PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                                 March 31, 2001

                                   FORM 10-QSB
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
      ACT OF 1934

For the quarterly period ended                   March 31, 2001
                               -------------------------------------------------

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from                         to
                               -----------------------    ----------------------

Commission file number                           1-12635
                        --------------------------------------------------------

                      PARADISE MUSIC & ENTERTAINMENT, INC.
--------------------------------------------------------------------------------
           (Name of small business issuer as specified in its charter)

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

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

(Issuer's telephone number)                   (212) 590-2100
                            ----------------------------------------------------

--------------------------------------------------------------------------------
             (Former name, former address and former fiscal year, if
                           changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes |X| No |_|

At May 11, 2001, the Issuer had 11,127,984 shares of Common Stock, $.01 par
value, issued and outstanding.

Transitional Small Business Disclosure Format   Yes |_|  No |X|


                                       2
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

PART I   FINANCIAL INFORMATION                                              PAGE

Item 1   Financial Statements

             Condensed Consolidated Balance Sheet as of
              March 31, 2001 (Unaudited)                                       4

             Condensed Consolidated Statements of Operations for the Three
              Months Ended March 31, 2001 and 2000 (unaudited)                 5

             Condensed Consolidated Statements of Cash Flows for the Three
              Months Ended March 31, 2001 and 2000 (unaudited)               6-7

             Notes to Condensed Consolidated Financial Statements
              (unaudited)                                                   8-12

Item 2   Management's Discussion and Analysis of Financial Condition and
           Results of Operations                                           13-14

PART II  OTHER INFORMATION

Item 2   Changes in Securities and Use of Proceeds                            15

Item 5   Other Information                                                    15

Item 6   Exhibits and Reports on Form 8-K                                  15-16

         Signatures                                                          16


                                       3
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 March 31, 2001
                                   (unaudited)

                ASSETS

CURRENT ASSETS:
  Cash                                               $    845,558
  Accounts receivable                                   2,656,656
  Inventory                                               373,781
  Prepaid expenses and other current assets               427,818
                                                     ------------

    Total current assets                                           $  4,303,813

PROPERTY AND EQUIPMENT, net                                           1,729,046

OTHER ASSETS:
  Goodwill, net                                         7,882,293
  Security deposits and other                             286,394
                                                     ------------

                                                                      8,168,687
                                                                   ------------

                                                                   $ 14,201,546
                                                                   ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                            $  4,500,209

COMMITMENTS                                                                  --

STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value,
    authorized 5,000,000 shares, none issued                   --
  Common stock, $.01 par value,
    authorized 75,000,000 shares,
    issued and outstanding 11,127,984 shares              111,280
  Capital in excess of par value                       24,938,219
  Note receivable, stockholder                            (44,082)
  Accumulated deficit                                 (15,304,080)
                                                     ------------

    Total stockholders' equity                                        9,701,337
                                                                   ------------

                                                                   $ 14,201,546
                                                                   ============

     See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

                                                        Three Months Ended
                                                   ----------------------------
                                                     March 31,       March 31,
                                                       2001            2000
                                                   ------------    ------------

 REVENUES                                          $  9,451,468    $  8,923,120
                                                   ------------    ------------

OPERATING EXPENSES
  Cost of sales                                       7,982,624       6,526,492
  Marketing, selling, general and administrative      3,023,055       3,142,196
                                                   ------------    ------------
      Total operating expenses                       11,005,679       9,668,688
                                                   ------------    ------------

LOSS FROM OPERATIONS                                 (1,554,211)       (746,568)

INTEREST EXPENSE (INCOME), NET                          (13,036)         40,312
                                                   ------------    ------------

 NET LOSS                                          $ (1,541,175)   $   (785,880)
                                                   ============    ============

 BASIC AND DILUTED LOSS PER COMMON SHARE           $      (0.14)   $      (0.10)
                                                   ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 USED IN COMPUTING BASIC AND DILUTED
 LOSS PER COMMON SHARE                               10,820,445       7,868,657
                                                   ============    ============

