AFFINITY ENTERTAINMENT INC, 10KSB/A, 1997-03-24

AFFINITY ENTERTAINMENT INC
10KSB/A, 1997-03-24
MOTION PICTURE & VIDEO TAPE PRODUCTION

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-KSB
AMENDMENT NO. 1
(Mark One)
[ X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1996

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
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.)

15310 Amberly Drive, Suite 370, Tampa, Florida 33647
(Address of principal executive offices) (Zip Code)

(813) 975-8180
(Registrant's telephone number, including area code)

AFFINITY TELEPRODUCTIONS, INC.
15436 North Florida Avenue, Suite 103, Tampa, Florida 33613
(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 .
--- --
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.

The issuer's revenues for its most recent fiscal year were $2.1 million.

The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of September 30, 1996 was $48,424,644.50.

Registrant has 8,284,217 shares of Common Stock outstanding as of December
31, 1996.
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES

Form 10-KSB Annual Report

TABLE OF CONTENTS

Page No.
--------
PART I
Item 1 DESCRIPTION OF BUSINESS.................................... 3
Item 2 DESCRIPTION OF PROPERTY.................................... 7
Item 3 LEGAL PROCEEDINGS.......................................... 7
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 8

PART II
Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS................................................... 9
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS....................... 10
Item 7 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA...................................................... 15
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 32

PART III
Item 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 32
Item 10 EXECUTIVE COMPENSATION..................................... 33
Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 34
Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 35

PART IV
Item 13 EXHIBITS AND REPORTS ON FORM 8-K........................... 36
<PAGE>
PART I

ITEM I. DESCRIPTION OF BUSINESS

Affinity Entertainment, Inc. (the "Company") is a Delaware corporation
which commenced its operations in the teleproduction and motion picture business
under its current management in 1994. Affinity's initial broadcast media
products were short feature television programs about destination resorts and
collectibles which were aired primarily on pay-per-view and cable television.
The Company, since its beginnings in 1994, has significantly broadened its
business operations to include the production of feature films and television
programs, the editing of movies and television products, distribution of
broadcast media properties world wide and investment in broadcast media
properties which management believes have commercial value.

Business Activities

The Company is engaged in the production and distribution of feature
films, television programming, documentaries, commercials and videos for the
home and industrial markets in the United States and internationally. The
Company performs post-production editing services for programming produced
internally by the Company and externally by outside parties through its
wholly-owned subsidiary, Broadcast Edit, Inc. The Company owns "Bounty Hunters"
and distributes this television series to the U.S. television syndication
marketplace through its Tradewinds Television, Inc. subsidiary. Additionally,
the Company currently participates in the distribution of entertainment products
to the foreign marketplace, as well as to domestic cable television and
pay-per-view, through Century, a 76% owned subsidiary. The Company also
participates in strategic partnerships in which the Company provides financing
and its expertise to projects of other companies in return for a percentage of
the revenues generated by the project.

The Company plans to intensify its efforts on the feature film portion
of its business. The Company has named William J. Macdonald as President of
Affinity Entertainment Group, Inc., a wholly-owned subsidiary formed to manage
the Company's feature film production business. Mr. Macdonald is currently
producing several outside feature films: "The Saint", starring Val Kilmer and
Elizabeth Shue at Paramount Pictures and "Lucky Strike", directed by Ridley
Scott and "Air Reno" for Hollywood Pictures, an action-adventure about flying
daredevils. He held the position of Vice President of Business Affairs for Siren
Pictures before becoming President/Partner of The Robert Evans Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
Foster, "Buster" starring Phil Collins and "The Two Jakes" starring Jack
Nicholson and Harvey Keitel. He is also credited as Co-Producer on "Sliver" and
Executive Producer on
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"Jade".

The Company has completed production of its first motion picture
entitled "Men Seeking Women," which was co-produced with MPH Entertainment,
Inc.("MPH"). Delivery of the final cut and promotional trailer is expected
January 20, 1997. The Company has paid for the picture in full and owns a 50%
interest in gross revenues with the remaining 50% owned by MPH. Pursuant to its
agreement with MPH, the Company is to recoup its investment in the film prior to
the payment of any deferred compensation or the distribution of profits.

The Company also owns the rights to several feature film screenplays
including "Lucifer in Cameo" written by Philip J. Lasker, purchased from Kazmark
Entertainment, Inc., and "Elvis and Leon" written by Dick Christie and Joe
Lerer, purchased from Paramount Pictures. The Company may finance and produce
these projects internally or elect to package them and sell its rights in these
projects to other production companies or motion picture studios depending on
the Company's financial condition and banking relationships.

The Company is also co-producing "Looking Beyond," a television series
about the paranormal, with First Television which is owned and operated by Mac
and Bradley Anderson ("Sightings," "Encounters," "The PSI Factor," and "Alien
Autopsy"). The show will be hosted by Linda Bonell. The Company is introducing
the show through its subsidiary, Tradewinds Television, Inc., at the National
Association of Television Program Executives (NAPTE) in January 1997. The show
is expected to air in domestic syndication beginning in the fall of 1997.

The Company is developing a made for television movie based in Monaco.
Jorge Zamacona, (Millennium and Homicide) has agreed to act as Executive
Producer. Funding for the development is being negotiated at the present time.

On October 31, 1996, the Company purchased a 76% interest in Century
Technologies, Inc. ("Century"), a publicly-held Colorado corporation that is in
the business of distribution film and television products to worldwide markets.
Under the terms of the Stock Acquisition Agreement between the parties, the
Company purchased 37,500,000 Units of Century for $0.08 per unit. Each Unit
consists of one (1) share of Century Common Stock at $.0001 par value ("Century
Common Stock") and one (1) Common Stock purchase warrant to purchase one (1)
share of Century Common Stock at $2.00 per share ( the "Warrants"). The Units
are immediately separable into their component parts. In consideration for the
transfer of the Units, the Company paid Three Million Dollars ($3,000,000) to
Century consisting of (i) the conversion to equity of Four Hundred Thousand
Dollars ($400,000) cash previously advanced by the Company to Century, (ii) Two
Hundred Thousand Dollars ($200,000) cash, and (iii) a negotiable one-year
promissory note payable by the Company to Century in the amount of Two Million
Four Hundred Thousand Dollars ($2,400,000)(the "Promissory Note") which is
secured by the Company's stock.

The Promissory Note bears interest at a rate of eight percent (8%) per
annum and is secured by two (2) shares of Series D Preferred Stock of the
Company, par value $1.00 (the "Series D Preferred Stock"). Each share of Series
D Preferred Stock shall be convertible into 750,000 shares of the Company's
Common Stock convertible only in the event of default by the Company on the
Promissory Note. The Series D Preferred Stock is not entitled to any voting or
dividend rights of any kind. Notwithstanding the foregoing, the Company shall
have the right to provide such substitute collateral as the Company and Century
may mutually agree upon in writing. The Series D Preferred Stock will be held in
escrow by Century's counsel (the "Escrow Agent") until such time as the
Promissory Note is paid in full or substitute collateral is provided by the
Company. The Company believes that the acquisition of Century will enable the
Company to implement its business plan of becoming heavily vested in the U.S.
and foreign distribution of both feature films and television programming.

On September 13, 1996, the Company and Tradewinds Television, LLC, a
California Limited Liability
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Company ("Tradewinds"), entered into an Interim Financing and Security Agreement
(the "Security Agreement") pursuant to which Tradewinds granted the Company, as
security for the repayment by Tradewinds of certain loans to be made by the
Company, a first priority lien on substantially all of Tradewinds' assets (the
"Assets"). The Assets include accounts receivable, the name and mark "Tradewinds
Television," the rights to the syndicated television series "Bounty Hunters" and
distribution rights to certain other television products. As of November 19,
1996, the Company loaned Tradewinds an aggregate of approximately $823,000 (the
"Loans") pursuant to the Security Agreement. Concurrently, with the execution of
the Security Agreement, the Company and Tradewinds engaged in negotiations
pursuant to which the Company would purchase substantially all of the Assets.
The parties entered into an Asset Purchase Agreement, dated October 3, 1996, as
amended, to provide for such acquisition. The sale of the assets was contingent
upon the satisfactory resolution by Tradewinds of various bankruptcy issues
concerning other companies affiliated with Royeric Pack, the owner of
Tradewinds.

