<PAGE>   1

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

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


(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

                                       OR

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



                         COMMISSION FILE NUMBER 0-24984

                            DOVE ENTERTAINMENT, INC.

               (EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)

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

          CALIFORNIA                                              95-4015834
(STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                               IDENTIFICATION NO.)

       8955 BEVERLY BOULEVARD
     BEVERLY HILLS, CALIFORNIA                                      90048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                          (ZIP CODE)



         COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 786-1600.
       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                ----------------

    Indicate by check mark whether the Company: (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X   No
                                      -----  -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS

    There were 6,034,877 shares of the Company's Common Stock outstanding as of
August 14, 1997.

           Transitional Small Business Disclosure Format (Check one):
                            Yes     No  X
                               -----  -----


================================================================================


<PAGE>   2

PART I -- FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

                            DOVE ENTERTAINMENT, INC.
                           Consolidated Balance Sheet
                                  June 30, 1997
                                   (Unaudited)
<TABLE>
<CAPTION>

                                     ASSETS

<S>                                                                        <C>         
CURRENT ASSETS
  Cash and cash equivalents ................................................   $    208,000
  Accounts receivable, net of allowances of $1,481,000 .....................      1,179,000
  Inventory ................................................................      4,184,000
  Film costs - Note 4 ......................................................      5,345,000
  Prepaid expenses and other assets ........................................         43,000
  Income taxes receivable ..................................................        455,000
  Deferred tax assets ......................................................        100,000
                                                                               ------------
    Total current assets ...................................................     11,514,000
NON-CURRENT ASSETS
  Production masters - Note 3 ..............................................      2,151,000
  Film costs, net - Note 4 .................................................      1,642,000
  Property and equipment, net ..............................................      4,044,000
  Goodwill and other assets ................................................      6,220,000
                                                                               ------------
    Total non-current assets ...............................................     14,057,000
                                                                               ------------
    Total assets ...........................................................   $ 25,571,000
                                                                               ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable and accrued expenses ....................................   $  6,237,000
  Notes payable current - Note 6 ...........................................      1,185,000
  Due to related party, net - Note 7 .......................................         50,000
  Royalties payable ........................................................        549,000
  Advances and deferred income .............................................      4,042,000
  Accrued dividends ........................................................        192,000
                                                                               ------------
    Total current liabilities ..............................................     12,255,000
                                                                               ------------
NON-CURRENT LIABILITIES
  Notes payable, less current portion - Note 6 .............................      1,806,000
  Accrued liabilities ......................................................        920,000
                                                                               ------------
    Total non-current liabilities ..........................................      2,726,000
                                                                               ------------
    Total liabilities ......................................................     14,981,000
COMMITMENTS AND CONTINGENCIES - Note 8
SHAREHOLDERS' EQUITY - Note 9
  Preferred stock $.01 par value; 2,000,000 shares authorized and
  220,033 shares issued and outstanding, liquidation preference $6,968,000            2,000
  Common stock $.01 par value;  20,000,000 shares authorized and
  6,034,877 issued and outstanding .........................................         60,000
  Additional paid-in capital ...............................................     27,246,000
  Accumulated deficit ......................................................    (16,718,000)
                                                                               ------------
    Total shareholders' equity .............................................     10,590,000
                                                                               ------------
    Total liabilities and shareholders' equity .............................     25,571,000
                                                                               ============

</TABLE>

           See accompanying notes to consolidated financial statements


                                       1
<PAGE>   3

                            DOVE ENTERTAINMENT, INC.
                        Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED JUNE 30,
                                                        ---------------------------
                                                            1997          1996
                                                            ----          ----
<S>                                                     <C>            <C>        
Revenues - Note 10
     Publishing, net ................................   $ 2,678,000    $ 2,197,000
     Film ...........................................     1,081,000        795,000
                                                        -----------    -----------
                                                          3,759,000      2,992,000
Less:  Cost of sales and amortization
     Publishing, net ................................     3,019,000      2,882,000
     Film ...........................................     1,084,000        542,000
                                                        -----------    -----------
                                                          4,103,000      3,424,000
                                                        -----------    -----------
                                                           (344,000)      (432,000)

Less:  Selling, general and administrative expenses -     2,860,000      2,809,000
          Note 7
       Employee separation costs - Note 7 ...........     1,614,000          --- 
                                                        -----------    -----------
                                                          4,474,000      2,809,000
                                                        -----------    -----------
Loss from operations ................................    (4,818,000)    (3,241,000)

Less:  Interest expense .............................        57,000         54,000
                                                        -----------    -----------
     Loss before income taxes .......................    (4,875,000)    (3,295,000)
Less:  Income tax expense - Note 5 ..................        14,000       (626,000)
                                                        -----------    -----------
     Net loss .......................................   $(4,889,000)   $(2,669,000)
                                                        ===========    ===========


Net loss attributable to common stockholders ........   $(5,918,000)   $(2,686,000)
                                                        ===========    ===========

Net loss per share ..................................   $     (1.07)   $     (0.47)
                                                        ===========    ===========

Weighted average number of common shares ............     5,550,000      5,630,000
                                                        ===========    ===========

</TABLE>

           See accompanying notes to consolidated financial statements



                                       2
<PAGE>   4


                            DOVE ENTERTAINMENT, INC.
                        Consolidated Statements of Income
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                  SIX MONTHS ENDED JUNE 30,
                                                                    1997           1996
                                                                    ----           ----
<S>                                                            <C>             <C>         

Revenues - Note 10
  Publishing, net ..........................................   $  3,746,000    $  6,545,000
  Film .....................................................      2,674,000       4,054,000
                                                               ------------    ------------
                                                                  6,420,000      10,599,000
Less:  Cost of sales and amortization
  Publishing, net ..........................................      4,629,000       6,018,000
  Film .....................................................      3,227,000       2,937,000
                                                               ------------    ------------
                                                                  7,856,000       8,955,000
                                                               ------------    ------------
                                                                 (1,436,000)      1,644,000

Less:  Selling, general and administrative expenses - Note 7      5,047,000       4,101,000
       Employee separation costs - Note 7 ..................      1,614,000              --
                                                               ------------    ------------
                                                                  6,661,000       4,101,000
                                                               ------------    ------------
Loss from operations .......................................     (8,097,000)     (2,457,000)

Less:  Interest expense ....................................        193,000           6,000
                                                               ------------    ------------
  Loss before income taxes .................................     (8,290,000)     (2,463,000)
Less:  Income tax expense - Note 5 .........................         23,000        (295,000)
                                                               ------------    ------------
  Net loss .................................................   $ (8,313,000)   $ (2,168,000)
                                                               ============    ============


Net loss attributable to common stockholders ...............   $ (9,464,000)   $ (2,202,000)
                                                               ============    ============

Net loss per share .........................................   $      (1.75)   $      (0.40)
                                                               ============    ============

Weighted average number of common shares ...................      5,414,000       5,464,000
                                                               ============    ============

</TABLE>

           See accompanying notes to consolidated financial statements



                                       3
<PAGE>   5

                            DOVE ENTERTAINMENT, INC.
                      Consolidated Statement of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED JUNE 30,
                                                         -------------------------
                                                            1997           1996
                                                            ----           ----
<S>                                                     <C>            <C>         
OPERATING ACTIVITIES
Net loss ............................................   $(8,313,000)   $(2,168,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
   Depreciation .....................................       273,000        127,000
   Amortization of goodwill .........................       126,000         40,000
   Amortization of production masters ...............     2,359,000      1,031,000
   Amortization of film costs .......................     3,227,000      2,435,000
   Changes in operating assets and liabilities:
     Accounts receivable ............................     1,095,000        325,000
     Inventory ......................................      (147,000)     1,289,000
     Prepaid expenses ...............................       144,000       (393,000)
     Income taxes ...................................       172,000         80,000
     Production masters .............................    (1,557,000)    (1,665,000)
     Film costs .....................................    (6,519,000)    (2,387,000)
     Accounts payable and accrued expenses ..........     1,650,000       (741,000)
     Royalties payable ..............................        16,000         19,000
     Advances and deferred revenue ..................     2,881,000     (1,581,000)
                                                        -----------    -----------
       Net cash used in operating activities ........    (4,593,000)    (3,589,000)

INVESTING ACTIVITIES

   Acquisition of Four Point Entertainment ..........            --     (3,023,000)
   Sale of marketable securities ....................            --         95,000
   Purchases of property and equipment ..............        (9,000)       (83,000)
   Payments for building improvements ...............            --       (250,000)
                                                        -----------    -----------
       Net cash used in investing activities ........        (9,000)    (3,261,000)
FINANCING ACTIVITIES - Note 9
   Repayment of notes payable .......................      (462,000)            --
   Proceeds from sale of preferred stock ............     4,879,000             --
   Proceeds from sale exercise of options ...........         3,000             --
   Proceeds from sale of common stock ...............            --      1,982,000
   Proceeds of bank borrowing .......................            --        489,000
                                                        -----------    -----------
      Net cash provided by financing activities .....     4,420,000      2,471,000
                                                        -----------    -----------
      Net increase in cash and cash equivalents .....      (182,000)    (4,379,000)

CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD .........................................       390,000      4,946,000
CASH AND CASH EQUIVALENTS AT END
                                                        -----------    -----------
  OF PERIOD .........................................   $   208,000    $   567,000
                                                        ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION
  Cash paid for interest ............................   $   195,000    $    80,000
  Cash paid (refunds received) for income taxes .....   $  (162,000)   $        --
                                                        ===========    ===========

</TABLE>

           See accompanying notes to consolidated financial statements




                                       4
<PAGE>   6

                            DOVE ENTERTAINMENT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION, ORGANIZATION AND BUSINESS

    The accompanying consolidated financial statements of Dove Entertainment,
Inc. (the "Company") and its subsidiaries are unaudited and have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB, as amended, for the
fiscal year ended December 31, 1996. In the opinion of management, the
accompanying consolidated financial statements include all adjustments
(consisting only of normal recurring adjustments) which are necessary for a fair
presentation. The results of operations for the six month period ended June 30,
1997 are not necessarily indicative of results to be expected for the full year.

