PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                               September 30, 2000

                                   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                 September 30, 2000
                               -------------------------------------------------

|_|   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 November 3, 2000, the Issuer had 9,658,841 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

             Consolidated Balance Sheet as of
              September 30, 2000 (Unaudited)                                   4

             Consolidated Statements of Operations for the Three and
              Nine Months Ended September 30, 2000 and 1999 (unaudited)        5

             Consolidated Statements of Cash Flows for the Nine
              Months Ended September 30, 2000 and 1999 (unaudited)           6-7

             Notes to Consolidated Financial Statements (unaudited)         8-13

Item 2  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                             14-18

PART II OTHER INFORMATION

Item 1  Legal Proceedings                                                     18

Item 2  Changes in Securities and Use of Proceeds                          18-19

Item 5  Other Information                                                     19

Item 6  Exhibits and Reports on Form 8-K                                      19

        Signatures                                                            20


                                       3
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                               September 30, 2000
                                   (unaudited)

<TABLE>
<CAPTION>
<S>                                                          <C>               <C>
                                     ASSETS

CURRENT ASSETS:
  Cash                                                       $  1,788,928
  Accounts receivable                                           3,721,667
  Inventory                                                       183,612
  Prepaid expenses and other current assets                       969,079
                                                             ------------

      Total current assets                                                     $6,663,286

PROPERTY AND EQUIPMENT, net                                                     1,907,443

OTHER ASSETS:
  Goodwill, net                                                 8,055,115
  Investment, at cost                                           1,000,000
  Security deposits and other                                     261,363
                                                             ------------

                                                                                9,316,478
                                                                             ------------

                                                                             $ 17,887,207
                                                                             ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                           $  2,602,763
  Accrued expenses                                              2,475,887
                                                             ------------

      Total current liabilities                                                $5,078,650

Long Term Convertible Debt                                                      2,190,421

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 9,658,841 shares                         96,588
  Capital in excess of par value                               23,904,020
  Note receivable, stockholder                                    (64,082)
  Accumulated deficit                                         (13,318,390)
                                                             ------------

      Total stockholders' equity                                               10,618,136
                                                                             ------------

                                                                             $ 17,887,207
                                                                             ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                        Three Months Ended                  Nine Months Ended
                                                           September 30,                      September 30,
                                                    ----------------------------      ------------------------------
                                                        2000            1999              2000              1999
                                                    -----------      -----------      ------------      ------------
<S>                                                 <C>              <C>              <C>               <C>
REVENUES                                            $ 8,504,453      $ 3,638,636      $ 23,771,236      $  7,520,541
                                                    -----------      -----------      ------------      ------------

OPERATING EXPENSES
 Cost of sales                                        6,546,045        2,335,729        18,023,249         4,715,251
 Marketing, selling, general and administrative       3,279,670        1,509,504         9,703,371         5,390,111

                                                    -----------      -----------      ------------      ------------
  Total operating expenses                            9,825,715        3,845,233        27,726,620        10,105,362
                                                    -----------      -----------      ------------      ------------

LOSS FROM OPERATIONS                                 (1,321,262)        (206,597)       (3,955,384)       (2,584,821)

INTEREST EXPENSE (INCOME), NET                          214,814          (10,215)          405,231           (22,247)
                                                    -----------      -----------      ------------      ------------

LOSS BEFORE INCOME TAXES                             (1,536,076)        (196,382)       (4,360,615)       (2,562,574)

INCOME TAXES                                              2,519               --            11,519             3,000
                                                    -----------      -----------      ------------      ------------

NET LOSS                                            $(1,538,595)     $  (196,382)     $ (4,372,134)     $ (2,565,574)
                                                    ===========      ===========      ============      ============

BASIC AND DILUTED LOSS PER COMMON SHARE             $     (0.16)     $     (0.03)     $      (0.51)     $      (0.47)
                                                    ===========      ===========      ============      ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 USED IN COMPUTING BASIC AND DILUTED
 LOSS PER COMMON SHARE                                9,639,953        5,981,591         8,520,624         5,419,774
                                                    ===========      ===========      ============      ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                  Nine months ended September 30,
                                                                  -------------------------------
                                                                       2000             1999
                                                                  ------------      -------------
<S>                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                           $(4,372,134)      (2,565,574)
Adjustments to reconcile to net loss to net cash
  used in operating activities:
     Depreciation and amortization                                     478,035          218,864
     Amortization of goodwill                                          309,870               --
     Loss on disposal of branch operations                                  --           89,646
     Non-cash expense in connection with warrants                       53,733           (4,968)
     Provision for returns                                              37,244               --
     Common stock issued to outside
        directors, consultants, vendors and employees                   52,689          770,509
     Non-cash interest expense                                         419,650               --
Changes in operating assets and liabilities:
     Accounts receivable                                               232,870         (878,823)
     Inventory                                                        (183,612)              --
     Prepaid expenses and other current assets                        (221,435)         (19,668)
     Security deposits and other                                       294,260          156,095
     Deferred revenues                                                      --          (68,612)
     Accrued payroll and related expenses                             (253,494)         647,217
     Accounts payable and accrued expenses                            (245,645)        (395,168)
                                                                   -----------      -----------
NET CASH USED IN OPERATING ACTIVITIES                               (3,397,969)      (2,050,482)
                                                                   -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Payment for property and equipment                               (265,047)        (160,102)
     Acquisition costs, net of cash acquired                          (340,924)        (213,626)