     See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                         --------------------------
                                                                          March 31,      March 31,
                                                                            2001           2000
                                                                         -----------    -----------
<S>                                                                      <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                 $(1,541,175)   $  (785,880)
Adjustments to reconcile to net loss to net cash
  used in operating activities:
   Depreciation and amortization                                             295,983        151,220
   Amortization of goodwill                                                                  99,100
   Non-cash consulting expense in connection with warrants and options        16,155          1,293
   Provision for returns                                                    (105,726)
   Common stock issued and warrants granted to outside
    directors, consultants, vendors and employees                             11,824         22,500
Changes in operating Assets and Liabilities:
   Accounts receivable                                                     2,654,426        835,240
   Inventory                                                                 (42,790)
   Prepaid expenses and other current assets                                  58,067       (388,887)
   Security deposits and other assets                                         36,501        250,135
   Accrued payroll and related expenses                                     (109,000)      (118,746)
   Accounts payable and accrued expenses                                  (1,599,430)       (67,455)
                                                                         -----------    -----------
NET CASH USED IN OPERATING ACTIVITIES                                       (325,165)        (1,480)
                                                                         -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Payment for property and equipment                                         (1,238)       (90,675)
   Acquisition costs, net of cash acquired                                        --       (859,753)
   Note receivable, officer                                                   20,000             --
                                                                         -----------    -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                           18,762       (950,428)
                                                                         -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long term convertible debt, net of expenses                      --      1,854,954
   Proceeds from warransts issued with long term debt                             --        978,060
                                                                         -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                         --      2,833,014
                                                                         -----------    -----------

NET INCREASE (DECREASE) IN CASH                                             (306,403)      1,881,106

CASH, beginning of period                                                  1,151,961      1,631,307
                                                                         -----------    -----------

CASH, end of period                                                      $   845,558    $ 3,512,413
                                                                         ===========    ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       6
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                         --------------------------
                                                                          March 31,      March 31,
                                                                            2001           2000
                                                                         -----------    -----------
<S>                                                                      <C>            <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION,
   Cash paid during the period for income taxes                          $        --    $    22,653
                                                                         ===========    ===========

   Cash paid during the period for interest                              $     1,463    $    67,998
                                                                         ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
  FINANCING ACTIVITIES:

   Options granted for services                                          $    16,155    $        --
                                                                         ===========    ===========

   Stock issued in exchange for services                                 $    11,824    $    22,500
                                                                         ===========    ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       7
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 1 - BASIS OF PRESENTATION:

         The condensed consolidated financial statements included herein have
         been prepared by Paradise Music & Entertainment, Inc. and subsidiaries
         (the "Company") pursuant to the rules and regulations of the Securities
         and Exchange Commission (the "SEC") and reflect all adjustments,
         consisting of normal recurring adjustments, which are, in the opinion
         of management, necessary for a fair presentation of results of
         operations for interim periods. Certain information and footnote
         disclosures have been omitted pursuant to such rules and regulations.
         It is suggested that these financial statements be read in conjunction
         with the consolidated financial statements and the notes thereto
         included in the Company's Report for the period ended December 31, 2000
         on Form 10-KSB.

         The consolidated results of operations for the three months ended March
         31, 2001 are not necessarily indicative of the results to be expected
         for the full fiscal year.

NOTE 2 - ORGANIZATION AND NATURE OF OPERATIONS:

         Paradise Music & Entertainment, Inc. ("Paradise") was formed in July
         1996. We are an entertainment company focused on supplying state-of-the
         art film, video, digital and music-related products, services and
         content to traditional and web-centric entertainment businesses. Our
         products, services and content are offered through three operating
         groups, namely:

         PDSE Film and Television Group includes our commercial production
         companies Straw Dogs, Inc. ("Straw Dogs") and Shelter Films, Inc.
         ("Shelter Films"), and Picture Vision, Inc. ("Picture Vision"), our
         video, television and commercial production company.

         PDSE Music Group includes the following operating divisions:

         o  PDSE Records, Inc. produces and releases jazz music for sale to the
            public through its Label M division and African music through its
            IndigeDisc division formed in October 2000. The majority of PDSE
            Records' releases are distributed in the U.S. through its agreement
            with Ryko Distribution and also distributes its releases worldwide
            through distributors on a territory by territory basis.

         o  Push Records, Inc. ("Push") produces records for sale to the public
            and has a distribution agreement with V2 Records for the U.S.
            distribution of records currently through BMG.

         o  PDSE Records and Push also maintain licensing, marketing and
            distribution and joint venture agreements with Kinetic Records
            (electronic and dance music), Trippin' N' Rhythm (adult urban
            contemporary and smooth jazz), and Mesa Records (jazz, pop/rock).

         o  John Leffler Music, Inc. (which operates under the name of Rave
            Music and Entertainment) ("Rave") produces music for commercials as
            well as original musical content for programs and movies, such as
            the theme music and underscore for the kids' television series
            Pokemon.

         o  All Access Entertainment Management Group, Inc. ("All Access")
            provides comprehensive career management services for established,
            as well as up and coming, music industry talent.

