<PAGE>   1

                         =============================
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

               [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      FOR THE TRANSITION PERIOD FROM ______ TO______.

                         COMMISSION FILE NUMBER 0-24134

                             INTEGRITY INCORPORATED
             (Exact name of registrant as specified in its charter)

   INCORPORATED IN DELAWARE                   I.R.S. EMPLOYER IDENTIFICATION
                                                      NUMBER 63-0952549

                                 1000 CODY ROAD
                             MOBILE, ALABAMA 36695
                    (Address of principal executive offices)

                                  334-633-9000
              (Registrant's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                      CLASS A COMMON STOCK, $.01 PAR VALUE
                                (Title of Class)

         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.
[X] Yes [ ] No

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this form 10-K. [X]

         The aggregate market value of the Class A Common Stock held by
non-affiliates of the Registrant (assuming, for purposes of this calculation,
without conceding, that all executive officers and directors are "affiliates"),
was $6,323,438 at March 13, 2000, as reported by the Nasdaq SmallCap Market.

         The number of shares of Registrant's Class A Common Stock, $.01 par
value per share, outstanding at March 13, 2000 was 2,179,000.

         The number of shares of Registrant's Class B Common Stock, $.01 par
value per share, outstanding at March 13, 2000 was 3,435,000.

                      DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 11, 2000 are incorporated by reference into Part
III.

<PAGE>   2

         SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

         Certain of the matters discussed in this document and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements for purposes of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and as such may involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
Integrity Incorporated (the "Company" or "Integrity") to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. The words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate," and similar expressions are intended to
identify such forward-looking statements. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements due to a variety of factors, including without limitation those
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factor's Affecting Future Performance." All written or
oral forward-looking statements attributable to the Company are expressly
qualified in their entirety by these cautionary statements.

                                    PART 1.

ITEM 1.  BUSINESS

INTRODUCTION

         Integrity is a producer and publisher of Christian lifestyle products
developed to facilitate worship, entertainment and education. Product formats
include cassettes, compact discs, videos and printed music. The Company produces
praise and worship music in different musical styles for specific audiences such
as children's music, urban music, youth music and live worship for adult
audiences. Integrity's products are sold primarily through retail stores and
direct to consumers throughout the United States and internationally in 143
other countries worldwide. The Company has determined that its business is
operated in segments based on these distribution channels. For specific
information regarding the financial performance of each segment, see Note 9 to
Notes to Consolidated Financial Statements.

         Integrity's recorded music products fall into two broad categories (i)
concept products which are centered on a specific theme, such as praise and
worship music and (ii) artist products, in which the artist is the focal point.
In addition to recorded music, Integrity produces Christian music video
products for certain praise and worship artists. Integrity's products also
include software and printed music, such as songbooks and sheet music, designed
primarily for distribution to churches and choral groups.

         Integrity was organized in Alabama as a corporation on May 1, 1987 and
was reincorporated in Delaware on October 1, 1993.

PRODUCTS

     Concept Products

         Praise and worship concept products are centered around a specific
theme or event rather than being focused on a specific artist. The Company's
original concept product series was Hosanna! Music(R), recorded praise and
worship music which is composed of live recordings sung by an audience and
worship leader rather than a performing artist. The Company's Hosanna! Music(R)
series has proven to be a successful product line having just produced its 98th
recording.

         The Company's concept product line now includes: Hosanna! Music(R),
Urban Praise(R) and FairHope Records(R), designed for budget-conscious
customers, featuring classic praise and worship titles grouped according to
themes; World's Best Praise and Worship(R) series; and Integrity Notes(R), a
series of greeting cards for general occasions and specialty cards related to
seasonal events, featuring verses from our praise and worship songs.

     Artist Products

         In addition to concept products, the Company also produces artist
recordings which have recently included "Live From The Potter's House" with
T.D. Jakes, "God Is Good" with Don Moen, "Jerusalem Arise" with Paul Wilbur and
"We Offer Praises" with Ron Kenoly. Previous Integrity produced recordings by
Ron Kenoly include "Welcome Home," recipient of the Dove Foundation's "Family
Approved" seal of excellence; "Sing Out," the first Integrity title to enter
Billboard's Top 200;

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"God is Able", "High Places", "Majesty" and "Lift Him Up," which has received
Gold certification by the Recording Industry Association of America. Previous
recordings by Don Moen include the Gold-certified "Give Thanks", "Worship With
Don Moen", and "God Will Make A Way." Previous recordings by Paul Wilbur include
"Shalom Jerusalem", "Up to Zion" and "Holy Fire." A previous recording by T. D.
Jakes was "Woman, Thou Art Loosed".

     Other Products

         The Company has also produced numerous musical video products,
including: recordings of live performances by the Company's artists, such as
Ron Kenoly's videos "We Offer Praises", "Majesty", "High Places," "Welcome
Home," "Sing Out," the first Hosanna! title to appear on Billboard's Top 40
Music Video Chart, and the Gold-certified videos "Lift Him Up" and "God is
Able". The popular children's music series Just-For-Kids(R), featuring the Donut
Man(R), includes nine Gold-certified and one Platinum-certified videos. Other
videos include the Gold-certified Praise! Aerobics(R), praise and worship music
recorded specifically for aerobic exercises and "Woman Thou Art Loosed" with T.
D. Jakes. Other products include Integrity Music Worship Software(R), designed
to assist music ministers in the selection of songs (over 5,000 featured),
planning rehearsals and services, and reviewing song usage tracking.

         Integrity's Christian music products also include printed product
lines such as songbooks and sheet music designed primarily for distribution to
churches and choral groups. The Company produces "God With Us", winner of the
Gospel Music Association Dove Award in April 1994 for best musical and still at
the top of the non-seasonal musical charts for six years running; "God For Us',
"It Took A Lamb" and "Let Your Glory Fall", ranked among the top 10 in the
adult collection non-seasonal musical charts; "Mighty Cross", nominated for the
1995 best musical Dove Award; and "Because We Believe", ranked among the top 10
in the youth non-seasonal musical charts. These musicals were ranked by The
Church Music Report ("TCMR"). Other printed music products include "The
Celebration Hymnal," a joint venture with Word Entertainment, featuring over
700 songs and hymns.

PRODUCT CREATION

         The Company's product development process is based upon the creation
of new concept or artist products which are designed, scripted and marketed to
respond to a specific demand. Integrity conducts a planning process for each
new product in order to determine whether the final product is likely to be
successful in the market for which it is designed.

         New product concepts are based on responses to surveys of the
Company's current customer base as well as other market and product research
conducted by the Company and by independent consultants. Once a new product
concept has been identified, Integrity assembles a creative team which includes
one or more artists and producers, generally employed on a freelance or
contract basis, and representatives of Integrity's creative, marketing and
finance divisions.

         Following the development of the product concept, the product is
recorded at Integrity's studio in Mobile, Alabama, in live settings at churches
or civic auditoriums, or in independent studios in cities such as Los Angeles,
California or Nashville, Tennessee. A significant amount of recording is done
in independent studios. The studios in Mobile, Alabama are mainly used as a
post-production facility where the recordings are edited and mixed. The
manufacturers receive the master recordings from Integrity in digital format
and then produce a master to be used in the manufacturing process. The Company
reviews the final manufacturing master prior to production to ensure that the
quality of the recording has been maintained.

DISTRIBUTION

         The Company distributes its products domestically through two primary
channels: direct to consumer and retail markets. In addition, the Company has
an international distribution network that reaches markets in 143 countries.

     Direct To Consumer

         The Company's direct to consumer activities are based on a variety of
methods designed to reach the consumer directly. Among the methods are
continuity clubs, in which the member receives a selection every six to eight
weeks and is billed for each selection. Shipments continue until the Company is
instructed to cancel the membership. This differs from certain other music
clubs in which members have a "negative option" allowing them to decline
monthly selections before they are mailed and in which their only obligation is
to purchase a certain number of products over a stated period of time.

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         The Company maintains a database of potential direct to consumer
customers that includes subscribers to Christian magazines, purchasers of
Christian mail order products and donors to Christian ministries. When
available, the Company obtains new mailing lists to conduct a one-time
solicitation of an approved direct mailing. Once a response is received by
Integrity, the customer's name is added to the Company's own mailing list.
Integrity also builds its direct to consumer database through space
advertisements in Christian magazines, television advertising and Internet
marketing.

         The Company's first continuity club, Hosanna! Music(R) has just
produced its 98th recording. Currently the Company operates several continuity
clubs, including the Integrity Notes(R) series. The clubs are launched with a
mailing of a new product announcement and solicitation to as many as 500,000
people. After the initial mailing, the Company postpones further direct mail
solicitation campaigns for up to six months, utilizing the time to study the
response and evaluate the sustainability of the initial members. If the initial
membership proves to be sustainable based on product shipments, the Company
will roll out the club in an extensive direct mail effort to an average of
900,000 people.

         In addition to continuity clubs, the Company's direct to consumer
program includes mail order catalog sales, telemarketing, one-time offers to
active customers, television offers and sales through the Internet. The mail
order catalog and telemarketing programs are designed to increase sales to the
Company's current customers by increasing their awareness of Integrity's full
line of products, as well as to develop new customers for Integrity products.
This division also includes direct sales to churches of products such as choral
music and printed products, including "The Celebration Hymnal", which features
over 700 songs and hymns, introduced in 1997 in a joint venture with Word
Entertainment.

     Retail Markets

         Integrity's retail sales activities are targeted at two markets, the
Christian bookstore ("CBA") market, and the general retail market. The Company
currently utilizes Word Entertainment ("Word") to serve these markets.

         All CBA orders are fulfilled through Word, which is responsible for
warehousing Integrity's products which are shipped and invoiced based on orders
received directly from Word's sales force through a computerized order entry
system. Word services the Company's customers from one warehouse located in
Tennessee. During 1999, SoundScan ranked Word as the number one distribution
company in the CBA market. SoundScan also ranked Integrity as the number two
record label in CBA for two consecutive years, up from the number three
position in 1997. The distribution agreement with Word also offers the Company
access to the Sony/Epic distribution system for sales in the general market.

         Retail sales efforts are supported by Integrity's own in-house staff
for marketing, covering such things as point-of-purchase advertising, radio
promotion, and product publicity. The Company also utilizes the marketing
expertise of several outside marketing firms.

     International

         The Company's international sales are made through a subsidiary
located in the United Kingdom, responsible for Europe; a subsidiary located in
Australia, responsible for Australia, New Zealand and the Solomon Islands; a
subsidiary located in Singapore, responsible for Singapore and Myanmar
(formerly known as Burma); and an office located at the Company's headquarters
in Mobile, Alabama, responsible for Latin America. In addition, products are
sold to more than 60 independent distributors who are licensed to manufacture
Integrity products from master recordings and distribute them in a country or
region and approximately 18 importers to whom the Company provides products.
The Company's international distribution network reaches markets in 143
countries. The Company continually evaluates ways to expand into various
markets through importers or through distributors licensed to produce Integrity
products from a master recording. For specific financial information regarding
the geographic areas that the Company's international distribution network
reaches, see Note 9 to Notes to Consolidated Financial Statements.

         The Company also develops products specifically for certain markets.
This effort includes recording songs in indigenous languages as well as
utilizing local artists and local songs to produce the recordings. Integrity
currently produces products in the Russian, Spanish, Mandarin Chinese, French,
German, Portuguese and Indonesian languages. Integrity artists are also
involved in live performance tours to various countries.

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<PAGE>   5

MUSIC PUBLISHING

         The Company's song catalog has accumulated ownership rights for over
2,700 songs and has generated a significant amount of royalty income from use
by third parties. A majority of the songs appearing on Integrity recordings are
published out of the Company's song catalog.

         Integrity emphasizes the development and maintenance of its song
catalog. Songs are selectively added to the song catalog based on the concept
or theme of a specific product design or because the Company believes that the
songs have the potential to be a part of a future Integrity product. The
Company believes that its efforts have produced a distinctive Christian song
catalog whose titles are used not only on recorded media and radio and
television programming, but also in church services.

         The Company licenses the use of its songs to churches and other choral
groups through Christian Copyright Licensing, Inc. ("CCLI"). Through CCLI,
churches and choral groups in the United States are able to pay one licensing
fee for the use of numerous Christian music copyrights. The Company is paid a
percentage of the licensing fees collected by CCLI based on CCLI's estimates of
the percentage of Integrity songs utilized by the churches and choral groups.

