UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB
(Mark One)
              [ X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended September 30, 1996

                                       OR

              [  ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                           Commission File No. 0-12193

                          AFFINITY ENTERTAINMENT, INC.
        (Exact name of small business issuer as specified in its charter)

           Delaware                                              22-2473403
(State or other jurisdiction of                              (I.R.S. Employer)
incorporation or organization)                               Identification No.)

              15310 Amberly Drive, Suite 370, Tampa, Florida 33647
               (Address of principal executive offices) (Zip Code)

                                 (813) 975-8180
              (Registrant's telephone number, including area code)

                         AFFINITY TELEPRODUCTIONS, INC.
           15436 North Florida Avenue, Suite 103, Tampa, Florida 33613
              (Former name, former address and former fiscal year,
                          if changed since last report)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X . No  .
                                                                      ---    --
     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of the  issuer's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.

     The issuer's revenues for its most recent fiscal year were $2.1 million.

     The  aggregate  market  value of the voting  stock  held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock, as of September 30, 1996 was $48,424,644.50.

     Registrant has 8,284,217 shares of Common Stock  outstanding as of December
31, 1996.
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES

                            Form 10-KSB Annual Report

                                TABLE OF CONTENTS

                                                                        Page No.
                                                                        --------
PART I
     Item 1    DESCRIPTION OF BUSINESS....................................   3
     Item 2    DESCRIPTION OF PROPERTY....................................   7
     Item 3    LEGAL PROCEEDINGS..........................................   7
     Item 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........   8

PART II
     Item 5    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS...................................................   9
     Item 6    MANAGEMENT'S DISCUSSION AND ANALYSIS.......................  10
     Item 7    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
                DATA......................................................  15
     Item 8    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE.......................  32

PART III
     Item 9    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........  32
     Item 10   EXECUTIVE COMPENSATION.....................................  33
     Item 11   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT................................................  34
     Item 12   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............  35

PART IV
     Item 13   EXHIBITS AND REPORTS ON FORM 8-K...........................  36
<PAGE>
                                     PART I

ITEM I. DESCRIPTION OF BUSINESS

         Affinity Entertainment,  Inc. (the "Company") is a Delaware corporation
which commenced its operations in the teleproduction and motion picture business
under  its  current  management  in 1994.  Affinity's  initial  broadcast  media
products were short feature  television  programs about destination  resorts and
collectibles  which were aired primarily on pay-per-view  and cable  television.
The Company,  since its  beginnings  in 1994,  has  significantly  broadened its
business  operations to include the  production of feature films and  television
programs,  the  editing  of movies  and  television  products,  distribution  of
broadcast  media  properties  world  wide  and  investment  in  broadcast  media
properties which management believes have commercial value.

Business Activities

         The Company is engaged in the  production and  distribution  of feature
films,  television  programming,  documentaries,  commercials and videos for the
home and  industrial  markets in the  United  States  and  internationally.  The
Company  performs  post-production  editing  services for  programming  produced
internally  by the  Company  and  externally  by  outside  parties  through  its
wholly-owned subsidiary,  Broadcast Edit, Inc. The Company owns "Bounty Hunters"
and  distributes  this  television  series  to the U.S.  television  syndication
marketplace through its Tradewinds  Television,  Inc. subsidiary.  Additionally,
the Company currently participates in the distribution of entertainment products
to the  foreign  marketplace,  as  well  as to  domestic  cable  television  and
pay-per-view,  through  Century,  a  76%  owned  subsidiary.  The  Company  also
participates in strategic  partnerships in which the Company provides  financing
and its  expertise to projects of other  companies in return for a percentage of
the revenues generated by the project.

         The Company  plans to intensify its efforts on the feature film portion
of its  business.  The Company has named  William J.  Macdonald  as President of
Affinity  Entertainment Group, Inc., a wholly-owned  subsidiary formed to manage
the  Company's  feature film  production  business.  Mr.  Macdonald is currently
producing  several outside feature films:  "The Saint",  starring Val Kilmer and
Elizabeth  Shue at  Paramount  Pictures and "Lucky  Strike",  directed by Ridley
Scott and "Air Reno" for Hollywood Pictures,  an  action-adventure  about flying
daredevils. He held the position of Vice President of Business Affairs for Siren
Pictures  before  becoming  President/Partner  of The  Robert  Evans  Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
Foster,  "Buster"  starring  Phil  Collins  and "The Two  Jakes"  starring  Jack
Nicholson and Harvey Keitel.  He is also credited as Co-Producer on "Sliver" and
Executive Producer on 
                                       3
<PAGE>
"Jade".

         The  Company  has  completed  production  of its first  motion  picture
entitled "Men Seeking  Women,"  which was  co-produced  with MPH  Entertainment,
Inc.("MPH").  Delivery  of the final cut and  promotional  trailer  is  expected
January  20,  1997.  The Company has paid for the picture in full and owns a 50%
interest in gross revenues with the remaining 50% owned by MPH.  Pursuant to its
agreement with MPH, the Company is to recoup its investment in the film prior to
the payment of any deferred compensation or the distribution of profits.

         The Company also owns the rights to several  feature  film  screenplays
including "Lucifer in Cameo" written by Philip J. Lasker, purchased from Kazmark
Entertainment,  Inc.,  and "Elvis and Leon"  written  by Dick  Christie  and Joe
Lerer,  purchased from Paramount  Pictures.  The Company may finance and produce
these projects  internally or elect to package them and sell its rights in these
projects to other  production  companies or motion picture studios  depending on
the Company's financial condition and banking relationships.

         The Company is also co-producing  "Looking Beyond," a television series
about the paranormal,  with First  Television which is owned and operated by Mac
and Bradley Anderson  ("Sightings,"  "Encounters,"  "The PSI Factor," and "Alien
Autopsy").  The show will be hosted by Linda Bonell.  The Company is introducing
the show through its subsidiary,  Tradewinds  Television,  Inc., at the National
Association of Television  Program  Executives (NAPTE) in January 1997. The show
is expected to air in domestic syndication beginning in the fall of 1997.

         The Company is developing a made for television  movie based in Monaco.
Jorge  Zamacona,  (Millennium  and  Homicide)  has  agreed  to act as  Executive
Producer. Funding for the development is being negotiated at the present time.

         On October 31,  1996,  the Company  purchased a 76% interest in Century
Technologies,  Inc. ("Century"), a publicly-held Colorado corporation that is in
the business of distribution film and television  products to worldwide markets.
Under the terms of the Stock  Acquisition  Agreement  between the  parties,  the
Company  purchased  37,500,000  Units of Century  for $0.08 per unit.  Each Unit
consists of one (1) share of Century Common Stock at $.0001 par value  ("Century
Common  Stock") and one (1) Common  Stock  purchase  warrant to purchase one (1)
share of Century  Common Stock at $2.00 per share ( the  "Warrants").  The Units
are immediately  separable into their component parts. In consideration  for the
transfer of the Units,  the Company paid Three Million  Dollars  ($3,000,000) to
Century  consisting  of (i) the  conversion  to equity of Four Hundred  Thousand
Dollars ($400,000) cash previously advanced by the Company to Century,  (ii) Two
Hundred  Thousand  Dollars  ($200,000)  cash,  and (iii) a  negotiable  one-year
promissory  note  payable by the Company to Century in the amount of Two Million
Four  Hundred  Thousand  Dollars  ($2,400,000)(the  "Promissory  Note") which is
secured by the Company's stock.

         The Promissory  Note bears interest at a rate of eight percent (8%) per
annum  and is  secured  by two (2)  shares of  Series D  Preferred  Stock of the
Company, par value $1.00 (the "Series D Preferred Stock").  Each share of Series
D Preferred  Stock shall be  convertible  into 750,000  shares of the  Company's
Common  Stock  convertible  only in the event of default  by the  Company on the
Promissory  Note. The Series D Preferred  Stock is not entitled to any voting or
dividend rights of any kind.  Notwithstanding  the foregoing,  the Company shall
have the right to provide such substitute  collateral as the Company and Century
may mutually agree upon in writing. The Series D Preferred Stock will be held in
escrow  by  Century's  counsel  (the  "Escrow  Agent")  until  such  time as the
Promissory  Note is paid in full or  substitute  collateral  is  provided by the
Company.  The Company  believes that the  acquisition of Century will enable the
Company to implement  its business plan of becoming  heavily  vested in the U.S.
and foreign distribution of both feature films and television programming.

         On September 13, 1996,  the Company and Tradewinds  Television,  LLC, a
California  Limited  Liability 
                                       4
<PAGE>
Company ("Tradewinds"), entered into an Interim Financing and Security Agreement
(the "Security  Agreement") pursuant to which Tradewinds granted the Company, as
security for the  repayment  by  Tradewinds  of certain  loans to be made by the
Company,  a first priority lien on substantially all of Tradewinds'  assets (the
"Assets"). The Assets include accounts receivable, the name and mark "Tradewinds
Television," the rights to the syndicated television series "Bounty Hunters" and
distribution  rights to certain other  television  products.  As of November 19,
1996, the Company loaned Tradewinds an aggregate of approximately  $823,000 (the
"Loans") pursuant to the Security Agreement. Concurrently, with the execution of
the  Security  Agreement,  the Company and  Tradewinds  engaged in  negotiations
pursuant to which the Company would  purchase  substantially  all of the Assets.
The parties entered into an Asset Purchase Agreement,  dated October 3, 1996, as
amended, to provide for such acquisition.  The sale of the assets was contingent
upon the  satisfactory  resolution by Tradewinds  of various  bankruptcy  issues
concerning   other  companies   affiliated  with  Royeric  Pack,  the  owner  of
Tradewinds.

         On November  14,  1996,  the Company  filed a complaint  in Los Angeles
Superior Court  asserting that  Tradewinds had defaulted under the Loans and the
Security Agreement,  and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996,  Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables  associated  therewith,  in consideration of Affinity forgiving
the indebtedness  evidenced by the Loans. Such indebtedness,  including interest
and related costs and expenses, was approximately  $1,000,000.  Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing  executive  producing  services in connection with the "Bounty Hunter"
series.  Pursuant  to such  agreement,  Mr. Pack  received a $75,000  payment on
December 6, 1996 for the first production  season, and is entitled in the second
production  season to a fee of $3,000 per  episode,  payable upon airing of each
such episode.

         On December  17,  1996,  the Company  agreed with the Trustee of Action
Media Group,  Inc., a company  affiliated with Mr. Pack and which is the subject
of a bankruptcy court proceeding ("AMG"), to pay $275,000 to the Trustee of AMG,
and to secure in  exchange a release of certain  claims by the  Trustee  and AMG
against  Tradewinds  and  the  Company  with  regard  to  indebtedness  owed  by
Tradewinds  to AMG and the  assignment of Assets by Tradewinds to the Company in
lieu of foreclosure,  as described above. On December 18, 1996, the Court having
jurisdiction  over the AMG bankruptcy  proceeding  approved the $275,000 payment
and release among AMG, Tradewinds and the Company.

         Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.

         In October 1996,  the Company  reached an agreement in principal with a
European  entity in which the entity  has  agreed to lend  $48.4  million to the
Company.  The loan will bear interest at a rate of 9% per annum over a five year
period.  The Company will pledge as  collateral  for the loan one hundred  (100)
shares of Series C Convertible Preferred Stock, to be created upon closing, that
can be converted by the lender into Common  Stock of the Company  under  certain
conditions  of  repayment  of the loan,  but in no instance at a price less than
$10.00 per common  share.  Upon  conversion  of the Series C Preferred  Stock to
Common Stock,  the holder of the Series C Preferred  Stock shall also receive an
additional  number of shares equal to 10% of the number of shares as  calculated
above. In no event is greater than 40% of the outstanding  principal of the loan
to be converted  to equity in any twelve (12) month  period.  Any common  shares
and/or preferred shares issued upon conversion of the loan to equity will not be
sold,  transferred  or  assigned  in the  absence of an  effective  registration
statement under the Securities Act of 1933, as amended,  or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the  insurance  company may require  amendments to the terms of
the  transactions  prior to the  issuance  of the loan,  but that it expects the
insurance  guarantee  to be issued in  January  1997.  However,  there can be no
assurance that the insurance guarantee will be issued at that time, or at all.

