CONFORMED COPY
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

[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

For the transition period from

Commission file number                 0-21150

                             Graff Pay-Per-View Inc.
             (Exact name of registrant as specified in its charter)

Delaware                                                   11-2917462
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                             Identification No.)

                        536 Broadway, New York, NY 10012
                    (Address of principal executive offices)

                                 (212) 941-1434
              (Registrant's telephone number, including area code)

     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
filing requirements for the past 90 days.


Yes           X            No

Number of shares outstanding of Registrant's Common Stock as of October 31,
1996: 11,339,928

<PAGE>

                                     PART I

ITEM 1:  FINANCIAL STATEMENTS
GRAFF PAY-PER-VIEW INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>

                                                                            September 30,         December 31,
                                                                                     1996                 1995
 -------------------------------------------------------------------------------------------------------------
                                                                              (Unaudited)
 Assets
 Current assets:
<S>                                                                        <C>                  <C>       
    Cash and cash equivalents                                              $1,573,000           $1,483,000
    Accounts receivable, net of allowance for doubtful accounts             5,897,000            7,836,000
    Income tax refunds receivable                                             485,000              570,000
    Film and CD-ROM costs, net                                                                     400,000
    Prepaid expenses and other current assets                               1,261,000            2,391,000
    Deferred subscription costs                                               214,000              511,000
    Due from related parties                                                  426,000              364,000
    Investment in TeleSelect, asset held for sale                                                3,177,000
                                                                   -------------------  -------------------
                                  Total current assets                      9,856,000           16,732,000

 Property and equipment, net of accumulated depreciation                   68,019,000           70,771,000
 Due from related parties                                                      86,000              621,000
 Library of movies                                                          4,281,000            2,990,000
 Cost in excess of net assets acquired, net of
    accumulated amortization                                               10,494,000           10,961,000
 Other assets                                                                 868,000              403,000
                                                                   -------------------  -------------------
                                  Total assets                            $93,604,000         $102,478,000
                                                                   ===================  ===================

 Liabilities and Stockholders' Equity
 Current liabilities:
    Current portion of obligations under capital leases                    $4,455,000           $3,978,000
    Current portion of long-term debt                                      15,775,000            2,540,000
    Royalties payable                                                       2,178,000            2,611,000
    Accounts payable                                                        3,379,000            3,722,000
    Accrued expenses payable                                                2,871,000            2,241,000
    Current portion of accrued restructuring costs                            958,000            2,205,000
    Deferred subscription revenue                                           1,328,000            2,337,000
                                                                   -------------------  -------------------
                                  Total current liabilities                30,944,000           19,634,000

 Obligations under capital leases                                          54,826,000           56,230,000
 Long-term debt                                                             1,203,000           16,897,000
 Accrued restructuring costs                                                  875,000            1,450,000
 Deferred Income                                                              400,000
 Deferred compensation                                                        269,000              198,000
 Minority Interest                                                            301,000
                                                                   -------------------  -------------------
                                                                  
                                  Total liabilities                        88,818,000           94,409,000
                                                                   -------------------  -------------------

 Stockholders' equity
     Preferred stock, $.01 par value; authorized 10,000,000
      shares, none were issued or outstanding
     Common stock, $.01 par value; authorized 25,000,000 shares;
      11,340,000 and 11,358,000 shares issued and outstanding at
      September 30, 1996 and December 31, 1995,  respectively                 113,000              114,000
     Additional paid-in capital                                            22,645,000           22,997,000
     Unearned compensation                                                   (822,000)          (1,323,000)
     Accumulated (deficit)                                                (16,908,000)          13,438,000)
     Cumulative translation adjustments                                       209,000              210,000
                                                                   -------------------  -------------------
                                                                            5,237,000            8,560,000
     Stockholders' loan collateralized by common stock                       (451,000)            (491,000)
                                                                   -------------------  -------------------
                          Total stockholders' equity                        4,786,000            8,069,000
                                                                   -------------------  -------------------
                          Total liabilities and stockholders'             
                          equity                                          $93,604,000         $102,478,000
                                                                   ===================  ===================
              The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>

GRAFF PAY-PER-VIEW INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATIONS
(Unaudited)
<TABLE>


                                                                  THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                    SEPTEMBER 30,                       SEPTEMBER 30,
                                                                  1996         1995                 1996             1995
                                                             -----------     -----------         -----------      -----------
<S>                                                          <C>             <C>                 <C>              <C>        
Revenues:                                                    $10,240,000     $12,527,000         $30,894,000      $39,280,000
                                                             -----------     -----------         -----------      -----------

Operating expenses:
    Cost of goods sold                                           240,000          32,000            587,000           472,000
    Salaries, wages and benefits                               2,478,000       2,875,000          7,580,000         8,275,000
    Producer royalties and film cost amortization              1,185,000       1,473,000          4,022,000         4,749,000
    Satellite, uplinking and playback expenses                 1,290,000       3,019,000          3,460,000        10,093,000
    Selling, general and administrative expenses               2,919,000       4,716,000          8,748,000        13,463,000
    Depreciation of fixed assets and amortization
     of goodwill                                               2,075,000         736,000          6,147,000         2,021,000
                                                             -----------     -----------        -----------       -----------

         Operating expenses                                   10,187,000      12,851,000         30,544,000        39,073,000
                                                             -----------     -----------        -----------       -----------
             Total income (loss) from operations                  53,000        (324,000)           350,000           207,000

Interest expense                                               1,629,000         323,000          5,039,000           815,000
Loss on disposal of property and equipment                        47,000                             47,000                 0
Minority interest                                               (277,000)                          (740,000)
Gain on disposition of AGN                                                                         (875,000)
Provision for write down of related party note                   418,000                            418,000
                                                             -----------     -----------        -----------       -----------

Loss before provision for income taxes                        (1,764,000)       (647,000)        (3,539,000)         (608,000)

Provision (benefit) for income taxes                            (120,000)        555,000            (69,000)          824,000
                                                             -----------     -----------         -----------      -----------

              Net loss                                       ($1,644,000)    ($1,202,000)       ($3,470,000)      ($1,432,000)
                                                             ===========     ===========         ===========      ===========

Loss per common and common
    equivalent share, primary                                     ($0.14)         ($0.10)            ($0.31)           ($0.12)
                                                             ===========     ===========         ===========      ===========

Weighted average number of shares outstanding,
    primary                                                   11,340,000      12,071,000         11,354,000        11,713,000
                                                             ===========     ===========         ==========        ==========










                      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


<PAGE>

GRAFF PAY-PER-VIEW and SUBSIDIARIES
CONSOLIDATED STATEMENT of STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
-------------------------------------------------------------------------------


