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

                                   FORM 10-KSB

(Mark One)

         [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
             ACT OF 1934 [Fee Required] For the fiscal year ended December 31,
             1999.

         [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934 [No Fee Required]

        For the transition period from ________________to_______________

                         Commission file number: 0-27704

                           DIGITAL DATA NETWORKS, INC.

                 (Name of small business issuer in its charter)


Washington                                              91-1426372
(State or other jurisdiction                            (IRS Employer
of incorporation  or  organization)                     Identification No.)


3102 Maple Avenue, Suite 230
Dallas, Texas                                           75201
(Address of principal executive offices)                (Zip Code)

                                 (214) 969-7200
              (Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, no par value                        Common Stock Purchase Warrants
(Title of class)                                  (Title of class)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

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 ]

The issuer's revenues for its most recent fiscal year were $589,000.

The aggregate market value of the voting stock held by non-affiliates of the
issuer on January 28, 2000 was approximately $690,287.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of January 31, 2000, 2,314,597
shares of Common Stock and 1,840,000 Common Stock Purchase Warrants were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:  None.



<PAGE>



                                     PART I

Item 1.     Business.

Company Background

         Digital Data Networks, Inc. (the "Registrant", the "Company" or "DDN"),
was incorporated as Transit Information Systems, Inc. under the laws of the
State of Washington on October 17, 1988. The present name was adopted in July,
1995. The Company also operates as The Transit Network under an assumed name
certificate. The Company's offices are currently located at 3102 Maple Avenue,
Suite 230, Dallas, Texas 75201, and its telephone number is (214) 969-7200.

         In February 1996, the Company completed the sale of 1,322,500 shares of
Common Stock and 1,840,000 Common Stock Purchase Warrants through its initial
public offering (the "Public Offering"), and received net cash proceeds of
approximately $5.8 million. The Company's Common Stock and Common Stock Purchase
Warrants are listed on the OTC Electronic Bulletin Board under the trading
symbols "DIDA" and DIDAW", respectively.

         Through its Transit Network division, DDN markets and operates a
digital information network from which it generates advertising revenue. The
Transit Network's digital information network is a network of computerized
electronic displays that delivers information, both text and graphics, to riders
on-board public transit vehicles, utilizing an FM subcarrier signal to transmit
the data. The Transit Network currently operates its digital information network
on the 768-bus fleet of the Dallas Area Rapid Transit ("DART") system, which
began operations in 1991. The Company had been operating its digital information
network on approximately 60 buses of the Rhode Island Public Transportation
Authority ("RIPTA") system since 1988, but in December 1997, the Company
canceled its contract with RIPTA and ceased operating in Providence, Rhode
Island. The Company helped fund the development of an automated audio/visual
announcement system and had begun marketing this system, but due to uncertainty
surrounding its manufacturer, as well as the emergence of an increasing number
of competitors with manufacturing and financial resources far greater than those
of the Company, in December 1997, the Company discontinued the marketing of this
system.

         In 1996, the Company acquired three Internet related businesses, and in
1998 disposed of such businesses.

         The Company incurred net losses of approximately $2 million and $3
million during 1996 and 1997, and $322,000 and $57,000 during 1998 and 1999.
While losses from operations have decreased significantly, the Company has not
yet consistently generated positive cash flows from operations. The Company has
taken actions to reduce negative cash flows, including disposing of portions of
the business, reducing general and administrative expenses, and minimizing
capital expenditures. The Company has pursued merger possibilities and continues
to do so.

The Transit Network's Digital Information Network

         Background

         The Transit Network's digital information network is a network of
computerized electronic displays that delivers transit authority messages, news,
information and may optionally include advertising, to riders on-board public
transit vehicles. The network consists of specialized electronic LED displays,
transmission protocol, and control software. The system requires an agreement
with a local FM radio station for the use of an FM subcarrier frequency.

                                       2
<PAGE>


         The electronic display utilized on the DART buses is approximately six
inches high by twenty-six inches in length, strategically located behind and
slightly above the driver, and is visible from most areas inside the vehicle.
The software for the digital information network is licensed from Sunrise
Systems. See "--Digital Information Network Technology" and "--Software
License."

         News briefs, weather, trivia questions, sports reports and transit
authority information are continuously presented, and can be interspersed with
advertising messages as well. The program sequence runs approximately 12-15
minutes, generally assuring that the full program cycle is viewed more than once
during an average commute, which lasts approximately 30 minutes according to
United States Department of Transportation statistics. Programs are usually
updated twice a day, changing content to reflect the demographic profile of
riders at different times, to update the news, and to include new information
from the transit authority. By accessing the Internet, the Company is able to
obtain current programming information on news, weather, sports and
entertainment, and can monitor stories throughout the day, allowing for news
stories to be changed more frequently if the events of the day warrant such
updates. Advertising copy is usually supplied by the advertiser, while public
service and transit information announcements are provided by the transit
authority.

         The digital information network has other important capabilities,
including the ability to (i) target specific buses and routes with different
programming, (ii) custom design special programming, and (iii) display in
Spanish and other foreign languages. The network allows certain messages to be
displayed system-wide, on selected vehicles, or on selected routes. In addition
to regular programming, special programming can be custom-tailored for specific
events. This ability to target buses and routes is a feature of the system that
can be sold to advertisers desiring to reach specific riders. Targeting of
individual buses which have been chartered for one-day special events is also
available on the system.

         Digital Information Network  Technology

         The digital information network consists of specialized electronic LED
displays, transmission protocol, and control software. The software allows a
programmer to enter information and entertainment data into a personal computer.
The program is updated via a high-speed modem connected between the programming
site and the transmitting location. It is then broadcast through an FM
subcarrier frequency and received by a small antenna located on each bus. The
digital information is then transferred into buffer memory inside the LED
display. As the program then being displayed completes its cycle, the new data
automatically replaces the old data without any interruption. The entire
broadcast cycle - from in-house computer, to transmitter, to transit vehicle, to
its on-screen appearance, can be completed in just minutes. The Company is
responsible for repairing or replacing its electronic displays that are
defective or damaged after installation. The Company performs monthly
maintenance on all installed message displays.

         Software License

         The Company licenses the software to operate its digital information
network from Sunrise Systems, pursuant to a License Agreement (the "Software
License") dated November 1, 1995, as amended. The Software License grants the
Company a perpetual, fully paid up license to use the software wherever it
wishes. The Software License is exclusive with regard to each metropolitan area
in the United States and Canada (the "Primary Territory") which has a population
of at least 100,000 people, and is otherwise non-exclusive in the Primary
Territory. In areas other than the United States and Canada (the "Option
Territory"), the Software License is non-exclusive, although the Software
License allows it to become exclusive if certain conditions are met.

                                       3
<PAGE>


         Dallas Area Rapid Transit

         The Transit Network's Dallas operation serves as a prototype for
operations in a large transit market. In a recent industry survey, Dallas ranked
21st in the United States bus transit market, with approximately 815 vehicles.
The Company entered into a contract with DART in October 1990, which granted the
Company exclusive rights to install and operate its digital information network
on-board DART's buses for a period of five years. Installation of the DART
system was completed in August 1993. The Company and DART entered into a new
contract in 1995 for an additional three years. In 1997, the Company and DART
modified their contract, whereby the Company was granted approval to install its
electronic information system on DART's forty (40) light rail vehicles, the
installation of which was completed in July 1998. Simultaneously, the contract
was extended through October 2001. Under the existing contract, the Company pays
DART 4% of its gross advertising receipts. In addition, DART has reserved a
permanent position on the digital information network program for its exclusive
use, as well as limited access to advertising space for its own printed
material. The Company must reserve up to 30% of available space on interior
advertising panels and one message block on the digital information network
during each cycle of messages for DART'S use and public service announcements.
Advertising revenues from the interior advertising panels account for less than
five percent of total advertising revenues and the reservation of advertising
space to DART does not materially affect the Company's total advertising
revenues. Maintenance of the digital information network is subcontracted to an
independent party. Each bus is inspected monthly to ensure that the hardware is
functioning properly and the program is accurately displayed. Defective hardware
is returned to Sunrise Systems for repair or replacement.

         Advertiser Participation

         In the DART market, where The Transit Network depends on the sale of
advertising to generate revenues, its clients consist primarily of local
consumer products and service companies, as well as regional and local offices
of national companies.

         Competition for Advertisers

         The advertising industry is intensely competitive. The Company competes
for advertising dollars with all advertising and promotional channels, including
television, radio, magazines, newspapers and direct mailings. Management
believes that its primary competition is radio and newspapers, which charge
rates significantly higher than those charged by the Company. The Company
believes that the primary basis for competition in the advertising industry is
price and value, although other factors such as market coverage, audience
demographics, and time and cost of production are also of importance.