    Dove Entertainment, Inc. is primarily engaged in the business of producing
and distributing books on tape (audio books) and, through its wholly-owned
subsidiary Dove Four Point, Inc., ("Dove Four Point"), the development and
production of movies-for-television and mini-series. The Company is also engaged
in the publication of printed books and the distribution of feature films and
television programs.

    The Company acquires audio publishing rights for specific titles or groups
of titles, generally in perpetuity, for audio production and distribution,
primarily in the United States of America.

    Dove Four Point is an independent production company. Dove Four Point is
often engaged as a producer-for-hire in connection with a creative concept and
literary property owned by another party to produce all forms of television
productions, including pilots, series, telefilms, miniseries, talk shows, game
shows and infomercials for network, cable and syndicated production. In addition
to being engaged as a producer-for-hire, Dove Four Point develops and produces
television productions for which rights are controlled by Dove Four Point.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recognition of Publishing Revenue

Revenues from publishing, including the sale of audio books (net of provisions
for estimated returns and allowances), and related royalties payable are
recognized upon shipment of the product. The Company records an allowance for
future returns based on anticipated return rates.

Cash Equivalents

The Company considers all highly liquid investments with original maturities to
the Company of three months or less to be cash equivalents.

Inventory

Inventory, consisting primarily of recorded audio cassettes and printed books,
is valued at the lower of cost or market, determined using the first-in,
first-out method. Periodically, management reviews inventory on a title-by-title
basis. The Company expenses through to cost of sales inventory that management
believes will not be sold.



                                       6
<PAGE>   7

Production Masters

Production masters are stated at cost net of accumulated amortization. Costs
incurred for production masters, including non-refundable advances, royalties
paid to authors and readers, as well as recording and design costs, are
capitalized and amortized commencing from the time a title is initially
released, consistent with the estimated timing of revenue for a title. Prior to
January 1, 1997, for printed book titles, this had generally resulted in
amortization of approximately 80% of a title's production master costs in the
initial quarter of release, with the remaining 20% amortized in the fifth
quarter following release. Beginning January 1, 1997 the Company accelerated the
amortization of costs on printed book titles so that 80% of a title's production
master costs were amortized in the initial quarter of release with the remaining
20% amortized over the following three quarters and in addition, adjusted
certain printed book title costs to net realizable value. Audio book titles are
amortized on a quarter-by-quarter basis over a two-year period resulting in
approximately 80% of such audio title's production master cost being amortized
in the first twelve months of release. Any portion of production masters which
are not estimated to be fully recoverable from future revenues are charged to
amortization expense in the period in which such loss becomes evident.

Television and Film Revenues and Costs

Film costs, which include development, production and acquisition costs, are
capitalized and amortized, and participations and royalties are accrued, in
accordance with the individual-film-forecast method in the proportion that the
current year's revenue bears to the estimated total revenues from all sources.

These costs are stated at the lower of unamortized costs or estimated realizable
value on an individual film basis. Revenue forecasts for films are periodically
reviewed by management and revised if warranted by changing conditions. If
estimates of total revenue indicate that a film will result in an ultimate loss,
the loss is recognized currently.

Revenues from the distribution of television and theatrical films are recognized
upon availability of the completed film to the broadcaster or the Company's
distributors. The Company licenses distribution rights to distributors and has
not recognized any revenue from the direct distribution of theatrical films.
Deferred revenues arise when distributors or broadcasters make advances to the
Company prior to the date of revenue recognition.

Revenues from producer-for-hire contracts are recognized on a
percentage-of-completion method, measured by the percentage of costs completed
to date to estimated total cost for each contract. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined.

Income Taxes

The Company provides for income taxes under Statement of Financial Accounting
Standards No. 109 (SFAS 109). In accordance with SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial and tax reporting basis of the
Company's assets and liabilities.

Goodwill

Goodwill, representing the excess of the purchase price of Four Point
Entertainment, Inc. over its net assets, is included in other assets and is
being amortized over a twenty-five year period. Goodwill amounted to $6,026,000
net of accumulated amortization of $290,00 at June 30, 1997.



                                       7
<PAGE>   8

Management continuously monitors and evaluates the realizability of goodwill to
determine whether the carrying value has been impaired. In evaluating the value
and future benefits of goodwill, the carrying value is compared to management's
best estimate of undiscounted future cash flows over the remaining amortization
period. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value of the assets
exceeds the fair value of the assets. The Company believes that the carrying
value of the goodwill is not impaired.

Property and Equipment

Property and Equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of assets as follows:

<TABLE>
        <S>                                                           <C>     
        Building ................................................     39 years
        Furniture, Fixtures and Equipment .......................     5-7 years

</TABLE>

Leasehold improvements are amortized over the estimated useful life or the
remaining lease term, whichever is less.

Net Loss Per Common Share

Net loss per common share is based upon the weighted average number of
outstanding shares of Common Stock. The net loss utilized in the calculation of
the net loss per common share is increased by dividends on Preferred Stock.

Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates. Significant estimates include those related to ultimate revenues and
expenses related to film and television productions, the net realizability of
Inventory and Production Masters and the allowance for returns on publishing
sales.


NOTE 3 -- PRODUCTION MASTERS

Production masters, net of accumulated amortization of $3,660,000, at June 30,
1997 consisted of the following:

<TABLE>
      <S>                                                      <C>         
      Released titles.......................................   $    727,000
      Unreleased titles.....................................      1,424,000
                                                                  ---------
      Total.................................................   $  2,151,000
                                                                  =========

</TABLE>

NOTE 4 -- FILM COSTS

The following is an analysis of film costs as of June 30, 1997:


<TABLE>

<S>                                                                                 <C>         
  Current:        Television and theatrical  projects in production..........       $  5,345,000
  Non-current:    Television and theatrical films released less
                     accumulated film amortization...........................          1,642,000
                                                                                       ---------
  Total......................................................................       $  6,987,000
                                                                                       =========

</TABLE>


                                       8
<PAGE>   9

The company expects that approximately 80% of all net film costs as of June 30,
1997 will be amortized within the next three year period based upon the
Company's current revenue estimates.

NOTE 5 -- INCOME TAXES

Income taxes are computed in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The Company provides for
income taxes during interim reporting periods based upon an estimate of its
annual effective tax rate. This estimate includes all anticipated federal, state
and foreign income taxes.

NOTE 6 -- NOTES PAYABLE

Notes payable at June 30, 1997 consist of the following:

<TABLE>

      <S>                                                     <C>         
Current notes payable
   Term loan..............................................    $  1,138,000
   Current portion of long-term mortgage note payable.....          47,000
                                                                 ---------
                                                                 1,185,000
Long-term mortgage note payable, less current portion.....       1,806,000
                                                                 ---------
Total notes payable.......................................    $  2,991,000
                                                                 ---------
</TABLE>

In April 1996, the Company refinanced its $1,900,000 mortgage note which the
Company borrowed from the seller in conjunction with the acquisition of its new
office building. The new loan from Asahi Bank of California is secured by a deed
of trust on such building and bears interest at a fixed rate of 8% per annum.
The loan matures in April 2001 and provides for a 20 year maturity amortization
payment rate through April 2001 with a repayment of the remaining outstanding
principal amount at that time.

In August 1996 the Company refinanced the Company's existing revolving line of
credit and term loan with Sanwa Bank California ("Sanwa Bank") with a $1,365,000
term loan from Sanwa Bank. On September 1, 1996, the Company began making
principal and interest payments based on a five year amortization schedule. All
unpaid principal and interest (an amount equal to $1,124,000) matured on August
1, 1997. The Company did not repay such unpaid amount on August 1, 1997 and
accordingly is in default subject to a possible deferral of the maturity date to
September 30, 1997 as requested by the Company to Sanwa Bank. On July 11, 1997
the Company entered into an agreement with Sanwa Bank to commence discussions
and negotiations in respect of the foregoing, during which time the Company is
making monthly payments each in an amount equal to the monthly interest and
principal payments made prior to the maturity date. The existing Sanwa Bank loan
is secured by substantially all of the Company's assets, other than the
Company's building, and is guaranteed by two former principal
shareholders/officers of the Company (the "Former Principals") and Dove Four
Point. The term loan has various covenants with which the Company must adhere,
including minimum tangible net worth, current ratio, debt service coverage
ratio, and debt to net worth ratio and restrictions on mergers or acquisitions.
The Company was not in compliance with certain of such financial covenants as of
June 30, 1997 and has requested a waiver from compliance with such covenants for
such period from Sanwa Bank. There is no assurance that such deferral or a
waiver will be obtained. The Company is in discussion with another commercial
bank to secure loan facilities to enable the repayment of the Sanwa Bank
facility by September 30, 1997. No assurances are made that the Company will
secure such facilities or that a facility can be obtained on terms satisfactory
to the Company. If Sanwa Bank does not agree to a deferral and waiver and/or the
Company does not obtain a replacement facility, then Sanwa Bank may exercise its
remedies and the Company may be forced to restructure.