         Broadcast Edit is a video production and  post-production  company.  It
provides a full range of services  
                                       5
<PAGE>
including film editing and producing videos for such related  industries located
primarily in California. The facilities of Broadcast Edit include a full-service
television  production  facility  with two editing  bays,  studios and  offices.
Broadcast  Edit also  provides  directing  and editing  services to producers of
television   programming   including   music  videos,   corporate   productions,
advertising and sports programs.  Clients have included:  Geffen Records, Island
Records, Elecktra Records, ABC, NBC, ESPN and Disney.

         The Company owns 79% of a series  entitled  "EdenQuest".  Each one-hour
special  transports the viewer to an exotic  location with a marquee hostess and
six international  swimsuit models, as they explore paradise.  The first episode
starred Pamela  Anderson of Baywatch fame. The show was shot on location in Bora
Bora in French  Polynesia.  The second  episode was filmed at  Paradise  Island,
Bahamas and starred  Anna Nicole  Smith.  The third  episode was filmed in Maui,
Hawaii and starred Sandra Taylor. The Company has also produced a fourth episode
which is a compilation  or "best of" episode.  The Company  derives  "EdenQuest"
revenues from domestic  syndication,  pay-per-view,  foreign markets, home video
and merchandising.

         In  March  1995,  the  Company  entered  into  an  agreement  to form a
strategic alliance with Sid and Marty Krofft  Productions,  Inc.  ("Krofft") for
possible development of "Land of the Lost", one of their flagship series, into a
theatrical  film by Disney,  a home video series and two  children's  series for
major  television  networks.  The Company has contributed  $500,000 towards this
limited  partnership.  Subsequent  to signing this  agreement,  Disney signed an
agreement  to option the rights to create a  theatrical  release of "Land of the
Lost",  that is currently in the development  stage. The Company does not expect
any revenues  from the Disney movie unless or until Disney  exercises the option
and  proceeds  to produce the film.  The  Company  does not expect to derive any
significant  revenues in fiscal year 1997. It is the Company's position that the
Company's  $500,000  investment is  collateralized  by Krofft's  children's home
video  library.  The Company  has  established  a reserve of  $250,000  for this
investment.

         On July 26, 1995,  the Company  entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17,  1996,  the Company
terminated the letter of intent.  The Company had advanced $600,000 to Krofft in
contemplation  of  the  merger.  As of  September  30,  1996,  the  Company  has
established a reserve for the entire $600,000.

         On December 9, 1996,  the Company filed suit against  Krofft to recover
these  advances.  The suit,  filed in the United States  District  Court Central
District of California  against Krofft  Entertainment  et al., alleged breach of
contract,  fraud  and money due and  owing  with  regard to the above  mentioned
transactions.  The  case  is in its  preliminary  stage  and no  outcome  can be
predicted at this time.

         All of the Company's  products and projects can be sold or licensed for
exhibition  on  domestic  and  international  cable  and  broadcast   television
networks.  Company personnel,  supplemented by commissioned agents,  execute the
sales and marketing  activities in the domestic market,  and  representation  in
international  markets is  accomplished  through the use of  commissioned  sales
agents.

Competition

         Competition in the feature film,  television production and the foreign
and  domestic  distribution  industries  for air time,  talent,  viewership  and
product is intense.  Competitors of the Company include  established  television
and  film  production  companies,   television   syndicators  and  international
distributors many of which have significantly  greater financial  resources than
the Company.  Accordingly,  the Company is  considered  to be one of the smaller
entities in a highly competitive market.  However,  the profits of an enterprise
involved in the feature film and television  industry are greatly dependent upon
the  audience  appeal  of each  creative  product,  relative  to the cost of the
product's purchase,  development,  production and distribution.  Audience appeal
depends upon factors  which cannot be reliably  ascertained  in advance and over
which  the  Company  and its  competitors  have  little or no  control,  such as
unpredictable  critical reviews and changing 

                                       6
<PAGE>
public  tastes.  The Company  believes  that the  diversity  of audience  appeal
provides the Company with an opportunity to improve its competitive  position in
the industry.

         Government approval is not required for the production of the Company's
products nor the rendering of services.  The Company is not  dependent  upon any
one or a group of customers.  Approximately  fifteen persons are employed by the
Company, and free lance persons are engaged as needed.

         CBNI Development Company,  Inc. ("CBNI"),  formerly Computerized Buying
Network, Inc., was incorporated in the State of Delaware on February 4, 1983. On
February 23, 1994, CBNI acquired 100% of all the issued and  outstanding  common
stock of Affinity Teleproductions, Inc., a Florida corporation, in a transaction
qualifying  as a  tax-free  reorganization  and  changed  its  name to  Affinity
Teleproductions,  Inc. now Affinity  Entertainment,  Inc.  CBNI was engaged in a
shopping service business until May 28, 1992, at which time it ceased operations
with no  business  assets.  On May 30,  1996,  the  Company  changed its name to
Affinity Entertainment, Inc.

         On  August  31,  1994,  the  Company  acquired   Broadcast  Edit,  Inc.
("Broadcast Edit"), a California  corporation organized on January 30, 1992, for
50,000 of its  restricted  common  shares in a  transaction  accounted  for as a
pooling  of  interests.   Broadcast   Edit  is  in  the  video   production  and
post-production business.

         On April 4, 1995,  the Company  formed a new  wholly-owned  subsidiary,
Affinity  Entertainment  Group,  Inc.,  to manage  the  Company's  feature  film
production business.

         On October 31,  1996,  the Company  purchased a 76% interest in Century
Technologies,  Inc. ("Century"), a publicly-held Colorado corporation that is in
the business of distributing film and television products to worldwide markets.

         On December 9, 1996, the Company formed a new wholly-owned  subsidiary,
Tradewinds Television, Inc., for the purposes of operating a domestic television
syndication   company.   The  Company   transferred  the  assets  of  Tradewinds
Television, LLC to this new subsidiary.

ITEM II.  DESCRIPTION OF PROPERTY

         The Company's corporate and administrative offices are located at 15310
Amberly  Drive,  Suite 370,  Tampa,  Florida  33647.  The Company's  subsidiary,
Broadcast Edit, Inc., is located at 10482 Noel Street,  Suite 101, Los Alimitos,
California 90720. The Company's subsidiary,  Affinity Entertainment Group, Inc.,
is  located  at 2828  Donald  Douglas  Loop  North,  2nd  floor,  Santa  Monica,
California  90405. The Company's  subsidiary,  Tradewinds  Television,  Inc., is
located at 5855 Topanga Canyon Boulevard,  Suite 420, Woodland Hills, California
91367. All locations of the Company are leased.

         The  Company  is  currently   considering   consolidating  all  of  its
California  operations  in one  facility.  The  Company  anticipates  no  future
problems in renewing or obtaining suitable leases for its principal properties.

ITEM III.  LEGAL PROCEEDINGS

Access America, Inc.

         On April 16, 1996, the Company exercised its express and absolute right
to rescind the  Agreement  of Sale dated May 8, 1993 (the  "Agreement")  between
Thoro-Cap,  Inc., now Affinity Entertainment,  Inc. (the "Company"),  and Access
America,  Inc., by reversing the previously  recorded prepaid broadcast air time
for  approximately  $4.8 million and canceled the 100,000  shares of Convertible
Preferred Stock issued in connection with this Agreement.

         Access America filed suit in Delaware Chancery Court on October 2, 1996
requesting the issuance of 100,000  shares of preferred  stock and conversion of
these preferred  shares into $5,000,000  worth of common stock of the Company up
to a maximum of 9% of the outstanding common stock of the Company. On January 7,
1997, the Court granted the Company's  motion to dismiss the complaint of Access
America on procedural grounds. On January 8, 1997, Access America filed a notice
of appeal to the Delaware  Supreme Court.  Although the Company believes that it
will ultimately prevail in this matter, there can be no assurance that this will
be the case or that a material adverse effect will not result.

Lehman Brothers International

         Pursuant  to  the  Offshore  Securities  Subscription  Agreement  dated
January 24, 1996 (the  "Agreement"),  on February 23, 1996, the Company sold one
million  (1,000,000)  shares of Common  Stock of the  Company at $5.00 per share
(the "Shares") to Philmont A.V.V. ("Philmont"). By agreement of the parties, the
Shares are subject to a "stop  transfer"  order and may not be transferred for a
period of twelve months from the closing of the transaction  without the express
written consent of the Company.

         As a  condition  of the first  transaction,  pursuant  to the  Offshore
Securities Deferred Subscription Agreement dated January 24, 1996 (the "Deferred
Agreement"),  on February 23, 1996,  the Company sold an additional  one million
(1,000,000)  shares of the  Common  Stock of the  Company  at $5.00 per share to
Philmont  (the  "Deferred  Shares").  The  Deferred  Shares were paid for with a
promissory note for $5 million at an interest rate of 10% per annum.  Unless the
Promissory  Note described  above is paid in full, no rights to cash or property
distributions,  dividends, interest paid by coupon or otherwise, distribution of
certificates,   warrants,  rights,  stocks  or  cash  representing  subdivision,
combination,   reclassification,   merger,  buy-out,  acquisition,
                                       7
<PAGE>
redemption,   exchange,  or  any  such  other  corporate  or  government  action
pertaining  to or involving  the ownership  rights of the Deferred  Shares.  The
Promissory  Note may not be prepaid,  in whole or in part, in advance.  Upon the
expiration  of the term of the  Promissory  Note,  the Company shall in its sole
discretion,  have the option to acquire the shares subscribed herein by Philmont
in exchange for the full  cancellation  of the Promissory  Note. By agreement of
the parties,  the Deferred Shares are subject to a "stop transfer" order and may
not be  transferred  for a period  of  twelve  months  from the  closing  of the
transaction without the express written consent of the Company.

         Since June 5, 1996,  Philmont is in default of its interest payments to
the Company.  Despite  numerous  written  demands,  Philmont  failed to cure the
default.  Therefore,  on June 21, 1996, the Company  exercised its express right
under the  Deferred  Agreement  and demanded  return of the Deferred  Shares for
retirement  to treasury  within 72 hours of receipt of the demand.  Philmont has
failed to return the shares to the Company.

         Lehman Brothers International ("Lehman") has obtained possession of the
Shares and Deferred  Shares.  On November 27, 1996,  Lehman filed a complaint in
Delaware  Chancery Court seeking to compel the Company to register the 2,000,000
shares   (including  the  Deferred  Shares)  in  the  name  of  Lehman  free  of
restriction.  The Company  believes  that  Lehman,  if entitled to the  Philmont
Shares, must take such shares subject to all restrictions agreed to by Philmont.
The Company plans to vigorously contest the complaint.  However,  if successful,
the lawsuit could have a material adverse effect on the Company.  The case is in
a preliminary stage and no outcome can be predicted at this time.

Sid and Marty Krofft Productions, Inc.

