<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K
 
(Mark One)
 
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 (FEE REQUIRED)
 
For the fiscal year ended June 30, 1996
 
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 (NO FEE REQUIRED)
 
For the transition period from       to
 
                         Commission file number 0-18954
 
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                                         <C>
                           NEVADA                                                    95-4269048
              (State or other jurisdiction of                         (I.R.S. Employer Identification Number)
               incorporation or organization)
 
            1875 CENTURY PARK EAST, SUITE 2130,                                        90067
                  LOS ANGELES, CALIFORNIA                                            (Zip code)
          (Address of principal executive offices)
</TABLE>
 
<TABLE>
<S>                                                         <C>
Registrant's telephone number, including area code:         (310) 229-2430
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value
</TABLE>
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/    No / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. / /
 
    The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of September 30, 1996 was approximately $2,049,161 (based on the
mean between the closing bid and asked prices of the Common Stock on such date),
which value, solely for the purposes of this calculation, excludes shares held
by Registrant's officers and directors. Such exclusion should not be deemed a
determination by Registrant that all such individuals are, in fact, affiliates
of the Registrant.
 
    As of September 30, 1996 there were outstanding 2,591,242 shares of
Communication and Entertainment Corp.'s common stock, par value $.01 per share
(the "Common Stock").
 
    Portions of the Registrant's Proxy Statement relating to the 1996 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Annual Report on Form 10-K.
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
                      FORM 10-K REPORT FOR THE FISCAL YEAR
 
                              ENDED JUNE 30, 1996
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>         <C>                                                                                              <C>
                                                         PART I
 
Item 1.     Business
 
Item 2.     Properties
 
Item 3.     Legal Proceedings
 
Item 4.     Submission of Matters to a Vote of Security Holders
 
                                                        PART II
 
Item 5.     Market for Registrant's Common Stock and Related Stockholder Matters
 
Item 6.     Selected Financial Data
 
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 8.     Financial Statements and Supplementary Data
 
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
                                                        PART III
 
Item 10.    Directors and Executive Officers of the Registrant
 
Item 11.    Executive Compensation
 
Item 12.    Security Ownership of Certain Beneficial Owners and Management
 
Item 13.    Certain Relationships and Related Transactions
 
                                                        PART IV
 
Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K
</TABLE>
<PAGE>
                                     PART I
 
ITEM 1. BUSINESS
 
    (a) GENERAL DEVELOPMENT OF BUSINESS
 
    Communications and Entertainment Corp. ("ComEnt" or the "Company") was
formed in December 1989 as a holding company. At such time, the Company had no
material assets. In September 1990, Double Helix Films, Inc. ("Double Helix"), a
producer of low budget films, and Odyssey Entertainment Ltd. ("Odyssey"), an
international film distribution company, were merged with wholly-owned
subsidiaries of the Company (the "Mergers"). Subsequent to the Mergers, each of
Double Helix and Odyssey became a wholly-owned subsidiary of the Company. In
June 1991, the Company sold Double Helix and thereafter began to focus on the
distribution of motion pictures in overseas markets as its primary business.
 
    A change in the entire Board of Directors of the Company (the "Board")
occurred on April 12, 1995 pursuant to the terms of a Settlement Agreement,
dated as of March 31, 1995 (the "Settlement Agreement"), by and among Robert
Hesse, Shane O'Neil, Lawrence I. Schneider, Henry N. Schneider, Robert E.
Miller, Jr., Russell T. Stern, Jr. (collectively, a group of shareholders
originally formed to effect a change in management control of the Company and
known as the "CECO Shareholders Committee"), the Company, Odyssey, Global
Intellicom, Inc., each of Jerry Silva, Robert Ferraro, N. Norman Muller, Thomas
W. Smith and David A. Mortman (constituting all the directors of the Company at
the time of the execution of the Settlement Agreement and hereinafter referred
to collectively as the "Former Directors"), and others.
 
    As contemplated by the Settlement Agreement, on April 11, 1995, the Former
Directors increased the size of the Board from five to six directors and elected
Henry N. Schneider, a designee of the CECO Shareholders Committee, a new
director effective upon the closing of the Settlement Agreement. The closing of
the Settlement Agreement occurred on April 12, 1995 and, upon the closing, the
resignations of the Former Directors became effective. After the closing, Henry
N. Schneider, as sole remaining director of the Company, elected Lawrence I.
Schneider, Russell T. Stern, Jr., Patrick J. Haynes, III and Robert E. Miller,
Jr. as new directors of the Company. In addition to the change in the
composition of the Board, the Settlement Agreement provided for the settlement
of all outstanding litigation between the Company and the CECO Shareholders
Committee. The CECO Shareholders Committee disbanded upon the closing of the
Settlement Agreement. Effective September 8, 1995, each of Messrs. Haynes, Stern
and Henry N. Schneider resigned as directors of the Company and were replaced by
Stephen R. Greenwald and Ira N. Smith, each of whom was appointed to the Board
by the remaining members thereof on such date. See "Directors And Executive
Officers Of The Registrant."
 
    During the early 1990s, the Company developed an excellent reputation in
overseas markets for the distribution of quality motion picture entertainment, a
reputation which the Company's management believes it continues to enjoy despite
its recent difficulties. Past films distributed by the Company which enjoyed
considerable success in the overseas market include such well-known productions
as Sidney Lumet's "Q & A," Blake Edward's "Switch," Michael Caton Jones' "This
Boy's Life," and Irwin Winkler's "Guilty by Suspicion" and "Sniper." The Company
is committed to expanding its activities in the foreign distribution of high
quality motion pictures and expects that the international distribution of films
will continue to be its primary line of business.
 
    On March 6, 1996, the Company declared a reverse one-for-six stock split of
its Common Stock (the "Reverse Split"), effective March 18, 1996. All share
amounts and per share prices reflected in this Report have been adjusted to give
effect to the Reverse Split.
 
    (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
 
    Since the sale of its Double Helix subsidiary in 1991, the Company has been
engaged in only one industry segment and line of business, the international
distribution of motion pictures. See "Selected Financial Data."
 
                                       1
<PAGE>
    (c) NARRATIVE DESCRIPTION OF BUSINESS
 
FOREIGN SALES AND DISTRIBUTION OPERATIONS
 
    GENERAL.
 
    The foreign distribution of films involves two principal activities--the
acquisition of rights from the licensor or the seller, usually the producer of
the film, and the licensing of the distribution rights to subdistributors in
foreign markets. In general, the rights obtained from the producer relate to all
media, including theatrical distribution, video and all forms of television.
However, the licensing of rights to subdistributors may exclude certain
territories and/or media.
 
    It is unlikely that subdistributors would bypass the Company and deal
directly with the licensors of film rights. Historically, independent licensors
of film rights prefer to deal with a single sales agent/ distributor rather than
deal with various subdistributors in foreign markets. Consequently, even if a
particular subdistributor attempted to perform the function of the Company, it
is unlikely that the film's licensor would be willing to deal with such
subdistributor. Furthermore, with respect to any particular film, the Company
would typically enter into an exclusive distributorship arrangement, thereby
precluding others from competing with the Company with respect to that film.
Moreover, in certain circumstances, the Company may also provide a financing
function for the production of a film which a subdistributor would generally be
unable to provide. See "Terms of Distribution Agreements."
 
    TERMS OF DISTRIBUTION AGREEMENTS.  Foreign distribution is generally handled
by a distributor such as the Company which coordinates worldwide sales in all
territories and media. Overseas film sales companies rely on local
subdistributors to physically deliver the motion picture and related marketing
materials and to collect revenues from local exhibitors and other local
distributors of the film. Typically, the territorial rights for a specific
medium such as television exhibition are sold for a "cycle" of approximately
seven years, after which the rights become available for license for additional
cycles.
 
    The Company's film distribution business breaks down into two broad
categories:
 
    - SALES AGENCY REPRESENTATION. As a sales agent, the Company will undertake
      to represent and license a motion picture in all markets and media on a
      best-efforts basis, with no guarantees or advances, for a fee of 15-20%,
      and typically for a term ranging from seven to fifteen years.
 
    - DISTRIBUTION. As a distributor, the Company may provide the producer of
      the film a guarantee of a portion of the budget of the project. This
      guarantee may be in the form of a bank commitment to the producer, secured
      by license agreements with foreign licensees, which is used by the
      producer to finance the production. Typically, the Company receives a
      distribution fee of 25-35% over a term ranging from 15 years to
      perpetuity. In addition, the Company may acquire a profit participation in
      the film project.
 
    Once the rights to a picture are obtained either as sales agent or
distributor with minimum guarantee, the Company will then seek to license its
rights to subdistributors in the territories for which it has acquired
distribution rights. In general, the grant of rights to the subdistributors
includes all media other than satellite, although satellite is included in some
subdistributors' territories. The subdistributor in each territory generally
pays for its distribution rights with a down payment at the time the contract is
executed with the balance due upon delivery of the picture to the
subdistributor. (Delivery occurs upon the Company's acceptance of the master
negative and its obtaining access to the interpositive and certain other items
necessary for the distribution of the film). In certain instances, the
subdistributors' obligations for the payment due on delivery are secured by a
letter of credit. Sales take place primarily at three film markets-- Cannes,
France in May; MIFED in Milan, Italy in October; and the American Film Market
("AFM") in Los Angeles in February.
 
    In general, after financing (if any) is repaid, the Company applies the
distribution receipts from its subdistributors first to the payment of
commissions due to the Company, then to the recovery of certain distribution
expenses advanced by the Company, and third, to the extent not recouped as part
of the
 
                                       2
<PAGE>
repayment of the financing, to the reimbursement of the Company for its
guarantee, if any, paid to the producer. Additional distribution receipts, if
any, are shared by the Company and the producer according to the percentages
negotiated in the agreement between the Company and the producer.
 
INDEPENDENT FILM PRODUCTION AND PRODUCT ACQUISITION
 
    Overseas film distribution companies such as the Company primarily represent
independent producers of motion pictures (rather than motion picture studios) in
all overseas markets and all media, including theatrical release, television and
home video distribution, and cable or satellite-distributed media.
 
    Producers seek to be independent producers of motion pictures for a variety
of reasons, including greater creative control of a project and potentially a
greater profit participation through the retention of the copyright or the
ability to sell the film directly in particular markets. Often, young, new
directors and producers have no choice but to independently produce their
projects, and the motion picture industry has a long history of "breakthrough"
films produced at very low cost by first time producers and directors which
subsequently achieve considerable revenues. Recent examples include "Pulp
Fiction", "Four Weddings and a Funeral" and "The Crying Game". The Company
generally obtains its product from among these independently produced films
rather than from major motion picture studios which typically have their own
in-house distribution networks. Nevertheless, from time to time, the Company may
enter into a "split rights" arrangement with a studio to represent a film in the
overseas market.
 
    The Company's management seeks to identify attractive projects very early in
their development, either through relationships with producers, directors and
agents or through industry announcements of new productions. In addition, the
Company's acquisitions personnel attends festivals and film markets, such as the
Sundance Film Festival and the Cannes Film Festival, in order to locate new
product.
 
BUSINESS STRATEGY
 
    The Company's strategy is to capitalize on its reputation and the experience
of its management to expand the scale and scope of its activities in the
international film distribution business. Management intends to expand the
Company's asset base and to build a sales infrastructure to service these
assets. Since overseas film distribution generally requires relatively low
overhead, the Company anticipates that its expansion will create economies of
scale in its sales operations.
 
    Specifically, the Company's strategy includes the following:
 
    - ACQUISITION OF FILM RIGHTS--The Company's film acquisition strategy is to
      seek out and acquire quality films with broad appeal in overseas markets.
      The Company has begun to acquire rights to new films as well as films
      currently in distribution ("library films"). In addition, the Company
      intends to maximize the risk/return profile of its film assets by building
      a portfolio of films with minimal levels of risk and financial exposure.
      In the past, the Company has been dependent on obtaining outside financing
      to acquire distribution rights to films. New management has reduced the
      Company's reliance on outside financing by placing more emphasis on
      acquiring distribution rights through arrangements which require lower or
      no advance payments. At present, the Company is not able to secure
      distribution rights by issuing letters of credit or advancing significant
      production funds, as it has in the past. Generally, the films that the
      Company represents are financed by the producers of the film, through
      independent or bank financing, utilizing the license agreements generated
      by the Company as collateral for production loans.
 
      To ensure a flow of quality film projects to the Company and to create
      opportunities for the Company to acquire ownership interests in films and
      build its film library, the Company intends to enter into certain
      "first-look" and "second-look" agreements with successful film producers.
      Under these arrangements, the producers agree to give the Company a first
      or second (after a major studio) "look" at any film projects they are
      developing. This "look" gives the Company the right to acquire foreign
      and/or domestic distribution rights, to serve as an executive producer on
      the project
 
                                       3
<PAGE>
      for a fee and to acquire an ownership interest in the project with little
      or no financial risk (see "Producer Agreements").
 
    - EXPANSION OF DISTRIBUTION CAPABILITIES--To facilitate the distribution of
      films in overseas markets, the Company intends to augment its in-house
      sales capability and seek strategic relationships with sales organizations
      in the film distribution business. The Company believes that strategic
      relationships with other companies may offer opportunities to diversify
      its product offerings, gain additional economies of scale in its sales
      operations, and expand the Company's distribution base.
 
    Following the installation of new management in October 1995, the Company
began to implement a strategy of expanding its distribution capabilities by
acquiring rights to 21 films, including 11 library films and 10 new films.
During the past fiscal year, the Company was represented at all of the major
film markets, including MIFED in October 1995, AFM in February 1996, and the
Cannes Film Festival in May 1996. At MIFED, the Company concluded six sales
arrangements; at AFM, the Company generated sales in eight territories and began
representing two of its new films, "Crimes of Fashion" and "Fifth Freedom"; and
at Cannes, the Company added two additional new films, "Dark Angel 2" and "By
the Sea of Crystal", and concluded fourteen sales agreements, including two
"output" arrangements with prominent theatrical distributors in Canada and
Brazil.
 
    As part of its overall business strategy, the Company will consider selling
portions of its film library form time to time for current cash consideration,
thereby accelerating and, in effect, guaranteeing all or part of the future
revenues that may be derived from the sales of these films in foreign markets.
See "Sales of Library Films".
 
SALES OF LIBRARY FILMS
 
    On January 2, 1996, the Company entered into an agreement with Regency
International Pictures, B.V. ("Regency"), the Company's joint venture partner,
to sell the Company's interest in the related joint ventures through which it
held approximately 50% ownership interests in four theatrical motion pictures,
entitled "Switch", "Q & A," "Guilty by Suspicion" and "This Boy's Life".
Pursuant to the agreement with Regency, the Company received $1,000,000 on
January 23, 1996 and $500,000 on February 14, 1996, in exchange for all of the
Company's interests in the joint ventures. In addition, the Company retained a
contingent interest in certain receivables, not to exceed $212,500, and a
contingent interest in future revenues from the pictures.
 
    On August 29, 1996, the Company entered into an agreement with Kinnevik
Media Properties, Ltd. ("Kinnevik"), pursuant to which the Company agreed to
grant to Kinnevik subdistribution rights in, and to sell to Kinnevik other
distribution rights to, certain films in the Company's film library. In exchange
for these rights, the Company will receive a total cash consideration of
$1,075,000, payable $500,000 on closing, $275,000 six months after closing, and
$300,000 eighteen months after closing. In addition, the Company will retain a
continuing right to receive revenues from certain of the films, valued by
management at a minimum of approximately $150,000. Kinnevik has also agreed to
provide the Company with a $500,000 revolving line of credit to be secured by
accounts receivable and other contractual rights acquired by the Company. As
part of the transaction, the Company will grant 100,000 stock options to
Kinnevik, exercisable over a three year period at the bid price of the Company's
common stock in effect on August 5, 1996 ($.625). The transaction with Kinnevik
closed on October 7, 1996.
 