On November 14, 1996, the Company filed a complaint in Los Angeles
Superior Court asserting that Tradewinds had defaulted under the Loans and the
Security Agreement, and seeking judicial foreclosure on the Assets, among other
claims. On December 6, 1996, Tradewinds in lieu of foreclosure on the Assets by
the Company, agreed to transfer and assign to the Company the Assets, subject to
certain payables associated therewith, in consideration of Affinity forgiving
the indebtedness evidenced by the Loans. Such indebtedness, including interest
and related costs and expenses, was approximately $1,000,000. Also on December
6, 1996, the Company entered into an Executive Producer Agreement with Mr. Pack,
providing executive producing services in connection with the "Bounty Hunter"
series. Pursuant to such agreement, Mr. Pack received a $75,000 payment on
December 6, 1996 for the first production season, and is entitled in the second
production season to a fee of $3,000 per episode, payable upon airing of each
such episode.

On December 17, 1996, the Company agreed with the Trustee of Action
Media Group, Inc., a company affiliated with Mr. Pack and which is the subject
of a bankruptcy court proceeding ("AMG"), to pay $275,000 to the Trustee of AMG,
and to secure in exchange a release of certain claims by the Trustee and AMG
against Tradewinds and the Company with regard to indebtedness owed by
Tradewinds to AMG and the assignment of Assets by Tradewinds to the Company in
lieu of foreclosure, as described above. On December 18, 1996, the Court having
jurisdiction over the AMG bankruptcy proceeding approved the $275,000 payment
and release among AMG, Tradewinds and the Company.

Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.

In October 1996, the Company reached an agreement in principal with a
European entity in which the entity has agreed to lend $48.4 million to the
Company. The loan will bear interest at a rate of 9% per annum over a five year
period. The Company will pledge as collateral for the loan one hundred (100)
shares of Series C Convertible Preferred Stock, to be created upon closing, that
can be converted by the lender into Common Stock of the Company under certain
conditions of repayment of the loan, but in no instance at a price less than
$10.00 per common share. Upon conversion of the Series C Preferred Stock to
Common Stock, the holder of the Series C Preferred Stock shall also receive an
additional number of shares equal to 10% of the number of shares as calculated
above. In no event is greater than 40% of the outstanding principal of the loan
to be converted to equity in any twelve (12) month period. Any common shares
and/or preferred shares issued upon conversion of the loan to equity will not be
sold, transferred or assigned in the absence of an effective registration
statement under the Securities Act of 1933, as amended, or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the insurance company may require amendments to the terms of
the transactions prior to the issuance of the loan, but that it expects the
insurance guarantee to be issued in January 1997. However, there can be no
assurance that the insurance guarantee will be issued at that time, or at all.

Broadcast Edit is a video production and post-production company. It
provides a full range of services
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including film editing and producing videos for such related industries located
primarily in California. The facilities of Broadcast Edit include a full-service
television production facility with two editing bays, studios and offices.
Broadcast Edit also provides directing and editing services to producers of
television programming including music videos, corporate productions,
advertising and sports programs. Clients have included: Geffen Records, Island
Records, Elecktra Records, ABC, NBC, ESPN and Disney.

The Company owns 79% of a series entitled "EdenQuest". Each one-hour
special transports the viewer to an exotic location with a marquee hostess and
six international swimsuit models, as they explore paradise. The first episode
starred Pamela Anderson of Baywatch fame. The show was shot on location in Bora
Bora in French Polynesia. The second episode was filmed at Paradise Island,
Bahamas and starred Anna Nicole Smith. The third episode was filmed in Maui,
Hawaii and starred Sandra Taylor. The Company has also produced a fourth episode
which is a compilation or "best of" episode. The Company derives "EdenQuest"
revenues from domestic syndication, pay-per-view, foreign markets, home video
and merchandising.

In March 1995, the Company entered into an agreement to form a
strategic alliance with Sid and Marty Krofft Productions, Inc. ("Krofft") for
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 $500,000 towards this
limited partnership. Subsequent to signing this agreement, Disney signed an
agreement to option the rights to create a theatrical release of "Land of the
Lost", that 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 in fiscal year 1997. It is the Company's position that the
Company's $500,000 investment is collateralized by Krofft's children's home
video library. The Company has established a reserve of $250,000 for this
investment.

On July 26, 1995, the Company entered into a letter of intent leading
towards a merger of the Company with Krofft and on April 17, 1996, the Company
terminated the letter of intent. The Company had advanced $600,000 to Krofft in
contemplation of the merger. As of September 30, 1996, the Company has
established a reserve for the entire $600,000.

On December 9, 1996, the Company filed suit against Krofft to recover
these advances. The suit, filed in the United States District Court Central
District of California against Krofft Entertainment et al., alleged breach of
contract, fraud and money due and owing with regard to the above mentioned
transactions. The case is in its preliminary stage and no outcome can be
predicted at this time.

All of the Company's products and projects can be sold or licensed for
exhibition on domestic and international cable and broadcast television
networks. Company personnel, supplemented by commissioned agents, execute the
sales and marketing activities in the domestic market, and representation in
international markets is accomplished through the use of commissioned sales
agents.

Competition

Competition in the feature film, television production and the foreign
and domestic distribution industries for air time, talent, viewership and
product is intense. Competitors of the Company include established television
and film production companies, television syndicators and international
distributors many of which have significantly greater financial resources than
the Company. Accordingly, the Company is considered to be one of the smaller
entities in a highly competitive market. However, the profits of an enterprise
involved in the feature film and television industry are greatly dependent upon
the audience appeal of each creative product, relative to the cost of the
product's purchase, development, production and distribution. Audience appeal
depends upon factors which cannot be reliably ascertained in advance and over
which the Company and its competitors have little or no control, such as
unpredictable critical reviews and changing

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public tastes. The Company believes that the diversity of audience appeal
provides the Company with an opportunity to improve its competitive position in
the industry.

Government approval is not required for the production of the Company's
products nor the rendering of services. The Company is not dependent upon any
one or a group of customers. Approximately fifteen persons are employed by the
Company, and free lance persons are engaged as needed.

CBNI Development Company, Inc. ("CBNI"), formerly Computerized Buying
Network, Inc., was incorporated in the State of Delaware on February 4, 1983. On
February 23, 1994, CBNI acquired 100% of all the issued and outstanding common
stock of Affinity Teleproductions, Inc., a Florida corporation, in a transaction
qualifying as a tax-free reorganization and changed its name to Affinity
Teleproductions, Inc. now Affinity Entertainment, Inc. CBNI was engaged in a
shopping service business until May 28, 1992, at which time it ceased operations
with no business assets. On May 30, 1996, the Company changed its name to
Affinity Entertainment, Inc.

On August 31, 1994, the Company acquired Broadcast Edit, Inc.
("Broadcast Edit"), a California corporation organized on January 30, 1992, for
50,000 of its restricted common shares in a transaction accounted for as a
pooling of interests. Broadcast Edit is in the video production and
post-production business.

On April 4, 1995, the Company formed a new wholly-owned subsidiary,
Affinity Entertainment Group, Inc., to manage the Company's feature film
production business.

On December 9, 1996, the Company formed a new wholly-owned subsidiary,
Tradewinds Television, Inc., for the purposes of operating a domestic television
syndication company. The Company transferred the assets of Tradewinds
Television, LLC to this new subsidiary.

ITEM II. DESCRIPTION OF PROPERTY

The Company's corporate and administrative offices are located at 15310
Amberly Drive, Suite 370, Tampa, Florida 33647. The Company's subsidiary,
Broadcast Edit, Inc., is located at 10482 Noel Street, Suite 101, Los Alimitos,
California 90720. The Company's subsidiary, Affinity Entertainment Group, Inc.,
is located at 2828 Donald Douglas Loop North, 2nd floor, Santa Monica,
California 90405. The Company's subsidiary, Tradewinds Television, Inc., is
located at 5855 Topanga Canyon Boulevard, Suite 420, Woodland Hills, California
91367. All locations of the Company are leased.

The Company is currently considering consolidating all of its
California operations in one facility. The Company anticipates no future
problems in renewing or obtaining suitable leases for its principal properties.

ITEM III. LEGAL PROCEEDINGS

Access America, Inc.

On April 16, 1996, the Company exercised its express and absolute right
to rescind the Agreement of Sale dated May 8, 1993 (the "Agreement") between
Thoro-Cap, Inc., now Affinity Entertainment, Inc. (the "Company"), and Access
America, Inc., by reversing the previously recorded prepaid broadcast air time
for approximately $4.8 million and canceled the 100,000 shares of Convertible
Preferred Stock issued in connection with this Agreement.

