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

                                  FORM 10-QSB

(MARK ONE)
[X]               QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                      FOR THE PERIOD ENDED MARCH 31, 1997

[ ]               TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934


           For the transition period from __________ to __________.


 
                       COMMISSION FILE NUMBER 000-21887

                              CD WAREHOUSE, INC.
                              ------------------
            (Exact name of registrant as specified in its charter)

          DELAWARE                                        73-1504999
          --------                                        ----------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

722 NORTH BROADWAY, OKLAHOMA CITY, OKLAHOMA                  73102
-------------------------------------------                 -------
 (Address of principal executive offices)                  (Zip Code)

      Registrant's telephone number, including area code:  (405) 232-2797
 



CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PAST 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
                                      -----      -----


The number of shares outstanding of the Issuer's Common Stock, $.01 par value,
as of May 9, 1997 was 1,820,000.
 
Transitional Small Business Disclosure Format (check one): YES        NO  X
                                                              -----     -----
<PAGE>
 
                                  FORM 10-QSB
 
                               TABLE OF CONTENTS
                    
                                                                        Page
 
PART I.  FINANCIAL INFORMATION
 
     Item 1.  Financial Statements
 
              Condensed Consolidated Balance Sheets - December           3 
              31, 1996 and March 31, 1997 (unaudited)
 
              Condensed Consolidated Statements of Income                4
              - Three months ended March 31, 1996 and
              1997 (unaudited)
 
              Condensed Consolidated Statements of Cash Flows            5
              Three months ended March 31, 1996 and 1997 
              (unaudited)
 
              Notes to Condensed Consolidated Financial Statements       6
              (unaudited)
 
     Item 2.  Management's Discussion and Analysis of Financial          7
              Condition and Results of Operations
 
PART II. OTHER INFORMATION
 
     Item 4.  Submission of Matters to a Vote of Security Holders       11
 
     Item 6.  Exhibits and Reports on Form 8-K                          11 
 
     Signatures                                                         12
 

                                       2
<PAGE>
 
                        PART I.   FINANCIAL INFORMATION

                              CD WAREHOUSE, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS (NOTE 2)
                 (INFORMATION AT MARCH 31, 1997 IS UNAUDITED)
 
                                    ASSETS
 
<TABLE> 
<CAPTION> 
                                                            DECEMBER 31,  MARCH 31,
                                                               1996          1997
                                                            -----------   ---------
<S>                                                         <C>           <C>  
Current assets:                                             
     Cash and cash equivalents                                $ 15,431    $1,286,858
     Accounts receivable, net                                        -       419,598
     Merchandise inventory                                           -     1,038,010
     Prepaid  expenses and other                                     -        81,365
                                                              --------    ----------  
              Total current assets                              15,431     2,825,831
                                                            
Furniture, fixtures and equipment, net                               -       186,416
                                                            
Investment in partnerships                                           -        62,466
                                                            
Intangible and other assets, net                               444,993     3,673,874
                                                              --------    ----------  
                                                              $460,424    $6,748,587
                                                              ========    ========== 
                                                            
                                                            
                                                            
                                                            
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                                                            
Current liabilities:                                        
     Accounts payable                                         $ 93,340    $1,192,556
     Accrued liabilities                                        17,382        37,691
     Advances and deposits                                           -        12,783
     Income taxes payable                                            -        19,110
                                                              --------    ----------  
              Total current liabilities                        110,722     1,262,140
                                                            
Minority interest                                                    -        69,415
                                                            
Stockholders' equity:                                       
     Preferred stock, $.01 par value; 5,000,000 shares      
      authorized, none issued                                        -             -
     Common stock, $.01 par value; 10,000,000 shares        
      authorized, 350,000 and 1,820,000 issued and          
      outstanding at December 31, 1996 and March 31,        
      1997, respectively                                         3,500        18,200
     Additional paid-in-capital                                346,500     5,362,043
     Retained earnings (deficit)                                  (298)       36,789
                                                              --------    ----------  
              Total stockholders' equity                       349,702     5,417,032
                                                              --------    ----------  
                                                              $460,424    $6,748,587
                                                              ========    ==========
</TABLE> 
 
 
                           (See accompanying notes)
 

