<PAGE>


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

(Mark One)

|X| Annual report under Section 13 or 15(d) of the Securities Exchange Act of 
    1934

For the fiscal year ended       January 31, 1997
                          ------------------------

| | Transition report under Section 13 or 15(d) of the Securities Exchange Act 
    of 1934

For the transition period from _______________ to _______________

Commission file number    2-90794
                       --------------------------------------------------------

                              Imprint Records, Inc.
-------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

           Tennessee                                   62-1587889
------------------------------------        -----------------------------------
    (State or Other Jurisdiction of               (I.R.S. Employer
     Incorporation or Organization)                Identification No.)
                                                  
    Cummins Station
    209 10th Avenue South, Suite 500
    Nashville, Tennessee                               37203
------------------------------------        -----------------------------------
  (Address of Principal Executive Offices)             (Zip Code)

                                 (615) 244-9585
-------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                                  Name of Each Exchange
    Title of Each Class                            on Which Registered 
------------------------------------        -----------------------------------
             N/A                                           N/A
------------------------------------        -----------------------------------

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

         Securities registered under Section 12(g) of the Exchange Act:

                           Common Stock, No Par Value
-------------------------------------------------------------------------------
                                (Title of Class)

                    Redeemable Common Stock Purchase Warrants
-------------------------------------------------------------------------------
                                (Title of Class)

         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
    -----     -----

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant'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 $157,000.

         On April 23, 1997, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $2,899,490, based upon the average
closing bid and asked price of the Company's Common Stock on April 23, 1997,
which was $1.19.

         As of April 23, 1997, there were 4,738,000 shares of the registrant's
Common Stock outstanding.

<PAGE>

                                     PART I

ITEM 1.      BUSINESS.

                                     GENERAL

           Imprint Records, Inc. (the "Company"), the registrant, was 
incorporated under Tennessee law in 1994 as Veritas Music Entertainment, Inc. 
Through January 31, 1997 the Company had realized $157,000 in revenues from 
operations, net of returns and allowances, all of which was generated in the 
last two fiscal quarters of the fiscal year ended January 31, 1997. Following 
an initial public offering (defined below), the Company entered the music 
recording business, through the release of debut albums of new Country music 
artists and albums by emerging Country music artists. In this context, a "new" 
artist is defined as an artist who has not recorded an album for a recording 
company or engaged in performance touring intended to promote the artist or the
artist's recordings. An "emerging" artist is defined as an artist who has 
recorded an album or has otherwise experienced modest commercial success, 
either through the Company or another label. Artists in the beginning stages 
of their careers, such as new and emerging artists, are not demonstrated 
generators of significant profits for recording companies, and therefore, 
their services usually can be acquired by a recording company at a lower 
royalty rate and advance rate than for established artists. Through a program 
of media and live performance exposure, the Company hopes to build its 
artists' popularity, positioning them to attract promotional opportunities 
within the Country music field and enhancing the likelihood of the artists' 
success. To generate the funds to begin the development of its artists, the 
Company completed an initial public offering of its Common Stock (the "Common 
Stock") and redeemable Common Stock purchase warrants (the "Redeemable 
Warrants") in July 1995, from which it received, after the over-allotment 
option was fully taken up by the underwriter, proceeds of approximately 
$7,000,000.

           The Company currently has enough working capital on hand to fund its
operations for three to four months, and is pursuing sources of additional
financing to maintain its operations beyond that time period. If additional
financing is not available, the Company may have to cease operations. See
"Liquidity and Capital Resources."

                   ARTIST RELATIONSHIPS AND ARTIST DEVELOPMENT

OVERVIEW

           The Company was incorporated in December 1994 under the laws
of Tennessee, and began operations after its initial public offering in late
July 1995. Since it began operations, the Company has signed album recording
agreements with five artists: Gretchen Peters, Al Anderson, Jeff Wood, Ryan
Reynolds and Bob Woodruff. The Company has licensed from BMG-Canada the rights
to distribute recordings of Canadian Country music artist Charlie Major in the
United States. On April 10, 1996, the Company declined to exercise its option
under its recording contract with Gretchen Peters for additional albums,
releasing her from her obligations to the Company thereunder.

           The Company's long-range plan is to develop an additional
three to seven new or emerging Country music artists, in addition to the four
artists currently under contract, during the next three years. The Company's
objective has been to develop profitable operations by concentrating its
financial and creative resources on this small number of artists, developing a
tailored marketing and promotion plan for each, and implementing a marketing
plan for each artist's new release (detailing timing, media to be utilized, and
follow-up promotions to be employed after each event).

            Through the fiscal year ended January 31, 1997, the Company had 
released four albums and four singles, which combined represent gross 
shipments of approximately $954,843 (wholesale) of merchandise for retail 
music store sale.

            The Company has also entered into foreign licensing agreements
with BMG-Canada and Paradoxx Music, which grant those licensees the right to
release the Company's records in their respective licensed territories. These
agreements cover the territories of Canada and Brazil, respectively. Paradoxx
released Gretchen Peters's album and Al Anderson's first album on the Company
label in the last quarter of 1996.


                                       2
<PAGE>

            The Company's records are currently being distributed in the 
United States by Distribution North America of Cambridge, Massachusetts under 
a distribution agreement. In addition, the Company has executed a licensing 
agreement with The Hit Label, permitting that company to manufacture and 
distribute the Company's albums in the United Kingdom, and has also executed 
an agreement with Columbia House Record Club for the Company's artists' 
recordings to be sold through that company's direct mail catalogs.

GROOVEGRASS BOYZ PROJECT

            The Company has acquired the rights to the Country music version 
of "The Macarena," by The GrooveGrass Boyz. The Company released this single 
to Country music radio stations in November 1996 and generated favorable air 
play. The song remained in the top 10 of the BILLBOARD MAGAZINE Country 
singles sales chart for several weeks, and is still in the top 15 on this 
chart. The Company has processed shipments of approximately 100,000 units. 
SoundScan reports sales of approximately 60,000 units to date, and the 
Company expects to sell 70,000 to 80,000 units total. The Company has 
licensed the song to Paradoxx, its licensee distributor in Brazil, and to 
third party music marketers and record labels in the U.S. and Australia. 
Paradoxx included the GrooveGrass Boyz "The Macarena" performance on a 
compilation album, and has reported to the Company sales of 70,000 units 
to date.

            The Company is currently in negotiations with the producer and
creator of the GrooveGrass Boyz for a full-length album, featuring "The
Macarena" and similarly-produced works.

RECORDING CONTRACTS WITH ARTISTS

            JEFF WOOD. The Company's artist Jeff Wood has completed
recording his first album, BETWEEN THE EARTH AND THE STARS, 60,000 units 
which started shipping to retail music stores on January 28, 1997. The first 
single from this album, "You Just Get One," was Number 59 on the Country music 
singles chart in the December 14, 1996 issue of BILLBOARD MAGAZINE. "You Just 
Get One," and "Use Mine," the second single released from Wood's album, have 
made the charts on both BILLBOARD and R&R'S air play lists, reaching as high as
55 and 46, respectively. The Company expects that future singles from Wood's 
album will reach even higher positions on the industry air play charts.

            Jeff Wood has been performance touring actively for the past
few months to support the release of his album, opening for such artists as
Blackhawk, Deanna Carter, Suzy Bogguss and Wynonna Judd. In addition, the music
video for "Use Mine" is currently receiving substantial air play on Country
Music Television. The next single to be released to support Between the Earth
and the Stars is expected to reach Country music radio starting at the end of
May 1997.

            GRETCHEN PETERS. Gretchen Peters's first album on the
Company's label, THE SECRET OF LIFE, received national media critical acclaim.
According to SoundScan, the Company has sold approximately 11,000 units of Ms.
Peters's album. THE SECRET OF LIFE was released in the United Kingdom in
November 1996. The Company released "The Secret Life", the third single from 
the album, for radio air play in the U.S. in January 1997.

            Unfortunately, the Company's attempts to promote and market
Ms. Peters's album within the Country and Adult/Contemporary radio formats have
not met with commercial success. As a result, the Company on April 10, 1997
decided not to exercise its option for additional albums under its recording
contract with Ms. Peters, releasing her from that agreement. The Company has
between 25,000 to 30,000 copies of Ms. Peters's album in the retail music
marketplace at this time, and due to the significant reduction by the Company in
marketing and promotional support for this recording, there can be no assurance
that any of this inventory will be sold over the next twelve months. 
Management has considered the valuation of this inventory, and believes it 
has adquate reserves to address this situation.

            Ms. Peters continues to perform, both in the U.S. and the United 
Kingdom, to promote THE SECRET OF LIFE, and continues to generate critical
acclaim and strong media support for her music.

            AL ANDERSON. Al Anderson, noted Country songwriter and former
member of the band "NRBQ," released his first album on the Company's label, PAY
BEFORE YOU PUMP, in September 1996. 

                                       3
<PAGE>

10,000 units have been distributed for sale at music retail locations in the 
United States, with sales of approximately 4,300 units to date. The first song 
released for radio from PAY BEFORE YOU PUMP received significant air play from 
the radio format known as "Americana." The Company has until late June 1997 
to decide to exercise its option for additional albums by Anderson, and it 
has not yet decided if it will do so.

            CHARLIE MAJOR. Canadian Country music artist Charlie Major's
previously recorded BMG Canada album, HERE AND NOW, was released by the Company
in the United States in October 1996. 10,000 units have been distributed for
sale at music retail locations in the United States, and sales to date have been
1,000 units. One single from HERE AND NOW was released for radio air play at 
the time the album was released, and the second single from the album, "Tell 
Me Something I Didn't Know", was released July 26, 1996, and failed to 
stimulate significant air play.

            For the past few months, Major toured with the band BR5-49, which 
records on the Arista record label, to help build consumer awareness for 
Major's music. However, due to the lack of significant air play for HERE AND 
NOW, sales have been disappointing.

            The Company is currently waiting to evaluate the music from
Major's next BMG-Canada album before deciding whether to exercise the Company's
option, under its licensing agreement with Major, to release that album in the
U.S. on the Company's label. Once Major delivers his next album to BMG-Canada, 
the Company has 30 days to decide whether to exercise its option to distribute 
that album.

