HOLLYWOOD PRODUCTIONS INC, 10QSB, 1998-08-14

HOLLYWOOD PRODUCTIONS INC
10QSB, 1998-08-14
APPAREL, PIECE GOODS & NOTIONS

Previous: KABELMEDIA HOLDING GMBH, 10-Q, 1998-08-14

Next: SOLOPOINT INC, 10QSB, 1998-08-14

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998
----------------------------------------------------

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

For the transition period from to

Commission File Number: 0-28690

Hollywood Productions, Inc.
(Exact name of registrant as specified in its charter)

Delaware 11-3871821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

14 East 60th Street, Ste 402, New York, NY 10022 (Address of principal
executive offices) (Zip Code)

(212) 688-9223
(Registrant's telephone number, including area code)

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

Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act 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 [
] APPLICABLE ONLY TO CORPORATE ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO
CORPORATE ISSUERS

Common stock, par value $.001 per share: 2,686,944 shares outstanding as of
June 30, 1998.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
number
<S> <C> <C> <C>
Consolidated balance sheets at June 30, 1998 (unaudited)
and December 31, 1997 3

Consolidated statements of operations (unaudited) for the
three months ended June 30, 1998 and 1997. 4

Consolidated statements of operations (unaudited) for the
six months ended June 30, 1998 and 1997. 5

Consolidated statement of stockholders' equity (unaudited)
for the six months ended June 30, 1998 6

Consolidated statements of cash flows (unaudited)
for the six months ended June 30, 1998 and 1997 7

Notes to consolidated financial statements 8 - 12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13-15

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS 16

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16

ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16

ITEM 5. OTHER INFORMATION 16

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16

SIGNATURES 17

</TABLE>

<PAGE>
HOLLYWOOD PRODUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS

(Unaudited)
June 30, December 31,
1998 1997
Current assets:
<S> <C> <C>
Cash ....................................................................... $ 437,573 $ 352,981
Cash - restricted .......................................................... 1,500,000 1,500,000
Accounts receivable ........................................................ 6,096 23,317
Due from factor ............................................................ 267,497 --
Prepaid expenses ........................................................... 78,971 41,608
Inventory .................................................................. 357,789 2,383,192
Advances to officer and affiliate .......................................... 55,250 67,445
Loan receivable - other .................................................... 150,000 --
----------- -----------
Total current assets .................................................. 2,853,176 4,368,543
----------- -----------

Deferred compensation, net ..................................................... 10,416 54,166
Advances to officer - non-current portion ...................................... 9,250 32,083
Film production and distribution costs, net .................................... 1,996,150 1,745,970
Organizational costs, net ...................................................... 62,500 75,000
Excess of cost over net assets acquired, net ................................... 940,117 975,593
Deferred offering costs ........................................................ -- 67,385
Other assets ................................................................... 42,475 41,553
----------- -----------

Total assets ................................................................... $ 5,914,084 $ 7,360,293
=========== ===========

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
Accounts payable ........................................................... $ 43,192 $ 133,918
Accrued expenses ........................................................... 38,559 203,461
Due to factor .............................................................. -- 1,750,894
Deferred taxes payable ..................................................... 16,361 17,161
----------- -----------
Total current liabilities ............................................. 98,112 2,105,434
----------- -----------

Redeemable preferred stock of subsidiary:
Series A redeemable preferred stock, 5,600 shares
authorized, 0 and 280,000 shares issued and outstanding,
full liquidation value $280,000 ........................................... -- 280,000

Commitments and contingencies .................................................. -- --

Stockholders' equity:
Common stock - $.001 par value, 20,000,000 shares authorized,
2,686,944 and 2,045,278 shares issued and outstanding, respectively ....... 2,687 2,045
Additional paid-in capital ................................................. 6,310,103 5,618,263
Accumulated deficit ........................................................ (496,818) (645,449)
----------- -----------
Total stockholders' equity ............................................ 5,815,972 4,974,859
----------- -----------

Total liabilities and stockholders' equity ..................................... $ 5,914,084 $ 7,360,293
=========== ===========

</TABLE>

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,

1998 1997
------------- -------------

<S> <C> <C>
Net sales .................................................. $ 1,159,378 $ 931,204

Cost of sales .............................................. 973,336 691,808
----------- -----------

Gross profit ............................................... 186,042 239,396
----------- -----------

