Leases

The Company leases various production and post-production equipment under
capital leases expiring at various dates through 2002. Interest rates on these
leases vary from approximately 8% to 14% and are imputed based on the Company's
incremental borrowing rate at inception of the lease or the lessor's implicit
rate of return. Substantially all of the capital lease obligations have been
personally guaranteed by the two principal shareholders of the Company.

The Company leases space utilized as a production facility and office space
in New York City under an operating lease expiring in December 2005. The lease
provides for monthly rental payments of $25,000 through September 1, 1997,
$27,083 through September 1, 2000 and $29,333.33 thereafter through expiration.
The lease contains escalation clauses relating to increases in real property
taxes as well as certain maintenance costs and has been personally guaranteed by
the two principal shareholders of the Company.

In addition, the Company leases a studio for the production of commercial
video tapes and films and storage facility for film production equipment under
an operating lease expiring in May 2000, with monthly rental payments of $2,800.
The lease provides that payment of all real estate taxes imposed and utility
costs shall be borne by the Company.

The Company also leases a storage facility in New Jersey on a
month-to-month basis at a rate of $995 per month.

Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
YEARS ENDED OPERATING OBLIGATIONS UNDER
SEPTEMBER 30, LEASES CAPITAL LEASES
- -------------------------------------------------------- ---------- -----------------
<S> <C> <C>
1999.................................................... $ 358,600 $ 1,611,497
2000.................................................... 349,650 1,278,636
2001.................................................... 352,000 794,026
2002.................................................... 352,000 342,651
2003.................................................... 352,000 --
Thereafter.............................................. 440,000 --
---------- -----------
Total minimum obligations............................... $2,204,250 4,026,810
----------
----------
Less: Amount representing interest expense.............. 563,742
-----------
Present value of minimum lease payments................. 3,463,068
Less: Current portion................................... 1,310,672
-----------
Long-Term Portion....................................... $ 2,152,396
-----------
-----------
</TABLE>

Rent expense relating to the operating leases included in general and
administrative expenses amounted to $361,689 and $368,274 for the years ended
September 30, 1997 and 1998, respectively, and $283,579 and $295,204 for the
nine months ended June 30, 1998 and 1999, respectively.

F-14
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS--(CONTINUED)

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash and cash equivalents and trade
accounts receivable.

With respect to trade receivables, ongoing credit evaluations of customers'
financial condition are performed and generally, no collateral is required. The
Company maintains a reserve for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.

At September 30, 1998, one customer accounted for approximately 11% of the
accounts receivable balance. For the year ended September 30, 1998, the same one
customer accounted for approximately 13% of net revenues. For the year ended
September 30, 1997, the same one customer accounted for 11% of net revenues.

At June 30, 1999, the one customer referred to above accounted for
approximately 12% of the accounts receivable balance. For the nine months ended
June 30, 1998, the same one customer accounted for approximately 13% of net
revenues. For the nine months ended June 30, 1999, two customers accounted for
approximately 24% of net revenues.

NOTE 10. SUBSEQUENT EVENTS

Joint Venture

In November 1998, the Company and an unrelated corporation organized
Flicker FX at SMA, LLC and entered into a joint venture agreement to provide the
production of television, film and multimedia graphics products. The agreement
provides for, among other things: (i) that until the joint venture achieves
sufficient revenues to fund its operations, the Company shall contribute start-
up capital funds and guaranteed annual salaries and benefits aggregating
$550,000, of which $50,000 is to each of the Company's two principal
shareholders; (ii) use of the Company's equipment and facilities; and
(iii) that the operating profits, as defined, shall be allocated 60% to the
Company. The agreement also provides that the Company may terminate the
agreement in the event that the joint venture does not achieve certain defined
financial goals as of the first anniversary date of the agreement.

The results of operations of the joint venture for the period from
inception (November 9, 1998) through June 30, 1999 have been combined in the
accompanying unaudited financial statements in accordance with the Accounting
Principles Board Release No. 51.

Proposed Public Offering

In March 1999, the Company signed a letter of intent with an underwriter
("the Underwriter"), with respect to a proposed public offering of the Company's
securities. There is no assurance that such offering will be consummated. In
connection therewith, the Company anticipates incurring substantial costs, which
if the offering is not consummated, will be charged to expense.

