<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 SEPTEMBER 30, 1996

                                       OR

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

                         COMMISSION FILE NUMBER 0-24984

                                DOVE AUDIO, INC.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT 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,                              90048
----------------------------------------                  ----------
      WEST HOLLYWOOD, CALIFORNIA                          (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


       REGISTRANT'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 registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No
                                             ----    -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the numbers of shares outstanding of each of the registrant's
classes of common equity, as of the latest practicable date:  5,313,240
as of November 13, 1996                                       -------------

           Transitional Small Business Disclosure Format (Check one):

                          Yes       No  X    
                             -----     ----
--------------------------------------------------------------------------------
<PAGE>   2
                                     PAGE 1



PART I -- FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

                                DOVE AUDIO, INC.

                           CONSOLIDATED BALANCE SHEET

                               SEPTEMBER 30, 1996

                                     ASSETS

<TABLE>
 <S>                                                                                   <C>
 CURRENT ASSETS
    Cash and cash equivalents  . . . . . . . . . . . . . . . . . . . . . . . . . .     $   170,000

    Accounts receivable, net of allowances of $1,705,000 . . . . . . . . . . . . .       1,517,000
                                                                                    
    Inventory  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5,168,000

    Prepaid expenses and other current assets  . . . . . . . . . . . . . . . . . .         649,000

    Film costs, net - Note 4 . . . . . . . . . . . . . . . . . . . . . . . . . . .       4,979,000

    Deferred tax asset - Note 5  . . . . . . . . . . . . . . . . . . . . . . . . .         150,000

    Tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,047,000

          Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . .      13,680,000

 PRODUCTION MASTERS - Note 3 . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,653,000

 FILM COSTS, net - Note 4  . . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,533,000

 PROPERTY AND EQUIPMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       4,561,000  

 OTHER ASSETS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         131,000     

 GOODWILL - Note 12  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5,975,000
                                                                                       -----------
          Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $29,533,000
                                                                                       ===========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
 CURRENT LIABILITIES
    Accounts payable and accrued expenses  . . . . . . . . . . . . . . . . . . . .     $ 4,597,000
                                                                                     
    Bank borrowings and notes payable, current portion - Note 6. . . . . . . . . .       1,628,000 
                                                                                      
    Royalties payable  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         431,000  
                                                                                        
    Advances and deferred income . . . . . . . . . . . . . . . . . . . . . . . . .       4,268,000  
                                                                                      
    Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . .         456,000
                                                                                       -----------
          Total current liabilities  . . . . . . . . . . . . . . . . . . . . . . .      11,380,000
                                                                                       -----------
    Bank borrowings and notes payable  . . . . . . . . . . . . . . . . . . . . . .       1,839,000
                                                                                       -----------
          Total liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . .     $13,219,000
                                                                                       ===========
 COMMITMENTS AND CONTINGENCIES - Note 8                                                         

 SHAREHOLDERS' EQUITY - Note 9
    Preferred stock .01 par value; 2,000,000 shares authorized
       and 214,113 shares, Series A, issued and outstanding  . . . . . . . . . . .         856,000
    Common stock .01 par value; 20,000,000 shares authorized and
       5,313,240 issued and outstanding  . . . . . . . . . . . . . . . . . . . . .          52,000
    Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          (1,000)
    Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . .      19,502,000
    Accumulated deficit  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (4,095,000)
                                                                                       ----------- 
          Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .      16,314,000            
                                                                                       -----------
          Total liabilities and shareholders' equity . . . . . . . . . . . . . . .     $29,533,000
                                                                                       ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       1
<PAGE>   3
                                     PAGE 2


                                DOVE AUDIO, INC.
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED SEPTEMBER 30  
                                                                  ----------------------------------
                                                                        1996              1995    
                                                                  --------------    --------------
 <S>                                                                <C>                <C>
 REVENUES - Note 10
    Publishing, Net  . . . . . . . . . . . . . . . . . . . .        $2,481,000           3,316,000
    Film . . . . . . . . . . . . . . . . . . . . . . . . . .         3,113,000              55,000  
                                                                    ----------         -----------
                                                                     5,594,000           3,371,000
 COST OF SALES - PUBLISHING  . . . . . . . . . . . . . . . .         1,391,000           1,883,000
 COST OF SALES - FILM  . . . . . . . . . . . . . . . . . . .         2,263,000                  --
                                                                    ----------         -----------
                                                                     1,940,000           1,448,000
 SELLING, GENERAL AND
    ADMINISTRATIVE EXPENSES - Note 7 . . . . . . . . . . . .         2,160,000             796,000
                                                                    ----------         -----------
    Income (loss) from operations  . . . . . . . . . . . . .          (220,000)            692,000
    Net interest income (expense)  . . . . . . . . . . . . .           (75,000)              2,000
    (Loss) on sale of marketable securities  . . . . . . . .           (18,000)                 --
                                                                    ----------         -----------
    Income (loss) before income taxes  . . . . . . . . . . .          (313,000)            677,000
 PROVISION FOR (BENEFIT FROM) INCOME TAXES - Note 5                    (51,000)            315,000
                                                                    ----------         -----------
    Net income (loss)  . . . . . . . . . . . . . . . . . . .        $ (262,000)            362,000
                                                                    ==========         ===========
    Net income (loss) per share  . . . . . . . . . . . . . .        $     (.05)                .08
                                                                    ==========         ===========
    Weighted average number of . . . . . . . . . . . . . . .
       shares outstanding  . . . . . . . . . . . . . . . . .         5,269,000           4,530,000
                                                                    ==========         ===========
</TABLE>

          See accompanying notes to consolidated financial statements.