Expenses:
Selling, general and administrative expenses ........... 569,670 539,504
Amortization of excess of costs over net assets acquired 17,738 17,738
----------- -----------

Total expenses ............................................. 587,408 557,242
----------- -----------

Loss before interest expense
and provision for income taxes ............................ (401,366) (317,846)
----------- -----------

Other income (expense):
Interest and finance expense ........................... (66,136) (41,126)

Interest income 25,745 20,384
----------- -----------
Total other income (expense) ...................... (40,391) (20,742)
----------- -----------

Loss before provision for
income taxes .............................................. (441,757) (338,588)

Provision for income tax expense (benefit) ................. (23,400) (30,050)
----------- -----------

Net loss ................................................... $ (418,357) $ (308,538)
=========== ===========

Basic:
Net loss ............................................... $ (.17) $ (.15)
=========== ===========

Weighted average number of
common shares outstanding ................................. 2,511,944 2,030,833
=========== ===========

</TABLE>

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>

1998 1997
------------------- -------------

<S> <C> <C>
Net sales ................................................... $ 4,092,491 $ 3,372,285

Cost of sales ............................................... 2,646,249 2,157,607
----------- -----------

Gross profit ................................................ 1,446,242 1,214,678
----------- -----------

Expenses:
Selling, general and administrative expenses ............ 1,161,164 1,210,447
Amortization of excess of costs over net assets acquired 35,476 35,476
----------- -----------

Total expenses .............................................. 1,196,640 1,245,923
----------- -----------

Income (loss) before interest expense
and provision for income taxes ............................. 249,602 (31,245)
----------- -----------

Other income (expense):
Cancellation of stock previously expensed as compensation 62,500 --
Interest and finance expense ............................ (190,884) (164,125)
Interest income 46,613 53,988
----------- -----------
Total other income (expense) ....................... (81,771) (110,137)
----------- -----------

Income (loss) before provision for
income taxes ............................................... 167,831 (141,382)

Provision for income tax expense ............................ 19,200 39,777
----------- -----------

Net income (loss) ........................................... $ 148,631 $ (181,159)
=========== ===========

Basic:
Net income (loss) ....................................... $ .06 $ (.09)
=========== ===========

Weighted average number of
common shares outstanding .................................. 2,349,444 2,030,833
=========== ===========

</TABLE>

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>

1998 1997
------------------ -----------

Cash flows from operating activities:
<S> <C> <C>
Net income ................................................................. $ 148,631 $ (181,159)
Adjustments to reconcile net income (loss) to
net cash used for operating activities
Amortization and depreciation .............................................. 239,234 131,684
Deferred taxes ............................................................. (800) --
Forgiveness of note receivable in lieu of compensation ..................... -- 30,130
Cancellation of stock issued for compensation .............................. (62,500) --
Decrease (increase) in:
Accounts receivable ................................................... 17,221 (1,094)
Prepaid expenses ...................................................... (35,861) 10,527
Inventory ............................................................. 2,025,403 1,694,886
Film production costs ................................................. (372,306) (131,019)
Security deposits ..................................................... -- 4,300
Increase (decrease) in:
Accounts payable ...................................................... (90,726) (31,463)
Accrued expenses ...................................................... (164,902) (64,027)
Due to factor ......................................................... (2,018,391) (1,646,600)
Income tax payable .................................................... -- 25,445
----------- -----------
Net cash used for operating activities ................................ (314,997) (158,390)
----------- -----------

Cash flows from investing activities:
Acquisition of furniture and fixtures ...................................... (4,973) (13,483)
Loans receivable - other ................................................... (250,000) --
Payments received on loans ................................................. 100,000 --
Subsidiary's redemption of preferred stock ................................. (280,000) (280,000)
----------- -----------
Net cash used for investing activities ................................ (434,973) (293,483)
----------- -----------

Cash flows from financing activities:
Repayments by (advances to) related parties ................................ 12,195 (33,450)
Proceeds from advances to related parties .................................. -- 4,167
Proceeds from issuance of common share and warrants ........................ 754,982 --
Deferred offering costs .................................................... 67,385 (47,743)
----------- -----------
Net cash provided by (used for) financing activities .................. 834,562 (77,026)
----------- -----------

Net increase (decrease) in cash ................................................ 84,592 (528,899)