         PDSE Digital Group includes PDSE Digital, Inc. ("PDP"), which was
         incorporated in February 2000, and Paradise Digital Productions.
         PDP, through its division Paradise Digital Productions, maintains an
         alliance with Computer Associates International Inc., a leading
         provider of Internet software solutions, to combine their expertise
         in back-end software support with our content designed for the
         digital entertainment market. Due to the rapid shift in the digital
         entertainment markets, however, PDSE Digital had adopted a more risk
         adverse and opportunistic approach. The Company has elected to
         discontinue the operations of the PDSE Digital Group as more fully
         explained in Management's Discussion and Analysis.


                                       8
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Principles of Consolidation - The consolidated financial statements
         include the accounts of Paradise and its wholly owned subsidiaries. All
         significant intercompany accounts and transactions 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 which relates to
         musical compositions used in television series are recognized when
         earned and the amount can be reasonably estimated, and when received if
         it cannot be reasonably estimated. For projects that 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
         that recognizes income as work on the project progresses. In accordance
         with industry custom, the Company currently operates its music artist
         management business based on oral agreements with certain 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 in accordance with the provisions
         of the distribution agreements. Certain record costs are 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 - The Company considers all highly liquid
         investments with maturities of three months or less when purchased to
         be cash equivalents. The Company maintains its cash in bank deposit
         accounts that, at times, may exceed federally insured limits. The
         Company has not incurred any losses in such accounts and believes it is
         not exposed to any significant credit risk on cash.

         Goodwill - The excess of the cost over the fair value of net assets of
         purchased businesses is recorded as goodwill and is amortized on a
         straight-line basis over a period of 15 years. The Company continually
         evaluates the carrying value of goodwill and other intangible assets.
         Any impairments would be recognized when the expected future operating
         cash flows derived from such intangible assets is less than their
         carrying value.

         Stock Warrants - Stock warrants issued for goods and services are
         accounted for in accordance with Emerging Issues Task Force (EITF)
         96-18, Accounting for Warrants that are issued to other than Employees
         for Acquisition, or in Conjunction with Selling Goods and Services.
         Accordingly, warrants subject to vesting based on performance will be
         valued each reporting period until vested. The portion of the value
         related to the completed term of the related agreement is expensed, and
         the remaining non-cash deferred consulting expense is amortized over
         the remaining term of the agreement. The value of such related warrants
         may be subject to adjustment until such time that the warrant is
         nonforfeitable, fully vested and exercisable.

         Loss Per Common Share - Basic earnings per share excludes dilution and
         is computed by dividing net loss 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. Diluted loss per common share is the same
         as basic loss per common share for the three months ended March 31,
         2001 and 2000. Unexercised stock options and outstanding stock warrants
         were not included in the computations of diluted earnings per common
         share because their effect would have been antidilutive as a result of
         the Company's losses.

         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.


                                       9
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 4 - GOING CONCERN CONSIDERATION:

         The condensed consolidated financial statements have been prepared
         assuming the Company will continue as a going concern. As of March
         31, 2001, the Company had a working capital deficit of approximately
         $196,000, an accumulated deficit of approximately $15.3 million, and
         has incurred losses since its inception. These conditions raise
         substantial doubt about the Company's ability to continue as a going
         concern. Management's plans include further staff and expense
         reductions under a more aggressive restructuring plan, establishment
         of accounts receivable and royalty financing (see Note 10), and other
         debt and equity financings, along with strategic acquisitions of
         complementary businesses, the evaluation of its current operating
         segments and development of new revence sources. There can be no
         assurance that the Company will be able to obtain sufficient debt or
         equity financing on favorable terms, if at all. Continuation of the
         Company as a going concern is dependent upon its ability to resolve its
         liquidity problem and attain future profitable operations. The
         financial statements do not include any adjustment that might result
         from this uncertainty.

