1

<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

(Mark One)

[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 for the quarterly period ended March 31, 1997; or

[ ]Transition report pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 for the transition period from ____________ to ___________.

Commission File Number 1-19577

                             HARMONY HOLDINGS, INC.
             (Exact Name of Registrant as Specified in its Charter)

           Delaware                                      95-4333330
(State or Other Jurisdiction of                        (I.R.S. Employer

 Incorporation or Organization)                       Identification No.)

                       1990 Westwood Boulevard, Suite 310
                       Los Angeles, California 90025-4676

                    (Address of Principal Executive Offices)
                                   (Zip Code)

                                 (310) 446-7700

              (Registrant's Telephone Number, Including Area Code)

     Indicate by check mark whether the Registrant (1) has filed all
Reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such Reports),
and (2) has been subject to such filing requirements for the past 90
days.               YES X                    NO

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the last practicable date.

                 Class                    Outstanding at May 7, 1997

       Common Stock, par value                6,693,198  shares
            $.01 per share






                                       2

<PAGE>

PART I--FINANCIAL INFORMATION

ITEM 1.
<TABLE>
<CAPTION>

Financial Statements                                      Page
<S>                                                        <C>

Consolidated Balance Sheets:

      March 31, 1997 (unaudited) and June 30, 1996         3

Consolidated Statements of Operations (unaudited):
      Nine Months Ended March 31, 1997 and 1996            4

Consolidated Statements of Operations (unaudited):
      Three Months Ended March 31, 1997 and 1996           5

Consolidated Statements of Cash Flows (unaudited):
      Nine Months Ended March 31, 1997 and 1996            6

Notes to Consolidated Financial Statements                 7

</TABLE>





                                       3

<PAGE>

Harmony Holdings, Inc.
Consolidated Balance Sheets

--------------------------------------------------------------------------------
                                              March 31, 1997     June 30, 1996
                                                (unaudited)

--------------------------------------------------------------------------------
Assets
<TABLE>
<S>                                             <C>               <C>

Current Assets:

   Cash                                           $372,898          $446,740
   Accounts receivable - net of allowance
for doubtful accounts of $0 and                  7,302,011         3,725,404
   $75,629
   Unbilled accounts receivable                  1,859,751           376,811
   Prepaid expenses and other current assets       984,780           437,153
                                              ------------- -----------------
      Total current assets                      10,519,440         4,986,108


Property and equipment, at cost,
 less accumulated depreciation and

amortization                                     1,830,009         1,565,672

Goodwill, less accumulated amortization          2,810,610         2,969,446

Other assets                                       190,262           165,546

                                              ------------- -----------------
    Total assets                               $15,350,321        $9,686,772
                                              ============= =================


Liabilities and Stockholders' Equity

Current Liabilities:

   Accounts payable                             $1,604,327        $1,242,517
   Accrued liabilities                           4,818,436         2,087,787
   Bank line of credit                                   0           300,000
   Deferred income                               1,742,719         1,367,100
   Subordinated notes payable                            0           385,000
                                              ------------- -----------------
      Total current liabilities                  8,165,482         5,382,404


Stockholders' Equity:

Preferred Stock, $.01 par value,
 authorized 10,000,000 shares; none issued

Common Stock, $.01 par value,

 authorized 20,000,000 shares, issued and           66,933            56,933
outstanding 6,693,198 and 5,693,198
Additional paid-in capital                      14,725,136        12,735,136
Accumulated deficit                             (7,607,230)       (8,487,701)
                                              ------------- -----------------
     Stockholders' equity                        7,184,839         4,304,368
                                              ------------- -----------------

Total Liabilities and Stockholders' Equity     $15,350,321        $9,686,772

                                              ============= =================
</TABLE>

 See Accompanying Notes to Consolidated Financial Statements







                                       4

<PAGE>

Harmony Holdings, Inc.
Consolidated Statement of Operations
(unaudited)

--------------------------------------------------- -------------------
                                             Nine Months Ended
                                                 March 31,

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

                                        1997                  1996
<TABLE>
<S>                                   <C>                   <C>

                                     ---------------- -----------------
Contract revenues                   $ 48,285,615          $ 50,395,467
Cost of production                    39,257,842            43,056,478
                                     ------------ ---------------------
                                     ------------ ---------------------
    Gross profit                       9,027,773             7,338,989
Selling expenses                       2,446,291             2,272,369
Operating expenses                     5,143,452             5,054,417
Depreciation and amortization            448,864               419,389
Abandoned projects                             0               621,528
Litigation expense                             0               200,000
Severance salaries                             0               186,488
                                     ------------ ---------------------
    Income (loss) from operations        989,166           (1,415,202)
Interest income                          121,332                 4,620
Interest expense                        (97,090)             (178,120)
                                     ------------ ---------------------
Net income (loss) before income taxes  1,013,408           (1,588,702)
Income taxes                             132,937                     0
                                     ------------ ---------------------
Net Income (loss)                      $ 880,471         $ (1,588,702)
                                     ============ =====================
Net income (loss) per share               $ 0.13              $ (0.28)
Weighted average shares outstanding    6,682,772             5,693,198
</TABLE>

 See Accompanying Notes to Consolidated Financial Statements







                                       5

<PAGE>

Harmony Holdings, Inc.
Consolidated Statement of Operations
(unaudited)

-------------------------------------------------------------------------
                                          Three Months Ended
                                               March 31,

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

                                         1997                  1996
<TABLE>
<S>                                     <C>                   <C>

                                     -------------- ---------------------
Contract revenues                     $ 18,747,745          $ 18,601,032
Cost of production                      15,664,464            15,908,221
                                     -------------- ---------------------
    Gross profit                         3,083,281             2,692,811
Selling expenses                           901,040               813,891
Operating expenses                       1,803,902             1,573,784
Depreciation and amortization              156,699               136,990
                                     -------------- ---------------------
    Income from operations                 221,640               168,146
Interest income                             82,946                 3,488
Interest expense                          (69,430)              (68,185)
                                     -------------- ---------------------
Net income before income taxes             235,156               103,449

Income taxes                                29,445                     0
                                     -------------- ---------------------
Net Income                                 205,711               103,449
                                     ============== =====================
Net income per share                        $ 0.03                  0.02
Weighted average shares outstanding      6,853,062             5,693,198
</TABLE>

 See Accompanying Notes to Consolidated Financial Statements







                                       6

<PAGE>

Harmony Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited)

--------------------------------------------------------------------------------
                                Nine Months Ended

Increase (decrease) in cash                               March 31,

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


                                                    1997               1996
                                               --------------------------------

<TABLE>
<S>                                                    <C>          <C>

Cash flows from operating activities:

Net income (loss)                                   $  880,471   $ (1,588,698)
Adjustments to reconcile net loss to
cash used by operating activities:

Depreciation and amortization                          448,864         419,389
 Amortization of prepaid interest                            0          68,819

Changes in assets and liabilities:

Accounts receivable                                (3,576,607)         146,360
Unbilled accounts receivable                       (1,482,940)          44,595
Prepaid expenses and other current assets            (547,627)         371,361
Other assets                                          (24,716)         184,004
Accounts payable                                       361,810     (1,118,950)
Accrued liabilities                                  2,730,649       (138,854)
Deferred income                                        375,619       (337,307)
                                               -------------------------------                                                    
   Net cash used by operating activities             (834,477)     (1,949,281)
                                               --------------------------------

Cash flows from investing activities:

Capital expenditures                                 (554,365)       (280,232)
                                               --------------------------------
   Net cash used by investing activities             (554,365)       (280,232)
                                               --------------------------------


Cash flows from financing activities:

Proceeds from issuance of stock                      2,000,000          61,559
 Repayments subordinated notes payable               (385,000)               0
 Bank line of credit                                 (300,000)       2,000,000
                                               --------------------------------
    Net cash provided by financing activities        1,315,000       2,061,559

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

  Net decrease in cash                                (73,842)       (167,954)

  Cash, beginning of period                            446,740         229,909

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

Cash, end of period                                  $ 372,898        $ 61,955
                                                ================================
</TABLE>

 See Accompanying Notes to Consolidated Financial Statements







                                       7

<PAGE>

                             HARMONY HOLDINGS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (unaudited)
                                 March 31, 1997

               (1) Basis of  Presentation

               The financial information included herein is unaudited,  however,
          such  information  reflects  all  adjustments  (consisting  of  normal
          recurring accruals) which are, in the opinion of management, necessary
          to present fairly the results of operations for the periods presented.
          The results of operations  for the six months ended March 31, 1997 are
          not necessarily  indicative of a full year. The information  contained
          in this  Quarterly  Report on Form 10-Q should be read in  conjunction
          with the  audited  financial  statements  as of June 30, 1996 filed as
          part of the Company's Annual Report on Form 10-K.

