HOLLYWOOD PRODUCTIONS INC, 10KSB, 1999-04-13

HOLLYWOOD PRODUCTIONS INC
10KSB, 1999-04-13
APPAREL, PIECE GOODS & NOTIONS

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
(Mark One)

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

For the fiscal year ended December 31, 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 O-28690

HOLLYWOOD PRODUCTIONS, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>

<S> <C>
Delaware 11-3871821
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>

14 East 60th Street, Suite 402, New York, New York 10022
(Address of Principal Executive Offices)

(212) 688-9223
(Issuer's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the
Exchange Act:

Title of Each Class and Name of Each Exchange on Which Registered
NONE

Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)

Check whether the Issuer (1) has 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 registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]

Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X]. The Registrant's revenues for its fiscal year
ended December 31, 1998 were $5,276,459.

The aggregate market value of the voting stock on March 29, 1999
(consisting of Common Stock, par value $.001 per share) held by non-affiliates
was approximately $5,161,105.60, based upon the closing price for such Common
Stock on said date ($1.31), as reported by a market maker. On such date, there
were 5,372,971 shares of Registrant's Common Stock outstanding.

<PAGE>
PART I

ITEM 1. DESCRIPTION OF BUSINESS

History

Hollywood Productions, Inc. (the "Company") was founded in December 1995,
in the State of Delaware, for the purpose of acquiring screen plays and
producing independent motion pictures using named talent. While the Company's
intention is to engage in the film business utilizing budgets deemed small by
motion picture standards, i.e., typically ranging between $1 million and $3
million, it has pursued and may continue to pursue and produce motion pictures
with budgets outside of this range. To date, the Company has produced two
independent motion pictures.

In addition to its motion picture business, with its September 1996
acquisition of Breaking Waves, Inc. ("Breaking Waves"), a New York corporation,
which acquisition was contingent on and consummated simultaneously with the
Company's initial public offering, the Company entered the business of
designing, manufacturing, and distributing (throughout the United States) young
girls' swimwear and coordinating beach cover-ups and accessories. In 1998, the
Company expanded its swimsuit business to include sales of boys and men's
swimwear, wet suits, cover-ups, and jackets, under its newly licensed "Jet Ski"
line. The men's "Jet Ski" swimwear line was discontinued in October 1998, prior
to production of the line, after management's reevaluation of and
dissatisfaction with the potential profitability of same.

Motion Picture Business

General

The Company, in general, seeks to acquire screenplays and produce motion
pictures which have budgets in the range of between $1 million and $3 million,
though it has produced and may produce and pursue the production of motion
pictures with budgets either above or below this range. The Company may also
invest in the production of motion pictures though it may not receive absolute
ownership of either the screenplay, the motion picture, or certain ancillary
rights (i.e., stage performances or novel adaptations) thereto.

Production

Since its inception, the Company has been actively soliciting and reviewing
screenplays for the production of motion pictures. The Company shall attempt to
acquire the rights to screenplays for the production of motion pictures which it
anticipates either producing or co-producing. Once a screenplay is acquired (i)
a budget will be prepared, (ii) revisions to the screenplay will be made, (iii)
the talent, production crews, and all ancillary items required for the filming
of the motion picture will be obtained, and (iv) a film schedule will be
established. Once filming is complete, the film will be edited, sound and
special effects will be added, and a final print will be produced. Upon
completion of the foregoing processes, the Company will arrange for private
showings of the film as well as other arrangements for the purpose of finding
both foreign and domestic distributors for the film.

The Company estimates that production of each motion picture will entail
five to eight weeks of filming and an additional fourteen weeks of editing and
adding sound and special effects. Thereafter, the Company expects to require
eight to twelve weeks to obtain a distributor for the film, if one is obtained.
If one is not obtained, the Company will attempt to distribute the film itself.
Once the foregoing process is complete, the film will be released to the
theaters or other distribution channels. This generally occurs within eight to
twenty-four weeks. See "--Distribution, Billing and Revenues."

Distribution, Billing and Revenues

Distribution of a film may be undertaken either by a motion picture studio,
an independent distributor, or by the Company itself through an agent. The
distributor or agent, in the event the Company self-distributes its films,
enters agreements with the theaters to provide the theaters with films to show
the public. Most theaters have multiple screens and can show multiple movies at
the same time. There is a continuous demand for new films. In negotiating with a
distributor to sign on to a project, the Company and the distributor determine
who will incur what portion of the costs of marketing a film, at which time a
budget is prepared and the extent of the release of the film is determined. For
most high budget, top-name talent pictures, the film is widely released to
between 1,500 and 2,500 theaters nationwide. For films that the Company
anticipates producing, the release may be done in platforming stages whereby the
film initially will be released at several theaters in one or two major markets,
where advertising and marketing will be done. A screening will be held, and
critics will be invited to the film in anticipation of a review. If the film
receives a favorable response from either the critics and/or the audience, the
film's distribution will expand gradually into additional markets and theaters.

The Company anticipates that the films it produces will be distributed and
shown at movie theaters. Once a film has been distributed throughout theaters in
the United States, it may be distributed in markets throughout the world. In
addition, the film may be further distributed through cable television including
pay-per-view, premium and standard channels, public television, and through the
sale and/or rental of videotapes. There are many avenues for the distribution of
a film and the exploitation of all ancillary rights thereto. The Company may
enter into agreements with different distributors for different markets or sell
all the rights to one distributor. Revenues generated are distributed to all
parties involved including the distributor, the producers, the owners, and the
talent pursuant to extensive formulas previously agreed upon.
<PAGE>
Distribution rights to motion pictures are granted legal protection under
the copyright laws of the United States and most foreign countries which provide
substantial civil and criminal sanctions for unauthorized duplication and
exhibition of motion pictures. The Company plans to take all appropriate and
reasonable measures to secure, protect, and maintain or obtain agreements from
licenses to secure, protect, and maintain copyright protection for all of the
motion pictures distributed by the Company under the laws of all applicable
jurisdictions.

The Company estimates that between 36 and 58 weeks will elapse between the
commencement of expenditures by the Company in the acquisition of a screenplay,
the production of a motion picture, and the release of same. It does not expect
to receive revenues from the exploitation of the film until approximately 24 to
36 weeks after its release. Billing in the industry is done quarterly: theaters
pay distributors on a quarterly basis, and the Company is paid the following
quarter. However, in the event a distributor desires to distribute one of the
Company's films, such distributor may either (i) offer an initial payment to the
Company against, or in addition to, future royalties or (ii) purchase the film
outright.

Production of "Dirty Laundry"

In March 1995, the Company entered into a property acquisition agreement
(the "Purchase Agreement") and a co-production agreement (the "Production
Agreement") with Rogue Features, Inc. ("Rogue"), an unaffiliated entity, to
acquire the rights to and co-produce a motion picture of the screenplay entitled
"Dirty Laundry." In addition, the Company and Rogue entered into a right of
first refusal agreement with respect to the next two products of Rogue and/or
its principals.

In April 1996, the Company formed D.L. Productions, Inc. ("D.L.
Productions"), a New York corporation, as a wholly owned subsidiary, for the
purpose of holding title to and producing the Dirty Laundry film and receiving
revenues from the distribution thereof. The Purchase Agreement conveyed all
rights to the screenplay and the film itself to the Company. In return, Rogue
directed Dirty Laundry and has the right to 25% of the profits of same as
described in the Production Agreement. Rogue also retained the right to produce
a live comedy or musical upon the earlier of five years after Dirty Laundry's
release or the Company's approval. In addition, Michael Normand, a principal of
Rogue, retained the right to adapt the screenplay of Dirty Laundry into a novel
on the Company's approval of the compensation it is to receive therefrom. The
Production Agreement provided for the principals of Rogue to direct and retain
creative control of the production of the film while the Company retains final
approval.

Pursuant to the terms of the Purchase Agreement and Production Agreement,
the Company financed all but $100,000 (which was invested by the co-producer) of
the production costs of Dirty Laundry. Pursuant to these agreements as well as
the terms of the participation agreements entered into with the two stars of
Dirty Laundry, each of Jay Thomas and Tess Harper had the right to receive
$50,000 against a 5% participation fee from the first revenues received by the
Company. To date, Mr. Thomas and Ms. Harper each have been paid approximately
$49,000 from funds which were received by the Company from the licensing - by
the Company's foreign sales agent (Trident Releasing, Inc., "Trident") - of the
film in several territories in the overseas marketplace. In April 1997, Trident
entered into one such license agreement with TaurusFilm GmbH & Co. ("TF")
whereby TF agreed to distribute a version of the film in Germany in either a
dubbed and/or subtitled fashion. Gross receipts generated from this agreement
were $150,000.

After the above-named talent has been paid his entire $50,000 and the
investments of each of the co-producers have been recouped, the remaining
proceeds shall be distributed as follows: (i) 5% of revenues shall be remitted
to each of Mr. Thomas and Ms. Harper, up to a maximum of $250,000, at which time
each individual's distribution decreases to 2% thereafter, (ii) the Company and
the co-producer each shall receive 25% and 35%, respectively, of its respective
investment from revenues generated, representing payment of an investment
premium for each producer's financing of the film, and (iii) all revenues
generated beyond (i) and (ii) shall first be used to repay any distribution
costs incurred, then 2% shall be distributed to each of the two stars, and the
remainder shall be remitted to the Company and the co-producer at the rate of
75% and 25%, respectively.

The filming of Dirty Laundry commenced in April 1996 and took approximately
five weeks to complete. After completion of filming, the Company undertook the
process of editing and adding sound, special effects, and music, which took an
additional twenty weeks. Upon completion of this process, the Company conducted
private showings of the film in order to obtain both a foreign sales
representative (Trident) to enter into foreign licensing agreements and a
domestic distributor. To this end, the Company met with numerous local and cable
television companies and offered screenings of the film to major and
"mini-major" studios and specialty distributors. Notwithstanding such attempts,
which occurred over a six to eight month process, the Company was unable to
engage a theatrical (i.e. movie theater) distributor. Accordingly, the Company's
next step was to meet with pay cable, network television, and syndicated
television entities including, among others, HBO, Showtime, and Lifetime for
Women, in an attempt to have the film premier on one or more of such stations.
After approximately nine months without success, commencing in approximately
November 1997, the Company spent an additional seven months attempting to
distribute the film to ancillary markets such as home video and pay-per-view.

<PAGE>
Finally, in June 1998, the Company entered into an agreement with Artistic
License Films ("ALF") whereupon ALF agreed to use its best efforts to distribute
(i.e., release) the film in at least three New York theaters and two Los Angeles
theaters. In exchange for its efforts, ALF received a $20,000 retainer fee which
constitutes an advance against ALF's distributor's fee of 25% of the gross
receipts from the theatrical distribution of the film. Pursuant to the
agreement, such receipts shall be paid as follows: (i) the first 75% shall be
paid to the Company to reimburse it for all direct expenses it incurs in
connection with the distribution of the film, (ii) then 25% shall be paid to the
Company to reimburse same for its advance payment of the retainer to ALF, (iii)
next, the distributor shall be paid its 25% of the receipts its advance, and
(iv) finally, the remaining gross receipts shall be remitted to the Company.

The film eventually was released to five New York and three Los Angeles
theaters whereupon it had a limited run during the fall of 1998 and received
marginal reviews. The Company is now presenting Dirty Laundry to distributors
for video, syndicated, network, and cable television, and pay-per-view
distribution.

Dirty Laundry is a romantic comedy which was shot in the New York tri-state
area and stars Jay Thomas as Joey Green, a dry cleaner going through a mid-life
crisis, and Tess Harper as his wife, Beth, of 15 years, who is a sex advice
columnist for a woman's magazine. Mr. Thomas has most recently co-starred in the
motion picture "Mr. Holland's Opus" and is known for his television work in
"Love & War," "Cheers," "Murphy Brown," and "Mork & Mindy." Ms. Harper earned a
Golden Globe nomination for her performance in the film "Tender Mercies" and an
Oscar nomination for her role in the film "Crimes of the Heart." In the movie,
Joey owns a dry cleaning business which is doing poorly and is convinced that he
is aging prematurely. Due to their lack of intimacy, Beth tells Joey to seek
counseling, which he does unbeknownst to Beth, who herself has become attracted
to her chiropractor. Throughout the film, a variety of bizarre mishaps occur
which result in the couple's rekindling of their lost romance. In November 1997,
with production of the movie complete, the Company effected the dissolution of
D.L. Productions. Its assets were transferred to the Company, and the Company
took over the marketing of Dirty Laundry.

Production of "Machiavelli Rises"

In April 1998, the Company entered into a co-production agreement with
Norfolk Films, Inc. ("Norfolk") for the production of a film entitled
"Machiavelli Rises." The Company and Norfolk formed a limited liability company,
Battle Studies Productions, LLC ("Battle Studies"), to finance, produce, and
distribute the film which commenced production in April 1998. Principal
photography was completed in May 1998 at a total cost of $265,000.
Post-production work on the film was completed in November 1998. The film was
written, directed, and co-produced by Efraim Horowitz and can be characterized
as a contemporary ghost story about power, greed, love, and Leonardo Da Vinci's
lost notebook. Total production costs to date have aggregated approximately
$400,000 of which the Company has funded 50%. In accordance with the terms of
the co-production agreement, the proceeds of the film will be distributed as
follows: first, both parties shall be entitled to recoup their initial
investment in the film, at 135% thereof; then, after repayment to the respective
parties of additional costs incurred by same, any remaining proceeds shall be
distributed 50% to Norfolk and 50% to the Company. The film had a private
showing in New York on January 12, 1999 and at the Brussels Film Festival in
Brussels, Belgium on January 26, 1999. At present, the Company has not executed
a distribution agreement for the exploitation of the film; however, the Company
plans to submit the film for critical review in upcoming film festivals
including the Avignon Film Festival in New York on April 28, 1999.

Regulations

The Code and Ratings Administration of the Motion Picture Association of
America, an industry trade association, assigns ratings for age-group
suitability for viewing of motion pictures. While the Company will follow the
practice of submitting most of its motion pictures for such ratings, the Company
may review this policy from time to time.

United States television stations and networks, as well as foreign
governments, impose regulations on the content of motion pictures which may
restrict, in whole or in part, exhibition on television or in a particular
territory. There can be no assurance that current and future restrictions on
motion pictures released by the Company will not limit or affect the Company's
ability to exhibit such motion pictures.

Competition in the Film Industry

The Company competes, and will continue to compete, with other institutions
which produce, distribute, and exploit and finance films, some of which have
substantial financial and personnel resources which are more extensive than the
Company's. These institutions include the major film studios - including Disney,
Universal, MGM, and Sony - as well as the television networks. Industry members
compete substantially for the hire or purchase of a limited number of producers,
directors, actors, and screenplays which are able to attract major distribution
in all media and all markets throughout the world.

The motion picture business is highly competitive and has an extremely high
profile in terms of name recognition, with relatively insignificant barriers to
entry, and numerous entities compete for the same directors, producers,
actors/actresses, distributors, theaters, etc. There is intense competition
within the film industry for exhibition times at theaters, as well as for
distribution in other media, and for the attention of the movie-going public and
other viewing audiences. Competition for distribution in other media is as
intense as the competition for theatrical distribution, and not all films are
licensed in other media. Each year, numerous production companies are formed,
and numerous motion pictures are produced, all of which motion pictures seek
full distribution and exploitation. Despite the increase in the number of films,
a small number of films, those which receive widespread consumer acceptance,
account for a large percentage of total box office receipts.
<PAGE>
Swimwear Business

General

Breaking Waves is a designer, manufacturer, and distributor of girl's
swimwear which is sold throughout the United States. In addition to swimwear,
Breaking Waves also manufactures beach cover-ups and accessories to coordinate
with its swimwear. Swimwear is made in children's sizes from 2-16 and in
pre-teen sizes.

Pursuant to its license agreement with Kawasaki Motors Corp. USA
("Kawasaki"), commencing in the latter half of calendar 1998, the Company
expanded its market by selling boy's swimwear, wet suits, cover-ups, and jackets
under the "Jet Ski" trade name. The planned expansion of the "Jet Ski" line into
the men's market was discontinued in October 1998, upon management's
reevaluation of and dissatisfaction with the potential profitability of same.

Breaking Waves markets swimwear under private brand labels including
"Breaking Waves," "All Waves," and "Making Waves." Under a license agreement
with Beach Patrol, Inc. ("Beach"), Breaking Waves also markets and manufactures
a line of children's swimwear under the name "Daffy Waterwear" and has the
exclusive right to use the "All Waves," "Breaking Waves," "Making Waves," and
other marks in connection with its manufacture and sale of girls swim and beach
wear

Products, Design, Supplies and Inventory

Breaking Waves designs, manufactures, and sells both private label and name
brand girl's swimwear and accessories as well as boy's swimwear, wet suits,
cover-ups, and jackets. It has an office in Homestead, Florida where its
designer designs all styles for its swimwear lines and accessory items. Each
season, approximately 20-25 prints and fabrics are developed for the "Breaking
Waves" line, and 15-18 prints and fabrics are developed for the "All Waves"
line, which lines comprised approximately 33% and 25% of Breaking Waves' volume
for the year ended December 31, 1998.

In designing its children's swimwear, Breaking Waves adapts certain of the
prints and styles it is provided by Beach which Breaking Waves feels are
appropriate for children's wear. Approximately 12-16 prints and styles are
typically marketed by Breaking Waves under the "Daffy Waterwear" label. Of each
fabric or print chosen, the Company usually manufactures two swimsuits: a
one-piece model and a two-piece model.

Once Breaking Waves has chosen the prints it desires to use for its
children's swimwear, it sends the fabric designs to its agent in Korea who
disseminates same to one or more clothing manufacturers thereat for prototyping
and the knitting or weaving and printing of fabrics. The manufacturer returns
the fabrics to Breaking Waves, and upon Breaking Waves' approval thereof, the
fabrics are sent, with the desired design, to any one or more of several
Indonesian companies where the fabric is cut and sewn into a completed product.
Finished goods are shipped from the Indonesian company to a public warehouse in
the City of Industry, California. Breaking Waves has found that this process is
the most cost-effective means of operating its business. It expects to continue
its operations in this manner in the future, though it may use other
manufacturers and suppliers in different countries.

Breaking Waves' swimwear typically is produced in two blended fabrics: one
is a blend of nylon and lycra spandex ("NL"), and the other is a blend of
cotton, polyester, and lycra spandex ("CPL"). Each product line uses different
designs and emphasizes different fabric blends.

For each of the years ended December 31, 1998 and 1997, approximately 50%,
40%, and 10% of Breaking Waves' finished products were purchased from three
manufacturers: two in Indonesia, and one in the Philippines. Although management
of Breaking Waves is of the opinion that the fabrics and non-fabric
sub-materials it uses are readily available and that there are numerous
manufacturers for such piece goods who offer similar terms and prices, there can
be no assurance that management is correct in such belief. The unavailability of
fabrics or the absence of clothiers, or the availability of either at
unreasonable cost, could adversely affect the operations of Breaking Waves and,
hence, the Company.

Since Breaking Waves purchases finished garments from overseas contractors,
it does not buy or maintain an inventory of sub-materials. It has not
experienced difficulty in satisfying finished garment requirements and considers
its sources of supply adequate. Breaking Waves' inventory of garments varies
depending upon its backlog of purchase orders and its financial position.

Financing Arrangements

In August 1997, the Company terminated its accounts receivable financing
agreement with NationsBanc and entered into a Factoring and Revolving Inventory
Loan and Security Agreement (the "Heller Agreement") with Heller Financial, Inc.
("Heller") pursuant to which Heller agreed to (i) purchase all of Breaking
Waves' accounts receivables, (ii) provide advances against such accounts
receivables, (iii) provide a revolving loan, and (iv) guarantee letters of
credit in excess of $1.5 million as well as provide certain other services. The
Company is a guarantor of Breaking Waves' obligations to Heller. The Company
maintains a letter of credit with a financial institution in support of and as a
condition to its factoring agreement. The financial institution requires the
Company to maintain $1.15 million on deposit as collateral for such letter of
credit. Breaking Waves may take advances of up to 85% of the purchase price of
its eligible accounts receivable.
<PAGE>
Initially, the Heller Agreement provided that at the time Heller purchased
each receivable, it would charge Breaking Waves a factoring commission of 1%,
but in no event less than $3.00 per invoice. In addition to advances, Heller
would make revolving loans to Breaking Waves, on Breaking Waves' request, of up
to 50% of eligible inventory. Moreover, Breaking Waves would pay Heller interest
on the daily balance of outstanding advances and revolving loans at the Base
Rate. "Base Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time as published by the Board
of Governors of the Federal Reserve System as the "Bank Prime Loan" rate in
Federal Reserve Statistical Release H.15 (519) entitled "Selected Interest
Rates" or any successor publication of the Federal Reserve System reporting the
Bank Prime Loan rate or its equivalent, or (b) the Federal Funds effective rate.

In December 1998, Breaking Waves and Heller amended the Heller Agreement to
provide (i) factoring commissions of (a) 0.85% on the first $5 million in
accounts sold and assigned to Heller during each year and (b) 0.65% on all
accounts in excess of $5 million sold and assigned to Heller during each year,
but in no event less than $3 per invoice; and (ii) on accounts bearing terms
greater than 90 days, an increase in commission by 0.25% for each 30 days or
part thereof that the terms exceed 60 days. The interest expense paid to Heller
under the Heller Agreement totaled approximately $224,603 for the year ended
December 31, 1998.

Marketing and Sales

The "Daffy Waterwear" label is sold to department and specialty stores. The
"Breaking Waves" label is also distributed through better department and
specialty stores. The "All Waves" label is sold to mass merchants and also as
promotional goods in department stores. Private label programs are supplied to
several major chains and department store groups. For the year ended December
31, 1998, the "Breaking Waves" label accounted for approximately 33% of Breaking
Waves' volume, the "All Waves" label accounted for approximately 25% of same,
and the "Daffy Waterwear" and "Jet Ski" labels " accounted for approximately 33%
and 9%, respectively.

Breaking Waves sells its swimwear and accessory items through its showroom
sales staff and through independent sales representatives. Its customers include
the Dillard and Federated department store groups as well as Kids R Us, Sears,
Wal-Mart, T.J. Maxx, Kohl's Department Store, and Marshalls. Pursuant to a sales
agreement entered into with Play Co. Toys & Entertainment Corp. ("Play Co."),
Breaking Waves also sells its swimwear in certain of Play Co.'s toy stores. (See
"--Acquisition of Minority Interest in Play Co. Toys & Entertainment Corp.") For
the years ended December 31, 1998 and 1997, Breaking Waves had three and two
major customers, respectively, comprising 13%, 13%, and 11% and 36% and 12% of
net sales, respectively.

Breaking Waves merchandise is shipped pursuant to purchase orders sent by
its customers and is sent f.o.b. (freight on board) which means that Breaking
Waves is not responsible for the goods during shipment or for the delivery
charge. Payment is due 30 days after shipment. No goods are shipped on
consignment; therefore, except for non-conforming or damaged goods, all goods
shipped are considered sold.

In addition to its in-house sales and showroom personnel, approximately
twenty independent sales representatives throughout the United States sell
Breaking Waves merchandise. These representatives service department stores and
smaller specialty retailers. Separate independent representatives sell the
"Daffy Waterwear" line. None of these representatives is under contract with
Breaking Waves; nor does any receive a salary from same. Rather, each is paid a
commission based upon his sales. In addition to showroom sales and sales
representatives calling on customers, Breaking Waves exhibits its products at
major trade shows. End of season and discontinued merchandise is sold to
off-price stores.