            BOB WOODRUFF. The Company released Bob Woodruff's initial album 
on the Company's label, DESIRE ROAD, on March 25, 1997, and the Company is 
promoting it through the customary retail music channels. The album has 
received immediate radio air play in the Americana radio format, where it was 
Number 11 on GAVIN'S Americana Chart (May 2, 1997 issue). The Company plans to 
release the first single from Woodruff's album to Country music radio in May or
June 1997. Approximately 10,000 units of DESIRE ROAD were initially shipped to 
retail music outlets. To date, the album has received favorable print media 
reviews and attention.

            RYAN REYNOLDS. The Company is currently completing production
work on Ryan Reynolds' debut album. The Company introduced Reynolds to radio
programmers in March 1997 at the Country Radio Seminar, an annual gathering of
Country music radio programmers, record label executives, radio syndicators,
consultants and broadcast radio equipment representatives held in Nashville. The
reaction to Reynolds's music was positive.

            Over the past 60 days, a three song sampler of music from
Reynolds's yet to be released album was sent to Country music radio stations,
and has received a positive response. Reynolds is currently touring Country
music radio stations with representatives of the Company to introduce his music
to programming executives in a more intimate setting, in advance of the release
to Country music radio of the first single from Reynolds's album, currently
scheduled for June 1997.

            GENERAL PROVISIONS OF RECORDING CONTRACTS. The Company's 
recording contracts with each of its artists provide for an advance on the 
initial album (part or all of which is paid to the artist upon signing the 
contract), with an increasing advance on subsequent albums, depending upon the 
success of prior albums released under the contract. Each contract provides for
recording of an initial album, with options exercisable by the Company for an 
additional three to seven albums. In certain cases, the Company's ability to 
exercise an option for an additional album is contingent upon prior albums 
released under the contract attaining a certain level of unit sales. Each 
contract provides for a base royalty rate that increases for subsequent albums 
and, as to each album, increases as sales of that release rise. The range of 
base royalty rates payable to the Company's artists under the various recording
contracts is 22% to 30% (wholesale). Generally, the Company is responsible for 
recording costs associated with each album, all of which may be recouped by the
Company from royalties payable to the artist. All master recordings and 
duplicates thereof (including the worldwide copyright in such recordings), 
together with the performances embodied therein, are the exclusive worldwide 
property of the Company.

            Each of the recording contracts grants to the Company the exclusive 
right during the term thereof, and the non-exclusive right thereafter, to use
the artist's name, voice, likeness, and biographical data for purposes of
advertising, promotion and sale of the musical compositions recorded under the
contract. 


                                       4
<PAGE>

Each artist has also agreed to perform his or her recordings in music videos, 
which will be used to promote the artist's albums.

OTHER ARTISTS

            As part of its regular business, the Company is regularly in
contact with other new and emerging Country music artists and may sign one or
more artists to a recording contract in the next twelve months, although no
assurance can be given that it will do so.


                         MANUFACTURING AND DISTRIBUTION

MANUFACTURING

            The Company owns no manufacturing facilities or distribution
channels for manufacture and wholesale distribution of CDs and cassette
recordings of its albums. The Company currently utilizes an unaffiliated
manufacturer to meet its manufacturing requirements on an order-by-order basis.
This manufacturer has fulfilled the Company's initial orders for retail
inventory for Gretchen Peters's, Al Anderson's, Charlie Major's and Jeff Wood's
debut albums on the Company's label. The Company estimates that there are in
excess of 15 other manufacturers with sufficient capacity to meet the Company's
anticipated manufacturing requirements for the next twelve to twenty-four
months, should the Company's arrangements with its current manufacturer become
unavailable, which unavailability the Company considers unlikely.

DOMESTIC DISTRIBUTION

            The Company has signed an agreement with Distribution North 
America ("DNA") to distribute the Company's CDs and cassettes in the U.S. 
retail market; DNA is currently distributing Gretchen Peters's THE SECRET OF 
LIFE ALBUM, Al Anderson's PAY BEFORE YOU PUMP album, and Jeff Wood's BETWEEN 
THE EARTH AND THE STARS album. The Company has been informed that DNA has 
been acquired by Woodland, California-based Valley Distribution ("Valley"). 
The Company expects that Valley, as successor in interest to DNA under the 
Distribution Agreement between the Company and DNA, will continue to 
distribute the Company's recordings without any material changes in the 
relationship between the parties.

INTERNATIONAL DISTRIBUTION AND LICENSING

            In mid-August 1996, the Company signed an agreement with Paradoxx 
Music for release and distribution of the Company's recordings in Brazil. 
Although not currently a major market for Country music, the Company believes 
Brazil may be an emerging market for the Company's products. The agreement 
calls for the Company to receive a licensing fee from Paradoxx for each 
Company recording sold. Paradoxx released both Gretchen Peters's THE SECRET 
OF LIFE album and Al Anderson's PAY BEFORE YOU PUMP album in the last quarter 
of 1996.

            In mid-August 1996, the Company signed an agreement with BMG 
Music Canada Inc. for release of the Company's recordings in Canada. As with 
the Paradoxx license, the agreement calls for the Company to receive a 
licensing fee from BMG for each Company recording sold. BMG released THE 
SECRET OF LIFE in Canada during the first quarter of 1997.

            In January 1997, the Company entered into a three year licensing 
agreement with The Hit Club for that company to manufacture and distribute 
the Company's artists' recordings in the United Kingdom. The agreement 
permits The Hit Club to decide, on an album-by-album basis, whether to 
distribute the Company's albums for release. In the event The Hit Club
elects not to release an album, the Company has the right to distribute that 
album through an alternative source. The Company receives a licensing fee on 
each album sold by The Hit Club.

            In addition, also in January 1997, the Company signed a three 
year agreement with Columbia House Record Club for Columbia House Record Club 
to market the Company's recordings through its direct mail catalogs. Under the 
agreement, the Company has granted Columbia House Record 


                                       5
<PAGE>


Club access to its master recordings and the non-exclusive right to distribute 
its artists' albums in North America, in return for a licensing fee payable to 
the Company for each album sold.

            The Company is continuing negotiations for licensing
agreements for distribution of its product in Australia and the rest of Europe.

LICENSING AGREEMENTS FOR OTHER LABEL'S RECORDINGS


            The Company has reached an agreement with Bob Woodruff's prior 
record label to acquire the exclusive rights to distribute worldwide 
Woodruff's first (and only) album recorded on that label, DREAMS & SATURDAY 
NIGHTS, for a period of five years. The agreement provides for a licensing 
fee to be paid to Woodruff's prior label for each copy of DREAMS & SATURDAY 
NIGHTS sold by the Company, with the remainder of the net proceeds from such 
sales to be retained by the Company.

                                INDUSTRY OVERVIEW

            According to the Recording Industry Association of America (the 
"RIAA"), a trade group whose members manufacture most of the music recordings
produced in the United States, industry-wide retail music sales in the United
States rose to $12.533 billion in 1996, from $12.320 billion in 1995, a 1.7%
increase over 1995 sales. This modest increase follows 1995's 2.6% increase
over 1994 sales. During 1996, Country music's share of the total aggregate
sales of music recordings dropped from 16.7% to 14.7%, or $1.84 billion. The 
1996 results reflect a decrease of 12% from 1995's level. Rock music, while 
losing just under 1.0% of its share of the music market, remained the dominant 
music genre in 1996, with 32.6% of the total. 68% (by units) of music of all 
types is now sold in compact disc form, followed by cassettes, which account 
for just under 20% of the market.

            According to BILLBOARD MAGAZINE, Country music artists continue 
to sell well, and such newcomers as Shania Twain, Leann Rhimes and Nanci 
Griffith have achieved significant sales with recent releases. 

            The Company also promotes some of its artists' releases in the 
"Americana" music radio format. The Americana music format, as defined by 
industry trade publications, is a distinct market niche consisting of 
country-flavored music with pop and even rock music attributes, making for an 
edgier sound than pure Country music.

            During 1996, there was a reduction in the number of radio stations 
across the U.S. that broadcast Country music full-time. According to the 1997 
CMA COUNTRY RADIO DIRECTORY, at the beginning of 1997 there were 2,285 radio 
stations across the U.S. programming Country music, down from 2,321 a year 
earlier, a decrease of 1.6% from the prior year, and down 5.9% from the 
all-time high of 2,427 stations at the beginning of 1994.

            In the 1996 annual fall radio listening ratings, Country music
radio listenership decreased from 10.6% (summer ratings period) to 10.5%, 
according to Arbitron, the national radio station listenership ratings 
service. Arbitron surveys radio listeners age 12 and older. This 
represents a decline from 1995's 12.1% fall ratio listenership for Country 
formats. Over the 1996 fall ratings period, Country music radio listenership 
declined with respect to the 35-64 age group, declined slightly as to all
male listeners, and declined noticeably among teenage listeners, while 
improving slightly among the overall female audience. By comparison, "Top 40" 
listenership was flat, all three "Rock" formats (album, modern and classic) 
were down slightly, "Adult/Contemporary" and "R&B" were up slightly, and 
"News/Talk" increased strongly.

            Trends in popular music are constantly changing. There can be no 
assurance that the level of popularity of Country music, or its Americana 
derivation, will continue.

                                   COMPETITION

            Country music sales, and worldwide music sales in general, are 
dominated by the six "major" music entertainment companies and several larger 
"independent" labels. According to SoundScan, Inc., a market research company 
that compiles music recordings sales data, the music divisions of SONY, 


                                       6
<PAGE>

Time-Warner (WEA), Bertelsmann (BMG), MCA (UNI), Thorn-EMI (EMD) and PolyGram 
(PDG) account for approximately 78.8% of the $22 billion global market for 
recorded music; independent music recording companies account for the 
remainder (1996 figures). For the first time ever, the Grammy Award for best 
new artist went to a Country performer, Curb Records recording artist Leann 
Rhimes. 

            Curb, one of the most active and successful Nashville-based 
labels, has had significant success in the Country format in the past few 
years with albums by Hal Ketchum and Tim McGraw.

            Each of the major entertainment companies has one, and in some
cases two or three, labels under which they record, promote and sell Country
music. In addition, several smaller independent recording companies exist in
competition with the Company.

            Competition for radio airtime, music retail shelf space, and
video broadcast time is intense. This competition cuts across all music genres.
Within the Country music genre, this competition is particularly intense. There
is also substantial competition among Country music labels to sign new artists
and renew the contracts of successful artists. All of the Company's competitors
are larger and better capitalized than the Company.