Access America filed suit in Delaware Chancery Court on October 2, 1996
requesting the issuance of 100,000 shares of preferred stock and conversion of
these preferred shares into $5,000,000 worth of common stock of the Company up
to a maximum of 9% of the outstanding common stock of the Company. On January 7,
1997, the Court granted the Company's motion to dismiss the complaint of Access
America on procedural grounds. On January 8, 1997, Access America filed a notice
of appeal to the Delaware Supreme Court. Although the Company believes that it
will ultimately prevail in this matter, there can be no assurance that this will
be the case or that a material adverse effect will not result.

Lehman Brothers International

Pursuant to the Offshore Securities Subscription Agreement dated
January 24, 1996 (the "Agreement"), on February 23, 1996, the Company sold one
million (1,000,000) shares of Common Stock of the Company at $5.00 per share
(the "Shares") to Philmont A.V.V. ("Philmont"). 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 the express
written consent of the Company.

As a condition of the first transaction, pursuant to the Offshore
Securities Deferred Subscription Agreement dated January 24, 1996 (the "Deferred
Agreement"), on February 23, 1996, the Company sold an additional one million
(1,000,000) shares of the Common Stock of the Company at $5.00 per share to
Philmont (the "Deferred Shares"). The Deferred Shares were paid for with a
promissory note for $5 million at an interest rate of 10% per annum. Unless the
Promissory Note described above is paid in full, the holder of the Deferred
Shares will have 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,

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redemption, exchange, or any such other corporate or government action
pertaining to or involving the ownership rights of the Deferred Shares. The
Promissory Note may not be prepaid, in whole or in part, in advance. Upon the
expiration of the term of the Promissory 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 Promissory Note. By agreement of
the parties, the Deferred 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 the express written consent of the Company.

Since June 5, 1996, Philmont is in default of its interest payments to
the Company. Despite numerous written demands, Philmont failed to cure the
default. Therefore, on June 21, 1996, the Company exercised its express right
under the Deferred Agreement and demanded return of the Deferred Shares for
retirement to treasury within 72 hours of receipt of the demand. Philmont has
failed to return the shares to the Company.

Lehman Brothers International ("Lehman") has obtained possession of the
Shares and Deferred Shares. On November 27, 1996, Lehman filed a complaint in
Delaware Chancery Court seeking to compel the Company to register the 2,000,000
shares (including the Deferred Shares) in the name of Lehman free of
restriction. The Company believes that Lehman, if entitled to the Philmont
Shares, must take such shares subject to all restrictions agreed to by Philmont.
The Company plans to vigorously contest the complaint. However, if successful,
the lawsuit could have a material adverse effect on the Company. The case is in
a preliminary stage and no outcome can be predicted at this time.

Sid and Marty Krofft Productions, Inc.

Other Proceedings
- -----------------

In December 1996, the Company received a subpoena duces tecum for
records from the Philidelphia District Office of the Securities and Exchange
Commission in connection with a formal investigation being conducted by that
office. The investigation appears to involve the activities of four brokerage
firms which have been involved in the offer and sale of the securities of
several companies, including those of the Company. The Company is cooperating
with the Commission's staff conducting the investigation.

On February 21, 1996, Century Technologies, Inc. was informed that an
informal inquiry of Century and certain of its transactions had been initiated
by the Southeast Regional Office of the Securities and Exchange Commission.
Century has cooperated with the investigation. On September 13, 1996, the staff
of the Commission notified Century that it intended to recommend that the
Commission institute a cease and desist order against Century based on
allegations that Century had violated various provisions of the securities laws.
The Company believes that any securities law violations pertaining to Century
occurred under former management prior to the Company's acquisition of Century.
The Commission's staff indicated in a letter to Century that "no action will be
recommended against any of Century's present officers, directors or employees."

ITEM IV. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.
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PART II

ITEM V. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") Small Cap Market
(Symbol: AFTY). The Company's Common Stock has been traded since November 30,
1994.

Fiscal Year High Low
- ----------- -------- -------

1995
- ----
First Quarter........................................ $ 5.75 $ 2.875
Second Quarter....................................... 5.1875 3.00
Third Quarter........................................ 6.00 3.625
Fourth Quarter....................................... 7.25 3.875

1996
- ----
First Quarter........................................ 6.50 4.50
Second Quarter....................................... 7.625 5.25
Third Quarter........................................ 10.00 4.875
Fourth Quarter....................................... 9.875 6.00

The bid prices reported for these periods reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not represent actual
transactions.

The closing bid price per share as of December 31, 1996 was $1.625 and
there were approximately 328 stockholders of record as of that date.

The Company has paid no cash dividends on its common stock to date.
However, on November 1, 1996, the company announced its intention to issue a
dividend to each Affinity shareholder of record at a date to be determined, of
one Century unit for each common share of Affinity, These units will be
distributed once a registration statement is effective. Payment of cash
dividends is within the discretion of the Company's Board of Directors and will
depend on, among other factors, earnings, capital requirements and the operating
and financial condition of the Company. At the present time, the Company
anticipates retaining future earnings, if any, in order to finance the
development of its business activities.

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ITEM VI. MANAGEMENT'S DISCUSSION AND ANALYSIS

The Company produces feature films, television programs, commercials,
documentaries and videos for all media worldwide.

A. RESULTS OF OPERATIONS

The following table summarizes the changes in selected items, including
absolute dollar changes, percentage changes and percent of net revenue for the
fiscal year ended September 30, 1996 compared to the fiscal year ended September
30, 1995:
<TABLE>
<CAPTION>
% of Net
Line Item Revenue
$ Change % Change ---------------
1996 1995 Fav./(Unfav.) Fav./(Unfav.) 1996 1995
---- ---- ------------- ------------- ---- ----
(In Thousands, except %)
<S> <C> <C> <C> <C> <C> <C>
Net Revenue ................ $ 2,078 $ 1,231 847 69 % 100% 100%
Cost of revenue .......... 1,046 325 (721) (222) 51 26
General and administrative 3,533 1,399 (2,134) (153) 170 114
Depreciation and
amortization ........... 1,904 307 (1,597) (520) 91 25
------- ------- ------- ----- ----
Operating loss ............. (4,405) (800) (3,605) (450) (212) (65)
Other income, net .......... 237 (86) 323 376 11 (7)
------- ------- ------- ----- ----
Net loss ................... $(4,168) $ (886) $(3,282) (370) (201) (72)
======= ======= ======= ===== ====
</TABLE>

Net Revenue

For the fiscal year ended September 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 telecast on free television or basic cable, as the
Company plans to syndicate these episodes through its subsidiary, Tradewinds
Television, Inc., for airing in the summer of 1997. 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 and aired 14 episodes of "The Contemporary
Collectibles Show", starring Morgan Brittany. The Company does not plan to
produce any additional episodes.

Cost of Revenue

For the fiscal year ended September 30, 1996, the significant increase
in cost of revenue 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 canceled 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

For the fiscal year ended September 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 and the uncollectiblity of
the
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Company's advances and investment in Krofft (see Item III. Legal Proceedings).
Additionally, 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. Further, the Company hired additional staff to better implement it
business plan and increased salaries of some key personnel to levels
commensurate to their job descriptions.

On April 17, 1996, the Company terminated its merger talk 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 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.

Depreciation and amortization

For the fiscal year ended September 30, 1996, the significant increase
in depreciation and amortization expense is primarily due to the Company fully
amortizing "The Contemporary Collectible Show" and "Post Time" series for
approximately $486,624 and $462,988, respectively, due to the uncertainty of
whether these shows will generate revenue in the future.

In addition, the Company accelerated the amortization of Adventure
Quest and Edenquest for approximately $175,000 and $101,817, respectively.

Other Income, net

For the fiscal year ended September 30, 1996, the increase in other
income (expense) is primarily due to the recognition of interest income.

B. LIQUIDITY AND CAPITAL RESOURCES

The Company expects to meet its cash requirements for Fiscal year 1997
with funds generated from operations, the exercise of employee stock options,
sales of restricted common stock via private placements and loans. The Company
believes that those sources will be adequate to meet the Company's expected
needs for fiscal year 1997, although there can be no assurance that this will be
the case.

The Company has not formalized its plan for paying the $2,400,000
Promissory Note payable to Century Technologies, Inc. on October 31, 1997. The
Company expects that this Promissory Note will be repaid with some combination
of the assets and receivables of Tradewinds Television, Inc., the proceeds from
a loan from a European entity and private placements of the Company's
securities.

For the fiscal year ended September 30, 1996, the predominate sources
of operating funds were editing services, sale of television products and
private placements of the Company's common stock.

Other than 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 or capital resources. Any other projects not
contemplated herein will be funded by joint ventures or other outside capital.

