SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1997
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission File Number O-28690

                           HOLLYWOOD PRODUCTIONS, INC.
             (Exact name of registrant as specified in its charter)

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

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

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

             Securities registered pursuant to Section 12(b) of the
                                    Act:
         Title of each class Name of each exchange on which registered
                                    NONE NONE

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

                         Common Stock Purchase Warrants
                                (Title of Class)

     Check whether the Issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such  shorter  period that  registrant  was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes [X] No [ ]

     Check  if no  disclosure  of  delinquent  filers  in  response  Item 405 of
Regulation  S-B is not  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-K
or any amendment to this Form 10-K [ ].

     The Registrant=s  revenues for its fiscal year ended December 31, 1997 were
$5,262,240.  The  aggregate  market  value of the voting stock on March 31, 1998
(consisting of Common Stock,  par value $.001 per share) held by  non-affiliates
was approximately $3,138,235, based upon the closing price for such Common Stock
on said date ($2.94),  as reported by a market maker.  On such date,  there were
2,336,944 shares of Registrant's Common Stock outstanding.



<PAGE>
PART I


ITEM 1.           DESCRIPTION OF BUSINESS

Business Development

     Hollywood Productions,  Inc. (the "Company"),  a Delaware corporation,  was
organized in December  1995. The Company was formed for the purpose of acquiring
screenplays  and producing  independent  motion  pictures  with budgets  ranging
between $1,000,000 and $3,000,000,  using named talent. The Company acquired all
the capital stock of Breaking  Waves,  Inc., a New York  corporation  ("Breaking
Waves"),  simultaneously  with  the  closing  of the  Company=s  initial  public
offering  in  September  1996.  Unless  the  context  otherwise  requires,   all
references to the "Company" include its wholly owned subsidiary.

     In February 1998, the Company  effected a one for three reverse stock split
of the Company=s common stock, par value $.001 per share,  (the ACommon Stock@).
Accordingly,  unless  otherwise  noted,  all  share  and per  share  information
contained in this annual report reflects retroactive application of this reverse
split.

Initial Public Offering

     In September  1996,  the Company  consummated a public  offering of 800,000
(pre-split)  shares of its Common Stock and 1,600,000  warrants (the AWarrants@)
at  purchase  prices  of $5.00 per  share  and $.25 per  warrant,  respectively,
through Euro-Atlantic Securities, Inc.  ("Euro-Atlantic").  The Company received
net proceeds of $3,813,294 from the offering.

     Included in the  Company=s  registration  statement  referenced  above were
1,400,000  (pre-split)  shares and 2,000,000  Warrants  registered for resale by
European Ventures Corp. (AEVC@),  the majority stockholder of the Company. As of
March 31, 1998, EVC held 1,200,350 (post-split) shares and 2,400 Warrants.

Acquisition of Breaking Waves, Inc.

     Pursuant  to  a  stock  purchase   agreement,   dated  May  31,  1996  (the
"Agreement")  entered into between the Company and the  stockholders of Breaking
Waves,  Inc., a New York  corporation  ("Breaking  Waves"),  the shareholders of
Breaking Waves delivered to the Company all of the issued and outstanding shares
of  Breaking  Waves=  common  stock for  50,000  shares  of Common  Stock in the
Company. The consummation of the acquisition took place  contemporaneously  with
the closing of the Company=s initial public offering.

     Pursuant  to  the  terms  of the  Agreement,  on the  closing  date  of the
acquisition, Breaking Waves performed a recapitalization and exchanged of all of
its common stock for new common stock and for a series of Preferred Stock,  (the
ASeries A Preferred  Stock@).  For each share of Breaking  Wave's  common  stock
exchanged the holder received one share of new common stock and 28 shares of the
Series A Preferred  Stock. In connection  therewith,  Breaking Waves amended its
certificate  of  incorporation  to authorize  5,600  shares of Preferred  Stock,
designated as the Series A Preferred Stock. The shares of the Series A Preferred
Stock  have the  right to  redemption.  On each of  January  1,  1997 and  1998,
Breaking  Waves  redeemed  one half of the  outstanding  shares of the  Series A
Preferred  Stock,  at a  redemption  price of $100.00  per  share.  The Series A
Preferred  Stock had no dividend,  conversion or voting rights,  but shall had a
preference on liquidation equal to $100 per share.