         Manufacturing, Supply and Installation

         The Company does not manufacture its hardware, but contracts with third
parties to produce the equipment. Sunrise Systems assembles The Transit
Network's hardware from components and subassemblies manufactured by others.
While the Company believes that most of such components and subassemblies are
available to Sunrise Systems from multiple sources, there can be no assurance
that Sunrise Systems will be able to obtain commitments from qualified
manufacturers to provide the components and subassemblies within the Company's
time and cost estimates. The Company incorporates both system and application
software, most of which is licensed from Sunrise Systems. See "-Software
License."

                                       4
<PAGE>


         The Company contracts with third party electrical contractors to
install the hardware in participating transit authority vehicles. The Company
has an agreement with a Dallas electrical contractor who has installed The
Transit Network's hardware in DART vehicles, whereby the contractor has the
right of first refusal to install the hardware in other transit systems in the
United States, unless there are union labor or transit authority requirements
which the contractor cannot meet.

Terminated Merger Settlement

         In February 1999, the Company entered into a Settlement Agreement and
Mutual Release with Internet Sports Network, Inc. ("ISN") terminating the
October 1998 Agreement and Plan of Merger between the parties. In connection
with the Settlement Agreement, the Company received approximately $320,000 cash
and delivered shares of ISN common stock to ISN such that the Company retained
ownership of 150,000 shares of ISN common Stock. The recorded value of the
475,000 ISN shares delivered to ISN pursuant to the Settlement Agreement of
$190,000 and costs incurred of $69,000 relating to the merger were removed from
investments in equity securities and other assets, respectively. Cash received
exceeded the recorded value of ISN related assets, exclusive of the remaining
recorded value of the retained shares, by $60,000 and is included in other
income in the accompanying consolidated statement of operations as gain on
settlement in 1999.

         The Company's investment in 150,000 shares of ISN common stock (the
"ISN Stock") had a cost of $60,000 when purchased in mid-1998, which
approximated its estimated fair value during periods preceding the settlement.
ISN stock is included in investments in equity securities at its estimated fair
value of $150,000 at December 31, 1999. The increase in unrealized appreciation
on these available-for-sale equity securities is included as a separate
component of stockholders' equity.

ACIS Acquisition

         In 1997, the Company entered into a letter of intent with Advanced
Communication and Information Services, Inc. ("ACIS") to acquire all of the
capital stock of ACIS in exchange for DDN common stock. Pursuant to the letter
of intent, the Company forwarded ACIS approximately $1.05 million cash under
terms of promissory notes. ACIS defaulted on repayment of amounts owed, and in
April 1998, the Company received a judgment against ACIS in the principal amount
of approximately $1.35 million, but has not received any payment from ACIS. The
Company continues to monitor various collection actions. There can be no
assurance that the Company will recover any, all or part of this judgment. The
entire amount of the receivable was reserved during 1997. See "Legal
Proceedings."

Employees

         As of January 31, 2000, the Company had five employees, of which four
were employed full-time, and one part-time.

Item 2.     Properties.

         The Company leases approximately 1,370 square feet in Dallas for
approximately $2,500 per month pursuant to a 2-year lease that commenced
December 1, 1999.

                                       5
<PAGE>


Item 3.     Legal Proceedings.

         In 1997, the Company entered into a letter of intent with Advanced
Communication and Information Services ("ACIS") to acquire all of the capital
stock of ACIS in exchange for DDN common shares. Pursuant to the letter of
intent, the Company forwarded ACIS $1,048,000 cash under terms of promissory
notes for working capital pending completion of the acquisition. Subsequently,
ACIS withdrew from the letter of intent and defaulted on repayment of amounts
owed. In April 1998, the Company received a judgment from the King County
Superior Court in the State of Washington against ACIS, ordering ACIS to pay the
Company the amount of the loan, plus interest, plus a $300,000 cancellation fee.
The Company continues to monitor various collection actions. There can be no
assurance that the Company will be successful in recovering any, all or part of
this judgment.

         An action in damages for breach of settlement agreement has been
commenced against the Company in connection with the April 1998 settlement
agreement with the former shareholder of hip Communications. As part of that
settlement agreement, the Company was required to transfer the "hip.com" domain
name to the former shareholder. The Company has not transferred the domain name
and no longer has registration rights to such domain name. The Company has
contacted the party which has such registration rights and is attempting to
reacquire the hip.com domain name, but to date it has not been successful in
these efforts. Due to the early stage of this litigation and, as no amounts were
named in the action, the Company is unable to determine the consequences,
monetary or otherwise, which might result from the outcome of this uncertainty.

         In January 1999, the Company was named as one of approximately 150
defendants in a lawsuit brought before the United States Bankruptcy Court for
the Northern District of Texas Dallas Division by the Chapter 7 Trustee for the
estate of Dally Advertising, Inc. ("Dally"). Through this action, the Trustee
seeks to avoid as preferences and to recover certain payments made by Dally
within 90 days of the January 1997 filing of its bankruptcy petition. Dally was
one of The Transit Network customers. The Complaint to Recover seeks $28,656 of
payments allegedly made to the Company. The Company has responded to the Court
regarding this matter, among other things, denying the allegations of
preferential transfer, asserting its own affirmative defenses, and requesting
the Court to deny the relief requested by the Plaintiff. In August 1999 the
Trustee requested and was granted a continuance until January 2000. In January
2000, the Trustee requested another continuance, which was granted, and a trial
date has subsequently been scheduled for April 2000. The Company is unable to
determine the consequences, monetary or otherwise, which might result from the
outcome of this uncertainty.

         The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. Company management currently believes
that resolution of such legal matters will not have a material adverse impact on
the Company's financial position, results of operations or cash flows.

Item 4.     Submission of Matters to a Vote of Security Holders.

         No matter was submitted to a vote of security holders during the fourth
quarter of 1999.

                                       6
<PAGE>


                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.

         (a) The Company's Common Stock (symbol "DIDA") and Warrants (symbol
"DIDAW") traded on the NASDAQ SmallCap Market from February 1996 through May
1998. Since May 1998 the Company's Common Stock and Warrants have traded on the
OTC Electronic Bulletin Board. The following table sets forth the high and low
sales prices for the Company's Common Stock and Warrants through the first
quarter of 1998, and thereafter the high and low closing prices.

<TABLE>
<CAPTION>
                                               Common Stock                                     Warrants
                                        ----------------------------                    -----------------------------
           Period                       High                     Low                    High                     Low
           ------                       ----                     ---                    -----                    ---
<C>                                  <C>                     <C>                      <C>                     <C>
1998:
1st Quarter                          $    0.88               $   0.25                 $   0.25                $   0.03
2nd Quarter                               2.81                   0.41                     0.78                    0.03
3rd Quarter                               1.25                   0.25                     0.22                    0.03
4th Quarter                               1.63                   0.13                     0.44                    0.03
1999:
1st Quarter                               1.00                   0.35                     0.13                    0.05
2nd Quarter                               0.75                   0.15                     0.05                    0.00
3rd Quarter                               0.34                   0.14                     0.00                    0.00
4th Quarter                               0.26                   0.06                     0.00                    0.00
</TABLE>



         The above prices represent inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not represent actual transactions. Prices for
warrants reported at less than $0.01 have been presented in the table above at
$0.00.

         (b) As of January 28, 2000, the Company had approximately 161
shareholders of record and 23 warrantholders of record.

         (c) The Company has never paid cash dividends on its Common Stock, and
currently intends to retain earnings, if any, for use in the operation of its
business and therefore does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.




                                       7
<PAGE>


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 Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-KSB (the "Annual Report"). This Annual Report contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Annual Report should be read as being
applicable to all related forward-looking statements wherever they appear in
this Annual Report.

Background

From inception in 1988 through 1992, the Company generated insignificant
revenues, and as a result of costs associated with funding the development and
initial implementation of the digital information network, the Company incurred
significant cumulative net losses which were financed by issuances of debt and
common stock. During 1988, the Company completed the installation of the Rhode
Island Public Transit Authority ("RIPTA") test market. In 1990, the Company was
awarded a contract from Dallas Area Rapid Transit ("DART") to install an
electronic advertising system on all DART buses. Installation commenced in 1991,
but was not immediately completed, due to insufficient financial resources to
purchase needed equipment and labor. During 1993, the Company raised
approximately $670,000 from the sale of common stock. These funds were used to
complete installation of the DART digital information network and to hire
additional sales personnel and programmers, and the DART system began generating
its advertising revenues.