NOTE 5 - ACQUISITIONS:

         The Shelter Films acquisition was completed on June 15, 2000. The
         following unaudited pro forma condensed consolidated financial
         information for the three months ended March 31, 2000 is presented to
         show the results of the Company as if the Shelter Films acquisitions
         had occurred at the beginning of the period presented. The pro forma
         results include certain adjustments, including increased amortization
         related to goodwill and are not necessarily indicative of what the
         results would have been had the transactions actually occurred on the
         aforementioned date.

                                               Three months ended
                                                 March 31, 2000
                                               ------------------
         Net Revenues                             $10,223,149

         Net loss                                 $  (886,569)

         Loss per common Share                    $     (0.11)

NOTE 6 - COMMITMENTS AND CONTINGENCIES:

         The Company has employment agreements with eight of its principal
         executives, which provide for various compensation and bonus
         arrangements. For the three months ended March 31, 2001 and 2000,
         approximately $458,000 and $850,000, respectively, has been expensed
         under the bonus plans and employment agreements. These costs are
         included in marketing, selling, general and administrative expenses.

NOTE 7 - STOCKHOLDERS' EQUITY

         The Company entered into consulting agreements with various consultants
         in 2001 for professional and financial services. The consultants will
         be compensated for their services (either partially or in full) through
         the issuance of an aggregate of 27,027 shares of the Company's common
         stock. The stock was issued in March 2001 at a price of $.44 per share.
         The stock was valued at approximately $12,000.


                                       10
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 8 - ECONOMIC DEPENDENCY:

         Approximately $5,660,000 and $1,408,000 of PDSE Film and TV Group
         production revenues for the three months ended March 31, 2001 and 2000,
         respectively, were derived from two and three customers, respectively.
         As of March 31, 2001 and 2000, approximately $83,000 and $152,000
         of these revenues remained uncollected.

         Approximately $833,000 of PDSE Music Group revenues for the three
         months ended March 31, 2001 was derived from four customers. As of
         March 31, 2001 approximately $577,000 of these revenues remained
         uncollected.

NOTE 9 - INFORMATION CONCERNING BUSINESS SEGMENTS

         Segment information listed below reflects the three principal business
         units of the Company for the three months ended March 31, 2001 and
         2000. Each segment is managed according to the products or services
         provided to the respective customers.

         For the three months ended March 31, 2001:

<TABLE>
<CAPTION>
                            PDSE           PDSE          PDSE
                            Film           Music        Digital      Corporate     Consolidated
                        -----------    ----------     -----------   -----------    ------------
<S>                     <C>            <C>            <C>           <C>            <C>
Revenues                $ 8,167,676    $ 1,283,792    $        --   $        --    $ 9,451,468
Net income (loss)       $  (221,105)   $  (267,493)   $        --   $(1,052,577)   $(1,541,175)
</TABLE>

         For the three months ended March 31, 2000:

<TABLE>
<CAPTION>
                            PDSE           PDSE          PDSE
                            Film           Music        Digital      Corporate     Consolidated
                        -----------    ----------     -----------   -----------    ------------
<S>                     <C>            <C>            <C>           <C>            <C>
Revenues                $ 7,588,629    $ 1,174,501    $   159,990   $        --    $ 8,923,120
Net income (loss)       $   573,131    $    49,131    $  (321,368)  $(1,086,774)   $  (785,880)
</TABLE>


                                       11
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 10 - RECENT AND SUBSEQUENT EVENTS:

         On April 25, 2001, the Company entered into a financing agreement with
         Porter Capital Corporation for a credit line against receivables up to
         $1.5 million. The interest rate per invoice is the higher of 10.5% per
         annum or the prime rate plus 2.50%. The factoring rate is 3.25% per
         invoice with available rebates up to 2.25% depending on speed of
         collection of such invoice from the customer. In conjunction with the
         transaction, Paradise issued Porter Capital a warrant to purchase
         75,000 shares of Paradise common stock at $.25 per share, vesting and
         exercisable immediately.