         In  March  1995,  the  Company  entered  into  an  agreement  to form a
strategic alliance with Sid and Marty Krofft  Productions,  Inc.  ("Krofft") for
possible development of "Land of the Lost", one of their flagship series, into a
theatrical  film by Disney,  a home video series and two  children's  series for
major  television  networks.  The Company has contributed  $500,000 towards this
limited  partnership.  Subsequent  to signing this  agreement,  Disney signed an
agreement  to option the rights to create a  theatrical  release of "Land of the
Lost",  that is currently in the development  stage. The Company does not expect
any revenues  from the Disney movie unless or until Disney  exercises the option
and  proceeds  to produce the film.  The  Company  does not expect to derive any
significant  revenues in fiscal year 1997. It is the Company's position that the
Company's  $500,000  investment is  collateralized  by Krofft's  children's home
video  library.  The Company has  established  a reserve of  uncollectiblity  of
$250,000 for this investment.

         On July 26, 1995,  the Company  entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17,  1996,  the Company
terminated the letter of intent.  The Company had advanced $600,000 to Krofft in
contemplation  of  the  merger.  As of  September  30,  1996,  the  Company  has
established a reserve for uncollectiblity of the entire $600,000.

         On December 9, 1996,  the Company filed suit against  Krofft to recover
these  advances.  The suit,  filed in the United States  District  Court Central
District of California  against Krofft  Entertainment  et al., alleged breach of
contract,  fraud  and money due and  owing  with  regard to the above  mentioned
transactions.  The  case  is in its  preliminary  stage  and no  outcome  can be
predicted at this time.

Other Proceedings
-----------------

         In  December  1996,  the  Company  received a subpoena  duces tecum for
records from the  Philidelphia  District  Office of the  Securities and Exchange
Commission in connection  with a formal  investigation  being  conducted by that
office.  The  investigation  appears to involve the activities of four brokerage
firms  which  have been  involved  in the offer  and sale of the  securities  of
several  companies, including  those of the Company.  The Company is cooperating
with the Commission's staff conducting the investigation.

         On February 21, 1996, Century  Technologies,  Inc. was informed that an
informal  inquiry of Century and certain of its  transactions had been initiated
by the Southeast  Regional  Office of the  Securities  and Exchange  Commission.
Century has cooperated with the investigation.  On September 13, 1996, the staff
of the  Commission  notified  Century  that it  intended to  recommend  that the
Commission  institute  a  cease  and  desist  order  against  Century  based  on
allegations that Century had violated various provisions of the securities laws.
The Company  believes that any securities  law violations  pertaining to Century
occurred under former management prior to the Company's  acquisition of Century.
The Commission's  staff indicated in a letter to Century that "no action will be
recommended against any of Century's present officers, directors or employees."

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

None.
                                       8
<PAGE>
                                     PART II

ITEM V.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The  Company's  Common Stock is quoted on the National  Association  of
Securities  Dealers  Automated  Quotation  System  ("NASDAQ")  Small Cap  Market
(Symbol:  AFTY).  The Company's  Common Stock has been traded since November 30,
1994.

Fiscal Year                                                  High         Low
-----------                                                --------     -------

1995
----
  First Quarter........................................    $ 5.75       $ 2.875
  Second Quarter.......................................      5.1875       3.00
  Third Quarter........................................      6.00         3.625
  Fourth Quarter.......................................      7.25         3.875

1996
----
  First Quarter........................................      6.50         4.50
  Second Quarter.......................................      7.625        5.25
  Third Quarter........................................     10.00         4.875
  Fourth Quarter.......................................      9.875        6.00

         The bid prices reported for these periods reflect  inter-dealer prices,
without retail markup,  markdown or  commissions,  and may not represent  actual
transactions.

         The closing bid price per share as of December  31, 1996 was $1.625 and
there were approximately 328 stockholders of record as of that date.

         The Company  has paid no cash  dividends  on its common  stock to date.
However,  on November 1, 1996,  the company  announced  its intention to issue a
dividend to each Affinity  shareholder of record at a date to be determined,  of
one  Century  unit for  each  common  share of  Affinity,  These  units  will be
distributed  once  a  registration  statement  is  effective.  Payment  of  cash
dividends is within the discretion of the Company's  Board of Directors and will
depend on, among other factors, earnings, capital requirements and the operating
and  financial  condition  of the  Company.  At the  present  time,  the Company
anticipates  retaining  future  earnings,  if  any,  in  order  to  finance  the
development of its business activities.

                                       9
<PAGE>
ITEM VI.  MANAGEMENT'S DISCUSSION AND ANALYSIS

         The Company produces feature films,  television programs,  commercials,
documentaries and videos for all media worldwide.

A.  RESULTS OF OPERATIONS

         The following table summarizes the changes in selected items, including
absolute dollar changes,  percentage  changes and percent of net revenue for the
fiscal year ended September 30, 1996 compared to the fiscal year ended September
30, 1995:
<TABLE>
<CAPTION>
                                                                                         % of Net
                                                                      Line Item          Revenue
                                                      $ Change         % Change      ---------------
                                 1996      1995     Fav./(Unfav.)    Fav./(Unfav.)   1996        1995
                                 ----      ----     -------------    -------------   ----        ----
                                                       (In Thousands, except %)
<S>                            <C>        <C>          <C>              <C>         <C>          <C>
Net Revenue ................   $ 2,078    $ 1,231          847            69 %        100%        100%
  Cost of revenue ..........     1,046        325         (721)         (222)          51          26
  General and administrative     3,533      1,399       (2,134)         (153)         170         114
  Depreciation and
    amortization ...........     1,904        307       (1,597)         (520)          91          25
                               -------    -------      -------                      -----        ----
Operating loss .............    (4,405)      (800)      (3,605)         (450)        (212)        (65)
Other income, net ..........       237        (86)         323           376           11          (7)
                               -------    -------      -------                      -----        ----
Net loss ...................   $(4,168)   $  (886)     $(3,282)         (370)        (201)        (72)
                               =======    =======      =======                      =====        ====
</TABLE>

Net Revenue

         For the fiscal year ended  September 30, 1996, the increase in revenues
is primarily due to the Company's  television project,  "EdenQuest",  and all of
its ancillary sources of income,  and its "The Contemporary  Collectibles  Show"
series.  The Company has produced  three  original  episodes,  and a compilation
("best of") of its popular  "EdenQuest"  television series. The third and fourth
episodes  have not yet been telecast on free  television or basic cable,  as the
Company plans to syndicate  these episodes  through its  subsidiary,  Tradewinds
Television,  Inc.,  for  airing in the  summer of 1997.  The  Company  currently
derives  income  for this  project  from five  different  sources:  1)  domestic
syndication,  2) foreign sales, 3) pay-per-view,  4) merchandising,  and 5) home
video.  The  Company  produced  and  aired  14  episodes  of  "The  Contemporary
Collectibles  Show",  starring  Morgan  Brittany.  The Company  does not plan to
produce any additional episodes.

Cost of Revenue

         For the fiscal year ended September 30, 1996, the significant  increase
in cost of revenue can be attributed to several factors. Television distributors
commissions  are  paid  by the  Company  based  on  total  cumulative  sales  of
"EdenQuest".  As sales in "EdenQuest" increase, so do commission percentages. In
addition,  the  Company  canceled  the  launch  of the  second  season  of  "The
Contemporary  Collectibles  Show",  due to a variety of factors,  including  the
uncertainty  regarding the  availability of its satellite air time. As a result,
the Company took a one time charge of  approximately  $125,000 to operations for
expenses incurred in connection with the Lifetime Channel.

General and Administrative

         For the fiscal year ended  September 30, 1996,  the increase in general
and administrative  expenses is primarily due to exceptionally high professional
expenses as the Company seeks to position itself to make acquisitions and expand
its operations into feature films and  distribution and the  uncollectiblity  of
the
                                       10
<PAGE>
Company's  advances and investment in Krofft (see Item III. Legal  Proceedings).
Additionally, the Company prepaid all of its equipment leases at Broadcast Edit,
Inc., its wholly-owned subsidiary, with pre-payment penalties present on many of
the leases.  Further,  the Company hired additional staff to better implement it
business  plan  and   increased   salaries  of  some  key  personnel  to  levels
commensurate to their job descriptions.

         On April 17, 1996,  the Company  terminated  its merger talk with Sid &
Marty Krofft  Productions,  Inc. After completing its due diligence,  management
decided that it was not in the best interests of the Company's  shareholders  to
move forward with the merger.  Management  did offer the Krofft's an alternative
proposal  that would have  better  protected  the  Company's  shareholders.  The
Krofft's declined this revised offer. Consequently,  the company took a one time
charge of  approximately  $175,000 to  operations  for  expenses  related to the
proposed merger.

Depreciation and amortization

         For the fiscal year ended September 30, 1996, the significant  increase
in depreciation and  amortization  expense is primarily due to the Company fully
amortizing  "The  Contemporary  Collectible  Show" and "Post  Time"  series  for
approximately  $486,624 and $462,988,  respectively,  due to the  uncertainty of
whether these shows will generate revenue in the future.

         In addition,  the Company  accelerated  the  amortization  of Adventure
Quest and Edenquest for approximately $175,000 and $101,817, respectively.

Other Income, net

         For the fiscal year ended  September  30,  1996,  the increase in other
income (expense) is primarily due to the recognition of interest income.

B. LIQUIDITY AND CAPITAL RESOURCES

         The Company expects to meet its cash  requirements for Fiscal year 1997
with funds  generated from  operations,  the exercise of employee stock options,
sales of restricted  common stock via private  placements and loans. The Company
believes  that those  sources  will be adequate to meet the  Company's  expected
needs for fiscal year 1997, although there can be no assurance that this will be
the case.

         The  Company  has not  formalized  its plan for paying  the  $2,400,000
Promissory Note payable to Century  Technologies,  Inc. on October 31, 1997. The
Company expects that this  Promissory Note will be repaid with some  combination
of the assets and receivables of Tradewinds Television,  Inc., the proceeds from
a  loan  from  a  European  entity  and  private  placements  of  the  Company's
securities.

         For the fiscal year ended September 30, 1996, the  predominate  sources
of  operating  funds were  editing  services,  sale of  television  products and
private placements of the Company's common stock.

         Other  than  discussed  above,  the  Company  is not aware of any known
trends or  uncertainties  that have or are reasonably  likely to have a material
effect on the Company's  liquidity or capital resources.  Any other projects not
contemplated herein will be funded by joint ventures or other outside capital.

C.    OTHER PROJECTS

         The Company is  co-producing  with  Forever  Blue  Entertainment,  Inc.
"Bounty Hunters", a one hour reality show seen weekly dealing with actual crimes
and drama.  "Bounty  Hunters"  tells the true stories of bail bondsmen  crossing
state  lines  to  apprehend  bail  jumpers  whose  offenses  range  from  simple
misdemeanors  to armed assault,  drug dealing and murder.  The show is currently
distributed  by  Tradewinds  Television,  Inc.  and  can be  seen  in 74% of the
country.

         The Company  plans to intensify its efforts on the feature film portion
of its  business.  The Company has named  William J.  Macdonald  as President of
Affinity  Entertainment Group, Inc., a wholly-owned  subsidiary formed to manage
the  Company's  feature film  production  business.  Mr.  Macdonald is currently

                                       11
<PAGE>
producing  several outside feature films:  "The Saint",  starring Val Kilmer and
Elizabeth  Shue at  Paramount  Pictures and "Lucky  Strike",  directed by Ridley
Scott and "Air Reno" for Hollywood Pictures,  an  action-adventure  about flying
daredevils. He held the position of Vice President of Business Affairs for Siren
Pictures  before  becoming  President/Partner  of The  Robert  Evans  Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
Foster,  "Buster"  starring  Phil  Collins  and "The Two  Jakes"  starring  Jack
Nicholson and Harvey Keitel.  He is also credited as Co-Producer on "Sliver" and
Executive Producer on "Jade".