WAREHOUSING AND FULFILLMENT

         Integrity currently contracts with Word for its retail market
warehousing, physical inventory and distribution functions. Word is one of
several companies that provide this service in the CBA market. Integrity
recently signed a four-year renewal of this contract with Word. All retail
market sales functions are currently performed by Word's sales force. Many
direct to consumer fulfillment services, excluding warehousing and physical
inventory functions, for Integrity's direct to consumer programs are provided
by Client Logic (formerly known as LCS Industries, Inc.), located in Clifton,
New Jersey. Some of the order entry and data fulfillment services for direct to
consumer are handled by Integrity's own staff in Mobile. In addition to
managing most of the Company's database of customer names, Client Logic also
provides most of the fulfillment activities of the direct to consumer
operation, including order receipt and processing, data entry, invoicing and
payment processing. Integrity's own distribution center located in Mobile is
responsible for its direct to consumer and international warehousing, physical
inventory and distribution functions.

COPYRIGHTS AND ROYALTY AGREEMENTS

         The Company's music products are protected under applicable domestic
and international copyright laws. In addition, Integrity currently has
ownership rights to approximately 2,700 songs, which are also protected under
copyright law. In general, works that are protected under copyright laws are
proprietary, which means that for a fixed period of time the copyright owner
has the exclusive right to control the publication (or other reproduction) of
the copyrighted work. Subject to the compulsory licensing provisions of the
United States Copyright Act covering audio records, a copyright owner may
license others to publish, reproduce, or otherwise use its copyrighted work, on
an exclusive or nonexclusive basis, subject to limitations (such as duration
and territory) and upon such other terms and conditions, including royalty
payments, as the copyright owner may require. Despite these protections, the
Company's revenues may be adversely affected by the unauthorized reproduction
of recordings for commercial sale, commonly referred to as "piracy" and by home
taping for personal use.

         Integrity pays royalties in two different categories. The Integrity
songwriters are paid by Integrity's publishing division when their songs are
used on an Integrity product or by other companies when used on third party
products. Artists, producers and other song publishers are paid based on
Integrity's sales of products containing their works. Integrity owns the
majority of the songs it produces, and does not have to pay publisher royalties
to third parties for those songs.

COMPETITION

         The Company faces intense competition for discretionary consumer
spending from numerous other record companies and other forms of entertainment
offered by film companies, video companies and others. Integrity competes
directly with other record companies and music publishers that distribute
Christian music to Christian bookstores, as well as a number of secular record
companies. Many of the Company's competitors have substantially greater
financial resources than the Company. The Company competes on the basis of the
Company's ability to produce new products that are attractive to consumers,
sign established and new artists and songwriters and gain access to
distribution channels.

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         Many of the Company's competitors have significantly longer operating
histories and greater revenues from their music product lines. The Company's
ability to continue to compete successfully will be largely dependent upon its
ability to build and maintain its reputation for quality Christian music and
other communication products.

EMPLOYEES

         As of December 31, 1999, the Company employed 150 individuals, 122 of
whom are located at the Company's Mobile, Alabama, headquarters.

         The Company has no collective bargaining agreements covering any of its
employees, has never experienced any material labor disruption and is unaware
of any efforts or plans to organize its employees. The Company considers
relations with its employees to be good.

GOVERNMENT REGULATION

         The Company's direct to consumer program is subject to federal
regulations governing unfair methods of competition and unfair or deceptive
acts and practices in or affecting commerce. These regulations generally
prohibit the solicitation of any order for sale of merchandise through the mail
unless at the time of solicitation the seller has a reasonable basis to expect
that he will be able to ship the merchandise within the time period indicated
or within thirty days if no time period is indicated. If there is any delay in
the applicable time period, the regulations require the seller to give the
buyer the option to cancel the order and receive a prompt refund or consent to
a delay in shipment. Management believes that the Company is in full compliance
with the applicable federal regulations governing its direct to consumer
programs.

ITEM 2.  PROPERTIES.

         The Company owns a 25,000 square foot headquarters and studio facility
in Mobile, Alabama, which houses its executive offices, management and sales
staff. This facility was constructed in 1983 and is pledged as security for the
Company's indebtedness. The Company leases a 30,000 square foot building
located in Mobile, Alabama, which houses its distribution and warehousing
center.

ITEM 3.  LEGAL PROCEEDINGS.

LEGAL PROCEEDINGS

         The Company is not a party to any material legal proceedings that
management believes will have a material effect on Integrity's business,
financial condition or results of operations.

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

         No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the year ended December 31, 1999.

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<PAGE>   7

                                    PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Integrity's common stock is traded on The Nasdaq SmallCap Market under
the symbol ITGR. The table below sets forth the quarterly high and low sales
price as reported on The Nasdaq National Market and The Nasdaq SmallCap Market
for the Class A Common Stock from January 1, 1998 through March 13, 2000. The
last sale price of the Class A Common Stock on March 13, 2000 was $3.125 per
share.

<TABLE>
<CAPTION>
                                                       High         Low
                                                      ------       ------
              <S>                                     <C>          <C>
              Fiscal Year 1998
              First Quarter                           $ 2.00      $ 1.00
              Second Quarter                            3.75        1.63
              Third Quarter                             3.63        2.50
              Fourth Quarter                           12.25        1.50

              Fiscal Year 1999
              First Quarter                           $ 7.25      $3.375
              Second Quarter                            4.50       2.096
              Third Quarter                            4.125        2.75
              Fourth Quarter                           3.688       2.781

              Fiscal Year 2000
              First Quarter (through March
              13, 2000)                               $ 4.00      $2.813
</TABLE>

         As of March 13, 2000, there were approximately 108 stockholders of
record and approximately 1,600 beneficial stockholders of Integrity's Class A
Common Stock and three stockholders of record of Integrity's Class B Common
Stock.

         The current policy of Integrity's Board of Directors is to retain any
future earnings to provide funds for the operation and expansion of Integrity's
business, and, therefore, the Board of Directors does not anticipate paying any
cash dividends in the foreseeable future. In addition, Integrity's ability to
pay dividends is limited by its existing credit agreement and may be limited in
the future by the terms of then-existing credit facilities. See Note 5 to the
financial statements.

         The Company's Class A Common Stock was listed on The Nasdaq SmallCap
Market effective October 2, 1998. Prior to that time, the Company's Class A
Common Stock was listed on The Nasdaq National Market.

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<PAGE>   8


ITEM 6.  SELECTED FINANCIAL DATA

         The selected historical balance sheet and statement of operations
presented below for each of the five years in the period ended December 31,
1999 have been derived from the Company's audited consolidated financial
statements.

         The following selected financial data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
appearing elsewhere herein.

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31
                                                                             (in thousands, except per share data)
STATEMENT OF OPERATIONS                                    1999             1998             1997           1996           1995
                                                         --------         --------         --------       --------       --------
<S>                                                      <C>              <C>              <C>            <C>            <C>
Net sales                                                $ 45,571         $ 38,847         $ 34,954       $ 31,975       $ 37,671
Cost of sales                                              21,936           17,985           15,236         14,981         15,547
                                                         --------         --------         --------       --------       --------
Gross profit                                               23,635           20,862           19,718         16,994         22,124
Marketing and fulfillment expenses                         10,404            9,023            9,450         10,711         16,308
General and administrative expenses
                                                            9,751            8,557            7,796          7,545          7,959
Loss on impairment of long-lived assets                         0                0                0          1,200              0
                                                         --------         --------         --------       --------       --------
Income (loss) from operations                               3,480            3,282            2,472         (2,462)        (2,143)
Interest expense (net)                                      1,292            1,529            1,790          1,804          1,027
Other (income) expense                                       (352)               0                3           (153)            65
                                                         --------         --------         --------       --------       --------
Income (loss) before extraordinary item,
minority interest and taxes                                 2,540            1,753              679         (4,113)        (3,235)
Income tax (expense) benefit                                 (692)             369                0            654          1,183
Minority interest, net of tax                                (184)            (268)             (37)             0              0
                                                         --------         --------         --------       --------       --------
Income (loss) before extraordinary item                     1,664            1,854              642         (3,459)        (2,052)
Extraordinary item from early
extinguishment of debt less applicable
taxes of $47                                                    0                0                0           (248)             0
                                                         --------         --------         --------       --------       --------
Net income (loss)                                        $  1,664         $  1,854         $    642       $ (3,707)      $ (2,052)
                                                         ========         ========         ========       ========       ========
Basic EPS
Income (loss) before extraordinary item                  $   0.30         $   0.34         $   0.12       $  (0.63)      $  (0.37)
Extraordinary item                                              0                0                0          (0.04)             0
                                                         --------         --------         --------       --------       --------
Net income (loss)                                        $   0.30         $   0.34         $   0.12       $  (0.67)      $  (0.37)
                                                         ========         ========         ========       ========       ========
Diluted EPS
Income (loss) before extraordinary item
                                                         $   0.28         $   0.32         $   0.12       $  (0.63)      $  (0.37)
Extraordinary item                                              0                0                0          (0.04)             0
                                                         --------         --------         --------       --------       --------
Net income                                               $   0.28         $   0.32         $   0.12       $  (0.67)      $  (0.37)
                                                         ========         ========         ========       ========       ========
Weighted average number of shares
outstanding
     Basic                                                  5,579            5,514            5,514          5,514          5,514
     Diluted                                                6,032            5,805            5,514          5,514          5,514

<CAPTION>
                                                                                    As of December 31
                                                                                     (in thousands)
BALANCE SHEET DATA                                         1999             1998             1997           1996           1995
                                                         --------         --------         --------       --------       --------
<S>                                                      <C>              <C>              <C>            <C>            <C>
Net working capital                                      $  8,975         $  9,827         $  9,905       $ 10,467       $ (6,052)
Total assets                                               30,048           31,617           30,775         31,058         34,659
Total bank debt (3)                                         8,705           12,968           15,117         18,304         18,018
Stockholders' equity                                       14,750           12,981           11,196         10,487         12,693
</TABLE>

(3) Includes discount of $649 at December 31, 1999, $832 at December 31, 1998,
$1,064 at December 31, 1997 and $1,296 at December 31, 1996.

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<PAGE>   9

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

         The following discussion should be read in conjunction with the
Selected Financial Data and the Consolidated Financial Statements and Notes
thereto included elsewhere herein.

OVERVIEW

         The Company is a producer and publisher of Christian lifestyle
products. The Company's recorded music products fall into two broad categories:
concept products and artist products. Concept products are centered on a
specific theme, such as praise and worship, and artist products feature a
specific performer. Some of the Company's concept products are Hosanna!
Music(R) and Just-For-Kids(R). The Company has several artists under contract,
including leaders in Christian music such as Don Moen, Ron Kenoly and Paul
Wilbur. In addition to audio recordings, Integrity produces Christian music
songsheets, software and video products. The Company has determined that its
reportable segments are those that are based on the Company's distribution
channels. These distribution channels are Retail, Direct to Consumers,
International and Other channels. The Retail channel primarily represents sales
to Christian bookstores either directly from the Company or through third party
distributors. Direct to Consumers primarily represents sales from direct mail
programs but also includes Internet sales, television sales, special event
sales, and sales of choral and print products directly to churches, including
sales of the Celebration Hymnal through a joint venture controlled by the
Company. The International channel represents an international distribution
network that reaches markets in 143 countries. All transactions with foreign
entities, whether they are shipped from the U.S. or one of the Company's three
subsidiaries in Singapore, the United Kingdom and Australia are reported in the
segment. Christian bookstores are the primary distribution channel for this
segment, but there are also direct mail and other techniques used for these
markets. The Other segment includes copyright revenue and other distribution
sales.

         The following historical analysis shows the percentage of sales by
segment:

<TABLE>
<CAPTION>
                                         1999                        1998                       1997
                                        -----                       -----                      -----
<S>                                     <C>                         <C>                        <C>
Direct to Consumer                      31.1%                       34.6%                      33.2%
Retail Markets                          45.9%                       37.8%                      40.7%
International                           15.9%                       16.5%                      18.2%
Other                                    7.1%                       11.1%                       7.9%
</TABLE>

         The Company's operating results may fluctuate significantly due to new
product introductions, the timing of selling and marketing expenses,
seasonality and changes in sales and product mixes.