<TABLE>

                                                                                                            Foreign
                                                                                                           Currency
                                       Common        Paid-in           Unearned         Accumulated       Transaction
                                        Stock        Capital         Compensation        Deficit          Adjustment       Total
                                       -------     -----------       ------------      ------------       -----------   ----------
<S>                                  <C>           <C>               <C>               <C>                  <C>         <C>       
Balance, January 1, 1996             $114,000      $22,997,000       ($1,323,000)      $13,438,000)         $210,000    $8,560,000

Shares issued in connection 
   with the exercise of 
   employee options                                     27,000                                                             27,000
   
Pro rata share of Restricted 
   Stock granted to executive 
   officers                                                              121,000                                          121,000

Cancellation of Restricted 
   Stock issued to an 
   executive officer                  (1,000)         (379,000)          380,000

Net loss for the period                                                               (3,470,000)                     (3,470,000)

Foreign currency translation
   adjustment                                                                                               (1,000)       (1,000)
                                    --------       -----------       -----------      -----------          --------     ---------
                                     113,000        22,645,000          (822,000)    (16,908,000)          209,000     5,237,000
Less shareholders' loans                                                                                                (451,000)
                                    ========       ===========       ===========     ============       ===========   ===========
Balance at September 30, 1996       $113,000       $22,645,000         ($822,000)   ($16,908,000)         $209,000    $4,786,000
                                    ========       ===========       ===========     ============       ===========   ===========



                          The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


<PAGE>

GRAFF PAY-PER-VIEW INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
                                                                                                   NINE MONTHS ENDED
                                                                                                      SEPTEMBER 30,

                                                                                             1996                          1995
Cash flows from operating activities:                                 
<S>                                                                                       <C>                          <C>         
    Net income (loss)                                                                     ($3,470,000)                 ($1,432,000)
                                                                                   ------------------          -------------------

Adjustments to reconcile net income to net cash used in operating    
activities:
    Minority interest                                                                        (740,000)
    Gain on disposition of AGN and Property and Equipment                                    (875,000)
    Other, net                                                                                 33,000
    Depreciation and amortization of fixed assets                                           5,661,000                    1,290,000
    Amortization of goodwill                                                                  467,000                      682,000
    Amortization of film costs and CD-ROM costs                                               400,000                    1,183,000
    Amortization of library of movies                                                       1,032,000                      760,000
    Contributed capital                                                                                                     72,000
    Provision for bad debts                                                                   309,000                      236,000
    Compensation satisfied through the issuance of common stock                               121,000                      264,000
    Deferred compensation expense                                                              71,000                       49,000
    Loss (gain) on sale of equipment                                                           47,000                       (8,000)
    Changes in assets and liabilities:
         Decrease in accounts receivable                                                    1,602,000                      293,000
         Increase in film and CD-ROM costs                                                                              (2,971,000)
         Decrease in prepaid expenses and other current assets                                597,000                      277,000
         Decrease in deferred subscription cost                                               297,000                      190,000
         (Decrease) increase in royalties payable                                            (433,000)                     334,000
         Increase in accounts payable and accrued expenses                                    288,000                    1,068,000
         Decrease in accrued restructuring expenses                                        (1,822,000)
         Decrease in deferred subscription revenue                                         (1,009,000)                    (679,000)
         Decrease (increase) in loans receivable from officers                                513,000                     (305,000)
                                                                                   ------------------           ------------------
                  Total adjustments                                                         6,559,000                    2,735,000
                                                                                   ------------------           ------------------

                  Net cash provided by operating activities                                 3,089,000                    1,303,000
                                                                                   ------------------           ------------------

Cash flows from investing activities:
    Purchase of property and equipment                                                     (1,022,000)                  (3,771,000)
    Proceeds from the sale of equipment                                                        41,000                        5,000
    Investment in library of movies                                                        (1,677,000)                  (1,553,000)
    Investment in TeleSelect                                                                  (67,000)                  (2,526,000)
    Proceeds from the sale of TeleSelect                                                    3,244,000
    Increase in other assets                                                                                              (394,000)
    Investment in American Gaming Network                                                                                 (425,000)
                                                                                   -------------------          ------------------
                                                                                   -------------------          ------------------
                   Net cash (used in) provided by investing activities                        519,000                   (8,664,000)
                                                                                   -------------------          ------------------

Cash flows from financing activities:
    Proceeds from the issuance of common stock and detachable warrants                         27,000                       28,000
    Proceeds from capital contributed to CVSP by a third party                              1,000,000
    Proceeds from the issuance of long-term debt                                                                         9,085,000
    Repayment of long-term debt                                                            (1,684,000)                  (1,678,000)
    Repayment of obligations under capital leases                                          (2,861,000)
    Repurchase of outstanding warrants                                                                                     (25,000)
    Distribution to the former shareholders of SEG                                                                        (481,000)
                                                                                   ------------------            -----------------
                   Net cash (used in) provided by financing activities                     (3,518,000)                   6,929,000
                                                                                   ------------------            -----------------

                   Net increase (decrease) in cash and cash equivalents                        90,000                     (432,000)

Cash and cash equivalents, beginning of the period                                          1,483,000                    1,598,000
                                                                                   ------------------           ------------------

                   Cash and cash equivalents, end of the period                            $1,573,000                   $1,166,000
                                                                                   ==================           ==================



                      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>


GRAFF PAY-PER-VIEW INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996


     1.  In  the  opinion  of  Graff  Pay-Per-View  Inc.  and  its  wholly-owned
subsidiaries and  majority-owned  affiliates (the  "Company"),  the accompanying
consolidated  financial  statements contain all adjustments  (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of September 30, 1996 and the results of operations and cash flows for the three
and nine months then ended.

     2. The results of operations for the three and nine months ended  September
30, 1996 are not  necessarily  indicative  of the results to be expected for the
full year.

     3. The  accompanying  financial  statements  include  the  accounts  of the
Company,  its wholly-owned  subsidiaries and a majority-owned  partnership.  All
intercompany  transactions  and balances have been eliminated in  consolidation.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
("GAAP") have been condensed or omitted. These consolidated financial statements
should be read in  conjunction  with the financial  statements and notes thereto
included in the Company's December 31, 1995 annual report on Form 10K/A-1.