C. OTHER PROJECTS

The Company is co-producing with Forever Blue Entertainment, Inc.
"Bounty Hunters", a one hour reality show seen weekly dealing with actual crimes
and drama. "Bounty Hunters" tells the true stories of bail bondsmen crossing
state lines to apprehend bail jumpers whose offenses range from simple
misdemeanors to armed assault, drug dealing and murder. The show is currently
distributed by Tradewinds Television, Inc. and can be seen in 74% of the
country.

11
<PAGE>
producing several outside feature films: "The Saint", starring Val Kilmer and
Elizabeth Shue at Paramount Pictures and "Lucky Strike", directed by Ridley
Scott and "Air Reno" for Hollywood Pictures, an action-adventure about flying
daredevils. He held the position of Vice President of Business Affairs for Siren
Pictures before becoming President/Partner of The Robert Evans Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
Foster, "Buster" starring Phil Collins and "The Two Jakes" starring Jack
Nicholson and Harvey Keitel. He is also credited as Co-Producer on "Sliver" and
Executive Producer on "Jade".

The Company also owns the rights to several feature film screenplays
including "Lucifer in Cameo" written by Philip J. Lasker, purchased from Kazmark
Entertainment, Inc. and "Elvis and Leon" written by Dick Christie and Joe Lerer,
purchased from Paramount Pictures. The Company may finance and produce these
projects internally or elect to package them and sell its rights in these
projects to other production companies or motion picture studios depending on
the Company's financial condition and banking relationships.

The Company is also co-producing "Looking Beyond," with First
Television which is owned and operated by Mac and Bradley Anderson ("Sightings,"
"Encounters," "The PSI Factor," and "Alien Autopsy") a television series about
the paranormal. The show will be hosted by Linda Bonell. The Company is
introducing the show through its subsidiary, Tradewinds Television, Inc., at the
National Association of Television Program Executives (NAPTE) in January 1997.
The show is expected to air in domestic syndication beginning in the fall of
1997.

William Macdonald served as a producer on the recently completed Turner
Broadcasting television mini-series "Teddy Roosevelt and the Rough-Riders" which
is expected to air in July 1997. The Company expects to receive a production
credit when the mini-series airs.

D. OTHER SIGNIFICANT MATTERS

Authorization of Preferred Stock

On October 31, 1996, the Company authorized the creation of two shares
of Series D Preferred Stock with a par value of $1 in connection with the
acquisition of Century Technologies, Inc.

Acquisition of Century Technologies, Inc.

On October 31, 1996, the Company purchased a 76% interest in Century
Technologies, Inc. ("Century"), a publicly-held Colorado corporation that is in
the business of distribution film and television products to worldwide markets.
Under the terms of the Stock Acquisition Agreement between the parties, the
Company purchased 37,500,000 Units of Century for $0.08 per unit. Each Unit
consists of one (1) share of Century Common Stock at $.0001 par value ("Century
Common Stock") and one (1) Common Stock purchase warrant to purchase one (1)
share of Century Common Stock at $2.00 per share ( the "Warrants"). The Units
12
<PAGE>
are immediately separable into their component parts. In consideration for the
transfer of the Units, the Company paid Three Million Dollars ($3,000,000) to
Century consisting of (i) the conversion to equity of Four Hundred Thousand
Dollars ($400,000) cash previously advanced by the Company to Century, (ii) Two
Hundred Thousand Dollars ($200,000) cash, and (iii) a negotiable one-year
promissory note payable by the Company to Century in the amount of Two Million
Four Hundred Thousand Dollars ($2,400,000)(the "Promissory Note") which is
secured by the Company's Series D Preferred Stock.

The Promissory Note bears interest at a rate of eight percent (8%) per
annum and is secured by two (2) shares of Series D Preferred Stock of the
Company, par value $1.00 (the "Series D Preferred Stock"). Each share of Series
D Preferred Stock shall be convertible into 750,000 shares of the Company's
Common Stock only in the event of default by the Company on the Promissory Note.
The Series D Preferred Stock is not entitled to any voting or dividend rights of
any kind. Notwithstanding the foregoing, the Company shall have the right to
provide such substitute collateral as the Company and Century may mutually agree
upon in writing. The Series D Preferred Stock will be held in escrow by
Century's counsel (the "Escrow Agent") until such time as the Promissory Note is
paid in full or substitute collateral is provided by the Company. The Company
believes that the acquisition of Century will enable the Company to implement
its business plan of becoming heavily vested in the U.S. and foreign
distribution of both feature films and television programming.

Acquisition of the Assets of Tradewinds Television, LLC

On September 13, 1996, the Company and Tradewinds Television, LLC, a
California Limited Liability Company ("Tradewinds"), entered into an Interim
Financing and Security Agreement (the "Security Agreement") pursuant to which
Tradewinds granted the Company, as security for the repayment by Tradewinds of
certain loans to be made by the Company, a first priority lien on substantially
all of Tradewinds' assets (the "Assets"). The Assets include accounts
receivable, the name and mark "Tradewinds Television," the rights to the
syndicated television series "Bounty Hunters" and distribution rights to certain
other television products. As of November 19, 1996, the Company loaned
Tradewinds an aggregate of approximately $823,000 (the "Loans") pursuant to the
Security Agreement. Concurrently, with the execution of the Security Agreement,
the Company and Tradewinds engaged in negotiations pursuant to which the Company
would purchase substantially all of the Assets. The parties entered into an
Asset Purchase Agreement, dated October 3, 1996, as amended, to provide for such
acquisition.

Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned
13
<PAGE>
subsidiary, Tradewinds Television, Inc.

Loan Agreement

In October 1996, the Company reached an agreement in principal with a
European entity in which the entity has agreed to lend $48.4 million to the
Company. The loan will bear interest at a rate of 9% per annum over a five year
period. The Company will pledge as collateral for the loan one hundred (100)
shares of Series C Convertible Preferred Stock, to be created upon closing, that
can be converted by the lender into Common Stock of the Company under certain
conditions of repayment of the loan, but in no instance at a price less than
$10.00 per share. Upon conversion of the Series C Preferred Stock to Common
Stock, the holder of the Series C Preferred Stock shall also receive an
additional number of shares equal to 10% of the number of shares as calculated
above. In no event is greater than 40% of the outstanding principal of the loan
to be converted to equity in any twelve (12) month period. Any common shares
and/or preferred shares issued upon conversion of the loan to equity will not be
sold, transferred or assigned in the absence of an effective registration
statement under the Securities Act of 1933, as amended, or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the insurance company may require amendments to the terms of
the transactions prior to the issuance of the loan, but that it expects the
insurance guarantee to be issued in January 1997. However, there can be no
assurance that the insurance guarantee will be issued at that time, or at all.
14
<PAGE>
ITEM VII. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditors' Report............................................. 16
Consolidated Balance Sheets ............................................. 17
Consolidated Statements of Operations.................................... 19
Consolidated Statements of Stockholders' Equity.......................... 20
Consolidated Statements of Cash Flows.................................... 21
Notes to Consolidated Financial Statements............................... 22
15
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
Affinity Entertainment, Inc.

We have audited the accompanying consolidated balance sheet of Affinity
Entertainment, Inc. and Subsidiaries (the "Company") as of September 30, 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended September 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Affinity
Entertainment, Inc. and Subsidiaries as of September 30, 1996, and the
consolidated results of operations and its consolidated cash flows for each of
the two years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.

Weinberg, Pershes & Company, P.A.

Boca Raton, Florida
January 7, 1997
16
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(In thousands)

ASSETS

CURRENT ASSETS
Cash and cash equivalents........................................... $ 1,366
Accounts receivable, net............................................ 133
Programing costs.................................................... 990
Other current assets, net........................................... 188
-------
Total current assets.............................................. 2,677

PROPERTY AND EQUIPMENT, at cost
Edit equipment .................................................. 1,237
Other equipment .................................................. 314
-------
1,551
Less accumulated depreciation..................................... 1,072
-------
479
Construction in progress.......................................... 64
-------
Total property and equipment.................................... 543

OTHER ASSETS
Loans receivable, net............................................... 539
Due from officers and employees..................................... 68
Investment in joint venture, net.................................... 250
Other assets........................................................ 315
-------
Total other assets................................................ 1,172
-------
Total assets.................................................... $ 4,392
=======

The accompanying notes are an integral part of these consolidated financial
statements.