The following year and a half was a transitional period for the Company, as it
continued to operate the DART and RIPTA systems, negotiated the conversion of
debt to equity, funded development of a new product, expanded its sales and
operations departments in Dallas, and implemented changes to its senior
management and Board of Directors.

During the years prior to the Company's 1996 public offering, the Company
incurred significant financing, legal and other consulting expenses in
connection with, among other things, extension of credit, modification of
existing contract or agreement terms, debt exchanges, services provided, and the
continued forbearance of its creditors, for which the Company issued shares of
its common stock and options to acquire shares of its common stock. The
estimated fair value of such securities issued was recorded as financing, legal
and other consulting expense.

In February 1996, the Company closed its initial public offering and received
net cash proceeds of approximately $5.8 million, after deducting for underwriter
commissions and certain other offering related costs, from the issuance of
approximately 1.3 million shares of common stock and 1.8 million common stock
purchase warrants.

Subsequent to its public offering, the Company completed three business
acquisitions. In June 1996, the Company acquired all of the outstanding common
stock of (i) ProNet, a Vancouver, British Columbia, Canada based internet
service provider, for 100,000 shares of Company common stock, and (ii) Cyber
America, also an internet-related business, for 50,000 shares of Company common
stock. In September 1996, the Company acquired for 30,000 shares of Company
common stock, all of the outstanding common stock of hip Communications Inc., a
web page design firm, whose operations were combined with ProNet's.

                                       8
<PAGE>


As a result of continuing cash flow losses, the Company closed its Cyber America
and RIPTA operations in the third and fourth quarter of 1997, respectively. In
September 1998, the Company sold all of its assets and interests in its internet
services business. The accompanying statements of operations present the results
of the internet services business segment operations as a one-line item net loss
from discontinued operations for all periods presented. The following
management's discussion has been prepared on the basis giving effect to this
sale of the internet services business segment as discontinued operations
consistent with the manner presented in the accompanying financial statements.

In February 1999, the Company entered into a Settlement Agreement and Mutual
Release with Internet Sports Network, Inc. ("ISN") terminating the October 1998
Agreement and Plan of Merger between the parties. In connection with the
Settlement Agreement, the Company received approximately $320,000 cash and
delivered shares of ISN common stock to ISN such that the Company retained
ownership of 150,000 shares of ISN common Stock. The Company's investment in
150,000 shares of ISN common stock had a cost of $60,000 when purchased in
mid-1998, which approximated its estimated fair value during periods preceding
the settlement. The recorded value of the 475,000 ISN shares delivered to ISN
pursuant to the Settlement Agreement of $190,000 and costs incurred of $69,000
relating to the merger were removed from investments in equity securities and
other assets, respectively. Cash received exceeded the recorded value of ISN
related assets, exclusive of the remaining recorded value of the retained
shares, by $60,000 and is included in other income in the accompanying
consolidated statement of operations as gain on settlement.

Results of Operations

         1998 Compared to 1997

The loss from continuing operations decreased to $409,000 in 1998 as compared to
$2.25 million in 1997. Revenues of $574,000 for the year ended December 31, 1998
increased from $524,000 during the prior year, due to increased advertising
volume from the Company's Transit Division in Dallas. Increases from DART
operations were offset by decreases of approximately $58,000 relating to
operations closed in 1997. Total expenses decreased from approximately $1.76
million (excluding the $1.05 million provision for notes receivable) in 1997 to
$972,000 in 1998, of which $340,000 of the decrease relates to operations closed
in 1997. Direct operating costs, salaries and related expenses and marketing,
general and administrative expenses decreased primarily due to elimination of
costs for operations closed in 1997 as well as due to decreases in corporate
salaries and certain other corporate-related costs in 1998 as compared to
expenditure levels in 1997. Financing, legal and consulting expenses decreased
in 1998, primarily the result of declining merger and acquisition related
activity in 1998 than in the prior year. Other income (expense) decreased from
$31,000 of income in 1997 to $11,000 of expense in 1998. The decrease is
primarily due to having lower balances of cash and investments in 1998 as
compared to the prior year, as well as due to having recorded in 1998 unrealized
losses of approximately $37,000 relating to mark-to-market adjustments for other
than temporary declines in market values of certain of the Company's investments
in marketable equity securities.

Discontinued operations had net losses of $50,000 for the year ended December
31, 1998 as compared to losses of $667,000 in the prior year. The decrease in
net loss is primarily attributable to the 1997 expensing of $343,000 of
remaining goodwill relating to this business segment, and decreases in product
development expenditures in 1998. As a result of the sale of discontinued
operations in September 1998, the Company recorded a gain on disposition of
$137,000 representing the excess of liabilities over the net book value of
assets sold and disposition costs.

                                       9
<PAGE>


         1999 Compared to 1998

The loss from continuing operations decreased to $57,000 in 1999 as compared to
$409,000 in 1998. Revenues increased to $589,000 for the year ended December 31,
1999 as compared to $574,000 for the prior year, generally the increase
resulting from new clients, as renewals from continuing clients remain
relatively comparable. Total expenses decreased from $972,000 to $724,000 during
1999 as compared to 1998. Direct costs remained relatively unchanged during 1999
as compared to 1998, decreasing slightly in amount and as a percent of revenues.
Salaries and related decreased approximately 10%, or $36,000, as a result of
elimination of certain executive salaries, which was in effect for all of 1999
and a portion of 1998. Marketing, general and administrative costs decreased
$206,000 in 1999 due to $80,000 of stock-based compensation expense recorded in
1998 relating to certain repriced stock options, $55,000 of such expense
reversed in 1999 as a result of declines in the market price of the Company's
common stock, and due to reduced corporate related costs as a result of reduced
merger and investment related activity.

Other income, net increased from $11,000 of net expense during 1998 to $78,000
of net income, primarily the result of the $60,000 gain on termination of merger
settlement as described in Note 3 to the financial statements.

Discontinued operations had net losses of $50,000 for 1998. As a result of the
sale of discontinued operations in 1998, the Company recorded a gain on
disposition of $137,000 representing the excess of liabilities over the net book
value of assets sold and disposition costs.

The Company continues to record a valuation allowance for the full amount of
deferred income taxes, which would otherwise be recorded for tax benefits
relating to operating losses, as realization of such deferred assets cannot be
determined to be more likely than not.

Financial Condition, Liquidity and Capital Resources

The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. Company management currently believes that
resolution of such legal matters will not have a material adverse impact on the
Company's financial position, results of operations or cash flows. (See Legal
Proceedings.)

Net cash used by operating activities during 1998 and 1999 was $208,000 and
$12,000, respectively. Cash used by operating activities was, for the most part,
due to net losses for such years, such losses having decreased significantly as
compared to respective preceding years. Investing activities provided $246,000
of cash in 1999, as compared to using cash of $160,000 in 1998. During 1999 cash
was provided primarily by $319,000 of proceeds from the ISN merger settlement,
offset by $100,000 of advances to one of the Company's directors. During 1998,
cash was used primarily by $319,000 of investments in ISN and related merger
costs and $131,000 of capital expenditures relating to installation of equipment
on DART light rail vehicles, offset by $290,000 of payments received on notes
receivable.

The Transit Network Division is currently re-installing the Company's
information system on new DART buses that are periodically being added to DART's
fleet to replace older buses. The Company is funding re-installations primarily
from operations and, to a lesser extent, from existing cash and cash
equivalents.


                                       10
<PAGE>


At December 31, 1999, the Company's principal current assets consisted primarily
of approximately $372,000 of cash and cash equivalents, most of which was
invested in short-term, interest-bearing investments with banks and other
financial institutions, $56,000 of net accounts receivable and $81,000 of notes
receivable. The Company's investment in 150,000 shares of ISN common stock is
included in investment in equity securities at its estimated fair value of
$150,000. The Company's total liabilities of $484,000 consisted primarily of
$69,000 in accounts payable and accrued payroll and related liabilities,
unearned income of $98,000, other accrued liabilities of $151,000, and $166,000
of long-term debt.

The Company incurred net losses of approximately $2 million and $3 million
during 1996 and 1997, and $322,000 and $57,000 during 1998 and 1999. While
losses from operations have decreased significantly, the Company has not yet
consistently generated positive cash flows from operations. In 1998, the Company
was notified that the Company's securities were delisted from the Nasdaq
SmallCap Market as a result of non-compliance with tangible net worth continued
listing requirements. As noted in an explanatory paragraph in the Report of
Independent Certified Public Accountants on the Company's consolidated financial
statements, these conditions raise substantial doubt about the Company's ability
to continue as a going concern.