                                       3
<PAGE>
 
                              CD WAREHOUSE, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
 

<TABLE> 
<CAPTION> 
 
                                                                           Three Months Ended
                                                                 -------------------------------------
                                                                   March 31,                 March 31,
                                                                     1996                      1997
                                                                 (Predecessor)
                                                                 -------------------------------------
<S>                                                              <C>                      <C> 
Revenues:
  Company operations:
     Retail store sales                                          $    53,061              $   188,156
     Wholesale merchandise sales                                     737,616                1,082,460
     Software income, net                                              7,286                    4,826
  Franchise operations:
     Royalty income                                                  277,067                  236,582
     Management fees                                                       -                   26,692
     Franchise and development fees                                   14,000                    6,000
                                                                 -----------              ----------- 
        Total Revenues                                             1,089,030                1,544,716
                                                                    
Operating costs and expenses:
     Cost of sales - retail store sales                               31,474                  115,970
     Cost of sales wholesale merchandise sales                       682,175                1,004,916
     Retail store operating expenses                                  17,515                   83,887
     General and administrative                                      289,943                  269,482
     Depreciation and amortization                                     3,140                   34,900
     Minority interest in partnership income                               -                      698
                                                                 -----------              -----------     
        Total operating costs and expenses                           954,121                1,509,853
                                                                 -----------              -----------     
Operating income                                                     134,909                   34,863
 
Other income:
  Equity in income of unconsolidated partnerships                      9,910                   12,678
  Other income                                                             -                    8,656
                                                                 -----------              -----------  
                                                                       9,910                   21,334
 
                                                                 -----------              ----------- 
Income before income taxes                                           144,819                   56,197
 
Provision for income taxes                                                 -                   19,110
                                                                 -----------              ----------- 
 
Net income                                                       $   144,819              $    37,087   
                                                                 ===========              ===========  

Net income per share of common stock                                       -              $      0.03
                                                                                          ===========  

Weighted average common shares outstanding                                 -                1,378,445
                                                                                          ===========  
 
</TABLE> 

                           (See accompanying notes)
 

                                       4
<PAGE>
 
                              CD WAREHOUSE, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE> 
<CAPTION> 
                                                                 Three Months Ended
                                                        -----------------------------------
                                                          March 31,                March 31,
                                                            1996                     1997
                                                        (Predecessor)
                                                        -----------------------------------
<S>                                                     <C>                     <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                           $  144,818              $    37,087
   Adjustments to reconcile net income to
    net cash from operating activities:
      Depreciation and amortization                          3,141                   34,900
      Changes in operating assets and
       liabilities:
         Accounts receivable, net                           76,724                 (346,859)
         Inventories                                       (87,297)                (599,367)
         Prepaid expenses and other                          2,658                  (81,365)
         Accounts payable                                  (82,757)                 555,987
         Accrued liabilities                                (4,434)                  18,636
         Advances and deposits                             (40,321)                  12,783
         Income taxes payable                                    -                   19,110
                                                        ----------              ----------- 
   Total adjustments                                      (132,286)                (386,175)
                                                        ----------              -----------                
   Net cash provided by (used for)                                                           
    operating activities                                    12,532                 (349,088) 

CASH FLOW FROM INVESTING ACTIVITIES:
   Purchases of furniture, fixtures and                                                      
    equipment                                              (11,066)                (121,362) 
   Increase in investment in unconsolidated                                                  
    partnerships                                            (6,903)                  (3,504) 
   Decrease (increase) in other assets                       1,859                  (21,667)
   Increase in minority interest in                                                         
    consolidated partnerships                                    -                   56,435 
   Purchase of businesses:
         Cost in excess of net assets                                                        
          of companies acquired, net                             -               (3,145,525) 
         Accounts receivable                                     -                  (72,739)
         Inventory                                               -                 (398,346)
         Furniture, fixtures and                                                             
          equipment                                              -                  (50,514) 
         Investment in partnerships                              -                  (21,452) 
         Other assets                                            -                     (931)
         Accounts payable                                        -                  543,229
         Accrued liabilities                                     -                    1,673
         Minority interest                                       -                   12,980
                                                        ----------              -----------        
                                                                 -               (3,131,625)