         The  Company  has  completed  production  of its first  motion  picture
entitled "Men Seeking  Women,"  which was  co-produced  with MPH  Entertainment,
Inc.("MPH").  Delivery  of the final cut and  promotional  trailer  is  expected
January  20,  1997.  The Company has paid for the picture in full and owns a 50%
interest in gross revenues with the remaining 50% owned by MPH.  Pursuant to its
agreement with MPH, the Company is to recoup its investment in the film prior to
the payment of any deferred compensation or the distribution of profits.

         The Company also owns the rights to several  feature  film  screenplays
including "Lucifer in Cameo" written by Philip J. Lasker, purchased from Kazmark
Entertainment, Inc. and "Elvis and Leon" written by Dick Christie and Joe Lerer,
purchased  from  Paramount  Pictures.  The Company may finance and produce these
projects  internally  or elect to  package  them  and sell its  rights  in these
projects to other  production  companies or motion picture studios  depending on
the Company's financial condition and banking relationships.

         The  Company  is  also   co-producing   "Looking  Beyond,"  with  First
Television which is owned and operated by Mac and Bradley Anderson ("Sightings,"
"Encounters,"  "The PSI Factor," and "Alien Autopsy") a television  series about
the  paranormal.  The show  will be  hosted  by Linda  Bonell.  The  Company  is
introducing the show through its subsidiary, Tradewinds Television, Inc., at the
National  Association of Television  Program Executives (NAPTE) in January 1997.
The show is  expected to air in domestic  syndication  beginning  in the fall of
1997.

         The Company is developing a made for television  movie based in Monaco.
Jorge  Zamacona,  (Millennium  and  Homicide)  has  agreed  to act as  Executive
Producer. Funding for the development is being negotiated at the present time.

         William Macdonald served as a producer on the recently completed Turner
Broadcasting television mini-series "Teddy Roosevelt and the Rough-Riders" which
is expected to air in July 1997.  The  Company  expects to receive a  production
credit when the mini-series airs.

D. OTHER SIGNIFICANT MATTERS

Authorization of Preferred Stock

         On October 31, 1996, the Company  authorized the creation of two shares
of  Series D  Preferred  Stock  with a par  value of $1 in  connection  with the
acquisition of Century Technologies, Inc.

Acquisition of Century Technologies, Inc.

         On October 31,  1996,  the Company  purchased a 76% interest in Century
Technologies,  Inc. ("Century"), a publicly-held Colorado corporation that is in
the business of distribution film and television  products to worldwide markets.
Under the terms of the Stock  Acquisition  Agreement  between the  parties,  the
Company  purchased  37,500,000  Units of Century  for $0.08 per unit.  Each Unit
consists of one (1) share of Century Common Stock at $.0001 par value  ("Century
Common  Stock") and one (1) Common  Stock  purchase  warrant to purchase one (1)
share of Century  Common Stock at $2.00 per share ( the  "Warrants").  The Units
                                       12
<PAGE>
are immediately  separable into their component parts. In consideration  for the
transfer of the Units,  the Company paid Three Million  Dollars  ($3,000,000) to
Century  consisting  of (i) the  conversion  to equity of Four Hundred  Thousand
Dollars ($400,000) cash previously advanced by the Company to Century,  (ii) Two
Hundred  Thousand  Dollars  ($200,000)  cash,  and (iii) a  negotiable  one-year
promissory  note  payable by the Company to Century in the amount of Two Million
Four  Hundred  Thousand  Dollars  ($2,400,000)(the  "Promissory  Note") which is
secured by the Company's Series D Preferred Stock.

         The Promissory  Note bears interest at a rate of eight percent (8%) per
annum  and is  secured  by two (2)  shares of  Series D  Preferred  Stock of the
Company, par value $1.00 (the "Series D Preferred Stock").  Each share of Series
D Preferred  Stock shall be  convertible  into 750,000  shares of the  Company's
Common Stock only in the event of default by the Company on the Promissory Note.
The Series D Preferred Stock is not entitled to any voting or dividend rights of
any kind.  Notwithstanding  the  foregoing,  the Company shall have the right to
provide such substitute collateral as the Company and Century may mutually agree
upon in  writing.  The  Series  D  Preferred  Stock  will be held in  escrow  by
Century's counsel (the "Escrow Agent") until such time as the Promissory Note is
paid in full or substitute  collateral  is provided by the Company.  The Company
believes  that the  acquisition  of Century will enable the Company to implement
its  business  plan  of  becoming   heavily  vested  in  the  U.S.  and  foreign
distribution of both feature films and television programming.

Acquisition of the Assets of Tradewinds Television, LLC

         On September 13, 1996,  the Company and Tradewinds  Television,  LLC, a
California  Limited  Liability Company  ("Tradewinds"),  entered into an Interim
Financing and Security  Agreement (the "Security  Agreement")  pursuant to which
Tradewinds  granted the Company,  as security for the repayment by Tradewinds of
certain loans to be made by the Company,  a first priority lien on substantially
all  of  Tradewinds'   assets  (the  "Assets").   The  Assets  include  accounts
receivable,  the  name and  mark  "Tradewinds  Television,"  the  rights  to the
syndicated television series "Bounty Hunters" and distribution rights to certain
other  television  products.  As  of  November  19,  1996,  the  Company  loaned
Tradewinds an aggregate of approximately  $823,000 (the "Loans") pursuant to the
Security Agreement.  Concurrently, with the execution of the Security Agreement,
the Company and Tradewinds engaged in negotiations pursuant to which the Company
would  purchase  substantially  all of the Assets.  The parties  entered into an
Asset Purchase Agreement, dated October 3, 1996, as amended, to provide for such
acquisition.

         On November  14,  1996,  the Company  filed a complaint  in Los Angeles
Superior Court  asserting that  Tradewinds had defaulted under the Loans and the
Security Agreement,  and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996,  Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables  associated  therewith,  in consideration of Affinity forgiving
the indebtedness  evidenced by the Loans. Such indebtedness,  including interest
and related costs and expenses, was approximately  $1,000,000.  Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing  executive  producing  services in connection with the "Bounty Hunter"
series.  Pursuant  to such  agreement,  Mr. Pack  received a $75,000  payment on
December 6, 1996 for the first production  season, and is entitled in the second
production  season to a fee of $3,000 per  episode,  payable upon airing of each
such episode.

         On December  17,  1996,  the Company  agreed with the Trustee of Action
Media Group,  Inc., a company  affiliated with Mr. Pack and which is the subject
of a bankruptcy court proceeding ("AMG"), to pay $275,000 to the Trustee of AMG,
and to secure in  exchange a release of certain  claims by the  Trustee  and AMG
against  Tradewinds  and  the  Company  with  regard  to  indebtedness  owed  by
Tradewinds  to AMG and the  assignment of Assets by Tradewinds to the Company in
lieu of foreclosure,  as described above. On December 18, 1996, the Court having
jurisdiction  over the AMG bankruptcy  proceeding  approved the $275,000 payment
and release among AMG, Tradewinds and the Company

         Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned 
                                       13
<PAGE>
subsidiary, Tradewinds Television, Inc.

Loan Agreement

         In October 1996,  the Company  reached an agreement in principal with a
European  entity in which the entity  has  agreed to lend  $48.4  million to the
Company.  The loan will bear interest at a rate of 9% per annum over a five year
period.  The Company will pledge as  collateral  for the loan one hundred  (100)
shares of Series C Convertible Preferred Stock, to be created upon closing, that
can be converted by the lender into Common  Stock of the Company  under  certain
conditions  of  repayment  of the loan,  but in no instance at a price less than
$10.00 per share.  Upon  conversion  of the Series C  Preferred  Stock to Common
Stock,  the  holder of the  Series C  Preferred  Stock  shall  also  receive  an
additional  number of shares equal to 10% of the number of shares as  calculated
above. In no event is greater than 40% of the outstanding  principal of the loan
to be converted  to equity in any twelve (12) month  period.  Any common  shares
and/or preferred shares issued upon conversion of the loan to equity will not be
sold,  transferred  or  assigned  in the  absence of an  effective  registration
statement under the Securities Act of 1933, as amended,  or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the  insurance  company may require  amendments to the terms of
the  transactions  prior to the  issuance  of the loan,  but that it expects the
insurance  guarantee  to be issued in  January  1997.  However,  there can be no
assurance that the insurance guarantee will be issued at that time, or at all.
                                       14
<PAGE>
ITEM VII.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Independent Auditors' Report.............................................    16
Consolidated Balance Sheets .............................................    17
Consolidated Statements of Operations....................................    19
Consolidated Statements of Stockholders' Equity..........................    20
Consolidated Statements of Cash Flows....................................    21
Notes to Consolidated Financial Statements...............................    22
                                       15
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
Affinity Entertainment, Inc.

We  have  audited  the  accompanying  consolidated  balance  sheet  of  Affinity
Entertainment,  Inc. and Subsidiaries  (the "Company") as of September 30, 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period  ended  September  30,  1996.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,   the  consolidated   financial  position  of  the  Affinity
Entertainment,  Inc.  and  Subsidiaries  as  of  September  30,  1996,  and  the
consolidated  results of operations and its consolidated  cash flows for each of
the two years in the  period  ended  September  30,  1996,  in  conformity  with
generally accepted accounting principles.

Weinberg, Pershes & Company, P.A.



Boca Raton, Florida
January 7, 1997
                                       16
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                            AS OF SEPTEMBER 30, 1996
                                 (In thousands)

                                     ASSETS

CURRENT ASSETS
Cash and cash equivalents...........................................     $ 1,366
Accounts receivable, net............................................         133
Programing costs....................................................         990
Other current assets, net...........................................         188
                                                                         -------
  Total current assets..............................................       2,677

PROPERTY AND EQUIPMENT, at cost
Edit equipment    ..................................................       1,237
Other equipment   ..................................................         314
                                                                         -------
                                                                           1,551
  Less accumulated depreciation.....................................       1,072
                                                                         -------
                                                                             479
  Construction in progress..........................................          64
                                                                         -------
    Total property and equipment....................................         543

OTHER ASSETS
Loans receivable, net...............................................         539
Due from officers and employees.....................................          68
Investment in joint venture, net....................................         250
Other assets........................................................         315
                                                                         -------
  Total other assets................................................       1,172
                                                                         -------
    Total assets....................................................     $ 4,392
                                                                         =======

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

                                       17
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                            AS OF SEPTEMBER 30, 1996
                                 (In thousands)

                       LIABILITIES AND STOCKHOLDERS EQUITY

CURRENT LIABILITIES
Notes payable.......................................................    $    12
Accrued liabilities.................................................        139
                                                                        -------
  Total current liabilities.........................................        151

STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value, $10 stated 
  value, 500,000 shares authorized, 48,734 shares 
  issued and outstanding............................................        487
Convertible preferred stock, $.0001 par value, $50 stated 
  value, 100,000 shares authorized, 
  -0- issued and outstanding........................................         --
Common stock, $.10 par value, 25,000,000 shares
  authorized, 8,284,217 shares issued and
  outstanding.......................................................        829
Additional Paid-in Capital..........................................     14,686
Additional Paid-in Capital - stock options..........................        394
Deficit.............................................................     (5,894)
                                                                        -------
                                                                         10,502
Less:
Stock subscriptions receivable......................................      5,829
Unearned compensation...............................................        432
                                                                        -------
  Total stockholders' equity........................................      4,241
                                                                        -------
    Total liabilities and stockholders' equity......................    $ 4,392
                                                                        =======