         The Company and Kelly Hickel entered into an employment agreement
         dated April 10, 2001, whereby Mr. Hickel will serve as President for
         a three year term. As of that date, Mr. Hickel has taken
         responsibility for the day-to-day operations of the Company. Mr.
         Hickel will receive an annual salary of $250,000 from which he has
         agreed to a "Voluntary Reduction" of 20% of his salary in exchange
         for certain performance incentives as approved by the compensation
         committee. The same "Voluntary Reduction" has been offered to other
         members of the Company's management team. Mr. Hickel was also named
         as the Chairman of the Board of Directors on February 12, 2001. At
         the same time the Management Services Agreement between the Company
         and iball Media, Inc. dated February 10, 2001, was amended to
         provide for a reduced monthly retainer of a minimum of $17,000.

         The Memorandum of Understanding dated February 10, 2001, stipulating
         the intent of the Company and iball Media, Inc. to combine their
         respective businesses into a merged entity has been amended to extend
         the deadline for signing a definitive agreement to May 25, 2001. There
         is no assurance that the transaction will be completed or that it will
         be completed in the manner described in the Memorandum of
         Understanding.

         On March 30, 2001, the Company was notified by Nasdaq's listing
         qualifications department that it fails to comply with the minimum bid
         price requirement for continued listing set forth in Marketplace Rule
         4310(c), and that its securities are subject to delisting from the
         Nasdaq SmallCap Market. The Company requested an appeal of the staff
         determination. The Company is awaiting a decision on the appeal which
         is expected shortly and which is likely to confirm the delisting
         determination of the staff.

         Richard Flynn has an employment agreement with the Company which
         expires June 30, 2001, and which the Company does not plan to renew.
         Mr. Flynn remains as a director of the Company and as a member of
         the Independent Board of the Company in connection with the proposed
         iball Media, Inc. transaction but is no longer performing management
         functions.

         On April 17, 2001, William P. Jancosko was appointed interim Chief
         Financial Officer of the Company. Mr. Jancosko is an experienced
         MBA/CPA with a focus on corporate financing and start-up companies.

         On May 14, 2001, the Company received a notice of termination from
         Trippin' 'N Rhythm Records ("LOMO") whereby LOMO has alleged that the
         Company has breached its obligations under the agreement. The notice of
         termination indicates that the Company can continue to exploit all
         existing releases currently available at retail outlets, but must
         immediately cease and desist the manufacture and distribution of any
         additional products covered by the original aggreement. The Company
         denies the allegations set forth and is responding accordingly.


                                       12
<PAGE>

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

General

Paradise Music & Entertainment, Inc. ("Paradise" or the "Company") is an
entertainment company focused on supplying state-of-the-art film, video, digital
and music-related products, services and content to traditional and web-centric
entertainment businesses. Paradise intends to grow its existing businesses and
plans to extend into the broadcast, on-site and online spaces. In order to
facilitate this growth, Paradise is in the process of reorganizing its operating
groups. The Music Group will continue to consist of the record labels, All
Access Entertainment Management Group, and Rave. The Film and TV Group will
consist of Picture Vision. Straw Dogs and Shelter Films will be part of the
newly formed Commercial Group. The Digital Group and the operations of PDSE
Digital Inc. and Paradise Digital Productions are being discontinued and its
services will be assimilated into the other remaining operating divisions. The
decision to discontinue the Digital Group operations is a result of the rapid
shift in digital entertainment markets and the Company's desire to minimize its
risk and contain costs.

The Company is developing a more aggressive restructuring plan and the new
management team has taken several actions to increase operating productivity and
margins. Among these actions are (1) installing a new general ledger system; (2)
installing a comprehensive daily cash management system; (3) retaining a finance
advisory firm to advise on various initiatives to raise capital; (4)
establishing a temporary accounts receivable factoring; (5) negotiating
temporary royalty factoring; (6) negotiating asset sale/leaseback agreement; (7)
establishing an equity financing plan; and (8) strengthening our market position
through an aggressive acquisition plan. The Company also continues its cost
containment initiatives through continued overhead and personnel reductions.
Furthermore, the Company has recently announced its plan to merge with iball
Media, Inc. which will bring with it an experienced turn-around team.

The Company is also developing a new strategy in anticipation of the completion
of the merger with iball Media, Inc. (as described in Part II, Item 5) whereby
Paradise will produce sponsor-targeted entertainment that leverages music and
media events, television commercials, television programming and filmed
entertainment to facilitate global branding campaigns and entertain consumers.
This is expected to provide a profitable, multi-platform convergence of
capabilities with multiple revenue streams and higher gross profit margins.
Paradise is able to provide innovative entertainment events in traditional
mediums and venues (music and festival events, network television, cable
broadcasts, film, etc.) as well as digital media. As a vertically integrated
entertainment company, Paradise is positioned to provide unique content and
exclusive access to cutting-edge entertainment.

