<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                          COMMISSION FILE NO. 000-24134

                              INTEGRITY MEDIA, INC.
                              ---------------------
             (Exact name of registrant as specified in its charter)

           DELAWARE                                        63-0952549
-------------------------------                ---------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

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

                                 (251) 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, $0.01 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.

Yes   [X]    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 the 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]

      Indicate by check mark if whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).

Yes   [ ]    No   [X]

      The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant, based upon the closing price of the Class A
Common Stock on the Nasdaq National Market on June 30, 2002, was $12,842,901.
Solely for the purpose of the foregoing calculation, all executive officers and
directors of the registrant have been deemed to be "affiliates" of the
registrant.

      The number of shares of the registrant's Class A Common Stock, $0.01 par
value per share, outstanding at March 14, 2003 was 2,364,783.

      The number of shares of the registrant's Class B Common Stock, $0.01 par
value per share, outstanding at March 14, 2003 was 3,385,000.
<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 23, 2003 are incorporated by reference into Part
III hereof.

         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
"Item 7. 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 Media, Inc. (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. For any forward-looking statements contained,
or incorporated by reference, herein, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. 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 - Risk
Factors." All written or oral forward-looking statements attributable to the
Company are expressly qualified in their entirety by this cautionary notice. Any
forward-looking statements represent management's estimates only as of the date
of this report and should not be relied upon as representing estimates as of any
subsequent date. While Integrity may elect to update forward-looking statements
at some point in the future, Integrity specifically disclaims any obligation to
do so, even if its estimates change.

                                     PART I.

ITEM 1. BUSINESS

INTRODUCTION

      Integrity Media, Inc. is a media/communications company that produces,
publishes and distributes Christian music, books and related products.
Integrity's music product formats include cassettes, compact discs, videos,
DVD's and printed music. The Company produces Praise and Worship music in
different musical styles for specific audiences such as children's music, gospel
music for the African-American audience, youth music and live worship music for
adult audiences. In July 2002, Integrity announced the purchase of M2
Communications, L.L.C., an artist-based independent Christian music company
headquartered in Nashville, Tennessee. The purchase of M2 Communications, L.L.C.
allows the Company to enter the Pop segment of Christian music, which represents
over 30% of the Christian music market. The Company's Integrity Publishers
division, created in 2001, produces and publishes Christian books. The first
product offerings were released in the third quarter of 2002, with a total of 16
books published during the year. The Company first recorded sales from the M2
Communications and Integrity Publishers divisions in the third quarter of 2002.

      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's book
products are categorized in one of four categories: Inspirational, Christian
Living, Youth or Fiction.

      Integrity's products are sold primarily through retail stores and
direct-to-consumer channels throughout the United States and in 167 other
countries worldwide. The Company has determined that its business is operated in
segments based on distribution channels. For specific information


                                       1
<PAGE>

regarding the financial performance of each segment, see Note 10 of the Notes to
Consolidated Financial Statements.

      Integrity was organized as an Alabama 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, Hosanna! Music(R), consists of live recordings of Praise
and Worship music 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 released its 115th recording in March 2003.

      The Company's concept product line now includes: Hosanna! Music(R),
FairHope Records(R), Songs4Worship(R), iWorship(R), World's Best Praise and
Worship(R); 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 in which the artist is the main focal point. These products have
recently included "Real" with Israel Houghton, Kara's self-titled album,
"Amazed" with Lincoln Brewster, "Welcome To The Rock and Roll Worship Circus" by
Rock and Roll Worship Circus, and "Shake The Foundation" with Joe Pace. Some of
the recent artist products released by the M2 Communications, L.L.C. division
are "Scribbling In The Sand" by Michael Card, "All Right Here" by Sara Groves,
"Almost There" and "Spoken For" by MercyMe, and "Resonate" by Sonicflood.

      OTHER PRODUCTS

      The Company has also produced a variety of other types of products, such
as musical video products featuring recordings of live performances by the
Company's artists, such as the Gold certified "Lift Him Up" with Ron Kenoly, and
the children's music series, Just-For-Kids(R), featuring the Donut Man(R), which
includes multiple Gold and Platinum certified videos. Other videos include the
Gold certified Praise! Aerobics(R), Praise and Worship music recorded
specifically for aerobic exercises. 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. The Company, in partnership with two other Praise and
Worship music companies, has also produced the Double-Platinum certified "WoW
Worship (Blue)," the Platinum certified "WoW Worship (Orange)" and the Gold
certified "WoW Worship (Green)." The Company has also developed the
Songs4Worship series in conjunction with Time Life Music, which includes the
Double-Platinum certified "Songs4Worship - Shout To The Lord" and the Gold
certified "Songs4Worship - Holy Ground." In late 2002, the Company released the
iWorship series, featuring popular contemporary and emerging modern worship
songs on CD, along with DVDs that provide breathtaking visuals, sing-along
lyrics and click-tracks for musicians and worship leaders. The first release in
the series was certified Gold by the Recording Industry Association of America
(RIAA) in January 2003.

      Integrity's Christian music products also include printed music such as
songbooks and sheet music designed primarily for distribution to churches and
choral groups. The Company produced "God With Us," winner of the 1994 Gospel
Music Association Dove Award for best musical, which has remained on the best
sellers list on the non-seasonal musical charts for eight years running. Other
musicals include "God For Us," "Let Your Glory Fall," "God In Us," "Hillsongs
Choral Collection," "We Believe" and "Redeemer, Savior, Friend." Other printed
music products include orchestrations and "The Celebration Hymnal", a joint
venture with Word Entertainment ("Word"), featuring over 700 songs and hymns.
Sales of this hymnal had exceeded one million units by year-end 2002.


                                       2
<PAGE>
      Integrity Publishers, Inc., the Company's book publishing division,
released its first Christian books into the market in the third quarter of 2002.
During 2002, six of these titles reached the Christian Booksellers Association
(CBA) bestsellers lists and one title reached the New York Times bestsellers
list.

PRODUCT CREATION

      The Company's music product development process is based upon the creation
of new concept or artist products that are designed, scripted and marketed to
respond to a specific demand. Integrity Music and M2 Communications, L.L.C. each
conduct planning processes 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 for Integrity Music 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, the concept is reviewed and discussed by
representatives of Integrity's creative, marketing and finance divisions. If the
product concept is approved by that group, then Integrity assembles a creative
team, which includes one or more artists and producers, generally employed on a
freelance or contract basis, and members of Integrity's creative division.

      Following the development of the Integrity Music product concept, the
product is recorded in live settings at churches or civic auditoriums, in
independent studios in cities such as Los Angeles, California or Nashville,
Tennessee, or at Integrity's studio in Mobile, Alabama. 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.

      The Company's book product development process begins with the signing of
a contract with the author. The author and the Company negotiate on the concept
for the book. Once agreement has been reached on a concept, the author will
create a manuscript for submission to the Company for editorial changes. Design
for the interior and exterior of the book and marketing plans are formulated
accordingly. The Company's own editorial staff provide final approval before the
book is manufactured.

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 167 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, through which the member receives a new selection every six to
eight weeks and is billed for each product. 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.

      The Company rents mailing lists that include 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 in 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.


                                       3
<PAGE>
      The Company's first continuity club, Hosanna! Music(R), released its 115th
recording in March 2003. Currently the Company operates several continuity
clubs, including the Songs4Worship and 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.
The Company operates its Internet activity through integritymusic.com and
songs4worship.com. We have also expanded our marketing through direct response
television including the Songs4Worship series advertising with Time Life Music.
The Direct-to-Consumer segment also includes direct sales to churches of printed
products, including "The Celebration Hymnal," which features over 700 songs and
hymns and was introduced in 1997 in a joint venture with Word Entertainment.

      RETAIL MARKETS

      Integrity's music retail sales activities target two markets: the
Christian retail market ("CBA"), which includes sales of choral music products,
and the general retail market.

      The Company currently utilizes Word to serve the CBA market. All CBA
orders are fulfilled through Word, which is responsible for warehousing
Integrity Music and M2 Communications, L.L.C. products. Products 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. Word is the number two distributor in the CBA
market according to SoundScan's Top 2002 CBA Distribution Group Share chart.

      Distribution of our products to the general retail market (i.e., Walmart,
Target, etc.) is done through the Company's global marketing and distribution
agreement with Sony Music Entertainment and its subsidiary Epic Records.
Products released by M2 Communications, L.L.C. prior to its acquisition by
Integrity are distributed by Warner Music Group for distribution to the general
retail market.

      The Company's Integrity Publishers subsidiary utilizes G. L. Services for
distribution of its products to CBA stores, the general market, and ABA stores
(i.e. Barnes & Noble, Books-a-Million, etc.). G.L. Services warehouses the
Company's book products in one warehouse located in Cincinnati, Ohio.

      Retail sales efforts are overseen by an in-house sales staff and 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), and an office
located at the Company's headquarters in Mobile, Alabama (responsible for Latin
America). Products are sold to more than 60 independent distributors who are
licensed to manufacture Integrity's music products from master recordings and
distribute them in a country or region and to approximately 18 importers to whom
the Company provides products. The Company's international distribution network
reaches markets in 167 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


                                       4
<PAGE>

regarding the geographic areas that the Company's international distribution
network reaches, see Note 10 to Notes to Consolidated Financial Statements.

      The Company also develops music 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 music products in the Russian, Spanish, Mandarin Chinese,
French, German, Hindi, Portuguese and Indonesian languages. Some of Integrity
artists are also involved in live performance tours to various countries.

SONG PUBLISHING

      The Company's song catalog has accumulated ownership rights for over 2,800
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
from 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 through Christian
Copyright Licensing, Inc. ("CCLI"). Through CCLI, churches in the United States
are able to pay one licensing fee for the use of numerous Christian song
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.

WAREHOUSING AND FULFILLMENT

      The Company currently contracts with Word for its CBA retail market
warehousing, physical inventory and distribution functions of its music
products. Word is one of several companies that provide this service in the CBA
market. All of the Company's music products are sold in the CBA retail market by
Word's sales force. Direct-to-consumer fulfillment services, including order
receipt and processing, data fulfillment services, database management and
payment processing, are handled by Integrity's own staff in Mobile. Integrity's
own distribution center located in Mobile is responsible for its
direct-to-consumer and international warehousing, physical inventory and
distribution functions. The Company's Integrity Publishers subsidiary utilizes
G.L. Services for warehousing and fulfillment of its products for the CBA, ABA
and general markets. Most of our products are sold on a returnable basis, which
is standard music and book publishing industry practice.

COPYRIGHTS AND ROYALTY AGREEMENTS

      The Company's music and book products are protected under applicable
domestic and international copyright laws. In addition, Integrity currently has
ownership rights to approximately 2,800 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 recordings, 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. See Management's Discussion and Analysis of Financial
Condition and Results of Operations - Risk Factors.


                                       5
<PAGE>
      Integrity pays music royalties in two different categories. The Integrity
songwriters are paid by Integrity's song publishing division when their songs
are used on an Integrity product and when used in public performances such as
CCLI use in churches. 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. Integrity's book publishing division
pays royalties to authors and literary agents based on the number of units sold.

SEASONALITY

      Retail sales for music and books 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. See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors.

COMPETITION

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

      Many of the Company's competitors have significantly longer operating
histories and greater revenues from their music and book 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 books, as well as other communication products. See Management's
Discussion and Analysis of Financial Condition and Results of Operations - Risk
Factors.

EMPLOYEES

      As of December 31, 2002, the Company employed 203 individuals, 148 of whom
were located at the Company's Mobile, Alabama, headquarters and 20 were located
at the Tennessee offices of Integrity Publishers, Inc. and M2 Communications,
L.L.C.

      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.


                                       6
<PAGE>
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 is in the process of finishing a new 40,000
square foot office building on the Mobile campus. This building will be complete
early in the second quarter of 2003 and will become the main building to house
the Company's Mobile staff. The Company leases a 30,000 square foot building
located in Mobile, Alabama, which houses its distribution and warehousing
center. The Company leases 5,400 square feet of office space in Brentwood,
Tennessee, to house its book publishing subsidiary, Integrity Publishers, Inc.
The Company leases 3,000 square feet of office space in Nashville, Tennessee, to
house its M2 Communications, L.L.C. subsidiary. The Company leases office space
for International operations in Eastbourne, UK, Singapore, Singapore and
Toowoomba, Australia.

ITEM 3. LEGAL PROCEEDINGS.

      The Company is not a party to any 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, 2002.


                                       7
<PAGE>
                                    PART II.

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

      Integrity's Class A Common Stock is traded on The Nasdaq National Market
under the symbol "ITGR". Integrity's Class B Common is not traded on any public
market. 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, 2001 through March 14, 2003. The last sale
price of the Class A Common Stock on March 14, 2003 was $4.55.

<TABLE>
<CAPTION>
                                             High             Low
                                             ----             ---
<S>                                         <C>             <C>
Fiscal Year 2001
First Quarter                               $4.06           $2.94
Second Quarter                              $5.91           $3.31
Third Quarter                               $7.77           $4.81
Fourth Quarter                              $8.80           $5.76

Fiscal Year 2002
First Quarter                               $6.45           $4.77
Second Quarter                              $7.48           $5.15
Third Quarter                               $7.15           $4.65
Fourth Quarter                              $5.56           $3.75

Fiscal Year 2003
First Quarter (through March
14, 2003)                                   $5.66           $4.25
</TABLE>

      As of March 24, 2003, there were approximately 113 holders of record and
approximately 1,500 beneficial owners of Integrity's Class A Common Stock, and
three holders of record of Integrity's Class B Common Stock.

      Integrity has never declared or paid any cash dividends on its shares of
Class A or Class B Common Stock or any other of its securities. 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 6 of the Notes to
Consolidated Financial Statements.

      The Company's Class A Common Stock was listed on The Nasdaq SmallCap
Market effective October 2, 1998 and on The Nasdaq National Market effective
November 20, 2001.


                                       8
<PAGE>
                      EQUITY COMPENSATION PLAN INFORMATION

      The following table provides information about the equity securities of
the Company that may be issued under all of the Company's existing equity
compensation plans as of December 31, 2002.


<TABLE>
<CAPTION>
                                                                                            NUMBER OF SECURITIES
                                                                                           REMAINING AVAILABLE FOR
                                NUMBER OF SECURITIES TO    WEIGHTED AVERAGE EXERCISE    FUTURE ISSUANCE UNDER EQUITY
                                BE ISSUED UPON EXERCISE       PRICE OF OUTSTANDING     COMPENSATION PLANS (EXCLUDING
                                OF OUTSTANDING OPTIONS,       OPTIONS, WARRANTS AND        SECURITIES REFLECTED IN
        PLAN CATEGORY             WARRANTS AND RIGHTS                RIGHTS                     COLUMN (A))
-----------------------------   -----------------------    -------------------------   ------------------------------
                                          (A)                         (B)                           (C)
<S>                             <C>                        <C>                         <C>
                                         0 (1)                       $7.54                        350,000
Equity Compensation Plans
Approved by Stockholders...

                                      297,722 (2)                   $3.3807                          0

                                       20,000 (3)                    $7.00                         40,000

Equity Compensation Plans
Not Approved by Stockholders          243,244 (4)                   $2.6458                          0

                                       5,000 (5)                    $3.8850                          0

TOTAL......................             565,966                                                   390,000
</TABLE>


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

(1)   Integrity Incorporated 2001 Long-Term Incentive Plan

(2)   Integrity Incorporated 1999 Long-Term Incentive Plan

(3)   Integrity Incorporated 2002 Stock Option Plan for Outside Directors

(4)   1994 Stock Option Plan

(5)   1994 Stock Option Plan for Outside Directors

      The 1994 Stock Option Plan (the "1994 Plan") permitted grants of incentive
stock options, non-qualified stock options, stock appreciation rights,
performance shares, restricted stock and other stock based awards to employees
and officers. Under the 1994 Plan, 243,244 options were outstanding at December
31, 2002. No further options will be granted under the 1994 Plan.

      The 1994 Stock Option Plan for Outside Directors (the "1994 Directors'
Plan"), granted 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. At December 31, 2002, there were 5,000 options outstanding under
the 1994 Directors Plan. No further options will be granted under the 1994
Directors' Plan.


