<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-12193
AFFINITY ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2473403
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15436 North Florida Avenue, Suite 103, Tampa, Florida 33613
(Address of principal executive offices) (Zip Code)
(813) 264-1778
(Registrant's telephone number, including area code)
AFFINITY TELEPRODUCTIONS, INC.
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X . No .
Registrant has 12,284,217 shares of Common Stock outstanding as of August
6, 1996.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Quarter Ended Nine Months Ended
---------------------- ------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUE.......................................... $ 153 $ 294 $ 1,956 $ 711
COSTS AND EXPENSES:
Cost of revenue...................................... 337 191 1,798 471
General and administrative expenses.................. 713 364 1,826 1,375
------ ------ ------- -------
Total costs and expenses........................... 1,050 555 3,624 1,846
------ ------ ------- -------
Operating profit/(loss)............................ (897) (261) (1,668) (1,135)
OTHER INCOME (EXPENSE)............................... 18 (14) 203 (45)
------ ------ ------- -------
Net earnings (loss).................................. $ (879) $ (275) $(1,465) $(1,180)
====== ====== ======= =======
Net earnings (loss) per common share................. $ (.12) $ (.06) $ (.20) $ (.28)
====== ====== ======= =======
Weighted average shares outstanding.................. 7,354 4,424 7,211 4,269
====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
June 30, Sept. 30,
1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.................................................. $3,120 $ 147
Accounts Receivable, net................................................... 467 548
Prepaid television air time................................................ -- 4,657
Program cost inventory..................................................... 1,567 1,647
Prepaids................................................................... 208 --
------ ------
Total current assets ................................................... $5,362 $6,999
PROPERTY AND EQUIPMENT, at cost
Production equipment....................................................... 1,197 1,079
Other equipment............................................................ 305 300
------ ------
1,502 1,379
Less accumulated depreciation........................................... 1,021 910
------ ------
481 469
OTHER ASSETS
Loan receivable............................................................ 600 487
Due from officers and employees............................................ 93 --
Investment in joint venture................................................ 500 --
Other assets............................................................... 7 77
------ ------
Total other assets...................................................... 1,200 564
------ ------
Total assets.......................................................... $7,043 $8,032
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - (Continued)
- - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
June 30, Sept. 30,
1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable........................................................... $ -- $ 293
Notes payable - related parties............................................ -- 681
Notes payable - others..................................................... 15 291
Accrued liabilities........................................................ 112 344
Deferred revenue........................................................... -- 206
------- -------
Total current liabilities............................................... 127 1,815
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.0001 par value, $50 stated value,
2,000,000 shares authorized, 100,000 issued
and outstanding......................................................... -- 5,000
Convertible preferred stock, $1 par value, $10 stated
value, 500,000 shares authorized, 48,734 shares
issued and outstanding.................................................. 487 487
Common stock - $.10 par value, 25,000,000 shares authorized,
12,284,217 and 5,999,220 shares issued and
outstanding, respectively............................................... 1,228 600
Paid-in capital............................................................ 52,286 4,637
Paid-in capital - stock options............................................ 394 --
Deficit.................................................................... (3,191) (1,726)
------- -------
51,204 8,998
Less:
Stock subscriptions receivable............................................. 43,829 2,781
Unearned compensation...................................................... 459 --
------- -------
Total stockholders' equity.............................................. 6,916 6,217
------- -------
Total liabilities and stockholders' equity............................ $ 7,043 $ 8,032
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Convertible Convertible
Preferred Preferred Common Paid-In
Stock Stock Stock Additional Capital
$50 Stated $10 Stated $.10 Par Paid-In Stock
Value Value Value Capital Options Deficit
- - ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance on Sept. 30, 1995............ $5,000 $487 $ 600 $ 4,637 $ -- $(1,726)
Cancellation of preferred stock...... (5,000) -- -- -- -- --
Stock Options issued................. -- -- -- -- 540 --
Issuance of Common Stock:
Stock Options Exercised............. -- -- 28 582 (146) --
Private Placement................... -- -- 600 47,067 -- --
Unearned compensation related
to grant of stock options to
executives.......................... -- -- -- -- -- --
Amortization of unearned
compensation........................ -- -- -- -- -- --
Cash received on subscriptions
receivable.......................... -- -- -- -- -- --
Net loss for the nine months
ended June 30, 1996................ -- -- -- -- -- (1,465)
----- ---- ----- ------- ---- -------
Balance on June 30, 1996............. $ -- $487 $1,228 $52,286 $394 $(3,191)
====== ==== ====== ======= ==== =======