     4. The interim  periods  from 1995 have been  restated as a result of three
items which were  previously not accounted for in accordance with GAAP. In early
1995,  the Company  entered  into an  agreement  with AT&T to provide  satellite
services  for its  domestic  networks.  The  purpose of this new  agreement  was
twofold:  1) to replace the existing service provider which was at a much higher
per   transponder   rate  and,  2)  to  transition  the  Company's   transponder
requirements  to AT&T's new Telstar 402R satellite  which was scheduled to be in
operation by December, 1995. During the transition period (which occurred in the
first half of 1995) the Company  incurred  approximately  $1.0  million of added
satellite  costs by providing dual satellite  coverage to its customers  thereby
ensuring continuous  service.  The Company has restated the quarterly results of
operations for 1995 with respect to these domestic  satellite  costs. The effect
of this restatement was to reduce net income for the nine months ended September
30, 1995 by $0.3 million or $.03 per share and increase net income for the three
months  ended  September  30,  1996 by $0.3  million  or $0.03 per  share.  This
restatement  will continue  during the fourth quarter of 1995 when the reduction
of net  income  reflected  during  the first  half of 1995 will have  completely
reversed  itself.  In  addition,  during the first six months of 1995,  The Home
Video Channel, Ltd. ("HVC") the Company's  wholly-owned U.K. subsidiary received
free  satellite  services as an inducement  from its satellite  provider to move
from one  transponder to another within the same  satellite  grouping.  The free
satellite time was not reflected in the 1995 financial statements.  Accordingly,
the Company has restated the interim  results of operation  for 1995 to properly
reflect these free satellite  services.  The effect of this  restatement  was to
reduce net income for the nine months ended  September  30, 1995 by $0.1 million
or $0.01 per share.

     In February,  1995, the Company  launched  EUROTICA,  a European  satellite
delivered  subscription  network  based in  Denmark.  The Company  deferred  the
recognition of the operating losses associated with the EUROTICA operation until
the third and fourth  quarters of 1995.  This  deferral of  operating  losses is
inconsistent with generally accepted  accounting  principles.  Accordingly,  the
company has  restated  the results of  operations  for 1995 to properly  reflect
EUROTICA's  interim  operating  results.  The effect of this  restatement was to
reduce net income for the nine months ended  September  30, 1995 by $0.4 million
or $0.03 per share and increase net income for the three months ended  September
30, 1995 by $0.3 million or $0.03 per share.

     5. The following summary is presented to reconcile revenue and earnings for
the three and nine months ended September 30, 1995 as previously reported by the
Company with the amounts currently  presented in the Statement of Operations due
to the correction of certain accounting treatments (see Note 4):

For the Nine Months Ended September 30, 1995
<TABLE>
                                                                    Correction of
                                                  Previously          Accounting
                                                    Stated            Treatments          Restated
                                                ----------------    ---------------    ----------------
<S>                                               <C>                 <C>                   <C>        
                   Revenue                        $39,190,000            $90,000         $39,280,000
                   Net Income                       ($647,000)         ($785,000)        ($1,432,000)
                   EPS-Primary                         ($0.05)            ($0.07)             ($0.12)

For the Three Months Ended September 30, 1995
                                                                    Correction of
                                                  Previously          Accounting
                                                    Stated            Treatments          Restated
                                                ----------------    ---------------    ----------------
                   Revenue                         $12,540,000          ($13,000)       $12,527,000
                   Net Income                      ($1,939,000)         $737,000        ($1,202,000)
                   EPS-Primary                          ($0.15)            $0.06             ($0.10)

</TABLE>

     6. On August 31, 1995, the Company acquired,  by merger (the "SEG Merger"),
Spector  Entertainment  Group, Inc. ("SEG").  At the date of the SEG Merger, SEG
had a note receivable from Buccaneer Gaming, Inc. ("Buccaneer"), a developmental
corporation  owned by Eric M. Spector,  an officer and director of SEG. The note
is due in five equal annual installments commencing September, 1996. The payment
due September, 1996 was not made and Buccaneer has indicated to the Company that
it has no resources and will be unable to pay the note. Accordingly, the Company
has established a reserve for the full amount of the note ($418,000).

     7. As part  of the SEG  Merger,  the  shareholders  of  United  Transactive
Systems, Inc. ("UTI"), who were also SEG's stockholders prior to the SEG Merger,
granted the Company an option to acquire the UTI stock for a formula  determined
number of shares of the  Company's  common stock of no less than 100,000  shares
pursuant to a letter agreement dated August 14, 1995 as amended as of August 30,
1995. If the Company does not exercise its option,  the UTI shareholders may put
the UTI shares for the same number of shares of common  stock  determined  under
the  formula.  The  Company  may  issue  shares  of  common  stock  to  the  UTI
shareholders  without  being  obligated  to  acquire  the  UTI  shares.  The UTI
shareholders  have  exercised  their put and  demanded  that the  Company  issue
approximately  500,000  shares  of  common  stock to the UTI  shareholders.  The
Company  believes that the UTI  shareholders  are entitled to 100,000  shares of
common stock.

     8. As part of the Company's restructuring,  the Company has determined that
it would refocus on its core adult entertainment business. As a consequence, the
Board of Directors has  determined to analyze its available  options with regard
to SEG. One such transaction  under  consideration  involves spinning off SEG to
the former SEG  shareholders  in exchange for the 700,000 shares of common stock
of the Company  they  received in the SEG  Merger.  The former SEG  shareholders
believe  that they have been  damaged in an amount in excess of $8.0 million and
are seeking, as a part of any rescission transaction,  additional  consideration
including,  the  retention by the former SEG  shareholders  of the shares of the
Company's  common stock to be received upon exercise of the UTI put described in
Note 7 above.

     No assurances can be given that any  transaction  with regard to SEG can be
consummated or the terms thereof. If such a transaction cannot be consummated on
terms acceptable to the Company and the former SEG shareholders,  the former SEG
shareholders  have  indicated  that they  believe  they have claims  against the
Company  and are  considering  suing the  Company to rescind  the SEG Merger and
intend to seek monetary damages in any such action.

     9. On March 6, 1996, the Company  contributed the assets of the CABLE VIDEO
STORE network and certain other assets to CVS Partners ("CVSP"),  a newly formed
partnership  owned  75% by the  Company  and  25% by  WilTech  Cable  Television
Services,  Inc. ("WCTV"),  a wholly-owned  subsidiary of The WilTech Group, Inc.
("WilTech"). WCTV has two calls to acquire portions of the Company's partnership
interest  in CVS  Partners  at  formula  determined  prices;  if both  calls are
exercised, the Company's partnership interest will be reduced to 20%.

     As part of the contribution,  the Company entered into a Services Agreement
with CVS  Partners  to provide  certain  sales,  marketing,  administrative  and
operational  services to CVS  Partners  and granted CVS  Partners a royalty free
license of the CABLE VIDEO STORE name and related identity.  WCTV is required to
contribute  approximately  $2.6 million to CVS Partners'  capital (of which $1.0
million has been contributed as of September 30, 1996), part in cash and part by
a credit for  services  to be provided  to CVS  Partners  pursuant to a Services
Agreement  between Vyvx, Inc., an affiliate of WCTV, and CVS Partners to provide
services  relating to the  installation  and  operation of video file  services,
transmission services,  satellite uplink services and local access services from
the playback to the uplink facility.