                            TRADEMARKS AND TRADENAME

            The Company filed an application for registration of the tradename
"Imprint Records" with the U.S. Patent and Trademark Office on February 9, 1996,
which tradename was registered in that office on January 7, 1997 (Reg. No.
2,028,865).

                                    EMPLOYEES

            As of April 23, 1997, the Company had 17 total employees, all
of which were full-time.

ITEM 2.     PROPERTIES.

            The Company leases approximately 10,500 square feet of office 
space in Nashville, Tennessee, as its corporate headquarters. The five-year 
lease, of which approximately four years remain, provides for an annual 
rental of approximately $68,600 in years one and two and approximately 
$79,100 in years three, four and five, and contains two five-year options to 
renew at the then-prevailing market rental. The Company does not own or lease 
any other real property.

ITEM 3.     LEGAL PROCEEDINGS.

            Not applicable.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

            Not applicable.


                                       7
<PAGE>

                                     PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

            The Common Stock and Redeemable Warrants were initially
registered and began trading separately on the close of the Company's initial
public offering on July 25, 1995.

            The Common Stock and Redeemable Warrants of the Company are
traded in the over-the-counter market and are quoted on the Nasdaq SmallCap
inter-dealer automated quotation system. The high and low bid quotations for
each of the Common Stock and the Redeemable Warrants for the fiscal quarters of
the Company ended April 30, 1996, July 31, 1996, October 31, 1996 and January
31, 1997, are listed below:

<TABLE>
<CAPTION>


                       Common Stock*                               Redeemable Warrants*
                       ------------                                -------------------

                       Quoted Bid Price                            Quoted Bid Price
                       ----------------                            ----------------

Quarter Ended          High                 Low                    High                  Low
-------------          ----                 ---                    ----                  ---

<S>                    <C>                   <C>                 <C>                   <C>
April 30, 1996         5 1/4                3 5/8                  2 1/4                 7/8

July 31, 1996          2 1/4                1                      3/8                   1/4

October 31, 1996       1 3/8                3/4                    1/2                   1/8

January 31, 1997       1 1/16               3/8                    1/4                   1/8

------------------------------
</TABLE>

            * Source: The Nasdaq Stock Market. These quotations reflect 
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.

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

            On March 17, 1997, there were 59 holders of record of Common
Stock and 55 holders of record of Redeemable Warrants.

            Since July 20, 1996, the Redeemable Warrants have been and
continue to be redeemable by the Company, with the consent of A.S. Goldmen, the
underwriter in the Company's July 1995 initial public offering, and upon thirty
(30) days written notice, at a redemption price of $.10 per Redeemable Warrant,
provided that the closing bid price of the Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System (Nasdaq)
or, if not so quoted, as reported by any other recognized quotation system on
which the price of the Common Stock is quoted, shall equal or exceed $8.00 per
share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the date of
notice of redemption. At any time prior to July 19, 1999, assuming the
Redeemable Warrants have not been redeemed, each Redeemable Warrant entitles the
holder thereof to purchase one (1) share of Common Stock for $7.00.

            No cash dividends have been paid by the Company on its Common Stock
and management does not anticipate paying cash dividends any time in the
foreseeable future.

            On April 18, 1997, the Company received a letter from the Nasdaq 
Stock Market, informing it that for the ten consecutive trade dates prior to the
date thereof, the Company's Redeemable Warrants had failed to maintain a minimum
of two active market makers, one of the criteria necessary for any security's
continued listing on the Nasdaq SmallCap market. The letter provides that the
Company must rectify this situation, or present to Nasdaq the steps it intends
to take to rectify this situation, within 30 days. If it is unable to do so,
Nasdaq will issue to the Company a formal notice of deficiency, specifying the
delisting date for the Company's Redeemable Warrants.

                                       8
<PAGE>

ITEM 6.     PLAN OF OPERATIONS.

            The following discussion of the Company's financial condition
and results of operations should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Annual Report.

RESULTS OF OPERATIONS

            The Company has generated revenue from operations only in the 
last two quarters of the fiscal year ended January 31, 1997.

            As is industry practice, the Company's records revenues for
sales of its cassettes and compact discs when those products are shipped to
retailers. Also consistent with industry practice, the Company's recordings are
sold to retailers on a returnable basis. Because the Company has no historical
sales pattern upon which to estimate the return rate for its products, the
Company's reserve for returns and allowances is based solely on data obtained
from SoundScan, an industry organization which tracks retail sales.

            For the fiscal year ended January 31, 1997, the Company had
revenues from operations, net of returns and allowances, of $157,000. During the
fiscal year end January 31, 1997, the Company incurred approximately $473,000 in
direct recording costs.

PLAN OF OPERATIONS

            Since its inception in late 1994 and the commencement of
operations after its initial public offering in late July 1995, the Company has
leased space in the vicinity of Nashville's Music Row for use as the Company's
headquarters; completed the hiring of its senior management team; signed five
Country music artists; released three albums; contracted with a manufacturer and
a distributor to meet the Company's requirements for the manufacture and
distribution of CD and cassette recordings in the U.S. retail market; arranged
for the licensing and distribution of the Company's recordings in Canada, Brazil
and the United Kingdom; signed an agreement with Columbia House Record Club to 
have the Company's albums distributed through that company's direct mail 
marketing; and has entered into a license agreement for the Company to 
distribute in the U.S. the releases of a Canadian artist.

            The Company released Jeff Wood's first album, BETWEEN THE
EARTH AND THE STARS, in late January 1997. The first single, "You Just Get One"
has had significant air play on the radio and the release of the second single
from the album, "Use Mine," was accompanied by a music video of that song, which
is currently receiving significant exposure on Country Music Television. Wood is
currently touring across the country with Suzy Bogguss, an established Country
music artist, to support the release of the album.

            Bob Woodruff's first album on the Company's label DESIRE ROAD,
was released in March 1997. The release of the album has been supported by live
performances by Woodruff which coincide with radio station air play and retail
music store promotions. The Company plans to release the first single from
Woodruff's album to Country music radio in May or June 1997.

            The Company plans to introduce new Country music artist Ryan
Reynolds to the public in the first half of 1997. The Company is currently
finishing production on his first album, the first single from which the Company
plans to release for radio station air play sometime in June 1997. The Company
has spent the first part of 1997 promoting this new artist to Country music
radio stations throughout the United States.

            BMG-Canada released Gretchen Peters's THE SECRET OF LIFE Album 
and Jeff Wood's BETWEEN THE EARTH AND THE STARS album in Canada during the 
first quarter of 1997.

            During the next twelve months, the Company intends to:

            Release Jeff Wood's next single for radio air play from his 
BETWEEN THE EARTH AND THE STARS album in May 1997 to Country music radio 
stations; release the first single for radio air play from 


                                       9
<PAGE>


Bob Woodruff's DESIRE ROAD album to Country music radio stations in May or 
June 1997; and release the first single for radio air play from Ryan Reynolds 
as yet untitled album to Country music radio stations in June 1997. For the 
next several months, the Company's primary focus will be on promoting Jeff 
Wood and Ryan Reynolds, and on the GrooveGrass Boyz album project.

LEASE

            The Company occupied its permanent headquarters adjacent to
Music Row in Nashville in mid February 1996.

MANUFACTURING AND DISTRIBUTION

            The Company has contracted with a manufacturer of CDs and
cassettes that it will utilize on an order-by-order basis. The Company estimates
that this arrangement is adequate to meet its foreseeable demands over the next
twelve to twenty-four months, and further estimates that several other
manufacturers of CDs and cassettes have the capabilities sufficient to meet the
Company's demands over the next twelve to twenty-four months. The Company also
has signed an agreement with DNA to distribute the Company's CDs and cassette
recordings of its albums in the U.S. retail market. In addition, the Company has
signed licensing agreements with BMG-Canada and Paradoxx Music to distribute
the Company's recordings in Canada and Brazil, respectively, and has also
recently entered into contracts with The Hit Club and Columbia House Record 
Club to manufacture and distribute the Company's artists' albums in the United 
Kingdom and, in the case of Columbia House Record Club, in North America 
through direct mail marketing, all of the above in return for a royalty payable
to the Company on sales made through these channels.

            The Company continues to negotiate with various parties
concerning licensing and distribution of the Company's products in Australia and
Europe (other than the U.K.).

OTHER COUNTRY MUSIC ARTISTS

            The Company continues to explore the opportunities available
in the marketplace for the signing of new Country music artists.

LIQUIDITY AND CAPITAL RESOURCES

            Based on the Company's current operations, the Company believes 
that it can continue to satisfy its cash requirements for operations for 
approximately three or four months. In order to improve liquidity, Roy 
Wunsch, Chairman, Chief Executive Officer and Secretary of the Company, and 
Bud Schaetzle, President and Treasurer of the Company, agreed to temporarily 
defer 50% of their salaries commencing on or about September 1, 1996, and 
100% of their salaries as of December 1, 1996.

            The Company is pursuing sources of additional capital to
finance its operations following the expiration of the three to four month
period for which it currently has cash on hand to finance operations. The
Company has not secured additional capital at this time and there can be no
assurance that such capital will be secured or, if available, will be available
to the Company on commercially satisfactory terms. If the Company is unable to
secure additional financing within the above time-frame, it may have to suspend
its operations, or curtail them significantly, until such financing can be
arranged, or cease operations altogether.

SAFE HARBOR PROVISION REGARDING FORWARD-LOOKING STATEMENTS

            This Annual Report contains so-called forward-looking
statements (within the meaning of the Private Securities Litigation Reform Act
of 1995), the occurrence or non-occurrence of which entail substantial risks and
uncertainties. When used herein, the words "anticipate," "intend," "plan,"
"believe," "hope," "estimate" and "expect," and any similar words or phrases as
they relate to the Company or its operations, are intended to identify such
forward-looking statements. Several significant variables could cause the
Company's actual results, performance or achievement for fiscal 1998 and beyond
to deviate materially from those set forth in such forward-looking statements.
These factors include but are not limited to: the commercial success of the
Company's new and existing artists, relationships with the 


                                       10
<PAGE>

Company's artists, and producers and other industry professionals, attraction 
and retention of key personnel, general economic and business conditions, the 
ability of the Company to implement its business strategy, and new competitors 
and increased competition from existing competitors in the recorded music 
industry. Many of these factors are beyond the Company's ability to predict or 
control. Investors are cautioned not to place undue reliance upon such 
forward-looking statements contained herein.