CURRENT LIBRARY
 
    After giving effect to the Kinnevik transaction, the Company's current
inventory of films consists of twelve (12) films, two of which are library films
(i.e., already in distribution), and ten of which are new films which have
either recently been completed or are in various stages of pre-production.
 
                                       4
<PAGE>
    The two library films are as follows:
 
    - "Mr. Write", a high energy romantic comedy about an aspiring playwright
      who falls hopelessly in love with a stunning actress. The film stars Paul
      Reiser, Martin Mull and Jessica Tuck and was originally released in the
      U.S.
 
    - "Rich Girl", a romantic film about a spoiled rich girl who leaves home and
      falls in love with a rock star from the wrong side of the tracks.
 
    The Company has acquired overseas distribution rights to the following ten
new films, three of which are recently completed but not yet released ("Up, Down
& Sideways," "Danger in Paradise" and "Sudden Manhattan"), and seven of which
are in various stages of pre-production with delivery anticipated in 1997:
 
    - "Up, Down and Sideways", an urban comedy set in Athens, Greece directed by
      Michael Cacoyannis, who directed "Zorba the Greek", and starring Irene
      Papas;
 
    - "Danger in Paradise", an action/adventure film in which "paradise" turns
      into a danger zone for two men on a sailing trip; starring Frank Stallone.
 
    - "Sudden Manhattan", an off-beat comedy that revolves around a woman in her
      twenties living in Manhattan who has recently been fired from her job and
      inadvertently becomes immersed in a bizarre modern day fable of good
      versus evil.
 
    - "Crimes of Fashion" (in pre-production), a romantic comedy about a fashion
      designer who gets involved with a mobster's wife. The film is budgeted at
      $25 million and will be distributed theatrically in the U.S. by a major
      studio with a significant commitment to prints and advertising support;
 
    - "Dark Angel 2" (in pre-production), a sequel to the successful science
      fiction thriller starring Dolph Lundgren, "Dark Angel I (I Come In
      Peace)". The film is budgeted at $4 million and was written by Harv
      Zimmel, who wrote "Shoot to Kill";
 
    - "Fifth Freedom" (in pre-production), a suspense, action film about two
      American brothers who travel to Holland to retrieve their grandfather's
      remains and end up getting involved with diamond smuggling and murder. The
      film is budgeted at $5.5 million and will be directed and produced by John
      DeBello, who produced and directed the "Attack of the Killer Tomato"
      films;
 
    - "By the Sea of Crystal" (in pre-production), a dark drama centering around
      a man who is involved in drugs and crime and ends up falling in love with
      a woman who turns his life around. The film is budgeted at $12 million and
      was written by Paul Schrader, the acclaimed screenwriter of "Taxi Driver",
      and will be directed by John Smith, who directed "Dangerous Minds".
 
    - "Wasteland" (in pre-production), an action, adventure film in which dark
      skies fall upon a man who travels down a desert road to escape his past,
      only to find that his past is infinitely brighter than his future. The
      film is budgeted at $6 million and will be directed by Cameron Thor.
 
    - "King Lear" (in pre-production), a contemporary adaptation of the
      Shakespearean play starring Paul Sorvino. This film is budgeted at $20
      million.
 
    - "Downrange" (in pre-production), an action, adventure film starring Luke
      Perry in which two women accidentally stumble upon military maneuvers and
      an ex-Green Beret must save the day. This film is budgeted at $5 million.
 
    As of October 10, 1996, the only financial obligations incurred by the
Company with respect to the foregoing films were for writing fees on two films
in the aggregate amount of $40,000, of which $20,000 has already been paid.
 
    As of June 30, 1996, the Company had agreements in principle with
subdistributors relating to distribution commitments or guarantees of
approximately $6 million that had not been recognized in the
 
                                       5
<PAGE>
statement of operations, an increase of $4.9 million from June 30, 1995. The
Company will recognize these guarantees as revenues and the costs related to
such revenues when the motion pictures to which they relate are completed and
available for delivery. It is possible that changes in schedules and
cancellations of pictures may defer and/or reduce the amount of revenues that
will be recognized in later periods.
 
PRODUCER AGREEMENTS
 
    The Company has begun to implement its strategy of entering into
"second-look" and "first-look" agreements with certain producers. In exchange
for these "look" rights, the Company will agree to cover certain overhead
expenses of the producers, recoupable out of revenues from the films developed.
In addition, the Company may grant certain of its producers stock options on the
commencement of production of a film.
 
    The Company has entered into the following producer agreements:
 
    - A "second-look" agreement with Riche-Ludwig Productions, a development and
      production company with a first-look deal at Warner Bros. Under this
      agreement, Riche-Ludwig will submit to the Company for acquisition any
      projects not picked up by Warner Bros. The agreement has a term of two
      years, commencing as of April 15, 1996. Riche-Ludwig has already developed
      one project for the Company, "Downrange", an action-adventure script with
      Luke Perry attached to star. The Company has a one-year option to arrange
      financing and production for this film and will retain foreign rights,
      serve as executive producer and have an ownership interest in the film.
      Riche-Ludwig will receive an annual consulting fee of $75,000 during the
      term of the agreement and up to a maximum of 208,333 options to purchase
      Common Stock of the Company, exercisable at $1.875 per share, such number
      of options to depend upon the number of films produced and/or delivered by
      Riche-Ludwig to the Company during the term of the agreement.
 
    - A "first look" agreement with Presto Productions. Presto is one of the
      producers of "Dark Angel 2" and produced "Mr. Write", a Paul Reiser comedy
      film which Presto has licensed to the Company for both domestic and
      foreign sales. Presto will receive compensation at the rate of $2,000 per
      month during the one year term of their agreement with the Company.
 
FILM BRIDGE JOINT VENTURE
 
    On March 11, 1996, the Company and Film Bridge International, Inc. ("Film
Bridge") executed a memorandum regarding the formation of a joint venture (the
"Joint Venture") for the purpose of acquiring and exploiting film distribution
rights. Shortly thereafter, in April 1996, the Company advised Film Bridge that
it was terminating the Joint Venture but desired to enter into negotiations for
a consulting or employment agreement with Film Bridge. Negotiations continued
until August 1996, but did not result in a new agreement between the parties.
The Company and Film Bridge engaged in discussions regarding the allocation of
their respective interests in the film distribution rights held by the Joint
Venture, but without resolution. The Company is advised that on September 18,
1996, Film Bridge filed a complaint in a Los Angeles court seeking declaratory
relief with respect to the Joint Venture. The Company is in the process of
seeking restraining orders establishing its rights in the Joint Venture.
 
RECENT FINANCINGS
 
    In August and October of 1995, the Company concluded a private placement
pursuant to which it issued unsecured promissory notes to unaffiliated investors
in the aggregate amount of $312,500. The notes have a maturity date of one year
and bear interest at the rate of 12% per annum. A total of 6.25 units were sold
at a purchase price of $50,000 per unit. In addition, warrants were issued to
the purchasers at the rate of 4,167 warrants for each unit sold, or a total of
26,042 warrants (on a post Reverse Split basis). Each warrant certificate
entitles the holder thereof to purchase one share of common stock at an exercise
price of either $2.83 per share (the August warrants) or $2.37 per share (the
October warrants) over a three year period commencing one year after the closing
of the private placement. After paying expenses and commissions of $42,500, the
Company received net proceeds of $270,000 from the private placement. The
 
                                       6
<PAGE>
notes issued in the private placement were due to be paid by the Company upon
their respective due dates on August 28 and October 3, 1996. The Company has
made a proposal to the noteholders which would involve the payment of current
interest and either the deferral of the maturity date of the notes (the first
proposal) or the cancellation of the notes in their entirety (the second
proposal), in each case in exchange for varying amounts of registered stock of
the Company (subject to the Company's completion of a registration statement
with respect to such shares). In the first proposal, the maturity date of the
notes would be deferred until December 15, 1997 and the warrants would be
exchanged for registered shares in an amount equal to 20% of the principal
amount of the notes, with shares valued at $.75 per share. In the second
proposal, the notes would be cancelled and exchanged for registered shares in an
amount equal to 150% of the principal amount of the notes, with shares valued at
the price in effect on the effective date of registration. As of October 10,
1996, noteholders representing $162,500 in principal amount of the notes elected
the first proposal, and noteholders representing $50,000 in principal amount of
the notes elected the second proposal. The remaining notes for $100,000 have not
been paid on their respective due dates, although the Company has not yet
received any indication from these noteholders that they will not consider one
of the two alternative proposals offered. The Company has paid current interest
on all of the notes through the first anniversary date of the respective notes.
 
    On September 25, 1996, the Company entered into an agreement with an
unaffiliated third party (David Somerstein) for the purchase of 1,000,000 shares
of the Company's common stock in consideration of $750,000, or $.75 per share,
payable all cash at closing. In addition, the investor will receive 1,000,000
class A warrants and 1,000,000 class B warrants, each set of warrants being
exercisable over a three year period for the purchase of 1,000,000 shares of
common stock at the respective exercise prices of $.75 and $1.00 per share. If
all warrants are exercised, a total of 3,000,000 shares will be issued and the
Company will receive a total of $2,500,000 from the initial sale of the shares
and the exercise of the warrants. The closing of the transaction is contingent
upon (i) shareholder approval of an amendment to the Company's Articles of
Incorporation authorizing an increase in the number of authorized shares of the
Company, and (ii) the effectiveness of a registration statement filed by the
Company on behalf of the investor with respect to the initial shares purchased
and the shares underlying the warrants. The investor agreed to bear the first
$50,000 of costs in connection with such registration.
 
    Management does not believe that the Somerstein transaction, in and of
itself, will adversely affect the Company's tax loss carryforward position.
However, no assurances can be given that future changes in the equity positions
of shareholders of the Company, in combination with the equity changes resulting
from the Somerstein transaction, will not result in the imposition of certain
limitations on the utilization or availability of the Company's tax loss
carryforward position. See "Tax Loss Carryforward."
 
    In 1992, the Company gave a $2.7 million contractual guarantee to Paramount
Pictures to acquire all of the foreign distribution rights to the film
"Wuthering Heights". The payment was never made by the Company and new
management of the Company has been negotiating with Paramount since October 1995
with respect to a resolution of this matter. In September, 1996, the Company and
Paramount reached a verbal understanding pursuant to which the Company believes
that Paramount will agree to cancel the outstanding indebtedness of $2.7 million
in full, in exchange for which the Company agreed to (i) relinquish all further
distribution rights to "Wuthering Heights"; (ii) assign to Paramount all of its
rights in any outstanding distribution agreements for the film, and any
receivables to be generated therefrom; and (iii) guarantee that Paramount will
collect a total of $500,000 in sales revenue from existing distribution
agreements no later than January 15, 1997. The Company anticipates that existing
license agreements will yield at least $450,000 in revenues prior to January 15,
1997 (of which the Company would have been entitled to retain approximately 20%
thereof in commissions), thereby minimizing the Company's exposure under the
guarantee to Paramount.
 
COMPETITION
 
    The entertainment industry generally, and the film industry in particular,
are highly competitive. The Company competes both for the acquisition of film
product to distribute in overseas markets as well as
 
                                       7
<PAGE>
with other distributors for the placement of its product with overseas
subdistributors and users. The Company's competition includes the smaller
independent producers and other overseas and local distributors. Many of the
Company's competitors have financial and other resources which are significantly
greater than those available to the Company.
 
    Management believes that the Company will be able to compete in this
environment as it continues to enjoy a favorable reputation overseas and, as a
result of the consolidation in the film industry, is one of relatively few
reliable overseas distributors of independently produced motion pictures.
 
OPERATIONS
 
    The Company's operations have been greatly reduced as a result of the
restructuring of the Company by new management. The Company maintains a single
office in Los Angeles (see "Properties") and, as of June 30, 1996, had a staff
of 7 full-time employees and 2 part-time employees, the functions of which staff
are to expand the Company's acquisition and distribution operations, maintain
the Company's rights, and service its existing sales contracts. As of October 1,
1996, the Company had 13 employees, including 8 full-time and 5 part-time
employees.
 
TAX LOSS CARRYFORWARD
 
    The Company is entitled to the benefits of certain net operating loss
carryforwards to reduce its tax liability. The utilization by the Company of
such tax loss carryforwards is limited under applicable provisions of the
Internal Revenue Code of 1986, as amended, and the applicable regulations
promulgated thereunder. As of June 30, 1996, there were approximately $27
million in net operating loss carryforwards remaining to be used to reduce tax
liability. The utilization of approximately $4.9 million of these losses in
future periods will be limited to approximately $350,000 per year.
 
ITEM 2. PROPERTIES
 
    On May 9, 1996, the Company entered into a two year lease, commencing June
1, 1996, for office premises located at 1875 Century Park East, Suite 2130, Los
Angeles, California 90067. The monthly rental is $5,301 per month and the
premises consist of 3,272 square feet of rentable space. The Company conducts
all of its operations out of these leased premises, although Messrs. Greenwald,
Smith and Schneider, the principal executive officers of the Company, devote a
significant portion of their time to the Company's business out of their
respective New York offices without additional charge or expense to the Company.
 
    Rent expense for each of the fiscal years ended June 30, 1996, 1995 and 1994
was $38,772, $297,287, and $489,559, respectively.
 
ITEM 3. LEGAL PROCEEDINGS
 
    On December 20, 1990, Hibbard Brown & Company, Inc. ("Hibbard Brown") filed
a complaint entitled HIBBARD BROWN & COMPANY, INC. V. DOUBLE HELIX FILMS, INC.,
ODYSSEY ENTERTAINMENT LTD. AND COMMUNICATIONS AND ENTERTAINMENT CORP. in the
Supreme Court of the State of New York, County of New York. The Complaint sought
payment of $300,000 under an agreement with the Company, Odyssey, Double Helix
and Hibbard Brown dated December 21, 1989 for certain investment banking
services allegedly performed in introducing Odyssey and Double Helix and
assisting them in consummation of the Mergers by which they became wholly-owned
subsidiaries of the Company. A counterclaim seeking recovery of $50,000 paid to
Hibbard Brown upon execution of the Agreement was asserted.
 
    Hibbard Brown's motion for summary judgment was granted in October, 1991. On
January 30, 1992, the Company moved, by order to show cause, to renew and
thereupon deny, dismiss or stay Hibbard Brown's previously granted motion for
summary judgment on the ground that Hibbard Brown had intentionally concealed
the fact that it was an unauthorized foreign corporation transacting business in
New York. By Order dated March 2, 1992, the court granted the Company's motion
in part by renewing the action and staying judgment pending Hibbard Brown's
qualification in New York. On October 29,
 
                                       8
<PAGE>
1992, Hibbard Brown moved for an order vacating the stay of judgment, a
declaration that it was now an authorized foreign corporation and reinstatement
of the summary judgment granted in October, 1991 or, in the alternative, to
rehear its motion for summary judgment on the original papers and grant judgment
in its favor.
 
    On January 29, 1993, Double Helix, Odyssey and the Company cross-moved for
an order granting reargument and/or renewal of Hibbard Brown's motion for
summary judgment and consolidating the litigation with an action that the
Company had brought against Hibbard Brown (described below), or staying the
issuance, entry and execution of judgment pending the resolution and trial of
the Company's action against Hibbard Brown.
 
    On March 26, 1993, the court issued a Decision and Order vacating the stay
of entry of the $300,000 judgment against the Company and granting the Company's
cross-motion for a stay of execution pending the determination of the Company's
action against Hibbard Brown. The Company's cross-motions for reargument and
renewal and consolidation were denied.
 
