U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended                June 30, 1997
                          ------------------------------------------------------

Commission file number                     1-12635
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                      PARADISE MUSIC & ENTERTAINMENT, INC.
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                 (Name of small business issuer in its charter)

         Delaware                                              13-3906452
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(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                             Identification No.)

 53 West 23rd Street, New York, New York                         10010
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(Address of principal executive offices)                       (Zip Code)

(Issuer's telephone number)    (212) 957-4340
                           -----------------------------------------------------

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

Title of each class                   Name of each exchange on which registered
-------------------                   -----------------------------------------

Common Stock, par value $0.01 per share         Nasdaq SmallCap Market
                                                Boston Stock Exchange
Redeemable Common Stock Purchase Warrants       Nasdaq SmallCap Market
                                                Boston Stock Exchange

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

                                      None

Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|
<PAGE>

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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 the year ended June 30, 1997 were $5,568,286.

As of September 15, 1997, the aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was sold or the average bid and ask price of
such common equity was $4,929,968.

As of September 15, 1997, there were 2,228,333 shares of the registrant's common
stock outstanding.

Documents incorporated by reference:

      Quarterly report on Form 10-QSB for the quarter ended December 31, 1996

Transitional Small Business Disclosure Format (check one)

            Yes |_|              No |X|
<PAGE>

PART I

ITEM 1.                     DESCRIPTION OF BUSINESS

General

The Company is engaged in various aspects of the music and entertainment
business. The Company's current businesses include: production of original
scores and advertising themes for television, radio and film; production of
music videos and specials for television; music artist management; and a record
label. Operations are conducted through four wholly-owned subsidiaries: John
Leffler Music Inc. d/b/a Rave Music and Entertainment ("Rave"), Picture Vision,
Inc. ("Picture Vision"), All Access Entertainment Management Group, Inc. ("All
Access") and Push Records, Inc. ("Push"). Through its subsidiaries, the Company
provides a range of services which management believes, are not provided by
other independent music companies. This combination of services is believed to
provide certain competitive advantages including the ability to offer lower
costs and greater convenience to customers.

The Company's strategy is to continue to expand its existing businesses and
acquire or develop complementary businesses, thereby extending the range of its
products and services as well as the size and profitability of its businesses.

The Music Industry

The production of original scores and advertising themes for television, radio
and film; the production of music videos and specials for television and music
artist management are generally carried out by individuals or small privately
held companies. Usually, individuals or small companies engage in only one of
the foregoing businesses.

The record business, however, is dominated by divisions of six multi-billion
dollar international companies; Warner Bros., PolyGram, Sony, BMG, MCA/Universal
and Thorn EMI. These companies also have their own publishing divisions and
distribution systems. The remainder of the record business is comprised of
numerous small record companies, smaller distribution companies and smaller
publishing companies. The companies are called independents simply to
differentiate them from the six major companies. The Company believes that its
lower overhead structure provides the record label and its artists an
opportunity to share greater economic benefits than its competitors.

Most independent music companies specialize in only one aspect of the music
industry (such as niche- oriented record labels, jingles, video production,
artist management, concert promotion and genre- oriented publishing or
distribution). The Company believes that there is a significant opportunity for
consolidation among the smaller music companies who are increasingly recognizing
the need to adopt new strategies and form strategic alliances in order to stay
competitive.


                                      -1-
<PAGE>

Current Business

      Commercial Music

      The Company's commercial music production business is conducted through
      Rave, a company founded in 1986 by John Loeffler, the President of the
      Company. Rave creates original scores and advertising themes for
      television, radio, and film. This business involves creating original
      music, hiring musicians, recording music in its in-house studios and
      submitting final, ready to use, compositions.

      The Company typically works with advertising agencies to help create the
      soundtracks for commercials. Once the Company has been solicited for its
      services it reviews the information provided by its client and produces a
      rough version of the proposed production ("demo"). The fees for producing
      a "demo" range from $750 to $2,000. The experience of the Company is that
      it is hired to produce finished soundtracks based on the demo less than
      15% of the time.

      The Company utilizes the services of musicians, singers and engineers who
      are independent contractors to work with the composer to produce the final
      soundtrack in the Company's recording studios. The fee for a final
      soundtrack ranges from $5,000 to $15,000. Creative/arranging fees and the
      fees of the musicians, singers, engineers and studio expenses are paid by
      the client. The Company retains its intellectual property rights in its
      musical compositions. Royalty and residual distributions are paid by
      Broadcast Music, Inc. ("BMI") or ASCAP to the Company, the composer and
      the performers for the various uses of the actual compositions. These
      residual fees can exceed the creative fees.

      The Company has six recording studios at its New York headquarters. The
      Company currently owns the equipment contained in one 24 track analog
      recording studio and one digital mini recording studio. The Company's four
      other recording studios contain digital mini recording equipment owned by
      independent contractors who work for the Company. The Company has an oral
      understanding with such independent contractors for the free use of this
      equipment when it is not in use.

      The Company believes that its commercial music business has begun to
      derive benefits from the availability of resources of the Company's other
      businesses. Through its relationships with various music artists, the
      music artist management business has provided the commercial music
      business with either well-known artists or artists whose style or sound
      would be ideal for a particular commercial soundtrack. There can be no
      assurance that such efficiencies will continue to be achieved.

      Video Production

      The Company's music video and television special production business is
      conducted through Picture Vision, a company founded in 1984 by Jon Small,
      an Executive Vice President of the Company. The Company produces music
      videos, used to promote music artists, as well as music specials and
      programs for television networks and other video broadcasters. In
      connection with this business, the Company, utilizing both in-house
      capabilities and independent contractors, directs, produces, story-writes,
      art directs, scouts locations, produces special effects, edits, contracts,
      and manages the production.


                                      -2-
<PAGE>

      Once the Company is solicited by a music company and asked to produce a
      music video, it will receive a copy of the recording and develop a concept
      for the video, which is referred to as the "treatment" or the "script". If
      the concept is approved, the Company will submit a budget proposal to its
      client. If the budget is approved, the production process is commenced.
      The Company has a very limited time from concept to budget approval and,
      therefore, must be very accurate in its budgeting. The Company gets paid
      the lump sum budget amount and retains as profit all amounts not used for
      production costs and expenses. The profit for any given job will increase
      if it is directed and produced by one of the Company's in-house directors
      or producers. This is not always possible as a client may wish to use
      their own director or producer or the Company may be producing more jobs
      than its in-house personnel can accommodate. The Company does not retain
      any of the intellectual property rights in its videos.

      Once production begins, the Company hires the crew, which includes the
      actors, the lighting designer, the art director, the wardrobe person and
      the hair and make-up artist. The Company also finds the locations for the
      videos, rents the appropriate equipment for the production, builds the
      required sets, obtains insurance, arranges for meals and produces a
      shooting schedule. The video is typically shot in one to five days and a
      rough copy is then sent to the appropriate individuals for review. If any
      editorial changes are requested, such changes are made and then the final
      high quality video is delivered. This entire process typically takes
      between one and three weeks.

      The Company also produces music video television specials, and has also
      produced a limited number of television commercials, the production of
      which is similar in many ways to music video production.

      The Company believes that its video production business has begun to
      derive benefits from the Company's other businesses. Producing television
      commercials involves similar resources and skills to producing music
      videos. Through its relationships with various people in the advertising
      industry, the commercial music business can create opportunities in
      commercials for the video production component of the Company. There can
      be no assurance that such efficiencies will continue to be achieved.

      Music Artist Management

      The Company's music artist management services are provided by All Access,
      a company founded in 1994 by Brian Doyle and Richard Flynn, each an
      Executive Vice President of the Company. In the music industry, artist
      management means working with an artist in every facet of his or her
      career. For developing artists, the Company provides assistance in the
      following ways: building a support team for the artists (including an
      attorney, an accountant/business manager and booking agent); securing
      appropriate recording and publishing contracts; promoting sales of
      records; and developing touring opportunities. For established artists,
      the Company provides strategic planning to help maintain and advance the
      artists' careers in areas including touring, recording and record sales;
      publishing and ancillary uses of the artists music (such as motion picture
      sound tracks). The Company specializes in developing and implementing
      strategic plans for its artists that include personalized marketing and
      promotion strategies with continuous monitoring and follow through to
      hopefully ensure the success of each phase of the plan. Additionally, the
      Company acts as a liaison between its clients and all of their other
      advisors and also offers a full range of administrative support with
      respect to every aspect of its clients careers.


                                      -3-
<PAGE>

      The Company has a variety of sources for new artists. The Company receives
      numerous referrals from within the industry due to its reputation in the
      music artist management business. Recorded music companies prefer to work
      with "known entities" and will recommend management companies to newly
      acquired artists who are unrepresented. Music industry attorneys, who
      often work with unsigned artists in the expectation that they may
      eventually get signed and have a career, are also a source of referrals.
      Likewise business managers, accountants, producers and occasionally
      publishing companies serve as sources of referrals. In addition, the
      Company's representatives spend a good deal of time in small clubs and
      local music venues listening to new music and following up industry leads.
      The Company receives approximately five to ten "demo" tapes a month
      through referrals and directly from artists in search of management.
      Various members of the staff will listen to these tapes searching for the
      "better" talent. Only when the Company identifies what is believes to be
      an exciting prospect will the Company consider pursuing that artist. The
      Company generally will hear an artist four or five times in live
      performances before deciding to sign such artist. The Company's philosophy
      is to develop a relationship with artists before actually signing them.
      This relationship building process can take up to six months before it is
      mutually agreed that the artist is ready for management. The artist must
      demonstrate a willingness to listen to management, to take advice and
      direction, and to pursue his or her career diligently.

      The leading commercially successful artists typically have an exclusive
      arrangement with a management company. A few management companies have
      under contract a large number of artists (more than 10). The majority of
      management companies have a relatively small number of artists under
      contract (less than 10). The balance of the industry consists of a number
      of very small companies that principally represent a number of unsigned
      artists. To maximize client service and minimize overhead, it is the
      intention of the Company to maintain a roster of eight to ten artists
      (with three or four established artists and four or five developing
      artists). In addition, as the Company builds relationships with new
      artists, the Company may be working with up to six additional unsigned
      artists that are not generating income.

      The Company currently manages the careers of seven music artists and/or
      music groups. For providing its services, the Company is paid commissions
      typically ranging from 15% to 20% of the entertainment related gross
      earnings (less certain minimal standard industry costs) of its clients.
      The Company's policy, in accordance with industry practice, is to pay up
      to 5% of commissions received to certain non-executive employees who
      either identify, develop and/or manage such artists. With respect to music
      artist management, the Company's most well known artists are Hall and
      Oates and Daryl Hall. The Company also represents Thin Lizard Dawn,
      Screaming Headless Torsos, Coward, Luxx, and Fat. In accordance with
      industry practice, the Company typically does not enter into written
      management contracts with the artists it represents. However, the Company
      does adhere to agreed upon fee structures with its artists and in the
      future will try to enter into written agreements with certain of its
      artists to the extent practicable.

      The Company believes that its music artist management business has begun
      to derive benefits from the Company's other businesses. Existing clients
      of the Company's music artist management business may find the television
      commercial opportunities provided by the Company's commercial music
      division to be attractive. Additionally, with music videos becoming such
      an important promotional tool for artists, being able to provide music
      video production services gives the music artist management business an
      advantage in soliciting potential clients. There can be no assurance that
      such efficiencies will continue to be achieved.