     Note receivable, officer                                               --          (98,800)
                                                                   -----------      -----------
NET CASH (USED IN) INVESTING ACTIVITIES                               (605,971)        (472,528)
                                                                   -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:

     Proceeds from subscription receivables                                 --          100,000
     Proceeds from sale of common stock, net of expenses             1,567,022        5,613,698
     Payments from deferred financing costs                                 --          (75,459)
     Proceeds from long term convertible debt, net of expenses       1,732,017               --
     Proceeds from warrants issued with long term debt                 862,522               --

     Proceeds from note payable                                             --          (48,020)
                                                                   -----------      -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                            4,161,561        5,590,219
                                                                   -----------      -----------

NET INCREASE IN CASH                                                   157,621        3,067,209

CASH, beginning of period                                            1,631,307          609,118
                                                                   -----------      -----------

CASH, end of period                                                $ 1,788,928      $ 3,676,327
                                                                   ===========      ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Nine months ended September 30,
                                                                   -------------------------------
                                                                          2000         1999
                                                                   -------------------------------
<S>                                                                     <C>          <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the year for income taxes                           $ 22,653     $  6,000
                                                                        ========     ========

   Cash paid during the year for interest                               $ 61,743     $     --
                                                                        ========     ========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
  FINANCING ACTIVITIES:
   Stock issued in connection with Shelter acquisition                  $178,200     $     --
                                                                        ========     ========

   Stock issued to vendor for deposit on equipment                      $     --     $166,250
                                                                        ========     ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       7
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)

NOTE 1 - BASIS OF PRESENTATION:

      The 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
      transition period ended December 31, 1999 on Form 10-KSB.

      The consolidated results of operations for the three and nine months ended
      September 30, 2000 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 a music and entertainment company focused on supplying traditional
      and web-centric entertainment businesses with state-of-the art film,
      video, digital and music-related products, services and content. Our
      products, services and content are offered through three principal
      business units, namely:

      PDSE Film and Television includes Straw Dogs, Inc. ("Straw Dogs") a
      commercial production company, Picture Vision, Inc. ("Picture Vision") a
      video, television and commercial production company, and Offshore
      Pictures, Inc. (to be renamed Shelter Films, Inc.) a commercial production
      company. Straw Dogs was acquired in late December 1999, and is included in
      operations as of January 1, 2000. Offshore Pictures was acquired in June
      2000 and is included in operations as of June 2000.

      PDSE Music includes PDSE Records, Inc., which operates Label M, a jazz
      record label and artist support company launched in May of 2000; Mesa, a
      world beat record label; Bluemoon, a contemporary jazz label; Indie 5000,
      experimental hip-hop; Push Records ("Push"); 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;
      All Access Entertainment Management Group, Inc. ("All Access"), a musical
      artist management company; and agreements with Kinetic Records (electronic
      and dance music), Trippin' N' Rhythm (adult urban contemporary and smooth
      jazz), and Jazzica (Brazillian jazz).

      PDSE Digital includes PDSE Digital, Inc. ("PDP"), which was incorporated
      in February 2000, and Paradise Digital Productions. PDP has production and
      strategic relationships with Eruptor Entertainment, Inc., an entertainment
      and leisure Internet destination site targeted at "Generation Y" males,
      and WireBreak.com, a digital entertainment destination site utilizing a
      unique, highly-stylized synchronization of streaming, "made-for-the-web"
      video and interactive animation. PDP has also entered into 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.


                                       8
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO 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, residual, and licensing income is recognized when
      earned if 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.