     The parties are  currently  in  discussion  to revise their  interests  and
responsibilities  in CVSP. The parties are considering,  among other things, the
Company  agreeing to the  reduction  of its interest in CVSP in exchange for the
reduction  in the level of services the Company is obligated to provide to CVSP.
There are no assurances that these  discussions will result in a material change
to the current arrangement.

     10. The Company, Phillips Media B.V. ("Phillips") and Royal PTT Netherlands
NV ("KPN")  established  TeleSelect  B.V.  ("TeleSelect"),  a Netherlands  joint
venture,  to create joint ventures with European cable  operators to enable them
to provide  conditional access services.  On April 3, 1996, the Company sold its
TeleSelect  interest to Phillips  and KPN for $3.2  million,  an amount  roughly
equal to its cash  investment in  TeleSelect.  $1.0 million of the proceeds were
utilized  to pay down  long-term  debt and the  remaining  funds  were  used for
working capital.

     11. The Company  has a credit  facility  from PNC Bank,  N.A.  ("PNC"),  as
successor  in interest to Midlantic  Bank,  N.A.,  which at  September  30, 1996
amounts to $14.6 million. No further funds are available.  At December 31, 1995,
the  Company  had  violated  certain  financial  covenants.  Pursuant to a Third
Amendatory  Agreement dated March 29, 1996, PNC has (i) extended the term of the
loan until January 2, 1997, (ii) waived certain  financial  covenant  violations
through the date of the  agreement  and (iii)  eliminated  all of the  financial
covenants  for the balance of the loan's term except for the net worth  covenant
and a covenant requiring the Company to maintain specified levels of cash flows.
The  revised  net worth  covenant,  which was  revised  in  accordance  with the
Company's  projections,  requires  the  Company to  maintain a net worth  (after
adjusting the AT&T lease to an operating  lease) of at least $6.75 million as of
December 31, 1995,  $5.75 million from January 1, 1996 through June 29, 1996 and
at least $6.0 million through  January 2, 1997. The cash flow covenant  requires
the Company to maintain specified levels of cash flows in accordance with a cash
flow report  prepared by the Company and approved by PNC. PNC has also consented
to certain  transactions  relating to the restructuring  and other  transactions
including  permitting  HVC to  borrow  approximately  $750,000  from  a bank  in
England.

     12. On August  14,  1996,  the  Company  entered  into an  equipment  lease
agreement for approximately $1.8 million of equipment from Vendor Capital Group.
The lease was  accounted  for as a  capital  lease.  The  equipment  included  a
Digicipher encoder and approximately  1,200 decoder boxes which were provided to
the Company's  cable systems  customers.  This equipment  enabled the Company to
digitally compress its domestic television networks, freeing up two transponders
for other uses.

     13.  Pursuant to two  short-term  agreements  effective  as of September 1,
1996, the Company subleased one of its transponders,  made available as a result
of the digital  compression of the Company's  domestic  networks,  and agreed to
provide certain telecommunications  services to Emerald Media, Inc. ("EMI"). The
Company also agreed to license pictures from its adult film library and licensed
the "EUROTICA" name and related identity to EMI. EMI owns and operates EUROTICA,
a premium  television  network featuring  explicit version adult movies which is
distributed to the domestic  direct-to-home  C-band  satellite dish market.  EMI
also granted the Company an option to acquire its stock or business.

     14. The accompanying  financial statements have been prepared assuming that
the  Company  will be able to meet its  obligations  in the  ordinary  course of
business.  Management  believes that the restructuring  undertaken at the end of
1995 and the during the first half of 1996 has positively  influenced  cash flow
and  operating  results  for the first nine  months of 1996.  The  Company  also
expects  to  realize  significant  operational  efficiencies  from  the  digital
compression project which was recently  implemented.  As a direct result of this
project  the  Company  is  presently  exploring  various  opportunities  to take
advantage  of the excess  transponder  capacity  created by this  conversion  to
digital compression. The Company reported income from operations of $350,000 for
the nine months ending  September  30, 1996.  While the Company is servicing the
interest on its credit  facility from PNC, the Company does not  currently  have
the  resources  available  to repay the  principal  of this  obligation  when it
matures on January 2, 1997. When the loan matures,  the Company will be required
to obtain replacement  financing or alternative sources of capital.  There is no
assurance  that  the  Company  will be able to  obtain  such  financing  or,  if
obtained, that the terms of any such financing or alternative sources of capital
will not be more  costly then the  Company's  current  cost of capital.  PNC has
liens on substantially  all of the Company's assets. If the Company is unable to
locate  replacement  financing,  PNC  could  exercise  its  rights  as a secured
creditor and foreclose on its lien or force the Company into bankruptcy.

     15. The accrued  restructuring  reserve at January 1, 1996, March 31, 1996,
June 30,  1996 and  September  30, 1996 was  approximately  $3.7  million,  $3.0
million, $2.3 and $1.8 million,  respectively. The accrued restructuring reserve
is comprised of corporate level  restructuring  and the suspension of production
activities formerly conducted by CPV Productions,  Inc. ("CPV").  Each component
involved  contraction  of the  Company's  workforce  and  facilities  and  other
miscellaneous  costs  associated  with the  restructuring.  The balances of each
component at December 31, 1995,  March 31, 1996, June 30, 1996 and September 30,
1996 were as follows:
<TABLE>

                             December 31,        Cash     March 31,         Cash      June 30,        Cash     September
Corporate                            1995    Outflows          1996     Outflows          1996    Outflows      30, 1996
                            -------------- ----------- ------------- ------------ ------------- ----------- -------------
<S>                            <C>           <C>         <C>            <C>         <C>           <C>         <C>       
         Salaries              $2,750,000    $296,000    $2,454,000     $409,000    $2,045,000    $286,000    $1,759,000
         Facilities and Other     250,000     106,000       144,000       60,000        84,000      42,000        42,000
CPV
         Salaries                 464,000     138,000       326,000      151,000       175,000     143,000        32,000
         Facilities and Other     191,000     106,000        85,000       68,000        17,000      17,000             0
                            -------------- ----------- ------------- ------------ ------------- ----------- -------------
Total                          $3,655,000    $646,000    $3,009,000     $688,000    $2,321,000    $488,000    $1,833,000
                            -------------- ----------- ------------- ------------ ------------- ----------- -------------
</TABLE>

     16. Pursuant to a joint venture  agreement dated June 28, 1995, the Company
formed American Gaming Network,  J.V.  ("AGN") with TV Games,  Inc.  ("TVG"),  a
wholly-owned  subsidiary of Multimedia Games, Inc. ("MGAM"),  to jointly develop
and promote  high stakes  proxy play Class II tribal  bingo  games.  The Company
contributed  approximately  $1.4  million of  intellectual  property and working
capital to AGN's  capital.  The Company had acquired the  intellectual  property
from MGAM for cash and notes. In related transactions,  the Company acquired for
cash and  notes  275,000  shares of MGAM's  outstanding  stock and a warrant  to
acquire an additional  175,000  shares at an exercise  price of $3.50 per share.
The  parties  were  unable to agree on a business  plan or a strategy  for going
forward with AGN.