RESULTS OF OPERATIONS

         The following table sets forth operating results expressed as a
percentage of net sales for the periods indicated and the percentage change in
such operating results between periods.

<TABLE>
<CAPTION>
                                                           Percentage of Net Sales
                                                            Year Ended December 31
                                                 1999               1998                1997
                                                ------             ------              ------
     <S>                                        <C>                <C>                 <C>
     Net Sales                                  100.0%             100.0%              100.0%
     Cost of Sales                               48.1%              46.3%               43.6%
                                                 -----              -----               -----
     Gross Profit                                51.9%              53.7%               56.4%
     Marketing and Fulfillment
     Expenses                                    22.8%              23.2%               27.0%
     General and Administrative
     Expenses                                    21.4%              22.0%               22.3%
                                                 -----              -----               -----
     Income from operations before
     taxes and minority interest
                                                  7.6%               8.5%                7.1%
                                                 =====              =====               =====
</TABLE>

                                       8
<PAGE>   10

THE YEAR ENDED DECEMBER 31, 1999 ("1999") COMPARED TO THE YEAR ENDED DECEMBER
31, 1998 ("1998")

         Net sales increased 17.5% to $45.6 million in 1999 from $38.8 million
in 1998, mainly attributable to a 42.1% increase in the retail segment to $20.9
million in 1999 from $14.7 million in 1998. Unit sales increased by 6% to 7.1
million in 1999 from 6.7 million in 1998 due to 63 major releases, including
WoW Worship and Shout To The Lord 2000, and strong product catalog sales from
prior releases such as Shout To The Lord and Jerusalem Arise. In 1999, new
products accounted for 2.4 million units, or 33.8% of the total units sold. The
new products offered were from existing product lines as well as new product
lines featuring several of Integrity's best-selling artists, such as Don Moen,
Ron Kenoly and Paul Wilbur. One of our best selling albums for the year was WoW
Worship, a collection of the best selling praise and worship songs, created in
partnership with Maranatha! and Vineyard. Sales in the direct to consumer
segment increased 6% to $14.2 million, compared to $13.4 million in 1998 due to
increased sales of Integrity Notes, a greeting card continuity club. Direct to
consumer sales were negatively impacted by approximately $200,000 during the
year due to adjustments to correct an inadvertent overstatement of shipping and
handling revenue related to system modifications carried out last year. This
situation, which affected only one portion of the Company's direct to consumer
segment, had no impact on customers, has been rectified, and had an immaterial
impact on all prior periods. Revenues from the international segment increased
10.9% to $7.2 million from $6.4 million in 1998, mainly due to strong increases
in Australia and the U.K. However, because of the 42.1% increase in the retail
segment, international sales as a percent of total sales decreased to 15.9%
from 16.5% in 1998. Sales from the Other segment decreased from $6.5 million to
$6.2 million due largely to decreases in copyright revenues, which decreased
from $4.3 million in 1998 to $4.2 million. Bad debts and returns were $4.7
million in 1999 as compared to $5.0 million in 1998.

         Gross profit increased 11.4% to $23.6 million in 1999 from $20.9
million in 1998 due primarily to revenue increases discussed above. Gross
profit as a percentage of sales was 52.2% and 53.7% for the years ended
December 31, 1999 and 1998, respectively. The decrease in gross profit as a
percentage of sales was primarily the result of the sales mix including a
higher portion of distributed and artist products, which have lower gross
margin percentages, than the comparable period last year. The gross margin
percentages in the retail segment were negatively impacted with the sales of
WoW Worship. Although the album has generated significant revenues, it was
created in partnership with two other record companies, and, as a result, the
Company's margin is significantly lower due to higher royalties. Gross profit
in the direct to consumer segment was negatively impacted by approximately
$200,000 as a result of the billing adjustments discussed above. Management
expects that the sales mix is likely to continue to focus in the retail
segment, which may keep gross margins lower than in previous years. Charges
against product masters are the result of management's periodic estimates of
the eventual realizability of production costs and aggregated $640,000 and
$700,000 for the years ended December 31, 1999 and 1998, respectively. Such
amounts are included in cost of sales, but are not specifically allocated to
the segments.

         Operating profit in the retail segment grew 35% to $4.1 million during
1999 from $3.0 million due to the revenue increases discussed above, resulting
from several major product releases during the year, including the WoW Worship
and Shout To The Lord 2000. Operating costs related to the retail segment,
principally fulfillment expenses, were consistent with the increase in sales.
The lower gross margin in the retail segment discussed above also contributed
to the results for the segment. Operating profit from the direct to consumer
segment decreased 31% to $2.0 million during 1999 from $3.0 million as a result
of the $200,000 billing adjustment discussed above and increased direct
marketing costs. Operating profit in the international segment grew 28% to $1.8
million during 1999 from $1.4 million due to continued steady growth in sales
(13%) and controlled cost of goods sold. Operating profit in the Other segment
was relatively flat.

         Marketing and fulfillment expenses increased 15.5% to $10.4 million or
22.8% of net sales in 1999 as compared with $9.0 million or 23.2% of net sales
in 1998. This increase was primarily associated with higher sales levels.

         General and administrative expenses increased 14.0% to $9.8 million or
21.4% of net sales in 1999, compared to $8.6 million or 22.0% of net sales in
1998. The increase in expenses was mainly attributable to increases in
personnel costs required to support the growth in the business.

         As a result of the above, income from operations was $3.5 million or
7.6% of net sales in 1999, compared with $3.3 million or 8.5% of net sales in
1998.

                                       9
<PAGE>   11

         Interest expense decreased to $1.3 million in 1999 compared with $1.5
million in 1998. The decrease was a result of lower average indebtedness in
1999. Other income in 1999 also includes a favorable insurance settlement of
$300,000, before considering income taxes, for a claim filed during 1998.

         The Company recorded a net expense for income taxes during 1999 of
approximately $692,000 which included a $180,000 benefit for a reduction in the
valuation allowance against deferred tax assets. During 1998, the Company
recorded a net benefit from income taxes of approximately $369,000 primarily as
a result of a $785,000 reduction in the valuation allowance against deferred
tax assets. The reductions in the valuation allowance were the result of
management's revised expectations relative to the ability to generate future
taxable income. In fact, during 1999, the Company utilized substantially all of
the deferred tax assets associated with net operating loss carry-forwards, tax
credits and other carry-forward attributes. There is no valuation allowance
remaining at December 31, 1999.

THE YEAR ENDED DECEMBER 31, 1998 ("1998") COMPARED TO THE YEAR ENDED DECEMBER
31, 1997 ("1997")

         Net sales increased 11.1% to $38.8 million in 1998 from $35.0 million
in 1997, mainly attributable to strong unit sales during 1998. Unit sales
increased by 31.4% to 6.7 million in 1998, from 5.1 million in 1997 due to 54
major releases and strong catalog sales from prior releases such as "Shout To
The Lord", "God Can" and "Let Your Glory Fall". In 1998, new products accounted
for 2.0 million units, or 30.0% of the total units sold. The new products
offered were from existing product lines as well as new product lines featuring
several of Integrity's best-selling artists, such as Don Moen, Ron Kenoly and
Paul Wilbur. Sales in the direct to consumer segment increased 15.8% to $13.4
million, compared to $11.6 million in 1997. The increase in the direct to
consumer segment was mainly due to increases in direct sales to churches of The
Celebration Hymnal. Copyright and royalty income increased $618,000 to $4.3
million or 16.9%, compared to $3.7 million in 1997. Revenues across the
Company's other segments were relatively flat from year to year. Bad debts and
returns were $5.0 million in 1998 as compared to $6.0 million in 1997.

         Gross profit increased 5.8% to $20.9 million in 1998 from $19.7
million in 1997 due primarily to the increase in sales discussed above. Gross
profit as a percentage of sales was 53.7% and 56.4% for the years ended
December 31, 1998 and 1997, respectively. The decrease in gross profit as a
percentage of sales was primarily the result of a $700,000 write-down of
certain older product masters that are no longer expected to recoup their costs
as well as several bulk sales of older products at reduced prices during 1998.

         Marketing and fulfillment expenses decreased 4.5% to $9.0 million or
23.2% of net sales in 1998, as compared with $9.5 million or 27.0% of net sales
in 1997. This decrease was primarily attributable to lower, but more productive
and targeted, marketing expenses in the direct to consumer segment.

         General and administrative expenses increased 9.8% to $8.6 million or
22.0% of net sales in 1998, compared to $7.8 million or 22.3% of net sales in
1997. The increase in expenditures was mainly attributable to increases in
personnel costs required to support the growth in the business.

         As a result of the above, income from operations was $3.3 million or
8.5% of net sales in 1998, compared with $2.5 million or 7.1% of net sales in
1997.

         Interest expense decreased to $1.5 million in 1998 compared with $1.8
million in 1997. The decrease was a result of lower average indebtedness in
1998.

         The Company recorded a net benefit from income taxes during 1998 of
approximately $369,000 primarily as a result of a $785,000 reduction in the
valuation allowance against deferred tax assets. This non-cash benefit is the
result of two consecutive years of profitability coupled with management's
expectations to generate taxable income in future periods to utilize those
deferred tax assets, primarily net operating loss carry-forwards.

LIQUIDITY AND CAPITAL RESOURCES

         The Company historically has financed its operations through cash
generated from operations and from borrowings under a line of credit and term
notes as needed. The Company's need for cash varies from quarter to quarter
based on product releases and scheduled marketing promotions. The Company's
principal uses of cash historically have been the production and recording of
product masters to build the Company's product master library and debt service.
It is from these product masters that the Company's products are duplicated and
distributed to customers. The Company believes that its working capital and
funds available under its credit

                                      10
<PAGE>   12

facility will be sufficient to fund its operating and capital requirements for
the fiscal year ended December 31, 2000.

         Cash generated from operations totaled $8.2 million, $7.3 million and
$6.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase from 1998 to 1999 resulted primarily from improved
operating results. The increase from 1997 to 1998 resulted primarily from
increased earnings before depreciation and amortization.

         Investing activities used $3.1 million, $4.7 million and $3.6 million
of cash in 1999, 1998 and 1997, respectively. Capital expenditures totaled $0.7
million, $0.5 million and $0.3 million for the years ended December 31, 1999,
1998 and 1997, respectively. During 1999, 1998 and 1997, capital expenditures
were primarily for computer equipment and general improvements on the Company's
corporate headquarters. The Company also invested $3.4 million, $4.2 million
and $3.3 million in new product masters during 1999, 1998 and 1997,
respectively. The decrease in the investment in product masters in 1999 was the
result of the production timing of certain releases, with $750,000 spent in
1998 for 1999 product releases. The Company expects its investments in capital
expenditures and product masters during 2000 to remain relatively consistent
with 1999 levels.

         During the fourth quarter of 1999, the Company sold its Animation
Video masters at book value for $2 million. Payment of $1 million was received
by the Company during fourth quarter 1999, with the remaining $1 million to be
received during 2000 in four equal installments of $250,000. The proceeds have
been used to reduce the Company's debt position.

         The Company's $19 million financing agreement includes a $6 million
revolving credit facility and $13 million term loan. At the Company's option,
the loan carries an interest rate of the bank's base rate plus 1 1/2%, or LIBOR
plus 3%. The lender holds approximately 818,000 warrants with an exercise price
of $1.875 that are exercisable into the Company's common stock and expire in
2006. During the years ended December 31, 1999, 1998 and 1997, the Company made
payments of $3.5 million, $2.3 million and $1.7 million, respectively, under
such agreements. At December 31, 1999, the Company had available borrowings of
$2.9 million under such agreements. The Company's minimum payments due in 2000
related to its borrowings are $1.9 million, however, the Company may elect to
make additional payments. Also during 1999, the Company paid $510,000 as a
distribution to the Hymnal joint venture partner.

SEASONALITY

         Retail sales are typically higher in the third and fourth quarters
because of holiday promotions. Direct to consumer sales are typically higher in
the first quarter as a result of significant marketing promotions in late
December. Direct to consumer promotions require a build up in inventory in the
fourth quarter and as a result, sales and accounts receivable increase in the
first quarter. It is important to note that sales from quarter to quarter
depend heavily on marketing promotions and new product releases. Accordingly,
results of operations in any one quarter may not be indicative of results of
operations for the entire year.