               (2)  Organization,  Business,  and Principles of Consolidation

               Harmony  Holdings,  Inc.  ("Company") was incorporated  under the
          laws of the State of  Delaware  on  August  5, 1991 as a wholly  owned
          subsidiary  of  Ventura  Entertainment  Group  Ltd.  ("Ventura").   In
          connection  with the Company's  formation and initial  capitalization,
          the Company issued 2,033,330 shares of its common stock to Ventura and
          Ventura  contributed  all of the  capital  stock of its  wholly  owned
          subsidiaries,  Harmony  Pictures,  Inc. and Melody Films,  Inc. to the
          Company.  During the nine months ended March 31, 1997, the Company had
          six operating subsidiaries that contributed towards revenues:  Harmony
          Pictures,  Inc.,  Melody Films,  Inc.,  The End,  Inc., The Beginning,
          Inc., Curious Pictures  Corporation and Harmony Media  Communications.
          All  significant  intercompany  accounts  and  transactions  have been
          eliminated  in  consolidation.  Curious  Pictures  Corporation  is 99%
          owned,  the 1% minority  interest is not  presented  separately as the
          amounts are not  significant.  The Company  operates in one reportable
          segment,  producing television  commercials,  music videos and related
          media.

                    (3) Income (Loss) Per Share

          Per share  computations  are based on the weighted  average  number of
          common   and  common   equivalent   shares   outstanding.   Per  share
          computations  also include the potential  dilution  resulting from the
          assumed exercise of stock options and warrants  utilizing the treasury
          stock  method  when the  effect of such  common  equivalent  shares is
          dilutive.  For the Nine months ended March 31, 1997, fully diluted net
          income per share was the same as primary net income per share.

                    (4) Contingent Sale of a Subsidiary

                    The Company and Curious Pictures Corporation ("CPC") entered
          into an Option and Share Transfer  Agreement  dated as of December 15,
          1996 (the "Agreement") with the four members of the management of CPC.
          
               The  Agreement  provides for the issue in the aggregate of shares
          of Common Stock by CPC in a number equal to one (1%) per centum of the
          presently  outstanding shares of such Common Stock to all four members
          of the management of CPC upon the signing of the Agreement  which took
          place on or about  January 20,  1997.  Such  members have the right to
          have issued to them,  under the Agreement,  options  exercisable for a
          five  year  period.  At an  exercise  price of $1.00 per share of such
          Common  Stock,  for a number of shares  thereof not in excess of fifty
          (50%) per centum of the  presently  outstanding  shares of such Common
          Stock.  The issue of such stock options is tied to the  performance of
          CPC. Such options, if any, first become exercisable on January 1,1999.

                                       8
<PAGE>

               Upon the  acquisition by such members of the management of CPC of
          fifty-one (51%) per centum of the presently outstanding shares of such
          Common  Stock,  thereafter  the Company has the right to require  such
          member to purchase from it the  remaining  shares of such Common Stock
          held by the Company at a price agreed upon,  or in the absence of such
          agreement,  at a price determined by a neutral third party, subject to
          a minimum valuation of $4,000,000 for all such shares then outstanding

               (5) New  Accounting  Pronouncements  Statements  of Financial
    
                    Accounting Standards No. 128, "Earnings per Share" (SFAS No.
               128) issued by the Financial Accounting Standards Board (FASB) is
               effective  for  financial  statements  issued for periods  ending
               after December 15, 1997, including interim periods. The statement
               requires restatement of all prior period earnings per share (EPS)
               data presented.  The new standard  requires a  reconciliation  of
               numerator and  denominator  of the basic EPS  computation  to the
               numerator and  denominator  of the diluted EPS  computation.  The
               recalculated  basic EPS is $0.14  per  share for the nine  months
               ended March 31, 1997.

                    (6) Litigation 

                    On July 27,1996,  the Company, its Chairman of the Board and
               Unimedia S.A., a French Corporation,  executed an agreement which
               provided,   among  other  things,  that  (i)  the  parties  would
               negotiate  before  September  30, 1996,  a  definitive  agreement
               providing for the acquisition  from Unimedia  shareholders of all
               the  issued  and  outstanding  ordinary  shares  of  Unimedia  in
               exchange for 10,000,000 shares of Preferred Stock, and 10,000,000
               shares of Common Stock, of the Company,  and (ii) the Chairman of
               the Board of the Company  refrain  from selling 80% of his shares
               of stock of the Company prior to the  completion of the Apurchase
               of Unimedia@ by the Company,  and, in any case,  prior  September
               30,  1996.  The  agreement  also  contemplated  the  purchase  by
               Unimedia in the open market of a maximum of  1,000,000  shares of
               Common Stock of the Company.  The  shareholders  of Unimedia were
               not parties to this agreement.

                    Since the definitive agreement had not been negotiated, much
               less executed,  before September 30, 1996, the Company considered
               the  transaction  terminated  and so  notified  Unimedia  and the
               public. 

                    On  October  9, 1996,  Unimedia  filed an action  (served on
               October 13,  1996) in the United  States  District  Court for the
               Central  District  of  California  against  the  Company  and its
               Chairman of the Board, seeking, among other things, rescission of
               the purchase  from the Company of 1,000,000  shares of its Common
               Stock, specific performance requiring the Company to proceed with
               the  transaction,  damages for violation of Rule 10b-5 adopted by
               the  Securities  and  Exchange  Commission  under the  Securities
               Exchange  Act  of  1934,  fraud  and  breach  of  contract,   and
               declaratory and injunctive  relief. In view of the early stage of
               this  action,  management  of the Company is not in a position to
               express an opinion with respect to the action, but believes it to
               be without merit and will vigorously defend the action. 

                                      9
<PAGE>



              A lawsuit was filed on March 22, 1996, (served August 12, 1996) in
          Superior  Court of the State of California,  County of Los Angeles.  A
          wrongful  death  claim has been made by the  estate of Henry  Gillermo
          Urgoiti,  his wife and three  children for an accident  that  occurred
          during the  filming of a music  video in August  1995.  The  complaint
          contains six causes of action, three causes for negligence,  one cause
          for negligent  product  liability,  one cause for strict liability and
          one cause for breach of warranty.  Harmony  Holdings,  Inc.,  has been
          named in all six causes of action, Harmony Pictures Inc., The End Inc.
          and three of it's  employees  have been named in one of the negligence
          claims.  Other defendants include Southern  California Edison,  Virgin
          Records America, defendants include Southern California Edison, Virgin
          Records America,  Inc. Bell Helicopters and Helinet Aviation Services.
          While it is too early in the  discovery  process  to  assess  economic
          risk.  Management has been advised by the Company's  insurance  broker
          that there is adequate insurance to cover any damages assessed against
          the Company.  

               A cross-complaint  related to the preceding matter,  was filed on
          December 23, 1996 in Superior Court of the State of California, County
          of Los Angeles. The complaint has been filed by Virgin Records Limited
          against The End, Inc and Southern  California  Edison for  contractual
          indemnity,   equitable   indemnity,   comparative   contribution   and
          declaratory relief.  While it is too early in the discovery process to
          assess economic risk or insurance  coverage.  The Company's  insurance
          broker has  advised  management  that there is adequate  insurance  to
          cover any damages assessed against the Company.against the Company.