     Pursuant to a Purchase  Agreement dated June 28, 1996, the parties resolved
their differences with the Company giving up its interest in AGN and the 275,000
shares of MGAM stock in exchange  for (i) the  cancellation  of an  aggregate of
$775,000 of liabilities  owed to MGAM and TVG, (ii) $100,000  pursuant to a note
due on July 25,  1996 and (iii)  $400,000  due  pursuant  to a note due in three
years.  The Company retained a warrant to acquire 175,000 shares of common stock
of MGAM stock and the parties  released each other.  Due to the likelihood  that
the parties  would not  proceed  forward  with AGN and as part of the  Company's
restructuring  at December 31, 1995, the Company wrote off its investment in AGN
and the MGAM  stock.  As a result  of the  foregoing  transaction,  the  Company
recognized  a  nonrecurring  gain of  $875,000  in the second  quarter  and will
recognize an additional  nonrecurring gain of $400,000 when the $400,000 note is
paid.

     17. In 1995,  the Company  entered into  agreements  with IBM and others to
construct  a  master  control  and  digital  playback  center  (the  "Operations
Facility") at its New York City  headquarters.  IBM Credit  Corporation  ("ICC")
initially  provided  approximately $1.5 million of financing by entering into an
equipment  lease with the Company.  The  equipment  lease was accounted for as a
capital lease.  The Company  anticipates  putting the  Operations  Facility into
service  in the  first  quarter  of 1997,  a delay of more  than a year from the
anticipated  in-service  date. As a result of the delay,  the Company  suspended
making  payments under the equipment  lease.  The delay was  attributable to the
non-delivery  of certain  critical  equipment  which the Company now anticipates
will be delivered by year-end.  As a consequence and pursuant to agreements with
IBM and ICC, the equipment lease agreement has been revised.  ICC has agreed, in
principle,  to provide an  additional  $526,000 of  financing  to  complete  the
Operations Facility and to reduce the monthly lease payments to $37,000 from the
previous  monthly payment of $43,000.  If the  transaction is  consummated,  the
Company has agreed to resume making lease payments commencing February 1, 1997.

     18.  The  Communications  Decency  Act  of  1996  (the  "CDA")  included  a
provision,  Section  505,  which  required  full audio and video  scrambling  of
channels which are primarily  dedicated to sexually explicit  programming.  If a
multi-channel video program distributor (which includes a cable system operator)
cannot  comply  with the full  scrambling  requirement,  the  channel  cannot be
offered  during the hours when  children  are likely to be watching  television,
which,  has now been determined to be the hours between 6:00 a.m. and 10:00 p.m.
Spice and the Adam & Eve  Channel  (the  "SPICE  Networks")  which are owned and
operated by the Company, both feature "sexually explicit programming" within the
contemplation  of Section 505. Section 505 was scheduled to take effect on March
9, 1996. The Company filed an action in Delaware  District Court challenging the
constitutionality  of Section  505 and on March 7, 1996,  the Court  granted the
Company's  application for a temporary  restraining  order. On November 8, 1996,
the  Delaware  District  Court  denied the  Company's  motion for a  preliminary
injunction, however, pursuant to an order issued by the Delaware District Court,
Section 505 will not take effect until that court rules on the Company's  motion
to stay  enforcement  pending  appeal to the Supreme  Court.  The hearing on the
motion to stay will occur no earlier  than  November  27,  1996.  The CDA grants
Supreme Court review as a matter of right. The Supreme Court's  determination as
to the  provision's  constitutionality  will not be issued any earlier  than the
second quarter of 1997. If Section 505 takes effect,  management's best estimate
is that the Company's  revenues will be adversely  affected in the range of $2.4
million to $4.0 million.

     19. The Company has entered  into  agreements  with  Capital  Distribution,
Inc., d/b/a Cupid Network Television ("CNT") to provide  merchandising  services
on the SPICE Networks under the Amended and Restated Distribution  Agreement and
to provide audiotext services on the Spice Networks under the Telephone Services
Agreement  (collectively,  the "Agreements").  The Company believes that CNT has
breached the  Agreements and has issued notices of default to CNT. CNT responded
by filing an  Application  for a  Temporary  Restraining  Order  preventing  the
Company from terminating the Agreements and also commenced an arbitration  under
both  Agreements.  The Company  believes  that it has the  contractual  right to
terminate  the  Agreements  and will  seek such an order in the  arbitration  in
addition  to  monetary  damages.  CNT has sought to  prevent  the  Company  from
terminating  the  Agreements and for monetary  damages.  There are no assurances
that Company will be successful  in  terminating  the  Agreements or whether the
arbitrator  may seek to impose  monetary  damages  as a result of the  Company's
actions against CNT.

     20. The Company,  through CPV  Productions,  Inc.  ("CPV"),  a wholly owned
Company subsidiary,  is a defendant in Monopoli Studio,  Inc., et. al. v. Cinema
Products  Video,  Inc.,  et. al., an action  brought in U.S.  District  Court in
California. The complaint alleges, among other things copyright infringement and
seeks damages of approximately $1.6 million. The Company is vigorously defending
the  action  and  believes  it is  without  merit  and  that it has  meritorious
defenses.  The Company  also  believes the action is  frivolous.  The Company is
seeking indemnification from the former CPV shareholders.

     21. Eric M.  Spector,  as trustee of the Eric M. Spector  Revocable  Living
Trust (the "Trust") and a former Senior Vice President of the Company, has filed
a request under Delaware General  Corporation Law ("GCL") Section 220, to review
the Company's  stockholder list and substantially all of the Company's books and
records.  The Company  believes and has informed Mr. Spector that,  based on the
request  filed,  (i) the  Trust  only has the  right  to  review  the  Company's
stockholder list and (ii) the request to review other books and records fails to
state a "proper  purpose" under GCL Section 220 and has, as a consequence,  been
denied.