INFLATION

         The impact of inflation on the Company's operating results has been
moderate in recent years, reflecting generally lower rates of inflation in the
economy and relative stability in the Company's cost of sales. In prior years,
the Company has been able to adjust its selling prices to substantially recover
increased costs. While inflation has not had, and the Company does not expect
that it will have, a material impact upon operating results, inflation may
affect the Company's business in the future.

YEAR 2000 COMPLIANCE

         Due to its remediation efforts, the Company has not yet experienced
any disruptions in its business because of Year 2000 related computer issues,
including leap year related failures. Further, the Company has not experienced
any disruptions in its business because of disruptions related to these issues
experienced by its suppliers, distributors, contractors or other service
providers.

         The total cost of the Company's Year 2000 remediation effort was less
than $40,000 and was not material to the Company's financial condition or
results of operations. These costs were primarily in the form of compensation
and benefits of internal employees working on the Company's

                                      11
<PAGE>   13

Year 2000 remediation effort and were expensed as incurred. The actual cost of
the remediation was materially consistent with its projected costs.

                                  RISK FACTORS

OUR COMPETITION INCLUDES OTHER MUSIC COMPANIES AND GENERAL ENTERTAINMENT
COMPANIES

         We face intense competition for discretionary consumer spending from
numerous other music companies and entertainment companies that utilize various
formats, including audio recordings, film, video, and other media.

         Our products compete directly with the products of other record
companies and music publishers that distribute Christian music to Christian
bookstores, as well as a number of secular music companies. Many of these
competitors have substantially greater financial resources than we have. This
provides them with the ability to launch more new products, spend more on
marketing those products, and pay more to artists and songwriters for new music
and songs. Our ability to continue to compete successfully will be largely
dependent upon our ability to successfully develop and launch new products that
build upon and maintain our reputation for quality Christian music and other
communication products.

OUR INDUSTRY IS SUBJECT TO CONSUMER TASTES AND DEMANDS

         We operate in the recorded music, video productions and printed music
industries. These industries involve a substantial degree of risk. Each music
or video recording or printed product is an individual artistic work. Consumer
taste, which is unpredictable and constantly changing, primarily determines the
commercial success of any such work. Accordingly, there can be no assurance as
to the financial success of any particular release, the timing of such success,
or the popularity of any particular artist.

         Furthermore, we must invest significant amounts for product development
prior to the release of any product. These costs may not be recovered if the
release is unsuccessful. Changes in the timing of new releases can also cause
significant fluctuations in our quarterly operating results because of the
marketing costs involved in launching a new product and the delay in receiving
any sales revenue from the new product. There can be no assurance that our
products will be successful releases or that any product will generate revenues
sufficient to cover the cost of product development. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

OUR BUSINESS IS DEPENDENT ON ACCESS TO DISTRIBUTION CHANNELS

         We distribute our products through three primary channels:
                  - Direct to Consumer
                  - Retail Sales; and
                  - License Arrangements.
If our access to any of these channels is interrupted, our sales could be
significantly affected.

         The direct to consumer channel is based on a variety of methods, but
primarily is composed of our continuity clubs. The performance of these clubs
could be affected by a number of factors including:
         - the maturity of our mailing lists such that consumers no longer
         desire our products and cancel their participation;
         - our failure to expand and revise our mailing lists to include new
         potential customers, or the inability to secure new mailing lists from
         which to build ours;
         - our failure to offer new and appealing products to these
         customers; and
         - increases in the cost of mailing and shipping, or
         increased regulation of mail order sales.

         Currently, we rely on Word's sales force to perform all retail market
sales functions for us, pursuant to a contract with them that extends through
January 2004.

         In addition to our retail distribution channel, our international
distribution channel also relies heavily on third parties to sell and deliver
our products. We cannot quickly replace these third parties should they fail to
perform, nor can we assume their duties in a timely manner. As a result,

                                      12
<PAGE>   14

the failure by any of these parties to fulfill their duties effectively and
efficiently will immediately and adversely affect our sales.

INCREASES IN COSTS OF MAILING, PAPER, PRINTING AND DELIVERY WILL SIGNIFICANTLY
INCREASE OUR COSTS OF GOODS SOLD

         Increases in postal rates, as well as in paper, printing and delivery
costs would affect our direct response programs. We generally ship orders by
third class mail with the United States Postal Service. We rely heavily on
discounts from the basic postal rate structure, such as discounts for bulk
mailings, sorting by zip code, and carrier routes.

         Any increase in postal rates, papers and printing or delivery costs
could adversely affect our earnings.

WE DEPEND ON OUR SENIOR EXECUTIVES WHO HAVE EXPERIENCE UNIQUE TO OUR INDUSTRY

         Our success has been largely dependent on the skills, experience and
efforts of our senior management and especially our Chairman, President and
Chief Executive Officer, P. Michael Coleman. Although we have employment
agreements with some of our senior executives, they could still choose to leave
the Company at any time. If they did we would have significant difficulty
replacing them with individuals who had an equal level of experience in the
Christian products market. This could affect our daily operations, creative
development and ultimately our financial performance.

OUR COMPANY IS CONTROLLED BY THE COLEMAN FAMILY

         Our Chairman, President and Chief Executive Officer, P. Michael
Coleman, and his family beneficially own 35,100 shares of Class A Common Stock
and all 3,435,000 shares of Class B Common Stock outstanding. This represents
approximately 94.1% of the total voting power of all classes of our voting
stock. As a result, Mr. Coleman is able to elect all of our directors, further
amend our Amended Certificate of Incorporation (the "Amended Certificate"),
effect or prevent a merger, sale of assets or other business acquisition or
disposition, and otherwise control the outcome of actions requiring stockholder
approval.

         See "Security Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions."

THE CLASS A COMMON STOCK HAS LIMITED VOTING RIGHTS

         Our Amended Certificate limits the voting rights of our Class A Common
Stock. Each share of our Class A Common Stock is entitled to one vote, while
each share of our Class B Common Stock is entitled to ten votes on all matters
with respect to which our stockholders have a right to vote. Both classes of
our stock generally vote together as a single class. The shares of Class B
Common Stock are convertible into shares of Class A Common Stock on a
share-for-share basis at the election of the holder. Also, our Class B Common
Stock must be converted to shares of Class A Common Stock automatically if it
is transferred, except for transfers to or for the benefit of certain of Mr.
Coleman's relatives. We do not have the authority to issue additional Class B
Common Stock except as dividends or distributions on outstanding Class B Common
Stock proportional to dividends or distributions on Class A Common Stock.

         The disproportionate voting rights between our classes of stock could
adversely affect the market price of our Class A Common Stock. The
disproportionate voting rights may also make us a less attractive target for a
takeover than we otherwise might be, and render more difficult or discourage a
merger proposal, a tender offer, or a proxy contest even if such actions were
favored by holders of our Class A Common Stock.

         Holders of Class A Common Stock may be deprived of an opportunity to
sell their shares at a premium over the then prevailing market price due to the
disproportionate voting rights between the two classes of stock.

                                      13
<PAGE>   15

CERTAIN PROVISIONS OF OUR AMENDED CERTIFICATE COULD DISCOURAGE A TAKE-OVER OF
INTEGRITY

         Our Board of Directors is authorized to issue shares of preferred
stock. Our Board of Directors, without approval of the stockholders, is also
authorized to establish the following provisions of any preferred stock:
voting, dividend, redemption, conversion, liquidation, and other provisions.

         The issuance of preferred stock could adversely affect the voting
power or other rights of the holders of our common stock. Further, the issuance
of preferred stock could make more difficult, or discourage, a third party's
attempt to acquire control of us. Finally, we are also subject to the Delaware
Business Combination Statute, which may render more difficult a change in our
control.

THE MARKET PRICE OF OUR COMMON STOCK COULD BE VOLATILE

         From time to time there may be significant volatility in the market
price of the Class A Common Stock. Our quarterly operating results or those of
other similar companies, changes in the conditions in the economy or the
financial markets, projections and statements by industry analysts or other
third parties could cause the price of the Class A Common Stock to fluctuate
substantially.

ITEM 7(A).  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company's market risk is limited to fluctuations in interest rates
as it pertains to the Company's borrowings under its credit facility. The
Company pays interest on borrowings at either the lender's offered rate plus 1
1/2%, or LIBOR plus 3%. If the interest rates on the Company's borrowings
average 100 basis points more in 2000 than they did in 1999, the Company's
interest expense would increase and income before income taxes would decrease
by $93,000. This amount is determined solely by considering the impact of the
hypothetical change in the interest rate on the Company's borrowing cost
without consideration for other factors such as actions management might take
to mitigate its exposure to interest rate changes.

         The Company is also exposed to market risk from changes in foreign
exchange rates and commodity prices. The Company does not use any hedging
transactions in order to modify the risk from these foreign currency exchange
rate and commodity price fluctuations. The Company also does not use financial
instruments for trading purposes and is not a party to any leveraged
derivatives.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The response to this item is submitted in Part IV, Item 14 of this
report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

         Not applicable.

                                      14
<PAGE>   16

                                   PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information under the captions "Proposal I - Election of Directors
- Certain Information Concerning Nominees," "Proposal I - Election of Directors
- Executive Officers of the Company" and "Other Matters - Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's 2000 Proxy
Statement is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION.

         The information under the caption "Proposal I - Election of Directors
- Executive Compensation" in the Company's 2000 Proxy Statement is incorporated
herein by reference. In no event shall the information contained in the proxy
statement under the sections "Stockholder Return Comparison" or "Compensation
Committee Report on Executive Compensation" be incorporated herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information under the caption "Proposal I - Election of Directors
- Beneficial Owners of More Than Five Percent of the Company's Common Stock;
Shares Held by Directors and Executive Officers" in the Company's 2000 Proxy
Statement is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information under the caption "Proposal I - Election of Directors
- Certain Transactions" in the Company's 2000 Proxy Statement is incorporated
herein by reference.

                                    PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(A)      1.  CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS

<TABLE>

<S>                                                                                               <C>
FINANCIAL STATEMENTS                                                                              PAGE NO.
Report of Independent Accountants                                                                 16
Consolidated Balance Sheets at December 31, 1999 and 1998                                         17
Consolidated Statement of Operations for the three years ended December 31, 1999                  18
Consolidated Statement of Changes in Stockholders' Equity for the three years ended December
31, 1999                                                                                          19
Consolidated Statement of Cash Flows for the three years ended December 31, 1999                  20
Notes to Consolidated Financial Statements                                                        21
</TABLE>

          2.  FINANCIAL STATEMENT SCHEDULES:

II - Valuation and Qualifying Accounts for the three years ended December 31,
1999

                                      15
<PAGE>   17

                       REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of Integrity Incorporated

In our opinion, the accompanying consolidated financial statements listed in
the index appearing under item 14(a)(1) on page 15 present fairly, in all
material respects, the financial position of Integrity Incorporated and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index under item 14(a)(2) on page 15 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.