                                      -4-
<PAGE>

Independent Record Label

      General

      In February 1997, the Company incorporated its record label Push to
      operate in the recorded music industry as a contemporary label featuring
      alternative and adult contemporary artists. Push is under the direction of
      Brian Doyle and Richard Flynn and will, to the extent practicable, utilize
      the in-house recording studios and video production services of the
      Company. Until it can support a higher level of overhead, Push will, to
      the extent practicable, use the existing resources of the Company,
      particularly those employed in its artist management services business.

      Currently Push has entered into agreements with Daryl Hall and John Oates,
      who have recorded "Marigold Sky", which is scheduled to be released in
      late September 1997, and Luxx, who have recorded their first album titled
      "Luxx" which is schedule to be released in the third quarter of fiscal
      1998. Push has entered into a North American manufacturing and 
      distribution agreement with BMG Music d/b/a BMG Entertainment ("BMG").

      Production

      Average music production costs for the Company's releases have been and
      are expected to continue to be below what the Company believes to be the
      industry average. The Company believes that the savings result from the
      willingness of its artists to forgo the substantial advances and other
      benefits paid to the top recording artists by the major music companies.
      In addition, savings will result from utilizing, to the extent possible,
      its integrated facilities and services by its artists. It is also
      important to note that most independent music companies do not have the
      facilities and services which the Company currently owns and can provide.
      Consequently, the Company believes that it will experience a cost
      advantage over other small independent music companies. The Company also
      tries to keep production costs low by utilizing producers and musicians
      with whom the Company has a relationship.

      The Company's average accompanying video production costs (when
      applicable) will be budgeted below the industry average for a high quality
      video. This will be possible because, to the extent practicable, videos
      will be produced by the Company's video production division.

      As an artist gains recognition, it is common practice to allocate larger
      production budgets to their subsequent releases. The Company will follow
      this strategy on a selective basis.

      Manufacturing and Distribution

      Typical distribution for an independent recorded music company is through
      independent distributors. The major recorded music company-owned companies
      offer national distribution, consistent market visibility, accounts
      receivable and collection administration. Independent distributors offer
      similar services, but normally on a much smaller scale.

      In August 1997, Push entered into a three year agreement with BMG (a major
      recorded music company-owned branch system) to provide distribution and
      manufacturing services within the United States, its territories and
      possessions and Puerto Rico for all sound recordings derived from masters
      owned or controlled by Push.


                                      -5-
<PAGE>

      Push is presently negotiating worldwide distribution agreements in
      connection with Daryl Hall & John Oates album "Marigold Sky" and all
      future record releases if management believes that one or more of its
      albums can be sold profitably in foreign markets or that such distribution
      strategically positions the Company for future sales.

      Promotion

      The traditional and most effective means of promoting recorded music is by
      radio air play. Obtaining radio air play for a new release is an extremely
      competitive process. The trend by radio stations to focus more on
      particular music formats has made it easier for independent producers to
      target those stations most likely to air a specific recording. Independent
      radio promoters are often hired to gain air play and, in certain markets,
      they are quite effective in gaining air play for a release. Public and
      college radio stations are useful venues for lesser known artists. Music
      videos are also a vital means of promoting artists and records.

      Songs that are aired on a major radio station are chosen by the program
      director, often in conjunction with a format consultant. Once a recording
      is aired, the amount of repeat play it receives depends upon listener
      requests and feedback, as well as actual sales data. Since listener
      response and sales depend in large measure on how often a release is
      aired, building a commercial hit depends on an ongoing cycle of air play
      and sales. Nurturing this cycle requires constant marketing attention and
      careful coordination with advertising, concert schedules and other
      promotional activities. Other promotional tools include print advertising,
      retail promotions, concert tours and appearances on television talk shows.
      Additionally, getting music video airplay on MTV or VH-1 or other video
      stations or programs, or on their niche oriented programs, is also
      essential to the success of a recording music artist and their records.

      The key to finding an audience for new artists is to properly coordinate
      all these promotional activities to maximize awareness and exposure. The
      Company has and will continue to, where possible, use its in-house
      expertise to direct or assist with the promotional activities with respect
      to its artists. By coordinating or providing assistance with these
      activities, to the extent practicable, in-house costs will be further
      kept under control.

      Relationship with Artists

      The Company's plan is to sign and develop new or emerging music artists
      and, to the extent practicable, sign established artists. The Company will
      continue to recruit new and emerging artists and to enter into exclusive,
      long-term recording contracts (expected to cover an initial album, with
      options to record three to five additional albums, at the Company's
      discretion). The Company will concentrate its resources on a small number
      of artists, developing a tailored marketing and promotion plan for each.
      There can be no assurance that the Company will be able to attract new and
      emerging music talent or established artists, or, if the Company is able
      to attract such talent, that the Company will be able to develop that
      talent successfully or in such manner so as to produce significant sales.


                                      -6-
<PAGE>

      If the Company develops commercially successful music artists, there can
      be no assurance that the Company will be able to maintain its
      relationships with such artists even if it has entered into exclusive
      recording contracts with them. Furthermore, performing artists
      occasionally request releases from their exclusive recording agreements.
      Among the reasons that may cause an artist to engage in so-called
      "label jumping" are expectations of greater income and advances or
      promotional support by a competing label. There can be no assurance that
      any given artist developed by the Company will not determine to request
      a release from his or her agreement with the Company. Because of the
      highly personal and creative nature of the artist's contractual
      obligations to the Company, it is not feasible to force an unwilling
      artist to perform the terms of his or her contract with the Company. If
      the Company does release a "label jumping" artist from his or her
      contract, it may be able to obtain an "override royalty" as consideration
      for the release. Override royalties are customarily paid by the released
      artist's new recording company and are based on a percentage of the
      suggested retail selling price or wholesale price (depending on the
      particular label in question), subject to certain deductions. Such
      royalties are payable with respect to a negotiated number of the artist's
      albums after release from his or her existing contract.

      The Company will seek to contract with its artists on an exclusive basis
      for the marketing of their recordings in return for a percentage royalty
      on the retail selling price of the recording. The Company will generally
      seek to obtain rights on a worldwide basis. A typical contract for an
      artist may provide for a number of albums to be delivered, with advances
      against royalties being paid upon delivery of each album, although
      advances are often made prior to recording. The Company will generally
      have an option to take each album that the artist is contracted to
      deliver, exercisable within an agreed period of time, usually a few months
      following delivery of the previous album. Normally, if an option is not
      exercised, the artist has no obligation to deliver additional albums.
      Provisions in contracts with established artists vary considerably and
      may, for example, require the Company to release a fixed number of albums
      and/or contain an option exercisable by the Company covering more than one
      album. The Company will seek to obtain rights to exploit product delivered
      by the artists for the life of the product's copyright. Under the
      contracts, advances are normally recoupable against royalties payable to
      the artist. The Company will seek to recoup a portion of certain marketing
      and tour support costs, if any, against artist royalties.

      Contracts either provide for the artists to deliver completed recordings
      or for the Company to undertake the recording with the artist. If the
      recording costs are advanced by the Company, they are added to the
      advances paid to the artist and recouped against royalties payable to the
      artist. The Company's staff is involved in selecting producers, recording
      studios, any additional musicians needed and songs to be recorded, as well
      as supervising the output of recording sessions, although for experienced
      artists, such involvement may be less. The Company will produce music
      videos of single songs for promotional purposes (clips) and longer music
      programs (for example, concert programs). Income from music videos is
      derived from the sale of video cassettes and from the publishing of music
      included in such videos.

      Acquisition Program

      The music and entertainment industry includes six major companies in the
      area of recorded music and thousands of smaller independent music entities
      in the area of recorded music and the broader music business. The Company
      believes that many owners of independent music entities do not enjoy
      certain benefits which the Company intends to offer. These benefits
      include the ability to provide a broader range of services to their
      clients and greater liquidity and potential for capital enhancement
      through ownership of a publicly trade entity. Other benefits that the
      Company believes it can provide acquired entities are access to capital,
      management expertise and a broad range of industry contacts.


                                      -7-
<PAGE>

      The Company's acquisition program will concentrate on small complementary
      music driven businesses in the music and entertainment industry. The
      Company believes that it can implement its acquisition strategy based on
      the following:

            Size. Initially, the Company will focus on transactions of up to $5
            million in cost. The Company believes that there are acquisition
            opportunities in this price range and that targets of this size
            often get overlooked because smaller music companies generally do
            not have sufficient capital or the requisite expertise to engage in
            such transactions while larger companies typically focus on larger
            transactions. If the assets of the Company increase, it may review
            acquisitions in excess of $5 million. However, the significant
            portion of its acquisitions are still expected to be $5 million or
            below.

            Type. The Company will focus its acquisition activities on small
            complementary music driven businesses such as independent record
            labels and small independent entities in the music and entertainment
            industry which operate in, among other areas, the areas of video
            production, commercial music, music artist management, marketing,
            publishing, and music oriented television production. The Company
            will focus on what the Company believes are established companies
            with a financial performance history.

            Efficiency. Targeting acquisitions in areas as to which the
            Company's existing management has expertise will allow the Company
            to attempt to achieve efficiencies by hopefully permitting the
            Company to merge much of the overhead of acquired companies into the
            Company's existing infrastructure, thereby hopefully reducing costs.

            Momentum. The Company will focus on acquiring companies which are
            complementary to the Company's current businesses and which can
            hopefully be integrated into the Company's current operations. This
            is intended to enable the Company to strengthen its current
            businesses while expanding into new areas of the music industry. If
            the Company continues to strengthen its core businesses and expand
            into other aspects of the music industry, the Company believes it
            will become easier for the Company to acquire the pieces which it
            needs to hopefully develop and grow according to its strategy.

            Consideration. The Company intends to pursue its acquisition program
            by acquiring companies with common stock, cash, debt instruments or
            a combination thereof.

            Complexity. Due to the Complexity involved in acquiring and
            integrating additional entities and their assets, many smaller
            entities with whom the Company competes do not have the expertise or
            desire to compete for such acquisitions.

      There can be no assurance that the acquisition program will be successful,
      that companies acquired by the Company will be profitable or that the
      Company will grow into a profitable mid-sized independent music and
      entertainment company.

Copyrights

      The Company's record business, like that of other companies involved in
      recorded music, will primarily rest on ownership or control and
      exploitation of musical works and sound recordings. The Company's music
      products, including its commercial music, are and will be protected under
      applicable domestic and international copyright laws.


                                      -8-
<PAGE>

      Although circumstances vary from case to case, rights and royalties
      relating to a particular recording typically operate as follows: When a
      recording is made, copyright in that recording vests either in the
      recording artist (and is licensed to the recording company) or in the
      record company itself, depending on the terms of the agreement between
      them. Similarly, when a musical composition is written, copyright in the
      composition vest either in the writer (and is licensed to a music
      publishing company) or in a publishing company. A public performance of a
      record will result in money being paid to the writer and publisher. The
      rights to reproduce songs on soundcarriers are obtained by record
      companies or publishers from the writer. The manufacture and sale of a
      soundcarrier results in mechanical royalties being payable by the record
      company to the performer at industry agreed or statutory rates for the use
      of the composition and by the record company to the recording artists for
      the use of the recording. The Company operates in an industry in which
      revenues are adversely affected by the unauthorized reproduction of
      recordings for commercial sale, commonly referred to as "piracy", and by
      home taping for personal use.