The Company has taken actions to reduce negative cash flows, including disposing
of portions of the business, reducing general and administrative expenses, and
minimizing capital expenditures. The Company has pursued merger possibilities
and continues to do so. The ability of the Company to generate positive cash
flows from operations and net income, is dependent on, among other things,
market conditions, the receptiveness of the Dallas market to the Company's new
product introduced in 1999, the recovery of recorded assets, cost control, and
the Company's ability to raise capital under acceptable terms. While the Company
has had some successes in certain of these endeavors in the past, there can be
no assurance that its efforts will be successful in the future. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.

         Year 2000

The Year 2000 issue is the result of computer programs that were written using
two digits rather than four to identify the applicable year. Any of the
Company's computer equipment, software and devices with embedded technology that
are time-sensitive may mistakenly identify a date field using "00" as the year
1900, rather than the year 2000. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations. If such failures occur, the Company's results
of operations, liquidity, and financial condition could be materially and
adversely affected and the Company may be required to incur unanticipated
expenses. Additionally, if any of the Company's material suppliers are not Year
2000 compliant, it is possible that a system failure or miscalculations causing
disruption in the Company operations could result.

Year 2000 related matters which could have a material effect on the Company's
ability to continue its normal business practices through the change of the
century include internal business systems, telecommunications, power, and the
compliance and readiness of the Company's service providers and customers.
During the assessment and planning stage of the review process, no information
was revealed which indicate that the magnitude of the Company's Year 2000
problem is material.

                                       11
<PAGE>


In addition to its own compliance efforts, the Company is conducting an
assessment of the third parties with whom it has material relationships to
determine if they are Year 2000 compliant. The Company has contacted significant
service providers, specifically the Transit Network's software provider and
DART. To date, the Company has not received sufficient responses to make a
definitive statement; however, the responses received indicate that these
suppliers are addressing their Year 2000 issues.

The Company has not experienced any difficulties nor incurred any incremental
costs in connection with Year 2000 related matters. Based on current
information, management believes that modifications, if any, necessary to
operate and effectively manage the Company will be performed and that related
costs will not have a material impact on the Company's results of operations,
cash flows or financial condition of future periods.

                                       12
<PAGE>



Item 7.     Financial Statements.

                                                                         Page

         Index to Financial Statements:                                  F-1

         Report of Independent Certified Public Accountants              F-2

         Consolidated Balance Sheets                                     F-3

         Consolidated Statements of Operations                           F-4

         Consolidated Statement of Stockholders' Equity                  F-5

         Consolidated Statements of Cash Flows                           F-6

         Notes to Financial Statements                               F-7 to F-14

Item 8.     Changes In and Disagreements With Accountants on Accounting and
              Financial Disclosure.

         None.


                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
                       Compliance With Section 16(a) of the Exchange Act.

                        DIRECTORS AND EXECUTIVE OFFICERS

         Information regarding the executive officers and directors of the
Company as of December 31, 1999 is as follows:

Name                                   Age             Position with the Company

Donald B. Scott, Jr.                   44               President and Chairman
                                                          of the Board

James F. Biagi, Jr.                    43               Secretary and Director

Robert F. Hussey                       50               Director

Richard J. Boeglin                     42               Vice President,
                                                          Finance and Operations
                                                        Chief Financial Officer

Susan E. Hassel                        53               Vice President, Sales

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


         The names and a brief description of their business experience for at
least the past five years of the directors and executive officers of the Company
follows:


                                       13
<PAGE>


         Donald B. Scott, Jr. has served as President and a director of the
Company since March 1993. In July 1996, Mr. Scott was also elected as the
Company's Chairman of the Board. Mr. Scott served as the Company's Acting
President from December 1992 through March 1993. Mr. Scott was previously a
principal of Rutkowski, Erickson, Scott ("RES"), a consulting firm, from 1991 to
July 1995. Prior to his association with RES, Mr. Scott was with Paine Webber in
New York from 1987 to 1991.

         James F. Biagi, Jr. has served as Secretary and a director of the
Company since its inception in 1988. He is a practicing attorney in Seattle,
Washington, and has been a principal of the law firm Monahan & Biagi since March
1996. Prior to Monahan & Biagi, Mr. Biagi practiced law at the firm Monahan &
Robinson since 1989, where he has specialized in tax, corporate and securities
matters.

         Robert F. Hussey has served as a director of the Company since November
1997. Mr. Hussey was President and CEO of MetroVision of North America, Inc., a
niche cable television company, from February 1991 until April 1997, when it
merged with York Hannover Health Care, Inc. Mr. Hussey has been a director of
IVEX Corporation since May 1993 and Nur Macroprinters Ltd. since December 1997,
as well as on the board of advisors for Kaufmann Fund since December 1996,
Argentum Capital Partners, I and II since June 1990, and Josephthal & Company,
Inc. since December 1997.

         Richard J. Boeglin has served as Vice President of Finance and
Operations and the Chief Financial Officer since April 1995. He has been with
the Company since 1991. He has thirteen years of management experience,
including direct management of transit system design, development and
installation. From 1987 to 1991, Mr. Boeglin worked in the outdoor advertising
industry.

         Susan E. Hassel has served as Vice President of Sales since she started
with the Company in April 1992. She has fifteen years of sales and marketing
experience. From 1985 until 1991, Ms. Hassel was the Director of Sales and
Marketing for The Relocation Center, a relocation counseling company in Dallas,
Texas.

                             SECTION 16 REQUIREMENTS

         Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and officers, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by SEC
regulations promulgated pursuant to the Exchange Act to furnish the Company with
copies of all Section 16(a) report forms they file with the SEC.

         The Company's registration statement under Section 12 of the Exchange
Act became effective February 13, 1996. Based solely on its review of the copies
of report forms received by it with respect to initial filings from reporting
persons, the Company believes that all filing requirements applicable to its
directors, officers and persons who own more than 10% of a registered class of
the Company's equity securities have been timely complied with in accordance
with Section 16(a) of the Exchange Act.


                                       14
<PAGE>

Item 10.          Executive Compensation.

The following table sets forth certain information regarding cash and non-cash
compensation paid by the Company during each of the Company's last three fiscal
years to the Company's Chief Executive Officer and the other most highly
compensated executive officer of the Company whose annual compensation exceeded
$100,000 during the fiscal year ended December 31, 1999 (the "Named Persons").

<TABLE>
<CAPTION>
                                                     Annual Compensation           Long-Term Compensation
                                                                                            Awards

Name and                                                                                 Securities
Principal Position                      Year           Salary           Bonus        Underlying Options
<S>                                     <C>            <C>              <C>                     <C>
Donald B. Scott, Chairman               1999           $  -0-           $ 20,000                20,000
  of the Board and President            1998             38,000              -0-                 -0-
                                        1997            150,500              -0-                 -0-


Susan E. Hassel, V.P. Sales             1999           $125,561         $    -0-                 8,943
                                        1998            121,929              -0-                 -0-
                                        1997            115,641              -0-                 -0-
----------------
</TABLE>


With respect to the Named Persons, the Company's Board of Directors awarded the
Company's President and Chairman of the Board 20,000 options and $20,000 (of
which $10,000 was used to reduce his note with the Company). No options were
exercised by the Named Persons during 1999. The following table sets forth
information with respect to unexercised options held by the Named Persons at
December 31, 1999.

                                              Number of
                                             Securities            Value of
                                             Underlying           Unexercised
                                             Unexercised         In-the-Money
                                             Options at             Options

                                               Fiscal         At Fiscal Year-End

                Name                         Year-End (1)              (1)
                                                      ---              ---


Donald B. Scott, President                     176,408              $ 7,820

Susan E. Hassel, V.P. Sales                     26,738              $ 1,337


 (1) All options were exercisable on December 31, 1999. The value of unexercised
     options is based on an estimated fair market value of the Company's Common
     Stock on December 31, 1999, of $.30 per share.

                                       15
<PAGE>


                            COMPENSATION OF DIRECTORS

         As compensation for serving in 1999, directors were granted a total of
90,000 options to purchase the Company's common stock at an exercise price of
$.50 per share, exercisable for ten years. Messrs. Hussey, Biagi and Scott were
granted 40,000 options, 30,000 options and 20,000 options, respectively.
Additionally, Mr. Hussey was awarded $35,000, of which $25,000 was used to
reduce the note he has with the Company; Mr. Scott was awarded $20,000, of which
$10,000 was used to reduce his note with the Company; and Mr. Biagi was awarded
$10,000. (See also Item 12, Certain Relationships and Transactions, regarding
consulting fees paid to two of the Company's directors.)

Item 11. Security Ownership of Certain Beneficial Owners and Management.