In October 1996, the Company obtained a bridge loan of $800,000 from Morgan
Fuller Capital Group, LLC ("Morgan Fuller"). The principal payment due February
1, 1997 was made and the balance of this loan was repaid in March, 1997. See
Capital Activities - Note 9.




                                       9
<PAGE>   10

NOTE 7 -- RELATED PARTY TRANSACTIONS

As of January 1, 1995, the Company entered employment agreements with the Former
Principals which were to expire in December 1999. The agreements originally
provided for aggregate compensation to the Former Principals of no less than a
combined total of $345,000 per year, plus benefits such as health insurance and
an automobile allowance and a combined non-accountable expenses of $75,000 per
year. In addition, the Former Principals were entitled to an annual salary
increase and bonus subject to certain limitations agreed upon with the
underwriter of the Company's initial public offering at the discretion of the
Company's Board of Directors. The Board of Directors approved an increase in the
salary portion of the employment agreements with the Former Principals to a
combined total of $562,000 per year for 1996. On June 10, 1997, the Former
Principals entered into a "Securities Purchase Agreement" with Media Equities
International, L.L.C. ("MEI") whereby they sold all their Preferred Stock and a
portion of their common stock to MEI. Concurrently each of the Former Principals
resigned as officers and directors of the Company pursuant to an employment
termination agreement ("Termination Agreement") at which time the Former
Principals resigned from their respective positions with the Company and its
subsidiaries.

Pursuant to the Termination Agreement, and in consideration for the settlement
of their respective employment agreements, Mr. Viner and Ms. Raffin will each
receive monthly payments (the "Payments") of approximately $14,583 and $10,416,
respectively, and medical insurance for 60 months (the "Term"). In addition, Mr.
Viner and Ms. Raffin will each receive a car allowance for 24 months and
reimbursements for certain medical and business expenses.

To secure the Payments, the Company has issued into escrow 1,500 shares of its
Series E Preferred Stock, convertible into shares of Common Stock to the extent
set forth in the Certificate of Determination for the Series E Preferred Stock.
The Series E Preferred Stock will be held in escrow and will not be released to
the Former Principals except in the event of a default in the Payments by the
Company. In the event of a default in the Payments by the Company, the Series E
Preferred Stock will be released to the Former Principals, as the case may be,
in an amount equal to the portion of the Payments unpaid due to such default
divided by the stated value of the Series E Preferred Stock. The Former
Principals have registration rights pursuant to a registration rights agreement,
dated June 10, 1997, among the Company and the Former Principals with respect to
any Series E Preferred Stock received by them upon a default in the Payments by
the Company. The terms of the aforementioned Securities Purchase Agreement and
Termination Agreement are more fully discussed in the Company's Form 8-K 
dated June 10, 1997.

During 1996, the Company made payments totaling $14,000 to the Former Principals
for the business rental of a condominium owned by the Former Principals.

During 1996, the Company made payments to the Former Principals and Mr. Leider,
(a director of the Company) totaling $365,000 under agreements for producer
services, television motion picture acting services and television motion
picture directing services. In connection with the Termination Agreement,
further payments were made to the Former Principals in respect of producer
services amounting to $50,000 with a further $50,000 payable on delivery of the
production "Unwed Father".

In September 1996, in connection with Samuelson Entertainment Ltd.'s
("Samuelson") financing of the production of the motion picture presently
entitled "Wilde" (the "Picture") for which the Company acquired certain North
American rights, one of the Former Principals personally guaranteed $1,000,000
of the payment obligations of Dove International, Inc. ("Dove International")
payable commencing on December 1, 1996 through April 2, 1997 to Samuelson in
order to obtain additional time for Dove International to make such payments. In
addition, one of the Former Principals personally deposited $500,000 at Guinness
Mahon & Co. Ltd. ("Guinness Mahon") (and pledged the deposit plus interest
thereon) to secure Dove International's additional payment obligation to
Samuelson in the amount of (pounds) 333,334 on delivery of the Picture. The
Company has made all of the required payments 



                                       10
<PAGE>   11

including the payment due on the delivery of the Picture. In consideration for
agreeing to pledge such deposit, Samuelson and Dove International agreed that
one of the Former Principals will receive a 5% commission, up to a maximum of
$120,000, payable from 5% of 100% of the gross receipts (only after recoupment
of Dove's full distribution fee) received by all third-party distributors
(including Dove International) from exploitation of the North American
distribution rights in the Picture. The terms pursuant to which one of the
Former Principals pledged the deposit were based on similar terms as offered by
the producer (Samuelson) to a third party, which were not able to be
consummated. In addition, Samuelson agreed that one of the Former Principals
will receive 8% of 100% of Samuelson's net profits from the Picture. As partial
consideration for the acquisition by the Former Principals of Series C Preferred
Stock and warrants to acquire Common Stock of the Company (see Note 9 to the
Consolidated Financial Statements), the Company's obligation to repay one of the
Former Principals the $500,000 deposit made with Guinness Mahon and to repay one
of the Former Principals the 5% commission on proceeds from the Picture were
released.

The Former Principals have also personally guaranteed the Company's obligations
to Sanwa Bank to a maximum principal amount of $1,600,000 in order to avoid an
event of default on such obligations. As of June 30, 1997, $1,139,000 was
outstanding.

Pursuant to an agreement, dated May 16, 1996, Mr. Leider is to provide
management consulting services to the Company until the Company and Mr. Leider
mutually agree to terminate such agreement. Such agreement provides for an
annual compensation of $125,000 payable monthly in arrears. Under the terms of
such agreement, Mr. Leider was granted options to purchase 50,000 shares of
Common Stock with an exercise price of $3.50 per share. 

Pursuant to a severance agreement, dated September 4, 1996, if Mr. Leider's
consultancy pursuant to the above referenced agreement is terminated, the
Company may be required to pay all amounts accrued through the date Mr. Leider
is terminated and his consulting compensation for a period of time following the
date of termination. Further, if Mr. Leider's consultancy is terminated for any
reason other than death, Disability, Retirement or for Cause, as defined in the
agreement, or Mr. Leider terminates his consultancy within three months of any
of the following: (i) assignment of duties materially inconsistent with his
status with the Company or a material change in his reporting responsibilities,
(ii) material reduction of Mr. Leider's consulting compensation, (iii)
subsequent to an Event, failure by the Company to continue any benefit or
compensation in which Mr. Leider is participating at the time of the Event or
(iv) any purported termination of Mr. Leider's consultancy effected pursuant to
a Notice of Termination, as defined in the agreement, and such termination is
not valid or effective; then Mr. Leider may be entitled to all amounts accruing
to him as of the date of such termination and his consulting compensation for up
to six months following the date of termination.

In June 1997, the Company entered into discussions with Mr. Leider with a view
toward ending his relationship with the Company.

As part of the Stock Purchase Agreement described in Note 9 to the Consolidated
Financial Statements, the Company and MEI agreed to the terms of a three year
consulting arrangement with MEI which arrangement commenced on April 1, 1997.
MEI has agreed to provide substantial general management consulting advice
including but not limited to, financial (including assisting in obtaining bank
financing), television and film distribution and business affairs. As
compensation for such services and advice, the Company will pay MEI $300,000 per
year, of which $200,000 will be payable in cash on a quarterly basis in advance
and the remaining $100,000 will be paid in shares of Common Stock valued at the
current market value on the date of payment, payable quarterly in arrears.
During the quarter ended June 30, 1997, the Company made a payment of $25,000 in
respect of consulting services to MEI pursuant to the Stock Purchase Agreement
with MEI. A further $50,000 was accrued, $25,000 to be paid in cash and $25,000
to be paid in the form of common stock.



                                       11
<PAGE>   12

The Company acquired audio book rights for fourteen titles which were written by
a substantial shareholder. The Company recorded the following net audio sales
(net of returns) from these titles:

<TABLE>
<CAPTION>
                                                                      1997            1996
                                                                      ----            ----
        <S>                                                         <C>           <C>        
        Quarter ended June 30,.................................     $  17,000     $  (22,000)
        Six months ended June 30,..............................     $  31,000     $  (89,000)

</TABLE>

In 1996, the Company agreed to issue 50,000 shares of Common Stock to the
substantial shareholder for the rights to future titles.

The Company made the following payments in respect to auto lease payments, auto
allowance, and insurance on automobiles owned by the Former Principals and other
directors of the Company.

<TABLE>
<CAPTION>
                                                                       1997          1996
                                                                       ----          ----
        <S>                                                         <C>            <C>          
        Quarter ended June 30,.................................     $    8,000     $   9,000
        Six months ended June 30,..............................     $   21,000     $  14,000

</TABLE>

During the quarter ended June 30, 1997, the Company made a payment of $11,053 in
respect of writing services to one of the Former Principals.