                                      10
<PAGE>



 ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Nine Months  ended March 31, 1997 as compared  with Nine Months  ended March 31,
1996

           For the Nine Months ended March 31, 1997,  revenues  decreased by 4%,
or $2,109,852,  to $48,285,615  from $50,395,467 for the Nine Months ended March
31, 1996.  The  subsidiaries  that ceased  operations  during 1996 accounted for
$4,331,986  or 9% of the  Company's  revenue for the Nine Months ended March 31,
1996. Revenues excluding those from ceased operations increased by $2,222,106.

           Cost of production  is directly  related to revenues and includes all
direct  costs   incurred  in  connection   with  the  production  of  television
commercials including film, crews, location fees and commercial directors' fees.
Cost of production for the Nine Months ended March 31, 1997, decreased by 9%, or
$3,798,636,  to $39,257,842 from $43,056,478 for the Nine Months ended March 31,
1996.  Expressed as a percentage of revenues,  cost of  production  for the Nine
Months ended March 31, 1997, was 81% compared with 85% for the Nine Months ended
March  31,  1996  and  resulted  in  gross  profit  percentages  of 19% and 15%,
respectively.  The  decrease  in cost of  production  and the  increase in gross
profit  for the  Nine  Months  ended  March  31,  1997,  were  primarily  due to
management's  continuing efforts to reduce costs and maximize  purchasing power,
offset by the increased  competitive  factors within the  commercial  production
industry.   Additionally,   the  Company  discontinued  two  low  profit  margin
subsidiaries.  Cost of production for  operations  ceased during the Nine Months
ended March 31, 1996 was $4,205,185 expressed as a percentage of revenue was 97%
and resulted in a gross profit of 3%.

           Selling  expenses  consist  of  sales  commissions,  advertising  and
promotional  expenses,  travel and other  expenses  incurred in the  securing of
commercial contracts. Selling expenses for the Nine Months ended March 31, 1997,
increased  to  $2,446,291  from  $2,272,369  for the Nine Months ended March 31,
1996,  representing an increase of $173,922.  Selling  commissions  increased by
$30,931,  while other  selling  expenses  increased by $142,991.  $50,734 of the
increase in other  selling  expenses  was  attributable  to an increase in costs
incurred for commercials  produced to enhance existing  directors show reels and
not as a result of a contract with an advertising  agency.  Selling expenses for
the operations  ceased during the Nine Months ended March 31, 1996, was $201,394
or 9% of the total selling expenses.

           Operating  expenses consist of overhead costs such as office rent and
expenses,  executive,  general and  administrative  payroll,  and related items.
Operating  expenses  for the Nine Months  ended  March 31,  1997,  increased  to
$5,143,452   from   $5,054,417  for  the  Nine  Months  ended  March  31,  1996,
representing a increase of $89,035 or 2%. Operating expenses of $161,707 relates
to subsidiaries that have ceased operations.

           Litigation  expenses for the Nine Months ended March 31, 1996, relate
to the termination of and settlement  with a former chief  operating  officer of
the Company, Tara McCarthy.

           For the Nine Months  ended March 31,  1996,  The Company had booked a
one-time  charge to write off the cost of projects that no longer are considered
to have a realizable  value. The charge includes  $215,000 cost of production of
an  infomercial,  $224,000  for a  screenplay  writing  project,  $100,000 for a
director and salesperson  who attempted to begin a new subsidiary  and,  $82,000
for placement of corporate products and a books-on-tape distribution system.



                                      11
<PAGE>




           Severance  salaries for the Nine Months ended March 31, 1996, are the
costs associated with the termination of former employees of the Company.

           Depreciation and amortization  expense  increased for the Nine Months
ended March 31, 1997,  to $448,864 from $419,389 for the Nine Months ended March
31, 1996, representing an increase of $29,475. The change is due to the increase
in depreciable assets of $554,365.

           Interest  income  increased for the Nine Months ended March 31, 1997,
to $121,332  from $4,620 for the Nine Months ended March 31, 1996,  representing
an  increase  of  $116,712,  due to more  cash  held in short  term  investments
compared to the prior year.

           Interest expense  decreased for the Nine Months ended March 31, 1997,
to $97,090 from $178,120 for the Nine Months ended March 31, 1996,  representing
a decrease of $81,030,  due to a decrease in borrowings under the line of credit
and a payoff of the subordinated debt.

           Income tax expense was  $132,937  for the Nine Months ended March 31,
1997. The tax expense is attributable to federal  alternative  minimum taxes and
state taxes imposed by various states in which the companies conduct business. A
full valuation allowance has been established as it is more likely than not that
the deferred tax assets will not be realized. During the Nine Months ended March
31, 1997,  the  Company's  effective  income tax rate varied from the  statutory
federal tax rate as a result of the utilization of operating losses for which no
tax  benefit  had been  recognized  due to the  valuation  allowance  on the net
deferred tax asset.

Three Months ended March 31, 1997 as compared  with Three Months ended March 31,
1996

           For the Three Months ended March 31, 1997,  revenues increased by 1%,
or $146,713,  to $18,747,745  from  $18,601,032 for the Three Months ended March
31, 1996.  The  subsidiaries  that ceased  operations  during 1996 accounted for
$1,815,753 or 10% of the Company's  revenue for the Three Months ended March 31,
1996.

           Cost of  production  for the  Three  Months  ended  March  31,  1997,
decreased  by 2%, or  $243,757 to  $15,664,464  from  $15,908,221  for the Three
Months ended March 31, 1996.  Expressed  as a  percentage  of revenues,  cost of
production  for the Three Months ended March 31, 1997, was 84% compared with 86%
for the  Three  Months  ended  March  31,  1996 and  resulted  in  gross  profit
percentages of 16% and 14%, respectively. The decrease in cost of production and
increase  in gross  profit  for the Three  Months  ended  March 31,  1997,  were
primarily due to  management's  continuing  efforts to reduce costs and maximize
purchasing  power,  offset  by the  increased  competitive  factors  within  the
commercial production industry.  Cost of production for operations ceased during
the year was  $1,860,677,  expressed  as a  percentage  of revenue  was 102% and
resulted in a loss of 2%.

           Selling expenses for the Three Months ended March 31, 1997, increased
to  $901,040   from  $813,891  for  the  Three  Months  ended  March  31,  1996,
representing an increase of $87,149.  Selling commissions  decreased by $61,018,
while other  selling  expenses  increased by $148,167.  Other  selling  expenses
increased by $13,349 which were  attributable  to an increase in costs  incurred
for commercials  produced to enhance existing  directors show reels and not as a
result of a contract with an advertising  agency,  advertising  and  promotional
expenses increased by $92,248 and sales salaries  increased by $27,898.  Selling
expenses for the operations ceased during the Three Months ended March 31, 1996,
were $100,385 or 12% of the total selling expenses.



                                       12
<PAGE>



           Operating  expenses  for the  Three  Months  ended  March  31,  1997,
increased to  $1,803,902  from  $1,573,784  for the Three Months ended March 31,
1996,  representing  an  increase  of  $230,118  or 15%.  Operating  expenses of
$161,707 relates to subsidiaries that have ceased operations.

           Depreciation  expense  increased for the Three Months ended March 31,
1997,  to $156,699  from  $136,990  for the Three  Months  ended March 31, 1996,
representing an increase of $19,709.

           Interest income  increased for the Three Months ended March 31, 1997,
to $82,946 from $3,488 for the Three  Months ended March 31, 1996,  representing
an increase of $79,458, due to more cash held in short term investments compared
to the prior year.

           Interest expense increased for the Three Months ended March 31, 1997,
to $69,430 from $68,185 for the Three Months ended March 31, 1996,  representing
a increase of $1,245.

           Income tax expense was $29,445 for the Three  Months  ended March 31,
1997. The tax expense is attributable to federal  alternative  minimum taxes and
state taxes imposed by various states in which the companies conduct business. A
full valuation allowance has been established as it is more likely than not that
the  deferred  tax assets will be not  realized.  During the Three  Months ended
March  31,  1997,  the  Company's  effective  income  tax rate  varied  from the
statutory  federal tax rate as a result of the  utilization of operating  losses
for which no tax benefit had been  recognized due to the valuation  allowance on
the net deferred tax asset.