Paradise will grow its existing businesses and will be extending its energy,
visibility and commerce opportunities into broadcast, on-site and online spaces.
With select partners, Paradise will be presenting primetime cable and broadcast
specials, exclusive web broadcasts, online artist interviews, secured digital
downloads, online music sales, onsite demos, commercials and more. Existing
organic revenues for the Company are derived from:

                  o     Television commercial production
                  o     Original music production for film and television
                  o     Television special production
                  o     Music video production
                  o     Artist management services
                  o     Sale of owned and licensed recorded music
                  o     Royalties from intellectual property
                  o     Tour and concert production fees, corporate sponsorships
                        and related revenues

All of the foregoing discussion of anticipated changes is subject to
negotiations and completion and there can be no assurance that any one or more
of these changes will take place. Paradise will need, in any event, to raise
additional financing and maintain cash flow to support its business units and
intended acquisitions. There can be no assurance that such financing can be
obtained on terms acceptable to the Company.

Forward-Looking Statements

Except for the historical information contained herein, this quarterly report on
Form 10-QSB may contain forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. These statements relate to future
events and to our future financial performance. These statements are only
predictions and may differ from actual future events or results. We disclaim any
intention or obligation to revise any forward-looking statements whether as a
result of new information, future developments or otherwise. Please refer to our
other filings with the Securities and Exchange Commission, which identify
important risk factors that could cause actual results to differ from those
contained in the forward-looking statements, including but not limited to risks
associated with changes in general economic and business conditions, actions of
our competitors, the extent to which we are able to develop new services and
markets for our services, the time and expense involved in such development
activities, the level of demand and market acceptance of our services and
changes in business strategies.

Results of Operations
Three Months Ended March 31, 2001 Compared to
Three Months Ended March 31, 2000.

In aggregate, revenues for the three months ended March 31, 2001 increased to
$9,451,468 or 6% compared to revenues of $8,923,120 in the three-month period
ended March 31, 2000. The net loss was $1,541,175 for the three months ended
March 31, 2001 compared to $785,880 for the three months ended March 31, 2000.
The higher net loss was due in part to increased costs of sales of both the
Music Group and Film and TV Group.

PDSE Film and TV Group revenues increased to $8,167,676 for the three months
ended March 31, 2001 from $7,588,629 for the three months ended March 31, 2000,
an increase of $579,047 or 8%. The increase in revenues is primarily due to
contribution of Shelter Films, which was acquired in June 2000. There was no
contribution from this business in the year-ago period.

PDSE Film and TV Group cost of sales increased to $7,085,153 for three months
ended March 31, 2001 from $5,708,868 for the three months ended March 31, 2000,
an increase of $1,376,285 or 24%. Gross profit as a percentage of PDSE Film


                                       13
<PAGE>

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

revenues decreased to 13% for the three months ended March 31, 2001, compared to
25% for the three months ended March 31, 2000. The change in cost of sales and
gross profit margin is primarily due to the fact that three of the Company's
in-house directors were involved in producing films external to the Company and
were not available to direct commercials. The commercial revenue in the three
months ended March 31, 2001 for Straw Dogs was contributed primarily by a
director whose agreement with the Company provides for a lower Gross Profit
Margin.

PDSE Music Group revenues increased 9% to $1,283,792 for the three months ended
March 31, 2001, from $1,174,501 for the three months ended March 31, 2000. The
increase in revenues is primarily due to the increased sales generated from a
growing slate of recordings being released through the Company's Label M
division formed in May 2000 and its IndigeDisc division formed in October 2000.

PDSE Music Group cost of sales increased to $897,471 for the three months ended
March 31, 2001 from $647,032 for the three months ended March 31, 2000, an
increase of $250,439 or 38%. Gross profit, as a percentage of recorded music and
artist management revenues, was 30% for the three months ended March 31, 2001,
compared to 45% for the three months ended March 31, 2000. The decreased margin
is due to an increase in record label sales which have a lower margin than
original music scores. Original music scores constituted a larger percentage of
revenues in the three months ended March 2000. In addition, the decrease also
reflects the low margins indicative of start up recording labels.