Cash, beginning of period ...................................................... 352,981 1,217,629
----------- -----------

Cash, end of period ............................................................ $ 437,573 $ 688,730
=========== ===========

Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
Interest .............................................................. $ 143,256 $ 122,014
=========== ===========
Income taxes .......................................................... $ 25,509 $ 9,154
=========== ===========

Schedule of non-cash operating activities:
In connection with the Senior Management Incentive Plan 8,334 shares
originally issued as consideration for services
rendered to Company was cancelled ......................................... $ (62,500) $ --
=========== ===========

</TABLE>
See notes to consolidated financial statements

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

NOTE 1 - ORGANIZATION

Hollywood Productions, Inc. (the "Company") was incorporated in the State
of Delaware on December 1, 1995. The accompanying financial statements include
the accounts of the Company, and its wholly-owned subsidiary Breaking Waves,
Inc. ("Breaking Waves") after elimination of all significant intercompany
transactions and accounts. The year end of the Company and its subsidiary is
December 31.

The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management the interim financial statements include all adjustments necessary in
order to make the financial statements not misleading. The results of operations
for the three and six months ended is not necessarily indicative of the results
to be expected for the full year. For further information, refer to the
Company's audited financial statements and footnotes thereto at December 31,
1997, included in the Company's Annual Report form 10-KSB, filed with the
Securities and Exchange Commission.

Certain reclassifications have been made to the June 30, 1997 financial
statements in order to conform to the June 30, 1998 presentation.

NOTE 2 - ADVANCES TO RELATED PARTIES

During October 1996, pursuant to two promissory notes, the Company loaned
two of its then officers a total of $87,000 bearing interest at six and one-half
percent (62%) payable over three years. During January 1997, the balance of one
of the notes amounting to $30,130 was written off as part of a severance package
for one of its previous officers. As of June 30, 1998, the remaining note
amounted to $42,000 of which, $32,750 has been classified as current with the
remaining balance of $9,250 classified as non-current.

As of June 30, 1998, the Company's President had been advanced funds
totaling $3,000 which are non interest bearing and due on demand.

The remaining balance, amounting to $19,500 represents advances to an
affiliate of the majority stockholder of the Company which are non-interest
bearing and are due on demand.

On March 1, 1998, Breaking Waves loaned funds to an affiliate in return for
an unsecured promissory note in the amount of $250,000. Such note calls for
monthly payments beginning March 31, 1998 of $25,000 principal plus interest at
15% per annum. The balance of the note at June 30, 1998 amounted to $150,000.
Interest has been paid through June 30, 1998.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

NOTE 3 - DUE TO FACTOR

On August 20, 1997, Breaking Waves entered into a factoring and revolving
inventory loan and security agreement with Heller Financial, Inc. ("Heller") to
sell their interest in all present and future receivables without recourse.
Breaking Waves submits all sales offers to Heller for credit approval prior to
shipment, and pays Heller 1% of the net amount of the receivable. Heller retains
from amount payable to Breaking Waves a reserve for possible obligations such as
customer disputes and possible credit losses on unapproved receivable. Breaking
Waves may take advances of up to 85% of the purchase price on the receivable,
with interest charges at the rate of 1:% over prime. Interest charged to expense
totaled approximately $143,254 for the six months ended June 30, 1998. Heller
has a continuing interest in Breaking Waves' inventory as collateral for the
advances. As of June 30, 1998, the net advances owed to Breaking Waves from the
factor amounted to $267,497.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

a) Lease commitments

The Company and its subsidiary have entered into lease agreements for
administrative offices. The Company leases its administrative office pursuant to
a 5 year lease expiring November 30, 2001 at annual rent amounting to $69,657.
Breaking Waves leased administrative offices through approximately February 1998
pursuant to a lease requiring annual payments of approximately $64,000. During
October 1997, Breaking Waves cancelled such lease and simultaneously entered
into a new one with the same landlord requiring annual payments of $71,600
expiring December 2004.

