<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
             ------------------------------------------------------
                                  FORM 10-KSB

                Annual Report Pursuant to Section 13 or 15(d) of
                  the Securities Exchange Act of 1934 For the
                      Fiscal Year Ended December 31, 1998

                       Commission File Number: 000-24835


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



              Delaware                                  38-3399098
      ------------------------                 -----------------------------
      (State of Incorporation)                 (I.R.S. Employer I.D. Number)

             2750 South State Street, Ann Arbor, Michigan 45104
            ------------------------------------------------------
             (Address of principal executive offices and Zip Code)

                                 (734) 327-0579
             ------------------------------------------------------
              (Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Exchange Act:   None.

Securities registered pursuant to Section 12(g) of the Exchange Act: Common 
Stock.

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: [X] YES [ ] NO

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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]

Registrant's revenues for its most recent fiscal year (ended December 31,
1998): $4,488

Aggregate market value of voting stock held by non-affiliates: $515,600

Indicate the number of shares outstanding of each of the registrant's classes
of common stock:

3,378,262 common shares were outstanding as of December 31, 1998.

Documents Incorporated by Reference:  Not applicable

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                                  FORM 10-KSB
             ------------------------------------------------------

                                PTN MEDIA, INC.
            Form 10-KSB for the Fiscal Year ended December 31, 1998

                               Table of Contents
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                                                                                                     Page of Report
                                                                                                     --------------

PART I

<S>               <C>                                                                                            <C>
ITEM 1.           DESCRIPTION OF BUSINESS AND RISK FACTORS........................................................1
ITEM 2.           DESCRIPTION OF PROPERTY........................................................................30
ITEM 3.           LEGAL PROCEEDINGS..............................................................................30
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ..........................................30

PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS............................................................................31
ITEM 6.           MANAGEMENT'S  DISCUSSION AND ANALYSIS
                  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................................31
ITEM 7.           FINANCIAL STATEMENTS...........................................................................32
ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS..................................................32

PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
                  AND CONTROL PERSONS............................................................................33
ITEM 10.          EXECUTIVE COMPENSATION.........................................................................34
ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT. ........................................................................35
ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................36
ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K...............................................................37

SIGNATURES.......................................................................................................39
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                                      (i)

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PART I.

ITEM 1.           DESCRIPTION OF BUSINESS.

History of the Company

         The Company's predecessor, Interactive Entertainment Studio, Inc.
("Interactive") was incorporated in the State of Nevada in May 1997.
Interactive was merged with and into PTN Media, Inc. on March 9, 1998, for the
sole purpose of changing the domicile of the Company to Delaware.

         In February, 1999, the Company consummated a public offering of 128,900
shares of common stock raising $461,496 in net proceeds after selling
agent discounts and commissions.

         The Company's executive offices are located at 2750 South State 
Street, Ann Arbor, Michigan 45104. The telephone number is (734) 327-0579.

         The Company is an interactive media content provider focusing on
providing leading branded content for well-defined target audiences using a
combination of new and traditional media. The Company's strategy is to create
content that is of great appeal to its targeted audience and attract
advertisers desiring to reach this audience. The Company currently provides
this content on its interactive web site known as "Fashionhouse" hosted by Niki
Taylor (www.fashionhouse.net). The Company also plans to provide similar content
on additional web sites hosted by other well-known models and celebrities,
television, print and other forms of traditional media. The Company's initial
web sites will focus primarily on fashion, beauty, style, fitness and related
subjects. In addition, the Company plans to create, market and sell calendars
and electronic planners featuring photographs of models and other celebrities.

         Company Overview. The Company, through its predecessor, commenced
operations in May 1997. At that time it entered into a License Agreement with a
company controlled by Niki Taylor. That agreement provides for, among other
things, the right to use Ms. Taylor's name and likeness in connection with the
Company's Fashionhouse web site. Since commencement of operations, the Company
has entered into an agreement with a web site designer and direct marketing
agreements to sell flowers, videos and music compact disks on the Niki Taylor
web site. As discussed below, the Company has entered into agreements with
companies controlled by each of Tyra Banks and Claudia Schiffer, each a
well-known model, but the Company is currently in default under the Tyra Banks
agreement. Moreover, as discussed below, Tyra Banks and her company have made
certain claims under the agreement in a formal arbitration proceeding. In
addition, the Company is currently negotiating with other well-known models to
develop web sites which they will host. The Company also has entered into
agreements with certain advertisers whose banner advertisements appear on its
initial web site, and is negotiating with additional advertisers to place banner
advertisements on its current and/or future web sites.



<PAGE>



         The Company's strategy is to capitalize on the opportunities created
by the growth of the rapidly developing Internet market, particularly by
creating web sites targeting young women, which the Company believes is the
fastest growing segment of the population using the Internet. The Company's
plan is to develop web sites featuring popular fashion models, many of whom,
such as Niki Taylor, are commonly referred to as "supermodels" in publications
and other media. The Company, in the future, also may create web sites
featuring other celebrities. These web sites are developed to appeal to women
between the ages of 18 and 30, although the Company believes that some of the
content it provides also appeals to men of similar ages. The Company's current
web site focuses primarily on fashion, beauty, style, fitness and related
subjects, and offers several features, such as monthly letters from Niki
Taylor, daily updated fashion editorials, photo scrapbooks featuring Niki
Taylor, interactive chat sessions with Niki Taylor, entertainment coverage
(e.g. movie, television and book reviews) and cooking and diet tips. The
Company plans to operate additional web sites in the future, which will offer
similar features and services.

         The Company, similar to other web site operators, has recognized the
growing commercial opportunities presented by the Internet and the World Wide
Web, which the Company believes is emerging as a global marketplace for the
transaction of business. The Company's strategy is to take advantage of many of
these commercial outlets, including the sale of banner advertisements and
sponsorships on its web sites to advertisers targeting consumers with similar
demographic characteristics as visitors to the Company's web sites, direct
response marketing of related products and services through arrangements with
third parties, sales of downloadable electronic and paper calendars featuring
host models, licensing of proprietary content and intellectual property rights
to third parties, and subscription and membership online chat services.

         The Company advertises and promotes its web sites through various
forms of media. The Company purchases banner advertisements on search engines
on the World Wide Web and enters into advertising barter arrangements with
other web sites. As discussed below, the Company has entered into an
advertising barter arrangement with Lycos, Inc. The Company promotes its web
sites through (i) advertising and promotional spots contained within
Company-sponsored radio programs and (ii) by advertising in selected
publications. The Company arranges for the promotion of its web sites by host
models, to the extent that they are not prohibited from participating in any
such promotion as a result of other commitments, or such promotion is limited
by the terms of the Company's license with the model. Finally, promotional
advertising in connection with products offered by the Company, including
calendars and electronic planners, is another means by which the Company
promotes its web sites.

         In addition, the Company plans to offer an online avenue for
interactive communication covering topics such as fashion and health, with the
primary focus on its web sites' models and celebrity hosts. The Company's goal
is to operate the exclusive online access to select models such as Claudia
Schiffer, and to provide visitors and members with information, photos and other
content unavailable elsewhere.




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Agreement with Tyra Banks; Arbitration filed by Tyra Banks

         The Company has entered into a license agreement with a company 
controlled by well-known model, Tyra Banks, similar to the license agreement
with the company controlled by Niki Taylor. In addition, the Company also
entered into an agreement with Ms. Banks' company in connection with its
creation, marketing and sale of calendars and electronic planners featuring
photographs of Ms. Banks. On June 18, 1998, Ms. Banks declared the Company in
breach of both of these agreements and has refused to perform under either of
them. The basis for this declaration was the Company's alleged failure to pay
the full amount of all advances due and payable to Ms. Banks' company pursuant
to the agreements, as well as its failure to fully reimburse Ms. Banks for
certain expenses provided for under the calendar agreement. To date, the Company
has advanced funds to Ms. Banks' company in the aggregate amount of $134,000.
The Company received a letter from Ms. Banks' attorneys, dated September 8,
1998, demanding that the Company pay to Ms. Banks' company an additional
$153,000 on or before September 15, 1998, cease all uses of Ms. Banks' name,
picture and likeness and return all photographs and images of Ms. Banks. This
letter further stated that in the event that the Company failed to comply with
their demands by that date, Ms. Banks and her company would be forced to take
all "appropriate" action to recover all amounts alleged to be owed, and to
enforce their rights against the Company.

         On December 8, 1998, attorneys for Tyra Banks and Bankable, Inc., an
entity controlled by Ms. Banks, made a Demand for Arbitration against the
Company under the commercial arbitration rules of the American Arbitration
Association. Ms. Banks' attorneys alleged that the Company failed to make
timely payments of money due upon the execution the web site license agreement
and calendar agreement between Ms. Banks and the Company ("Agreements"), and
refused to return photographs, pictures, prints, negatives and images of Ms.
Banks. Ms. Banks is seeking the amount of $153,000, plus interest, allegedly
owed to her, to prohibit the Company from using her name, picture and likeness,
and to have all images of Ms. Banks, in any form, returned to her. She also is
seeking damages for injury to her public reputation, lost royalties and the
cost of attorney's fees. On January 15, 1999, the Company, through its
attorneys, filed an Answer and Counterclaim to Ms. Banks' Demand for
Arbitration. The Company raised several defenses to Ms. Banks' claims and
claimed a breach by Ms. Banks and Bankable, Inc. of the web site agreement. The
Company is seeking the amount of $100,000, plus additional damages, relating to
the advance payment made by the Company to Bankable, Inc. A preliminary
administrative conference was held on January 19, 1999, and a hearing
is scheduled for April 23, 1999. Both parties have expressed an interest in
resolving this matter through mediation. Mediation would run concurrently with
the arbitration process, prior to the arbitration hearing. The Company intends
to vigorously defend itself in this arbitration, and believes that it has
meritorious defenses. Nonetheless, there can be no assurance that the Company
will be successful in this arbitration, and an unfavorable settlement or result
in this matter could have a material adverse effect on the Company. 





                                       3

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INDUSTRY BACKGROUND

Web Sites; Content Providers

         By accessing the World Wide Web through the Internet, users can reach
a multitude of web sites simply by typing domain names, normally beginning with
the letters "www" and ending with the letters "com," "gov," "org" or other
suffix depending on the type of entity. Recent improvements in web browsers and
search engines, which help users navigate the information and services offered
on the World Wide Web, have made locating these web sites much simpler. The
Company believes that as the number of providers of infrastructure, access and
browser services increases and access


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to and the usefulness of the Internet improve, the quality of the content
provided by web site operators also will improve. This in turn should attract
greater levels of commerce over the Internet. Additionally, as a result of
increased usage of the Internet, content historically provided by means of
traditional media, such as television, radio or print, is now being offered on
the Internet. Furthermore, because of the advantages the Internet has over
traditional forms of media, particularly its interactive features, content can
be provided by means unavailable through traditional media. For example,
content can be delivered to specifically identified audiences who share strong
similar interests. Advertisers seek out only those web sites that attract
audiences with the same demographic characteristics as the desired purchasers
of their goods or services.

STRATEGY

         The Company seeks to capitalize on the opportunities created by the
popularity of fashion and style, along with the rapid growth of the Internet as
a commercial medium, by developing and operating fashion web sites hosted by
models and other celebrities. The Company seeks to offer comprehensive and
exclusive content, updated regularly, by utilizing the World Wide Web's
interactive and graphical capabilities. The Company's current web site, and
proposed future web sites, are targeted at users between the ages of 18 and 30
years old, particularly women. The Company's goal is to create a variety of web
sites each tied to a well-known model or celebrity, and each providing
compelling content which is of interest to the target audience. The Company's
current web site is, and all future web sites will be, designed to provide a
sense of access and intimacy with the fashion world, since contact with leading
models and other celebrities will be available. Although the Company believes
that its web sites will attract men as well as women, the sites will not be
male oriented web sites, but sites offering compelling content covering
fashion, beauty, style, fitness and related subjects. The Company also believes
that as the Internet continues to grow, the importance of brand recognition
will increase due to the growing number of web sites and the relatively low
barriers to entry. The Company intends to maintain brand recognition with
respect to its Fashionhouse web site, as well as any additional web sites which
it develops. Establishing and maintaining this brand recognition will be highly
dependent on the Company's ability to engage and retain well-known models, its
ability to develop original and compelling content, and its success in creating
an awareness for its brand names in other media besides the Internet.


WEB SITES

General

         The Company currently has one web site that provides content over the
Internet. Although there are currently several fashion-related web sites on the
Internet, and the Company expects there to be several additions in the future,
the Company believes that the editorial content of its web sites will
distinguish the Company from other providers. The Company's web sites will
offer a variety of articles covering fashion, beauty, style and entertainment.
Most of these articles will be provided by freelance journalists who are
experienced writers in these fields.


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Fashionhouse Web Site

         The Company operates "Fashionhouse", its first web site, located on 
the World Wide Web at www.fashionhouse.net, and also at www.nikitaylor.net.
Pursuant to a Web Site License Agreement dated as of June 1, 1997 with a company
controlled by popular model Niki Taylor (the "Niki Taylor License"), the Company
has engaged the services of Ms. Taylor to host its current web site. The Niki
Taylor License provides for the Company's non-transferable right to use Ms.
Taylor's name and likeness in connection with the web site, subject to her prior
written approval for all "for profit" uses, including all uses in print and
electronic media. This use is subject to any prior commitments made by Ms.
Taylor with which the Company's use may conflict. In addition, the Niki Taylor
License provides the Company with exclusive use of photographs taken at a photo
shoot directed by the Company, as well as the right to have Ms. Taylor make two
publicity appearances to promote the web site. Ms. Taylor has also agreed, at
her sole option, to participate in exclusive interviews and on-line chat
sessions on the web site, at mutually agreed upon times. All services to be
provided by Ms. Taylor are subject to her availability.

         For her services, Ms. Taylor is entitled to a $150,000 advance against
future royalties, one-third of which was paid upon execution of the Niki Taylor
License, and the remainder of which was paid to her on September 17, 1998.
Royalties to be paid to Ms. Taylor are calculated at a rate of fifteen (15%)
percent of the gross revenues generated by the Company from the Fashionhouse
web site. Ms. Taylor is also entitled to receive fifty (50%) percent of gross
revenues with respect to revenues generated from corporate sponsors, strategic
partners and licensees introduced to the Company by Ms. Taylor (hereafter
referred to as "Taylor Sponsors"). Ms. Taylor also is entitled to receive
thirty-five (35%) of the net revenues received by the Company from the sale of
merchandise on the web site.

         During the term of the Niki Taylor License, Ms. Taylor has agreed not
to (i) license her name and likeness to any other web site or home page devoted
to her or (ii) be employed by, provide consulting services to or otherwise
render services to other fashion-related on-line services. Notwithstanding
these limitations, Ms. Taylor is permitted to advertise on other sites, provide
services to sites operated by persons with whom she has corporate sponsorship
commitments and participate in online interviews and articles. The Niki Taylor
License expired on September 30, 1998, but it has been extended for an
additional twelve month period. The Company currently owes Ms. Taylor $150,000
under the extended agreement. The Niki Taylor License will be automatically
extended for an additional twelve month period, unless terminated by the
Company or Ms. Taylor prior to any such extension.


                                       6

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Calendar Agreement with Claudia Schiffer

         In November 1998, the Company entered into a Licensed Calendar
Agreement with well-known model Claudia Schiffer (the "Calendar Agreement").
The Calendar Agreement grants the Company the right to use the name, likeness,
and endorsement of Ms. Schiffer in the advertisement, promotion and sale of a
16-month calendar for the year 1999, including photographs of Ms. Schiffer in a
downloadable electronic format. Under the terms of the Calendar Agreement, Ms.
Schiffer will provide photographic images and voice recordings for the Licensed
Calendar. The Company agreed to pay Ms. Schiffer an advance royalty in the
aggregate amount of $75,000, of which $37,500 was paid upon execution of the
Calendar Agreement, and the remaining $37,500 was paid to Ms. Schiffer in
December 1998. The Company agreed to pay to Ms. Schiffer royalties ranging from
20% of net sales of the Licensed Calendar to 60% of net sales of the Licensed
Calendar depending on the number of units sold. The advance payment will be
credited against any earned royalty payment. The Calendar Agreement terminates
on December 31, 1999.