The Company made the following payments to Tin Man Enterprises, an associate of
a substantial shareholder in respect of audio duplication:

<TABLE>

                                                                     1997              1996
                                                                     ----              ----
        <S>                                                        <C>              <C>       
        Quarter ended June 30,.................................    $  396,000       $  333,000
        Six months ended June 30,..............................    $  696,000       $  627,000

</TABLE>

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

Litigation

In August 1993, the trial court confirmed an arbitration award in favor of the
Company, Michael Viner and Jerry Leider and against Steven Stern and Sharmhill
Productions in the approximate amount of $4.5 million (plus interest accruing
thereon from September 1992 and attorney's fees) relating to the film "Morning
Glory." In March 1995, defendants appealed the judgment to the California Court
of Appeals. In June 1995, the Court of Appeals affirmed the judgment, and that
judgment is now final. In a related matter, the Company sought to restore
certain fraudulent conveyances that Mr. Stern had made. In August 1995, Mr.
Stern filed for bankruptcy protection. The United States Trustee is pursuing the
fraudulent conveyance action on behalf of the bankruptcy estate, of which the
Company comprises approximately 80%, and the Company, Mr. Viner and Mr. Leider
are separately pursuing their own adversary proceeding for conspiracy against
Mr. Stern and others in the bankruptcy case. The Company is also objecting to
Mr. Stern's discharge in bankruptcy. There is no assurance that the Company will
ultimately prevail, or as to if, when or in what amount the Company will be able
to recover the amount of the original judgment in its favor.

In February 1993, Mr. Stern filed a complaint against the Company, Mr. Viner and
Mr. Leider entitled Steven A. Stern and Steven A. Stern as assignee of the
claims of Sharmhill Productions (B.C.), Inc., a bankrupt company v. Dove Audio,
Inc. et al. (British Columbia Supreme Court, Vancouver Registry No. C930935)
(the "Canadian Stern Action") claiming that he had been fraudulently induced to
enter into the agreement underlying the arbitration award and seeking as damages
the amount of the judgment. The Company believes that it has good and
meritorious defenses to the Canadian Stern Action. Nevertheless, there can be no
assurance that the Company will prevail in the action.

In February 1996, the Company was served with a complaint in an action entitled
Robert H. Tourtelot v. Dove Audio, Inc. etc. et al. (Los Angeles Superior Court
Case No. SC040739) (the "Tourtelot Action"). Mr. Tourtelot seeks in excess of a
million dollars in damages



                                       12
<PAGE>   13

claiming that he had an oral agreement with the Company to write a book that the
Company would publish, and that information he provided to the Company was used
in another book published by the Company, "Legacy of Deception." Mr. Tourtelot
alleged causes of action for breach of oral contract, fraud, suppression of
fact, breach of the implied covenant of good faith and fair dealing, breach of
fiduciary duty, infringement of common law copyright, conversion, conspiracy and
accounting. The Company successfully removed the action to the United States
District Court for the Central District of California, and successfully moved to
have the claims for infringement of common law copyright, breach of fiduciary
duty, conversion, conspiracy and accounting dismissed. The Tourtelot Action was
then remanded to the Los Angeles Superior Court, which has permitted Mr.
Tourtelot to pursue claims for breach of oral contract, fraud, suppression of
fact, breach of the implied covenant of good faith and fair dealing, breach of
fiduciary duty, conversion, conspiracy and quantum merit. While the Company
believes that it has good and meritorious defenses to the Tourtelot Action,
there can be no assurance that the Company will prevail in the action.

In March 1996, the Company was served with a complaint in an action entitled
Alexandra D. Datig v. Dove Audio, et al. (Los Angeles Superior Court Case No.
BC145501) (the "Datig Action"). The Datig Action was brought by a contributor
to, and relates to, the book "You'll Never Make Love In This Town Again." The
Datig complaint sought in excess of a million dollars in monetary damages. In
October 1996, the Company obtained a judgment of dismissal of the entire Datig
Action, which judgment also awarded the Company its attorney's fees and costs in
defending the matter. Thereafter, the Company sued Ms. Datig for malicious
prosecution. Ms. Datig, however, has appealed the judgment. While the Company
believes that it will prevail on the appeal, there can be no assurance that the
Company will in fact be successful on appeal.

In June 1996, the Company was served with a complaint in an action entitled
Shukri Ghalayini v. Dove etc. et al. (Los Angeles Superior Court Case No.
BC152129) (the "Ghalayini Action"). The complaint alleges among other things:
(i) breach of employment contract against Four Point Entertainment, Inc. ("Four
Point") due to termination of Mr. Ghalayini's employment without good cause,
adequate notice or opportunity to cure any alleged breaches and (ii) fraud in
the defendants allegedly never intended to honor the terms of the employment
agreement. The complaint seeks damages under the employment agreement of not
less than $900,000, loss of future earnings estimated at $20,000,000, and damage
to his reputation, mental and emotional distress, punitive damages and
attorney's fees.

On the same day, the Company filed an action against Mr. Ghalayini in the Los
Angeles Superior Court alleging, among other things, that (i) Ghalayini breached
his fiduciary duty to the Company by diverting corporate assets to pay his
personal expenses, (ii) that in order to induce the Company into closing the
Four Point acquisition, Mr. Ghalayini made false representations, including
misrepresenting the tangible shareholder's equity of Four Point as of the
closing, diverted production and other funds and held checks previously drawn to
pay accounts payable in order to meet a closing condition that outstanding bank
debt be below a specified level, and that Mr. Ghalayini made false
representations to induce Dove Four Point to enter into his employment
agreement. Although the Company believes that it has good and valid claims
against Mr. Ghalayini, and that it has good and meritorious defenses to his
claims, there can be no assurance that it will ultimately prevail in either of
these two actions.

In May 1997, the Company was served with a complaint in a related action
entitled Shukri Ghalayini v. Dove Audio, Inc., et al. (Los Angeles Superior
Court Case No. BC 170340) (the "Ghalayini Defamation Action"). The complaint
alleges that Mr. Ghalayini was defamed at a Company shareholders meeting and
seeks damages accorded to proof. Although the Company believes that it has good
and meritorious defenses to the Ghalayini Defamation Action, there can be no
assurance that the Company will ultimately prevail in the action. The Company is
presently negotiating an overall settlement of its litigation with Mr.
Ghalayini, including the Ghalayini Action and the Ghalayini Defamation Action
although there is no assurance that such a settlement will be obtained, or, if
obtained, will be on terms beneficial to the Company.



                                       13
<PAGE>   14

In July 1996, the Company was served with a complaint in an action entitled
Terrie Maxine Frankle and Jennie Louise Frankle v. Dove Audio (U.S. District
Court, Central District of California Case No. 96-4073 RSWL) (the "Frankle
Action"). The Frankles claim to be the authors of "You'll Never Make Love In
This Town Again," and have alleged claims for copyright infringement and fraud.
The Frankles' application for a preliminary injunction was denied because they
could not demonstrate a likelihood of success on the merits of their claims. The
Company believes that it has good and meritorious defenses and counterclaims
against the Frankles. Nevertheless, there is no assurance that the Company will
prevail.

In January 1997, the Company was served with a complaint in an action entitled
Greer v. Dove (Los Angeles Superior Court Case No. BC 160871) (the "Greer
Action"). Ms. Greer is another contributor to the book "You'll Never Make Love
In This Town Again" and has sought damages in excess of one million dollars
alleging causes of action for breach of contract, breach of the implied covenant
of good faith and fair dealing, breach of fiduciary duty, fraud, imposition of
constructive trust and an accounting, rescission, declaratory relief,
conspiracy, unfair competition, and false advertising. Although the Company
believes that it has good and meritorious defenses to the Greer Action, there
can be no assurance that the Company will ultimately prevail in the action.

In May 1997, the Company was served with a complaint in an action entitled
Kenneth Raskoff v. Dove (Los Angeles Superior Court Case No. BC171355) (the
"Raskoff Action"). Mr. Raskoff is a former employee of Dove Four Point. The
complaint seeks unspecified damages and other relief for breach of Mr. Raskoff's
alleged employment contract, breach of the implied covenant of good faith and
fair dealing, breach of implied-in-fact contract, promissory estoppel, and
fraudulent inducement. The complaint also seeks an injunction requiring that Mr.
Raskoff receive producer credit with respect to the television program entitled
"Unwed Father" and other unnamed projects. Although the Company believes that it
has good and meritorious defenses to the Raskoff Action, there can be no
assurance that the Company will prevail in the action.

In June 1997, the Company was served with a complaint in an action entitled
Michael Bass v. Penguin USA Inc., et al. (New York Superior Court Case No.
97-111143) (the "Bass Action"). The complaint alleges among other things that
Ms. Greer's contribution to the book "You'll Never Make Love In This Town Again"
defames Mr. Bass and violates his rights of publicity under New York statutes.
The complaint seeks damages of $70,000,000 for defamation and $20,000,000 for
violation of the New York right of publicity statutes and an injunction taking
the book out of circulation and prohibiting the use of Mr. Bass' name. The
Company believes that it has good and meritorious defenses to the Bass Action.
Nevertheless, there can be no assurance that the Company will prevail. As a
result of the Bass Action, the Company has brought a cross-complaint against Ms.
Greer in the Greer Action.