      Potential publishing revenues may be derived from the Company's ownership
      interest in musical compositions, written in whole or in part by the
      Company's artists. Management anticipates securing a partial ownership
      position in the copyright to any compositions written by its recording
      artists, where such rights are available and have not been previously sold
      or assigned. Generally, revenues from publishing are generated in the form
      of: (1) mechanical royalties, paid by the record company to the publisher
      for the mechanical duplication of the copyright to a particular
      composition (as distinct from the copying of the artist's performance of
      that composition); (2) performance royalties collected and paid by
      performing rights entities such as ASCAP and BMI for the actual public
      performance of the composition as represented by radio airplay, Musak, or
      as a theme or single broadcast in synchronization with a visual image via
      television; (3) sub-publishing revenues derived from copyright earnings in
      foreign territories, and publishers in those territories acting as
      designated collection agents for the Company; and (4) licensing fees
      derived from printed sheet music, uses in synchronization with images as a
      video or film scores, computer games and other software applications, and
      any other use involving the composition.

      The Company may be engaged, with respect to its recorded music business,
      in licensing activities involving both the acquisition of rights to
      certain master recordings and compositions for its own projects and the
      granting of rights to third parties in the master recordings and
      compositions it owns. There can be no assurance that the Company will be
      able to obtain licenses from third parties on terms satisfactory to the
      Company or at all.

Competition

      The Company currently competes with numerous other businesses and
      individuals who produce original music scores and advertising themes for
      television, radio and film, produce music videos and specials for
      television and provide music artist management. Currently, the production
      of original scores and advertising themes for television, radio and film,
      the production of music videos and video specials for television, and
      music artist management are carried out by individuals or small privately
      held niche companies. Generally, each such individual or small company
      engages in only one of these businesses. Many of these businesses and
      individuals including Crushing Enterprises, Elias Associates and JSM
      Music, Inc., with respect to commercial music, The End, Propaganda and
      DNA, with respect to video production and Gold Mountain Entertainment,
      Left Bank Management and H.K. Management, with respect to artist
      management, have greater financial resources, and in many instances longer
      operating histories, than the Company.


                                      -9-
<PAGE>

      Push, the Company's record label, faces intense competition for
      discretionary consumer spending from numerous other record companies and
      other forms of entertainment offered by film companies, video companies
      and others. Push competes directly with other recorded music companies,
      including the six major recorded music companies, which distribute
      contemporary music, as well as with other record companies for signing
      artists and acquiring music catalogs. Many of these competitors have
      significantly longer operating histories, greater financial resources and
      larger music catalogs than the Company. The Company's ability to compete
      successfully in the recorded music business will be largely dependent upon
      its ability to sign and retain successful artists and to introduce music
      products which are accepted by consumers.

      The Company does not believe that there are currently any independent
      music companies which offer the range of services which are provided by
      the Company.

Organization

      The Company was incorporated in the State of Delaware on July 18, 1996 and
      is located at 53 West 23rd Street, New York, New York, 10010 and its
      telephone number is 212-957-4340.

Employees/Independent Contractors

      As of September 15, 1997, the Company had 25 employees, 21 of whom were
      located at the Company's New York offices and 4 were located in Nashville,
      Tennessee. None of the Company's employees is represented by a labor
      union. The Company has not experienced any work stoppage and considers
      relations with its employees to be good.

      As is customary in the music business, the Company also utilizes the
      services of artists, performers, composers, producers, engineers, roadies,
      booking agents and others who are independent contractors. These
      independent contractors hire out their services on an as needed basis and
      receive a set fee for the services. The services performed by these
      independent contractors are not needed on a full time basis. As a result,
      services of independent contractors are less expensive than having full
      time employees perform these services.

ITEM 2.                    DESCRIPTION OF PROPERTY

The Company leased office space at three locations as of June 30, 1997. Its
headquarters and commercial music recording studios were located at 420 West
45th Street in New York City where it subleased approximately 9,000 square feet,
pursuant to a sublease that expired in May 1997. The space is currently on a
month to month lease. The Company's music video production business leases 2,050
square feet of office space at 209 10th Avenue South in Nashville, Tennessee
which lease expires in August 2000. The Company's artist management business and
the record label leases space at 425 Madison Avenue in New York City, which
expired in February 1997. This property is currently on a month to month lease.
In July, the Company entered into a new ten year lease agreement commencing on
August 1, 1997 at 53 West 23rd Street in New York City. The new space which will
consolidate its New York operations will contain executive offices and recording
studios. The Company is temporarily located on the 7th floor at 53 West 23rd
Street, pursuant to a month to month lease and will move to the 11th floor when
construction is completed with the minimum monthly rental approximating $22,000.
The ultimate costs of the construction are currently estimated to approximate
$900,000. All the properties leased by the Company are, in management's opinion,
in good condition.


                                      -10-
<PAGE>

ITEM 3.                        LEGAL PROCEEDINGS

None

ITEM 4.               MATTERS SUBMITTED TO SHAREHOLDER VOTE

None


                                      -11-
<PAGE>

PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

The Company's common stock commenced trading on the Nasdaq SmallCap Market and
the Boston Stock Exchange on January 22, 1997. The high and low bid prices of
the Company's common stock for each quarter since its initial public offering
are as follows:

Nasdaq SmallCap Market

            Start          End
            Date           Date             High             Low
            ----           ----             ----             ---
            1/22/97        3/31/97          $7               $5-3/8
            4/01/97        6/30/97          $5-7/8           $3-1/2

Boston Stock Exchange

            Start          End
            Date           Date             High             Low
            ----           ----             ----             ---
            1/22/97        3/31/97          $7               $5
            4/01/97        6/30/97          $6               $3

The approximate number of holders of record of the common stock was 40 as of
September 15, 1997. The Company believes that there are in excess of 300
beneficial owners of common stock whose shares are held in street name.

The Company has never paid a dividend on its common stock. The Company
anticipates that future earnings, if any, will be retained for use in its
business or for other corporate purposes, and it is not anticipated that cash
dividends in respect of the common stock will be paid.

Recent Sales of Unregistered Securities

During the period covered by this Report, except as previously included in a
quarterly report on Form 10-QSB for the quarter ended December 31, 1996, the
Company did not sell any securities without registration under the Securities
Act of 1933, as amended.


                                      -12-
<PAGE>

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

Forward Looking Statements

Except for the historical information contained herein, this annual report on
Form 10-KSB may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Investors are cautioned that forward-looking
statements are inherently uncertain. Actual performance and results of
operations may differ materially from those projected or suggested in the
forward-looking statements due to certain risks and uncertainties, including,
without limitation, risks associated with the Company being a recently
consolidated entity, dependence on senior management, risks inherent in the
recorded music industry such as the possibility of losses by the record label
and popularity of recording artists, the Company's ability to contract with
recording artists, the Company's ability to manage growth and the success of the
Company's acquisition program. The forward-looking statements contained herein
represent the Company's judgment as of the date of this release hereof, and the
Company cautions readers not to place undue reliance on such statements.

General

The Company currently derives most of its revenues from: the production of
original music scores and advertising themes for television, radio, and film;
the production of music videos used to promote music artists and music specials
and programs for television networks and other video broadcasters; and the
management of music artists.

The Company believes the results of operations of its operating subsidiaries
will be subject to seasonal variations, which variations may initially offset
each other. However, once the Company enters into the recorded music business,
the Company's results of operations from period to period may be materially
affected by the timing of new record releases and, if such releases are delayed
beyond the peak holiday season, the Company's operating results could be
materially adversely affected. Additionally, due to the success of particular
artists, artists touring schedules and the timing of music television specials,
it is possible that the Company could also experience material fluctuations in
revenue from year to year.

During the fiscal year 1998, the Company expects to expand its four wholly-owned
subsidiaries (Rave, Picture Vision, All Access, and Push), and implement its
acquisition program which will initially target acquisitions and joint venture
arrangements with small complementary businesses in the music and entertainment
industry of up to $5,000,000. The Company's failure to expand its business in an
efficient manner could have a material adverse effect upon the Company's
business, operating results and financial condition.

Results of Operations

Commercial music production revenues increased to $894,362 for the fiscal year
ended June 30, 1997 from $820,835 for the fiscal year ended June 30, 1996, an
increase of $73,527 or 9.0% while commercial music production cost of sales
increased to $365,434 for the fiscal year ended June 30, 1997 from $343,716 for
the fiscal year ended June 30, 1996, an increase of $21,718 or 6.3%. The
increase in revenues was primarily due to an increase of residual and royalty
income.


                                      -13-
<PAGE>

Gross profit as a percentage of commercial music production revenues increased
to 59.1% for the fiscal year ended June 30, 1997 from 58.1% for the fiscal year
ended June 30, 1996. The increase was attributable to an increase in residual
and royalty income which has no cost of sales associated with it. The level of
residual and royalty income varies from year to year based upon the number of
compositions airing at any one time, the medium on which such compositions are
aired and the frequency of such airings.

Video production revenues increased to $3,839,472 for the fiscal year ended June
30, 1997 from $2,090,388 for the fiscal year ended June 30, 1996, an increase of
$1,749,084 or 83.7%. The increase in production revenues is due to the
completion of the production of a music special, which generated approximately
$1,870,000 of revenues.

Cost of sales for video productions increased to $2,976,949 for the fiscal year
ended June 30, 1997 from $1,596,091 for the fiscal year ended June 30, 1996, an
increase of $1,380,858 or 86.5%. The increase was attributable to the production
of the music special.

Gross profit as a percentage of video production revenues decreased to 22.5% for
the fiscal year ended June 30, 1997 from 23.7% for the fiscal year ended June
30, 1996. The decrease was primarily attributable to the Company earning a lower
gross profit on the music special described above.

Music artist management revenues increased to $834,452 for the fiscal year ended
June 30, 1997 from $726,969 for the fiscal year ended June 30, 1996, an increase
of $107,483 or 14.8%. The increase is primarily attributable to the signing of
two record deals for two of its artists and increased touring by Hall and Oates.

Cost of sales for the record label, which was $104,622 for the year ended June
30, 1997 resulted from the costs associated with the production of Luxx's
record. Push commenced operations in February 1997 and, accordingly, there was
no cost of sales for the fiscal year ended June 30, 1996.

The Company's marketing, selling, general and administrative expenses increased
to $3,199,901 for the fiscal year ended June 30, 1997 from $1,610,097 for the
fiscal year ended June 30, 1996, an increase of $1,589,804 or 98.7%. The
increase is primarily attributable to the start-up of Push, building an
infrastructure to operate and manage a public company, and executive
compensation.

Interest income, which was $94,100 for the fiscal year ended June 30, 1997,
resulted from interest earned on the proceeds of the Company's initial public
offering. These proceeds were invested in a highly liquid investment fund. The
Company did not have interest income for the year ended June 30, 1996.

The Company's income (loss) before taxes decreased to a loss of $984,520 for the
year ended June 30, 1997 from a profit of $88,288 for the year ended June 30,
1996. The loss for the year ended June 30, 1997 was primarily due to increases
in marketing, selling, general and administrative expenses.

Liquidity and Capital Resources

During the year ended June 30, 1997, the Company funded its operating loss and
expansion of activities primarily through the issuance of equity securities.

In October 1996, the Company received approximately $210,000 after deducting
fees and expenses from the private sale of 78,333 shares of common stock. The
funds were used for working capital.


                                      -14-
<PAGE>

In December 1996, one of the Company's subsidiaries borrowed $100,000 from a
bank. The loan bore interest at 1.5% above the bank's prime rate, was personally
guaranteed by two officers of the Company and was collateralized by all of the
assets of such subsidiary and a cross corporate guarantee by the Company. The
loan was repaid in June 1997.