     On November  15, 1996,  the Trust filed an action in the Delaware  Chancery
Court seeking to compel the Company to produce the requested  books and records.
The  stated  purposes  of  demanding  these  books  and  records  were to obtain
information as to the Company's  financial  condition and determine  whether the
Company is being mismanaged for use in possible  litigation  against the Company
and its  current  and former  officers  and  directors.  The Company has not yet
responded but believes  that the Trust is not entitled to the requested  Company
books and records under GCL Section 220.


<PAGE>

Item 2:  Management Discussion and Analysis of
Financial Condition and Results of Operations
Graff Pay-Per-View Inc. and Subsidiaries


Results of Operations

     The  Consolidated  Statements  of  Operations  include  the  results of CVS
Partners,  a partnership  in which the Company owns,  since March 1, 1996, a 75%
interest.

Revenues

     Total  revenues for the nine months ended  September 30, 1996  decreased by
approximately  $8.4 million (21%) to  approximately  $30.9  million  compared to
total  revenues  of  approximately  $39.3  million  for the  nine  months  ended
September 30, 1995. Total revenues for the three months ended September 30, 1996
decreased by  approximately  $2.3 million (18%) to  approximately  $10.2 million
compared to total  revenue of  approximately  $12.5 million for the three months
ended September 30, 1995. The decrease in revenue is primarily attributable to a
decline in revenues from the  Company's  adult  networks in the domestic  C-Band
direct to home ("TVRO")  market,  the United  Kingdom direct to home markets and
the curtailment of film and television  production and  distribution by CPV as a
part  of the  Company's  restructuring  plan.  Offsetting  these  declines  were
revenues  from  the  domestic  direct  broadcast  satellite  system  market  and
EUROTICA,  one of the Company's European satellite delivered  networks,  of $0.9
million and $0.6 million for the nine month  period,  ended  September 30, 1996,
and $0.4 million and $0.1 million for the three month period ended September 30,
1996,  respectively.  The  Company  started  realizing  revenue  from the direct
broadcast  satellite system market in the second quarter of 1995 and EUROTICA in
the first quarter of 1995.

     In the  domestic  C-band TVRO  market,  several  competing  adult  explicit
services were launched during 1994 and 1995. The explicit adult services compete
directly with the SPICE and THE ADAM & EVE CHANNEL (the "SPICE Networks") in the
domestic  C-band TVRO market and have  resulted in a decline in revenues in this
market of  approximately  $4.9  million and $1.7  million for the nine and three
months ended September 30, 1996,  respectively,  as compared to the same periods
for 1995.  These explicit adult services are not  distributed by cable operators
and  therefore,  do not have an impact on the SPICE  Networks'  revenues  in the
cable market. As a result of this decline in revenues, the Company suspended the
distribution of the SPICE Networks  programming in the TVRO markets on September
1, 1996, effectively removing approximately $125,000 of revenues a month.

     In the United  Kingdom,  two new competing  adult services were launched in
the fourth  quarter of 1995. The new adult  services  compete  directly with THE
ADULT CHANNEL,  the Company's United Kingdom satellite  delivered adult network.
In addition, in the second half of 1995 THE ADULT CHANNEL switched satellites to
a  satellite  which  could  not be viewed  by many of its  existing  subscribers
without the  purchase of new  equipment.  These two factors  have  resulted in a
decline in revenues of approximately  $2.7 million and $0.9 million for the nine
and three months periods ended September 30, 1996, respectively,  as compared to
the same  periods  in  1995.  Revenues  from the  SPICE  Networks  cable  market
decreased by approximately  $0.6 million and $0.1 million for the nine and three
month periods ended September 30, 1996 ,  respectively,  as compared to the same
periods in 1995.  The  Company was able to  increase  the number of  addressable
households  with  access  to  the  SPICE  Networks  at  September  30,  1996  by
approximately  12% over the number of such  addressable  households at September
30,  1995 even  though the  Company  lost  approximately  8% of its  addressable
subscriber  base on July 1, 1995 as a result of the  disaffiliation  of the Time
Warner New York City cable system.  The increase in addressable  subscribers did
not translate into greater  revenues due to normal delays in realizing  revenues
from new  subscribers  and a reduction in the  Company's  share of revenues from
cable sales of the SPICE Networks. This reduction in license fees is a result of
increased   competition  in  the  Company's   market  segment  and  the  growing
concentration  in the  ownership of cable systems by multiple  system  operators
("MSOs"). Management expects this downward trend to slow and for license fees to
stabilize as a result of the Company  entering into  long-term  agreements  with
several of the major MSOs.

Expenditures

     Salaries,  wages and benefits  decreased by  approximately  $0.7 million to
approximately  $7.6  million for the nine  months  ended  September  30, 1996 as
compared to  approximately  $8.3 million for the same period in 1995.  Salaries,
wages and benefits for the three months ended  September  30, 1996  decreased by
approximately  $0.4  million  to  approximately  $2.5  million  as  compared  to
approximately $2.9 million in the same period for 1995. The decrease in salaries
is  primarily   attributable   to  the   Company's   Restructuring   Plan  which
significantly  reduced  personnel in its  corporate  operations  and  eliminated
substantially all of CPV's personnel.

     Producer  royalties and film cost amortization in the nine and three months
ended September 30, 1996 have decreased by  approximately  $0.7 million and $0.3
million as  compared  to the same  periods  in 1995.  The  decline is  primarily
attributable to the reduction in film cost amortization resulting from the write
down CPV's film and CD-ROM costs in the fourth quarter of 1995.

     In December,  1995, the Company entered into a service  agreement with AT&T
for the use of 5 transponders on Telstar 402R for the  satellite's  useful life,
estimated to be 12 years. The Company is using the transponders for broadcast of
its domestic networks (including broadcasting to the pari-mutuel industry by its
wholly-owned  subsidiary SEG). The transponder  agreement is being accounted for
as a  capital  lease as  required  by  Statement  of  Financial  and  Accounting
Standards No. 13, "Accounting for Leases".  As a result, the Company is required
to establish an asset and a corresponding offsetting interest bearing obligation
equal to $58.7 million,  the present value of the expected  future minimum lease
payments at the lease inception. The asset is depreciated,  on the straight-line
method,  over the  satellite's  estimated 12 year useful life.  The actual lease
payments  are  applied  against the  principal  and  interest of the  obligation
similar  to a fully  amortizing  mortgage  loan.  For  the  nine  months  ending
September 30, 1996 the Company  recognized  total expenses  attributable  to the
lease of  approximately  $7.7  million  comprised  of  depreciation  expense  of
approximately  $4.0 million and interest expense of approximately  $3.7 million.
Had the lease been accounted for as an operating  lease,  the Company would have
recognized approximately $1.5 million less in total expenses attributable to the
AT&T transponder lease for the nine months ending September 30, 1996.