17
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(In thousands)

LIABILITIES AND STOCKHOLDERS EQUITY

CURRENT LIABILITIES
Notes payable....................................................... $ 12
Accrued liabilities................................................. 139
-------
Total current liabilities......................................... 151

STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value, $10 stated
value, 500,000 shares authorized, 48,734 shares
issued and outstanding............................................ 487
Convertible preferred stock, $.0001 par value, $50 stated
value, 100,000 shares authorized,
-0- issued and outstanding........................................ --
Common stock, $.10 par value, 25,000,000 shares
authorized, 8,284,217 shares issued and
outstanding....................................................... 829
Additional Paid-in Capital.......................................... 14,686
Additional Paid-in Capital - stock options.......................... 394
Deficit............................................................. (5,894)
-------
10,502
Less:
Stock subscriptions receivable...................................... 5,829
Unearned compensation............................................... 432
-------
Total stockholders' equity........................................ 4,241
-------
Total liabilities and stockholders' equity...................... $ 4,392
=======

The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands)

1996 1995
------ ------
REVENUE.................................................. $2,078 $1,231

COSTS AND EXPENSES
Cost of revenue, exclusive of amortization............... 1,046 325
General and administrative............................... 3,533 1,399
Depreciation and amortization............................ 1,904 307
------ ------
Total costs and expenses............................... 6,483 2,031

Operating loss......................................... (4,405) (800)

OTHER INCOME, net........................................ 237 (86)
------ ------

Net Loss.................................................. $(4,168) $ (886)
======= =======

Loss per common share.................................... $ (.56) $ (.19)
======== =======

Weighted average shares outstanding...................... 7,420 4,613
======= =======

The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Convertible Convertible Additional
Preferred Preferred Common Paid-In
Stock Stock Stock Additional Capital Stock
$50 Stated $10 Stated $.10 Par Paid-In Stock Subscription Unearned
Value Value Value Capital Options Deficit Receivable Compensation Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance on October 1,
1994 ......................... $ 5,000 $ 487 $ 402 $ 580 $ -- $ (840) $(2,781) $ -- $ 2,848
Issuance of common stock:
Stock options exercised ...... -- -- 40 277 -- -- -- -- 317
Private placement ............ -- -- 158 3,780 -- -- -- -- 3,938
Net loss for the fiscal year
ended September 30, 1995 ..... -- -- -- -- -- (886) -- -- (886)
------- ------- ------- ------- ------- ------- ------- ------- -------
Balance on September 30,
1995 ......................... 5,000 487 600 4,637 -- (1,726) (2,781) -- 6,217
Cancellation of preferred
stock ........................ (5,000) -- -- -- -- -- -- -- (5,000)
Stock options issued ........... -- -- -- -- 540 -- -- -- 540
Issuance of common stock:
Stock options exercised ...... -- -- 29 582 (146) -- -- -- 465
Private placement ............ -- 200 9,467 -- -- (5,000) -- -- 4,667
Unearned compensation
related to grant of stock
options to executives ........ -- -- -- -- -- -- -- (540) (540)
Amortization of unearned
compensation ................. -- -- -- -- -- -- -- 108 108
Cash received on
subscriptions receivable ..... -- -- -- -- -- -- 1,952 -- 1,952
Net loss for the fiscal year
ended September 30, 1996 ..... -- -- -- -- -- (4,168) -- -- (4,168)
------- ------- ------- ------- ------- ------- ------- ------- -------
Balance on September 30,
1996 ......................... $ -- $ 487 $ 829 $14,686 $ 394 $(5,894) $(5,829) $ (432) $ 4,241
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands)

1996 1995
-------- -------

Cash Flows - Operating Activities:
Net loss ................................................. $(4,168) $ (886)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .......................... 1,904 307
Provision for losses on accounts receivable ............ 316 --
Provision for losses on inventory ...................... 40 --
Provision for losses on notes receivable ............... 600 --
Provision for losses on joint venture .................. 250 --
Other assets ........................................... (238) --
Amortization of unearned compensation related to grant
of stock options to executives ....................... 108 --
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable ........... 99 (457)
(Increase) decrease in programming costs.............. (1,085) (954)
(Increase) decrease in prepaid television time ....... 79 112
(Increase) decrease in current assets ................ (228) (56)
Increase (decrease) in accrued liabilities ........... (1,306) 535
Increase (decrease) in deferred revenue .............. (206) 69
------- -------
Net cash used in operating activities .............. (3,835) (1,330)

Cash Flows - Investing Activities:
Capital expenditures ..................................... (208) (83)
Investments in loans receivable .......................... (1,139) (487)
Investments in notes receivable .......................... 25 --
------- -------
Net cash used in investing activities .............. (1,322) (570)

Cash Flows - Financing Activities:
Proceeds from sale of common stock ....................... 7,084 1,365
Proceeds from notes payable .............................. 145 1,010
Principal payments on notes payable ...................... (853) (331)
------- -------
Net cash provided by financing activities .......... 6,376 2,044
------- -------

Increase in cash and cash equivalents .................... 1,219 144
Cash and cash equivalents at beginning of period ......... 147 3
------- -------
Cash and cash equivalents at end of period ............... $ 1,366 $ 147
======= =======

The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - HISTORY AND ORGANIZATION

Affinity Entertainment, Inc. (the "Company"), formerly Affinity
Teleproductions, Inc., a Delaware corporation, is engaged in producing and
selling feature films, television programs, commercials, infomercials and videos
for the home and industrial markets in the United States and internationally.
The Company entered this business following a February 1993 merger with CBNI
Development, Inc. ("CBNI"). CBNI had been engaged in a shopping service
business.

On August 31, 1994, the Company acquired Broadcast Edit, Inc.
("Broadcast Edit"), a California corporation for 50,000 shares of common stock
in a transaction accounted for a pooling of interests. Broadcast Edit is a video
production and post-production company. It provides a full range of
communication services to corporations and advertising agencies, and it also
produces, directs and edits television programs and videos for the entertainment
industry.

The Company is engaged in the production of feature films, television
programs, commercials, documentaries and videos for all media worldwide. In
addition, the Company, through its wholly-owned subsidiary, Broadcast Edit,
Inc., produces and performs post-production editing services for programming
produced internally by the Company and externally by outside parties.

The Company has formed a new wholly-owned subsidiary, Affinity
Entertainment Group, Inc., April 4, 1995, to intensify its efforts on the
feature film portion of its business.

On October 31, 1996, the Company purchased a 76% interest in Century
Technologies, Inc., a publicly-held Colorado corporation that is in the business
of distributing film and television products to worldwide markets.

On December 9, 1996, the Company formed a new wholly-owned subsidiary,
Tradewinds Television, Inc., for the purposes of operating a domestic television
syndication company.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements consist of the accounts of the
Company including the subsidiaries, all of which are wholly-owned. All
intercompany transactions, profits and accounts have been eliminated.

The Company's significant accounting policies are as follows:

1. Revenue Recognition

The Company adopted the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 53, "Financial Reporting by
Producers and Distributors of Motion Picture Films" ("Statement 53"). Statement
53 states that the motion picture industry consists of two principal activities:
production, involving the development, financing and production of motion
pictures; and distribution, involving the promotion and exploitation of
completed motion pictures in a variety of domestic and international media.

In accordance with Statement 53, the Company recognizes revenues for
films licensed to the theatrical box office market upon exhibition of the film;
for home video sales and merchandising when the product is shipped; for films
and programs licensed to television and other markets when the license period
begins and the
22
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

film or program is available for telecast or exploitation.

Film editing and production services to third parties revenues are
recognized when services are rendered.

2. Programing Costs

Program cost inventories are stated at the lower of cost, amortized
cost or net realizable value. Costs include acquisition costs, production,
production overhead and distribution costs. Individual programs are capitalized
then amortized over the estimated life of revenue generation. These estimates
are reviewed periodically.

Amortization expense was approximately $1,739,819 and $155,986 for the
fiscal years ended September 30, 1996 and 1995, respectively.

3. Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include
cash and short-term investments with original maturities of less than three
months.

4. Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided
for in amounts sufficient to allocate to operations over their estimated service
lives on a straight-line or allowable accelerated basis. Maintenance and repairs
that do not extend the life of the asset are charged to expense as incurred;
major renewals and betterments are capitalized. When property or equipment are
sold or retired, the related costs and accumulated depreciation are removed from
the accounts and any gain or loss is included in the results of operations.