Internet Sales

In March 1999, Breaking Waves launched an online wholesale children's
swimwear website at www.BreakingWaves.com. The website is designed to complement
the company's wholesale distribution efforts by providing retailers instant
access to more than 200 styles of Breaking Waves swimwear. The entire line of
Breaking Waves swimwear, including products marketed under the "Breaking Waves,"
"All Waves," "Daffy Waterwear," and "Jet Ski" brands, is available for online
purchase by retailers. The Breaking Waves website is being hosted by Mindspring
and incorporates e-commerce features from Cybercash and Mercantec, Inc.

Management believes that the website will fill the needs of existing and
potential customers. Through the Internet, retailers can purchase merchandise
online in a matter of minutes, at their own convenience, instead of having to
wait for a printed wholesale catalog. Management believes that the advantages
and efficiencies created by the website will assist Breaking Waves in increasing
brand awareness as well as market share. Marketing strategies for "driving"
retailers to the site include co-op trade advertisements, tradeshow exposure,
direct mail, and inclusion of the website address on all corporate collateral
and product labels.

Work in Progress

Breaking Waves manufactures its swimwear lines from June to December based
on its knowledge of the market and past sales. Customer orders generally start
arriving in June and July. Goods are reordered by customers on a continual basis
through the following June. The quantity of open purchase orders at any date may
be affected by, among other things, the timing and recording of orders. Breaking
Waves does not sell on consignment and does not accept return of products other
than imperfect goods or goods shipped in error.
<PAGE>
The major design work takes place from January to May. Goods are
manufactured, printed, and sewn overseas from June to December. Finished
garments are shipped from the factory to a public warehouse in Los Angeles for
shipments to retailers. The majority of shipments to retailers are made from
November to May, with January through March being the peak shipping time.

Trademarks and Licensing; New Product Line

Breaking Waves relies on common law trademarks for usage of its private
label swimwear lines. In addition, in October 1995, it entered into a licensing
agreement with Beach to use the trademark "Daffy Waterwear." Beach supplies
prints and designs used under this agreement for the Daffy line. Pursuant to the
licensing agreement, Breaking Waves was given the right to use those designs for
a children's line under the "Daffy Waterwear" label from January 1, 1996 to June
30, 1998. Thereafter, the agreement provided for a three year extension, at the
option of Breaking Waves, through and until June 30, 2001. Breaking Waves has
exercised this option, thereby so extending the agreement. For its right to use
the trademark, Breaking Waves agreed to pay Beach, subject to certain variables,
the greater of 5% of net sales or as follows: (i) during the first six months,
an aggregate of $75,000, (ii) during the next twelve months, an aggregate of
$85,000, (iii) during the final twelve months, an aggregate of $100,000, and
(iv) during each of the final three years of the agreement, an aggregate of
$150,000, $175,000, and $200,000, respectively.

Breaking Waves also entered into a licensing agreement with Kawasaki to use
the trademark "Jet Ski" for a line of girl's, boy's, and men's swimwear and
accessories. In October 1998, the men's line of "Jet Ski" swimwear and
accessories was discontinued. "Jet Ski" is the brand name used throughout the
world for all of Kawasaki's personal watercraft. The license agreement commenced
July 1, 1997 and continues through May 31, 1999. It may be renewed for one year
at Breaking Waves' option. Pursuant to the terms of the agreement, Breaking
Waves shall pay to Kawasaki 5% of net sales of the goods sold under this line.

In addition to the foregoing, Breaking Waves has registered trademarks for
"Breaking Waves" and "All Waves." There can be no assurance that such trademarks
or the marks licensed by Breaking Waves adequately will be protected against
infringement. In addition, there can be no assurance that Breaking Waves will
not be found to be infringing on another company's trademark. In the event
Breaking Waves finds another party to be infringing upon one of its trademarks,
if registered, or is found by another company to be infringing upon such
company's trademark, there can be no assurance that Breaking Waves will have the
financial means to litigate such matters.

On October 31,1996, Breaking Waves entered into a license agreement with
North-South Books, Inc. ("NSB") 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 expired on March 1, 1999. Breaking Waves recorded $4,852 and $0 in
royalties under this agreement during the years ended December 31, 1998 and
1997, respectively.

Competition

There is intense competition in the swimwear apparel industry. Breaking
Waves competes with many other manufacturers in these markets, many of which are
larger and have greater resources than it does. Major competitors in the
swimwear industry include "Ocean Pacific," "Gottex," and "Speedo." In addition,
department stores and retailers have their own private label programs which are
the major competition in the mass merchant business.

Breaking Waves' business is highly competitive with relatively
insignificant barriers to entry and with numerous firms competing for the same
customers. Breaking Waves is in direct competition with local, regional, and
national clothing manufacturers, many of which have greater resources and more
extensive distribution and marketing capabilities than it does. In addition,
many large retailers have recently commenced sales of "store brand" garments
which compete with those sold by Breaking Waves. Management believes that
Breaking Waves' market share is not significant in its product lines.

Breaking Waves' recent expansion into the boy's swimwear industry, through
its "Jet Ski" line, represents an entry into a sector of the swimwear industry
in which it has not previously entered. Breaking Waves believes that the boy's
swimwear industry is similar to the girl's industries in many respects; however,
there may be significant differences of which Breaking Waves is not aware.
Although Breaking Waves plans to hire sales personnel with experience in selling
boy's swimwear and products which relate to water sports, there can be no
assurance that it will be successful in entering this new product sector.
Additionally, Breaking Waves' use of a nationally recognized tradename like "Jet
Ski" represents an entry into a new type of marketing with which Breaking Waves
has no experience and which may produce unforeseen risks. There are many major
brands that now sell products that relate to water sports, i.e. "Nike,"
"Quicksilver," "Addidas," "Body Glove," and "Polo Sport." Most of these
manufacturers have established relationships with the retailers Breaking Waves
targets (such as sporting good stores, surf shops, and outlets which sell "Jet
Ski" watercraft) for its "Jet Ski" line.

Many of the national clothing manufacturers have extensive advertising
campaigns which develop and reinforce brand recognition. In addition, many of
such manufacturers have agreements with department stores and national retail
clothing chains to jointly advertise and market their products. Since Breaking
Waves does little advertising and has no agreement with any department store or
national retail chain to advertise any of its products, it competes with
companies that have brand names that are well known to the public. All other
factors being equal, it can be expected that a retail shopper will buy a "brand
name" garment before he buys an "unknown" brand.
<PAGE>
Seasonality

Breaking Waves' business is seasonal with a large portion of its revenues
and profits derived between November and March. Each year from April through
October, Breaking Waves designs and manufactures the following season's swimwear
lines. There can be no assurance that revenues received from December to June
will support Breaking Waves' operations for the rest of the year.

Employees

The Company has two executive officers who oversee its operations and those
of Breaking Waves and one administrative assistant. Most screenwriters,
performers, directors, and technical personnel who are or will be involved in
the Company's films are members of guilds or unions which bargain collectively
with producers on an industry-wide basis from time to time. Any work stoppages
or other labor difficulties could delay the production of the films resulting in
increased production costs and delayed return of investments. Breaking Waves has
three executive officers, including two vice presidents in charge of design,
merchandising, marketing, and sales and one administrative assistant. Breaking
Waves has approximately twenty independent road sales people and accounting and
clerical staff.

Business Risks

The Company anticipates that the motion pictures it produces will cost
between $1 million and $3 million, depending on the film. The likelihood of the
success of each film and the Company's ability to stay on budget and on schedule
for each film must be considered in light of the problems, expenses,
difficulties, complications, and delays frequently encountered in connection
with the production of a motion picture. Due to unforeseen problems and delays
including illness, weather, technical difficulty, and human error, by
completion, most films are considerably over budget. In addition, the lack of
experience of management in this industry, the limited operating history and
capital of the Company, and the competitive environment in which the Company
operates may cause increased expenses due to mistakes and delays in the
production of the films.

The success of a film in theatrical distribution, television, home video,
and other ancillary markets is dependent upon public taste which is
unpredictable and susceptible to change. The number and popularity of other
films being distributed may also significantly affect the theatrical success of
a film. Accordingly, it is impossible for anyone to predict accurately the
success of any film at the time it enters production. The production of a motion
picture requires the expenditure of funds based largely on a pre-production
evaluation of the commercial potential of the proposed project.

The apparel industry is a cyclical industry, with consumer purchases of
swimwear, accessory items, and related goods tending to decline during
recessionary periods when disposable income is low. Accordingly, a prolonged
recession would in all likelihood have an adverse effect on the operations of
Breaking Waves and, hence, the Company. Breaking Waves operates in only one
segment of the apparel industry, specifically swimwear, and is therefore
dependent on the demand for such goods. Decreases in the demand for swimwear
products would have a material adverse effect on the Company's business as a
whole.

Breaking Waves believes that its success in the swimwear industry depends
in substantial part on its ability to anticipate, gauge, and respond to changing
consumer demands and fashion trends in a timely manner. It designs its swimwear
lines from January to May each year for delivery of products between November
and May of the following year. Breaking Waves attempts to anticipate consumer
preferences. There can be no assurance, however, that it will be successful in
this regard, and if it misjudges the market for any of its products, it may be
faced with unsold finished goods, inventory, and work in process, which could
have an adverse effect on the Company's operations as a whole.

Common Stock Dividend

On January 14, 1999, the Company's Board of Directors authorized the
issuance of a stock dividend to all holders of shares of the Company's common
stock, par value $0.001 per share (the "Common Stock"), as of January 29, 1999
(the "Record Date"). Pursuant to the dividend, each share held on the Record
Date generated the issuance of one additional share of Common Stock. The
dividend was paid on February 5, 1999. Accordingly, unless otherwise noted, all
share and per share information contained in this annual report reflects
retroactive application of this dividend.

Acquisition of Minority Interest in Play Co. Toys & Entertainment Corp.

On November 24, 1998, pursuant to a sales agreement (the "Sales Agreement")
entered into in September 1998 by and between Breaking Waves and Play Co. (a toy
retailer and publicly traded company whose board chairman is the President of
both the Company and Breaking Waves), Breaking Waves purchased 1.4 million
unregistered shares of Play Co.'s common stock in a private transaction. As a
result of this stock purchase, Breaking Waves acquired approximately 25.4% of
the total issued and outstanding shares of Play Co. common stock. As
consideration for the stock, Breaking Waves remitted $504,000, which represented
an approximate price of $0.36 per share: $300,000 of the consideration was
remitted in cash, and the remaining $204,000 was provided in the form of
merchandise, primarily girls' swimsuits.

<PAGE>
Breaking Waves had previously sold (during its last two seasons) a limited
number of pieces of its swimwear to Play Co. in order to engage in a market test
of the sale of same from certain of Play Co.'s toy stores. Since the test proved
successful, Breaking Waves entered into the Sales Agreement, pursuant to which
Breaking Waves agreed to sell to Play Co. on a wholesale basis and Play Co.
agreed to purchase from Breaking Waves, during each season during which swimwear
is purchased, an agreed upon number of pieces of merchandise for its retail
locations. Play Co. further agreed to provide advertising, promotional
materials, and ads of the merchandise in all of its brochures, advertisements,
catalogs, and all other promotional materials, merchandising programs, and sales
promotion methods, in all mediums utilized by same. The sales agreement is for a
term of one year and automatically extends for one year terms unless either
Breaking Waves or Play Co. terminates same.

Loans to Play Co. Toys & Entertainment Corp.

On February 1, 1999, the Company loaned $100,000 to Play Co. and received
in exchange therefor an unsecured promissory note bearing interest at 9% per
annum. The note is payable by Play Co. in four monthly installments commencing
March 15, 1999 and ending June 15, 1999.

On July 15, 1998, Breaking Waves loaned $300,000 to Play Co. and received
in exchange therefor an unsecured promissory note bearing interest at 9% per
annum. The note called for five monthly installments of principal and interest
commencing on August 15, 1998 and ending December 30, 1998 and has been repaid
in full.

On March 1, 1998 Breaking Waves loaned $250,000 to Play Co. and received in
exchange therefor an unsecured promissory note bearing interest at 15% interest
per annum. The note called for ten monthly installments of principal and
interest commencing on March 31, 1998 and ending on December 31, 1998 and has
been repaid in full.

Private Offerings of Common Stock and Registration Thereof

In February 1998, pursuant to private transactions, the Company sold
600,000 shares of Common Stock for approximately $195,000. In May 1998, pursuant
to private transactions, the Company sold an additional 700,000 shares of Common
Stock for an aggregate $560,000. The proceeds from these private offerings were
utilized by the Company for general working capital and to fund the Company's
interest in Battle Studies.

In May 1998, the Company filed a Form S-3 registration statement to
register the 600,000 shares issued in the February 1998 private placement and an
additional 1,960,700 shares of Common Stock held by the Company's then majority
shareholder, European Ventures Corp. ("EVC"), a company whose sole officer and
director is related to the Company's president. The registration was deemed
effective by the Securities and Exchange Commission (the "SEC") on July 30,
1998.

Warrant Distribution

On April 15, 1998, the Company's Board of Directors authorized the
distribution of Warrants (the "Distribution Warrants") to all holders of shares
of the Company's Common Stock as of May 8, 1998 (the "Warrant Record Date").
Pursuant to the distribution, each share held on the Warrant Record Date shall
generate the issuance of one Distribution Warrant to purchase one share of
Common Stock at an exercise price of $4.00 per share. The Distribution Warrants,
which are exercisable for a period of three years commencing one year after
issuance, shall be issued and distributed once the Company has filed a
registration statement for same and same has been declared effective by the SEC.
The Company intends to file the registration statement in May 1999.

One for Three Reverse Split

In February 1998, the Company effected a one for three reverse split of its
Common Stock. Accordingly, unless otherwise noted, all share and per share
information contained in this annual report reflects retroactive application of
this reverse split.

Initial Public Offering and Acquisition of Breaking Waves, Inc.

In September 1996, the Company consummated a public offering of 533,333
shares of its Common Stock and 1,600,000 warrants (the "Warrants") at $5.00 per
share and $0.25 per Warrant, respectively, through Euro-Atlantic Securities,
Inc. ("Euro-Atlantic"). The Company received net proceeds of $3,813,294 from the
offering. Also included in the offering were 933,333 shares and 2,000,000
Warrants registered for resale by EVC, the then majority shareholder of the
Company.

Pursuant to a stock purchase agreement, dated May 31, 1996, entered into
between the Company and the shareholders of Breaking Waves, the shareholders of
Breaking Waves exchanged all of the issued and outstanding shares of Breaking
Waves common stock for 100,000 shares of the Company's Common Stock. The
transaction (the "Acquisition") was consummated contemporaneously with the
closing of the Company's initial public offering.

Pursuant to the terms of the agreement, on the closing date of the
Acquisition, Breaking Waves performed a recapitalization and exchanged of all of
its common stock for new common stock and for a series of preferred stock
designated the "Series A Preferred Stock." For each share of Breaking Waves'
common stock exchanged, the holder received one share of new common stock and 28
shares of Series A Preferred Stock. In connection therewith, Breaking Waves
amended its certificate of incorporation to authorize 5,600 shares of preferred
stock, designated as the Series A Preferred Stock. One-half of the Series A
Preferred Stock was redeemable by Breaking Waves at $100 per share on January 1,
1997, and the remaining one-half was redeemable at $100 per share on January 1,
1998. All Series A Preferred Stock, which had no dividend, conversion, or voting
rights (but had a preference on liquidation equal to $100 per share) has been
redeemed.
<PAGE>
Also pursuant to the terms of the agreement, the Company replaced the
personal guarantees the prior shareholders of Breaking Waves issued to
NationsBanc Commercial Corp. ("NationsBanc"), in accordance with the Company's
then line of credit. The Company replaced the guarantees with letters of credit
secured by bank deposits. The Company contributed $100,000 of the proceeds to
the capital of Breaking Waves and simultaneously therewith, Breaking Waves
repaid loans made by Daniel Stone and Susan Stone in the aggregate amount of
$100,000. Immediately preceding the consummation of the Acquisition, Breaking
Waves distributed to its shareholders an amount equal to 45% of the net income
before taxes of Breaking Waves for the period from January 1, 1996 to the
closing date. This was done in order to pay taxes owed by such shareholders,
since Breaking Waves was a subchapter S corporation.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's executive offices are located at 14 East 60th Street, Suite
402, New York, New York 10022, (212) 688-9223, and comprise approximately 1,800
square feet. The Company leased its office space (approximating 2,600 square
feet) in November 1996 for a term of five years, at an approximate base annual
rental of $70,000. Anytime after November 1999, the Company has the option to
terminate the lease.

Breaking Waves maintains its executive offices and showroom at 112 West
34th Street, New York, New York 10120. Until January 1998, this space was
approximately 1,000 square feet and comprised only office space. In January
1998, Breaking Waves amended its lease and rented an additional 1,000 square
feet which comprises its showroom for the "Jet Ski" line. The lease is for a
term of seven years, expiring December 2004, and carries an annual rental of
$71,600. Breaking Waves also maintains a Florida office, which it moved in
January 1999 from Miami to 19865 Southwest 328th Street, Homestead, Florida
33030. This office, comprising approximately 780 square feet, houses Breaking
Waves' design operation and is rented month to month for approximately $900.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business. Neither the Company's officers, directors, affiliates, nor owners of
record or beneficially of more than five percent of any class of the Company's
Common Stock is a party to any material proceeding adverse to the Company or has
a material interest in any such proceeding adverse to the Company.

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

On November 24, 1998, the Company held an annual meeting of shareholders
whereat the following proposals were put to the shareholders for voting thereon:
(i) to elect four directors to the Board of Directors, (ii) to authorize an
offering of up to one million shares of the Company's Common Stock in a private
placement, and (iii) to authorize Breaking Waves to purchase up to one million
four hundred thousand shares of Play Co. common stock pursuant to the terms of a
sales agreement between the companies.

With respect to item (i) above, votes were cast as follows:
<TABLE>
<CAPTION>

For Abstentions

<S> <C> <C>
Harold Rashbaum 1,550,834 24,138
Robert DiMilia 1,538,284 36,688
Alain Le Guillou 1,538,284 36,688
James B. Frakes 1,538,350 36,622
</TABLE>

With respect to item (ii) above, votes were cast as follows:
<TABLE>
<CAPTION>

For Against Abstentions Not Voted

<S> <C> <C> <C> <C>
1,539,516 26,933 6,6475 2,048

</TABLE>
With respect to item (iii) above, votes were cast as follows:
<TABLE>
<CAPTION>

For Against Abstentions Not Voted

<S> <C> <C> <C> <C>
1,542,502 22,313 8,109 2,048

</TABLE>

<PAGE>
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

The Company's Common Stock is quoted on the SmallCap Market of the Nasdaq
Stock Market. The following table sets forth representative high and low sale
prices as reported by a market maker for the Company's Common Stock and
Warrants, during the period from September 23, 1996 through December 31, 1998.
Sales prices reflect prices between dealers and do not include resale mark-ups,
mark-downs, or other fees or commissions.
<TABLE>
<CAPTION>

Common Stock Warrants

Calendar Period Low High Low High

The above prices reflect the price per pre-reverse split shares and
Warrants through February 5, 1998. The Company's one for three reverse stock
split and corresponding Warrant adjustment became effective on February 5, 1998;
accordingly, for dates thereafter, the above table reflects the price for
post-split shares and post-adjustment Warrants commencing on that date. The
table reflects the price for post-dividend shares and post-adjustment Warrants
since February 5, 1999.

As of March 30, 1999, there were 64 holders of record of the Company's
Common Stock, although the Company believes that there are approximately 900
additional beneficial owners of shares of Common Stock held in street name. As
of March 29, 1999, the number of outstanding shares of the Company's Common
Stock was 5,372,971. (This number is subject to change, nominally, as the 2,751
pre-reverse split and pre-dividend shares which have not been exchanged as yet
are offered for such exchange by the Company's shareholders.)

Initially, each Warrant entitled the holders thereof to purchase one share
of the Company's Common Stock at an exercise price of $6.50 per share, until
September 9, 2001. On June 23, 1997, the Board of Directors approved a reduction
in the exercise price of the Warrants from $6.50 to $3.00. On February 5, 1998,
the Company effected a one for three reverse split of the Company's Common
Stock. Accordingly, the Company adjusted the terms of the Warrants to reflect
the reverse split such that exercise of three Warrants would entitle the holder
to purchase one share of Common Stock at an exercise price of $9.00. Pursuant to
the Company's Common Stock dividend issued on February 5, 1999, however, the
terms of the Warrants were adjusted again. Pursuant to the existing terms, the
exercise of three Warrants at $9.00 entitles the holder thereof to purchase two
shares of Common Stock.

<PAGE>
Euro-Atlantic, the underwriter of the Company's initial public offering,
was a dominant influence in the market for the Company's securities until
February 1997. In February 1997, Euro-Atlantic's clearing firm, WS Clearing
Corp., ceased operations, which resulted in a freeze of all of the accounts of
Euro-Atlantic, including its clients' accounts and firm trading account.
Euro-Atlantic ceased operations immediately thereafter. The market for the
Company's securities has been significantly affected and may continue to be
affected by the loss of Euro-Atlantic's participation in the market. The loss of
Euro-Atlantic's market making activities of the Company's securities decreased
significantly the liquidity of an investment in such securities.

On April 15, 1998, the Company's Board of Directors authorized the issuance
of Distribution Warrants to all holders of shares of the Company's Common Stock
as of the May 8, 1998 Warrant Record Date. Pursuant to the distribution, each
share held on the Warrant Record Date shall generate the issuance of one
Distribution Warrant to purchase one share of Common Stock at an exercise price
of $4.00 per share. The Distribution Warrants, which are exercisable for a
period of three years, commencing one year after issuance, shall be issued and
distributed once the Company has filed a registration statement for same and
same has been declared effective by the SEC. The Company intends to file the
registration statement in May 1999.

The Company has paid no cash dividends and has no present plan to pay any
cash dividends. Payment of future dividends will be determined from time to time
by its board of directors, based upon its future earnings, if any, financial
condition, capital requirements, and other factors. The Company is not presently
subject to any contractual or similar restriction on its present or future
ability to pay such dividends.

Recent Sales of Unregistered Securities

Except where otherwise indicated, the sales of securities of the Company
described below were exempt from registration under the Securities Act of 1933,
as amended (the "Act"), in reliance upon the exemption afforded by Section 4(2)
of the Act for transactions not involving a public offering. All certificates
evidencing such sales bear an appropriate restrictive legend.

In December 1995, EVC acquired 3,333,334 shares of the Company's Common
Stock and 2,000,000 Warrants in exchange for an initial capital contribution of
$1,100,000. Of these shares, 933,334 were registered for resale in the Company's
initial public offering, and 1,960,700 were registered with the Company's Form
S-3 filed in May 1998. Also registered in the offering were the 2,000,000
Warrants. Between September 1996 and January 1999, EVC sold an aggregate of
1,893,334 shares of Common Stock and 1,997,600 Warrants.

In September 1996, simultaneously with the Company's initial public
offering and pursuant to a stock purchase agreement, dated May 31, 1996, entered
into between the Company and the shareholders of Breaking Waves, the Company
issued 100,000 shares of Common Stock to the shareholders of Breaking Waves in
exchange for all of said shareholders' issued and outstanding shares of Breaking
Waves common stock

On February 9, 1998, in private transactions, the Company sold 600,000
shares of Common Stock to three entities at a price of $0.65 per share for an
aggregate price of $195,000. These shares were purchased by the following
accredited investors: Full Moon Development, Inc., Volcano Trading, Inc., and
American Telecom Corp. (whose president, secretary, and a director is related to
the Company's President). The private offering was conducted in reliance upon
Rule 506 of the General Rules and Regulations under the Securities Act of 1933.
The proceeds from these sales were used by the Company for general working
capital and to fund the Company's interest in Battle Studies. No underwriter was
used in connection with this offering.