                                       2
<PAGE>   4
                                     PAGE 3

                                DOVE AUDIO, INC.
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                     NINE MONTHS ENDED SEPTEMBER 30
                                                                     ------------------------------
                                                                         1996               1995     
                                                                     ------------        -----------
 <S>                                                                 <C>                  <C>
 REVENUES - Note 10
    Publishing, Net  . . . . . . . . . . . . . . . . . . .           $  9,026,000          9,696,000
    Film . . . . . . . . . . . . . . . . . . . . . . . . .              7,167,000             83,000
                                                                     ------------         ----------
                                                                       16,193,000          9,779,000
 COST OF SALES - PUBLISHING                                             7,409,000          5,847,000
 COST OF SALES - FILM                                                   5,200,000             11,000
                                                                     ------------         ----------
                                                                        3,584,000          3,921,000
 SELLING, GENERAL AND
    ADMINISTRATIVE EXPENSES - Note 7                                    6,261,000          2,654,000
                                                                     ------------         ----------
    Income (loss) from operations  . . . . . . . . . . . .             (2,677,000)         1,267,000
    Net interest income (expense)  . . . . . . . . . . . .                (81,000)            (3,000)
    Gain on sale of marketable securities  . . . . . . . .                    --             (11,000)
    (Loss) on sale of asset  . . . . . . . . . . . . . . .                (18,000)
                                                                     ------------
    Income (loss) before income taxes  . . . . . . . . . .             (2,776,000)         1,253,000
 PROVISION FOR (BENEFIT FROM) INCOME TAXES - Note 5                      (346,000)           597,000 
                                                                     ------------         ---------- 
    Net income (loss)  . . . . . . . . . . . . . . . . . .           $ (2,430,000)           656,000
                                                                     ============         ==========
    Net income (loss) per share  . . . . . . . . . . . . .           $       (.48)               .15
                                                                     ============         ==========
    Weighted average number of . . . . . . . . . . . . . .
       shares outstanding  . . . . . . . . . . . . . . . .              5,107,000          4,530,000
                                                                     ============         ==========
</TABLE>

          See accompanying notes to consolidated financial statements.





                                       3
<PAGE>   5
                                     PAGE 4


                                DOVE AUDIO, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                       FOR THE NINE MONTHS ENDED
                                                                               ----             
                                                                             SEPTEMBER 30,         
                                                                   --------------------------------
                                                                         1996             1995     
                                                                   --------------    --------------
 <S>                                                                 <C>              <C>
 OPERATING ACTIVITIES
    Net income (loss)  . . . . . . . . . . . . . . . . . . . .        $ (2,430,000)    $    656,000
                                                                      ------------     ------------
    Adjustments to reconcile net income to net
      cash provided by (used in) operating activities:                                     
        Depreciation . . . . . . . . . . . . . . . . . . . . .             278,000           52,000
        Amortization of production masters . . . . . . . . . .           2,865,000        1,560,000
        Amortization of film costs . . . . . . . . . . . . . .           5,200,000           11,000
        Loss on sale of equipment  . . . . . . . . . . . . . .                  --           11,000
        Amortization of good will  . . . . . . . . . . . . . .             164,000               --
        Accounts receivable allowance, net . . . . . . . . . .            (456,000)       1,075,000
    Changes in operating assets and liabilities:                                    
        Accounts receivable  . . . . . . . . . . . . . . . . .           1,334,000        1,948,000
        Deferred tax asset . . . . . . . . . . . . . . . . . .              80,000         (190,000)
        Inventory  . . . . . . . . . . . . . . . . . . . . . .          (1,463,000)        (810,000)
        Film costs . . . . . . . . . . . . . . . . . . . . . .          (6,555,000)        (140,000)
        Expenditures for production masters  . . . . . . . . .          (3,760,000)      (2,865,000)
        Prepaid expenses and other assets  . . . . . . . . . .             584,000         (244,000)
        Accounts payable and accrued expenses  . . . . . . . .           1,054,000         (917,000)
        Royalties payable  . . . . . . . . . . . . . . . . . .              90,000         (121,000)
        Income taxes . . . . . . . . . . . . . . . . . . . . .          (1,047,000)         446,000
        Advances and deferred revenue  . . . . . . . . . . . .           1,038,000          555,000
        Due to related parties . . . . . . . . . . . . . . . .             (44,000)              --
                                                                      ------------     ------------
             Net cash provided by (used in) operating activities        (3,068,000)       1,027,000
 INVESTING ACTIVITIES
    Acquisition of Four Point Entertainment  . . . . . . . . .          (7,877,000)              --  
    Sale of marketable securities  . . . . . . . . . . . . . .             377,000        1,701,000
    Purchase of film library . . . . . . . . . . . . . . . . .                  --         (750,000)
    Purchase of marketable securities  . . . . . . . . . . . .            (214,000)         (36,000)
    Sale of property and equipment . . . . . . . . . . . . . .                 --            40,000
    Purchases of equipment . . . . . . . . . . . . . . . . . .            (154,000)        (100,000)
    Payments for building improvements . . . . . . . . . . . .            (359,000)              --
                                                                      ------------     ------------
             Net cash from (used in) investing activities  . .          (8,227,000)         855,000
 FINANCING ACTIVITIES
    Proceeds from sale of common stock . . . . . . . . . . . .           6,242,000          729,000
    Proceeds from sale of preferred stock  . . . . . . . . . .                 --             2,000
    Proceeds of bank borrowings  . . . . . . . . . . . . . . .             709,000        1,325,000
    Repayments of notes payable. . . . . . . . . . . . . . . .            (432,000)      (2,527,000)
    Settlement payment for sale of common stock  . . . . . . .                 --           (79,000)
                                                                      ------------     ------------ 
              Net cash provided by financing activities  . . .           6,519,000         (550,000)
                                                                      ------------     ------------ 
              Net increase (decrease) in cash and cash                  (4,776,000)       1,332,000
                equivalent  . .  . . . . . . . . . . . . . . .
 CASH AND CASH EQUIVALENTS AT JANUARY 1                                  4,946,000          503,000
                                                                      ------------     ------------
 CASH AND CASH EQUIVALENTS AT SEPTEMBER 30                            $    170,000     $  1,835,000
                                                                      ============     ============
 SUPPLEMENTAL CASH FLOW INFORMATION
       Cash paid for interest  . . . . . . . . . . . . . . . .        $     76,000     $     75,000
       Cash paid for income taxes  . . . . . . . . . . . . . .              47,000          370,000
</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

<TABLE>
<S>                                                                 <C>              <C>
     Accrual to related party arising from pledge
        of deposit for acquisition of the theatrical
        motion picture "Wilde" - Note 7 . . . . . . . . . . . . .   $   500,000                --
</TABLE>


          See accompanying notes to consolidated financial statements.