Web Site License Agreement with Claudia Schiffer

         The Company entered into a Web Site License Agreement with Claudia
Schiffer (the "Schiffer License Agreement") in November 1998. The Schiffer
License Agreement grants the Company the exclusive license for an on-line
Internet service devoted to Ms. Schiffer. Pursuant to the terms of the Schiffer
License Agreement, the Company has the right to use Ms. Schiffer's name and
likeness for an Internet site including a merchandise "boutique", monthly
column and interviews or on-line chat sessions. Ms. Schiffer also is required
to make promotional appearances and voice recordings to promote the site and
provide content for it. The Schiffer License Agreement continues


                                       7

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until the year 2001. The Company is obligated to pay Ms. Schiffer guaranteed
minimum royalties of $300,000 for the first year of the Schiffer License
Agreement, $400,000 for the second year, and $500,000 for the third year, which
would be credited against earned royalties ranging from 25% to 80% of site
revenues and profits from boutique merchandise sales.

         The Schiffer License Agreement grants to Ms. Schiffer 219,682 shares of
Common Stock (the "Shares"), with the right to maintain the ratio of her Common
Stock ownership to that of Peter Klamka, the Company's President. The Company
has valued the Shares at 80% of the market value of the Company's stock on the
date of issuance or $4.00 per share. The Company agreed to indemnify Ms.
Schiffer for any U.S. income tax liability resulting from the issuance of these
shares, however, the Company has been assured that Ms. Schiffer is not a U.S.
citizen or resident, and therefore is not likely to be responsible for any such
taxes.

         The Company has delivered executed versions of the Schiffer License
Agreement to Ms. Schiffer's attorney, and has delivered a stock certificate
representing the shares to Ms. Schiffer's manager. As a result of the issuance
of shares to Ms. Schiffer, she owns approximately 6.5% of the outstanding
shares of Common Stock of the Company.

         In November and December 1998, the Company paid Ms. Schiffer an
aggregate of $145,000 pursuant to the terms of the Schiffer License Agreement.
Prior to and at the time of such payment, Ms. Schiffer refused to deliver an
executed copy of the Schiffer License Agreement to the Company, until the
payment of an additional $155,000 to her, pursuant to the terms of such
agreement. This additional payment of $155,000 was paid to Ms. Schiffer in
February 1999. Additionally, in December, the Company agreed to issue to Ms.
Schiffer an additional 50,000 shares of the Company's Common Stock, so that Ms.
Schiffer would be entitled to receive a total of 269,682 shares of Common Stock.
The Company is currently in default with respect to the payment of such
promissory note. In the event that the Company does not pay the entire amount
due under such promissory note, on or prior to February 28, 1999, the Company
believes that Ms. Schiffer will declare the Company in default under the
Schiffer License Agreement and will terminate any obligations she may have to
the Company thereunder. In addition, although the Company has not received any
indication that she will, Ms. Schiffer may also terminate the Calendar
Agreement, as a result of the Company's default under the Schiffer License
Agreement. The termination of either or both of said agreements by Ms. Schiffer
would have a material adverse effect on the Company's business and operations.

www.fragrancedirect.com.

         The Company is in the process of completing the construction of a web 
site with the Internet address "www.fragrancedirect.com." On this web site the
Company will sell colognes, perfumes and other fragrances direct to Internet
users, much in the same way that books are sold on web sites such as Amazon.com.
The site will be promoted through hyper-links from the Company's affiliated web
sites. The Company also intends to create mutual linking arrangements with
operators of apparel sites and to make barter arrangements for advertising.


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         The Company anticipates that its prices for fragrances will be lower
than the manufacturers suggested retail prices, however, not necessarily less
than all retail outlets.

         The web site was built and will be maintained by an outside contractor
whom the Company agreed to pay a $3000 one-time fee and $299 per month
maintenance. The outside contractor is also entitled to receive 5% of the gross
sales from the site, subject to a cap of $50,000 per year. The outside
contractor will process all credit card orders.

         The Company intends to obtain product liability insurance in such
amounts as it may deem appropriate to insure against any possible product
liability exposure resulting from the sale of fragrances on
www.fragrancedirect.com. The Company is aware of at least two similar web sites
attempting to compete for the on-line fragrance business.

Additional Web Sites and Content

         The Company is currently negotiating licenses with other popular
models in connection with its development of additional fashion-related web
sites to be hosted by these models. These web sites will offer content areas
similar to those provided on the Company's current site with Niki Taylor,
provided that the content of each web site will be specifically tailored to the
look and style of its model host, as well as the interests of the targeted
audience. The Company also plans to provide daily television listings and
astrological forecasts on its web sites, which are expected to be obtained on a
barter basis.

         The Company believes that user interaction will be the main draw of
the Company's web sites. The Company plans to continuously add to and change
the content on its web sites to enhance user interest. This content may include
national and regional "behind the scenes" news from fashion shows, models,
clothing designers and other celebrities. In addition, the Company may enter
into arrangements for live broadcasts of fashion shows featuring models from
the Company's web sites.

DESIGN AND DEVELOPMENT OF WEB SITES

         Pursuant to the Company's agreement with a third party web designer,
it agreed to design and develop the Company's Fashionhouse web site, as well as
any additional web sites requested by the Company. This engagement includes the
development of designs for aesthetic and functional characteristics of the web
sites, as well as the creation of computer files and code that implement the web
sites.

         The Company is the owner of all rights to the web sites when completed
except for properties licensed to the design firm by third parties and certain
materials created by the design firm. The Company paid the design firm a total
of $150,000 for the design and development of the Company's Fashionhouse web 
site. The agreement with the web site designer is terminable by either party
upon 15 days' prior written notice. The web site designer has limited its
liability to the Company to an amount equal to any fees paid to them by the
Company during the 12-month period immediately preceding the date that any cause
of action arises.


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SOURCES OF REVENUE

Advertising

         The Company believes that its current web site offers a desirable
vehicle for advertisers seeking to reach fashion-oriented consumers. The
subject matter of its web sites attract an audience that is well educated,
sophisticated and affluent. To be successful, the Company must attract
advertising placements from businesses that provide the types of products and
services that appeal to the target audience of the Company's web sites.

Banner Advertising

         The Company derives substantially all of its revenues from the sale of
advertising banners on its initial web site. These banners appear on a user's
computer screen when accessing different areas of the Company's web sites. The
interactive nature of the Internet also allows users to obtain extensive
additional information about an advertiser's products or services instantly, by
clicking on a hypertext link to the advertiser's web site. In some cases the
advertiser's products can be purchased in a transaction completed on the
Internet. The Company has entered into agreements with certain advertisers
whose banner advertisements appear on its "Fashion House with Niki Taylor" web
site, and is negotiating with additional advertisers to place banner
advertisements on its current and/or future web sites.

         The banner advertising agreements are generally for periods of three
months or less and guarantee advertisers a minimum of 250,000 impressions
(times that an advertisement appears in page views downloaded by visitors to
the Company's web sites) per month. In the event that any advertisement does
not achieve a minimum of 250,000 impressions during any month, for any reason,
the Company may be required to provide additional impressions after the
contract term at no additional cost. Advertisers pay between $2,500 and $15,000
per month depending on where the banners are placed, and whether it is an
exclusive or non-exclusive advertiser of such products or services. The Company
also offers a limited number of twelve-month placements at a price of $30,000,
which also includes one product placement. To assist advertisers in monitoring
the effectiveness of their advertisements, the Company provides them with
weekly reports showing advertising impressions and the number of times users
hyperlink to the advertisers' web sites. The Company also assists its
advertisers in developing customized promotions for the target audience.

Lycos Agreement

         In an agreement executed on November 16, 1998, Lycos, Inc. agreed to
provide the Company with $600,000 worth of advertising banner impressions on
the Lycos network consisting of complete page views with a Claudia Schiffer
advertising banner and link to www.claudiaschiffer.com. The banner advertising
and link to the Company's web site were made available to the Company
commencing on December 15, 1998 and will continue to be available until
December 15, 1999. These impressions will only be used to promote
www.claudiaschiffer.com, and Lycos has also agreed to include at least $200,000
worth of these advertisements on its web site lycos.com. Advertising content
and placement on the Lycos network are subject to approval by both parties,


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with banners rotated as often as the Company desires. Lycos is currently
running banner advertisements for www. claudiaschiffer.com and will commence
links to the Company's web site as soon as the site is up. In exchange for the
services to be provided by Lycos, the Company will provide Lycos with a link to
the Company's Claudia Schiffer web site, placed at the Company's discretion.
Ms. Schiffer has the right to terminate this agreement at any time. This
agreement is a barter arrangement for advertising, does not involve any
monetary payments and can be renewed by mutual agreement of both parties.

Product Placements

         The Company also sells product placements as an additional source of
revenue. This consists of the placement of branded products in different
environments on the Company's web sites. Some of these products could also be
placed in situations with models or celebrities whom the Company may engage, to
the extent that he or she is able to endorse such products. In the event that
the Company is able to obtain any product placements, it believes that the terms
and conditions of each such placement, including the amount payable for such
placement, will be determined on a case-by-case basis.

Local Advertising

         The Company also provides opportunities for regional advertising on
its web sites. One method of providing this advertising is the development of
regional bulletin boards. Using regional fashion sites, advertisers and
sponsors are able to more easily target local consumers for their products and
services. This is of particular interest to local businesses that have no
reason to pay higher prices to advertise their products and services nationally
into markets where such products and services are not available. In addition,
regional advertising provides all businesses with the option to reduce their
advertising expenses by focusing on specific targeted markets. 

Direct Response Marketing

         The Company has entered into two agreements pursuant to which it
provides hyperlinks to other sites from its Fashionhouse web site for the
purchase of flowers (PC Flowers and Gifts, Inc. ("PC Flowers")) and the purchase
of music compact disks, videos and


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apparel products (CDnow, Inc. ("CDnow")). Pursuant to its agreement with PC
Flowers, the Company is providing an advertising banner and hyperlink to PC
Flowers on the Company's web site. In exchange, the Company receives a
percentage of the revenues derived from sales to those customers accessing the
PC Flowers web site through the Company's web site. Visitors to the Company's
site who visit "Fashion House Flowers and Gifts" also are provided with a
toll-free number to call in orders. PC Flowers has agreed to pay the Company a
sales commission ranging from 8% to 10% of net sales with respect to all
flowers, balloons, gourmet foods, gift baskets and greeting cards sold through
the Company's web site. This agreement may be terminated by either party upon
90 days prior written notice.

         Pursuant to the Company's agreement with CDnow, the Company has
developed a hyperlink to CDnow's site for the purchase of music compact disks,
videos and apparel. The Company receives commissions for products ordered
through hyperlinks from its site, ranging from 3% to 5% of net sales of music
compact disks, 4% to 6% of net sales of videos and 8% to 10% of net sales of
apparel products. The initial term of this agreement expires in September 1998,
but has been automatically renewed for a one year period. The agreement is
renewed automatically for subsequent one year terms unless either party
terminates within 30 days of the end of the then current term. The Company
commenced direct marketing sales with CDnow on its Fashionhouse web site.

Syndicated Radio Show

         The Company has had preliminary discussions with a national
syndicator of radio programming, in connection with the development and airing
of a daily 90-second radio show devoted to the same subject matter as the
Company's web sites. The show, which is tentatively called "The Fashion House
Minute" could be a source of additional revenue for the Company through the
sale of up to 30 seconds of advertising time on each show. There can be no
assurance that the Company will be able to enter into an agreement with the
syndicator or develop or make profitable the radio show.



                                       12

<PAGE>



MARKETING AND PROMOTION

         The Company continually evaluates numerous ways to promote its brand
names such as "Fashionhouse," believing that brand recognition will assume
increasing importance as the volume of activity on the Internet increases. The
Company intends to promote its web sites, products and other services through
several of the following methods.

Public Relations

         The Company has engaged the services of The Angellotti Company, a
public relations firm, to assist in the launch of its web sites. The Company
agreed to pay $3,500 per month for these services for a period of eight months
commencing in May 1998. The agreement was automatically renewed at the end of
the eight month term. It is the public relations firm's responsibility to
arrange for creative and on-target promotions in both traditional and
electronic media.

WEB HOST;  OPERATIONS, SECURITY AND TECHNOLOGY

         The Company's web sites are made available to users through its web
host, Digex. The Company provides pages of code, graphics and video to Digex,
which uploads this information to its dedicated servers. Digex is responsible
for all traffic, security and management of the technological aspects of the
Company's web sites. The Company is responsible for updating the content on the
web sites and to apprising Digex of the Company's changing technological needs
and offering Digex the opportunity to provide for these needs. The Company
compensates Digex with a combination of cash and promotional consideration. The
Company believes it would have no difficulty replacing Digex with another web
host if its relationship with Digex were to be terminated for any reason.

         A key element of the Company's success is to generate a high volume of
use of its sites. Accordingly, high levels of performance are critical. Any
system failure that causes interruption or an increase in response time could
result in less traffic to the Company's web sites and, if sustained


                                       13

<PAGE>



or repeated, could reduce the attractiveness of the Company's web sites to
advertisers. Further, any substantial increase in the number of visits to the
Company's web sites could strain the capacity of the software or hardware
deployed by the Company or its web hosts and would require the Company to
expand and adapt its network infrastructure. The Company's inability to add
software or hardware to accommodate substantial increases in traffic could lead
to slower response time or system failures.

         The Company's operations also are dependent, in part, upon the ability
of its web hosts to protect their operating systems against physical damage
from fire, floods, earthquakes, power loss, telecommunications failures,
break-ins and similar events. The Company does not currently have redundant,
multiple site capacity in the event of any such occurrence. Notwithstanding the
implementation of security measures by the Company, such as limiting physical
and network access to its routers, the Company's infrastructure is vulnerable
to computer viruses, break-ins and similar disruptive acts by Internet users.
These factors could lead to interruption, delays or cessation in service of the
Company's web sites. Furthermore, the inappropriate use of the Internet could
jeopardize the security of confidential information stored in the computer
systems of the Company's customers and other users of the Internet, which could
deter potential customers from accessing the Company's web sites and give rise
to uncertain liability to users whose security and privacy has been infringed.
A security breach could result in loss of customers, damage to the Company's
reputation, damage to the Company's web sites, costs of repair and detection
and other expenses. The security and privacy concerns of existing and potential
customers may inhibit the growth of the Internet, in general, and the Company's
revenues in particular.

COMPETITION

         Competition among content providers on the Internet is intense and is
expected to increase significantly. The Internet is currently characterized by
minimal barriers to entry, since new web sites can be developed and launched at
relatively low cost. The Company faces competition from a number of sources
that provide content through one or more media, such as print, broadcast, cable
television and the Internet. In order to compete successfully, the Company must
establish and maintain awareness, among the public, of the Company and its
brand names, effectively market its services and products, and successfully
differentiate its web sites. This will be highly dependent on the Company's
ability to provide compelling and popular content to attract Internet users and
support advertising and sales of products and services that are intended to
reach such users.