The Company and its subsidiary approximate future minimum rentals under
non-cancelable operating leases in effect on June 30, 1998 are as follows:
<TABLE>
<CAPTION>

Year ended
December 31,
<S> <C> <C>
1998 $ 123,357
1999 141,257
2000 141,257
2001 135,452
2002 71,600
Thereafter 143,200
--------------
$ 756,123
</TABLE>

Rent expense charged to operations for the three months ended June 30, 1998
and 1997 amounted to approximately $29,805 and $43,000, respectively. Rent
expense charged to operations for the six months ended June 30, 1998 and 1997
amounted to approximately $52,070 and $79,171, respectively.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

NOTE 4 - COMMITMENTS AND CONTINGENCIES (Cont'd)

b) Significant vendors and customers

Breaking Waves purchases the majority of it's inventory from two vendors in
Indonesia and Korea. For the three months ended June 30, 1998 Breaking Waves had
four customers which comprised 28%, 17%, 11% and 11% of net sales. For the six
months ended June 30, 1998 Breaking Waves had three customers which comprised
14%, 14% and 11%, of net sales.

c) Seasonality

Breaking Waves' business may be considered seasonal with a large portion of
its revenues and profits being derived between December and June for shipments
being made between November and May. Each year from May to September, Breaking
Waves engages in the process of designing and manufacturing the following
seasons swimwear lines, during which time it incurs the majority of its
expenses, with limited revenues.

d) License agreements

i) On October 16, 1995, Breaking Waves entered into a license agreement
with Beach Patrol, Inc. ("Beach") for the exclusive use of certain trademarks in
the United States. The agreement expired June 30, 1998 and options to extend to
June 30, 2001 were exercised. The agreement calls for minimum annual royalties
of $75,000 to $200,000 over the life of the agreement with options. The Company
recorded royalties and advertising under this agreement totaling $30,000 and
$35,500 during the three months ended June 30, 1998 and 1997, respectively. The
Company recorded royalties and advertising under this agreement totaling $60,000
and $51,000 during the six months ended June 30, 1998 and 1997, respectively.

ii) On October 31, 1996, Breaking Waves entered into a license agreement
with North-South Books, Inc. ("N-S") for the exclusive use of certain art work
and text in the making of swimsuits and accessories in the United States and
Canada. The agreement expires March 1, 1999. The Company recorded $1,170 and $0
royalties under this agreement during the three months ended June 30, 1998 and
1997, respectively. The Company recorded $3,833 and $0 royalties under this
agreement during the six months ended June 30, 1998 and 1997, respectively.

iii) On October 17, 1997, Breaking Waves entered into a license agreement
with Kawasaki Motors Corp. ("KMC") for the exclusive use of certain trademarks
in the making of swimwear in the United States. The agreement expires May 31,
1999. No royalties were paid under the agreement during the three or six months
ended June 30, 1998.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

NOTE 4 - COMMITMENTS AND CONTINGENCIES (Cont=d)

e) Co-production and property purchase agreements

i) Pursuant to co-production and property purchase agreements dated March
15, 1996, as amended, the Company acquired the rights to co-produce a motion
picture and to financed the costs of production and distribution of such motion
picture with the co-producer agreeing to finance $100,000 of the costs of
production. The Company retains all rights to the motion picture, the
screenplay, and all ancillary rights attached thereto. As of June 30, 1998, the
motion picture was completed and, accordingly, the Company has commenced the
marketing and distribution process, and the license of the motion picture to
certain foreign countries.

As of June 30, 1998, the Company invested $1,874,202 for the co-production
and distribution of such motion picture whereas the co-producers have invested
$100,000. For the three months ended June 30, 1998, revenue and related costs
associated with the motion picture amounted to $0 and $0, respectively.

ii) Pursuant to a co-production agreement dated April 17, 1998, the Company
formed a limited liability company as a joint venture to co-produce a motion
picture and to finance the costs of production and distribution of such motion
picture. The joint venture retains all rights to the motion picture, the
screenplay, and all ancillary rights attached thereto. As of June 30, 1998, the
motion picture had completed filming and was in post production.

As of June 30, 1998, the Company invested $200,000 for the co-production
and distribution of such motion picture.

f) Employment agreements

On November 27, 1996, the Company entered into two employment agreements
with two employees of Breaking Waves. Such employees are responsible for the
designing, marketing and sales of Breaking Waves. The employment agreements are
for a term of three years with an annual salary of $110,000 each. In addition to
the salary, the Company agreed to issue on each of November 27, 1996, 1997 and
1998, common stock in the amount equal to the market value of $25,000 on the
date of each issuance, subject to a vesting schedule.

g) Letter of Intent

On June 17, 1997, Breaking Waves entered into a letter of intent with an
underwriter to proceed on a firm commitment basis with an Initial Public
Offering ("IPO") with estimated proceeds of $4,000,000. As of June 30, 1998,
Breaking Waves is currently not pursuing the IPO and has expensed $71,385 of
costs associated with the IPO.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

NOTE 5 - STOCKHOLDER'S EQUITY

a) Breaking Waves, Inc.