                                       4
<PAGE>   6
                                     PAGE 5



                                DOVE AUDIO, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BASIS OF PRESENTATION, ORGANIZATION AND BUSINESS

         The accompanying consolidated financial statements of Dove Audio, Inc.
(the "Company") 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 for the fiscal year ended December 31, 1995.  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 three
month period ended September 30, 1996 are not necessarily indicative of results
to be expected for the full fiscal year.

          Dove Audio, Inc. is engaged, among other things, in the business of
producing and distributing books on tape (audio books). The Company acquires
audio publishing rights for specific titles or groups of titles on a worldwide
basis, in perpetuity and often including interactive media applications. The
Company is also engaged in the publication of printed books; the development
and production of movies-for-television, mini-series and videos; and the
acquisition and distribution of feature films.

         Dove Four Point, Inc., the Company's wholly-owned subsidiary ("Dove
Four Point"), is an independent production company. Dove Four Point is hired 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
hired as a producer-for-hire, the Company develops and produces television
productions for which rights are retained by the Company.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

         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 over a two-year period from the time a title is
initially distributed, consistent with the estimated revenue for a title.  For
audio and printed book titles released prior to January 1, 1996, this has
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 of release.  Based on management's current estimates with
respect to the timing of revenues, audio titles released on or after January 1,
1996 are amortized on a quarter-by-quarter basis over a two year period.  This
will result in approximately 80% of such an audio title's production master cost
being amortized in the initial year of release.  The effect of this change was
to reduce the production master amortization component of Cost of Sales by
approximately $13,000 and $257,000 for the three and nine months ended September
30, 1996, respectively.  The amortization of printed books remains unchanged.
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.

         RECLASSIFICATIONS

         Certain reclassifications have been made to prior quarter consolidated
financial statements to conform to current quarter presentation.

NOTE 3 -- PRODUCTION MASTERS





                                       5
<PAGE>   7
                                     PAGE 6


         Production masters, net of accumulated amortization of $9,261,000 at
September 30, 1996 consisted of the following:

<TABLE>
           <S>                                     <C>
           Released titles  . . . .                $1,461,000
           Unreleased titles  . . .                 2,192,000          
                                                   ----------
           Total  . . . . . . . . .                $3,653,000
</TABLE>

NOTE 4 -- FILM COSTS

         The following is an analysis of film costs as of September 30, 1996:

     Television and theatrical films released less accumulated film amortization

<TABLE>
              <S>                                         <C>          
              Current -  $5,977,000                       Non-Current - $1,533,000
                         $ (998,000)                                          --    
                         ----------                                     ----------
                         $4,979,000                                     $1,533,000
</TABLE>

         As of  September 30, 1996 all net film costs 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 -- DEBT

         Bank borrowing and notes payable at September 30, 1996 consist of the 
following:

<TABLE>
                 <S>                                               <C>
                 Mortgage Note . . . . . . . . . . . . .           $1,880,000

                 Other notes payable . . . . . . . . . .            1,587,000
                                                                    ---------
                                                                   $3,467,000
</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 
monthly amortization payment rate.

         In August 1996 the Company refinanced the Company's existing revolving
line of credit and term loan with a $1,365,447 term loan from Sanwa Bank
California ("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 on the term loan shall mature on August 1, 1997.
In addition, the Company borrowed a further $220,000 with a short-term bridge
loan with a maturity date of October 7, 1996. Both loans are secured by the
Company's assets, other than the Company's building, and are guaranteed by the
Principals (as defined below). The term loan has various covenants with which
the Company must adhere, including restrictions on payment of dividends,
additional indebtedness, change in the nature of business, financial covenants
including minimum tangible net worth, current ratio, debt service coverage ratio
and debt to net worth ratio and restrictions on mergers or acquisitions. The
$220,000 short-term bridge loan was repaid in full in October, 1996.

NOTE 7 -- RELATED PARTY TRANSACTIONS

         The Company has acquired audio book rights for fourteen titles which
were written by a principal shareholder. The net audio sales (net of returns)
from these titles for the quarters ended September 30, 1996 and 1995 were
$27,000 and $228,000, respectively. The net audio sales (net of returns) from
these titles for the nine months ended September 30, 1996 and 1995 were $58,000
and $257,000 respectively.

          In September 1996, in connection with Samuelson Entertainment Ltd.'s
financing of the production of the motion picture presently entitled "Wilde"
(the "Picture") for which the Company provides production services and has
acquired distribution rights in all media throughout the United States and
Canada (except French-speaking Canada), a principal shareholder/officer of the
Company (the "Principal") personally guaranteed $1,000,000 of the payment
obligations of Dove International, Inc. payable commencing on December 1, 1996
through April 2, 1997 to Samuelson Entertainment, Ltd. in order to extend the
date as of which Dove International, Inc. is required to make such payments.  In
addition, the Principal personally deposited $500,000 at Guinness Mahon & Co.
Ltd. (and pledged the deposit plus interest thereon) to secure Dove
International Inc.'s additional payment obligation to Samuelson Entertainment
Ltd. in the amount of 333,334 British Pounds Sterling due upon delivery of the
Picture. In connection with such pledge, the Company recorded a liability to
related party. In consideration for agreeing to pledge such deposit, Samuelson
Entertainment Ltd. and Dove International, Inc. agreed that the Principal 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 International Inc.'s full
distribution fee)





                                       6
<PAGE>   8
                                PAGE 7

received by all third-party distributors (including Dove International, Inc.)
from exploitation of the distribution rights in the Picture in the United States
and Canada (except French-speaking Canada). The terms pursuant to which the
Principal pledged the deposit were based on similar terms as offered by
Samuelson Entertainment Ltd. to an independent third party.  In addition,
accrued 500K Samuelson Entertainment, Ltd. agreed to pay the Principal 8% of
100% of Samuelson Entertainment Ltd.'s net profits from the Picture.

         On August 16, 1996, each of the two principal shareholders/officers of
the Company (the "Principals") personally guaranteed the Company's obligations
to Sanwa Bank California to a maximum principal amount of $1,600,000 in exchange
for the modification of certain covenants contained in the applicable loan
documents.