                                                        ----------              -----------  
   Net cash used for investing activities                  (16,110)              (3,221,723)
                                           
                                        
CASH FLOW FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock, net:
         Initial public offering                                 -                4,492,238
         Collection of stock subscription                        -                  350,000
   Distributions to partners                               (78,784)                       -
                                                        ----------              -----------                              
 
   Net cash provided by (used for)                                                          
    financing activities                                   (78,784)               4,842,238 
                                                        ----------              -----------  
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       (82,362)               1,271,427
 
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD           208,139                   15,431
                                                        ----------              -----------  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD              $  125,777              $ 1,286,858
                                                        ==========              ===========
</TABLE>
 
                           (See accompanying notes)
 

                                       5
<PAGE>
 
                               CD WAREHOUSE, INC
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1.  BASIS OF PRESENTATION
 
   The condensed consolidated financial statements for December 31, 1996 and the
three months ended March 31, 1997 include the accounts of CD Warehouse, Inc.
(the "Company"), its wholly-owned subsidiary, Compact Discs Management, Inc.
("CDM"), and majority owned retail stores.  All material intercompany accounts
and transactions have been eliminated in consolidation.

   The predecessor's condensed consolidated statement of income and statement of
cash flows for the three months ended March 31, 1996 include the combined
historical results of the acquired assets (the "CDIL Assets") of Compact Discs
International, Ltd. ("CDIL") and the equity interests of 36 CD Warehouse stores
held by the largest CDIL franchisee.  Since both of these entities are
partnerships, the results of operations do not reflect officer compensation or
provision for income taxes (see Note 2).

   The accompanying interim condensed consolidated financial statements of the
Company are unaudited; however, in the opinion of management, all adjustments
necessary for a fair presentation of such condensed consolidated financial
statements have been reflected in the interim periods presented.  Such
adjustments consisted only of normal recurring items.  The results of operations
for the three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1997.  The
significant accounting policies and certain financial information which are
normally included in financial statements prepared in accordance with generally
accepted accounting principles, but which are not required for interim reporting
purposes, have been condensed or omitted.  The accompanying condensed
consolidated financial statements of the Company should be read in conjunction
with the consolidated financial statements and related notes included in the
Company's Form 10-KSB/A.

NOTE 2.  INITIAL PUBLIC OFFERING AND BUSINESS ACQUISITIONS

   On January 27, 1997, the Company completed an initial public offering (the
"Initial Public Offering") for 1,000,000 shares of its common stock at a price
of $5 per share.  On March 6, 1997, the underwriters exercised an over-allotment
option and purchased an additional 40,000 shares of common stock at $5 per
share.  The proceeds of the Initial Public Offering, after deducting
underwriting discounts and offering expenses, were approximately $4.5 million.

   Simultaneously with the closing of the Initial Public Offering, the Company
purchased the CDIL Assets for $3.2 million.  Prior to the acquisition, CDIL
franchised and operated stores throughout the United States and England under
the name "CD Warehouse."  In connection with its franchise operations, CDIL also
sold new and preowned compact discs to its franchisees.

   In a related transaction, which also was effected simultaneously with the
closing of the Initial Public Offering, the Company and CDM purchased all of the
franchise interests of the largest CDIL franchisee in exchange for 80,000 shares
of the Company's common stock ("MacDonald Acquisition") valued at the initial
public offering price of $5 per share.

   The acquisitions were recorded under the purchase method of accounting and
resulted in an excess of purchase price over net assets acquired of
approximately $3.6 million which will be amortized on a straight-line basis over
20 years.

                                       6
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


OVERVIEW

     The Company was formed in September 1996 to acquire the franchise
operations of CDIL, a Texas limited partnership which franchised and operated
stores throughout the United States and England under the name "CD Warehouse."
The first CD Warehouse store was opened in 1992.  Under the CD Warehouse name,
as of March 31, 1997, there were 111 domestic units operating in 25 states and 3
international units operating in England.