ITEM 7.     FINANCIAL STATEMENTS.

            See financial statements following Item 13 of this Annual
Report on Form 10-KSB.

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE.

            Not applicable.


                                       11
<PAGE>

                                    PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

            The names and ages of the Company's directors and executive
officers are set forth below:

<TABLE>
<CAPTION>


<S>                                <C>            <C>
NAME                                 AGE          POSITIONS HELD

Roy W. Wunsch(1)                     53           Chairman of the Board of Directors, Chief Executive
                                                  Officer, Secretary

Stanley O. Schaetzle, Jr.(1)         37           President, Treasurer and Director

Frank M. Bumstead(1)(2)(3)           55           Director

Charles M. Flood, Jr.(1)(2)(3)       52           Director

Constance D. Baer                    41           Vice President-Marketing and Artist Development

Cynthia Anne Weaver                  49           Vice President-Promotion

Tracy Gershon Fishell                39           Vice President-Artists and Repertoire

Wayne R. Halper                      43           Vice President-Business Affairs and Chief Financial
                                                  Officer
</TABLE>


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

(1)      Member of the Executive Committee of the Board of Directors.

(2)      Member of the Compensation Committee of the Board of Directors.

(3)      Member of the Audit Committee of the Board of Directors.

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

            All directors hold office until the next annual meeting of
stockholders and until such time as their respective successors are duly elected
and qualified. Executive officers are elected by the Board of Directors and,
subject to the terms of any employment agreements, serve at the discretion of
the Board.

BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS

            ROY W. WUNSCH - Chairman of the Board of Directors and Chief
Executive Officer of the Company since its inception; Secretary of the Company
since March 1997. From 1990 to 1994, President of Sony Music Nashville, a
division of Sony Corporation.

            STANLEY O. SCHAETZLE, JR. - a Director and President of the Company
since its inception; Treasurer of the Company since March 1997. Founder and,
since 1982, managing partner of the multimedia production company High Five
Productions.

            FRANK M. BUMSTEAD - a Director of the Company since its
inception; Secretary of the Company from its inception until March 1997;
Treasurer of the Company from May 1995 to March 1997. President and a principal
stockholder of Flood, Bumstead, McCready & McCarthy, Inc. ("FBMM"), a business
management firm which represents the financial interests of artists, songwriters
and producers in the music industry, since 1989. Since 1993, Chairman and Chief
Executive Officer, and a principal stockholder, of FBMM Financial, Inc., a
registered investment advisor under the Investment Advisors Act of 1940. Vice
Chairman of the Board of Directors of Response Oncology, Inc., Director of First
Union National Bank of Tennessee, and Director of Nashville Country Club, Inc.


                                       12
<PAGE>

            CHARLES M. FLOOD, JR. - a Director of the Company since its 
inception. Principal stockholder of FBMM since 1989. President of Hayes Street
Music, a music publishing company in Nashville. Director of Nashville Country
Club, Inc.

            CONSTANCE D. BAER - Vice President of Marketing and Artist
Development for the Company since August 1995. For the three years prior
thereto, Vice President of Marketing for Sony Music Nashville. From 1980 to
1992, partner and Vice President of the Gary Group, a Los Angeles-based
entertainment marketing firm.

            CYNTHIA ANNE WEAVER - Vice President of Promotion for the
Company since July 1996. From January 1996 to July 1996, head of Anne Weaver
Productions. From January 1994, Vice President of Promotion for Mercury
Records/Nashville. For the two years prior thereto, Southwest Promotions Manager
for Arista Records/Nashville, and Promotion Coordinator for RCA Records/BMG
Distribution, Dallas, Texas.

            TRACY GERSHON FISHELL - Vice President of Artists and
Repertoire for the Company since August 1995. From 1989 to 1995, Senior Director
of Talent Acquisition for Sony-Tree Publishing.

            WAYNE R. HALPER - Vice President of Business Affairs and Chief
Financial Officer for the Company since November 1995. From 1990 to 1995, Senior
Vice President of Business Affairs for Capitol Records.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

         The Company's directors and executive officers are required under the
Securities Exchange Act of 1934 to file reports of ownership and changes in
beneficial ownership of the Company's equity securities with the SEC. Copies of
those reports must also be furnished to the Company. Based solely on a review of
the copies of reports furnished to the Company and written representations that
no Forms 5 were required, the Company believes that during the fiscal year ended
January 31, 1997, all filing requirements applicable to directors and executive
officers were complied with, except that Cynthia Anne Weaver will file a Form 3
in May 1997.


                                       13
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

         The following table sets forth all plan and non-plan compensation paid
to the Company's Chief Executive Officer and the four most highly compensated
executive officers for services rendered in all capacities to the Company during
the fiscal year ended January 31, 1997.

<TABLE>
<CAPTION>



                                                                       ANNUAL COMPENSATION
                                                                       -------------------

NAME AND PRINCIPAL POSITIONS                             YEAR           SALARY            BONUS
----------------------------                             ----           ------            -----
<S>                                                    <C>            <C>                 <C>
Roy W. Wunsch,                                           1997          $106,832 (1)       $-0-
         Chairman of the Board, Chief Executive
         Officer and Secretary

Constance D. Baer,                                       1997          $141,129           $-0-
         Vice President-Marketing and Artist
         Development

Cynthia Anne Weaver                                      1997          $77,196            $-0-
         Vice President-Promotion(2)

Tracy Gershon Fishell,                                   1997          $92,949            $-0-
         Vice President-Artists and Repertoire

Stanley O. Schaetzle, Jr.,                               1997          $104,537 (1)       $-0-
         President and Treasurer
</TABLE>

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

(1)      Amounts represent actual amounts paid to each of the named officers 
         for the fiscal year of the Company ended January 31, 1997, without 
         any accrual for voluntarily deferred compensation. To improve the 
         Company's liquidity, each of the named officers agreed to 
         temporarily defer 50% of his salary on or about September 1, 1996, 
         and 100% of his salary on December 1,1996.

(2)      Officer is included in the Summary Compensation Table because her
         annual compensation, pursuant to an employment agreement with the
         Company, would have been $150,000 had the officer been employed by the
         Company at her current salary level for a full year.

STOCK OPTIONS

                  The following table sets forth information regarding each
grant of stock options made during the fiscal year ended January 31, 1997 to
each of the named individuals. Options become exercisable in three equal annual
installments commencing on the first anniversary of the grant and may be
exercised on a cumulative basis at any time before expiration.



                                       14
<PAGE>

<TABLE>
<CAPTION>

                                               OPTION GRANTS IN LAST FISCAL YEAR

                     NUMBER OF       PERCENT OF TOTAL                                     POTENTIAL REALIZABLE VALUE AT
                     SECURITIES      OPTIONS GRANTED                                      ASSUMED ANNUAL RATES OF STOCK
                     UNDERLYING      TO EMPLOYEES IN       EXERCISE       EXPIRATION    PRICE APPRECIATION FOR OPTION TERM
NAME              OPTIONS GRANTED      FISCAL YEAR       PRICE ($/SH)        DATE           5%($)                10%($)
                  ---------------      -----------       ------------        ----           -----                ------

<S>                 <C>                 <C>                 <C>            <C>            <C>                      <C>
Roy W. Wunsch            --                 --                --              --             --                    --

Stanley O.               --                 --                --              --             --                    --
Schaetzle, Jr.

Constance D.             --                 --                --              --             --                    --
Baer

Tracy Gershon            --                 --                --              --             --                    --
Fishell

Wayne R.                 --                 --                --              --             --                    --
Halper

Cynthia Anne           25,000             57.5%              1.38           7/29/06        21,500                54,750
Weaver
</TABLE>

     The following table sets forth information regarding option exercises 
during the last fiscal year, and fiscal year end option values.

                                          AGGREGATED OPTION EXERCISES IN LAST
                                         FISCAL YEAR AND FY/END OPTION VALUES
<TABLE>
<CAPTION>



                                                                                               VALUE OF UNEXERCISED
                                                                  NUMBER OF SECURITIES         IN-THE-MONEY OPTIONS
                                                                 UNDERLYING UNEXERCISED                 AT
                                                                 OPTIONS AT FISCAL YEAR         FISCAL YEAR END ($)
                      SHARES ACQUIRED ON                          END (#) EXERCISABLE/           EXERCISABLE/UN-
NAME                       EXERCISE           VALUE REALIZED         UNEXERCISABLE                 EXERCISABLE(1)
                           --------           --------------         -------------                 ----------- 

<S>                      <C>                 <C>                      <C>                        <C>
Roy W. Wunsch                 --                   $ --                    --                          $ --

Stanley O.                    --                   $ --                    --                          $ --
Schaetzle, Jr.

Constance D. Baer             --                   $ --               8,333/16,667                     $ --

Cynthia Anne                  --                   $ --                    --                          $ --
Weaver

Tracy Gershon                 --                   $ --               8,833/17,667                     $ --
Fishell

Wayne R. Halper               --                   $ --               8,333/16,667                     $ --
</TABLE>



-------- 
(1) Based upon the closing price of the Company's common stock of $1.38
    on April 23, 1997, all vested options are out-of-the-money.


                                       15
<PAGE>

EMPLOYMENT AGREEMENTS

            The Company entered into employment agreements with Stanley O.
Schaetzle, Jr. and Roy W. Wunsch as of April 20, 1995; with Constance D. Baer as
of August 15, 1995; with Tracy Gershon Fishell as of August 15, 1995; and with
Anne Weaver as of July 29, 1996. The Company terminated the agreement with
Bradley W. Chambers in June 1996.

            The Company has entered into employment agreements with each of 
Stanley O. Schaetzle, Jr. and Roy W. Wunsch on substantially the same terms. 
Each agreement is for a term expiring July 25, 2000, and provides for a base 
salary of $150,000. Bonus compensation is payable to each executive under 
their respective agreements as determined by the Board of Directors from time 
to time. Pursuant to each agreement, the base salary for each officer was to 
increase by 5% on July 25, 1996, and increases thereafter are to be as 
determined by the Board of Directors from time to time. (To improve 
liquidity, Roy Wunsch, Chairman, Chief Executive Officer and Secretary, and 
Stanley O. Schaetzle, Jr., President and Treasurer, have agreed to 
temporarily defer 50% of their salaries commencing on or about September 1, 
1996 and 100% of their salaries on or about December 1, 1996.) Under his 
employment agreement, so long as he remains employed by the Company, Mr. 
Wunsch is to act as Chairman of the Board and Chief Executive Officer, and 
the Company is not permitted to confer equal or greater authority on any 
other employee. Under his employment agreement, so long as he remains 
employed by the Company, Mr. Schaetzle is to act as President, and the 
Company is not permitted to confer equal or greater authority on any other 
employee (except that the Company may confer greater authority on Mr. 
Wunsch). Mr. Schaetzle's agreement permits him to devote a non-material 
amount of his time to High Five Productions, the production company he was 
managing partner of prior to his employment by the Company.