         The Company competes with a significant number of web content
providers, several of which offer competitive services and/or products, and
address certain of the Company's target markets, including, among others,
Women's Wire, Elle Magazine, Ford Models, Inc. and Pataxi Entertainment
Network, Inc. (operator of supermodel.com). In addition, the Company competes
against large service providers, including web directories, search engines,
commercial online services and sites maintained by Internet service providers,
many of which offer content similar to that provided on the Company's web sites
and attract advertisers targeting the same audience as the Company. Some of
these companies include Microsoft Corporation, America Online, Inc., Netscape
Communications, Yahoo! Inc. and Prodigy Services Co. Many of these competitors
have significantly greater financial, technical and marketing resources than
the Company, and include companies that are larger and


                                       14

<PAGE>



better capitalized than the Company. These competitors also may have expertise
and established brand recognition in the Internet market.

         In addition, the Company competes for the time and attention of
Internet users with thousands of non-profit Internet sites operated by
educational institutions, governments and individuals. Existing and potential
competitors also include other forms of media, such as television, radio and
print media, many of which provide services and products that are similar to
those which the Company currently provides and also intends to provide through
its web sites. Although traditional media outlets do not offer many of the
interactive features available through the Internet (such as online chat rooms,
E-mail, etc.), there are numerous publications, as well as television and radio
programs, which provide editorial content similar to that which the Company
provides on its web site, as well as articles and features on fashion, beauty,
health and celebrities. There can be no assurance that the Company's
competitors will not develop services and products that are superior to those
of the Company or that achieve greater market acceptance.

         The Company believes that the principal competitive factors in the
Internet market are brand recognition, ease of use, content depth, content
quality, content presentation, speed and quality of service execution,
competitive pricing, successful marketing and the availability of targeted
content and focused value added services and products. To be competitive, the
Company believes that it must distinguish its editorial content from its
competitors and customize this content to appeal to its target audiences.

         Since many of the Company's competitors have greater resources than
the Company, these competitors may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and devote
substantially more resources to developing their content and services. In
addition, as a strategic response to changes in the competitive environment,
the Company may make certain pricing, service or marketing decisions or enter
into acquisitions of new entities that could have a material adverse effect on
the Company's business, results of operations and financial condition.

TECHNOLOGY; TRADEMARKS AND PROPRIETARY RIGHTS

         The Company's success is highly dependent on its trademarks and other
intellectual property rights. The Company relies upon trademark and copyright
law, trade secret protection and, where appropriate, confidentiality and /or
license agreements with its employees, independent contractors and consultants
to protect its proprietary rights. To date, none of the Company's trademarks
has been registered, nor does the Company currently contemplate registering any
of its trademarks. The Company also relies on copyright laws to protect the
original content included on its web sites. A substantial amount of uncertainty
exists concerning the application of copyright laws to the Internet, and there
can be no assurance that existing laws will provide the Company with adequate
protection.

         Effective trademark, copyright and trade secret protection may not be
available in every country in which the Company's services and products are
distributed or appear via the Internet. As part of its business strategy, the
Company may license its content, trademarks and images to third parties.
Without adequate protection in foreign markets, there can be no assurance that
these


                                       15

<PAGE>



licensees will not take actions that might materially or adversely affect the
value of the Company's proprietary rights. In addition, despite the Company's
efforts to protect its proprietary rights, the rapid pace of technological
innovation on the Internet makes it possible for third parties to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. Policing
unauthorized use of the Company's technology and intellectual property will be
difficult. The Company generally obtains confidentiality agreements from all
employees and independent contractors providing services in connection with the
development and design of the Company's web sites.

GOVERNMENT REGULATION

         The Company's business is not currently subject to direct regulation
by any government agency, other than regulations applicable to businesses
generally, and there are currently few laws or regulations directly applicable
to access to or commerce on the Internet. However, due to the increasing
popularity and use of the Internet, it is possible that a number of laws and
regulations may be adopted with respect to the Internet, covering issues such
as user privacy, pricing, characteristics and quality of products and services.
The Telecommunications Reform Act of 1996 imposes criminal penalties on anyone
who distributes obscene, indecent or patently offensive communications on the
Internet (although certain provisions of that law have recently been held to be
unconstitutional). The manner in which this law, or any similar law which may
be adopted in the future, will be interpreted and enforced and its effects on
the Company's proposed operations cannot yet be fully determined. The adoption
of any additional laws or regulations may decrease the growth of the Internet,
which could in turn decrease the demand for the Company's services and products
and increase the Company's cost of doing business. Furthermore, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, libel and personal privacy is
uncertain.


                                  RISK FACTORS

         EXTREMELY LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED
LOSSES. The Company commenced operations through a predecessor company in May
1997 and was incorporated on January 14, 1998. The Company has generated
extremely limited revenues to date, and has an extremely limited operating
history upon which an evaluation of the Company, its business and its prospects
can be made. The likelihood of the success of the Company must be considered in
light of the problems, expenses, difficulties, complications and delays
frequently encountered by companies in their early stage of development,
particularly companies in the new and rapidly evolving market for Internet
products and services. Specifically, such risks include the failure of the
Company to anticipate and adapt to a developing market, the rejection of the
Company's services and products by Internet users, development of equal or
superior services or products by competitors and the failure of the market to
adopt the Internet as a transaction medium.

         The Company has had limited financial resources to date and has
incurred operating losses since its inception. As of December 31, 1998, the
Company had an accumulated deficit of


                                       16

<PAGE>



$2,590,347. The Company expects to continue to incur operating losses for the
foreseeable future, due to the significant expenses which the Company expects
to incur in the development and marketing of its initial web site hosted by
model Niki Taylor, as well as any additional sites developed by the Company.
These expenses include substantial advance royalty payments that the Company
has agreed to make to Ms. Taylor. Additionally, to the extent that the Company
engages additional models and/or celebrities for its web sites, it will most
likely be required to pay advance royalties to those persons. The Company has
generated extremely limited revenues to date from its Fashionhouse web site, and
there can be no assurance that the Company will ever generate significant
revenues from this web site or from any other business conducted by it. These
initial revenues have been generated primarily from advertising placed on the
site. The Company also expects to significantly increase its operating expenses
to expand its sales and marketing operations, to fund greater levels of product
development, and to develop other forms of revenue-generating business, such as
direct response sales, licensing of the Company's proprietary materials to
others, and celebrity chat clubs. The Company does not expect significant
revenues from such other businesses prior to December 1998. As a result of the
foregoing factors, there can be no assurance that the Company's services and
products will ever generate sufficient revenues or that the Company's operations
will ever be profitable.

         NEED TO RAISE ADDITIONAL FUNDS. Since the Company raised significantly
less than the maximum amount of net proceeds pursuant to its initial public
offering, the Company will need to seek additional financing sooner than
anticipated or curtail certain of its planned activities. In addition, if the
Company's plans change, its assumptions change or prove to be inaccurate or its
cash flow prove to be insufficient to fund operations (due to unanticipated
expenses, delays, problems, difficulties or otherwise), the Company will be
required to seek additional financing. The Company may determine, depending on
the opportunities available to it, to seek additional equity or debt financing
to fund the cost of its operations. To the extent that the Company chooses to
raise additional funds by issuing equity securities, this issuance could result
in the further substantial dilution of the interests of the Company's
stockholders. Additionally, to the extent that the Company issues debt
securities to raise funds or otherwise incurs indebtedness, the Company will be
subject to risks associated with incurring substantial indebtedness, including
the risks that interest rates may fluctuate and cash flow may be insufficient to
pay principal and interest on any such indebtedness. The Company has no current
arrangements with respect to, or sources of, additional financing, and it is not
anticipated that the existing stockholders will provide any portion of the
Company's future financing requirements. There can be no assurance that
additional financing will be available to the Company on commercially reasonable
terms, or at all.

         GOING CONCERN ISSUES IN INDEPENDENT AUDITORS' REPORT. As a result of
the Company's having been in the development stage since its inception, its lack
of revenues to date and its incurrence of net losses during such period, the
Company's independent certified public accountants have included an explanatory
paragraph in their report on the Company's financial statements for the period
ended December 31, 1998, regarding having substantial doubt about the Company's
ability to continue as a going concern without additional financing.





                                       17

<PAGE>



         LITIGATION. Effective January 1, 1998, the Company entered into a
license agreement with a company controlled by well-known model, Tyra Banks,
similar to the license agreement relating to Niki Taylor. In addition, the
Company also entered into an agreement with Ms. Banks' company in connection
with its creation, marketing and sale of calendars and electronic planners
featuring photographs of Ms. Banks. On June 18, 1998, Ms. Banks declared the
Company in breach of both of these agreements and has refused to perform under
either of them. The basis for this declaration was the Company's alleged
failure to pay the full amount of all advances due and payable to Ms. Banks'
company pursuant to the agreements, as well as its failure to fully reimburse
Ms. Banks for certain expenses provided for under the calendar agreement. To
date, the Company has advanced funds to Ms. Banks' company in the aggregate
amount of $134,000. The Company received a letter from Ms. Banks' attorneys,
dated September 8, 1998, demanding the Company to pay to Ms. Banks' company an
additional $153,000 on or before September 15, 1998, along with certain other
demands. This letter further states that in the event that the Company fails to
comply with all of their demands by that date, Ms. Banks and her company will
be forced to take all "appropriate" action to recover all amounts, alleged to
be owed, and to enforce their rights against the Company.



         ARBITRATION FILED BY TYRA BANKS. On December 8, 1998, attorneys for 
Tyra Banks and Bankable, Inc., an entity controlled by Ms. Banks, made a Demand
for Arbitration against the Company under the Commercial Arbitration Rules of
the American Arbitration Association. Ms. Banks' attorneys alleged that the
Company failed to make timely payments of money due upon the execution the Web
Site License Agreement and Calendar Agreement between Ms. Banks and the Company
("Agreements"), and refused to return photographs, pictures, prints, negatives
and images of Ms. Banks. Ms. Banks is seeking the amount of$153,000, plus
interest, allegedly owed to her, to have the Company not use her name, picture
and likeness, and to have all images of Ms. Banks, in any form, returned to her.
She also is seeking damages for injury to her public reputation, lost royalties
and the cost of attorney's fees. On January 15, 1999, the Company, through its
attorneys, filed an Answer and Counterclaim to Ms. Banks' Demand for
Arbitration. The Company raised several defenses to Ms. Banks' claims and
claimed a breach by Ms. Banks and Bankable of the Web Site Agreement. The
Company is seeking the amount of $100,000, plus additional damages, relating to
the advance payment made by the Company to Bankable, Inc. A preliminary
administrative conference was held on January 19, 1999, and a hearing is
scheduled for April 23, 1999. Both parties have also expressed an interest in
resolving this matter through mediation. Mediation would run concurrently with
the arbitration process, prior to the arbitration hearing. The Company intends
to vigorously defend itself in this arbitration, and believes that it has
meritorious defenses. Nonetheless, there can be no assurance that the Company
will be successful in this arbitration, andan unfavorable settlement or result
in this matter could have a material adverse effect on the Company. Any amounts
which the Company would be required to pay to Ms. Banks' company will be paid
out of available working capital. In the event that the Company does not have
sufficient working capital to pay any such amounts, and does not raise
additional funds, in a timely manner, or have cash available from operations, or
otherwise, with which to make such payments, the Company would be required to
either substantially reduce or terminate its operations. 


                                       18

<PAGE>




         POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. Because of the Company's
extremely limited operating history and the emerging nature of the markets in
which it competes, management is unable to accurately forecast future revenues.
The Company, to date, has generated only extremely limited revenues. The
Company's contracts with advertisers typically guarantee the advertiser a
minimum number of impressions or times that an advertisement appears in page
views downloaded by visitors to the Company's web sites. To the extent that
minimum impression levels are not achieved for any reason, the Company may be
required to provide additional impressions after the contract term, which may
adversely affect the availability of advertising inventory. To the extent
minimum guaranteed impressions are not met, the Company will be required to
defer the recognition of corresponding revenues until guaranteed impression
levels are achieved. The Company's expense levels will be based in part on its
expectations concerning future revenues and to a large extent will be fixed.
Accordingly, the cancellation or deferral of a small number of advertising
contracts could have a material adverse effect on the Company's business,
results of operations or financial condition. The Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenue would have an immediate
adverse effect on the Company's business, results of operations and financial
condition.

         The Company's operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are not in the
Company's control. Such factors include the level of usage of the Internet,
demand for Internet advertising, seasonal trends in both Internet usage and
advertising placements, the advertising budgeting cycles of advertisers, the
amount and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, the


                                       19

<PAGE>



introduction of new services or products by the Company or its competitors,
pricing changes in the industry, technical difficulties with respect to the
Company's web sites, general economic conditions and economic conditions
specific to the Internet and online media. As a result of any of the foregoing
conditions, the Company may be required to make certain decisions in connection
with the operation of its business which could have a material adverse effect
on the Company's business, results of operations and financial condition.

         DEPENDENCE ON LICENSES WITH MODELS AND OTHER CELEBRITY HOSTS.
To date, the Company has retained the services of two models to host its 
web sites. The Company has entered into a license with a company controlled by
Niki Taylor which permits the use of Ms. Taylor's name and likeness in
connection with the Fashionhouse web site, as well as certain services to be
provided by Ms. Taylor, including her appearance for one eight-hour photo shoot
(which has already taken place) and two four-hour publicity appearances. Ms.
Taylor, at her sole option, may also participate by telephone or in-person in
exclusive interviews and/or on-line chat sessions. The Company expects to enter
into licenses with other models, in the near future, although there can be no
assurance that the Company will be able to successfully retain the services of
any other models on terms that are mutually agreeable to the Company and those
models. The Company's license with Ms. Taylor expired on September 30, 1998, but
was automatically extended for a one year period. The License will be
automatically extended for an additional one year period, unless either the
Company or Ms. Taylor terminates the license as of the end of the then current
term. The expiration or termination of this license would have a material
adverse effect on the Company's business, results of operations and financial
condition. 

         Although the Company anticipates that the content of its web sites
will consist of articles and photographs pertaining to fashion, beauty, style
and entertainment, and that its web sites will provide an avenue for users to
share general tips and advice relating to these subjects, the Company believes
that the celebrity models whose services it obtains to host the Company's web
sites will be the principal attraction. In the event the Company is unable to
retain the services of a sufficient number of celebrities to host its web
sites, or maintain the services of such celebrities for an extended period of
time, it is highly unlikely that the Company's web sites would attract the
number of users which would be required to obtain significant advertising and
merchandisers. These circumstances would most likely result in the termination
of the Company's business and the loss of an investor's entire investment. In
addition, the success of the Company's web sites will be highly dependent on
the continued popularity of the celebrity models who host the sites. In the
event that the popularity of any such celebrity model fades in the public eye,
including, for among other reasons, disclosure of allegedly illegal or immoral
acts by such celebrity model, the Company will in all likelihood find it
necessary to terminate its relationship with that celebrity model. A suitable
replacement may not be available on a timely basis and on terms and conditions
mutually agreeable to the Company and any such potential replacement. In the
event that the Company is not able to timely replace a celebrity model, this
failure could have a material adverse effect on the Company's business, results
of operations and financial condition.

         DEVELOPING MARKET; DEPENDENCE ON CONTINUED GROWTH IN USE OF INTERNET;
ACCEPTANCE OF INTERNET AS AN ADVERTISING MEDIUM. The market for the Company's
services and products is relatively new and has only recently begun to develop.
This


                                       20

<PAGE>



market also is rapidly evolving and is characterized by an increasing number of
market entrants who have introduced or developed services and products for use
on the Internet. The Company's business is highly dependent upon the continued
growth in use of the Internet, particularly by women of all ages, for
information, interaction, distribution and commerce. Although the Company
intends to create web sites that appeal to men and women of various ages, the
Company believes that women will constitute the primary audience for many of
the services and products to be offered on the Company's web sites. The
Company's ability to generate sufficient revenues will therefore be highly
dependent on a significant and continued increase in the use of the Internet,
particularly by women. Furthermore, the Internet is still an unproven medium
for paid services such as those which the Company currently provides and
intends to provide in the future, including the placement of effective
advertising by site sponsors. Accordingly, the Company's future operating
results will depend substantially upon such continued growth in use, as well as
the emergence of the Internet as an effective commerce medium. Additionally,
critical issues concerning the commercial use of the Internet (such as
security, reliability, cost, ease of use, access, quality of service and
acceptance of advertising), remains a barrier to entry for many individuals and
businesses and therefore may impact the rate of growth of Internet use. If
widespread commercial use of the Internet does not develop, or if the Internet
does not develop as an effective commerce medium, the Company's business,
results of operations and financial condition will be materially adversely
affected.