New Accounting Pronouncements

         Statements of Financial  Accounting  Standards  No. 128,  "Earnings per
Share" (SFAS No. 128) issued by the Financial  Accounting Standards Board (FASB)
is effective for financial  statements  issued for periods ending after December
15, 1997,  including interim periods.  The statement requires restatement of all
prior period earnings per share (EPS) data presented.  The new standard requires
a  reconciliation  of numerator and  denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS  computation.  The recalculated
basic EPS is $0.14 per share for the nine months ended March 31, 1997.

Liquidity and Capital Resources

Nine Months  ended March 31, 1997 as compared  with Nine Months  ended March 31,
1996

           At March 31,  1997,  the  Company's  working  capital was  $2,353,958
including cash of $372,898 compared with working capital of $372,584,  including
cash of $61,955 at March 31,  1996.  Cash used by operating  activities  for the
Nine Months ended March 31, 1997,  decreased  $1,114,804  to $834,477  from cash
used in operating  activities of $1,949,281  for the Nine Months ended March 31,
1996. The material decreases in the amount of cash used in operating  activities
were  $2,469,169  increase  in net  income;  $5,250,502  increase  in billed and
unbilled  accounts  receivable;  $4,350,263  increase  in  accounts  payable and
accrued expenses, $1,127,708 increase in prepaid expenses and other assets and a
increase in deferred income of $712,926.

           Cash used in investing  activities (i.e.:  capital  expenditures) for
the Nine Months ended March 31, 1997, increased 98% or $274,133 to $554,365 from
$280,232 for the Nine Months ended March 31, 1996.



                                       13
<PAGE>



           Cash provided by financing activities for the Nine Months ended March
31,  1997,  decreased by $746,559 to  $1,315,000  from  $2,061,559  for the Nine
Months  ended March 31, 1996.  The  decrease  was due to a $385,000  decrease in
subordinated  debt and a $2,300,000  decrease in net  borrowings  on the line of
credit  agreement,  offset  by  $1,938,441  increase  in the  proceeds  from the
issuance of stock.

           On May 10, 1995,  the Company  entered into a $3,000,000  asset based
revolving  line of credit with a bank,  with  interest at the bank's  prime rate
plus 1.0% per annum,  collateralized  by the assets of the  Company.  The bank's
prime rate at March 31,  1997 was 8.50%.  The  agreement  has been  renewed  and
expires  October  31,  1997.  Borrowing  is based upon  certain  percentages  of
acceptable receivables.  There were no amounts outstanding on the line of credit
as of March 31, 1997 and the Company was in compliance with all of the financial
covenants with the bank.

            The  Company,  as of  March  31,  1997,  had  entered  into  various
employment  agreements  with its officers and others,  which obligate it to make
minimum  payments of $5,688,099 over the next three years.  The payments due are
$3,096,528,  $2,044,821 and $546,750 for the twelve months ended March 31, 1998,
1999 and 2000, respectively.  Of these amounts $2,833,200 are for administrative
personnel  and   $2,854,899  are  for   commercial   television   directors  and
salespeople.  Certain of these  agreements  provide for additional  compensation
based on revenues  and other  items.  Other  agreements  provide for  additional
compensation  based  on  certain  defined  operating  profits.  This  additional
compensation  is payable  whether or not the Company  has a profit.  Some of the
television  directors who are associated  with the Company receive monthly draws
against the directors'  compensation for production of commercials.  The monthly
draws  equal the  minimum  guaranteed  compensation  payable to such  directors.
Although the draws are recoupable by the Company out of  compensation  otherwise
payable to such directors, such directors are not obligated to repay such draws,
if their fees for  commercials  produced do not exceed the monthly draws,  which
have been paid.  Consequently,  the Company is obligated to provide compensation
to these directors  whether or not they are directing  commercials.  Most of the
Company's  sales  personnel   receive  monthly  draws  offset  by  their  earned
commissions.  During the Nine Months  ended March 31,  1997,  the Company paid $
1,649,766  in such draws to these  directors  and sales  people;  they  earned $
2,719,002 in fees,  which sum exceeded the draws advanced by $ 1,201,549.  On an
individual  basis some of the director's and sales  personnel's fees earned were
less then their draws and increased the Company's losses by $ 125,099.

           The Company has no material  commitments for capital expenditures and
has not made any  arrangements for external sources of financing other than what
has been  disclosed.  Management  believes that the  Company's  present cash and
other  resources  are  sufficient  for its needs  for at least  the next  twelve
months.

Inflation

           Inflation has not had a significant effect on the Company.



                                      14
<PAGE>




PART II-- OTHER INFORMATION

ITEM 1.    Legal Proceedings

           Recent Litigation Related to Proposed Acquisition

           On July 27,1996,  the Company, its Chairman of the Board and Unimedia
S.A., a French  Corporation,  executed an agreement which provided,  among other
things,  that (i) the parties  would  negotiate  before  September  30,  1996, a
definitive agreement providing for the acquisition from Unimedia shareholders of
all the issued and  outstanding  ordinary  shares of Unimedia  in  exchange  for
10,000,000  shares of Preferred Stock, and 10,000,000 shares of Common Stock, of
the  Company,  and (ii) the  Chairman of the Board of the Company  refrain  from
selling 80% of his shares of stock of the Company prior to the completion of the
"purchase of Unimedia" by the Company,  and, in any case,  prior  September  30,
1996.  The  agreement  also  contemplated  the  purchase by Unimedia in the open
market of a maximum of  1,000,000  shares of Common  Stock of the  Company.  The
shareholders of Unimedia were not parties to this agreement.

           Since the  definitive  agreement had not been  negotiated,  much less
executed,  before  September 30, 1996, the Company  considered  the  transaction
terminated and so notified Unimedia and the public.

           On October 9, 1996,  Unimedia  filed an action (served on October 13,
1996) in the United States District Court for the Central District of California
against the Company and its Chairman of the Board, seeking,  among other things,
rescission  of the purchase  from the Company of 1,000,000  shares of its Common
Stock,   specific  performance   requiring  the  Company  to  proceed  with  the
transaction,  damages for violation of Rule 10b-5 adopted by the  Securities and
Exchange  Commission under the Securities Exchange Act of 1934, fraud and breach
of contract,  for declaratory and injunctive  relief. In view of the early stage
of this  action,  management  of the  Company is not in a position to express an
opinion with respect to the action, but believes it to be without merit and will
vigorously defend the action.

           Litigation related to a Music Video Production at a Subsidiary

           A lawsuit was filed on March 22,  1996,  (served  August 12, 1996) in
Superior  Court of the State of  California,  County of Los Angeles.  A wrongful
death claim has been made by the estate of Henry Gillermo Urgoiti,  his wife and
three children for an accident that occurred during the filming of a music video
in August 1995.  The complaint  contains six causes of action,  three causes for
negligence,  one cause for  negligent  product  liability,  one cause for strict
liability and one cause for breach of warranty. Harmony Holdings, Inc., has been
named in all six causes of action, Harmony Pictures Inc., The End Inc. and three
of it's  employees  have  been  named  in one of the  negligence  claims.  Other
defendants include Southern California Edison, Virgin Records America, Inc. Bell
Helicopters  and  Helinet  Aviation  Services.  While  it is  too  early  in the
discovery  process to assess  economic risk.  Management has been advised by the
Company's insurance broker that there is adequate insurance to cover any damages
assessed against the Company.

           A  cross-complaint  related  to the  preceding  matter,  was filed on
December 23, 1996 in Superior  Court of the State of  California,  County of Los
Angeles. The complaint has been filed by Virgin Records Limited against The End,
Inc  and  Southern  California  Edison  for  contractual  indemnity,   equitable
indemnity,  comparative  contribution  and declaratory  relief.  While it is too
early in the discovery process to assess economic risk. The Company's  insurance
broker has  advised  management  that there is adequate  insurance  to cover any
damages assessed against the Company. ITEM 5. Other Information

                                       15
<PAGE>

Contingent sale of a subsidiary

                  The Company and Curious Pictures  Corporation  ("CPC") entered
into an Option and Share Transfer  Agreement  dated as of December 15, 1996 (the
"Agreement") with the four members of the management of CPC.