                                       9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

      The selected historical balance sheet and statement of operations data
presented below for each of the five years in the period ended December 31, 2002
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 the Notes thereto and Item 7.
"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                              2002        2001        2000        1999        1998
                                                   --------    --------    --------    --------    --------
<S>                                                <C>         <C>         <C>         <C>         <C>
Net sales                                          $ 66,345    $ 70,958    $ 51,819    $ 45,326    $ 38,847
Cost of sales                                        32,178      38,089      27,072      22,268      18,254
                                                   --------    --------    --------    --------    --------
Gross profit                                         34,167      32,869      24,747      23,058      20,593
Marketing and fulfillment expenses                   13,897      12,815      10,496      10,404       9,023
General and administrative
   expenses                                          16,138      14,729      10,698       9,751       8,557
                                                   --------    --------    --------    --------    --------
Income from operations                                4,132       5,325       3,553       2,903       3,013
Interest expense (net)                                  273         281         932       1,292       1,529
Other (income) expense                                  126         184         137        (352)          0
                                                   --------    --------    --------    --------    --------
Income before extraordinary
   item, minority interest and taxes                  3,733       4,860       2,484       1,963       1,484
Income tax (expense) benefit                         (1,263)     (1,632)       (600)       (481)        467
Minority interest, net of tax                          (254)       (105)       (188)        (55)       (200)
                                                   --------    --------    --------    --------    --------
Net income before extraordinary item
                                                   $  2,216    $  3,123    $  1,696    $  1,427    $  1,751
Extraordinary item from early
extinguishment of debt less taxes of $154
                                                          0        (312)          0           0           0
Net income                                         $  2,216    $  2,811    $  1,696    $  1,427    $  1,751
                                                   ========    ========    ========    ========    ========
Basic EPS
Income (loss) before extraordinary
   Item                                            $   0.40    $   0.56    $   0.30    $   0.26    $   0.32
Extraordinary item                                        0       (0.06)          0           0           0
                                                   --------    --------    --------    --------    --------
Net income (loss)                                  $   0.40    $   0.50    $   0.30    $   0.26    $   0.32
                                                   ========    ========    ========    ========    ========
Diluted EPS
Income (loss) before extraordinary
   Item                                            $   0.37    $   0.50    $   0.28    $   0.24    $   0.30
Extraordinary item                                        0       (0.05)          0           0           0
                                                   --------    --------    --------    --------    --------
Net income                                         $   0.37    $   0.45    $   0.28    $   0.24    $   0.30
                                                   ========    ========    ========    ========    ========
Weighted average number of
   shares outstanding
       Basic                                          5,599       5,638       5,615       5,579       5,514
       Diluted                                        6,010       6,238       6,058       6,032       5,805
</TABLE>

<TABLE>
<CAPTION>
                                                                        As of December 31
                                                                         (in thousands)
BALANCE SHEET DATA                                   2002        2001        2000        1999        1998
                                                   --------    --------    --------    --------    --------
<S>                                                <C>         <C>         <C>         <C>         <C>
Working capital                                    $  6,236    $  8,150    $  5,787    $  8,179    $  9,536
Total assets                                         40,859      31,367      27,232      29,341      31,377
Total bank debt (1)                                   9,451       4,878       4,034       8,705      12,968
Stockholders' equity                                 18,053      15,418      15,956      14,289      12,758
</TABLE>

      (1) Includes discount of $0 at December 31, 2002, $0 at December 31, 2001,
      $403 at December 31, 2000, $649 at December 31, 1999 and $832 at December
      31, 1998.


                                       10
<PAGE>
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 the Notes thereto
included elsewhere herein.

CRITICAL ACCOUNTING POLICIES

      We have identified the policies below as critical to our business
operations and the understanding of our results of operations. For a detailed
discussion on the application of these and other accounting policies, see Note 1
in the Notes to the Consolidated Financial Statements. Note that our preparation
of this Annual Report on Form 10-K requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial statements, and
the reported amounts of revenues and expenses during the reporting period. There
can be no assurance that actual results will not differ from those estimates.

      The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reported
period.

REVENUE RECOGNITION

      The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), as
amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured. We derive our
revenue from two primary sources: (1) product sales from CD's, cassettes, or
books; and (2) copyright revenue from third-party use of our product masters and
song catalog.

      Revenue from product sales is generally recognized when delivery has
occurred and at the time title passes to the customer. For direct-to-consumers
product sales that allow a trial or acceptance period, title is not deemed to
have passed nor revenue recognized until the acceptance periods have expired.
Generally, these acceptance periods are fifteen days after receipt of product.
Provisions for sales returns and allowances are made against revenue in the
period in which the related products are shipped or title passes based on
estimates derived from historical data. The allowance is recorded in the period
in which the related products are shipped. The returns allowance is presented,
along with the allowance for doubtful accounts, as a reduction of accounts
receivable in the accompanying financial statements.

      Revenue earned from licensing the use of songs or product masters in the
Company's song catalogs is generally recognized as payments are received from
licensees. If the Company has information related to the licensed use of songs
that would result in the revenue being fixed and determinable, and collection
reasonably assured, then revenue is recognized in the periods in which the
license revenue is earned.

ALLOWANCES FOR SALES RETURNS AND DOUBTFUL ACCOUNTS

      Specifically, our management must make estimates of potential future
product returns related to current period product revenue. Management analyzes
historical returns, current economic trends, and changes in customer demand and
acceptance of our products when evaluating the adequacy of the sales returns and
other allowances. Significant management judgments and estimates must be made
and used in connection with establishing the sales returns and other allowances
in any accounting period. Material differences could result in the amount and
timing of our revenue for any period if management made different judgments or
utilized different estimates.

      Similarly, our management must make estimates of the uncollectability of
our accounts receivable. Management specifically analyzes accounts receivable
and analyzes historical bad


                                       11
<PAGE>
debts, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy of
the allowance for doubtful accounts. Material differences could result in the
amount and timing of expense recorded if management made different judgments or
utilized different estimates.

      Our accounts receivable balance at December 31, 2002 was $6.8 million, net
of allowances for returns of $1.9 million and net of allowances for doubtful
accounts of $542,000.

PRODUCT MASTERS

      Product masters, which include sound and video 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,
not to exceed a three year period. Management periodically reviews the product
masters amortization rates and adjusts the 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 estimable. 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. A significant portion of these product master costs
are capitalized costs of the Company's resources, both personnel and equipment
related, that can be primarily associated with the creation of the product
master. Because consumer tastes, which are unpredictable and constantly
changing, primarily determine the commercial success of any work, estimates must
be made regarding future sales. Changes in management's judgment or estimates
could result in different amortization rates, or an immediate write-off of the
balance related to a product.

      Our product masters balance at December 31, 2002 was $3.8 million, net of
accumulated amortization of $19.4 million.

ADVANCE ROYALTIES AND ROYALTIES PAYABLE

      Royalties earned by publishers, authors, producers, songwriters and
artists are charged to expense in the period in which the related product sale
occurs. Advance royalties paid are capitalized based on past performance,
current popularity or judgments made by management of the future success of the
artist/author. These royalty advances are deemed to be recoverable from future
royalties to be earned by the artist/author. Such capitalized amounts are
included as a component of Other Current Assets 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 advance royalties and prepaid publishing totaled $1.9
million at December 31, 2002. The Company expects that any royalty advances will
be recouped over future sales, however, should circumstances prove otherwise,
such amounts would be expensed immediately

      Royalties payable to publishers, authors, producers, songwriters and
artists from the related product sale or from the related copyright revenues are
recorded in the period in which the revenue is recognized. Royalties payable are
reduced for the estimated royalties that will not be paid due to product returns
and bad debts based on historical experience. Royalty payments for music
products are generally made on a quarterly basis, 45 days after the end of a
quarter. Royalty payments to publishers, authors and literary agents for book
products are generally made in six-month cycles, 60 to 90 days after the close
of a period. The amount of royalties payable totaled $6.3 million at December
31, 2002.

INTANGIBLE ASSETS

      In conjunction with the acquisition of M2 Communications, L.L.C. on June
28, 2002, the Company recorded $5.1 million of artists contracts as an
intangible asset. This asset is amortized on a straight-line basis over the
remaining life of the underlying contracts. The Company will review the carrying
value of the artists contracts whenever events or changes in circumstances
indicate that the carrying amount of such contracts indicate that the value
thereof may not be recoverable. Any resulting impairment loss could have a
material adverse impact on our financial condition and results of operations.


                                       12
<PAGE>
OVERVIEW

      Integrity Media, Inc. is a media/communications company that produces,
publishes and distributes Christian music, books and related products.
Integrity's music product formats include cassettes, compact discs, videos,
DVD's and printed music. The Company produces Praise and Worship music in
different musical styles for specific audiences such as children's music, gospel
music for the African-American audience, youth music and live worship music for
adult audiences. In July 2002, Integrity announced the purchase of M2
Communications, L.L.C., an artist-based independent Christian music company
headquartered in Nashville, Tennessee. The purchase of M2 Communications, L.L.C.
allows the Company to enter the Pop segment of Christian music, which represents
over 30% of the Christian music market. The Company's Integrity Publishers
division, created in 2001, produces and publishes Christian books. The first
product offerings were released in the third quarter of 2002, with a total of 16
books published during the year. The Company first recorded sales from the M2
Communications, L.L.C. and Integrity Publishers divisions in the third quarter
of 2002.

      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's book
products are categorized in one of four categories: Inspirational, Christian
Living, Youth or Fiction.

      Integrity's products are sold primarily through retail stores and
direct-to-consumers throughout the United States and in 167 other countries
worldwide. The Company has determined that its business is operated in segments
based on distribution channels. For specific information regarding the financial
performance of each segment, see Note 10 of the Notes to Consolidated Financial
Statements.

      These distribution channels are Retail, Direct to Consumers,
International, Book Publishing and Other channels. The Retail channel primarily
represents sales to Christian retailers through Word, special event sales, sales
of choral products and sales to the general market through Sony Music
Entertainment and its subsidiary Epic Records. Direct-to-Consumers primarily
represents sales from direct mail programs but also includes Internet sales,
television sales and sales of 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 167 countries. All transactions with foreign
entities, whether they are shipped from the United States or from one of the
Company's three subsidiaries in Singapore, the United Kingdom and Australia, are
reported in this segment. Christian retailers are the primary distribution
channel for this segment, but there are also direct mail and other techniques
used for these markets. The Book Publishing segment represents sales by our
Integrity Publishers, Inc. division and includes sales to Christian retailers as
well as sales to the general retail market. The Other segment includes copyright
revenue and other distribution sales.

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

<TABLE>
<CAPTION>
                        2002         2001         2000
                       ------       ------       ------
<S>                    <C>          <C>          <C>
Retail Markets           50.2%        47.1%        50.1%
Direct-to-Consumer       24.1%        41.7%        30.9%
International            14.6%        11.2%        14.5%
Book Publishing           6.2%           0%           0%
Other                    13.6%        12.7%        14.2%
Eliminations             (8.7%)      (12.7%)       (9.7%)
</TABLE>

      The Direct-to-Consumer segment, as a percent of total sales, decreased
largely due to the decline in sales to Time Life for the Songs4Worship
continuity program. As a result, the Retail, International, Book Publishing and
Other segments increased as a percent of total sales as compared to 2001. The
increase in the Book Publishing segment was due to Integrity's publishing
division releasing its first product offerings in the third quarter of 2002.


                                       13
<PAGE>
      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 consolidated operating results expressed as
a percentage of net sales for the periods indicated.

<TABLE>
<CAPTION>
                                     Percentage of Net Sales
                                     Year Ended December 31
                                   2002        2001        2000
                                  ------      ------      ------
<S>                               <C>         <C>         <C>
Net Sales                          100.0%      100.0%      100.0%
Cost of Sales                       48.5%       53.7%       52.2%
Gross Profit                        51.5%       46.3%       47.8%
Marketing and Fulfillment
Expenses                            20.9%       18.1%       20.3%
General and Administrative
Expenses                            24.3%       20.8%       20.6%
Income from operations before
taxes and minority interest          5.6%        6.8%        4.8%
</TABLE>

THE YEAR ENDED DECEMBER 31, 2002 ("2002") COMPARED TO THE YEAR ENDED DECEMBER
31, 2002 ("2001")

      Net sales decreased 6.5% to $66.3 million in 2002 from $71.0 million in
2001. The overall decrease was due to the decline in sales of our Songs4Worship
series and WoW Worship products. Songs4Worship sales declined $11.1 million, or
45.3%, from $24.5 million in 2001 to $13.4 million in 2002. Songs4Worship is a
continuity series of Praise and Worship compilations developed in partnership
with Time Life Music. The series was launched in late 2000 and "generated the
strongest initial response for a music product launch in Time Life Music's
history." The Songs4Worship series' debut title, "Shout To The Lord," attained
gold, platinum and multi-platinum certification with sales of over 2.4 million
double CD units. The success of this launch resulted in record revenues for the
Company in 2001. Since the majority of the Songs4Worship sales were generated
from Time Life and Company-managed continuity clubs, this decline in revenues
from Songs4Worship products was predicted and anticipated. Sales of WoW Worship
products declined $4.9 million, or 75.4%, from $6.5 million in 2001 to $1.6
million in 2002. The WoW Worship albums, also a compilation of Praise and
Worship songs, were developed in partnership with two other Christian music
companies. The partnership agreement provided for the development, release, and
marketing of three albums - WoW Worship Blue in 1999, WoW Worship Orange in
2000, and WoW Worship Green in 2001. Since this WoW agreement was not renewed,
there was not a WoW Worship product release in the year 2002, resulting in the
revenue decline.

      The Company continues to sell and market all products in the Songs4Worship
and WoW Worship series. Management also continues discussion and testing with
Time Life and other partners regarding new product ideas and line extensions. In
July, 2002, the Company announced the launch of a new product - Integrity's
iWorship. Positioned as a "Total Worship Experience", this new product features
a series of double CD's offering the most popular contemporary and emerging
modern Christian songs in the world, as determined by Soundscan and CCLI
(Christian Copyright Licensing Inc.). In addition, the collection will feature a
line of DVDs especially designed to enhance the worshiper's experience through
visuals combined with sing-along lyrics and click tracks for musicians and
worship leaders. Considered by the Company to be the WoW Worship replacement,
Integrity's iWorship is jointly developed by M2 Communications, L.L.C. (M2), a
wholly-owned subsidiary of the Company, and another independently-owned
Christian music company.

      Partially offsetting the sales decline of the Songs4Worship and WoW
Worship products in 2002 were the sales of Integrity Publishers, Inc. and M2
Communications, L.L.C. Integrity Publishers, the Company's Christian book
publisher and subsidiary, began as a start-up in August, 2001 and released its
first catalog of titles in the third quarter, 2002. Revenues for the year
totaled


                                       14
<PAGE>
$4.1 million and included titles such as "God Will Make a Way" by John Townsend
and Henry Cloud; "My Heart's Desire" by David Jeremiah; "God at Ground Zero" by
Ray Giunta; and "All Is Well" by Frank Peretti. Integrity Publishers continues
to be well received by both consumers and authors. The Company is very
optimistic about the future success of this division. M2 Communications, L.L.C.
(M2), a Christian music label acquired in June 2002, recorded 2002 revenues of
$7.6 million. The best sellers were "Almost There" and "Spoken For" by Mercy Me;
and "All Right Here" by Sarah Groves.

      To summarize the segments of the Company, sales in the Retail segment were
flat with revenues of $33.3 million in 2002 compared with revenues of $33.4
million in 2001. Significant items included in this segment in 2002 were the M2
sales of $7.6 million, Integrity's iWorship sales of $2.0 million, the decline
in WoW Worship sales of $4.9 million and a reduction in Songs4Worship sales of
$3.0 million. Sales in the Direct-to-Consumer segment decreased $13.6 million,
or 45.9%, due primarily to a reduction in Songs 4 Worship sales of $12.4
million. Sales in the International segment increased $1.8 million, or 22.1%,
from $7.9 million in 2001 to $9.7 million in 2002 due to the increase in
Songs4Worship sales in the United Kingdom and Australia. Songs4Worship products
were introduced into the International markets after the success was proven in
the United States. As a result, the International success of Songs4Worship was
primarily in the year ended 2002. International sales in Latin America and
Singapore continued to be negatively impacted by the poor economic conditions in
those countries. Management expects that these conditions will continue into
2003. Sales in the Book Publishing segment in 2002 were $4.1 million compared to
none in 2001. Revenues in the Other segment were flat with revenues of $9.1
million in 2002 compared with revenues of $9.0 million in 2001.