     Pursuant to the terms of the Agreement,  the Company  replaced the personal
guarantees of the prior  stockholders  of Breaking  Waves issued to  NationsBanc
Commercial Corp. (ANationsBanc@),  in accordance with the Company's then line of
credit.  The Company  replaced the guarantees  with letters of credit secured by
bank deposits.  The Company contributed  $100,000 of the proceeds to the capital
of Breaking Waves and simultaneously therewith, Breaking Waves repaid loans made
by Daniel Stone and Susan Stone in the aggregate amount of $100,000. Immediately
preceding the consummation of the Acquisition, Breaking Waves distributed to its
stockholders  an amount equal to 45% of the net income  before taxes of Breaking

<PAGE>
Waves for the period from January 1, 1996 to the closing date.  This was done in
order  to pay  taxes  owed by  such  stockholders,  since  Breaking  Waves  is a
subchapter S corporation.

Film Business

General

     The Company anticipates that in general it will seek to acquire screenplays
and  produce  motion  pictures,  which  have  budgets  in the  range of  between
$1,000,000  and  $3,000,000.  The Company may invest in the production of motion
pictures where it does not receive total ownership of either the screenplay, the
motion picture,  or certain  ancillary rights thereto.  The Company acquired the
rights to the screenplay "Dirty Laundry" (the AMotion Picture@), and formed D.L.
Productions  Inc.  (AD.L.  Productions  ), as its  production arm to produce the
Motion Picture. The Company retains all distribution and ancillary rights to the
screenplay and the Motion Picture.

Production of Motion Pictures

     The Company has been actively soliciting and reviewing  screenplays for the
production of motion  pictures.  The Company shall attempt to acquire the rights
to  screenplays  for the  production of motion  pictures,  which it  anticipates
either  producing or  co-producing.  After the screenplay is acquired;  a budget
will be prepared; revisions to the screenplay made; the talent, production crews
and all ancillary items required for the filming of the motion picture obtained;
and a filming scheduled set. Once the filming of the motion picture is complete,
the film will be edited,  sound and  special  effects  added,  and a final print
produced. Upon completion,  the Company will arrange for private showings of the
film, as well as other  arrangements for the purpose of finding both foreign and
domestic distribution for the film.

     The Company  estimates that the production of each motion picture will take
between 5 and 8 weeks to film, with an additional 14 weeks to edit and add sound
and special effects.  Upon completion of the print the Company estimates that it
will take between 8 and 12 weeks to obtain a distributor for the film, if one is
obtained and between 8 to 24 weeks  thereafter until the film is released to the
theaters or other distribution channels.

Distribution Methods; Billings

     Distribution of a film may be performed either by one of the motion picture
studios, an independent distributor,  or by the Company itself through an agent.
The distributors or agent, in the event the Company  self-distributes its films,
have agreements with the theaters to provide the theaters with films to show the
public.  Most theaters have multiple screens and can show multiple movies at the
same time.  There is continuously a demand for new films. In negotiating  with a
distributor to sign on to a project,  the Company and the distributor  determine
who will incur what  portion of the costs of  marketing a film,  at which time a
budget is prepared and the extent of the release of the film is determined.  For
most high budget, top name talent pictures,  there is a wide release of the film
typically between 1,500 to 2,500 theaters nationwide. For films that the Company
anticipates  producing,  including  Dirty  Laundry,  the  release may be done in
platforming  stages.  Initially the film will be released at several theaters in
one or two major  markets,  where  advertising  and  marketing  will be done.  A
screening  will be held and  critics  invited to the film in  anticipation  of a
review. If the film receives a favorable response from either the critics and/or
the audience,  the film's  distribution  will expand gradually into additionally
markets and theaters.
<PAGE>
     The Company  anticipates that the films it produces will be distributed and
shown at movie theaters. Once a film has been distributed throughout theaters in
the United States,  it may be distributed  in markets  throughout the world.  In
addition, the film may be further distributed through cable television including
pay-per-view,  premium channels and standard channels,  public  television,  and
through the sale and/or  rental of  videotapes.  There are many  avenues for the
distribution of a film and the exploitation of all ancillary rights thereto. The
Company may enter into  agreements  with  different  distributors  for different
markets  or sell all the  rights  to one  distributor.  Revenues  generated  are
distributed to all parties involved,  including the distributor,  the producers,
the owners,  and the talent  pursuant to extensive  formulas  previously  agreed
upon.

     Distribution  rights to motion pictures are granted legal  protection under
the  copyright  laws of the United  States  and most  foreign  countries,  which
provide  substantial civil and criminal  sanctions for unauthorized  duplication
and exhibition of motion pictures. The Company plans to take all appropriate and
reasonable measures to secure,  protect,  and maintain or obtain agreements from
licenses to secure,  protect,  and maintain copyright  protection for all of the
motion  pictures  distributed  by the Company  under the laws of all  applicable
jurisdictions.