The  accompanying  notes are an integral  part of these  consolidated  financial
statements. 
                                       18
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
                                 (In thousands)


                                                              1996        1995
                                                             ------      ------
REVENUE..................................................    $2,078      $1,231

COSTS AND EXPENSES
Cost of revenue, exclusive of amortization...............     1,046         325
General and administrative...............................     3,533       1,399
Depreciation and amortization............................     1,904         307
                                                             ------      ------
  Total costs and expenses...............................     6,483       2,031

  Operating loss.........................................    (4,405)       (800)

OTHER INCOME, net........................................       237         (86)
                                                             ------      ------

Net Loss..................................................   $(4,168)   $  (886)
                                                            =======     =======



Loss per common share....................................   $  (.56)    $  (.19)
                                                            ========    =======

Weighted average shares outstanding......................     7,420       4,613
                                                            =======     =======

The  accompanying  notes are an integral  part of these  consolidated  financial
statements. 
                                       19
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)
<TABLE>
<CAPTION>
                                 Convertible Convertible                      Additional
                                  Preferred  Preferred   Common                Paid-In
                                    Stock      Stock     Stock   Additional    Capital                Stock
                                 $50 Stated $10 Stated  $.10 Par  Paid-In       Stock              Subscription   Unearned
                                     Value      Value     Value   Capital      Options    Deficit   Receivable Compensation   Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>        <C>       <C>       <C>            <C>       <C>        <C>        <C>        <C>    
Balance on October 1,
  1994 .........................   $ 5,000    $   487   $   402   $   580        $  --     $  (840)   $(2,781)   $  --      $ 2,848
Issuance of common stock:
  Stock options exercised ......      --         --          40       277           --        --         --         --          317
  Private placement ............      --         --         158     3,780           --        --         --         --        3,938
Net loss for the fiscal year
  ended September 30, 1995 .....      --         --        --        --             --        (886)      --         --         (886)
                                   -------    -------   -------   -------        -------   -------    -------    -------    -------
Balance on September 30,
  1995 .........................     5,000        487       600     4,637           --      (1,726)    (2,781)      --        6,217
Cancellation of preferred
  stock ........................    (5,000)      --        --        --             --        --         --         --       (5,000)
Stock options issued ...........      --         --        --        --              540      --         --         --          540
Issuance of common stock:
  Stock options exercised ......      --         --          29       582           (146)     --         --         --          465
  Private placement ............      --          200     9,467      --             --      (5,000)      --         --        4,667
Unearned compensation
  related to grant of stock
  options to executives ........      --         --        --        --             --        --         --         (540)      (540)
Amortization of unearned
  compensation .................      --         --        --        --             --        --         --          108        108
Cash received on
  subscriptions receivable .....      --         --        --        --             --        --        1,952       --        1,952
Net loss for the fiscal year
  ended September 30, 1996 .....      --         --        --        --             --      (4,168)      --         --       (4,168)
                                   -------    -------   -------   -------        -------   -------    -------    -------    -------
Balance on September 30,
  1996 .........................   $  --      $   487   $   829   $14,686        $   394   $(5,894)   $(5,829)   $  (432)   $ 4,241
                                   =======    =======   =======   =======        =======   =======    =======    =======    =======
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements. 
                                       20
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
                                 (In thousands)

                                                              1996        1995
                                                            --------    -------

Cash Flows - Operating Activities:
Net loss .................................................   $(4,168)   $  (886)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and amortization ..........................     1,904        307
  Provision for losses on accounts receivable ............       316        --
  Provision for losses on inventory ......................        40        --
  Provision for losses on notes receivable ...............       600        --
  Provision for losses on joint venture ..................       250        --
  Other assets ...........................................      (238)       --
  Amortization of unearned compensation related to grant
    of stock options to executives .......................       108        --
  Changes in current assets and liabilities:
    (Increase) decrease in accounts receivable ...........        99       (457)
    (Increase) decrease in programming costs..............    (1,085)      (954)
    (Increase) decrease in prepaid television time .......        79        112
    (Increase) decrease in current assets ................      (228)       (56)
    Increase (decrease) in accrued liabilities ...........    (1,306)       535
    Increase (decrease) in deferred revenue ..............      (206)        69
                                                             -------    -------
      Net cash used in operating activities ..............    (3,835)    (1,330)

Cash Flows - Investing Activities:
Capital expenditures .....................................      (208)       (83)
Investments in loans receivable ..........................    (1,139)      (487)
Investments in notes receivable ..........................        25        --
                                                             -------    -------
      Net cash used in investing activities ..............    (1,322)      (570)

Cash Flows - Financing Activities:
Proceeds from sale of common stock .......................     7,084      1,365
Proceeds from notes payable ..............................       145      1,010
Principal payments on notes payable ......................      (853)      (331)
                                                             -------    -------
      Net cash provided by financing activities ..........     6,376      2,044
                                                             -------    -------

Increase in cash and cash equivalents ....................     1,219        144
Cash and cash equivalents at beginning of period .........       147          3
                                                             -------    -------
Cash and cash equivalents at end of period ...............   $ 1,366    $   147
                                                             =======    =======

The  accompanying  notes are an integral  part of these  consolidated  financial
statements. 
                                       21
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - HISTORY AND ORGANIZATION

         Affinity  Entertainment,   Inc.  (the  "Company"),   formerly  Affinity
Teleproductions,  Inc.,  a Delaware  corporation,  is engaged in  producing  and
selling feature films, television programs, commercials, infomercials and videos
for the home and  industrial  markets in the United States and  internationally.
The Company  entered this  business  following a February  1993 merger with CBNI
Development,  Inc.  ("CBNI").  CBNI  had  been  engaged  in a  shopping  service
business.

         On  August  31,  1994,  the  Company  acquired   Broadcast  Edit,  Inc.
("Broadcast  Edit"), a California  corporation for 50,000 shares of common stock
in a transaction accounted for a pooling of interests. Broadcast Edit is a video
production   and   post-production   company.   It  provides  a  full  range  of
communication  services to corporations  and advertising  agencies,  and it also
produces, directs and edits television programs and videos for the entertainment
industry.

         The Company is engaged in the production of feature  films,  television
programs,  commercials,  documentaries  and videos for all media  worldwide.  In
addition,  the Company,  through its  wholly-owned  subsidiary,  Broadcast Edit,
Inc.,  produces and performs  post-production  editing  services for programming
produced internally by the Company and externally by outside parties.

         The  Company  has  formed  a  new  wholly-owned  subsidiary,   Affinity
Entertainment  Group,  Inc.,  April 4, 1995,  to  intensify  its  efforts on the
feature film portion of its business.

         On October 31,  1996,  the Company  purchased a 76% interest in Century
Technologies, Inc., a publicly-held Colorado corporation that is in the business
of distributing film and television products to worldwide markets.

         On December 9, 1996, the Company formed a new wholly-owned  subsidiary,
Tradewinds Television, Inc., for the purposes of operating a domestic television
syndication company.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The consolidated  financial  statements  consist of the accounts of the
Company  including  the  subsidiaries,   all  of  which  are  wholly-owned.  All
intercompany transactions, profits and accounts have been eliminated.

         The Company's significant accounting policies are as follows:

1.  Revenue Recognition

         The Company  adopted the Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards  No. 53,  "Financial  Reporting by
Producers and Distributors of Motion Picture Films" ("Statement 53").  Statement
53 states that the motion picture industry consists of two principal activities:
production,  involving  the  development,  financing  and  production  of motion
pictures;  and  distribution,   involving  the  promotion  and  exploitation  of
completed motion pictures in a variety of domestic and international media.

         In accordance  with Statement 53, the Company  recognizes  revenues for
films licensed to the theatrical box office market upon  exhibition of the film;
for home video sales and  merchandising  when the product is shipped;  for films
and programs  licensed to television  and other markets when the license  period
begins and the
                                       22
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

film or program is available for telecast or exploitation.

         Film  editing and  production  services to third  parties  revenues are
recognized when services are rendered.

2.  Programing Costs

         Program  cost  inventories  are stated at the lower of cost,  amortized
cost or net  realizable  value.  Costs include  acquisition  costs,  production,
production overhead and distribution costs.  Individual programs are capitalized
then amortized over the estimated life of revenue  generation.  These  estimates
are reviewed periodically.

         Amortization expense was approximately  $1,739,819 and $155,986 for the
fiscal years ended September 30, 1996 and 1995, respectively.

3.  Cash and Cash Equivalents

         For purposes of reporting cash flows, cash and cash equivalents include
cash and  short-term  investments  with  original  maturities of less than three
months.

4.  Property and Equipment

         Property and equipment are recorded at cost.  Depreciation  is provided
for in amounts sufficient to allocate to operations over their estimated service
lives on a straight-line or allowable accelerated basis. Maintenance and repairs
that do not  extend the life of the asset are  charged  to expense as  incurred;
major renewals and betterments are  capitalized.  When property or equipment are
sold or retired, the related costs and accumulated depreciation are removed from
the accounts and any gain or loss is included in the results of operations.

Property  and  equipment  consist of the  following  at  September  30, 1996 (in
thousands):

         Edit................................................     $1,237
         Production..........................................         26
         Furniture and fixtures..............................         54
         Vehicles............................................         38
         Office and other....................................        134
         Leasehold improvements..............................         62
                                                                  ------
                                                                   1,551

           Less: Accumulated Depreciation....................      1,072
                                                                  ------
                                                                     479
           Construction in progress..........................         64
                                                                  ------
             Total property and equipment....................     $  543
                                                                  ======

         Depreciation  expense was  approximately  $163,925 and $151,139 for the
fiscal years ended September 30, 1996 and 1995, respectively.
                                       23
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

5.  Income Taxes

         In February  1992,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes"  ("Statement  109").  Statement  109  required a change from the deferred
method of accounting for income taxes of Accounting Principles Board Opinion No.
11 (APB Opinion No. 11") to the asset and  liability  method of  accounting  for
income taxes.  Under the asset and liability  method of Statement 109,  deferred
tax assets  and  liabilities  are  recognized  for the  future tax  consequences
attributable to difference  between the financial  statement carrying amounts of
existing  assets and liabilities  and their  respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.  Under Statement 109, the effect on deferred tax assets
and  liabilities  of a change in tax rates is recognized in income in the period
that includes the enactment date.

         During  fiscal year 1995,  the  Company  adopted  Statement  109. As of
September 30, 1996 and 1995, the Company had no material  current tax liability,
deferred tax assets or liabilities except for the following:

         The Company  had  available,  for income tax  purposes,  net  operating
carryforwards expiring as follows:

               September 30, 2007                 $   24,500
               September 30, 2208                 $   27,000
               September 30, 2009                 $  558,000
               September 30, 2010                 $1,100,000
               September 30, 2011                 $4,100,000

         Deferred  income tax  provisions,  resulting from  differences  between
accounting for financial statement purposes and accounting for tax purposes were
as follows:

                                                           1996         1995
                                                           ----         ----
               Tax benefit from net operating losses   $ 1,981,000   $ 581,000
               Valuation allowance                      (1,981,000)   (581,000)
                                                       -----------   ---------
               Tax effects of timing differences                --          --
                                                       ===========   =========

6.  Loss Per Common Share

         The loss per share of common stock is  calculated  by dividing net loss
by the weighted  average  shares of common  stock and common  stock  equivalents
outstanding during the period.  Common stock equivalents include shares issuable
upon conversion of the Company's convertible preferred stock and exercise of the
Company's  outstanding  warrants and stock  options.  For the fiscal years ended
September 30, 1996 and 1995,  common stock  equivalents were  anti-dilutive  and
were  not  included  in  the  calculation  of  weighted  average  common  shares
outstanding.