During January 1998, 2,800 shares of the Series A Preferred Stock of
Breaking Waves was redeemed for a total of $280,000.

b) Reverse stock split

Effective February 5, 1998, the Company effected a 1 for 3 reverse stock
split.

c) Private placement

During February 1998 and May 1998, pursuant to a private transaction, the
Company sold 300,000 and 350,000 shares of its common stock for a total of
$194,982 and $560,000.

d) Cancellation of shares

During the first quarter of 1998, 8,334 shares of common stock, previously
issued to a former officer of the Company and recorded as compensation expense
of $62,500 during 1996 and 1997, were cancelled by the Company.

NOTE 6 - RELATED PARTIES TRANSACTIONS

a) For the three and six months ended June 30, 1998, $14,000 and $29,500 of
financial consulting fees were paid to a corporation owned by a relative of the
Company's President.

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

RESULTS OF OPERATIONS

For the three months ended June 30, 1998 as compared to the three months
ended June 30, 1997

For the three months ended June 30, 1998 and 1997, the Company's
subsidiary, Breaking Waves, generated sales amounting to $1,159,378 and
$931,204, respectively, with cost of sales amounting to $973,336 and $691,808,
respectively, and net income (loss) before taxes amounting to approximately
$261,520 and ($139,100), respectively. Of the total selling, general, and
administrative expenses for the three months ended June 30, 1998 and 1997,
amounting to $569,676 and $539,504, respectively, $389,398 and $337,161,
respectively, were incurred by Breaking Waves with the remainder amounting to
$180,272 and $202,343, respectively, incurred by the Company.

For the three months ended June 30, 1998, the Company realized $0 from
sales of its motion picture, Dirty Laundry. In connection with such revenue, the
Company recorded costs of $0.

The major components of the total selling, general and administrative
expenses of the Company for the three months ended June 30, 1998 are composed of
the following: $14,000 of consulting; $12,500 of consulting paid in the form of
stock; $21,875 of compensation paid to officers of the Company in the form of
stock, and amortization of organization costs of $6,250. The remainder of
expenses, amounting to $521,045 is composed of officer salaries of $91,502;
other salaries of $65,357 related payroll taxes and benefits of $21,503; rent of
$40,245; stock related costs of $69,028; commissions of $27,564; warehousing of
$43,648; legal and professional fees $46,448; miscellaneous office expenses of
$54,364; and selling expenses of $55,386.

The major components of the total selling, general and administrative
expenses of the Company for the three months ended June 30, 1997 are composed of
the following: $22,100 of consulting expenses; $31,459 of consulting and
compensation expenses paid to officers of the Company paid in the form of common
stock; and amortization of organization costs of $6,250. The remainder of
expenses, amounting to approximately $479,695; composed of rent amounting to
$43,103; officer's salaries of $94,016; other salaries of $72,762; related
payroll taxes and benefits of $26,991; legal and professional fees of $58,066;
commissions of $90,277; warehousing of $73,578; miscellaneous office expenses of
$106,802; and miscellaneous selling expenses of $87,829.

For the three months ended June 30, 1998 and 1997, the Company reported a
consolidated net income (loss) amounting to $(418,357) and $(308,538),
respectively, after estimated provisions for income tax expense (benefit)
amounting to approximately $(23,400) and ($30,050), respectively.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (Cont'd)

For the six months ended June 30, 1998 as compared to the six months ended
June 30, 1997

For the six months ended June 30, 1998 and 1997 the Company's subsidiary,
Breaking Waves, generated sales amounting to $3,972,491 and $3,372,285,
respectively, with the cost of sales amounting to $2,524,123 and $2,157,607,
respectively. Breaking Waves generated net income before taxes amounting to
approximately $452,318 and $303,326, respectively. Of the total selling, general
and administrative expenses for the six months ended June 30, 1998 and 1997,
amounting to 1,161,164 and $1,210,447, respectively; $819,287 and $751,439,
respectively, were incurred by Breaking Waves with the remainder amounting to
$341,877 and $459,008, respectively, incurred by the Company.