     The  Company  estimates  that  between  36 weeks and 58 weeks  will  elapse
between the  commencement of expenditures by the Company in the acquisition of a
screenplay,  the production of a motion  picture,  and the release of such film.
Additionally,  it is  anticipated  that no revenues  will be  received  from the
exploitation  of such film for an  additional  period of between 24 and 36 weeks
after  release.  Billing  in the  industry  is done  quarterly,  therefore,  the
theaters pay the  distributors on a quarterly basis and then the Company is paid
the following quarter. However, in the event a distributor desires to distribute
one of the Company's films, such distributor may either offer an initial payment
to the Company  against or in addition to future  royalties or purchase the film
outright.

Production of "Dirty Laundry" Film

     In March 1995, the Company  entered into a property  acquisition  agreement
(the  "Purchase  Agreement")  and a  co-production  agreement  (the  "Production
Agreement") with Rogue Features,  Inc., an unaffiliated  entity,  to acquire the
rights to and  co-produce a motion  picture of the  screenplay  entitled  "Dirty
Laundry".  In April  1996,  the  Company  formed  D.L.  Productions,  a New York
corporation,  as a wholly owned  subsidiary,  for the purpose of  producing  and
arranging for the  distribution  of Dirty  Laundry.  In addition the Company and
Rogue  entered into a right of first refusal  agreement  with respect to the two
next products of Rogue and/or its principals.

     The Purchase Agreement conveyed all rights to the screenplay and the Motion
Picture to  Hollywood  Production,  Inc. In return,  Rogue  directed  the Motion
Picture  and has the  right  to 25% of the  profits  of the  Motion  Picture  as
described in the co-production agreement.  Rogue retained the right to produce a
live comedy or musical after five years of the Motion Picture's  release or upon
the earlier approval of the Company.  In addition,  Michael Normand, a principal
of Rogue, retained the right to produce a novel of the Motion Picture as long as
the Company agrees to its compensation. The co-production agreement provided for
the principals of Rogue to direct and retain creative  control of the production
of the film, with the Company retaining final approval.

     Pursuant to the terms of the Purchase  Agreement and Production  Agreement,
the Company  financed all but $100,000,  which was invested by the  co-producer,
for the production of the Motion Picture. Pursuant to such agreements as well as
the terms of the participation agreements entered into with the two stars of the
Motion  Picture,  each of Jay  Thomas  and Tess  Harper  shall have the right to
receive $50,000 against a 5% participation  fee from the first revenues received
by the Company.  This $100,000 will be paid out of the first  proceeds  received
from the  distribution  of the Motion  Picture by the Company.  Thereafter,  the
Company and the co-producer shall have the right to all subsequent revenues, pro
rata, until their initial investment is repaid.
<PAGE>
     The next  proceeds  received by the Company  after the talent had been paid
$50,000 each and the  co-producers  have each received  their  investment  back,
shall be distributed as follows; (i) 5% of revenues to each of the stars up to a
maximum  of  $250,000,  at  which  time  their  distribution   decreases  to  2%
thereafter; (ii) the Company and the co-producer shall each receive 25% and 35%,
respectively, of each parties investment, from revenues generated, as payment of
an investment  premium for their financing of the Motion Picture;  and (iii) all
revenues above (i) and (ii) shall be first used to repay any distribution  costs
incurred and then distributed 2% to each of the two stars, with the remainder to
the Company and the co-producer at the rate of 75% and 25%, respectively.

     The  filming  of the  Motion  Picture  commenced  in  April  1996  and took
approximately  five weeks to complete.  After  completion  of the filming of the
Motion  Picture the Company  undertook  the  process of editing,  adding  sound,
special effects,  and music,  which took an additional 20 weeks. Upon completion
of the Motion  Picture,  the Company  conducted  private  showings of the Motion
Picture in order to obtain both a foreign and domestic distributor for the film.

     In November 1997,  with the production of the movie  complete,  the Company
effected the  dissolution of D.L.  Productions.  The assets of D.L.  Productions
were transferred to the Company,  and the Company took over the marketing of the
Motion Picture.

     After having viewed the Motion Picture in the private  showings  offered by
the Company,  several entities have expressed an interest in obtaining  domestic
distribution rights in the Motion Picture.  The Company is currently involved in
negotiations with these entities.  However, the Company has not entered into any
agreements or arrangements. The Company is also considering self-distribution of
the Motion Picture in the domestic market.  In April 1997, the Company=s foreign
sales agent,  Trident  Releasing,  Inc.,  entered into a license  agreement with
TaurusFilm GmbH & Co. for the German language version of the Motion Picture.
Gross receipts from this agreement were $150,000.