    By Decision and Order dated June 18, 1993, the court affirmed the stay of
execution of the judgment, but required the Company to obtain a bond to secure
the stay. The Company obtained a non-collateral bond.
 
    On March 5, 1992, the Company instituted an action entitled COMMUNICATIONS
AND ENTERTAINMENT CORP. V. HIBBARD BROWN & COMPANY in the Supreme Court, New
York County, for the return of 150,000 shares of Common Stock previously issued
on the ground that Hibbard Brown failed to perform the required services.
Hibbard Brown counterclaimed for breach of contract.
 
    In July 1993, after considerable pre-trial discovery, the Company and
Hibbard Brown moved for summary judgment. By Decision and Order dated August 11,
1993, the court denied both motions. Both parties appealed. On March 3, 1994,
the appellate court affirmed the denial of summary judgment.
 
    On or about October 14, 1994, Hibbard Brown filed a voluntary petition for
relief under Chapter 11, Title 11 of the United States Code with the United
States Bankruptcy Court, Southern District of New York. Consequently, the
Company's action against Hibbard Brown has been automatically stayed. The
Company has filed a Proof of Claim.
 
    On or about September 11, 1992, Joseph Duignan brought an action in the
Superior Court of New Jersey, Mercer County, entitled JOSEPH DUIGNAN V. DOUBLE
HELIX FILMS LIMITED PARTNERSHIP NO. 1, L.P., DOUBLE HELIX FILMS, INC., CINECOM
INTERNATIONAL FILMS, FILM GALLERY, INC., STAN WAKEFIELD, JERRY SILVA, ARTHUR
ALTARAC AND ANTHONY TAVONE (MER-L-4262-92). Jerry Silva, the only defendant who
was served, is former Vice Chairman of the Board of Directors of the Company.
Mr. Silva has demanded that the Company indemnify him against any expenses,
judgments, and amounts paid in settlement of the action. The Company contends
that it is not required to indemnify Mr. Silva because he breached his fiduciary
duties to the Company.
 
    Mr. Duignan claims that he invested $75,000 to acquire a partnership
interest in Double Helix Films Limited Partnership No. 1 and that Mr. Silva
forged or caused to be forged his signature on a Subscription Agreement dated
July 28, 1986. The Complaint alleges claims for rescission, unjust enrichment
(against Double Helix), conversion, fraud, breach of contract, breach of
fiduciary duty and breach of covenants of good faith and fair dealing (against
Mr. Silva and Double Helix). Mr. Duignan seeks to recover compensatory damages,
including but not limited to, his alleged $75,000 investment, punitive damages
and attorney's fees. Mr. Silva has answered the Complaint.
 
    On or about December 30, 1994, Krishna Shah, who allegedly served as
President of Double Helix from about July 1991 until about March 1993, brought
an action in the Superior Court of California, Los Angeles County, entitled
KRISHNA SHAH V. NORMAN MULLER, COMMUNICATIONS AND ENTERTAINMENT CORP., ATC II,
CARNEGIE FILM GROUP, INC., JERRY MINSKY, PERRY SCHEER, SUSAN BENDER, LARRY
MYERS, ROBERT HESSE, DOUBLE HELIX FILMS, INC. AND DOES 1-100. Mr. Muller, a
former Chairman of the Board and CEO of the Company, had demanded that the
Company indemnify him against any expenses, judgments and amounts paid in
settlement of the litigation. The Company contends that, by virtue of Mr.
Muller's wrongful actions and
 
                                       9
<PAGE>
failure to comply with various obligations to the Company, it is not required to
provide indemnification. The Complaint alleges claims for breach of an oral
agreement to pay Mr. Shah $152,000 (which he allegedly advanced for the benefit
of Double Helix) and to give him a 19.5% ownership interest in its corporate
successors, and money paid, services rendered and fraud against the Company,
Double Helix and Mr. Muller. Mr. Shah also alleges a claim for intentional
infliction of emotional distress against Mr. Muller. Mr. Shah seeks to recover
unspecified compensatory, punitive, exemplary and emotional distress damages. A
trial has been scheduled for February 1997.
 
    IN THE PRIVATE LESSONS PARTNERSHIP V. CARNEGIE FILM GROUP, INC., MONOGRAM
PICTURES CORP., FILMWAYS ENTERTAINMENT CORP., ATC, INC., KRISHNAH SHAH, LONNIE
ROMATI, GERALD MULLER, JERRY MINSKY AND DOES 1-100 (California Superior Court,
Los Angeles County, Case No. BC091840), the plaintiff asserted claims for breach
of oral contract, fraud in the inducement and fraudulent conveyance against Mr.
Shah, seeking damages in the amount of $315,000, plus further unspecified
compensatory damages and punitive damages. In August 1995, Mr. Shah filed a
cross-complaint against the Company, Double Helix Films and Norman Muller for
indemnification, apportionment of fault and declaratory relief. In addition to
compensatory damages, he seeks punitive and exemplary damages, emotional
distress damages and attorney's fees. The Company has answered the
cross-complaint and a trial has been scheduled for February 1997.
 
    On or about May 15, 1995, Credit Lyonnais Bank Nederland N.V. and Cinecom
Entertainment Group, Inc. filed a Complaint in the Superior Court for the State
of California, County of Los Angeles, captioned CREDIT LYONNAIS BANK NEDERLAND
N.V. AND CINECOM ENTERTAINMENT GROUP, INC. V. ODYSSEY DISTRIBUTORS, LTD. AND
DOES 1 THROUGH 100 (No. BC 127790). They allege that Odyssey Distributors, Ltd.
(a subsidiary of the Company) collected but failed to remit to them assigned
distribution proceeds in the amount of $566,283.33 from the foreign distribution
of "Aunt Julia and the Scriptwriter" and "The Handmaid's Tale." The Complaint
alleges claims for breach of contract and breach of fiduciary duty and demands
damages in excess of $566, 283, attorney's fees, an accounting, a temporary
restraining order and a preliminary injunction. In June 1995, the Court denied
plaintiffs an attachment and stayed the action pending arbitration in New York.
In September, 1996, the Court dismissed the Complaint. No arbitration has yet
been commenced in this action.
 
    In August 1995, G.P. Productions, Inc. ("GP") and Greenwich Subject Films,
Inc. ("Greenwich") commenced an action entitled G.P. PRODUCTIONS, INC. AND
GREENWICH STUDIOS, INC. V. DOUBLE HELIX FILMS, INC., COMMUNICATIONS AND
ENTERTAINMENT, INC., KRISHNA SHAW, GERALD MULLER AND NORMAN MULLER in the United
States District Court, Southern District of Florida (Case No. 95-1188). Mr.
Muller has demanded that the Company indemnify him against any expenses,
judgements and amounts paid in settlement of the action. The Company contends
that, by virtue of Mr. Muller's breaches of fiduciary duty and violation of his
obligations to the Company, it is not required to provide indemnification.
 
    GP and Greenwich allege that they are the exclusive owners of the films "The
Gallery" and "South Beach". They assert claims for copyright infringement,
unfair competition, breach of contract, accounting, conversion, civil theft,
conspiracy and fraudulent conveyance. The Complaint demands a recall of the
films, an attachment, preliminary and permanent injunctive relief, an
accounting, and unspecified compensatory, punitive and treble damages. The
Company has made a motion to dismiss the action for lack of personal
jurisdiction and lack of venue. The motion is pending.
 
    On or about September 18, 1995, the agent for the landlord for the premises
formerly occupied by the Company at 800 Third Avenue, New York, New York, filed
a Summons and Verified Complaint against the Company in the Supreme Court of the
State of New York, County of New York, entitled JOSEPH P. DAY REALTY CORP. V.
COMMUNICATIONS AND ENTERTAINMENT CORP. The plaintiff alleged that it was due
$66,694 from the Company (plus interest) for rent allegedly owed during the
period from April through September, 1995. The Company had vacated the premises
on April 12, 1995. Summary judgment was awarded to the plaintiff on May 22, 1996
and a judgment was entered for $74,142 on May 31, 1996. The Company has a motion
pending for reconsideration of the matter on the grounds that the landlord
wrongfully refused to consider and accept a subtenant for the balance of the
term of the lease. On July 8, 1996, the plaintiff commenced a second action
against the Company in the same court for $121,000 for rent allegedly owed
 
                                       10
<PAGE>
during the period from October 1995 through July 1996. The Company has not yet
filed an Answer in this action and is seeking an extension of time in which to
answer pending the resolution of its motion for reconsideration in the prior
action.
 
    On or about October 10, 1995, Canon Financial Services filed a Complaint in
the Superior Court of New Jersey entitled CANON FINANCIAL SERVICES, INC. V.
COMMUNICATIONS AND ENTERTAINMENT CORP. The plaintiff is claiming that it is due
$47,499.83, plus damages, pursuant to a lease agreement. The Company has filed
an Answer in this action and plaintiff has made a motion for summary judgment
which is being defended by the Company.
 
    On or about December 5, 1995, Robert F. Ferraro, a former director of the
Company, brought an action against the Company in the Supreme Court of the State
of New York, New York County. The action was brought on a promissory note in the
amount of $25,000 and plaintiff obtained a judgment on a summary judgment
motion. The plaintiff has not yet moved to enforce the judgment and the Company
is considering whether or not it has a claim for indemnification against prior
management in connection with the issuance of the note.
 
    On or about January 23, 1996, an action was filed in the Los Angeles
Superior Court entitled GREENBERG, GLUSKER, FIELDS, CLAMAN & MACHTINGER V.
ODYSSEY DISTRIBUTORS LTD., ODYSSEY ENTERTAINMENT LTD. AND COMMUNICATIONS AND
ENTERTAINMENT CORPORATION, in which the plaintiff seeks damages in the amount of
$33,849.98 for legal services rendered to the Company and its subsidiaries. The
complaint was served on the Company on April 30, 1996; the Company has filed an
Answer in this action and an arbitration hearing has been scheduled for October
1996.
 
    On or about March 12, 1996, an action was filed in Los Angeles Municipal
Court entitled JUDY HART V. ODYSSEY DISTRIBUTORS, LTD. The plaintiff is claiming
that she is due $17,920.49 pursuant to a promissory note previously issued to
her by the Company. The Company has filed a cross-claim against the plaintiff
seeking offsets against the amount due and other damages.
 
    On or about March 25, 1996, a class action complaint was filed in Los
Angeles Superior Court entitled DENNIS BLEWITT V. N. NORMAN MULLER, JERRY
MINSKY, DORIAN INDUSTRIES, INC. AND COMMUNICATIONS AND ENTERTAINMENT
CORPORATION. The complaint seeks damages in connection with the Company's
treatment in its financial statements of the disposition of its Double Helix
subsidiary in June 1991. The complaint seeks unspecified damages on behalf of
all persons who purchased shares of the Company's common stock from and after
June 1992. The complaint was served on the Company on or about July 8, 1996. The
Company has made a motion to dismiss the action both on procedural and
substantive grounds and a hearing on the motion has been scheduled for October
1996. In connection with this matter, Mr. Muller has demanded that the Company
indemnify him against any expenses, judgments, and amount paid in settlement of
the litigation. The Company contends that, by virtue of Mr. Muller's wrongful
actions and failure to comply with various obligations to the Company, it is not
required to provide such indemnification.
 
    The Company was advised on October 10, 1996 that Film Bridge International,
Inc. filed a Complaint against the Company in a Los Angeles court on September
18, 1996 seeking declaratory relief with respect to the Joint Venture. The
Company is in the process of seeking restraining orders establishing its rights
in the Joint Venture. The Company has not yet been served in this action.
 
    Other than the foregoing, which may or may not be deemed material, there are
no material legal proceedings pending to which the Company is a party or
pursuant to which any of its properties is subject.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
    None.
 
                                       11
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
 
                         COMPARATIVE MARKET PRICE DATA
 
    The following table sets forth the range of high and low bid information for
the Common Stock of the Company as reported by the Nasdaq Stock Market, Inc.
("Nasdaq") on a quarterly basis for each of the two preceding fiscal years. On
May 1, 1996, Nasdaq notified the Company that its shares of Common Stock were
being deleted from Nasdaq's SmallCap market, effective May 2, 1996, because the
Company did not maintain a combined capital and surplus of $1,000,000, as
required by Section 1(c)(3) of Schedule D of the NASD By-Laws. Since May 2,
1996, the Company's shares have traded in the over-the-counter market on the OTC
Bulletin Board. The Company's Common Stock trades under the symbol CECO.
 
    No dividends have been declared or paid with respect to the Common Stock.
 
    On March 6, 1996, the Company declared a reverse one-for-six stock split
(the "Reverse Split") of its Common Stock, effective on March 18, 1996. The
share prices reflected below for all periods prior to the Reverse Split have
been adjusted upward (by a multiple of six) to give effect to the Reverse Split
for such prior periods on a pro forma basis.
 
    The bid quotations represent inter-dealer prices and do not include retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
 
                                  COMMON STOCK
 
<TABLE>
<CAPTION>
FISCAL 1995                                                                      HIGH        LOW
-----------------------------------------------------------------------------  ---------  ---------
<S>                                                                            <C>        <C>
First Quarter................................................................  $    6.96  $    3.18
Second Quarter...............................................................       5.64       1.32
Third Quarter................................................................       6.96       1.86
Fourth Quarter...............................................................       5.82       2.28
</TABLE>
 
<TABLE>
<CAPTION>
FISCAL 1996
-----------------------------------------------------------------------------
<S>                                                                            <C>        <C>
First Quarter................................................................  $    4.00  $    2.12
Second Quarter...............................................................       2.75       1.37
Third Quarter................................................................       2.37       1.50
Fourth Quarter...............................................................       1.81        .40
</TABLE>
 
    As of October 9, 1996, there were 4,597 record holders of the Company's
Common Stock.
 
                                       12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA).
 
    The following table sets forth the selected financial data for the Company
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, and with Management's Discussion and Analysis of Financial
Condition and Results of Operations which appear elsewhere in this report.
 
<TABLE>
<CAPTION>
                                                                         FOR THE YEARS ENDED JUNE 30,
                                                             -----------------------------------------------------
<S>                                                          <C>        <C>        <C>        <C>        <C>
                                                               1996       1995       1994       1993       1992
                                                             ---------  ---------  ---------  ---------  ---------
INCOME STATEMENT DATA
Revenues...................................................  $   1,011  $   1,521  $  14,797  $  31,430  $  29,947
Income (loss) from continuing operations...................     (4,960)    (6,852)    (7,607)    (1,450)     1,814
Income (loss) from discontinued operations.................                  (458)      (766)       187
Income (loss) before extraordinary gain....................     (4,960)    (7,310)    (8,373)    (1,263)     1,814
Extraordinary gain(a)......................................                                                    725
Net income (loss)..........................................  $  (4,960) $  (7,310) $  (8,373) $  (1,263) $   2,539
PER SHARE DATA:*
Income (loss) from continuing operations...................  $   (2.17) $   (2.94) $   (3.18) $   (0.57) $    0.90
Income (loss) from discontinued operations.................                 (0.20)     (0.32)       .07
Extraordinary gain (a).....................................                                                   0.36
Net income (loss)..........................................  $   (2.17) $   (3.14) $   (3.50) $   (0.50) $    1.26
Cash Dividends.............................................     --         --         --         --         --
Weighted average shares*...................................      2,284      2,332      2,392      2,551      2,065
BALANCE SHEET DATA
Film costs.................................................  $   1,001  $  10,656  $  13,127  $  10,614  $  10,736
Total assets...............................................      2,488     15,078     27,949     35,409     50,411
Indebtedness...............................................        562        249        179        366        179
Shareholders' Equity.......................................     (2,749)     1,979      9,796     18,786     21,856
</TABLE>
 
------------------------
 
(a) Consists of the utilization of a net operating loss carryforward
 
*   Per share data and weighted average shares for all periods have been
    restated to reflect the effect of a one-for-six reverse stock split in March
    1996.
 