     Simultaneously with the closing of the Initial Public Offering on January
27, 1997, the Company acquired the CDIL Assets, consisting primarily of CDIL's
rights as franchisor in the various franchise agreements to which it was a
party, for a purchase price of $3.2 million.  In a related transaction (the
"MacDonald Acquisition"), which also occurred simultaneously with the closing of
the Initial Public Offering, the Company acquired the equity interests of Bruce
D. MacDonald (together with his affiliates, "MacDonald"), the largest CDIL
franchisee, in 36 franchised CD Warehouse stores.  Pursuant to the MacDonald
Acquisition, the Company acquired 100% ownership of MacDonald's Montfort Street
Store and minority equity interests (including MacDonald's interest as a
managing general partner or limited liability company manager) in the other 35
franchised stores in which MacDonald had an interest.

     The following discussion and analysis reviews the operating results, as
adjusted below, of CDIL and the MacDonald Acquisition (predecessor) for the
three months ended March 31, 1996, and the operating results of the Company for
the three months ended March 31, 1997, which includes activity relating to the
operations of the CDIL Assets and the MacDonald Acquisition for the period from
January 27, 1997 to March 31, 1997.  Certain statements contained in this
discussion are not based on historical facts, but are forward-looking statements
that are based upon numerous assumptions about future conditions which may
ultimately prove to be inaccurate and actual events and results may materially
differ from anticipated results described in such statements.

COMBINED STATEMENTS OF OPERATIONS

     The following table (unaudited) sets forth the Company's results of
operations for the three months ended March 31, 1997 and the combined historical
results of operations for the three months ended March 31, 1996 of the CDIL
Assets and the MacDonald Acquisition purchased by the Company on January 27,
1997.  The historical information has been adjusted to eliminate operations
retained by CDIL and to provide charges for executive compensation, amortization
of goodwill relating to the above acquisitions and income taxes as explained
below.  The information should be read in conjunction with the historical
Financial Statements included elsewhere in this document.

                                       7
<PAGE>
 
COMBINED STATEMENTS OF OPERATIONS
 (CONT.)
 
<TABLE> 
<CAPTION> 
                                             THREE MONTHS ENDED MARCH 31,
                                           --------------------------------
                                                1996               1997
                                            (predecessor)            
                                           (pro forma)(1)
                                           --------------      ------------
 
<S>                                       <C>                    <C>
Revenues:
 
     Retail store sales.................    $   53,061           $  188,156
     Wholesale merchandise sales........       737,616            1,082,460
     Software income, net...............         7,286                4,826
     Royalty income.....................       277,067              236,582
     Management fees....................             -               26,692
     Franchise and development fees.....        14,000                6,000
                                            ----------           ----------
 
         Total revenues.................     1,089.030            1,544,716
 
 
Operating costs and expenses:
 
     Cost of sales retail store sales...        31,474              115,970
     Cost of sales wholesale                   
      merchandise sales.................       682,175            1,004,916 
     Retail store operating expenses....        17,515               83,887
     General and administrative.........       289,943 (2)          269,482
     Depreciation and amortization......        48,983 (2)           34,900
     Minority interest in partnership                -                  698
      income............................    ----------           ----------
 
          Total operating costs and         
           expenses.....................     1,070,090            1,509,853
                                            ----------           ---------- 

 Operating income                               18,940               34,863
 
 Other income, net......................         9,910               21,334
                                            ----------           ----------
 
 Income before provision for  income            
  taxes.................................        28,850               56,197 
 
 Provision for income taxes.............         9,809 (2)           19,110
                                            ----------           ----------
 
 Net income.............................    $   19,041 (2)       $   37,087
                                            ==========           ==========
 
 Net income per share of common stock...    $      .01 (3)       $      .03
                                            ==========           ==========
 
 Weighted average common shares             
  outstanding...........................     1,378,445 (3)        1,378,445
                                            ==========           ========== 
</TABLE> 

----------------------
Pro forma adjustments to March 31, 1996, historical amounts:

(1)  Operations retained by CDIL have been eliminated from the combined
information presented above.

(2)  The operations acquired were organized as partnerships and did not
historically include charges for executive compensation or income taxes. The
information presented above includes charges for executive compensation based on
executive compensation paid for the three months ended March 31, 1997. The
amount which is included in general and administrative expenses above is $70,125
for the three months ended March 31, 1996.

     The information presented above has been prepared assuming the Initial
Public Offering and resulting acquisition of the CDIL Assets and MacDonald
Assets were completed on January 1, 1996, resulting in additional amortization
of goodwill of $45,843 for the three months ended March 31, 1996.