      Gross profit increased $1.3 million, or 4.0%, to $34.2 million in 2002
compared to $32.9 million in 2001. Although sales declined in 2002 compared to
2001, gross margins increased in 2002 due to a reduction of product amortization
of $2.0 million in 2002 compared to 2001 and from additional inventory reserves
booked in 2001. Gross profit as a percentage of sales increased to 51.5% in 2002
compared to 46.3% in 2001 due to these two adjustments and due to the reduction
of the lower-margin Time Life Songs4Worship sales and the declines in the
low-margin WoW Worship albums. Gross margins on sales to Time Life are lower
because sales are made to them at wholesale prices. The WoW Worship albums carry
a lower gross profit percentage due to the higher royalty payouts required by
the partnership agreement. The gross margin percentage in the Retail segment
declined slightly from 45.8% in 2001 to 44.8% in 2002 due to the lower margin
sales of M2. Because the majority of the M2 artists assume the costs of
marketing and promoting their products, royalties are higher and margins lower
in M2. The gross margin percent in the Direct-to-Consumer segment increased from
42.6% in 2001 to 52.5% in 2002 due to the decrease of Songs4Worship sales in
2002. The gross margin percentage in the International segment declined from
58.2% in 2001 to 46.7% in 2002 due to the increase in the lower-margin
Songs4Worship sales in 2002. The gross margin percentage in the Book Publishing
segment was 57.4% in 2002. This percentage is higher than forecasted due to
lower product and royalty costs. Management expects that gross margins in 2003
for the book division will be in the range of 50% to 52%. The gross margin
percentage in the Other segment increased from 7.3% in 2001 to 48.4% in 2002.
The gross margin and gross margin percentage in the Other segment were
negatively impacted in 2001 due to additional product masters amortization,
additional reserves for inventory, and additional reserves for returns. These
expenses in the Other segment are included in cost of sales but were not
allocated to specific segments.

         The Company's gross margins are historically higher in the
Direct-to-Consumer segment, where sales are generally at retail value. The
Retail segment's gross margin is affected by the sales mix of products that we
distribute for third parties and artists products, which generally have lower
gross margins than concept products. Management expects gross margins in 2003 to
be comparable to those reported in 2002.


                                       15
<PAGE>
      The following table shows the gross margin by operating segment:

<TABLE>
<CAPTION>
                      Year Ended December 31
Gross margin            2002         2001
------------------     ------       ------
<S>                    <C>          <C>
Retail                   44.8%        45.8%
Direct-to-Consumer       52.5%        42.6%
International            46.7%        58.2%
Book publishing          57.4%           0
Other                    48.1%         7.3%
Eliminations             (6.3)%       (3.4)%
Consolidated             51.5%        46.3%
</TABLE>

      Operating profit in the Retail segment decreased 25% from $7.0 million in
2001 to $5.3 million in 2002. This decrease was due primarily to increased
marketing expenses of $700,000 and increased general and administrative expenses
of $1.1 million. The increase in marketing expenses was primarily due to the
launch of iWorship and other marketing expenditures related to CBA product
releases. The increase in general and administrative expenses was due to the
addition of M2 Communications, L.L.C. in this segment. Approximately $400,000 of
the $1.1 million increase in general and administrative expenses was
amortization expense related to the acquisition of M2. Marketing and fulfillment
expenses increased 3.6% in 2002 compared to 2001. As a percentage of sales,
marketing and fulfillment expenses in the Retail segment increased from to 20.7%
in 2001 to 21.5% in 2002. As a percentage of sales, general and administrative
expenses increased from 4.0% in 2001 to 7.3% in 2002.

      Operating profit in the Direct-to-Consumer segment decreased 69% from $5.8
million in 2001 to $1.8 million in 2001 due to the reduction in Songs4Worship
sales. Marketing and fulfillment expenses overall declined 2% in 2002 compared
to 2001. As a percentage of sales, marketing and fulfillment expenses increased
from 17% in 2001 to 31% in 2002. This percentage in 2001 was lower because
Songs4Worship sales to Time Life did not require any marketing or fulfillment
expenses.

      Operating profit in the International segment decreased 18% from $1.6
million in 2001 to $1.3 million in 2002 due primarily to additional reserves for
inventory and bad debts required in Singapore. As a percentage of sales,
marketing and fulfillment expenses decreased from 13.0% in 2001 to 10.0% in 2002
due to the increase in Songs4Worship sales in 2002. As a percentage of sales,
general and administrative expenses declined from 24.9% in 2001 to 23.1% in
2002.

      Operating losses in the Book Publishing segment were $560,000 in 2002
compared to an operating loss of $554,000 in 2001. Beginning as a start-up in
August 2001, this segment incurred an operating loss in 2001 due primarily to
general and administrative expenses incurred during its start-up year. For the
first half of 2002, general, administrative, and marketing expenses continued to
be incurred in preparation for its first release of books in the third quarter,
2002. For the year, the Book Publishing segment recorded revenues of $4.1
million, all in the third and fourth quarters. Marketing and fulfillment
expenses were $1.1 million for 2002 compared to $100,000 in 2001. General and
administrative expenses were $1.8 million for 2002 compared to $454,000 in 2001.

      Operating profit in the Other segment increased $3.5 million from $226,000
in 2001 to $3.7 million in 2002. This increase was primarily due to a reduction
of product masters amortization of $2.0 million in 2002 compared to 2001 and
from additional inventory reserves booked in 2001.

      Marketing and fulfillment expenses increased $1.1 million or 8.4% from
$12.8 million in 2001 to $13.9 million in 2002 due to additional expenses
incurred for Integrity Publishers and M2 Communications, L.L.C. Combined, these
two entities incurred additional marketing and fulfillment expenses of $2.2
million in 2002 compared to 2001. As a percentage of sales, the Company's
marketing and fulfillment expenses increased from 18.1% in 2001 to 20.9% in
2002.

      General and administrative expenses increased $1.4 million, or 9.6%, from
$14.7 million in 2001 to $16.1 million in 2002. This increase was primarily the
result of additional expenses incurred by Integrity Publishers and M2
Communications, L.L.C. Combined, these two entities incurred additional general
and administrative expenses of $2.3 million in 2002 compared to 2001.


                                       16
<PAGE>
      Income from operations decreased 22.4% to $4.1 million in 2002, from $5.3
million in 2001 due primarily to the decline in revenues, increases in Marketing
and Fulfillment expenses, and increases in General and Administrative expenses.
As a percentage of sales, operating income decreased to 6.2% in 2002 from 7.5%
in 2001.

      Net Interest expense decreased to $273,000 in 2002, from $281,000 in 2001.
The primary reason for the decrease in 2002 compared to 2001 is that the 2001
amount included a charge of $102,000 for amortization of debt discount related
to the credit facility with Bank Austria. This credit facility with Bank Austria
ended as of April 25, 2001 when the Company entered into a new facility with
LaSalle Bank N.A. Excluding this amortization from 2001, net interest expense
increased $94,000 or 52.5% in 2002 compared to 2001. This increase was due to a
combination of higher debt levels in 2002 partially offset by lower average
interest rates in 2002. Average debt levels increased from $3.9 million in 2001
to $7.4 million in 2002. Average interest rates declined from 6.7% in 2001 to
4.6% in 2002.

      The Company recorded a net expense for income taxes during 2002 of $1.3
million, compared to $1.6 million in 2001. During 2002, the Company's effective
tax rate was 33.8% compared to 33.6% in 2001. On a going-forward basis, the
Company expects an effective tax rate in 2003 of approximately 34% to 36%.

THE YEAR ENDED DECEMBER 31, 2001 ("2001") COMPARED TO THE YEAR ENDED DECEMBER
31, 2000 ("2000")

      Net sales increased 36.9% to $71.0 million in 2001 from $51.8 million in
2000. The increases were mainly attributable to increases in the
Direct-to-Consumer and Retail segments. Major new releases in 2001 included WoW
Worship Green and various releases of the Songs4Worship series. In 2001, new
products accounted for 3.9 million units, or 29.1% of the total units sold. The
new products released in 2001 featured several of Integrity's best-selling
artists such as Paul Wilbur, Paul Baloche, Ron Kenoly and Don Moen. Three of the
best selling albums of the year were Songs4Worship "Shout To The Lord,"
Songs4Worship "Be Glorified" and WoW Worship (Green). All three of the albums
are compilations of the "best" Praise and Worship songs. The WoW albums were
created in partnership with two other Christian Praise and Worship song
providers. Songs4Worship is a continuity series of Praise and Worship
compilations developed in partnership with Time Life Music. According to Time
Life Music, the Songs4Worship continuity series, released in the fourth quarter
of 2000, "generated the strongest initial response for a music product launch in
Time Life Music's history." Over 1 million consumers joined Time Life Music's
continuity series that was advertised on mainstream television in the United
States. Time Life Music spent the equivalent of $30 million in television
advertising for this series. Due to the success of the Songs4Worship series and
the WoW albums, substantial progress was made in 2001 in broadening the overall
market for Praise and Worship music. Due primarily to the success of Time Life
Music's Songs4Worship continuity program, sales in the Direct-to-Consumer
segment increased 84.8% to $29.6 million in 2001 from $16.0 million in 2000. Due
to the retail release of the Songs4Worship albums, sales in the Retail segment
increased 28.7% to $33.4 million in 2001, from $26.0 million in 2000. Total WoW
sales were $6.5 million in 2001 as compared to $7.5 million in 2000. Revenues in
the International segment increased 5.8% to $7.9 million in 2001 from $7.5
million in 2000, due primarily to the release of the Songs4Worship series in
Australia and New Zealand. Other International divisions and subsidiaries were
impacted negatively due to local competitive pressures and declining economic
conditions in their areas, especially Singapore and Latin America. These
conditions continued in 2002. Revenues in the Other segment increased 23.3% to
$9.0 million in 2001, from $7.3 million in 2000, due primarily to additional
song copyright royalties generated from the increase in product sales and third
party use. Due primarily to the increase in sales, bad debts and returns were
$6.7 million in 2001, compared to $4.8 million in 2000.

      Gross profit increased 32.8% to $32.8 million in 2001 from $24.7 million
in 2000, due primarily to the increases in revenue discussed previously. Gross
profit as a percentage of sales was 46.3% and 47.8% for the years ended December
31, 2001 and 2000, respectively. The decrease in gross profit as a percentage of
sales was primarily due to the Songs4Worship sales to Time Life and due to an
increase in the reserves for excess and obsolete inventory. The gross margin
percentage on sales to Time Life is lower because the Company sells the product
to Time Life at a wholesale price. Additionally, Time Life has no right of
return on products sold to them.


                                       17
<PAGE>
The gross profit percentage in the Direct-to-Consumer segment declined to 42.6%
in 2001 from 47.5% in 2000. The decline is attributable to Songs4Worship sales
whose gross margins are lower as the Company sells the product to Time Life at a
wholesale price. The gross profit percentage in the Retail segment increased to
45.8% in 2001 from 45.2% in 2000, due primarily to the retail releases of the
Songs4Worship products. The gross profit percentage in the International segment
increased slightly to 58.2% in 2001 from 58.0% in 2000. Additionally, reductions
in the carrying value of product masters as a result of management's periodic
estimates of the eventual recoupment of production costs increased to $1,356,000
for the year ended December 31, 2001, as compared to $992,000 for the year ended
December 31, 2000. These amounts are included in cost of sales but are not
specifically allocated to the segments.

      The Company's gross margins are generally higher in the Direct-to-Consumer
segment, where sales are generally at retail value. However, the Songs4Worship
release is sold to Time Life at a wholesale value and significantly lowered the
gross margin for this segment in 2001. The Retail segment's gross margin is also
affected by the sales mix of products that we distribute for third parties and
artists products, which generally have lower gross margins than concept
products.

      The following table shows the gross margin by operating segment:

<TABLE>
<CAPTION>
                      Year Ended December 31
Gross margin            2001         2000
------------------     ------       ------
<S>                    <C>          <C>
Retail                   45.8%        45.2%
Direct-to-Consumer       42.5%        47.5%
International            58.2%        58.0%
Other                     7.3%        18.4%
Eliminations             (3.4)%       (6.2%)
Consolidated             46.3%        47.8%
</TABLE>

      Operating profit in the Direct-to-Consumer segment increased 94.3% to $5.8
million in 2001 from $3.0 million in 2000 due to the Songs4Worship sales
mentioned earlier. Total gross margins increased 30%, though the mix of
Songs4Worship sales resulted in a decline of the gross margin percentage from
47.6% in 2000 to 42.6% in 2001. Marketing and fulfillment expenses increased 57%
compared to 2000 due to additional direct mail and marketing expenses for the
Company's own Songs4Worship continuity club. As a percentage of sales, marketing
and fulfillment expenses decreased from 20.0% in 2000 to 17.0% in 2001.

      Operating profit in the Retail segment increased 61.4% to $7.0 million in
2001 from $4.4 million in 2000. This increase was due to the success of the
Songs4Worship series in CBA stores and in the general market. Operating profits
from CBA and general market revenues were up 54% and 227% in 2001, respectively,
compared to 2000. Marketing and fulfillment expenses increased 9.0% in 2001
compared to 2000, due to increased revenues. As a percentage of sales, marketing
and fulfillment expenses in the Retail segment declined from 24.5% in 2000 to
20.7% in 2001.

      Operating profit in the International segment decreased slightly to $1.6
million in 2001 from $1.7 million in 2000. The success of the Songs4Worship
series in Australia resulted in a 5.7% increase in revenues and a 6% increase in
gross margins for the overall International segment in 2001 compared to 2000.
However, an 8.7% increase in marketing expenses and additional bad debt reserves
for the Latin American market resulted in an overall decline in operating income
in 2001 compared to 2000.

      Operating profit in the Other segment decreased $284,000, or 65.7%, in
2001 compared to 2000, due to a combination of factors. Due to increased sales
for the year, copyright revenue and margins increased 22.4% and 20.5%,
respectively, in 2001 compared to 2000. However, additional reserves for excess
and obsolete inventory absorbed by this segment in 2001 resulted in an overall
decline in operating profit compared to 2000.

      Marketing and fulfillment expenses increased 22.1% from $10.5 million in
2000 to $12.8 million in 2001, due primarily to additional direct mail and
marketing expenses incurred in the Company's Songs4Worship continuity club and
the additional fulfillment expenses resulting from increased sales. As a
percentage of sales, the Company's marketing and fulfillment expenses declined
from 20.2% in 2000 to 18.1% in 2001. This decline was because the Company bears
no


                                       18
<PAGE>
marketing and fulfillment expenses on Songs4Worship sales to Time Life and
Songs4Worship sales into the general market.

      General and administrative expenses increased 37.7% from $10.7 million in
2000 to $14.7 million in 2001. This increase was primarily the result of
additional personnel costs, increased professional fees, and the start-up
expenses for Integrity Publishers. The increase in personnel costs is due to
strategic additions in headcount for our Vertical and Urban product channels as
well as added resources in the areas of marketing and radio promotion. In
addition, increases in commissions and incentive compensation substantially
increased personnel expenses compared to 2000. Professional fees increased
primarily due to additional focus on investor relations and additional legal
fees for trademark protection matters.

      As a result of the above, income from operations increased 48.5% to $5.3
million in 2001 from $3.6 million in 2000. As a percentage of sales, operating
income increased to 7.4% in 2001 from 6.9% in 2000.

      Interest expense decreased to $281,000 in 2001 from $932,000 in 2000. The
decrease was a result of lower average indebtedness in 2001.

      In the quarter ended December 31, 2001, the Company and its outside tax
advisors undertook an extensive review of all deferred and current tax accounts.
As a result of this evaluation, an additional tax expense of $280,000 was
recorded in the fourth quarter of 2001. The Company recorded a net expense for
income taxes during 2001 of approximately $1.6 million compared to $600,000 in
2000. During 2001, the Company's effective tax rate was 33.6% (24.1% in 2000),
which reflected the benefit of certain foreign and AMT (alternative minimum tax)
tax credits.