         The  Agreement  provides  for the issue in the  aggregate  of shares of
Common  Stock by CPC in a number  equal to one (1%) per centum of the  presently
outstanding shares of such Common Stock to all four members of the management of
CPC upon the signing of the  Agreement  which took place on or about January 20,
1997. All four members of the management of CPC have the right to have issued to
them,  under the Agreement,  options  exercisable for a five year period,  at an
exercise  price of $1.00 per share of such Common Stock,  for a number of shares
thereof  not in excess of fifty  (50%) per centum of the  presently  outstanding
shares of such  Common  Stock.  The issue of such  stock  options is tied to the
performance of CPC. Such options, if any, first become exercisable on January 1,
1999.

         Upon  the  acquisition  by such  members  of the  management  of CPC of
fifty-one  (51%) per centum of the presently  outstanding  shares of such Common
Stock,  thereafter  the Company has the right to require such member to purchase
from it the remaining shares of such Common Stock held by the Company at a price
agreed upon,  or in the absence of such  agreement,  at a price  determined by a
neutral third party,  subject to a minimum  valuation of $4,000,000 for all such
shares then outstanding.

ITEM 6.    Exhibits and Reports on Form 8-K

           (a)      Exhibits

                    10.31 Option share  transfer  agreement  dated  December 15,
               1996 for the sale of Curious Pictures Corporation. .

           (b) Reports on Form 8-K - None

No other Items of Part II of the Quarterly Report on Form 10-Q are applicable to
the period covered by this Quarterly Report on Form 10-Q.



                                       16
<PAGE>




                                   SIGNATURES

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

                             HARMONY HOLDINGS, INC.

Date: May 7, 1997

           By/s/Harvey Bibicoff
           Harvey Bibicoff

           Chairman of the Board, Chief Executive Officer

Date: May 7, 1997

           By/s/Brian Rackohn
           Brian Rackohn

           Chief Financial Officer, Secretary
           (Principal Financial and Chief Accounting Officer)



                                       
<PAGE>



         OPTION AND SHARE  TRANSFER  AGREEMENT  (this  "Agreement")  dated as of
         December 15, 1996 among SUSAN HOLDEN SQUIBB,  RICHARD WINKLER,  STEPHEN
         OAKES and DAVID STARR  (collectively the "Curious  Management  Group"),
         HARMONY  HOLDINGS,  INC., a  California  corporation  ("Harmony"),  and
         CURIOUS PICTURES CORPORATION, a New York corporation ("Curious").

                  Harmony is the record  holder of 100 shares (the  "Shares") of
common  stock,  no par  value,  of  Curious  ("Common  Stock"),  and the  Shares
constitute  all of the issued and  outstanding  Common Stock.  There are, in the
aggregate,  200 authorized shares of Common Stock, and no shares of Common Stock
other than the Shares are issued and outstanding.

                  On or  prior to the  Closing  Date (as  defined  below),  each
member of the Curious Management Group is currently employed by Curious pursuant
to an employment  contract.  The Curious Management Group shall enter into a new
employment contract substantially in the form attached as Exhibit A hereto (each
an "Employment  Contract" and together the "Employment  Contracts") and having a
three  year  term  (the  "Renewal   Term")   commencing   January  1,  1997.  In
consideration of the renewal of their Employment Contracts,  among other things,
Curious shall issue to each member of the Curious Management Group the number of
shares of Common  Stock  provided  for herein,  and shall also issue  options to
acquire Common Stock ("Options"), to each member of the Curious Management Group
as provided for herein.

                  Accordingly,  in  consideration  of  the  premises  set  forth
herein, the execution and delivery by the parties of Employment  Contracts,  and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the Curious Management Group, Harmony and Curious agree
as follows:

                  SECTION  1.   Transfer  of  Initial   Shares  and   Employment
Contracts:  Closing.  Subject to the satisfaction of the conditions specified in
Section 7 below  and the  other  terms and  conditions  of this  Agreement,  the
closing of the  transactions  contemplated  hereby shall be held on December 15,
1996, or such earlier date as may be agreed by each of the parties  hereto (such
date,  the  "Closing  Date").  At the  Closing  (i) each  member of the  Curious
Management Group shall execute and deliver their respective Employment Contract,
and such  contracts  shall also be  executed by Curious  and  Harmony,  and (ii)
Curious shall issue to each member of the Curious  Management Group [a number of
shares of Common Stock which,  following the issuance of such shares, will equal
one quarter of one percent  (.25%) of the then  outstanding  Common  Stock] (the
"Initial Shares"), for an aggregate number of Initial Shares being issued to the
Curious Management Group equal to one per cent (1%) of the Common Stock.

         SECTION 2.  0ptions For  Additional  Common  Stock.  (a) Within I0 days
after  the  last  day of each  calendar  year  in  which  any of the  Employment
Contracts remain in effect (commencing with the Calendar Year 1997), the Curious
Management Group will be granted Options in the manner and at the rate set forth
in Section 2(b) below. The Options shall be  nontransferable  options to acquire
shares  of Common  Stock  exercisable  for 5 years at an  exercise  price  equal
to$1.00 per share. Each Option shall represent the right to acquire one share of
Common  Stock (each an "Option  Share") at the  exercise  price.  The  aggregate
number of Option Shares shall not exceed 50% of the Common  Stock.  Accordingly,
the  number of  Initial  Shares  and  Option  Shares  shall not  exceed,  in the
aggregate, 51 % of the number of shares of Common Stock (the "Aggregate Limit").

                    Exhibit 10.31
                                      
<PAGE>

                  (b) Subject to the Aggregate  Limit,  the number of Options to
be to be granted to the Curious Management Group following a calendar year shall
be  determined  as  follows:  for each  $20,000 in net income  before  taxes (as
calculated  pursuant to GAAP) in excess of $150,000 earned by Curious during the
applicable  calendar year, the Curious Management Group shall be granted Options
to  acquire  one per  cent of the  Common  Stock;  provided,  however,  that for
purposes of calculating  the number of Options earned by the Curious  Management
Group pursuant to this subsection only, net income before taxes shall be reduced
during each  calendar year by an aggregate  allocation of corporate  overhead of
Harmony equal to $100,000 per annum.

                  (c) In the event  that the  Curious  Management  Group has not
earned  Options to  acquire  50% of the Common  Stock by the  conclusion  of the
Renewal Term (or by the conclusion of any  additional  renewal term provided for
herein)  each  member of the  Curious  Management  Group shall have the right to
renew their Employment Contract for an additional one year term.

                  (d) Options  granted  pursuant to this Section shall be issued
         pro rata in the names of the  members of the Curious  Management  Group
         employed by Curious at the conclusion of the applicable calendar year.

                  (e) Options  granted  pursuant to this Agreement  shall not be
exercisable until the conclusion of the second year of the Renewal Term.

                  SECTION 3.  Actions  Following  Change in Control.  As soon as
practicable  following  the date (the  "Change  in  Control  Date") on which the
aggregate  number  of shares of Common  Stock  owned by the  Curious  Management
Group,  plus the  number of share of Common  Stock  which  would be issued  upon
exercise of any Options held by the Curious  Management Group equals 51 % of the
shares of Common Stock (a "Change in Control"):

         (a)  Curious  shall  remit to Harmony all cash on hand on the Change in
Control Date (the "Closing Cash Balance"), in excess of $150,000 (which shall be
retained by Curious as a contribution  from Harmony).  Six months  following the
Change in Control Date,  Curious shall  determine the amount of working  capital
possessed  by Curious as of the Change in  Control  Date (the  "Closing  Working
Capital")  and, as the case may be,  either (i) Curious shall pay to Harmony the
amount by which the Closing Working  Capital  Balance  exceeded the Closing Cash
Balance,  or (ii)  Harmony  shall pay to Curious the amount by which the Closing
Cash Balance exceeded the Closing Working Capital Balance.  For purposes of this
subsection,  "working  capital"  means  working  capital  as  defined  by  GAAP,
excluding any  intercompany  receivables to be canceled by Curious on the Change
in Control Date pursuant to the following subsection;

                  (b) except for loans  made by Harmony to Curious  pursuant  to
Section 4 below,  Curious shall cancel the intercompany account balances between
Curious and Harmony;

                                  Exhibit 10.31
                                     
<PAGE>

                  (c) Harmony shall have the right to require the members of the
Curious  Management  Group then owning  Common Stock,  or an entity  directly or
indirectly  controlled  by them,  to purchase  its 49%  interest in Curious at a
price to be agreed among the parties;  provided,  however, that such right shall
not be exercisable by Harmony until after the conclusion of the initial  Renewal
Term  (whether or not a Change in Control has occurred  prior to such time).  In
the event that the parties cannot agree on a purchase  price,  the price for the
acquisition  of such  interest  shall be  established  by a neutral  third party
mutually acceptable to the parties;  provided,  however,  that the minimum price
for the acquisition of such interest shall be based on a valuation of $4 million
for 100% of the Common Stock.