In January 1997, the Company completed its initial public offering. Through the
offering, the Company sold 1,000,000 units consisting of 1,000,000 shares of
common stock and 1,000,000 warrants. For each two warrants owned, the holder was
entitled to purchase one share of common stock through January 21, 2001 at
$7.20. In February 1997, an additional 146,000 units were sold upon the exercise
of the underwriter's over allotment option. The aggregate net proceeds were
approximately $5,330,000, after underwriter's commissions and offering expenses
of approximately $1,546,000. Out of the net proceeds, $300,000 was allocated for
expansion of the Company's core businesses, the three original subsidiaries of
the Company. An additional $600,000 was used for the establishment and
development of the Company's recorded music business, Push. The remaining funds
from the offering are to be used to expand the Company's original subsidiaries,
development of the recorded music business, construction and relocation of the
Company's new offices and recording studios, and the Company's acquisition
program.

During the fiscal year ended June 30, 1997, the Company used cash for operating
activities of approximately $443,000 compared to cash generated from operations
for the fiscal year ended June 30, 1996 of approximately $64,000. Cash used for
the fiscal year June 30, 1997 resulted from the Company's net loss of
approximately $993,000, increase of prepaid production costs of approximately
$218,000, increase of prepaid record master costs of approximately $350,000
offset by an increase of deferred revenues of approximately $451,000, increase
of accrued payroll and related expenses of approximately $375,000 and an
increase of accrued expenses and other current liabilities of approximately
$230,000.

The Company used cash for investing activities of approximately $112,000 and
$25,000 for the fiscal years ended June 30, 1997 and 1996, respectively. The
cash was primarily used for the purchase of property and equipment.

During the fiscal year ended June 30, 1997, the Company generated cash from
financing activities of approximately $5,559,000 compared to cash used from
financing activities for the fiscal year ended June 30, 1996 of approximately
$62,000, which was primarily used for the repayment of officer loans. During the
fiscal year ended June 30, 1997, the Company received net proceeds from the
sales of common stock of approximately $5,559,000.

During the next year, the Company will be investing $100,000 in expanding its
core businesses for each of the Company's original subsidiaries for a total of
$300,000. In addition, the Company has entered into a new lease effective August
1, 1997 to consolidate its New York operations. Such relocation will include the
construction of recording studios. The ultimate costs of this relocation and
construction are currently estimated to approximate $900,000.

The Company believes that cash generated from the proceeds of the initial public
offering and cash from operations will be sufficient to meet the Company's
operating capital requirements for at least the next 12 months. There can be no
assurance, however, that the Company will not require additional financing
before the end of such 12 month period or thereafter. A significant factor which
will affect the Company's need for additional financing is the Company's
acquisition program and the continued support of Push. If the Company were
required to obtain additional capital in the future, there can be no assurance
that sources of capital would be available on terms acceptable to the Company,
if at all.


                                      -15-
<PAGE>

Inflation

There was no significant impact on the Company's operations as a result of
inflation during the current year or prior year.

Effect of Recent Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share".
SFAS No. 128 requires dual presentation of basic and diluted earnings per share
on the face of the statement of operations for all periods presented. Basic
earnings per share excludes dilution and is computed by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997, and when adopted, it
will require restatement of prior years' earnings per share. Management does not
believe SFAS No. 128 will have a material impact upon historical consolidated
net loss per share of common stock as reported.

ITEM 7.                       FINANCIAL STATEMENTS

See index to the Company's financial statements attached hereto.

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

None

PART III

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

The Company's directors and executive officers are as follows:

Name                   Age                Position with the Company
----                   ---                -------------------------
John Loeffler          46       President, Chief Executive Officer and Chairman
                                 of the Board
Jon Small              50       Executive Vice President and Director
Brian Doyle            41       Executive Vice President and Director
Richard Flynn          40       Executive Vice President, Treasurer, Secretary
                                 and Director
Robert Klein           44       Vice President Corporate Relations and Director
Paul Thomas Cohen      45       Director
Thomas J. Edelman      46       Director


                                      -16-
<PAGE>

Mr. John Loeffler has been President, Chief Executive Officer and Chairman of
the Board of the Company since its inception in 1996. From 1986 to September
1996, Mr. Loeffler was the Chief Executive Officer and sole stockholder of Rave.
From 1986 to 1995, Mr. Loeffler was the President of Rave. Rave's roster of
staff composers and producers regularly produced four to five commercial
soundtracks per week. Rave's clients include: Downy Fabric Softner, Hertz and
Coca Cola. Mr. Loeffler was awarded by ASCAP as one of television's "Most
Performed" composers in 1988 and 1989 for his title themes of the television
shows "Kate & Allie", "Another World", and NBC's "Friday Nite Videos". He also
composed the theme for New York City's Channel 4 NBC Evening News, and recently
completed the themes for the new syndicated TV show, "WMAC Masters", ESPN's
"Survival of the Fittest", Robin Leach's "Home Videos of the Stars", the New
York Marathon and ESPN's "US Open", as well as two NBC Summer Olympic '96
Specials. Prior to 1986, Mr. Loeffler was a composer and producer at Sherman and
Cahan, a commercial music production company in New York City. Since 1979, he
has also been a consulting music director to Grey Advertising. Mr. Loeffler
graduated from Williams College, cum laude, in 1973.

Mr. Jon Small has been an Executive Vice President and a director of the Company
since its inception in 1996. Since September 1996, Mr. Small has been the Chief
Executive Officer of Picture Vision. From 1984 to September 1996, Mr. Small had
been President and the sole stockholder of Picture Vision. Picture Vision has
produced, executively-produced and or directed over 300 video musical
productions of such performers as Garth Brooks, Whitney Houston, Madonna, Anita
Baker, Ray Charles, Van Morrison, Rod Stewart, Reba McEntire, Billy Joel and
Sting. Previously, as a musician/performer, Mr. Small toured, or recorded with
The Kinks, The Doobie Brothers, and Billy Joel. While at Picture Vision, Mr.
Small produced and or directed specials for Disney and HBO and has received
several Grammy nominations. While at Picture Vision, Mr. Small also produced and
directed specials and long form programs including NBC's 1994 Thanksgiving
Special "Reba! Live in concert", the Disney special Billy Joel's "Live from Long
Island", Anita Baker's "One Night of Rapture", Hall & Oates' "Live from the
Apollo Theater", Donald Fagen's "New York Rock and Soul Revue", Garth Brooks'
"Live from Central Park", and several shows for the ABC Network's series "Live
in Concert". While at Picture Vision, Mr. Small has won ACE and Monitor awards
for Best Television Music Specials and has received two Grammy nominations for
his work with Billy Joel. He received Country Music awards for Best Video of the
Year, awards for Cable Excellence (ACE), and Monitor Awards. He has been awarded
gold Medals by the International Film & TV Festival. In addition, the Academy of
Country Music set a precedent by choosing two of Mr. Small's videos out of the
final five in the "Videos of the Year" category.

Mr. Brian Doyle has been an Executive Vice President and a director of the
Company since its inception in 1996. Since 1996, Mr. Doyle has been the Chief
Executive Officer of All Access and, since February 1997, has been the Chief
Executive Officer of Push Records. He founded All Access in 1994 and has been
the President and co-owner of All Access since its inception. He currently
manages Daryl Hall and John Oates, and others. From 1991 to 1994, Mr. Doyle
served as CEO/President of Horizon Entertainment and Management Group, Inc.
("Horizon"). Horizon's clients included Mariah Carey, John Mellencamp, and Daryl
Hall and John Oates. His responsibilities included managing the overall
achievement of the Company's strategic objectives, development and control of
the client roster, coordinating worldwide marketing efforts for clients, serving
as artists liaison to MTV, VH-1 and other media outlets, and interfacing on
behalf of clients with record companies and professional services consultants.
In addition, he provided specialized personal management services for clients
including career planning and development, music development, and song
acquisition. Mr. Doyle has also produced HBO and Lifetime television specials.


                                      -17-
<PAGE>

Mr. Richard Flynn has been an Executive Vice President and Secretary of the
Company since its inception, has been a director since October 9, 1996 and has
been Treasurer since December 1996. Since September 1996, Mr. Flynn has been
Vice President and General Manager of All Access. From September 1994 to
September 1996, Mr. Flynn has been the Managing co-owner of All Access. From
March 1990 until September 1994. Mr. Flynn served as General Counsel to Horizon.
He provided legal services to Horizon and its clients Mariah Carey, John
Mellencamp, Daryl Hall & John Oates, and other artists. In addition, Mr. Flynn
assisted in all aspects of artist management for Horizon's clients. Since 1983,
Mr. Flynn has been a practicing attorney in New York State specializing in
entertainment, corporate and public sector law. Since 1989, he has provided
legal representation, financial management, and consulting services to artists
and entertainers, including negotiating recording, publishing, production,.
performance and endorsement contracts.

Mr. Robert Klein was an Executive Vice President and Treasurer of the Company
from inception through December 1996, has been a director of the Company since
its inception and has been Vice President Corporate Relations since December
1996. From 1992 to 1996, Mr. Klein was an independent financial consultant.
Prior to that time, from 1990 to 1992, Mr. Klein was a Senior Vice President of
Corporate Finance at Laidlaw Holdings, Inc. From 1986 to 1990, Mr. Klein worked
at D.H. Blair & Company, Inc. Prior to 1986, Mr. Klein worked for various
companies including Shearson Lehman Brothers.

Mr. Paul Thomas Cohen has been a director of the Company since October 9, 1996.
Since 1987, Mr. Cohen has been an investment banker and a consultant to the
media and entertainment industries. As an advisor to such clients as Time-Life,
Time Inc., The New York Times, NBC, and Rolling Stone Magazine, he has been
involved in licensing, alliances and other strategic initiatives involving new
media activities in both the on-line services and CD-ROM arenas. From 1984 to
1987, Mr. Cohen served as Co-Executive Officer of Herzfeld & Stern, a mid-size
brokerage firm. Mr. Cohen graduated from Williams College in 1974 and received
an MBA from Columbia University in 1976.

Mr. Thomas J. Edelman has been a director of the Company since October 1996. Mr.
Edelman has served as Chairman and Chief Executive Officer of Patina Oil & Gas
Corporation since its formation in 1996. He co-founded Snyder Oil Corporation
and was its President and a director from 1981 through February 1997. Prior to
1981, he was a Vice President of The First Boston Corporation. From 1975 through
1980, Mr. Edelman was with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman
received his Bachelor of Arts Degree from Princeton University and his Masters
Degree in Finance from Harvard University's Graduate School of Business
Administration. Mr. Edelman also serves as Chairman of Lomak Petroleum, Inc.,
and is a Director of Petroleum Heat & Power Co., Star Gas Corporation and
Weatherford Enterra, Inc. Mr. Edelman is also a Trustee of The Hotchkiss School.

All directors of the Company are elected by the stockholders, or in the case of
a vacancy, by the directors then in office, to hold office until the next annual
meeting of stockholders and until their successors are elected and qualified or
until their earlier resignation or removal.

All officers of the Company serve at the discretion of the Board of Directors.

The Company also employs the following key employee:

Mr. John Siegler, President of Rave. Since 1995, Mr. Siegler has been President
of Rave. From 1989 to 1995, Mr. Siegler was a senior producer/composer for Rave.
Mr. Siegler has been a recipient of a number of gold and platinum record awards.
Mr. Siegler is a producer, composer, and performer who has worked, independent
of Rave, with: Bette Midler, Mick Jagger, Jeff Beck, Stevie Nicks, Roger Daltry,
Daryl Hall and John Oates, Meatloaf, Edgar Winter, Richie Havens, Herbie Mann,
Cher, Todd Rundgren, and others. Mr. Siegler has recorded over 100 albums as a
featured musician and musical collaborator.