On May 4, 1998, in private transactions, the Company sold 700,000
shares of Common Stock to three entities at a price of $1.60 per share for an
aggregate price of $560,000. These shares were purchased by the following
accredited investors: Amir Overseas Capital, Ltd., HDS Capital Corp. (whose
secretary is related to the Company's President), and Galit Capital, Ltd. The
private offering was conducted in reliance upon Rule 506 of the General Rules
and Regulations under the Securities Act of 1933. The proceeds from these sales
were used by the Company for general working capital and to fund the Company's
interest in Battle Studies. No underwriter was used in connection with this
offering.

<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

CAUTIONARY STATEMENTS ON FORWARD-LOOKING STATEMENTS

Statements contained in this report which are not historical facts may be
considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. The words "anticipate," "believe," "estimate," "expect,"
"objective," and "think" or similar expressions used herein are intended to
identify forward-looking statements. The forward-looking statements are based on
the Company's current views and assumptions and involve risks and uncertainties
that include, among other things, the effects of the Company's business, actions
of competitors, changes in laws and regulations, including accounting standards,
employee relations, customer demand, prices of purchased raw material and parts,
domestic economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency rate
fluctuations. Some or all of the facts are beyond the Company's control.

General

Hollywood Productions, Inc. (the "Company") was incorporated in the State
of Delaware on December 1, 1995. The Company was formed for the purpose of
acquiring screen plays and producing motion pictures. During September 1996, in
connection with the completion of its Initial Public Offering ("IPO"), the
Company acquired all the capital stock of Breaking Waves, Inc. ("Breaking
Waves"). Breaking Waves designs, manufactures, and distributes private and brand
name label children's swimwear.

The consolidated financial statements at December 31, 1998 and 1997 include
the accounts of the Company and its wholly owned subsidiary, Breaking Waves
(herein referred to as the "Companies") after elimination of all significant
intercompany transactions and accounts

The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related footnotes which provide
additional information concerning the Company's financial activities and
condition. Since the Company and its subsidiary, Breaking Waves, operate in
different industries, the discussion and analysis is presented by segment in
order to be more meaningful.

Year ended December 31, 1998 as compared to the year ended December 31,
1997

Breaking Waves

For the year ended December 31, 1998 and 1997, Breaking Waves generated net
sales of $5,156,247 (inclusive of $204,000 of sales made to an affiliate) and
$5,262,240 respectively with a cost of sales amounting to $3,221,238 and
$3,222,478 respectively. The gross profit for the year ended December 31, 1998
amounted to $1,935,009, or 38%, as compared to the year ended December 31, 1997
during which it amounted to $2,039,762, or 39%.

Selling, general, and administrative expenses during the years ended
December 31, 1998 and 1997 amounted to $1,665,524 and $1,460,284, respectively.
The increase, amounting to $205,240, is primarily attributable to costs
associated in establishing a new product line ("Jet Ski") which was subsequently
cancelled.

The major components of the Breaking Waves selling, general, and
administrative expenses during the year ended December 31, 1998 are as follows:
$554,402 of officers, office staff, and designer salaries and related benefits,
$123,016 of commission expense, $213,471 of warehousing costs, $140,989 of
royalty fees, $85,917 of rent expense, $56,545 of factor commissions, and
$491,184 representing other miscellaneous general corporate overhead expenses.

The major components of selling, general, and administrative expenses for
the year ended December 31, 1997 are as follows: $522,387 of officers, office
staff, and design salaries and related benefits, $141,339 of commission expense,
$188,460 of warehousing costs, $111,355 of royalty fees, $78,719 of rent
expense, $50,807 of factor commission and $367,217 representing other
miscellaneous general corporate overhead expenses.

Breaking Waves acquired a 25.4% interest in Play Co. Toys & Entertainment
Corp. ("Play Co.") by paying $300,000 in cash and by shipping $204,000 in
merchandise. In connection with the $504,000 investment in Play Co.,
representing a 25.4% ownership percentage, Breaking Waves recognized $473,270 of
equity earnings in Play Co.'s earnings from November 24, 1998 to December 31,
1998.

The following unaudited pro forma information presents the results of
operations of Breaking Waves for the years ended December 31, 1998 and 1997 as
if the investment in Play Co. was consummated at the beginning of each year:

Year Ended December 31,
1998 1997
----- ----
(Unaudited)

<S> <C> <C>
Net Sales .................................. $ 5,156,247 $ 5,262,240
Cost of Sales .............................. 3,221,238 3,222,478
Selling, general and administrative expenses 1,665,524 1,460,284
Other Income (Expenses) .................... (315,091) (753,861)
Net Loss ................................... (81,912) (207,069)
</TABLE>

These unaudited pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which would have actually resulted had the acquisition occurred on
the date indicated, or of future results of operations.

Interest expense in connection with its factoring agreement amounted to
$224,192 and $224,397 for the years ended December 31, 1998 and 1997
respectively.

Breaking Waves generated net income of $436,420 and $322,453, respectively,
for the years ended December 31, 1998 and 1997 after an income tax provision of
$36,306 and $32,686, respectively, for the years ended December 31, 1998 and
1997.

Hollywood Productions, Inc.

For the years ended December 31, 1998 and 1997, the Company generated sales
from its motion picture "Dirty Laundry" amounting to $120,211 and $44,875,
respectively. Although sales have been minimal since the completion of the
motion picture, the Company expects increases in sales during 1999 and
thereafter as a result of a new release of the picture during 1998.

The Company's selling, general, and administrative expense amounted to
$683,986 and $719,157 for the years ended December 31, 1998 and 1997,
respectively. This represents a decrease of $35,171, or approximately 5%.

The major components of the Company's expenses are as follows for the years
ended December 31:
<TABLE>
<CAPTION>

1998 1997
Salaries (officer and office staff) and stock compensation
<S> <C> <C>
and related benefits ...................................... $242,313 $345,455
Legal and Professional fees ............................... 94,767 83,495
Rent ...................................................... 72,257 72,960
Consulting fees ........................................... 52,000 58,950
Other general corporate and administrative expenses ....... 222,649 158,297
</TABLE>

The company generated a net loss of $334,476 after an income tax benefit of
$229,658 for the year ended December 31, 1998. The income tax benefit was
primarily a result of the Company utilizing its net operating losses for federal
tax purposes as of December 31, 1998. The Company has a net operating loss carry
forward of approximately $865,000 for federal tax purposes which is expected to
be utilized in the future as a result of filing consolidated federal income
taxes with its subsidiary, Breaking Waves. For the year ended December 31, 1997,
the Company had a net loss of $674,967 with no income tax benefit.

Liquidity and Capital Resources

At December 31, 1998, the Companies have a consolidated working capital
amounting to $1,413,717. The Companies anticipate that their current available
cash will be sufficient for the next twelve months and they do not anticipate
any cash shortfalls.

The Company considers highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Included in cash
are certificates of deposit of approximately $1,166,234. The Company maintains
cash deposits in accounts which are in excess of Federal Deposit Insurance
Corporation limits by approximately $1,100,000. The Company believes that such
risk is minimal. The Company maintains a letter of credit with a financial
institution as a condition of its factoring agreement. The financial institution
requires the Company to maintain $1,150,000 on deposit as collateral for the
letter of credit. Accordingly, such cash is designated as restricted.

For the year ended December 31, 1998, the Companies reported a consolidated
net income of $30,994 after an income tax benefit of $192,383 whereas for the
year ended December 31, 1997, the Companies reported a consolidated net loss of
$423,467 after a provision of income taxes amounting to $27,865.

Investment in Joint Venture

Pursuant to a co-production agreement dated April 17, 1998, the Company
invested $200,000 for a 50% interest in a newly formed entity, Battle Studies
Productions, LLC ("Battle Studies"), a limited liability company. Norfolk Films,
Inc. ("NFF") an unrelated party, also invested $200,000 for the remaining 50%
interest in Battle Studies. Battle Studies will be treated as a joint venture in
order to co-produce motion pictures and to finance the costs of production and
distribution of such motion pictures. The joint venture retains all rights to
the motion pictures, the screenplays, and all ancillary rights attached thereto.
As of December 31, 1998, Battle Studies had completed filming its first motion
picture and was in post production.
<PAGE>
The Company accounts for the investment in Battle Studies on the equity
method. Accordingly, as of December 31, 1998, the Company has only recorded its
initial $200,000 investment in the joint venture since no operations have yet
commenced.

Factoring Arrangements

(a) NationsBanc

On April 4, 1991, Breaking Waves entered into an accounts receivable
financing agreement with NationsBanc Commercial Corp. ("Nations") to sell its
interest in all present and future receivables without recourse. Interest
expense in connection with such financing arrangement amounted to $156,785 for
the year ended December 31, 1997. Effective on or about August 20, 1997, such
financing agreement was cancelled and replaced with a factoring and revolving
inventory loan and security agreement with Heller Financial, Inc. ("Heller").

(b) Heller

On August 20, 1997, Breaking Waves entered into a factoring and revolving
inventory loan and security agreement (which was subsequently amended in
December 1998) with Heller pursuant to which Heller agreed to (i) purchase all
of Breaking Waves' accounts receivables, (ii) provide advances against such
accounts receivables, (iii) provide a revolving loan, and (iv) guarantee letters
of credit in excess of $1,500,000 as well as provide certain other services. The
Company is a guarantor of Breaking Waves' obligations to Heller. The Company
maintains a letter of credit with a financial institution in support of and as a
condition to its factoring agreement. The financial institution requires the
Company to maintain $1,150,000 on deposit as collateral for such letter of
credit. Breaking Waves may take advances of up to 85% of the purchase price of
its eligible accounts receivable.

The factoring agreement provides (i) factoring commissions of (a) 0.85% on
the first $5 million in accounts sold and assigned to Heller during each year
and (b) 0.65% on all accounts in excess of $5 million sold and assigned to
Heller during each year, but in no event less than $3 per invoice; and (ii) on
accounts bearing terms greater than 90 days, an increase in commission by 0.25%
for each 30 days or part thereof that the terms exceed 60 days. Interest expense
related to this agreement totaled $224,603 and $67,611, respectively, for the
years ended December 31, 1998 and 1997. Heller has a continuing interest in
Breaking Wave's inventory as collateral for the advances. As of December 31,
1998, the net advances to Breaking Waves from the factor amounted to $2,063,554.

Capital Lease Obligations

During 1998, the Company acquired computer equipment and proprietary
software for its subsidiary, Breaking Waves, pursuant to the following terms and
conditions:

On August 13, 1998, the Company acquired various computer and related
components for $28,583 by entering into a capital lease obligation with interest
at approximately 9.2% per annum, requiring 48 monthly payments of principal and
interest of $713. The lease is secured by the related computer equipment.

On September 13, 1998, the Company acquired proprietary software for
$32,923 by entering into a capital lease obligation with interest at
approximately 10.9% per annum, requiring 48 monthly payments of principal and
interest of $850. The lease is secured by the related software.

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
approximately $70,000, before annual escalations. Breaking Waves leased
administrative offices through approximately January 1998 pursuant to a lease
requiring annual payments of approximately $64,000. Breaking Waves amended such
lease and rented additional space at an annual rental of $71,600 expiring
December 2004. Breaking Waves also leases an offsite office for one of its
designers on a month to month basis with annual payments approximating $11,000.

Rent expense for the years ended December 31, 1998 and 1997 amounted to
approximately $158,174 and $147,180, respectively.

License Agreements

On October 16, 1995, Breaking Waves entered into a license agreement with
Beach Patrol, Inc. ("Beach"). Pursuant to the licensing agreement, Breaking
Waves was given the right to use those designs for a children's line under the
"Daffy Waterwear" label from January 1, 1996 to June 30, 1998. Thereafter, the
agreement provided for a three year extension, at the option of Breaking Waves,
through and until June 30, 2001. Breaking Waves has exercised this option,
thereby so extending the agreement. For its right to use the trademark, Breaking
Waves agreed to pay Beach, subject to certain variables, the greater of 5% of
net sales or as follows: (i) during the first six months, an aggregate of
$75,000, (ii) during the next twelve months, an aggregate of $85,000, (iii)
during the final twelve months, an aggregate of $100,000, and (iv) during each
of the final three years of the agreement, an aggregate of $150,000, $175,000,
and $200,000, respectively. The Company recorded royalties and advertising under
this agreement totaling $135,000 and $111,000 during the years ended December
31, 1998 and 1997, respectively.

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 expired on March 1, 1999. The Company recorded $4,852 and $0
royalties under this agreement during the years ended December 31, 1998 and
1997, respectively.

<PAGE>
On October 17, 1997, Breaking Waves entered into a license agreement with
Kawasaki Motors Corp., U.S.A. ("KMC") with an effective date of July 1, 1997 for
the exclusive use of certain trademarks in the making of swimwear in the United
States. The fee for the exclusive use of certain trademarks is five percent (5%)
of net sales. The agreement expires May 31, 1999. No royalties were paid under
the agreement during the years ended December 31, 1998 and 1997, respectively.

Internet Sales

Management believes that the website will fill the needs of existing and
potential customers. Through the Internet, retailers can purchase merchandise
online in a matter of minutes, at their own convenience, instead of having to
wait for a printed wholesale catalog. Management believes that the advantages
and efficiencies created by the website will assist Breaking Waves in increasing
brand awareness as well as market share. Marketing strategies for "driving"
retailers to the site include co-op trade advertisements, tradeshow exposure,
direct mail, and including the site address on all corporate collateral and
product labels.

Year 2000

The Companies have addressed and will continue to address the year 2000
issue to ensure the reliability of their operational systems. The Companies have
made and will continue to make certain investment in their software systems and
applications to ensure that it is Year 2000 compliant. These expenditures, which
are expensed as incurred, are not expected to be material . The Companies are
also working with their suppliers and customers to ensure their compliance with
Year 2000 issues in order to avoid any interruptions in its business.

Private Placements

During February and May 1998, pursuant to two separate private
transactions, the Company sold 600,000 and 700,000 shares of Common Stock for
approximately $195,000 and $560,000, respectively to certain entities. These
funds were used by the Company primarily for working capital and to fund the
Company's interest in Battle Studies. An officer of two of the entities who
invested in the Company in the private placements is related to the Company's
President.

On July 30, 1998, the Securities and Exchange Commission declared effective
a Form S-3 Registration Statement which registered the 600,000 shares from the
February 1998 private transaction along with 1,960,700 shares held by the
Company's then majority shareholder, European Ventures Corp. ("EVC"). EVC's sole
officer and director is an affiliate of the Company's President.

Loans to Play Co.

On March 1, 1998, Breaking Waves loaned funds to Play Co. in return for an
unsecured promissory note in the amount of $250,000. Such note required monthly
payments beginning March 31, 1998 of $25,000 plus interest at 15% per annum. The
note was repaid in full as of December 31, 1998.

On July 15, 1998, Breaking Waves loaned additional funds to Play Co. in
return for an unsecured promissory note in the amount of $300,000. Such note
required monthly payments beginning August 15, 1998 of $50,000 plus interest at
9% per annum through November 15, 1998 and a lump-sum payment of $100,000 plus
interest on December 15,1998. The note was repaid in full as of December 31,
1998.

Pursuant to an unsecured promissory note dated February 1, 1999, the
Company loaned $100,000 to Play Co. bearing interest at 9% per annum. Play Co.
agreed to repay such note by June 15, 1999 with monthly installments.

Breaking Waves generated approximately $26,000 of interest income from
loans to Play Co.

Common Stock Dividend

On January 14, 1999, the Company declared a 100% Common Stock dividend to
all shareholders of record as of January 29, 1999. The dividend was paid on
February 5, 1999, whereby the Company issued 2,686,027 shares of Common Stock.

ITEM 7. FINANCIAL STATEMENTS

See attached Financial Statements.

ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not Applicable.

<PAGE>
PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Officers and Directors

The following table sets forth the names, ages, and titles of all
directors and officers of the Company:
<TABLE>
<CAPTION>

Name Age Position

<S> <C> <C>
Harold Rashbaum 72 President, CEO, and Director

Robert DiMilia 53 Vice President, Secretary, and Director

Alain Le Guillou, M.D. 42 Director

James B. Frakes 42 Director
</TABLE>

All directors are elected at an annual meeting of the Company's
shareholders and hold office for a period of one year or until the next annual
meeting of shareholders or until their successors are duly elected and
qualified. Vacancies on the Board of Directors may be filled by the remaining
directors. Officers are appointed annually by, and serve at the discretion of,
the Board of Directors. There are no family relationships between or among any
officers or directors of the Company, except Mr. Rashbaum is the father-in-law
of Dr. Alain Le Guillou. Dr. Le Guillou receives a director's fee of $1,000 per
month for his participation as director. The Company does not have key man
insurance on the lives of any of its officers or directors.

As permitted under the Delaware General Corporation Law, the Company's
Certificate of Incorporation eliminates the personal liability of the directors
to the Company or any of its shareholders for damages caused by breaches of said
directors' fiduciary duties. As a result of such provision, shareholders may be
unable to recover damages against directors for actions which constitute
negligence or gross negligence or are in violation of their fiduciary duties.
This provision in the Company's Certificate of Incorporation may reduce the
likelihood of derivative and other types of shareholder litigation against
directors.

Harold Rashbaum has been the President, Chief Executive Officer, and a
Director of the Company since January 1997. Since September 1996, he has also
been the President, Secretary, and sole Director of Breaking Waves. From May
1996 to January 1997, Mr. Rashbaum served as Secretary and Treasurer of the
Company. Mr. Rashbaum has been the Chairman of the Board of Directors of Play
Co. since September 10, 1996. Mr. Rashbaum was a management consultant to Play
Co. from July 1995 to September 10, 1996. In May 1998, he was elected as a
Director of Toys International, Inc. ("Toys," a wholly-owned subsidiary of Play
Co.). Since February 1996, Mr. Rashbaum has also been the President and a
Director of H.B.R. Consultant Sales Corp. ("HBR"), of which his wife is the sole
shareholder. Prior thereto from February 1992 to June 1995, Mr. Rashbaum was a
consultant to 47th Street Photo, Inc., an electronics retailer. Mr. Rashbaum
held this position at the request of the bankruptcy court during the time 47t
Street Photo, Inc. was in Chapter 11. From January 1991 to February 1992, Mr.
Rashbaum was a consultant for National Wholesale Liquidators, Inc., a major
retailer of household goods and housewares.

Robert DiMilia, has been a Director, Vice President, and Secretary of the
Company since January 10, 1997. Prior thereto he was a consultant to the Company
with respect to the production of Dirty Laundry. From 1991 to 1994, Mr. DiMilia
was a Vice President for The Bon Bon Group, a national payroll/accounting
entertainment service company. From March 1995 to May 1996, Mr. DiMilia was a
media and marketing consultant in the film industry working on a variety of
projects.

Alain Le Guillou, M.D. has been a Director of the Company since May 1996.
Since July 1995, Dr. Le Guillou has been a doctor of pediatrics at Montefiore
Medical Group. From July 1992 to June 1995, Dr. Le Guillou was a pediatric
resident at the University of Minnesota, Gillette Hospital, St. Paul, Minnesota.
Dr. Le Guillou is the son-in-law of Harold Rashbaum.

James Frakes was elected Director of the Company in January 1998. Mr.
Frakes was appointed Chief Financial Officer and Secretary of Play Co. in July
1997. In August 1997, he was elected as a Director of Play Co. In January 1998,
Mr. Frakes was appointed Secretary and Chief Financial Officer of Toys. He was
elected as a Director thereof in May 1998. From June 1990 to March 1997, Mr.
Frakes was Chief Financial Officer of Urethane Technologies, Inc. ("UTI") and
two of its subsidiaries, Polymer Development Laboratories, Inc. ("PDL") and BMC
Acquisition, Inc. These were specialty chemical companies, which focused on the
polyurethane segment of the plastics industry. Mr. Frakes was also Vice
President and a Director of UTI during this period. In March 1997, three
unsecured creditors of PDL filed a petition for the involuntary bankruptcy of
PDL. This matter is pending before the United States Bankruptcy Court, Central
District of California. From 1985 to 1990, Mr. Frakes was a manager for Berkeley
International Capital Corporation, an investment banking firm specializing in
later stage venture capital and leveraged buyout transactions. In 1980, Mr.
Frakes obtained a Masters in Business Administration from University of Southern
California. He obtained his Bachelor of Arts degree in history from Stanford
University, from which he graduated with honors in 1978.

<PAGE>
Significant Employees

Malcolm Becker, 63, has been the Vice President of Design, Merchandising,
and Production of Breaking Waves since its inception in 1991.

Michael Friedland, 61, has been the Vice President of Design, Marketing,
and Sales of Breaking Waves since its inception in 1991.

The Company has agreed to indemnify its officers and directors with respect
to certain liabilities including liabilities which may arise under the Act.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to any charter, provision, by-law, contract, arrangement, statute, or
otherwise, the Company has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer, or controlling person of the Company in the
successful defense of any such action, suit, or proceeding) is asserted by such
director, officer, or controlling person of the Company in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

The following table provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, or paid to the named executive officer during the periods ended
December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>

====================================================================================================================================
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation

Name and Principal Position

Awards Payouts

Securities
Other Restricted Underlying All
Annual Stock Option/ Other
Year Salary Bonus Compens- Awards SAR LTIP Compensation
($) ($) ation ($) (#) Payouts ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harold Rashbaum .. 1998 156,000 -- -- -- -- -- --
President, CEO,
And Director
1997 147,000 -- -- -- 66,666(3) -- --
1996(1) 26,000 -- -- 100,000(2) -- -- --

</TABLE>
(1) Commenced employment in May 1996. At the closing of the Company's
initial public offering, HBR, a company controlled by Mr. Rashbaum and owned by
his wife, received 5,000 shares of Common Stock and a consulting fee of $40,000.

(2) Includes 33,333 shares issued under the Senior Management Incentive
Plan in June 1996, subject to a two year vesting schedule. The shares were
valued on issuance at $100,000 and were sold in May 1998. See "Senior Management
Incentive Plan."

(3) Includes options to purchase 100,000 pre-reverse split and pre-dividend
shares of Common Stock issued in March 1997 under the Company's Senior
Management Incentive Plan. In March 1998, the Board of Directors approved a
revision of the terms of the options granted to Harold Rashbaum in accordance
with the 1 for 3 reverse split of the Company's Common Stock. The revised terms
reduced the number of shares underlying the option from 100,000 to 33,333 shares
and decreased the exercise price from $5.125 to $2.93. In February 1999, the
Board of Directors approved a revision of the terms of the options granted to
Harold Rashbaum in accordance with the Company's issuance of a Common Stock
dividend. The revised terms increased the number of shares underlying the option
from 33,333 to 66,666 and decreased the exercise price from $2.93 to $1.46. See
"Senior Management Incentive Plan."