         DEPENDENCE ON ADVERTISING REVENUES. The Company has derived
substantially all of its initial revenues from the sale of advertisements on
its initial web site, and expects this to continue through 1999. The Company, to
date, has obtained commitments from certain advertisers for advertising on its
"Fashion House with Niki Taylor" web site, and is currently negotiating with
additional advertisers for the sale of advertisements. There can be no assurance
that any of such negotiations will result in a commitment to advertise on any of
the Company's web sites. Existing advertising placement contracts are for
relatively short terms, generally three months or less, and are terminable by
advertisers at any time on very short notice. Consequently, the Company's
advertising clients will be able to eliminate or move their advertising to
competing Internet sites or from the Internet to traditional media, quickly and
at low cost. The Company's ability to generate advertising revenues will depend
upon, among other factors, the acceptance of the Company's web sites as
attractive and sustainable media, the development of a large audience of users
of the Company's web sites and the effective development of media properties
that provide user demographic characteristics that will be attractive to
advertisers.

         There is currently intense competition in the sale of advertising on
the Internet. This competition has resulted in a wide range of advertising
rates for a variety of advertising services, making it difficult to project
future levels of Internet advertising revenues which may be realized by the
Company or any of its competitors. Competition among current and future web
sites, as well as competition from traditional media for advertising
placements, could result in significant price competition and reductions in the
Company's projected advertising prices and revenues. In the event that the
Company fails to attract advertising customers, loses customers after they have
been retained, or is forced to reduce advertising rates in order to retain or
attract advertisers, the Company's business, results of operations and
financial condition could be materially and adversely affected.



                                       21

<PAGE>



         DEPENDENCE ON REVENUES FROM OTHER SOURCES. After the Company's web
sites have been established and have started to gain recognition (of which no
assurance can be given thereof), the Company's ability to expand its business
will become dependent upon its success in generating significant revenues from
sources other than advertising placements on its web sites. The Company intends
to enter into direct marketing arrangements with a variety of businesses in
connection with the sale of their products and services on the Company's web
sites. The Company, to date, has entered into a direct marketing agreement with
a company to promote the sale of flowers on the Fashionhouse web site. The
Company also has entered into an agreement with another company to provide for
the exclusive sale by that company of videos and music compact disks on the
Fashionhouse web site. In addition, the Company has contracted the services of
third parties to create fashion and swimsuit electronic planners and paper
calendars featuring models appearing on the Company's web sites. There can be no
assurance that the Company will ever be able to create and maintain sources of
revenue from these and other ventures which will be sufficient for the Company
to be profitable. In the event that the Company is unable to generate
significant revenues from any sources other than advertising placements, the
Company's business, results of operations and financial condition could be
materially and adversely affected.

         TECHNOLOGICAL CHANGE. The primary market in which the Company competes
is characterized by rapidly changing technology, evolving industry standards,
frequent new service and product announcements, introductions and enhancements
and changing customer demands. Accordingly, the Company's success will depend
in significant part on its ability to adapt to rapidly changing technologies,
the ability to adapt its services and products to evolving industry standards,
and to continually improve the performance, features and reliability of its
services and products in response to evolving demands in the marketplace and
competitive service and product offerings. In addition, the widespread adoption
of new web functionality through developments such as "JAVA", Virtual Reality
Modeling Language and other multimedia technologies could require substantial
expenditures by the Company and could fundamentally affect the nature,
viability and measurability of web-based advertising. The failure of the
Company to adapt to such changes and evolution would have a materially adverse
effect on the Company's business, results of operations and financial
condition.

         UNPROVEN ACCEPTANCE OF THE COMPANY'S WEB SITES AND CONTENT. The
Company's success is dependent upon its ability to deliver original and
compelling content in order to attract users. Since the Company has only
recently launched its initial web site it is too early to determine the level
of its acceptance by consumers, and there can be no assurance that the
Company's current web site and/or future web sites, to the extent developed and
launched, will contain content which will be attractive to a sufficient number
of users to generate advertising revenues or that the Company will be able to
anticipate, monitor and successfully respond to rapidly changing consumer
tastes and preferences so as to attract a sufficient number of new and repeat
users to its sites. As is typical in a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services,
such as the Company's web sites are subject to a high level of uncertainty and
risk. Because this market is new and evolving, it is difficult to predict
future growth. There can be no assurance that the Company will be able to
successfully develop a market for its web sites or that demand will emerge or
become sustainable. If the Company's web sites and


                                       22

<PAGE>



the content contained thereon are not accepted, or develop more slowly than
expected, or the market becomes saturated with competitors, the Company's
business, results of operations and financial condition will be materially and
adversely affected.

         DEPENDENCE ON THIRD PARTY DEVELOPERS AND CONTENT PROVIDERS. The
Company is in an early development stage and currently has only two employees.
A key element of the Company's business is the development and design of its
web sites. In connection therewith, the Company has and will continue to rely
on the development efforts of third-party developers. The Company's initial web
site was designed and developed by an independent third party, which also has
agreed to design and develop additional web sites for the Company. The Company
believes that this firm has the personnel and equipment to develop and design
additional web sites, upon the Company's request, to the specifications
provided by the Company. In the event that this developer is unable to
successfully design and develop any additional web sites, in a timely manner,
or at all, the Company would be required to engage the services of an alternate
developer. While the Company believes that there are several developers who
could design and develop the Company's web sites, the delays caused by the
Company's need to engage the services of another developer could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company also will rely on third parties
to provide the content for the Company's web sites. The Company also will
require the services of additional third-party developers and content providers
to create the news, reviews and other entertainment features which the Company
intends to include on its web sites, as well as personnel to handle the ongoing
administration of the Company's web sites, to the extent that the
administration of the sites is not performed by employees of the Company. There
can be no assurance that the Company's current or future affiliations with
developers, content providers or administrative personnel will result in
effective content development and administration of the Company's web sites, or
that their efforts will result in significant revenues for the Company. Any
failure of such persons to develop and maintain high quality and successful
technology and content for the Company's web sites would have a material
adverse effect on the Company's business, results of operations and financial
condition.

         DEPENDENCE ON OTHER WEB SITES AND PROVIDERS. The Company's ability to
advertise on other web sites and the willingness of the owners of such sites to
direct users to the Company web sites through hypertext links is critical to
the Company's operations. Search engines, directories and other navigational
tools managed by Internet service providers and web browser companies also
significantly affect traffic to the Company's web sites. The Company also
depends on its relationships with third party vendors of Internet development
tools and technologies in order to develop the content required to attract
users to its web sites. Developing and maintaining satisfactory relationships
with such persons could become more difficult and expensive as competition
increases among content providers. If the Company is unable to develop and
maintain satisfactory relationships with such third parties, or if the
Company's competitors are better able to maintain such relationships, the
Company's business, results of operations and financial condition could be
materially and adversely affected.

         RISK OF CAPACITY CONSTRAINTS. A key element of the Company's business
is the ability to generate a high volume of traffic to its web sites. Any
system failure that causes


                                       23

<PAGE>



interruptions in the availability or increases response time of the Company's
services would reduce traffic to the Company's web sites and, if sustained or
repeated, would reduce the attractiveness of the Company's services to
advertisers and other future potential customers or visitors to the Company's
web sites. An increase in the volume of traffic to the Company's web sites
could adversely affect the capacity of the software or hardware deployed by the
Company, which could lead to slower response time or even system failures. The
Company is also dependent upon web browsers and Internet and online service
providers for access to its services and consumers may experience difficulties
due to system failures unrelated to the Company's systems. To the extent that
the above-described capacity constraints are not effectively addressed by the
Company, such constraints would have a material adverse effect on the Company's
business, results of operations and financial condition.

         SECURITY RISKS. Although the Company has engaged a third party, Digex,
Inc. ("Digex") to host its initial web site, and intends to engage third
parties to host all its web sites, the Internet infrastructure is vulnerable to
computer viruses, break-ins and similar disruptive problems by its customers
and other Internet users. These factors could lead to interruption, delays or
cessation in service. In addition, unauthorized use of the Internet could also
jeopardize the security of confidential information stored in computer systems
of the Company's customers and other parties using the Internet, which could
deter potential customers from accessing the Company's web sites and give rise
to liability to users whose security or privacy has been infringed. A security
breach could result in loss of customers, damage to the Company's reputation,
damage to the Company's web sites, costs of repair and detection, and other
expenses. The occurrence of any of these events could have a material adverse
effect on the Company's business, results of operations and financial
condition.

         COMPETITION. The market for Internet services and products is highly
competitive and competition is expected to continue to increase significantly
in the future. In addition, the Company expects the market for web-based
advertising to be intensely competitive. There are no significant barriers to
developing web sites, and the Company expects competition to continue to grow.
The Company competes with a significant number of web content providers,
several of which offer competitive services and/or products, and address
certain of the Company's target markets, including, among others, Women's Wire,
Elle Magazine, Ford Models, Inc. and Pataxi Entertainment Network, Inc.
(operator of supermodel.com). Many of these competitors have significantly
greater financial, technical and marketing resources than the Company, and
include companies that are larger and better capitalized than the Company.
These competitors may also have expertise and established brand recognition in
the Internet market. There can be no assurance that the Company's competitors
will not develop Internet services and products that are superior to those
currently offered or contemplated by the Company or that they will not achieve
greater market acceptance than the Company's contemplated services and
products. In addition, the Company competes with these competitors, online
services and other web site operators, for the same sources of advertising and
direct marketing revenue.

         The Company's web site competes with (and any future developed web
sites will compete with) other forms of media, such as television, radio and
print media, many of which provide services and products that are similar to
those which the Company currently provides and also


                                       24

<PAGE>



intends to provide through its web sites. Although traditional media outlets do
not offer many of the interactive features available through the Internet (such
as online chat rooms and E-mail), there are numerous publications, as well as
television and radio programs, which provide editorial content similar to that
which the Company provides on its web site, as well as articles and features on
fashion, beauty, health and celebrities. The Company also will compete with
these traditional media outlets for advertising revenue and direct marketing
revenue.

         Although the Company believes that there exists a large share of
advertising dollars available to the Company and other web site operators, as
well as several other commercial opportunities for the generation of revenues
through the Company's contemplated web sites, competition among current and
future web sites, as well as competition with other forms of media for
advertising placements, could result in significant price competition and
reductions in advertising revenues. There can be no assurance that the Company
will ever be able to compete successfully with potential competitors or that
the competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, results of operations and financial
condition.

         PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY. The Company
regards its technology and content created for its web sites as proprietary and
will attempt to protect such proprietary rights through, among other means,
trademark and copyright registration, trade secret protection and
confidentiality and non-disclosure agreements with its employees and
independent contractors. The Company intends to pursue registration of certain
trademarks and copyrights in the United States and in any foreign countries in
which such trademarks and copyrights are used. Effective trademark, copyright
and trade secret protection may afford the Company only limited protection in
the United States and may not be available in every country in which the
Company's web sites, and services and products included thereon, are
distributed or made available. Despite the Company's efforts to protect such
proprietary rights, the rapid pace of technological innovation on the Internet
makes it possible for third parties to copy or otherwise obtain and use the
Company's products or technology without authorization, or to develop similar
technology independently. Policing unauthorized use of the Company's technology
and intellectual property will be difficult. There can be no assurance that the
precautions taken by the Company will prevent misappropriation or infringement
of its technology or intellectual property. In addition, notwithstanding the
Company's best efforts to obtain confidentiality agreements from all employees
and independent contractors providing services in connection with the
development and design of the Company's web sites, no assurance can be given
that others will not gain access to the Company's trade secrets, that such
agreements will be honored by employees and independent contractors, or
enforced by the courts, or that the Company will be able to effectively protect
its rights to its proprietary technology and intellectual property.

         The Company believes that its trademarks, copyrights and other
intellectual property rights will not infringe the trademarks of others. There
can be no assurance that the Company will succeed in obtaining registrations of
its trademarks, or that others, who may have significantly greater resources
than the Company, will not challenge the Company's use of its trademarks and
other intellectual property, or seek to market their own services or products
using similar trademarks or other intellectual property. In the event that the
Company seeks to enforce its rights with respect to any intellectual property
rights, or a third party seeks to enforce its rights against the Company with


                                       25

<PAGE>



respect to any intellectual property right, litigation may be required, which
would result in substantial costs and diversion of the Company's resources and
could have a material adverse effect on the Company's business, results of
operations and financial condition.

         GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company's
proposed business is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable to access
to or commerce on the Internet. However, due to the increasing popularity and
use of the Internet, it is possible that a number of laws and regulations may
be adopted with respect to the Internet, covering issues such as user privacy,
pricing, characteristics and quality of products and services. The
Telecommunications Reform Act of 1996 imposes criminal penalties on anyone who
distributes obscene, indecent or patently offensive communications on the
Internet (although certain provisions of that law have recently been held to be
unconstitutional). The manner in which this law, or any similar law which may
be adopted in the future, will be interpreted and enforced and its effects on
the Company's proposed operations cannot yet be fully determined. The adoption
of any additional laws or regulations may decrease the growth of the Internet,
which could in turn decrease the demand for the Company's services and products
and increase the Company's cost of doing business. Furthermore, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, libel and personal privacy is
uncertain. Any such new legislation or regulation could have an adverse effect
on the Company's business, results of operations and financial condition.

         LIABILITY FOR INFORMATION DOWNLOADED FROM INTERNET; INSURANCE.
Because materials may be downloaded from the Company's web sites and
subsequently distributed to others, there is the possibility that claims will
be made against the Company for defamation, negligence, copyright or trademark
infringement or other theories based on the nature and content of the material
on the Company's web sites. These types of claims have been brought and
sometimes successfully argued, against online services. In addition, the
Company could be exposed to liability with respect to products that may be
accessible through the Company's web sites. For example, product liability
claims could be made with respect to products purchased through the Company's
web sites which cause injury, or claims could be made if material alleged to be
inappropriate for viewing by children may be accessed through the Company's web
sites. Although the Company carries general liability insurance which it
believes to be sufficient for its proposed business and consistent with
standard industry practices, the insurance may not cover potential claims of
these types and may not be adequate to indemnify the Company from all liability
that may be imposed. Additionally, the Company has been named as an additional
insured on the liability policies carried by Digex, the web host of the
Fashionhouse web site, and will request to be included as an additional insured
on the liability policies of any additional web hosts that it engages to host
the Company's web sites. No assurance can be given that any of these web hosts
will agree to name the Company as an additional insured or that if so named that
any such policies will adequately protect the Company against potential claims.
Any imposition of liability that is not covered by insurance or is in excess of
insurance coverage could have a material adverse effect on the Company's
business, results of operations and financial condition.