In July 1997, the Former Principals commenced an arbitration against the
Company. In their arbitration demand, the Former Principals claim that they are
owed in excess of $1 million by the Company relating to the motion picture
entitled "Morning Glory" and that they own the rights to exploit that motion
picture. The Former Principals did not state the basis for their claims and
present management is unaware of any such basis for it. There can be no
assurance that the Company will prevail on these claims.

In July 1997, the Former Principals advised the Company that they intend to
refer certain matters arising from the Securities Purchase Agreement and
Termination Agreement to arbitration. The Former Principals did not state the
basis for their claims and present management is unaware of any such basis for
it. The Company believes that it has good and meritorious defenses to any such
claims by the Former Principals. There can be no assurance, however, that the
Company will prevail on these claims should they be filed.

In July 1997, the Company was served with a complaint in an action entitled Alan
Fields v. Dove Entertainment, Inc., et al. (Los Angeles Superior Court No. BC
174659) (the "Fields Action"). The Fields Action was brought by an alleged
purchaser of Common Stock against the Company and the Former Principals as a
putative class action on behalf of all persons who acquired Common Stock between
July 25, 1995 and August 20, 1996. The complaint alleges a cause of action for
violation of Section 25400(d) of the California Corporations Code based on the
alleged dissemination of false and misleading statements 


                                       14
<PAGE>   15

about, among other things, the success of the Company's printed book operations,
financial results, business condition and future prospects. The plaintiff seeks
unspecified damages and other relief. The Company has not yet filed a response
to the complaint. While the Company believes it has good and meritorious
defenses against the claim, the Company has taken a charge of $150,000 in the
quarter ended June 30, 1997 in respect of potential costs associated with
the claim.

The Company has also been advised by certain attorneys purporting to represent
one or more purchasers of the Company's Common Stock that they intend to file a
complaint against the Company and others for alleged violations of the federal
securities laws based on the conduct at issue in the Fields Action. To date, the
Company has not received any such complaint.

In July 1997, the Company was served with a complaint in an action entitled
Steven A. Soloway v. Dove Entertainment, Inc., etc. et al. (Los Angeles Superior
Court Case No. BC 175516) (the "Soloway Action"). Mr. Soloway is a former
director and employee of the Company and has sought damages of approximately
$350,000 for breach of contract. Mr. Soloway claims that as a result of the
Securities Purchase Agreement he was entitled to declare his employment
agreement terminated without cause and to receive his base salary through
September 1999. The Company has not yet filed a response to the complaint.
Although the Company believes that it has good and meritorious defenses and
setoffs to the Soloway Action, there can be no assurance that the Company will
prevail in the action.

The Company is a party to various other routine legal proceedings and claims
incidental to its business. The Company believes that the ultimate resolution of
these matters, individually and in the aggregate, will not have a material
adverse effect upon the Company's financial position.


Office Lease

The Company leases office space under a noncancelable operating lease expiring
December 1998. The Company's lease obligation is secured by a $15,000
irrevocable letter of credit. Rent expense was $69,000 and $63,000 in the three
months ended June 30, 1997 and June 30, 1996, respectively, and $138,000 and
$113,000 for the six months ended June 30, 1997 and June 30, 1996, respectively.
The minimum future noncancelable lease expense under the lease is approximately
$275,000 annually for the years 1997 through 1998, inclusive. The lease is
subject to annual rent escalations and the pass-through of costs.

NOTE 9 -- CAPITAL ACTIVITIES

COMMON STOCK

In December 1995, the Company received net proceeds of approximately $4,770,000
from the initial closings of a private placement (the "Placement") of the
Company's equity securities. Pursuant to the December closing of the Placement
the Company issued 729,687 shares of Common Stock and Common Stock purchase
warrants allowing the purchase of 729,687 shares of Common Stock at $12.00 per
share exercisable for a period of 51 months beginning 9 months subsequent to the
initial closing of the Placement.

In January 1996, the Company received additional net proceeds of approximately
$1,533,000 from the Placement of the Company's equity securities. Pursuant to
the January 1996 closings of the Placement the Company issued 220,313 shares of
Common Stock and Common Stock purchase warrants allowing the purchase of 220,313
shares of Common Stock at $12.00 per share exercisable for a period of 51 months
beginning 9 months subsequent to the initial closing of the Placement.

In April 1997, the Company issued 551,111 shares of unregistered Common Stock in
satisfaction for vendor payables amounting to $1,250,000, or an average of $2.26
per share.



                                       15
<PAGE>   16

Preferred Stock

In the first of two closings under a private placement of preferred stock and
warrants to purchase Common Stock (i) MEI purchased 3,000 shares of the
Company's 6% Series B Preferred Stock (the "Series B Preferred Stock") and
warrants to purchase 500,000 shares of Common Stock at $2.00 per share, warrants
to purchase 500,000 shares of Common Stock at $2.50 per share and warrants to
purchase 500,000 shares of Common Stock at $3.00 per share for an aggregate of
$3,000,000 and, (ii) the Former Principals purchased 920 shares of the Company's
6% Series C Preferred Stock (the "Series C Preferred Stock") and warrants to
purchase 166,666 shares of Common Stock at $2.00 per share, warrants to purchase
166,667 shares of Common Stock at $2.50 per share and warrants to purchase
166,667 shares of Common Stock at $3.00 per share for an aggregate of $920,000
(including the contribution of $676,000 payable by the Company to the Former
Principals). On June 3, 1997, the second closing (the "Second Closing") was
completed whereby (i) MEI purchased 1,000 shares of Series B Preferred Stock and
warrants to purchase 166,666 shares of Common Stock at $2.00 per share, warrants
to purchase 166,667 shares of Common Stock at $2.50 per share and warrants to
purchase 166,667 shares of Common Stock at $3.00 per share for $1,000,000 in
cash and (ii) the Former Principals and their assigns purchased 1,000 shares of
Series C Preferred Stock and warrants to purchase 166,666 shares of Common Stock
at $2.00 per share, warrants to purchase 166,667 shares of Common Stock at $2.50
per share and warrants to purchase 166,667 shares of Common Stock at $3.00 per
share for an aggregate of $1,000,000 (including the contribution of $175,000
payable by the Company to the Former Principals). Each share of Series B
Preferred Stock and Series C Preferred Stock is convertible at the option of the
holder thereof into 500 shares of Common Stock, subject to certain anti-dilution
adjustments, at any time following the date six months after the issuance
thereof. Each of the Series B Preferred Stock and Series C Preferred Stock are
redeemable, in whole or in part at the option of the Company, at any time after
March 28, 2002 at a redemption price of 110% of the stated value ($1,000) plus
all accumulated but unpaid dividends thereon (plus interest on such
accumulations). In connection with this transaction, the Company has allocated
the amounts invested between the Preferred Stock and the warrants and will
record a dividend for the difference between the amount allocated to Preferred
Stock and the value, as of the issuance date, of the Common Stock issuable upon
conversion of such Preferred Stock. For the quarter ended June 30, 1997, the
amount of such divided is $975,000 and for the six months ended June 30, 1997,
is $1,032,000. On June 10, 1997, MEI purchased all of the Preferred Stock held
by the Former Principals along with 500,000 shares of Common Stock (see Related
Party Transactions). In August, 1997, MEI purchased 100 shares of the Company's
Series C Preferred Stock with warrants to purchase 50,000 shares of Common Stock
under the same terms as described above applying to the Company's Series C
Preferred Stock from one the assigns of the Former Principals and is in
discussions with the other assign to purchase 250 shares of the Company's Series
C Preferred Stock with warrants to purchase 125,000 shares of Common Stock under
the same terms as described above applying to the Company's Series C Preferred
Stock. MEI has agreed to defer its right to demand for the Company to prepare
and file with the Securities and Exchange Commission one or more registration
statements until 30 days after MEI issues notice of the Company of its demand to
prepare and file such registration.

In October 1996 Morgan Fuller completed a loan to the Company in the aggregate
amount of $800,000. Such loan bore interest at the rate of 10% per annum. In
March 1997, the Company retired $500,000 of its loan from Morgan Fuller in
exchange for 210,526 shares of the Company's Common Stock along with warrants to
purchase 35,088 shares of the Company's Common Stock at $2.50 per share,
warrants to purchase 35,088 shares of the Company's Common Stock at $3.50 per
share and warrants to purchase 35,087 shares of the Company's Common Stock at
$4.50 per share. The balance of the loan plus accrued interest was repaid in
cash.

Stock Options And Warrants

The Board of Directors of the Company has adopted the 1994 Stock Incentive Plan
(the "Plan"). The Plan provides for the grant of options to purchase up to an
aggregate of 750,000 shares of the Common Stock of the Company (subject to an
anti-dilution provision providing for adjustment in the event of certain changes
in the Company's capitalization).



                                       16
<PAGE>   17

The Plan authorizes the granting of stock incentive awards ("Awards") to
qualified officers, employee directors, key employees, and third parties
providing valuable services to the Company, e.g., independent contractors,
consultants, and advisors to the Company. The Plan is administered by a
committee appointed by the Company's Board consisting of two or more members,
each of whom must be disinterested (the "Committee"). The Committee determines
the number of shares to be covered by an Award, the term and exercise price, if
any, of the Award, and other terms and provisions of Awards; members of the
Committee receive formula awards.