7.  Reclassifications

         Reclassifications to the September 30, 1995 consolidated  statements of
operations   and  cash  flows  were  made  to  conform  to  September  30,  1996
presentation.
                                       24
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

8.  Significant Concentration of Credit Risk

         The Company has  concentrated  its credit risk for cash by  maintaining
deposits in banks located within the same  geographic  region.  The maximum loss
that would have  resulted  from risk  totaled -0- and  $144,000 for fiscal years
ended September 30, 1996 and 1995,  respectively,  for the excess of the deposit
liabilities  reported by the bank over the amounts  that would have been covered
by federal insurance.

NOTE C - ACCOUNTS RECEIVABLE, NET

         Accounts  receivable  is net of an allowance  for doubtful  accounts of
approximately $329,236 and $20,875 for the fiscal years ended September 30, 1996
and 1995, respectively.

NOTE D - LOANS RECEIVABLE

The  Company  has loans  receivable  as of  September  30,  1996 as follows  (in
thousands):

         Loan receivable-Krofft Productions, Inc., 
           due on demand.............................................   $  600

         Loan receivable-Tradewinds Television, Inc., collateralized
           due on demand.............................................      539

         Officers/Employees, non-interest bearing, due
           on demand.................................................       68
                                                                        ------
                                                                         1,207
         Less:  Allowance for doubtful accounts                            600
                                                                        ------
                                                                        $  607
                                                                        ======

Sid & Marty Krofft Productions, Inc.

         On July 26, 1995,  the Company  entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17,  1996,  the Company
terminated the letter of intent.  The Company had advanced $600,000 to Krofft in
contemplation  of  the  merger.  As of  September  30,  1996,  the  Company  has
established  a reserve for the entire  $600,000  (See Note G -  Commitments  and
Contingencies).

 Tradewinds Television, Inc.

                  On September 13, 1996, the Company and Tradewinds  Television,
LLC, a California  Limited  Liability  Company  ("Tradewinds"),  entered into an
Interim Financing and Security Agreement (the "Security  Agreement") pursuant to
which  Tradewinds  granted  the  Company,  as  security  for  the  repayment  by
Tradewinds of certain loans to be made by the Company,  a first priority lien on
substantially  all of  Tradewinds'  assets (the  "Assets").  The Assets  include
accounts  receivable,  the name and mark "Tradewinds  Television," the rights to
the syndicated  television  series "Bounty Hunters" and  distribution  rights to
certain other television  products.  As of November 19, 1996, the Company loaned
Tradewinds an aggregate of approximately  $823,000 (the "Loans") pursuant to the
Security Agreement.

         Concurrently, with the execution of the Security Agreement, the Company
and  Tradewinds  engaged in  negotiations  pursuant to which the  Company  would
purchase  substantially  all of the Assets.  The parties  entered  into an Asset
Purchase Agreement, dated October 3, 1996, as amended, to provide for such
                                       25
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

acquisition.  The sale of the assets was contingent upon the resolution to which
satisfaction  of the  Company  of various  bankruptcy  issues  concerning  other
companies affiliated with Royeric Pack, the owner of Tradewinds.

         On November  14,  1996,  the Company  filed a complaint  in Los Angeles
Superior Court  asserting that  Tradewinds had defaulted under the Loans and the
Security Agreement,  and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996,  Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables  associated  therewith,  in consideration of Affinity forgiving
the indebtedness  evidenced by the Loans. Such indebtedness,  including interest
and related costs and expenses, was approximately  $1,000,000.  Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing  executive  producing  services in connection with the "Bounty Hunter"
series.  Pursuant  to such  agreement,  Mr. Pack  received a $75,000  payment on
December 6, 1996 for the first production  season, and is entitled in the second
production  season to a fee of $3,000 per  episode,  payable upon airing of each
such episode.

         Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.

NOTE E - NOTES PAYABLE

The  Company  has  notes  payable  as of  September  30,  1996  as  follows  (in
thousands):

         Notes payable, collateralized by equipment, payable in
           monthly installments of approximately $1,350,
           interest bearing at 6% (due in fiscal year 1997)..............   $12

NOTE F - STOCKHOLDERS' EQUITY

         In January  1996,  the  President of the Company and another  executive
exercised  certain  of their  options  for  common  shares of a total of 250,000
common shares at per share exercise prices of $1.33.

         The Company,  through a private  placement,  issued 2,000,000 shares of
its  common  stock  (see Note  G-Litigation-Lehman  Brothers  International  for
details).

                      STOCK OPTIONS ISSUED BUT UNEXERCISED
                      ------------------------------------

                                      Expiration Date            Exercise Price
         Number of Shares               Fiscal Year                  Range
         ----------------               -----------                  -----
                                    (expiring monthly)
            244,000                        1996                   $6.24-$6.75,
             50,000                        1996               75% market value
            281,000                        1997                    $1.50-$7.75
            377,000                        1998                       $1.75
            523,000                        1999                       $2.00
            500,000                        2000                       $2.00

                                       26
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

NOTE G - COMMITMENTS AND CONTINGENCIES

         The Company leases it facilities used in connection with its operations
under various operating leases.

Operating Lease Commitments

         Future  minimum  payments  under  non-cancelable  leases due during the
fiscal years ended September 30, are as follows (in thousands):

               1997..................................................     $160
               1998..................................................      137
               1999..................................................      113
            Thereafter...............................................       --

         Rent and lease  expenses  charged to  operations  during  fiscal  years
September 30, 1996 and 1995 were as follows (in thousands):

               1996..................................................     $ 81
               1995..................................................       27

Litigation

Access America, Inc.

         On April 16, 1996, the Company exercised its express and absolute right
to rescind the  Agreement  of Sale dated May 8, 1993 (the  "Agreement")  between
Thoro-Cap,  Inc., now Affinity Entertainment,  Inc. (the "Company"),  and Access
America,  Inc., by reversing the previously  recorded prepaid broadcast air time
for  approximately  $4.8 million and canceled the 100,000  shares of Convertible
Preferred Stock issued in connection with this Agreement.

         Access America filed suit in Delaware Chancery Court on October 2, 1996
requesting the issuance of 100,000  shares of preferred  stock and conversion of
these preferred  shares into $5,000,000  worth of common stock of the Company up
to a maximum of 9% of the outstanding common stock of the Company. On January 7,
1997, the Court granted the Company's  motion to dismiss the complaint of Access
America on procedural grounds. On January 8, 1997, Access America filed a notice
of appeal to the Delaware  Supreme Court.  Although the Company believes that it
will ultimately prevail in this matter, there can be no assurance that this will
be the case or that a material adverse effect will not result.

Lehman Brothers International

         Pursuant  to  the  Offshore  Securities  Subscription  Agreement  dated
January 24, 1996 (the  "Agreement"),  on February 23, 1996, the Company sold one
million  (1,000,000)  shares of Common  Stock of the  Company at $5.00 per share
(the "Shares") to Philmont A.V.V. ("Philmont"). By agreement of the parties, the
Shares are subject to a "stop  transfer"  order and may not be transferred for a
period of twelve months from the closing of the transaction  without the express
written consent of the Company.

         As a  condition  of the first  transaction,  pursuant  to the  Offshore
Securities Deferred Subscription Agreement dated January 24, 1996 (the "Deferred
Agreement"),  on February 23, 1996,  the Company sold an additional  one million
(1,000,000)  shares of the  Common  Stock of the  Company  at $5.00 per share to
Philmont
                                       27
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

 (the "Deferred  Shares").  The Deferred  Shares were paid for with a promissory
note for $5 million at an interest rate of 10% per annum.  Unless the Promissory
Note  described   above  is  paid  in  full,  no  rights  to  cash  or  property
distributions,  dividends, interest paid by coupon or otherwise, distribution of
certificates,   warrants,  rights,  stocks  or  cash  representing  subdivision,
combination,   reclassification,   merger,  buy-out,  acquisition,   redemption,
exchange,  or any such other  corporate or  government  action  pertaining to or
involving the ownership rights of the Deferred  Shares.  The Promissory Note may
not be prepaid, in whole or in part, in advance. Upon the expiration of the term
of the  Promissory  Note,  the Company  shall in its sole  discretion,  have the
option to acquire the shares  subscribed  herein by Philmont in exchange for the
full  cancellation  of the  Promissory  Note.  By agreement of the parties,  the
Deferred  Shares  are  subject  to a  "stop  transfer"  order  and  may  not  be
transferred  for a period of twelve  months from the closing of the  transaction
without the express written consent of the Company.

         Since June 5, 1996,  Philmont is in default of its interest payments to
the Company.  Despite  numerous  written  demands,  Philmont  failed to cure the
default.  Therefore,  on June 21, 1996, the Company  exercised its express right
under the  Deferred  Agreement  and demanded  return of the Deferred  Shares for
retirement  to treasury  within 72 hours of receipt of the demand.  Philmont has
failed to return the shares to the Company.

         Lehman Brothers International ("Lehman") has obtained possession of the
Shares and Deferred  Shares.  On November 27, 1996,  Lehman filed a complaint in
Delaware  Chancery Court seeking to compel the Company to register the 2,000,000
shares   (including  the  Deferred  Shares)  in  the  name  of  Lehman  free  of
restriction.  The Company  believes  that  Lehman,  if entitled to the  Philmont
Shares, must take such shares subject to all restrictions agreed to by Philmont.
The Company plans to vigorously contest the complaint.  However,  if successful,
the lawsuit could have a material adverse effect on the Company.  The case is in
a preliminary stage and no outcome can be predicted at this time.

Sid and Marty Krofft Productions, Inc.

         In  March  1995,  the  Company  entered  into  an  agreement  to form a
strategic alliance with Sid and Marty Krofft  Productions,  Inc.  ("Krofft") for
possible development of "Land of the Lost", one of their flagship series, into a
theatrical  film by Disney,  a home video series and two  children's  series for
major  television  networks.  The Company has contributed  $500,000 towards this
limited  partnership.  Subsequent  to signing this  agreement,  Disney signed an
agreement  to option the rights to create a  theatrical  release of "Land of the
Lost",  that is currently in the development  stage. The Company does not expect
any revenues  from the Disney movie unless or until Disney  exercises the option
and  proceeds  to produce the film.  The  Company  does not expect to derive any
significant  revenues in fiscal year 1997.  Its the Company's  position that the
Company's  $500,000  investment is  collateralized  by Krofft's  children's home
video  library.  The Company  has  established  a reserve of  $250,000  for this
investment.

         On July 26, 1995,  the Company  entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17,  1996,  the Company
terminated the letter of intent.  The Company had advanced $600,000 to Krofft in
contemplation  of  the  merger.  As of  September  30,  1996,  the  Company  has
established a reserve for the entire $600,000.

         On December 9, 1996,  the Company filed suit against  Krofft to recover
these  advances.  The suit,  filed in the United States  District  Court Central
District of California  against Krofft  Entertainment  et al., alleged breach of
contract,  fraud  and money due and  owing  with  regard to the above  mentioned
transactions.  The  case  is in its  preliminary  stage  and no  outcome  can be
predicted at this time.
                                       28
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

NOTE H - RELATED PARTY TRANSACTIONS

         The  corporate  headquarters  of the Company has recently  moved to new
office  space.  The old office  space has been  subleased  to the brother of the
President of the Company until the lease expires in May 1998.

         During  the  fiscal  year  1996,  the  Company  has paid  approximately
$133,000 in legal fees to Myman, Abell, Fineman,  Greenspan, & Rowan law firm of
which Thomas Rowan, a director of the Company, is a partner.