Property and equipment consist of the following at September 30, 1996 (in
thousands):

Edit................................................ $1,237
Production.......................................... 26
Furniture and fixtures.............................. 54
Vehicles............................................ 38
Office and other.................................... 134
Leasehold improvements.............................. 62
------
1,551

Less: Accumulated Depreciation.................... 1,072
------
479
Construction in progress.......................... 64
------
Total property and equipment.................... $ 543
======

Depreciation expense was approximately $163,925 and $151,139 for the
fiscal years ended September 30, 1996 and 1995, respectively.
23
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

5. Income Taxes

In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement 109"). Statement 109 required a change from the deferred
method of accounting for income taxes of Accounting Principles Board Opinion No.
11 (APB Opinion No. 11") to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to difference between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

During fiscal year 1995, the Company adopted Statement 109. As of
September 30, 1996 and 1995, the Company had no material current tax liability,
deferred tax assets or liabilities except for the following:

The Company had available, for income tax purposes, net operating
carryforwards expiring as follows:

September 30, 2007 $ 24,500
September 30, 2208 $ 27,000
September 30, 2009 $ 558,000
September 30, 2010 $1,100,000
September 30, 2011 $4,100,000

Deferred income tax provisions, resulting from differences between
accounting for financial statement purposes and accounting for tax purposes were
as follows:

1996 1995
---- ----
Tax benefit from net operating losses $ 1,981,000 $ 581,000
Valuation allowance (1,981,000) (581,000)
----------- ---------
Tax effects of timing differences -- --
=========== =========

6. Loss Per Common 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 fiscal years ended
September 30, 1996 and 1995, common stock equivalents were anti-dilutive and
were not included in the calculation of weighted average common shares
outstanding.

7. Reclassifications

Reclassifications to the September 30, 1995 consolidated statements of
operations and cash flows were made to conform to September 30, 1996
presentation.
24
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

8. Significant Concentration of Credit Risk

The Company has concentrated its credit risk for cash by maintaining
deposits in banks located within the same geographic region. The maximum loss
that would have resulted from risk totaled -0- and $144,000 for fiscal years
ended September 30, 1996 and 1995, respectively, for the excess of the deposit
liabilities reported by the bank over the amounts that would have been covered
by federal insurance.

NOTE C - ACCOUNTS RECEIVABLE, NET

Accounts receivable is net of an allowance for doubtful accounts of
approximately $329,236 and $20,875 for the fiscal years ended September 30, 1996
and 1995, respectively.

NOTE D - LOANS RECEIVABLE

The Company has loans receivable as of September 30, 1996 as follows (in
thousands):

Loan receivable-Krofft Productions, Inc.,
due on demand............................................. $ 600

Loan receivable-Tradewinds Television, Inc., collateralized
due on demand............................................. 539

Officers/Employees, non-interest bearing, due
on demand................................................. 68
------
1,207
Less: Allowance for doubtful accounts 600
------
$ 607
======

Sid & Marty Krofft Productions, Inc.

Tradewinds Television, Inc.

On September 13, 1996, the Company and Tradewinds Television,
LLC, a California Limited Liability Company ("Tradewinds"), entered into an
Interim Financing and Security Agreement (the "Security Agreement") pursuant to
which Tradewinds granted the Company, as security for the repayment by
Tradewinds of certain loans to be made by the Company, a first priority lien on
substantially all of Tradewinds' assets (the "Assets"). The Assets include
accounts receivable, the name and mark "Tradewinds Television," the rights to
the syndicated television series "Bounty Hunters" and distribution rights to
certain other television products. As of November 19, 1996, the Company loaned
Tradewinds an aggregate of approximately $823,000 (the "Loans") pursuant to the
Security Agreement.

Concurrently, with the execution of the Security Agreement, the Company
and Tradewinds engaged in negotiations pursuant to which the Company would
purchase substantially all of the Assets. The parties entered into an Asset
Purchase Agreement, dated October 3, 1996, as amended, to provide for such
25
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

acquisition. The sale of the assets was contingent upon the resolution to which
satisfaction of the Company of various bankruptcy issues concerning other
companies affiliated with Royeric Pack, the owner of Tradewinds.

Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.

NOTE E - NOTES PAYABLE

The Company has notes payable as of September 30, 1996 as follows (in
thousands):

Notes payable, collateralized by equipment, payable in
monthly installments of approximately $1,350,
interest bearing at 6% (due in fiscal year 1997).............. $12

NOTE F - STOCKHOLDERS' EQUITY

In January 1996, the President of the Company and another executive
exercised certain of their options for common shares of a total of 250,000
common shares at per share exercise prices of $1.33.

The Company, through a private placement, issued 2,000,000 shares of
its common stock (see Note G-Litigation-Lehman Brothers International for
details).

STOCK OPTIONS ISSUED BUT UNEXERCISED
------------------------------------

Expiration Date Exercise Price
Number of Shares Fiscal Year Range
---------------- ----------- -----
(expiring monthly)
244,000 1996 $6.24-$6.75,
50,000 1996 75% market value
281,000 1997 $1.50-$7.75
377,000 1998 $1.75
523,000 1999 $2.00
500,000 2000 $2.00

26
<PAGE>
AFFINITY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

NOTE G - COMMITMENTS AND CONTINGENCIES

The Company leases it facilities used in connection with its operations
under various operating leases.

Operating Lease Commitments

Future minimum payments under non-cancelable leases due during the
fiscal years ended September 30, are as follows (in thousands):

1997.................................................. $160
1998.................................................. 137
1999.................................................. 113
Thereafter............................................... --

Rent and lease expenses charged to operations during fiscal years
September 30, 1996 and 1995 were as follows (in thousands):

1996.................................................. $ 81
1995.................................................. 27

Litigation

Access America, Inc.

Lehman Brothers International

(the "Deferred Shares"). The Deferred Shares were paid for with a promissory
note for $5 million at an interest rate of 10% per annum. Unless the Promissory
Note described above is paid in full, the Holder of the Deferred shares will
have 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 Deferred Shares.
The Promissory Note may not be prepaid, in whole or in part, in advance. Upon
the expiration of the term of the Promissory 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 Promissory Note. By agreement of
the parties, the Deferred 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 the express written consent of the Company.

Sid and Marty Krofft Productions, Inc.

In March 1995, the Company entered into an agreement to form a
strategic alliance with Sid and Marty Krofft Productions, Inc. ("Krofft") for
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 $500,000 towards this
limited partnership. Subsequent to signing this agreement, Disney signed an
agreement to option the rights to create a theatrical release of "Land of the
Lost", that 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 in fiscal year 1997. Its the Company's position that the
Company's $500,000 investment is collateralized by Krofft's children's home
video library. The Company has established a reserve of $250,000 for this
investment.

NOTE H - RELATED PARTY TRANSACTIONS

The corporate headquarters of the Company has recently moved to new
office space. The old office space has been subleased to the brother of the
President of the Company until the lease expires in May 1998.

During the fiscal year 1996, the Company has paid approximately
$133,000 in legal fees to Myman, Abell, Fineman, Greenspan, & Rowan law firm of
which Thomas Rowan, a director of the Company, is a partner.

NOTE I - STATEMENT OF CASH FLOWS

Supplemental disclosure of cash flow information:

Cash paid for interest was approximately $34,216 and $74,498 for the
fiscal years ended September 30, 1996 and 1995, respectively. No cash was paid
for income taxes for fiscal years 1996 or 1995.

Supplemental information of non-cash investing and financing
activities:

During fiscal year 1996, approximately $1,950,725 of the previous
year's stock subscriptions receivable was collected. The $5,829,778 stock
subscription receivable is shown as a reduction of stockholders' equity.

NOTE J - SUBSEQUENT EVENTS

Authorization of Preferred Stock

On October 31, 1996, the Company authorized the creation of two shares
of Series D Preferred Stock with a par value of $1 in connection with the
acquisition of Century Technologies, Inc.

Acquisition of Century Technologies, Inc.

On November 14, 1996, the Company purchased a 76% interest in
Century Technologies, Inc. ("Century"), a publicly-held Colorado corporation
that is in the business of distribution film and television products to
worldwide markets. Under the terms of the Stock Acquisition Agreement between
the parties, the Company purchased 37,500,000 Units of Century for $0.08 per
unit. Each Unit consists of one (1) share of Century Common Stock at $.0001 par
value ("Century Common Stock") and one (1) Common Stock purchase warrant to
purchase one (1) share of Century Common Stock at $2.00 per share ( the
"Warrants"). The Units are immediately separable into their component parts. In
consideration for the transfer of the Units, the Company paid Three Million
Dollars ($3,000,000) to Century consisting of (i) the conversion to equity of
Four Hundred Thousand Dollars ($400,000) cash previously advanced by the Company
to Century, (ii) Two Hundred Thousand Dollars ($200,000) cash, and (iii) a
negotiable one-year promissory note payable by the Company to Century in the
amount of Two Million Four Hundred Thousand Dollars ($2,400,000)(the "Promissory
Note") which is secured by the Company's stock.

the right to provide such substitute collateral as the Company and Century may
mutually agree upon in writing. The Series D Preferred Stock will be held in
escrow by Century's counsel (the "Escrow Agent") until such time as the
Promissory Note is paid in full or substitute collateral is provided by the
Company. The Company believes that the acquisition of Century will enable the
Company to implement its business plan of becoming heavily vested in the U.S.
and foreign distribution of both feature films and television programming.