         In connection with the above guarantees, in September 1996, the Company
entered into a reimbursement agreement with the Principals.  The Company agreed
to immediately reimburse or provide cash collateral to the Principals upon the
occurrence and during the continuation of certain events of default relating to
the guaranteed obligations or upon the occurrence of certain other "Events"
(including a change in control of the Company) as defined in the Company's 1994
Stock Incentive Plan.  The Company further agreed that should either of the
Principals terminate their employment agreement following the occurrence of an
Event or material breach of their employment agreements by the Company, the
Company would remain obligated to continue to pay them their base compensation
and other benefits due for the balance of their employment terms, together with
reimbursement of any excise tax payable with respect to such compensation.  Upon
any such termination, such executives would be free to establish, invest in or
be employed by any business, whether or not in competition with the Company.
Under such agreement, the Company also granted to the Principals, one in the
first instance and the other secondarily, a right of first refusal in the event
of certain asset sales outside the ordinary course of business by the Company or
any of its subsidiaries in the next three years.

         In June 1996, the Company entered into an arrangement with an officer
of the Company whereby the officer agreed to provide certain services as a
consultant and Chairman of the Board. Such agreement provides for compensation
of $125,000 annually, paid monthly in arrears.  Under such agreement $31,000 was
paid during the three months ended September 30, 1996, and $42,000 was paid 
for the nine months ended September 30, 1996.

         In September 1996, the Company entered into a consulting agreement with
a director whereby the director is to provide certain financial consulting and
investment banking services to the Company.  Such agreement provides for
compensation of $3,000 per month, options to purchase 10,000 shares of Common
Stock, certain contingent compensation based on financing arranged by such
director for the Company and customary expense reimbursement.  The agreement is
terminable by either party upon 30 days notice.

         During the three months ending September 30, 1996, the Company made
payments to the two Principals and another officer of the Company totalling
$95,000 under agreements for producer services, television motion picture acting
services and television motion picture directing services, and Michael Viner,
Deborah Raffin and Jerry Leider received $188,000, $117,000 and $50,000
respectively under such agreements for the nine months ended September 30, 1996.


NOTE 8 -- COMMITMENTS AND CONTINGENCIES

         LITIGATION - See Part II Item 1. Legal Proceedings

         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
deposit. Rent expense was $62,000 and $63,000 in the three months ending
September 30, 1996, and September 30, 1995, respectively, and $195,000 and
$187,000 for the nine months ended September 30, 1996 and September 30, 1995,
respectively. The minimum future noncancelable lease expense under the lease is
approximately $250,000 annually for the years 1996 through 1998, inclusive. The
lease is subject to annual rent escalations and the pass-through of certain
costs of the landlord.





                                       7
<PAGE>   9
                             PAGE 8               


         In May 1996 the Company entered into an agreement with Samuelson
Entertainment Ltd. to acquire the distribution rights to the Picture
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 totalling 1,333,333 British
Pounds Sterling (approximately $2,000,000) over the 12 months subsequent to the
agreement for such rights.  As of November 12, 1996, approximately $1,500,000
remained unpaid. 

        Under the terms of the agreement, the Company has provided, and 
continues to provide production services for the Picture. Such services include
arrangement and placement of financing, significant input and effective control
over casting for the Picture, significant input and final approval over the
director, script and all other elements of the Picture, significant input and
final approval over music elements, review of dailies and determination as to
the necessity of re-shooting scenes.


NOTE 9 -- STOCK OPTIONS AND WARRANTS

         The Board of Directors of the Company adopted the 1994 Stock Incentive
Plan (the "Plan"). The Plan provides for the grant of options to purchase up to
an aggregate of 400,000 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).

         Options outstanding and the range of applicable exercise price under 
the Plan at September 30, 1996 were:

<TABLE>
<S>                                                   <C>       <C>
Options outstanding at September 30, 1996 . . . . .   289,999   $3.50 - $9.75

</TABLE>

         At September 30, 1996, options to acquire 67,831 shares of common
stock under the Plan were outstanding and 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 are currently exercisable, in connection
with the forgiveness of certain deferred compensation owing to the Company's
Principals; 75,000 shares of Common Stock at an exercise price of $8.00 per
share in 1995; and 300,000 shares of Common Stock at an exercise price of $11.00
in April 1996 in connection with the Four Point acquisition.

         Warrants outstanding and the range of applicable exercise price along
with activity for the three months ended September 30, 1996 were:


<TABLE>
<CAPTION>
                                                                   NUMBER OF
                                                                   SHARES OF
                                           NUMBER OF                COMMON
                                           WARRANTS                  STOCK
                                           --------                  -----
 <S>                                        <C>                     <C>           <C>
 Warrants outstanding at
    June 30, 1996  . . . . . . .            1,522,500               1,378,750     $6.00 - $12.00
                                            ---------               ---------                   
 Warrants issued
    (exercised)  . . . . . . . .               --                       --  
                                            ---------               ---------                   
 Warrants outstanding at
   September 30, 1996  . . . . .            1,522,500               1,378,750     $6.00 - $12.00
                                            =========               =========
</TABLE>

         At September 30, 1996 all warrants outstanding to acquire 1,378,750 
shares of common stock were exercisable.





                                       8
<PAGE>   10
                                     PAGE 9


NOTE 10 -- MAJOR CUSTOMERS AND SUPPLIERS

         For the nine months ended September 30, 1996 and 1995, revenues, net of
returns, from the Company's three major customers approximated 30% and 48% of
net publishing revenues respectively.

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

NOTE 11 -- STOCK REGISTRATION

         On September 17, 1996 the Company's registration statement on Form S-3
registering 2,335,000 shares of Dove Audio, Inc. Common Stock was declared
effective by the Securities and Exchange Commission (the "SEC").

NOTE 12 -- 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 $6,025,000 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
Entertainment, Inc. 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.  The Company is currently in the
process of finalizing the allocation of the purchase price pending the
resolution of the above contingency and certain other items.

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.