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 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 facility will be sufficient to fund its operating and capital
requirements for the fiscal year ending December 31, 2003 and beyond.

      Cash generated from operations totaled $6.0 million, $13.5 million and
$9.0 million for the years ended December 31, 2002, 2001 and 2000, respectively.
The decreases from 2001 to 2002 resulted primarily from reductions in net
income, decreases in amortization, and net increases in working capital
accounts. The increases from 2000 to 2001 resulted primarily from improved
operating results.

      Investing activities consumed $12.3 million, $4.2 million and $3.9 million
of cash in 2002, 2001 and 2000, respectively. The major categories of investing
activities are purchases of property and equipment and payments for product
masters. For 2002, the acquisition of M2 Communications, L.L.C. in the amount of
$4.8 million (net of cash acquired) is also included as an investment activity.
Purchases of property and equipment totaled $3.9 million, $0.9 million and $0.8
million for the years ended December 31, 2002, 2001 and 2000, respectively.
Capital purchases for 2002 included $2.3 million of costs associated with the
completion of a new building and the expansion of parking facilities at the
Company's corporate campus in Mobile, Alabama. Construction began in early
summer 2002 with occupancy expected for mid-2003. Additional expenditures of
approximately $3.2 million are expected to be incurred in 2003 toward the
completion of this facility. Total capital costs associated with this expansion
is expected to be approximately $5.5 million. In addition, capital costs of
$760,000 were incurred during 2002 for the purchase and development of a new
software system for the Company. This new system is expected to be operational
in mid-2003. Other capital expenditures were primarily for computer equipment
and general improvements on the Company's corporate headquarters. The Company
also invested $3.7 million, $3.3 million and $4.1 million in new product masters
during 2002, 2001


                                       19
<PAGE>
and 2000, respectively. The Company expects its investments in product masters
during 2003 to be approximately $4.7 million in order to properly support the
growth in projected revenue.

      The Company's financing agreement with Bank Austria in effect through
April 25, 2001 included a revolving credit facility and a term loan that were
payable through August 2002. As part of this agreement, Bank Austria held
818,897 warrants with an exercise price of $1.875 that were exercisable into the
Company's Class A common stock and would expire in 2006. On April 25, 2001, the
Company entered into a new $20 million, five-year secured credit facility with
LaSalle Bank N.A. The original credit agreement included a $6 million line of
credit, an $11 million secured term loan, and a $3.0 million mortgage term loan.
Through this new credit facility, the Company repaid in full all debt under its
previous credit facility with Bank Austria. In connection with the early
extinguishment of the previous facility, during 2001 the Company recorded a
$312,000 charge (net of tax) related to the write-off of unamortized financing
costs. In addition, on September 26, 2001, the Company repurchased the 818,897
warrants from Bank Austria for approximately $3.4 million in cash.

      At December 31, 2001, the Company had available borrowings from the
LaSalle facility of $6.0 million under the line of credit, $3.0 million under
the mortgage term loan, and $1.5 million under the secured term loan. Of the
original $11.0 million initial term facility, $3.0 million was used for the
pay-off to Bank Austria, $3.4 million was used for the warrant repurchase, and
$3.1 million expired, leaving $1.5 million available at December 31, 2001. The
$3.1 million portion expired unused on December 19, 2001, after extension of the
original expiration date of October 22, 2001, due to time and use restrictions
as detailed in the original credit agreement. On March 30, 2002, the term
facility was amended to decrease the allowed borrowings under this secured term
facility to $6.4 million and the mortgage term loan was amended to increase the
allowed borrowings for this facility to $4.6 million. On June 28, 2002, the term
facility was again amended to increase the total allowed borrowings to $9.4
million, an increase of $3.0 million. On June 28, 2002, the Company then used
this additional $3 million to partially fund the acquisition of M2
Communications, L.L.C. On December 31, 2002, the mortgage term facility was
amended to increase the allowed borrowings to $5.1 million. At December 31,
2002, the Company had available borrowings from the LaSalle facility of $6.0
million under the line of credit, $3.0 million under the mortgage term loan, and
zero under the secured term loan.

      At December 31, 2001, there was no balance outstanding under the line of
credit and $4.9 million outstanding under the term loan with LaSalle Bank N.A.
At December 31, 2002, there was no balance outstanding under the line of credit,
$7.6 million outstanding under the term loan, and $1.8 million outstanding under
the building loan. During the years ended December 31, 2002, 2001 and 2000, the
Company made net payments of $2.4 million, $2.1 million and $4.9 million,
respectively, under such agreements. The Company's minimum payments due in 2003
related to its borrowings are $2.7 million, however, the Company may elect to
make additional payments.

      In the original credit agreement, the LaSalle loan carries an interest
rate of the bank's base rate plus a margin ranging from 0% to 0.5% or LIBOR plus
a margin ranging from 2.25% to 3.0%. The actual margin is a function of the
Company's leverage ratio as calculated quarterly. At December 31, 2002 the
balance due on the LaSalle loan carried an interest rate of 4.75%. Company is in
compliance with all debt covenants.

      The line of credit and term loan with LaSalle contain restrictive
covenants with respect to the Company, including, among other things,
limitations on the payments of dividends, the incurrence 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.

Aggregate principal maturities of long-term debt at December 31, 2002 are as
follows:

<TABLE>
<CAPTION>
                                                          Total
            Fiscal Year                               (in thousands)
            -----------                               --------------
<S>                                                   <C>
               2003                                       $2,690
               2004                                        2,690
               2005                                        2,690
               2006                                          672
                                                          ------
                                                          $8,742
                                                          ======
</TABLE>


                                       20
<PAGE>
      During 2002, the Company paid $250,000 as a distribution to "The
Celebration Hymnal" joint venture partner.

RECENT ACCOUNTING PRONOUNCEMENTS

      In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 (SFAS 141), Business Combinations, and Statement No. 142 (SFAS
142), Goodwill and Other Intangible Assets. SFAS 141 supercedes APB 16, Business
Combinations, and requires the purchase method of accounting for all business
combinations initiated after June 30, 2001. SFAS 142 supercedes APB 17,
Intangible Assets and primarily requires that goodwill and indefinite lived
intangible assets will no longer be amortized and will be tested for impairment
at least annually at a reporting unit level. SFAS 142 is effective for fiscal
years beginning after December 15, 2001. The adoption of SFAS 141 and SFAS 142
had no effect on the Company's financial position, results of operations or cash
flows.

      In August 2001, FASB issued SFAS No. 143, (SFAS 143), Accounting for Asset
Retirement Obligations, which is effective for fiscal years beginning after June
15, 2002. SFAS 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS 143 requires, among other things, that the
retirement obligations be recognized when they are incurred and displayed as
liabilities on the balance sheet. In addition, the asset's retirement costs are
to be capitalized as part of the asset's carrying amount and subsequently
allocated to expense over the asset's useful life. The Company believes that the
adoption of SFAS 143 will not have a significant impact on its financial
position, results of operations or cash flows.

      In October 2001, FASB issued SFAS No. 144, (SFAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
SFAS 144 develops an accounting model for long-lived assets that are to be
disposed of by sale, as well as addressing the principal implementation issues.
The Company adopted SFAS No.144 as of January 1, 2002 with no significant impact
on its financial position, results of operations or cash flows.

      In November 2001, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on EITF Issue 01-09, "Accounting for Consideration Given by a Vendor
to a Customer or a Reseller of the Vendor's Products," which is a codification
of EITF 00-14, 00-22 and 00-25. This issue presumes that consideration from a
vendor to a customer or reseller of the vendor's products is a reduction in the
selling prices of the vendor's product and, therefore, should be characterized
as a reduction of revenue when recognized in the vendor's income statement which
could lead to negative revenue under certain circumstances. Revenue reduction is
required unless the consideration related to a separate identifiable benefit and
the benefit's fair value can be established. This provision was adopted by the
Company beginning in the first quarter of 2002. This change has resulted in a
reduction of net sales of $264,000 and $258,000 for the years ended December 31,
2002 and 2001, respectively.

      In April 2002, FASB issued SFAS No. 145, (SFAS 145) Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, which is effective for transactions occurring after May 15, 2002
and fiscal years beginning after May 15, 2002. SFAS 145 rescinds FASB Statement
No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment
of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements and amends FASB Statement No. 13, Accounting
for Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions, as well as, amends other existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. When the Company adopts SFAS 145, the
extra ordinary item in 2001 will be reclassified into operations.

      In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 addresses financial
accounting and reporting for costs


                                       21
<PAGE>
associated with exit or disposal activities, such as restructuring,
involuntarily terminating employees, and consolidating facilities, initiated
after December 31, 2002. The Company believes that the adoption of SFAS 146 will
not have a significant impact on its financial position, results of operations
or cash flows.

      In November 2002, the FASB Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" was issued. The interpretation provides
guidance of the guarantor's accounting and disclosure requirements for
guarantees, including indirect guarantees of indebtedness of others. The Company
has adopted the disclosure requirements of the interpretation as of December 31,
2002. The accounting guidelines are applicable to guarantees issued after
December 31, 2002 and require that the Company record a liability for the fair
value of such guarantees in the balance sheet. The Company believes that the
adoption of FIN No. 45 will not have a material impact on its financial
position, results of operations or cash flows.

      In November 2002, the EITF reached a consensus on Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." EITF Issue No.
00-21 addresses determination of whether an arrangement involving more than one
deliverable contains more than one unit of accounting and how the related
revenues should be measured and allocated to the separate units of accounting.
EITF Issue No. 00-21 will apply to revenue arrangements entered into after June
30, 2003; however, upon adoption, the EITF allows the guidance to be applied on
a retroactive basis, with the change, if any, reported as a cumulative effect of
accounting change in the consolidated statements of operations. The Company
believes that the adoption of EITF Issue No. 00-21 will not have a significant
impact on its financial position, results of operations or cash flows.

      In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." FIN No. 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN No. 46 is effective immediately for all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN No. 46 must be applied for the first interim or annual period
beginning after June 15, 2003. The Company believes that the adoption of FIN No.
46 will not have a significant impact on its financial position, results of
operations or cash flows.

RECLASSIFICATIONS

      Certain of the comparative figures in the prior period financial
statements have been reclassified to conform to the current period presentation.

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. 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.


                                       22
<PAGE>
                                  RISK FACTORS

OUR MARKETS ARE HIGHLY COMPETITIVE.

      The markets for Christian music, books and related products are highly
competitive. We face competition from other record companies, music publishers,
book publishers, entertainment companies and multimedia companies that seek to
offer recorded music, video products, software, printed music and books to the
public. Many of these competitors, as well as a number of potential new
competitors, have significantly longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than us. This provides them with the ability
to launch more new products, spend more on marketing those products, and pay
more to artists, authors and songwriters for new music, book manuscripts and
songs. Our ability to compete in this market depends largely on:

-     The skill and creativity of our employees and their relationships with
      artists and authors,

-     Our ability to recruit and retain new and established artists,
      songwriters, authors and distributive relationships,

-     Our continued ability to attract and retain highly capable management
      personnel

-     The expansion and utilization of our song catalog,

-     The acquisition of licenses to enable us to create compilation packages,

-     The effective and efficient marketing and distribution of our products,
      and

-     Our ability to build upon and maintain our reputation for producing,
      licensing, acquiring, marketing and distributing high quality Christian
      media products.

      In addition, the future success of our sales and marketing efforts through
the Internet will be affected by existing competition and by additional entrants
to the electronic commerce market.

OUR BUSINESS IS SUBJECT TO CONSTANTLY CHANGING CONSUMER TASTES.

      Our products consist of recorded music, video productions, books and
printed music. Each music or video recording, book or printed product is an
individual artistic work. The commercial success of a music or video recording,
book or printed product depends on consumer taste, the quality and acceptance of
competing offerings released into the marketplace at or near the same time, the
availability of alternative forms of entertainment and leisure time activities,
general economic conditions and other tangible and intangible factors, all of
which can change quickly. Accordingly, there can be no assurance as to the
financial success of any particular product, the timing of such success, or the
popularity of any particular artist or author.

      Our future success depends on our ability to continue to develop recorded
music, videos, books, printed music and other content that is interesting and
engaging to our target audience. If our audience determines that our content
does not reflect its tastes, then our audience size could decrease, which would
adversely affect our results of operations. Our ability to develop compelling
content depends on several factors, including the following:

-     quality of our editorial staff;

-     technical expertise of our production staff;

-     access to worship leaders;

-     access to songwriters;

-     access to authors.

      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. 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."



                                       23
<PAGE>
OUR BUSINESS IS DEPENDENT ON ACCESS TO DISTRIBUTION CHANNELS.

      We distribute our products through a multi-channel distribution system
comprised of:

-     direct-to-consumer sales;

-     retail sales;

-     international, and

-     license arrangements.

      The direct-to-consumer channel primarily represents sales from direct mail
programs such as our continuity clubs, direct response television to Time Life
Music, Internet sales and sales directly to churches, including through the
Company's hymnal joint venture. Members of a continuity club receive monthly
mailings containing a feature recording, which they may then accept and pay for
or return within a specified time. 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.

      In addition, our results could also be affected if Time Life Music were to
reduce its marketing efforts for the Songs4Worship continuity series on
television, or if the consumer popularity of the Worship and Songs4Worship
products were to decline.

      We also sell our products through the Internet through our websites
www.integritymusic.com and www.songs4worship.com. Revenues from these sites are
not currently a significant part of our business. The future success of on-line
sales and marketing efforts cannot be adequately determined at this time,
particularly due to the short history of the electronic commerce market. Results
will also be affected by existing competition and by additional entrants to the
market, many of whom may have substantially greater resources than we.

      Currently, we rely on Word's sales force to perform Christian retail
market sales functions of our music products, pursuant to a contract with them
that extends through January 2004. Also, we depend on a global marketing and
distribution agreement with Sony Music Entertainment and its subsidiary Epic
Records for the distribution of our releases in the general retail markets. In
addition, our Christian book publishing division depends on the retail and
general market sales functions of G.L. Services.

      Our International area is dependent on our subsidiaries and a network of
independent distributors and exporters reaching markets in 167 countries.

      Our retail and international distribution channels rely 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, the failure by any of these parties to fulfill their duties
effectively and efficiently will immediately and adversely affect our results of
operations.

      Should we encounter difficulty with our existing distribution methods, or
be unable to further develop our distribution systems successfully in the
future, our business, results of operation and financial condition may be
materially adversely affected.

BECAUSE SPENDING ON OUR PRODUCTS IS DEPENDENT ON DISCRETIONARY CONSUMER
SPENDING, WE ARE SUSCEPTIBLE TO FLUCTUATIONS IN GENERAL ECONOMIC CONDITIONS.

      We believe that revenue from sales of recorded music, video products,
software, printed music and books are dependent on discretionary consumer
spending. Our revenue will therefore be subject to fluctuations based upon
general economic conditions in the United States and the foreign countries in
which we do business. If there is a general economic downturn or recession in

                                       24
<PAGE>
the United States or in such foreign countries, general consumer spending in
these markets likely would decline, and our revenues may decrease as a result.

WE DEPEND ON THE CONTINUED POPULARITY OF CHRISTIAN MUSIC AND BOOKS.

      We produce records, video productions and printed music in the Christian
music segment of the industry. We produce books in the Christian book segment of
the industry. Our artists and authors are all in these segments of the
respective markets. Although we believe that these sectors will continue to
grow, consumer taste is unpredictable and constantly changing. If tastes move
away from this type of music and books, and we do not develop any alternatives,
we may not be able to sell enough recordings and books to be profitable.

WE MAY HAVE DIFFICULTY ENFORCING OUR INTELLECTUAL PROPERTY RIGHTS.