     The  Motion  Picture is a  romantic  comedy  which was shot in the New York
tri-state  area,  stars Jay Thomas as Joey Green,  a dry cleaner going through a
mid-life  crises and Tess Harper as his wife,  Beth,  of 15 years,  who is a sex
advice columnist for a woman's magazine. Mr. Thomas has most recently co-starred
in the motion picture "Mr.  Holland's  Opus" is known for his television work in
"Love & War",  "Cheers",  "Murphy Brown" and "Mork & Mindy". Ms. Harper earned a
Golden Globe  nomination for her performance in the film "Tender Mercies" and an
Oscar nomination for her role in the film "Crimes of the Heart". Joey owns a dry
cleaning  business,  which is doing  poorly  and is  convinced  that he is aging
prematurely.  Do to their lack of intimacy,  Beth tells Joey to seek counseling,
which he does  unbeknownst  to Beth,  who  herself has become  attracted  to her
chiropractor.  Throughout  the  Motion  Picture  there are a variety  of bizarre
mishaps, which occur, causing the couple to go from separation to back in love.

Option to purchase "Cyclone" Film

     In June 1997, the Company entered into an option  agreement to purchase the
screenplay  "Cyclone"  written by Frank Tumminia.  Cyclone is a stylized mystery
involving  the Russian  crime  syndicate and the theft and sale of human organs,
set in Brooklyn and Long Island.  The Company has engaged John Andrew  Gallagher
to collaborate  with Mr. Tumminia on a re-write of the screenplay.  In addition,
the Company has contacted film director Armand Mastroianni.  Mr. Mastroianni who
has orally agreed to direct Cyclone,  subject to his  availability,  and to seek
named talent for the film. The option to purchase the screenplay expires in June
1998.

Regulations

     The Code and Ratings  Administration  of the Motion Picture  Association of
America,   an  industry  trade   association,   assigns  ratings  for  age-group
suitability for viewing of motion pictures. The Company will follow the practice
of submitting most of its motion pictures for such ratings. However, the Company
may review this policy from time to time.
<PAGE>
     United  Stated  television  stations  and  networks,  as  well  as  foreign
governments,  impose  restrictions  on the content of motion  pictures which may
restrict  in  whole  or in part  exhibition  on  television  or in a  particular
territory.  There can be no assurance  that current and future  restrictions  on
motion  pictures  released by the Company will not limit or affect the Company's
ability to exhibit such motion pictures.

Competition in the Film Industry.

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

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


<PAGE>
Swimwear Business

General

     The Company is a designer,  manufacturer and distributor of girl=s swimwear
sold  throughout  the United States.  In addition to swimwear,  the Company also
makes beach cover ups and accessories to coordinate with its swimwear.  Swimwear
is made in  children's  sizes from 2-16 and  pre-teen  sizes.  Beginning in July
1998,  the  Company  will begin  selling  boy=s and men=s  swimwear,  wet suits,
cover-ups, and jackets, under its newly licensed AJet Ski@ line.

     The Company  markets  swimwear  under its private brand  labels,  including
"Breaking  Waves," "All Waves,"  "Making  Waves," and "Small  Waves".  Under its
license agreement with Beach Patrol, Inc. (ABeach@),  markets and manufactures a
line of swimwear under the name "Daffy  Waterwear."  Under its license agreement
with Kawasaki Motors Corp.,  USA  (AKawasaki@),  the company is  manufacturing a
line of swimwear for initial release in July 1998 under the name "Jet Ski@. With
the AJet Ski@  line,  the  Company  will be  expanding  into the  production  of
swimwear for boys and men.

Products and Design

     Through the Company=s wholly owned subsidiary,  Breaking Waves, the Company
designs,  manufactures,  and  sells  both  private-label  and name  brand  girls
swimwear and  accessories.  The designs are sent to a clothing  manufacturer  in
Korea for prototyping, and the knitting and printing of fabrics, thereafter they
are sent to Indonesia  for sewing.  Finished  goods are then shipped to a public
warehouse in the City of Industry,  California.  The Company has found that this
process is the most cost-effective means of operating its business.  The Company
anticipates  continuing its operations in this manner in the future,  though the
Company may use other  manufacturers  and  suppliers  in the future in different
countries.