Awards can be Stock Options, Stock Appreciation Rights, Performance Share
Awards, and Restricted Stock Awards. The number and kind of shares available
under the Plan are subject to adjustment in certain events.

Options outstanding under the Plan at June 30, 1997 were as follows:

<TABLE>
<CAPTION>
                                                                                        Exercise Price
                                                                                        --------------
        <S>                                                                  <C>        <C>      
        Options outstanding at June 30, 1997........................         300,333    $3.50 - $9.75
</TABLE>

The weighted average exercise price at June 30, 1997 was $4.45, and options to
acquire 186,665 shares of Common Stock under the Plan were exercisable.

In addition to the above options issued under the Plan, the Company granted
options to acquire 250,000 shares of Common Stock at an exercise price of $.01
per share in 1994 and 75,000 shares of Common Stock at an exercise price of
$8.00 per share in 1995. At June 30, 1997 options covering the 250,000 shares
noted above had been exercised, and options covering the 75,000 shares were
exercisable. In 1996, in conjunction with the acquisition of Four Point, options
to purchase 300,000 shares of Common Stock at $11.00 per share were issued to
one of the principals of Dove Four Point as part of an employment agreement.
Vesting of these options will accelerate based on meeting certain performance
criteria. At June 30, 1997 none of these options were exercisable. Additionally,
during 1996, the Company issued options to purchase 80,000 shares of Common
Stock under the Plan with an exercise price of $3.50 per share to the Company's
public relations firm of which 26,667 were exercisable as of June 30, 1997.

Prior to January 1, 1996, the Company accounted for the Plan in accordance with
the provisions of Accounting Principles Board (ABP) Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant or
alternatively, allow entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25 in
accounting for its Plan, and accordingly, no compensation cost has been
recognized for its stock options granted at fair market value in the
consolidated financial statements. Compensation cost will be recorded for
options granted below fair market value and options granted to hourly employees.



                                       17
<PAGE>   18

    Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                  Six Months Ended June 30,               Quarters Ended June 30,
                                  -------------------------               -----------------------
                                   1997                1996               1997               1996
                                   ----                ----               ----               ----
       <S>              <C>                  <C>                 <C>                <C>            
       Net loss
         As reported    $      (9,464,000)   $     (2,202,000)   $    (6,040,000)   $   (2,703,000)
         Pro forma      $      (9,740,000)   $     (2,471,000)   $    (6,042,000)   $   (2,885,000)

       Loss per share
         As reported    $           (1.75)   $           (.40)   $         (1.07)   $         (.47)
         Pro forma      $           (1.80)   $           (.44)   $         (1.09)   $         (.55)

</TABLE>

Pro forma net loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
five years and compensation cost for options granted prior to January 1, 1995 is
not considered.

<TABLE>
<CAPTION>
                                                                       Number of
                                                                       Shares of
                                                         Number of      Common
                                                         Warrants        Stock         Exercise Price
                                                         --------        -----         --------------
       <S>                                                <C>            <C>          <C> 
       Warrants outstanding at January 1, 1997...         1,607,500      1,558,750    $2.75 - $12.00
       Warrants issued...........................         3,105,263      3,105,263    $2.00 - $ 4.50
                                                          ---------      ---------
       Warrants outstanding at June 30, 1997.....         4,712,763      4,664,013    $2.00 - $12.00
                                                          =========      =========

</TABLE>

The weighted average exercise price at June 30, 1997 was $5.05, and warrants to
acquire 4,664,013 shares of Common Stock were exercisable.

NOTE 10 -- MAJOR CUSTOMERS AND SUPPLIERS

Revenues, net of returns, from the Company's three major customers approximated
the following:

<TABLE>
<CAPTION>
                                                                       1997             1996
                                                                       ----             ----
        <S>                                                             <C>              <C>
        Quarter ended June 30,.................................         30%              33%
        Six months ended June 30,..............................         28%              20%

</TABLE>

A significant amount of audio inventory is supplied by one manufacturer, a
substantial shareholder. The Company is not dependent on the manufacturer as its
sole source of product.

NOTE 11 -- FOUR POINT ACQUISITION

On April 29, 1996 the Company acquired Four Point Entertainment Inc. ("Four
Point") for consideration of $2.5 million in cash and 427,274 shares of Common
Stock (Initial Shares) of the Company with an earn-out provision of up to an
additional 163,636 shares of Common Stock. The acquisition has been accounted
for as a purchase, and accordingly the results of operations of Four Point have
been included in the Company's financial statements from April 29, 1996. The
excess of the purchase price over the fair value of the net identifiable assets
acquired of $6,316,000 has been recorded as goodwill and is being amortized on a
straight-line basis over 25 years.

Pursuant to the terms of the acquisition agreement of Four Point 40,000 shares
of the Initial Shares were placed in escrow pending the receipt of certain
outstanding receivables. Accordingly, the Company has excluded such shares from
the initial purchase price pending the resolution of the related contingencies.



                                       18
<PAGE>   19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The discussion and analysis below should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes to the
Consolidated Financial Statements included elsewhere in this report.

Overview

Dove commenced business in 1985 as one of the pioneers of the audio book
industry and has become one of the leading independent producers (i.e.,
unaffiliated with any single book publisher) of audio books in the United
States. The Company produces and distributes approximately 100 to 120 new titles
annually and has built a library of over 1,200 titles. Through Dove Four Point,
the Company is engaged in the production and development of television
programming. Other activities of the Company include a limited printed book
publishing program and the distribution of feature films and television.

The demand for audio books is seasonal, with the majority of shipments taking
place in the third and fourth quarters of the year. The Company believes that
demand for audio books will remain seasonal, and this may adversely affect
results of operations for the first and second quarters. Because a significant
portion of the Company's expenses are relatively fixed, below-expectation sales
in any quarter could adversely affect operating results for that quarter.

The Company has several television projects in development and generally seeks
to limit its financial risk in the production of television movies and
mini-series and feature films by pre-sales and licensing to third parties. The
production of television and theatrical films has been sporadic over the last
several years and significant variances in operating results from year-to-year
and quarter-to-quarter can be expected for film revenues. In April 1997, Dove
Four Point received an order from the ABC Television Network for a made for
television movie entitled "Unwed Father" and has entered into a distribution
agreement with respect to the non US network rights with Bonneville Worldwide
Entertainment ("Bonneville"). This movie is scheduled for delivery in August
1997.

In 1996, the Company embarked on a major printed book publishing program with a
scheduled 75 print titles for 1997. However, following disappointing results
from the 1996 and early 1997 list, the Company has substantially curtailed the
printed book program to one primarily designed to complement the audio book
list. The Company had also embarked on a program to acquire independent films
and videos for distribution in the United States and Canada on an all rights
basis (including theatrical, home video and all forms of television and a video
output arrangement (which commenced in July 1996) but following review in 1997,
has discontinued the video distribution operations and has limited the film and
television distribution operations to the existing film and television library,
and television programs produced by Dove Four Point.

In accordance with the industry practice, substantially all of the Company's
sales of audio and printed book products are and will continue to be subject to
potential return by distributors and retailers. Although the Company estimates
allowances and reserves for returned products, significant increases in actual
return rates above these estimates could materially and adversely impact the
Company's results of operations or financial condition. In June 1997, the
Company received notice from its major audio and book distributor of
discontinuance of its exclusive distribution agreement at the end of December
1997 and the Company is actively seeking to establish new distribution
arrangements.

Selling, general and administrative expenses include costs associated with
selling, marketing and promoting the Company's products, as well as general
corporate expenses including salaries, occupancy costs and other overhead,
professional fees, and travel and entertainment. The Company believes that these
expenses will continue to increase as the Company grows.



                                       19
<PAGE>   20

Results Of Operations

The following table sets forth (i) publishing and film revenues and (ii) cost of
sales, film amortization, selling, general and administrative expense as a
percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                             Three Months Ended June 30       Six Months Ended June 30
                                             --------------------------       ------------------------
                                               1997            1996            1997            1996
                                               ----            ----            ----            ----
<S>                                              <C>             <C>            <C>            <C>
Revenues
  Publishing...........................          71%             73%            58%            62%
  Film & television...................           29              27             42             38
                                                ----           -----          -----          -----
    Total................................       100%            100%           100%           100%
                                                ----            ----           ----           ----
Operating expenses
  Cost of sales - Publishing.........            80%             96%            72%             57%
  Cost of sales - Film & television .            29              18             50              28
  Selling, general & administrative              76              94             79              38
  Employee separation costs........              43              --             25              --
                                                ----           -----           ----           -----
    Total................................       228%            208%           226%            123%
                                                ---             ---            ---             ---

</TABLE>

Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996

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

PUBLISHING
    Revenues. Net publishing revenues for the three months ended June 30,1997
increased $481,000 to $2,678,000, compared with $2,197,000 for the three months
ended June 30, 1996. The increase was primarily attributable to lower returns of
audio book product. Although publishing revenues for the three months ended June
30, 1997 were up 22% compared to the prior year, revenues were affected by a
delay in the planned new release of most printed book titles as well as some
audio titles due to working capital constraints. In addition, such constraints
have affected planned releases of new printed book titles for the balance of the
year. Returns of printed book product continued to be high, reflecting general
conditions in the industry. Substantially all of the Company's sales of book
products are and will continue to be subject to potential returns by
distributors and retailers if not sold to the public. Although the Company makes
allowances and reserves for returned product that it believes are adequate,
significant increases in return rates can materially and adversely impact the
Company's financial condition or results of operations.