      We consider our copyrights, trademarks and other similar intellectual
property to be a valuable part of our business. To protect our intellectual
property rights, we rely upon copyright and trademark laws, as well as
confidentiality agreements with our employees and consultants. The decreasing
cost of electronic equipment and related technology, however, has made it easier
to create unauthorized versions of audio and audiovisual products such as
compact discs, videotapes and DVDs. A substantial portion of our revenue comes
from the sale of audio and audiovisual products potentially subject to
unauthorized copying. Similarly, advances in Internet technology, such as
peer-to-peer and MP3 technology, as well as the emergence of file-sharing
services, have increasingly made it possible for computer users to share audio
and audiovisual information without the permission of the copyright owners and
without paying royalties to holders of applicable intellectual property or other
rights. These developments may hinder our ability to sell our products through
traditional retail outlets, and there can be no assurance that the application
of existing law will provide sufficient protection from misappropriation or
infringement of our intellectual property rights. There can also be no assurance
that third parties will not claim infringement by us with respect to others'
current or future intellectual property rights. If we were to fail to develop
effective means of protecting our intellectual property or entertainment-related
products and services, or to obtain appropriate relief through the judicial
process or the complete enforcement of judicial decisions issued in our favor in
the event our rights were to be violated by third parties, our results of
operations and financial position would likely suffer.

PORTIONS OF OUR BUSINESS ARE DEPENDENT ON CROSS-LICENSING ARRANGEMENTS.

      We license the rights to certain recordings and compositions from third
parties for recording and re-recording of music to produce compilations and to
expand our catalog. We also seek to license the rights to our recordings and
compositions to third parties for a royalty or a flat fee. These cross-licensing
arrangements are generally made possible by existing industry practices based on
reciprocity. If these practices change, we cannot assure that we will be able to
obtain licenses from third parties on satisfactory terms, or at all, and our
business, financial condition and operating results, particularly with respect
to compilation products, could be materially and adversely affected.

WE MAY NOT BE ABLE TO PREVENT THIRD PARTIES FROM USING OUR DOMAIN NAMES, WHICH
COULD DECREASE THE VALUE OF THESE DOMAIN NAMES.

      Our trademark rights may not be sufficient to prevent third parties from
acquiring or using domain names that infringe or otherwise decrease the value of
our trademarks and domain names. We currently hold the Internet domain names
"integritymusic.com," "integritymedia.com," "integrityinc.com,"
"integritypublishers.com," "songs4worship.com," "m2-0.com," as well as various
other domain names. We do not hold the domain names "integrity.com",
"integrity.org" or "integrity.net." Domain names are regulated by the U.S.
Commerce Department through a contract with the nonprofit U.S. corporation
Internet Corporation for Assigned Names and Numbers (ICANN). Numerous domain
name registrars throughout the world have been authorized by ICANN to register
domain names in the ".com," ".org," ".net," ".biz" and ".info" generic top-level
domains ("gTLDs"). Additionally, every recognized country in the world has been
assigned a country code top-level domain ("ccTLD") by the Commerce Department,
and each country is responsible for registration of domain names within the
ccTLD. ICANN is currently considering the addition of one or more new gTLDs and
can do so at any time in the future. Internet regulatory bodies could further

                                       25
<PAGE>
modify the rights of current holders of domain names. As a result, the value of
each of our domain names could be diluted and decrease the number of visitors to
our Web sites, and we may not acquire or maintain "integritymusic" or other
relevant names in all gTLDs or in the ccTLDs of all countries in which we
conduct business or intend to conduct business.

OUR RESERVES FOR PRODUCT RETURNS MAY PROVE INADEQUATE.

      Most of our products are sold on a returnable basis, which is standard
music and book publishing industry practice. We set reserves for future returns
of products estimated based on return policies and experience. We expect that
our actual return experience will be within standard industry parameters and our
historical experience. However, we may in the future experience an increase in
returns over our established reserves. If this occurs our business, results of
operations and financial condition could be materially adversely affected.

FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE THE MARKET PRICE FOR
OUR CLASS A COMMON STOCK TO BE VOLATILE.

      Our results of operations are subject to quarterly fluctuations and
seasonal variations. In particular, our revenues are affected by end-of-the-year
holiday sales. In accordance with industry practice, we record revenues for
music and book products when the products are shipped to retailers. In
anticipation of holiday sales, retailers purchase products from us prior to
December. In addition, changes in the timing of new product 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. For example, if releases planned for the
peak holiday season are delayed, our operating results could be adversely
affected, which could in turn cause the price of the Class A Common Stock to
fluctuate.

INCREASES IN THE COSTS OF CD'S, CASSETTES, DVD'S, AND PAPER COULD HARM OUR
PROFITABILITY

      Increases in the costs of producing a CD, cassette or DVD due to increases
in petroleum prices or other costs associated with the manufacture and
duplication of CD's, cassettes and DVD's could adversely affect our
profitability. Increases in the costs of producing books due to increases in the
prices of paper or other costs associated with the manufacture of books could
adversely affect our profitability. Although we do not manufacture these
products internally, any significant price increase to our suppliers could
result in higher CD, cassette, DVD, and book prices to Integrity. We may not be
able to pass on these price increases to our customers.

INCREASES IN MAILING, PAPER, PRINTING AND DELIVERY COSTS COULD HARM OUR
PROFITABILITY.

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

WE DEPEND ON CERTAIN 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. Although we have employment agreements with
some of our senior executives, they could still choose to leave Integrity at any
time. If they did, we would have difficulty replacing them with individuals who
had an equal level of experience in the Christian music and related products and
book publishing industries. This could adversely affect our daily operations,
creative development and financial performance.

OUR NEW BOOK PUBLISHING BUSINESS HAS A LIMITED OPERATING HISTORY.

      Our book publishing subsidiary, Integrity Publishers, Inc., has a limited
operating history on which to base an evaluation of its business and prospects,
having only commenced its initial operations in August, 2001. The prospects for
our book publishing operation must be considered in light of the risks,
difficulties and uncertainties frequently encountered by businesses in an early

                                       26
<PAGE>
stage of development, particularly operations in industries involving many
larger and more established competitors. These risks include our ability to:

-     publish compelling and unique Christian book content;

-     successfully market and sell our books; and

-     effectively develop new and maintain existing relationships with book
      distributors and other persons with which we do business.

      The ability to attract successful and highly qualified authors and
illustrators is critical to our future success. Competition for this type of
resource is intense, and authors and illustrators have many options in terms of
publisher affiliation. There can be no assurance that we will be able to develop
relationships with or retain superior-quality authors and illustrators, and any
failure to do so could adversely affect our operating results.

WE MAY BE SUBJECT TO LIABILITY FOR MISUSE OF USERS' PRIVATE INFORMATION.

      It is our policy that we will not willfully disclose any individually
identifiable information about any customer to a third party without the
customer's consent unless required by law. This policy is available to customers
when they initially register on integritymusic.com website and is also easily
accessible on our websites. Despite this policy, if third persons were able to
penetrate our network security or otherwise misappropriate, or if we
inadvertently disclose, our customers' personal information or credit card
information, we could be subject to liability. These liabilities could include
claims for unauthorized purchases with credit card information, impersonation or
other similar fraud claims. They could also include claims for other misuses of
personal information, such as for unauthorized marketing purposes. These claims
could result in litigation, which may cause us to incur substantial costs. We
could incur additional expenses if new laws or regulations regarding the use of
personal information are introduced or if these authorities choose to
investigate our privacy practices. While we have implemented and intend to
implement additional programs designed to enhance the protection of the privacy
of our customers, these programs may not conform with laws or regulations that
are adopted.

INTEGRITY IS CONTROLLED BY THE COLEMAN FAMILY.

      Our Chairman, President and Chief Executive Officer, P. Michael Coleman,
and his family beneficially own 55,100 shares of Class A Common Stock and all
3,385,000 shares of Class B Common Stock outstanding. This represents
approximately 93.6% 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.

LIMITED PUBLIC TRADING OF OUR CLASS A COMMON STOCK MAY RESULT IN INCREASED PRICE
VOLATILITY.

      Although our Class A Common Stock is traded on the Nasdaq National Market,
the volume of shares traded during any particular period has historically been
low. Any sale or purchase of our Class A Common Stock in the public markets that
is large in relation to recent trading volumes for the Class A Common Stock may
therefore disproportionately affect the market price of our shares. We cannot
assure you that a more active and liquid market for the shares of Class A Common
Stock will develop.

OUR 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

                                       27
<PAGE>
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 of our Class B Common Stock could
adversely affect the market price of our Class A Common Stock. These
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
might therefore be deprived of an opportunity to sell their shares at a premium
over the then prevailing market price.

THE PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW 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 Section 203 of the Delaware General Corporation
Law, which may render more difficult a change in control of Integrity.

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

      The Company's market risk is limited to fluctuations in interest rates as
they pertain to the Company's borrowings under its credit facility. As of
December 31, 2002, the Company paid interest on borrowings at either LaSalle's
base rate or an Adjusted LIBOR, plus an Interest Rate Margin. In the event that
interest rates were to increase 100 basis points, the Company's interest expense
would increase and income before income tax would decrease by $94,508, assuming
current debt levels are maintained. (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 of 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 III, Item 15 of this
report.

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

      Not applicable.



                                       28
<PAGE>
                                    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 Integrity" and "Other Matters - Section 16(a) Beneficial
Ownership Reporting Compliance" in Integrity's 2003 Proxy Statement is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

      The information under the caption "Proposal I - Election of Directors -
Executive Compensation" in Integrity's 2003 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 Integrity's Common Stock; Shares
Held by Directors and Executive Officers" in the Company's 2003 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 2003 Proxy Statement is incorporated
herein by reference.

ITEM 14. CONTROLS AND PROCEDURES.

      Within ninety (90) days prior to the filing of this report, an evaluation
was performed under the supervision and with the participation of the Company's
management, including the President and Chief Executive Officer ("CEO"), and the
Chief Financial Officer ("CFO"), of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure controls and procedures were effective in timely
bringing to their attention material information related to the Company required
to be included in the Company's periodic SEC filings. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the most recent
evaluation conducted by the CEO and the CFO.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(A)   1. CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

FINANCIAL STATEMENTS                                                                              PAGE NO.
<S>                                                                                               <C>

Report of Independent Accountants                                                                 30
Consolidated Balance Sheets at December 31, 2002 and 2001                                         31
Consolidated Statement of Operations for the three years ended December 31, 2002                  32
Consolidated Statement of Changes in Stockholders' Equity for the three years ended December
31, 2002                                                                                          33
Consolidated Statement of Cash Flows for the three years ended December 31, 2002                  34
Notes to Consolidated Financial Statements                                                        35

      2. FINANCIAL STATEMENT SCHEDULES:
II - Valuation and Qualifying Accounts and Reserves for the three years
ended December 31, 2002                                                                           49

</TABLE>


                                       29
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of Integrity Media, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Integrity Media, Inc. and its subsidiaries at December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index 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 auditing standards
generally accepted in the United States of America, 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 our opinion.

PricewaterhouseCoopers LLP

Atlanta, Georgia
March 14, 2003

                                       30

<PAGE>
                              INTEGRITY MEDIA, INC.

                           CONSOLIDATED BALANCE SHEETS

                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                           December 31,
ASSETS                                                                                  2002           2001
                                                                                      --------       --------
<S>                                                                                   <C>            <C>
Current Assets
   Cash                                                                               $  4,821       $  6,854
   Trade receivables, less allowance for returns and doubtful accounts of $2,415
   and $1,788                                                                            6,842          5,389
   Other receivables                                                                        67            451
   Inventories                                                                           5,191          4,342
   Other current assets                                                                  4,558          3,512
                                                                                      --------       --------
      Total current assets                                                              21,479         20,548

Property and equipment, net of accumulated depreciation of $6,055 and $5,228             7,337          4,243
Product masters, net of accumulated amortization of $19,387 and $15,946                  3,806          3,520
Other assets                                                                             8,237          3,056
                                                                                      --------       --------
      Total assets                                                                    $ 40,859       $ 31,367
                                                                                      ========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Current portion of long-term debt                                                  $  2,690       $  2,000
   Accounts payable and accrued expenses                                                 5,298          3,683
   Royalties payable                                                                     6,256          4,340
   Other current liabilities                                                               997          2,375
                                                                                      --------       --------
      Total current liabilities                                                         15,241         12,398

Long-term debt                                                                           6,780          2,878
Other long-term liabilities                                                                179             70
                                                                                      --------       --------
      Total liabilities                                                                 22,200         15,346
                                                                                      --------       --------

Commitments and contingencies (Note 12)

Minority interest                                                                          606            603
                                                                                      --------       --------

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;                       24             23
   2,364,783 and 2,301,000 shares issued and outstanding
   Class B common stock, $.01 par value, 10,500,000 shares authorized;                      34             34
   3,385,000 and 3,435,000 shares issued and outstanding
   Additional paid-in capital                                                           12,956         12,930
   Unearned compensation                                                                  (479)          (587)
   Retained earnings                                                                     5,452          3,236
   Equity adjustments from foreign translation                                              66           (218)
                                                                                      --------       --------
      Total stockholders' equity                                                        18,053         15,418
                                                                                      --------       --------
         Total liabilities and stockholders' equity                                   $ 40,859       $ 31,367
                                                                                      ========       ========
</TABLE>

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




                                       31
<PAGE>
                              INTEGRITY MEDIA, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                     2002           2001           2000
                                                   --------       --------       --------
<S>                                                <C>            <C>            <C>
Net sales                                          $ 66,345       $ 70,958       $ 51,819
Cost of sales                                        32,178         38,089         27,072
                                                   --------       --------       --------
Gross profit                                         34,167         32,869         24,747

Marketing and fulfillment expenses                   13,897         12,815         10,496
General and administrative expenses                  16,138         14,729         10,698
                                                   --------       --------       --------
   Income from operations                             4,132          5,325          3,553

Other expenses (income)
   Interest expense, net                                273            281            932
   Other expenses (income)                              126            184            137
                                                   --------       --------       --------
   Income before minority interest, taxes and
   extraordinary item                                 3,733          4,860          2,484
Provision for income taxes                           (1,263)        (1,632)          (600)
Minority interest, net of applicable taxes             (254)          (105)          (188)
                                                   --------       --------       --------
Net income before extraordinary item               $  2,216       $  3,123       $  1,696
                                                   ========       ========       ========

Extraordinary item from early extinguishment
of debt less taxes of $154                                0           (312)             0
                                                   --------       --------       --------
Net income                                         $  2,216       $  2,811       $  1,696
                                                   ========       ========       ========

Adjustments to determine comprehensive income
Foreign currency translation adjustments                284            (83)           (94)
                                                   --------       --------       --------
Comprehensive income                               $  2,500       $  2,728       $  1,602
                                                   ========       ========       ========

Net income per share - Basic - before
extraordinary item                                 $   0.40       $   0.56       $   0.30
Extraordinary item per share - Basic                      0          (0.06)             0
                                                   --------       --------       --------
Net income per share - Basic                       $   0.40       $   0.50       $   0.30
                                                   ========       ========       ========

Net income per share - Diluted - before
extraordinary item                                 $   0.37       $   0.50       $   0.28
Extraordinary item per share - Diluted                    0          (0.05)             0
                                                   --------       --------       --------
Net income per share - Diluted                     $   0.37       $   0.45       $   0.28
                                                   ========       ========       ========
Weighted average number of shares
outstanding (Note 1)
   Basic                                              5,599          5,638          5,615
   Diluted                                            6,010          6,238          6,058
</TABLE>