      In June 2000, the Securities and Exchange Commission issued an amendment
      to Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
      Statements ("SAB 101") that delayed the effective date for adoption of SAB
      101 to the fourth quarter of 2000. SAB 101 provides guidance on revenue
      recognition criteria for certain types of transactions. SAB 101 also
      provides guidance on the disclosures that companies should make about
      their revenue recognition policies and the impact of events and trends on
      revenue. The Company is currently evaluating the impact of SAB 101.
      Management currently believes that certain items of revenue and cost of
      sales may need to be adjusted. The net impact on gross margin is not
      expected to be material.

      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.

      Advances - 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.

      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               Straight-line

Leasehold improvements                  Term of Lease           Straight-line
                                        or 10 years
                                        whichever is shorter

Impairment of Long Lived Assets - The Company's accounting policy is to review
the carrying value of long-lived assets if the facts and circumstances suggest
that there may be impairment. If


                                       9
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)

this review indicates that the carrying value may not be recoverable, as
determined based on the projected undiscounted future cash flows, the carrying
value is reduced to its estimated fair value.

Investment - Investments in nonmarketable equity securities in which the Company
owns less than a 20% interest and where it cannot exercise significant influence
over the operations of the investee, are accounted for using the cost method.
The Company periodically evaluates the recoverability of investments recorded
under the cost method and recognizes loss if a decline in value is determined to
be other than temporary.

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.

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 affect taxable income. Valuation allowances are
established, when necessary, to reduce the deferred income tax assets to the
amount expected to be realized.

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 and nine
months ended September 30, 2000 and 1999. 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.

Fair Value of Financial Instruments - The fair value of the Company's assets and
liabilities which qualify as financial instruments under SFAS No. 107
"Disclosures About Fair Value of Financial Instruments," 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.


                                       10
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)

NOTE 4 - ACQUISITIONS:

      The Shelter Films acquisition was completed on June 15, 2000, and the
      Straw Dogs acquisition was completed on December 16, 1999. The following
      unaudited pro forma condensed consolidated financial information for the
      three and nine months ended September 30, 1999 is presented to show the
      results of the Company as if the Shelter Films and Straw Dogs 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.

<TABLE>
<CAPTION>
                            Three months ended    Nine months ended      Three months ended     Nine months ended
                            September 30, 2000    September 30, 2000     September 30, 1999     September 30, 1999
                            ------------------    ------------------     ------------------     ------------------
<S>                            <C>                   <C>                    <C>                    <C>
Net revenues                   $ 8,504,453           $ 25,064,936           $ 11,145,425           $ 42,502,761
                               -----------           ------------           ------------           ------------
Net loss                       $(1,538,595)          $ (4,328,119)          $     (2,280)          $ (1,238,230)
                               -----------           ------------           ------------           ------------
Loss per common share          $     (0.16)          $      (0.51)          $      (0.00)          $      (0.23)
                               -----------           ------------           ------------           ------------
</TABLE>

NOTE 5 - COMMITMENTS AND CONTINGENCIES:

      The Company has employment agreements with seven of its principal
      executives, which provide for various compensation and bonus arrangements.
      For the three months ended September 30, 2000 and 1999, approximately
      $699,413 and $412,500, respectively, has been expensed under the bonus
      plans and employment agreements. For the nine months ended September 30,
      2000 and 1999, approximately $2,049,413 and $1,215,000, respectively, has
      been expensed under the bonus plans and employment agreements. These costs
      are included in marketing, selling, general and administrative expenses.

      Paradise's subsidiary Shelter Films is involved in an arbitration
      proceeding brought by a former commercial director asserting a claim for
      profit participation in the amount of approximately $190,000 earned during
      the term of his exclusive director agreement. Shelter Films claims that
      the director breached the exclusivity and non-solicitation provisions of
      his agreement and therefore is contesting the director's claim. Paradise
      is incurring attorney's fees in connection with this action. In the
      opinion of management, the ultimate outcome of this action should not have
      a material impact on the liquidity, results of operations or financial
      condition of the Company.

NOTE 6 - STOCKHOLDERS' EQUITY

      The Company entered into consulting agreements with various consultants in
      2000 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 92,500 warrants to purchase the Company's
      common stock. The warrants typically vest immediately and have exercise
      prices ranging from $1.06 to $5.00 per share. The warrants are valued at
      approximately $52,000 as of September 30, 2000, and approximately $52,000
      has been expensed under these agreements.


                                       11
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)

NOTE 7 - ECONOMIC DEPENDENCY:

      Approximately $2,392,445 and $1,844,000 of television and film production
      revenues for the three months ended September 30, 2000 and 1999,
      respectively, were derived from 3 and 2 customers, respectively.
      Approximately $3,523,944 and $3,977,000 of television and film production
      revenues for the nine months ended September 30, 2000 and 1999 were
      derived from 3 and 3 customers, respectively. As of September 30, 2000 and
      1999, approximately $591,580 and $859,000, respectively, was owed in the
      aggregate to the Company related to these revenues.