         Except for the historical information contained herein, certain of the
matters discussed in this quarterly report are "forward-looking statements," as
defined in Section 21E of the Securities Exchange Act of 1934, which involve
certain risks and uncertainties, which could cause actual results to differ
materially from those discussed herein including, but not limited to risks
relating to the Company's operating losses, the Company's need for additional
financing or liquidity, growth and acquisition risks, dependence on limited
number of projects, the impact of returns and remainder sales of audio and
printed books on results of operations and risks relating to the nature of the
entertainment industry, government regulation, competition, and control by
management. See the relevant discussion elsewhere herein and in the Company's
periodic reports and other documents filed with the Securities and Exchange
Commission including the Company's registration statement on Form S-3 for a
further discussion of these and other risks and uncertainties applicable to the
Company's business.

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 of audio
books in the United States. The Company produces and distributes over 100 new
titles annually and has built a library of over 1200 titles. The Company is
also engaged in the publication of printed books under the Dove imprint and the
development and production of movies-for-television, mini-series, and videos
and the development, production, acquisition and distribution of feature films.

         A significant portion of the Company's expenses are relatively fixed,
and therefore reduced sales in any quarter relating from the timing of delivery
of product or otherwise could adversely affect operating results for that
quarter.

         To complement its audio book operations, the Company has significantly
increased its publication of printed books. In addition, the Company intends to
continue to diversify its operations through its theatrical feature film
division. Subject to appropriate opportunities becoming available to the
Company, the Company plans to acquire independent films for distribution
worldwide on an all rights basis (including theatrical, home video and all forms
of television). In September, 1996, the Company acquired world wide distribution
rights to the theatrical motion picture "Flipping", starring Keith David and
David Provel, with a projected limited U.S. theatrical release date of 
February, 1997. On December 21, 1995, the Company entered into a two year





                                       9
<PAGE>   11
                                    PAGE 10


video output arrangement with Paramount Pictures wherein Paramount will market
and distribute Dove product under the Dove Home Video label in the U.S. and
Canada.

         The Company's catalog of 1996 audio releases includes The Hunchback of
Notre Dame, performed by Julie Christie, Shadows of Steel by Dale Brown, and On
Managing by Mark H. McCormack. The Company's catalog of 1996 printed book
releases includes Red Mercury by Max Barclay, When Money Is King by Richard
Hack (a biography of Ron Perelman), and Values by Marva Collins.

         The Company's television and theatrical films have been based
principally upon novels written by two authors for which the Company has
published audio books. Currently, the Company has several television projects
in development including the production of Family Blessings, a follow-up to the
Dove production of Home Song by LaVyrle Spencer which aired on CBS in March
1996. The Company 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.

         Dove Four Point, Inc., the Company's wholly-owned subsidiary, develops,
and produces various forms of television programming, including pilots, series,
telefilms, mini-series, talk shows, game shows and infomercials for network,
cable and syndicated markets. In May 1996, Dove Four Point announced the receipt
of a production order for a new entertainment/news program for the 1996/97
television season, "Scoop with Sam and Dorothy", which is being distributed by
ACI/Pearson TV. In June, Dove Four Point announced a production order from MGM
Domestic Television Distribution for "The Bradshaw Difference," a new syndicated
talk show for the 1996/97 television season. In August 1996, Dove Four Point
entered into a one year exclusive development and distribution agreement with
Buena Vista Television ("BVTV"), a division of the Walt Disney Company pursuant
to which BVTV has exclusive rights to certain television programming developed
by Dove Four Point. Pursuant to such agreement, BVTV agreed to pay certain
non-refundable fees, overhead and a discretionary development fund. The
agreement may be extended for two additional one year terms at the option of
BVTV. Under a separate agreement with BVTV, Dove Four Point has produced a pilot
for the daily game show "Make Me Laugh;" cable network Comedy Central has
ordered new production of the program with production currently scheduled to
commence in the first quarter of 1997 and initial broadcast in June, 1997. Dove
Four Point has reached an agreement in principle with Telescene of Canada and
the A & E Network to produce a two hour telefilm based on mystery writer
Lawrence Block's short story "By The Dawn's Early Light" with production
currently scheduled to commence in the fourth quarter of 1996. Discovery
Communications has ordered six additional half hour segments of "Unnatural
History" to produced between the fourth quarter of 1996 and the second quarter
of 1997 for broadcast on the Learning Channel. Dove Four Point is developing a
two hour telefilm (pilot for the dramatic series "Futuresport") starring Wesley
Snipes with Mr. Snipes' production company Amen-Ra Productions in conjunction
with ABC whereby ABC may license the production for broadcast for a fee covering
a substantial portion of the production costs; ABC is required to pay a lesser
fee should it elect no to proceed with the project. There is no assurance that
any programming scheduled for production will be completed or, if completed,
that the delivery terms will not be modified. Dove Four Point also owns and
operates post-production and edit facilities for its own and third-party
programming.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED SEPTEMBER 30,
                                              --------------------------------
                                                  1996               1995   
                                               ----------         ----------
  <S>                                           <C>                <C>
  REVENUES
     Publishing . . . . . . . . . . . . . .           44%                98%
     Film . . . . . . . . . . . . . . . . .           56%                 2%
                                               ---------          ---------
         Total  . . . . . . . . . . . . . .          100%               100%
                                               =========          ========= 
  OPERATING EXPENSES
     Cost of sales - Publishing . . . . . .           25%                56%
     Cost of sales - Film . . . . . . . . .           40%                --
                                               ---------          --------- 
     Selling, general &
         administrative . . . . . . . . . .           39%                24
                                               ---------          --------- 
         Total  . . . . . . . . . . . . . .          104%                80%
                                               =========          =========
</TABLE>





                                       10
<PAGE>   12
                                    PAGE 11


Three Months ended September 30, 1996 Compared to Three Months ended September
30, 1995

PUBLISHING

         Revenues. Net publishing revenues for the three months ended September
30, 1996 compared to the three months ended September 30, 1995 decreased by
$835,000 or 25% from $3,316,000 to $2,481,000.  Of the total publishing revenue
for the three months ended September 30, 1996, net audio book revenue was
$1,901,000 and net printed book revenue was $580,000.  The decrease in net
publishing revenue was attributable primarily to lower sales activity caused
primarily by a soft retail environment for both audio and printed books. The
provision for returns as a percentage of gross revenue was 52% for the three
months ended September 30, 1996. 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 resold to the public. Although the Company
makes allowances and reserves for returned product that it believes are
adequate, significant increases in return rates have materially and adversely
impacted the Company's financial condition and results of operations. Titles
currently scheduled for release in the fourth quarter of 1996 include "When
Money is King" (a biography of Ron Perelman) by Richard Hack, "On Managing" by
Mark McCormack, "Values" by Marva Collins, "You'll Never Make Love in This Town
Again, Again: Once More With Feeling" as told to Joanne Parrent (the follow up
to the New York Times bestseller "You'll Never Make Love in This Town Again"),
"An Unseemly Man," an autobiography by Larry Flynt with a release timed to
coincide with the release of Oliver Stone's film "The People vs. Larry Flynt,"
and eight new children's books from Dove Kids including "Little Nettie" read by
Cheryl Ladd, and "The Remarkable Adventures of the Owl and the Pussycat" read by
Eric Idle.