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




                                       32
<PAGE>
                              INTEGRITY MEDIA, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                                                                         Additional
                                              Class A                           Class B                  Unearned         Paid-in
                                            Common Stock                      Common Stock             Compensation       Capital
                                                                                                       ------------       -------
                                      Shares           Amount           Shares           Amount
                                      ------           ------           ------           ------
<S>                                 <C>              <C>              <C>              <C>             <C>              <C>
Balance, December 31, 1999           2,179,000       $       22        3,435,000       $       34      $     (327)      $   13,847
  Net income
  Issuance of common stock
  upon exercise of options               5,000                0                                                                 10
  Amortization of restricted
  stock award                                                                                                  55
  Translation adjustments
                                    ----------       ----------       ----------       ----------      ----------       ----------
Balance, December 31, 2000           2,184,000               22        3,435,000               34            (272)          13,857
  Net income
  Repurchase of stock
  Warrants                                                                                                                  (1,438)
  Issuance of restricted stock          50,000                0                                              (377)             377
  Issuance of common stock
  upon exercise of options              67,000                1                                                                134
  Amortization of restricted
  stock award                                                                                                  62
  Translation adjustments
                                    ----------       ----------       ----------       ----------      ----------       ----------
Balance, December 31, 2001           2,301,000               23        3,435,000               34            (587)          12,930
  Net income
  Transfer of stock                     50,000                1          (50,000)               0
  Issuance of common stock
  upon exercise of options              13,783                0                                                                 26
  Amortization of restricted
  stock award                                                                                                 108
  Translation adjustments
                                    ----------       ----------       ----------       ----------      ----------       ----------
Balance, December 31, 2002           2,364,783       $       24        3,385,000       $       34      $     (479)      $   12,956
                                    ==========       ==========       ==========       ==========      ==========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                          (Accum.
                                         Deficit)          Equity
                                         Retained        Adj. From
                                         Earnings       Translations        Total
                                         --------       ------------        -----


<S>                                     <C>             <C>              <C>
Balance, December 31, 1999              $      754      $      (41)      $   14,289
  Net income                                 1,696                            1,696
  Issuance of common stock
  upon exercise of options                                                       10
  Amortization of restricted
  stock award                                                                    55
  Translation adjustments                                      (94)             (94)
                                        ----------      ----------       ----------
Balance, December 31, 2000                   2,450            (135)          15,956
  Net income                                 2,811                            2,811
  Repurchase of stock
  Warrants                                  (2,025)                          (3,463)
  Issuance of restricted stock                                                    0
  Issuance of common stock
  upon exercise of options                                                      135
  Amortization of restricted
  stock award                                                                    62
  Translation adjustments                                      (83)             (83)
                                        ----------      ----------       ----------
Balance, December 31, 2001                   3,236            (218)          15,418
  Net income                                 2,216                            2,216
  Transfer of stock                                                               1
  Issuance of common stock
  upon exercise of options                                                       26
  Amortization of restricted
  stock award                                                                   108
  Translation adjustments                                      284              284
                                        ----------      ----------       ----------
Balance, December 31, 2002              $    5,452      $       66       $   18,053
                                        ==========      ==========       ==========
</TABLE>

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




                                       33
<PAGE>
                              INTEGRITY MEDIA, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                              2002           2001           2000
                                                            --------       --------       --------
<S>                                                         <C>            <C>            <C>
Cash flows from operating activities
Net income                                                  $  2,216       $  2,811       $  1,696
Adjustments to reconcile net income to net
cash provided by operating activities
   Depreciation and amortization                               1,628            799          1,034
   Amortization of product masters                             3,409          5,394          5,397
   Minority interest                                             254            105            188
   Stock compensation                                            108             62             55
   Extraordinary loss on debt extinguishment                       0            466              0
   Deferred income tax (benefit) provision                      (255)           385           (390)
   Changes in operating assets and liabilities
       Trade receivables (net)                                  (562)           540            317
       Other receivables                                          22           (260)           120
       Inventories                                              (787)           691            143
       Other assets                                           (1,693)        (1,493)          (528)
       Accounts payable, royalties payable and
       accrued expenses                                        2,590          2,013          1,799
       Other current and non current liabilities              (1,251)         1,961           (792)
                                                            --------       --------       --------
Net cash provided by operating activities                      5,679         13,474          9,039
                                                            --------       --------       --------
Cash flows from investing activities
   Purchases of property and equipment                        (3,887)          (912)          (849)
   Payments for product masters                               (3,682)        (3,288)        (4,056)
   Payment for purchase of M2 Communications, L.L.C.,         (4,779)             0              0
   net of cash acquired
   Proceeds from sale of product masters                           0              0          1,000
                                                            --------       --------       --------
Net cash used in investing activities                        (12,348)        (4,200)        (3,905)
                                                            --------       --------       --------
Cash flows from financing activities
   Net borrowings (repayments) under line of credit            1,300            287         (2,290)
   Borrowings under term facility                              6,950          6,378              0
   Payments under line of credit                              (1,300)        (1,161)             0
   Distributions to joint venture partner                       (250)          (250)          (400)
   Stock warrant repurchase                                        0         (3,463)             0
   Proceeds from issuance of stock                                28            135             10
   Principal payments under term facility                     (2,376)        (5,064)        (2,626)
                                                            --------       --------       --------
      Net cash provided (used) by financing activities         4,352         (3,138)        (5,306)
                                                            --------       --------       --------
Effect of exchange rate changes on cash                          284            (83)           (94)
                                                            --------       --------       --------
Net (decrease) increase in cash                               (2,033)         6,053           (266)
Cash, beginning of year                                        6,854            801          1,067
                                                            --------       --------       --------
Cash, end of year                                           $  4,821       $  6,854       $    801
                                                            ========       ========       ========
Supplemental disclosures of cash flow information
   Interest paid                                            $    283       $    249       $    913
   Income taxes paid                                        $  1,633       $    401       $  1,188
</TABLE>

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




                                       34
<PAGE>
                              INTEGRITY MEDIA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Integrity Media, Inc. (the "Company") is a media/communications company
that produces, publishes and distributes Christian music, books and related
products. Integrity's music product formats include cassettes, compact discs,
videos, DVD's and printed music. The Company produces Praise and Worship music
in different musical styles for specific audiences such as children's music,
gospel music for the African-American audience, youth music and live worship
music for adult audiences. In July 2002, Integrity announced the purchase of M2
Communications, L.L.C., an artist-based independent Christian music company
headquartered in Nashville, Tennessee. The purchase of M2 allows the Company to
enter the Pop/Rock segment of Christian music, which represents over 30% of the
Christian music market. The Company's Integrity Publishers division, created in
2001, produces and publishes Christian books. Products are sold through two
divisions. Integrity Music sells all music-related products and Integrity
Publishers sells all Christian book products. Products are sold mainly 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, the
Company consolidates the venture and Word Entertainment's interest in the joint
venture is presented as minority interest in these financial statements.
Integrity Publishers, Inc. was formed in August 2001 for the purpose of
publishing and distributing Christian books. This division published its first
books in the fall of 2002. M2 Communications, L.L.C., was purchased in July
2002. Integrity Direct, LLC, was formed in December 2002 to create a smoother
interaction between the Company and its customers. This new area is a
combination of the Direct-to-Consumer and Direct-to-Church areas and includes
direct mail, continuity clubs, Internet, catalog sales, direct-to-church sales,
and direct response television.

      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 generally recognized when delivery has occurred and at the time
title passes to the customer. For product sales direct-to-consumers that allow a
trial or acceptance period, title is not deemed to have passed nor revenue
recognized until the acceptance periods have expired. Generally, these
acceptance periods are fifteen days after receipt of product. Provisions for
sales returns and allowances are made in the period in which the related
products are shipped or title passes based on estimates derived from historical
data. The allowance is recorded against revenue in the period in which the
related products are shipped. The returns allowance is presented, along with the
allowance for doubtful accounts, as a reduction of accounts receivable in the
accompanying financial statements.

      Revenue earned from licensing the use of songs or product masters in the
Company's song catalogs is generally recognized as payments are received from
licensees. If the Company has information related to the licensed use of songs
that would result in the revenue being fixed and

                                       35
<PAGE>
determinable, and collection reasonably assured, then revenue is recognized in
the periods in which the license revenue is earned.

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, books 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-to-consumer sales. Marketing expenditures that benefit future periods are
capitalized and charged to operations 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 $703,000 and $1,271,000 at December 31, 2002 and 2001,
respectively. Marketing costs expensed for the three years ended December 31,
2002, 2001 and 2000 approximated $7,029,000, $6,183,000 and $4,628,000,
respectively.

FULFILLMENT COSTS

      Fulfillment expenses are primarily comprised of distribution fees paid to
third party distributors based on a percentage of sales. The services provided
by the third party distributor include sales, fulfillment and storage of the
Company's product for the Retail segment. Distribution fees represented
approximately 58.3%, 74.7% and 90.1% of total fulfillment expense for the years
ended December 31, 2000, 2001 and 2002, respectively. Also included in
fulfillment expenses are fees paid to a third party service provider on a
transaction basis for data entry, generation of invoices and cash processing.

      Additionally, in the Direct-to-Consumer segment, the Company completes the
distribution and shipping function internally and includes a separate surcharge
to customers related to this service. These costs, which approximated $1.3
million, $1.0 million and $815,000 for the years ended December 31, 2000, 2001
and 2002, respectively, are recorded as a component of Cost of Sales and the
related customer fee is recorded as a component of Net Sales.

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 30 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 and
maintenance costs that 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 and video 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

                                       36
<PAGE>
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 estimable. 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. A significant portion of these product master costs
are capitalized costs of the Company's resources, both personnel and equipment
related, that can be primarily associated with the creation of the product
master.

IMPAIRMENT OF LONG-LIVED ASSETS

      The Company evaluates impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. If the sum of the expected future undiscounted cash flows is
less than the carrying amount of the asset, an impairment loss would be
recognized. Measurement of an impairment loss for long-lived assets would be
based on the fair value of the asset.

ADVANCE ROYALTIES AND ROYALTIES PAYABLE

      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
$1,898,000 and $1,247,000 at December 31, 2002 and 2001, respectively. Royalties
payable are reduced for the estimated royalties that will not be paid due to
product returns and bad debts.

INTANGIBLE ASSETS

      In conjunction with the acquisition of M2 Communications, L.L.C. on June
28, 2002, the Company recorded $5.1 million of artists contracts as an
intangible asset. This asset is amortized on a straight-line basis over the
remaining life of the underlying contracts. The Company will review the carrying
value of the artists contracts whenever events or changes in circumstances
indicate that the carrying amount of such contracts indicate that the value
thereof may not be recoverable. Any resulting impairment loss could have a
material adverse impact on our financial condition and results of operations.

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
that 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.




                                       37
<PAGE>
EARNINGS PER COMMON 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.

FOREIGN CURRENCIES

      Assets and liabilities at foreign subsidiaries are recorded based on their
functional currencies, which are their respective local currencies. Amounts in
foreign currencies are translated at the applicable exchange rate at the balance
sheet date using the rate in effect as of the period end. Revenues and expenses
of foreign subsidiaries are translated using the average rates applicable during
the reporting period. The effects of foreign currency translation adjustments
are included as a component of stockholders' equity and Comprehensive income.

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.

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, accounts receivable bad debts and returns,
inventory evaluations and provisions for taxes. 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.

COMPREHENSIVE INCOME

      Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires entities to report comprehensive income which
represents the change in equity during a period from non-owner sources and
requires financial statement presentation with the same prominence as net
income. The Company's components of comprehensive income relate solely to
foreign currency translation adjustments and are presented in the accompanying
consolidated statement of operations.

RECLASSIFICATIONS

      Certain prior year amounts have been reclassified to conform to the
current year presentation.




                                       38
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS

      In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 (SFAS 141), Business Combinations, and Statement No. 142 (SFAS
142), Goodwill and Other Intangible Assets. SFAS 141 supercedes APB 16, Business
Combinations, and requires the purchase method of accounting for all business
combinations initiated after June 30, 2001. SFAS 142 supercedes APB 17,
Intangible Assets and primarily requires that goodwill and indefinite lived
intangible assets will no longer be amortized and will be tested for impairment
at least annually at a reporting unit level. SFAS 142 is effective for fiscal
years beginning after December 15, 2001. The adoption of SFAS 141 and SFAS 142
had no effect on the Company's financial position, results of operations or cash
flows.

      In August 2001, FASB issued SFAS No. 143, (SFAS 143), Accounting for Asset
Retirement Obligations, which is effective for fiscal years beginning after June
15, 2002. SFAS 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS 143 requires, among other things, that the
retirement obligations be recognized when they are incurred and displayed as
liabilities on the balance sheet. In addition, the asset's retirement costs are
to be capitalized as part of the asset's carrying amount and subsequently
allocated to expense over the asset's useful life. The Company believes that the
adoption of SFAS 143 will not have a significant impact on its financial
position, results of operations or cash flows.

      In October 2001, FASB issued SFAS No. 144, (SFAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
SFAS 144 develops an accounting model for long-lived assets that are to be
disposed of by sale, as well as addressing the principal implementation issues.
The Company adopted SFAS No.144 as of January 1, 2002 with no significant impact
on its financial position, results of operations or cash flows.

      In November 2001, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on EITF Issue 01-09, "Accounting for Consideration Given by a Vendor
to a Customer or a Reseller of the Vendor's Products," which is a codification
of EITF 00-14, 00-22 and 00-25. This issue presumes that consideration from a
vendor to a customer or reseller of the vendor's products is a reduction in the
selling prices of the vendor's product and, therefore, should be characterized
as a reduction of revenue when recognized in the vendor's income statement which
could lead to negative revenue under certain circumstances. Revenue reduction is
required unless the consideration related to a separate identifiable benefit and
the benefit's fair value can be established. This provision was adopted by the
Company beginning in the first quarter of 2002. This change has resulted in a
reduction of net sales of $264,000 and $258,000 for the years ended December 31,
2002 and 2001, respectively.

      In April 2002, FASB issued SFAS No. 145, (SFAS 145) Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, which is effective for transactions occurring after May 15, 2002
and fiscal years beginning after May 15, 2002. SFAS 145 rescinds FASB Statement
No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment
of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements and amends FASB Statement No. 13, Accounting
for Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions, as well as, amends other existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. When the Company adopts SFAS 145 the
extra ordinary item in 2001 will be reclassified into operations.

      In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities,
such as restructuring, involuntarily terminating employees, and consolidating
facilities,

                                       39
<PAGE>
initiated after December 31, 2002. The Company believes that the adoption of
SFAS 146 will not have a significant impact on its financial position, results
of operations or cash flows.

      In November 2002, the FASB Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" was issued. The interpretation provides
guidance of the guarantor's accounting and disclosure requirements for
guarantees, including indirect guarantees of indebtedness of others. The Company
has adopted the disclosure requirements of the interpretation as of December 31,
2002. The accounting guidelines are applicable to guarantees issued after
December 31, 2002 and require that the Company record a liability for the fair
value of such guarantees in the balance sheet. The Company believes that the
adoption of FIN No. 45 will not have a material impact on its financial
position, results of operations or cash flows.

      In November 2002, the EITF reached a consensus on Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." EITF Issue No.
00-21 addresses determination of whether an arrangement involving more than one
deliverable contains more than one unit of accounting and how the related
revenues should be measured and allocated to the separate units of accounting.
EITF Issue No. 00-21 will apply to revenue arrangements entered into after June
30, 2003; however, upon adoption, the EITF allows the guidance to be applied on
a retroactive basis, with the change, if any, reported as a cumulative effect of
accounting change in the consolidated statements of operations. The Company
believes that the adoption of EITF Issue No. 00-21 will not have a significant
impact on its financial position, results of operations or cash flows.

      In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." FIN No. 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN No. 46 is effective immediately for all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN No. 46 must be applied for the first interim or annual period
beginning after June 15, 2003. The Company believes that the adoption of FIN No.
46 will not have a significant impact on its financial position, results of
operations or cash flows.

2.    OTHER CURRENT ASSETS

Other current assets consist of the following:

<TABLE>
<CAPTION>
                                                    December 31
                                                   (in thousands)
                                                  2002          2001
                                                ------        ------
<S>                                             <C>           <C>
            Prepaid expenses                    $1,347        $  865
            Prepaid marketing costs                703         1,271
            Royalty advances                     1,898         1,247
            Deferred tax assets                    377            79
            Prepaid publishing                     233            50
                                                ------        ------
                                                $4,558        $3,512
                                                ======        ======
</TABLE>




                                       40
<PAGE>
3.    PROPERTY AND EQUIPMENT

Property and equipment consists of:


<TABLE>
<CAPTION>
                                                            December 31
                                                           (in thousands)
                                                        2002           2001
                                                      --------       --------
<S>                                                   <C>            <C>
            Land                                      $    625       $    625
            Buildings and leasehold improvements         2,954          2,840
            Construction in progress                     2,406             71
            Data processing and other equipment          4,340          3,029
            Studio equipment                             1,171          1,119
            Furniture and fixtures                       1,896          1,787
                                                      --------       --------
                                                        13,392          9,471
            Less - accumulated depreciation             (6,055)        (5,228)
                                                      --------       --------

                                                      $  7,337       $  4,243
                                                      ========       ========
</TABLE>

      Depreciation expense approximated $827,000, $619,000 and $563,000 for the
years ended December 31, 2002, 2001 and 2000, respectively.