PricewaterhouseCoopers LLP


Atlanta, GA
February 18, 2000

                                      16
<PAGE>   18

                             INTEGRITY INCORPORATED
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                             December 31
ASSETS                                                                                                  1999             1998
                                                                                                     --------        --------
<S>                                                                                                  <C>             <C>
Current Assets
   Cash                                                                                              $  1,067        $    989
   Trade receivables, less allowance for returns and doubtful accounts of $1,108 and $696               6,329           4,913
   Other receivables                                                                                    1,681           1,637
   Inventories                                                                                          4,754           4,528
   Other current assets                                                                                 2,456           3,831
                                                                                                     --------        --------
      Total current assets                                                                             16,287          15,898

Property and equipment, net of accumulated depreciation of $3,956 and $3,575                            3,664           3,473
Product masters, net of accumulated amortization of $11,649 and $11,325                                 6,941           9,050
Other assets                                                                                            3,156           3,196
                                                                                                     --------        --------
      Total assets                                                                                   $ 30,048        $ 31,617
                                                                                                     ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Current portion of long-term debt                                                                 $  1,937        $  1,847
   Accounts payable and accrued expenses                                                                3,108           2,732
   Royalties payable                                                                                      774             569
   Other current liabilities                                                                            1,493             923
                                                                                                     --------        --------
      Total current liabilities                                                                         7,312           6,071

Long-term debt                                                                                          6,768          11,121
Other long-term liabilities                                                                                52              60
                                                                                                     --------        --------
      Total liabilities                                                                                14,132          17,252
                                                                                                     --------        --------

Commitments and contingencies                                                                               0               0

Minority interest                                                                                       1,166           1,384
                                                                                                     --------        --------

Stockholders' Equity
   Preferred stock, $.01 par value; 500,000 shares authorized, none issued and outstanding                  0               0
   Class A common stock, $.01 par value; 7,500,000 shares authorized;
2,179,000 shares and 2,079,000 shares issued and outstanding                                               22              21
   Class B common stock, $.01 par value, 10,500,000 shares authorized; 3,435,000 shares
issued and outstanding                                                                                     34              34
   Additional paid-in capital                                                                          13,847          13,428
   Unearned compensation                                                                                 (327)              0
   Retained earnings (accumulated deficit)                                                              1,215            (449)
   Equity adjustments from foreign translation                                                            (41)            (53)
                                                                                                     --------        --------
      Total stockholders' equity                                                                       14,750          12,981
                                                                                                     --------        --------
         Total liabilities and stockholders' equity                                                  $ 30,048        $ 31,617
                                                                                                     ========        ========
</TABLE>
 The accompanying notes are an integral part of these consolidated financial
                                  statements

                                      17
<PAGE>   19

                             INTEGRITY INCORPORATED
                      CONSOLIDATED STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31
                                                                       1999                   1998                1997
                                                                     --------               --------            --------
<S>                                                                  <C>                    <C>                 <C>
Net sales                                                            $ 45,571               $ 38,847            $ 34,954
Cost of sales                                                          21,936                 17,985              15,236
                                                                     --------               --------            --------
Gross profit                                                           23,635                 20,862              19,718

Marketing and fulfillment expenses                                     10,404                  9,023               9,450
General and administrative expenses                                     9,751                  8,557               7,796
                                                                     --------               --------            --------
   Income from operations                                               3,480                  3,282               2,472

Other expenses (income)
   Interest expense, net                                                1,292                  1,529               1,790
   Other expenses (income)                                               (352)                     0                   3
                                                                     --------               --------            --------
   Income before minority interest and taxes                            2,540                  1,753                 679
Provision for (benefit from) income taxes                                 692                   (369)                  0
Minority interest, less applicable taxes                                 (184)                  (268)                (37)
                                                                     --------               --------            --------
Net income                                                           $  1,664               $  1,854            $    642
                                                                     ========               ========            ========

Adjustments to determine comprehensive income
Foreign currency translation adjustments                                   12                    (69)                 67
                                                                     --------               --------            --------
Comprehensive income                                                 $  1,676               $  1,785            $    709
                                                                     ========               ========            ========

Net income per share - Basic                                         $   0.30               $   0.34            $   0.12
                                                                     ========               ========            ========

Net income per share - Diluted                                       $   0.28               $   0.32            $   0.12
                                                                     ========               ========            ========
Weighted average number of shares outstanding (note 1)
   Basic                                                                5,579                  5,514               5,514
   Diluted                                                              6,032                  5,805               5,514
</TABLE>

 The accompanying notes are an integral part of these consolidated financial
                                  statements

                                      18
<PAGE>   20

                             INTEGRITY INCORPORATED
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>


                                                                                                     (Accum.
                                       Class A               Class B                    Additional   Deficit)  Equity Adj.
                                     Common Stock         Common Stock        Unearned    Paid-in    Retained     From
                                   Shares     Amount    Shares     Amount   Compensation  Capital    Earnings  Translations Total
                                   ------     ------    ------     ------   ------------ ----------  --------  ------------ -----
<S>                               <C>         <C>      <C>         <C>      <C>         <C>        <C>         <C>         <C>
Balance, December 31, 1996        2,079,000    $21     3,435,000   $  34     $    0      $ 13,428   $(2,945)     $(51)     $10,487
  Net income                                                                                            642                    642
  Translation adjustments                                                                                          67           67
                                  ------------------------------------------------------------------------------------------------
Balance, December 31, 1997        2,079,000     21     3,435,000      34                   13,428    (2,303)       16       11,196
  Net income                                                                                          1,854                  1,854
  Translation adjustments                                                                                         (69)         (69)
                                  ------------------------------------------------------------------------------------------------
Balance, December 31, 1998        2,079,000     21     3,435,000      34                 $ 13,428      (449)      (53)      12,981
  Net income                                                                                          1,664                  1,664
  Issuance of restricted stock      100,000      1                             (375)          374                                0
  Issuance of warrants                                                                         45                               45
  Amortization of restricted                                                     48                                             48
  stock award
  Translation adjustments                                                                                          12           12
                                  ------------------------------------------------------------------------------------------------
Balance, December 31, 1999        2,179,000    $22     3,435,000   $  34     $ (327)     $ 13,847   $ 1,215      $(41)     $14,750
                                  ================================================================================================
</TABLE>


       The accompanying notes are an integral part of these consolidated
                             financial Statements.



                                       19
<PAGE>   21
                             INTEGRITY INCORPORATED
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         Year Ended December 31
                                                                   1999           1998           1997
                                                                 --------       --------       --------
<S>                                                              <C>            <C>            <C>
Cash flows from operating activities
Net income                                                       $  1,664       $  1,854       $    642
Adjustments to reconcile net income to net cash provided by
operating activities
   Depreciation and amortization                                    1,019          1,202          1,331
   Amortization of product masters                                  3,526          3,787          3,250
   Minority interest                                                  184            268             37
   Stock compensation                                                  48              0              0
   Deferred income tax (benefit) provision                            420           (527)             0
    Changes in operating assets and liabilities
       Trade receivables                                           (1,415)          (655)           (63)
       Other receivables                                              956            396         (1,090)
       Inventories                                                   (226)           996           (382)
       Other assets                                                   838           (691)         1,337
       Accounts payable, royalties payable and
       accrued expenses                                               580            200          1,109
       Other current and non current liabilities                      563            468            206
       Other                                                           12              0              0
                                                                 --------       --------       --------
Net cash provided by operating activities                           8,169          7,298          6,377
                                                                 --------       --------       --------
Cash flows from investing activities
   Purchases of property and equipment                               (716)          (463)          (299)
   Payments for product masters                                    (3,417)        (4,220)        (3,267)
   Proceeds from sale of product masters                            1,000              0              0
                                                                 --------       --------       --------
Net cash used in investing activities                              (3,133)        (4,683)        (3,566)
                                                                 --------       --------       --------
Cash flows from financing activities
   Net (repayments) borrowings under line of credit                  (975)           169         (2,040)
   Distributions to joint venture partner                            (510)             0              0
   Proceeds from issuance of long-term debt                             0              0            300
   Principal payments of long-term debt                            (3,473)        (2,318)        (1,679)
                                                                 --------       --------       --------
      Net cash used by financing activities                        (4,958)        (2,149)        (3,419)
                                                                 --------       --------       --------
Net (decrease) increase in cash                                        78            466           (608)
Cash, beginning of year                                               989            523          1,131
                                                                 --------       --------       --------
Cash, end of year                                                $  1,067       $    989       $    523
                                                                 ========       ========       ========
Supplemental disclosures of cash flow information
   Interest paid                                                 $  1,173       $  1,355       $  1,790
   Income taxes paid                                             $     15       $      0       $     37
Noncash investing activities
   Sale of product masters for note receivable                   $  1,000       $      0       $      0
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       20
<PAGE>   22


                             INTEGRITY INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Integrity Incorporated (the "Company") is engaged in the production,
distribution and publishing of music cassette tapes and compact discs, print
music and related products, primarily by direct to consumer marketing and
wholesale trade methods. A principal direct to consumer marketing method of
distribution is continuity programs whereby subscribers receive products at
regular intervals.

         Integrity Music Europe Limited was formed in 1988, Integrity Music PTY
Limited was formed in 1991 and Integrity Media Asia Pte Ltd was formed in 1995.
These subsidiaries serve to expand the Company's presence in Western Europe;
Australia and New Zealand; and Singapore, respectively, and all are wholly-owned
by the Company. Celebration Hymnal LLC was formed in 1997 as a 50/50 joint
venture with Word Entertainment, for the purpose of producing and promoting The
Celebration Hymnal. Due to the Company's ability to control the venture, Word
Entertainment's interest in the joint venture is presented as minority interest
in these financial statements.

         The Company's significant accounting policies are as follows:

PRINCIPLES OF CONSOLIDATION

         The accompanying financial statements include the accounts of the
Company and its controlled subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. The Company controls the
operations of the joint venture through its majority position on the Board of
Directors of The Celebration Hymnal LLC.

REVENUE RECOGNITION

         Revenue is recognized at the time of shipment. Provision is made for
sales returns and allowances in the period in which the related products are
shipped based on estimates derived from historical data. The full amount of the
returns allowance is shown, along with the allowance for doubtful accounts, as a
reduction of accounts receivable in the accompanying financial statements.
Generally, revenue derived from licensing the use of songs in the Company's song
catalogs is recognized as payments are received from licensees.

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use and which have
original maturities of three months or less.

INVENTORIES

         Inventories, which consist principally of finished goods such as
compact discs, cassette tapes, videos and print products, are stated at the
lower of average cost or market using the first-in, first-out method.

MARKETING COSTS

         The Company incurs marketing costs utilizing various media to generate
direct sales to customers. Marketing expenditures that benefit future periods
are capitalized and charged to operations using the straight-line method over a
period of six months, which approximates the period during which the related
sales are expected to be realized. Other marketing costs are expensed the first
time advertising takes place. Prepaid marketing costs, including artwork,
printing and direct mail packages, are included in assets in the accompanying
financial statements and approximated $525,000 and $1,326,000 at December 31,
1999 and 1998, respectively. Marketing costs expensed for the three years ended
December 31, 1999, 1998 and 1997 approximated $4,609,000, $4,455,000 and
$4,626,000, respectively.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets using the straight-line method.
The useful lives of buildings are 14 to 25 years; leasehold improvements, 2
years, which is the life of the related lease; data processing equipment, 5
years; studio equipment, 5 years; and furniture and fixtures, 5 to 7 years.
Repairs

                                       21

<PAGE>   23


and maintenance costs which do not increase the useful lives of the assets are
charged to expense as incurred. Additions, improvements and expenditures that
significantly add to the productivity or extend the life of an asset are
capitalized. When assets are replaced or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any gain or
loss is reflected in income.

PRODUCT MASTERS

         Product masters, which include sound recordings and print masters, are
amortized over their future estimated useful lives, using a method that
reasonably relates to the amount of net revenue expected to be realized.
Management periodically reviews the product masters amortization rates and
adjusts the amortization rate based on management's estimates for future sales.
In conjunction with such analysis, any amounts that do not appear to be fully
recoverable are charged to expense during the period the loss becomes evident.
The costs of producing a product master include the cost of the musical talent,
the cost of the technical talent for engineering, directing and mixing, costs
for the use of the equipment to record and produce the master and studio
facility charges.

ADVANCE ROYALTIES

         Royalties earned by publishers, producers, songwriters, or other
artists are charged to expense in the period in which the related product sale
occurs. Advance royalties paid are capitalized if the past performance and
current popularity of the artist to whom the advance is made demonstrates such
amounts will be recoverable from future royalties to be earned by the artist.
Such capitalized amounts are included as a component of product masters in the
consolidated balance sheet. Any portion of advances that subsequently appear not
to be recoverable from future royalties are charged to expense during the period
the loss becomes evident. The amount of capitalized advance royalties aggregated
$562,000 and $1,256,000 at December 31, 1999 and 1998, respectively.

INCOME TAXES

         The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. Management includes the
consideration of future events to assess the likelihood that the tax benefits
will be realized in the future.

STOCK-BASED COMPENSATION PLANS

         The Company has elected to account for its stock-based compensation
plans under Accounting Principals Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) with the associated disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS No. 123) in Note 11. SFAS No. 123 requires that companies
which elect to not account for stock-based compensation as prescribed by that
statement shall disclose among other things, pro forma effects on net income and
net income per share as if SFAS No. 123 had been adopted. Under APB No. 25,
because the exercise price of the Company's employee stock options equal the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized.