         The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 1999, by
(i) each person or entity who beneficially owns 5% or more of the Common Stock,
(ii) each director, (iii) the Named Persons, and (iv) all officers and directors
of the Company as a group. Unless otherwise noted, the persons and entities
named below have sole voting and investment power with respect to such shares.


<TABLE>
<CAPTION>
Name of                             Total Beneficial Ownership        Percent of Class Beneficially
Beneficial Owner                            (including options)             Owned as of December 31, 1999
----------------                            -------------------             -----------------------------
<S>                                                   <C>                                        <C>
Whiterock, Inc.                                       228,500 (1)                                 9.0%
Donald B. Scott, Jr., Chairman of
   the Board and President                            188,001 (2)                                 7.5%
James F. Biagi, Jr., Secretary and Director           119,133 (3)                                 4.9%
Robert F. Hussey, Director                            150,000 (4)                                 6.1%
Susan E. Hassel, V.P. Sales                            27,857 (5)                                 1.2%
All Executive Officers and Directors                  549,026 (6)                                19.2%
  as a group (5 persons)
-----------------------
</TABLE>

(1)      According to a Schedule 13d filed with the Securities and Exchange
           Commission, Whiterock, Inc. is a Texas corporation, principally
           engaged in the business of investments, of which Mr. Kevan Casey is
           founder, president and chairman of the board.
(2)      Includes options to purchase 176,408 shares, and 750 Common Stock
           Purchase Warrants exercisable within 60 days.
(3)      Includes options to purchase 119,133 shares exercisable within 60 days.
(4)      Includes options to purchase 150,000 shares exercisable within 60 days.
(5)      Includes options to purchase 26,738 shares exercisable within 60 days.
(6)      Includes options to purchase 534,636 shares, and 750 Common Stock
           Purchase Warrants exercisable within 60 days.




                                       16
<PAGE>




Item 12. Certain Relationships and Related Transactions.

         In June 1996, in consideration for acquiring all of the outstanding
capital stock of Pro.Net Communications, Inc. ("ProNet"), the Company issued
100,000 shares of the Company's Common Stock to shareholders of ProNet,
including 28,500 shares to Peter Ciccone, who became the Company's Chief
Operating Officer, and 28,500 shares to Stephen R. Willey, who was appointed a
director of the Company in August 1996 and resigned in September 1997. Pursuant
to a September 1998 Asset Purchase Agreement, the Company's wholly-owned
subsidiary, DDN Canada, sold all of its assets and interests in its internet
services business to ProNet Communications, Inc. ("ProNet"), the principals of
which include Messrs. Ciccone and Willey (the "Principals"). ProNet assumed DDN
Canada liabilities relating to the internet business and released the Company
from, among other things, amounts owed by DDN to the Principals, which
approximated $100,000, and received $20,000 cash from the Company.

         During the period June 1996 through July 1997, through advances and the
payment of personal expenses, the Company's president and CEO, Donald B. Scott,
owed the Company approximately $42,000. The Company has been accruing interest
at various rates on this amount over the years. The Company's Board of Directors
awarded Mr. Scott $20,000 for services performed as a director in 1999, of which
$10,000 was used to reduce his note with the Company. As of December 31, 1999,
the balance of Mr. Scott's receivable was $39,000.

         In April 1999 the Company advanced one of its directors, Robert F.
Hussey, $100,000 pursuant to a promissory note bearing interest at the rate of
8% per year. The original note was to mature in September 1999, and has been
extended to June 30, 2000. This note is collateralized by Mr. Hussey's 25,000
shares of ISN stock, as well as 150,000 of Mr. Hussey's options to purchase the
Company's common stock. The Company's Board of Directors awarded Mr. Hussey
$35,000 for services performed as a director in 1999, of which $25,000 was used
to reduce his note with the Company. As of December 31, 1999, the balance of Mr.
Hussey's receivable was $81,000.

         The Company believes that the foregoing transactions with its officers
and directors were on terms no less favorable than could have been obtained from
independent third parties. All future transactions with such persons will also
be on terms no less favorable than could be obtained from independent third
parties.

Item 13.     Exhibits and Reports on Form 8-K.

          (a)   Exhibits - consent of independent certified public accountants
                            dated March 13, 2000.




                                       17
<PAGE>
                                     EXHIBIT

               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Digital Data Networks, Inc.
Dallas, Texas

We hereby consent to the incorporation by reference in the Company's Form S-8 of
our report dated January 27, 2000 relating to the consolidated financial
statements of Digital Data Networks, Inc. appearing in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999.

BDO Seidman, LLP
Seattle, Washington
March 13, 2000







                                       18
<PAGE>

                                   SIGNATURES

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

                                        DIGITAL DATA NETWORKS, INC.
                                        (Registrant)


                                 By:    /s/  Donald B. Scott
                                        ---------------------------------------
                                        Donald B. Scott, Chairman of the Board
                                        (Principal Executive Officer)

                                 Date:  March 23, 2000


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.



<TABLE>
<CAPTION>
Signatures                                  Capacity                            Date
<S>                                 <C>                                 <C>
/s/  Donald B. Scott                Chairman of the Board,              March 23, 2000
------------------------------      President, Director,
Donald B. Scott                     (Principal Executive Officer)


/s/  James F. Biagi, Jr.            Secretary and Director              March 23, 2000
--------------------------------
James F. Biagi, Jr.


/s/  Robert  F. Hussey              Director                            March 23, 2000
------------------------------
Robert F. Hussey

/s/  Richard J. Boeglin             Vice President, Finance and         March 23, 2000
-------------------------------     Operations (Principal Financial
Richard J. Boeglin                  and Accounting Officer)
</TABLE>




                                       19
<PAGE>




                           DIGITAL DATA NETWORKS, INC.
                        CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX

                                                                        Page

Report of Independent Certified Public Accountants                      F-2

Consolidated Balance Sheets                                             F-3

Consolidated Statements of Operations                                   F-4

Consolidated Statement of Stockholders' Equity                          F-5

Consolidated Statements of Cash Flows                                   F-6

Notes to Financial Statements                                        F-7 to F-14











                                      F-1
<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Digital Data Networks, Inc.


         We have audited the accompanying consolidated balance sheets of Digital
Data Networks, Inc. and its subsidiaries ("the Company"), as of December 31,
1998 and 1999 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years then ended. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Digital Data
Networks, Inc. and its subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

         The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred recurring losses
from operations and has experienced negative cash flows from operations. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

BDO Seidman, LLP
Seattle, Washington

January 27, 2000




                                      F-2
<PAGE>


                           DIGITAL DATA NETWORKS, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                  -----------------------------

                                                                                      1998              1999
                                                                                      ----              ----
<S>                                                                                 <C>               <C>
Current assets

  Cash and cash equivalents                                                         $  151            $  372
  Trade accounts receivable, net of allowances
     for doubtful accounts of $7 and $8                                                 38                56
  Prepaid expenses and other current assets                                             46                 3
  Receivables from officer and director, net of reserves (Note 9)                        -                81

     Total current assets                                                              235               512
Equipment, net (Notes 5 and 6)                                                         102                28
Investments in equity securities (Note 3)                                              264               150
Other assets (Note 3)                                                                   71                 2
                                                                                 ---------         ---------

Total assets                                                                        $  672             $ 692
                                                                                    ======             =====


Current liabilities

  Accounts payable                                                                   $  36             $  49
  Accrued payroll and related                                                           14                20
  Current portion of long-term debt                                                     13                 -
  Unearned income                                                                       68                98
  Other accrued liabilities                                                            152               151
                                                                                 ---------         ---------
     Total current liabilities                                                         283               318

Long-term debt and accrued interest, less current portion (Note 6)                     159               166
                                                                                 ---------         ---------
     Total liabilities                                                                 442               484
                                                                                 ---------         ---------

Commitments and contingencies (Notes 2, 8, 11, and 12)

Stockholders' equity  (Note 8)
  Preferred stock, no par value, 1,000,000 shares authorized,
     no shares issued or outstanding                                                     -                 -
  Common stock, no par value, 10,000,000 shares authorized,
    2,314,597 shares issued and outstanding                                         13,473            13,418
  Treasury stock, at cost, 30,000 shares                                               (7)               (7)
  Unrealized appreciation on equity securities available
    for sale (Note 3)                                                                    -                90
  Accumulated deficit                                                             (13,236)          (13,293)
                                                                                 ---------         ---------
     Total stockholders' equity                                                        230               208
                                                                                 ---------         ---------

     Total liabilities and stockholders' equity                                     $  672            $  692
                                                                                    ======            ======
</TABLE>