          (d) In the event that  Harmony  elects to require  Curious to purchase
     Harmony's  Shares pursuant to subsection (c), Curious shall issue a note to
     Harmony in payment  for such  Shares  which  shall have a one year term,  a
     seven-year  amortization  schedule and an interest  rate equal to Harmony's
     cost of borrowing plus one per cent (the "Curious Note"). Curious shall use
     its reasonable best efforts to refinance the Curious Note at the conclusion
     of its term. In the event that Curious cannot refinance the Curious Note at
     such  time,  Harmony  will  guarantee  a loan  to  Curious  from a  lending
     institution  which loan will be secured by the receivables of Curious (this
     type of financing is typically called a "receivables  line" or a "revolving
     receivables  line"). The amount of the guarantee will not exceed the amount
     of the Curious Note, and the guarantee will be for a period of no more than
     two years.

     (e) In the event that the Options are  exercised at the  conclusion  of the
     second year of the Renewal Term,  Harmony shall be paid as dividends 49% of
     the Net Income (unless  otherwise noted,  defined in this Agreement to mean
     Net Income as defined by GAAP)  earned by Curious  during the third year of
     the  Renewal  Term.   During  the  third  year  of  the  Renewal  Term  the
     compensation  of the Curious  Management  Group shall be  maintained at the
     levels  provided for in the Employment  Contracts and capital  expenditures
     shall be made only as provided for in this Agreement.
       
  SECTION 4. Loans by  Harmony.  From  January 1, 1997 until the date one
year after the Change in Control  Date,  Harmony  shall make loans to Curious to
the extent reasonably necessary to (i) meet the reasonable working capital needs
of Curious,  or (ii) enable  Curious to make the amount of capital  expenditures
permitted  by the  following  Section.  Any such loans  shall bear  interest  at
Harmony's  cost of borrowing plus one per cent and, to the extent such loans are
outstanding  at the first  anniversary  of the Change in Control Date,  shall be
repaid in equal  monthly  installments  of principal  and  interest  paid in the
following calendar year.

                                  Exhibit 10.31

                                      
<PAGE>



                  SECTION 5. Capital Expenditures. In each calendar year Curious
shall be  permitted  to make  capital  expenditures  equal to the greater of (i)
$100,000,  or (ii) 50% of Net Income (which,  for purposes of this Section only,
shall be determined exclusive of any corporate overhead allocated to Curious) in
excess of $300,000  earned by Curious  during the preceding  calendar  year. The
amount of investment  permitted  pursuant to this Section  during  calendar year
1997 shall be based on Net Income earned by Curious during calendar 1996. Monies
invested by Curious  pursuant to this Section  shall be invested in  capitalized
assets of Curious; or, in the discretion of the Curious Management Group, in the
development  of a  "content"  business  within  Curious.  In the event  that the
Curious  Management Group seeks to invest in the current or proposed business of
Curious in an amount  greater  than the  amount  provided  for by this  Section,
Harmony  will  negotiate  with  the  Curious  Management  Group  in  good  faith
concerning such possible investment.  In making capital expenditures pursuant to
this Section the Curious  Management Group, in exercising its business judgment,
will  give  first  consideration  to the  expenditures  needed to  maintain  the
business of Curious as  conducted  on the date hereof and a  reasonable  rate of
growth.

                  SECTION 6. Harmony Options for New Curious Employees. Prior to
the Change in Control  Date and with the consent of Harmony,  which shall not be
unreasonably  withheld,  the Curious  Management  Group will be allowed to offer
potential employees of Curious options (in an amount and at an exercise price to
be agreed) to acquire common shares of Harmony.

     SECTION  7.  Conditions   Precedent.   The  Closing  of  the   transactions
     contemplated  hereby shall be subject to the satisfaction (or waiver by the
     appropriate party) of the following conditions precedent:
                  (a) with respect to Curious and/or Harmony, as appropriate:

     (i) Harmony  shall have  delivered on or prior to the Closing Date original
     share  certificates  evidencing the Initial Shares duly issued on or before
     the  Closing  Date in the name of the  appropriate  member  of the  Curious
     Management  Group or such  person's  designee,  against the  execution  and
     delivery by each member of the Curious Management Group of their Employment
     Contract;

                  (ii) The  representations  and warranties  made by Harmony and
Curious (together the "Transferors")  herein shall be true and correct on and as
of the date  hereof and shall be deemed to be  restated  and remade on and as of
the Closing Date;

                  (iii)  Transferors  shall  not have  issued or agreed to issue
(conditionally  or otherwise)  any new Common Stock (other than pursuant to this
Agreement) or new securities directly or indirectly convertible, exchangeable or
exercisable into Common Stock; and

                                  Exhibit 10.31
<PAGE>

                  (iv)  Transferors  shall have  delivered  evidence,  in a form
reasonably  satisfactory to the Curious  Management Group, that Curious has duly
authorized additional Common Stock sufficient to allow Curious to consummate the
transactions provided for in this Agreement.

                  (b) The Closing of the transactions  contemplated hereby shall
be further  subject to the  satisfaction  (or waiver by unanimous  action of the
Curious Management Group and Harmony) of the following conditions precedent:

                  (i) There  shall not be any  pending or  seriously  threatened
injunction  or  restraining  order issued by a court of  competent  jurisdiction
against the  consummation  of the issuance of the Common Stock  pursuant to this
Agreement or against any of the transactions contemplated hereby;

                  (ii) Each member of the Curious Management Group shall execute
and  deliver to  Harmony an  Employment  Contract  substantially  in the form of
Exhibit A hereto; and

                  (iii) All  conditions  set forth in subsection (a) above shall
have been  satisfied  (or waived by unanimous  action of the Curious  Management
Group) on or before the Closing  Date (or such later date as the parties  hereto
may specify in writing).

     SECTION  8.  General   Representations  and  Warranties.   Each  Transferor
     represents and warrants to each member of Curious  Management  Group, as of
     the date hereof and the Closing Date, that:
                 
                (a) it has full corporate power and corporate  authority,  and
has taken all corporate  action  necessary to execute and deliver this Agreement
and all documents required to be executed and delivered by it hereunder,  and to
fulfill  its  obligations  hereunder  and  thereunder,  and  to  consummate  the
transactions contemplated hereby and thereby;

                  (b) the  execution,  delivery  and  performance  by it of this
Agreement and the transactions contemplated hereby does not and will not violate
(i) any law or regulation of the jurisdiction under which it exists, (ii) to its
knowledge,   any  other  law,  statute,  order,  judgment,  rule  or  regulation
applicable to it or (iii) any other agreement to which it is a party or by which
it or its assets is bound;

                  (c) this  Agreement has been duly executed and delivered by it
and  constitutes  its  legal,  valid  and  binding  obligation,  enforceable  in
accordance  with its terms  (except  as such  enforceability  may be  limited by
applicable bankruptcy, reorganization,  fraudulent transfer, moratorium or other
similar laws relating to creditors' rights generally);

                  (d) all  approvals  or consents  of,  authorizations  or other
actions by, or filings  with,  any  governmental  authority  or other  person or
entity  necessary for the validity or  enforceability  of its obligations  under
this  Agreement,  and all documents  required to be executed and delivered by it
hereunder, have been obtained and are in full force and effect;

                  (e) no  broker,  finder  or  other  person  or  entity  acting
pursuant to the  authority of either  Transferor is entitled to any broker's fee
or other commission in connection with the transactions contemplated hereby;

                  (f) in the case of  Harmony  only,  it is the sole  legal  and
beneficial  owner and holder of the Shares (which  constitute  all of the issued
and outstanding shares of Common Stock), and it has good and marketable title to
the Shares;

                                  Exhibit 10.31
<PAGE>

                  (g) the Initial Shares are duly  authorized,  validly  issued,
fully-paid,  non-assessable  and free and clear of all liens,  claims,  charges,
restrictions,  adverse claims,  encumbrances or security  interests of any kind;
and

                  (h) no litigation or adversarial  proceedings  are pending or,
to the knowledge of the Transferors, threatened which would adversely affect the
consummation or performance of the transactions contemplated by this Agreement.