PDSE Digital Group had no revenue in the three months ended March 31, 2001, due
to the fact that the Company significantly cut back its operations in response
to the rapid shift in digital entertainment markets. PDSE Digital revenue for
the three months ended March 31, 2000, was $159,990 and the net loss was
$321,368. The Company has elected to discontinue the operations of the PDSE
Digital Group as more fully explained in Management's Discussion and Analysis of
Financial Condition and Results of Operations - General section..

Paradise's marketing, selling, general and administrative expenses decreased to
$2,727,072 for the three months ended March 31, 2001 from $2,891,876 for the
three months ended March 31, 2000, a decrease of $164,804 or 6%. The personnel
and overhead cost reductions initiated by the Company toward the end of the
second quarter of 2000 have kept these costs level. The depreciation and
amortization expenses totaled $295,983 for the three months ended March 31,
2001, compared to $250,320 for the three month period ended March 31, 2000.

Net interest income was $13,036 for the three months ended March 31, 2001,
compared to net interest expense of $40,312 for the three months ended March 31,
2000. The decrease is the result of interest expense related to $3 million
convertible debt financing completed in March 2000 with BayStar Capital and
Baystar International (collectively "BayStar") that was extinguished in December
2000. Under the terms of a Purchase and Sale Agreement, BayStar converted and
exchanged Senior Subordinated Convertible Notes and accrued interest for an
aggregate of 1,000,000 shares of Paradise common stock, warrants to purchase an
aggregate of 500,000 shares of Paradise common stock, and Paradise's 1,000,000
shares of Series A Preferred Stock of Eruptor Entertainment, Inc.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities for the three months ended March 31, 2001
was $325,165. The operating loss for the three months was partially offset by
non-cash expenses such as depreciation and amortization.

Net cash provided by investing activities for the three months ended March 31,
2001 was $18,762 which amount was principally due to payments of an officer's
note receivable.

There was no cash activity from financing activities for the three months ended
March 31, 2001.

The Company had a working capital deficit of $196,396 and stockholders' equity
of $9,701,337 at March 31, 2001. The Company is reviewing the profit and/or loss
projections and cash needs of its businesses. The future cash requirements of
the Company will be dependent upon the outcome of this review and the changes
put into effect. While arrangements such as the previously discussed Porter
Capital facility and funding of royalties will ameliorate this situation,
additional capital is required to cure the situation. Discussions are under way
with various prospective investors to provide additional capital, but there can
be no assurance that such discussions will result in the arrangement of such
capital on terms acceptable to the Company if at all. As more fully discussed in
Note 4, continuation of the Company as a going concern is dependent upon its
ability to resolve its liquidity problem and attain future profitable
operations.


                                       14
<PAGE>

PART II OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On March 30, 2001, the Company was notified by Nasdaq's listing qualifications
department that it fails to comply with the minimum bid price requirement for
continued listing set forth in Marketplace Rule 4310(c), and that its securities
are subject to delisting from the Nasdaq SmallCap Market. The Company requested
an appeal of the staff determination. The Company is awaiting a decision on the
appeal which is expected shortly and which is likely to confirm the delisting
determination of the staff.

On January 11, 2001, the Company was notified by Nasdaq's listing qualifications
department that its public warrants failed to maintain a minimum of two active
market makers over the previous ten consecutive trading days as required for
continued listing on the Nasdaq SmallCap Market. The Company was unable to
regain compliance with this rule by February 12, 2001, and its warrants were
delisted from the Nasdaq SmallCap Market on March 6, 2001.

The Company extended and modified the terms of the 1,146,000 public warrants
sold under the Initial Public Offering. As of January 21, 2001, the commencement
of the former expiration period, (i) the exchange ratio is such that the warrant
holders can buy an aggregate of 229,200 shares of common stock (five warrants
exercisable for one share), (ii) the expiration period is extended to December
31, 2002, and (iii) the exercise price is $2.50 per share.

ITEM 5. OTHER INFORMATION

On May 14, 2001, the Company received a notice of termination from Trippin' 'N
Rhythm Records ("LOMO") whereby LOMO has alleged that the Company has breached
its obligations under the agreement. The notice of termination indicates that
the Company can continue to exploit all existing releases currently available at
retail outlets, but must immediately cease and desist the manufacture and
distribution of any additional products covered by the original aggreement. The
Company denies the allegations set forth and is responding accordingly.