                                       13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
 
RESULTS OF OPERATIONS
 
    YEARS ENDED JUNE 30, 1996 AND 1995
 
    Operations for the fiscal year ended June 30, 1996 ("fiscal 1996") resulted
in a loss from continuing operations of $4,959,716, compared to a loss from
continuing operations of $6,851,458 for the fiscal year ended June 30, 1995
("fiscal 1995"). The loss for fiscal 1996 is primarily the result of a
$3,262,478 loss on the sale of interests in joint ventures relating to four
theatrical films, and from the continued decline in film distribution revenue.
The loss for fiscal 1995 is due to a substantial decline in revenues, as
compared to the previous fiscal year, and certain write-offs, including film
costs and receivables resulting from the settlement of litigation with Home Box
Office Inc. ("HBO"), costs associated with the sale or abandonment of film
development projects and unrecoverable distribution costs.
 
    Revenues declined 34% to $1,010,826 for fiscal 1996 from $1,521,434 for
fiscal 1995. Revenues for both periods reflect the continued licensing of rights
in the Company's library of feature films. There were no new films which became
available for delivery to the Company in either period, partly due to prior
management's failure to acquire rights to new film projects.
 
    Costs related to revenues for fiscal 1996 exceeded film distribution
revenues by $35,473, primarily due to the write-off of unrecoverable
distribution costs. For fiscal 1995 costs related to revenues exceeded revenues
by $3,223,896, primarily due to write-offs of approximately $2,518,000
associated with the settlement of litigation with Home Box Office, Inc., and
write-offs of film development projects, film assets acquired in settlement of
loans receivable and unrecoverable distribution costs.
 
    As of January 2, 1996, the Company entered into an agreement with its joint
venture partner to sell its related joint ventures through which it held
approximately 50% ownership interests in four theatrical motion pictures. As a
result of the sale, the assets and obligations of the joint ventures, heretofore
included in the consolidated financial statements of the Company, were
eliminated, including approximately $3,485,000 of funds held in joint venture
accounts, net film costs of approximately $6,051,000, payable due to producers
and participants of approximately $7,244,000, deferred income of $520,000 and
other net obligations of approximately $272,000.
 
    Selling, general and administrative expenses decreased $2,140,156 (58%) to
$1,565,307 for fiscal 1996 from $3,705,463 for fiscal 1995. The reductions in
expenses is a direct result of new management's efforts to eliminate unnecessary
overhead. Expenses for fiscal 1996 reflect significant decreases in personnel
and related expenses, rent (due to the closure of the New York office and the
relocation of the Los Angeles office) and professional fees.
 
    The decrease in interest income for fiscal 1996 is due to a reduction in the
average available cash balances, including funds held in joint venture accounts.
 
    Interest expense increased to $97,701 for fiscal 1996 from $19,498 for
fiscal 1995. The increased interest resulted primarily from the private
placement sale of an aggregate of $312,500 principal amount of 12% Senior
Unsecured Promissory Notes in August and October 1995.
 
    The Company did not recognize any tax benefits related to its losses from
operations for the 1996 and 1995 fiscal years due to its inability to carry-back
such losses to prior years.
 
    As of June 30, 1996, the Company had federal net operating loss
carryforwards, for tax purposes, of approximately $27,000,000, expiring through
2011, available to be used to reduce future tax liability. Due to limitations
imposed by the Internal Revenue Service, the utilization of approximately
$4,900,000 of these net operating losses will be limited to approximately
$350,000 per year.
 
                                       14
<PAGE>
    The Company's principal activity has been the acquisition of rights in
either completed motion pictures or motion pictures in development or
pre-production, and the licensing of these rights to subdistributors in foreign
countries. As of June 30, 1996, the Company had agreements in principle with
subdistributors relating to distribution commitments or guarantees of
approximately $6 million that had not been recognized in the statement of
operations, an increase of $4.9 million from June 30, 1995. The Company will
recognize these guarantees in revenues and the costs related to such revenue
when motion pictures are completed and available for delivery. It is possible
that changes in schedules and cancellations of pictures may defer and/or reduce
the amounts of revenues that will be recognized in later periods.
 
    YEARS ENDED JUNE 30, 1995 AND 1994
 
    Revenues declined 90% to $1,521,434 for fiscal 1995 from $14,797,040 for the
fiscal year ended June 30, 1994 ("fiscal 1994"). The decline in revenues is due
to the unavailability of financing to acquire rights to new film projects, and
the cancellation of the output agreement with HBO. There were no films which
became available for delivery in fiscal 1995. Revenues for fiscal 1994 were
largely attributable to the initial availability of four motion pictures
produced by HBO.
 
    Film costs exceeded film distribution revenues for fiscal 1995 due primarily
to the write-off of approximately $2,518,000 of film costs and receivables
resulting from the settlement of a lawsuit with HBO, the write-off of
approximately $401,000 associated with the sale or abandonment of film
development projects, and the write-off of approximately $394,000 of film assets
acquired in settlement of loans receivable for ATC II, Inc., and the write-off
of unrecoverable distribution costs on films of approximately $357,000. Film
costs as a percentage of revenues for fiscal 1994 were 91%. Film costs for
fiscal 1994 also reflect provision for doubtful accounts, the write-downs of two
pictures to net realizable value and the write-off of costs related to certain
abandoned film projects.
 
    Selling, general and administrative expenses decreased 36% to $3,705,463,
compared to $5,757,010 for fiscal 1994. The decrease in expenses is largely due
to cost cutting measures implemented by management because of the decline in
revenues, partially offset by increased legal and professional fees and costs
associated with the proxy contest. Fiscal 1994 expenses also included the
write-off of $311,000 of costs incurred in connection with an abandoned
financing transaction and the write-off of $203,000 of costs associated with an
abandoned acquisition.
 
    The loss for fiscal 1994 includes a provision for loss on investment of
$3,363,829 attributable to its investment in ATC II Corp.
 
    The Company did not recognize any tax benefits related to its loss from
operations for fiscal 1995 due to its inability to carryback such losses to
prior years. The Company recorded benefits for income taxes of $179,000 for
fiscal 1994 attributable to pretax losses from continuing operations. The
benefit is lower than expected based on the pretax losses due to limitations on
the Company's ability to carryback such losses to prior years.
 
    The loss from discontinued operations of $458,193 for fiscal 1995 includes
the write off of $393,588 of film rights acquired in settlement of loans made by
ComEnt Funding Corp. ("CFC"), the Company's finance subsidiary, and $64,605 of
loss from operations of Global Intellicom, the shares of which were acquired in
December 1994 and sold in April 1995. The loss from discontinued operations of
$765,566 for fiscal 1994 was associated with the discontinued operations of CFC
and includes the write-off of deferred costs, including the balance of deferred
start up costs related to the formation of CFC.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    At June 30, 1996, the Company held approximately $463,000 of cash.
 
    In many instances, the Company acquires the rights to motion picture
productions prior to their completion. As a result, there may be a substantial
delay between the time the Company enters into
 
                                       15
<PAGE>
distribution agreements with producers and sub-distribution agreements with
foreign sub-distributors and the time it recognizes revenues and generates cash
from each production.
 
    As of June 30, 1996, the Company had an outstanding commitment of
approximately $2.7 million for the acquisition of distribution rights relating
to the motion picture "Wuthering Heights", which obligation is included in the
consolidated statement of financial condition. In September, 1996 the Company
reached a verbal understanding with Paramount, pursuant to which the Company
believes that Paramount will agree to cancel outstanding indebtedness of $2.7
million in full, in exchange for which the Company agreed to (i) relinquish all
further distribution rights "Wuthering Heights"; (ii) assign to Paramount all of
its rights in any outstanding distribution agreements for the film, and any
receivables to be generated therefrom; (iii) guarantee that Paramount will
collect a total of $500,000 in sales revenues from existing distribution
agreements no later than January 15, 1997. The Company anticipates that existing
license agreements will yield at least $450,000 in revenue prior to January 15,
1997 (of which the Company would have been entitled to retain approximately 20%
thereof in commissions), thereby minimizing the Company's exposure under the
guarantee to Paramount.
 
    In the past, the Company has been dependent on obtaining outside financing
to acquire distribution rights to films. New management has reduced the
Company's reliance on outside financing by placing more emphasis on acquiring
distribution rights through arrangements which require lower or no advance
payments. At present, the Company is not able to secure distribution rights by
issuing letters of credit or advancing significant production funds, as it has
in the past.
 
    New management have taken significant steps to recapitalize the Company.
 
    In August and October 1995, the Company received net proceeds of $219,250
and $50,750, respectively, from the private placement of an aggregate of
$312,500 principal amount of 12% Senior Unsecured Promissory Notes.
 
    In January 1996, the Company entered into an agreement to sell its interest
in joint ventures relating to four theatrical motion pictures, pursuant to which
it received net proceeds of $1.5 million.
 
    In August 1996, the Company entered into an agreement, pursuant to which the
Company agreed to grant subdistribution rights in, and to sell other
distribution rights to, certain films in the Company's film library. In exchange
for these rights, the Company will receive a total cash consideration of
$1,075,000, payable $500,000 on closing, $275,000 six months after closing, and
$300,000 eighteen months after the closing. In addition, the Company will retain
a continuing right to receive revenues from certain of the films, valued by
management at a minimum of approximately $150,000. Additionally, the purchaser
will provide the Company with a $500,000 revolving line of credit to be secured
by accounts receivable and other contractual rights acquired by the Company. As
part of the transaction, the Company will grant 100,000 stock options,
exercisable over a three year period at the bid price of the Company's common
stock in effect on August 5, 1996 ($.625). The transaction closed on October 7,
1996.
 
    In September 1996, the Company entered into an agreement with an
unaffiliated third party for the purchase of 1 million shares of the Company's
common stock in consideration for $750,000 cash and warrants to purchase up to 2
million shares of common stock.
 
    The Company had no material commitments for capital expenditures as of June
30, 1996.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
    The response to this Item is submitted as a separate section of this report
commencing on page F-1.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE.
 
    None.
 
                                       16
<PAGE>
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
    This item is incorporated herein by reference to the Proxy Statement of the
Company relating to the 1996 Annual Meeting of Stockholders of the Company under
the caption headings "Election of Directors," "Executive Officers of the
Company," and "Compliance with Section 16(a) of the Securities Exchange Act of
1934."
 
ITEM 11.  EXECUTIVE COMPENSATION.
 
    This item is incorporated herein by reference to the Proxy Statement of the
Company relating to the 1996 Annual Meeting of Stockholders of the Company under
the caption headings "Executive Compensation," "Options/Stock Appreciation
Rights," "Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value
Table," "Director Compensation," "Compensation Agreements, Termination of
Employment and Change-in-Control Arrangements," and "Compensation Committee
Report and Compensation Committee Interlocks and Insider Participation."
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
    This item is incorporated herein by reference to the Proxy Statement of the
Company relating to the 1996 Annual Meeting of Stockholders of the Company under
the caption heading "Security Ownership of Certain Beneficial Owners and
Management."
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
    This item is incorporated herein by reference to the Proxy Statement of the
Company relating to the 1996 Annual Meeting of Stockholders of the Company under
the caption heading "Certain Relationships and Related Transactions."
 
                                       17
<PAGE>
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
<TABLE>
<C>  <S>
(a)(1) The response to this portion of Item 14 is submitted as a separate section of this report commencing on page F-1.
 
(a)(2) See (a)(1) above.
 
(a)(3) Exhibits
 
  3.1 Articles of Incorporation, as amended through June 30, 1995(1)
 
  3.2 Amendments to Articles of Incorporation filed in March and June, 1996(8)
 
  3.3 By-laws(1)
 
  4.1 Indenture between Odyssey and Continental Stock Transfer and Trust Company ("Continental") dated as of July 15, 1987(1)
 
  4.2 Form of Supplemental Indenture between Continental and the Company(1)
 
  4.3 Form of Common Stock Certificate(1)
 
  4.4 Form of options granted of officers, directors and 5% stockholders(2)
 
  4.5 Form of Warrant issued to purchasers parties to the 1995 Private Placement completed September 30, 1995(5)
 
  4.6 Form of 12% Unsecured Promissory Note issued to purchasers parties to the 1995 Private Placement completed September 30,
     1995(5)
 
  4.7 Form of Stock Option Agreement by and between the Company and officers and directors of the Company, for stock options issued
     in April 1995(5)
 
  4.8 Form of Common Stock Purchase Warrant by and between the Company and officers, directors, employees and consultants of the
     Company for warrants issued during the fiscal year ended June 30, 1996(8)
 
  4.9 Common Stock Purchase Warrant, dated March 6, 1996, between the Company and G & H Media, Ltd. (assignee of Stephen R.
     Greenwald)(7)
 
  4.10 Common Stock Purchase Warrant, dated March 6, 1996, between the Company and Lawrence I. Schneider(7)
 
  4.11 Common Stock Purchase Warrant, dated March 6, 1996, between the Company and Ira N. Smith(7)
 
 10.1 1989 Long Term Incentive Plan(1)
 
 10.2 Agreement of Settlement and Release, dated October 2, 1995, by and between Home Box Office, Inc. and Odyssey(5)
 
 10.3 Private Placement Memorandum used in connection with 1995 Private Placement (the "1995 Private Placement Memorandum")(5)
 
 10.4 Supplement to the 1995 Private Placement Memorandum(5)
 
 10.5 Supplement No. 2 to the 1995 Private Placement Memorandum(5)
 
 10.6 Supplement No. 3 to the 1995 Private Placement Memorandum(5)
</TABLE>
 
                                       18
<PAGE>
<TABLE>
<C>  <S>
 10.7 Settlement Agreement, dated as of March 31, 1995, by and between the Company, Odyssey, Global Intellicom, Inc., N. Norman
     Muller, Thomas W. Smith, David Mortman, Robert Ferraro, the CECO Shareholders Committee, Lawrence Schneider, Robert E.
     Miller, Henry Schneider, Robert Hesse, Shane O'Neil, Patrick Haynes, Russell T. Stern, Jr., Thurston Group, Inc., The Insight
     Fund, L.P. and Lois Muller(3)
 
 10.8 Memorandum of Agreement, dated as of August 24, 1995 between the Company and Multipix Communications, Inc.(4)
 
 10.9 Termination Agreement, dated as of January 2, 1996, between Regency International Pictures, B.V. and Odyssey Distributors
     B.V.(6)
 
 10.10 Employment Agreement dated October 1, 1995, between the Company and Stephen R. Greenwald(6)
 
 10.11 Employment Agreement dated October 1, 1995, between the Company and Lawrence I. Schneider(6)
 
 10.12 Employment Agreement dated October 1, 1995, between the Company and Ira N. Smith(6)
 
 10.13 Agreement, dated March 6, 1996, between Communications and Entertainment Corp. and its wholly-owned subsidiary, Odyssey
     Distributors, Ltd.(7)
 
 10.14 Severance and Consulting Agreement, dated March 26, 1996, between the Company and Shane O'Neil, and related modifying
     agreement dated March 28, 1996(7)
 
 10.15 Management Agreement between the Company and Stephen R. Greenwald, dated March 6, 1996, superseding the Employment Agreement
     dated October 1, 1995(8)
 
 10.16 Management Agreement between the Company and Lawrence I. Schneider, dated March 6, 1996, superseding the Employment Agreement
     dated October 1, 1995(8)
 
 10.17 Management Agreement between the Company and Ira N. Smith, dated March 6, 1996, superseding the Employment Agreement dated
     October 1, 1995(8)
 
 10.18 Addendum to Management Agreements of Messrs. Schneider, Greenwald and Smith(8)
 
 10.19 Joint Venture Letter between the Company and Film Bridge International, Inc., dated March 11, 1996(8)
 
 10.20 Lease for office premises at 1875 Century Park East, Suite 2130, Los Angeles, California, dated May 9, 1996(8)
 
 10.21 Agreement dated August 29, 1996, between the Company and Kinnevik Media Properties, Ltd.(8)
 
 10.22 Agreement dated September 6, 1996 between the Company and Mr. David Somerstein(8)
 
 21.1 Subsidiaries of the Registrant(3)
</TABLE>
 
------------------------
 
(1) Incorporated herein by reference to the Company's Registration Statement on
    Form S-4, File No. 33-34627.
 