For the six months ended June 30, 1998, the Company realized $122,126 from
sales of its motion picture, Dirty Laundry. In connection with such revenue, the
Company recorded costs of $120,000.

The major components of the total selling, general and administrative
expenses of the Company for the six months ended June 30, 1998 are composed of
the following: $23,500 of consulting; $43,750 of compensation paid to officers
of the Company in the form of stock, $12,500 of consulting paid in the form of
stock; and amortization of organization costs of $12,500. The remainder of
expenses, amounting to $1,068,914 is composed of officer salaries of $173,012;
other salaries of $126,565 related payroll taxes and benefits of $46,012; rent
of $60,612; stock related costs of $103,596; commissions of $129,795;
warehousing of $146,244; legal and professional fees $50,379; miscellaneous
office expenses of 105,779; and selling expenses of $126,920.

The major components of the total selling, general and administrative
expenses of the Company for the six months ended June 30, 1997 are composed of
the following: $45,700 of consulting expenses paid to an officer of the Company;
$86,668 of consulting and compensation expenses paid to officers of the Company
paid in the form of common stock; $30,130 of officer's compensation by
forgiveness of note receivable; and amortization of organization costs of
$12,500. The remainder of expenses, amounting to approximately $1,035,449
composed of rent amounting to $77,103 officer's salaries of $183,032, other
salaries and related payroll taxes and benefits of $187,049; legal and
professional fees of $69,867; miscellaneous office expenses of $220,097 and
miscellaneous selling expenses of $298,301.

For the six months ended June 30, 1998 the Company reported a consolidated
net income amounting to $148,631 verses a loss of $181,159 for the same period
in 1997. Estimated provisions for income tax expense amounted to approximately
$19,200 and $39,777, respectively.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1998, the Company has a consolidated working capital amounting
to $2,755,064. It is not anticipated that the Company will be required to raise
any additional capital within the next twelve months, since no material change
in the number of employees or any other material events are expected to occur.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES (Cont'd)

On October 16, 1995, Breaking Waves entered into a license agreement with
Beach Patrol, Inc. ("BPI") for the exclusive use of certain trademarks in the
United States. For the six months ended June 30, 1998 and 1997, Breaking Waves
incurred royalty and advertising expenses amounting to approximately $60,000 and
$51,000.

During May, 1996, the Company established the 1996 Senior Management
Incentive Plan ("Incentive Plan") pursuant to which 250,000 of common stock are
reserved for issuance. The Incentive Plan is designed to serve as an incentive
for retaining qualified and competent key employees, officers and directors of
the Company.

As of June 30, 1998, the Company has invested $1,874,202 in the movie Dirty
Laundry for the co-production, talent participation and distribution of such
motion picture whereas the co-producers have invested $100,000 which has been
recorded as a capital contribution to the Company.

For the six months ended June 30, 1998 and 1997, the Company used cash for
operating activities amounting to $314,997 and $158,390, respectively. The major
components of such use of cash was for the payment of amounts due Breaking
Waves' factor of $2,018,391 and $1,646,600, respectively. The majority of cash
provided by operating activities amounting to $2,025,403 and $1,694,886,
respectively was provided from sales of inventory and from net income (loss) of
$148,631 and $(181,159), respectively. For the six months ended June 30, 1998
and 1997, the Company used $434,973 and $293,483, respectively, of cash which
was primarily for the partial redemption of Breaking Waves' preferred stock,
pursuant to the purchase agreement. For the six months ended June 30, 1998 and
1997, the Company provided (used) cash from financing activities of $834,562 and
$(77,026), respectively which was primarily from the proceeds of the issuance of
common shares and warrants.

<PAGE>
PART II - OTHER INFORMATION

ITEM 1 - Legal Proceedings: None

ITEM 2 - Changes in Securities: None

ITEM 3 - Defaults Upon Senior Securities: None

ITEM 4 - Submission of Matters to a Vote of Security Holders: None

ITEM 5 - Other Information: None

ITEM 6 - Exhibits and Reports on Form 8-K: None

<PAGE>
SIGNATURES

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

Hollywood Productions, Inc.
(Registrant)

Dated: August 13, 1998 /s/ Harold Rashbaum
Harold Rashbaum
President