NOTE 8 - INFORMATION CONCERNING BUSINESS SEGMENTS

      Segment information listed below reflects the three principal business
      units of the Company for the three and nine months ended September 30,
      2000 and 1999. Each segment is managed according to the products or
      services provided to the respective customers and segment information is
      reported on the basis of reporting to the Company's Chief Operating
      Decision Maker (CODM).

<TABLE>
<CAPTION>
      For the three months ended September 30, 2000:

                            PDSE                  PDSE                PDSE
                            Film                 Music             Digital             Corporate           Consolidated
                    ------------           -----------           ---------           -----------           ------------
<S>                 <C>                    <C>                   <C>                 <C>                   <C>
Revenues            $  6,531,186           $ 1,842,549           $  52,767           $    77,951           $  8,504,453
Net Income          $    (18,917)          $    14,359           $(109,138)          $(1,424,899)          $ (1,538,595)

<CAPTION>
      For the three months ended September 30, 1999:

                            PDSE                  PDSE                PDSE
                            Film                 Music             Digital             Corporate           Consolidated
                    ------------           -----------           ---------           -----------           ------------
<S>                 <C>                    <C>                   <C>                 <C>                   <C>
Revenues            $  2,913,326           $   725,310           $      --           $        --           $  3,638,636
Net Income          $    505,952           $    79,156           $      --           $  (781,490)          $   (196,382)

<CAPTION>
      For the nine months ended September 30, 2000:

                            PDSE                  PDSE                PDSE
                            Film                 Music             Digital             Corporate           Consolidated
                    ------------           -----------           ---------           -----------           ------------
<S>                 <C>                    <C>                   <C>                 <C>                   <C>
Revenues            $ 18,599,812           $ 4,824,905           $ 268,568           $    77,951           $ 23,771,236
Net Income          $      7,099           $    30,258           $(670,427)          $(3,739,064)          $ (4,372,134)

<CAPTION>
      For the nine months ended September 30, 1999:

                            PDSE                  PDSE                PDSE
                            Film                 Music             Digital             Corporate           Consolidated
                    ------------           -----------           ---------           -----------           ------------
<S>                 <C>                    <C>                   <C>                 <C>                   <C>
Revenues            $  5,412,402           $ 2,108,139           $      --           $        --           $  7,520,541
Net Income          $    834,952           $  (404,170)          $      --           $(2,996,356)          $ (2,565,574)
</TABLE>


                                       12
<PAGE>

                      PARADISE MUSIC & ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)

NOTE 9 - RECENT AND SUBSEQUENT EVENTS:

      The Company and M. Jay Walkingshaw entered into a separation agreement and
      general release whereby Mr. Walkingshaw resigned from all positions he
      held as an officer or director of the Company as of September 1, 2000.
      Under the terms of the settlement, Mr. Walkingshaw received $50,000 and is
      entitled to additional contingent payments up to a maximum of $200,000 in
      the event that certain EBITDA targets for each of the next two years are
      achieved. In connection with the termination 400,000 options held by Mr.
      Walkingshaw were cancelled, leaving him with 200,000 vested options
      exercisable at $5.00 per share.

      On October 18, 2000, Paradise reached an agreement with the private equity
      funds BayStar Capital and BayStar International Ltd. whereby the BayStar
      entities will exchange $3.1 million in Paradise 9% Senior Subordinated
      Convertible securities for: Paradise's equity stake in Eruptor
      Entertainment, one million shares of Paradise Common Stock and warrants to
      purchase 500,000 shares of Paradise Common Stock at $2.00 per share.
      Formal definitive documents were signed on November 6, 2000. These
      documents are being held in escrow pending the review and execution by
      Eruptor Entertainment of the Consent to transfer the shares, Consent to
      transfer the rights under the Co-Sale Agreement between Paradise and
      Eruptor Entertainment and confirmation that the new stock certificates
      will be issued to the BayStar entities within three days of receipt of the
      proper documentation. The exchange will enable Paradise to retire all
      outstanding Paradise 9% Senior Subordinated Convertible securities and
      thereby eliminate all outstanding long-term debt. The transaction will
      also eliminate the related annual interest expense of approximately
      $288,000 and the non-cash imputed interest expense of approximately
      $397,900. Paradise will record a one-time net loss of less than $1 million
      related to the exchange in the fourth quarter.