- - ------------------------------------------------------------------------------------------------------------------------------------
Stock
Subscription Unearned
Receivable Compensation Total
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance on Sept. 30, 1995............ $(2,781) $ -- $ 6,217
Cancellation of preferred stock...... -- -- (5,000)
Stock Options issued................. -- -- 540
Issuance of Common Stock:
Stock Options Exercised............. -- -- 464
Private Placement................... (43,000) -- 4,667
Unearned compensation related
to grant of stock options to
executives.......................... -- (540) (540)
Amortization of unearned
compensation........................ -- 81 81
Cash received on subscriptions
receivable.......................... 1,952 -- 1,952
Net loss for the nine months
ended June 30, 1996................ -- -- (1,465)
------- ------ -------
Balance on June 30, 1996............. (43,829) $(459) $ 6,916
======== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Nine Months Ended
------------------------------------
June 30, June 30,
1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows - Operating Activities:
Net earnings (loss).......................................................... $(1,465) $(1,180)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization............................................ 340 112
Provision for losses on accounts receivable.............................. 28 --
Other assets............................................................. 70 (1)
Amortization of unearned compensation related to grant
of stock options to executives........................................ 81 --
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable ............................ 53 (18)
(Increase) decrease in program cost inventory.......................... (149) (348)
(Increase) decrease in prepaid television time ....................... 79 119
(Increase) decrease in prepaids ....................................... (208) --
Increase (decrease) in accrued liabilities............................. (900) 398
Increase (decrease) in deferred revenue................................ (206) 16
------ -------
Net cash provided by(used in) operating activities.................. (2,277) (902)
Cash Flows - Investing Activities:
Capital expenditures......................................................... (95) (11)
Investments in loans receivable.............................................. (600) --
------- --------
Net cash provided by (used in) investing activities................. (695) (161)
Cash Flows - Financing Activities:
Proceeds from sale of common stock .......................................... 6,650 283
Proceeds from notes payable.................................................. 145 653
Principal payments on notes payable.......................................... (850) (148)
Additional capital contributions............................................. -- 283
------- -------
Net cash provided by (used in) financing activities................. 5,945 1,071
------- -------
Increase (decrease) in cash and cash equivalents............................. 2,973 8
Cash and cash equivalents at beginning of period............................. 147 3
------- -------
Cash and cash equivalents at end of period................................... $ 3,120 $ 11
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Distribution
On February 23, 1994, CBNI Development, Inc., ("Company"), incorporated
in the State of Delaware acquired all of the issued and outstanding common stock
of Affinity Teleproductions, Inc., a corporation organized in the State of
Florida in a transaction accounted for as a reverse acquisition. Subsequently,
the Company changed its name to Affinity Teleproductions, Inc.
On August 31, 1994, the Company acquired Broadcast Edit, Inc., a
California corporation for 50,000 shares of common stock in a transaction
accounted for as a pooling of interests.
On May 28, 1996, the Company changed its name to Affinity
Entertainment, Inc.
The Company produces, sells and edits television programs, commercials,
informercials, videos and feature films for the home and industrial markets
domestically and internationally.
Note B - Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include
the accounts of the Company and its wholly-owned subsidiary. All significant
intercompany accounts, transactions, and profits have been eliminated.
The Condensed Consolidated Financial Statements are unaudited and
should be read in conjunction with the audited Consolidated Financial Statements
and notes thereto for the fiscal year ended September 30, 1995.
In the opinion of management, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist only of normal recurring items. Interim
results are not necessarily indicative of results for a full year. The Condensed
Consolidated Financial Statements and notes hereto are presented as permitted by
the Securities and Exchange Commission and do not contain certain information
included in the Company's annual Consolidated Financial Statements and notes
hereto as discussed above.
Note C - Significant Events
On May 3, 1996, the Company rescinded an agreement with Access America,
Inc.("Access America"). Under the terms of the Agreement, dated May 8, 1993, the
Company sold 100,000 shares of convertible preferred stock in return for $5
million worth of satellite broadcast air time. Despite numerous requests, Access
America has failed to provide the Company with information that is vital to the
Company's ability to successfully sell the air time. The Company believes that
Access America's failure to deliver such information indicates that it does not
have the ability to deliver the air time that is has contracted to provide and
that rescission of the agreement is the only way to protect the Company and its
shareholders. As a result of the rescission, the 100,000 shares of preferred
stock were immediately canceled. Moreover, in reliance on Access America's
contractual undertaking, the Company and its assignees have consumed $46,575 of
the air time. A check for this amount was forwarded to Access America but
returned to the Company.