     The Company has an office in Miami,  Florida  where it designs its swimwear
lines and accessory  items.  Prints and styles are developed for each line. Each
season  approximately  20-25 prints and fabrics are  developed for the "Breaking
Waves"  line,  and 15-18  prints and fabrics are  developed  for the "All Waves"
line, which lines comprised  approximately 33% and 17% of the Company volume for
the year ended  December 31, 1997.  The Company has a licensing  agreement  with
Beach which gives  Breaking Waves access to the complete  "Daffy"  woman's line,
which line comprised approximately 33% of the Company's sales for the year ended
December 31, 1997. The Company select prints and styles from this line that they
feel are appropriate for the children=s  market and produces such line under its
"Daffy's  Waterwear"  label.  Anywhere  from 12-16 prints and styles are usually
marketed under the Daffy Waterwear  label. The Company is under no obligation to
adapt all or any of the prints and styles used in the "Daffy"  woman=s  line. Of
each fabric or prints chosen, the Company usually manufacturers two swimsuits, a
one-piece model and a two-piece model.

     The Company produces  swimwear in basically two blended  fabrics,  one is a
blend of nylon  and  lycra  spandex  ("NL"),  and the  other a blend of  cotton,
polyester  and lycra  spandex  ("CPL").  Each product line  manufactured  by the
Company uses different designs and emphasizes different fabric blends.

Supplies and Inventory

     The swimwear  designs are sent to a manufacturer  in Korea where  prototype
samples of the designs and prints are delivered to the Company for approval. The
Company  typically  approves between 35-50 prints and fabrics for all its lines.
Once the lines are approved,  the  manufacturer  in Korea knits and the fabrics.
The fabrics are then sent to a company in  Indonesia  for sewing.  Approximately
95% and 19% of its piece goods are  purchased  from one  manufacturer  in Korea,
Zone Company,  Ltd., and approximately 95% and 71% of the sewing is performed by
one Company in Indonesia,  P.T. Kizone International,  Inc., for the years ended
December 31, 1996 and 1997,  respectively.  Although the  management of Breaking
Waves is of the opinion that the fabrics and  non-fabric  sub-materials  it uses
are readily  available and that there are numerous  manufactures  for such piece
goods on similar terms and prices, there can be no assurances that management is
correct in such belief.  The  unavailability of fabrics or the sewing thereof at
current prices could adversely affect the operations of the Company.
<PAGE>
     Since the Company purchases finished garments from overseas contractors, it
doesn't buy or maintain an inventory of any  sub-materials.  The Company has not
experienced difficulty in satisfying finished garment requirements and considers
its sources of supply  adequate.  The  Company's  inventory  of garments  varies
depending upon its backlog of purchase orders and its financial position.

Financing Arrangements

     On April 4,  1991,  Breaking  Waves  entered  into an  accounts  receivable
financing  agreement with  NationsBanc to sell their interest in all present and
future receivables  without recourse.  Breaking Waves submitted all sales orders
to NationsBanc for credit approval prior to shipment,  and paid NationsBanc .75%
of the gross  amount  of the  receivables.  NationsBanc  retained  from  amounts
payable to Breaking  Waves a reserve for possible  obligations  such as customer
disputes and possible  credit losses on unapproved  receivables.  Breaking Waves
took  advances  of up to 85% of the  purchase  price  on the  receivables,  with
interest  charged at the rate of 1 3/4% over  prime.  Interest  expense  charges
totaled  approximately  $67,173 from September 24, 1996,  date of acquisition to
December  31,  1996.  For the year ended  December  31,  1997  interest  expense
amounted to $156,785.  In August 1997 the Company  terminated its financing with
Nationsbanc  and  entered  into a Factoring  and  Revolving  Inventory  Loan and
Security Agreement with Heller Financial, Inc. (AHeller@).

     Heller  has  agreed  to  (i)  purchase  all  of  Breaking   Waves  accounts
receivables;  (ii) provide  advances  against such accounts  receivables;  (iii)
provide a  revolving  loan;  and (iv)  guaranty  letters  of credit in excess of
$1,500,000 as well as provide certain other services. The Company is a guarantor
of the obligations of Breaking Waves to Heller.  The Company  maintains a letter
of credit with a financial  institution  in support of and as a condition of its
factoring agreement.  The financial institution requires the Company to maintain
$1,500,000 on deposit as collateral  for such letter of credit.  Breaking  Waves
may  take  advances  of up to 85% of the  purchase  price of  eligible  accounts
receivable.  At the time Heller purchases each  receivable,  it charges Breaking
Waves a factoring commission of 1%, but in no event less than $3.00 per invoice.
In addition to advances, Heller will make revolving loans to Breaking Waves upon
Breaking Waves= request, up to 50% of eligible inventory.