Stock Options

The following table provides information with respect to (i) the exercise
of stock options by the named executive officer during the fiscal year ended
December 31, 1998 and (ii) the fiscal year end value of all unexercised options:

=====================================================================================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEARS AND FY-END OPTION/SAR VALUES

=====================================================================================================================
Number of
Securities Underlying Value of Unexercised
Unexercisable In-The-Money
Shares Acquired on Exercise Options/SAR's Options/SAR's
(#) FY-End (#) at FY-End ($)
Name Value Exercisable/ Exercisable/
Realized Unexercisable Unexercisable
($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harold Rashbaum 0 0 66,666/0 (1) 0/0 (2)
=====================================================================================================================
</TABLE>

(1) In March 1998, the Board of Directors approved a revision of the terms
of the options granted to Harold Rashbaum in accordance with the 1 for 3 reverse
split of the Company's Common Stock. The revised terms reduced the number of
shares underlying the option from 100,000 to 33,333 shares and decreased the
exercise price from $5.125 to $2.93. In February 1999, the Board of Directors
approved a revision of the terms of the options granted to Harold Rashbaum in
accordance with the Company's issuance of a Common Stock dividend. The revised
terms increased the number of shares underlying the option from 33,333 to 66,666
and decreased the exercise price from $2.93 to $1.46.

(2) The closing sales price on December 31, 1998 was $1.13 per share;
therefore the options had no value.

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

Employment and Consulting Agreements

Hollywood Productions, Inc.

Before he became an officer and director of the Company, Harold Rashbaum
provided consulting services to the Company through HBR, a company of which he
is an officer and director and of which his wife is the sole shareholder. HBR
entered into an oral consulting agreement with the Company whereby it will
receive 5% of the net profits received by the Company from the distribution of
"Dirty Laundry". In addition, HBR received $40,000 and 5,000 shares of the
Company's Common Stock at the closing of the Company's initial public offering.
From October 1996 through March 1997, Mr. Rashbaum received a salary of $104,000
per annum for being an officer and director of the Company. In March 1997, Mr.
Rashbaum's salary was increased to $156,000 per annum. In addition, Mr. Rashbaum
received 33,333 shares of Common Stock under the Company's Senior Management
Incentive Plan, one half of which shares vested in each of June 1997 and June
1998. These shares were sold. See "Certain Relationships and Related
Transactions."

<PAGE>
Breaking Waves, Inc.

In January 1996, Dan Stone entered into a two year consulting agreement
with Breaking Waves pursuant to which he was to oversee the operation of
Breaking Waves in return for a yearly consulting fee of $100,000. Mr. Stone
received $50,000 from the proceeds of the Company's initial public offering, as
payment in advance of one half of the 1997 consulting fee, the balance of which
was paid in weekly installments. On January 1, 1998, the consulting agreement
expired, and Mr. Stone's relationship with Breaking Waves was terminated.

In November 1996, Breaking Waves entered into three year employment
agreements with each of Malcolm Becker and Michael Friedland. The agreements
initially provided that Messrs. Becker and Friedland each would be compensated
at a salary of $110,000 per annum during the term of his agreement and that each
would be issued restricted shares of Common Stock, subject to a vesting
schedule, annually during the term of his agreement. The number of shares of
Common Stock to be issued is calculated on the basis of a market value (as
hereinafter defined) of $25,000 on the date of issuance, subject to the
following vesting schedule: (i) 1/2 of the shares issued on November 27, 1996
vested 90 days from issuance, and the balance vested 270 days from the date of
issuance and (ii) for each subsequent annual issuance commencing November 27,
1997, 1/2 of the shares vested six months from issuance, and the balance vested
on the following anniversary. "Market Value" shall mean (i) $5.00 per share with
respect to the shares issued in November 1996 and (ii) the average of the
closing bid and asked prices for a share of Common Stock for a period of 30 days
ending five days prior to the date of issuance, as officially reported by the
principal securities exchange on which the Common Stock is quoted. The
agreements include non-disclosure and non-compete clauses.

In November 1996, 3,334 shares of the Company's Common Stock were issued to
each of Messrs. Becker and Friedland, subject to the aforesaid vesting schedule.
In November 1997, 14,444 shares of the Company's Common Stock were issued to
each of Messrs. Becker and Friedland, subject to the aforesaid vesting schedule.
In April 1999, the Company shall issue Mr. Becker 69,158 shares and shall issue
Mr. Friedland 126,792 shares. In January 1998, Mr. Friedland's employment
agreement was amended to provide for an increase in salary to $130,000 per
annum. Also in January 1998, Mr. Becker's employment agreement was amended to
reflect a reduction in the amount of time Mr. Becker would be required to devote
to the business of Breaking Waves, a concomitant reduction in salary to $60,000
per annum, and a reduction in the number of shares of Common Stock to be issued
(the number to equal a market value of $13,636). In January 1999, Mr. Becker's
employment agreement was further amended to reflect an increase in the amount of
time Mr. Becker would be required to devote to the business of Breaking Waves
and a concomitant increase in salary to $70,000 per annum.

Senior Management Incentive Plan

General

In May 1996, the Board of Directors adopted the Senior Management Incentive
Plan (the "Management Plan") which was adopted by shareholder consent. The
Management Plan provides for the issuance of an aggregate of 116,666 shares of
Common Stock (adjusted for the February 1998 reverse split and February 1999
Common Stock dividend) in connection with the issuance of stock options and
other stock purchase rights to executive officers, key employees, and
consultants.

The Management Plan was adopted to provide the Board of Directors with
sufficient flexibility regarding the forms of incentive compensation which the
Company will have at its disposal for rewarding executive officers, employees,
and consultants (of either the Company or a subsidiary of same) who render
significant services to the Company or its subsidiary with equity in the Company
through the grant of stock options and other rights. The Management Plan was
adopted to enable the Company to attract and retain qualified personnel without
unnecessarily depleting the Company's cash reserves (by offering those persons
who provide significant services a personal interest in the Company's growth and
success) and to augment the Company's existing compensation programs.

The Management Plan is intended also to help the Company attract and retain
key executive management personnel whose performance is expected to have a
substantial impact on the Company's long-term profit and growth potential by
encouraging and assisting those persons to acquire equity in the Company. It is
contemplated that only persons who perform services of special importance to the
Company will be eligible to participate under the Management Plan. A total of
shares of Common Stock have been reserved for issuance under the Management
Plan. It is anticipated that awards made under the Management Plan will be
subject to three-year vesting periods, although the vesting periods are subject
to the discretion of the Administrator (as defined below).

The Management Plan is to be administered by the Board of Directors or a
committee of the Board if one is appointed for this purpose (the Board or such
committee, as the case may be, will be referred to in the following description
as the "Administrator"). Members of the Board of Directors who are eligible for
awards or have been granted awards may not vote on any matters affecting the
administration of the Management Plan or the grant of any award thereunder.
Subject to the specific provisions of the Management Plan, the Administrator
will have the discretion to determine the recipients of the awards, the nature
of the awards to be granted, the dates such awards will be granted, the terms
and conditions of awards, and the interpretation of the Management Plan, except
that any award granted to any employee of the Company who is also a director of
the Company will also be subject - in the event the Administrator of such plan
at the time such award is proposed to be granted does not satisfy the
requirements regarding the participation of "disinterested persons" set forth in

<PAGE>
Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") - to the approval of an auxiliary committee
consisting of not less than three individuals (all of whom qualify as
"disinterested persons" as defined under Rule 16b-3. In the event the Board of
Directors deems the formation of an auxiliary committee impractical, the Board
is authorized to approve any award under the Management Plan. As of the date
hereof, the Company has not yet determined who will serve on such auxiliary
committee, if one is required. The Management Plan generally provides that
unless the Administrator determines otherwise, each option or right granted
under the plan will become exercisable in full upon certain "change of control"
events as described therein.

If any change is made in respect of the Common Stock subject to the
Management Plan or subject to any right or option granted under the Management
Plan (through merger, consolidation, reorganization, recapitalization, stock
dividend, or dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure, or otherwise), the Administrator will make appropriate adjustments to
the Management Plan and the number of shares and price per share of Common Stock
subject to outstanding rights or options. Generally, the Management Plan may be
amended by action of the Board of Directors except that any amendment which
would change the class of securities subject to the plan, increase the total
number of shares subject to such plan, extend the duration of such plan,
materially increase the benefits accruing to participants under such plan, or
change the category of persons who can be eligible for awards under such plan
must be approved by the affirmative vote of the owners of a majority of the
Common Stock entitled to vote. The Management Plan permits awards to be made
thereunder until November 2004.

Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for four types of awards: stock options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights), and
restricted shares.

Incentive Stock Options ("ISOs" and "non-ISOs")

The Management Plan may be either incentive stock options which qualify as
such under the Internal Revenue Code ("ISOs") or options which do not qualify
under the Internal Revenue Code as ISOs ("non-ISOs"). ISOs may be granted at an
option price of not less than 100% of the fair market value of the Common Stock
on the date of grant except that an ISO granted to any person who owns Common
Stock representing more than 10% of the total combined voting power of all
classes of Common Stock of the Company ("10% Shareholder") must be granted at an
exercise price of at least 110% of the fair market value of the Common Stock on
the date of the grant. The exercise price of non-ISOs may not be less than 85%
of the fair market value of the Common Stock on the date of grant. The
Administrator will determine the exercise period of the options granted which
shall be no less than one year from the date of grant. Non-ISOs may be
exercisable for a period of up to 13 years from the date of grant. ISOs granted
to persons other than 10% Shareholders may be exercisable for a period of up to
10 years from the date of grant; ISOs granted to 10% Shareholders may be
exercisable for a period of up to five years from the date of grant. The
aggregate fair market value (determined at the time an ISO is granted) of shares
of Common Stock that are subject to ISOs held by a plan participant that may be
exercisable for the first time during each calendar year may not exceed
$100,000.

Payment for shares of Common Stock purchased pursuant to exercise of stock
options may be remitted in cash or by certified check or at the discretion of
the Administrator (i) by promissory note, (ii) promissory note combined with
cash, (iii) by shares of Common Stock having a fair market value equal to the
total exercise price, or (iv) by a combination of items (i)-(iii) above. The
provision that permits the delivery of already owned shares of stock as payment
for the exercise of an option may permit "pyramiding." In general, pyramiding
enables a holder to use shares of Common Stock owned in order to pay for the
exercise of the stock option. This is done by transferring such shares to the
Company as payment of the exercise price for the shares purchased pursuant to
the exercise of the Option. The value of such shares shall be determined by the
market value of the shares at the time of transfer. Thereafter, the shares
received upon the exercise of the option could then be used to do the same.
Thereby, the holder may start with as little as one share of Common Stock and
use the shares of Common Stock acquired in successive, simultaneous exercises of
the option to exercise the entire option, regardless of the number of shares
covered thereby, with no additional cash or investment other than the original
share of Common Stock used to exercise the option.

Upon termination of employment, an optionee will be entitled to exercise
the vested portion of an option for a period of up to three months after the
date of termination except that if the reason for termination was a discharge
for cause, the option shall expire immediately, and if the reason for
termination was death or permanent disability of the optionee, the vested
portion of the option shall remain exercisable for a period of 12 months
thereafter.

In March 1997, the Company granted to each of Mr. Rashbaum and Mr. DiMilia
an option to purchase 100,000 and 50,000 pre-reverse split and pre-dividend
shares, respectively, of Common Stock at an exercise price of $5.125 per share,
pursuant to the Management Plan. The terms of each option were revised in
accordance with the February 1998 reverse split of the Company's Common Stock
and the February 1999 Common Stock dividend and now provide for the purchase of
66,666 and 33,332 shares, respectively, at $1.46 per share. See "Certain
Relationships and Related Transactions."
<PAGE>
Incentive Stock Rights

Incentive stock rights consist of incentive stock units each of which is
equivalent to one share of Common Stock and may be awarded in consideration for
services performed for the Company or any subsidiary. Each incentive stock unit
shall entitle the holder thereof to receive, without payment of cash or property
to the Company, one share of Common Stock in consideration for services
performed for the Company or any subsidiary by the employee, subject to the
lapse of the incentive periods, at which time the Company will issue one share
of Common Stock for each unit awarded upon the completion of each specified
period. If the employment with the Company of the holder of the incentive stock
units terminates prior to the end of the incentive period relating to the units
awarded, the rights will thereupon be null and void, except that if termination
is caused by death or permanent disability, the holder or his heirs, as the case
may be, will be entitled to receive a pro rata portion of the shares represented
by the units, based upon that portion of the incentive period which has elapsed
prior to the death or disability.

Stock Appreciation Rights (SARs)

SARs may be granted to recipients of stock options under the Management
Plan. In the discretion of the Board of Directors, SARs may be granted
simultaneously with, or subsequent to, the grant of a related stock option and
may be exercised to the extent that the related option is exercisable, except
that no general SAR (as hereinafter defined) may be exercised within a period of
six months of the date of grant of such SAR, and no SAR granted with respect to
an ISO may be exercised unless the fair market value of the Common Stock on the
date of exercise exceeds the exercise price of the ISO. An option holder may be
granted general SARs ("general SARs"), limited SARs ("limited SARs"), or both.
General SARs permit the holder thereof to receive - without payment of cash or
property to the Company - cash, shares of Common Stock, or a combination of both
in an amount determined by dividing (i) that portion, elected by the option
holder, of the total number of shares which the holder is eligible to purchase
multiplied by the amount, if any, by which the fair market value of a share of
Common Stock (on the exercise date) exceeds the option exercise price of the
related option by (ii) the fair market value of a share of Common Stock on the
exercise date. Limited SARs are similar to general SARs except that, unless the
Administrator determines otherwise, limited SARs may be exercised only during a
prescribed period following the occurrence of one or more of the following
"change of control" transactions: (i) the approval of the Board of Directors and
shareholders of the Company of a consolidation or merger in which the Company is
not the surviving corporation, the sale of all or substantially all of the
assets of the Company, or the liquidation or dissolution of the Company, (ii)
the commencement of a tender or exchange offer for the Company's Common Stock
(or securities convertible into Common Stock) without the prior consent of the
Board, (iii) the acquisition of beneficial ownership by any person or other
entity (other than the Company or any employee benefit plan sponsored by the
Company) of securities of the Company representing 25% or more of the voting
power of the Company's outstanding securities, or (iv) in the event, during any
period of two consecutive years or less, individuals who at the beginning of
such period constitute the entire Board cease to constitute a majority of the
Board, unless the election, or the nomination for election, of each new director
is approved by at least a majority of the directors then still in office.

An SAR holder may exercise his SAR rights by giving written notice of such
exercise to the Company, which specifies the number of shares of Common Stock
involved. The exercise of any portion of either the related stock option or the
tandem SARs will cause a corresponding reduction in the number of shares
remaining subject to the option or the tandem SARs, thus maintaining a balance
between outstanding options and SARs. SARs have the same termination provisions
as the underlying stock options (as described above) in the event an SAR holder
ceases to be an employee of the Company.

Restricted Stock Purchase Agreements

Restricted share agreements provide for the issuance of restricted shares
of Common Stock to eligible participants under the Management Plan. The Board of
Directors may determine the price to be paid by the participant for the shares
or that the shares may be issued for no monetary consideration. The shares
issued shall be subject to restrictions for a stated restricted period during
which the participant must remain in the Company's employ in order to retain the
shares. Payment may be made in cash, by promissory note, or via a combination of
both. In June 1996, the Company issued an aggregate of 41,667 restricted shares
under the Management Plan: (i) each of Mr. Rashbaum and Mr. Melillo received
33,333 shares and (ii) Charles Rosen, a consultant to the Company, received
16,667 shares. All such shares were subject to a vesting schedule whereby half
of the shares were to vest in each of June 1997 and 1998. Upon the termination
of Mr. Rosen's consulting agreement, his 16,667 shares were cancelled by the
Company; likewise, Mr. Mellilo's 33,333 shares were cancelled upon his
resignation.

Restricted shares awarded under the Management Plan will be subject to a
period of time, designated by the Administrator as the "restricted period,"
during which the holder has limited rights with respect to such shares. The
Administrator may also impose other restrictions, terms, and conditions that
must be fulfilled before the restricted shares may vest. Upon the grant of
restricted shares, stock certificates registered in the name of the recipient
will be issued, and such shares will constitute issued and outstanding shares of
Common Stock for all corporate purposes. The holder will have the right to vote
the restricted shares and to receive all regular cash dividends (and such other
distributions as the Administrator may designate, other than distributions made
solely with respect to the restricted shares ("retained distributions")), if
any, which are paid or distributed on the restricted shares and, generally, to
exercise all other rights as a holder of Common Stock except that until the end
of the restricted period: (i) the holder will not be entitled to take possession
of the stock certificates representing the restricted shares or receive retained
distributions, and (ii) the holder will not be entitled to sell, transfer, or
otherwise dispose of the restricted shares. A breach of any restrictions, terms,
or conditions established by the Administrator with respect to any restricted
shares will cause a forfeiture of such restricted shares.

<PAGE>
Upon expiration of the applicable restricted period(s) and the satisfaction
of any other applicable conditions, the restricted shares and any dividends or
other distributions not distributed to the holder (the "retained distributions")
thereon will become vested. Any restricted shares and any retained distributions
thereon which do not so vest will be forfeited to the Company. If prior to the
expiration of the restricted period a holder's employ is terminated without
cause or because of a total disability (in each case as defined in the
Management Plan) or the holder dies, unless otherwise provided in the restricted
share agreement providing for the award of restricted shares, the restricted
period applicable to each award of restricted shares will thereupon be deemed to
have expired. Unless the Administrator determines otherwise, if a holder's
employment terminates prior to the expiration of the applicable restricted
period for any reason other than as set forth above, all restricted shares and
any retained distributions thereon will be forfeited. Upon forfeiture of any
restricted shares, the Company will repay to the holder thereof any amount the
holder originally paid for such shares.

Acceleration of all awards under the Management Plan shall occur, pursuant
to the provisions of Section 13 the Management Plan, on the first day following
the occurrence of any of the following: (a) the approval by the shareholders of
the Company of an "Approved Transaction," (b) a "Control Purchase," or (c) a
"Board Change."

An "Approved Transaction" is defined as (i) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of Common Stock would be converted into cash,
securities, or other property other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger, (ii) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (iii) the adoption of any plan or proposal for
the liquidation or dissolution of the Company.

A "Control Purchase" is defined as circumstances in which any person (as
such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation, or other entity (other than the Company or any employee benefit
plan sponsored by the Company) (i) shall purchase any Common Stock of the
Company (or securities convertible into the Company's Common Stock) for cash,
securities, or any other consideration pursuant to a tender offer or exchange
offer, without the prior consent of the Board of Directors or (ii) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the
case of rights to acquire the Company's securities).

A "Board Change" is defined as circumstances in which, during any period of
two consecutive years or less, individuals who at the beginning of such period
constitute the entire Board shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least a majority
of the directors then still in office.

Non-Executive Director Stock Option Plan

The Company terminated its Non-Executive Director Stock Option Plan on
December 31, 1998, in accordance with the terms thereof.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership of the Company's outstanding Common Stock as of March 29, 1999 by (i)
each beneficial owner of 5% or more of the Company's Common Stock; (ii) each of
the Company's executive officers, directors and key employees; and (iii) all
executive officers, directors, and key employees as a group. All numbers
reflected herein and in the footnotes hereto have been adjusted to reflect the 1
for 3 reverse split effected on February 5, 1998 and the Common Stock dividend
paid on February 5, 1999.

Name and Address Number of Shares Percent of Common Stock Beneficially Owned (2)(3)
of Beneficial Owner Beneficially Owned (1)
------------------- ------------------

European Ventures Corp.
<S> <C> <C> <C>
P.O. Box 47 1,440,700 (4) 26.8%
Road Town,
Tortola, British Virgin Islands

Harold Rashbaum
c/o Hollywood Productions, Inc. -- (5) 1.2%
14 East 60th Street, Suite 402
New York, New York 10022

Robert DiMilia
c/o Hollywood Productions, Inc. -- (6) *
14 East 60th Street, Suite 402
New York, New York 10022

Alain Le Guillou, M.D.
c/o Hollywood Productions, Inc. -- --
14 East 60th Street, Suite 402
New York, New York 10022

(table continued from previous page)

James Frakes
c/o Hollywood Productions, Inc. -- --
14 East 60th Street, Suite 402
New York, New York 10022

All Officers and Directors as a Group (four persons)
-- (5)(6) 1.8%
</TABLE>
* Less than 1%

(1) Unless otherwise noted, all of the shares shown are held by individuals
or entities possessing sole voting and investment power with respect to such
shares. Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual or entity to acquire them within 60 days, whether by the
exercise of options or Warrants, are deemed outstanding in determining the
number of shares beneficially owned by such person or entity.

(2) The "Percent of Common Stock Beneficially Owned" is calculated by
dividing the "Number of Shares Beneficially Owned" by the sum of (i) the total
outstanding shares of Common Stock of the Company, and (ii) the number of shares
of Common Stock that such person or entity has the right to acquire within 60
days, whether by exercise of options or Warrants. The "Percent of Common Stock
Beneficially Owned" does not reflect shares beneficially owned by virtue of the
right of any person, other than the person named and affiliates of said person,
to acquire them within 60 days, whether by exercise of options or Warrants.

(3) Does not give effect to the issuance of (i) 2,560,000 shares of Common
Stock issuable upon exercise of the 3,840,000 outstanding Warrants, at an
exercise price of $9.00 per share or (ii) 116,666 shares of Common Stock
reserved for issuance under the Company's Senior Management Incentive Plan.

(4) Does not include 1,600 shares of Common Stock underlying the 2,400
Warrants owned by EVC.

(5) Does not include 66,666 shares of Common Stock underlying an option
granted under the Company's Senior Management Incentive Plan. See "Executive
Compensation."

(6) Does not include 33,332 shares of Common Stock underlying an option
granted to Robert DiMilia under the Company's Senior Management Incentive Plan.
See "Executive Compensation."

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On February 1, 1999, the Company loaned $100,000 to Play Co. (a toy
retailer and publicly traded company whose board chairman is the President of
both the Company and Breaking Waves) and received in exchange therefor an
unsecured promissory note bearing interest at 9% per annum. The note is payable
by Play Co. in four monthly installments commencing March 15, 1999 and ending
June 15, 1999.

On November 24, 1998, pursuant to its Sales Agreement entered into in
September 1998 by and between Breaking Waves and Play Co., Breaking Waves
purchased 1.4 million unregistered shares of Play Co.'s common stock in a
private transaction. As a result of this stock purchase, Breaking Waves acquired
approximately 25.4% of the total issued and outstanding shares of Play Co.
common stock. As consideration for the stock, Breaking Waves remitted $504,000,
which represented an approximate price of $0.36 per share: $300,000 of the
consideration was remitted in cash, and the remaining $204,000 was provided in
the form of merchandise, primarily girls' swimsuits.

In April 1998, the Company completed a private placement of 700,000 shares
of the Company's Common Stock at a price of $1.60 per share. HDS Capital Corp.,
a company whose secretary is related to the Company's President, purchased
250,000 such shares thereby. See "Description of Business-Private Offerings of
Common Stock and Registration Thereof."

In February 1998, the Company completed a private placement of 600,000
shares of the Company's Common Stock at a price of $0.65 per share. American
Telecom Corporation, a company whose president, secretary, and a director is
related to the Company's President, purchased 200,000 shares thereby. See
"Description of Business-Private Offerings of Common Stock and Registration
Thereof."

During the years ended December 31, 1998 and 1997, the Company remitted
$27,000 and $69,500, respectively, in financial consulting fees to DRA
Consulting, Inc., a company whose president is related to the Company's
President.