On June 4, 1996, the Company signed a letter of intent to purchase a
majority interest in Century Technologies, Inc. ("Century"), a Colorado
corporation that is in the business of distributing film and
7
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
television products to worldwide markets. The letter of intent is contingent
upon the Company's satisfactory completion of is due diligence. Century is
currently delinquent in filing its last Form 10-K, and the aforementioned
transaction will not be completed until that situation is corrected, and until
the Company has a reasonable assurance that some of the transactions completed
by previous management will bear no significant detrimental consequences to the
Company in the future. As of August 7, 1996, the Company has loaned Century
approximately $225,000 on an unsecured basis.
Pursuant to the Offshore Securities Subscription Agreement (the
"Agreement"), dated June 25, 1996, the Company sold four million shares of its
common stock (the "Shares") at $10 per share (discounted at four percent upon
completion of the offering), payable in United States Dollars for a total
consideration of $40 million, subject to a discount of $1.6 million if fully
paid by Baron Banker Limited ("Baron") of Ontario Canada. The Shares are
entitled to all rights to cash or property distributions, dividends, interest
paid by coupon or otherwise, distribution of certificates, warrants, rights,
stocks or cash representing subdivision, combination, reclassification, merger,
buy-out, acquisition, redemption, exchange or any such other corporate or
government action pertaining to or involving the ownership rights of the Shares.
The $2 million paid by Baron upon the closing of the transaction will
be held in escrow pending Baron's ability to margin the Shares upon the
expiration of the forty day restricted period required by the Securities Act of
1933, as amended, and Regulation S promulgated thereunder. The remaining $38
million has been paid in the form of a promissory note (the "Note"), not bearing
interest. The principal balance of the Note shall be paid in one monthly
installment in the amount of $1 million on August 1, 1996, seventeen consecutive
monthly installments in the amount of $2 million each, beginning on September 1,
1996, with final payment due February 1, 1998 of $3 million. Such final payment
is subject to a $1.6 million discount for complete satisfaction. Payment shall
be due by wire transfer on the 1st day of each and every month.
Under the terms of the Agreement, Baron agreed, until such time as the
Note is paid in full, to appoint the management of the Company as its proxy to
exercise any voting or consensual rights pertaining to or arising from the
ownership of the stock.
For a period of ninety days after the Company receives the final
payment on the Note, the Company or its designees shall, at the sole discretion
of the Company, have the option to acquire the Shares from Baron in exchange for
an amount equal $12 per share, or fifty percent of the average bid price offered
for the ten days prior to the exercise of the option, whichever is greater.
Note D - Interest Income
Pursuant to the Offshore Securities Deferred Subscription Agreement
(the "Agreement"), dated January 24, 1996, the Company sold one million shares
(the "Shares") of common stock at $5 per share to Philmont A.V.V. ("Philmont").
The shares were paid for with a promissory note ("the Note") for $5 million at a
rate of ten percent per annum. Unless the Note is paid in full, no rights to
cash or property distributions, dividends, interest paid by coupon or otherwise,
distribution of certificates, warrants, rights, stocks or cash representing
subdivision, combination, reclassification, merger, buy-out, acquisition,
redemption, exchange or any such other corporate or government action pertaining
to or involving the ownership rights of the Shares transferred hereunder. The
Note may not be prepaid, in whole or in part, in advance. Upon expiration of the
term of the Note, the Company shall in its sole discretion, have the option to
acquire the shares subscribed herein by Philmont in exchange for the full
cancellation of the Note. The Company presently intends to exercise its
8
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
option to reacquire such shares. By agreement of the parties, the Shares are
subject to a stop transfer order and may not be transferred for a period of
twelve months from the closing of the transaction without express written
consent of the Company. The Company does not foresee any circumstances under
which such consent would be forthcoming.
As of June 5, 1996, Philmont was in default of its interest payments
totaling approximately $83 thousand to the Company under the Agreement. The
Company has demanded that the default be cured immediately, and the return of
the stock certificates representing the Shares.