                                      -18-
<PAGE>

Compliance with Section 16(a) of the Exchange Act

To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and information furnished by the reporting persons,
John Loeffler failed to timely file a Form 4.

ITEM 10.                     EXECUTIVE COMPENSATION

      The following summary compensation table sets forth the aggregate
      compensation paid or accrued by the Company for the fiscal years ended
      June 30, 1997, 1996 and 1995 to John Loeffler, the Company's Chief
      Executive Officer and to Jon Small, Brian Doyle and Richard Flynn, each an
      Executive Vice President of the Company (collectively the "Named Executive
      Officers"). No other executive officer received annual compensation in
      excess of $100,000 for the fiscal years ended June 30, 1997, 1996 and
      1995:

      Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                 Long-term
                                                                                Compensation
                                              Annual Compensation (1)              Awards
                                       ----------------------------------------    ------
                                                                                 Securities
                                                                All Other        Underlying
Name and Principal Position   Year     Salary      Bonus       Compensation (2)   Options
---------------------------   ----     ------      -----       ----------------   -------
<S>                           <C>     <C>         <C>            <C>                <C>  
John Loeffler                 1997    $150,000    $191,000       $ 34,000           5,000
 Chief Executive Officer      1996     218,000                     71,000            --
                              1995     170,000                     77,000
Jon Small                     1997    $150,000    $189,000       $ 36,000           5,000
 Executive Vice President     1996      88,000                     89,000            --
                              1995     184,000                    172,000         
Brian Doyle                   1997    $150,000    $162,500       $  7,000            --
 Executive Vice President     1996     101,000                     48,000 
                              1995        --                       35,000 
Richard Flynn                 1997    $150,000    $162,500       $   --              --
 Executive Vice President     1996     101,000                     48,000
                              1995        --                       35,000
</TABLE>

(1)   The Company was incorporated in July 1996. Compensation for the fiscal
      years ended June 30, 1996 and 1995 represent amounts paid by Rave, Picture
      Vision and All Access. All Access commenced operations in September 1995.
      Compensation for the fiscal year ended June 30, 1997 represent amounts
      paid by Rave, Picture Vision, All Access and Push.

(2)   Includes amounts paid by the Company which the Company deemed to be for
      the benefit of such executive, including amounts paid for lodging,
      transportation, insurance, entertainment and other perquisites.


                                      -19-
<PAGE>

      Option Grants in Last Fiscal Year

                                    Percent of
                     Number of    Total Options
                    Securities     Granted to      Exercise
                    Underlying    Employees in        or        Expiration
         Name         Options      Fiscal Year    Base Price       Date
         ----         -------      -----------    ----------       ----
      
      J. Loeffler      5,000           50%            $6     December 19, 2001
      J. Small         5,000           50%            $6     December 19, 2001
      R. Flynn           -              -              -             -
      B. Doyle           -              -              -             -
     
      Directors' Compensation

      Directors who are not employees or officers of the Company or associated
      with the Company ("Outside Directors") receive $500 for each Board of
      Directors and committee meeting attended. In addition, all directors are
      reimbursed for certain expenses in connection with attendance at Board of
      Directors and committee meetings. Other than with respect to reimbursement
      of expenses, Directors who are employees or officers of the Company or who
      are associated with the Company do not receive compensation for service as
      a director.

      For the period January 1, 1997 through June 30, 1997, the Outside
      Directors earned $6,000 and 1,000 shares of common stock valued at $3.875.
      Thereafter, Outside Directors will be paid at the rate of $18,000 per
      fiscal year, payable quarterly with such payment to be half in cash and
      half in common stock valued on the last day of the applicable quarter.

      Outside Directors also receive non-qualified options to purchase 5,000
      shares of common stock for each year of service, payable in advance, with
      the first of such options granted to Paul Thomas Cohen and Thomas J.
      Edelman. The initial options are exercisable at the initial public
      offering price. Thereafter, the option exercise price will be the closing
      bid price of the common stock on the first trading day of each fiscal
      year, commencing July 1, 1997. Such options will be fully vested upon
      grant, and have a term of five years.

      Employment Agreements

      On October 9, 1996, the Company entered into employment agreements, as
      amended (the "Agreements"), with Messrs. Loeffler, Small, Doyle and Flynn
      (the "Executives"). Each of the Agreements are for a period of three years
      and provide for annual base salaries of $150,000. Pursuant to the
      Agreements, four bonus plans have been established primarily for the
      benefit of the Executives.


                                      -20-
<PAGE>

      Under the first bonus plan, bonuses will be granted to each Executive
      based on earnings (as defined in the Agreements) of the respective
      subsidiary or division which the Executive manages or co-manages.
      Generally, the Executives receive approximately 60% of such earnings (with
      the two Executives of All Access considered as one person for purposes of
      this calculation) up to a maximum of $375,000 of earnings for each of Rave
      and Picture Vision commencing with the year ended June 30, 1997 and
      $512,500 of earnings for All Access commencing with the year ending June
      30, 1998. The Executives of All Access received all earnings of All Access
      up to $325,000 of earnings for the year ended June 30, 1997. Each of the
      Executives will have the right to allocate any portion of the bonus
      granted to him to any of the employees of the respective subsidiary or
      division of such Executive. Under the second bonus plan, a bonus pool
      equal to 10% of the consolidated pretax earnings of the Company (after
      giving effect to all other bonuses) will be established for each fiscal
      year. Awards under this bonus pool will be granted to the Company's
      employees at the discretion of the Company's Board of Directors. The third
      bonus plan has been established for the benefit of the Executives of All
      Access and others designated by them based on cumulative profitability of
      the recorded music business based on a successful launch of the record
      label. Under this bonus plan, $250,000 will be granted in the first fiscal
      year in which cumulative net pretax profits of the record label, as
      defined in the Agreements, exceed $1,000,000. An additional bonus of
      $250,000 shall be granted in the first fiscal year in which cumulative net
      pretax profits of the record label, as defined in the Agreements, exceed
      $2,000,000. An additional bonus of $100,000 shall be granted in the first
      fiscal year in which cumulative net pretax profits of the record label, as
      defined in the Agreements, exceed $2,400,000. No bonus will be granted
      under this plan after June 30, 2001 and the maximum aggregate bonus
      granted under this plan will be $600,000. The fourth bonus plan has been
      established as an incentive for successful consummation of special
      projects pre-designated by the Compensation Committee. Such plan provides
      for a bonus, if net profits (as defined in the Agreements) from the
      special project exceed $1,000,000. Such bonus will be calculated on 15% of
      net profits realized therefrom in excess of any bonus paid to such
      Executive pursuant to the first bonus plan. After the payment of any bonus
      pursuant to the fourth bonus plan, there will be payable 15% of future
      royalty revenue derived from such special projects.


                                      -21-
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Stockholders

The following table sets forth certain information as of September 15, 1997,
with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of common stock of the Company, each director of the Company
and all officers and directors as a group. The table does not include options or
SARs that have not yet vested or are not exercisable within 60 days of the date
hereof.

                                                   Amount and
                                                    Nature of       Percent
                                                   Beneficial         of
    Name and Address of Beneficial Owner           Ownership         Class
    ------------------------------------           ----------       -------

    John Loeffler                                  348,400 (2)(6)      15.6%
      c/o Paradise Music & Entertainment, Inc.
      53 West 23rd Street
      New York, New York 10010
    Paul Thomas Cohen                               14,333 (2)(4)         *
      c/o Paradise Music & Entertainment, Inc.
      53 West 23rd Street
      New York, New York 10010
    Brian Doyle                                    145,500              6.5%
      c/o Paradise Music & Entertainment, Inc.
      53 West 23rd Street
      New York, New York 10010
    Thomas J. Edelman                               29,333 (3)(4)       1.3%
      c/o Patina Oil & Gas Corporation
      667 Madison Avenue
      New York, New York 10021
    Richard Flynn                                  145,500              6.5%
      c/o Paradise Music & Entertainment, Inc.
      53 West 23rd Street
      New York, New York 10010
    Robert Klein                                    85,000              3.8%
      c/o Paradise Music & Entertainment, Inc.
      53 West 23rd Street
      New York, New York 10010
    Jon Small                                      291,000 (2)         13.0%
      c/o Paradise Music & Entertainment, Inc.
      53 West 23rd Street
      New York, New York 10010
    All officers and directors as a group        1,059,066 (5)(6)(7)   46.8%
       (7 persons) 
    *    Denotes less than 1%


                                      -22-
<PAGE>

      (1)   All shares are beneficially owned and sole voting and investment
            power is held by the persons named, except as otherwise notes.
      (2)   Includes options to purchase 5,000 shares of common stock.
      (3)   Includes options to purchase 20,000 shares of common stock.
      (4)   Includes 1,000 shares of common stock earned by the Outside
            Directors.
      (5)   Includes options to purchase 35,000 shares of common stock.
      (6)   Includes 3,600 and 3,800 shares of common stock purchased by Mr.
            Loeffler's Pension and his wife's Keogh Plans, respectively.
      (7)   Includes 2,000 shares of common stock earned by the Outside
            Directors.

ITEM 12.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On October 9, 1996, the Company entered into the Exchange Agreement with each of
John Loeffler, Jon Small, Brian Doyle and Richard Flynn, each of whom was an
executive officer and a director of the Company. Pursuant to the Exchange
Agreement, John Loeffler and Jon Small were each issued 291,000 shares of common
stock and Brian Doyle and Richard Flynn were each issued 145,500 shares of
common stock in exchange for all of the outstanding stock of each of Rave,
Picture Vision and All Access. The Company believes that this transaction was
fair from a financial point of view. This belief is based on the fact that the
Exchange Agreement, and the transactions consummated thereby, were analyzed and
approved by the Company's Board of Directors and by all of its then existing
stockholders.

On October 9, 1996, the Company issued 78,333 shares of its common stock to 11
individuals in a private placement (the "Private Placement") for $3.00 per
share. There were no underwriters involved in the Private Placement. The common
stock in the Private Placement was issued only to accredited investors, as such
term is defined in the Securities Act. The aggregate offering price of the
Private Placement was $234,999. Messrs. Cohen and Edelman, directors of the
Company, each purchased 8,333 shares of common stock in the Private Placement.
The holders of these 78,333 shares have agreed not to sell, transfer or dispose
of these shares prior to January 22, 1998.

John Loeffler, the President, Chief Executive Officer and a director of the
Company, is also a consultant to Grey Advertising, which is a major client of
the Company's commercial music production division. For such consulting
services, Mr. Loeffler is paid approximately $45,000 per year by Grey
Advertising. The Company derived approximately $361,000 and $365,000 of
commercial music production revenues (approximately 40% and 44% of commercial
music production revenues) from Grey Advertising for the years ended June 30,
1997 and 1996, respectively.

In December 1996, one of the Company's subsidiaries borrowed $100,000 from a
bank. The loan bore interest at 1.5% above the bank's prime rate, was personally
guaranteed by two officers of the Company and collateralized by all of the
assets of such subsidiary and a cross corporate guarantee by the Company. The
loan was repaid in June 1997.

In January 1997, the Company entered into a one year consulting agreement with
Mr. Cohen, a director, for $60,000.