In March 1997, the Company granted to each of Harold Rashbaum and Robert
DiMilia an option to purchase 100,000 and 50,000 pre-reverse split shares,
respectively, of Common Stock at an exercise price of $5.125 per share, pursuant
to the Management Plan. The terms of this option were revised in accordance with
the February 1998 reverse split of the Company's Common Stock and the February
1999 Common Stock dividend and now provide for the purchase of 66,666 and 33,332
shares, respectively, at $1.46 per share. See "Executive Compensation - Senior
Management Incentive Plan."

In October 1996, in exchange for two promissory notes, the Company loaned
Mr. Rashbaum and Robert Melillo (the former Chief Executive Officer, President,
and Director of the Company) an aggregate of $87,000 bearing interest at 6 1/2%
payable over three years. In January 1997, the balance of Mr. Melillo's note,
aggregating $30,130, was forgiven as part of a severance package provided to
same.

In June 1996, the Company issued 33,333 shares of Common Stock to Mr.
Melillo under the Management Plan. The shares were to vest at the rate of in
each of June 1997 and 1998. On January 10, 1997, Mr. Melillo resigned and agreed
to return 16,667 shares to the Company. Mr. Melillo failed to comply with the
terms of his resignation; therefore, all 33,333 shares were cancelled. See
"Executive Compensation - Employment and Consulting Agreements."

Before he became an Officer and Director of the Company, Mr. Rashbaum
provided consulting services to the Company through HBR, a company of which he
is an officer and director and of which his wife is the sole shareholder. HBR
entered into an oral consulting agreement with the Company whereby it will
receive 5% of the net profits received by the Company from the distribution of
Dirty Laundry. In addition, HBR received $40,000 and 5,000 shares of the
Company's Common Stock at the closing of the Company's initial public offering.
From October 1996 through March 1997, Mr. Rashbaum received a salary of $104,000
per annum for being an officer and director of the Company. In March 1997, Mr.
Rashbaum's salary was increased to $156,000 per annum. In addition, Mr. Rashbaum
received 33,333 shares of Common Stock under the Management Plan, one half of
which shares vested in each of June 1997 and June 1998. See "Executive
Compensation - Employment and Consulting Agreements."

<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following financial statements of the Company are included as Part
II,

Item 8:
<TABLE>
<CAPTION>

<S> <C>
Index to Financial Statements ................................ F-0
Report of Independent Certified Public Accountants ........... F-1
Balance Sheets ............................................... F-2
Statements of Operations ..................................... F-3
Statement of Stockholders' Equity ............................ F-4
Statements of Cash Flows ..................................... F-5 - F-6
Notes to Financial Statements ................................ F-7 - F-25
</TABLE>

On October 29, 1998, the Company filed a report on Form 8-K disclosing the
dismissal of Scarano & Tomaro, P.C. as auditors of the Company. The Form 8-K was
amended on November 24, 1998.

The following exhibits which are designated by an asterisk (*) are filed
herewith, and those designated by (**) shall be filed by amendment hereto.
Exhibits not so designated previously were filed with the Securities and
Exchange Commission with either (i) the Registration Statement on Form SB-2,
file no. 333-5098-NY, (ii) the Registration Statement on Form SB-2, file no.
333-5098-NY, Post-Effective Amendment No. 1, (iii) the Registration Statement on
Form SB-2, file no. 333-5098-NY, Post-Effective Amendment No. 2, or (iv) such
other documents as the Company has filed with the Securities and Exchange
Commission as designated below. Pursuant to 17 C.F.R. 230.411, each exhibit
filed by the Company is incorporated by reference herein.
<TABLE>
<CAPTION>

<S> <C>
3.1 Certificate of Incorporation of the Company
3.2 Amendment to Certificate of Incorporation of the Company, filed in June 7, 1996
3.4 By-Laws of the Company
3.6 Certificate of Incorporation of Breaking Waves, Inc.
3.7 By-Laws of Breaking Waves, Inc.
4.1 Specimen Common Stock Certificate
4.2 Specimen Warrant Certificate
4.4 Form of Warrant Agreement between the Company, the Underwriter and Continental
Stock Transfer & Trust Company
4.5 Form of Restricted Stock Agreement
10.2 The Company's Senior Management Incentive Plan
10.4 Consulting Agreement between Breaking Waves, Inc. and Dan Stone
10.5 Lease for premises at 112 West 34th Street, New York, New York
10.6 Lease for premises at 8410 N.W. 53rd Terrace, Miami, Florida
10.6(a) Amendment to lease at 8410 N.W. 53rd Terrace, Miami, Florida
10.7 Stock Purchase Agreement between the Company, European Ventures Corp., Breaking Waves, Inc., and the
shareholders of Breaking Waves, Inc., dated May, 1996
10.9 Property Acquisition Agreement between the Company and Rogue Features, Inc., dated March, 1996
10.10 Co-production agreement between the Company and Rogue Features, Inc., dated March, 1996 and all amendments
thereto
10.11 Right of First Refusal Agreement with principals of Rogue Features, Inc.
10.13 Shippers Agency Agreement between Hollywood Productions, Inc., and Third Party Enterprises, Inc.
10.14 License Agreement between Breaking Waves, Inc. and Beach Patrol, Inc.
10.16 Employment Agreement with Michael Friedland (incorporated by reference to the indicated exhibit in the
Company's 10-KSB for the year ended December 31, 1996)
10.17 Employment Agreement with Malcolm Becker (incorporated by reference to the indicated exhibit in the
Company's 10-KSB for the year ended December 31, 1996)
10.18 Termination of Employment Agreement with Robert Melillo (incorporated by reference to the indicated
exhibit in the Company's 10-KSB for the year ended December 31, 1996)
10.19 Trident Releasing, Inc. License Agreement (incorporated by reference to the indicated exhibit in the
Post-Effective Amendment No.1)
10.20 Cyclone Option Agreement (incorporated by reference to the indicated exhibit in the Post-Effective
Amendment No.1)
10.21 Cyclone Co-Writer Agreement (incorporated by reference to the indicated exhibit in the Post-Effective
Amendment No.1)
10.22 Heller Financial Agreement (incorporated by reference to the indicated exhibit in the Post-Effective
Amendment No.2)
10.23 Non-Executive Director Stock Option Plan (incorporated by reference to Appendix B in the Proxy Statement
for the Company's June 1997 Annual Meeting)
10.24 Kawasaki Motors Corp., USA "Jet Ski" License Agreement (incorporated by reference to the indicated exhibit
in the Company's 10-KSB for the year ended December 31, 1997)
10.25 Amendment to lease at 112 West 34th Street, New York, New York (incorporated by reference to the indicated
exhibit in the Company's 10-KSB for the year ended December 31, 1997)
10.26 Form of Subscription Agreement used in connection with the Company's February 1998 Private Placement
(incorporated by reference to the indicated exhibit in the Company's 10-KSB for the year ended
December 31, 1997)
10.27* Form of Subscription Agreement used in connection with the Company's May 1998 Private Placement
10.28* Amendment to Employment Agreement with Michael Friedland dated January 1, 1998
10.29* Amendment to Employment Agreement with Malcolm Becker dated January 1, 1998
10.30* Second Amendment to Employment Agreement with Malcolm Becker dated January 1, 1999
10.31** Lease for premises at 14 East 60th Street, Room 402, New York, New York
16.01 Letter from Scarano & Tomaro, P.C. regarding dismissal of Scarano & Tomaro, P.C. as the Company's auditors
(incorporated by reference to the indicated exhibit in the Company's Form 8-K/A filed on November 24, 1998)
27.1* Financial Data Schedule

</TABLE>
<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

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

Page
number

<S> <C>
Independent auditors' report F-1

Consolidated balance sheet at December 31, 1998 F-2

Consolidated statements of operations for the years ended
December 31, 1998 and 1997 F-3

Consolidated statement of stockholders' equity for the years ended
December 31, 1998 and 1997 F-4

Consolidated statements of cash flows for the years ended
December 31, 1998 and 1997 F-5 - F-6

Notes to consolidated financial statements F-7 - F-25
</TABLE>

<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Hollywood Productions, Inc

We have audited the accompanying consolidated balance sheet of Hollywood
Productions, Inc. and Subsidiary the "Company", as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1998 and the consolidated results of its
operations and cash flows for the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles.

Massella, Tomaro & Co., LLP
Jericho, New York
February 25, 1999

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>

ASSETS

Current assets:
<S> <C>
Cash $ 159,526
Cash - restricted 1,150,000
Accounts receivable 53,228
Prepaid expenses 52,668
Inventory 2,663,003
Advances to officer 18,000
Deferred tax asset 55,000
-----------------
Total current assets 4,151,425

Furniture, computer equipment, and leasehold improvements, net 78,875
Film production and distribution costs, net 1,901,222
Costs in excess of net assets of business acquired 904,641
Investments in joint venture and affiliate 1,177,270
Advances to officer - non-current portion 22,000
Organizational costs, net 50,000
Deferred tax asset - non current 173,658
Other assets 20,635
-----------------
Total assets $8,479,726

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 70,202
Accrued expenses 540,204
Due to factor 2,063,554
Capital lease obligations 13,589
Deferred tax liability 50,159
-----------------
Total current liabilities 2,737,708

Capital lease obligations, net of current portion 43,683
-----------------

Total liabilities 2,781,391

Commitments and contingencies (Note 9) -

Stockholders' equity:
Common stock - $.001 par value, 20,000,000 shares authorized,
5,373,388 shares issued and outstanding (Notes 1 and 13) 5,374
Additional paid-in capital 6,307,416
Accumulated deficit (614,455)
------------------
Total stockholders' equity 5,698,335

Total liabilities and stockholders' equity $ 8,479,726
=================
</TABLE>

See accompanying notes to consolidated financial statements

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,

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

<S> <C> <C>
Net sales ......................................................... $ 5,276,459 $ 5,307,115

Cost of sales ..................................................... 3,343,364 3,263,744
----------- -----------

Gross profit ...................................................... 1,933,095 2,043,371
----------- -----------

Expenses:
Selling, general, and administrative expenses ................. 2,349,510 2,179,441
Amortization of costs in excess of net assets of business
acquired ...................................................... 70,952 70,952
----------- -----------

Total expenses .................................................... 2,420,462 2,250,393
----------- -----------

Loss before other income (expense)
and provision for income taxes ................................... (487,367) (207,022)
----------- -----------

Other income (expense):
Equity in earnings of affiliate ............................... 473,270 --
Rental income ................................................. 15,947 --
Cancellation (issuance) of stock issued in lieu of compensation 62,500 (62,500)
Public offering costs ......................................... (91,385) --
Interest and finance expense .................................. (224,603) (224,396)
Interest income ............................................... 90,249 98,316
----------- -----------
Total other income (expense) ............................. 325,978 (188,580)
----------- -----------

Loss before (benefit) provision for
income taxes ..................................................... (161,389) (395,602)

(Benefit) provision for income taxes .............................. (192,383) 27,865
----------- -----------

Net income (loss) ................................................. 30,994 (423,467)

Other items of comprehensive income ............................... -- --
----------- -----------

Comprehensive net income (loss) ................................... $ 30,994 $ (423,467)
----------- -----------

Basic:
Net loss ...................................................... $ .01 $ (.10)
=========== ===========

Weighted average number of
common shares outstanding ........................................ 4,990,554 4,064,080
=========== ===========

</TABLE>

See accompanying notes to consolidated financial statements

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares* Amount Capital Deficit Equity

<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 ........ 4,078,334 $ 4,054 $ 5,653,754 $ (221,982) $ 5,435,826

Cancellation of common stock in
connection with senior management
incentive income plan ............... (16,666) (50) (62,450) -- (62,500)

Issuance of common stock pursuant to a
management employment agreement ..... 28,888 86 24,914 -- 25,000

Net loss for the year ended
December 31, 1997 ................... -- -- -- (423,467) (423,467)
----------- ----------- ----------- ----------- -----------

Balances at December 31, 1997 ........ 4,090,556 4,090 5,616,218 (645,449) 4,974,859

Sale of common stock ................. 1,300,000 1,300 753,682 -- 754,982

Cancellation of common stock
in connection with Senior
Management Plan ..................... (16,668) (16) (62,484) -- (62,500)

Net income for the year ended
December 31, 1998 ................... -- -- -- 30,994 30,994
----------- ----------- ----------- ----------- -----------

Balances at December 31, 1998 ........ 5,373,888 $ 5,374 $ 6,307,416 $ (614,455) $ 5,698,335
=========== =========== =========== =========== ===========
</TABLE>

*Notes 1 and 13

See accompanying notes to consolidated financial statements
<PAGE>

HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>

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

Cash flows from operating activities:
<S> <C> <C>
Net income (loss) .......................................... $ 30,994 $ (423,467)
Adjustments to reconcile net income (loss) to net
cash (used for) operating activities:
Equity earnings in affiliate ........................... (473,270) --
Amortization and depreciation .......................... 283,584 169,980
Expensing of deferred offering cost .................... 87,385 --
Sale of inventory to acquire common stock .............. (204,000) --
Deferred income tax (benefit) expense .................. (195,660) 4,852
Forgiveness of note receivable in lieu of compensation . -- 30,130
Cancellation (issuance) of stock issued for compensation (62,500) 87,500
Decrease (increase) in:
Accounts receivable ................................. (29,911) (966)
Prepaid Expenses .................................... (6,427) 42,319
Inventory ........................................... (279,811) (567,666)
Film production costs ............................... (277,378) (268,597)
Security deposits ................................... (1,533) (9,924)
Increase (decrease) in:
Accounts payable .................................... (64,216) 72,130
Accrued expenses .................................... 336,743 98,405
Due to factor ....................................... 312,660 316,208
Income taxes payable .............................. -- (35,279)
----------- -----------

Net cash used for operating activities ........................ (543,340) (484,375)
----------- -----------

Cash flows from investing activities:
Acquisition of furniture, computer equipment, and
leasehold improvements ................................... (10,891) (19,084)
Investment in common stock of affiliate .................... (300,000) --
Investment in joint venture ................................ (200,000) --
Subsidiary's redemption of preferred stock ................. (280,000) (280,000)
----------- -----------

Net cash used for investing activities ........................ (790,891) (299,084)
----------- -----------

Cash flows from financing activities:
Sale of common stock ....................................... 754,982
Repayments from (advances to) related parties .............. 40,028 (13,804)
Principal payments on capital leases ....................... (4,234) --
Offering costs incurred .................................... -- (67,385)
----------- -----------

Net cash provided by (used for) financing activities .......... 790,776 (81,189)
----------- -----------

Net (decrease) in cash ........................................ (543,455) (864,648)

Cash, beginning of period ..................................... 1,852,981 2,717,629
----------- -----------

Cash, end of period ........................................... $ 1,309,526 $ 1,852,981
=========== ===========

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,

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

Supplemental disclosure of non-cash flow information: Cash paid during the year
for:
<S> <C> <C>
Interest .................................... $ 224,603 $224,396
=================== ========
Income taxes ................................ $ 3,277 $ 57,528
=================== ========

Schedule of non-cash operating activities:
In connection with the recognition of deferred
compensation, 28,888 shares of common
stock were issued as consideration for services .. $ -- $ 25,000
=================== ========

In connection with the (cancellation) issuance of
compensation, 16,667 shares of common stock
were (cancelled) issued .......................... $ (62,500) $ 62,500
=================== ========

Schedule of non-cash investing activities:
Acquisition of office equipment and software in
connection with capital lease obligations ........ $ 61,506 $ --
=================== ========

Acquisition of an equity interest in Play Co. Toys
& Entertainment Corp., in exchange for
merchandise inventory ............................ $ 204,000 $ --
=================== ========

</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTE 1 - ORGANIZATION

Hollywood Productions, Inc. (the "Company") was incorporated in the State
of Delaware on December 1, 1995. The Company was formed for the purpose of
acquiring screenplays and producing motion pictures. During September 1996,
simultaneously with the completion of its Initial Public Offering ("IPO"), the
Company acquired all the capital stock of Breaking Waves, Inc. ("Breaking
Waves"). Breaking Waves designs, manufactures, and distributes private and brand
name labels of children's swimwear nationally.

The Company, directly and through Breaking Waves, has investments in a
joint venture and an affiliate, which are accounted for on the equity method.

On February 5, 1998, the Company declared a 1 for 3 reverse stock split. On
January 14, 1999, the Company declared a 100% stock dividend to all its
shareholders of record as of January 19, 1999. Such stock dividend was paid on
February 5, 1999. Accordingly, the financial statements give retroactive effect
to such stock split and dividend to which all record holders are entitled. See
Note 13.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary Breaking Waves after elimination of
all significant intercompany transactions and accounts. Affiliated companies
which are 20 to 50 percent owned are accounted for on the equity method.

b) Cash and cash equivalents

The Company considers highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Included in these
amounts are certificates of deposit of approximately $1,166,234. The Company
maintains cash deposits in accounts which are in excess of Federal Deposit
Insurance Corporation limits by approximately $1,100,000. The Company believes
that such risk is minimal. The Company maintains a letter of credit with a
financial institution as a condition of its factoring agreement. The financial
institution requires the Company to maintain $1,150,000 on deposit as collateral
for the letter of credit. Accordingly, such cash is designated as restricted.

c) Inventory

Inventory amounting to $2,663,003 at December 31, 1998 consists of finished
goods and is valued at the lower of cost (using the first-in, first-out method)
or market. All inventory is pledged as collateral for factored receivables
pursuant to a factoring agreement with a financial institution.

d) Film production and distribution costs

The Company follows industry standards in capitalizing film production and
distribution costs. Film production and distribution costs include all costs
associated with the writing, producing, and distribution of the film. Film costs
include the costs of production, prints, pre-release, and other advertising
expected to benefit future periods. These costs, as well as participation and
talent residuals, are charged against earnings on an individual film basis in
the ratio that the current year's gross film revenues bear to management's
estimate of total remaining ultimate gross film revenues from all sources.

Film costs are stated at the lower of cost or estimated net realizable
value on an individual film basis. Revenue and cost forecasts are continually
reviewed by management and revised when warranted by changing conditions.
Estimates of total gross revenues can change significantly due to the level of
market acceptance of film products. Accordingly, revenue estimates are reviewed
periodically and amortization is adjusted. Such adjustments could have a
material effect on the results of operations in future periods. When estimates
of total revenue and costs indicate that a feature film will result in an
ultimate loss, additional amortization is recognized to the extent required to
produce a zero gross margin over the remaining life of the film.
<PAGE>
For the year ended December 31, 1998, the Company has amortized $122,126 of
film production and distribution costs.

e) Income taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes"
which requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
respective periods' taxable income for federal, state and city income tax
reporting purposes.

f) Revenue and cost recognition

Breaking Waves' sales are recognized upon the shipment from the warehouse.
Sales returns are recorded upon acceptance of the goods by the warehouse. Duty
costs, which are a component of cost of sales, are recorded upon the clearance
of such goods through customs.

Revenues from the theatrical distribution of motion pictures are recognized
when motion pictures are exhibited. Revenues from video sales are recognized,
together with related costs, on the date that video units are made widely
available for sale by retailers. Revenues from the licensing of feature films,
together with related costs, are recorded when the material is available for
telecasting by the licensee and when certain other conditions are met. Film
production and distribution costs are stated at the lower of unamortized cost or
estimated net realizable value. In accordance with SFAS 53, the individual film
forecast method is used to amortize film costs.

g) Earnings per share

During 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 replaced the previously required reporting of
primary and fully diluted earnings per share with basic and diluted earnings per
share, respectively. Unlike the previously reported primary earnings per share,
basic earnings per share excludes the dilutive effects of stock options. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. Earnings per share amounts for all periods presented have been
calculated in accordance with the requirements of SFAS No. 128.

h) Use of estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
which affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. The most significant estimate
with regard to these financial statements is the estimate of projected income of
motion picture which is the basis used in amortizing film production and
distribution costs. Actual results could differ from those estimates.

i) Fair value disclosure at December 31, 1998

The carrying value of cash, accounts receivable, inventory, accounts
payable, accrued expenses, and capital lease obligations are a reasonable
estimate of their fair value.

Reclassifications

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

Long-Lived Assets

During 1997, the Company adopted the SFAS No. 121, "Accounting for the
impairment of long lived assets and for long lived assets to be disposed of."
The statement requires that long lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. There was no impact on the Company's results of
operations or financial condition upon the adoption of SFAS No. 121, nor has the
Company had to adjust the carrying value of its long lived assets.

l) Deferred compensation

Deferred compensation consists of common stock issued in lieu of
compensation pursuant to the 1996 Senior Management Incentive Plan ("Incentive
Plan") and management employment agreements. Such costs have been amortized
using the straight line method over the period of the vesting rights of the
respective shares.

m) Organizational costs

Organizational costs consist of common stock issued in lieu of legal costs
incurred in the establishment of the Company. Organizational costs are being
amortized on a straight line basis over their estimated useful lives of five
years.

n) Costs in excess of net assets of business acquired.

<PAGE>
Costs in excess of net assets of business acquired in connection with the
acquisition of Breaking Waves are being amortized on a straight line basis over
the estimated useful life of the related assets acquired for a period of fifteen
years.

o) Deferred offering costs

Deferred offering costs incurred during 1997 consist of professional fees
and advances to an underwriter in connection with a IPO of Breaking Waves which
was terminated during 1998. Accordingly, all such costs related to the IPO have
been expensed and charged to operations in 1998.

p) Accounting for stock-based compensation

The Company elected to continue to measure compensation cost using
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," as is permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
options issued under the Incentive Plan as the exercise price and market value
at the date of grant were the same. For companies that choose to continue
applying APB No. 25, SFAS No. 123 requires certain pro forma disclosures as if
the fair value method had been utilized. Had compensation cost for the Company's
stock-based compensation plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of SFAS No.
123, the Company's net income (loss) and earnings per share would have been
reduced to the pro forma amounts indicated below utilizing the Black-Sholes
option pricing model:
<TABLE>
<CAPTION>

1998 1997
---------------- ----------
Net income (loss)-
<S> <C> <C>
as reported $ 30,994 $ (423,467)
pro forma $ 30,994 $ (533,217)
================ ================

Basic EPS - as reported $ .01 $ (.10)
=============== =================
pro forma $ .01 $ (.13)
================ ================
</TABLE>

q) Effect of New Accounting Standards

The Company does not believe that any recently issued accounting standards,
not yet adopted by the Company, will have a material impact on its financial
position and results of operations when adopted.

r) Furniture, Computer Equipment, and Leasehold Improvements

Furniture, computer equipment, and leasehold improvements are recorded at
cost less accumulated depreciation and amortization which is provided on the
straight line basis over the estimated useful lives of the assets which range
between five and seven years. Expenditures for maintenance and repairs are
expensed as incurred.

s) Equity Method of Accounting

Investments in significantly (20 to 50 percent) owned affiliates are
accounted for by the equity method of accounting, whereby the investment is
carried at cost of acquisition, plus the Company's equity percentage in
undistributed earnings or losses since acquisition. Reserves are provided where
management determines that the investment or equity in earnings is not
realizable.

<PAGE>
t) Accounts Receivables

The Company utilizes the allowance method for recognizing the
collectibility of its accounts receivables. The allowance method recognizes bad
debt expense based on a review of the individual accounts outstanding based on
the surrounding facts. As of December 31, 1998, no allowance was deemed
necessary by management.