     The provisions for income taxes are based on a rate of 34% applied to
income before provision for income taxes in each of the periods presented.

(3)  Net income per share of common stock for the three months ended March 31,
1996 (pro forma) assumes the same weighted average common shares outstanding as
the three months ended March 31, 1997.

                                       8
<PAGE>
 
RESULTS OF OPERATION

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996.

  Revenues

  Retail store sales increased $135,000, or 255%, to $188,000 for the three
months ended March 31, 1997, compared to $53,000 for the three months ended
March 31, 1996.  As noted above, the results for the three months ended March
31, 1997 only includes activity from January 27, 1997 to March 31, 1997.  Actual
comparable retail store sales for the period January 27, 1996 to March 31, 1996
were approximately $38,000.  The increase in retail store sales is the result of
having six Company and two majority owned stores in operation by March 31, 1997,
compared to only one such store at March 31, 1996.

  Wholesale merchandise sales increased $344,000, or 47%, to $1,082,000 for the
three months ended March 31, 1997, compared to $738,000 for the same period in
1996.  Comparable wholesale merchandise sales for the period January 27, 1996 to
March 31, 1996 were approximately $525,000.  The increase is due to the increase
in operating stores from 103 at March 31, 1996 to 114 at March 31, 1997.  The
wholesale merchandise sales for the three months ended March 31, 1997 also
includes approximately $200,000 of new "catalog" product which was introduced in
March 1997.

  Royalty income decreased $40,000, or 14%, to $237,000 for the three months
ended March 31, 1997, compared to $277,000 for the same period in 1996.
However, comparable royalty income for the period January 27, 1996 to March 31,
1996 was $197,000, resulting in an increase of $40,000, or 20%.  Again, the
increase is due to the greater number of operating stores in existence at March
31, 1997 (114), compared to the number in existence at March 31, 1996 (103).  In
addition, same store sales for the three months ended March 31, 1997 increased
8% as monthly average store sales increased from $20,600 for the three months
ended March 31, 1996 to $22,875 for the same period in 1997.

  Management fees relate to the Company's management of 35 franchised
partnership stores in which the Company acquired an interest as a result of the
MacDonald Acquisition discussed above.  No management fees were recognized in
the three months ended March 31, 1996.

  Costs and Expenses

  Cost of sales for retail store sales increased $85,000 for the three months
ended March 31, 1997, compared to the same period in 1996.  This increase is
consistent with the increase of retail store revenue discussed above.  Cost of
sales was 62% of sales for the three months ended March 31, 1997, compared to
59% for the three months ended March 31, 1996.  The increase in cost can be
attributed to the increase of the number of new CD's sold which have lower
profit margin than preowned CD's and by purchasing higher quality used product
for a higher price.

  Cost of sales for wholesale merchandise increased $323,000, or 47%, to
$1,005,000 for the three months ended March 31, 1997, compared to $682,000 in
1996.  This increase is consistent with the increase in sales.  Cost of sales
was approximately 93% of sales for both periods.

  Retail store operating expense increased $66,000 to $84,000 for the three
months ended March 31, 1997, compared to the comparable period in 1996.  The
increase was due to the increased number of company and majority owned stores
discussed above.  Retail store operating expense was 45% of retail store revenue
for the three months ended March 31, 1997, while such operating expense was 34%
of retail store revenue for the three months ended March 31, 1996.  This
increase was due primarily to expensed start up costs of the five new company
stores opened during the three months ended March 31, 1997.

  General and administrative expenses decreased by $21,000, or 7%, to $269,000
(on a pro forma basis) for the three months ended March 31, 1997, compared to
$290,000 for the three months ended March 31, 1996.  However, such expenses
actually increased by $63,000, when compared to general and administrative
expenses of $206,000

                                       9
<PAGE>
 
for the comparable period from January 27, 1996 to March 31, 1996.  This
increase resulted from increased costs associated with the transition of
operations and management after the acquisitions and the Initial Public Offering
discussed above.