                 See accompanying notes to financial statements

                                      F-3

<PAGE>

                           DIGITAL DATA NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                                   1998             1999
                                                                                   ----             ----
<S>                                                                              <C>              <C>
Revenues                                                                         $   574          $   589
                                                                                 -------          -------

Expenses:
   Direct operating costs                                                            203              197
   Salaries and related                                                              373              337
   Marketing, general and administrative                                             396              190
                                                                                 -------          -------

      Total expenses                                                                 972              724
                                                                                 -------          -------

Other income (expense):
   Interest expense                                                                   (7)             (10)
   Investment income (loss)                                                           (4)              28
   Gain on merger termination settlement (Note 3)
                                                                                       -               60
                                                                                 -------          -------
      Total other income, net                                                       (11)               78
                                                                                 -------          -------


Loss from continuing operations                                                    (409)              (57)

Loss from discontinued operations (Note 4)                                          (50)                -

Gain on disposition of discontinued operations (Note 4)                              137                -
                                                                                 -------          -------


Net loss                                                                         $ (322)          $  (57)
                                                                                 =======          =======

Loss from continuing operations per share                                       $ (0.18)         $ (0.02)

Gain from discontinued operations per share                                         0.04               -
                                                                                 -------          -------


Net loss per share - basic and diluted                                          $ (0.14)         $ (0.02)
                                                                                ========         ========

Weighted average shares outstanding                                                2,305            2,284
                                                                                ========         ========
</TABLE>















                 See accompanying notes to financial statements

                                      F-4
<PAGE>


                           DIGITAL DATA NETWORKS, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in Thousands)

<TABLE>
<CAPTION>
                                                                                                                   Unrealized
                                                                                                    Cumulative    Appreciation
                                                                                                     Foreign       on Equity
                                                                                                     Currency      Securities
                                              Common Stock        Treasury Stock     Accumulated    Translation    Available
                                          Shares     Amount     Shares     Amount      Deficit      Adjustment     For Sale    Total
                                          ------     ------     ------     ------      -------      ----------     --------    -----
<S>                                       <C>      <C>              <C>     <C>      <C>             <C>          <C>        <C>
Balance, December 31, 1997                2,339    $ 13,399          -     $    -    $ (12,914)      $    5       $    -     $  490

Net loss                                      -           -          -          -         (322)           -            -       (322)
Foreign currency translation                  -           -          -          -            -           (5)           -         (5)
Total comprehensive income                    -           -          -          -            -            -            -       (327)
Variable stock option plan
   compensation (Note 8)                      -          80          -          -            -            -            -         80
Acquisition of Treasury stock
   (Note 12)                                  -           -         30         (7)           -            -            -         (7)
Cancellation of shares (Note 8)             (25)         (6)         -          -            -            -            -         (6)
                                         --------  --------    --------  --------     --------     --------     --------    --------

Balance, December 31, 1998                2,314      13,473         30         (7)     (13,236)           -            -        230

Net loss                                      -           -          -          -          (57)           -            -        (57)
Unrealized appreciation on equity
   securities available for sale              -           -          -          -            -            -           90         90
Total comprehensive income                    -           -          -          -            -            -            -         33
Variable stock option plan
   compensation (Note 8)                      -         (55)         -          -            -            -            -        (55)
                                         --------  --------    --------  --------     --------     --------     --------    --------

Balance, December 31, 1999                2,314    $ 13,418         30      $  (7)   $ (13,293)      $    -       $   90     $  208
                                         =======   ========    ========    ======    ==========      ======      =======     ======
</TABLE>


                 See accompanying notes to financial statements

                                      F-5
<PAGE>


                           DIGITAL DATA NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in Thousands)

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,

                                                                                      1998        1999
<S>                                                                                 <C>                <C>
Cash flows from operating activities
Net Loss                                                                            $   (322)          (57)
   Adjustments to reconcile net loss to net cash
     used by operating activities
       Depreciation and amortization                                                     140            74
       Provision for doubtful notes and other receivables                                 60             1
       Compensatory option expense                                                        80           (55)
       Gain on disposition of discontinued operations                                   (137)            -
       Gain on merger termination settlement                                               -           (60)
       Other non-cash operating expense                                                   37             -
       Decrease in prepaid expenses and other current assets                              31            43
       Increase (decrease) in accounts payable and other current                        (120)           48
liabilities
       Other

                                                                                          23            (6)
                                                                                          --            ---
Net cash used by operating activities                                                   (208)          (12)
                                                                                  -----------   ------------

Cash flows from investing activities
   Purchases of equipment                                                               (131)            -
   Advances on notes receivable to director                                                -          (100)
   Advances to / investments in acquisition targets                                     (250)            -
   Payments of merger costs                                                              (69)            -
   Proceeds from terminated merger settlement                                              -           319
   Receipt of payments on notes receivable
                                                                                         290            27
                                                                                         ---            --
Net cash provided (used)  by investing activities                                       (160)          246
                                                                                    --------    -----------

Cash flows from financing activities
   Debt principal payments                                                               (21)          (13)
                                                                                    ---------  ------------
Net cash used by financing activities                                                    (21)          (13)
                                                                                    ---------  ------------

Net increase (decrease) in cash and cash equivalents                                    (389)          221

Cash and cash equivalents
   Beginning of year                                                                     540           151
                                                                                ------------  ------------

   End of year                                                                        $  151        $  372
                                                                                      ======        ======


Supplemental disclosures of non-cash investing and financing activities
   Debt assumed by Purchaser upon sale of ProNet                                      $  100             -
</TABLE>






                 See accompanying notes to financial statements

                                      F-6
<PAGE>


                           DIGITAL DATA NETWORKS, INC.

                          NOTES TO FINANCIAL STATEMENTS

Note 1  Description of Business and Summary of Significant Accounting Policies

Digital Data Networks, Inc. ("the Company" or "DDN"), a wireless, passenger
communication and advertising company, is principally engaged in development,
design, installation and operation of the "digital information network", a
network of computerized electronics message displays that deliver current news,
information and advertising to riders on-board public transit vehicles. The
digital information network consists of a series of electronic information
displays utilizing digital radio transmission technology. The Company,
incorporated in 1988, has a digital information network in operation in Dallas,
Texas.

As a result of 1996 acquisitions, the Company was also engaged in operating and
developing internet-related businesses. The Company's Canadian subsidiary, DDN
Canada, provided a range of internet offerings to business customers, including
connectivity services, intranet services, development of on-line working
programs, and web page design and development. As described in Note 4, in
September 1998, the Company disposed of its internet-related businesses.

Principles of Consolidation - The consolidated financial statements of DDN
include the accounts of its subsidiaries after elimination of intercompany
balances and transactions.

Reclassifications - Certain amounts in prior period financial statements have
been reclassified to conform with current period classifications.

Cash and Cash Equivalents - For purposes of balance sheet classification and the
statements of cash flows, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.

Equipment - Equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective assets,
which typically range from three to seven years.

Impairment of Long-Lived Assets - In accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of",
management of the Company reviews the carrying value of its equipment and
intangible assets on a regular basis. Estimated undiscounted future cash flows
from operations is compared to current carrying value. Reductions or reserves
against assets, if necessary, are recorded to the extent the net book value of
the asset exceeds the estimate of future undiscounted cash flows on an aggregate
basis.

Investments in Equity Securities - The Company's investments in equity
securities are stated at estimated market value and considered available for
sale. Unrealized appreciation on equity securities available for sale are
recorded as a separate component of stockholders' equity. Unrealized losses of
approximately $37,000 relating to mark-to-market adjustments for other than
temporary declines in market value are included in investment income (loss) for
1998 in the accompanying statements of operations.

Income Taxes - The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires
recognition of deferred income taxes to provide for temporary differences
between financial reporting and tax basis of assets and liabilities. Deferred
taxes are measured using enacted tax rates expected to be in effect in years in
which temporary differences are expected to reverse.

Fair Value of Financial Instruments - Carrying amounts reported in the balance
sheet for cash and cash equivalents, trade accounts receivable, notes
receivable, other current assets, accounts payable and other accrued expenses
approximate fair value because of their immediate or short-term nature. The
carrying amount reported in the balance sheet for investments in equity
securities approximates fair value because they are stated at estimated market
value based upon recent transactions in such securities. The fair value of
long-term debt approximates its carrying value because the stated rates of the
debt either reflect recent market conditions or are variable in nature.


                                      F-7
<PAGE>

Note 1  Description of Business and Summary of Significant Accounting Policies
         (continued)

Revenue Recognition - The Company records revenue over the contractual period
which services are provided. To the extent payment is received in advance of the
contractual period expiration, such prepaid amounts are recorded as unearned
income until services are provided.