                                       26

<PAGE>



         RELIANCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the efforts of Peter Klamka, its Chairman, President and Chief
Executive Officer, and his ability to forge new relationships with celebrity
models and to maintain such relationships, as well as to oversee the
development and maintenance of the Company's web sites and other services and
products. The Company's success will also be highly dependent on Mr. Klamka's
ability, as well as the ability of others employed by the Company, to obtain
advertising placements consistent with the demographic characteristics of the
users of the Company's web sites. The Company has not entered into an
employment agreement with Mr. Klamka and Mr. Klamka has not entered into any
agreement restricting his involvement in a business which competes with the
Company. As a result, Mr. Klamka is an employee-at-will and has the right to
leave the Company at any time. Mr. Klamka has informed the Company that he
intends to devote a substantial portion of his working time to the business of
the Company, and that he also intends to devote a portion of his time to other
business interests that do not compete with the Company's business. In
addition, Mr. Klamka is not restricted from entering into a competing business
after the term of his employment with the Company; provided, however, that he
would not be permitted to use proprietary information and trade secrets
belonging to the Company. The loss of his services would have a material
adverse effect on the Company's business and prospects. The success of the
Company will also be dependent upon its ability to hire and retain qualified
writers, editors and technical personnel, as well as qualified marketing,
financial and other personnel. Competition for qualified personnel is intense
and there can be no assurance that the Company will be able to hire or retain
additional qualified personnel.

         LACK OF COMMERCIAL INTERNET EXPERIENCE; UNCERTAIN ABILITY TO MANAGE
GROWTH. The Company's current management has only limited experience in
managing the commercial operation of web sites on the Internet. Since the
industry is relatively new, the availability of qualified personnel also may be
limited. In order to manage the possible rapid growth of its operations, the
Company will be required to implement and improve its operational and financial
systems, procedures and controls and to train, manage and control its growing
employee base. This growth could place a significant strain on the Company's
financial, management and other resources. The Company's future performance
will depend in part on its ability to manage expansion, including, without
limitation, the development, planning, timing and execution of the introduction
of new services and products, the design and development of new and
entertaining web sites, and the development and implementation of advertising
and marketing strategies. In addition, the Company's ability to manage any
growth effectively will require it to continue to improve its operational and
financial control systems and infrastructure, and to attract, train, motivate,
manage and retain key employees. If the Company's management were to become
unable to manage growth effectively, the Company's business, financial condition
and results of operations could be materially adversely affected.

         CONTROL BY MANAGEMENT. Peter Klamka, Chairman, President and Chief
Executive Officer of the Company, beneficially owns greater than 50% of the
Company's outstanding capital stock. Accordingly, Mr. Klamka is in a position
to control the Company, elect all of the Company's directors, increase the
authorized capital, dissolve, merge, or sell the assets of the Company and
generally direct the affairs of the Company.



                                       27

<PAGE>



         BULLETIN BOARD; NO ASSURANCE OF PUBLIC MARKET. Prior to the Company's
initial public offering, there was no public trading market for the Common
Stock. The Company's shares of Common Stock are presently traded in the
over-the-counter market. The Company's Common Stock is quoted on the
"Electronic Bulletin Board", an NASD-sponsored and operated inter-dealer
automated quotation system for equity securities not included in the Nasdaq
SmallCap Market or Nasdaq National Market. Although the Bulletin Board has
recently begun to receive greater recognition from the brokerage community, the
trading volume of securities quoted on the Bulletin Board is normally
significantly less than that of securities traded in the Nasdaq SmallCap and
Nasdaq National Markets. Trading volume in the Pink Sheets also is significantly
less than on the Bulletin Board. As a result, purchasers of the Company's shares
of Common Stock may have more difficulty selling or obtaining quotations of the
price of the Company's securities than they would have if they were listed on
Nasdaq or a national securities exchange, particularly if the shares are traded
in the Pink Sheets. Unless and until the Company's Common Stock is listed on the
Nasdaq or a national securities exchange (of which no assurance can be given),
the liquidity of the Company's Common Stock may be impaired, not only in the
number of shares which could be bought and sold, but also through delays in the
timing of transactions, reduction in securities analysts and the news media's
coverage of the Company, if any, and lower prices for the Company's shares of
Common Stock than might otherwise be obtained. No broker-dealer presently makes
a market in the Common Stock. Making a market in securities involves maintaining
bid and ask quotations and being able, as principal to effect transactions in
reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements. The development of a public trading market
depends upon the existence of willing buyers and sellers, the presence of which
is not within the control of the Company. There can be no assurance that a
regular trading market for the Common Stock will develop or that, if developed,
it will be sustained.

         POSSIBLE VOLATILITY OF MARKET PRICE OF COMMON STOCK.  The market price
for the Company's securities may be highly volatile as has been the case with
the securities of other companies in emerging businesses. Factors such as the
Company's financial results and introduction of new products and services by
the Company or its competitors, and various factors affecting the Internet
industry generally, may have a significant impact on the market price of the
Company's securities. Additionally, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
the securities of many companies, particularly of small and emerging growth
companies, the common stock of which trade in the over-the-counter market, have
experienced wide price fluctuations which have not necessarily been related to
the operating performance of these companies.

         DIVIDEND POLICY. The Company has not paid any dividends to its
stockholders to date. The Company intends to retain earnings, if any, to
finance the operation and expansion of its business and, therefore, does not
expect to pay cash dividends in the foreseeable future.

         SHARES ELIGIBLE FOR FUTURE SALE. The Company has 3,378,262 shares of
Common Stock outstanding. Of these shares of Common Stock, the 128,900 shares
sold in the Company's initial


                                       28

<PAGE>



public offering are freely transferable without restriction or limitation under
the Securities Act, except for any shares purchased or owned by affiliates of
the Company, as such term is defined in Rule 144 promulgated under the
Securities Act. The remaining 3,041,680 shares constitute "restricted
securities" within the meaning of Rule 144 and may be sold without registration
pursuant to such rule, at various times commencing on June 1, 1998. To date,
none of such restricted securities have been sold. No prediction can be made as
to the effect, if any, that sales of shares of Common Stock or the availability
of such shares for sale will have on the market prices prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold in
the public market may adversely affect the prevailing market price for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.

         AUTHORIZATION OF PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the issuance of up to 1,000,000 shares of preferred
stock with designations, rights and preferences determined from time to time by
its Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting, or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of its authorized preferred stock, there can be no
assurance that the Company will not do so in the future.

         RISK OF LOW-PRICED STOCK. If the market price of the Company's Common
Stock decreases to less than $5.00 per share, trading would become subject to
the requirements of certain rules promulgated under the Exchange Act, which
require additional disclosure by broker-dealers in connection with any trades
involving a stock defined as a penny stock (generally, any non-Nasdaq equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions). These rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established
customers and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered representative
and current bid and offer quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.

         The additional burdens imposed on broker-dealers by these requirements
may discourage them from effecting transactions in the Common Stock, which
could severely limit the liquidity of the Common Stock and the ability of the
holders of Common Stock to sell their shares in the secondary market. These
requirements also may reduce the likelihood that a bank or financial
institution will accept the Company's Common Stock as collateral.



                                       29

<PAGE>



EMPLOYEES

         The Company presently employs two individuals, Peter Klamka, its
Chairman, President and Chief Executive Officer and one additional person.
None of the Company's employees are represented by a labor union.

FACILITIES

         The Company currently maintains its executive offices, consisting of
1,000 square feet of space, at 2750 South State Street, Ann Arbor, Michigan,
pursuant to a one year lease at a monthly rental of $1,500. The telephone number
is (734) 327-0579.

ITEM 2.           DESCRIPTION OF PROPERTY.

         The Company does not own any real property.

ITEM 3.           LEGAL PROCEEDINGS.

         On December 8, 1998, attorneys for Tyra Banks and Bankable, Inc., an
entity controlled by Ms. Banks, made a Demand for Arbitration against the
Company under the Commercial Arbitration Rules of the American Arbitration
Association. Ms. Banks' attorneys alleged that the Company failed to make
timely payments of money due upon the execution the Web Site License Agreement
and Calendar Agreement between Ms. Banks and the Company ("Agreements"), and
refused to return photographs, pictures, prints, negatives and images of Ms.
Banks. Ms. Banks is seeking the amount of $153,000, plus interest, allegedly
owed to her, to have the Company not use her name, picture and likeness, and to
have all images of Ms. Banks, in any form, returned to her. She also is seeking
damages for injury to her public reputation, lost royalties and the cost of
attorney's fees. On January 15, 1999, the Company, through its attorneys, filed
an Answer and Counterclaim to Ms. Banks' Demand for Arbitration. The Company
raised several defenses to Ms. Banks' claims and claimed a breach by Ms. Banks
and Bankable, Inc. of the Web Site Agreement. The Company is seeking the amount
of $100,000, plus additional damages, relating to the advance payment made by
the Company to Bankable, Inc. A preliminary administrative conference was held
on January 19, 1999, and a hearing is scheduled for April 23, 1999. Both parties
have also expressed an interest in resolving this matter through mediation.
Mediation would run concurrently with the arbitration process, prior to the
arbitration hearing. The Company intends to vigorously defend itself in this
arbitration, and believes that it has meritorious defenses. Nonetheless, there
can be no assurance that the Company will be successful in this arbitration, and
an unfavorable settlement or result in this matter could have a material adverse
effect on the Company.

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

         No matters were submitted for shareholder approval during the fourth
quarter of the fiscal year covered by this Report.




                                       30

<PAGE>



PART II.

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS.

         (a)      Market information.

         A limited public market for the Company's Common Stock commenced on
March 29, 1999 on the NASDAQ Bulletin Board under the symbol PTNN. On April 7,
1999, the sole market maker for the Company's Common Stock ceased making a
market in the Common Stock. The Company anticipates that such market maker will
recommence making a market in the Common Stock in the near future.

         The following table sets forth the range of high and low closing
prices for the Company's Common Stock for each quarterly period indicated, as
reported by brokers and dealers making a market in the capital stock. Such
quotations reflect inter-dealer prices without retail markup, markdown or
commission, and may not necessarily represent actual transactions.


     Quarter Ended                    High                         Low
-------------------------      -----------------           --------------------

March 31, 1999*                      $7.00                        $4.00

-----------------------------
*  The Company's Common Stock commenced trading on March 29, 1999.

         As of March 31, 1999, there were approximately 70 record holders of the
Company's Common Stock.

         The Company has not paid any cash or other dividends on its Common
Stock since its inception and does not anticipate paying any such dividends in
the foreseeable future. The Company intends to retain any earnings for use in
the Company's operations and to finance the expansion of its business.

ITEM 6.           MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.

         The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and the Notes thereto included elsewhere
in this document. The discussion of results, causes and trends should not be
construed to imply any conclusion that such results or trends will necessarily
continue in the future.

                                      31

<PAGE>

MANAGEMENT'S PLAN OF OPERATIONS:

         PTN Media, Inc. (the "Company"), is an interactive content provider
         focusing on providing leading branded content for well-defined target
         audiences using a combination of new and traditional media. The Company
         provides this content on its interactive web sites in the form of
         articles and photographs pertaining to fashion, beauty, style and
         entertainment. These web sites, utilizing celebrity models as hosts,
         will provide an avenue for users to share general tips and advice
         relating to the subjects covered.

         The Company, since its inception, has incurred net losses of $2,590,347
         and at December 31, 1998 current liabilities exceeded current assets by
         $982,375. The Company may be unable to continue in existence unless it
         is able to arrange additional financing to supplement its recently
         completed initial public offering.

Overview:

         Although the Company entered into an agreement with a company
         controlled by fashion model Niki Taylor in June 1997 for Ms. Taylor to
         host "Fashion House with Niki Taylor", on the Company's initial web
         site, this web site was not launched until recently. The Company was
         not able to launch the web site sooner, due to the period of time
         required to raise the funds necessary to develop the site and commence
         operations, the approximate cost of which was $250,000, not including
         the advance of $150,000 paid to Ms. Taylor's company.

         The Company's initial web site currently offers four content areas,
         including fashion tips from Ms. Taylor, the latest style and trends in
         the fashion industry, travel information, photographs of Ms. Taylor and
         video and audio clips and information. For the next twelve months the
         Company will expand its content offerings on the Fashionhouse web site
         by updating editorial coverage of beauty, fashion, style and models, as
         well as the introduction of new video and audio items. The Company also
         will continue to add more advertising and other sources of revenue to
         its site. The Company's license agreement with Niki Taylor's company
         expired on September 30, 1998 and was renewed for a twelve-month term.
         The agreement contains an automatic renewal provision for an additional
         twelve month term, unless terminated by Ms. Taylor's company or the
         Company.

         Additionally, the Company has advanced $134,000 to a company controlled
         by fashion model Tyra Banks pursuant to certain agreements between the
         Company and Ms. Banks' company and has also incurred expenses of
         approximately $10,000 to date, in connection with the development of
         the intended web site to have been hosted by Ms. Banks and in
         connection with the development of calendars featuring her. In June
         1998, Ms. Banks declared the Company in breach of these agreements
         based on the Company's alleged failure to pay the full amount of all
         advances and reimbursable expenses allegedly owed pursuant to such
         agreements. The agreement relating to the creation and sale of
         calendars has been terminated.

                                      32
<PAGE>


         Although Ms. Banks also claims that the web site agreement has been
         terminated, the Company believes that it is currently in full
         compliance with this agreement, and that Ms. Banks has refused to
         perform thereunder. On December 8, 1998, attorneys for Ms. Banks made a
         demand for arbitration against the Company alleging that the Company
         failed to make timely payments of monies due under the two executed
         agreements, and refused to return certain materials to Ms. Banks. Ms.
         Banks is seeking payment of $153,000 (which amount is recorded as a
         liability on the financial statements) plus interest, as well as
         damages for injury to her public reputation. On January 15, 1999, the
         Company filed an answer and counterclaim to Ms. Banks' demand for
         arbitration. The Company is seeking the return of $100,000, plus
         interest, which was paid to Ms. Banks. A preliminary administrative
         conference was held on January 19, 1999, and a hearing is scheduled for
         April 23, 1999. The Company intends to vigorously defend itself in this
         arbitration, and believes that it has meritorious defenses. However,
         there can be no assurance that the Company will be successful in this
         arbitration and an unfavorable result could have a material adverse
         effect on the Company.

         The Company has entered into a Web Site License Agreement with Claudia
         Schiffer (the "Schiffer License Agreement") which would grant the
         Company the exclusive license for an on-line Internet service devoted
         to Ms. Schiffer. The Company has the right to use Ms. Schiffer's name
         and likeness for an Internet site including a merchandise "boutique",
         monthly column and interviews or on-line chat sessions. Ms. Schiffer
         also would make promotional appearances and voice recordings to promote
         the site and provide content for it. The Schiffer License Agreement
         would continue until the year 2001. The Company would pay Ms. Schiffer
         guaranteed minimum royalties of $300,000 for the first year (which
         amount was paid as of February 23, 1999) of the Schiffer License
         Agreement, $400,000 for the second year, and $500,000 for the third
         year, which would be credited against earned royalties ranging from 25%
         to 80% of site revenues and profits from boutique merchandise sales.

         The Schiffer License Agreement also grants to Ms.Schiffer, 269,682
         shares of common stock (the "Shares"), with the right to maintain the
         ratio of her common stock ownership to that of the Company's President.
         The Company agreed to indemnify Ms. Schiffer for any U.S. income tax
         liability resulting from the issuance of these shares, however, the
         Company has been assured that Ms. Schiffer is not a U.S. citizen or
         resident, and therefore is not likely to be responsible for any such
         taxes.

         The Company has also entered into a Licensed Calendar Agreement with
         Ms. Schiffer ("Calendar Agreement"). The Calendar Agreement grants the
         Company the right to use the name, likeness, and endorsement of Ms.
         Schiffer in the advertisement, promotion and sale of a 16-month 1999
         calendar with photographs of her, in downloadable electronic format and
         CD-Rom ("Licensed Calendar"). Ms. Schiffer will provide photographic
         images and voice recording for the Licensed Calendar. The Company
         agreed to pay Ms. Schiffer an advance royalty in the aggregate amount
         of $75,000 which was paid in 1998. The Company agreed to pay to Ms.
         Schiffer royalties of a percentage of sales ranging from 20% of Net
         Sales for 0-20,000 units, to 60% of Net Sales for 50,001 units and
         above. This advance payment will be credited against any earned royalty
         payment. The Calendar Agreement terminates December 31, 1999.