            The Company has entered into a two-year employment agreement with 
Constance D. Baer, which expires on August 14, 1997, to secure Ms. Baer's 
services as Vice President of Marketing and Artist Development. Base salary 
under the agreement is $140,000. By its terms, the agreement provides that 
the base salary is to be increased on the first anniversary date thereof by 
no less than the increase in the Consumer Price Index during the prior year's 
period; however Ms. Baer has agreed for the time being to defer any base 
salary increase under the contract. Ms. Baer is eligible to participate in the 
Company's Executive Incentive Plan ("EIP"), pursuant to which the maximum bonus
payable to any plan participant, assuming the highest level of the Company's 
gross sales and income goals are achieved, is 30% of base salary, and received 
a signing bonus of $10,000 in August 1995. The agreement provides that Ms. Baer
is entitled to payment of the base salary thereunder for the unexpired term 
thereof in the event her employment is terminated without cause by the Company.

            The Company has entered into a two-year employment agreement
(with an option by the Company for a one-year extension) with Cynthia Anne
Weaver to expire, unless extended, on July 29, 1998, in connection with Ms
Weaver's services as Vice President of Promotion. Base salary under the
agreement is $150,000, to increase on July 29, 1997 by no less than the
percentage increase in the Consumer Price Index during that one-year period. Ms.
Weaver is eligible to participate in the EIP. The agreement provides that Ms.
Weaver is entitled to payment of the base salary thereunder for the unexpired
term thereof in the event her employment is terminated without cause by the
Company.

            The Company has entered into a three-year employment agreement 
with Tracy Gershon Fishell, to expire on August 14, 1998, to secure Ms. 
Gershon Fischell's services as Vice President of Artists and Repertoire. Base 
salary under the agreement is $100,000. By its terms, the agreement provides
that base salary is to be increased on the second and third anniversary dates 
thereof by no less than the percentage increase in the Consumer Price 
Index during the prior year's period; however, Ms. Gershon Fischell has agreed 
for the time being to defer any base salary increase under her contract.  
Ms. Gershon Fischell is eligible to participate, at her option, in either the 
EIP or the A&R Bonus Plan (when and if established by the Company), pursuant 
to which her bonus compensation will be a reflection of album sales by artists 
signed by Ms. Gershon Fischell to the Company's label. The agreement provides 
that Ms. Gershon Fischell is entitled to payment of the base salary thereunder 
for the unexpired term thereof in the event her employment is terminated 
without cause by the Company.


                                       16
<PAGE>


COMPENSATION OF DIRECTORS

            Directors who are not employees of the Company are entitled to
receive $100 for each Board of Directors or committee meeting attended, up to a
maximum of $600 per year. Directors who are employed by the Company receive no
Directors' fees. The Company reimburses its Directors for reasonable
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors or committee meetings attended.

KEY MAN LIFE INSURANCE

            The Company has secured "Key Man" life insurance policies on
the lives of Messrs. Wunsch and Schaetzle in the amount of $1,500,000 each. The
Company is the sole beneficiary of these policies.

INDEMNIFICATION AGREEMENTS

            The Company has entered into indemnification agreements with
each of its directors which provide that the Company shall indemnify such
director to the fullest extent authorized or permitted by applicable law. The
agreements provide for indemnification against losses and expenses incurred in
connection with claims asserted against the director, including all judgments,
penalties and fines, and amounts paid or to be paid in settlement, interest,
assessments, charges, taxes, attorney's fees and other costs incurred by the
director in connection with any threatened, pending or completed action, suit,
proceeding or arbitration or other alternative dispute resolution mechanism,
whether civil, criminal, administrative or otherwise, relating to anything done
or not done by the director in his capacity as an agent of the Company. Such
indemnification is not available if (i) it is not lawful, (ii) the conduct in
question was knowingly fraudulent, a knowing violation of law, deliberately
dishonest or in bad faith or constituted willful misconduct, (iii) the action
caused the director to gain in fact any personal profit or advantage to which he
was not legally entitled, (iv) the dispute concerns any claim by or in the right
of the Company, and the director is adjudged liable to the Company, (v) the
conduct in question constituted a breach of the duty or loyalty to the Company
or its shareholders, or (vi) the conduct concerned an unlawful distribution by
the Company to its stockholders.

            Under the agreements, a director's entitlement to indemnification 
shall be decided by (i) if a change in control has not occurred, a majority vote
of a quorum of independent directors, a majority of the stockholders of the
Company having ordinary voting power to elect a majority of the Board of
Directors, independent lead counsel, in a written opinion to the Company, or by
a court of competent jurisdiction not subject to further appeal, and (ii) if a
change in control has occurred, by opinion of independent lead counsel addressed
to the Company.

            If requested by the director, the Company shall advance litigation 
and other expenses to him, provided the director affirms to the Company in
writing that he has conducted himself in good faith and that he reasonably
believed that his conduct was in the Company's best interest or was at least not
opposed to its best interest and, in the case of any criminal proceeding, that
the director did not engage in the alleged unlawful conduct or that he had no
reasonable cause to believe that his conduct was unlawful. In addition, the
director must execute an undertaking to repay to the Company the advance if it
is ultimately determined that he is not entitled to indemnification.

STOCK OPTION PLAN

            In February 1995, the Board of Directors adopted, and the 
stockholders of the Company approved, the Company's 1995 Stock Option Plan (the
"Plan"). The purpose of the plan is to provide an incentive to certain officers,
senior management and key employees of the Company to remain in the employ of
the Company and to increase their interest in the success of the Company by
offering to them the opportunity to obtain a proprietary interest in the
Company.

            The Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"), which determines the options to be granted
under the Plan.


                                       17
<PAGE>


            The Plan provides for the granting of options with an exercise
price equal to the "fair market" value of a share of the Company's Common Stock
on the date of grant. Fair market value means the mean of the high and low sales
prices on the principal exchange on which the Common Stock is traded on the date
of grant. Under the Plan, no option shall have a term of more than ten years,
and shall fully vest no sooner than the second anniversary of the date of grant
and no later than the fifth anniversary of the grant date. The aggregate number
of shares of Common Stock for which options may be granted under the Plan to 
any one employee in one fiscal year is 50,000. If incentive stock options are 
granted, the aggregate fair market value of the Common Stock covered by the 
options (as measured on the date of grant) exercisable for the first time by an
employee during any calendar year may not exceed $100,000.

            Upon exercise of an option, the holder must make payment in
full of the exercise price. Such payment may be in the form of cash, Common
Stock, or a combination of both. If the Committee so determines, the Company may
lend to the holder of an option funds to enable the holder to pay the exercise
price.

            The Plan may be altered, amended, suspended or terminated by the
Committee at any time, provided that no material amendment (as defined in Rule
16b-3 under the Security Exchange Act of 1934) shall be effective until approved
by the stockholders of the Company.

            By the terms of the Plan, Roy W. Wunsch and Stanley O. Schaetzle 
are not permitted to participate therein.

            As of January 31, 1997, 135,000 options had been granted under the 
Plan.

                                       18
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

VOTING SECURITIES OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The management of the Company has been informed that, as of
April 23, 1997, the persons identified in the table below, including all
directors, nominees for director, executive officers and all owners known to the
Company of more than 5% of any class of the Company's voting securities, owned
beneficially, within the meaning of Securities and Exchange Commission ("SEC")
Rule 13d-3, the securities of the Company replaced in such table. Except as
otherwise specified, the named beneficial owner claims sole investment and
voting power as to the securities reflected in the table.

BENEFICIAL OWNERSHIP OF THE COMPANY STOCK

<TABLE>
<CAPTION>


                                                    NUMBER OF SHARES
BENEFICIAL OWNER(1)                                  OF COMMON STOCK             PERCENT OF CLASS
----------------                                     ---------------             ----------------
<S>                                                     <C>                      <C>
Frank M. Bumstead                                             81,177                   1.7%

Charles M. Flood                                              81,177                   1.7%

Chava Mamoka(2)                                              274,000                   5.8%

Stanley O. Schaetzle, Jr.(3),(4)                           1,075,740                  22.5%

Roy W. Wunsch(4)                                           1,106,860                  23.4%

All Directors and Officers as a                            2,344,954                  49.0%
group (4 persons)
</TABLE>

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

(1)      The address for Messrs. Bumstead and Flood is 1700 Hayes Street, Suite
         304, Nashville, Tennessee 37203; the address for Mr. Mamoka is Rehov
         Hashel 14, Ashdod, Israel 77261; and the address for Messrs. Schaetzle
         and Wunsch is c/o Imprint Records, Inc., Cummins Station, 209 10th
         Avenue South, Suite 500, Nashville, Tennessee 37203.

(2)      Mr. Mamoka is not a director or officer of the Company.

(3)      Ownership includes 1,032,240 shares of Common Stock owned by Mr.
         Schaetzle, plus 43,500 shares of Common Stock underlying currently
         exercisable Redeemable Warrants. In accordance with SEC rules, the
         percent of class owned shown for Mr. Schaetzle in the above table was
         computed by assuming the only Redeemable Warrants exercised are the
         43,500 warrants owned by him.

(4)      Ownership does not include shares of Common Stock purchasable by
         Messrs. Schaetzle and Wunsch pursuant to a Shareholders' Agreement,
         which provides each of them with the right to purchase Common Stock
         held by the other stockholder in the event such other stockholder
         resigns or is terminated for cause, dies or becomes subject to a
         bankruptcy or insolvency proceeding prior to June 30, 1998. Such
         purchase option in favor of the remaining or surviving stockholder may
         be exercised at a discount from fair market value ranging from 10% to
         90%, depending upon the circumstances leading to the exercise of the
         option. The Shareholders' Agreement restricts transfers of shares of
         Common Stock by Mr. Schaetzle or Mr. Wunsch to other than affiliated
         entities or related individuals, and, after June 30, 1998, grants to
         each of Mr. Schaetzle and Mr. Wunsch a right of first refusal on any
         sales by either of them to third parties, other than sales of shares of
         Common Stock in open market transactions. The Shareholders' Agreement
         expires by its terms on June 30, 2005 unless, prior thereto, either Mr.
         Schaetzle or Mr. Wunsch cease to own any shares of Common Stock subject
         to the agreement.