Acquisition of the Assets of Tradewinds Television, LLC

Concurrently, with the execution of the Security Agreement, the Company
and Tradewinds engaged in negotiations pursuant to which the Company would
purchase substantially all of the Assets. The parties entered into an Asset
Purchase Agreement, dated October 3, 1996, as amended, to provide for such
acquisition. The sale of the assets was contingent upon the resolution to which
satisfaction of the Company of various bankruptcy issues concerning other
companies affiliated with Royeric Pack, the owner of Tradewinds.

Upon receipt of the Assets by the Company, the Assets were deposited in
the Company's wholly owned subsidiary, Tradewinds Television, Inc.

Loan Agreement

statement under the Securities Act of 1933, as amended, or pursuant to Rule 144
promulgated thereunder. The loan is contingent upon the issuance of an insurance
policy to the lender guaranteeing the value of the loan. The lender has informed
the Company that the insurance company may require amendments to the terms of
the transactions prior to the issuance of the loan, but that it expects the
insurance guarantee to be issued in January 1997. However, there can be no
assurance that the insurance guarantee will be issued at that time, or at all.
31
<PAGE>
Item VIII. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Item IX. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information Regarding Directors:

WILLIAM J. BOSSO, age 47, Director and the Chairman of the Board, President and
Secretary. Mr. Bosso has served as Vice President of OCG Technologies, Inc., a
publicly traded company, "OCGT", from January 1992 to June 1994. Mr. Bosso was
an Account Executive at Paine Webber, Inc. from September 1989 to September
1991.

JAMES E. FARRELL, age 56, Director of the Board and Vice President and
Treasurer. Mr. Farrell has over twenty years experience in the communications
business, with experience in marketing, advertising, public relations and
financial communications. Prior to joining the Company, he was a freelance
marketing consultant and served as advisor to the Company, developing its
advertising programs, and is presently an executive with Cast Art Industries,
Inc. From 1985 to 1990, he served as President of J. Robin Scott Creative
Consultants, Inc. a Florida marketing and public relations agency, Vice
President and Corporate Communications Officer for Firstmark Corporation,
Buffalo, New York, a diversified financial services company listed on the
American Stock Exchange, and eight years as a registered representative of New
York Stock Exchange member firms including Merrill Lynch and E. F. Hutton. He is
a graduate of Syracuse University.

THOMAS P. ROWAN, age 49, has served as counsel to the Company for entertainment
matters since its inception. Mr. Rowan is a partner in the Los Angeles based law
firm of Myman, Abell, Fineman, Greenspan & Rowan and has twenty-three years of
experience as an entertainment lawyer. He has expertise in most major areas of
the entertainment industry, representing talent, production companies and
institutional clients in all areas of television, theatrical motion pictures and
music. Mr. Rowan's clients include Kenny Rogers, Burt Reynolds and "The Larry
Sanders Show." He is a graduate of the University of Santa Clara and the Loyola
University Law School.

JOHN W. BENTON, age 45, is the President of Real Estate Strategies, Inc., a
consulting firm working with elected clients such as Lehman Brothers, Deutsche
Bank and other Wall Street mortgage banking and investment firms. Mr. Benton
also acts as advisor on various large commercial real estate transactions. He
has over twenty years of experience in management, organization restructure,
negotiations and strategic marketing including fifteen years of experience in
the mortgage banking industry. He is a graduate of the University of Maryland.

Information Regarding Executive Officers:

The following sets forth certain information concerning the persons who
currently serve as executive officers of the Company's subsidiaries and who do
not serve on the Board of Directors:

WILLIAM J. MACDONALD, age 41, President of Affinity Entertainment Group, Inc.,
has been with the Company since August 1996. Mr. Macdonald is currently
producing several outside productions: "The Saint", starring Val Kilmer and
Elizabeth Shue at Paramount Pictures, "Teddy Roosevelt and the Rough Riders", a
TNT mini-series starring Tom Berenger and "Lucky Strike", directed by Ridley
Scott. He held the position of Vice President of Business Affairs for Siren
Pictures before becoming President/Partner of The Roberts Evans Company at
Paramount, where he developed the films "Siesta" starring Ellen Barkin and Jodie
32
<PAGE>
Foster, "Buster" starring Phil Collins, and "The Two Jakes" starring Jack
Nicholson and Harvey Keitel. He is also credited as Co-Producer on "Sliver" and
Executive Producer on "Jade". He is currently producing "Air Reno" for Hollywood
Pictures, an action adventure about flying daredevils.

JAMES J. WEHRLY, age 47, President of Broadcast Edit, Inc., was one of the
original founders of the subsidiary. Mr. Wehrly has devoted his full time for
the past seven years to Broadcast Edit, Inc.

Information Regarding Significant Employees:

ELLIOT L. BELLEN, age 39, Executive Producer, has been with the Company since
its inception in 1991. As Executive Producer, Mr. Bellen oversees the production
of all television products for the Company. From 1989 to 1991, Mr. Bellen was a
television producer with Millenium Teleproductions in Boca Raton, Florida. Mr.
Bellen filed bankruptcy under Chapter 7 of the Federal Bankruptcy Act in
November 1993 and was discharged in January 1994. Mr. Bellen pled guilty to
three counts of securities fraud, including Section 15 and Rules 10b-5 and 10-b6
of the Securities Act of 1933, as amended, in U.S. vs. Elliot L. Bellen in case
#89-466-1 in the District Court of New Jersey and was sentenced in January 1992.
Mr. Bellen sits on the Board of Directors of Child Care Resource and Referral, a
non-profit organization.

TAYRA A. COX, age 31, joined the Company as Controller and Principal Accounting
Officer on May 28, 1996. From May 1993 to May 1996, Ms. Cox served as Assistant
Controller for Silver King Communications, Inc. From June 1991 to May 1993, Ms.
Cox was a Staff Accountant for William S. King, CPA. Ms. Cox is a Certified
Public Accountant and a graduate of the University of South Florida.

Section 16 Reports

William J. Bosso, President of the Company, failed to file on a timely
basis, 16 reports on Form 4 disclosing 97 transactions involving the Company's
stock. To the best of the Company's knowledge and belief, Mr. Bosso is current
in his filing obligations under Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").

Philmont A.V.V. has to date failed to file any reports on Form 3 or
Schedule 13D as required by the Exchange Act.

To the best of the Company's knowledge and belief, the Company's
officers and directors are now current in their filings under Section 16(a) of
the Exchange Act.

ITEM X. EXECUTIVE COMPENSATION

Summary of Executive Officer Compensation

The Following sets forth the annual and long-term compensation for
services to the Company for the fiscal years ended September 30, 1996 and 1995
of those persons who were, at September 30, 1996, (i) the Chief Executive
Officer of the Company and (ii) the other four most highly compensated employees
of the Company whose compensation exceed $100,000 for fiscal year 1996.
33
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------------- ----------------------------------------
Other All
Annual Restricted Other
Compen- Stock Options/ LTIP Compen-
Salary Bonus sation Awards SAR's Payouts sation
Name and Principal Position Year $ $ $ $ (#) $ $
- --------------------------- -------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Bosso 1996 150,000 -- -- -- -- -- --
President...................... 1995 52,000 -- -- -- 875,000 -- --
Elliot L. Bellen 1996 150,000 -- -- -- -- -- --
Executive Producer............. 1995 52,000 -- -- -- 875,000 -- --
</TABLE>

Option Grants

During the fiscal year 1996, the Company granted options to purchase
10,000 shares of the Company's Common Stock to the Named Executive Officers at
$8.50 per share.