Note E - Income Taxes
The Company provides for the tax effects of transactions reported in
the Condensed Consolidated Financial Statements. The provision, if any, consists
of taxes currently due plus deferred taxes related primarily to differences
between the basis of assets and liabilities for financial and income tax
reporting. The deferred tax assets and liabilities, if any, represent the future
tax return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. As of June
30, 1996 the Company had no material current tax liability, deferred tax assets,
or liabilities.
Note F - Loss Per Share
The loss per share of common stock is calculated by dividing net loss
by the weighted average shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents include shares issuable
upon conversion of the Company's convertible preferred stock and exercise of the
Company's outstanding warrants and stock options. For the quarter and nine
months ended June 30, 1996 and 1995, common stock equivalents were anti-dilutive
and were not included in the calculation of the weighted average common shares
outstanding.
Note G - Reclassifications
Reclassifications to the June 30, 1995 consolidated statement of
operations were made to conform to the June 30, 1996 presentation.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
A. RESULTS OF OPERATIONS
The following is a discussion of material changes in the consolidated
results of operations of Affinity Entertainment, Inc. and its subsidiary (the
"Company") which occurred in the quarter and nine months ended June 30, 1996
compared to the quarter and nine months ended June 30, 1995.
Quarter and Nine Months Ended June 30, 1996 vs. Quarter and Nine Months Ended
June 30, 1995
The following tables summarize the changes in selected operating items,
including dollar changes, percentage changes and percent of net revenues for the
quarter and nine months ended June 30, 1996 compared to the quarter and nine
months ended June 30, 1995:
<TABLE>
<CAPTION>
Quarter Ended Line Item % of Net
June 30, June 30, $ Change % Change Revenue
1996 1995 Fav./(Unfav.) Fav./(Unfav.) 1996 1995
---- ---- ------------- ------------- ---- ----
(In thousands, except %)
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................... $ 153 $ 294 $ (141) (48)% 100% 100%
Cost of revenue................ (337) (191) (146) (76) (220) (65)
General and administrative
expenses...................... (713) (364) (349) (96) (466) (124)
----- ---- ----- ---- ----
Operating profit (loss)........ (897) (261) (636) (244) (586) (89)
Other income
(expense)..................... 18 (14) 32 229 12 (5)
----- ---- ----- ---- ---
Net earnings (loss)............ $(879) $(275) $(604) (220) (574) (94)
===== ===== ===== ==== ===
Nine Months Ended Line Item % of Net
June 30, June 30, $ Change % Change Revenue
1996 1995 Fav./(Unfav.) Fav./(Unfav.) 1996 1995
---- ---- ------------- ------------- ---- ----
(In thousands, except %)
Net revenue.................... $ 1,956 $ 712 $1,244 175% 100% 100%
Cost of revenue................ (1,798) (472) (1,326) (281) (92) (66)
General and administrative
expenses...................... (1,826) (1,375) (451) (33) (93) (193)
------- ------ ------ --- ----
Operating profit (loss)........ (1,668) (1,135) (533) (47) (85) (159)
Other income
(expense)..................... 203 (45) 248 511 10 (7)
------- ------ ------ --- ---
Net earnings (loss)............ $(1,465) $(1,180) $ (285) (24) (75) (166)
======= ======= ====== === ====
</TABLE>
10
<PAGE>
Net Revenue
For the quarter ended June 30, 1996, the decrease in revenues is
primarily due to the Company's emphasis on the acquisition and formation of
strategic alliances with entities that will complement its business plan to
produce and distribute quality television series and motion pictures for the
worldwide marketplace. Management decided not to air its two completed episodes
of "EdenQuest", in the United States, until it has completed negotiations with
several entities, so that it can ensure the maximization of its revenues.
Additionally, the Company is in pre-production for its first motion picture "The
Bet" (working title), which began actual filming July 22, 1996.
For nine months ended June 30, 1996, the increase in revenues is
primarily due to the Company's television project, "EdenQuest", and all of its
ancillary sources of income, and its "The Contemporary Collectibles Show"
series. The Company has produced three original episodes, and a compilation
("best of") of its popular "EdenQuest" television series. The third and fourth
episodes have not yet been telecasted on free television or basic cable, as the
Company is currently negotiating with several major networks for the licensing
of the entire series. The Company currently derives income for this project from
five different sources: 1) domestic syndication, 2) foreign sales, 3)
pay-per-view, 4) merchandising, and 5) home video. The Company produced 14
episodes of "The Contemporary Collectibles Show", staring Morgan Brittany. The
show is currently in hiatus, and the Company has made no determination whether
it will produce any additional episodes.