     Breaking Waves will pay Heller interest on the daily balance of outstanding
advances and revolving loans at the Base Rate. ABase Rate@ means a variable rate
of interest per annum equal to the higher of (a) the rate of interest  from time
to time published by the Board of Governors of the Federal Reserve System as the
ABank  Prime  Loan@  rate in  Federal  Reserve  Statistical  Release  H.15 (519)
entitled ASelected  Interest Rates@ or any successor  publication of the Federal
Reserve System reporting the Bank Prime Loan rate or its equivalent,  or (b) the
Federal Funds effective rate. The interest expense totaled approximately $67,611
from August 1997 to December 31, 1997.

Marketing and Sales

     The "Daffy" label is sold to department and specialty stores. The "Breaking
Waves" label is also distributed through better department and specialty stores.
The "All Waves" label is sold to mass merchants and also as promotional goods in
department  stores.  Private label programs are supplied to several major chains
and department store groups. For the year ended December 31, 1997, the "Breaking
Waves" label accounted from  approximately 33% of the Company's volume, the "All
Waves" label 17%, the "Daffy" label 33%, and private labels 17%.

     The Company  sells its swimwear and  accessory  items  through its showroom
sales  staff  and  through  independent  sales  representatives.  The  Company's
customers include the Dillard and Federated  department store groups, as well as
Kids R Us,  Sears,  Wal-Mart,  T.J.  Maxx and  Marshalls.  For the  years  ended
December 31, 1997 and 1996,  Breaking Waves has two customers which comprise 36%
and  12%,  and 16% and 12% of net  sales,  respectively.  Some of the  Company's
customers,  including  large  retail  department  store  chains,  have  recently
experienced financial  difficulties and some have filed for protection under the
federal  bankruptcy laws. The Company is unable to predict what effect,  if any,
the financial  difficulties  encountered by such  retailers and other  customers
will have on the Company's future business.
<PAGE>
     The  Company  does  not  have  any  written  or oral  agreements  with  its
customers.  All orders are shipped  pursuant to purchase  orders received by the
Company.  Shipments  are sent  F.O.B.  (freight  on board,  which means that the
Company is not  responsible  for the goods  during  shipment or for the delivery
charge)  and  payment  is due 30  days  thereafter.  No  goods  are  shipped  on
consignment,  therefore,  except for  non-conforming or damaged goods, all goods
shipped are considered sold.

     In addition to its  in-house  sales and showroom  personnel,  approximately
twenty independent sales  representatives  throughout the United States sell the
Company=s lines.  These  representatives  service  department stores and smaller
specialty  retailers.  Separate  independent  representatives  sell  the  ADaffy
Waterwear@  line.  None of  these  representatives  are  under  contract  to the
Company,  nor do they  receive  a  salary  from  the  Company.  They  are paid a
commission  based upon their  sales.  In addition  to  showroom  sales and sales
representatives calling on customers, the Company exhibits its products at major
trade shows.  End of season and  discontinued  merchandise  is sold to off-price
stores.

Work in Progress

     The Company  manufactures  its lines  during the months of June to December
based  on the  Company's  knowledge  of the  market  and past  sales  histories.
Customer  orders  start  arriving  in June and  July.  Goods  are  reordered  by
customers on a continual  basis through the following June. The quantity of open
purchase  orders at any date may be affected by, among other things,  the timing
and recording of orders.  The Company does not sell on consignment  and does not
accept return of products other than imperfect goods or goods shipped in error.

     The  major  design  work  takes  place  from  January  to  May.  Goods  are
manufactured, printed and sewn overseas from June to December. Finished garments
are shipped from the factory to a public  warehouse in Los Angeles for shipments
to retailers. The majority of shipments to retailers occur from November to May,
with January through March being the peak shipping time.

Trademarks and Licensing; New Product Line

     The Company  relies on common law  trademarks  for use of its private label
swimwear lines. In addition,  the Company has entered into a licensing agreement
with Beach to use the trademark  "Daffy's  Waterwear." Beach supplies prints and
designs used under this agreement for the Daffy's woman=s line.  Pursuant to the
licensing  agreement  the  Company  has the  right to use  those  designs  for a
children=s  line  under the  Daffy's  Waterwear  label.  The  license  agreement
commenced January 1, 1996 is for an initial period of 30 months,  broken up into
an initial six month period with two  additional 12 month  periods.  the last of
which expires on June 30, 1998. In addition, the Company has the right to extend
the agreement for three  additional one year periods,  the last of which expires
on June 30, 2001.  The Company shall pay to Beach the greater of 5% of net sales
or the minimum  trademark  royalty fee. The minimum fee is $75,000 for the first
six month term and  increases  each year to  $200,000;  in the event the Company
exercises all extensions.