                                      -23-
<PAGE>

ITEM 13.                 EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits

Exhibit
Number                             Description
------                             -----------

3.1   Certificate of Incorporation of the Registrant (1)
3.2   Amended and Restated By-Laws of the Registrant (1)
4.1   Specimen of Registrant's Common Stock Certificate (1)
4.2   Specimen of Registrant's Warrant Certificate (1)
4.3   Form of Representative's Warrant Agreement including form of Warrant (1)
4.4   Form of Warrant Agreement between Registrant and Continental Stock
      Transfer and Trust Company (1)
10.1  Exchange Agreement dated as of October 9, 1996 among the Registrant, Brian
      Doyle, Richard Flynn, John Loeffler and Jon Small (1)
10.2  Employment Agreement dated as of October 9, 1996 between the Registrant
      and Brian Doyle (1)
10.3  Employment Agreement dated as of October 9, 1996 between the Registrant
      and Richard Flynn (1)
10.4  Employment Agreement dated as of October 9, 1996 between the Registrant
      and John Loeffler (1)
10.5  Employment Agreement dated as of October 9, 1996 between the Registrant
      and Jon Small (1)
10.6  Expense Allocation Agreement dated as of October 9, 1996 among the
      Registrant, Rave, Picture Vision, All Access and Robert Klein (1)
10.7  Form of The Registrant's 1996 Stock Option Plan (corrected version)
10.8  Lease Agreement dated June 24, 1992 between Not Just Jingles, Inc. and
      Newmark & Company Real Estate, Inc. (1)
10.9  Lease Agreement dated October 28, 1994 between the Registrant and Silk &
      Halpern Realty Associates, Inc. (1)
10.10 Lease Agreement dated April 4, 1995 between the Registrant and Cummins
      Station L.L.C. (1)
10.11 Sublease Agreement dated September 29, 1996 between the Registrant and Not
      Just Jingles, Inc. (1)
10.12 Financial Consulting Agreement (1)
10.13 Form of Consulting Agreement dated as of January 1, 1997 between the
      Company and Thomas J. Edelman (1)
10.14 Lease Agreement dated as of October 21, 1996 between the Registrant and
      Twenty Third Street joint Venture, together with Escrow Letter dated
      December 11, 1996 (1)
10.15 Form of Amended and Restated Employment Agreement dated as of January 17,
      1997 between the Registrant and Brian Doyle (1)
10.16 Form of Amended and Restated Employment Agreement dated as of January 17,
      1997 between the Registrant and Richard Flynn (1)
10.17 Form of Amended and Restated Employment Agreement dated as of January 17,
      1997 between the Registrant and John Loeffler (1)
10.18 Form of Amended and Restated Employment Agreement dated as of January 17,
      1997 between the Registrant and Jon Small (1)
10.19 Distribution Agreement with BMG Music d/b/a BMG Entertainment and Push
      Records, Inc.


                                      -24-
<PAGE>

10.20 Lease Agreement dated July 10, 1997 between the Registrant and
      Twenty-third Street Joint Venture.
10.21 Consulting Agreement dated August 15, 1997 between the Registrant and
      Consulting for Strategic Growth, Ltd.
10.22 Personal Services Agreement dated August 13, 1997 between Push Records
      and Luxx.
10.23 Form of Service Agreement dated September 22, 1997 between Daryl Hall & 
      John Oates and Push Records.
13.1  Quarterly Report on Form 10-QSB for the quarter ended December 31, 1996
      (2)
21.1  Subsidiaries of Registrant (1)
27.1  Financial Data Schedule.

            (1)   Incorporated by Reference to the Company's Registration
                  Statement on Form SB-2 (Reg. No. 333-13941)which was declared
                  effective by the Securities and Exchange Commission on January
                  22, 1997.
            (2)   Filed with the Securities and Exchange Commission on March 17,
                  1997.

(b)   Reports on Form 8-K

      None


                                      -25-
<PAGE>

                                   SIGNATURES

      In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized


Date: September 26, 1997

                                  PARADISE MUSIC & ENTERTAINMENT, INC.
                                
                                
                                  By: /s/ John Loeffler
                                      -------------------------------------
                                      John Loeffler, Chairman of the Board,
                                      Chief Executive Officer and President
                    
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:

By:   /s/ John Loeffler
      --------------------------------------------------------------------------
      John Loeffler, Chairman of the Board, Chief Executive Officer, President
      (Principal Executive, Financial and Accounting Officer)

Date: September 26, 1997

By:   /s/ Jon Small
      --------------------------------------------------------------------------
      Jon Small, Executive Vice President and Director

Date: September 26, 1997

By:   /s/ Brian Doyle
      --------------------------------------------------------------------------
      Brian Doyle, Executive Vice President and Director

Date: September 26, 1997

By:   /s/ Richard Flynn
      --------------------------------------------------------------------------
      Richard Flynn, Executive Vice President, Treasurer, Secretary and Director

Date: September 26, 1997

By:
      --------------------------------------------------------------------------
      Paul Thomas Cohen, Director

Date: September __, 1997

By:   /s/ Thomas J. Edelman
      --------------------------------------------------------------------------
      Thomas J. Edelman, Director

Date: September 26, 1997

By:
      --------------------------------------------------------------------------
      Robert Klein, Vice President Corporate Relations and Director

Date: September __, 1997


                                      -26-
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                                       AND
                          INDEPENDENT AUDITORS' REPORT

                                  JUNE 30, 1997
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES


                                    CONTENTS


INDEPENDENT AUDITORS' REPORT                                               F-2

CONSOLIDATED FINANCIAL STATEMENTS

  CONSOLIDATED BALANCE SHEET                                               F-3

  CONSOLIDATED STATEMENTS OF OPERATIONS                                    F-4

  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                          F-5

  CONSOLIDATED STATEMENTS OF CASH FLOWS                                  F-6-7

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          F-8-F-17


                                       F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
Paradise Music & Entertainment, Inc.
New York, New York


We have audited the accompanying consolidated balance sheet of Paradise Music &
Entertainment, Inc. and Subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1997 and 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Paradise Music &
Entertainment, Inc. and Subsidiaries as of June 30, 1997, and the results of
their operations and their cash flows for the years ended June 30, 1997 and 1996
in conformity with generally accepted accounting principles.




Roseland, New Jersey
August 21, 1997, except for Note 9 as to
 which the date is September 5, 1997


                                       F-2
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                                  JUNE 30, 1997

                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                           $5,086,118
  Accrued interest receivable                             23,162
  Accounts receivable                                     52,240
  Prepaid production costs                               235,645
  Prepaid record master costs                            350,160
  Other current assets                                    46,216
                                                      ----------
       Total current assets                                        $5,793,541

PROPERTY AND EQUIPMENT, less accumulated
 depreciation and amortization                                        146,754

OTHER                                                                  14,072
                                                                   ----------

                                                                   $5,954,367
                                                                   ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Deferred revenues                                   $  501,073
  Accrued payroll and related expenses                   374,590
  Accrued expenses and other current liabilities         371,058
                                                      ----------
       Total current liabilities                                   $1,246,721

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value,
   authorized 5,000,000 shares, none issued
  Common stock, $.01 par value,
   authorized 20,000,000 shares,
   issued and outstanding 2,228,333 shares                22,283
  Capital in excess of par value                       5,752,317
  Retained earnings (deficit)                         (1,066,954)
                                                      ----------
       Total stockholders' equity                                   4,707,646
                                                                   ----------

                                                                   $5,954,367
                                                                   ==========


          See accompanying notes to consolidated financial statements.


                                       F-3
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                              Years Ended
                                                                June 30,
                                                       -------------------------
                                                           1997          1996
                                                       -----------    ----------

REVENUES                                               $ 5,568,286    $3,638,192
                                                       -----------    ----------

OPERATING EXPENSES:
  Cost of sales                                          3,447,005     1,939,807
  Marketing, selling, general and administrative         3,199,901     1,610,097
                                                       -----------    ----------
       Total operating expenses                          6,646,906     3,549,904
                                                       -----------    ----------

INCOME (LOSS) FROM OPERATIONS                           (1,078,620)       88,288

INTEREST INCOME                                             94,100            --
                                                       -----------    ----------

INCOME (LOSS) BEFORE INCOME TAXES                         (984,520)       88,288

INCOME TAXES                                                 9,432        10,500
                                                       -----------    ----------

NET INCOME (LOSS)                                      $  (993,952)   $   77,788
                                                       ===========    ==========

NET LOSS PER SHARE OF COMMON STOCK                     $     (.65)
                                                       ==========

WEIGHTED AVERAGE SHARES OUTSTANDING                     1,529,736
                                                       ==========


                                 PRO FORMA DATA

INCOME BEFORE PRO FORMA INCOME TAXES                                  $   88,288

PRO FORMA INCOME TAXES                                                    26,000
                                                                      ----------

PRO FORMA NET INCOME                                                  $   62,288
                                                                      ==========

PRO FORMA NET INCOME PER COMMON SHARE                                 $      .06
                                                                      ==========

WEIGHTED AVERAGE SHARES OUTSTANDING                                    1,039,167
                                                                      ==========


          See accompanying notes to consolidated financial statements.


                                       F-4
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                  Common
                                       Common Stock     Capital in   Retained      Stock
                                     ----------------   Excess of    Earnings   Subscription
                                     Shares    Amount   Par Value    (Deficit)   Receivable
                                     ------    ------   ---------    ---------   ----------

<S>                                <C>        <C>      <C>         <C>           <C>    
BALANCES, June 30, 1995              998,000  $ 9,980  $   12,090  $    41,372   $(1,250)

NET INCOME                                                              77,788
                                     -------  -------  ----------  -----------   ------- 

BALANCES, June 30, 1996              998,000    9,980      12,090      119,160    (1,250)

RECLASSIFICATION OF PRIOR
 "S" CORPORATION RETAINED
 EARNINGS                                                 192,162     (192,162)

SALE OF COMMON STOCK, net
 of expenses                          78,333      783     209,804

COMMON STOCK, issued for
 services relating to the initial
 public offering                       4,000       40      11,960

SALES OF COMMON STOCK,
 net of expenses                   1,146,000   11,460   5,318,571

COMMON STOCK, issued to                2,000       20       7,730
 outside directors

PAYMENT OF COMMON STOCK
 SUBSCRIPTION RECEIVABLE                                                           1,250

NET LOSS                                                              (993,952)
                                     -------  -------  ----------  -----------   ------- 

BALANCES, June 30, 1997            2,228,333  $22,283  $5,752,317  $(1,066,954)  $    --
                                   =========  =======  ==========  ===========   =======
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       F-5
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                            Years Ended June 30,
                                                         -------------------------
                                                             1997          1996
                                                         -----------   -----------
<S>                                                      <C>           <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                      $  (993,952)  $    77,788
  Adjustments to reconcile net income (loss) to
  net cash (used in) provided by operating activities:
    Depreciation and amortization                             46,544        23,413
    Common stock issued to outside directors                   7,750
    Increase (decrease) in cash attributable
     to changes in assets and liabilities:
      Accrued interest receivable                            (23,162)
      Accounts receivable                                     77,475        41,039
      Prepaid production costs                              (218,390)      109,464
      Prepaid record master costs                           (350,160)
      Other current assets                                   (46,216)        2,607
      Deferred revenues                                      451,461       (32,510)
      Accrued payroll and related expenses                   374,590
      Accrued expenses and other current liabilities         230,641      (158,185)
                                                         -----------   -----------

NET CASH (USED IN) PROVIDED BY OPERATING
 ACTIVITIES                                                 (443,419)       63,616
                                                         -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for property and equipment                       (112,144)      (27,782)
  Proceeds from other assets                                                 3,209
                                                         -----------   -----------

NET CASH USED IN INVESTING ACTIVITIES                       (112,144)      (24,573)
                                                         -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from note payable, bank                           100,000
  Payment on note payable, bank                             (100,000)
  Payment on stockholders' loans                                           (57,500)
  Payment for deferred registration costs                                   (5,000)
  Proceeds from sales of common stock, net of expenses     5,557,618
  Payment of common stock subscription receivable              1,250
                                                         -----------   -----------

NET CASH PROVIDED BY (USED IN)
 FINANCING ACTIVITIES                                      5,558,868       (62,500)
                                                         -----------   -----------

NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                          5,003,305       (23,457)

CASH and CASH EQUIVALENTS, beginning of year                  82,813       106,270
                                                         -----------   -----------

CASH and CASH EQUIVALENTS, end of year                   $ 5,086,118   $    82,813
                                                         ===========   ===========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       F-6
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                                          Years Ended June 30,
                                                         ---------------------
                                                           1997        1996
                                                         --------    --------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for interest                 $  5,322    $     --
                                                         ========    ========

  Cash paid during the year for income taxes             $ 58,660    $     --
                                                         ========    ========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
 AND FINANCING ACTIVITIES:
  Stock issued in exchange for services, relating
   to the initial public offering                        $ 12,000    $     --
                                                         ========    ========

  Reclassification of prior "S" corporation
   retained earnings                                     $192,162    $     --
                                                         ========    ========

  Stock issued to outside directors                      $  7,750    $     --
                                                         ========    ========


          See accompanying notes to consolidated financial statements.