Stock-Based Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", ("SFAS 123") encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based employee compensation utilizing the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of grant over the amount an employee must pay
to acquire the stock. If stock options are repriced, the effects of changes in
the stock price are recognized as compensation expenses in accordance with
accounting for variable stock option plans. Had the Company accounted for
stock-based compensation at fair value in accordance with SFAS 123, the pro
forma financial statement effect would have been insignificant.

Net Loss Per Share - Basic "Earnings Per Share" ("EPS") is computed as net
income divided by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants and other convertible
securities. As the Company's stock options and warrants for approximately 2.6
million shares of Company common stock at December 31, 1998 and 1999 are
antidilutive, only basic EPS is presented. These securities could potentially
dilute future EPS calculations.

Accounting Estimates - Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the financial statement date
and reported amounts of revenues and expenses during reported periods. Actual
results could differ from those estimates.

Comprehensive Income - In 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS
130 establishes standards for reporting and presentation of comprehensive income
and its components in a full set of financial statements. Comprehensive income
consists of the net loss for the year and currency translation adjustments in
1998 and unrealized appreciation on equity securities available for sale in
1999, and is presented in the consolidated statement of stockholders' equity.
The Statement requires only additional disclosures in the consolidated financial
statements; it does not affect the Company's financial position or results of
operations.

Note 2  Financial Condition, Liquidity and Going Concern

The Company incurred net losses of approximately $2 million and $3 million
during 1996 and 1997 and $322,000 and $57,000 for 1998 and 1999. While losses
from operations have decreased significantly, the Company has not yet
consistently generated positive cash flows from operations. In 1998, the Company
was notified that the Company's securities were delisted from the Nasdaq
SmallCap Market as a result of non-compliance with tangible net worth continued
listing requirements. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.

The Company has taken actions to reduce negative cash flows, including disposing
of portions of the business, such as the sale of the internet services segment,
reducing general and administrative expenses, and minimizing capital
expenditures. The Company has pursued merger possibilities and continues to do
so. The ability of the Company to generate positive cash flows from operations
and net income, is dependent, among other things, on market conditions, the
recovery of recorded assets, cost control, and the Company's ability to raise
capital under acceptable terms. While the Company has had some successes in
these endeavors in the past, there can be no assurance that its efforts will be
successful in the future. These financial statements do not include any
adjustments that might result from the outcome of these uncertainties.



                                      F-8
<PAGE>


Note 3  Terminated Merger Settlement

In February 1999, the Company entered into a Settlement Agreement and Mutual
Release with Internet Sports Network, Inc. ("ISN") terminating the October 1998
Agreement and Plan of Merger between the parties. In connection with the
Settlement Agreement, the Company received approximately $320,000 cash and
delivered shares of ISN common stock to ISN such that the Company retained
ownership of 150,000 shares of ISN common Stock. The recorded value of the
475,000 ISN shares delivered to ISN pursuant to the Settlement Agreement of
$190,000 and costs incurred of $69,000 relating to the merger were removed from
investments in equity securities and other assets, respectively. Cash received
exceeded the recorded value of ISN related assets, exclusive of the remaining
recorded value of the retained shares, by $60,000 and is included in other
income in the accompanying consolidated statement of operations as gain on
settlement.

The Company's investment in 150,000 shares of ISN common stock (the "ISN Stock")
had a cost of $60,000 when purchased in mid-1998, which approximated its
estimated fair value during periods preceding the settlement. ISN stock is
included in investments in equity securities at its estimated fair value of
$150,000 at December 31, 1999. The increase in unrealized appreciation on these
available-for-sale equity securities is included as a separate component of
stockholders' equity.

Note 4  Disposition of Internet Services Segment

Pursuant to a September 1998 Asset Purchase Agreement, the Company's
wholly-owned subsidiary, DDN Canada, sold all of its assets and interests in its
internet services business to ProNet Communications, Inc. ("ProNet"), the
principals of which include DDN's former Chief Operating Officer and a former
DDN Director, both of whom are DDN shareholders (the "Principals"). ProNet
assumed DDN Canada liabilities relating to the internet business and released
the Company from, among other things, amounts owed by DDN to the Principals,
which approximated $100,000, and received $20,000 cash from the Company. The
excess of liabilities over the net book value of assets sold and disposition
costs is reported as gain on disposition of discontinued operations. The
accompanying statements of operations present the results of the internet
services segment operations as a one-line item net loss from discontinued
operations.

Note 5  Equipment

Equipment consists of the following (in thousands):

                                                                 December 31,
                                                            1998           1999
                                                            ----           ----
Equipment installed in public transit vehicles             $ 1,473      $ 1,473
Office equipment and other                                      72           72
                                                         ---------     --------
                                                             1,545        1,545
Accumulated depreciation                                    (1,443)      (1,517)
                                                         ---------     --------
Equipment, net                                              $  102       $   28
                                                            ======       ======












                                      F-9
<PAGE>


Note 6  Note Payable and Long-Term Debt

Long-term debt consists of the following (in thousands):

                                                              December 31,
                                                        1998               1999
                                                        ----               ----
5% promissory note due a company, due in
   full on October 2001, including
   accrued interest of $15 and $22,
   secured by equipment installed in
   public transit vehicles                           $   159            $   166

8.5% note due a bank, payable monthly,
   due July 1999, secured by equipment                    13                  -
                                                   ---------          ---------

Total                                                    172                166
Less current portion                                      13                  -
                                                   ---------          ---------

Long-term debt and accrued interest,
   less current portion                                $ 159            $   166
                                                ============       ============


All of the Company's long-term debt at December 31, 1999 is scheduled to mature
in 2001. Total cash paid for interest approximated $2,000 during 1998 and 1999.

Note 7  Software License and Supply Agreement

Pursuant to terms of a 1993 agreement, as amended, the Company's Transit Network
Division licenses substantially all of its computer software, which is an
essential element of the digital information network, from Sunrise Systems, Inc.
("Sunrise Systems"), an electronics supplier and software development company.
The fully-paid license provides the Company with exclusive rights to such
software in metropolitan areas of the United States and Canada with populations
over 100,000 and nonexclusive rights elsewhere in the world.

Note 8  Common Stock and Stock Options

In February 1996, the Company closed its initial public stock and warrant
offering and received net cash proceeds of approximately $5.8 million, after
deduction for underwriters commissions and certain other offering related costs.
The Company issued 1,322,500 shares of its common stock and 1,840,000 of its
common stock purchase warrants. Each warrant entitles the holder to purchase one
share of the Company's common stock at an exercise price of $6 per share during
the five years commencing upon issuance. The warrants are redeemable after one
year, under certain circumstances.

The Company has granted to certain of its promissory note holders, stockholders,
officers, directors, employees, suppliers, consultants and financial advisors
non-qualified options and warrants to purchase shares of Company common stock.
Options generally expire within 5 to 10 years of grant. During 1998, the Company
granted to non-employee directors in exchange for services a total of 30,000
options to purchase common shares at an exercise price of $0.25 per share,
expiring in 2003, and in 1999 granted 90,000 options at an exercise price of
$.50 per share, expiring in 2009.

During 1998, as a result of non-performance by what was to have been a service
provider to the Company, the Company rescinded and canceled 25,000 shares of
Company common stock which were issued in 1996 in exchange for services to be
provided. The estimated fair value of stock canceled has been recorded as a
decrease in common stock and expenses.


                                      F-10
<PAGE>

Note 8  Common Stock and Stock Options (continued)

During 1994, the Company adopted a Combined Incentive and Non-Qualified Stock
Option Plan (the "1994 Plan") which permits the issuance of options to acquire
shares of Company common stock. The 1994 Plan permits grants of incentive stock
options to employees and of non-qualified stock options to employees, directors,
consultants or independent contractors of the Company. The exercise price of
incentive stock options shall not be less than the fair market value of Company
common stock at the date of grant. The exercise price of non-qualified stock
options may be greater or less than the fair market value of Company common
stock at the date of grant. The duration of options shall be established by the
Board of Directors, and shall not exceed ten years. The 1994 Plan reserves
approximately 112,000 shares of common stock for grant and provides that terms
of each award be determined by the Board of Directors. Prior to 1996, the
Company granted approximately 103,000 1994 Plan options. During 1999, the
Company granted to employees and directors approximately 118,000 options to
purchase common stock at an exercise price of $.50 per share, expiring in 2009.
No 1994 Plan options have been exercised.

During 1996, the Company adopted a Combined Incentive and Non-Qualified Stock
Option Plan (the "1996 Plan") with provisions similar to the 1994 Plan. The 1996
Plan reserves approximately 250,000 shares of common stock for grant and
provides that terms of each award be determined by the Board of Directors.
During 1996, the Company granted approximately 220,000 1996 Plan options. No
1996 Plan options have been exercised.