    Cost of Sales. Cost of sales for the three months ended June 30, 1997
increased $137,000 to $3,019,000 compared with $2,882,000 for the prior year.
The increase was mostly attributable to the increase in revenues for the period.
Cost of sales as a percentage of net publishing revenues decreased from 132% in
the period ended June 30, 1996 to 113% for the three months ended June 30, 1997.
During the three months ended June 30, 1997, a charge of $564,000 was made to
cost of sales following the decision to discontinue the Dove Kids and Video
Books lines.

FILM AND TELEVISION

    Revenues. Film and television revenues for the three months ended June
30,1997 increased $286,000 to $1,081,000, compared with $795,000 for the same
period in the prior year. The increase was primarily attributable to the
inclusion of revenues arising from the acquisition of Dove Four Point.

    Amortization. Film and television amortization for the three months ended
June 30, 1997 increased $542,000 to $1,084,000, compared with $542,000 for the
same period last year. Cost of sales as a percentage of net film and television
revenues increased from 68% in the period ended June 30, 1996 to 100% for the
three months ended June 30, 1997, due to the write off of $590,000 in production
costs arising from an assessment of film net realizable values.



                                       20
<PAGE>   21

GENERAL

    Gross Profit. The Company experienced a negative gross margin of $344,000
for three months ended June 30, 1997 versus a negative gross margin of $432,000
for the same period last year, resulting from the matters previously discussed
regarding publishing and film revenues and cost of sales.

    Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) include costs associated with selling, marketing and promoting
the Company's products, as well as general corporate expenses including
salaries, occupancy costs, professional fees, travel and entertainment. SG&A
increased 2% to $2,860,000 for the three months ended June 30, 1997 compared to
$2,809,000 for the same period last year. The increase in SG&A was mostly
attributable to the acquisition of Dove Four Point in April of 1996. Since June
30, 1997, the Company has implemented substantial SG&A cost savings with the
benefits expected to be realized in the fourth quarter of 1997. On June 10, 1997
the Former Principals resigned as officers and directors of the Company
following the sale to MEI of their Preferred Stock and certain Common Stock. As
a result of this change, the Company has expensed $1,614,000 in employee
separation costs representing contracted payments to the Former Principals in
their employment capacity together with associated costs. The contracted
payments to the Former Principals are payable over the next five years in
approximately equal monthly installments. See Note 7 to the Consolidated
Financial Statements.

    Net Interest Expense. Net interest expense for the three months ended June
30, 1997 was $57,000, compared to net interest expense of $54,000 for the same
period in the prior year. This is primarily the result of the utilization of
funds and the assumption or incurrence of debt in connection with the
acquisition of Dove Four Point and purchase of the Company's new office building
(See also, Notes Payable - Note 6) and the operating cash losses experienced
during 1996 and the first half of 1997.

Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996

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


PUBLISHING

Revenues. Net publishing revenues for the six months ended June 30,1997
decreased $2,799,000 to $3,746,000 compared with $6,545,000 for the six months
ended June 30, 1996. The decrease was primarily attributable to a delay in the
planned new release of most printed book titles as well as some audio titles due
to working capital constraints and high returns of printed book throughout the
period and audio book product during the three months ended March 31, 1997. In
addition, net publishing revenues during the three months ended March 31, 1996
were augmented by sales of "You'll Never Make Love In This Town Again".
Furthermore, the working capital constraints have affected planned releases of
new printed book titles for the balance of the year. Substantially all of the
Company's sales of book products are and will continue to be subject to
potential returns by distributors and retailers if not sold to the public.
Although the Company makes allowances and reserves for returned product that it
believes are adequate, significant increases in return rates can materially and
adversely impact the Company's financial condition or results of operations.

    Cost of Sales. Cost of sales for the six months ended June 30, 1997
decreased $1,389,000 to $4,629,000 compared with $6,018,000 for the prior year.
The decrease was mostly attributable to the decrease in revenues for the period.
Cost of sales as a percentage of net publishing revenues increased from 92% in
the six months ended June 30, 1996 to 124% for the six months ended June 30,
1997 due primarily to the effect of fixed elements of cost of sales, such as
product development expense, being spread over a lower revenue base, and a
reduction in future sales estimates for a number of titles, as well as a charge
of $564,000 made to cost of sales in the three months ended June 30, 1997
following the decision to discontinue the Dove Kids and Video Books lines.



                                       21
<PAGE>   22

FILM AND TELEVISION

    Revenues. Film and television revenues for the six months ended June 30,1997
decreased $1,380,000 to $2,674,000, compared with $4,054,000 for the same period
in the prior year. The decrease was primarily attributable to the delivery in
the first quarter of 1996 by the Company of the television film "Home Song"
which aired on CBS in March 1996 with no similar sale in the 1997 first quarter.
This production generated approximately $3,000,000 in revenues in 1996. The
preceding was partially offset by the inclusion of revenues arising from the
acquisition of Dove Four Point late in April 1996.

    Amortization. Film and television amortization for the six months ended June
30, 1997 increased $290,000 to $3,227,000, compared with $2,937,000 for the same
period last year. Cost of sales as a percentage of net film and television
revenues increased from 72% in the period ended June 30, 1996 to 121% for the
six months ended June 30, 1997, due to cost overages on certain film projects as
well as the write off of $590,000 in production costs arising from an assessment
of film net realizable values.

GENERAL

    Gross Profit. The Company experienced a negative gross margin of $1,436,000
for six months ended June 30, 1997 versus a gross margin of $1,644,000 for the
same period last year, resulting from the matters previously discussed regarding
publishing and film revenues and cost of sales.

    Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) include costs associated with selling, marketing and promoting
the Company's products, as well as general corporate expenses including
salaries, occupancy costs, professional fees, travel and entertainment. SG&A
increased 23% to $5,047,000 for the six months ended June 30, 1997 compared to
$4,101,000 for the same period last year. The increase in SG&A was mostly
attributable to the acquisition of Dove Four Point in late April of 1996. Since
June 30, 1997, the Company has implemented certain SG&A cost savings with the
benefits expected to be realized by the fourth quarter of 1997. On June 10, 1997
the Former Principals resigned as officers and directors of the Company
following the sale to MEI of their Preferred Stock and certain Common Stock in
the Company. As a result of this change, the Company has expensed $1,614,000 in
employee separation costs representing contracted payments to the Former
Principals in their employment capacity together with associated costs. The
contracted payments to the Former Principals are payable over the next five
years in approximately equal monthly installments.

    Net Interest Expense. Net interest expense for the six months ended June 30,
1997 was $193,000 and $6,000 for the same period in the prior year. This is
primarily the result of the utilization of funds and the assumption or
incurrence of debt in connection with the acquisition of Dove Four Point and
purchase of the Company's new office building (See also, Notes Payable - Note 6)
and the operating cash losses experienced during 1996 and the first half of
1997.

Liquidity And Capital Resources

The Company's operations, in general, are capital intensive. The Company has
experienced from time to time significant negative cash flows from operating
activities which have been offset by equity and debt financings. As the Company
expands its publishing, production and distribution activities, it expects to
continue to experience negative cash flows from operating activities from time
to time. In such circumstances, the Company will be required to fund at least a
portion of production and distribution costs, pending receipt of anticipated
future revenues, from working capital, from additional debt or equity financings
from outside sources, or from other financing arrangements. There is no
assurance that the Company will be able to obtain such financing or that such
financing, if available, will be on terms satisfactory to the Company.



                                       22
<PAGE>   23

The Company's television and film production activities can affect its capital
needs in that the revenues from the initial licensing of television programming
or films may be less than the associated production costs. The ability of the
Company to cover the production costs of particular programming or films is
dependent upon the availability, timing and the amount of fees obtained from
distributors and other third parties, including revenues from foreign or
ancillary markets where available. In any event, the Company from time to time
is required to fund at least a portion of its production costs, pending receipt
of film revenues, out of its working capital. Although the Company's strategy
generally is not to commence principal photography without first obtaining
commitments which cover all or substantially all of the budgeted production
costs, from time to time the Company may commence principal photography without
having obtained commitments equal to or in excess of such costs.

In order to obtain rights to certain properties for the Company's publishing and
film operations, the Company may be required to make advance cash payments to
sources of such properties, including book authors and publishers. While the
Company generally attempts to minimize the magnitude of such payments and to
obtain advance commitments to offset such payments, the Company is not always
able to do so.

Since its inception, the Company has satisfied its liquidity needs principally
through the sale of equity securities, loans from or guaranteed by certain of
its shareholders, and cash generated from operations. In March 1997, the Company
entered into an agreement with MEI and the Former Principals for an equity
investment of approximately $6,000,000 through the sale of Preferred Stock and
warrants to purchase Common Stock of the Company in a private placement. In the
first of two closings, the Company received an aggregate of $3,920,000
(including the contribution of $676,000 payable by the Company to the Former
Principals) and in a second closing completed May 31, 1997 received an
additional $2,000,000. See Note 9 of Notes to Consolidated Financial Statements.