                                       13
<PAGE>

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

General

Paradise Music & Entertainment, Inc. ("Paradise" or the "Company") is engaged in
several aspects of the creative, entertainment and music industries. Our
strategic goal is to create an entertainment company capable of producing
quality content for any entertainment medium. We intend to increase our presence
in the entertainment industry by concentrating our efforts on developing our
core businesses, by acquiring other viable companies which enhance our core
businesses and by acquiring companies engaged in collateral lines of business.

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

The results of operations of the Company's operating subsidiaries are subject to
seasonal and other variations. Consequently, the Company's results of operations
from period to period may be materially affected. The timing of new record
releases, music video or live event productions and commercial production
activity, for example, could materially impact the Company's operating results.
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.

On May 1, 2000, members of the Screen Actors Guild and the American Federation
of Television and Radio Artists commenced a strike asking members to refuse to
perform in radio and television commercials (the "SAG strike"). These unions
represent about 135,000 actors. The SAG strike has had a negative impact on the
commercial production industry and Paradise's commercial production division,
but on October 22, a tentative resolution was announced by the involved parties,
with a ratification of the terms expected in the near future. The SAG strike has
had a negative impact on operations and its continuance would negatively impact
PDSE Film and TV Group operations and revenues.

As part of a general, active and ongoing cost cutting discipline aimed at better
aligning Paradise's overhead structure and costs with its current revenue
streams, the Company has continued to implement a program of personnel, internal
and external overhead cost reductions. Excluding one-time costs related to these
actions, these reductions are expected to have a beneficial impact on expenses
throughout the remainder of the fiscal year and beyond.

The Company is reviewing the profit and/or loss projections and cash needs of
each of its businesses. This review has been necessitated by the limited
available cash resources of the Company and the commitment of management to
reach profitability in the next year. The Company will be considering the
possible sale of certain divisions or operations as well as the implementation
of cutbacks in personnel and other costs. Among the actions being considered is
the possible transfer or sale of certain of the business units of the Company to
the executives in charge of such operations in exchange for an ongoing profit
participation and/or termination of their employment contracts. It is
anticipated that the Company will enter into a revised employment agreement with
its Chief Executive Officer, Jesse Dylan, which reduces or eliminates the
compensation of Mr. Dylan for his administrative services and in consideration
for this reduction provides Mr. Dylan with a substantial share of revenues
received from commercial directing and services provided by him to customers. It
is also anticipated that effective on or after December 31, 2001 either party
may terminate the employment agreement on 30 days prior written notice.

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. The future cash requirements of the Company
will be dependent upon the outcome of this review and the changes put into
effect. It is anticipated that the Company will need, in any event, to raise
additional funds through equity or debt financing in support of its overall
plans. There can be no assurance that such financing can be obtained on terms
acceptable to the Company.


                                       14
<PAGE>

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

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 September 30, 2000 Compared to Three Months Ended September
30, 1999.

In aggregate, revenues for the three months ended September 30, 2000 increased
to $8,504,453 or 134% compared to revenues of $3,638,636 in the three-month
period ended September 30, 1999. The net loss was $1,538,595 for the three
months ended September 30, 2000 compared to $196,382 for the three months ended
September 30, 1999. While Music Group and Film and TV Group revenues were
higher, Film and TV Group revenues, principally from commercial production, were
negatively impacted by the SAG strike. As part of general ongoing overhead
reduction efforts, the Company has initiated personnel and overhead cost
reductions.

PDSE Film and TV Group revenues increased to $6,531,186 for the three months
ended September 30, 2000 from $2,913,326 for the three months ended September
30, 1999, an increase of $3,617,860 or 124%. Notwithstanding the impact of the
SAG strike, the increase in revenues is primarily due to contribution of
commercial production businesses, Straw Dogs and Shelter Films, which were
acquired in December 1999 and June 2000, respectively. There was no contribution
from these businesses in the year-ago period.

PDSE Film and TV Group cost of sales increased to $5,416,079 for three months
ended September 30, 2000 from $1,930,551 for the three months ended September
30, 1999, an increase of $3,485,528 or 181% . Gross profit as a percentage of
PDSE Film revenues decreased to 17% for the three months ended September 30,
2000, compared to 34% for the three months ended September 30, 1999. The change
in cost of sales and gross profit margin is primarily due to the consolidation
of the operating results of Straw Dogs and Shelter Films, which businesses carry
relatively lower gross profit margins than other Film and TV Group businesses.

PDSE Music Group revenues increased 154% to $1,842,549 for the three months
ended September 30, 2000, from $725,310 for the three months ended September 30,
1999. The increase in revenues is primarily due to the increased sales generated
from a growing slate of recordings being released through the Company's
agreement with Kinetic Records. In addition there was an increase in royalty and
residual revenues from original music scores made for television programs and
filmed entertainment such as Pokemon.