EARNINGS PER SHARE

         Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average of common shares outstanding for the
period. Diluted earnings per share is calculated by dividing income available to
common stockholders by weighted average of common shares outstanding assuming
issuance of potential dilutive common shares related to options, warrants,
convertible debt, or other stock agreements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts of financial instruments including cash, cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair value. The carrying amount of long-term debt approximates fair
value based on current rates of interest available to the Company for loans of
similar maturities.


                                       22
<PAGE>   24


SIGNIFICANT ESTIMATES

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

         Significant estimates inherent in the preparation of the accompanying
consolidated financial statements include management's forecast of anticipated
revenues from the sale of future and existing music, video and
publishing-related products in order to evaluate the ultimate recoverability of
product masters and artist advances. Management periodically reviews such
estimates and it is possible that management's assessment of recoverability of
product masters and artist advances may change based on actual results and other
factors.

2.       OTHER CURRENT ASSETS

Other current assets consist of the following:

<TABLE>
<CAPTION>
                                 December 31
                                (in thousands)
                              1999        1998
                             ------      ------
<S>                          <C>         <C>
Prepaid supplies             $1,571      $1,780
Prepaid marketing costs         525       1,326
Deferred tax assets             124         642
Other                           236          83
                             ------      ------
                             $2,456      $3,831
                             ======      ======
</TABLE>

3.       PROPERTY AND EQUIPMENT

Property and equipment consists of:

<TABLE>
<CAPTION>
                                                December 31
                                               (in thousands)
                                            1999          1998
                                          -------       -------
<S>                                       <C>           <C>
Land                                      $   625       $   625
Buildings and leasehold improvements        2,684         2,633
Data processing and other equipment         1,846         1,354
Studio equipment                            1,037         1,062
Furniture and fixtures                      1,428         1,374
                                          -------       -------
                                            7,620         7,048
Less - accumulated depreciation            (3,956)       (3,575)
                                          -------       -------
                                          $ 3,664       $ 3,473
                                          =======       =======
</TABLE>

         Depreciation expense approximated $525,000, $499,000 and $509,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.


                                       23

<PAGE>   25



4.       OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
                                               December 31
                                             (in thousands)
                                           1999          1998
                                          -------       -------
<S>                                       <C>           <C>
Music copyrights, net of accumulated
amortization                               $1,840        $2,014
Deferred tax assets                           592           494
Other                                         724           688
                                           ------        ------
                                           $3,156        $3,196
                                           ======        ======




</TABLE>


         The music copyrights are being amortized over their future estimated
useful lives, which is approximately fifteen years. Accumulated amortization at
December 31, 1999 and December 31, 1998 was approximately $794,000 and $588,000,
respectively.

5.       DEBT

         The Company's $19 million credit agreement includes a $6 million
revolving credit facility (the Revolver) and $13 million term loan (the Term
Loan) maturing on August 6, 2002. At the Company's option, the credit agreement
carries an interest rate of the bank's base rate plus 1 1/2%, or LIBOR plus 3%.
At December 31, 1999, the interest rate on the $3.1 million outstanding under
the Revolver was 9.12% and on the $6.25 million outstanding under the Term Loan
was 8.76%. At December 31, 1998, the interest rate on the $4.1 million
outstanding under the Revolver was 9.25%; and on the $9.5 million outstanding
Term Loan was 8.22%.

         At December 31, 1999, the Company had approximately $2.9 million of
available funds under the Revolver.

         The Company, in conjunction with the 1996 financing, issued warrants to
purchase 805,288 shares of Class A Common Stock. Each warrant entitles the
record holder thereof to purchase one fully paid share of Class A Common Stock
(for an aggregate of 805,288 shares) or one-fourth fully paid share of
convertible preferred stock (for an aggregate of 201,322 shares) at the exercise
price of $1.875. These warrants became exercisable on August 6, 1998. The
warrants are subject to adjustment upon the issuance of additional shares of
common stock by the Company. On the date of issuance, the warrants had an
estimated fair value of $1.73 per share or $1,393,000, which is recorded as a
discount to the Revolver and Term Loan. As a result of the issuance of shares of
Class A Common Stock associated with certain restricted stock grants, the
Company issued 13,609 additional warrants in 1999, which are immediately
exercisable. The fair value of these warrants, approximately $45,000, was
recorded as additional debt discount. The discount is being amortized to
interest expense over the term of the facility. At December 31, 1999, the book
value of the discount is $649,000 net of accumulated amortization of $789,000.

         The Revolver and Term Loan contain certain restrictive covenants with
respect to the Company, including, among other things, maintenance of working
capital, limitations on the payments of dividends, the incurrance of additional
indebtedness, certain liens and require the maintenance of certain financial
ratios. Substantially all of the Company's assets are pledged as collateral for
these loans. The Company is in compliance with these debt covenants at December
31, 1999.

Aggregate principal maturities of long-term debt at December 31, 1999 are as
follows:

<TABLE>
<CAPTION>
                                                        Total
           Fiscal Year                          (in thousands)
           -----------                          --------------
           <S>                                  <C>
              2000                                     $1,937
              2001                                      2,873
              2002                                      4,544
                                                       ------
                                                       $9,354
            Discount                                      649
                                                       ------
                                                       $8,705
                                                       ======
</TABLE>


                                       24

<PAGE>   26

         At December 31, 1999, approximately $299,000, net of accumulated
amortization of $396,000, of loan issuance costs, included in other assets, are
being amortized over the term of the debt agreements.

6.       INCOME TAXES

         The components of the (benefit) provision for income taxes for the
three years ended December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                        Year Ended December 31
                                            (in thousands)
                                   1999         1998         1997
                                  ------       ------       ------
<S>                               <C>          <C>          <C>
Current provision (benefit)
   Federal                        $246         $ 138         $0
   State                            26            20          0
                                  ----         -----         --
                                   272           158          0
                                  ----         -----         --
Deferred provision (benefit)
   Federal                         344          (464)         0
   State                            76           (63)         0
                                  ----         -----         --
                                   420          (527)         0
                                  ----         -----         --
Total provision (benefit)         $692         $(369)        $0
                                  ====         =====         ==
</TABLE>

         The provision (benefit) for income taxes differs from the amount
computed by applying the U. S. federal income tax rate (34%) because of the
effect of the following items:

<TABLE>
<CAPTION>
                                                             December 31
                                                            (in thousands)
                                                    1999         1998         1997
                                                   ------       ------       ------
<S>                                                <C>          <C>          <C>
Income tax provision at statutory                  $ 870        $ 596        $ 231
State tax provision, net of federal taxes            71            70           27

Nondeductible expenses                               15            15           (2)
Other, net                                          (84)         (265)         (58)
Change in valuation allowance                       (180)        (785)        (198)
                                                   -----        -----        -----
Provision of (benefit) for income taxes
before extraordinary item                          $ 692       $ (369)      $    0
                                                   =====        =====        =====
</TABLE>


         Deferred income taxes are recorded to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.


                                       25
<PAGE>   27



         Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                         December 31
                                                     1999           1998
                                                   --------       --------
<S>                                                <C>            <C>
Deferred Assets
   Net operating loss carryforwards                $    0         $  413
   Reserves for returns and allowances                211            258
   Impairment of building and depreciation            460            494
   Write down of product masters                      137            295
   Tax credits                                          0            618
   Non compete agreement                              246            206
   Other                                                0            100
                                                   ------         ------
                                                    1,054          2,384
                                                   ------         ------

Deferred tax liabilities
   Prepaid marketing expenses                        (217)          (380)
   Other                                             (121)          (368)
                                                   ------         ------
                                                     (338)          (748)
                                                   ------         ------

Deferred tax asset before valuation allowance         716          1,636
Valuation allowance for deferred tax assets             0           (500)
                                                   ------         ------
Net deferred tax asset                             $  716         $1,136
Current portion                                      (124)          (642)
                                                   ------         ------
Long term portion                                  $  592         $  494
                                                   ======         ======
</TABLE>

         Management believes that it is more likely than not that it will
generate taxable income sufficient to realize the net deferred tax asset
recorded at December 31, 1999. For the year ended December 31, 1999, the Company
reduced its valuation allowance by $320,000 related to the utilization of
previously established foreign tax credits as deductions rather than tax
credits. As a result this portion of the prior year tax credits has been written
off against the valuation allowance, which did not result in any impact to the
results of operations. The Company reduced the remaining $180,000 valuation
allowance to zero. Such reduction in the valuation allowance was the result of
three consecutive years of profitability coupled with management's current
projections that sufficient taxable income will realize the remaining deferred
tax assets.

7.       EMPLOYEE BENEFITS

         The Company maintains a non-contributory defined contribution Profit
Sharing Plan (the "Plan") covering substantially all employees of the Company.
An employee is eligible to participate in the Plan after one year of service, as
defined. The Company did not make contributions to the Plan during the year
ended December 31, 1998 as contributions are at the discretion of the Board of
Directors. The Company contributed $91,000 and $99,670 to the Plan during the
years ended December 31, 1999 and 1997, respectively.

         The Company also provides a qualifying 401k Plan ("401k Plan") covering
substantially all employees of the Company. An employee is eligible to
participate in the 401k Plan after one year of service and is allowed to make
elective contributions of up to 12% of their annual salary. Company
contributions to the 401k Plan are discretionary and are determined annually by
the Company's Board of Directors. The Company contributed approximately
$110,000; $102,000; and $175,000 during the years ended December 31, 1999, 1998
and 1997, respectively. The Board of Directors amended the 401(k) Plan in 1997
to include qualified non-elective contributions to satisfy minimum
contributions.

8.       RELATED PARTY TRANSACTIONS

         Integrity Worship Ministries, formerly known as Worship International
("Worship"), is a not-for-profit charitable organization, of which the principal
stockholder of the Company is a member of the board of directors. The Company
donated $9,280, $7,895 and $12,642 of inventory to Integrity Worship Ministries
during 1999, 1998 and 1997, respectively.

         One of the Company's exclusive songwriters and artists, who is also an
officer of the Company, received royalties of approximately $276,000, $208,149
and $197,831 for the three


                                       26
<PAGE>   28

years ended December 31, 1999, 1998 and 1997. Amounts due to the officer at
December 31, 1999 and 1998 approximate $82,690 and $57,957, respectively. Due
from this officer at December 31, 1999 is $10,500 advanced against future
royalties.

9.       SEGMENT REPORTING

         The Company is a multinational corporation with wholly-owned
subsidiaries in the United States, Australia, the United Kingdom and Singapore.
Transfers between companies primarily represent inter-company export sales of
U.S. produced goods and are accounted for based on established sales prices
between the related companies. Intercompany sales and profits are eliminated
during consolidation. In computing operating profits, general corporate
expenses, to the extent related to a segment, are charged to that segment.
Marketing and fulfillment costs are also attributed to the specific segment
benefited. Other expenses (income) are also included in the general corporate
expenses total.


         The Company has determined that its reportable segments are those that
are based on the Company's distribution channels. These distribution channels
are Retail, Direct to consumers, International and Other channels. The Retail
channel primarily represents sales to Christian bookstores and others either
directly from the Company or through third party distributors. Direct to
consumers primarily represents sales from direct mail programs but also includes
Internet sales, special event sales, and sales direct to churches, including
through the Company's hymnal joint venture. The International channel represents
all transactions with foreign entities, whether they are shipped from the US or
one of the Company's three foreign subsidiaries. Christian bookstores are the
primary distribution channel for this segment, but there are also direct mail
and other techniques used for these markets. The other channels segment includes
copyright revenue from the song catalog and other small distribution sales.

         The accounting policies of the reportable segments are the same as
those described in Note 1 of Notes to Consolidated Financial Statements. The
Company evaluates the performance of its operating segments based on net
revenues and operating income before taxes. Intersegment sales are not
significant.