The Company has agreed to issue to the Underwriter on the closing date of
the initial public offering warrants to purchase 200,000 shares of S.M.A. Real
Time Inc.'s common stock at 120% of

F-15
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 10. SUBSEQUENT EVENTS--(CONTINUED)

the initial public offering price. The warrants shall be exercisable for a
four-year period commencing one year after the effective date of the initial
public offering.

Reorganization

In April of 1999, the shareholders of S.M.A. Real Time Inc. authorized an
amendment to its Certificate of Incorporation to increase the authorized number
of common shares from 1,000,000 to 50,000,000, to amend the par value of the
common stock from no par to a par value of $.0001, and to effect a 50-for-1
stock split applicable to all issued and outstanding shares of S.M.A. Real Time
Inc.'s common stock, increasing the issued and outstanding shares of common
stock to 1,250,000.

In addition, in April of 1999, the shareholders of each of the Companies
included in this combined group authorized (i) the merger of SMA Visual Effects
Corp. and Fly Films, Inc. with SMA Video, Inc. and (ii) the exchange of all of
their common shares of SMA Video, Inc. for 1,250,000 post split common shares of
S.M.A. Real Time Inc. These transactions were effected in April of 1999 and, as
a result, the issued and outstanding shares of S.M.A. Real Time Inc. common
stock increased to 2,500,000 as of April 30, 1999 and SMA Video, Inc. became a
wholly-owned subsidiary of S.M.A. Real Time Inc.

On May 10, 1999, the stockholders of S.M.A. Real Time Inc. authorized a
1.396-to-1 stock split of its common shares, which increased the outstanding
common shares of S.M.A. Real Time Inc. to 3,490,000 as of such date. All common
shares and related per-share data, reflected in the accompanying financial
statements and notes thereto, have been adjusted to give retroactive effect to
the above reorganization transactions.

Private Placement

In May 1999, the Company completed a Private Placement, pursuant to which
the Company sold 7 units for aggregate gross proceeds to the Company of
$700,000. Each unit consists of (i) a $100,000 promissory note bearing interest
at 10% per annum, payable the earlier of nine months from the issuance date, or
the closing of an initial public offering of the Company's securities and
(ii) 30,000 shares of the Company's common stock. The 210,000 shares of common
stock issued in connection with this financing were valued at $1,470,000 and
have been reflected on the Company's June 30, 1999 balance sheet as an increase
to non-current assets entitled deferred financing costs and an increase to
common stock for $21 and an increase to additional paid-in capital of
$1,469,979. Such deferred financing costs are being amortized as interest
expense over the initial term of the notes. Costs incurred in connection with
the Private Placement include a $70,000 fee to the placement agent,
approximately $10,000 in legal fees and warrants to the placement agent to
purchase 21,000 shares of the Company's common stock at an exercise price equal
to 120% of the initial public offering price. Amortization of the deferred
financing costs for the period through June 30, 1999 was $345,556.

Stock Options

During May of 1999, the Board of Directors and the stockholders of the
Company approved the 1999 Stock Option Plan (the "Plan"), which provides for the
granting of up to 500,000 shares of common stock, pursuant to which officers,
employees, directors and consultants are eligible to receive incentive and/or
nonstatutory stock options. Options granted under the Plan are exercisable for a
period of up to 10 years from date of grant at an exercise price which is not
less than the fair

F-16
<PAGE>

S.M.A. REAL TIME INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO JUNE 30, 1999 AND
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

NOTE 10. SUBSEQUENT EVENTS--(CONTINUED)

value on date of grant, except that the exercise period of options granted to a
stockholder owning more than 10% of the outstanding capital stock may not exceed
five years and their exercise price may not be less than 110% of the fair value
of the common stock at date of grant. The Plan provides for the options to
include vesting provisions. No options under this Plan have been granted.

Employment Agreements

In May of 1999, the Company entered into five-year employment agreements
with its two principal shareholders, which commence upon the closing of an
initial public offering of the Company's securities. Each employment agreement
provides for, among other things, a base salary of $250,000 per year and annual
increases for costs of living.

In addition, in May of 1999, the Company entered into employment contracts
with two of its key technicians, one for a five-year term providing for a base
salary of $175,000 per year and a second contract for a three-year term
providing for a base salary of $230,000 per year.

Consulting Agreement

In May of 1999, the Company entered into a six-month consulting agreement
with an unrelated individual to assist the Company in its sales and marketing
efforts in the area of digital audio. The agreement commences on June 1, 1999
and provides for minimum payments of $140,000 through November 30, 1999 and
commissions based on new clients and new business generated during the term of
the agreement and for the five-year period thereafter.