                                      33
<PAGE>


         The Company also plans to launch "www.fragrancedirect.com," its online
         fragrance sales effort, within the next 12 months. On this web site the
         Company will sell colognes, perfumes and other fragrances direct to
         Internet users, much in the same way that books are sold on web sites
         such as "Amazon.com." The site will be promoted through hyper-links
         from the Company's affiliated web sites. The Company also intends to
         create mutual linking arrangements with operators of apparel sites and
         to make barter arrangements for advertising. The Company anticipates
         that while its prices will be lower than the manufacturer's suggested
         retail prices, the prices will not necessarily be lower than all retail
         outlets. The web site is currently being tested. The web site was built
         and will be maintained by an outside contractor whom the Company agreed
         to pay a $3,000 one-time fee, $299 per month maintenance and 5% of
         gross sales from the site with a $50,000 per year cap. The outside
         contractor will process credit card orders.

         The Company intends to obtain product liability insurance in such
         amounts as it may deem appropriate to insure against any possible
         product liability exposure resulting from the sale of fragrances on the
         web site.

         There can be no assurance that the Company will generate substantial
         revenues from the web site. In addition, the Company is aware of at
         least two similar web sites attempting to compete for the on-line
         fragrance business.

Cash Requirements:

         On September 18, 1998, the Securities and Exchange Commission declared
         effective the Company's Registration Statement concerning an Initial
         Public Offering of 400,000 shares of common stock, which the Company
         hoped would generate net proceeds of approximately $1,600,000. As of
         December 31, 1998, the Company had completed the sale of 66,900 shares
         of common stock, realizing net proceeds of $238,103. The Company
         extended the expiration date of the Initial Public Offering to January
         31, 1999, and in February, closed on the sale of an additional 62,000
         shares of common stock, which generated net proceeds of $223,393. The
         net proceeds from this offering, along with bridge loans received in
         1997, have been used to satisfy the Company's obligations under the
         License Agreements entered into with the fashion models.

         Since the Company raised less than the estimated maximum amount of net
         proceeds available pursuant to the Initial Public Offering, the Company
         has insufficient funds available for operations and would be required
         to seek additional financing sooner than anticipated or curtail certain
         of its planned activities. The Company may determine, depending on the
         opportunities available to it, to seek additional equity or debt
         financing to fund the cost of its operations. There can be no assurance
         that additional financing will be available to the Company on
         commercially reasonable terms, or at all. In the event that the Company
         is unable to raise additional funds, the Company could be required to
         either substantially reduce or terminate its operations.


                                      34
<PAGE>


         In April 1998, the Company's Chairman, President and Chief Executive
         Officer, provided the Company with a revolving credit line with a
         maximum of $500,000 available. In September 1998, the Board of
         Directors of the Company authorized an increase in this line to
         $610,000 and in November and December 1998, further increases to
         $1,000,000, were authorized. Loans drawn under this line bear interest
         at a rate of 9% per annum from the date they are made to the Company
         and are payable by May 2001, provided, however, that if the Company had
         raised gross proceeds in the IPO of at least $1,500,000, the entire
         outstanding amount and accrued interest would have been repaid from the
         proceeds from the IPO. As of December 31, 1998, borrowings outstanding
         under this line aggregated $542,500.


ITEM 7.           FINANCIAL STATEMENTS.

         The financial statements of PTN Media, Inc., including the notes 
thereto and the report of independent accountants thereon, commence at page F-1 
of this Report.


                                      35
<PAGE>

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

         None.

PART III.

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS.

         (a)      Directors and executive officers of the Company (as of the 
date of this Report):

         The following table sets forth the name, age and position with the
Company of each officer and director of the Company as of the date of this
Report.


          Name                Age                          Position
-------------------------    ------------      --------------------------------

Peter Klamka                  30               Chairman, President, Chief
                                               Executive Officer and Secretary

         Peter Klamka has been Chairman, President, Chief Executive Officer and
Secretary of the Company since the inception of the Company's predecessor in
May 1997. From 1990 to 1991, Mr. Klamka was employed as an analyst with Credit
Lyonnais. From 1991 to 1993, he was employed by DMA Holdings, a private
investment concern that invested in and acquired automotive parts suppliers.
His duties included the evaluation of acquisition candidates. From 1993 to
1994, Mr. Klamka was the owner and sole stockholder of General Display, a
company that manufactured scoreboards and timing equipment for sports
facilities. He sold this company in 1994. In 1994, Mr. Klamka founded Wilshire
Fragrance, a company that developed and marketed men's fragrance products. Mr.
Klamka was the chief executive officer of Wilshire Fragrance from 1994 through
1996. In connection with his fragrance business, in 1996, Mr. Klamka developed
what he believes to have been one of the first authorized celebrity web sites,
featuring Anna Nicole Smith promoting fragrances for Wilshire Fragrance. Mr.
Klamka continued working on this web site until early 1997. Mr. Klamka received
his Bachelor of Arts degree from the University of Michigan. 

         None of the Company's officers or directors hold any directorships 
in any other public company.

         (b)      Other significant employees. None.

         (c)      Family relationships. None.

         (d)      Involvement in certain legal proceedings. None.

                                       36
<PAGE>

ITEM 10.          EXECUTIVE COMPENSATION.

         The following table sets forth the annual compensation paid to
executive officers of the Company for the fiscal year ended December 31, 1998.
No executive officer received annual compensation in excess of $100,000.

<TABLE>
<CAPTION>

                                                            Other Annual     Restricted     Options/    LTIP     All Other
Name and                                                    ------------     ----------     --------    ----     ---------
Principal Position              Year   Salary($)  Bonus($)  Compensation    Stock Awards      SARs    Payouts   Compensation
------------------              ----   ---------  --------  ------------    ------------      ----    -------   ------------
Peter Klamka, Chairman,
<S>                             <C>    <C>        <C>       <C>           <C>               <C>       <C>       <C>
   President and CEO(1).......   1998  $50,000        0           0               0             0         0           0
                                 1997       $0        0           0       16,666 Shares         0         0           0
                                                                                 of Common
                                                                                 Stock
</TABLE>

-----------------------
(1)      Mr. Klamka is entitled to receive an annual base salary of $100,000
         from the Company. Mr. Klamka was employed by the Company, during 1997,
         from its inception on May 27, 1997 to December 31, 1997. In March
         1998, the Company issued to Mr. Klamka 16,666 shares of Common Stock
         at a value of $3.00 per share in respect of the payment of his annual
         salary for 1997. Mr. Klamka has waived any additional salary payable
         to him for services provided during the year ended December 31, 1997,
         and has stated to the Company that he expects to waive any further
         salary payable to him for the foreseeable future, although no
         assurance thereof can be given.


Employment and Consulting Agreements

         The Company has no employment or other written agreement with Peter
Klamka, its Chairman, President and Chief Executive Officer. Mr. Klamka has an
oral agreement with the Company to receive a base salary of $100,000 per year
and such other compensation as the Board of Directors shall designate. Except
for the issuance of 16,666 shares of Common Stock to Mr. Klamka as compensation
for services provided in 1997, Mr. Klamka has waived this base salary through
the date hereof, and the Company believes he will waive the base salary for the
foreseeable future, although no assurance thereof can be given.

         Mr. Klamka is involved in other business ventures, including the
ownership of over 500,000 shares of American Sports History Inc. (approximately
5.5% of its outstanding capital stock), a Nasdaq Bulletin Board company, but he
intends to devote substantially all his business time and effort on behalf of
the Company for the foreseeable future. Mr. Klamka has orally committed that,
for so long as the Company shall be in existence, he shall conduct no business
relating to models or fashion personalities other than through the Company.

                                       37

<PAGE>

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

         The following table sets forth, as of the date of this Report, the
number and percentage of shares of outstanding Common Stock owned by each
person owning at least 5% of the Company's Common Stock, each officer and
director owning stock, and all officers and directors as a group:


 NAME AND ADDRESS OF            NUMBER OF SHARES
BENEFICIAL OWNER (1)           BENEFICIALLY OWNED       PERCENT OF CLASS
-------------------------------------------------------------------------------

Peter Klamka (2)
   61.41%                          2,113,674                  62.6%
Chris H. Giordano (3)                540,340                  16.0%

Michael Giordano (4)                 300,000                   8.9%

All executive officers and         2,113,674                  62.6%
directors as a group (one
person)

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

(1)      Includes the conversion of certain outstanding indebtedness of the
         Company, in March 1998, into 54,166 shares of the Company's Common
         Stock. Excludes the shares underlying certain warrants issued by the
         Company.

(2)      Mr. Klamka's address is the same as that of the Company.

(3)      Chris Giordano's address is 4 Dogwood Court, West Patterson, NJ 07424.
         Chris Giordano is Michael Giordano's brother, but disclaims any
         beneficial ownership of shares owned by Michael Giordano.

(4)      Michael Giordano's address is 7591 N.W. 29th Street, Margate, Florida
         33063. Michael Giordano is Chris Giordano's brother, but disclaims any
         beneficial ownership of shares owned by Chris Giordano.

                                       38

<PAGE>

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In June 1997, Peter Klamka purchased 2,117,008 shares of Common Stock
of the Company's predecessor for an aggregate purchase price, paid by delivery
of a promissory note, of $2,117.01. In June 1997 Chris Giordano purchased
540,340 shares of Common Stock of the Company's predecessor for an aggregate
purchase price, paid by delivery of a promissory note, of $540.34. In June 1997
Michael Giordano purchased 300,000 shares of Common Stock of the Company's
predecessor for an aggregate purchase price, paid by delivery of a promissory
note, of $300.00. All three promissory notes have been paid to the Company in
full. Messrs. Klamka, Chris Giordano and Michael Giordano are each deemed to be
founders and promoters of the Company.

         Jean Renard, the former manager for Niki Taylor, owns 10,000 shares 
of Common Stock.

         In April 1998, Peter Klamka, the Company's Chairman, President and
Chief Executive Officer, provided the Company with a revolving credit line with
a maximum of $500,000 available (the "Klamka Credit Line"). In September 1998,
the Board of Directors of the Company authorized an increase in this line to
$610,000, and in November and December 1998, further increases to $1,000,000
were authorized. As of November 23, 1998 and at all times until February 5,
1999, borrowings outstanding under the Klamka Credit Line aggregated $542,500.
Monies loaned were used to make certain payments to Niki Taylor's company, to
provide a payment required under the Company's Calendar Agreement with Claudia
Schiffer, and for working capital.

         Loans drawn on the Klamka Credit Line bear interest at a rate of nine
(9%) percent per annum from the date they are made to the Company and are
payable by May 2001.

         Additional amounts of approximately $200,000 received by the Company
in October and November 1998, which were previously erroneously characterized
as loans made by the Company's President, were, in fact, proceeds received by
the Company from investors in prior closings of this Offering. See Prior
Closings of Offering below. This correction in the characterization of the
proceeds provided to the Company accounts for the reduction in the outstanding
amount of the Klamka Credit Line in this Supplement to the Prospectus.

                                      39

<PAGE>

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>

    Exhibit
     Number                                                   Description
------------------------------------------------------------------------------------------------------------------------------------

<S>              <C>                                               
1.1*             Form of Placement Agent Agreement
2.1*             Plan of Merger between PTN Media, Inc. and Interactive Entertainment Studio,
                 Inc., dated as of February 25, 1998.
3.1*             Certificate of Incorporation of PTN Media, Inc. dated as of January 13, 1998.
3.2*             By-Laws of PTN Media, Inc.
4.1*             Specimen Common Stock Certificate
4.2*             Specimen 1997 Warrant Certificate
4.3*             Specimen 1998 Warrant Certificate
10.1*            Web Site License Agreement between Niki, Inc. and Interactive Entertainment
                 Studio, Inc. dated as of June 1, 1997
10.2*            Website License Agreement between Ty Girl, Inc. and Interactive Entertainment
                 Studio, Inc. dated as of January 1, 1998
10.3*            License Agreement between Ty Girl, Inc. and Interactive Entertainment Studio,
                 Inc. dated as of January 1, 1998
10.4*            Lease Agreement dated as of February 27, 1998, between First Miller Limited
                 Partnership and PTN Media, Inc.
10.5*            Website Design Services Agreement between zoecom, Inc. and Interactive
                 Entertainment Studio, Inc. dated as of December 20, 1996
10.6*            Letter of Intent between Cdnow, Inc. and Interactive Entertainment Studio, Inc.
                 dated as of September 8, 1997
10.7*            Agreement for Fashion House Flowers & Gifts Service between PC Flowers and
                 Gifts, Inc. and Interactive Entertainment Studio, Inc. dated as of September 9,
                 1997
10.8*            Standard Publicists Guild Agency - Client Agreement between The Angellotti
                 Company and PTN Media, Inc. dated as of April 15, 1998
10.9*            PTN Media, Inc. 1998 Stock Option Plan
10.10*           Form of Subscription Agreement for  Shares the Company's initial public offering
</TABLE>

                                       40

<PAGE>

<TABLE>
<S>              <C>                                               
10.11*           Revolving Promissory Note issued by PTN Media, Inc. to Peter Klamka dated
                 April 1, 1998, in the maximum principal sum of $500,000
10.12*           Form of Escrow Agreement between University Bank and PTN Media, Inc.
11.1**           Computation of per share earnings
23.1*            Consent of Lazar Levine & Felix LLP
27.1**           Financial Data Schedule
</TABLE>

*     Incorporated by reference from the Company's Registration Statement on 
      Form SB-2 (File #333-51933).
**    Filed herewith.

REPORTS ON FORM 8-K:  NONE

                                       41

<PAGE>

                                   SIGNATURES

          In accordance with the requirements of Section 13 or 15(d) of the
Exchange Act, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                PTN MEDIA, INC.

                                /s/ Peter Klamka
                               ---------------------------------------------
                                  Peter Klamka
                               Chairman, President, Secretary and Chief
                               Executive Officer

          In accordance with the requirements of the Exchange Act, this report
is signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
 
Name and Capacity                                     Date


/s/ Peter Klamka                                      April 15, 1999
----------------------------------------------
Name:     Peter Klamka
Title:    Chairman, President, Secretary
          and Chief Executive Officer
          (Principal Executive Officer and
          Principal Financial and Accounting
          Officer)

                                       42

<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                  Page(s)
<S>                                                                                                               <C>
Independent Auditors' Report                                                                                        F - 2

Financial Statements:

         Balance Sheets as of December 31, 1998 and 1997                                                            F - 3

         Statements of Operations for the Cumulative Period During the Development Stage from
         May 27, 1997 (Inception) to December 31, 1998; the Year Ended December 31, 1998 and
         the Period from May 27, 1997 (Inception) to December 31, 1997                                              F - 4

         Statement of Changes in Shareholders' Deficit for the Period from May 27,
         1997 (Inception) to December 31, 1998                                                                      F - 5

         Statements of Cash Flows for the Cumulative Period During the
         Development Stage from May 27, 1997 (Inception) to December 31, 1998;
         the Year Ended December 31, 1998 and
         the Period from May 27, 1997 (Inception) to December 31, 1997                                              F - 6

Notes to Financial Statements                                                                                       F - 7

</TABLE>

                                      F - 1


<PAGE>


                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
PTN Media, Inc.