In March of 1995, the Company entered into an agreement to form a
strategic alliance with Krofft Entertainment, Inc. ("Krofft") for the possible
development of "Land of the Lost", one of their flagship series, into a
theatrical film by Disney, a home video series and two children's series for
major television networks. The Company has contributed $500 thousand towards
this limited partnership. Subsequent to the signing of this agreement, Disney
signed an agreement to option the rights to create a theatrical release of "Land
of the Lost", and is currently in the development stage. The Company does not
expect any revenues from the Disney movie unless or until Disney exercises the
option and proceeds to produce the film. The Company does not expect to derive
any significant revenues for approximately one year. Additionally, the Company's
$500 thousand investment is collateralized by Krofft's children's home video
library.
Cost of Revenue
The significant increase in cost of revenue over the quarter and nine
months ended June 30, 1996, can be attributed to several factors. Television
distributors commissions are paid by the Company based on total cumulative sales
of "EdenQuest". As sales in "EdenQuest" increase, so do commission percentages.
In addition, the Company delayed the launch of the second season of "The
Contemporary Collectibles Show", due to a variety of factors, including the
uncertainty regarding the availability of its satellite air time. As a result,
the Company took a one time charge of approximately $125,000 to operations for
expenses incurred in connection with the Lifetime Channel.
General and Administrative Expenses
For the quarter and nine months ended June 30, 1996, the increase in
general and administrative expenses is primarily due to exceptionally high
professional expenses as the Company seeks to position itself to make
acquisitions and expand its operations into feature films and distribution.
Further, the Company prepaid all of its equipment leases at Broadcast Edit, Inc.
its wholly-owned subsidiary, with pre-payment penalties present on many of the
leases.
Additionally, the Company terminated its merger talks with Sid & Marty
Krofft Productions, Inc. After completing its due diligence, management decided
that it was not in the best interests of the Company's
11
<PAGE>
shareholders to move forward with the merger. Management did offer the Krofft's
an alternative proposal that would have better protected the Company's
shareholders. The Krofft's declined this revised offer. Consequently, the
Company took a one time charge of approximately $175,000 to operations for
expenses related to the proposed merger. In addition to the $500 thousand
investment in Krofft Entertainment, Inc., the Company loaned Krofft $600
thousand on an unsecured basis, while conducting its due diligence during the
merger discussions. The Company is currently attempting to negotiate agreeable
terms for the repayment of loan.
Other Income (Expense)
For the quarter and nine months ended June 30, 1996, the increase in
other income (expense) is primarily due to the recognition of stock subscription
interest income.
As of June 5, 1996, Philmont was in default of its interest payments
totaling approximately $83 thousand to the Company under the Agreement. The
Company has demanded that the default be cured immediately, and the return of
the stock certificates representing the Shares.
12
<PAGE>
B. FINANCIAL POSITION, LIQUIDITY, AND CAPITAL RESOURCES
The significant increase in cash flow for the nine months ended June
30, 1996 as compared with the same period last year, is primarily attributable
to the proceeds of the sale of common stock of the Company.
The Company anticipates that cash flow by sales of restricted common
stock via private placements and loans will be adequate to meet the Company's
expected needs for fiscal 1996.
The Company loaned Krofft Entertainment, Inc. $600 thousand on an
unsecured basis, while conducting its due diligence during its merger
discussions. The Company is currently attempting to negotiate agreeable terms
for the repayment of loan.
Other than as discussed above, the Company is not aware of any known
trends or uncertainties that have or are reasonably likely to have a material
effect on the Company's liquidity, capital resources, or operations.
13
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of Affinity Entertainment, Inc.
was held on May 30, 1996. Each share of Common and Preferred Stock entitled its
holder to one vote.