In July 1999, the Company entered into an agreement with a consultant
providing for the supervision of the design, construction and operation of an
audio post production facility. The agreement provides for weekly payments of
$2,500 beginning July 15, 1999 until completion and reimbursement of expenses.
Upon completion of the facility, it is agreed that the consultant performing the
services will enter into an employment agreement with the Company at terms to be
determined.

Preferred Stock

In May of 1999, the Company authorized the issuance of up to 10,000,000
shares of preferred stock--par value $.0001 per share. The Board of Directors
has the authority to issue the preferred stock in one or more series and to
determine the powers, preferences and rights and the qualifications, limitations
or restrictions granted to or imposed upon any wholly unissued series of
undesignated preferred stock and to fix the number of shares constituting any
series and the designation of such series, without any further vote or action by
the stockholders.

F-17

<PAGE>

A two-page fold-out containing thirty examples of SMA's graphic design services,
computer animation and virtual set production.

<PAGE>

The inside back cover contains a photograph of the reception area of SMA's
executive offices and a photograph of one of SMA's editing suites at their
Manhattan facility.
<PAGE>

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

WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN
OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 7
Cautionary Note Regarding Forward-Looking
Statements................................... 11
Use of Proceeds................................ 11
Dividend Policy................................ 12
Capitalization................................. 12
Dilution....................................... 13
Selected Financial Information................. 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 15
Business....................................... 21
Management..................................... 29
Certain Transactions........................... 35
Principal Stockholders......................... 38
Description of Securities...................... 39
Shares Eligible for Future Sale................ 40
Underwriting................................... 42
Legal Matters.................................. 44
Experts........................................ 44
Financial Statements........................... F-1
</TABLE>

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

UNTIL , 1999, 25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL
DEALERS THAT BUY, SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

2,000,000 SHARES

COMMON STOCK
------------------------
PROSPECTUS
------------------------
DIRKS & COMPANY, INC.

, 1999

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

<PAGE>

PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Limitations on Liability of Directors. Under New York law, a corporation
may adopt a charter provision eliminating or limiting the personal liability of
its directors to the corporation or its stockholders for breach of fiduciary
duties except:

o liability when the director personally gained a financial profit or other
advantage to which he or she was not legally entitled; or

o liability for any act or omission prior to the adoption by us of the
above indemnity provision; or

o liability when the director's acts violated New York Business Corporation
Law Section 719.

We have adopted a charter provision eliminating the personal liability of
our directors to the fullest extent permitted under New York law except under
the four provisions noted above.

Indemnification for Directors and Officers. Under New York law, a
corporation may indemnify its present and former directors and officers for a
variety of court or administrative proceedings. We have adopted a provision
which requires us to indemnify and hold harmless any person involved in any
action, suit or proceeding because that person is or was a director or officer
of ours. This provision does not, however, require us to indemnify an officer or
director in a proceeding they initiate without the authorization of our
directors.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of ours
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission indemnification for
liabilities is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.

Insurance for Directors and Officers. Under New York law, a corporation may
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. We have adopted a provision which permits
us to maintain insurance to protect us and our directors and officers against
expenses, liabilities and losses whether or not we would have the power to
indemnify these persons under New York law. We intend to have in place at or
promptly after the closing of this offering a directors' and officers' liability
and company reimbursement liability insurance policy.

II-1
<PAGE>

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses (other than selling
commissions and other fees paid to the underwriters) payable by the Registrant
in connection with the issuance and distribution of the securities being
registered. Except for the SEC and NASD filing fees, all expenses have been
estimated.

<TABLE>
<S> <C>
SEC Registration Fee.............................................................. $ 7,061
American Stock Exchange Listing Fee............................................... $ 35,000
NASD Filing Fee................................................................... $ 5,000
Accounting Fees and Expenses...................................................... $100,000
Printing and Engraving............................................................ $100,000
Legal Fees and Expenses........................................................... $200,000
Blue Sky Fees and Expenses........................................................ $ 30,000
Transfer Agent and Registrar Fees................................................. $ 10,000
Miscellaneous Expenses............................................................ $ 72,939
--------
Total................................................................... $560,000
--------
--------
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the Registrant has issued unregistered
securities in the transactions described below:

In May 1999, the Company completed a private placement solely to accredited
investors, in reliance upon the exemption provided by Rule 506 of Regulation D
of the Securities Act, pursuant to which the Company sold 7 units for gross
proceeds to the Company of $700,000. Each unit consists of

(i) a $100,000 promissory note bearing interest at 10% per annum,
payable the earlier of nine months from the issuance date, or the closing
of an initial public offering of the Company's securities and

(ii) 30,000 shares of the Company's common stock.