     The Company has also entered into a licensing  agreement  with  Kawasaki to
use the trademark "Jet Ski" for a line of girl=s, boy=s and men=s swimwear. AJet
Ski@ is the brand name used for all of Kawasaki=s personal watercraft though out
the world.  The  license  agreement  commenced  July 1, 1997 and shall  continue
through  May 31,  1999.  In  addition,  the  Company has the right to extend the
agreement for an additional  one year period.  Under the terms of the agreement,
the  Company  shall pay to  Kawasaki 5% of the net sales price of the goods sold
under this line.
<PAGE>
     The Company has registered  trademarks  for ABreaking  Waves,@ AAll Waves,@
and ASmall  Waves.@  There can be no  assurance  that such  trademarks  or marks
licensed by the Company will be  adequately  protect  against  infringement.  In
addition,  there can be no  assurance  that the Company  will not be found to be
infringing  on  another  company's  trademark.  In the event the  Company  finds
another party infringing upon one of its trademarks,  if registered, or is found
by another company to be infringing upon such company's trademark,  there can be
no assurances  that the Company will have the  financial  means to litigate such
matters.

     On October  31,1996,  Breaking Waves entered into a license  agreement with
North-South  Books,  Inc. for the  exclusive use of certain art work and text in
the making of swimsuits and  accessories  in the United  States and Canada.  The
agreement  expires  March 1, 1999.  The Company  recorded $0 and $355  royalties
under  this  agreement  during  the  years  ended  December  31,  1996 and 1997,
respectively.

Competition

     There is intense  competition in the swimwear apparel industry in which the
Company  participates.  The Company  competes with many other  manufacturers  in
these  markets,  many of which are larger and have  greater  resources  than the
company.  Major  competitors in the swimwear  industry  include "Ocean Pacific,"
"Gottex,"  and  "Speedo."  Also  department  store and  retailer  have their own
private label  programs,  which are the major  competition  in the mass merchant
business.

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

     The Company recent expansion into the boy=s and men=s swimwear  industries,
through their AJet Ski@ line,  represents an entry into a sector of the swimwear
industry in which the Company has not previously  entered.  The Company believes
that the men=s swimwear industry is similar to the girl=s and women=s industries
in many respects,  however,  there may be  significant  differences of which the
Company is not aware.  Although the Company plans on hiring sales personnel with
experience in selling men=s  swimwear and products which relate to water sports,
there can be no assurance  that the Company will be  successful in entering this
new product sector.  Additionally,  the Company=s use of a nationally recognized
tradename  like AJet Ski@  represents an entry into a new type of marketing with
which the Company has no  experience  and which may  produce  unforeseen  risks.
There are many major brands that now sell  products that relate to water sports,
such as ANike,@ AQuicksilver,@ AAddidas,@ ABody Glove,@ and APol Sport.@ Most of
these  manufacturers  are well  established  with the customers  targeted by the
Company for its AJet Ski@ line,  such as sporting good stores,  surf shops,  and
outlets which sell AJet Ski@ watercrafts.

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

     The Company  believes that its business may be  considered  seasonal with a
large  portion of its revenues and profits being  derived  between  December and
June for shipments  being made between  November and May. Each year from January
to November the Company  engages in the process of designing  and  manufacturing
the following  season=s swimwear lines. There can be no assurances that revenues
received during  December to June will support the Company's  operations for the
rest of the year.
<PAGE>
Employees

     Hollywood  Productions,  Inc.  has two  executive  officers who oversee its
operations  and thato of its  subsidiary,  one  administrative  assistant and no
other  employees.  Most  screenwriters,   performers,  directors  and  technical
personnel  who will be  involved  in the films are  members of guilds or unions,
which bargain collectively with producers on an industry-wide basis from time to
time. Any work stoppages or other labor  difficulties could delay the production
of the films,  resulting in  increased  production  costs and delayed  return of
investments.   Breaking  Waves  has  three  executive  officers,  including  two
vice-presidents  in charge of design,  merchandising,  marketing,  and sales, as
well as one  administrative  assistant.  Breaking  Waves  has  approximately  20
independent road sales people and accounting and clerical staff.

Business Risks

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

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

     The apparel  industry is a cyclical  industry,  with consumer  purchases of
swimwear,   accessory  items,  and  related  goods  tending  to  decline  during
recessionary  periods when disposable  income is low.  Accordingly,  a prolonged
recession  would in all  likelihood  have an adverse effect on the operations of
the Company. Some of the Company's customers,  including large retail department
store chains,  have recently  experienced  financial  difficulties and some have
filed for  protection  under  Chapter XI of the  federal  bankruptcy  laws.  The
Company is unable to predict what effect,  if any,  the  financial  difficulties
encountered  by such  retailers and other  customers  will have on the Company's
future business.  Additionally,  the Company operates in only one segment of the
apparel industry, specifically swimwear and is therefore dependent on the demand
for such  goods.  Decreases  in the demand for  swimwear  products  would have a
material adverse affect on the Company's business.