                  SECTION 9. No Additional Shares. Except as otherwise permitted
by this Agreement,  Transferors shall not issue or agree to issue (conditionally
or  otherwise)  any new Common Stock or new  securities  directly or  indirectly
convertible, exchangeable or exercisable into shares of Common Stock.

                  SECTION   10.   Purchase   and   Sale    Representations   and
Acknowledgments.  Each member of the Curious  Management  Group  represents  and
warrants to Harmony that such person is acquiring  Common  Stock  hereunder  for
investment  purposes and not with a view to  distribution  or resale in a manner
which would violate Federal securities laws.

                    SECTION 1 1. Restrictions on Transfer.

                           (a)  Transfer/Issuance.  The Initial Shares and, upon
                    payment of the  exercise  price  required  by Section 2 at a
                    time  permitted  under this  Agreement,  the  Option  Shares
                    (together,  44 restricted  Common  Stock7') will be promptly
                    issued or transferred  to, and a certificate or certificates
                    for such restricted Common Stock shall be issued in the name
                    of, the appropriate  member of the Curious  Management Group
                    (each a "Recipient").  In addition to members of the Curious
                    Management  Group to whom shares of restricted  Common Stock
                    are issued or  transferred  under this  Agreement,  the term
                    "Recipient"  shall  refer  to such  individual's  designated
                    beneficiary,    surviving    spouse,    estate,   or   legal
                    representative. For purposes of this Agreement, however, any
                    such beneficiary,  spouse,  estate, or legal  representative
                    shall be  considered  as one  person  with  the  appropriate
                    member of the Curious Management Group.

                           (b) Shareholder  Status.  Upon issuance of restricted
                    Common  Stock as provided for in the  preceding  subsection,
                    the Recipients shall be shareholders of all of the shares of
                    restricted  Common Stock  represented by the  certificate or
                    certificates.  As such,  the  Recipients  will  have all the
                    rights  of  shareholders  with  respect  to such  shares  of
                    restricted  Common  Stock,  including the right to vote such
                    shares and to receive all dividends and other  distributions
                    (subject  to  Section 1 1 (c)) paid  with  respect  to them;
                    provided,  however,  that such shares of  restricted  Common
                    Stock shall be subject to the restrictions in Section 11(e).
                    Stock certificates representing restricted Common Stock will
                    be  imprinted  with a legend  stating  that the Common Stock
                    represented thereby may not be sold, exchanged, transferred,
                    pledged,  hypothecated,  or otherwise  disposed of except in
                    accordance  with  the  terms  of this  Agreement,  and  each
                    transfer agent (if any) for Common Stock shall be instructed
                    to like  effect in  respect  of such  shares  of  restricted
                    Common Stock.

                                  Exhibit 10.31
<PAGE>

                           (c) Stock Splits,  Dividends, etc. If, due to a stock
                    split,  stock  dividend,  combination  of  shares  of Common
                    Stock, or any other change or exchange for other  securities
                    by reclassification,  reorganization, merger, consolidation,
                    recapitalization or otherwise, the Recipients, as the owners
                    of shares of restricted Common Stock subject to restrictions
                    hereunder,   shall  be  entitled  to  new,  additional,   or
                    different shares of stock or securities,  the certificate or
                    certificates   for,  or  other   evidences  of,  such,   new
                    additional,  or  different  shares  of stock or  securities,
                    together with a stock power or other  instrument of transfer
                    appropriately  endorsed,  also  shall  be  imprinted  with a
                    legend  as  provided  in  Section  1 1 (b).  When and if the
                    event(s)  described in the  preceding  sentence  occur,  all
                    provisions of this Agreement  relating to  restrictions  and
                    lapse of restrictions will apply to such new, additional, or
                    different  shares  of  stock  or  securities  to the  extent
                    applicable  to the shares of  restricted  Common  Stock with
                    respect to which they were distributed;  provided,  however,
                    that if the  Recipient  shall  receive  rights,  warrants or
                    fractional  interests  in respect  of any of such  shares of
                    restricted  Common  Stock,  such rights or  warrants  may be
                    held,  exercised,  sold or  otherwise  disposed of, and such
                    fractional  interests may be settled,  by the Recipient free
                    and clear of the restrictions hereafter set forth.

                           (d) Restricted Period.  The term "Restricted  Period"
                    with  respect  to  restricted   Common  Stock  (after  which
                    restrictions   shall  lapse)  and  Options  means  a  period
                    starting on the date of issuance (the "Date of Issuance") of
                    such restricted Common Stock or Options to the Recipient and
                    ending on such date three years after the Date of  Issuance;
                    provided,  however,  that  the  Restricted  Period  shall be
                    terminated  simultaneously with (i) a public offering of any
                    of the Common Stock, (ii) a sale of all or substantially all
                    of the  assets of  Curious,  or (iii) the sale  transfer  or
                    exchange of a controlling interest in the Common Stock.

               (e)  Restrictions  on 0ptions,  Initial Shares and Option Shares.
          The restrictions to which restricted Common Stock and Options shall be
          subject are:
                  
                         (i) During the  Restricted  Period  applicable  to such
                    restricted Common Stock and Options, and except as otherwise
                    specifically  provided  in  this  Agreement,  none  of  such
                    restricted   Common   Stock   shall  be   sold,   exchanged,
                    transferred, pledged, encumbered, hypothecated, or otherwise
                    disposed of, 
             
               (ii) If a Recipient's  employment  is terminated  for any reason,
          including such Recipient's death or disability, at any time before the
          Restricted  Period  ends,  the  Company  shall so  notify  each of the
          Recipients. Upon such termination, the Company shall have the right to
          repurchase  all  restricted  Common Stock (for $0.50 per share) and/or
          Options (for $0.49 per Option) held by such  Recipient.  

          (f)  Transfers  Upon  Death of  Recipient.  Nothing  in this Plan will
          preclude the transfer of restricted  Common Stock,  on the Recipient's
          death,  to  the  Recipient's  legal  representatives  or  estate,  nor
          preclude such  representatives or estate from transferring any of such
          Common Stock to the person(s)  entitled thereto by will or the laws of
          descent  and  distribution;  provided,  however,  that any  restricted
          Common Stock so  transferred  as to which such  restrictions  have not
          lapsed will remain subject to all restrictions and obligations imposed
          on them by this Agreement.  