                                      27
<PAGE>   29

         Summarized financial information concerning the Company's reportable
segments is shown in the following table, in thousands:

<TABLE>
<CAPTION>
                                                      1999                    1998                   1997
                                                    -------                 -------                -------
    <S>                                             <C>                     <C>                    <C>
    NET SALES
    Direct to consumer                              $14,188                 $13,430                $11,602
    Retail                                           20,924                  14,702                 14,214
    International                                     7,234                   6,392                  6,346
    Other                                             6,154                   6,534                  4,700
    Eliminations                                    (2,929)                 (2,211)                (1,908)
                                                    -------                 -------                -------
       Consolidated                                 $45,571                 $38,847                $34,954
                                                    =======                 =======                =======

    OPERATING PROFIT (BEFORE MINORITY INTEREST)
    Direct to consumer                               $2,047                 $ 2,954                $ 3,158
    Retail                                            4,082                   3,018                  3,121
    International                                     1,836                   1,436                  1,452
    Other                                             1,669                   1,798                    278
                                                    -------                 -------                -------
       Consolidated                                   9,634                   9,206                  8,009

    General corporate expense                         5,802                   5,924                  5,540
    Interest expense, net                             1,292                   1,529                  1,790
                                                    -------                 -------                -------

    Income before income taxes and
    minority interest                               $ 2,540                 $ 1,753                $   679
                                                    =======                 =======                =======

    IDENTIFIABLE ASSETS
    Direct to consumer                              $ 2,447                 $ 2,870                $ 2,581
    Retail                                                0                       0                      0
    International                                     3,230                   2,596                  2,218
    Other                                             1,840                   2,014                  2,191

    General corporate assets                         22,531                  24,137                 22,785
                                                    -------                 -------                -------
       Total assets                                 $30,048                 $31,617                $30,775
                                                    =======                 =======                =======
</TABLE>

         The Company does not allocate any separate assets to its retail or
direct to consumer segments as those segments are managed based on profit
centers. The primary assets used in these segments are product masters and other
intangibles which are shared among all segments. The Company does not track
property and equipment usage by segments.

         The Company sells its products throughout the world and operates
primarily in the U.S. Export sales are handled through the Company's
international sales division and through certain foreign subsidiaries.
Geographic financial information is as follows (in thousands):

<TABLE>
<CAPTION>
                                                      1999                    1998                   1997
                                                    -------                 -------                -------
    <S>                                             <C>                     <C>                    <C>
    NET SALES
    United States                                   $38,337                 $32,464                $29,875
    Europe                                            2,401                   1,956                  1,638
    Australia                                         1,174                   1,011                  1,267
    Asia                                              1,142                     938                      0
    Other                                             2,517                   2,478                  2,174
                                                    -------                 -------                -------
                                                    $45,571                 $38,847                $34,954
                                                    =======                 =======                =======
    IDENTIFIABLE ASSETS
    United States                                   $26,818                 $29,021                $28,557
    Europe                                            1,688                   1,368                  1,104
    Australia                                           629                     494                    565
    Asia                                                913                     734                      0
    Other                                                 0                       0                    549
                                                    -------                 -------                -------
                                                    $30,048                 $31,617                $30,775
                                                    =======                 =======                =======
</TABLE>

                                      28
<PAGE>   30

10.      STOCKHOLDERS' EQUITY

         Each holder of the Company's Class B common stock is entitled to 10
votes per share. Holders of Class A common stock are entitled to one vote per
share. The rights of each share of Class A and Class B stock are identical in
all respects except as to voting privileges. No dividends were declared or paid
during the years ended December 31, 1999 and 1998.

11.      STOCK COMPENSATION PLANS

         The Company has two stock option plans, which provide for the granting
of stock options to officers, employees and non-employee directors. The
Long-term Incentive Plan (the "Incentive Plan") permits grants of not only
incentive stock options, but also non-qualified stock options, stock
appreciation rights, performance shares, restricted stock and other stock based
awards. The Incentive Plan is authorized to issue up to 400,000 shares of Class
A Common Stock in connection with such awards. Under the Incentive Plan, awards
may not be granted at less than the market value at the date of the grant, and
vesting terms are generally five years. The 1994 Stock Option Plan for Outside
Directors (the "Directors' Plan"), grants 1,000 options to purchase Class A
Common stock annually to Directors following the annual meeting. Such options
have an exercise price equal to the fair market value at grant date and are
exercisable six months from date of grant.

         The Executive Stock Purchase Plan permits certain employees to purchase
shares of common stock from the Company. Under this Plan, there are 50,000
shares of Class A common stock reserved at December 31, 1999.

         Effective December 28, 1995, the Company's Board of Directors adopted
the 1995 Cash Incentive Plan. Awards may be granted by the Company's
Compensation Committee and any award made is expressed in a number of units
payable only in cash. Vesting is one-fifth of the units of an award on each
anniversary of the date of grant until vested in full. Participants become
vested in full six months after the occurrence of a change in control (as
defined by the agreement) of the Company. The value of all units is measured as
the difference between the fair market value of the Company's stock on the grant
date and the fair market value of the Company's stock on any given date
subsequent to the grant date. To the extent the fair market value of the stock
exceeds the fair market value at the date of grant, compensation expense will be
charged to the Company's statement of operations. As of December 31, 1999,
127,500 awards have been granted. During 1999, the Company paid $62,000 related
to this plan and retains an accrual in the amount of $40,000 for the difference
in the fair market value of the stock between the grant date and the end of the
year.

         The Company accounts for stock-based compensation plans under APB 25,
"Accounting for Stock Issued to Employees". As a result, the Company has
recognized compensation expense only for the 1995 Cash Incentive Plan discussed
above. The Company is not required to recognize compensation expense for the
other option plans as the exercise price is equal to, or greater than, the fair
market value at the date of grant. The Company has adopted the disclosure
provisions of SFAS 123, "Accounting for Stock Based Compensation: (FAS 123)".
Had compensation cost for the Company's stock-based incentive compensation plans
been determined based on the fair value at the grant dates for awards under
these plans consistent with the methodology prescribed by FAS 123 and if these
values had been recorded in the statement of operations, the Company's net
income (loss) and per share results would have been reduced to the pro forma
amounts indicated below for the years ended December 31, 1999, 1998 and 1997,
respectively.

<TABLE>
<CAPTION>
                                                       1999               1998               1997
                                                    ----------         ----------          --------
      <S>                 <C>                       <C>                <C>                 <C>
      Net income          As reported               $1,664,000         $1,854,000          $642,000
                          Pro forma                  1,474,000          1,785,000           543,000

      Basic EPS           As reported                     0.30               0.34              0.12
                          Pro forma                       0.26               0.32              0.10

      Diluted EPS         As reported                     0.28               0.32              0.12
                          Pro forma                       0.24               0.31              0.10
</TABLE>

         These pro forma amounts represent the estimated fair value of stock
options issued during 1999, 1998 and 1997 and are being amortized to expense
over the applicable vesting period. Additional options may be granted in future
years.

                                      29
<PAGE>   31

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1999, 1998 and 1997, respectively: Dividend yields of 0%, expected
volatility of 50% each year, risk-free interest rates that approximate the yield
of a five year government bond, and a specific vesting period for each option.

         The following table summarizes the changes in the number of shares
under option:

<TABLE>
<CAPTION>

                                                                                              Total         Weighted
                                                   EXERCISE PRICE RANGES                     shares         average
                                                                                              under       option price
                                    $0.50 - $2.00     $2.01 - $5.00     $5.01- $10.00         option        per share
                                    -------------     -------------     -------------       ---------     ------------
<S>                                 <C>               <C>               <C>                 <C>           <C>
Outstanding at 12/31/96                   120,000           123,000           125,000         368,000           3.60
Granted                                   141,027                 0                 0         141,027           1.74
Exercised                                       0                 0                 0               0              0
Forfeited                                (35,000)                 0         (113,000)       (148,000)           7.21
                                         --------           -------         ---------       ---------
Outstanding at 12/31/97                   226,027           123,000            12,000         361,027           1.39
Granted                                    20,000            13,000                 0          33,000           1.64
Exercised                                       0                 0                 0               0              0
Forfeited                                (60,000)                 0                 0        (60,000)           1.58
                                         --------           -------         ---------       ---------
Outstanding at 12/31/98                   186,027           136,000            12,000         334,027           1.38
Granted                                         0           272,000                 0         272,000           3.60
Exercised                                       0                 0                 0               0              0
Forfeited                                 (1,000)           (2,000)           (3,000)         (6,000)           5.35
                                         --------           -------         ---------       ---------
Outstanding at 12/31/99                   185,027           406,000             9,000         600,027           2.99
                                         ========           =======         =========       =========
Exercisable at 12/31/99                    91,211            89,000             7,600         187,811
                                         ========           =======         =========       =========
Plan shares available for
future grants                                                                                 145,000
                                                                                            =========
</TABLE>

         The Company also has 818,897 warrants outstanding at December 31, 1999
at an exercise price of $1.875. These warrants were issued primarily in 1996
with an estimated fair value at time of issuance of $1,438,000 and expire in
2006.

         The weighted-average fair value of options granted is $1.82, $1.32 and
$1.01 for the years ended December 31, 1999, 1998 and 1997, respectively. The
weighted average remaining contractual life for all options outstanding is 5.6
years. During 1999, the Company issued 100,000 shares of restricted common stock
to an officer of the Company. These shares had a fair value at the time of
issuance of $375,000 and vest on the seventh anniversary of the date of grant.

12.      COMMITMENTS AND CONTINGENCIES

     The Company is subject to legal proceedings and other claims which may
arise in the ordinary course of business. However, the company is not party to
any material legal proceedings. The Company's commitments under lease agreements
for equipment are not significant.

13.      QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                               1999 Three Months Ended
                                                        (in thousands, except per share data)
                                            Mar 31               Jun 30             Sep 30              Dec 31
                                            ------               ------             ------              ------
<S>                                        <C>                  <C>                <C>                 <C>
Net Sales                                  $11,045              $10,513            $11,547             $12,466
Gross Profit                                 5,822                5,849              5,740               6,224
Net Income                                     223                  156                632                 653
Basic earnings per share                      $.04                 $.03               $.11                $.12
Diluted earnings per share                    $.04                 $.03               $.10                $.11

<CAPTION>

                                                               1998 Three Months Ended
                                                        (in thousands, except per share data)
Net Sales                                   $9,453               $9,678            $10,196              $9,520
Gross Profit                                 5,456                5,650              4,939               4,817
Net Income                                     454                  174                442                 784
Basic earnings per share                      $.09                 $.03               $.08                $.14
Diluted earnings per share                    $.08                 $.03               $.08                $.13
</TABLE>

                                      30
<PAGE>   32

2.       FINANCIAL STATEMENT SCHEDULE

The following consolidated financial statement schedules of the Company are set
forth herewith:

                             INTEGRITY INCORPORATED
          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      Additions
                                                      Charged to
                                Balance at Beg.       costs and                            Balance at end
          Description              Of Period           expenses        Deductions (1)         of Period
          -----------           ---------------       ----------       --------------      --------------
  <S>                           <C>                  <C>               <C>                 <C>
  1997
  Allowance for returns and
  doubtful accounts                  1,684             5,174              (6,046)                812

  1998
  Allowance for returns and
  doubtful accounts                    812             4,852              (4,968)                696

  1999
  Allowance for returns and
  doubtful accounts                    696             5,108              (4,696)              1,108
</TABLE>


(1) Represents write-offs during the respective period for product returns and
    uncollectible accounts.

<TABLE>
<CAPTION>
                                                     Charged to
                                  Balance at          costs and                            Balance at end
          Description           Beg. Of Period        expenses          Adjustments (2)       of Period
          -----------           ---------------       ---------        ---------------     --------------
  <S>                           <C>                  <C>               <C>                 <C>
  1997
  Valuation on deferred tax
  assets                             1,483             (198)                                   1,285

  1998
  Valuation on deferred tax
  assets                             1,285             (785)                                     500

  1999
  Valuation on deferred tax
  assets                               500             (180)                (320)                  0
</TABLE>

(2)      During 1999, the Company reduced its valuation allowance by $320,000
related to the utilization of previously established foreign tax credits as
deductions rather than tax credits. As a result, this portion of the prior year
tax credits has been written off against the valuation allowance.

         All other schedules have been omitted, as they are not required under
the related instructions, are inapplicable, or because the information required
is included in the consolidated financial statements or notes thereto.

                                      31
<PAGE>   33

3.       EXHIBITS

         The exhibits indicated below are either incorporated by reference
herein or are bound separately and accompany the copies of this report filed
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. Copies of such exhibits will be furnished to any
requesting stockholder of the Company upon payment of the costs of copying and
transmitting the same.