We have audited the accompanying balance sheets of PTN Media, Inc. (a
development stage company) as of December 31, 1998 and 1997, and the related
statements of operations, shareholders' equity (deficit), and cash flows for the
year ended December 31, 1998 and the period from May 27, 1997 (inception) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PTN Media, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
year ended December 31, 1998 and the period from May 27, 1997 (inception), to
December 31, 1997, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company is
in the development stage, has incurred net losses since its inception and has
experienced severe liquidity problems. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                                        LAZAR LEVINE & FELIX LLP

New York, New York
April 8, 1999

                                      F - 2


<PAGE>



                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                                 BALANCE SHEETS

                                   - ASSETS -
<TABLE>
<CAPTION>
                                                                                                 December 31,        December 31,
                                                                                                    1998                1997
                                                                                                 ------------        ------------
<S>                                                                                              <C>                 <C>
CURRENT ASSETS:
      Cash                                                                                       $        702        $     20,134
      Accounts receivable                                                                               4,488                -
      Due from shareholders                                                                              -                  2,957
                                                                                                  -----------          ----------

TOTAL CURRENT ASSETS                                                                                    5,190              23,091

FIXED ASSETS - NET (Notes 2b and 3)                                                                     3,626               1,984

OTHER ASSETS:
      Security deposits                                                                                   690                -
                                                                                                  -----------          ----------

                                                                                                  $     9,506          $   25,075
                                                                                                  ===========          ==========


               - LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -

CURRENT LIABILITIES:
      Accounts payable and accrued expenses (Note 4)                                                $ 106,671         $    58,885
      Interest payable to related parties (Notes 5and 6)                                               27,144               2,250
      License fees payable (Notes 2g and 4)                                                           255,000             100,000
      Short-term loans payable (Note 5)                                                                56,250             121,250
      Loans payable - officer (Note 6)                                                                542,500             -
                                                                                                  -----------          ----------

TOTAL CURRENT LIABILITIES                                                                             987,565             282,385
                                                                                                  -----------          ----------

COMMITMENTS AND CONTINGENCIES (Notes 4 and 10)

SHAREHOLDERS' EQUITY (DEFICIT) (Notes 7 and 8):
    Preferred stock, par value $.01; 1,000,000 shares authorized
        none issued or outstanding                                                                      -                 -
    Common stock, par value $.001; 10,000,000 shares authorized,
        3,378,262 and 2,967,348 shares issued and outstanding for
        1998 and 1997, respectively                                                                     3,378               2,967
    Additional paid-in capital                                                                      1,608,910                 990
    Deficit accumulated during the development stage                                               (2,590,347)           (261,267)
                                                                                                  -----------          ----------
                                                                                                     (978,059)           (257,310)

                                                                                                 $      9,506          $   25,075
                                                                                                 ==============        ==========
</TABLE>



                             See accompanying notes.

                                      F - 3


<PAGE>


                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                            Cumulative
                                                            During the
                                                            Development                                         For the Period
                                                               Stage                   For the Year              May 27, 1997
                                                          (May 27, 1997 to               Ended                   (Inception) To
                                                          December 31, 1998)        December 31, 1998          December 31, 1997
                                                          ------------------        -----------------          -----------------
<S>                                                       <C>                       <C>                        <C>
REVENUES (Note 2c)                                            $      4,488          $        4,488             $        -
                                                               -----------            ------------                  ----------

EXPENSES:
    Cost of revenue (Note 2g)                                    1,728,728               1,578,728                     150,000
    Product development                                            482,088                 452,458                      29,630
    General and administrative                                     354,664                 275,277                      79,387
                                                               -----------            ------------                  ----------
                                                                 2,565,480               2,306,463                     259,017
                                                               -----------            ------------                  ----------

LOSS FROM OPERATIONS                                            (2,560,992)             (2,301,975)                   (259,017)
                                                               -----------            ------------                  ----------

OTHER INCOME (EXPENSE):
    Interest expense                                               (29,394)                (27,144)                     (2,250)
    Interest income                                                     39                      39                        -
                                                               -----------            ------------                  ----------
                                                                   (29,355)                (27,105)                     (2,250)
                                                               -----------            ------------                  ----------

NET LOSS (Note 9)                                              $(2,590,347)            $(2,329,080)                  $(261,267)
                                                               ===========             ===========                   =========


BASIC LOSS PER COMMON SHARE (Note 2e)                                $(.84)                  $(.75)                      $(.09)
                                                                     =====                   =====                       =====


WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING (Note 2e)                                 3,077,110               3,097,777                   3,041,680
                                                                 =========               =========                   =========

</TABLE>



                             See accompanying notes.

                                      F - 4


<PAGE>



                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                  STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                                                                Deficit
                                                                                              Accumulated
                                                                                 Additional   During the         Total
                                                         Common Stock              Paid-in    Development    Shareholders'
                                                     Shares         Amount         Capital       Stage         Deficit
                                                     ------         ------       ----------   -----------    -------------
<S>                                                 <C>             <C>          <C>          <C>          <C>

Shares issued at inception for promissory notes     2,957,348   $     2,957   $         -   $         -    $     2,957

Shares issued in payment of legal fees                 10,000            10           990             -          1,000

Net loss for the period from inception May 27,
    1997 to December 31, 1997                               -             -             -      (261,267)      (261,267)
                                                  -----------   -----------   -----------   -----------    -----------

Balance at December 31, 1997                        2,967,348         2,967           990      (261,267)      (257,310)

Conversion of notes payable                            54,166            54       162,446             -        162,500

Compensatory shares                                    16,666            17        49,983             -         50,000

Shares issued in payment of legal fees                  3,500             4        12,996             -         13,000

Shares issued in connection with license
    agreement                                         269,682           269     1,078,459             -      1,078,728

Shares issued in connection with initial
    public offering                                    66,900            67       238,036             -        238,103

Waiver of compensation payable                              -             -        66,000             -         66,000

Net loss for year ended December 31, 1998                   -             -             -    (2,329,080)    (2,329,080)
                                                  -----------   -----------   -----------   -----------    -----------

BALANCE AT DECEMBER 31, 1998                        3,378,262   $     3,378   $ 1,608,910   $(2,590,347)   $  (978,059)
                                                  ===========   ===========   ===========   ===========    ===========
</TABLE>


                             See accompanying notes.

                                      F - 5


<PAGE>

                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 Cumulative
                                                                 During the
                                                                 Development                                    For the Period
                                                                    Stage                 For the Year           May 27, 1997
                                                              (May 27, 1997 To               Ended               (Inception) To
                                                               December 31, 1998)       December 31, 1998       December 31, 1997
                                                              ------------------        -----------------       -----------------
<S>                                                           <C>                       <C>                     <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                       $(2,590,347)            $(2,329,080)            $(261,267)
    Adjustments to reconcile net loss to net cash used in
      operating activities:
        Depreciation of fixed assets                                       880                     670                   210
        Shares issued for legal fees                                    14,000                  13,000                 1,000
        Waiver of compensation payable                                  66,000                  66,000                  -
        Issuance of shares for license fees                          1,078,728               1,078,728                  -
    Changes in operating assets and liabilities:
      Increase in accounts receivable                                   (4,488)                 (4,488)                 -
      Increase in accrued expenses                                     183,815                 122,680                61,135
      Increase in license fees payable                                 255,000                 155,000               100,000
                                                                   -----------             -----------             ---------
      Net cash (used) in operating activities                         (996,412)               (897,490)              (98,922)
                                                                   -----------             -----------             ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of fixed assets                                            (4,506)                 (2,312)               (2,194)
    Security deposits paid                                                (690)                   (690)                 -
                                                                   -----------             -----------             ---------
      Net cash (used) by investing activities                           (5,196)                 (3,002)               (2,194)
                                                                   -----------             -----------             ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Loans received from officer                                        542,500                 542,500                  -
    Proceeds from short-term loans                                     218,750                  97,500               121,250
    Payment from shareholders                                            2,957                   2,957                  -
    Net proceeds from initial public offering                          238,103                 238,103                  -
                                                                   -----------             -----------             ---------
      Net cash provided by financing activities                      1,002,310                 881,060               121,250
                                                                   -----------             -----------             ---------

INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                                              702                 (19,432)               20,134

    Cash and cash equivalents, at beginning of period                  -                        20,134                  -
                                                                   -----------             -----------             ---------

CASH AND CASH EQUIVALENTS, AT END OF
    PERIOD                                                         $       702             $       702             $  20,134
                                                                   ===========             ===========             =========
                                                                   -----------             -----------             ---------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
(a)   Interest paid                                                $    -                  $      -                $    -
      Taxes paid                                                        -                         -                     -
</TABLE>

(b)   In May 1997, the Company issued (i) 2,957,348 shares of common stock in
      exchange for notes receivable of $2,957 and (ii) 10,000 shares of common
      stock in lieu of payment for legal fees aggregating $1,000.

(c)   During 1998, holders of notes aggregating $162,500 converted such notes 
      into 54,166 shares of common stock at a value of $3.00 per share.

(d)   During 1998, the Company issued (i) 16,666 shares of common stock in lieu
      of payment of $50,000 of compensation accrued as of December 31, 1997 and
      (ii) 3,500 shares of common stock in payment of legal fees aggregating
      $13,000.

                             See accompanying notes.

                                      F - 6

<PAGE>



                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE   1   -     DESCRIPTION OF COMPANY AND GOING CONCERN UNCERTAINTY:

                 PTN Media, Inc., the Company, was incorporated in Delaware on
                 January 13, 1998 and is the successor to Interactive
                 Entertainment Studio, Inc. (IES). IES was incorporated in the
                 State of Nevada on May 27, 1997 and was merged into the Company
                 in March 1998, for the sole purpose of changing the domicile of
                 the Company to Delaware. This merger has been retroactively
                 reflected in the December 31, 1997 financial statements. The
                 Company has been in the development stage in accordance with
                 Statement of Financial Accounting Standards No. 7, since its
                 inception.

                 The Company is an interactive content provider focusing on
                 providing leading branded content for well-defined target
                 audiences using a combination of new and traditional media. The
                 Company provides this content on its interactive web sites in
                 the form of articles and photographs pertaining to fashion,
                 beauty, style and entertainment. These web sites, utilizing
                 celebrity models as hosts, will provide an avenue for users to
                 share general tips and advice relating to the subjects covered.

                 The Company, since its inception, has incurred net losses of
                 $2,590,347 and at December 31, 1998 current liabilities
                 exceeded current assets by $982,375. The Company has relied on
                 certain bridge financing (see Note 5) to fund its activities
                 and recently (in 1999) completed the sale of common stock
                 through an initial public offering (see Note 7) to provide
                 working capital for its continuing development stage activities
                 and eventual commencement of full operations. The Company sold
                 an aggregate of 128,900 shares of common stock in the offering
                 instead of 400,000 shares as originally contemplated. As such,
                 net proceeds from the offering aggregated $461,496 instead of
                 approximately $1,600,000. The Company may be unable to continue
                 in existence unless it is able to arrange additional financing.
                 The financial statements do not include any adjustments
                 relating to the recoverability of assets that might be
                 necessary in the event the Company cannot continue in
                 existence.

NOTE   2   -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

                 The Company's accounting policies are in accordance with
                 generally accepted accounting principles. Outlined below are
                 those policies which are considered particularly significant.

        (a)      Use of Estimates:

                 In preparing financial statements in accordance with generally
                 accepted accounting principles, management makes certain
                 estimates and assumptions, where applicable, that affect the
                 reported amounts of assets and liabilities and disclosures of
                 contingent assets and liabilities at the date of the financial
                 statements, as well as the reported amounts of revenues and
                 expenses during the reporting period. While actual results
                 could differ from those estimates, management does not expect
                 such variances, if any, to have a material effect on the
                 financial statements.

                                      F - 7


<PAGE>



                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE   2   -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

        (b)      Fixed Assets:

                 Fixed assets are recorded at cost. Depreciation of fixed assets
                 is provided on a straight-line basis as follows:

                          Computer equipment                    3 years
                          Furniture and fixtures                5 years

                 Maintenance and repairs are expensed as incurred. Depreciation
                 expense for the periods ended December 31, 1998 and 1997
                 aggregated $670 and $210, respectively.

        (c)      Revenue Recognition:

                 The Company generates revenues from the sale of advertising
                 banners on its web sites which appear on a user's computer
                 screen when accessing different areas of the Company's web
                 sites. Advertising revenue is recognized in the period the
                 advertisement is displayed, provided that no significant
                 Company obligations remain. Company obligations typically
                 include guarantees of a minimum number of "impressions" or
                 times that an advertisement is viewed by users of the Company's
                 web sites. Minimal revenues were generated through December 31,
                 1998.

        (d)      Income Taxes:

                 Deferred tax assets and liabilities are recognized for the
                 future tax consequences attributable to temporary differences
                 between the financial statement carrying amounts of existing
                 assets and liabilities and their respective tax bases, and to
                 net operating loss and tax credit carry forwards, measured by
                 enacted tax rates for years in which taxes are expected to be
                 paid or recovered.

                 Deferred taxes are provided for temporary differences between
                 financial and tax accounting, principally for differences in
                 the basis of fixed assets and other nondeductible expenses, as
                 well as for net operating loss carry forwards. See also Note 9.

        (e)      Earnings (Loss) Per Share:

                 Earnings (loss) per share has been computed on the basis of the
                 weighted average number of common shares outstanding during
                 each period presented according to the standards of SFAS No.
                 128 "Earnings Per Share" ("SFAS 128"). In accordance with the
                 rules of the Securities and Exchange Commission for initial
                 public offerings, all shares issued within one year of filing
                 are being treated as outstanding for all periods presented.

                                      F - 8


<PAGE>



                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE   2   -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

        (f)      Statements of Cash Flows:

                 For purposes of the statements of cash flows, the Company
                 considers all highly liquid investments purchased with a
                 remaining maturity of three months or less to be cash
                 equivalents.

        (g)      Royalties/License Fees:

                 Royalties/license fees paid under the terms of license
                 agreements entered into are charged to expense in accordance
                 with the terms of the agreements. Any guaranteed minimum
                 payments will be amortized over the period of the license
                 agreement.

                 During its development stage, the Company has expensed the
                 guaranteed minimum royalties upon execution of the license
                 agreements since there is no assurance that the Company will be
                 able to derive any revenues during the initial term of the
                 agreement. See also Note 4.

        (h)      Stock-Based Compensation:

                 SFAS No. 123, "Accounting for Stock Based Compensation",
                 requires the Company to either record compensation expense or
                 to provide additional disclosures with respect to stock awards
                 and stock options granted. The Company applies APB Opinion 25,
                 the intrinsic value method, in accounting for options granted
                 under its stock option plan (see Note 8).

        (i)      Comprehensive Income:

                 SFAS 130 "Reporting Comprehensive Income" is effective for
                 years beginning after December 15, 1997. This statement
                 prescribes standards for reporting comprehensive income and its
                 components. Since the Company currently does not have any items
                 of comprehensive income, a statement of comprehensive income is
                 not yet required.

NOTE   3   -     FIXED ASSETS:

                 Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                                                      1998             1997
                                                                    -------          ------
<S>                                                                 <C>             <C>
                          Computer equipment                         $2,194           $2,194
                          Furniture and fixtures                      2,312              -
                                                                     ------           ------
                                                                      4,506            2,194
                          Less: accumulated depreciation                880              210
                                                                     ------           ------
                                                                     $3,626           $1,984
                                                                     ======           ======
</TABLE>


                                      F - 9


<PAGE>



                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE   4   -     LICENSE FEES PAYABLE:

                 On June 1, 1997, the Company entered into a License Agreement
                 (the "Agreement") with Niki, Inc. ("Niki"). This agreement
                 provides for, among other things, the right to use Ms. Niki
                 Taylor's name and likeness in connection with the Company's
                 "Fashion House with Niki Taylor" web site. In consideration for
                 such rights, the Company will pay royalties of 15% of any gross
                 revenues received in connection with this web site (except for
                 sponsors introduced by Niki whereby the royalties will be
                 calculated at 50%) and 35% of net revenues from product sales.
                 This agreement expired on September 30, 1998, and was
                 automatically extended for an additional 12-month period. It
                 will be automatically extended for a further 12-month period
                 unless terminated by either party at the end of the then
                 current term.