PDSE Music Group cost of sales increased to $1,118,967 for the three months
ended September 30, 2000 from $405,178 for the three months ended September 30,
1999, an increase of $713,789 or 176%. The increase is due to greater overall
album sales and new releases. Gross profit, as a percentage of recorded music
and artist management revenues, was 40% for the three months ended September 30,
2000, compared to 44% for the three months ended September 30, 1999. The
decreased gross margin is due to the increase in sales of recorded music product
compared to higher margin artist management commissions in the prior year.


                                       15
<PAGE>

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

PDSE Digital Group revenue increased to $52,767 for the three months ended
September 30, 2000. This is the third quarter of operations for this business,
so there are no comparable results for the same period last year. Revenues were
primarily the result of production work on several Internet series. The gross
profit for this division was $41,767.

Paradise's marketing, selling, general and administrative expenses increased to
$3,279,670 for the three months ended September 30, 2000 from $1,509,504 for the
three months ended September 30, 1999, an increase of $1,770,166 or 117%. The
increase is primarily attributable to marketing, selling, general and
administrative expenses resulting from the addition of the Straw Dogs and
Shelter Films operations. Some of these increases have been offset by personnel
and overhead cost reductions initiated by the Company toward the end of the
second quarter of 2000. Marketing, selling, general and administrative expense
also reflects $368,288 in one-time costs associated with severance and other
costs due to the overhead reduction program initiated primarily in the second
quarter of 2000. The depreciation and amortization expenses totaled $271,353 for
the three months ended September 30, 2000, compared to $34,000 for the three
month period ended September 30, 1999, principally reflecting the impact of the
Straw Dogs acquisition.

Net interest expense increased to $214,814 for the three months ended September
30, 2000, compared to net interest income of $10,215 for the three months ended
September 30, 1999. The increase is the result of interest expense related to $3
million convertible debt financing completed in March 2000. Interest expense in
the three months ended September 30, 2000 included $227,760 in non-cash interest
expense.

The Company's net loss increased to $1,538,595 for the three months ended
September 30, 2000, from $196,382 for the three months ended September 30, 1999,
an increase of $1,342,213 or 683%. The increase was primarily due to increased
marketing, selling, general and administrative expenses principally related to
the addition of the Straw Dogs and Shelter Films operations, increased interest
expenses, decreased profitability associated with the effect of the SAG strike,
costs associated with the development of new record labels and the development
of the PDSE Digital initiative, $368,288 in one time severance and other costs
due to the overhead reduction program, legal costs associated with the
settlement of the litigation against Rave brought in March 2000, increased
depreciation and amortization expenses resulting principally from the Straw Dogs
acquisition. These costs were partially offset by personnel and expense
reductions as mentioned above.

Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999.

In aggregate, revenues for the nine months ended September 30, 2000 increased to
$23,771,236 or 216% compared to the nine-month period ended September 30,1999.
The net loss was $4,372,134 for the nine months ended September 30, 2000
compared to $2,565,574 for the nine months ended September 30, 1999. A
significant portion of the loss during the nine months ended September 30, 2000,
relates to $2,497,796 associated with additional overhead related to the
commercial production operations of Straw Dogs and Shelter Films, $670,427 in
costs associated with the development of PDSE Digital, $633,694 in costs
associated with the development of new record labels, interest expense related
to the $3 million convertible debt financing, increased depreciation and
amortization expense associated with the Straw Dogs acquisition and decreased
profitability associated with the effect of the SAG strike.

While both Music Group and Film Group revenues are higher, Film Group revenues,
principally from commercial production, were negatively impacted due to the SAG
strike. In order to better align its cost structure and overhead with its
revenues, the Company has initiated personnel and overhead cost reductions.

PDSE Film and TV Group revenues increased to $18,599,812 for the nine months
ended September 30, 2000 from $5,412,402 for the nine months ended September 30,
1999, an increase of $13,187,410 or 244%. The increase in revenues is primarily
due to the contribution from the operations of Straw Dogs and Shelter Films,
although the performance of these has been less than expected due to the SAG
strike.


                                       16
<PAGE>

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

PDSE Film and TV Group cost of sales increased to $15,012,957 for the nine
months ended September 30, 2000 from $3,729,906 for the nine months ended
September 30, 1999, an increase of $11,283,051 or 302%. Gross profit as a
percentage of PDSE Film revenues decreased to 19% for the nine months ended
September 30, 2000, compared to 31% for the nine months ended September 30,
1999. The change in cost of sales and gross profit margin is primarily due to
the acquisition of Straw Dogs and Shelter Films which operate with lower gross
profit margins.