In October 1996 Morgan Fuller completed a loan to the Company in the aggregate
amount of $800,000. Such loan bore interest at the rate of 10% per annum. In
March 1997, the Company retired $500,000 of such loan from Morgan Fuller in
exchange for 210,526 shares of Common Stock along with warrants to purchase
35,088 shares of Common Stock at $2.50 per share, warrants to purchase 35,088
shares of Common Stock at $3.50 per share and warrants to purchase 35,087 shares
of Common Stock at $4.50 per share. The balance of the loan plus accrued
interest was repaid in cash.

On September 17,1996, the Company's registration statement on Form S-3,
registering 2,335,000 shares of Common Stock then outstanding or issuable upon
exercise of certain warrants, was declared effective by the Securities and
Exchange Commission.

In connection with the acquisition of Four Point, which was completed on April
29, 1996, the Company guaranteed certain term debt and a $1 million revolving
line of credit of Four Point from Sanwa Bank. Such term loan originally was
scheduled to mature on October 3, 1998 and the line of credit, which had an
original maturity of June 3, 1996, was extended to July 15, 1996. On August 16,
1996, the Company and Sanwa Bank entered into a term loan agreement to refinance
such debt and line of credit for an aggregate amount of approximately
$1,365,000. On September 1, 1996, the Company began making principal and
interest payments based on a five year amortization schedule. All unpaid
principal and interest matured on August 1, 1997 and the Company has sought a
deferral of the maturity date to September 30, 1997 from Sanwa Bank. The term
loan has various covenants with which the Company must adhere, including minimum
tangible net worth, current ratio, debt service coverage ratio, and debt to net
worth ratio and restrictions on mergers or acquisitions. The Company was not in
compliance with certain of such financial covenants as of June 30, 1997 and has
requested a waiver from compliance with such covenants for such period from
Sanwa Bank. On July 11, 1997 the Company entered into an agreement with Sanwa
Bank to commence discussions and negotiations in respect of the above. The
existing Sanwa Bank loan is secured by substantially all of the Company's
assets, other than the Company's building, and the Former Principals and Dove
Four Point have guaranteed such facility.



                                       23
<PAGE>   24

In April 1996 the Company refinanced its $1,900,000 mortgage note which the
Company borrowed from the seller in connection with the acquisition of its new
office building. The new loan from Asahi Bank of California is secured by a deed
of trust on such building and such loan bears interest at a fixed rate of 8% per
annum. The loan matures in April 2001 and provides for a 20 year monthly
amortization payment rate.

In May 1996 the Company entered into an agreement with Samuelson Entertainment
Ltd. to acquire the distribution rights to the theatrical film "Wilde" in all
media throughout the United States and Canada (excluding French-speaking Canada)
and the exclusive worldwide print, audio and interactive rights. Under the
agreement the Company is required to pay sums totaling 1,333,333 British Pounds
Sterling (approximately $2,000,000) over the 12 months subsequent to the
agreement for such rights. As of August 1997, approximately $15,000 remained
unpaid and interest at a rate of 2% per annum plus Pound Sterling LIBOR payable
will be payable thereon from April 2, 1997 until repayment, calculated on a
daily basis.

In October 1996 the Company entered into a financial advisory agreement with
Morgan Fuller pursuant to which Morgan Fuller agreed to provide certain
financial advisory services for the Company. As compensation for such services,
the Company granted to Morgan Fuller warrants to purchase for a period of three
years from the date thereof, up to 180,000 shares of Common Stock of the Company
at an exercise price of $2.75 per share.

Publishing accounts receivable, net of sales returns, generally are to be paid
pursuant to a specified payment formula, as defined in the relevant agreements.
The Company's distribution agreements typically provide for a distribution of
certain bad debt risk between the Company and its distributors.

The Company has historically experienced significant negative cash flows from
operations, including $2,599,000 for the quarter ended June 30, 1997. See
"Financial Statements of the Company - Consolidated Statements of Cash Flows."
In addition, the Company is currently in default under its term debt facility
with Sanwa Bank. See Note 6 to Consolidated Financial Statements. The Company is
in discussions with another commercial bank to establish a line of credit
sufficient to repay the Sanwa Bank facility and provide sufficient working
capital for the continuance of operations for at least the next twelve months
and further development of the Company. The Company's goal is to establish such
new facilities by September 30, 1997. However, there is no assurance that any of
this will be accomplished, or that terms satisfactory to the Company can be
obtained. If the Company is unable to establish new bank credit facilities, if
Sanwa Bank determines to enforce its remedies with respect to the term loan, if
the Company is unable to realize anticipated revenues, or if the Company incurs
costs inconsistent with anticipated levels, the Company would either need to
obtain additional financing (including possibly through the sale of debt or
equity securities, by obtaining additional bank financing or through the sale of
certain assets), limit its commitments to new projects or possibly curtail its
current operations. In addition, any further expansion of the Company or
acquisitions of particular properties or libraries, would require capital
resources beyond those currently available to the Company, which acquisition of
such resources would be dependent upon the ability of the Company to obtain
additional sources of working capital. There is no assurance that any such
additional sources of working capital will be available on acceptable terms.

Inflation

    The Company does not believe its business and operations have been
materially affected by inflation.



                                       24
<PAGE>   25

PART II -- OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

See Note 8 to the Consolidated Financial Statements.

ITEM 2 CHANGES IN SECURITIES

As discussed in Note 9 - Capital Activities, on May 15, 1997, the Company issued
(a) 250 shares of its Series B Preferred Stock and warrants to purchase 125,000
shares of Common Stock to MEI for which MEI paid $250,000 in cash, (b) 150
shares of its Series C Stock and warrants to purchase 75,000 shares of Common
Stock to the Former Principals for which the Former Principals paid $150,000 in
cash and (c) 100 shares of its Series C Preferred Stock and warrants to purchase
50,000 shares of Common Stock to Mr. Howard Gittis for which Mr. Gittis paid
$100,000 in cash. One-third of the warrants issued to MEI, the Former Principals
and Mr. Gittis, respectively, are exercisable until March 27, 2000 at an
exercise price of $2.00 per share, one-third are exercisable until March 27,
2000 at an exercise price of $2.50 per share and the final one-third are
exercisable until March 27, 2001 at an exercise price of $3.00 per share. These
warrant exercise prices are subject to anti-dilution adjustments.

On June 3, 1997 the Company issued (a) 750 shares of its Series B Preferred
Stock and a warrant to purchase 375,000 shares of Common Stock to MEI for which
MEI paid $750,000 in cash, (b) 500 shares of its Series C Stock and a warrant to
purchase 250,000 shares of Common Stock to the Former Principals for which the
Former Principals paid $325,000 in cash and $175,000 in the form of the
forgiveness of certain indebtedness owed them by the Company, and (c) 250 shares
of its Series C Preferred Stock and a warrant to purchase 125,000 shares of
Common Stock to Mr. Al Bussen for which Mr. Bussen paid $250,000 in cash.
One-third of the warrants issued to MEI, the Former Principals and Mr. Bussen,
respectively, are exercisable until March 27, 2000 at an exercise price of $2.00
per share, one-third are exercisable until March 27, 2000 at an exercise price
of $2.50 per share and the final one-third are exercisable until March 27, 2001
at an exercise price of $3.00 per share. These warrant exercise prices are
subject to anti-dilution adjustments.

The foregoing sales were made in reliance on Regulation D promulgated under the
Securities Act of 1933, as amended. Each share of Series B Preferred Stock and
Series C Preferred Stock is convertible at the option of the holder thereof into
500 shares of Common Stock, subject to certain anti-dilution adjustments, at any
time following the date six months after the issuance thereof. Each of the
Series B Preferred Stock and the Series C Preferred Stock are redeemable, in
whole or in part at the option of the Company, at any time after March 28, 1998
2002 at a redemption price of 110% of the stated value ($1,000) plus all
accumulated but unpaid dividends thereon (plus interest on such accumulations).

Also in reliance on Regulation D, on April 9, 1997 the Company exchanged 214,113
shares of its Series A Preferred Stock (constituting the entire amount of the
issued and outstanding number of Series A Preferred Stock), owned by the Former
Principals, for 214,113 shares of its newly issued Series D Preferred Stock.

ITEM 3

See Note 6 to the Consolidated Financial Statements.


ITEMS 4 AND 5

Not applicable.




                                       25
<PAGE>   26

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)    EXHIBITS

        27    Financial Data Schedule


(B)    REPORTS ON FORM 8-K

The Company filed a Current Report on Form 8-K dated June 10, 1997 which was
filed June 24, 1997. This Form 8-K reported the Termination Agreement discussed
elsewhere herein under Item 1 of such form.



                                   SIGNATURES

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

Date: August 19, 1997            DOVE ENTERTAINMENT, INC.

                                 By   /s/  Ronald Lightstone
                                      ------------------------------------
                                      Ronald Lightstone, President,
                                      Chief Executive Officer and Director

Date: August 19, 1997            By   /s/  Neil Topham
                                      ------------------------------------
                                      Neil Topham
                                      Chief Financial Officer



                                       26
<PAGE>   27

                            DOVE ENTERTAINMENT, INC.

                                INDEX TO EXHIBITS


        EXHIBIT
        NUMBER
        ------

          27            Financial Data Schedule.



                                       27