(2) Incorporated herein by reference to the Company's Registration Statement on
    Form S-1, File No. 33-43371.
 
(3) Incorporated herein by reference to the Company's Current Report on Form 8-K
    filed April 12, 1995, File No. 0-18954.
 
                                       19
<PAGE>
(4) Incorporated herein by reference to the Company's Current Report on Form 8-K
    filed August 30, 1995, File No. 0-18954.
 
(5) Incorporated herein by reference to the Company's Annual Report on Form 10-K
    for the fiscal year ended June 30, 1995, File No. 0-18954.
 
(6) Incorporated herein by reference to the Company's Quarterly Report on Form
    10-Q for the quarter ended December 31, 1995, File No. 0-18954.
 
(7) Incorporated herein by reference to the Company's Quarterly Report on Form
    10-Q for the quarter ended March 31, 1996, File No. 0-18954.
 
(8) Filed herewith.
 
(b) Reports on Form 8-K
 
   No Reports on Form 8-K were filed by the Company during the last quarter of
    the period covered by this Report.
 
(c) See (a)(3) above.
 
(d) None.
 
                                       20
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                COMMUNICATIONS AND ENTERTAINMENT CORP.
 
Dated: October 10, 1996         By:           /s/ STEPHEN R. GREENWALD
                                     -----------------------------------------
                                               Stephen R. Greenwald,
                                              CHIEF EXECUTIVE OFFICER
                                           (PRINCIPAL EXECUTIVE OFFICER)
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
          SIGNATURE                        TITLE                    DATE
------------------------------  ---------------------------  -------------------
 
  /s/ LAWRENCE I. SCHNEIDER     Co-Chairman in the Office         10/10/96
------------------------------    of Chairman; Director
    Lawrence I. Schneider
 
   /s/ STEPHEN R. GREENWALD     Chief Executive Officer;          10/10/96
------------------------------    Co-Chairman in the Office
     Stephen R. Greenwald         of Chairman; Director
 
       /s/ IRA N. SMITH         President; Co-Chairman in         10/10/96
------------------------------    the Office of Chairman;
         Ira N. Smith             Director
 
  /s/ ROBERT E. MILLER, JR.     Director                          10/10/96
------------------------------
    Robert E. Miller, Jr.
 
     /s/ MARVIN GROSSMAN        Exec. Vice-President &            10/10/96
------------------------------    Chief Financial Officer
       Marvin Grossman            (Principal Financial and
                                  Accounting Officer)
 
                                       21
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                         PAGE
                                                                                                      -----------
<S>                                                                                                   <C>
Report of Independent Accountants...................................................................  F-2
Financial Statements:
  Consolidated Balance Sheets as of June 30, 1996 and 1995..........................................  F-3
  Consolidated Statements of Operations for the Years Ended June 30, 1996, 1995 and 1994............  F-4
  Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the Years Ended June 30,
    1996, 1995 and 1994.............................................................................  F-5
  Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1995 and 1994............  F-6
  Notes to Consolidated Financial Statements........................................................  F-7-F-22
</TABLE>
 
    All schedules have been omitted because the requested information is not
required, or, because the information required is included in the financial
statements or notes thereto.
 
                                      F-1
<PAGE>
                                          1880 Century Park
                                          East            Telephone 310 553 6030
                                          Century City
                                          West Los Angeles, CA 90067
 
[LOGO]
            [LOGO]
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and
Shareholders of
Communications and Entertainment Corp.
 
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of
Communications and Entertainment Corp. and its subsidiaries at June 30, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
As discussed in Note 10 to the financial statements, the Company has defaulted
on payments due in August and October 1996 relating to notes payable. The
Company has proposed to the noteholders to defer the maturity of the notes and
exchange existing warrants for shares, or to cancel the notes in their entirety
in exchange for shares. Both proposals are subject to registration statements
becoming effective. As of October 6, 1996 several noteholders had accepted the
first proposal and one noteholder had accepted the second proposal; however as
some noteholders have not accepted either of the proposals, the ultimate outcome
of this matter cannot be determined at present.
 
As discussed in Note 11, the Company is a defendant in various lawsuits. The
Company has filed several counteractions and preliminary hearings and discovery
proceedings on several actions are in progress. The ultimate outcome of the
litigation cannot be determined at present. Not all liabilities that may result
upon adjudication have been accrued in the accompanying financial statements.
 
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations,
has a net capital deficiency and has insufficient working capital to meet its
current obligations and liquidity needs. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
 
             [LOGO]
 
Los Angeles, California
October 14, 1996
 
                                      F-2
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                               JUNE 30,
                                                                                     -----------------------------
<S>                                                                                  <C>             <C>
                                                                                          1996           1995
                                                                                     --------------  -------------
                                                     ASSETS:
Cash...............................................................................  $      462,971  $      43,491
Funds held in joint venture accounts...............................................                      3,836,732
Accounts receivable, net of allowances of $53,788 and $288,687.....................         996,574        524,510
Film costs, net....................................................................       1,000,968     10,655,863
Other assets.......................................................................          27,945         17,702
                                                                                     --------------  -------------
                                                                                     $    2,488,458  $  15,078,298
                                                                                     --------------  -------------
                                                                                     --------------  -------------
 
                                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
 
Liabilities:
  Accounts payable and accrued expenses............................................  $      912,629  $   1,210,455
  Due to producers and participants................................................       3,760,142     11,119,560
  Deferred revenues................................................................           3,000        520,000
  Notes and loans payable..........................................................         561,500        249,000
                                                                                     --------------  -------------
                                                                                          5,237,271     13,099,015
                                                                                     --------------  -------------
Commitments and contingencies
 
Shareholders' Equity (Deficit):
  Preferred stock, par value $.10; Authorized--10,000,000 shares Issued-- none.....
  Class A stock, par value $.01; Authorized--10,000,000 shares Issued-- none.......
  Common stock, par value $.01; Authorized--6,666,666 and 40,000,000 shares Issued
    and outstanding--2,591,242 and 13,693,218 shares...............................          25,913        136,932
  Capital in excess of par value...................................................      25,911,366     25,568,727
  Accumulated deficit..............................................................     (28,686,092)   (23,726,376)
                                                                                     --------------  -------------
  Total shareholders' equity (deficit).............................................      (2,748,813)     1,979,283
                                                                                     --------------  -------------
                                                                                     $    2,488,458  $  15,078,298
                                                                                     --------------  -------------
                                                                                     --------------  -------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-3
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                              FOR THE YEARS ENDED JUNE 30,
                                                                       -------------------------------------------
                                                                           1996           1995           1994
                                                                       -------------  -------------  -------------
<S>                                                                    <C>            <C>            <C>
REVENUES:............................................................  $   1,010,826  $   1,521,434  $  14,797,040
                                                                       -------------  -------------  -------------
EXPENSES:
  Costs related to revenues..........................................      1,046,299      4,745,330     13,514,864
  Loss on sale of joint venture interests............................      3,262,478
  Selling, general and administrative expenses.......................      1,565,307      3,705,463      5,757,010
                                                                       -------------  -------------  -------------
                                                                           5,874,084      8,450,793     19,271,874
                                                                       -------------  -------------  -------------
  Operating loss.....................................................     (4,863,258)    (6,929,359)    (4,474,834)
 
OTHER INCOME (EXPENSES):
  Interest income....................................................          1,243         97,399         79,959
  Interest expense...................................................        (97,701)       (19,498)       (28,216)
  Provision for loss on investment...................................                                   (3,363,829)
                                                                       -------------  -------------  -------------
  Loss from continuing operations before provision for income
    taxes............................................................     (4,959,716)    (6,851,458)    (7,786,920)
  Benefit for income taxes...........................................                                      179,000
                                                                       -------------  -------------  -------------
  Loss from continuing operations....................................     (4,959,716)    (6,851,458)    (7,607,920)
  Loss from discontinued operations..................................                      (458,193)      (765,566)
                                                                       -------------  -------------  -------------
  Net loss...........................................................  $  (4,959,716) $  (7,309,651) $  (8,373,486)
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
Loss per share:
  Loss from continuing operations....................................  $       (2.17) $       (2.94) $       (3.18)
  Loss from discontinued operations..................................                         (0.20)         (0.32)
                                                                       -------------  -------------  -------------
    Net loss.........................................................  $       (2.17) $       (3.14) $       (3.50)
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
  Weighted average common shares outstanding*........................      2,283,611      2,331,579      2,391,550
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
</TABLE>
 
------------------------
 
*   Shares outstanding for all periods have been adjusted to give effect to a 1
    for 6 reverse stock split on March 18, 1996.
 
        The accompanying notes are an integral part of these statements.
 
                                      F-4
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                  CLASS A STOCK              COMMON STOCK
                             ------------------------  -------------------------
                                            AMOUNT                     AMOUNT      CAPITAL IN                      TREASURY
                                           ($.01 PAR                  ($.01 PAR     EXCESS OF     ACCUMULATED       STOCK
                               SHARES       VALUE)        SHARES       VALUE)       PAR VALUE       DEFICIT        AT COST
                             -----------  -----------  ------------  -----------  -------------  --------------  ------------
<S>                          <C>          <C>          <C>           <C>          <C>            <C>             <C>
Balances--June 30, 1993....    2,554,132   $  25,541     13,436,974  $   134,370  $  27,934,663  $   (8,043,239) $ (1,264,986)
  Purchase of 402,200
    shares of treasury
    stock..................                                                                                          (616,815)
  Treasury shares retired
    and cancelled..........                                (977,000)      (9,770)    (1,872,031)                    1,881,801
  Conversion of Class A
    stock..................     (213,429)     (2,134)       136,055        1,360            774
  Net loss.................                                                                          (8,373,486)
                             -----------  -----------  ------------  -----------  -------------  --------------  ------------
Balances--June 30, 1994....    2,340,703      23,407     12,596,029      125,960     26,063,406     (16,416,725)      --
  Conversion of Class A
    stock..................     (254,148)     (2,541)       162,012        1,620            921
  Cancellation of
    unexchanged shares.....     (520,740)     (5,207)       (62,973)        (630)         5,837
  Automatic conversion of
    Class A stock to
    Common.................   (1,565,815)    (15,659)       998,150        9,982          5,677
  Dividend of shares of
    subsidiary.............                                                            (507,114)
  Net loss.................                                                                          (7,309,651)
                             -----------  -----------  ------------  -----------  -------------  --------------  ------------
Balances--June 30, 1995....      --           --         13,693,218      136,932     25,568,727     (23,726,376)      --
  One-for-six reverse stock
    split..................                             (11,409,029)    (114,090)       114,090
  Issuance of shares to
    officers in payment of
    notes..................                                 307,053        3,071        228,949
  Cash payments in lieu of
    fractional shares on
    conversion of Class A
    stock..................                                                                (400)
  Net loss.................                                                                          (4,959,716)
                             -----------  -----------  ------------  -----------  -------------  --------------  ------------
Balances--June 30, 1996....      --           --          2,591,242  $    25,913  $  25,911,366  $  (28,686,092)      --
                             -----------  -----------  ------------  -----------  -------------  --------------  ------------
                             -----------  -----------  ------------  -----------  -------------  --------------  ------------
 
<CAPTION>
 
                                 TOTAL
                             SHAREHOLDERS'
                                EQUITY
                               (DEFICIT)
                             -------------
<S>                          <C>
Balances--June 30, 1993....  $  18,786,349
  Purchase of 402,200
    shares of treasury
    stock..................       (616,815)
  Treasury shares retired
    and cancelled..........
  Conversion of Class A
    stock..................
  Net loss.................     (8,373,486)
                             -------------
Balances--June 30, 1994....      9,796,048
  Conversion of Class A
    stock..................
  Cancellation of
    unexchanged shares.....
  Automatic conversion of
    Class A stock to
    Common.................
  Dividend of shares of
    subsidiary.............       (507,114)
  Net loss.................     (7,309,651)
                             -------------
Balances--June 30, 1995....      1,979,283
  One-for-six reverse stock
    split..................
  Issuance of shares to
    officers in payment of
    notes..................        232,020
  Cash payments in lieu of
    fractional shares on
    conversion of Class A
    stock..................           (400)
  Net loss.................     (4,959,716)
                             -------------
Balances--June 30, 1996....  $  (2,748,813)
                             -------------
                             -------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-5
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                        FOR THE YEARS
                                                                                        ENDED JUNE 30,
                                                                              ----------------------------------
<S>                                                                           <C>         <C>         <C>
                                                                                 1996        1995        1994
                                                                              ----------  ----------  ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss from continuing operations.......................................  $(4,959,716) $(6,851,458) $(7,607,920)
    Adjustments to reconcile net income to net cash provided by (used in)
      operating activities:
      Loss on sale of joint venture interest................................   3,262,478
      Amortization of film costs............................................     634,179   2,149,723   1,465,593
      Additions to film costs...............................................    (185,401)    (72,259) (3,978,027)
      Other depreciation and amortization...................................      44,307     187,219      94,539
      Provision for loss on investment......................................                           3,363,829
      Equity in losses of subsidiary held for sale..........................                  64,605
      Gain on sale of shares of subsidiary..................................                  (5,062)
      Issuance of shares of subsidiary stock in payment of legal fees.......                 155,905
      Issuance of shares of stock to officers in payment of deferred
        compensation........................................................     232,020
      Cash payments in lieu of fractional shares............................        (400)
      Decrease (increase) in assets net of sale of joint venture interest:
        Funds held in joint venture accounts................................     352,723  (1,799,603) (1,586,376)
        Accounts receivable, net............................................    (406,331)  9,998,736   4,134,846
        Other...............................................................      (5,500)    258,007      98,023
      (Decrease) increase in liabilities net of sale of joint venture
        interest:
        Accounts payable and accrued expenses...............................    (199,628)   (576,731)    221,572
        Issuance of note in payment of legal fees...........................                  70,000
        Due to producers and participants...................................    (115,701) (4,616,323)  2,671,157
        Deferred revenues...................................................       3,000      38,875  (1,144,621)
                                                                              ----------  ----------  ----------
  Net cash used in continuing operations....................................  (1,343,970)   (998,366) (2,267,385)
                                                                              ----------  ----------  ----------
  Discontinued operations:
    Net loss................................................................                (458,193)   (765,566)
    Amortization............................................................                 393,588     368,971
                                                                              ----------  ----------  ----------
  Total from discontinued operations........................................      --         (64,605)   (396,595)
                                                                              ----------  ----------  ----------
  Net cash used in operations...............................................  (1,343,970) (1,062,971) (2,663,980)
                                                                              ----------  ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Collections of loans relating to lending activities.......................                 393,588   1,421,172
  Acquisition of fixed assets...............................................      (6,550)    (10,633)    (26,092)
  Investment in Global Intellicom, Inc......................................              (1,049,002)
  Proceeds from the sale of Global Intellicom, Inc. shares..................                 326,440
  Proceeds on sale of joint venture interest................................   1,500,000
  Costs relating to investment..............................................                            (119,961)
                                                                              ----------  ----------  ----------
  Net cash provided by (used in) investing activities.......................   1,493,450    (339,607)  1,275,119
                                                                              ----------  ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from the sale of Senior Notes................................     270,000
  Net repayment of debt relating to finance subsidiary lending activities...                            (187,217)
  Purchase of treasury stock................................................                            (616,815)
                                                                              ----------  ----------  ----------
  Net cash provided by (used in) financing activities.......................     270,000      --        (804,032)
Net increase (decrease) in cash.............................................     419,480  (1,402,578) (2,192,893)
Cash at beginning of period.................................................      43,491   1,446,069   3,638,962
                                                                              ----------  ----------  ----------
Cash at end of period.......................................................  $  462,971  $   43,491  $1,446,069
                                                                              ----------  ----------  ----------
                                                                              ----------  ----------  ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for--
    Interest................................................................  $   10,778  $   19,498  $   20,260
                                                                              ----------  ----------  ----------
                                                                              ----------  ----------  ----------
    Income taxes............................................................  $        0  $    3,200  $   11,196
                                                                              ----------  ----------  ----------
                                                                              ----------  ----------  ----------
NON CASH INVESTING AND FINANCING ACTIVITIES:
  Dividend of shares of Global Intellicom, Inc..............................              $ (507,114)
                                                                                          ----------
                                                                                          ----------
  Receipt of film assets in settlement of loans receivable from ATC II,
    Inc.....................................................................                 393,588
                                                                                          ----------
                                                                                          ----------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-6
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
    a) PRINCIPLES OF CONSOLIDATION:
 
    The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and majority owned or controlled joint ventures.
All significant intercompany accounts have been eliminated.
 