NOTE 3 - FURNITURE, COMPUTER EQUIPMENT & LEASEHOLD IMPROVEMENTS

Furniture, computer equipment, and leasehold improvements are as follows at
December 31, 1998:

Furniture & fixtures .......... $ 37,944
Computer equipment and software 66,017
Leasehold improvements ........ 4,594
--------

108,555
Less: accumulated depreciation
and amortization ..... 29,680
--------
$ 78,875
========

Computer equipment and software amounting to $61,506 is pledged in
connection with capital lease obligations.

Depreciation and amortization expense for the years ended December 31, 1998
and 1997 amounted to $11,340 and $10,621, respectively.

NOTE 4 - ACQUISITION OF BREAKING WAVES, INC.

Pursuant to a stock purchase agreement dated May 31, 1996 (the
"Agreement"), on September 24, 1996, the Company issued 100,000 shares of Common
Stock in exchange for all of the issued and outstanding capital stock of
Breaking Waves. The transaction was accounted for using the purchase method of
accounting. As a result of the transaction, excess of cost over net assets
acquired totaling $1,064,283 was recorded and is being amortized over the useful
lives of the related assets which is fifteen years. Amortization expense totaled
$70,952 for the years ended December 31, 1998 and 1997, respectively.

Prior to the consummation of the Company's IPO, during September 1996,
Breaking Waves performed a re-capitalization and exchanged all of its existing
common stock for new common stock, and a series of preferred stock. Pursuant to
the Agreement, Breaking Waves issued 5,600 shares of its newly authorized Series
A Preferred Stock to its previous stockholders in proportion to their respective
holdings. The holders of the shares of Series A Preferred Stock had the right to
redemption whereby, on each of January 1, 1997 and 1998, Breaking Waves redeemed
one-half of the outstanding shares of the Series A Preferred Stock, at a
redemption price of $100 per share on a pro rata basis. During of January 1997
and 1998, 2,800 such shares of the Series A Preferred Stock of Breaking Waves
were redeemed for a total of $280,000 in each year.

NOTE 5 - INVESTMENT IN JOINT VENTURE AND AFFILIATE

a) Investment in Joint Venture

Pursuant to a co-production agreement dated April 17, 1998, the Company
invested $200,000 for a 50% interest in a newly formed entity, Battle Studies
Productions, LLC ("Battle Studies") a limited liability company. Northfolk
Films, Inc. ("NFF"), an unrelated party, also invested $200,000 for the
remaining 50% interest in Battle Studies. Battle Studies will be treated as a
joint venture in order to co-produce motion pictures and to finance the costs of
production and distribution of such motion pictures. The joint venture retains
all rights to the motion pictures, the screenplays, and all ancillary rights
attached thereto. As of December 31, 1998, Battle Studies had completed filming
its first motion picture and was in post production.

The Company accounts for the investment in Battle Studies on the equity
method. Accordingly, as of December 31, 1998, the Company has only recorded its
initial $200,000 investment in the joint venture since no operations have yet
commenced.

b) Investment in Affiliate

On November 24, 1998, pursuant to a sales agreement (the "Sales Agreement")
entered into during September 1998 by and between Breaking Waves and Play Co.
Toys & Entertainment Corp. ("Play Co," a toy retailer and a publicly traded
company whose Chairman of the Board is also the President of the Company and
Breaking Waves), Breaking Waves purchased 1,400,000 unregistered shares of Play
Co.'s common stock for a total of $504,000 comprised of $300,000 in cash and by
shipping $204,000 of merchandise to Play Co. After the purchase, Breaking Waves
owned a 25.4% of the outstanding common stock of Play Co.

Breaking Waves accounts for its investment under the equity method. For the
year ended December 31, 1998, Breaking Waves recorded $473,270 of equity
earnings for its proportionate share in Play Co.'s earnings from November 24,
1988 to December 31, 1998.

Play Co.'s operations are highly seasonal with approximately 30-40% of its
net sales historically falling within the last three months of the calendar
year. Accordingly, the equity earnings in Play Co. are not indicative of the
results to be expected if the investment in Play Co. was consummated at the
beginning of the year.
<PAGE>
The following unaudited pro forma information presents the results of
operations of the Company for the years ended December 31, 1998 and 1997 as if
the investment in Play Co. was consummated at the beginning of its year:
<TABLE>
<CAPTION>

Year Ended December 31,
1998 1997
(Unaudited)

<S> <C> <C>
Net Sales ............. $ 5,276,459 $ 5,307,115
Cost of Sales ......... 3,343,364 3,263,744
Total Expenses ........ 2,420,462 2,250,393
Other Income (Expenses) (192,354) (718,102)
Net Loss .............. (487,338) (952,989)
Net Loss per share .... (.10) (.23)

</TABLE>
These unaudited pro forma results of operations have been prepared for
comparat ive purposes only and do not purport to be indicative of the results of
operations which would have actually resulted had the acquisition occurred on
the date indicated, or of future results of operations.

NOTE 6 - DUE TO FACTOR

NationsBanc

Heller

On August 20, 1997, Breaking Waves entered into a factoring and revolving
inventory loan and security agreement (as amended December 9, 1998) 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 a factoring commission of
.85% of the first $5,000,000 of receivables sold and .65% of receivables sold in
excess of $5,000,000 for each year. Heller retains from the amount payable to
Breaking Waves a reserve for possible obligations such as customer disputes and
possible credit losses on unapproved receivables. Breaking Waves may take
advances of up to 85% of the receivable, with interest at the rate of 1 3/4%
over prime. In connection with the factoring agreement, the Company agreed to
maintain $1,150,000 of cash in a segregated account in order to collateralize
standby letters of credit.

Interest expense related to this agreement totaled $224,603 and $67,611,
respectively, for the years ended December 31, 1998 and 1997. Heller has a
continuing interest in Breaking Wave's inventory as collateral for the advances.
As of December 31, 1998, the net advances to Breaking Waves from the factor
amounted to $2,063,554.

NOTE 7 - CAPITAL LEASE OBLIGATIONS

During 1998, the Company acquired computer equipment and proprietary
software for its subsidiary, Breaking Waves, pursuant to the following terms and
conditions:

i) On August 13, 1998, the Company acquired various computer and related
components for $28,583 by entering into a capital lease obligation with interest
at approximately 9.2% per annum, requiring 48 monthly payments of principal and
interest of $713. The lease is secured by the related computer equipment.

ii) On September 13, 1998, the Company acquired proprietary software for
$32,923 by entering into a capital lease obligation with interest at
approximately 10.9% per annum, requiring 48 monthly payments of principal and
interest of $850. The lease is secured by the related software.

At December 31, 1998, the aggregate future minimum lease payments due
pursuant to the above capital lease obligations are as follows:

Year
ended
December
31:

<S> <C>
1999 $ 18,757
2000 18,757
2001 18,757
2002 13,355
-----------------
Total minimal lease payments 69,626

Less: Amounting representing Interest 12,354

Present value of net minimum
lease payments $ 57,272
===============
</TABLE>
<PAGE>
At December 31, 1998 equipment and software under capital leases is carried
at a book value of $59,115.

NOTE 8 - PROVISION (BENEFIT) FOR INCOME TAX

Provision (benefit) for income tax is comprised of the following for the
years ended December 31:
<TABLE>
<CAPTION>

1998 1997
Current:
<S> <C> <C>
Federal $ - $ -
State and local 3,277 23,013
---------- ------------
3,277 23,013
---------- ------------
Deferred:
Federal (145,501) 2,257
State and local (50,159) 2,595
----------- ------------
(195,660) 4,852
----------- ------------
Total (benefit) provision for income taxes $ (192,383) $ 27,865
================== ===============
</TABLE>

A reconciliation of the provision for income taxes on income per the
federal statutory rate to the reported income tax expense is as follows for the
years ended December 31:
<TABLE>
<CAPTION>

1998 1997

Federal statutory rate applied to
<S> <C> <C>
pretax loss ................................ $ (38,187) $(129,155)

State and local income taxes, net of federal
income tax benefit, applied to pretax loss . (13,478) (55,992)

Permanent differences ....................... 8,447 14,302

(Decrease) Increase in valuation allowance .. (63,175) 170,845

Current provision for state and local taxes . 3,277 23,013

(Increase) in deferred tax assets ........... (122,265) --

(Decrease) increase in deferred tax liability 32,998 4,852
--------- ---------

Total provision for income taxes ...... $(192,383) $ 27,865
========= =========
</TABLE>

Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related to differences between the financial statement and tax bases of assets
and liabilities for financial statement and income tax reporting purposes.
Deferred tax assets and liabilities represent the future tax return consequences
of these temporary differences, which will either be taxable or deductible in
the year when the assets or liabilities are recovered or settled. Accordingly,
measurement of the deferred tax assets and liabilities attributable to the
book-tax basis differentials are computed at a rate of 34% federal and 12% state
and local pursuant to SFAS No. 109.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

The tax effect of significant items comprising the Company's current
deferred tax assets are as follows as of December 31, 1998:
<TABLE>
<CAPTION>

<S> <C>
Net operating loss carryforwards $ 47,470
Section 263A inventory capitalization 7,530
Valuation allowance -
--------------

Deferred current tax asset $ 55,000
=============

The tax effect of significant items comprising the Company's
net non-current deferred tax asset and liability are as follows as of December
31, 1998:

Net operating loss carryforwards $ 352,451
Valuation allowance (128,634)
---------------
Deferred non-current tax asset 223,817
--------------

Equity in earnings of affiliate $ 56,777
Depreciable assets (6,618)
---------------
Deferred non-current tax liability 50,159
--------------

Net non-current deferred tax asset $ 173,658
==============

</TABLE>
<PAGE>
The Company and its subsidiary file a consolidated tax return for federal
tax purposes. For state and local purposes, the Company and its subsidiary file
separate tax returns. As such, each entity computes its state and local tax
based on its own taxable income or loss.

At December 31, 1998, the Company had a net operating loss carryforward
(NOL) for federal and state tax purposes of approximately $865,000 and
$1,100,000, respectively, both of which expire between 2012 and 2013. Management
believes it is more likely than not that the results of future operations will
generate sufficient taxable income to realize the deferred tax asset.

NOTE 9 - 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
approximately $70,000, before annual escalations. Breaking Waves leased
administrative offices through approximately January 1998 pursuant to a lease
requiring annual payments of approximately $64,000. Breaking Waves cancelled
such lease and simultaneously entered into a new lease for additional space with
the same landlord requiring annual payments of $71,600 expiring December 2004.
Lastly, Breaking Waves leases an offsite office for one of its designers on a
month to month basis with annual payments approximating $11,000.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

The Company and its subsidiary's approximate future minimum rentals under
non-cancelable operating leases in effect on December 31, 1998 are as follows:
<TABLE>
<CAPTION>

<S> <C> <C>
1999 $ 141,257
2000 141,257
2001 135,452
2002 71,600
2003 71,600
Thereafter 71,600
--------------
$ 632,766
</TABLE>

Rent expense for the years ended December 31, 1998 and 1997 amounted to
approximately $158,174 and $147,180, respectively.

b) Significant vendors and customers

Breaking Waves purchases approximately 90% of its inventory from two
vendors in Indonesia. For the years ended December 31, 1998 and 1997, Breaking
Waves had three and two customers, respectively, which comprise 13%, 13%, and
11%, and 36% and 12% of net sales, respectively.

c) Seasonality

Breaking Waves' business is considered seasonal with a large portion of its
revenues and profits being derived between November and March. Each year from
April through October, Breaking Waves engages in the process of designing and
manufacturing the following season's swimwear lines, during which time its
incurs the majority of its production costs 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 covered a term of January 1, 1996 to June 30,
1998 and contained a provision for an additional three year extension, at the
option of Breaking Waves, through and until June 30, 2001. Breaking Waves has
exercised this option, thereby so extending the agreement. The agreement calls
for minimum annual royalties of $75,000 to $200,000 over the life of the
agreement with options based on sales levels from $1,000,000 for the first year
to $4,000,000 in the sixth year. The Company recorded royalties and advertising
under this agreement totaling $135,000 and $111,000 during the years ended
December 31, 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 expired March 1, 1999. The Company recorded $4,852 and $0
royalties under this agreement during the years ended December 31, 1998 and
1997, respectively.

iii) On October 17, 1997, Breaking Waves entered into a license agreement
with Kawasaki Motors Corp., U.S.A. ("KMC") with an effective date of July 1,
1997 for the exclusive use of certain trademarks in the making of swimwear in
the United States. The fee for the exclusive use of certain trademarks is five
percent (5%) of net sales. The agreement expires May 31, 1999. No royalties were
paid under the agreement during the years ended December 31, 1998 and 1997,
respectively.

e) Co-production and property purchase agreements

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 finance 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. The motion picture was completed during the
latter part of 1996 and, accordingly, the Company commenced the marketing and
distribution process.

As of December 31, 1998, the Company invested $1,964,613 for the
co-production and distribution of such motion picture whereas the co-producers
have invested $100,000. For the years ended December 31, 1998 and 1997, revenue
associated with the motion picture amounted to $120,211 and $44,875,
respectively, and amortized film costs amounted to $122,126 and $41,266,
respectively.

<PAGE>
Employment agreements

On November 27, 1996, the Company entered into two employment agreements
(as amended) with two key 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 annual salaries of
$60,000 and $130,000 for 1998 (as amended), respectively, and for $110,000 each
for 1997. One of the employment agreements was further amended effective January
1, 1999 with an annual salary increase from $60,000 to $70,000. In addition to
the salaries, the Company agreed to issue on each of November 27, 1996, 1997,
and 1998, shares of common stock in the amount equal to the fair market value of
$25,000 (before amendment) on the date of each issuance, to each employee
subject to a vesting schedule. In connection with the decrease in salary from
originally $110,000 per year to $70,000 per year for one of the key employees,
the Company reduced the value of shares to be issued thereof to $13,636 for
1998. During January 1999, the Company and such key employees mutually agreed to
defer the issuance of the common stock scheduled to be issued November 27, 1998
until the second quarter of 1999.

g) Year 2000

The Company has addressed and will continue to address the year 2000 issue
to ensure the reliability of its operational system. The Company has and will
continue to make certain investment in its software systems and applications to
ensure that it is Year 2000 compliant. These expenditures, which are expensed as
incurred are not expected to be material The Company is also working with its
suppliers and customers to ensure their compliance with Year 2000 issues in
order to avoid any interruptions in its business.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

NOTE 10 - STOCKHOLDER'S EQUITY

a) Initial public offerings

On September 24, 1996, the Company successfully completed its initial
public offering. The Company yielded net proceeds of $3,813,294 after deducting
underwriter selling expenses and non-accountable expense allowance.

b) Reverse stock split

Effective February 5, 1998, the Company declared a 1 for 3 reverse stock
split. Accordingly, the financial statements give retroactive effect to the
stock split.

c) Private placement

During February and May 1998, pursuant to two separate private
transactions, the Company sold 600,000 and 700,000 shares of its common stock
for a total of approximately $195,000 and $560,000, respectively to various
entities. An officer of two of the entities who invested in the Company's
private placement is affiliated to the Company's President.

On July 30, 1998 the Securities and Exchange Commission declared effective
a Form S-3 Registration Statement which registered the 600,000 shares from the
February, 1998 private transaction along with 1,960,700 shares held by the then
Company's majority shareholder, European Ventures Corp. ("EVC"). EVC's sole
officer and director is an affiliate of the Company's President.

d) 1996 Senior Management Incentive Plan

During May 1996, the Board of Directors adopted the Incentive Plan. The
Incentive Plan provides for the issuance of up to 166,666 shares of Common Stock
in connection with the issuance of stock options and common shares.

On March 14, 1997, the Company granted 99,998 options to purchase shares of
common stock pursuant to the Company's Incentive Plan consisting of 66,666
options to the Company's President and 33,332 options to another officer. The
exercise price of each option was fixed at $1.46 (as revised) per share and such
options expire March 2002.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

A summary of the status of the Company's stock options outstanding as of
December 31, 1998 and changes during the years ended December 31, 1998 and 1997
is as follows:
<TABLE>
<CAPTION>

Number of Exercise
Options Price
<S> <C> <C>
Outstanding at December 31, 1996 - $ -
----- -------

Granted 99,998 1.46
Exercised - -
Cancelled - -
----- -----
Outstanding at December 31, 1997 99,998 1.46
Granted - -
Exercised - -
Cancelled - -
-- ------
Outstanding at December 31, 1998 99,998 $1.46
============== =====
</TABLE>

e) Non-Executive Director Stock Option Plan

During April 1997, the Company adopted the Company's Non-Executive Director
Stock option Plan (the "Director's Plan"), which was adopted by shareholder
consent. The Director's Plan provides that each eligible director receives an
option to purchase up to 5,000 shares of Common Stock immediately upon
appointment and on January 1 of each year in which the Director has been a
member of the Board for a continuous 12 month period. Options granted under the
Director's Plan may be exercised at any time and before the expiration of five
years from the date of their grant. Effective December 31, 1998, the Company
cancelled the Director's Plan pursuant to the terms thereof.

f) Cancellation of shares

Effective January 10, 1997, upon the resignation of an officer and a
consultant of the Company, 16,667 of the remaining 33,333 common shares not
vested which were originally issued to such officer and consultant under the
Incentive Plan were caused to be immediately vested and the remaining 16,667
common shares were cancelled.

During 1998, the 16,667 shares of common stock previously issued and vested
to a former officer of the Company and recorded as compensation expense
amounting to $62,500 during 1997 were cancelled by the Company.

g) Employment agreement

Pursuant to the employment agreements, 28,888 shares of common stock were
issued during the year ended December 31, 1997. Such shares were valued at
$25,000 with a 50% discount due to the restricted nature of the stock, resulting
in $25,000 being recorded as deferred compensation which has been amortized over
the vesting period of the stock issued.

h) Distribution Warrants

On April 15, 1998, the Company's Board of Directors authorized the
distribution of Warrants (the "Distribution Warrants") to all holders of shares
of the Company's Common Stock as of May 8, 1998 (the "Warrant Record Date").
Pursuant to the distribution, each shareholder of record shall receive one
Warrant to purchase one share of Common Stock at an exercise price of $4.00 per
share. The Warrants, which are exercisable for a period of three years,
commencing one year after issuance, shall be issued and distributed once the
Company has filed a registration statement for same and same has been declared
effective by the Securities and Exchange Commission. The Company intends to file
the registration statement in May 1999.

<PAGE>
NOTE 11 - RELATED PARTIES TRANSACTIONS

During June 1996, the Company issued 33,333 shares to each of two officers
of the Company as consideration for services rendered. Vesting of such shares
will be 50% from one year from date of issuance and 50% from two years from date
of issuance. Such shares were valued at 50% of the IPO price or $2.50. For the
years ended December 31, 1998 and 1997 the Company recorded compensation expense
amounting to $31,250 and $93,750, respectively.

For the years ended December 31, 1998 and 1997, $27,000 and
$69,500, respectively of financial consulting fees were paid to an affiliate of
the Company's President.

For the year ended December 31, 1998, included in net sales is $204,000 of
sales made to Play Co. in lieu of partial payment for the acquisition of 25.4%
of Play Co.'s common stock. The Company's President is also the Chairman of the
Board of Play Co.

d) During October 1996, pursuant to two promissory notes, the Company
loaned two of its officers a total of $87,000 bearing interest at six and
one-half percent (6 1/2%) payable over three years. During January 1997, the
balance of one of the notes amounting to $30,130 was forgiven as part of a
severance package for a previous officer. As of December 31, 1998, the remaining
note amounted to $37,000, of which $15,000 has been classified as current and
$22,000 classified as non-current.

As of December 31, 1998, the Company's President was advanced additional
funds totaling $3,000 which are non-interest bearing and due on demand and are
classified as current.

e) On March 1, 1998, Breaking Waves loaned funds to Play Co. in return for
an unsecured promissory note in the amount of $250,000. Such note required
monthly payments beginning March 31, 1998 of $25,000 plus interest at 15% per
annum. The note was repaid in full as of December 31, 1998.

f) On July 15, 1998, Breaking Waves loaned additional funds to Play Co. in
return for an unsecured promissory note in the amount of $300,000. Such note
required monthly payments beginning August 15, 1998 of $50,000 plus interest at
9% per annum through November 15, 1998 and a lump-sum payment of $100,000 plus
interest on December 15,1998. The note was repaid in full as of December 31,
1998.

g) Private placement

<PAGE>
NOTE 12 - INDUSTRY SEGMENTS

The Company's operations have been classified into two segments: swimwear
sales and film productions. Information about the two segments for the years
ended December 31, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>

1998 1997
------------------ ---------------
Segment Consolidated Segment Consolidated
Sales:
<S> <C> <C> <C> <C>
Swimwear sales $ 5,156,248 $ 5,262,240
Film production 120,211 44,875
------------- -------------
Total Sales $ 5,276,459 $ 5,307,115
============= ==============

Operating profit:
Swimwear sales $ 568,560 $ 638,851
Film production (1,915) 3,609
-------------- -------------
$ 566,645 $ 642,460
Corporate:
General and administrative
expense (1,074,445) (841,030)
Equity in earnings of affiliate 473,270 -
Amortization expense (70,952) (70,952)
Interest income 90,249 98,316
Interest and finance expense (224,603) (224,396)
Other 78,447 -
--------------- ----------------
Loss from operations before (benefit)
provision for income tax (161,389) (395,602)

(Benefit) provision for income tax (192,383) 27,865
-------------- --------------

Net (loss) income $ 30,994 $ (423,467)
============= ==============

Identifiable assets:
Swimwear sales $ 2,849,354 $ 2,525,716
Film productions 1,901,221 1,745,970
Corporate 3,729,151 3,088,607
------------- -------------

Total assets $ 8,479,726 $ 7,360,293
============= ===============
</TABLE>

Operating profit is total revenue less cost of sales and operating expenses
and excludes general corporate expenses, interest expense, and income taxes.
Identifiable assets are those used by each segment of the Company's operations.
Corporate assets are primarily cash and investments.

NOTE 13 - SUBSEQUENT EVENTS

Stock Dividend

On January 14, 1999, the Company declared a 100% stock dividend to all
shareholders of record as of January 29, 1999, total shares of common stock
amounting to 2,686,944. Such stock dividend was issued on February 5, 1999.
Accordingly, as a result of such stock dividend, the Company issued 2,686,027
shares of its common stock. An additional 917 shares are entitled to the
dividend, and such shares shall be issued to the holders thereof once these
holders have exchanged their old shares of common stock (i.e., pre-February 1998
reverse split) into post-reverse split shares of common stock. These additional
shares are included in the total issued and outstanding common stock at December
31, 1998.

Advances to Play Co.

<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 hereunto duly authorized on the 8th day of April, 1999.

HOLLYWOOD PRODUCTIONS, INC.

By: /s/ Harold Rashbaum
Harold Rashbaum
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933 as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

<S> <C> <C>
/s/ Harold Rashbaum Chief Executive Officer, 04/08/99
Harold Rashbaum President, and Director Date

/s/ Robert DiMilia Vice President, Secretary, 04/08/99
Robert DiMilia and Director Date

/s/ Alain Guillou, M.D. Director 04/08/99
Alain Le Guillou, M.D. Date

/s/ James B. Frakes Director 04/08/99
James B. Frakes Date

</TABLE>

Exhibit 10.27
SUBSCRIPTION AGREEMENT

BY ACCEPTING DELIVERY OF THIS MEMORANDUM, THE RECIPIENT AGREES TO KEEP THE
CONTENTS HEREOF, AND ANY INFORMATION OBTAINED BY SUCH PERSON IN CONNECTION
HEREWITH, IN THE STRICTEST CONFIDENCE.