                                       19
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         High Five Productions ("HFP"), a multimedia production company of which
Stanley O. Schaetzle, Jr., President, Treasurer and a Director of the Company,
was the managing partner prior to his involvement with the Company, and for
which Mr. Schaetzle remains a consulting partner, performed certain services for
the Company and its artists relating to the creation and production of music
videos during the fiscal year ended January 31, 1997, for which HFP was paid an
aggregate of $70,071 in fees and expenses. The Company believes it was able to
obtain HFP's services and expertise at better than market rates due to Mr.
Schaetzle's affiliation with both the Company and HFP.



                                       20


<PAGE>

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-A.

<TABLE>



       (A) EXHIBITS.
<S>                 <C>
       1.1(1)   --     Form of Underwriting Agreement by and between the Company and A.S. Goldmen
                       & Co., Inc., as underwriters in the Company's July 1995 initial public offering (the
                       "Underwriter").
       1.2(1)   --     Form of Underwriter's Warrant Agreement, including form of specimen certificate
                       for Underwriter's Warrant.
       3.1(1)   --     Charter of the Company, as amended on June 28, 1996.
       3.3(1)   --     By-Laws of the Company.
       4.1(1)   --     Specimen certificate for shares of Common Stock.
       4.2(1)   --     Form of Redeemable Warrant Agreement by and between the Company and
                       Continental Stock Transfer & Trust Company, including
                       form of specimen certificate for the Redeemable
                       Warrants.

       10.1(1)  --     Form of Financial Advisory and Consulting Agreement by and between the
                       Company and the Underwriter.
       10.2(1)  --     Employment Agreement by and between the Company and Roy W. Wunsch.
       10.3(1)  --     Employment Agreement by and between the Company and Stanley O. Schaetzle.
       10.4(1)  --     Form of Indemnification Agreement to be entered into with officers and directors.
       10.5(1)  --     Stock Option Plan.
       10.6(1)  --     Irrevocable Proxy.

       10.7(1)  --     Shareholders' Voting Agreement.
       10.8(1)  --     Shareholders' Agreement.

       10.9(1)  --     Recording Contract between the Company and Bob Woodruff dated as of May 26,
                       1995.
       10.10(2) --     Lease for Company Headquarters.

       10.11(3) --     Employment Agreement between the Company and Constance D. Baer.
       10.12(3) --     Employment Agreement between the Company and Bradley W. Chambers.
       10.13(4) --     Recording Contract between the Company and Gretchen Peters.
       10.14(4) --     Recording Contract between the Company and Al Anderson.
       10.15(4) --     Recording Contract between the Company and Jeff Wood.
       10.16(5) --     Employment Agreement between the Company and Tracy Gershon Fishell.
       10.17(5) --     Incentive Stock Option Agreement between the Company and Constance D. Baer.
       10.18(5) --     Incentive Stock Option Agreement between the Company and Bradley W.
                       Chambers.

       10.19(5) --     Incentive Stock Option Agreement between the Company and Tracy Gershon
                       Fishell.
       10.20(5) --     Incentive Stock Option Agreement between the Company and Wayne R. Halper.
       10.21(6) --     Distribution Agreement between the Company and Distribution North America
                       dated as of April 1, 1996.

       10.22(6) --     Agreement between the Company and Timtojay Music dated as of April 30, 1996.
       10.23(7) --     Articles of Amendment of Charter of Veritas Music Entertainment, Inc., dated June
                       28, 1996.

       10.24(7) --     Employment Agreement between the Company and Ms. Anne Weaver, dated as of
                       August 8, 1996.
       10.25(7) --     Licensing Agreement between the Company and BMG Music Canada Inc., dated
                       August 7, 1996.
       10.26(7) --     Licensing Agreement between the Company and Paradoxx Music, dated as of
                       August 13, 1996.
       10.27(7) --     Assignment and Release between the Company and Mr. Bradley W. Chambers.
       10.28(8) --     Incentive Stock Option Agreement between the Company and Ms. Anne Weaver.

</TABLE>

                                       21
<PAGE>

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

         (1) Previously filed as an Exhibit to the Company's Registration
Statement on Form SB-2, No. 33-90794, filed with the SEC, which was declared
effective on July 20, 1995.

         (2) Previously filed as an Exhibit to the Company's report on Form
10_QSB, filed with the SEC on September 14, 1995.

         (3) Previously filed as an Exhibit to the Company's report on Form
10-QSB, filed with the SEC on December 15, 1995.

         (4) The Company has requested confidential treatment for portions of 
this Exhibit (consistent with the reasons confidential treatment was requested
for the document at Exhibit 10.9 hereto, and in the same scope (which request
was granted by the Secretary of the SEC as to the document denoted as Exhibit
10.9)), which confidential portions have been filed separately.

         (5) Previously filed as an Exhibit to the Company's report on Form
10-KSB, filed with the SEC on April 29, 1996.

         (6) Previously filed as an Exhibit to the Company's report on Form
10-QSB, filed with the SEC on June 14, 1996.

         (7) Previously filed as an Exhibit to the Company's report on Form
10-QSB, filed with the SEC on September 17, 1996.

         (8) Filed herewith.

(B) REPORTS ON FORM 8-K

         The Company filed no reports on Form 8-K during the last quarter of the
period covered by this Annual Report on Form 10-KSB.






                                       22
<PAGE>


                             INDEPENDENT AUDITORS' REPORT




Board of Directors
Imprint Records, Inc.
Nashville, Tennessee

We have audited the accompanying balance sheet of Imprint Records, Inc.
(formerly, Veritas Music Entertainment, Inc.) ("the Company") as of January 31,
1997, and the related statements of operations, changes in shareholders' equity
and cash flows for the years ending January 31, 1997 and 1996.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Imprint Records, Inc. as of
January 31, 1997, and the results of its operations and its cash flows for the
years ended January 31, 1997 and 1996 in conformity with generally accepted
accounting principles.  

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 2 to the
financial statements, the Company has suffered a substantial loss from
operations and the resources to fund future operations may be inadequate, which
matters raise substantial doubt about its ability to continue as a going
concern.  Management's plans in regard to this matter are also described in Note
2.  The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.


                                            Drucker, Math & Whitman, P.C.


North Brunswick, New Jersey 
March 14, 1997

                                                                             F-1


<PAGE>



                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)

                                    BALANCE SHEET


                                   JANUARY 31, 1997




                                        ASSETS


Current assets:

  Cash and cash equivalents                                 $ 546,975
  Accounts receivable                                          13,361
  Inventory, net of obsolescence reserve
    of $36,034                                                402,322
  Other                                                        60,521
                                                           ----------
                                                            1,023,179
                                                           ----------

Fixed assets, net                                             377,297
                                                           ----------
Other assets:

  Organization costs and other, net                            21,896
                                                           ----------

                                                           $1,422,372
                                                           ----------
                                                           ----------

                        LIABILITIES AND SHAREHOLDERS' EQUITY 


Current liabilities:

  Accounts payable and accrued expenses                    $  378,685
                                                           ----------
Commitments and contingencies

Shareholders' equity:

Common stock, no par value; 
 authorized, 9,000,000 shares; 
 issued and outstanding, 4,738,000 shares                   6,301,792
Additional paid-in capital                                    577,425
Deficit                                                   ( 5,835,530)
                                                           ----------
                                                            1,043,687
                                                           ----------
                                                                     
                                                           $1,422,372
                                                           ----------
                                                           ----------


                      See notes to financial statements.                    F-2


<PAGE>

                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)

                               STATEMENTS OF OPERATIONS





                                                  YEAR                YEAR      
                                                  ENDED               ENDED     
                                             JANUARY 31, 1997   JANUARY 31, 1996
                                             ----------------   ----------------


Sales                                        $     157,056       $        -  

Cost of sales                                       73,411                -  
                                             -------------       ------------

Gross profit                                        83,645                -  
                                             -------------       ------------

Expenses:
  Artist development and promotion; 
   $85,000 and $62,000 paid to 
   related parties during 
   1997 and 1996, respectively                   3,183,097            502,079
  General and administrative                     1,830,509            606,691
                                             -------------       ------------
                                                 5,013,606          1,108,770
                                             -------------       ------------

Loss from operations                         (   4,929,961)      (  1,108,770)

Interest expense                                       -         (     98,071)
Interest income                                    135,556            172,720
                                             -------------       ------------
                                                   135,556             74,649

Net loss                                     ($  4,794,405)      ($ 1,034,121)
                                              ------------        -----------
                                              ------------        -----------

Net loss per common
 stock share                                 ($       1.01)      ($       .26)
                                              ------------        -----------
                                              ------------        -----------

Weighted average
 shares outstanding                              4,738,000          4,026,769
                                              ------------        -----------
                                              ------------        -----------


                      See notes to financial statements.                 F-3


<PAGE>
 


<TABLE>
<CAPTION>


                                       IMPRINT RECORDS, INC.
                           (Formerly, Veritas Music Entertainment, Inc.)