    In March 1989, the Company entered into a joint venture pursuant to which
the Company and a non-affiliated entity co-financed and co-produced a theatrical
motion picture entitled "Q&A", in which the Company had a 50.01% ownership
interest. In March 1990, the Company entered into two 50% joint ventures (in
which the Company exercised contractual control) with the same entity to acquire
the foreign distribution rights of and distribute two motion pictures, "Switch"
and "Guilty By Suspicion". In December 1991, the Company entered into a 50%
joint venture (in which the Company exercised control) with the same entity to
acquire the foreign distribution rights of and to distribute the motion picture
"This Boy's Life". The assets, liabilities, revenues and expenses of the joint
ventures have been included in the consolidated financial statements of the
Company. Minority interests in operations and in net assets in these joint
ventures have been included in film costs and due to producers and participants
in the consolidated statements of operations and of financial condition,
respectively. In January 1996, the Company sold its interests in the joint
ventures (See Note 4).
 
    Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
 
    b) REVENUE RECOGNITION:
 
    Revenues from foreign theatrical, home video, television and pay television
licensing contracts are recognized when the film is available for exhibition by
the licensee and when certain other conditions are met. Revenues from domestic
theatrical distribution of films are recognized as the films are exhibited.
 
    Virtually all of the Company's revenues for the fiscal year ended June 30,
1996 and approximately 62% of the revenues for the fiscal year ended June 30,
1995, were from foreign distribution rights. For fiscal 1996, approximately
50.2% of revenues were derived from one picture. One picture accounted for
approximately 28.3 % of revenues for the year ended June 30, 1995. For the year
ended June 30, 1994, four movies, all of which were produced by HBO, accounted
for 23.5%, 21.3%, 19.3% and 16.8% of revenues.
 
    c) FUNDS HELD IN JOINT VENTURE ACCOUNTS:
 
    Funds held in joint venture accounts represent cash in accounts which
require signatures of both joint venture partners for withdrawals. Sufficient
balances are maintained in the accounts to cover estimated obligations for
residuals and profit participations relating to motion pictures produced under
the joint ventures.
 
    d) FILM COSTS:
 
    Film costs include (1) cost of production, (2) investment in distribution
rights, (3) marketing and distribution expenses, and (4) development costs. Film
costs are amortized, and estimated residual and participation costs are accrued,
on an individual film basis in the ratio that the current year's gross film
revenues bear to management's estimate of total ultimate gross film revenues
from all sources.
 
    Film costs are stated at the lower of cost or estimated net realizable value
on an individual film basis. Ultimate revenue and cost forecasts for films are
periodically reviewed by management and revised when
 
                                      F-7
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
warranted by changing conditions. When estimates of total revenues and costs
indicate that a film will result in an ultimate loss, additional amortization is
provided to fully recognize such loss.
 
    e) PROPERTY AND EQUIPMENT:
 
    Depreciation of property and equipment is provided by the straight-line
method over their estimated useful lives of up to eight years.
 
    Maintenance and repairs are expensed as incurred. The cost of renewals and
betterments are capitalized. When assets are sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts, and any
resultant gain or loss is included in current year operations.
 
    f) EARNINGS (LOSS) PER SHARE:
 
    Earnings (loss) per share are computed using the weighted average number of
common shares outstanding during the respective periods, adjusted for the
dilutive effect, if any, of outstanding stock options and warrants. On March 6,
1996, the Board of Directors announced a one-for-six reverse stock split (the
"Reverse Stock Split") which became effective on March 18, 1996. For comparative
purposes, the number of weighted average common shares outstanding and loss per
share reported in the accompanying consolidated statements of operations, and
share data included in the notes to the consolidated financial statements, have
been adjusted to reflect the effect of the Reverse Stock Split for all periods
presented.
 
    g) USE OF ESTIMATES:
 
    The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in financial
statements. Actual results could differ from those estimates.
 
    h) FAIR VALUE OF FINANCIAL INSTRUMENTS:
 
    The carrying value of cash, accounts receivable, accounts payable and
accrued expenses approximates fair value because of their short-term maturity.
 
    i) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
 
    In March 1995, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"). This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles to be disposed of and goodwill related
to those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. FAS 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company will
apply this Statement beginning in fiscal 1997. The adoption of FAS 121 is not
expected to have a material effect on the financial statments of the Company.
 
    In October 1995, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" ("FAS 123"). This statement establishes methods of accounting for
stock-based compensation plans. FAS 123 is effective for fiscal years beginning
after December 15, 1995. The Company expects to continue to apply Accounting
Principles Board Opinion 25 for measurement of stock compensation and will
provide the disclosure required by FAS 123 beginning in fiscal 1997. The
adoption of FAS 123 is not expected to have a material effect on the financial
statements of the Company.
 
                                      F-8
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. CHANGE IN MANAGEMENT CONTROL:
 
    In January 1995, a group of shareholders of the Company (the "CECO
Shareholders Committee") launched an effort to change the senior management and
Board of Directors of the Company.
 
    Pursuant to a settlement agreement (the "Settlement Agreement") dated as of
March 31, 1995, among the members of the CECO Shareholders Committee, the
Company, the Company's subsidiary, Odyssey Entertainment Ltd. ("Odyssey"),
Global Intellicom, Inc. and each of the directors of the Company at the time of
signing, a change in the entire Board of Directors occurred on April 12, 1995.
 
3. RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS:
 
    The Company's continued existence is dependent upon its ability to resolve
its liquidity problems. The Company must achieve and sustain a profitable level
of operations with positive cash flows and must continue to obtain financing
adequate to meet its ongoing operation requirements.
 
    Operations for the year ended June 30, 1996 resulted in a loss primarily due
to a loss of approximately $3.3 million on the sale of the Company's interest in
joint ventures relating to four theatrical motion pictures, and due to
insufficient revenues to offset normal expenses.
 
    Since the change in management control in April 1995, new management has
embarked on a program to reverse the unfavorable results by significantly
reducing overhead, taking steps to recapitalize the Company, and acquiring
rights to existing film libraries and new pictures in development or pre-
production.
 
    Overhead has been significantly reduced by closing the New York office and
by making significant reductions in personnel related costs.
 
    In August and October 1995, the Company received net proceeds of $219,250
and $50,750, respectively, from the private placement of an aggregate of
$312,500 principal amount of 12% Senior Unsecured Promissory Notes (See Note
10).
 
    In January 1996, the Company entered into an agreement to sell its interest
in joint ventures relating to four theatrical motion pictures pursuant to which
it received net proceeds of $1,500,000 (See Note 4).
 
    In August 1996, the Company entered into an agreement, pursuant to which the
Company agreed to grant subdistribution rights in, and to sell other
distribution rights to, certain films in the Company's film library. In exchange
for these rights, the Company will receive a total cash consideration of
$1,075,000, payable $500,000 on closing, $275,000 six months after closing, and
$300,000 eighteen months after the closing. In addition, the Company will retain
a continuing right to receive revenues from certain of the films, valued by
management at a minimum of approximately $150,000. Additionally, the purchaser
will provide the Company with a $500,000 revolving line of credit to be secured
by accounts receivable and other contractual rights acquired by the Company. As
part of the transaction, the Company will grant 100,000 stock options,
exercisable over a three year period at the bid price of the Company's common
stock in effect on August 5, 1996 ($.625). The transaction closed on October 7,
1996 (See Note 15).
 
    In September 1996, the Company entered into an agreement with an
unaffiliated third party for the purchase of 1 million shares of the Company's
common stock in consideration for $750,000 cash and warrants to purchase up to 2
million shares of common stock (See Note 15).
 
    During fiscal 1996, the Company acquired rights in twenty one films,
including eleven completed films, nine of which were disposed of in accordance
with the August 1996 agreement discussed above, and
 
                                      F-9
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS: (CONTINUED)
ten new films, which will be available for distribution in 1997. Additionally,
the Company has entered into certain "first-look" and "second-look" agreements
with film producers with respect to new film projects. The amount that the
Company has expended with regards to these pictures is minimal. Generally the
films that the company represents are financed by the producers of the film,
through independent bank financing, utilitzing the license agreements generated
by the Company as collateral for production loans. The Company has assumed no
financial obilgation with respect to these pictures as of this date, except for
committments for writing services in the amount of $40,000 of which $20,000 has
already been paid.
 
4. SALE OF JOINT VENTURE ASSETS:
 
    As of January 2, 1996, the Company entered into an agreement (the
"Agreement") with Regency International Pictures, B.V., its joint venture
partner, to sell its interest in the related joint ventures through which it
held approximately 50% ownership interests in four theatrical motion pictures,
entitled "Q&A," "Switch," "Guilty By Suspicion" and "This Boy's Life." The joint
venture is defined as the distribution agreements related to the aforementioned
four motion pictures. Individual agreements were created to finance, produce and
distribute each picture and to share in revenues generated from the exploitation
of them. Joint venture pictures were accounted for in the same manner as any
other picture that the Company distributed. Pursuant to the Agreement, the
Company received $1,500,000 in exchange for all of its interest in the net
assets and obligations of the joint ventures. In addition, the Company retained
a contingent interest in certain receivables, not to exceed $212,500, and a
contingent interest in future revenues from the pictures.
 
    Results of operations for the fiscal year ended June 30, 1996 reflect
write-downs of approximately $3,262,000 in the carrying value of the Company's
interest in the films as a result of the consummation of the transaction.
 
5. INVESTMENT IN GLOBAL INTELLICOM, INC.:
 
    On December 8, 1994, the Company acquired 3,300,000 shares of Global
Intellicom, Inc. ("Global") and subsidiaries, a Nevada corporation, for
$1,000,000, representing 66% of Global's 5,000,000 outstanding shares of common
stock. Simultaneously and pursuant to a contract of sale entered into by Tech
Acquisition Corp. ("Tech") (a wholly-owned subsidiary of Global) on October 28,
1994, Global purchased certain net assets of AMCOM Business Centers
Corp.("AMCOM") (a Pennsylvania corporation) subject to certain liabilities and
obligations. On December 8, 1994 Tech changed its name to AMCOM Business Centers
Corp.
 
    AMCOM is a wholesale distributor of computer hardware and related products
and serves customers throughout the United States.
 
    The total purchase price of the net assets of AMCOM was $5,280,000,
$2,224,000 of which was paid to the sellers at closing. The balance of the
purchase price of $3,056,000 is payable by Global in installments equal to 1% of
gross sales effective January 1, 1994 (as defined by agreement) in quarterly
installments through December 1995 and monthly thereafter until the obligation
is satisfied. In addition, Global agreed to reimburse AMCOM stockholders for all
income taxes incurred by them with respect to their distributive share of
AMCOM's taxable income for the period January 1, 1994 through the closing date.
 
    During the quarter ended March 31, 1995, the then Board of Directors of the
Company declared a dividend to its shareholders consisting of 1,700,000 shares
of the common stock of Global, and also
 
                                      F-10
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
5. INVESTMENT IN GLOBAL INTELLICOM, INC.: (CONTINUED)
delivered 522,641 shares of Global common stock to its former outside counsel in
payment of outstanding legal fees. Further, as of March 31, 1995 the then Board
of Directors entered into the Settlement Agreement with the CECO Shareholder
Committee which, among other things, provided for the sale of the Company's
remaining interests in Global to persons affiliated with the prior Board. The
sale closed on April 12, 1995.
 
6. DISCONTINUED OPERATIONS:
 
    For the quarter ended December 31, 1994, the Company's investment in Global
was accounted for as a purchase. However, due to the subsequent sale of all of
the Company's interest in Global, the accompanying consolidated financial
statements have been reclassified to reflect the investment in Global as a
discontinued operation.
 
    In March 1994, the Company discontinued the operations of its finance
subsidiary, ComEnt Funding Corp. Accordingly, the consolidated financial
statements have been reclassified to reflect ComEnt Funding as a discontinued
operation for all periods presented. The loss from discontinued operations for
the year ended June 30, 1994 included $368,971 of amortization expense related
to the capitalized costs incurred in connection with the formation of ComEnt
Funding Corp. The remaining assets of ComEnt Funding, comprised primarily of
loans receivable aggregating $393,588 as of June 30, 1994, were written off and
included in discontinued operations in fiscal 1995.
 
7. FILM COSTS:
 
    Film costs are comprised of the following:
 
<TABLE>
<CAPTION>
                                                                            JUNE 30,
                                                                   ---------------------------
<S>                                                                <C>           <C>
COMPONENT                                                              1996          1995
-----------------------------------------------------------------  ------------  -------------
Films released, at cost..........................................  $  2,750,000  $  47,320,463
Less accumulated amortization....................................     1,798,290     36,744,600
                                                                   ------------  -------------
                                                                        951,710     10,575,863
                                                                   ------------  -------------
 
Projects in development..........................................        49,258         80,000
                                                                   ------------  -------------
 
Total film costs.................................................  $  1,000,968  $  10,655,863
                                                                   ------------  -------------
                                                                   ------------  -------------
</TABLE>
 
    Based on the Company's estimates of gross revenues as of June 30, 1996,
approximately 60%-70% of unamortized film costs applicable to released and/or
distributable films will be amortized during the three years ending June 30,
1999; approximately 70%-80% will be amortized during the five year period ending
June 30, 2001.
 
    The terms under which the Company licenses films to subdistributors in
foreign markets generally provide for the exploitation of the films in all
media, including theatrical exhibition, video and all forms of television, for a
period of 5 to 7 years; however, the Company may sell rights for certain media
separately. In general, films are first exhibited theatrically for a period of 4
to 6 months, after which they become available for distribution in the home
video markets. The films become available for exhibition on pay or free
television after approximately 18 to 24 months from the initial theatrical
release. After the initial term
 
                                      F-11
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
7. FILM COSTS: (CONTINUED)
of the license with the subdistributor, the rights revert back to the Company
which may then relicense the rights for distribution in the territory.
 
8. DISPOSITION OF SUBSIDIARY:
 
    On June 30, 1991, the Company sold all of the issued and outstanding shares
(the "Shares") of its wholly-owned subsidiary, Double Helix to GNG Industries of
New York, Inc. ("GNG"). The Shares were sold to GNG in exchange for a secured,
negotiable promissory note, in the principal amount of $3,600,000. The Note was
recorded on the books of the Company at $3,243,868, which was the value of the
underlying collateral on the books of Double Helix at June 30, 1991.
 