The Company also issued 21,000 warrants to Dirks & Company as placement
agent, as compensation in connection with the Company's private placement in May
1999. Each warrant is exercisable into one share of common stock at an exercise
price equal to 120% of the initial public offering price. These placement agent
warrants are for a period of five years from the closing date of this offering,
and may be exercised after the closing date of this public offering. These
warrants have demand and piggyback registration rights. These warrants also have
exercise provisions under which the holder may, in lieu of payment of the
exercise price in cash, surrender the warrant and receive a net amount of
shares, based on the fair market value of our common stock at the time of the
exercise of the warrant, after deducting the aggregate exercise price. These
securities were issued pursuant to the exemption provided by Rule 506 of
Regulation D of the Securities Act.

ITEM 27. EXHIBITS

The following exhibits are filed as part of this Registration Statement
with the Securities and Exchange Commission pursuant to Item 601 of Regulation
S-B. All exhibits refer to S.M.A. Real Time Inc. unless otherwise indicated.

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
*3.3 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York on April 16, 1999
*3.4 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York authorizing preferred stock
*3.5 -- By-Laws
4.1 -- Specimen Common Stock Certificate
5.1 -- Opinion of Stephen M. Robinson, P.A.
*10.1 -- Form of Indemnification Agreement between Registrant and each of its officers and directors
*10.2 -- 1999 Stock Incentive Plan
*10.3 -- Employment Agreement with Michael Morrissey
*10.4 -- Employment Agreement with David Satin
*10.5 -- Employment Agreement with Eli Friedman
*10.6 -- Employment Agreement with Larry Trosko
*10.7 -- Consulting Agreement with Edvardo Bissiccio
*10.8 -- Lease dated December 27, 1993, amended June 29, 1995 between The Rector Church-Wardens and Vestrymen
of Trinity Church in the City of New York, and Registrant
*10.9 -- Lease dated June 1, 1995 between Dominick Incantalupo and Fly Films, Inc.
10.10 -- Standard Contractor Agreement dated April 15, 1999 between Children's Television Workshop and SMA
Video, Inc.
10.11 -- Production Facilities Agreement dated October 15, 1998 between ESPN, Inc. and Registrant
*10.12 -- Promissory Note dated August 15, 1995 to David Satin and Michael Morrissey from S.M.A. Real Time Inc.
**10.13 -- Form of Promissory Note aggregating $700,000 issued to purchasers of Units in May 1999
*10.14 -- Form of Equipment Lease with Charter Financial, Inc.
*10.15 -- Form of Equipment Lease with Terminal Marketing Company
*10.16 -- Form of Equipment Lease with Independent Resources, Inc.
*10.17 -- Form of Business Ready Credit Agreement with Citibank
*10.18 -- Form of Business Loan Agreement with Citibank
*10.19 -- Form of Equipment Lease Agreement with LCA Leasing Corp.
**10.20 -- Form of Placement Agent's Warrant Agreement
*10.21 -- SMA Video, Inc. Profit Sharing Plan
*10.22 -- Chase Manhattan Bank Standardized 401(k) Profit Sharing Plan
10.23 -- Union-Sponsored Multi-Employer Pension Plan
10.24 -- Joint Venture Agreement dated November 5, 1998 between Flicker FX Corp. and Registrant
10.25 -- Agreement dated July 7, 1999 between Post Force Inc., Patrick Griffith and Registrant
*21.1 -- Subsidiaries of Registrant
23.1 -- Consent of Stephen M. Robinson, P.A. (Included in Exhibit 5.1)
23.2 -- Consent of Tabb, Conigliaro & McGann, P.C.
23.3 -- Consent of Darryl J. Kramer (Director Nominee)
23.4 -- Consent of Richard P. Aschman (Director Nominee)
23.5 -- Consent of Marc Goodman (Director Nominee)
*24 -- Power of Attorney (included on page II-5)
27 -- Financial Data Schedule
</TABLE>

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

* Previously filed
** To be filed by amendment

II-3
<PAGE>

ITEM 28. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.