         Cost of Sales. Cost of sales for the three months ended September 30,
1996 compared to the three months ended September 30, 1995 decreased by $492,000
or 26% from $1,883,000 to $1,391,000. The decrease in cost of sales was
primarily attributable to the aforementioned decrease in sales. Publishing cost
of sales as a percentage of net publishing revenues decreased from 57% in the
three months ended September 30, 1995 to 56% in the three months ended September
30, 1996.

FILM

         Revenues. Film revenues for the three months ended September 30, 1996
compared to the three months ended September 30, 1995 increased by 3,058,000 or
556% from $55,000 to $3,113,000. The increase was attributable to the inclusion
of three months of activity from Dove Four Point which contributed approximately
$3,103,000 of revenue due primarily to the programs "The Bradshaw Difference"
and "Scoop With Sam and Dorothy." The Company has accounted for the Four Point
acquisition under purchase accounting from the April 29, 1996 acquisition date.
The remaining film revenues in the three months ended September 30, 1996 were
generated by sales from the Company's theatrical feature film division.

         Cost of Sales. Film cost of sales were $2,263,000 in the three months
ended September 30, 1996, while there were no film cost of sales in the three
months ended September 30, 1995. The increase was attributable to a significant
increase in film sales in the three months ended September 30, 1996. Film
amortization is generally incurred in proportion to the estimated revenues
generated from the release or licensing of film properties.

GENERAL

         Gross Profit/Loss. The Company recorded a gross profit of $1,940,000
for the three months ended September 30, 1996 compared to a gross profit of
$1,488,000 for the three months ended September 30, 1995. Gross profit margin as
a percentage of revenue decreased from 43% in the three months ended





                                       11
<PAGE>   13
                         PAGE 12


September 30, 1995 to 35% in the three months ended September 30, 1996. This 
decrease resulted primarily from the Company's expansion of its film and
television production activities which produce differing margins from its
existing publishing activities.

         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 for the three months ended September 30, 1996 compared to
the three months ended September 30, 1995 increased by $1,364,000 or 171% from
$796,000 to $2,160,000. Of the increase in SG&A, approximately $1,096,000 was
attributable to increased overhead in connection with the Company's acquisition
of Four Point Entertainment. The remaining increase was largely attributable to
an increase in advertising expense which increased by approximately $127,000  
primarily in connection with the Company's printed book operations due in 
part to marketing commitments made in connection with the securing of the 
underlying rights.

         Net Interest Income (Expense). The Company had net interest expense of
$75,000 in the three months ended September 30, 1996 compared to net
interest income of $2,000 in the three months ended September 30, 1995. This
increase in interest expense was primarily due to the addition of mortgage debt
for the Company's headquarter's building and the assumption of debt from the
Four Point acquisition.

<TABLE>
<CAPTION>
                                                     NINE MONTHS ENDED SEPTEMBER 30
                                                     ------------------------------
                                                           1996           1995   
                                                       -----------    -----------
              <S>                                        <C>            <C>
              REVENUES
                 Publishing  . . . . . . . . . . . .           56%            99%
                 Film  . . . . . . . . . . . . . . .           44              1
                                                       ----------     ----------
                     Total . . . . . . . . . . . . .          100%           100%
                                                       ==========     ========== 
              OPERATING EXPENSES
                 Cost of sales - Publishing  . . . .           46%            60%
                 Cost of sales - Film  . . . . . . .           32             --
                 Selling, general &
                     administrative  . . . . . . . .           39             27
                                                       ----------     ----------
                     Total . . . . . . . . . . . . .          117%            87%
                                                       ==========     ========== 
</TABLE>

Nine Months ended September 30, 1996 Compared to Nine Months ended September
30, 1995

PUBLISHING

         Revenues. Net publishing revenues for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995 decreased by
$670,000 or 7% from $9,696,000 to $9,026,000. Of the total publishing revenue
for the nine months ended September 30, 1996, net audio book revenue was
$6,184,000 and net printed book revenue was $2,842,000. The decrease in net
publishing revenue was primarily attributable to lower sales activity caused by
a soft retail environment for both audio and printed books. The provision for
returns as a percentage of gross revenue was 45% for the nine months ended
September 30, 1996. 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 resold to the public. Although the Company makes allowances and
reserves for returned product that it believes are adequate, significant
increases in return rates have materially and adversely impacted the Company's
financial condition and results of operations.

         Cost of Sales. Cost of sales for the nine months ended September 30,
1996 compared to the nine months ended September 30, 1995 increased by
$1,562,000 or 27% from $5,847,000 to $7,409,000. The increase in cost of sales
was primarily attributable to a write down in excess of $500,000 for certain
inventory, certain excess fulfillment costs related to returned product. The
inventory write-down included the printed book titles "The Private Diary





                                       12

<PAGE>   14
                                PAGE 13               


of Nicole Brown Simpson" and "The Private Diary of Lyle Menendez" and certain
obsolescent covers. Publishing Cost of sales as percentage of net publishing
revenues increased from 67% in the nine months ended September 30, 1995 to
82% in the nine months ended September 30, 1996. The increase was primarily
attributable to a significantly greater mix of lower margin sales to direct
marketers, specialty book clubs and discount stores and due to the
aforementioned excess inventory. 