NOTE I - STATEMENT OF CASH FLOWS

         Supplemental disclosure of cash flow information:

         Cash paid for  interest was  approximately  $34,216 and $74,498 for the
fiscal years ended September 30, 1996 and 1995,  respectively.  No cash was paid
for income taxes for fiscal years 1996 or 1995.

         Supplemental   information   of  non-cash   investing   and   financing
activities:

         During  fiscal  year 1996,  approximately  $1,950,725  of the  previous
year's stock  subscriptions  receivable  was  collected.  The  $5,829,778  stock
subscription receivable is shown as a reduction of stockholders' equity.

NOTE J - SUBSEQUENT EVENTS

Authorization of Preferred Stock

         On October 31, 1996, the Company  authorized the creation of two shares
of  Series D  Preferred  Stock  with a par  value of $1 in  connection  with the
acquisition of Century Technologies, Inc.

Acquisition of Century Technologies, Inc.

                  On November 14, 1996, the Company  purchased a 76% interest in
Century  Technologies,  Inc. ("Century"),  a publicly-held  Colorado corporation
that  is in the  business  of  distribution  film  and  television  products  to
worldwide  markets.  Under the terms of the Stock Acquisition  Agreement between
the parties,  the Company  purchased  37,500,000  Units of Century for $0.08 per
unit.  Each Unit consists of one (1) share of Century Common Stock at $.0001 par
value  ("Century  Common  Stock") and one (1) Common Stock  purchase  warrant to
purchase  one (1)  share  of  Century  Common  Stock at  $2.00  per  share ( the
"Warrants").  The Units are immediately separable into their component parts. In
consideration  for the  transfer of the Units,  the Company  paid Three  Million
Dollars  ($3,000,000)  to Century  consisting of (i) the conversion to equity of
Four Hundred Thousand Dollars ($400,000) cash previously advanced by the Company
to Century,  (ii) Two Hundred  Thousand  Dollars  ($200,000)  cash,  and (iii) a
negotiable  one-year  promissory  note  payable by the Company to Century in the
amount of Two Million Four Hundred Thousand Dollars ($2,400,000)(the "Promissory
Note") which is secured by the Company's stock.

         The Promissory  Note bears interest at a rate of eight percent (8%) per
annum  and is  secured  by two (2)  shares of  Series D  Preferred  Stock of the
Company, par value $1.00 (the "Series D Preferred Stock").  Each share of Series
D Preferred  Stock shall be  convertible  into 750,000  shares of the  Company's
Common Stock only in the event of default by the Company on the Promissory Note.
The Series D Preferred Stock is not entitled to any voting of dividend rights of
any kind. Notwithstanding the foregoing, the Company shall have
                                       29
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

the right to provide such  substitute  collateral as the Company and Century may
mutually  agree upon in writing.  The Series D  Preferred  Stock will be held in
escrow  by  Century's  counsel  (the  "Escrow  Agent")  until  such  time as the
Promissory  Note is paid in full or  substitute  collateral  is  provided by the
Company.  The Company  believes that the  acquisition of Century will enable the
Company to implement  its business plan of becoming  heavily  vested in the U.S.
and foreign distribution of both feature films and television programming.

Acquisition of the Assets of Tradewinds Television, LLC

         On September 13, 1996,  the Company and Tradewinds  Television,  LLC, a
California  Limited  Liability Company  ("Tradewinds"),  entered into an Interim
Financing and Security  Agreement (the "Security  Agreement")  pursuant to which
Tradewinds  granted the Company,  as security for the repayment by Tradewinds of
certain loans to be made by the Company,  a first priority lien on substantially
all  of  Tradewinds'   assets  (the  "Assets").   The  Assets  include  accounts
receivable,  the  name and  mark  "Tradewinds  Television,"  the  rights  to the
syndicated television series "Bounty Hunters" and distribution rights to certain
other  television  products.  As  of  November  19,  1996,  the  Company  loaned
Tradewinds an aggregate of approximately  $823,000 (the "Loans") pursuant to the
Security Agreement.

         Concurrently, with the execution of the Security Agreement, the Company
and  Tradewinds  engaged in  negotiations  pursuant to which the  Company  would
purchase  substantially  all of the Assets.  The parties  entered  into an Asset
Purchase  Agreement,  dated  October 3, 1996,  as  amended,  to provide for such
acquisition.  The sale of the assets was contingent upon the resolution to which
satisfaction  of the  Company  of various  bankruptcy  issues  concerning  other
companies affiliated with Royeric Pack, the owner of Tradewinds.

         On November  14,  1996,  the Company  filed a complaint  in Los Angeles
Superior Court  asserting that  Tradewinds had defaulted under the Loans and the
Security Agreement,  and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996,  Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables  associated  therewith,  in consideration of Affinity forgiving
the indebtedness  evidenced by the Loans. Such indebtedness,  including interest
and related costs and expenses, was approximately  $1,000,000.  Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing  executive  producing  services in connection with the "Bounty Hunter"
series.  Pursuant  to such  agreement,  Mr. Pack  received a $75,000  payment on
December 6, 1996 for the first production  season, and is entitled in the second
production  season to a fee of $3,000 per  episode,  payable upon airing of each
such episode.

         Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.

Loan Agreement

         In October 1996,  the Company  reached an agreement in principal with a
European  entity in which the entity  has  agreed to lend  $48.4  million to the
Company.  The loan will bear interest at a rate of 9% per annum over a five year
period.  The Company will pledge as  collateral  for the loan one hundred  (100)
shares of Series C Convertible Preferred Stock, to be created upon closing, that
can be converted by the lender into Common  Stock of the Company  under  certain
conditions  of  repayment  of the loan,  but in no instance at a price less than
$10.00 per share.  Upon  conversion  of the Series C  Preferred  Stock to Common
Stock,  the  holder of the  Series C  Preferred  Stock  shall  also  receive  an
additional  number of shares equal to 10% of the number of shares as  calculated
above. In no event is greater than 40% of the outstanding  principal of the loan
to be converted  to equity in any twelve (12) month  period.  Any common  shares
and/or preferred shares issued upon conversion of the loan to equity will not be
sold, transferred or assigned in the absence of an effective registration
                                       30
<PAGE>
                  AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

statement under the Securities Act of 1933, as amended,  or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the  insurance  company may require  amendments to the terms of
the  transactions  prior to the  issuance  of the loan,  but that it expects the
insurance  guarantee  to be issued in  January  1997.  However,  there can be no
assurance that the insurance guarantee will be issued at that time, or at all.
                                       31
<PAGE>
Item VIII.  CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.

                                    PART III

Item IX.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information Regarding Directors:

WILLIAM J. BOSSO, age 47, Director and the Chairman of the Board,  President and
Secretary.  Mr. Bosso has served as Vice President of OCG Technologies,  Inc., a
publicly traded company,  "OCGT",  from January 1992 to June 1994. Mr. Bosso was
an Account  Executive at Paine  Webber,  Inc. from  September  1989 to September
1991.

JAMES  E.  FARRELL,  age 56,  Director  of the  Board  and  Vice  President  and
Treasurer.  Mr. Farrell has over twenty years  experience in the  communications
business,  with  experience  in  marketing,  advertising,  public  relations and
financial  communications.  Prior to joining  the  Company,  he was a  freelance
marketing  consultant  and  served as  advisor to the  Company,  developing  its
advertising  programs,  and is presently an executive with Cast Art  Industries,
Inc.  From 1985 to 1990,  he served as  President  of J.  Robin  Scott  Creative
Consultants,  Inc.  a  Florida  marketing  and  public  relations  agency,  Vice
President  and  Corporate  Communications  Officer  for  Firstmark  Corporation,
Buffalo,  New York,  a  diversified  financial  services  company  listed on the
American Stock Exchange,  and eight years as a registered  representative of New
York Stock Exchange member firms including Merrill Lynch and E. F. Hutton. He is
a graduate of Syracuse University.

THOMAS P. ROWAN, age 49, has served as counsel to the Company for  entertainment
matters since its inception. Mr. Rowan is a partner in the Los Angeles based law
firm of Myman, Abell,  Fineman,  Greenspan & Rowan and has twenty-three years of
experience as an entertainment  lawyer.  He has expertise in most major areas of
the  entertainment  industry,  representing  talent,  production  companies  and
institutional clients in all areas of television, theatrical motion pictures and
music.  Mr. Rowan's clients  include Kenny Rogers,  Burt Reynolds and "The Larry
Sanders  Show." He is a graduate of the University of Santa Clara and the Loyola
University Law School.

JOHN W.  BENTON,  age 45, is the  President of Real Estate  Strategies,  Inc., a
consulting firm working with elected clients such as Lehman  Brothers,  Deutsche
Bank and other Wall Street  mortgage  banking and investment  firms.  Mr. Benton
also acts as advisor on various large  commercial real estate  transactions.  He
has over twenty years of experience  in  management,  organization  restructure,
negotiations and strategic  marketing  including  fifteen years of experience in
the mortgage banking industry. He is a graduate of the University of Maryland.

Information Regarding Executive Officers:

         The following sets forth certain information concerning the persons who
currently serve as executive  officers of the Company's  subsidiaries and who do
not serve on the Board of Directors:

WILLIAM J. MACDONALD,  age 41, President of Affinity  Entertainment Group, Inc.,
has been  with the  Company  since  August  1996.  Mr.  Macdonald  is  currently
producing  several  outside  productions:  "The Saint",  starring Val Kilmer and
Elizabeth Shue at Paramount Pictures,  "Teddy Roosevelt and the Rough Riders", a
TNT  mini-series  starring Tom Berenger and "Lucky  Strike",  directed by Ridley
Scott.  He held the  position of Vice  President  of Business  Affairs for Siren
Pictures  before  becoming  President/Partner  of The Roberts  Evans  Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
                                       32
<PAGE>
Foster,  "Buster"  starring  Phil  Collins,  and "The Two Jakes"  starring  Jack
Nicholson and Harvey Keitel.  He is also credited as Co-Producer on "Sliver" and
Executive Producer on "Jade". He is currently producing "Air Reno" for Hollywood
Pictures, an action adventure about flying daredevils.

JAMES J.  WEHRLY,  age 47,  President of Broadcast  Edit,  Inc.,  was one of the
original  founders of the  subsidiary.  Mr. Wehrly has devoted his full time for
the past seven years to Broadcast Edit, Inc.


Information Regarding Significant Employees:

ELLIOT L. BELLEN,  age 39, Executive  Producer,  has been with the Company since
its inception in 1991. As Executive Producer, Mr. Bellen oversees the production
of all television products for the Company.  From 1989 to 1991, Mr. Bellen was a
television producer with Millenium  Teleproductions in Boca Raton,  Florida. Mr.
Bellen  filed  bankruptcy  under  Chapter  7 of the  Federal  Bankruptcy  Act in
November  1993 and was  discharged  in January  1994.  Mr. Bellen pled guilty to
three counts of securities fraud, including Section 15 and Rules 10b-5 and 10-b6
of the Securities Act of 1933, as amended,  in U.S. vs. Elliot L. Bellen in case
#89-466-1 in the District Court of New Jersey and was sentenced in January 1992.
Mr. Bellen sits on the Board of Directors of Child Care Resource and Referral, a
non-profit organization.

TAYRA A. COX, age 31, joined the Company as Controller and Principal  Accounting
Officer on May 28, 1996.  From May 1993 to May 1996, Ms. Cox served as Assistant
Controller for Silver King Communications,  Inc. From June 1991 to May 1993, Ms.
Cox was a Staff  Accountant  for  William S. King,  CPA.  Ms. Cox is a Certified
Public Accountant and a graduate of the University of South Florida.