For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) of (4), or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.

For determining any liability under the Securities Act, treat each post
effective amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement, and the
offering of such securities at that time as the initial bona fide offering of
those securities.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-4
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York on the
13th day of September, 1999.

S.M.A. REAL TIME INC.

By: /s/ MICHAEL J. MORRISSEY
----------------------------------
Michael J. Morrissey
President and Chief Executive
Officer
(Principal Executive Officer)

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES STATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------

<S> <C> <C>
/s/ MICHAEL J. MORRISSEY President, Chief Executive Officer and September 13, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Michael J. Morrissey

* Executive Vice President, Secretary and September 13, 1999
- ------------------------------------------ Treasurer
David Satin

* Chief Financial Officer (Principal September 13, 1999
- ------------------------------------------ Financial Officer and Principal Accounting
Rafael A. Estevez, Jr. Officer)
</TABLE>

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

* Michael J. Morrissey,
as Power of Attorney

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
1.2 -- Form of Representative's Warrant Agreement
1.3 -- Form of Representative's Warrant (included in the form of Representatives's Warrant Agreement)
*3.1 -- Certificate of Incorporation, filed with the Department of State of New York on May 26, 1993
*3.2 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York on November 18, 1998
*3.3 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York on April 16, 1999
*3.4 -- Certificate of Amendment to Certificate of Incorporation filed with the Department of State of New
York authorizing preferred stock
*3.5 -- By-Laws
4.1 -- Specimen Common Stock Certificate
5.1 -- Opinion of Stephen M. Robinson, P.A.
*10.1 -- Form of Indemnification Agreement between Registrant and each of its officers and directors
*10.2 -- 1999 Stock Incentive Plan
*10.3 -- Employment Agreement with Michael Morrissey
*10.4 -- Employment Agreement with David Satin
*10.5 -- Employment Agreement with Eli Friedman
*10.6 -- Employment Agreement with Larry Trosko
*10.7 -- Consulting Agreement with Edvardo Bissiccio
*10.8 -- Lease dated December 27, 1993, amended June 29, 1995 between The Rector Church-Wardens and Vestrymen
of Trinity Church in the City of New York, and Registrant
*10.9 -- Lease dated June 1, 1995 between Dominick Incantalupo and Fly Films, Inc.
10.10 -- Standard Contractor Agreement dated April 15, 1999 between Children's Television Workshop and SMA
Video, Inc.
10.11 -- Production Facilities Agreement dated October 15, 1998 between ESPN, Inc. and Registrant
*10.12 -- Promissory Note dated August 15, 1995 to David Satin and Michael Morrissey from S.M.A. Real Time Inc.
**10.13 -- Form of Promissory Note aggregating $700,000 issued to purchasers of Units in May 1999
*10.14 -- Form of Equipment Lease with Charter Financial, Inc.
*10.15 -- Form of Equipment Lease with Terminal Marketing Company
*10.16 -- Form of Equipment Lease with Independent Resources, Inc.
*10.17 -- Form of Business Ready Credit Agreement with Citibank
*10.18 -- Form of Business Loan Agreement with Citibank
*10.19 -- Form of Equipment Lease Agreement with LCA Leasing Corp.
**10.20 -- Form of Placement Agent's Warrant Agreement
*10.21 -- SMA Video, Inc. Profit Sharing Plan
*10.22 -- Chase Manhattan Bank Standardized 401(k) Profit Sharing Plan
10.23 -- Union-Sponsored Multi-Employer Pension Plan
10.24 -- Joint Venture Agreement dated November 5, 1998 between Flicker FX Corp. and Registrant
10.25 -- Agreement dated July 7, 1999 between Post Force Inc., Patrick Griffith and Registrant
*21.1 -- Subsidiaries of Registrant
23.1 -- Consent of Stephen M. Robinson, P.A. (Included in Exhibit 5.1)
23.2 -- Consent of Tabb, Conigliaro & McGann, P.C.
23.3 -- Consent of Darryl J. Kramer (Director Nominee)
23.4 -- Consent of Richard P. Aschman (Director Nominee)
23.5 -- Consent of Marc Goodman (Director Nominee)
*24 -- Power of Attorney (included on page II-5)
27 -- Financial Data Schedule
</TABLE>

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

* Previously filed
** To be filed by amendment