All stock options issued have an exercise price not less than the fair market
value of the Company's common stock on the date of grant. During March 1998, the
Company repriced 515,695 of its options held by current officers and directors
from various exercise prices to $0.25 per share, the fair market value at the
date of repricing. As a result of increases in the estimated fair value of
Company common stock over the exercise price for repriced options, which
approximated $80,000 and $25,000 at December 31, 1998 and 1999, respectively,
the Company recognized expense charges of $80,000 during 1998 and expense
reversals of $55,000 during 1999. The following tables represent exercise prices
as adjusted for repricings.

The following summarizes stock option and warrant transactions during the two
years ended December 31, 1999 (thousands of shares):

<TABLE>
<CAPTION>
                                                             Exercise Price      Weighted Average
                                           Shares              Per Share           Exercise Price

<S>                                         <C>             <C>      <C>           <C>
   Outstanding at December 31, 1997         2,702           $0.09 to $19.68        $     5.19


   Granted                                     30                $0.25             $     0.25

   Expired                                   (178)           $2.72 to $9.93        $     6.32
                                         ---------           --------------

   Outstanding at December 31, 1998         2,554           $0.09 to $19.68        $     4.75

   Granted                                    118                $.50              $      .50


   Expired                                    (44)          $1.75 to $19.68        $     4.93
                                         ---------          ---------------


   Outstanding at December 31, 1999         2,628           $0.09 to $9.93         $     4.59
                                         =========          ===============
</TABLE>


                                      F-11
<PAGE>

Note 8  Common Stock and Stock Options (continued)

Information relating to outstanding and exercisable stock options and warrants
at December 31, 1999, summarized by exercise price are as follows (thousands of
shares):

                                                   Weighted Average
                                    --------------------------------------------

         Range of                                 Remaining Life
      Exercise Price                Shares           in Years     Exercise Price

   $  0.09 to $  0.27                   576            1.6           $  0.25
   $  0.50 to $  1.75                   117            5.6              0.64
   $  4.47 to $  6.71                 1,869            1.3              5.99
   $  8.94 to $  9.93                    66            2.9              9.64
                                  ----------

                                      2,628            1.6           $  4.59
                                  ==========

In February 2000, the Company repriced 99,500 of its options having an exercise
price of $0.50 per share held by current officers and directors to $0.30 per
share, the estimated fair value at the date of repricing.

Note 9  Related Party Transactions

Prior to 1998, the Company made cash advances to its President, who is also one
of the Company's directors, which approximated $42,000. The Company has
continued to request repayments on amounts due from this officer, although none
have been made to date. During 1998, the entire amount of the receivable was
reserved. During the year ended December 31, 1998, compensation being paid to
the Company's President was reduced and then eliminated at the direction of the
Board. The Company's Board of Directors authorized a $10,000 reduction in this
receivable in consideration of consulting services provided by the Company's
President during 1999. Since the receivable had been fully reserved in 1998, no
net additional expense was recognized in 1999. At December 31, 1999, the total
receivable, which is fully reserved, approximated $39,000, including accrued
interest.

Included in receivables from officer and directors at December 31, 1999 is
$75,000 due from one of the Company's directors pursuant to terms of an 8%
promissory note due June 30, 2000, which had an original principal balance of
$100,000. The note is collateralized by 25,000 shares of ISN stock and the
director's options to purchase Company common stock. The Company's Board of
Directors authorized a $25,000 reduction in the note receivable in consideration
of consulting services provided by this director during 1999, which has been
recorded as consulting expense included in marketing, general and administrative
expense.

Note 10  Income Taxes

At December 31, 1998 and 1999, the Company had deferred tax assets of
approximately $2.6 million, principally arising from net operating loss
carryforwards. As management of the Company cannot determine that it is more
likely than not that the Company will receive the benefit of these assets, a
valuation allowance equal to the deferred tax asset has been established.

As of December 31, 1999 the Company had net operating loss carryforwards
available to reduce future taxable income of approximately $7.6 million, which
begin to expire in 2006. As a result of changes in stockholder ownership,
utilization of net operating loss carryforwards could be subject to annual
limitation.

Note 11  Operating Lease Commitments

The Company leases an FM subcarrier for transmission to electronic display signs
located on-board public transit vehicles. The FM subcarrier lease is pursuant to
an agreement expiring December 2001, which requires annual payments of $30,000.
Also, the Company leases an office facility under an operating lease with
monthly payments of approximately $2,500 expiring in November 2001. Future
annual minimum lease payments for all leases approximate $60,000 for each of
2000 and 2001. Rent expense for 1998 and 1999 was $57,000 and $60,000,
respectively.



                                      F-12
<PAGE>

Note 12  Commitments and Contingencies

In April 1998, the Company settled litigation initiated in a lawsuit filed in
the Supreme Court of British Columbia, Canada against the Company in 1997 by the
former stockholder of hip Communications pertaining to the Company's 1996
acquisition of that company. Pursuant to terms of the settlement agreement, the
Company paid approximately $40,000 and received 30,000 shares of DDN common
stock. The estimated value of stock received has been recorded as Treasury stock
based upon prevailing market prices around the settlement agreement date.
Settlement net costs are included in financing, legal and administrative costs
in the accompanying statement of operations. In 1999, an action in damages for
breach of settlement agreement was commenced against the Company. As part of
that settlement agreement, the Company was required to transfer the "hip.com"
domain name to the former shareholder. The Company has not transferred the
domain name and no longer has registration rights to such domain name. The
Company is attempting to reacquire the hip.com domain name, but to date has not
been successful. Due to the early stage of this litigation and, as no amounts
were named, the Company is unable to determine the consequences, monetary or
otherwise, which might result from the outcome of this uncertainty.

In 1997, the Company entered into a letter of intent with Advanced Communication
and Information Services ("ACIS") to acquire all of the capital stock of ACIS in
exchange for DDN common shares. Pursuant to the letter of intent, the Company
forwarded ACIS approximately $1.05 million cash under terms of promissory notes.
Subsequently, ACIS issued to the Company 1,000,000 shares of ACIS common stock
and withdrew from the letter of intent. ACIS defaulted on repayment of amounts
owed, and in April 1998, the Company received a judgment from the King County
Superior Court in the State of Washington against ACIS in the principal amount
of $1.35 million. Collection efforts with respect to this judgment have not
resulted in any recovery, nonetheless, the Company continues to monitor various
collection actions. There can be no assurance that the Company will recover any,
all, or part of this judgment. The entire amount of the receivable was reserved
during 1997.

The Company has a contract to provide services with the Dallas Area Rapid
Transit authority ("DART") that includes a provision for a 4% royalty payable to
DART on certain gross advertising receipts. The agreement expires in October
2001.

In January 1999, the Company was named as one of approximately 150 defendants in
a lawsuit brought before the United States Bankruptcy Court for the Northern
District of Texas Dallas Division by the Chapter 7 Trustee for the estate of
Dally Advertising, Inc. ("Dally"). Through this action, the Trustee seeks to
avoid as preferences and to recover certain payments made by Dally within 90
days of the January 1997 filing of its bankruptcy petition. Dally was one of the
Dallas Transit Network customers. The Complaint to Recover seeks $28,656 of
payments allegedly made to the Company. The Company has responded to the Court
regarding this matter, among other things, denying the allegations of
preferential transfer, asserting its own affirmative defenses, and requesting
the Court to deny the relief requested by the Plaintiff, and has discussed
settlement arrangements with the Plaintiff.

The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. Company management currently believes that
resolution of the Dally matter referred to above and other various legal
proceedings will not have a material adverse impact on the Company's financial
position, results of operations or cash flows.

Note 13  Segment, Geographic and Significant Customer Information

Until September 1998, the Company operated in two business segments, transit
networks and Internet services, which also corresponded to regional segments of
the United States (principally Dallas) and Canada (principally Vancouver). There
were no significant transactions between the two segments, and the United States
segment includes the corporate office for DDN. As described in Note 4, in
September 1998, the Company disposed of its internet services business. Sales
from internet services were $239,000 in 1998 and depreciation expense was
$20,000.


                                      F-13
<PAGE>

Revenues from major customers exceeding 10% of total revenue for 1999 included
two customers, Dallas County Community College District ("DCCCD") and Aegis
Communications, accounting for approximately 17% and 11% of consolidated
revenues, respectively. During 1998, revenues from major customers exceeding 10%
of total revenue included DCCCD, which accounted for approximately 17% of
consolidated revenues.






                                      F-14