                 The Company has guaranteed the payment of minimum royalties to
                 Niki, Inc., in the amount of $150,000. $50,000 of this amount
                 was paid at the time of execution of the agreement (in 1997)
                 and the balance of $100,000 was paid in 1998.

                 In January 1998, the Company entered into a License Agreement
                 (the "Agreement") with an entity controlled by model Tyra Banks
                 pursuant to which Ms. Banks would host the Company's next web
                 site under terms similar to that negotiated with Ms. Taylor.
                 This agreement expired on March 31, 1999, and may be
                 automatically extended for up to two additional 12-month
                 periods, unless terminated by either party prior to such
                 extension. The Company has guaranteed the payment of minimum
                 royalties in the amount of $100,000. $50,000 of this amount was
                 paid at the time of execution of this agreement and the balance
                 upon the consummation of the Company's proposed IPO. As of
                 December 31, 1998, the Company had not paid the remaining
                 balance of $50,000.

                 Also in January 1998, the Company entered into a separate
                 agreement with this entity for the rights to utilize the name
                 and likeness of Ms. Banks in connection with the "Tyra Banks
                 Calendar." These rights are applicable to the calendar for the
                 16-month period ending December 31, 1999. The Company has
                 agreed to pay this entity up to $87,000 for production expenses
                 incurred in connection with the creation of this calendar and
                 has guaranteed minimum royalties in the amount of $100,000 of
                 which only $50,000 was paid as of December 31, 1998.

                 As of December 31, 1998, the Company has paid $34,000 toward
                 the production expenses of the Tyra Banks calendar. The
                 remaining unpaid balance of $53,000 is included in accrued
                 expenses.

                 See Note 10(e) concerning legal proceedings associated with the
                 agreements entered into with Ms. Banks.

                 In October 1998, the Company entered into a License Agreement
                 (the "Agreement") with model Claudia Schiffer under terms
                 similar to those negotiated with Ms. Taylor and Ms. Banks. This
                 agreement expires on the third anniversary of the launch of
                 this web site, and may be extended only upon mutual agreement
                 of the parties. The Company has guaranteed the payment of
                 minimum royalties in the amounts of $300,000 for the first year
                 of the agreement, $400,000 for the second year and $500,000 for
                 the third. $150,000 of the royalties for the first year was
                 payable at the time of execution of this agreement and the
                 balance before December 23, 1998. The Company paid $145,000 in
                 1998 and issued a note for the remaining balance of $155,000,
                 which amount was paid in February 1999. In connection with this
                 agreement, the Company also issued an aggregate of 269,682
                 shares of common stock, valued at $4.00 per share, to Ms.
                 Schiffer as additional compensation.


                                     F - 10


<PAGE>



                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE   4   -     LICENSE FEES PAYABLE (Continued):

                 Also in October 1998, the Company entered into a separate
                 agreement with Ms. Schiffer for the rights to utilize her name
                 and likeness in connection with the "Claudia Schiffer
                 Calendar." These rights are applicable to the calendar for the
                 16-month period ending December 31, 1999. The Company has
                 guaranteed the payment of minimum royalties in the amount of
                 $75,000 which amount was paid as of December 31, 1998.

                 A summary of the guaranteed minimum payments as of December 31,
                 1998, is as follows:

<TABLE>
<CAPTION>
                                                                    Guaranteed          Less                  Balance
                                                                     Minimum           Amounts               Owed as of
                                                                    Royalties           Paid              December 31, 1998
                                                                    ----------         -------            -----------------
<S>                                                                 <C>              <C>                  <C>
                 Niki Taylor Web Site                               $150,000         $(150,000)                $  -
                 Tyra Banks Web Site                                 100,000           (50,000)                50,000
                 Tyra Banks Calendar                                 100,000           (50,000)                50,000
                 Claudia Schiffer Web Site                           300,000          (145,000)                155,000
                 Claudia Schiffer Calendar                            75,000           (75,000)                -
                                                                    --------         ---------                 --------
                                                                    $725,000         $(470,000)                $255,000
                                                                    ========         =========                 ========
</TABLE>


NOTE   5   -     SHORT-TERM LOANS PAYABLE:

                 In July and August 1997, the Company received $56,250 through
                 the issuance of 8% promissory notes and common stock purchase
                 warrants to acquire Company stock. The 45,000 warrants issued,
                 which expire in July 2001, entitle the holders to purchase
                 45,000 shares of common stock at an exercise price of $3.00 per
                 share, the deemed fair value of the warrants at the time of
                 issuance. The notes and accrued interest are payable one year
                 from the date of issuance or the closing of an equity funding
                 of the Company of a minimum of $500,000, whichever is sooner.
                 These notes continue to be outstanding notwithstanding the fact
                 that payments owed by the Company thereunder are now past due.
                 Interest accrued and unpaid as of December 31, 1998 and 1997,
                 aggregated $4,500 and $2,250, respectively.

                 In December 1997, the Company issued unsecured 8% promissory
                 notes aggregating $65,000 originally due six months from date
                 of issuance. In 1998, the Company issued additional 8%
                 unsecured promissory notes aggregating $97,500. In March 1998,
                 these note holders agreed to convert these notes (aggregating
                 $162,500) into 162,500 shares of the Company's common stock. In
                 August 1998, the Company determined that the fair value of its
                 shares in March 1998 was $3.00. Accordingly, the Company
                 requested, and these stockholders agreed to the return of
                 108,334 shares of common stock in exchange for warrants to
                 purchase an aggregate of 108,334 shares of common stock, at a
                 price of $4.00 per share, the deemed fair value in August 1998.



                                     F - 11
<PAGE>



                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE   6   -     LOANS PAYABLE - OFFICER:

                 In April 1998, the Company's Chairman, President and Chief
                 Executive Officer, provided the Company with a revolving credit
                 line with a maximum of $500,000 available. In September 1998,
                 the Board of Directors of the Company authorized an increase in
                 this line to $610,000 and in November and December 1998,
                 further increases to $1,000,000, were authorized. Loans drawn
                 under this line bear interest at a rate of 9% per annum from
                 the date they are made to the Company and are payable by May
                 2001, provided, however, that if the Company raises gross
                 proceeds in an IPO of at least $1,500,000, the entire
                 outstanding amount and accrued interest will be repaid from the
                 proceeds from the IPO. As of December 31, 1998, borrowings
                 outstanding under this line aggregated $542,500, and interest
                 accrued and unpaid aggregated $22,644.

NOTE   7   -     SHAREHOLDERS' EQUITY:

                 The Company's authorized capital consists of 1,000,000 shares
                 of preferred stock, $.01 par value and 10,000,000 shares of
                 common stock, $.001 par value. None of the preferred shares
                 have been issued as of the date of this report.

                 In June 1997, the Company issued 2,957,348 shares of common
                 stock in exchange for one year promissory notes aggregating
                 $2,957, bearing interest at an annual rate of 6%. These notes
                 (and accrued interest) were repaid in June 1998.

                 In addition, in June 1997, the Company also issued 10,000
                 shares of common stock in exchange for legal services rendered
                 aggregating $1,000.

                 In March 1998, the Company issued (i) 54,166 shares of common
                 stock in connection with the conversion of $162,500 of notes
                 payable into common stock (see Note 5) (ii) issued 16,666
                 shares of common stock in lieu of payment of $50,000 of
                 compensation accrued to an officer as of December 31, 1997 and
                 (iii) 1,000 shares of common stock in lieu of payment of legal
                 fees aggregating $3,000. These shares were deemed to have a
                 fair value of $3.00 per share at the time of issuance. In July
                 1998, the Company issued 2,500 shares of common stock in lieu
                 of payment of legal fees of $10,000.

                 During 1998, the Company issued an aggregate of 269,682 shares
                 of common stock to Ms. Schiffer (see Note 4), in connection
                 with the license agreement entered into. These restricted
                 shares have been valued at $4.00 per share, the deemed fair
                 value at the time of issuance.

                 On September 18, 1998, the Securities and Exchange Commission
                 declared effective the Company's registration statement
                 concerning an initial public offering ("IPO") of 400,000 shares
                 of common stock. On October 22, 1998, the Company extended the
                 expiration date of the initial public offering to January 31,
                 1999. During the three-month period ended December 31, 1998,
                 the Company consummated the sale of 66,900 shares of common
                 stock, realizing net proceeds of $238,103.

                 In February 1999, subsequent to the balance sheet date, the
                 Company consummated the sale of an additional 62,000 shares of
                 common stock for net proceeds of $223,393.


                                     F - 12


<PAGE>


                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE   8   -     STOCK OPTIONS:

                 In March 1998, the Company adopted the 1998 Stock Option Plan
                 (the Plan), which provides for the grant of options to purchase
                 up to 500,000 shares of the Company's common stock. Under this
                 Plan incentive stock options may be granted to employees and
                 non-statutory stock options may be granted to employees and
                 non-employees.

                 In March 1998, the Company granted options to purchase 106,000
                 shares of common stock under this Plan. These options are
                 exercisable at $3.00 per share and expire ten years from the
                 date of grant. Options to purchase 3,000 shares of common stock
                 are currently exercisable and the remaining options vest
                 equally over three years.

                 The compensation cost resulting from the effect of applying
                 SFAS 123 to the above described option grant is not disclosed
                 since the amount is considered immaterial.

NOTE   9   -     INCOME TAXES:

                 No provision for Federal and state income taxes has been
                 recorded since the Company has incurred losses for the period
                 from inception through December 31, 1998. Deferred tax assets
                 at December 31, 1998 and 1997 consist primarily of the tax
                 effect of a net operating loss carry forwards which amount to
                 approximately $790,000 and $85,000, respectively. The Company
                 has provided a full, 100% valuation allowance on the deferred
                 tax assets at December 31, 1998 and 1997 to reduce such asset
                 to zero, since there is no assurance that the Company will
                 generate future taxable income to utilize such asset.
                 Management will review this valuation allowance requirement
                 periodically and make adjustments as warranted.

NOTE  10  -      COMMITMENTS AND CONTINGENCIES:

        (a)      Operating Leases:

                 During 1997, the Company utilized office space provided by its
                 majority shareholder pursuant to a month-to-month lease at a
                 monthly rental of $400. In 1998, the Company began renting new
                 space under a month-to-month lease at a monthly rental of $690.
                 Rent expense for the 1998 and 1997 periods aggregated $7,700
                 and $2,800, respectively.

        (b)      Consulting Agreements:

                 In March 1998, the Company entered into a consulting agreement
                 with its editorial director which expires on June 30, 1999 and
                 is subject to automatic annual renewals. The Company has (i)
                 agreed to pay this individual a monthly fee of $4,166 and (ii)
                 granted options to purchase up to 50,000 shares of the
                 Company's common stock at an exercise price of $3.00 per share
                 (see Note 8).

                 The Company has agreed to pay a monthly fee of $3,500 to a
                 public relations firm to assist in the launch of its web sites.
                 This agreement is for an eight-month period effective May 1,
                 1998. This firm will be responsible for arranging creative and
                 on-target promotions in both the traditional and electronic
                 media.

                                     F - 13


<PAGE>




                                 PTN MEDIA, INC.
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

NOTE  10  -      COMMITMENTS AND CONTINGENCIES (continued):

        (c)      Employment Agreements:

                 The Chairman/President of the Company, is entitled to receive
                 an annual base salary of $100,000 from the Company. At December
                 31, 1997, the Company accrued $50,000 in compensation payable
                 to this individual and payment was accomplished in 1998,
                 through the issuance of shares of common stock (see Note 7). In
                 1998, this individual waived all rights to receive accrued
                 salaries payable to him in the amount of $66,000 and,
                 accordingly, such amount has been presented as a contribution
                 to the Company's additional paid-in capital.

        (d)      Other Agreements:

                 In the normal course of operations, and in accordance with
                 industry custom, the Company trades its advertising services
                 with those of some of its suppliers. These transactions are
                 recorded at fair value when the services are received. No such
                 transactions were recorded in 1998.

                 The Company has also entered into various agreements pursuant
                 to which it provides hyperlinks to other web sites for the
                 purchase of certain items. In exchange, the Company will
                 receive a percentage of any revenues derived from sales to
                 those customers using these hyperlinks.

        (e)      Legal Proceedings:

                 On December 8, 1998, attorneys for Ms. Banks (see Note 4) made
                 a demand for arbitration against the Company alleging that the
                 Company failed to make timely payments of monies due under the
                 two executed agreements, and refused to return certain
                 materials to Ms. Banks. Ms. Banks is seeking payment of
                 $153,000 (which amount is recorded as a liability on the
                 financial statements) plus interest, as well as damages for
                 injury to her public reputation. The agreement relating to the
                 creation and sale of calendars has been terminated. Although
                 Ms. Banks also claims that the web site agreement has been
                 terminated, the Company believes that it is currently in full
                 compliance with this agreement, and that Ms. Banks has refused
                 to perform thereunder. As such, the Company is seeking the
                 return of $100,000, plus interest, which was paid to Ms. Banks.
                 The Company intends to vigorously defend itself in this
                 arbitration, and believes that it has meritorious defenses.
                 However, there can be no assurance that the Company will be
                 successful in this arbitration and an unfavorable result could
                 have a material adverse effect on the Company.

                                     F - 14

<PAGE>

                                EXHIBIT INDEX

<TABLE>
<CAPTION>

    Exhibit
     Number                                                   Description
------------------------------------------------------------------------------------------------------------------------------------

<S>              <C>                                               
1.1*             Form of Placement Agent Agreement
2.1*             Plan of Merger between PTN Media, Inc. and Interactive Entertainment Studio,
                 Inc., dated as of February 25, 1998.
3.1*             Certificate of Incorporation of PTN Media, Inc. dated as of January 13, 1998
3.2*             By-Laws of PTN Media, Inc.
4.1*             Specimen Common Stock Certificate
4.2*             Specimen 1997 Warrant Certificate
4.3*             Specimen 1998 Warrant Certificate
10.1*            Web Site License Agreement between Niki, Inc. and Interactive Entertainment
                 Studio, Inc. dated as of June 1, 1997
10.2*            Website License Agreement between Ty Girl, Inc. and Interactive Entertainment
                 Studio, Inc. dated as of January 1, 1998
10.3*            License Agreement between Ty Girl, Inc. and Interactive Entertainment Studio,
                 Inc. dated as of January 1, 1998
10.4*            Lease Agreement dated as of February 27, 1998, between First Miller Limited
                 Partnership and PTN Media, Inc.
10.5*            Website Design Services Agreement between zoecom, Inc. and Interactive
                 Entertainment Studio, Inc. dated as of December 20, 1996
10.6*            Letter of Intent between Cdnow, Inc. and Interactive Entertainment Studio, Inc.
                 dated as of September 8, 1997
10.7*            Agreement for Fashion House Flowers & Gifts Service between PC Flowers and
                 Gifts, Inc. and Interactive Entertainment Studio, Inc. dated as of September 9,
                 1997
10.8*            Standard Publicists Guild Agency - Client Agreement between The Angellotti
                 Company and PTN Media, Inc. dated as of April 15, 1998
10.9*            PTN Media, Inc. 1998 Stock Option Plan
10.10*           Form of Subscription Agreement for  Shares the Company's initial public offering
</TABLE>

<PAGE>

<TABLE>
<S>              <C>                                               
10.11*           Revolving Promissory Note issued by PTN Media, Inc. to Peter Klamka dated
                 April 1, 1998, in the maximum principal sum of $500,000
10.12*           Form of Escrow Agreement between University Bank and PTN Media.
11.1**           Computation of per share earnings
23.1*            Consent of Lazar Levine & Felix LLP
27.1**           Financial Data Schedule
</TABLE>


*     Incorporated by reference from the Company's Registration Statement on 
      Form SB-2 (File #333-51933).
**    Filed herewith.