Richard Flynn has an employment agreement with the Company which expires
June 30, 2001, and which the Company does not plan to renew. Mr. Flynn remains
as a director of the Company and as a member of the Independent Board of the
Company in connection with the proposed iball Media, Inc. transaction but is no
longer performing management functions.

The Company and David Pritchard entered into a separation agreement and general
release dated April 21, 2001, whereby Mr. Pritchard resigned his position as
Chief Executive Officer. Under the terms of the agreement, Mr. Pritchard
received $25,000, 377,778 options held by him were canceled and 22,222 options
at $1 per share were immediately vested. The Company also agreed to assign to
Mr. Pritchard its rights and obligations under a first look and creative
development agreement between Paradise and Guy Shalem dated March 21, 2001,
subject to Mr. Shalem's execution of a consent agreement authorizing the
assignment.

On April 17, 2001 William P. Jancosko was appointed interim Chief Financial
Officer of the Company. Mr. Jancosko is an experienced MBA/CPA with a focus on
corporate financing and start-up companies.

The Company and Kelly Hickel entered into an employment agreement dated April
10, 2001, whereby Mr. Hickel will serve as President for a three year term. Mr.
Hickel will receive an annual salary of $250,000 from which he has agreed to a
"Voluntary Reduction" of 20% of his salary in exchange for certain performance
incentives as approved by the compensation committee. The same "Voluntary
Reduction" has been offered to other members of the Company's management team.
Mr. Hickel was also named as the Chairman of the Board of Directors on February
12, 2001. At the same time the Management Services Agreement between the Company
and iball Media, Inc. dated February 10, 2001, was amended to provide for a
reduced monthly retainer of a minimum of $17,000.

The Memorandum of Understanding dated February 10, 2001, stipulating the intent
of the Company and iball Media, Inc. to combine their respective businesses into
a merged entity has been amended to extend the deadline for signing a definitive
agreement to May 25, 2001. There is no assurance that the transaction will be
completed or that it will be completed in the manner described in the Memorandum
of Understanding.

On April 25, 2001, the Company entered into a financing agreement with Porter
Capital Corporation for a credit line against receivables up to $1.5 million.
The interest rate per invoice is the higher of 10.5% per annum or the prime rate
plus 2.50%. The factoring rate is 3.25% per invoice with available rebates up to
2.25% depending on speed of collection of such invoice from the customer. In
conjunction with the transaction, Paradise issued Porter Capital a warrant to
purchase 75,000 shares of Paradise common stock at $.25 per share, vesting and
exercisable immediately.

On March 9, 2001, the Company signed a Financial Advisory Agreement with Venture
Partners Ltd. Venture Partners is a non-exclusive financial advisor in
connection with a review of the Company's operations, and a determination of
strategic direction and financing alternatives available with the goal of
developing initiatives intended to enhance operating results and maximize
shareholder value. The Agreement may be terminated by either party upon thirty
days prior written notice.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

      10.1  Separation Agreement dated April 21, 2001 between Paradise Music &
            Entertainment, Inc. and David Pritchard.

      10.2  Employment Agreement dated April 10, 2001 between Paradise Music &
            Entertainment, Inc. and Kelly Hickel.

      Please also refer to the following documents filed as Exhibits to Form 8-K
filed with the SEC on February 15, 2001 and referenced in the Company's Form
10-K for the year ended December 31, 2000:

            o     Memorandum of Understanding dated February 10, 2001 between
                  the Company and iball Media, Inc.


                                       15
<PAGE>

            o     Management Services Agreement dated February 10, 2001 between
                  the Company and iball Media, Inc.

      (b)   Reports on Form 8-K

            o     Report on Form 8-K/A filed with the SEC on January 16, 2001
                  announcing the cancellation of the BayStar Notes.

            o     Report on Form 8-K filed with the SEC on February 15, 2001
                  announcing the proposed merger and certain management changes.


                                   SIGNATURES

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


                                PARADISE MUSIC & ENTERTAINMENT, INC.


                                By:    /s/ Kelly Hickel
                                    --------------------------------------------
                                    Kelly Hickel, President


                                By:    /s/ Bill Jancosko
                                    --------------------------------------------
                                Bill Jancosko, Interim Chief Financial Officer


Date:  May 21, 2001