     Satellite, playback and uplink expenses for the nine and three months ended
September  30,  1996 have  decreased  by  approximately  $6.6  million  and $1.7
million,  respectively, as compared to the same periods in 1995. The decrease is
primarily  attributable to the capitalized AT&T transponder lease as compared to
the treatment during the same periods in 1995 when domestic transponder expenses
were accounted as operating leases.

     Had the AT&T lease been accounted for as an operating  lease, the Company's
satellite  expense  for the nine  months  ended  September  30,  1996 would have
decreased by approximately  $0.4 million as compared to the same period in 1995.
The  decrease  in  satellite  expense  resulted  from   non-recurring   expenses
associated with dual satellite  coverage in the first half of 1995. The increase
in the number of domestic  transponders used by the Company has been effectively
offset by a reduction in the per transponder cost. Offsetting this reduction was
the  increase  in  satellite  expense  associated  with the  Company's  European
networks of approximately $0.7 million.

     Selling,  general and administrative expenses for the nine and three months
ended September 30, 1996 have decreased by  approximately  $4.7 million and $1.8
million,  respectively, as compared to the same periods in 1995. The decrease is
attributable  to,  among other  items,  the  suspension  of the  exploration  of
international  opportunities  and decrease in marketing,  advertising  and sales
promotions.  Also, the  implementation of the restructuring plan has contributed
to the reduction of selling,  general and administrative  expenses by suspending
the exploration of new businesses. The Company has also reduced selling, general
and  administrative  expenses by amending  the  Company's  travel  policies  and
reducing  employee benefits as well as overhead  expenditures.  Offsetting these
reductions  is an increase in legal fees  primarily  attributable  to litigation
with the  government  over  Section  505 of the  Communication  Decency Act (see
footnote 18) and an increase of $275,000 in the allowance for doubtful  accounts
relating to the  collection of  receivables  at CPV which was closed down during
1996.

     Depreciation of fixed assets and the  amortization of goodwill for the nine
and three months  ended  September  30, 1996  increased  by  approximately  $4.1
million and $1.3 million, respectively, as compared to the same periods in 1995.
Approximately  $4.0 million and $1.3 million for the nine and three months ended
September 30, 1996,  respectively,  was  attributable to accounting for the AT&T
transponder lease as a capital lease.

     Interest expense  increased by approximately  $4.2 million to approximately
$5.0  million for the nine months  ended  September  30, 1996 as compared to the
same period in 1995. Interest expense increased by approximately $1.3 million to
approximately  $1.6  million for the three months  ended  September  30, 1996 as
compared to the same period in 1995. Approximately $3.7 million and $1.2 million
of the  increase  for the  nine and  three  months  ended  September  30,  1996,
respectively,  is attributable to accounting for the AT&T transponder lease as a
capital lease and $0.6 million and $0.2 million of the increase is  attributable
to additional borrowings under the credit facility from PNC.

     The  provision  for  income  taxes  for the  three  and nine  months  ended
September  30, 1996  represents  a tax  benefit of  approximately  $120,000  and
$69,000, respectively as compared to a tax expense of approximately $555,000 and
$824,000 for the same periods in 1995. The tax benefit  realized in 1996 was the
result of a third quarter tax settlement  associated with the Company's European
HVC  operation.  The  income  tax  expense  in the three and nine  months  ended
September  30,  1995 was a result of the  income  generated  from the  Company's
European HVC operations.

Liquidity and Capital Resources

     At  September  30,  1996,  the  Company  had a working  capital  deficit of
approximately  $21.0 million  compared to a $2.9 million deficit at December 31,
1995.  The  decrease  in  working  capital  is  primarily  attributable  to  the
classification  of all of the  $14.6  million  of the  PNC  loan as  current  at
September  30, 1996 as compared to only $1.1 million  classified  as current and
$14.5 million classified as long-term at December 31, 1995. Also contributing to
the  decrease in working  capital was the  purchase of property  and  equipment,
additional investment in library of movies, principal payments on long-term debt
and principal payments on capital lease obligations (totaling $7.2 million).

     The Company  currently has a credit  facility from PNC which,  at September
30,  1996,  had a  principal  balance of $14.6  million.  No  further  funds are
available.  At December 31, 1995,  the Company had violated  certain  covenants.
Pursuant to a Third  Amendatory  Agreement  dated March 29, 1996, PNC has waived
those  violations  through  the  date of the  agreement,  eliminated  all of the
financial  covenants for the balance of the loan's term except for two financial
covenants,  net  worth  and  cash  flow  requirements,  which  were  revised  in
accordance with the Company's projections.

     The Company has obtained a commitment letter from a lender which includes a
line of credit.  The closing of the loan is dependent upon,  among other things,
the lender's  ability to acquire the credit  facility  from PNC at a substantial
discount. PNC has not yet indicated it's willingness to accept a discount on the
Company's  credit  facility and there are no assurances that the Company will be
able to  consummate  the  refinancing  transaction.  If the Company is unable to
obtain  replacement  financing when the loan matures on January 2, 1997, PNC, as
the Company's  senior secured lender,  could foreclose on its security  interest
and otherwise exercise its rights as a senior secured creditor.

     The  Company has reduced  expenses  in the areas of salaries  and  overhead
which  together with its sale of its TeleSelect  interest,  a federal income tax
refund  amounting to $457,000 and the  repayment of a $476,000  note owed by the
former  CPV  shareholders  currently  allowed  the  Company  to fund  day-to-day
operations.  The  Company  is  currently  in  discussions  with  parties  and is
evaluating its alternatives  concerning  additional  financing to repay its bank
debt and to fund the expansion of its core businesses and other future projects.
There  are no  assurances  that the  Company  will be able to  secure  alternate
financing  and to repay  all or a  portion  of the PNC  indebtedness  with  such
financing.

     The accrued  restructuring reserve at January 1, 1996, March 31, 1996, June
30, 1996 and September 30, 1996 was  approximately  $3.7 million,  $3.0 million,
$2.3 million and $1.8 million,  respectively.  The accrued restructuring reserve
is comprised of corporate level  restructuring  and the suspension of production
activities formerly conducted by CPV.

     The  cash  outflows  associated  with  the  accrued  restructuring  reserve
aggregated  approximately $0.7 million in each of the first two quarters of 1996
and $0.5 million in the third quarter of 1996. Company management  estimates the
cash outflows  associated with the restructuring will aggregate $0.4 million for
the quarter ended  December 31, 1996, and $0.8 million in 1997, and $0.7 million
in 1998.  Anticipated  expense savings from the  restructuring  are estimated to
aggregate  approximately  $6  million  in 1996  when  compared  to 1995,  with a
majority  of the  expense  savings in 1996  occurring  in the second half of the
year.