THE SHARES OFFERED HEREBY WILL BE ISSUED PURSUANT TO A CLAIM OF EXEMPTION
FROM THE REGISTRATION OR QUALIFICATION PROVISIONS OF FEDERAL AND STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE
SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THIS OFFERING IS BEING MADE IN RELIANCE UPON THE AVAILABILITY OF AN
EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") BY VIRTUE OF THE COMPANY'S INTENDED COMPLIANCE WITH THE
PROVISIONS OF SECTIONS 4(2) AND 4(6) THEREOF AND RULE 506 ADOPTED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") THEREUNDER. THE SHARES
HAVE NEITHER BEEN REGISTERED WITH, NOR APPROVED OR DISAPPROVED BY, THE
COMMISSION OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, AND NEITHER
THE COMMISSION NOR ANY SUCH STATE AUTHORITY HAS PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL
MEMORANDUM, AND IT IS NOT INTENDED THAT ANY OF THEM WILL. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK AND ONLY PERSONS
WHO ARE ABLE TO BEAR THE FINANCIAL RISK OF A COMPLETE LOSS OF THEIR INVESTMENT
SHOULD CONSIDER PURCHASING THE SHARES. RISKS INCLUDE, AMONG OTHERS, THAT THERE
IS A LIMITED MARKET FOR THE SECURITIES OF THE COMPANY, THOUGH NO ASSURANCES CAN
BE GIVEN THAT THERE WILL BE ANY MARKET FOR THE COMPANY'S SECURITIES IN THE
FUTURE OR FOR ANY PERIOD OF TIME.

THE CONTENTS OF THIS SUBSCRIPTION AGREEMENT ARE NOT TO BE CONSTRUED AS TAX,
LEGAL, INVESTMENT, OR OTHER ADVICE. EACH INVESTOR SHOULD CONSULT HIS OWN
COUNSEL, ACCOUNTANT, OR TAX OR BUSINESS ADVISOR AS TO TAX, LEGAL, AND RELATED
MATTERS CONCERNING THIS INVESTMENT.

SALES OF THE SHARES CAN BE CONSUMMATED ONLY BY ACCEPTANCE BY THE COMPANY OF
OFFERS TO PURCHASE SUCH SECURITIES WHICH ARE TENDERED TO THE COMPANY BY
PROSPECTIVE INVESTORS. NO SOLICITATION OF ANY SUCH OFFER (INCLUDING ANY
SOLICITATION WHICH MAY BE CONSTRUED AS AN "OFFER" UNDER FEDERAL AND/OR STATE
SECURITIES LAWS) TO SUCH PROSPECTIVE INVESTORS IS AUTHORIZED WITHOUT THE PRIOR
APPROVAL BY THE COMPANY. THE COMPANY RESERVES THE RIGHT TO REVOKE THE OFFER MADE
HEREBY AND TO REJECT ANY OFFER TO PURCHASE THE SHARES BY ANY PROSPECTIVE
INVESTOR, IN WHOLE OR IN PART.

<PAGE>
HOLLYWOOD PRODUCTIONS, INC.

SUBSCRIPTION AGREEMENT

April 23, 1998

Ladies/Gentlemen:

The following sets forth the terms and conditions of an offering (the
"Offering") by the Company to purchase an aggregate of 350,000 shares (the
"Shares") of Common Stock, par value $.001 per share (the "Common Stock") of
Hollywood Productions, Inc., a Delaware corporation (the "Company"), at $1.60
per share, which purchase price is equal to an approximate 45% discount from the
average closing bid prices for a period of 10 days prior to the date of this
agreement ("the Purchase Price"). The Offering is being made by the Company on
its own behalf by its Officers and Directors.

STATEMENTS CONTAINED IN THIS MEMORANDUM AND IN REPORTS FILED BY THE COMPANY
WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH ITS REPORTING
REQUIRMENTS WHICH ARE NOT HISTORICAL FACTS MAY BE CONSIDERED FORWARD LOOKING
INFORMATION WITH RESPECT TO PLANS, PROJECTIONS, OR FUTURE PERFORMANCE OF THE
COMPANY AS DEFINED UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED.

1. Subscription: the Offering.

(a) By your signature hereto, you hereby subscribe for and agree to
purchase ________ Share(s) at the Purchase Price per Share for an aggregate
purchase price of $_______, subject to the terms and conditions set forth in
this "Agreement." The list of subscribers to this Offering is listed in
Paragraph 7. -

The Shares purchased hereunder are part of a plan to infuse capital into
the Company to be used for the following ("Use of Proceeds"):

Approximately $300,000 will be used in the production of the Company's most
recent motion picture "Battle Studies," which begin production on April 20,
1998.

(ii) Approximately $200,000 will be used to open a certificate of deposit
to back a letter of credit with Hellar Financial, Inc. ("Heller"). The letter of
credit is required by Heller to raise the credit line of the Company's
subsidiary, Breaking Waves, Inc., under its Factoring and Revolving Inventory
Loan and Security Agreement with Heller. The additional credit is needed to
finance the manufacturing of Breaking Waves, Inc.'s new "Jet Ski" line of swim
and water-sports apparel.

(iii) the balance shall be used for general working capital purposes.

(c) The Shares purchased shall be delivered against the receipt of payment
therefor, in the form of cash, certified check, or electronic wire of funds
delivered to Hollywood Productions, Inc.

(d) This Offering is comprised of up to an aggregate of 350,000 shares of
Common Stock for an aggregate purchase price of $560,000. Prior to this
Offering, there were 2,336,944 shares of Common Stock outstanding after giving
effect to the 1 for 3 reverse split -effected on February 5, 1998. All
references to share and per share information takes into account the 3 for 1
reverse split.

(e) The holders holding a majority of the shares being purchased shall have
a right, one time only, to demand the registration for resale of the shares of
Common Stock issued, whereby, the Company shall prepare and file a registration
statement with the Securities and Exchange Commission on an appropriate form,
and use its best efforts to have same declared effective, as well as comply with
state securities laws and the requirements of the Nasdaq Stock Market or such
other market upon which the Company's securities are traded. In addition, for a
period of 24 months the holders shall be notified in the event that the Company
files a Registration Statement at any time. The Company will give notice of its
intent to file such Registration Statement to the holders, and will upon the
request of the holders, include and register in such Registration Statement all
the shares of Common Stock purchased hereunder. The right to register the shares
may be delayed by the Company in the event it is undertaking a offering of its
securities to raise funding and the agent for the funding requires the delay.
The delay shall not extend more than 90 days from the date said funding is
completed, however, in the event the offering is a minimum/maximum offering, the
90 day period shall start running from the date of the initial closing.

2. Conditions. It is understood and agreed that this subscription is made
subject to the following conditions:

(a) The Company shall have the right to accept or reject this subscription
in whole or in part. Unless this subscription is accepted in whole or in part or
rejected by the Company within 30 days from the receipt hereof by the Company,
the subscription shall be deemed rejected in whole.

(b) In the event a subscription is not accepted in whole or in part by the
Company, the full or ratable amount, as the case may be, of any subscription
payment received will be promptly refunded to the subscriber without deduction
therefrom or interest thereon.

(c) In the event this subscription is accepted, the Company shall deliver
to you, against payment therefor, the number of Shares purchased, along with a
fully executed copy of this Agreement.

(d) In the event there are any breaches of this Agreement or you fail to
comply with any of the representations and warranties stated in Paragraph 4 of
this Agreement, you hereby agree, at the sole request of the Company, to rescind
this subscription and return any and all Shares issued upon the return of the
subscription amount paid.

3. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, you as follows:

(a) The Company is duly organized, validly existing, and in good standing
under the laws of the State of Delaware, with all requisite power and authority
to own, lease, license, and use its properties and assets and to carry out the
business in which it is engaged.

(b) The Company has authorized capital stock of 20,000,000 shares of Common
Stock of which 2,336,944 shares are issued and outstanding prior to this
Offering.

(c) The Company has all requisite power and authority to execute, deliver,
and perform its obligations under this Agreement, and to issue, sell, and
deliver the Shares being sold pursuant to this Agreement. This Agreement has
been duly authorized by the Company, and (subject, with respect to
enforceability, to the provisions of bankruptcy and similar laws) when executed
and delivered by the Company, will constitute the legal, valid, and binding
obligation of the Company, enforceable as to the Company in accordance with its
terms. The Shares have been duly authorized by the Company and (subject, with
respect to enforceability, to the provisions of bankruptcy and similar laws)
will be duly and validly issued, fully paid, and non-assessable.

(d) No consent, authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with any federal, state, local, or
other governmental authority or any court or any other tribunal is required by
the Company for the execution, delivery, or performance by the Company of this
Agreement or the execution, issuance, sale, or delivery of the Shares.

(e) No consent of any party to any contract, agreement, instrument, lease,
license, arrangement, or understanding to which the Company is a party or to
which any of its properties or assets are subject is required for the execution,
delivery, or performance by the Company of this Agreement, or the execution,
issuance, sale, or delivery of the Shares or the Shares underlying same.

(f) The execution, delivery, and performance of this Agreement will not
violate, result in a breach of or conflict with (with or without the giving of
notice or the passage of time or both), or entitle any party to terminate or
cause a default under any contract, agreement, instrument, lease, license,
arrangement, or understanding or violate or result in a breach of any term of
the Certificate of Incorporation or By-Laws of, or conflict with any law, rule,
regulation, order, judgment, or decree binding upon the Company or to which any
of its operations, businesses, properties, or assets are subject.

4. Representations and Warranties of the Subscriber. You hereby represent
and warrant to and agree with the Company as follows:

(a) You are an "Accredited Investor" as that term is defined in Section
501(a) of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). Specifically you are (check appropriate items(s)):

____(i) A bank as defined in Section 3(a)(2) of the Securities Act, or a
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); an insurance company as
defined in Section 2(13) of the Securities Act; an investment company registered
under the Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act; a small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958; a plan established and maintained
by a state, its political subdivisions, or any agency or instrumentality of a
state or its political subdivisions, for the benefit of its employees, if such
plan has total assets in excess of $5,000,000; an employee benefit plan within
the meaning of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment advisor, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;

_____(ii) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;

_____(iii) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts, or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;

_____(iv) A Director or executive Officer of the Company (circle
appropriate item);

_____(v) A natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his or her purchase exceeds
$1,000,000;

_____(vi) A natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;

_____(vii) A trust with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); or

_____(viii) An entity in which all of the equity owners are accredited
investors. (If this alternative is checked, you must identify each equity owner
and provide statements signed by each demonstrating how each qualified as an
accredited investor.)

(b) If you are a natural person, you are: a bona fide resident of the
state/country of ___________/____________ contained in your address set forth on
the signature page of this Agreement as your home address; at least 21 years of
age; and legally competent to execute this Agreement. If an entity, you are duly
authorized to execute this Agreement and this Agreement, when executed and
delivered by you, will constitute your legal, valid, and binding obligation
enforceable against you in accordance with its terms.

(c) You have received, read carefully, and are familiar with this
Agreement, and respecting the Company, its business, plans, and financial
condition, the terms of the Offering and any other matters relating to the
Offering. You have reviewed all materials which have been requested by you, and
the Company has answered all inquiries that you or your representatives have put
to it. You have had access to all additional information necessary to verify the
accuracy of the information set forth in this Agreement and any other materials
furnished herewith, and you have taken all the steps necessary to evaluate the
merits and risks of an investment as proposed hereunder.

(d) You or your purchaser representative have such knowledge and experience
in finance, securities, investments, and other business matters so as to be able
to protect your interests in connection with this transaction, and your
investment in the Company hereunder is not material when compared to your total
financial capacity.

(e) You understand the various risks of an investment in the Company as
proposed herein and can afford to bear such risks, including the Common Stock,
though there can be no assurances that a more liquid market will develop or that
any market which may develop will be maintained for any period of time. You may
find it impossible to liquidate your investment at a time when it may be
desirable to do so, or at any other time.

(g) You have been advised by the Company that the Shares have not been
registered under the Securities Act, that the Shares will be issued on the basis
of the statutory exemption provided by Sections 4(2) and 4(6) of the Securities
Act and/or Regulation D promulgated thereunder relating to transactions by an
issuer not involving any public offering and under similar exemptions under
certain state securities laws, that this transaction has not been reviewed by,
passed on, or submitted to any Federal or state agency or self-regulatory
organization where an exemption is being relied upon, and that the Company's
reliance thereon is based in part upon the representations made by you in this
Agreement. You acknowledge that you have been informed by the Company of, or are
otherwise familiar with, the nature of the limitations imposed by the Securities
Act and the rules and regulations thereunder on the transfer of securities. In
particular, you agree that no sale, assignment, or transfer of the Shares shall
be valid or effective, and the Company shall not be required to give any effect
to any such sale, assignment, or transfer, unless (i) the sale, assignment, or
transfer of the Shares is registered under the Securities Act, it being
understood that the Shares are not currently registered for sale and that the
Company has no obligation or intention to so register the Shares except as
contemplated herein; or (ii) the Shares are sold, assigned, or transferred in
accordance with all the requirements and limitations of Rule 144 under the
Securities Act, it being understood that Rule 144 is not available at the
present time for the sale of the Shares; or (iii) such sale, assignment, or
transfer is otherwise exempt from registration under the Securities Act. You
acknowledge that the Shares shall be subject to a stop transfer order and the
certificate or certificates evidencing any Shares shall bear the following or
substantially similar legends and such other legends as may be required by state
blue sky laws:

"These securities have not been registered under the Securities Act of
1933, as amended (the "Act"). Such securities may not be sold or offered for
sale, transferred, hypothecated, or otherwise assigned in the absence of an
effective registration statement with respect thereto under such Act or an
opinion reasonably acceptable to the Company of counsel reasonably acceptable to
the Company that an exemption from registration for such sale, offer, transfer,
hypothecation, or other assignment is available under such Act."

(h) You will acquire the Shares for your own account (or for the joint
account of you and your spouse either in joint tenancy, tenancy by the entirety,
or tenancy in common) for investment and not with a view to the sale or
distribution thereof or the granting of any participation therein, and that you
have no present intention of distribution or selling to others any of such
interest or granting any participation therein, except as provided for herein.

(i) It never has been represented, guaranteed, or warranted by any broker,
the Company, any of the Officers, Directors, shareholders, employees, or agents
of either, or any other persons, whether expressly or by implication, that:

(1)the Company or you will realize any given percentage of profits and/or
amount or type of consideration, profit, or loss as a result of the Company's
activities or your investment in the Company; or

(2) the past performance or experience of the management of the Company, or
of any other person, will in any way indicate the predictable results of the
Company's activities.

(j) You understand that the net proceeds from all subscriptions paid and
accepted pursuant to the Offering, after deduction for expenses of the Offering,
will be used as general working capital for the Company.

(k) You hereby acknowledge receipt of the Company's Form 10-KSB annual
report for the year ended December 31, 1997 and quarterly report of Form 10-QSB
for the three months ended March 31, 1998.

(l) Without limiting any of your other representations and warranties
hereunder, you acknowledge that you have reviewed and are aware of the following
recent developments of the Company:

(i) Effective February 5, 1998, the Company effected a reverse split, 1 for
3, of all of its outstanding shares of Common Stock. As a result of same, prior
to consummation of this Offering, the Company had 2,336,944 shares of Common
Stock outstanding.

(ii) In February 1998, the Company completed a private placement of 300,000
shares of the Company's Common Stock at a price of $.65 per share. American
Telecom Corporation, a company of which Ilan Arbel, the son-in-law of Harold
Rashbaum, is President, Secretary, and a Director, purchased 100,000 shares in
this offering. The funds were used for general working capital purposes.

In April 1998 the Company entered into a co-production agreement with
Norfolk Films, Inc. ("Norfolk") for the production of a new film entitled Battle
Studies. The Company and Norfolk have agreed to form a limited liability company
to finance, produce and distribute the film, which commenced production on April
20, 1998. The film was written and is being directed and co-produced by Efraim
Horowitz. The film is a contemporary ghost story about power, greed, love and
Leornardo Da Vinci's lost notebook. The estimated budget is approximately
$440,000 of which the Company has committed to fund 50%. In accordance with the
terms of the co-production agreement the proceeds of the film will be
distributed first to reimburse 135% of the costs of the picture and the
remaining proceeds shall be distributed 50%, 50% to Norfolk and the Company,
respectively. If there is a book or a play on the screenplay then the proceeds
shall be distributed 60%, 40% to the Norfolk and Company, respectively.

5. Risk Factors

An investment in the securities offered hereby are speculative and involve
a high degree of risk. In addition to the other information contained in this
Prospectus, the following factors should be carefully considered before
purchasing the securities offered by this Prospectus. The purchase of the
securities offered hereby should not be considered by anyone who cannot afford
the risk of loss of their entire investment.

Statements contained in this Memorandum and in the Company's reports as
filed with the Securities and Exchange Commission which are not historical facts
may be considered forward looking information with respect to plans,
projections, or future performance of the Company as defined under the Private
Securities Litigation Reform Act of 1995. These forward looking statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those projected.

Risks Associated with the Company's Film Business

(a) No Significant Operating History; Accumulated Deficit; Limited
Experience of Management. Prior to the acquisition and production of Dirty
Laundry and the acquisition of Breaking Waves the Company, had limited
operations, consisting primarily of its formation and the consummation of its
initial public offering. The Company's officers had limited experience, prior to
the production of Dirty Laundry of assessing the potential of a screenplay,
producing a motion picture, or in distributing and marketing a motion picture.
The lack of experience of management may adversely affect the operations of the
Company and ultimately, the value of an investment in the Company. In addition,
the likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with a business with a limited operating history and
the competitive environment in which the Company operates. Further, there can be
no assurances that the Company's management will be able to successfully
implement its business plan or that unanticipated result in increased costs,
material delays in its implementation or ability to implement such plan. As of
March 31, 1998 the Company had an accumulated deficit of $78,461, which could
adversely affect the Company's ability to conduct its operations.

(b) No Guarantee of Return of Initial Investment; No Assurances of the
Receipt of Revenues; Need for Additional Capital. The co-production agreements
for Dirty Laundry and Battle Studies provide that the Company and the
co-producer shall have the right to recover 100% and 135%, respectively, of
their investment with respect to the production costs of the films from
revenues, if any, from the release, distribution and exploitation of the film.
The Dirty Laudry agreement requires the first proceeds to be paid $50,000 to
each of Jay Thomas and Tess Harper pursuant to their participation agreements.
Additional proceeds received shall be distributed pursuant to the terms of the
agreements. To date the Dirty Laundry has generated revenues of $205,000
pursuant to its licensing agreement with Trident Licensing, Inc.

The production release of a motion picture is subject to numerous
uncertainties, and there can be no assurance that the Company's strategy will be
successful, that its release schedule will be met or that it will achieve its
financial goals. There can be no assurance that any revenues will be realized
from the distribution of the Dirty Laundry or Battle Studies, or any motion
picture produced by the Company, therefore, there can be no assurances that an
investment in the production of a motion picture will be repaid. Even in the
event revenues are generated from the distribution of a film, there can be no
assurances that the Company will receive any of such revenues, due to revenue
sharing rights of artists and creative personnel in additional to arrangements
with other investors. In addition, in the event that the Company receives
revenues from the distribution of a film, there can be no assurances that such
revenues will be sufficient to return to the Company the full amount of its
investment in the Dirty Laundry or Battle Studies or that future motion pictures
acquired, produced and released by the Company will earn sufficient revenues to
repay any investment or cost incurred in their production. Though aggregate
revenues in the film industry from all markets are substantial, the costs of
producing films are also substantial. The combination of these and other factors
has caused a large portion of films produced to be unprofitable.

The Company estimates that between 36 and 52 weeks will elapse between the
commencement of expenditures by the Company in the acquisition of a screenplay,
the production of a motion picture and the release of such film. Additionally,
it is anticipated that no revenues will be received from the exploitation of
such film for an additional period of between 16 weeks and 36 weeks thereafter,
if at all. Therefore, the Company may not have the capital needed, at times, for
production or distribution costs of additional films due to the delay in the
receipt of revenues from its prior investments.

(c) High Costs of Motion Picture Production; Likelihood of going over
Budget. The Company anticipates that the motion pictures it produces will cost
between $1,000,000 and $3,000,000, depending on the film. The likelihood of the
success of each film and the Company's ability to stay on budget and on schedule
for each film must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with
the production of a motion picture. Dirty Laundry went approximately $250,000
over budget. Due to unforeseen problems and delays including; illness, weather,
technical difficulty and human error, most films go over budget. In addition,
the lack of experience of management in this industry, the limited operating
history and capital of the Company, and the competitive environment in which the
Company operates, may cause increased expenses due to mistakes and delays in the
production of the films.

(d) Inability to Obtain Distribution of the Films; Consumer Preferences.
The success of a film in theatrical distribution, television, home video and
other ancillary markets is dependent upon public taste which is unpredictable
and susceptible to change. The theatrical success of a film may also be
significantly affected by the number and popularity of other films then being
distributed. Accordingly, it is impossible for anyone to predict accurately the
success of any film at the time it enters production. The production of a motion
picture requires the expenditure of funds based largely on a pre-production
evaluation of the commercial potential of the proposed project. The Company has
spent approximately $300,000 for the costs of marketing and distribution of
Dirty Laundry and has only recouped $205,000 in distribution revenues.

There is intense competition within the film industry for exhibition time
at theaters, as well as for distribution in other media, and for the attention
of the movie-going public and other viewing audiences. Competition for
distribution in other media is as intense as the competition for theatrical
distribution and not all films are licensed in other media. There are numerous
production companies and numerous motion pictures produced, all of which are
seeking full distribution and exploitation. Despite the large number of films
produced, only a small number of films receive widespread consumer acceptance,
and thereby account for a large percentage of total box office receipts.

(e) Labor disputes in Film Industry. Most screenwriters, performers,
directors and technical personnel who will be involved in the films are members
of guilds or unions which bargain collectively with producers on an
industry-wide basis from time to time. Any work stoppages or other labor
difficulties could delay the production of the films, resulting in increased
production costs and delayed return of investments.

(f) Competition in Film Industry. The Company will be in competition with
other which produce, distribute and exploit and finance films, some of which
have substantial financial and personnel resources, which are greater and more
extensive than the Company's. These companies include the major film studios,
including Disney, Universal, MGM, and Sony as well as the television networks.
There is substantial competition in the industry for a limited number of
producers, directors, actors and properties, which are able to attract major
distribution in all media and all markets throughout the world.

Risks Associated with the Company's Swimwear Business

(g) Cyclical Apparel Industry; Dependence on Single Product Line. The
apparel industry is a cyclical industry, with consumer purchases of swimwear and
accessory items and related goods tending to decline during recessionary periods
when disposable income is low. Accordingly, a prolonged recession would in all
likelihood have an adverse effect on the operations of the Company. Some of the
Company's customers, including large retail department store chains, have in
recent years experienced financial difficulties and some have filed for
protection under Chapter XI of the federal bankruptcy laws. The Company is
unable to predict what effect, if any, the financial difficulties encountered by
such retailers and other customers will have on the Company's future business.
Additionally, the Company currently operates in only one segment of the apparel
industry, girl's swimwear and is therefore dependent on the demand for such
goods. Decreases in the demand for swimwear products would have a material
adverse affect on the Company's business. The Company it is in the process of
expanding its operations and market segment to include boy's and men's swimwear.