ITEM XI. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of September 30, 1996, certain
information regarding shares of AFTY Common Stock beneficially owned by (i) each
person or a group, known to the Company, who beneficially owns more than 5% of
AFTY Common Stock, (ii) each of the Company's directors, (iii) each of the
persons who appear in the Summary Compensation Table and (iv) all officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
Number of Percent
Name and Address of Beneficial Owner Shares of Class
------------------------------------ ------------ --------
<S> <C> <C>
William J. Bosso.............................................. 279,000(1) 3.83%
c/o Affinity Entertainment, Inc.
15310 Amberly Drive, Suite 370
Tampa, Florida 33647

James E. Farrell.............................................. 201,500(2) 2.77%
c/o Affinity Entertainment, Inc.
15310 Amberly Drive, Suite 370
Tampa, Florida 33647

Philmont A.V.V................................................ 1,000,000(3) 13.73%
1108 Capilano 100 Park Royal
West Vancouver, CA V7T 1A2
Canada

Elliot L. Bellen.............................................. 106,700(4) 1.46%
c/o Affinity Entertainment, Inc.
15310 Amberly Drive, Suite 370
Tampa, Florida 33647

All Officers and Directors as a Group (2 persons)............. 480,500 6.60%
</TABLE>

(1) Does not include (i) 750,000 shares of AFTY Common Stock issuable
upon exercise of stock options at prices ranging form $1.33 to
$2.00; (ii) 10,000 shares of Common Stock issuable upon the
exercise of Directors Stock Options at $8.50 per share and (iii)
the conversion of 7,800 shares
34
<PAGE>
of Series B Preferred Stock of the Company into approximately
9,750 shares of Common Stock of the Company. The stock options
vest at various times from October 1, 1996 through October 1, 1999
and expire five years from the date of vesting. Does not include
approximately 67,900 shares of AFTY Common Stock owned by Mr.
Bosso's mother, brothers, nieces and nephews. Mr. Bosso disclaims
beneficial ownership of these shares.

(2) Does not include (i) 10,000 shares of Common Stock issuable upon
exercise of Directors Stock Options at $8.50 per share and (ii)
the conversion of 3,900 shares of Series B Preferred Stock of the
Company into approximately 4,875 shares of Common Stock of the
Company.

(3) Does not include 1,000,000 shares paid for with a promissory note
for $5 million at a rate of 10% per annum (the "Deferred Shares").
Unless the Promissory Note described about is paid in full, the
Holder of the Deferred Shares will have 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 Deferred Shares. The Promissory Note
may not be prepaid, in whole or in part, in advance. Upon the
expiration of the term of the Promissory Note, the Company shall
in its sole discretion, have the option to acquire the shares in
exchange for the full cancellation of the Promissory Note. The
Company presently intends to exercise its 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 the
express written consent of the Company.

Philmont A.V.V. is currently in default on the promissory note.
The Company had demanded return of stock certificates representing
the shares and full payment of all interest accrued to date as is
its express right under the subscription agreement between the
parties.

(4) Does not include (i) 750,000 shares of AFTY Common Stock issuable
upon exercise of stock options at prices ranging from $1.33 to
2.00 and (ii) 10,000 shares of Common Stock issuable upon the
exercise of Stock Options at $8.50 per share. The stock options
vest at various times from October 1, 1996 through October 1, 1999
and expire five years from the date of vesting. Does not include
10,000 shares of AFTY Common Stock owned by Mr. Bellen's wife.

Under the rules of the Securities Exchange Commission, a person is
deemed to be a "beneficial owner" of a security if that person has or shares
"voting power", which includes the power to vote or to direct the voting of such
security, or "investment power", which includes the power to dispose of or to
direct the disposition of such security. A person is also deemed to be the
beneficial owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed to be a beneficial owner of the same securities and a person may be
deemed to be a beneficial owner of securities as to which that person has no
beneficial interest.

ITEM XII. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM XIII. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
<TABLE>
<CAPTION>
Page No. Description of Exhibit
-------- ----------------------
<S> <C>
3.01 Amendment of Certificate of Incorporation(3).
3.02 Certificate of Designation of Series D Preferred Stock(3).
10.01 Lease Agreement between the Company and Tampa I Associates, LTD. dated July 22, 1996 (3).
10.02 Certificate of Designation of Series D Preferred Stock (3).
10.03 Agreement between the Company, Baron Banker Limited, Barry Kaplan, Esq. And Pendragon
Resources, L.L.C. dated October 21, 1996(1).
10.04 Offshore Securities Subscription Agreement between the Company and Philmont A.V.V. dated
January 24, 1996 (3).
10.05 Offshore Securities Deferred Subscription Agreement between the Company and Philmont A.V.V.
dated January 24, 1996 (3).
10.06 Interim Financing and Security Agreement, dated as of September 13, 1996, between the Company
and Tradewinds Television, LLC (2).
10.07 Asset Purchase Agreement, dated October 3, 1996, between the Company, Tradewinds Television,
LLC and Royeric Pack (2).
10.08 Amendment No. 1 to the Asset Purchase Agreement, dated as of November 19, 1996, between the
Company, Tradewinds Television, LLC and Royeric Pack (2).
10.09 $600,000 Secured Promissory Note by Tradewinds Television, LLC to the Company.
10.10 Acknowledgment regarding $600,000 Note (2).
10.11 $22,997.18 Secured Promissory Note by Tradewinds Television, LLC to the Company.
10.12 Acknowledgment regarding $122,997.18 Note (2).
10.13 $100,000 Secured Promissory Note by Tradewinds Television, LLC to the Company.
10.14 Acknowledgment regarding $100,000 Note (2).
10.15 Assignment of Collateral in Lieu of Foreclosure, Dated December 6, 1996 (2).
10.16 Stock Acquisition Agreement dated October 31, 1996 between the Company and Century
Technologies, Inc. (1).
10.17 Escrow Agreement dated October 31, 1996 between the Company, Century Technologies, Inc. and
Wilson, Elser, Moskowitz, Edelman & Dicker (1).
10.18 Promissory Note dated October 31, 1996 by the Company payable to Century Technologies, Inc. (1).
10.19 Escrow Agreement dated June 26, 1996 between the Company, Baron Banker Limited and Barry Kaplan, Esq (3).
10.20 Promissory Note dated June 25, 1996 by Baron Banker Limited payable to the
Company (3).
24.01 Consent of Weinberg, Pershes & Co., P.A.
27 Financial Date Schedule.

(1) Incorporated by reference to Current Report on Form 8-K dated November 14, 1996.
(2) Incorporated by reference to Current Report on Form 8-K dated December 24, 1996.
(3) Incorporated by reference to Annual Report on Form 10-KSB dated September 30, 1996 as filed with the commission on
January 14, 1997.

</TABLE>

(b) Reports on Form 8-K

1. Current Report on Form 8-K dated November 14, 1996 regarding the
acquisition of Century Technologies, Inc., the termination of the
Offshore Securities Subscription Agreement with Baron
36
<PAGE>
Banker Limited, and the Access America Lawsuit.

2. Current Report on Form 8-K dated December 24, 1996 regarding the
acquisition of all assets of Tradewinds Television, LLC.
37
<PAGE>
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 on March 18, 1997.

By: /s/WILLIAM J. BOSSO
---------------------
William J. Bosso
Chairman, President, Secretary, Director

In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on March 18, 1997.

/s/ WILLIAM J. BOSSO Chairman, President, Secretary, Director
- -----------------------------------
William J. Bosso

/s/ JAMES E. FARRELL Vice President, Treasurer, Director
- -----------------------------------
James E. Farrell

/s/ JOHN W. BENTON Director
- -----------------------------------
John W. Benton

/s/ THOMAS P. ROWAN Director
- -----------------------------------
Thomas P. Rowan

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

We hereby consent to the use in Amendmnet No. 1 to Form 10-KSB Annual Report of
Affinity Entertainment, Inc. and Subsidiaries for the year ended September 30,
1996, our report dated January 7, 1997, relating to the consolidated financial
statements of Affinity Entertainment, Inc. and Subsidiaries which appear in such
Amendment No. 1 to Form 10-KSB.

/s/ Weinberg, Pershes & Company, P.A.

WEINBERG, PERSHES & COMPANY, P.A.
Certified Public Accountants

Boca Raton, Florida
March 18, 1997

<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US-Dollars

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,366
<SECURITIES> 8284
<RECEIVABLES> 133
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,677
<PP&E> 1,551
<DEPRECIATION> 1,072
<TOTAL-ASSETS> 4,392
<CURRENT-LIABILITIES> 151
<BONDS> 0
0
487
<COMMON> 829
<OTHER-SE> (5,894)
<TOTAL-LIABILITY-AND-EQUITY> 4,392
<SALES> 2,078
<TOTAL-REVENUES> 2,078
<CGS> 1,046
<TOTAL-COSTS> 1,046
<OTHER-EXPENSES> 5,200
<LOSS-PROVISION> (0)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,168)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,168)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> 0

</TABLE>