                                       F-7
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS:

         Paradise Music & Entertainment, Inc. ("Paradise") was formed on July
         18, 1996 and in July 1996 issued 125,000 shares of common stock at $.01
         par value (see Note 7). In October 1996, Paradise entered into an
         exchange agreement ("the Agreement") (see Note 7). Paradise exchanged
         873,000 shares of common stock in exchange for the outstanding stock of
         its three original subsidiaries in a transaction accounted for as a
         pooling of interests, whereby the financial statements for all periods
         prior to the combination were restated to reflect the combined
         operations of its original subsidiaries: All Access Entertainment
         Management Group, Inc. ("All Access"), a musical artist management
         company incorporated in New York, Picture Vision, Inc. ("Picture
         Vision") a video production company incorporated in Tennessee, and John
         Leffler Music, Inc. (which operates under the name of Rave Music and
         Entertainment) ("Rave") a creator of music scores and advertising
         themes for television and radio, which was incorporated in New York. In
         February 1997, the Company incorporated its record label in New York,
         Push Records, Inc. ("Push").

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Principles of Consolidation - The consolidated financial statements
         give effect to the execution of the Agreement (see Note 7) and includes
         the accounts of Paradise and its wholly-owned subsidiaries, Rave,
         Picture Vision, All Access and Push (the "Company"). All significant
         intercompany transactions and balances have been eliminated in
         consolidation.

         Revenue Recognition - Commercial music production revenues and the
         related production costs are recognized upon acceptance of the music
         production by the client. Royalty and residual income is recognized
         when received. For projects which are short in duration, (primarily
         less than one month) video production revenues and related production
         costs are recorded upon completion of the video. For projects that have
         a longer term, video production revenues and related production costs
         are recorded using the percentage-of-completion method which recognizes
         income as work on the project progresses. In accordance with industry
         custom, the Company currently operates its business based on oral
         agreements and purchase orders with its artists and customers. Pursuant
         to these arrangements the Company receives up to 20% of the gross
         revenues received in connection with artist entertainment related
         earnings less certain standard industry costs. Record label revenues
         are recognized when records are shipped and costs which are directly
         related to production, manufacture and sale of records will be
         capitalized as recoverable from future revenues and amortized over the
         expected life of the records, to the extent there is reasonable
         assurance that these costs will be recoverable from future sales. The
         Company is accounting for these costs in accordance with Statement of
         Financial Accounting Standards ("SFAS") No. 50 "Financial Reporting in
         the Record and Music Industry."

         Cash and Cash Equivalents - Cash and cash equivalents consists of cash
         on hand and a highly liquid investment account with maturity of less
         than three months from the purchase date, and at times exceeds the
         Federal Deposit Insurance Corporation Coverage of $100,000. Management
         regularly monitors the financial condition of the financial institution
         in order to keep the potential risk to a minimum.


                                       F-8
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

         Property and Equipment - Property and equipment is stated at cost less
         accumulated depreciation and amortization. Depreciation and
         amortization is computed as follows:

                                               Estimated
                       Asset                  Useful Lives     Principal Method
                       -----                  ------------     ----------------

           Furniture, fixtures and equipment      5-7 Years    Declining-balance
           Leasehold improvements             Term of Lease    Straight-line

         Impairment of Long-Lived Assets - The Company periodically assesses the
         recoverability of the carrying amount of long-lived assets, including
         intangible assets. A loss is recognized when expected future cash flows
         (undiscounted and without interest) are less than the carrying amount
         of the asset. The impairment loss is determined as the difference by
         which the carrying amount of the asset exceeds its fair value.

         Income Taxes - Rave and All Access were "S" corporations prior to the
         execution of the exchange agreement and, as a result, earnings and
         losses have been included in the personal income tax returns of the
         respective stockholders. Accordingly, no provision for federal income
         tax or benefits from operating losses has been reflected in the
         consolidated financial statements for these subsidiaries. As a result
         of the Agreement the "S" elections were terminated. Accordingly, the
         financial statements reflect a reclassification of $192,162 from
         retained earnings to capital in excess of par value.

         The Company complies with SFAS No. 109, "Accounting for Income Taxes",
         which requires an asset and liability approach to financial reporting
         of income taxes. Deferred income tax assets and liabilities are
         computed for differences between the financial statement and tax bases
         of assets and liabilities that will result in taxable or deductible
         amounts in the future, based on enacted tax laws and rates applicable
         to the periods in which the differences are expected to effect taxable
         income. Valuation allowances are established, when necessary, to reduce
         the deferred income tax assets to the amount expected to be realized.

         Net Income (Loss) Per Common Share - Net income (loss) per common share
         is computed based on net income (loss) applicable to common
         shareholders divided by the weighted average number of common shares
         outstanding. The weighted average includes shares issued within one
         year of the Company's initial public offering (IPO) with an issue price
         less than the IPO price, using the treasury stock method.

         Fair Value of Financial Instruments - The fair value of the Company's
         assets and liabilities which qualify as financial instruments under
         SFAS No. 107 approximate the carrying amounts presented in the
         consolidated balance sheet.

         Use of Estimates - The preparation of consolidated 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 consolidated financial statements
         and the reported amounts of revenues and expenses during the reporting
         period. Actual results could differ from those estimates.


                                       F-9
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

         Accounting for Stock Options - For the year ended June 30, 1997, the
         Company adopted SFAS No. 123, "Accounting for Stock-Based
         Compensation," which permits entities to recognize as expense over the
         vesting period the fair value of all stock-based awards on the date of
         grant. Alternatively, SFAS No. 123 also allows entities to continue to
         apply the provisions of APB Opinion No. 25 and provide pro forma net
         income and pro forma earnings per share disclosures for employee stock
         option grants made in 1995, 1996 and future years as if the fair
         value-based method defined in SFAS No. 123 had been applied (see Note
         8). The Company has elected to continue to apply the provisions of APB
         Opinion No. 25.

         Newly Issued Accounting Standard - In February 1997, the Financial
         Accounting Standards Board issued SFAS No. 128, "Earnings Per Share".
         SFAS No. 128 requires dual presentation of basic and diluted earnings
         per share on the face of the statement of operations for all periods
         presented. Basic earnings per share excludes dilution and is computed
         by dividing income (loss) available to common stockholders by the
         weighted average number of common shares outstanding for the period.
         Diluted earnings per share reflects the potential dilution that could
         occur if securities or other contracts to issue common stock were
         exercised or converted into common stock or resulted in the issuance of
         common stock that then shared in the earnings of the entity. SFAS No.
         128 is effective for fiscal years ending after December 15, 1997, and
         when adopted, it will require restatement of prior years' earnings per
         share. Management does not believe that SFAS No. 128 will have a
         material impact upon historical consolidated net income (loss) per
         common share as reported.

NOTE 3 - PROPERTY AND EQUIPMENT:

         Property and equipment consists of the following:

              Furniture, fixtures and equipment                        $280,551
              Leasehold improvements                                     61,412
                                                                       --------
                                                                        341,963
              Less accumulated depreciation and amortization            195,209
                                                                       --------

                                                                       $146,754
                                                                       ========

         Certain property and equipment was jointly purchased by Rave and an
         unaffiliated company. Rave recorded 50% of the purchase price
         (approximately $75,000) as an asset. At June 30, 1997, the asset was
         fully depreciated.


                                      F-10
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - INCOME TAXES:

         The provision for income taxes consists of the following:

                                                       Years Ended June 30,
                                                       --------------------
                                                         1997         1996
                                                       --------     -------
              Current:
                Federal                                $   -        $ 5,500
                State and city                            9,432       2,000
                                                       --------     -------
                                                          9,432       7,500
                                                       --------     -------
                                                                  
              Deferred:                                            
                Federal                                               2,000
                State and city                                        1,000
                                                       --------     -------
                                                                      3,000
                                                       --------     -------

              Total                                    $  9,432     $10,500
                                                       ========     =======

         At June 30, 1997, the Company recorded deferred federal, state and city
         income tax assets aggregating approximately $454,000, arising from net
         operating loss carryforwards. A valuation allowance in the same amount
         has been recorded, since management has no assurance that the tax
         benefit will be realized.

         At June 30, 1997, the Company has federal and state net operating loss
         carryforwards of approximately $984,000 which expire in 2012.

         The following reconciles income tax expense (benefit) computed at the
         federal statutory rate to the actual provision for income taxes.

                                                                Years Ended
                                                                  June 30,
                                                            ------------------
                                                             1997       1996
                                                            ------     ------
          Tax expense (benefit) computed
           at federal statutory rate                        (35.00)%    34.00%
          State and city provision, net of federal taxes    (11.70)      5.10
          Surtax and other                                    1.60      (4.60)
          Valuation allowance                                46.10
          Non-taxable income resulting from
           Subchapter "S" election                                     (22.60)
                                                            ------     ------

                                                              1.00%     11.90%
                                                            ======     ======


                                      F-11
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - INCOME TAXES (CONTINUED):

         The pro forma income tax expense that would have been reported if All
         Access and Rave Music subchapter "S" Corporations had been "C"
         Corporations and were consolidated along with Picture Vision to form
         Paradise Music and Entertainment, Inc. for the year ended June 30, 1996
         is as follows:

              Current pro forma income taxes:
                Federal                                              $15,000
                State                                                 11,000
                                                                     -------
                                                                     $26,000
                                                                     =======

         The following reconciles income tax expense computed at the federal
         statutory rate to the actual pro forma provision for income taxes for
         the year ended June 30, 1996.

              Income tax expense computed
               at federal statutory rate                              34.00%
              State provision, net of federal tax                      8.60
              Surtax and other                                       (13.20)
                                                                     ------

                                                                      29.40%
                                                                     ======

NOTE 5 - COMMITMENTS AND CONTINGENCIES:

         Rave rents office and commercial recording studio space pursuant to a
         sublease arrangement at an annual rate of approximately $50,000. The
         sublease agreement expired in May 1997 and the Company is currently on
         a month to month lease. All Access rents office space under a lease
         which expired in February 1997. All Access is currently on a month to
         month lease. Picture vision rents office space under a lease which
         expires in 2001.