                           STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY





                                                    ADDITIONAL                    SHAREHOLDERS'
                             COMMON STOCK           PAID-IN                         EQUITY
                        ----------------------
                           SHARES       AMOUNT       CAPITAL       DEFICIT        (DEFICIENCY)
                        ---------      -------       -------    -------------    -------------

<S>                      <C>            <C>       <C>            <C>            <C>
Balances,
 January 31, 1995         2,346,000    $    235     $    -       ($   7,004)     ($  6,769)

February, 1995, $.0001
 per share, cash            874,000          87          -             -                87

March, 1995, 300,000
 warrants at $.25,
 cash                           -           -         75,000           -            75,000

July, 1995, $5.00 per
 share, cash              1,380,000   6,900,000          -             -         6,900,000

July, 1995, 2,100,000
 warrants at $.25,
 cash                           -           -        525,000           -           525,000

August, 1995, $5.00 per
 share, cash                138,000     690,000          -             -           690,000

August, 1995, 210,000
 warrants at $.25,
 cash                           -           -         52,500           -            52,500

Expenses of offering            -   ( 1,288,530)   (  75,075)          -       ( 1,363,605)

Net loss                        -           -            -      ( 1,034,121)   ( 1,034,121)
                          ---------  ----------     --------     ----------     ----------

Balances,
 January 31, 1996         4,738,000   6,301,792      577,425    ( 1,041,125)     5,838,092

Net loss                        -           -            -      ( 4,794,405)   ( 4,794,405)
                         ----------  ----------     --------     ----------     ----------

Balances,
 January 31, 1997         4,738,000  $6,301,792     $577,425    ($5,835,530)    $1,043,687
                         ----------  ----------     --------     ----------     ----------
                         ----------  ----------     --------     ----------     ----------


</TABLE>

                       See notes to financial statements.               F-4


<PAGE>

                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)

                               STATEMENTS OF CASH FLOWS

                                               YEAR                YEAR
                                              ENDED                ENDED
                                        JANUARY 31, 1997      JANUARY 31, 1997
                                        ----------------      ----------------

Cash flows from 
 operating activities:


Net loss                                    ($4,794,405)        ($1,034,121)
Adjustments to 
 reconcile net loss 
 to net cash used in 
 operating activities:
 Amortization and depreciation                   97,348             103,410
 Changes in assets and liabilities:
  Accounts receivable                       (    13,361)                -  
  Inventory                                 (   402,322)                -  
  Other current assets                           33,487         (    94,008)
  Organization costs                                -           (    30,131)
  Other assets                                   40,291         (    45,108)
  Accrued expenses                              300,522              72,161
                                             ----------          ----------

Net cash used in operating activities       ( 4,738,440)        ( 1,027,797)
                                             ----------          ----------

Cash flows from investing activities:

 Leasehold improvements                     (       649)        (   220,196)
 Furniture and equipment                    (   119,341)        (   135,507)
 Investments, commercial paper                  999,733         (   999,733)
                                             ----------          ----------

Cash provided (used) in investing
 activities                                     879,743         ( 1,355,436)
                                             ----------          ----------

Cash flows from financing 
 activities:  

 Deferred loan costs                                -           (    15,312)
 Deferred stock offering costs                      -           (   252,390)
 Shareholder loan - proceeds                        -                 1,400
 Shareholder loan - payment                         -           (     1,400)
 Notes payable - proceeds                           -               225,000
 Notes payable - payment                            -           (   300,000)
 Issuance of common stock
  and warrants, net of stock
   offering costs                                   -             7,131,372
                                             ----------          ----------

Net cash provided by financing activities           -             6,788,670
                                             ----------          ----------

(Decrease) increase in cash                 ( 3,858,697)          4,405,437


Cash, beginning                               4,405,672                 235
                                             ----------          ----------

Cash, ending                                 $  546,975          $4,405,672
                                             ----------          ----------
                                             ----------          ----------
Supplemental disclosures:
 Interest paid                               $      -            $    7,759
                                             ----------          ----------
                                             ----------          ----------

 Taxes paid                                  $   14,525          $      -  
                                             ----------          ----------
                                             ----------          ----------



                      See notes to financial statements.                 F-5


<PAGE>

                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)
                            NOTES TO FINANCIAL STATEMENTS 

                        YEARS ENDED JANUARY 31, 1997 AND 1996


1.   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
     
     NATURE OF OPERATIONS:

     Imprint Records, Inc. ("Company"), a Tennessee corporation,  is engaged in
     the music recording and production business.  The Company develops new and
     emerging Country music artists targeted for the Country music market.  For
     the year ending January 31, 1996 the Company was considered to be in the
     development stage as no revenues had been derived from operations.  
     The Company filed an application for registration of the trade name Imprint
     Records, Inc. with the U.S. Patent and Trademark Office on February 9,
     1996, which trade name was registered in that office on January 9, 1997. 
     Prior to February 1996, the Company was doing business under the name
     Veritas Music Entertainment, Inc.

     CASH AND CASH EQUIVALENTS:

     Cash and cash equivalents include all cash balances and highly liquid
     investments purchased with a maturity of three months or less.

     INVENTORY:

     Inventory is valued at the lower of cost, (determined on a first in, first
     out basis) or market.
     
     FIXED ASSETS:

     Fixed assets consist of furniture, equipment, and leasehold improvements,
     which are stated at cost.  Depreciation is provided on the straight-line
     method over the estimated useful lives of the respective assets.  Leasehold
     improvements are amortized over the lesser of the term of the lease or the
     estimated useful lives of the improvements.

     ORGANIZATION COSTS:

     Organization costs represent costs incurred in connection with organizing
     the Company.  These costs are being amortized on a straight-line basis over
     5 years.

                                                                            F-6


<PAGE>

                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)
                            NOTES TO FINANCIAL STATEMENTS 

                        YEARS ENDED JANUARY 31, 1997 AND 1996


1.   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
     (continued)

     REVENUE RECOGNITION:

     Sales of records are recognized upon transfer of title, which coincides
     with shipment of products to retail outlets and other trade channels.  A
     provision for expected returns is recorded at the time a sale is
     recognized.

     ARTIST DEVELOPMENT AND PROMOTION COSTS:

     Artist development and promotion costs, including advances, are charged to
     expense as incurred.

     NET LOSS PER SHARE:

     Net loss per share is based on the average number of shares of common stock
     outstanding during the periods, after giving effect to the issuance of
     874,000 shares in February, 1995 as if such shares were outstanding since
     inception.  No effect was given to common stock equivalents in the
     calculation of loss per share because such effect would be antidilutive.

     CONCENTRATION OF CREDIT RISK:

     Financial instruments which subject the Company to concentrations of credit
     risk consist of temporary cash investments.  The Company places its
     temporary cash investments with creditworthy, high quality financial
     institutions.  Although the Company is directly affected by the well-being
     of these financial institutions, management does not believe significant
     credit risk exists at January 31, 1997.

2.   GOING CONCERN:

     The accompanying financial statements have been prepared assuming that the
     Company will continue as a going concern, which contemplates the
     realization of assets and the satisfaction of liabilities in the normal
     course of business.  The Company has suffered a substantial loss from
     operations and its resources to fund future operations may be inadequate. 
     These factors raise substantial doubt about the Company's ability to
     continue as a going concern.  The financial statements do not include any
     adjustments relating to the recoverability and classification of recorded 
     asset amounts or the amount of liabilities that might be necessary should
     the Company be unable to continue.  Continuation of the Company as a going
     concern is dependent on achieving profitable operations or raising
     additional capital.  Management plans to achieve profitable operations by
     continued marketing and future promotions of the current artist releases. 
     Management also plans to raise additional capital through equity or debt
     issuance.



                                                                           F-7


<PAGE>


                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)
                            NOTES TO FINANCIAL STATEMENTS 

                        YEARS ENDED JANUARY 31, 1997 AND 1996


3.   USE OF ESTIMATES:

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period.  Actual results could differ from these
     estimates.

4.   ACCOUNTS RECEIVABLE:

     Accounts receivable consists of the following at January 31, 1997:

     Account receivable, trade                               $ 793,804
     Reserve for returns and allowances                     (  780,443)
                                                             ---------

                                                             $  13,361
                                                             ---------
                                                             ---------

5.   INVESTMENTS:

     Investments at January 31, 1996 consisted of commercial paper at an
     interest rate of 5.83% which matured during February, 1996.

6.   COMMITMENTS AND CONTINGENCIES:

     EMPLOYMENT AGREEMENTS:

     The Company has entered into employment agreements with five
     officers/executives.  The employment agreements provide for aggregate
     compensation as follows:  During the year ending January 31, 1998,
     $544,167; January 31, 1999, $508,333; January 31, 2000, $387,500; and
     January 31, 2001, $150,000.

     LEASE:

     The Company leases office space under an operating lease which commenced
     July, 1995 and expires in 2000.  This lease contains two five year renewal
     options.  Occupancy commenced on February 1, 1996.  The lease provides for
     an annual rental of approximately $68,600 in years one and two and
     approximately $79,100 in years three, four and five.  Rent expense was
     $78,555 for the year ended January 31, 1997. 


                                                                          F-8

<PAGE>

                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)
                            NOTES TO FINANCIAL STATEMENTS 

                        YEARS ENDED JANUARY 31, 1997 AND 1996


6.   COMMITMENTS AND CONTINGENCIES: (continued)

     EXECUTIVE INCENTIVE PLAN:

     Effective for the year ended January 31, 1997, the Company implemented an
     Executive Incentive Plan ("EIP").  The EIP's participants are certain
     executive employees.  In the event that actual sales and actual pre-tax
     income meet or exceed  certain goals, the EIP requires the Company to
     establish a bonus compensation pool, not to exceed 30 per cent of the
     aggregate base salaries of the EIP participants.

     ARTIST CONTRACTS:

     At January 31, 1997, the Company had entered into exclusive long-term
     recording contracts with five artists.  The contracts provide for
     non-refundable advances on the initial album (which advances are recoupable
     from future royalties) and provide the Company with an option to record
     additional albums.  The contracts also provide for a base royalty to be
     paid to the artist upon the sale of albums.

7.   FIXED ASSETS:

     Leasehold improvements                                  $220,845
     Equipment                                                254,848
                                                             --------
                                                              475,693
     Less accumulated depreciation and amortization         (  98,396)
                                                             --------

                                                             $377,297
                                                             --------
                                                             --------


     Depreciation and amortization expense for the year ending January 31, 1997
     and 1996 was $47,168 and $50,181, respectively.

8.   NOTES PAYABLE AND WARRANTS:

     In March, 1995, the Company issued $300,000 of notes payable and 300,000
     warrants to various investors in exchange for $300,000.  Of the $300,000 of
     proceeds, $225,000 has been allocated to the notes payable and $75,000 to
     the warrants.  The notes were paid in July, 1995.  The 300,000 warrants
     were converted into 300,000 redeemable warrants having terms identical to
     the warrants included in the public offering.  See Note 9.