     Stockholders'  equity at September 30, 1996 was approximately  $4.8 million
compared to  approximately  $8.1 million at December  31,  1995.  The decline in
stockholders'   equity  was  primarily   attributable  to  interest  expense  of
approximately  $5.0  million  (see  "Transponder  Lease") and the  provision  to
writedown  the  Buccaneer  note  which  was  offset  by  minority   interest  of
approximately  $0.7 million and a gain on  disposition  of AGN of  approximately
$0.9 million.  The  Company's  income from  operations  was  approximately  $0.4
million for the nine months ended September 30, 1996.

     Net cash provided by operating  activities was  approximately  $3.1 million
for the nine months ended September 30, 1996 as compared to  approximately  $1.3
million  for the same  period  in 1995.  The  increase  in cash  from  operating
activities  was  primarily   attributable  to  the  increased  depreciation  and
amortization  of fixed assets and the decrease in purchases of films and CD-ROMs
for the nine months ended  September  30, 1996 as compared to the same period in
1995.  Offsetting these increases are cash outflows  associated with the accrued
restructuring  reserve at December  31,  1995,  gain on  disposition  of AGN and
losses  allocated  to the  minority  partner in CVS Partners for the nine months
ended September 30, 1996.

     Net cash provided by investing  activities was  approximately  $0.5 million
for the nine months ended September 30, 1996 as compared to  approximately  $8.7
million used in investing  activities  for the nine months ended  September  30,
1995.  The  increase  in cash  provided by  investing  activities  is  primarily
attributable  to the sale of  TeleSelect in April of 1996.  Contributing  to the
increase was the decline in purchases of property and equipment and  investments
in  TeleSelect  for the nine months ended  September 30, 1996 as compared to the
same period in 1995.

     Net cash used in financing  activities was  approximately  $3.5 million for
the nine months  ended  September  30, 1996 as  compared to  approximately  $6.9
million  provided  by  financing  activities  for the same  period in 1995.  The
decrease in cash provided from financing activities is primarily attributable to
repayments of a portion of the amount borrowed from PNC in the nine months ended
September  30, 1996 as compared to  additional  borrowings in the same period in
1995.  Contributing to the decrease in cash provided by financing activities was
the treatment of the  Company's  domestic  satellite  lease in 1996 as a capital
lease.  Offsetting these declines is the capital contribution to CVS Partners by
the minority partner.

<PAGE>



                           PART II - OTHER INFORMATION

Item 1:   Legal Proceedings

         1.  Graff Pay-Per-View Inc., et. al v. United States.  (See Note 18)

         2.  Capital Distribution, Inc. v. Spice, Inc.  (See Note 19)

         3.  Monopoli Studio, Inc., et. al. v. Cinema Products Video, Inc.,
             et. al.  (See Note 20)

         4.  Eric M. Spector as Trustee v. Graff Pay-Per-View Inc.  
             (See Note 21)

Item 4:   Submission of Matters to a Vote of Security Holders

A.       The Company's Annual Meeting of Shareholders was held on July 23, 1996.

B.       The motions before the shareholders were:

         1.  To elect six Directors of the Company to serve for the ensuing 
             year.
<TABLE>

          Name of Director                       Votes For     Votes Against         Votes Withheld       Abs
<S>                                              <C>              <C>                    <C>             <C>  
          J. Roger Faherty                       5,189,039         --                    3,427,357        --
          Edward M. Spector                      7,413,293         --                    1,203,103        --
          Leland H. Nolan                        4,930,552         --                    3,685,844        --
          Dean Ericson                           7,309,013         --                    1,307,383        --
          Christopher Yates                      7,771,364         --                      845,032        --
          Rudy R. Miller                         7,379,613         --                    1,236,783        --
</TABLE>

         2.  To approve the Amendment of Certificate of Incorporation to change 
             the Company's Name to Spice Entertainment Companies, Inc.

                            Votes For                                8,076,454
                            Votes Against                              501,642
                            Votes Withheld                                  --
                            Abstentions                                 38,300
                            Broker Nonvotes                                 --

         3.  To approve adoption of the 1995 Restricted Stock Incentive Plan.

                            Votes For                                5,940,241
                            Votes Against                            2,225,011
                            Votes Withheld                                  --
                            Abstentions                                119,397
                            Broker Nonvotes                                 --

         4.  To approve the amendments to the 1994 and 1994 Employee's Stock 
             Option Plans.

                            Votes For                                4,472,879
                            Votes Against                            3,740,608
                            Votes Withheld                                  --
                            Abstentions                                 71,162
                            Broker Nonvotes                                 --

         5.  To approve the selection of Coopers & Lybrand LLP, independent 
             public accountants, as auditors for the Company for the fiscal 
             year ended December 31, 1996.

                            Votes For                                8,524,741
                            Votes Against                               48,400
                            Votes Withheld                                  --
                            Abstentions                                 43,255
                            Broker Nonvotes                                 --

Item 6:  Exhibits and Reports on Form 8-K


(a)  Exhibits -                     Exhibit 11.01 - Compensation of Earnings 
                                    Per Share

                                    Exhibit 27.00 - Financial Data Schedule

(b)  Reports on Form 8-K -          None


<PAGE>




                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf of the
undersigned, thereunto duly authorized.

                                               GRAFF PAY-PER-VIEW INC.




                                               By:  /s/ Harlyn C. Enholm
                                                    Harlyn C. Enholm
                                                    Executive Vice President
                                                    & Chief Financial Officer







November 19, 1996





<PAGE>



                                                                  Exhibit 11.01
                    GRAFF PAY-PER-VIEW INC. and SUBSIDIARIES
                        COMPUTATION of EARNINGS PER SHARE
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
                                   (Unaudited)

<TABLE>
                                                                                      1996                      1995
                                                                               ----------------------    ---------------------- 

Primary

<S>                                                                                     <C>                       <C>         
Net Income                                                                              ($3,470,000)              ($1,432,000)
                                                                               ----------------------    ---------------------- 

Weighted average number of common shares outstanding                                     11,354,000                11,713,000
                                                                               ======================    ======================

Earnings per share                                                                           ($0.31)                  ($0.12)
                                                                               ======================    ======================

Note to Primary Earnings Per Share:
EPS calculation does not include common stock equivalents because this
would have an anti-dilutive effect on the loss per share



</TABLE>



<PAGE>

                                                                  Exhibit 27.00


                         SUMMARY FINANCIAL DATA SCHEDULE
                  FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1996


     This schedule  contains summary  financial  information  extracted from the
Form 10-Q for the quarter ended September 30, 1996 of Graff Pay-Per-View Inc.


     



<PAGE>