                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>

           Exhibit
            Number            Exhibit Description
           <S>         <C>
             3(i)      Certificate of Incorporation of the Registrant, as
                       amended (incorporated by reference from Exhibit 4(a) to
                       the Registrant's Registration Statement on Form S-8 (File
                       No. 33-84584) filed on September 29, 1994).
            3(i).1     Certificate of Amendment to the Certificate of
                       Incorporation of the Registrant, dated July 21, 1995
                       (incorporated by reference from Exhibit 3(I).1 to the
                       Registrant's Quarterly Report on Form 10-Q for the
                       quarter ended September 30, 1995).
            3(ii)      Bylaws of the Registrant, as amended (incorporated by
                       reference from Exhibit 3(ii) to the Registrant's
                       Registration Statement on Form S-1 (File No. 33-78582),
                       and amendments thereto, originally filed on May 6, 1994).
             4.1       See Exhibits 3(i), 3(i).1 and 3(ii) for provisions of the
                       Certificate of Incorporation, as amended, and Bylaws, as
                       amended, of the Registrant defining rights of holders of
                       Class A and Class B Common Stock of the Registrant.
             4.2       Form of Class A Common Stock certificate of the
                       Registrant (incorporated by reference from Exhibit 4.2 to
                       the Registrant's Registration Statement on Form S-1 (File
                       No. 33-78582), and amendments thereto, originally filed
                       on May 6, 1994).
             10.1      Agreement dated as of June 1, 1994, by and between
                       Integrity Music, Inc. and LCS Industries, Inc. (Portions
                       of the foregoing have been granted confidential
                       treatment.) (incorporated by reference from Exhibit 10.13
                       to the Registrant's Registration Statement on Form S-2
                       (File No. 33-78582), and amendments thereto, originally
                       filed on May 6, 1994).
             10.2      Form of Continuity Club Membership Agreement
                       (incorporated by reference from Exhibit 10.25 to the
                       Registrant's Registration Statement on Form S-1 (File No.
                       33-78582), and amendments thereto, originally filed on
                       May 6, 1994).
             10.3      Loan and Security Agreement, dated as of August 2, 1996,
                       by and among Integrity Incorporated and Creditanstalt
                       Corporate Finance, Inc., (incorporated by reference from
                       Exhibit 10.1 to the Registrant's Quarterly Report on Form
                       10-Q for the quarter ended June 30, 1996).
             10.4      Stock Pledge Agreement, dated as of August 2, 1996, by
                       Integrity Incorporated in favor of Creditanstalt
                       Corporate Finance, Inc., (incorporated by reference from
                       Exhibit 10.2 to the Registrant's Quarterly Report on Form
                       10-Q for the quarter ended June 30, 1996).
             10.5      Conditional Assignment and Trademark Security Agreement,
                       dated August 2, 1996, between Integrity Incorporated and
                       Creditanstalt Corporate Finance, Inc. (incorporated by
                       reference from Exhibit 10.3 to the Registrant's Quarterly
                       Report on Form 10-Q for the quarter ended June 30, 1996).
             10.6      Collateral Assignment and Agreement, dated as of August
                       2, 1996, by and between Integrity Incorporated and
                       Creditanstalt Corporate Finance, Inc., (incorporated by
                       reference from Exhibit 10.4 to the Registrant's Quarterly
                       Report on Form 10-Q for the quarter ended June 30, 1996).
             10.7      Copyright Security Agreement, dated as of August 2, 1996,
                       made by Integrity Incorporated in favor of Creditanstalt
                       Corporate Finance, Inc., (incorporated by reference from
                       Exhibit 10.5 to the Registrant's Quarterly Report on Form
                       10-Q for the quarter ended June 30, 1996).
</TABLE>

                                      32
<PAGE>   34

<TABLE>
             <S>       <C>
             10.8      Warrant Agreement, dated August 2, 1996, made by
                       Integrity Incorporated in favor of Creditanstalt
                       Corporate Finance, Inc., (incorporated by reference from
                       Exhibit 10.6 to the Registrant's Quarterly Report on Form
                       10-Q for the quarter ended June 30, 1996).
             10.9      Product Distribution Agreement by and between Integrity
                       Incorporated and Word, Inc., dated as of April 1, 1996.
                       (The foregoing is the subject of a request for
                       confidential treatment.) (incorporated by reference from
                       Exhibit 10.7 to the Registrant's Quarterly Report on Form
                       10-Q for the quarter ended June 30, 1996).
            10.10      First Amendment to Loan and Security Agreement, dated as
                       of February 14, 1997, by and among Integrity Incorporated
                       and Creditanstalt Corporate Finance, Inc. (incorporated
                       by reference from Exhibit 10.14 to the Registrant's
                       Annual Report on Form 10-K for the year ended December
                       31, 1996).
            10.11      Second Amendment to Loan and Security Agreement, dated as
                       of March 31, 1999, by and among Integrity Incorporated
                       and Bank Austria Creditanstalt Corporate Finance, Inc.
                       (incorporated by reference from Exhibit 10.1 to the
                       Registrant's Quarterly Report on Form 10-Q for the
                       quarter ended March 31, 1999).
            10.12      Warrant Certificate, dated January 26, 2000, issued by
                       Integrity Incorporated to Creditanstalt Corporate
                       Finance, Inc. (filed herewith)
            10.13      Product Distribution Agreement by and between Integrity
                       Incorporated and Word, Inc., dated as of January 1, 2000
                       (The foregoing is the subject of a request for
                       confidential treatment)
            10.14      Asset Purchase Agreement by and between Integrity
                       Incorporated and Idea Entertainment, Inc. dated as of
                       November 19, 1999. (filed herewith)
            10.15      Amended and Restated Stock Pledge Agreement, dated as of
                       January 22, 1997, by Integrity Incorporated in favor of
                       Creditanstalt Corporate Finance, Inc. (incorporated by
                       reference from Exhibit 10.15 to the Registrant's Annual
                       Report on Form 10-K for the year ended December 31,
                       1996).
                       EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
            10.16      Integrity Music, Inc. Profit Sharing Plan (incorporated
                       by reference from Exhibit 10.42 to the Registrant's
                       Registration Statement on Form S-1 (File No. 33-78582),
                       and amendments thereto, originally filed on May 6, 1994).
            10.17      1994 Management Incentive Plan (incorporated by reference
                       from Exhibit 10.43 to the Registrant's Registration
                       Statement on Form S-1 (File No. 33-78582), and amendments
                       thereto, originally filed on May 6, 1994).
            10.18      Integrity Music, Inc. Long-Term Incentive Plan
                       (incorporated by reference) from Exhibit 4(c) to the
                       Registrant's Registration Statement on Form S-8 (File No.
                       33-86126) filed on November 7, 1994).
            10.19      Form of Stock Option Agreement under the Integrity Music,
                       Inc. Long-Term Incentive Plan (incorporated by reference
                       from Exhibit 10.45 to the Registrant's Registration
                       Statement on Form S-1 (File No. 33-78582), and amendments
                       thereto, originally filed on May 6, 1994).
            10.20      Integrity Music, Inc. 1994 Stock Option Plan for Outside
                       Directors (incorporated by reference from Exhibit 4(c) to
                       the Registrant's Registration Statement on Form S-8 (File
                       No. 33-86128) filed on November 7, 1994).
            10.21      Form of Indemnification Agreement (incorporated by
                       reference from Exhibit 10.47 to the Registrant's
                       Registration Statement on Form S-1 (File No. 33-78582),
                       and amendments thereto, originally filed on May 6, 1994).
            10.22      Integrity Music, Inc. Employee Stock Purchase Plan
                       (incorporated by reference from Exhibit 4(c) to the
                       Registrant's Registration Statement on Form S-8 (File No.
                       33-84584) filed on September 29, 1994).
            10.23      Integrity Music, Inc. 401(k) Employee Savings Plan
                       (incorporated by reference from Exhibit 10.50 to the
                       Registrant's Quarterly Report on Form 10-Q for the
                       quarter ended March 31, 1995).
</TABLE>

                                      33
<PAGE>   35

<TABLE>

            <S>        <C>
            10.24      Amendment Number three to the Integrity Music, Inc.
                       401(k) Employee Savings Plan, dated as of April 2, 1997
                       (incorporated by reference from Exhibit 10.29 to the
                       Registrant's Quarterly Report on Form 10-Q for the
                       quarter ended March 31, 1997).
            10.25      Defined Contribution Master Plan and Trust Agreement
                       relating to Non-Standardized Profit Sharing Plan
                       (incorporated by reference from Exhibit 10.51 to the
                       Registrant's Quarterly Report on Form 10-Q for the
                       quarter ended March 31, 1995).
            10.26      Form of Key Employee Change in Control Agreement
                       (incorporated by reference from Exhibit 10.33 to the
                       Registrant's Annual Report on Form 10-K for the year
                       ended December 31, 1995).
            10.27      Integrity Incorporated 1995 Cash Incentive Plan
                       (incorporated by reference from Exhibit 10.34 to the
                       Registrant's Annual Report on Form 10-K for the year
                       ended December 31, 1995).
            10.28      Integrity Incorporated Severance Agreement (incorporated
                       by reference from Exhibit 10.35 to the Registrant's
                       Annual Report on Form 10-K for the year ended December
                       31, 1995).
            10.29      Employment Agreement by and among Integrity Incorporated
                       and Jerry Weimer dated as of March 28, 1996 (incorporated
                       by reference from Exhibit 10.28 to the Registrant's
                       Annual Report on Form 10-K for the year ended December
                       31, 1996).
            10.30      Employment Agreement by and among Integrity Incorporated
                       and Don Moen dated as of October 1, 1998 (incorporated by
                       reference from Exhibit 10.27 to the Registrant's Annual
                       Report on Form 10-K for the year ended December 31,
                       1998).
            10.31      Employment Agreement by and among Integrity Incorporated
                       and Daniel McGuffey dated as of January 1, 1998
                       (incorporated by reference from Exhibit 10.28 to the
                       Registrant's Annual Report on Form 10-K for the year
                       ended December 31, 1998).
            10.32      Amendment to the Integrity Music, Inc. 1994 Employee
                       Stock Purchase Plan as approved on August 6, 1999
                       (incorporated by reference from Exhibit 10.0 to the
                       Registrant's Quarterly Report on Form 10-Q for the
                       quarter ended September 30, 1999).
            10.33      Integrity Incorporated 1999 Long-Term Incentive Plan, as
                       approved by the Stockholders of the Corporation on May 7,
                       1999 (incorporated by reference from Exhibit 10.1 to the
                       Registrant's Quarterly Report on Form 10-Q for the
                       quarter ended June 30, 1999).
              11       Statement of Computation of Per Share Earnings
              21       Subsidiaries of the Registrant
              23       Consent of Independent Accountant
              27       Financial Data Schedule (for SEC only)
</TABLE>

(b)     Reports on Form 8-K

The Registrant filed no reports on Form 8-K during the last quarter of the
fiscal year ended December 31, 1999.

                                      34
<PAGE>   36

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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 on March 27, 2000.

                                     INTEGRITY INCORPORATED



                                     By:         /s/ P. Michael Coleman
                                        ----------------------------------------
                                        P. Michael Coleman
                                        Chairman, President and
                                        Chief Executive Officer

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities indicated on March 27, 2000.

<TABLE>
<CAPTION>
                       Signature                                            Title
                <S>                                      <C>
                  /s/ P. Michael Coleman
---------------------------------------------------------
                    P. Michael Coleman                    Chairman, President and Chief Executive Officer
                                                          (Principal Executive Officer)

                /s/ Alison S. Richardson
---------------------------------------------------------
                  Alison S. Richardson                    Senior Vice President, Finance and Administration
                                                          (Principal Financial and Accounting Officer)

                  /s/ Jean C. Coleman
---------------------------------------------------------
                    Jean C. Coleman                       Director

                 /s/ Jimmy M. Woodward
---------------------------------------------------------
                   Jimmy M. Woodward                      Director

                 /s/ Charles V. Simpson
---------------------------------------------------------
                   Charles V. Simpson                     Director

                 /s/ Heeth Varnedoe III
---------------------------------------------------------
                   Heeth Varnedoe III                     Director
</TABLE>

                                      35