9.   PUBLIC OFFERING:

     In July and August, 1995, the Company closed an initial public offering of
     its common stock and redeemable warrants.  A total of 1,518,000 shares of
     common stock and 2,310,000 redeemable warrants were issued.  The redeemable
     warrants are exercisable at any time during a four year period commencing
     July, 1995 at an exercise price of $7.00 per share.  The redeemable
     warrants include an option whereby, under certain conditions, 

                                                                           F-9


<PAGE>


                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)
                            NOTES TO FINANCIAL STATEMENTS 

                        YEARS ENDED JANUARY 31, 1997 AND 1996


9.   PUBLIC OFFERING: (continued)

     the Company can redeem the warrants.

     In connection with the initial public offering, the investment banker
     received, for nominal consideration, five year warrants to purchase 138,000
     shares of common stock and 210,000 redeemable warrants.  These warrants are
     exercisable at any time during a four year period commencing July, 1996 for
     $7.25 per share of common stock and $.36 per redeemable warrant.  The
     Company has also agreed to utilize the services of the investment banker on
     a consulting basis for two years at a monthly fee of $2,000.  The aggregate
     fee of $48,000 was paid at closing.

     In February, 1995, the Company issued 874,000 shares of common stock for
     $.0001 per share to four retail customers and one potential retail customer
     of the investment banker.  The amount of $.0001 per share was considered
     fair market value by the Company as no significant changes in operations,
     financial condition or liquidity had taken place since the initial issuance
     of common stock for $.0001 in December, 1994.

10.  INCOME TAXES:

     For federal income tax purposes, as of January 31, 1997, the Company has
     net operating loss carryforwards approximating the financial accounting
     deficit.  These carryforwards expire in the year 2012.  The net operating
     loss carryforwards result in deferred tax assets of approximately
     $2,220,000; however, a valuation reserve has been recorded for the full
     amount due to the uncertainty of realization of the deferred tax assets.

11.  INCENTIVE STOCK OPTION PLAN:

     In February, 1995, the Company implemented the 1995 Stock Option Plan
     ("Plan").  The Plan provides for the granting of options to purchase up to
     230,000 shares of common stock at an exercise price equal to the fair
     market value of the common stock on date of the grant. Options may be 
     awarded to officers, senior management or other key employees.

     For the year ending January 31, 1997, the Company has adopted the
     disclosure-only provisions of Statement of Financial Accounting Standards
     No. 123, "Accounting for Stock-Based Compensation."  Accordingly, no
     compensation cost has been recognized for the stock option plan. 



                                                                          F-10


<PAGE>

                                IMPRINT RECORDS, INC.
                    (Formerly, Veritas Music Entertainment, Inc.)
                            NOTES TO FINANCIAL STATEMENTS 

                        YEARS ENDED JANUARY 31, 1997 AND 1996


11.  INCENTIVE STOCK OPTION PLAN: (continued)

     Had compensation cost for the Company's stock option plan been recognized
     based on the fair value at the grant date for awards consistent with the
     provisions of SFAS No. 123, the Company's net loss and loss per share would
     have been as indicated below:

     Net loss - as reported                                      $4,794,405
     Net loss - pro forma                                        $4,912,436
     Loss per share - as reported                                     $1.01
     Loss per share - pro forma                                       $1.04

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option-pricing model with the following weighted-average
     assumptions used for grants; expected volatility of 230%; risk-free
     interest rate of 6.0%; and expected lives of 9.1 years.

     Plan activity during the years ended January 31, 1997 and 1996 follows:

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

                                               WEIGHTED-              WEIGHTED-
                                    NUMBER     AVERAGE      NUMBER    AVERAGE
                                    OF         EXERCISE     OF        EXERCISE
                                    SHARES     PRICE        SHARES    PRICE    
                                    -------    --------     -------   ---------
     Outstanding at 
      beginning of year             121,500    $5.50           -          -
     Granted                         43,500    $1.49        121,500     $5.50
     Exercised                        -          -             -          -
     Forfeited                     ( 30,000)   $5.50           -          -  
                                    -------                 -------
     Outstanding at end
      of year                       135,000    $4.21        121,500     $5.50
                                    -------                 -------
                                    -------                 -------
     Options exercisable
      at year end                    30,500                    -   
                                    -------                 -------
                                    -------                 -------

     Weighted-average 
      remaining contractual
      life, years                     9.1                      10  
                                    -------                 -------
                                    -------                 -------



                                                                          F-11


<PAGE>


12.  RELATED PARTIES:

     During the years ended January 31, 1997 and 1996, the Company incurred
     $70,071 and $61,692, respectively, of promotional and artist expenses
     payable to a company which is related to an officer/director/shareholder.

     During the year ending January 31, 1997, the Company incurred $15,000 of
     artist expense payable to a company which is related to an officer.

     During the years ended January 31, 1997 and 1996, the Company incurred
     $1,547 and $18,641, respectively, of business management fees to a
     financial firm which is related to two officers/directors/shareholders of
     the Company.



                                                                          F-12


<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.

                                         IMPRINT RECORDS, INC.


                                         By:__________________________
                                            Roy W. Wunsch,
                                             Chairman of the Board
                                               and Chief Executive Officer

            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 the dates indicated.

         SIGNATURE                        TITLE                     DATE
--------------------------    ---------------------------      --------------

__________________________    Chairman of the Board, Chief     April 30, 1997
Roy W. Wunsch                 Executive Officer and        
                              Secretary                    
                              (principal executive officer)
                              

__________________________    Vice President - Business        April 30, 1997
Wayne R. Halper               Affairs, and Chief Financial 
                              Officer (principal financial 
                              officer; principal accounting
                              officer)                     
                              
__________________________    Director                         April 30, 1997
Frank M. Bumstead



__________________________    Director                         April 30, 1997
Charles M. Flood, Jr.


__________________________    Director; Treasurer and          April 30, 1997
Stanley O. Schaetzle, Jr.     President              
                              


                                          23
<PAGE>

<TABLE>
<CAPTION>



                                      EXHIBIT INDEX

EXHIBIT                                                                                 PAGE NUMBER

<S>                        <C>                                                         <C>
1.1(1)          --         Form of Underwriting Agreement by and between the
                           Company and A.S. Goldmen & Co., Inc., as underwriters
                           in the Company's July 1995 initial public offering
                           (the "Underwriter").
1.2(1)          --         Form of Underwriter's Warrant Agreement, including
                           form of specimen certificate for Underwriter's Warrant.
3.1(1)          --         Charter of the Company.
3.3(1)          --         By-Laws of the Company.
4.1(1)          --         Specimen certificate for shares of Common Stock.
4.2(1)          --         Form of Redeemable Warrant Agreement by and between
                           the Company and Continental Stock Transfer &
                           Trust Company, including form of specimen
                           certificate for the Redeemable Warrants.
10.1(1)         --         Form of Financial Advisory and Consulting Agreement by
                           and between the Company and the Underwriter.
10.2(1)         --         Employment Agreement by and between the Company and Roy
                           W. Wunsch.
10.3(1)         --         Employment Agreement by and between the Company and
                           Stanley O. Schaetzle.
10.4(1)         --         Form of Indemnification Agreement to be entered into
                           with officers and directors.
10.5(1)         --         Stock Option Plan.
10.6(1)         --         Irrevocable Proxy.
10.7(1)         --         Shareholders' Voting Agreement.
10.8(1)         --         Shareholders' Agreement.
10.9(1)         --         Recording Contract between the Company and Bob Woodruff
                           dated as of May 26, 1995.
10.10(2)        --         Lease for Company Headquarters.
10.11(3)        --         Employment Agreement between the Company and
                           Constance D. Baer.
10.12(3)        --         Employment Agreement between the Company and
                           Bradley W. Chambers.
10.13(4)        --         Recording Contract between the Company and Gretchen
                           Peters.
10.14(4)        --         Recording Contract between the Company and Al
                           Anderson.
10.15(4)        --         Recording Contract between the Company and Jeff
                           Wood.
10.16(5)        --         Employment Agreement between the Company and Tracy
                           Gershon Fishell.
10.17(5)        --         Incentive Stock Option Agreement between the Company
                           and Constance D. Baer.
10.18(5)        --         Incentive Stock Option Agreement between the Company
                           and Bradley W. Chambers.
10.19(5)        --         Incentive Stock Option Agreement between the Company
                           and Tracy Gershon Fishell.
10.20(5)        --         Incentive Stock Option Agreement between the Company
                           and Wayne R. Halper
10.21(6)        --         Distribution Agreement between the Company and Distribution
                           North America dated as of April 1, 1996.
10.22(6)        --         Agreement between the Company and Timtojay Music dated
                           as of April 30, 1996.

</TABLE>



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<PAGE>

<TABLE>
<CAPTION>



EXHIBIT                                                                                 PAGE NUMBER

<S>                      <C>                                                             <C>
10.23(7)        --         Articles of Amendment of Charter of Veritas Music
                           Entertainment, Inc., dated June 28, 1996.
10.24(7)        --         Employment Agreement between the Company and Ms. Anne
                           Weaver, dated as of August 8, 1996.
10.25(7)        --         Licensing Agreement between the Company and BMG Music
                           Canada Inc., dated August 7, 1996.
10.26(7)        --         Licensing Agreement between the Company and Paradoxx
                           Music, dated as of August 13, 1996.
10.27(7)        --         Assignment and Release between the Company and Mr.
                           Bradley W. Chambers.
10.28(8)        --         Incentive Stock Option Agreement between the Company and
                           Ms. Anne Weaver.
</TABLE>

--------
     (1) Previously filed as an Exhibit to the Company's Registration Statement
on Form SB-2, No. 33-90794, filed with the SEC, which was declared effective on
July 20, 1995.

     (2) Previously filed as an Exhibit to the Company's report on Form 10-QSB,
filed with the SEC on September 14, 1995.

     (3) Previously filed as an Exhibit to the Company's report on Form 10-QSB,
filed with the SEC on December 15, 1995.

     (4) The Company has requested confidential treatment for portions of this
Exhibit (consistent with the reasons confidential treatment was requested for
the document at Exhibit 10.9 hereto, and in the same scope (which request was
granted by the Secretary of the SEC as to the document denoted as Exhibit
10.9)), which confidential portions have been filed separately.

     (5) Previously filed as an Exhibit to the Company's report on Form 10-KSB,
filed with the SEC on April 29, 1996.

     (6) Previously filed as an Exhibit to the Company's report on Form 10-QSB,
filed with the SEC on June 14, 1996.

     (7) Previously filed as an Exhibit to the Company's report on Form 10-QSB,
filed with the SEC on September 17, 1996.

     (8) Filed herewith.


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