                                  Exhibit 10.31
<PAGE>

          SECTION 12.  Accounting.  Commencing on or before January 1, 1997, and
          continuing until any Change In Control:
                 
(a) the  Curious  Management  Group  shall  perform at Curious
certain  accounting  functions  including,  but not limited to: (i)  operating a
general  ledger  system  separate  from the general  ledger  system  operated by
Harmony;  (ii) submitting to Harmony monthly (within two weeks of the conclusion
of each month) current, accrual-based financial statements; (iii) maintaining at
Curious the original documentation relating to the financial statements provided
for in the  preceding  subsection,  which shall made  available  to Harmony (and
which Harmony may copy during the course of any audit),  on  reasonable  notice,
for an audit to be conducted at the offices of Curious in New York following any
calendar quarter; provided,  however, that any such audit shall be concluded not
later than 60 days  following  the  conclusion of the  preceding  quarter;  (iv)
preparing and delivering to the Curious Board for its approval annual  operating
and capital expenditures budgets; and (v) preparing and submitting to Harmony on
a quarterly basis a commitment  analysis with respect to Curious  employees then
being paid draws.  Harmony  shall not  request  that  Curious  submit to Harmony
original documentation underlying the reports, financial statements and analyses
to be provided to Harmony pursuant to this subsection.  "Original documentation"
includes,  but is not  necessarily  limited to,  originals  or copies of checks,
vendor invoices,  purchase orders,  Curious  invoices,  contracts,  bids and job
actuals.  Notwithstanding the foregoing, however, Original documentation will be
made  available to Harmony in connection  with any audit  conducted  pursuant to
this subsection and Harmony shall be permitted to make and retain copies of such
Original documentation.

                  (b) Harmony shall serve as the payroll service with respect to
the staff and freelance payroll of Curious. In exchange for such service Curious
will pay to Harmony a handling fee equal to 0.05% of the gross  freelance  wages
(exclusive of any payroll,  tax, pension and welfare payments) paid on behalf of
Curious.  In  addition,  Curious  shall  pay to  Harmony  its  share of  workers
compensation and production insurance.

                  (c)  Curious  shall  pay the  reasonable  actual  costs of any
audits  of  Curious;  provided,  however,  that,  so long as  there  is no final
determination  finding the existence of material  irregularities with respect to
the finances of Curious,  Curious shall not be obligated to pay more than $8,000
per calendar year in respect of audits performed pursuant to this subsection.

                  (d) All cash  management  relating to the  business of Curious
shall be  performed  by  Curious  in New York.  Harmony  shall have the right to
remove from the accounts of Curious from  time-to-time  cash of Curious which is
in excess of the  amount  needed for the  reasonable  working  capital  needs of
Curious  and to make the  capital  expenditures  authorized  by Section 5 above.
Notwithstanding  the foregoing,  in the event that the Curious  Management Group
contends that Harmony has removed from Curious cash in an amount greater than is
permitted by this subsection,  Harmony  acknowledges that, if the contentions of
the Curious  Management  Group are true,  Harmony's  conduct would cause Curious
irreparable harm (provided, however, that this statement shall not be admissable
with  respect  to any claim by the  Curious  Management  Group due to  Harmony's
conduct). Accordingly, Harmony consents to an expedited review of its conduct by
a mutually  acceptable  third  party in the event  that  Curious  contends  that
Harmony has removed cash from Curious in excess of the amount permitted pursuant
to this subsection;  provided, however, that any "Big Six" accounting firm shall
be deemed acceptable for such purpose..

                                  Exhibit 10.31
<PAGE>

                  SECTION  13.  Curious  Board.  A board of  directors  shall be
established  to oversee the business of Curious and shall  consist of one member
to be  designated  by Harmony  and two members to be  designated  by the Curious
Management  Group;  provided,  however,  that  Harmony  shall not be entitled to
designate  a member of the  Curious  Board if it ceases to be a  shareholder  of
Curious.

                  SECTION 14. Notices.  All notices and  communications  between
the parties hereto shall be given or confirmed in writing and shall be delivered
either  personally,  by  registered  or certified  mail,  by  overnight  courier
service,  or by telecopy  transmitted to each party at the addresses or telecopy
numbers  specified on the  signature  page hereto or to such other or additional
addresses or telecopy numbers as either such party may hereafter  specify to the
other in writing, and shall be effective when received.

                  SECTION 15. Entire Agreement; Amendments. This Agreement shall
constitute  the  complete  agreement  of the parties  hereto with respect to the
subject matter hereof and supersede all prior or  contemporaneous  negotiations,
promises,  covenants,  agreements or representations.  This Agreement may not be
amended,  modified or supplemented,  except by an instrument in writing executed
by both parties hereto.

                  SECTION  16. No  Relationship  . Other than as  expressly  set
forth  herein,   nothing  in  this  Agreement  shall  establish  any  fiduciary,
partnership,  joint venture or similar relationship between or among the parties
hereto.

                  SECTION  17.  Further  Assurances.  From  and  after  the date
hereof,  Harmony and Curious  and each  member of the Curious  Management  Group
covenant  and agree to execute  and  deliver,  at the request and expense of the
other,  all such  agreements,  instruments  and  documents  and to take all such
further  actions as the other party hereto may  reasonably  deem  necessary from
time to time to carry out the  intent  and  purposes  of this  Agreement  and to
consummate the transactions contemplated hereby.

                  SECTION 18. Binding Effect.  The terms of this Agreement shall
be binding upon, shall inure to the benefit of, and shall be enforceable by, the
Curious  Management  Group,  Harmony and Curious and their respective  permitted
successors and assigns.

                  SECTION  19.  Specific  Performance.  The  parties  agree that
irreparable  damage  would  occur in the  event  any of the  provisions  of this
Agreement  were not to be performed in accordance  with the terms hereof or were
otherwise  breached  and,  accordingly,  that the  parties  shall be entitled to
specific  performance of the terms hereof and to an injunction or injunctions to
prevent breaches of this Agreement,  in addition to any other remedies at law or
in equity to which they may otherwise be entitled.

                                  Exhibit 10.31
<PAGE>

                  SECTION 20. Counterpart Execution;  Telecopies. This Agreement
may be executed in any number of counterparts,  each of which,  when so executed
and delivered,  shall be an original, but all of which together shall constitute
one agreement  binding on the parties  hereto.  Transmission by telecopier of an
executed  counterpart  of this  Agreement  shall be deemed to constitute due and
sufficient  delivery of such counterpart,  provided that the party so delivering
such counterpart  shall,  promptly after such delivery,  deliver the original of
such counterpart of this Agreement to the other party.

                  SECTION 21.  Governing Law. THIS  AGREEMENT  SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.

                                  Exhibit 10.31

                                     
<PAGE>



          SECTION 22.  Captions.  The captions and  headings  hereunder  are for
          convenience   only  and  shall  not  affect  the   interpretation   or
          construction of this Agreement.
                  IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed and delivered as of the date first above stated.

                                                   CURIOUS PICTURES CORPORATION

                                                       by:/S/Harvey Bibicoff

                               Address for Notice

                                                       440 Lafayette Street
                                                       New York, N.Y. 10003

                                                   Telephone No.: (212) 674-1400
                                                   Facsimile No.: (212) 674-0081

                                                       HARMONY HOLDINGS, INC.

                                                       by:/S/Harvey Bibicoff

                               Address for Notice:
                      1990 Westwood Boulevard, Suite 3 1 0
                              Los Angeles, CA 90025

                                                   Telephone No.: (310) 446-7700
                                                   Facsimile No.: (310) 446-7711


                                  Exhibit 10.31
                                     
<PAGE>



                                                       MEMBERS OF THE CURIOUS

                                MANAGEMENT GROUP:

                                                       by:/s/Susan Holden Squibb

                               Address for Notice

                                 33 Windsor Road
                         Hastings-on-Hudson, N.Y. 10706

                                                   Telephone No.: (914) 478-5381
                                                   Facsimile No.: (212) 674-0081

                                                       By:/s/Richard Winkler

                               Address for Notice

                                                    605 West I I I th Street #52
                                                    New York, N.Y. 10025

                                                   Telephone No.: (212) 222-7930
                                                   Facsimile No.: (212) 674-0081

                               By:/s/Stephen Oakes

                               Address for Notice

                                                    147 West I 5th Street # 1 03
                                                    New York, N.Y. 10013

                                                   Telephone No.: (212) 645-2542
                                                   Facsimile No.: (212) 674-0081

                               By:/s/Stephen Oakes

                               Address for Notice

                                                       241 West 4th Street #4A
                                                       New York, N.Y. 100 14

                                                   Telephone No.: (212) 929-4861
                                                   Facsimile No.: (212) 674-0081

                    Exhibit 10.31