         The aggregate future minimum annual rental payments are approximately
         as follows:

              Year ending June 30:
                   1998                                             $ 17,000
                   1999                                               17,000
                   2000                                               17,000
                   2001                                                3,000
                                                                    --------

                                                                    $ 54,000
                                                                    ========


                                      F-12
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED):

         Rent expense for the years ended June 30, 1997 and 1996 was
         approximately $122,000 and $114,000, respectively.

         On October 9, 1996, the Company entered into employment agreements, as
         amended (the "Agreements"), with four of its executives (the
         "Executives"). Each of the Agreements is for a period of three years,
         and provides for annual base salaries of $150,000. Pursuant to the
         Agreements, four bonus plans have been established primarily for the
         benefit of the Executives.

         Under the first bonus plan, bonuses will be granted to each Executive
         based on earnings (as defined in the Agreements) of the respective
         subsidiary or division which the Executive manages or co-manages.
         Generally, the Executives receive approximately 60% of such earnings
         (with the two Executives of All Access considered as one person for
         purposes of this calculation) up to a maximum of $375,000 of earnings
         for each of Rave and Picture Vision commencing with the year ended June
         30, 1997 and $512,000 of earnings for All Access commencing with the
         year ending June 30, 1998. The Executives of All Access receive all
         earnings of All Access up to $325,000 of earnings for the year ended
         June 30, 1997. Each of the Executives will have the right to allocate
         any portion of the bonus granted to him to any of the employees of the
         respective subsidiary or division of such Executive. Under the second
         bonus plan, a bonus pool equal to 10% of the consolidated pretax
         earnings of the Company (after giving effect to all other bonuses) will
         be established for each fiscal year. Awards under this bonus pool will
         be granted to the Company's employees at the discretion of the
         Company's Board of Directors. The third bonus plan has been established
         for the benefit of the Executives of All Access and others designated
         by them based on cumulative profitability of the recorded music
         business based on a successful launch of the record label. Under this
         bonus plan $250,000 will be granted in the first fiscal year in which
         cumulative net pretax profits of the record label, as defined in the
         Agreements, exceed $1,000,000. An additional bonus of $250,000 shall be
         granted in the first fiscal year in which cumulative net pretax profits
         of the record label, as defined in the Agreements, exceed $2,000,000.
         An additional bonus of $100,000 shall be granted in the first fiscal
         year in which cumulative net pretax profits of the record label, as
         defined in the Agreements, exceed $2,400,000. No bonus will be granted
         under this plan after June 30, 2001 and the maximum aggregate bonus
         granted under this plan will be $600,000. The fourth bonus plan has
         been established as an incentive for successful consummation of special
         projects pre-designated by the Compensation Committee. Such plan
         provides for a bonus, if net profits (as defined in the Agreements)
         from the special project exceed $1,000,000. Such bonus will be
         calculated on 15% net profits realized therefrom in excess of any bonus
         paid to such Executive pursuant to the first bonus plan. After the
         payment of any bonus pursuant to the fourth bonus plan, there will be
         payable 15% of future royalty revenue derived from such special
         projects.


                                      F-13
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED):

         For the period January 1, 1997 through June 30, 1997, the Outside
         Directors earned $6,000 and 1,000 shares of common stock valued at
         $3.875. Thereafter, Outside Directors will be paid at the rate of
         $18,000 per fiscal year, payable quarterly with such payment to be half
         in cash and half in Common Stock valued on the last day of the
         applicable quarter.

         On March 15, 1997, the Company entered into a six and one half month
         financial consulting agreement with an individual for approximately
         $60,000.

         In January 1997, the Company entered into a one year consulting
         agreement with a director of the Company for $60,000.

         In July 1997, the Company entered into a new 10 year lease agreement
         commencing August 1, 1997. The lease expires in July 2007 and requires
         the Company to pay for certain operating expenses.

         Aggregate future minimum rental payments are approximately as follows:

              Year ending June 30,

                   1998                                         $   79,000
                   1999                                            169,000
                   2000                                            270,000
                   2001                                            270,000
                   2002                                            270,000
                Thereafter                                       1,572,000
                                                                ----------

                      Total                                     $2,630,000
                                                                ==========

NOTE 6 - ECONOMIC DEPENDENCY:

         Approximately $361,000 and $365,000 of commercial production revenues
         for the years ended June 30, 1997 and 1996, respectively, were derived
         from one advertising agency. Approximately $675,000 and $700,000 of
         musical talent management revenues for the years ended June 30, 1997
         and 1996, respectively, were derived from three and two musical
         artists, respectively. For the years ended June 30, 1997 and 1996,
         approximately $1,867,000 and $518,000, respectively, of video
         production revenues were derived from one and two artists,
         respectively. At June 30, 1997, approximately $32,000 was owed in the
         aggregate to the Company by these artists and customers.


                                      F-14
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCKHOLDERS' EQUITY

         On July 18, 1996, a new Delaware corporation was formed, Paradise Music
         & Entertainment, Inc. which on July 22, 1996 issued 125,000 shares of
         common stock at $.01 par value (see Notes 1 and 2).

         On October 9, 1996, Paradise issued 873,000 shares of its common stock
         in exchange for the outstanding stock of Rave, Picture Vision and All
         Access in a transaction accounted for as a pooling of interests (see
         Notes 1 and 2).

         On October 9, 1996, the Company completed a private placement to sell
         78,333 shares of common stock for approximately $235,000 ($3.00 per
         share) prior to deducting fees and expenses of approximately $25,000.

         On October 9, 1996, the Company issued 4,000 shares of its common stock
         in consideration for legal services to the Company relating to the
         initial public offering.

         In January 1997, the Company completed its initial public offering,
         through the offering the Company sold 1,000,000 units consisting of
         1,000,000 shares of common stock and 1,000,000 warrants at $6.00 per
         unit. For each two warrants owned, the holder is entitled to purchase
         one share of common stock through January 21, 2001 at $7.20. In
         February 1997, an additional 146,000 units were sold upon the exercise
         of the underwriter's over allotment option. The aggregate net proceeds
         were approximately $5,330,000, after underwriters' commissions and
         offering expenses of approximately $1,546,000.

NOTE 8 - STOCK OPTIONS

         On October 8, 1996, the Board of Directors adopted and the stockholders
         approved the Option Plan. The Option Plan provides for the grant of
         incentive stock options ("ISOs") within the meaning of Section 422 of
         the Internal Revenue Code of 1986, as amended (the "Code"),
         non-qualified stock options ("NQSOs") and/or Stock Appreciation Rights
         (SARs) to certain directors, agents and employees of, and consultants
         to the Company. The purpose of the Option Plan is to attract and retain
         exemplary employees, agents, consultants and directors. Options and
         SARs granted under the Option Plan may not be exercisable for terms in
         excess of 10 years from the date of grant. In addition, no options or
         SARs may be granted under the Option Plan later than 10 years after the
         Option Plan's effective date. The total number of shares of Common
         Stock with respect to which options and SARs will be granted under the
         Option Plan is 185,000. The shares subject to and available under the
         Option Plan may consist, in whole or in part, of authorized but
         unissued stock or treasury stock not reserved for any other purpose.
         Any shares subject to an option or SAR that terminates, expires or
         lapses for any reason, and any shares purchased pursuant to an option
         and subsequently repurchased by the Company pursuant to the terms of
         the option, shall again be available for grant under the Option Plan.
         At June 30, 1997, options to purchase 10,000 shares of common stock are
         outstanding, none of which have been exercised.


                                      F-15
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - STOCK OPTIONS (CONTINUED):

         In addition, the Board of Directors approved the adoption of the
         Outside Directors Stock Option Program (the "Program"). The Program
         provides for the granting of an aggregate of 100,000 stock options to
         eligible directors of the Company (as defined in the Program). Each
         eligible director shall receive 5,000 stock options per annum, subject
         to adjustment, for their services on the Board on each July 1, that
         they are serving as an eligible director. The options are exercisable
         at the fair market value of common stock on the last date preceding the
         date of grant. The Program further provides that the maximum term of
         stock options may not exceed 5 years and the stock options may be
         exercised at any time for a period of 5 years after the date of grant.
         At June 30, 1997, options to purchase 25,000 shares of common stock
         were outstanding, none of which have been exercised.

         The activity in the Option Plan and the Program are as follows:

                                           Exercise Price Per Share
                                        -----------------------------

                                        Number of
                                         Options     Price    Average
                                        ---------   -------   -------
              Balance outstanding,
               July 1, 1996                  --     $    --   $    --
               Granted                    35,000       6.00      6.00
                                         -------    -------   -------
              Balance outstanding,
               June 30, 1997              35,000    $  6.00   $  6.00
                                         =======    =======   =======

         Had compensation for the Company's stock option plan and the Program
         been determined based on the fair value at the grant date of award in
         1997 consistent with the provisions of SFAS No. 123, the Company's
         consolidated net loss and loss per common share would have increased to
         the pro forma amounts indicated below:

         Net loss applicable to common stockholders, as reported    $  (993,952)
                                                                    ===========

         Net loss applicable to common stockholders, pro forma      $(1,081,102)
                                                                    ===========

         Loss per common share, as reported                         $      (.65)
                                                                    ===========

         Loss per common share, pro forma                           $      (.71)
                                                                    ===========

         The fair value of each option grant is estimated on the grant date
         using the Black-Scholes option pricing model with the following
         assumptions for grants for the year ended June 30, 1997; risk-free
         interest rate 6.0%, no dividend yield, expected life of 3.5 years and
         expected volatility of 53 percent.


                                      F-16
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - SUBSEQUENT EVENTS:

         On August 13, 1997, Push entered into a personal service contract, (the
         "Contract"), with an artist to record two albums. In addition, the
         Contract contains two consecutive separate options with the artist to
         produce a total of three additional albums.

         On August 15, 1997 Push entered into a three year distribution and
         manufacturing agreement, ("the Agreement"), with BMG Music d/b/a BMG
         Entertainment ("BMG"). Such Agreement, which expires on August 15,
         2000, contains an option to extend for one additional year, and
         provides that BMG will provide distribution and manufacturing services
         within the United States, its territories and possessions and Puerto
         Rico for all sound recordings derived from record masters owned or
         controlled by Push, excluding products geared primarily toward non
         audio personal computer use. As part of the Agreement, BMG will retain
         a distribution and a manufacturing fee based on the cumulative net
         sales before any adjustments for special terms as defined in the
         Agreement.

         On August 15, 1997, the Company entered into an agreement with a
         consulting firm which provides for payments of $2,000 per month and
         options to purchase a total of 20,000 shares of the Company's common
         stock at various exercise prices during the term of the consulting
         agreement. The options vest one year from date of grant and expire if
         not exercised in 4 years. This Agreement expires on December 31, 1998.

         On September 4, 1997, Push reached a tentative worldwide exclusive
         recording agreement ("the Agreement"), with an artist. Such Agreement
         provides for Push to have the exclusive right to distribute one album
         and, in addition, the agreement provides for two consecutive options
         for two additional albums only if performance plateaus are met by the
         preceding album as defined in the Agreement. Additionally, under the
         Agreement warrants to purchase 30,000 shares of the Company's common
         stock will be granted upon the execution of the Agreement.

         On September 5, 1997, the Company granted options and warrants to
         employees and non-employees to purchase 108,000 shares of common stock
         at the average bid and ask price on September 5, 1997. These options
         become exercisable over a three year period and expire if not exercised
         in 5 years from the grant date.


                                      F-17