    In April 1993, Double Helix's lending bank sold its outstanding loan
receivable from Double Helix to Carnegie Film Group, Inc. ("Carnegie"). The
Company advanced $350,000 to Carnegie in connection with the transaction. The
loan was senior to the indebtedness of GNG to the Company. In April 1993,
Carnegie foreclosed on the loan and acquired all of the assets of Double Helix.
 
    In September 1993, all of the outstanding shares of Carnegie were acquired
by ATC II, Inc. ("ATC"), a publicly traded company. Simultaneously, the Company
agreed to exchange the Note for 1,000,000 common shares (25,000 after giving
effect to a subsequent 1 for 40 reverse stock split) of ATC and $4,000,000
principal amount of 4% cumulative convertible preferred stock, convertible into
common shares at $1.30 per share. In October 1993, the Company loaned Carnegie
an additional $150,000.
 
    Carnegie defaulted on the $350,000 and the $150,000 loans, and notices of
default and foreclosure were sent in March and April 1994. In May 1994, the
Company filed legal action against ATC, Carnegie and others. In September 1994,
the Company and ATC entered into a settlement agreement whereby ATC agreed to
effect the transfer of Carnegie assets pledged as collateral. The settlement
also included a restructuring of ATC whereby ATC effected a 1 for 40 reverse
stock split and issued the Company 900,000 shares, par value $.01 per share, of
Series B convertible preferred stock paying a 7% cumulative dividend quarterly,
in exchange for the $4,000,000 principal amount of 4% cumulative convertible
preferred stock previously held by the Company. Each share of the Series B
preferred stock is convertible into one share of ATC common stock. The Company
retained the 25,000 shares of ATC common stock in its possession.
 
    Due to a decline in the market value of the common shares and due to the
deterioration of the business of ATC, the Company recorded a provision for loss
on its investment in the amount of $3,363,829 in the year ended June 30, 1994.
 
                                      F-12
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
9. INCOME TAXES:
 
    Following is a reconciliation of the statutory federal tax rate, as it
applies to the loss from continuing operations, to the effective rates for the
years ended June 30:
 
<TABLE>
<CAPTION>
                                                  1996                      1995                      1994
                                                 AMOUNT          %         AMOUNT          %         AMOUNT          %
                                              -------------  ---------  -------------  ---------  -------------  ---------
<S>                                           <C>            <C>        <C>            <C>        <C>            <C>
Federal tax (benefit) at statutory rates....  $  (1,686,000)     (34.0) $  (2,329,000)     (34.0) $  (2,475,000)     (34.0)
Vaulation allowance.........................      1,686,000       34.0      2,329,000       34.0      2,296,000       31.5
                                              -------------  ---------  -------------  ---------  -------------  ---------
    Total...................................  $          --        (--) $          --        (--) $    (179,000)      (2.5)
                                              -------------  ---------  -------------  ---------  -------------  ---------
</TABLE>
 
    The tax provision is reflected at the effective annual tax rate for the year
and consists of:
 
<TABLE>
<CAPTION>
                                                            1996         1995         1994
                                                         -----------  -----------  -----------
<S>                                                      <C>          <C>          <C>
Federal benefit........................................  $       (--) $       (--) $  (179,000)
State provision........................................          (--)          --           --
                                                         -----------  -----------  -----------
                                                         $       (--) $       (--) $  (179,000)
                                                         -----------  -----------  -----------
</TABLE>
 
    At June 30, 1996, the Company had a federal net operating loss carry
forward, for tax purposes, of approximately $27,000,000, expiring through 2011.
The utilization of approximately $4,900,000 of these losses in future periods is
estimated by the Company to be limited to approximately $350,000 per year (the
"annual earnout limitation").
 
    Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which establishes accounting and reporting standards for the effects of
income taxes that result from an enterprise's activities during the current and
preceding years became effective for the Company for its fiscal year ended June
30, 1994. The cumulative effect of adopting SFAS 109 was immaterial and was
recorded in the first quarter of fiscal 1994.
 
10. NOTES AND LOANS PAYABLE:
 
    Notes and loans payable as of June 30, 1996 and 1995 include $179,000
principal amount of 6% Convertible Subordinated Debentures, due 1997.
 
    In April 1995, the Company issued a note in the principal amount of $70,000
to its outside legal counsel for legal services performed. The note was
repayable in October 1995, together with interest at the rate of 7%. In February
1996 the note holder agreed to extend the due date to December 31, 1996. In
connection with the extension, the Company granted warrants to purchase 16,667
shares of the Company's common stock at an exercise price of $1.88 per share,
exercisable over a three year period. The amount of the note will be reduced, as
of December 31, 1996, by one-half of the amount by which the average closing
price of the stock, for the ten most recent trading days, exceeds the exercise
price of the warrants.
 
    In August and October 1995, the Company received net proceeds of $219,250
and $50,750, respectively, from the private placement of an aggregate of
$312,500 principal amount of 12% Senior Unsecured Promissory Notes (the
"Notes"). The Notes are repayable with interest on the earlier of (a) the
closing of a public offering of the Company's equity securities from which the
Company receives gross proceeds of at least $10,000,000, or (b) one year from
the issuance date. The Company also granted to the purchasers of the Notes an
aggregate of 26,042 warrants (the "Warrants"), 20,833 of which are exercisable
at $2.83 per
 
                                      F-13
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
10. NOTES AND LOANS PAYABLE: (CONTINUED)
share and 5,209 of which are exercisable at $2.37 per share. Each of the
Warrants is exercisable at any time beginning one year after the date of
issuance and expiring four years after the date of issuance.
 
    The Notes and interest were not repaid as scheduled. In August 1996, the
Company sent letters to all Note holders requesting extension of the due date to
December 15, 1997. In exchange, the Note holders were offered two alternative
proposals. In the first proposal, existing warrants will be exchanged, subject
to the Company's registration statements becoming effective, for registered
shares of the Company's common stock in an amount equal to 20% of the principal
amount of the Note, with shares valued at $.75 per share. Alternatively, Note
holders can exchange their Notes, subject to the Company's registration
statements becoming effective, for registered shares of the Company's common
stock in an amount equal to 150% of the principal amount of the Note, with
shares valued at the price at the effective date of the registration. In both
proposals the interest on the Notes will be paid when due. As of October 10,
1996, the Company had received elections from Note holders representing $212,500
principal amount of Notes, of which $162,500 elected the first proposal.
Accordingly, the maturity date of those notes have been extended to December 15,
1997. Note holders representing $50,000 principal elected the second proposal to
exchange their notes for shares of the Company's common stock. The remaining
notes for $100,000 have not been paid on their respective due dates, although
the Company have not yet received any indication from those noteholders that
they will not consider one of the two alternative proposals offered. The Company
has paid current interest on all of the notes through the first anniversary date
of the respective notes.
 
11. COMMITMENTS AND CONTINGENCIES:
 
  LEASE COMMITMENTS:
 
    The Company presently leases office space in Los Angeles pursuant to an
operating lease expiring in May 1998, which provides for monthly rental payments
of $5,301. Minimum payments under the lease aggregate $63,612 and $58,311 for
the fiscal years ending June 30, 1997 and 1998, respectively.
 
    The Company is party to a lease at 800 Third Avenue, New York, New York
10022, which will terminate in 1997. The Company vacated such office space
during the year ended June 30, 1995. In September 1995 the landlord filed an
action against the Company (see "Litigation"). Rent expense for the years ended
June 30, 1996, 1995 and 1994 was $38,772, $297,287 and $489,559, respectively.
 
    The Company has entered into various agreements for the distribution of new
pictures. Generally, the films that the Company represent are financed by the
producers of the film, through independent or bank financing, utilizing the
license agreements generated by the Company as collateral for production loans.
The Company has assumed no financial obligations with respect to these pictures
as of this date, except for committments for writing services in the amount of
$40,000, of which $20,000 has already been paid.
 
  LITIGATION:
 
    On December 20, 1990, a suit was filed against the Company seeking the
payment of $300,000 for certain investment banking services allegedly provided.
In October 1991, the Court granted a judgment in favor of the plaintiff. The
judgment is stayed pending the determination of an action brought by the Company
against the plaintiff described below. The Company has posted a
non-collateralized bond pending the results of an appeal. In a separate action,
the Company filed a complaint against the plaintiff claiming that services
alleged to have been performed were never performed and demanding the return of
funds and securities paid by the Company. In October 1994, the plaintiff filed a
voluntary bankruptcy
 
                                      F-14
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
petition under Chapter 11 of the United States Code. Consequently, the Company's
action has been automatically stayed. The Company has filed a proof of claim.
 
    On or about September 11, 1992, Joseph Duignan brought an action in the
Superior Court of New Jersey, Mercer County, entitled Joseph Duignan v. Double
Helix Films Limited Partnership No. 1, L.P. Double Helix Films, Inc., Cinecom
International Films, Film Gallery, Inc., Stan Wakefield, Jerry Silva, Arthur
Altarac and Anthony Tavone (MIR-l-4262-92). Jerry Silva, the only defendant who
was served, is former Vice Chairman of the Board of Directors of the Company.
Mr. Silva has demanded that the Company indemnify him gainst any expenses,
judgments, and amounts paid in settlement of the action. The Company contends
that it is not required to indemnify Mr. Silva because he breached his fiduciary
duties to the Company.
 
    Mr. Duignan claims that he invested $75,000 to acquire a partnership
interest in Double Helix Films Limited Partnership No. 1 and that Mr. Silva
forged or caused to be forged his signature on a Subscription Agreement dated
July 28, 1986. The Complaint alleges claims for rescission, unjust enrichment
(against Double Helix), conversion, fraud, breach of contract, breach of
fiduciary duty and breach of covenants of good faith and fair dealing (against
Mr. Silva and Double Helix). Mr. Duignan seeks to recover compensatory damages,
including but not limited to, his alleged $75,000 investment, punitive damages
and attorney's fees. Mr. Silva has answered the Complaint.
 
    On December 30, 1994, an individual, who allegedly served as President of
Double Helix Films from about July 1991 until about March 1993, filed action
against the Company, Norman Muller, a former Chairman and CEO of the Company,
and others in which he alleges among other things breach of an oral agreement to
pay him $152,000 (which he allegedly advanced for the benefit of Double Helix)
and to give him 19.5% ownership interest in its corporate successors. He also
alleges a claim for intentional infliction of emotional distress against Mr.
Muller. He seeks to recover unspecified compensatory, punitive, exemplary and
emotional distress damages. The trial date has been set for February 1997. Mr.
Muller has demanded that the Company indemnify him against any expenses,
judgements and amounts paid in settlement. The Company contends that it is not
required to provide indemnification.
 
    In another matter, the alleged former President of Double Helix, filed a
cross complaint in August 1995 against the Company, Double Helix and Norman
Muller in which he seeks indemnification, apportionment of fault and declaratory
relief in connection with another action in which he was named as a defendant.
In addition to compensatory damages, he seeks punitive and exemplary damages,
emotional distress damages and attorney's fees. The Company has answered the
cross-complaint, and a trial date has been set for February 1997.
 
    On or about May 15, 1995, Credit Lyonnais Bank Nederland N.V. and Cinecom
Entertainment Group, Inc. filed a complaint against the Company's subsidiary,
Odyssey Distributors, Ltd. They allege that Odyssey collected but failed to
remit to them assigned distribution proceeds in the amount of $566,283.33 from
the foreign distribution of two pictures. The complaint alleges claims for
breach of contract and breach of fiduciary duty and seeks damages in excess of
$566,283, attorney's fees, an accounting, a temporary restraining order and a
preliminary injunction. In June 1995, the Court denied plaintiffs an attachment
and stayed the action pending arbitration in New York. In September, 1996 the
Court dismissed the Complaint. No arbitration has yet been commenced in this
action.
 
    In August 1995, G.P. Productions, Inc. ("GP") and Greenwich Subject Films,
Inc. ("Greenwich") commenced an action entitled G.P. Productions, Inc., and
Greenwich Studios, Inc. v. Double Helix Films,
 
                                      F-15
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Inc., Communications and Entertainment, Inc., Krishna Shaw, Gerald Muller and
Norman Muller in the United States District Court, Southern District of Florida
(Case No. 95-1188). Mr. Muller has demanded that the Company indemnify him
against any expenses, judgments and amounts paid in settlement of the action.
The Company contends that, by virtue of Mr. Muller's breaches of fiduciary duty
and violation of his obligations to the Company, it is not required to provide
indemnification.
 
    GP and Greenwich allege that they are the exclusive owners of the films "The
Gallery" and "South Beach". They assert claims for copyright infringement,
unfair competition, breach of contract, accounting, conversion, civil theft,
conspiracy and fraudulent conveyance. The Complaint demands a recall of the
films, an attachment, preliminary and permanent injunctive relief, an
accounting, and unspecified compensatory, punitive and treble damages. The
Company has made a motion to dismiss the action for lack of personal
jurisdiction and lack of venue. The motion is pending.
 
    In September 1995, the agent for the landlord for the premises in New York
City previously occupied by the Company filed a Summons and Verified Complaint
against the Company. The plaintiff alleges that it is due $66,694 from the
Company (plus interest) for rent allegedly owed during the period from April
through September, 1995. The Company vacated the premises on April 12, 1995.
Summary judgment was awarded to the plaintiff and a judgment was entered for
$74,142 in May, 1996. The Company has a motion pending for reconsideration of
the matter on the grounds that the landlord wrongfully refused to consider and
accept a subtenant for the balance of the term of the lease. In July, 1996, the
landlord commenced a second action for $121,000 for rent allegedly owed during
the period from October 1995 through July 1996. The Company has not yet filed an
Answer in this action and is seeking an extension of time in which to answer
pending the resolution of its motion for reconsideration in the prior action.
 
    In October 1995, Canon Financial Services filed a complaint, in which it
claims that it is due $47,499.83, plus damages, pursuant to a lease agreement.
The Company has filed an Answer in this action and plaintiff has made a motion
for summary judgment which is being defended by the Company.
 
    In January 1996, a former director brought an action against the Company on
a promissory note in the amount of $25,000. The plaintiff obtained a summary
judgment but has not yet moved to enforce it. The Company is considering whether
or not it has a claim for indemnification against former management in
connection with the issuance of the note..
 
    In January 1996, an action was filed against the Company in which the
plaintiff seeks damages in the amount of $33,849.98 for legal services rendered.
The complaint was served on the Company in April 1996. The Company has filed an
answer in this action and an arbitration hearing has been scheduled for October
1996.
 
    In March 1996, an action was filed against the Company in which the
plaintiff claims that she is due $17,920.49 pursuant to a promissory note
previously issued to her. The Company has filed a cross-claim seeking offsets
against the amount due and other damages.
 
    On or about March 25, 1996, a class action complaint was filed against the
Company. The complaint seeks damages in connection with the Company's treatment
in its financial statements of the disposition of its subsidiary, Double Helix
Films, Inc., in June 1991. The complaint seeks unspecified damages on behalf of
all persons who purchased shares of the Company's common stock from and after
June 1992. The complaint was served on the Company in July 1996. The Company
made a motion to dismiss the action and a hearing has been scheduled for October
1996. The Company's former Chairman has demanded that
 
                                      F-16
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
the Company indemnify him against any expenses, judgments and amounts paid in
settlement of the litigation. The Company contends that it is not required to
provide such indemnification.
 
    The Company was advised on October 10, 1996 that Film Bridge International,
Inc. filed a Complaint against the Company in a Los Angeles court on September
18, 1996 seeking declaratory relief with respect to the Joint Venture. The
Company is in the process of seeking restraining orders establishing its rights
in the Joint Venture. The Company has not yet been served in this action.
 