Section 16 Reports

         William J. Bosso, President of the Company,  failed to file on a timely
basis, 16 reports on Form 4 disclosing 97  transactions  involving the Company's
stock. To the best of the Company's  knowledge and belief,  Mr. Bosso is current
in his filing obligations under Section 16(a) of the Securities  Exchange Act of
1934, as amended (the "Exchange Act").

         Philmont  A.V.V.  has to date  failed to file any  reports on Form 3 or
Schedule 13D as required by the Exchange Act.

         To the  best of the  Company's  knowledge  and  belief,  the  Company's
officers and  directors  are now current in their filings under Section 16(a) of
the Exchange Act.

ITEM X.  EXECUTIVE COMPENSATION

Summary of Executive Officer Compensation

         The  Following  sets forth the annual and  long-term  compensation  for
services to the Company for the fiscal years ended  September  30, 1996 and 1995
of those  persons who were,  at  September  30,  1996,  (i) the Chief  Executive
Officer of the Company and (ii) the other four most highly compensated employees
of the Company whose compensation exceed $100,000 for fiscal year 1995.
                                       33
<PAGE>
                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                 Annual Compensation                    Long Term Compensation             
                                           -----------------------------------   ----------------------------------------  
                                                                    Other                                         All
                                                                    Annual       Restricted                      Other
                                                                   Compen-          Stock    Options/    LTIP   Compen-
                                            Salary     Bonus        sation         Awards      SAR's    Payouts  sation
Name and Principal Position        Year       $          $            $              $         (#)         $       $
---------------------------        -------------------------------------------------------------------------------------

<S>                                <C>     <C>          <C>          <C>           <C>       <C>          <C>     <C>      
William J. Bosso                   1996    150,000      --           --            --             --      --      --
President......................    1995     52,000      --           --            --        875,000      --      --
Elliot L. Bellen                   1996    150,000      --           --            --             --      --      --
Executive Producer.............    1995     52,000      --           --            --        875,000      --      --
</TABLE>

Option Grants

         During the fiscal year 1996,  the Company  granted  options to purchase
10,000 shares of the Company's  Common Stock to the Named Executive  Officers at
$8.50 per share.

ITEM XI.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table sets forth,  as of September  30,  1996,  certain
information regarding shares of AFTY Common Stock beneficially owned by (i) each
person or a group,  known to the Company,  who beneficially owns more than 5% of
AFTY  Common  Stock,  (ii) each of the  Company's  directors,  (iii) each of the
persons who appear in the Summary  Compensation  Table and (iv) all officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
                                                                                Number of          Percent
         Name and Address of Beneficial Owner                                   Shares             of Class
         ------------------------------------                                   ------------       --------
<S>                                                                             <C>                <C>  
         William J. Bosso..............................................           279,000(1)        3.83%
         c/o Affinity Entertainment, Inc.
         15310 Amberly Drive, Suite 370
         Tampa, Florida 33647

         James E. Farrell..............................................           201,500(2)        2.77%
         c/o Affinity Entertainment, Inc.
         15310 Amberly Drive, Suite 370
         Tampa, Florida 33647

         Philmont A.V.V................................................         1,000,000(3)       13.73%
         1108 Capilano 100 Park Royal
         West Vancouver, CA V7T 1A2
         Canada

         Elliot L. Bellen..............................................           106,700(4)        1.46%
         c/o Affinity Entertainment, Inc.
         15310 Amberly Drive, Suite 370
         Tampa, Florida 33647

         All Officers and Directors as a Group (2 persons).............           480,500           6.60%
</TABLE>

         (1)  Does not include (i) 750,000  shares of AFTY Common Stock issuable
              upon  exercise of stock  options at prices  ranging  form $1.33 to
              $2.00;  (ii)  10,000  shares of  Common  Stock  issuable  upon the
              exercise of Directors  Stock  Options at $8.50 per share and (iii)
              the conversion of 7,800 shares 
                                       34
<PAGE>
              of Series B  Preferred  Stock of the  Company  into  approximately
              9,750  shares of Common Stock of the  Company.  The stock  options
              vest at various times from October 1, 1996 through October 1, 1999
              and expire five years from the date of  vesting.  Does not include
              approximately  67,900  shares of AFTY  Common  Stock  owned by Mr.
              Bosso's mother, brothers,  nieces and nephews. Mr. Bosso disclaims
              beneficial ownership of these shares.

         (2)  Does not include (i) 10,000  shares of Common Stock  issuable upon
              exercise of  Directors  Stock  Options at $8.50 per share and (ii)
              the conversion of 3,900 shares of Series B Preferred  Stock of the
              Company  into  approximately  4,875  shares of Common Stock of the
              Company.

         (3)  Does not include 1,000,000 shares paid for with a promissory notes
              for $5 million at a rate of 10% per annum.  Unless the  Promissory
              Note  described  about  is  paid in  full,  no  rights  to cash or
              property  distributions,  dividends,  interest  paid by  coupon or
              otherwise, distribution of certificates,  warrants, rights, stocks
              or cash representing subdivision,  combination,  reclassification,
              merger, buy-out,  acquisition,  redemption,  exchange, or any such
              other  corporate or government  action  pertaining to or involving
              the  ownership  rights of the  Stock  transferred  hereunder.  The
              Promissory  Note may not be  prepaid,  in  whole  or in  part,  in
              advance.  Upon the expiration of the term of the Promissory  Note,
              the  Company  shall in its sole  discretion,  have the  option  to
              acquire the shares in exchange  for the full  cancellation  of the
              Promissory  Note.  The Company  presently  intends to exercise its
              option to reacquire such shares. By agreement of the parties,  the
              Shares  are  subject  to a "stop  transfer"  order  and may not be
              transferred  for a period of twelve months from the closing of the
              transaction without the express written consent of the Company.

              Philmont  A.V.V.  is currently in default on the promissory  note.
              The Company had demanded return of stock certificates representing
              the shares and full payment of all interest  accrued to date as is
              its express  right under the  subscription  agreement  between the
              parties.

         (4)  Does not include (i) 750,000  shares of AFTY Common Stock issuable
              upon  exercise of stock  options at prices  ranging  from $1.33 to
              2.00 and (ii)  10,000  shares of Common  Stock  issuable  upon the
              exercise of Stock  Options at $8.50 per share.  The stock  options
              vest at various times from October 1, 1996 through October 1, 1999
              and expire five years from the date of  vesting.  Does not include
              10,000 shares of AFTY Common Stock owned by Mr. Bellen's wife.

         Under  the rules of the  Securities  Exchange  Commission,  a person is
deemed to be a  "beneficial  owner" of a security  if that  person has or shares
"voting power", which includes the power to vote or to direct the voting of such
security,  or "investment  power",  which includes the power to dispose of or to
direct  the  disposition  of such  security.  A person is also  deemed to be the
beneficial owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed to be a beneficial  owner of the same  securities  and a person may be
deemed to be a  beneficial  owner of  securities  as to which that person has no
beneficial interest.


ITEM XII.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  corporate  headquarters  of the Company has recently  moved to new
office  space.  The old office  space has been  subleased  to the brother of the
President of the Company until the lease expires in May 1998.

         During  the  fiscal  year  1996,  the  Company  has paid  approximately
$133,000 in legal fees to Myman, Abell, Fineman,  Greenspan, & Rowan law firm of
which Thomas Rowan, a director of the Company, is a partner.
                                       35
<PAGE>
PART IV

ITEM XIII.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits
<TABLE>
<CAPTION>
         Page No.          Description of Exhibit
         --------          ----------------------
<S>                        <C>                                                        
          3.01             Amendment of Certificate of Incorporation.
          3.02             Certificate of Designation of Series D Preferred Stock.
         10.01             Lease Agreement between the Company and Tampa I Associates, LTD. dated July 22, 1996.
         10.02             Certificate of Designation of Series D Preferred Stock.
         10.03             Agreement  between  the  Company,  Baron  Banker  Limited,  Barry  Kaplan,  Esq.  And  Pendragon
                           Resources, L.L.C. dated October 21, 1996(1).
         10.04             Offshore  Securities  Subscription  Agreement  between  the Company and  Philmont  A.V.V.  dated
                           January 24, 1996.
         10.05             Offshore  Securities  Deferred  Subscription  Agreement  between the Company and Philmont A.V.V.
                           dated January 24, 1996.
         10.06             Interim Financing and Security  Agreement,  dated as of September 13, 1996,  between the Company
                           and Tradewinds Television, LLC (2).
         10.07             Asset Purchase  Agreement,  dated October 3, 1996, between the Company,  Tradewinds  Television,
                           LLC and Royeric Pack (2).
         10.08             Amendment  No. 1 to the Asset  Purchase  Agreement,  dated as of November 19, 1996,  between the
                           Company, Tradewinds Television, LLC and Royeric Pack (2).
         10.09             $600,000 Secured Promissory Note by Tradewinds Television, LLC to the Company.
         10.10             Acknowledgment regarding $600,000 Note (2).
         10.11             $22,997.18 Secured Promissory Note by Tradewinds Television, LLC to the Company.
         10.12             Acknowledgment regarding $122,997.18 Note (2).
         10.13             $100,000 Secured Promissory Note by Tradewinds Television, LLC to the Company.
         10.14             Acknowledgment regarding $100,000 Note (2).
         10.15             Assignment of Collateral in Lieu of Foreclosure, Dated December 6, 1996 (2).
         10.16             Stock   Acquisition   Agreement   dated  October  31,  1996  between  the  Company  and  Century
                           Technologies, Inc. (1).
         10.17             Escrow  Agreement  dated October 31, 1996 between the Company,  Century  Technologies,  Inc. and
                           Wilson, Elser, Moskowitz, Edelman & Dicker (1).
         10.18             Promissory Note dated October 31, 1996 by the Company payable to Century Technologies, Inc. (1).
         10.19             Escrow Agreement dated June 26, 1996 between the Company, BBL and BK, Esq.
         10.20             Promissory Note dated June 25, 1996 by Baron Banker Limited payable to the
                           Company.
         24.01             Consent of Weinberg, Pershes & Co., P.A.
         27.01             Financial Date Schedule.

         (1)   Incorporated by reference to Current Report on Form 8-K dated November 14, 1996.
         (2)   Incorporated by reference to Current Report on Form 8-K dated December 24, 1996.
</TABLE>

     (b)  Reports on Form 8-K

         1.   Current  Report on Form 8-K dated  November 14, 1996 regarding the
              acquisition of Century Technologies,  Inc., the termination of the
              Offshore  Securities  Subscription  Agreement  with  Baron  
                                       36
<PAGE>
              Banker Limited, and the Access America Lawsuit.

         2.   Current Report on Form 8-K dated  December 24, 1996  regarding the
              acquisition of all assets of Tradewinds Television, LLC.
                                       37
<PAGE>
                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized on January 10, 1997.


                                    By: /s/WILLIAM J. BOSSO
                                      ---------------------
                                        William J. Bosso
                                        Chairman, President, Secretary, Director

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on January 10, 1997.

      /s/  WILLIAM J. BOSSO           Chairman, President, Secretary, Director
-----------------------------------
           William J. Bosso


      /s/  JAMES E. FARRELL           Vice President, Treasurer, Director
-----------------------------------
           James E. Farrell


     /s/  JOHN W. BENTON              Director
-----------------------------------
          John W. Benton


     /s/  THOMAS P. ROWAN             Director
-----------------------------------
          Thomas P. Rowan


     /s/  TAYRA AN COX                Controller (Principal Accounting Officer)
-----------------------------------
          Tayra An Cox