4.    OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
                                                     December 31
                                                    (in thousands)
                                                  2002         2001
                                                 ------       ------
<S>                                              <C>          <C>
            Music copyrights, net of
            accumulated amortization             $1,316       $1,490
            Deferred tax assets                     746          642
            Loan financing cost                     569          615
            Cash surrender value of
            life insurance                          309          225
            Intangible asset, net of
            accumulated amortization              4,958            0
            Other                                   339           84
                                                 ------       ------
                                                 $8,237       $3,056
                                                 ======       ======
</TABLE>

      The music copyrights are being amortized over their future estimated
useful lives, which is approximately fifteen years. Accumulated amortization at
December 31, 2002 and December 31, 2001 was approximately $1,317,759 and
$1,143,000, respectively.

5.    ACQUISITIONS

      On June 28, 2002, the Company purchased all assets and assumed the
outstanding liabilities of M2 Communications, L.L.C. The Company paid, net of
cash acquired, $4.8 million to complete the transaction. The transaction was
funded partly from operating cash and the issuance of $3 million additional debt
through the Company's credit facility. The Company accounted for this
transaction under the purchase method of accounting and accordingly, allocated
the purchase price to cash, accounts receivable, fixed assets and intangibles.


                                       41
<PAGE>
      The following pro-forma information presents the results of operations of
the Company as if the acquisition of M2 Communications, L.L.C. had been
completed as of January 1, 2002 and January 1, 2001, respectively (in thousands,
except per share data):

                      For the Year Ended December 31, 2002

<TABLE>
<CAPTION>
                                          As Reported     Pro-Forma (unaudited)
                                          -----------     ---------------------
<S>                                       <C>             <C>
            Net Sales                     $   66,345           $   72,046
            Net Income                    $    2,216           $    2,556
            Basic EPS                     $     0.40           $     0.46
            Diluted EPS                   $     0.37           $     0.43
</TABLE>

                      For the Year Ended December 31, 2001

<TABLE>
<CAPTION>
                                          As Reported     Pro-Forma (unaudited)
                                          -----------     ---------------------
<S>                                       <C>             <C>
            Net Sales                     $   70,958           $   75,458
            Net Income                    $    2,811           $    2,547
            Basic EPS                     $     0.50           $     0.45
            Diluted EPS                   $     0.45           $     0.41
</TABLE>

6.    DEBT

      The Company's financing agreement in effect through April 25, 2001
included a revolving credit facility and a term loan that were payable through
August 2002. On April 25, 2001, the Company entered into a new $20 million,
five-year secured credit facility with LaSalle Bank N. A. The credit agreement
includes a $6 million line of credit and a $14 million term loan. Through this
new credit facility, the Company refinanced its previous credit facility with
Bank Austria Creditanstalt. In connection with the early extinguishment of the
previous facility, the Company recorded a $312,000 charge related to the
write-off of unamortized financing costs. At December 31, 2002, there was $0
million outstanding under the line of credit and $9.4 million outstanding under
the term loan. At December 31, 2001, there was $0 outstanding under the line of
credit and $4.9 million outstanding under the term loan with LaSalle Bank N.A.
The loan with LaSalle carries an interest rate of 4.75%.

      At December 31, 2002, the Company had approximately $6.0 million of
available funds under the line of credit and $2.6 million available under the
term loan with LaSalle. Of the $14 million initial term facility, $3.0 million
was used for the pay-off to Bank Austria, $3.4 million was used for the warrant
repurchase described below, and $3.1 million expired, leaving $4.5 million
available at December 31, 2001. The $3.1 million portion expired on December 19,
2001, after extension of the original expiration date of October 22, 2001, due
to time and use restrictions as detailed in the original credit agreement. On
March 30, 2002, the Company amended its original agreement with LaSalle Bank
N.A. to restore $1.6 million of the $3.1 million facility that expired on
December 19, 2001. On June 28, 2002, the facility was also amended to increase
the available borrowings under the term loan by $3 million. On June 28, 2002,
the Company then used this additional $3 million to partially fund the
acquisition of M2 Communications, L.L.C.

      The Company, in conjunction with the 1996 financing with Bank Austria
Creditanstalt, issued warrants to purchase 805,288 shares of Class A Common
Stock. Each warrant entitled 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 were 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 was 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 were immediately exercisable. The fair value of these warrants,
approximately $45,000, was recorded as additional debt discount. The fair value
of the warrants was determined using the Black-Scholes option-pricing model with
the following assumptions: Dividend yield of 0%, expected volatility of 95%,
risk-free interest rate of 5.5%, and an expected term of 6.5 years. The discount
was

                                       42
<PAGE>
amortized to interest expense over the term of the facility. On September 26,
2001, the Company repurchased the 818,897 common stock purchase warrants from
Bank Austria for approximately $3.4 million in cash.

      The line of credit and term loan with LaSalle contain restrictive
covenants with respect to the Company, including, among other things,
limitations on the payments of dividends, the incurrence 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.

Aggregate principal maturities of long-term debt at December 31, 2002 are as
follows:

<TABLE>
<CAPTION>
                                                  Total
                                                  -----
            Fiscal Year                       (in thousands)
            -----------                       --------------
<S>                                               <C>
                2003                              $2,690
                2004                               2,690
                2005                               2,690
                2006                                 672
                                                  ------
                                                  $8,742
                                                  ======
</TABLE>

      At December 31, 2002, approximately $568,678, net of accumulated
amortization of $262,299, of loan issuance costs are being amortized over the
term of the debt agreements.

7.    INCOME TAXES

      The components of the provision for income taxes for the three years ended
December 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                        (in thousands)
                                                2002         2001         2000
                                              -------      -------      -------
<S>                                           <C>          <C>          <C>
            Current provision
               Federal                        $ 1,260      $   973      $   861
               State                              339          274          129
                                              -------      -------      -------
                                                1,599        1,247          990
                                              -------      -------      -------
            Deferred provision (benefit)
               Federal                           (302)         374         (345)
               State                              (34)          11          (45)
                                              -------      -------      -------
                                                 (336)         385         (390)
                                              -------      -------      -------
            Total provision (benefit)         $ 1,263      $ 1,632      $   600
                                              =======      =======      =======
</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,
                                                             2002         2001         2000
                                                          -------      -------      -------
<S>                                                       <C>          <C>          <C>
            Income tax provision at statutory rates       $ 1,269      $ 1,653      $   845
            State tax provision, net of federal taxes         157          140           59
            Nondeductible expenses                             12           67           56
            Foreign tax impacts                               (42)        (144)        (260)
            Other, net                                         27           26         (100)
            Foreign tax credit                               (160)        (390)           0
            Deferred tax adjustment                             0          280            0
                                                          -------      -------      -------
            Provision of (benefit) for income taxes
            before extraordinary item                     $ 1,263      $ 1,632      $   600
                                                          =======      =======      =======
</TABLE>


                                       43
<PAGE>
      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.

      Significant components of the Company's deferred tax assets and
liabilities as of December 31, 2002 and 2001 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                             December 31
                                                           2002         2001
                                                        -------      -------
<S>                                                     <C>          <C>
            Deferred assets
               Foreign and state net operating loss
               carryforwards                            $   155      $    25
               Reserves for returns and
               allowances, net                            1,095          982
               Impairment of building and
               Depreciation                                 450          450
               Stock based compensation                      62          205
               Non compete agreement                        215          211
               Other                                          0           18
                                                        -------      -------
                                                          1,977        1,891
                                                        -------      -------
            Deferred tax liabilities
               Prepaid marketing expenses                  (373)        (477)
               Returns                                     (283)        (548)
               Other                                       (264)        (145)
                                                        -------      -------
                                                           (920)      (1,170)
                                                        -------      -------

            Net deferred tax asset                        1,057          721
            Current portion                                (417)         (79)
                                                        -------      -------
            Long term portion                           $   640      $   642
                                                        =======      =======
</TABLE>

8.    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 years
ended December 31, 2002 or 2001 as contributions are at the discretion of the
Board of Directors.

      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
$160,840, $144,000 and $125,000 during the years ended December 31, 2002, 2001
and 2000, respectively. The Board of Directors amended the 401(k) Plan in 1997
to include qualified non-elective contributions to satisfy minimum
contributions.

9.    RELATED PARTY TRANSACTIONS

      One of the Company's exclusive songwriters and artists, who is also an
officer of the Company, received royalties of approximately $378,000, $420,000
and $385,000 for the three years ended December 31, 2002, 2001 and 2000,
respectively. Amounts due to the officer at December 31, 2002 and 2001
approximate $158,898 and $84,500, respectively. Due from this officer at
December 31, 2002 and 2001 was $0 and $26,500, respectively, advanced against
future royalties.

10.   SEGMENT REPORTING

      The Company is a multinational corporation with wholly-owned subsidiaries
in the United States, Australia, the United Kingdom and Singapore. In computing
operating profits, certain corporate expenses, to the extent related to a
segment, are charged to that segment. Marketing and fulfillment

                                       44
<PAGE>
costs are also attributed to the specific segment benefited. Other expenses
(income) are 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, Book Publishing and Other channels.
The Retail channel primarily represents sales to Christian bookstores, special
event sales and sales of choral products through third party distributors, and
sales to the general retail market. The Direct-to-Consumer channel primarily
represents sales from direct mail programs, and also includes Internet 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.

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

<TABLE>
<CAPTION>
                                                             2002          2001          2000
                                                           --------      --------      --------
<S>                                                        <C>           <C>           <C>
      NET SALES
      Direct-to-consumer                                   $ 16,009      $ 29,594      $ 16,012
      Retail                                                 33,291        33,401        25,960
      International                                           9,697         7,942         7,510
      Book publishing                                         4,123             0             0
      Other                                                   8,997         9,045         7,334
      Eliminations                                           (5,772)       (9,024)       (4,997)
                                                           --------      --------      --------
         Consolidated                                      $ 66,345      $ 70,958      $ 51,819
                                                           ========      ========      ========

      OPERATING PROFIT (BEFORE MINORITY INTEREST)
      Direct-to-consumer                                   $  1,789      $  5,811      $  2,990
      Retail                                                  5,299         7,041         4,362
      International                                           1,323         1,613         1,656
      Book publishing                                          (560)         (554)            0
      Other                                                   3,654           148           432
         Consolidated                                        11,505        14,059         9,440

      General corporate expense                               7,499         8,918         6,024
      Interest expense, net                                     273           281           932
                                                           --------      --------      --------

      Income before income taxes and minority interest     $  3,733      $  4,860      $  2,484
                                                           ========      ========      ========

      IDENTIFIABLE ASSETS
      Direct-to-Consumer                                   $  1,586      $  1,619      $  1,712
      Retail                                                      0             0             0
      International                                           4,601         3,541         3,126
      Book publishing                                         5,583           540             0
      Other                                                   1,316         1,490         1,665
      General corporate assets                               27,773        24,177        20,729
                                                           --------      --------      --------
         Total assets                                      $ 40,859      $ 31,367      $ 27,232
                                                           ========      ========      ========
</TABLE>


                                       45
<PAGE>
      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 that 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>
                                         2002          2001          2000
                                       -------       -------       -------
<S>                                    <C>           <C>           <C>
      NET SALES
      United States                    $56,648       $63,016       $44,309
      Europe                             4,447         2,247         2,136
      Australia                          1,088         1,209           737
      Asia                                 806           944         1,179
      Latin America                        935         1,138         1,478
      Other                              2,421         2,404         1,980
                                       -------       -------       -------
                                       $66,345       $70,958       $51,819
                                       =======       =======       =======

      IDENTIFIABLE ASSETS
      United States                    $36,258       $27,826       $24,106
      Europe                             3,308         1,967         1,617
      Australia                            655           692           499
      Asia                                 638           882         1,010
                                       -------       -------       -------
                                       $40,859       $31,367       $27,232
                                       =======       =======       =======
</TABLE>

11.   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, 2002 and 2001.

12.   STOCK COMPENSATION PLANS

      The Company has several stock option plans that provide for the granting
of stock options to officers, employees and non-employee directors.

      The 1999 Long-term Incentive Plan (the "1999 LTIP") 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 1999 LTIP is authorized to issue up to 400,000 shares of Class A
Common Stock in connection with such awards. Under the 1999 LTIP, awards may not
be granted at less than the market value at the date of the grant, and vesting
terms are generally five years. At December 31, 2002, there were 397,722 options
outstanding under the 1999 LTIP. No further options will be granted under the
1999 LTIP.

      On November 2, 2001, Integrity's Board of Directors adopted the Integrity
Incorporated 2001 Long-Term Incentive Plan (the "2001 LTIP"). The 2001 LTIP
became effective as of its approval by the Board of Directors and was approved
at Integrity's Annual Meeting of Stockholders in May 2002. The 2001 LTIP permits
grants of incentive stock options, non-qualified stock options, stock
appreciation rights, performance shares, restricted stock and other stock based
awards. The Company has reserved for issuance upon the grant or exercise of
awards pursuant to this plan 400,000 shares of authorized but unissued shares of
Class A Common Stock. At December 31, 2002, there were 50,000 shares of Class A
restricted stock outstanding under the 2001 LTIP. There are 350,000 shares
available for grants under the 2001 LTIP.


                                       46
<PAGE>
      Prior to the approval of the 1999 LTIP, the Company had the 1994 Stock
Option Plan (the "1994 Plan") for employees and officers. Under the 1994 Plan,
243,244 options were outstanding at December 31, 2002. No further options will
be granted under the 1994 Plan.

      The 1994 Stock Option Plan for Outside Directors (the "1994 Directors'
Plan"), granted 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. At December 31, 2002, there were 5,000 options outstanding under
the 1994 Directors Plan. No further options will be granted under the 1994
Directors' Plan.

      On February 15, 2002, Integrity's Board of Directors adopted the Integrity
Incorporated 2002 Stock Option Plan for Outside Directors (the "2002 Directors'
Plan"). The 2002 Directors' Plan became effective as of its approval at the
Company's Annual Meeting of Stockholders in May 2002. The 2002 Directors' Plan
awards 5,000 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. At December 31, 2002, there were 20,000 options outstanding under the
2002 Directors' Plan and there were 40,000 shares available for grants.

      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, 2002.

      Effective December 28, 1995, the Company's Board of Directors adopted the
1995 Cash Incentive Plan. Awards were granted by the Company's Compensation
Committee and were expressed in a number of units payable only in cash. Vesting
was one-fifth of the units of an award on each anniversary of the date of grant
until vested in full. Participants would have been 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 was 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 were to exceed the fair market value
at the date of grant, compensation expense would be charged to the Company's
statement of operations. As of December 31, 2000, 127,500 awards had been
granted. An accrual of $30,000 was recorded as of December 31, 2000 for the
difference in the fair market value of the stock between the grant date and the
end of the year. Final distributions under this plan were made in 2001. No
further grants will be made under this Plan.

      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 and per share results would have been reduced to the pro forma amounts
indicated below for the years ended December 31, 2002, 2001 and 2000,
respectively.

<TABLE>
<CAPTION>
                                           2002         2001        2000
                                           ----         ----        ----
<S>                     <C>             <C>          <C>         <C>
           Net income   As reported     $2,216,000   $2,811,000  $1,696,000
                        Pro forma       $2,030,000   $2,598,000  $1,495,000

           Basic EPS    As reported     $     0.40         0.50        0.30
                        Pro forma       $     0.36         0.46        0.27

           Diluted EPS  As reported     $     0.37         0.45        0.28
                        Pro forma       $     0.34         0.42        0.25
</TABLE>


                                       47
<PAGE>
      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 2002, 2001 and 2000, 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 weighted-average fair value of options granted is $3.18, $2.02 and $1.88 for
the years ended December 31, 2002, 2001 and 2000, respectively. The
weighted-average remaining contractual life for all options outstanding is 5.39
years.