    In the Private Lessons Partnership v. Carnegie Film Group, Inc., Monogram
Pictures Corp., Filmways Entertainment Corp., ATC, Inc., Krishnah Shah, Lonnie
Romati, Gerald Muller, Jerry Minsky and Does 1-100 (California Superior Court,
Los Angeles County, Case No. BC091840), the plaintiff asserted claims for breach
of oral contract, fraud in the inducement and fraudulent conveyance against Mr.
Shah, seeking damages in the amount of $315,000, plus further unspecified
compensatory damages and punitive damages. In August 1995, Mr. Shah filed a
cross-complaint against the Company, Double Helix Films and Norman Muller for
indemnification, apportionment of fault and declaratory relief. In addition to
compensatory damages, he seeks punitive and exemplary damages, emotional
distress damages and attorney's fees. The Company has answered the
cross-complaint and a trial has been scheduled for February 1997.
 
    Management believes that the outcome of aforementioned matters and all other
outstanding litigation will not, after consideration of reserves, have a
materially adverse impact on the financial condition or results of operations of
the Company.
 
12.  SHAREHOLDERS' EQUITY:
 
    On March 6, 1996 the Board of Directors of the Company approved a
one-for-six reverse stock split of the outstanding shares of the Company's
Common Stock (the "Common Stock"). The Reverse Stock Split was effective as of
March 18, 1996 (the "Record Date"). On the Record Date, each six shares of the
Company's then outstanding Common Stock (the "Old Common Stock") were
automatically converted into one share of the new Common Stock, par value $.01
per share (the "New Common Stock").
 
    No fractional shares of New Common Stock were issued. Rather, holders of Old
Common Stock who are entitled to receive fractional shares of New Common Stock
will be rounded up to the nearest whole share of New Common Stock.
 
    The Reverse Stock Split resulted in a net reduction of 11,408,973 in the
number on Common Shares outstanding, including 1,995 shares issuable due to the
rounding up of fractional shares.
 
    Except for the number of shares of Common Stock outstanding after the
Reverse Stock Split, the Old Common Stock and the New Common Stock are
identical.
 
    On February 14, 1995, the then Board of Directors of the Company declared a
dividend payable to holders of record on February 24, 1995 ("the Dividend Record
Date") of the Company's common stock and Class A stock. The dividend consisted
of 1,700,000 shares of common stock, $.01 par value per share, of Global that
were owned by the Company. Holders of the Company's common stock and Class A
Stock received .1233 and .0786 shares, respectively, of Global common stock for
each share of the Company's stock. The dividend was recorded as a reduction of
capital in excess of par value.
 
    The shares of Global common stock were distributed to an escrow agent on the
Dividend Record Date pending registration of the shares. The Securities and
Exchange Commission declared Global's
 
                                      F-17
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
12.  SHAREHOLDERS' EQUITY: (CONTINUED)
registration statement effective as of September 1, 1995 and, accordingly, the
escrow agent was authorized to distribute the dividend shares.
 
    Communications and Entertainment Corp. was originally formed to consummate
the mergers of Double Helix Films, Inc. ("Double Helix") and Odyssey
Entertainment Ltd. pursuant to the Agreement and Plan of Merger dated September
22, 1989 ("the Merger Agreement"). On September 6, 1990 the shareholders of
Double Helix and Odyssey approved the Merger Agreement. Pursuant to the terms of
the Merger Agreement, each share of common stock of Odyssey was convertible into
one share of Class A stock of the Company and each share of Double Helix common
stock was convertible into one share of the Company's common stock. Prior
management's instructions to the transfer agent required that any shares of
Odyssey or Double Helix outstanding at the time of the Merger not tendered to
the Company's transfer agent for exchange by March 31, 1995 should be canceled.
Accordingly, 86,790 shares of the Class A stock and 10,496 shares of the common
stock reserved for exchange were canceled. The par value of the shares canceled,
of $5,837, was transferred to capital in excess of par. Current management is
investigating the basis for prior management's instructions to the transfer
agent.
 
    Additionally, in accordance with the Company's charter, all outstanding
shares of the Company's Class A stock, automatically converted, on March 31,
1995, into shares of the Company's common stock at a rate of .6375 shares of
common stock for each share of Class A stock.
 
    The Company's outstanding 6% Convertible Subordinated Debentures are
convertible into common stock at a price of $75 per share. As of June 30, 1996,
Debentures in the aggregate principal amount of $179,000 can be converted into
an aggregate of 1,522 shares of common stock.
 
    In September 1992, the former Board of Directors approved a stock buyback
program, authorizing the purchase of as many as three million shares of the
Company's common stock from time to time in the open market. Through June 30,
1994, the Company had purchased 162,833 shares with an aggregate cost of
$1,881,801. During the year ended June 30, 1994, the former Board of Directors
authorized the retirement and cancellation of all shares purchased under the
buyback program.
 
13.  STOCK OPTIONS AND WARRANTS:
 
    The number of options and warrants, and exercise prices in the following
paragraphs have been restated to give effect to a 1 for 6 Reverse Stock Split in
March 1996.
 
    The Company has an Incentive Stock Option Plan (The "Option Plan") for its
key employees providing for the granting of options to acquire common stock. The
maximum number of shares of common stock subject to the Option Plan is 75,000,
plus 5% of any increase in the number of issued shares after the effective date
of the Merger, excluding any increase due to stock awards to key employees or as
result of the conversion of Class A stock. The price for the shares covered by
each option will not be less than 100% of the fair market value at the date of
grant (110% for holders of more than 10% of the company's common stock). Options
granted expire ten years from the date of grant (five years for holders of more
than 10% of the Company's common stock).
 
                                      F-18
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
13.  STOCK OPTIONS AND WARRANTS: (CONTINUED)
    A summary of options under the plan is as follows:
 
<TABLE>
<CAPTION>
                                                                     SHARES    EXERCISE PRICE
                                                                    ---------  ---------------
<S>                                                                 <C>        <C>
Outstanding, June 30, 1993*.......................................     63,250  $   5.04-$15.54
Granted...........................................................     19,167  $   9.00-$13.86
Canceled..........................................................    (22,917) $   9.00-$15.36
                                                                    ---------
 
Outstanding, June 30, 1994*.......................................     59,500  $   5.04-$15.54
 
Canceled..........................................................    (59,500) $   5.04-$15.54
                                                                    ---------
 
Outstanding, June 30, 1995........................................        -0-
                                                                    ---------
 
Outstanding, June 30, 1996........................................        -0-
</TABLE>
 
------------------------
 
*   All exercisable.
 
    The Company issued an aggregate of 134,854 warrants to the purchasers of
common stock of the Company sold in private placements during fiscal 1992. The
exercise prices range from $18.00 to $25.50 per share. 21,024 of such warrants
were exercised during 1992 at $18.00 per share. During the years ended June 30,
1995, 1994 and 1993, 58,652, 53,500 and 608 warrants, exercisable at $25.50,
$18.00 and 18.00 per share, respectively, expired, unexercised. The balance of
the warrants, exercisable at $18.00 per share, expired unexercised in July 1996.
 
    An additional 70,833 warrants and options were granted during the year ended
June 30, 1992 to outside consultants for services in connection with private
placements. The exercise prices range from $12.00 to $25.50 per share. 8,333 of
such options were exercised in 1992 at $12.00 per share. 4,167 options,
exercisable at $16.50 per share, expired, unexercised, during fiscal 1993. The
balance expired, unexercised, during fiscal 1995.
 
    In fiscal 1992, the Board of Directors approved the grant of options, to
purchase 6,000 shares to the outside directors of the Company, for their
services as directors, at an exercise price of $18.96 per share. An additional
6,000 options were granted during fiscal 1993 to the outside directors, at an
exercise price of $10.08. The options to the directors have not yet been issued.
 
    During the year ended June 30, 1993, 8,333 options were granted outside of
the plan, at an exercise price of $9.00, to an officer in connection with an
employment agreement. Such options expired during fiscal 1995. Additionally,
1,667 options were granted, at an exercise price of $9.00, to a director of the
Company for services rendered. Such options were exercisable as of June 30,
1996.
 
    During fiscal 1993, warrants to purchase 12,500 shares were also granted to
outside consultants, for services rendered, at an exercise price of $13.14 per
share. Warrants to purchase 70,833 shares were granted to outside consultants
for services rendered during fiscal 1994, at exercise prices ranging from $7.50
to $21.00. 66,667 of such warrants, exercisable at $9.00 to $21.00 per share,
expired unexercised during fiscal 1996. The balance of the warrants, were
exercisable at June 30, 1996, at a price of $7.50 per share.
 
    In April 1995, following the change in management control, the Board of
Directors authorized the issuance of 8,333 options to each of five new Directors
and 16,667 options to the president of the
 
                                      F-19
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
13.  STOCK OPTIONS AND WARRANTS: (CONTINUED)
Company. The Board also authorized the issuance of a total of 10,000 options to
two outside consultants for services in connection with the proxy contest. All
such warrants are exercisable for a four year period commencing October 13, 1995
at $3.92 per share.
 
    In August and October 1995, the Company issued an aggregate of 26,041
warrants to purchasers of 12% Senior Unsecured Notes sold in private placement.
The exercises prices ranged from $2.37 to $2.83 per share. None of such warrants
were exercisable as of June 30, 1996. In connection with the private placement,
the Company also issued 33,333 warrants to its outside counsel in consideration
for legal services performed, exercisable during the three year period
commencing one year from the date of issuance, at a price per share of $2.83.
 
    During the year ended June 30, 1996, 769,167 warrants were granted outside
of the Plan to officers and directors, at exercise prices ranging from $1.50 to
$2.83. All such warrants were exercisable as of June 30, 1996.
 
    During fiscal 1996, the Company also granted 16,667 warrants, at an exercise
price of $1.88 per share, to its outside counsel in connection with the
extension of a note. Additionally, warrants to purchase 167,500 shares were
granted to consultants for services rendered during fiscal 1996, at exercise
prices ranging from $.76 to $1.88 per share. All such warrants were exercisable
as of June 30, 1996.
 
14. RELATED PARTY TRANSACTIONS:
 
    During the years ended June 30, 1994, the Company paid Dorian Industries,
Inc. ("Dorian") $20,833 in consideration of consulting services rendered by N.
Norman Muller, the former Chairman and Chief Executive Office of the Company,
who is a consultant to Dorian.
 
    The firm of Goodkind, Labaton, Rudoff & Sucharow, of which David A. Mortman,
a former Director of the Company was a member, received legal fees from the
Company of $195,000 for the fiscal year ended June 30, 1995. Additionally, it
received an aggregate of 522,641 shares of common stock of Global Intellicom,
Inc., a subsidiary of the Company, valued at $155,905, in consideration of the
cancellation of outstanding legal fees.
 
    The firm of David A. Mortman, P.C. and its predecessor firm, of which David
A. Mortman, a Director of the Company was a member, received legal fees from the
Company of $16,585 and $387,987 during the fiscal years ended June 30, 1995 and
1994, respectively.
 
    Lawrence I. Schneider, a member of the Board of Directors of the Company and
one of three Co-Chairmen in the Office of the Chairman of the Company, is a
principal of Global Capital Resources, Inc., a New York based financial
consulting services firm ("Global Capital"). During the 11 month period from
May, 1995 through March, 1996, Global Capital rendered financial consulting
services to the Company in connection with the change of management control of
the Company. Such services were rendered to the Company at the agreed upon rate
of $15,000 per month. However, in order to conserve the cash resources of the
Company, Global Capital agreed to accept stock options from the Company in lieu
of a cash payment. On March 6, 1996, the Board of Directors of the Company (with
Mr. Schneider abstaining from the voting) authorized the issuance to Global
Capital of stock options to purchase 83,333 shares of Common Stock of the
Company, exercisable over a five-year period at the exercise price of $1.875 per
share (after adjustment for the Reverse Split).
 
    During the fiscal year ended June 30, 1996, the law firm of Herbst &
Greenwald, of which Mr. Greenwald, a director of the Company, is a member,
received fees for legal services rendered to the Company in the amount of
$9,075.
 
                                      F-20
<PAGE>
                     COMMUNICATIONS AND ENTERTAINMENT CORP.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
15. SUBSEQUENT EVENTS:
 
    In August 1996, the Company entered into an agreement, pursuant to which the
Company agreed to grant certain subdistribution rights in and to sell other
distribution rights to, certain films in the Company's film library. In exchange
for these rights, the Company will receive a total cash consideration of
$1,075,000, payable $500,000 on closing, $275,000 six months after closing, and
$300,000 eighteen months after closing. In addition, the Company will retain a
continuing right to receive revenues from certain of the films, valued by
management at a minimum of approximately $150,000. Additionally, the purchaser
will provide the Company with $500,000 revolving line of credit to be secured by
accounts receivable and other contractual rights acquired by the Company. As
part of the transaction, the Company will grant 100,000 stock options,
exercisable over a three year period at the bid price of the Company's common
stock in effect on August 5, 1996 ($.625). The transaction closed on October 7,
1996.
 
    On August 1, 1996, the Board of Directors of the Company offered to
reimburse the members of the CECO Shareholders Committee in kind for all
expenses incurred by such members in connection with the change of management
control of the Company affected in April, 1995. (See "Change in Control"). The
Board offered to reimburse such expenses by issuing stock options to the
committee members in an amount equal to one and one-third times the amount of
such expenses. Robert Miller, a director of the Company, agreed to accept
options to puchase 40,000 shares of the Company's Common Stock, exercisable over
a five-year period at an exercise price of $.75 per share, representing the then
current market price of the Company's Common Stock on the date of grant. In
exchange, Mr. Miller released his claim for reimbursement of approximately
$30,000 of expenses incurred by Mr. Miller in connection with the change of
control. Lawrence I. Schneider, a director of the Company and also a member of
the CECO Shareholders Committee, has not agreed to accept options in lieu of his
claim for reimbursement of expenses in connection with the change of control. No
accrual for these claims was made at June 30, 1996 as the Company does not
expect to pay any amounts to these individuals.
 
    On September 25, 1996, the Company entered into an agreement with an
unaffiliated third party for the purchase of 1,000,000 shares of the Company's
common stock in consideration of $750,000, or $.75 per share, payable all cash
at closing. In addition, the investor will receive 1,000,000 class A warrants
and 1,000,000 class B warrants, each set of warrants being exercisable over a
three year period for the purchase of 1,000,000 shares of common stock at the
respective exercise prices of $.75 and $1.00 per share. The closing of the
transaction is contingent upon (i) shareholder approval of an amendment to the
Company's Articles of Incorporation authorizing an increase in the number of
authorized shares of the Company, and (ii) the effectiveness of a registration
statement filed by the Company on behalf of the investor with respect to the
shares purchased and the shares underlying the warrants. The investor will pay
the first $50,000 of such registration costs.
 
    In September, 1996, the Company reached a verbal understanding with
Paramount, pursuant to which the Company believes that Paramount will agree to
cancel outstanding indebtedness of $2.7 million in full, in exchange for which
the Company agreed to (i) relinquish all further distribution rights to
"Wuthering Heights"; (ii) assign to Paramount all of its rights in any
outstanding distribution agreements for the film, and any receivables to be
generated therefrom; and (iii) guarantee that Paramount will collect a total of
$500,000 in sales revenue from existing distribution agreements no later than
January 15, 1997. The Company anticipates that existing license agreements will
yield at least $450,000 in revenue prior to January 15, 1997 (of which the
Company would have been entitled to retain approximately 20% thereof in
commissions), thereby minimizing the Company's exposure under the guarantee to
Paramount.
 
                                      F-21