(h) Uncertain Fashion Trends; Inability to Keep Pace with Consumer's
Changing Preferences. The Company believes that its success depends in
substantial part on its ability to anticipate, gauge and respond to changing
consumer demands and fashion trends in a timely manner. The Company designs its
swimwear lines during the months from January to March each year for delivery of
products between November and May of the following year. The Company is
anticipating in advance consumer preferences for the following year. There can
be no assurance, however, that the Company will be successful in this regard. If
the Company misjudges the market for any of its products, it may be faced with
unsold finished goods, inventory and work in process, which could have an
adverse effect on the Company's operations.

(i) Entrance into New Market Segment and New Product Line. The Company
presently operates in only one segment of the apparel industry, specifically
girl's swimwear, in which it has operated for many years. The Company entered
into a licensing agreement with Kawasaki to use the trademark "Jet Ski" for a
line of girl's, boy's, and men's swimwear. The Company's production and
marketing of boy's and men's swimwear is an entrance into a new market segment
for its products. In addition, the Company has not previously marketed any of
its products under the Jet Ski name. There can be no assurance that the Company
will be successful in this market segment or with this new line. If the Company
misjudges the market for this market segment or new line, it may be faced with
unsold finished goods, inventory and work in process, which could have an
adverse effect on the Company's operations.

(j) Dependence on Suppliers. The swimwear designs are principally sent to a
manufacturer, Zone Company, Ltd., in Korea, which Company provides the knitting
and printing for approximately 65% of the fabrics ordered by the Company.
Previously during fiscal 1997 and 1996 this company provided approximately 19%
and 95% knitting and printing. Once the fabrics are produced, they are
principally shipped to P.T. Kizone International, Inc., a company in Indonesia
which company sews the garments into finished products. This company provided
95% and 71% of the Company's sewing needs for the years ended December 31, 1996
and 1997, respectively. Although the management of Breaking Waves is of the
opinion that there are numerous manufacturers of fabrics and companies which
provide sewing on similar terms and prices, there can be no assurances that
management is correct in such belief. The unavailability of fabrics or the
sewing thereof at current price levels could adversely affect the operations of
the Company.

(k) Risks Associated with Concentration of Customers. For the years ended
December 31, 1997 and 1996, Breaking Waves has two and two customers which
comprise 36% and 12%, and 16% and 12% of net sales, respectively. For the three
months ended March 31, 1998 and 1997, Breaking Waves had four and two customers
which comprise 16%, 15%, 11%, and 10%; and 23% and 14% of net sales,
respectively. Some of the Company's customers, including large retail department
store chains, have recently experienced financial difficulties and some have
filed for protection under the federal bankruptcy laws. The Company is unable to
predict what effect, if any, the financial difficulties encountered by such
retailers and other customers will have on the Company's future business. The
loss of either customer or any group of customers could have a material adverse
affect on the Company's results of operations.

(l) Seasonality of Business Operations. The Company believes that its
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 June to November the Company engages in the
process of designing and manufacturing the following seasons swimwear lines,
during which time the Company incurs the majority of its expenses, with limited
revenues. There can be no assurances that revenues received during December to
June will support the Company's operations for the rest of the year.

(m) Competition in Swimwear Industry. The Company's business is highly
competitive, with relatively insignificant barriers to entry and with numerous
firms competing for the same customers. The Company is in direct competition
with local, regional, national and international swimwear manufacturers, many of
which have greater resources and more extensive distribution and marketing
capabilities than the Company. Competitive factors include quality, price,
style, design, creativity, originality and service at the wholesale level. In
addition, many large retailers have recently commenced sales of "store brand"
products, which compete with those sold by the Company. Management believes that
the Company's market share is insignificant in the markets in which it sells.

(n) Protection of Intellectual Property. The Company relies on common law
trademarks for use of its private label swimwear lines. In addition, the Company
has entered into a licensing agreements with Beach Patrol, Inc. and Kawasaki, to
use the trademarks "Daffy's Waterwear and "Jet Ski", respectively." In the event
the Company, Beach Patrol, Inc. or Kawasaki, breaches their licensing agreement
and the Company is unable to continue to use the trademarks, the loss thereof
may adversely affect the Company's operations. The Company has also filed to
register additional trademarks in the United States, which applications are
currently pending. There can be no assurance that such additional trademarks
will be registered or if registered, that such marks, as well as the Company's
registered mark or marks licensed by the Company will be adequately protect
against infringement. In addition, there can be no assurance that the Company
will not be found to be infringing on another company's trademark. In the event
the Company finds another party infringing upon its trademark, if registered, or
is found by another company to be infringing upon such company's trademark,
there can be no assurances that the Company will have the financial means to
litigate such matters.

General Risks

(o) Indemnification of Officers and Directors. As permitted under the
Delaware General Corporation Law, the Company's Certificate of Incorporation
provides for the indemnification and elimination of the personal liability of
the directors to the Company or any of its shareholders for damages for breaches
of their fiduciary duty as directors. As a result of the inclusion of such
provision, shareholders may be unable to recover damages against directors for
actions taken by them which constitute negligence or gross negligence or that
are in violation of their fiduciary duties. The inclusion of this provision in
the Company's Certificate of Incorporation may reduce the likelihood of
derivative litigation against directors and other types of shareholder
litigation.

(p) Limited Public Market for Securities. At present there is a limited
public market for the Company's Securities. There is no assurance that a regular
trading market will develop, or if one does develop, that it will be sustained
for any period of time. Therefore, purchasers of the Company's securities may be
unable to resell such securities at or near their original offering price or at
any price. Furthermore, it is unlikely that a lending institution will accept
the Company's securities as pledged collateral for loans even if a regular
trading market develops. The underwriter of the Company's public offering, was a
dominant influence in the market for the Company's securities until February
1997, at which time it ceased operations. The market for and liquidity of the
Company's securities have been significantly affected and may continue to be
affected by the loss of its underwriter's participation in the market.

(q) Dividends. The Company has not paid any cash dividends nor, because of
its present financial status and its contemplated financial requirements, does
it contemplate or anticipate paying any cash dividends upon its Common Stock in
the foreseeable future. In April 1998, the Board of Directors approved the
issuance of a warrant dividend to its Common Stock holders of record on May 8,
1998. The warrants issued under the dividend distribution shall give the
warrantholder the right to acquire one share of the Company's Common Stock at an
exercise price of $4.00 and shall be exercisable for a period commencing twelve
months from the date of issuance and extending until three years from the date
of issuance.

(r) Increase Public Float Through Shares Available for Resale. A total of
2,336,944 shares of Common Stock have been issued by the Company of which
1,367,294 shares may be deemed "restricted securities" (as such term is defined
in Rule 144 issued under the Act) and, in the future, may be publicly sold only
if registered under the Act or pursuant to an exemption from registration. Of
the restricted shares, 1,280,350 shares have been registered for resale in
accordance with a Registration Statement filed in April 1998 and all but 14,444
of the remaining restricted shares have been held for in excess of one year and
therefore are eligible for resale in accordance with Rule 144. Any sales under
Rule 144 or pursuant to this registration statement would, in all likelihood,
have a depressive effect on the market price for the Company's Common Stock and
Warrants.

(s) Possible Future Dilution. The Company has authorized capital stock of
20,000,000 shares of Common Stock, par value $.001 per share. Inasmuch as the
Company may use authorized but unissued shares of Common Stock without
stockholder approval in order to acquire businesses, to obtain additional
financing or for other corporate purposes, there may be further dilution of the
stockholders' interests.

(t) Possible delisting of Securities from NASDAQ System; Risks of Low
Priced Stocks. In August 1997 Nasdaq increased its maintenance whereby in order
to continue to be listed on Nasdaq, the Company is required to maintain (i) net
tangible assets of at least $2,000,000, (ii) a minimum bid price of $1.00, (iii)
two market makers, (iv) 300 stockholders, (v) at least 500,000 shares in the
public float and (vi) a minimum market value for the public float of $200,000.
In the event the Company's Securities are delisted from Nasdaq, trading, if any,
in the Securities would thereafter be conducted in the over-the-counter market
on the OTC Bulletin Board. Consequently, an investor may find it more difficult
to dispose of, or to obtain accurate quotations as to the price of the Company's
Securities. Quotation on Nasdaq does not imply that a meaningful, sustained
market for the Company's Securities will develop or if developed, that it will
be sustained for any period of time.

(u) Penny Stock Regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on Nasdaq provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in connection with the transaction, and monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules generally require that prior to a transaction in
a penny stock, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules. If the
Company's securities become subject to the penny stock rules, investors in this
Offering may find it more difficult to sell their securities.

6. Management.

The following table sets forth, as of April 30, 1998, the management of the
Company:
<TABLE>
<CAPTION>

Position with Corporation;
Name Principal Occupation

<S> <C>
Harold Rashbaum President, CEO, and Director

Robert DiMilia Vice President, Secretary and Director

Alain A. Le Guillou, M.D. Director

James B. Frakes Director
</TABLE>

The Directors of the Corporation are elected annually by the stockholders,
and the Officers of the Corporation are appointed annually by the Board of
Directors. Vacancies on the Board of Directors may be filled by the remaining
Directors. Each current Director and Officer will hold office until the next
Annual Meeting of stockholders or until his successor is elected and qualified.

Harold Rashbaum has been the President, Chief Executive Officer, and a
Director of the Corporation since January 1997. From May 1996 to January 1997,
Mr. Rashbaum served as Secretary and Treasurer of the Corporation. From May 1996
until its dissolution in November 1997, Mr. Rashbaum has served as the
Secretary, Treasurer, and a Director of D.L. Productions, Inc., the production
company for the Dirty Laundry movie. Since February 1996, Mr. Rashbaum has also
been the President and a Director of H.B.R. Consultant Sales Corp. ("HBR"), of
which his wife is the sole stockholder. Mr. Rashbaum was a consultant to Play
Co. Toys & Entertainment Corp. ("Playco"), a wholesaler and retailer of
children's toys, since July 1995. He became Chairman of the Board of Playco in
September 1996. Prior thereto, from February 1992 to June 1995, Mr. Rashbaum was
a consultant to 47th Street Photo, Inc., an electronics retailer. Mr. Rashbaum
held this position at the request of the bankruptcy court during the time 47th
Street Photo, Inc. was in Chapter 11.

Robert DiMilia has been a Director, Vice President, and Secretary of the
Corporation since January 10, 1997. Prior thereto, he was a consultant to the
Corporation with respect to the production of Dirty Laundry, the Corporation's
first motion picture. From March 1995 to May 1996, Mr. DiMilia was a media and
marketing consultant in the film industry working on a variety of projects. From
1991 to 1994, Mr. DiMilia was a Vice President for the Bon Bon Group, a national
payroll/accounting entertainment service Corporation.

Alain A. Le Guillou, M.D. has been a Director of the Corporation since May
1996. Since July 1995, Dr. Guillou has been a doctor of pediatrics at Montefiore
Medical Group. From July 1992 to June 1995, Dr. Guillou was a pediatric resident
at the University of Minnesota, Gillette Hospital, St. Paul, Minnesota. From
July 1991 to June 1992, Dr. Guillou was an intern at Montefiore Medical Center,
Bronx, New York. Dr. Guillou is the son-in-law of Harold Rashbaum.

James B. Frakes was elected as a Director of the Corporation in January
1998. Mr. Frakes was elected Chief Financial Officer of Playco in June 1997 and
was appointed as a Director of Playco in August 1997. Prior thereto, from June
1990 to March 1997, Mr. Frakes was Chief Financial Officer of Urethane
Technologies, Inc. ("UTI") and two of its subsidiaries: Polymer Development
Laboratories, Inc. ("PDL") and BMC Acquisition, Inc. These were specialty
chemical companies which focused on the polyurethane segment of the plastics
industry. Mr. Frakes was also Vice President and a Director of UTI during this
period. In March 1997, three unsecured creditors of PDL filed a petition for the
involuntary bankruptcy of PDL. This matter is pending before the United States
Bankruptcy Court, Central District of California. In 1980, Mr. Frakes obtained a
Masters in Business Administration from University of Southern California. He
obtained his Bachelor of Arts degree in history from Stanford University from
which he graduated with honors in 1978.

Significant Employees

Malcolm Becker, 61, has been the Vice President of design, merchandising,
and production of Breaking Waves, Inc. since its inception in 1991.

Michael Friedland, 59, has been the Vice President of marketing and sales
of Breaking Waves, Inc. since its inception in 1991.

The Corporation has agreed to indemnify its Officers and Directors with
respect to certain liabilities including liabilities which may arise under the
Securities Act of 1933. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to Directors, Officers, and controlling
persons of the Corporation pursuant to any charter, provision, by-law, contract,
arrangement, statute or otherwise, the Corporation has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Corporation of expenses incurred or
paid by a Director, Officer, or controlling person of the Corporation in the
successful defense of any such action, suit, or proceeding) is asserted by such
Director, Officer, or controlling person of the Corporation in connection with
the Securities being registered, the Corporation will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act. The Corporation will be
governed by the final adjudication of such issue.

7. Capitalization; Principal Stockholders. The following shall provide a
list of the principal stockholders of the Company prior to this Offering. It
does not include the exercise of any options. There are 2,336,944 shares
outstanding, and assuming the Offering is consummated, there will be 2,686,944
shares outstanding.
<TABLE>
<CAPTION>

Name And Address of Amount and Nature Percent of
Beneficial Owner Of Beneficial Owner Class (1)
- ---------------------- ------------------- ---------

<S> <C> <C> <C>
European Ventures Corp. (2) 980,350 41.9%
P.O. Box 47
Road Town, Tortola, British
Virgin Islands

Harold Rashbaum (2) 52,500 (3) 2.2%
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022

Alain A. Le Guillou, M.D. (2) -- --
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022

Robert DiMilia 16,667 (4) *
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022

All Officers and Directors 69,167 (4) 3.0%
(3 as a Group) (2)-(5)

* Less than 1%
</TABLE>

(1) Does not give effect to the issuance of (i) 1,466,667 shares of Common
Stock reserved for issuance upon the exercise of the Warrants; (ii) 80,000
shares of Common Stock reserved for issuance upon the exercise of the
underwriter's warrants and the Warrants underlying the underwriter's warrants;
and (iii) 83,333 shares of Common Stock reserved for issuance under the
Company's 1995 Senior Management Incentive Plan, except for the 25,000 shares
issued thereunder and the 50,000 shares underlying options granted pursuant
thereto.

(2) Harold Rashbaum is the father-in-law of Ilan Arbel, the sole officer
and director of EVC. The shares owned by EVC have been included in a
registration statement filed by the Company in April 1998 registering the shares
for resale and upon effectiveness of the registration statement will be eligible
for resale from time to time. See "Risk Factors- Increase Public Float Through
Shares Available for Resale."

(3) Includes (i) 16,667 shares of Common Stock under the Senior Management
Incentive Plan, pursuant to a vesting schedule, of which 8,333 shares have
vested; (ii) 33,333 shares of Common Stock underlying an option granted under
the Company's Senior Management Incentive Plan; and (iii) 2,500 shares issued to
H.B.R. Consultants Sales Corp. in September 1996.

(4) Includes 16,667 shares of Common Stock issuable upon the exercise of an
option granted to Robert DiMilia under the Company's Senior Management Incentive
Plan.

(5) Represents all shares purchased in this Offering.

8. Indemnification. You acknowledge that you understand the meaning and
legal consequences of the representations and warranties contained herein, and
you hereby agree to indemnify and hold harmless the Company and each
incorporator, Officer, Director, employee, agent, and controlling person
thereof, past, present, or future, from and against any and all loss, damage, or
disability due to or arising out of a breach of any such representation or
warranty.

9. Transferability. Neither this Agreement, nor any of your interests
herein, shall be assignable or transferable by you in whole or in part except by
operation of law.

10. Commissions. There will be no commissions paid with respect to the sale
of the Shares.

11. Miscellaneous.

(a) All notices or other communications given or made hereunder shall be in
writing and shall be delivered or mailed to you at your address set forth on the
signature page of this Agreement and to the Corporation at the address set forth
below. Notices hand delivered shall be deemed given upon receipt, and notices
sent by mail shall be deemed given on the second business day following deposit
in the Shared States mail.

(b) This Agreement shall be construed in accordance with and governed by
the laws of the State of New York without reference to that State's conflicts of
laws provisions.

(c) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by all parties hereto.

(d) This Agreement may be executed in one or more counterparts
representing, however, one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year this subscription has been accepted by the Company.

Very truly yours, HOLLYWOOD PRODUCTIONS,
INC.

By:
Harold Rashbaum
President

AGREED TO AND ACCEPTED THIS ____ DAY OF 1998.

==========================
(Print name and address)
(Print social security
number of Employer Id No.)
-----------------------

Exhibit 10.28
AMENDMENT TO EMPLOYMENT AGREEMENT

AGREEMENT made as of the 1st day of January 1998, by and between MICHAEL
FRIEDLAND (hereinafter referred to as the "Employee"), residing at 117 Margaret
Blvd., Merrick, New York 11566, and BREAKING WAVES, INC. (hereinafter referred
to as the "Company"), a New York corporation with its principal offices located
at 112 West 34th Street, New York, New York 10120.

W I T N E S S E T H :

WHEREAS, the Company and Employee entered into an Employment Agreement
dated November 27, 1996;

WHEREAS, Employee has performed in an exemplary manner in his position with
the Company;

WHEREAS, the Company desires to compensate Employee for the benefits the
Company has received as a result of such performance; and

WHEREAS, the Company and the Employee consequently desire to amend such
Employment Agreement to reflect the foregoing;

NOW THEREFORE, in consideration of the mutual promises made by the Company
and Employee, and the terms and conditions hereafter set forth, the receipt and
adequacy of such consideration being mutually acknowledged, the Company and
Employee hereby agree to the following:

1. Article III, Paragraph (A) of the Employment Agreement is hereby amended
to revise Employee's salary and shall read as follows:

Commencing on January 1, 1998, the Company shall pay to Employee a salary
at the rate of $130,000 per annum until November 27, 1999 (payable in equal
weekly installments or pursuant to such regular pay periods adopted by the
Company) (the "Base Salary").

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
<TABLE>
<CAPTION>

<S> <C>
BREAKING WAVES, INC. EMPLOYEE

By: /s/ Harold Rashbaum /s/ Michael Friedland
Harold Rashbaum Michael Friedland
President

</TABLE>

Exhibit 10.29
AMENDMENT TO EMPLOYMENT AGREEMENT

AGREEMENT made as of the 1st day of January 1998, by and between MALCOLM
BECKER, (hereinafter referred to as the "Employee"), residing at 82 Coleridge
Street, Brooklyn, New York 11235, and BREAKING WAVES, INC. (hereinafter referred
to as the "Company"), a New York corporation with principal offices located at
112 West 34th Street, New York, New York 10120.

W I T N E S S E T H :

WHEREAS, the Company and Employee entered into an Employment Agreement
dated November 27, 1996;

WHEREAS, Employee desires to curtail the amount of normal business time he
shall devote to the business of the Company;

WHEREAS, the Company is amenable to the reduction of time Employee shall
devote to the business of the Company and desires to reduce the salary and stock
issuances to Employee to conform to such reduction; and

WHEREAS, the Company and the Employee consequently desire to amend such
Employment Agreement to reflect the foregoing;

1. Article III, Paragraph (A) of the Employment Agreement is hereby amended
to revise Employee's salary and shall read as follows:

Commencing January 1, 1998, the Company shall pay to Employee a salary at
the rate of $60,000 per annum until November 27, 1999 (payable in equal weekly
installments or pursuant to such regular pay periods adopted by the Company)
(the "Base Salary").

2. Article IX of the Employment Agreement is hereby amended to revise the
value of stock issued to Employee and shall read as follows:

On November 27, 1998, the Employee shall receive such numbers of shares of
the Parent's common stock as equals a Market Value (as hereinafter defined) of
$13,636 on the date of issuance, subject to a vesting schedule. The vesting
schedule shall be as follows; 1/2 of the shares shall vest six months from
issuance with the balance vesting on the following anniversary. The shares shall
vest pursuant to a restricted share agreement as annexed hereto as Appendix A.
"Market Value" shall mean (i) $5.00 per share with respect to the shares to be
issued as of the date hereof and (ii) the average of the closing bid and asked
prices for a share of Parent's common stock for a period of 30 days ending five
days prior to the date of issuance, as officially reported by the principal
securities exchange on which the common stock is quoted or admitted to trading
or by the Nasdaq National or SmallCap Stock Market, or, if the Common Stock is
not listed or admitted to trading on any securities exchange or quoted by
Nasdaq, the average closing bid price as listed on the OTC Bulletin Board, as
determined in good faith by resolution of the Board of Directors of the Parent,
based on the best information available to it.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
<TABLE>
<CAPTION>

<S> <C>
BREAKING WAVES, INC. EMPLOYEE

By: /s/ Harold Rashbaum /s/ Malcolm Becker
Harold Rashbaum Malcolm Becker
President
</TABLE>

Exhibit 10.30
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

AGREEMENT made as of the 1st day of January 1999, by and between MALCOLM
BECKER (hereinafter referred to as the "Employee"), residing at 82 Coleridge
Street, Brooklyn, New York 11235, and BREAKING WAVES, INC. (hereinafter referred
to as the "Company"), a New York corporation with principal offices located at
112 West 34th Street, New York, New York 10120.

W I T N E S S E T H :

WHEREAS, the Company and Employee entered into an Employment Agreement
dated November 27, 1996 and an Amendment to Employment Agreement dated January
1, 1998;

WHEREAS, Employee desires to increase the amount of normal business time he
shall devote to the business of the Company;

WHEREAS, the Company is amenable to the increase of time Employee shall
devote to the business of the Company and desires to increase the salary of
Employee to conform to such increase; and

WHEREAS, the Company and the Employee consequently desire to amend such
Employment Agreement to reflect the foregoing;

2. Article III, Paragraph (A) of the Employment Agreement is hereby amended
to revise Employee's salary and shall read as follows:

Commencing on January 1, 1999, the Company shall pay to Employee a salary
at the rate of $70,000 per annum until November 27, 1999 (payable in equal
weekly installments or pursuant to such regular pay periods adopted by the
Company) (the "Base Salary").

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.

<TABLE>
<CAPTION>
<S> <C>
BREAKING WAVES, INC. EMPLOYEE

By: /s/ Harold Rashbaum /s/ Malcolm Becker
Harold Rashbaum Malcolm Becker
President
</TABLE>

Exhibit 27.1

FINANCIAL DATA SCHEDULE

This schedule contains summary information extracted from the Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part I, Item 7, of this Form 10-KSB and is qualified in its
entirety by reference to such financial statements.

</LEGEND>

<S> <C>

<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> dec-31-1999
<PERIOD-END> jun-30-1998
<CASH> 1,309,526
<SECURITIES> 977,270
<RECEIVABLES> 53,228
<ALLOWANCES> 0
<INVENTORY> 2,663,003
<CURRENT-ASSETS> 4,151,425
<PP&E> 108,555
<DEPRECIATION> 29,680
<TOTAL-ASSETS> 8,479,726
<CURRENT-LIABILITIES> 2,737,708
<BONDS> 0
0
0
<COMMON> 5,374
<OTHER-SE> 5,692,961
<TOTAL-LIABILITY-AND-EQUITY> 8,479,726
<SALES> 5,276,459
<TOTAL-REVENUES> 5,276,459
<CGS> 3,343,364
<TOTAL-COSTS> 3,343,364
<OTHER-EXPENSES> (550,581)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224,603
<INCOME-PRETAX> (161,389)
<INCOME-TAX> (192,383)
<INCOME-CONTINUING> 30,994
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,994
<EPS-PRIMARY> .01
<EPS-DILUTED> .01

</TABLE>