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

                              EXERCISE PRICE RANGES

<TABLE>
<CAPTION>
                                                                                                     Weighted
                                                                                           Total     average
                                                                                          shares      option
                                                  $0.50        $2.01         $5.01         under      price
                                                to $2.00     to $5.00      to $10.00      option    per share
                                                --------     --------      ---------      ------    ---------
<S>                                             <C>          <C>           <C>           <C>        <C>
   Outstanding at 12/31/99                      185,027       306,000         9,000       500,027      2.84
   Granted                                            0       131,722             0       131,722      2.87
   Exercised                                     (5,000)            0             0        (5,000)     1.75
   Forfeited                                          0             0        (2,000)       (2,000)     6.50
                                                -------      --------      --------      --------
   Outstanding at 12/31/00                      180,027       437,722         7,000       624,749      2.82
   Granted                                            0         4,000             0         4,000      4.35
   Exercised                                    (59,000)       (7,000)       (1,000)      (67,000)     2.02
   Forfeited                                          0        (2,000)            0        (2,000)     2.88
                                                -------      --------      --------      --------
   Outstanding at 12/31/01                      121,027       432,722         6,000       559,749      2.96
   Granted                                            0             0        20,000        20,000      7.00
   Exercised                                    (13,783)            0             0       (13,783)     1.75
   Forfeited                                          0             0             0             0         0
                                                -------      --------      --------      --------
   Outstanding at 12/31/02                      107,244       432,722        26,000       565,966      3.13
                                                =======      ========      ========      ========
   Exercisable at 12/31/02                      107,244       276,890        26,000       410,134      2.77
                                                =======      ========      ========      ========
   Plan shares available for future grants                                                390,000
                                                                                         ========
</TABLE>

      The Company also had 818,897 warrants outstanding at December 31, 2000 at
an exercise price of $1.875. These warrants were issued in 1996 and 1999 with an
estimated fair value at time of issuance of $1,438,000. On September 26, 2001,
the Company repurchased these warrants from Bank Austria for approximately $3.4
million in cash.

      During 2001 and 1999, the Company issued 50,000 and 100,000 shares of
restricted common stock, respectively, to two officers of the Company. These
shares had a fair value of $377,000 and $375,000, respectively, at time of
issuance. The shares vest on the seventh anniversary of the dates of grant.

13.   COMMITMENTS AND CONTINGENCIES

      On June 28, 2002, the Company entered into a commitment with a related
party requiring the payments of $250,000, $750,000, $750,000 and $750,000 in
2006, 2007, 2008 and 2009, respectively. Such payments are contingent upon the
continuing employment of this party.

      The Company is subject to legal proceedings and other claims that 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
are not significant.


                                       48
<PAGE>
14.   QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                        2002
                                                 Three Months Ended
                                       (in thousands, except per share data)
                                   Mar 31        Jun 30       Sep 30       Dec 31
                                   ------        ------       ------       ------
<S>                               <C>          <C>           <C>          <C>
   Net sales                      $ 15,396     $ 11,831      $ 22,582     $ 16,536
   Gross profit                      7,219        6,835        11,371        8,742
   Net income                          345         (118)        1,404          585
   Basic earnings per share       $   0.06     $  (0.02)     $   0.25     $   0.11
   Diluted earnings per share     $   0.06     $  (0.02)     $   0.23     $   0.10
</TABLE>


<TABLE>
<CAPTION>
                                                     2001
                                               Three Months Ended
                                     (in thousands, except per share data)
                                  Mar 31      Jun 30      Sep 30      Dec 31
                                  ------      ------      ------      ------
<S>                               <C>         <C>         <C>         <C>
   Net sales                      $20,894     $16,883     $17,926     $15,255
   Gross profit                     8,274       7,818       8,560       8,217
   Net income                       1,309         505         668         329
   Basic earnings per share       $  0.23     $  0.09     $  0.12     $  0.06
   Diluted earnings per share     $  0.21     $  0.08     $  0.10     $  0.05
</TABLE>


2.    FINANCIAL STATEMENT SCHEDULE

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

                              INTEGRITY MEDIA, INC.

         SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                          (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                    Additions
                                   Charged to
                                   Balance at     costs and                   Balance at
        Description              Beg. Of Period    expenses  Deductions (1)  end of Period
        -----------              --------------    --------  --------------  -------------
<S>                              <C>              <C>        <C>             <C>
2000
   Allowance for returns and
   doubtful accounts                  1,108         4,826        (4,693)         1,241

2001
   Allowance for returns and
   doubtful accounts                  1,241         6,707        (6,160)         1,788

2002
   Allowance for returns and
   doubtful accounts                  1,788         7,233        (6,606)         2,415
</TABLE>


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

      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.




                                       49
<PAGE>
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 to the Registrant's
                Quarterly Report on Form 10-Q for the quarter ended March 31,
                2001)

    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        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) (incorporated by reference from Exhibit 10.13 to the
                Registrant's Annual Report on Form 10-K for the year ended
                December 31, 1999).

    10.4        Amendment to Product Distribution Agreement dated as of January
                1, 2000, by and between Integrity Incorporated and Word, Inc., a
                division of Warner Music Group Inc., amendment effective as of
                January 1, 2002. (The foregoing is the subject of a request for
                confidential treatment) (incorporated by reference from Exhibit
                10.4 to the Registrant's Annual Report on Form 10-K for the year
                ended December 31, 2001).

    10.5        Asset Purchase Agreement by and between Integrity Incorporated
                and Idea Entertainment, Inc. dated as of November 19, 1999.
                (incorporated by reference from Exhibit 10.14 to the
                Registrant's Annual Report on Form 10-K for the year ended
                December 31, 1999).

    10.6        Product Development and Co-Branding Agreement dated January 10,
                2000 by and between Integrity Incorporated and Time Life, Inc.
                (the foregoing is the subject of a request for confidential
                treatment) (incorporated by reference from Exhibit 10.17 to the
                Registrant's Annual Report on Form 10-K for he year ended
                December 31, 2000).
</TABLE>


                                       50
<PAGE>
<TABLE>
<S>             <C>
    10.7        Product Distribution Agreement between Integrity Media, Inc. and
                Sony Music Entertainment, dated March 4, 2002, effective January
                1, 2002. (The foregoing is the subject of a request for
                confidential treatment) (incorporated by reference from Exhibit
                10.13 to the Registrant's Annual Report on Form 10-K for the
                year ended December 31, 2001).

    10.8        Credit Agreement dated April 25, 2001 by and between Integrity
                Incorporated and LaSalle Bank National Association (The
                foregoing is the subject of a request for confidential
                treatment) (incorporated by reference from Exhibit 10.1 to the
                Registrant's Quarterly Report on Form 10-Q for the quarter ended
                March 31, 2001)

    10.9        Intellectual Property Security Agreement dated April 25, 2001 by
                Integrity Incorporated in favor of LaSalle Bank National
                Association (incorporated by reference from Exhibit 10.2 to the
                Registrant's Quarterly Report on Form 10-Q for the quarter ended
                March 31, 2001)

    10.10       Security and Pledge Agreement dated April 25, 2001 by Integrity
                Incorporated in favor of LaSalle Bank National Association
                (incorporated by reference from Exhibit 10.3 to the Registrant's
                Quarterly Report on Form 10-Q for the quarter ended March 31,
                2001)

    10.11       First Amendment to Credit Agreement dated June 15, 2001 by and
                between Integrity Incorporated and LaSalle Bank National
                Association (incorporated by reference from Exhibit 10.6 to the
                Registrant's Amended Quarterly Report on Form 10-Q/A for the
                quarter ended June 30, 2001)

    10.12       Warrant Repurchase Agreement dated September 26, 2001, by and
                between Integrity Incorporated and Bank Austria AG, Grand Cayman
                Branch (incorporated by reference from Exhibit 10.9 to the
                Registrant's Quarterly Report on Form 10-Q for the quarter ended
                September 30, 2001)

    10.13       Lease dated August 24, 2001 by and between Park Center
                Partnership II and Integrity Incorporated (incorporated by
                reference from Exhibit 10.10 to the Registrant's Quarterly
                Report on Form 10-Q for the quarter ended September 30, 2001)

    10.14       Second Amendment to Credit Agreement by and between Integrity
                Incorporated and LaSalle Bank National Association, dated March
                30, 2002 (incorporated by reference from Exhibit 10.3 to the
                Registrant's Quarterly Report on Form 10-Q for the quarter ended
                March 31, 2002).

    10.15       LLC Interest Purchase Agreement by and between Integrity Media,
                Inc. and Jeffory Moseley, Carmen Moseley and the Jeff and Carmen
                Moseley Charitable Remainder Unitrust, for the purchase of M2
                Communications, L.L.C., dated June 28, 2002 (incorporated by
                reference from Exhibit 10.3 to the Registrant's Quarterly Report
                on Form 10-Q for the quarter ended June 30, 2002).

    10.16       Stock Purchase Agreement between Integrity Incorporated and
                Elizabeth Ann Williamson for the purchase of Enlight, Inc.,
                dated April 5, 2002 (incorporated by reference from Exhibit 10.4
                to the Registrant's Quarterly Report on Form 10-Q for the
                quarter ended March 31, 2002).

    10.17       Third Amendment to Credit Agreement by and between Integrity
                Media, Inc., Integrity Publishers, Inc., M2 Communications,
                L.L.C., and LaSalle Bank National Association, dated June 28,
                2002 (incorporated by reference from Exhibit 10.5 to the
                Registrant's Quarterly Report on Form 10-Q for the quarter ended
                June 30, 2002).

    10.18       Security and Pledge Agreement by and between Integrity
                Publishers, Inc., and LaSalle Bank National Association, dated
                March 30, 2002 (incorporated by reference from Exhibit 10.6 to
                the Registrant's Quarterly Report on Form 10-Q for the quarter
                ended June 30, 2002).
</TABLE>




                                       51
<PAGE>
<TABLE>
<S>             <C>
    10.19       First Amendment to Security and Pledge Agreement by and between
                Integrity Publishers, Inc., and LaSalle Bank National
                Association, dated June 28, 2002 (incorporated by reference from
                Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q
                for the quarter ended June 30, 2002).

    10.20       First Amendment and Second Supplement to Security and Pledge
                Agreement by and between Integrity Media, Inc. and LaSalle Bank
                National Association, dated June 28, 2002 (incorporated by
                reference from Exhibit 10.8 to the Registrant's Quarterly Report
                on Form 10-Q for the quarter ended June 30, 2002).

    10.21       Security and Pledge Agreement by M2 Communications, L.L.C., in
                favor of LaSalle Bank National Association, dated June 28, 2002
                (incorporated by reference from Exhibit 10.9 to the Registrant's
                Quarterly Report on Form 10-Q for the quarter ended June 20,
                2002).

    10.22       Fourth Amendment to Credit Agreement, by and between Integrity
                Media, Inc., Integrity Publishers, Inc., M2 Communications,
                L.L.C., Integrity Direct LLC, and LaSalle Bank National
                Association, dated December 31, 2002.

    10.23       Security and Pledge Agreement by Integrity Direct, LLC, in favor
                of LaSalle Bank National Association, dated December 31, 2002.

    10.24       Third Supplement to Security and Pledge Agreement by and between
                Integrity Media, Inc. and LaSalle Bank National Association,
                dated December 31, 2002.

    10.25       Fifth Amendment to Credit Agreement, by and between Integrity
                Media, Inc., Integrity Publishers, Inc., M2 Communications,
                L.L.C., Integrity Direct, LLC and LaSalle Bank National
                Association, dated March 26, 2003.

    10.26       Sixth Amendment to Credit Agreement, by and between Integrity
                Media, Inc., Integrity Publishers, Inc., M2 Communications,
                L.L.C., Integrity Direct, LLC and LaSalle Bank National
                Association, dated March 31, 2003.

                EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

    10.27       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).

    10.28       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).

    10.29       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).

    10.30       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).

    10.31       Integrity Media, Inc. 2002 Stock Option Plan for Outside
                Directors (incorporated by reference from Exhibit 10.18 to the
                Registrant's Annual Report on Form 10-K for the year ended
                December 31, 2001).

    10.32       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).

    10.33       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).

</TABLE>




                                       52
<PAGE>
     <TABLE>
<S>             <C>
    10.34       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).

    10.35       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).

    10.36       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).

    10.37       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).

    10.38       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).

    10.39       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).

    10.40       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).

    10.41       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).

    10.42       Integrity Incorporated 2001 Long-Term Incentive Plan, adopted by
                the Board of Directors of Integrity Media, Inc. on November 2,
                2001 (incorporated by reference from Exhibit 10.11 to the
                Registrant's Quarterly Report on Form 10-Q for the quarter ended
                September 30, 2001)

    10.43       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).

    10.44       Employment Agreement by and among Integrity Incorporated and
                Donald Moen effective as of October 1, 2001 (incorporated by
                reference from Exhibit 10.36 to the Registrant's Annual Report
                on Form 10-K for the year ended December 31, 2000).

    10.45       Employment Agreement dated June 1, 2001 by and between Integrity
                Incorporated and Byron Williamson (incorporated by reference
                from Exhibit 10.4 to the Registrant's Quarterly Report on Form
                10-Q for the quarter ended June 30, 2001)

    10.46       Key Employee Change In Control Agreement dated June 1, 2001 by
                and between Integrity Incorporated and Byron Williamson
                (incorporated by reference from Exhibit 10.5 to the Registrant's
                Quarterly Report on Form 10-Q for the quarter ended June 30,
                2001)

    10.47       Employment Agreement dated October 29, 2001 by and between
                Integrity Incorporated and Danny McGuffey (incorporated by
                reference from Exhibit 10.3 to the Registrant's Quarterly Report
                on Form 10-Q for the quarter ended September 30, 2001)
</TABLE>




                                       53
<PAGE>
<TABLE>
<S>             <C>
    10.48       Key Employee Change in Control Agreement dated October 29, 2001
                by and between Integrity Incorporated and Danny McGuffey
                (incorporated by reference from Exhibit 10.4 to the
                Registrant's Quarterly Report on Form 10-Q for the quarter
                ended September 30, 2001)

    10.49       Employment Agreement by and among Integrity Media, Inc. and
                Jeffory Moseley, dated June 28, 2002 (incorporated by reference
                from Exhibit 10.4 to the Registrant's Quarterly Report on Form
                10-Q for the quarter ended June 30, 2002).

    10.50       Executive Nonqualified "Excess" Plan, by Integrity Media, Inc.
                and Executive Benefit Services, Inc., effective as of December
                1, 2002

    11          Statement of Computation of Per Share Earnings

    21          Subsidiaries of the Registrant

    23          Consent of Independent Accountant

    99.1        Certification of Chief Financial Officer of Integrity Media,
                Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002

    99.2        Certification of Chief Executive Officer of Integrity Media,
                Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

(b)   Reports on Form 8-K

There were no reports on Form 8-K filed for the year ended December 31, 2002.




                                       54
<PAGE>
                                   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 25, 2003.

                                          INTEGRITY MEDIA, INC.



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

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 25, 2003.

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

/s/ Donald S. Ellington
-----------------------
  Donald S. Ellington        Senior Vice President of Finance and Administration
                             (Principal Financial and Accounting Officer)

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

  /s/ William A. Jolly
-----------------------
    William A. Jolly         Director

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

 /s/ Heeth Varnedoe III
-----------------------
   Heeth Varnedoe III        Director

 /s/ Jimmy M. Woodward
-----------------------
   Jimmy M. Woodward         Director
</TABLE>




                                       55
<PAGE>
                                 CERTIFICATIONS

      I, P. Michael Coleman, Chairman, President and Chief Executive Officer
of Integrity Media, Inc., certify that:

      1.  I have reviewed this annual report on Form 10-K of Integrity Media,
Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

      b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

      a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

      6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003

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




                                       56
<PAGE>
                                 CERTIFICATIONS

      I, Donald S. Ellington, Senior Vice President of Finance and
Administration of Integrity Media, Inc., certify that:

      1.  I have reviewed this annual report on Form 10-K of Integrity Media,
Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

      b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

      a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

      6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003

                             /s/ Donald S. Ellington
               ---------------------------------------------------
                               Donald S. Ellington
               Senior Vice President of Finance and Administration




                                       57