FILM

         Revenues. Film revenues for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995 increased by $7,084,000
from $83,000 to $7,167,000. The increase was primarily attributable to the
delivery of the HomeSong television movie to CBS in the first quarter of 1996,
combined with the inclusion of 5 months of activity from Dove Four Point which
contributed approximately $3,703,000 of revenue due primarily to the programs
"Unnatural History," Amazing America," "The Bradshaw Difference" and "Scoop with
Sam and Dorothy." The remaining film revenues in the nine months ended 
September 30, 1996 were generated by sales from the Company's theatrical 
feature film division.

         Cost of Sales. Film cost of sales increased by $5,189,000 to $5,200,000
in the nine months ended September 30, 1996 compared to $11,000 in the nine
months ended September 30, 1995. The increase was attributable to a significant
increase in film sales in the nine months ended September 30, 1996. Film
amortization is generally incurred in proportion to the estimated revenues
generated from the release or licensing of film properties.

GENERAL

         Gross Profit. The Company's gross profit for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995
decreased by $337,000 or 9% from $3,921,000 to $3,584,000. Gross profit
margin as a percentage of revenue decreased from 40% in the nine months ended
September 30, 1995 to 22% in the nine months ended September 30, 1996. This
decrease resulted primarily from the substantial increase in Publishing Cost Of
Sales discussed above, and the Company's expansion of its film and television
production activities which produce differing margins from its existing
publishing activities.

         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 for the nine months ended September 30, 1996 compared to
the nine months ended September 30, 1995 increased by $3,607,000 or 136% from
$2,654,000 to $6,261,000. Of the increase in SG&A approximately $1,546,000 was
attributable to the increased overhead in connection with the Company's
acquisition of Four Point Entertainment and approximately $265,000 to an
increase in the provision for doubtful accounts. Advertising expense increased
by approximately $950,000 primarily in connection with the Company's printed
book operations due in part to marketing commitments made in connection with
the securing of the underlying rights. The remaining increases were primarily
in salaries, occupancy costs, travel and entertainment, depreciation, and 
professional fees.

         Net Interest Income (Expense). Net Interest Expense for the nine months
ended September 30,1996 compared to the nine months ended September 30, 1995
increased by $78,000. This increase was primarily due to the addition of
mortgage debt for the Company's headquarter's building and the assumption of
debt from the Four Point acquisition.

         LIQUIDITY AND CAPITAL RESOURCES

         The Company's operations, in general, are typically 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 continues to expand 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 or from
additional debt or equity





                                       13
<PAGE>   15
                                    PAGE 14


financings from outside sources. 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.

         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, other debt, and cash generated from operations. In
December 1995 and January 1996, the Company raised net proceeds of $6,303,000
from the sale of 76 Units in a private placement. Each Unit consisted of 12,500
shares of the Company's Common Stock and 12,500 warrants to purchase 12,500
shares of the Company's Common Stock at $12.00 (exercisable on or after
September 14, 1996). As part of its compensation for such transaction, the
placement agent received, for nominal consideration, a warrant to purchase seven
Units. The net proceeds were used by the Company to fund increased working
capital needs during 1996 and to finance strategic acquisitions of product and
complementary business (i.e. the Four Point acquisition). On September 17, 1996,
the Company's registration statement on Form S-3 for the shares and warrant
shares underlying the Units was declared effective.

         In connection with the acquisition of Four Point, which was completed
on April 29, 1996, the Company guaranteed certain term debt and a $1.0 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 shall mature on August 1, 1997. The existing Sanwa
Bank loan is secured by substantially all of the Company's assets, other than
the Company's building, and the Company's Principals and Dove Four Point have
guaranteed such new facility.  The term loan has various covenents with which
the Company must adhere, including restrictions on payment of dividends,
additional indbtedness, change in the nature of business, financial covenants
including minimum tangible net worth, quick 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
September 30, 1996. On November 14, 1996, the Company received a written 
waiver from Sanwa Bank of such noncompliance.  In addition, on November 14, 
1996, the Company also received written modification of certain financial
covenants contained in the term loan agreement.

         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 a bank is



                                       14
<PAGE>   16
                                    PAGE 15


secured by a deed of trust and 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 Picture 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 totalling 1,333,333 British Pounds
Sterling (approximately $2,000,000) over the 12 months subsequent to the
agreement for such rights. As of November 12, 1996, approximately $1,500,000
remained unpaid.

         On October 1, 1996, the Company entered into a financial advisory
agreement with Morgan Fuller Capital Group, LLC ("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. Such warrant was issued pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated
thereunder.

         On October 29, 1996, Morgan Fuller completed a loan to the Company in
the aggregate amount of $800,000. Such loan bears interest at the rate of 10%
per annum, is secured by a lien on all of the Company's assets (subordinate to
certain first priority liens) and is repayable beginning February 1, 1997 at the
rate of $100,000 per month plus interest, and matures on November 1, 1997. Such
loan would be subject to mandatory prepayment out of a portion of proceeds from
certain possible financing transactions. The applicable loan documents contain
certain limitations, including the creation of certain liens on the Company's
property, sales of assets and on the making or suffering to exist of certain
loans.

         As of November 13, 1996 the Company had cash and short-term investments
of approximately $127,000.

         The Company used $3,068,000 for operating activities during the nine
month period ended September 30, 1996. See "Consolidated Financial Statements of
the Company - Consolidated Statements of Cash Flows." The Company believes that
existing working capital and anticipated cash flows from operations may not be
sufficient to meet its working capital requirements. Accordingly, the Company is
exploring potential sources of financing, including the issuance of shares of
the Company's common stock through an agreement in principle with a placement
agent and potential payment of certain vendors with newly issued Company
securities. Absent additional capital or liquidity, the Company will be
substantially constrained in its ability to commit to new projects requiring
cash outlays. 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, whether through the issuance of additional equity or debt
securities, additional bank financing or otherwise. While the Company believes
it will obtain additional financing, there is no guarantee that such financing
will be available on acceptable terms, in which case, the Company would seek to
restructure its obligations. This would have a significant effect on the
Company's operations.