  Net Income

  Net income increased $18,000, or 95%, to $37,000 for the three months ended
March 31, 1997, compared to $19,000 (on a pro forma basis) for the same period
ended March 31,1996.  As noted above, however, the results for the three months
ended March 31, 1997 only includes activity from January 27, 1997 to March 31,
1997.  Net income for the comparable period January 27, 1996 to March 31, 1996
was $14,000, resulting in an increase in net income of $24,000, or 174%, for the
three months ended March 31, 1997, compared to the same period in 1996 (on a pro
forma basis).  The increase in net income is due to the increase in the number
of operating stores discussed above and the increase of other income of $12,000
which consists of interest income earned on the proceeds of the Initial Public
Offering during the three months ended March 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

  At March 31, 1997, the Company had working capital of $1,564,000 and cash and
cash equivalents aggregating $1,287,000, compared to a negative working capital
of $95,000 and cash and cash equivalents of $15,000 at December 31, 1996.  Net
cash used for operating activities was $349,000 for the three months ended March
31, 1997, compared to net cash provided by operating activities of $13,000 for
the three months ended March 31, 1996.  The increased use of cash by operating
activities relates to the opening of five new Company stores and to increasing
inventory.

  Net cash used for investing activities was $3,222,000 for the three months
ended March 31, 1997, compared to $16,000 for the same period in 1996.  The
significant use of cash for investing activities in 1997 relates to the
acquisition of the CDIL Assets on January 27, 1997.

  Net cash provided from financing activities was $4,842,000 for the three
months ended March 31, 1997 compared to net cash used for financing activities
of $79,000 for the three months ended March 31, 1996. The net cash provided from
financing in 1997 relates to the initial public offering and the collection of a
stock subscription in the amount of $350,000. The net cash used in financing
activities for the three months ended March 31, 1996 were distributions to
partners of CDIL.

  In addition to the working capital remaining from the proceeds of the Initial
Public Offering, the Company believes that it will have available to it a
$2,000,000 credit facility (the "Credit Facility").  Bank One, Oklahoma City,
Oklahoma ("Bank One"), has agreed to provide the Credit Facility pursuant to a
commitment letter and term sheet.  Although a definitive agreement respecting
the Credit Facility had not yet been executed as of the date of this report,
amounts borrowed under the Credit Facility are expected to bear an interest rate
equal to .75% over Bank One's base rate, adjusted automatically based upon
current prime rate.  As of the date of this report, no funds had been borrowed
under this Credit Facility.   It is the Company's opinion that the remaining
proceeds generated from the Initial Public Offering, combined with the Credit
Facility, will be sufficient to support the ongoing activities of the business
for the foreseeable future.

                                       10
<PAGE>
 
                          PART II - OTHER INFORMATION


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

   Matters submitted to a vote of security holders during the three months ended
March 31, 1997 included (1) approval of Ernst & Young as auditors for the
Company's 1997 fiscal year; and (2) the election of Jerry W. Grizzle and Gary D.
Johnson as Class I Directors of the Company, who hold office until the annual
meeting in 2000.  Both matters were approved by unanimous written consent of the
Company's stockholders dated January 9, 1997.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits
 
         Exhibit
         Number            Exhibit
         ----------------------------------------------------------------------
 
           27.1*      Financial Data Schedule.

         ---------------------------------------------------------------------- 
         *Filed herewith

           (b) Reports on Form 8-K
 
 
   The Company filed a Form 8-K reporting that, on March 3, 1997, it entered
into an agreement with Berthel, Fisher & Company Leasing, Inc. to provide up to
$1 million in equipment financing to prospective franchisees of CD Warehouse
stores.  The agreement with Berthel, Fisher & Company Leasing, Inc. provides
that the Cedar Rapids, Iowa-based leasing company will finance up to $40,000 per
store of equipment costs, for an aggregate financing commitment of $1 million.

                                       11
<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.


                                  CD WAREHOUSE, INC.,
                                  a Delaware corporation


 
Date: May 12, 1997                /s/ Jerry W. Grizzle
                                  --------------------------------------------
                                  Jerry W. Grizzle
                                  Chairman of the Board of Directors;
                                  President and Chief Executive Officer

Date: May 12, 1997                /s/ Doyle E. Motley         
                                  --------------------------------------------
                                  Doyle E. Motley
                                  Senior Vice-President and Chief Financial
                                  Officer
 

                                       12