PDSE Music revenues increased to $4,824,905 for the nine months ended September
30, 2000, from $2,108,139 for the nine months ended September 30, 1999, an
increase of $2,716,766 or 128%. The increase in revenues is primarily due to the
increased sales generated from a growing slate of recordings being released
through the Company's agreements with Kinetic Records and the adult contemporary
jazz label, Trippin' 'N' Rhythm Records. In addition there was an increase in
royalty and residual revenues from original music scores made for television
programs such as Pokemon.

PDSE Music cost of sales increased to $2,777,316 for the nine months ended
September 30, 2000 from $985,365 for nine months ended September 30, 1999, an
increase of $1,791,951 or 182%. The increase is principally due to greater
overall album sales and new releases. Gross profit, as a percentage of recorded
music and artist management revenues, was 42% for the nine months ended
September 30, 2000, compared to 53% for the nine months ended September 30,
1999. The decreased margin is due to the increase in sales of recorded music
product compared to higher margin artist management commissions in the prior
year.

PDSE Digital revenue was $268,568 for the nine months ended September 30, 2000.
This is the third quarter of operation for this business, so there are no
comparable results for the same period last year. Revenues were primarily the
result of production work for various destination portals and Internet
syndicators. The net loss for this division was $670,427.

Paradise's marketing, selling, general and administrative expenses increased to
$9,703,371 for the nine months ended September 30, 2000 from $5,390,111 for the
nine months ended September 30, 1999, an increase of $4,313,260 or 80%. The
increase is primarily attributable to marketing, selling, general and
administrative expenses resulting from the addition of the Straw Dogs and
Shelter Films operations. Additionally, marketing, selling, general and
administrative expense reflects $368,288 in one-time costs associated with
severance and other costs due to the overhead reduction program initiated
primarily in the second quarter of 2000. Depreciation and amortization expenses
increased to $787,906 for the nine months ended September 30, 2000, compared to
$218,864 for the nine month period ended September 30, 1999, principally as a
result of the impact of the Straw Dogs acquisition. Some of these increases have
been offset by personnel and overhead cost reductions initiated by the Company
toward the end of the second quarter.

Net interest expense increased to $405,231 for the nine months ended September
30, 2000, compared to net interest income of $34,279 for the nine months ended
September 30, 1999, an increase of $439,510. The increase is the result of
interest due on the convertible debt issued in March. A majority of the increase
is due to the amortization of the interest expense incurred on the convertible
debt.

The Company's net loss increased to $4,372,134 for the nine months ended
September 30, 2000, from $2,565,574 for the nine months ended September 30,
1999, an increase of $1,806,560 or 70%. The increase was primarily due to
increased marketing, selling, general and administrative expenses principally
related to expenses associated with the addition of the Straw Dogs and Shelter
Films operations, one-time severance and other costs due to the overhead
reduction program, increased interest expenses, decreased profitability
associated with the effect of the SAG strike, costs associated with the
development of new record labels and related businesses and the development of
the PDSE Digital initiative, legal costs associated with the settlement of the
litigation against Rave brought in March 2000, increased depreciation and
amortization expenses resulting principally from the Straw Dogs acquisition.
These costs were partially offset by personnel and expense reductions as
referenced above.


                                       17
<PAGE>

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

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities for the nine months ended September 30,
2000 was $3,397,969. The operating loss for the nine months was partially offset
by non-cash expenses such as depreciation and amortization and non-cash interest
expense.

Net cash used in investing activities for the nine months ended September 30,
2000 was $605,971. This was principally due to payments of acquisition costs in
addition to amounts used to acquire property and equipment.

Net cash provided by financing activities for the nine months ended September
30, 2000 was $4,161,561 which is substantially represented by the net proceeds
from the issuance of subordinated convertible debt and warrants to BayStar
Capital and BayStar International, and the net proceeds of a private equity
financing with Renessence Ventures.