         INFLATION

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

PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         In August 1993, the trial court affirmed 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 attorneys
fees and interest accruing from September 1992) relating to the film Morning
Glory. In March 1995, the trial court ruling was appealed by the defendants to
the California Court of Appeals, and in June 1995, the California Court of
appeals affirmed



                                       15
<PAGE>   17
                                    PAGE 16


the judgment.  In August 1995, Stern filed for bankruptcy protection.  The U.S.
Trustee is pursuing the fraudulent conveyance action on behalf of the bankruptcy
estate, of which the Company comprises approximately eighty percent, and the
Company, Viner and Leider are separately pursuing their own adversary proceeding
for conspiracy against Stern and the other defendants in the bankruptcy case.
The Company is also objecting to Stern's discharge in bankruptcy. There is no
assurance that the Company ultimately will prevail in these actions, or as to
if, when or in what amounts the Company will be able to levy on the judgment
issued in its favor.

         The Company was served in March 1996 with a complaint in the 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 writing of, the recently released book,
You'll Never Make Love In This Town Again. The Datig Complaint prayed for $1.0
Million in damages.  On October 23, 1996, the Company and Viner obtained a
judgment of dismissal which also provided for the recovery of costs and
attorneys' fees in their favor.  The Company and Viner have filed a malicious
prosecution action against Datig and her attorney seeking $25 million in
damages.

         On June 25, 1996 another contributor to "You'll Never Make Love In This
Town Again", Melinda Hammon, also filed a complaint in the Los Angeles Superior
Court against Dove Audio, Inc. and Michael Viner alleging sexual harassment,
(the "Hammon Action") (Los Angeles Superior Court Case No. BC152664).  On
September 19, 1996, the Company and Michael Viner obtained a judgment of
dismissal which also provides for the recovery of costs and attorneys' fees in
their favor.

         The Company was served in July 1996 with a complaint in the action
entitled Terri Maxine Frankle and Jennie Luis Frankle v. Dove Audio (U.S.
District Court, Central District of California Case No. 96-4073 RSWL) (the
"Frankle Action"). This action relates to a claim that the plaintiffs were the
authors of "You'll Never Make Love In This Town Again" and alleges copyright
infringement and fraud. The plaintiffs' applications for a temporary
restraining order and preliminary injunction were denied for failure to
demonstrate a sufficient likelihood of success on the merits. At this time, no
trial date has been set. While the Company believes it has good, meritorious
defenses, there is no assurance that the Company will be able to successfully
defend itself in the Frankle Action.

         On June 17, 1996, the Company and Dove Four Point filed a complaint
against Shukri Ghalayini in the Superior Court for the State of California for
the County of Los Angeles. The complaint alleges, among other things, that Mr.
Ghalayini (i) breached his fiduciary duty to Four Point (now owned by the
Company) by diverting corporate assets to pay personal expenses, (ii) made
false representations to induce the Company and Dove Four Point to complete the
acquisition, including misrepresenting the tangible shareholders' equity of
Four Point as of the closing and diverting production funds and holding checks
previously drawn to pay accounts payable in order to meet a closing condition
that outstanding bank debt be below a specified level and (iii) made false
representations to induce Dove Four Point to enter into his employment
agreement.

         On June 17, 1996, Shukri Ghalayini filed a complaint against the
Company, Dove Four Point, Michael Viner and Charles Weber in the Superior Court
for the State of California for the County of Los Angeles. The complaint
alleges, among other things, (i) breach of employment contract against Dove Four
Point due to termination of his employment without good cause, adequate notice
or the opportunity to cure any alleged breaches and (ii) fraud in that
defendants allegedly never intended to perform pursuant to his employment
agreement.





                                       16
<PAGE>   18
                                       PAGE 17                 


Mr. Ghalayini seeks damages under his employment agreement estimated at not
less than $900,000, loss of future earnings during his work life expectancy
estimated at not less than $20,000,000, damages to his professional reputation
and from mental and emotional distress, punitive damages and attorney's fees.

         Although the Company believes that it has good and valid claims against
Mr. Ghalayini and good and meritorious defenses to his claims, there can be no
assurance that the Company will ultimately prevail in either of the two actions.

ITEM 5.  OTHER INFORMATION

         Effective as of August 1, 1996 Charles Weber has agreed to provide
consulting services to the Company on a project-by-project basis and will no
longer serve as Chief Operating Officer. Effective as of June, 1996, the Company
has retained Gerald Leider, Chairman of the Board, to provide various consulting
services on an on-going basis and to serve as Chairman of the Board of the
Company. Mr. Leider will receive annual compensation of $125,000, paid monthly
in arrears.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

   (a)   EXHIBITS

   10.1  Term Loan Agreement, dated August 16, 1996, by and between Sanwa Bank
         California and Dove Audio, Inc.

   10.2  Continuing Guaranty, dated as of August 16, 1996, of Michael Viner

   10.3  Continuing Guaranty, dated as of August 16, 1996, of Deborah Raffin

   10.4  Security Agreement, dated August 16, 1996, by and between Sanwa Bank
         California, Four Point Entertainment, Inc. and Dove Audio, Inc.

   10.5  Letter Agreement, dated September 12, 1996, by and between Dove
         International, Inc., Guinness, Mahon & Co. Limited, Samuelson 
         Entertainment Limited and Michael Viner

   27    Financial Data Schedule

   (b)   REPORTS ON FORM 8-K

   No reports on Form 8-K were filed during the quarter for which this report
   is filed.





                                       17
<PAGE>   19
                                    PAGE 18


                                   SIGNATURES

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



Date: November 13, 1996                DOVE AUDIO, INC.


                                       By  /s/ MICHAEL VINER
                                          -------------------------------
                                          Michael Viner,
                                          President (Chief Executive Officer)

Date: November 13, 1996

                                       By  /s/ LEE RUTTENBERG
                                          --------------------------------
                                          Lee Ruttenberg,
                                          Acting Chief Financial Officer




                                       18
<PAGE>   20
                                    PAGE 19



                               DOVE AUDIO, INC.
                              INDEX TO EXHIBITS
<TABLE>
<CAPTION>
   EXHIBIT                                                                         PAGE
   NUMBER                                                                         NUMBER
   ------                                                                         ------
      <S>     <C>
      27      Financial Data Schedule
</TABLE>





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