(1) The stockholders approved the amendment to the Company's Certificate
of Incorporation to increase the number of shares of common stock
authorized for issuance from 10,000,000 to 25,000,000 as follows:
Common Stock
--------------
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares
of Common Stock of Common Stock of Common Stock
Cast in Favor Cast Against Abstaining
------------- ------------ ----------
<S> <C> <C> <C>
4,811,088 87,405 0
Preferred Stock
---------------
Number of Shares Number of Shares Number of Shares
of Preferred Stock of Preferred Stock of Preferred Stock
Cast in Favor Cast Against Abstaining
------------- ------------ ----------
48,734 0 0
</TABLE>
(2) The stockholders elected the following four Directors of the Company
to hold office until the next annual meeting of stockholders or until
their successors have been elected as follows:
Common and Preferred Stock
--------------------------
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of Common Stock
Of Common Stock For Which Authority
Director Cast in Favor Withheld
-------- ------------- --------
<S> <C> <C> <C>
John W. Benton 3,990,877 1,000,000
William J. Bosso 3,990,877 1,000,000
James E. Farrell 3,990,877 1,000,000
Thomas P. Rowan 3,990,877 1,000,000
</TABLE>
14
<PAGE>
(3) The stockholders voted as follows in approving the proposal to
ratify the appointment of Weinberg, Pershes & Company, P.A. as the
Company's independent auditors for fiscal 1996:
Common Stock
------------
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares
of Common Stock of Common Stock of Common Stock
Cast in Favor Cast Against Abstaining
------------- ------------ ----------
<S> <C> <C> <C>
4,918,193 12,100 0
Preferred Stock
---------------
Number of Shares Number of Shares Number of Shares
of Preferred Stock of Preferred Stock of Preferred Stock
Cast in Favor Cast Against Abstaining
48,734 0 0
</TABLE>
(4) The stockholders voted as follows to amend the first article of the
Company's Certificate of Incorporation to change the name from
Affinity Teleproductions, Inc. to Affinity Entertainment, Inc.:
Common Stock
------------
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares
of Common Stock of Common Stock of Common Stock
Cast in Favor Cast Against Abstaining
------------- ------------ ----------
<S> <C> <C> <C>
4,908,898 14,695 0
Preferred Stock
---------------
Number of Shares Number of Shares Number of Shares
of Preferred Stock of Preferred Stock of Preferred Stock
Cast in Favor Cast Against Abstaining
------------- ------------ ----------
48,734 0 0
</TABLE>
(5) The stockholders voted as follows for approval of the 1996 Stock
Option Plan:
Common Stock
<TABLE>
<CAPTION>
------------
Number of Shares Number of Shares Number of Shares
of Common Stock of Common Stock of Common Stock
Cast in Favor Cast Against Abstaining
------------- ------------ ----------
<S> <C> <C> <C>
2,002,166 1,097,011 1,000,000
</TABLE>
15
<PAGE>
Preferred Stock
---------------
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares
of Preferred Stock of Preferred Stock of Preferred Stock
Cast in Favor Cast Against Abstaining
------------- ------------ ----------
<S> <C> <C> <C>
48,734 0 0
</TABLE>
This proposal did not receive the required number of votes to be
approved.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
(1) The Company filed a report on Form 8-K on May 3, 1996
containing disclosure related to Item 2 of Form 8-K
(Acquisition or Disposition of Assets):
a) Impairment of Satellite Broadcast Air Time
b) Common Stock Transactions
No financial statements were included in this report.
(2) The Company filed a report on Form 8-K on June 25,
1996 containing disclosure related to Item 2 of Form
8-K (Acquisition or Disposition of Assets):
a) Issuance of 4,000,000 shares of Common Stock to
Baron Banker Limited.
No financial statements were included in this report.
16
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARY
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AFFINITY ENTERTAINMENT, INC.
Date: 8/19/96 /s/ William J. Bosso
------- -------------------------------
William J. Bosso, President
Date: 8/19/96 /s/ Tayra An Cox
------- ------------------------------------------
Tayra An Cox, Principal Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,120,000
<SECURITIES> 0
<RECEIVABLES> 467,000
<ALLOWANCES> (20,875)
<INVENTORY> 0
<CURRENT-ASSETS> 5,362,000
<PP&E> 1,480,323
<DEPRECIATION> (1,021,000)
<TOTAL-ASSETS> 7,043,000
<CURRENT-LIABILITIES> 127,000
<BONDS> 0
0
487,340
<COMMON> 1,228,421
<OTHER-SE> 5,200,239
<TOTAL-LIABILITY-AND-EQUITY> 7,043,000
<SALES> 1,956,000
<TOTAL-REVENUES> 1,956,000
<CGS> 1,798,000
<TOTAL-COSTS> 1,798,000
<OTHER-EXPENSES> 3,624,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,000
<INCOME-PRETAX> (1,465,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,465,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,465,000)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