The Company had working capital of $1,584,636 and stockholders' equity of
$10,618,136 at September 30, 2000. 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. This section should be read in conjunction with the last
paragraph set forth at Management's Discussion and Analysis of Financial
Condition and Results of Operations - General section.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Paradise's subsidiary Shelter Films is involved in an arbitration proceeding
brought by a former commercial director asserting a claim for profit
participation in the amount of approximately $190,000 earned during the term of
his exclusive director agreement. Shelter Films claims that the director
breached the exclusivity and non-solicitation provisions of his agreement and
therefore is contesting the director's claim. Paradise is incurring attorney's
fees in connection with this action. In the opinion of management, the ultimate
outcome of this action should not have a material impact on the liquidity,
results of operations or financial condition of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On October 18 2000, Paradise reached an agreement with the private equity funds
BayStar Capital and BayStar International Ltd. whereby the BayStar entities will
exchange $3.1 million in Paradise 9% Senior Subordinated Convertible securities
for: Paradise's equity stake in Eruptor Entertainment, one million shares of
Paradise Common Stock and warrants to purchase 500,000 shares of Paradise Common
Stock at $2.00 per share. Formal definitive documents were signed on November 6,
2000. These documents are being held in escrow pending the review and execution
by Eruptor Entertainment of the Consent to transfer the shares, Consent to
transfer the rights under the Co-Sale Agreement between Paradise and Eruptor
Entertainment and confirmation that the new stock certificates will be issued to
the BayStar entities within three days of receipt of the proper documentation.
The exchange will enable Paradise to retire all outstanding Paradise 9% Senior
Subordinated Convertible securities and thereby eliminate all outstanding
long-term debt. The transaction will also eliminate the related annual interest
expense of approximately $288,000 and the non-cash imputed interest expense of
approximately $397,900. Paradise will record a one-time net loss of less than $1
million related to the exchange in the fourth quarter.

Paradise decreased outstanding warrants issued to outside directors. Warrants to
purchase an aggregate of 325,000 shares of Paradise common stock at an exercise
price ranging from $5.00 to $5.25 per share were exchanged for warrants to
purchase an aggregate of 162,500 shares of Paradise common stock at an exercise
price of $1.25 per share.


                                       18
<PAGE>

Paradise decreased outstanding warrants issued to certain consultants. Warrants
to purchase an aggregate of 525,000 shares of Paradise common stock at an
exercise price ranging from $4.00 to $8.00 per share were exchanged for warrants
to purchase an aggregate of 270,000 shares of Paradise common stock at an
exercise price ranging from $1.25 to $2.50 per share.

ITEM 5. OTHER INFORMATION

On May 1, 2000, members of the Screen Actors Guild and the American Federation
of Television and Radio Artists commenced a strike asking members to refuse to
perform in radio and television commercials (the "SAG strike"). These unions
represent about 135,000 actors. The SAG strike has had a negative impact on the
commercial production industry and Paradise's commercial production division. As
of September 30, 2000 the SAG strike was still in effect, but on October 22 a
tentative resolution was announced by the involved parties, with a ratification
of the terms expected in the near future. The SAG strike has had a negative
impact on operations and its continuance would negatively impact PDSE Film and
TV Group operations and revenues.

On October 20, 2000, Paradise retained the investment banking and brokerage
firm, Donald & Co. Securities, Inc. as its non-exclusive financial advisor.
Donald & Co. will assist Paradise in developing and implementing its financial
plans and securing any needed capital. Donald & Co. will also work to expand
Paradise's visibility, support and base of market makers in the financial
community. The agreement expires June 30, 2002, and is cancelable by either
party with 30 days prior written notice. In consideration of Donald & Co.'s
services, Paradise has granted it warrants to purchase 200,000 shares of common
stock at $1.50 per share. The warrants can be called by Paradise pursuant to
certain conditions. The warrants vest over the term of the agreement, with
100,000 vesting at the time of signing, and the remainder vesting over the
duration of the agreement. The warrants expire in equal amounts on December 31,
2002 and December 31, 2003.

Paradise reported that it was notified by Nasdaq's listing qualifications
department on October 18, 2000 that its common stock had failed to maintain a
minimum bid price of $1.00 over the last 30 consecutive trading days, as
required for continued listing on the Nasdaq SmallCap Market. Paradise had until
January 16, 2001 to regain compliance. On November 7, 2000, Paradise was
informed by Nasdaq that based on its having maintained a minimum bid price of at
least $1.00 for a minimum of 10 consecutive trading days, Nasdaq had determined
that Paradise was in full compliance with Nasdaq rules and closed the matter.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

            28 - Financial Data Schedule

      (b)   Reports on Form 8-K

            There were no Reports on Form 8-K filed during the three months
            ended September 30, 2000.


                                       19
<PAGE>

                                   SIGNATURES

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

                                        PARADISE MUSIC & ENTERTAINMENT, INC.


                                        By: /s/ Richard J. Flynn
                                           -------------------------------------
                                           Richard J. Flynn, CHIEF FINANCIAL
                                           OFFICER

Date: November 14, 2000


                                       20