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


<PAGE>
ITEM 2.               DESCRIPTION OF PROPERTY

     The Company's  executive offices are located at 14 East 60th Street,  Suite
402, New York, New York 10022, (212) 688-9223.  The Company entered into a Lease
Agreement for approximately 1,800 square feet. The lease term is for a period of
five years with an option by the Company to terminate after three years,  with a
current annual rental payment of approximately  $68,000.  Breaking Waves has its
executive  offices and showroom  located at 112 West 34th Street,  New York, New
York,  which  combined was  approximately  1,000 square feet.  In January  1998,
Breaking  Waves  expanded its lease at this address to encompass an aggregate of
2,000 square feet.  The extra square footage is being used as a new showroom for
the AJet Ski@ line.  The lease is for a term of seven years until  December 2004
at a current  annual  rental  payment of  $71,600.  Breaking  Waves has a design
office in Miami,  Florida  located  at 8410 N.W.  53rd  Terrace,  where it rents
approximately 778 square feet at an annual fee of $9,336.


ITEM 3.               LEGAL PROCEEDINGS

     The Company is not a party to any material  litigation  and is not aware of
any  threatened  litigation  that would have a  material  adverse  effect on its
business.


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

     On January 28,  1998,  the Company held a special  meeting  during which it
proposed to elect four  Directors to the Board and to authorize a reverse  split
of the  Company's  outstanding  shares of Common  Stock on a 1 for 3 basis.  The
reverse split proposal was adopted,  and the following were elected Directors of
the Board for a term of one year: Harold Rashbaum,  Robert DiMilia,  Alain A. Le
Guillou, and James Frakes.

     The results of the proposal to elect four (4)  Directors  to the  Company's
Board  of  Directors  to hold  office  for a period  of one year or until  their
successors are duly elected and qualified are as follows:
<TABLE>
<CAPTION>


                                                              Votes Cast
                                                              For                                   Abstentions

<S>                                                           <C>                                   <C>
         Harold Rashbaum                                      5,762,907                             500
         Robert DiMilia                                       5,762,907                             500
         Alain A. Le Guillou                                  5,762,907                             500
         James B. Frakes                                      5,762,907                             500
</TABLE>

                                       4


<PAGE>
     The results of the proposal to authorize a reverse  split of the  Company's
outstanding shares of Common Stock on a 1 for 3 basis, are as follows:
<TABLE>
<CAPTION>


                           Votes Cast                 Votes Cast
                           For                        Against                      Abstentions

                           <S>                        <C>                          <C>                                     <C>
                           5,762,907                  500                          0
</TABLE>
<PAGE>
PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information.

     The Company's  Common Stock is quoted on the SmallCap  Market of the Nasdaq
Stock Market.  The following table sets forth  representative  high and low sale
prices  as  reported  by a market  maker  for the  Company's  Common  Stock  and
Warrants, during the period from September 23, 1996 through March 18, 1998. Sale
prices reflect prices between dealers, do not include resale mark-ups, markdowns
or other fees or commissions. <TABLE> <CAPTION>

                                       Common Stock                                     Warrants
Calendar Period                             Low               High              Low         High

<S>                                         <C>               <C>               <C>         <C>
09/23/96 - 12/31/96                         6                 11 3/8            3 1/4       6 3/4
01/01/97 - 03/31/97                         3 1/4             8 1/8             1           5 1/2
04/01/97 - 06/30/97                         1 1/16            5                   1/8       1 1/2
07/01/97 - 09/30/97                         1                 1 7/8               3/8       1 1/16
10/01/97 - 12/31/97                            5/16           1 7/8               1/8         5/8
01/01/98 - 03/31/98 (1)                        7/32           3 3/16              1/32        7/32
----------------
</TABLE>

     The above prices reflect the price per pre-split shares through February 4,
1998.  The  Company=s  one for three  reverse  stock split  became  effective on
February  5,  1998,  and  accordingly  the above  table  reflects  the price for
post-split shares commencing on that date.

     Each  Warrant  entitled  the holders  thereof to purchase  one share of the
Company's Common Stock at an exercise price of $6.50 per share,  until September
9, 2001.  On June 23, 1997,  the Board of Directors  approved a reduction in the
exercise  price of the Warrants  from $6.50 to $3.00.  On February 5, 1998,  the
Company  effected a one for three reverse  split of the Company=s  Common Stock.
Accordingly,  the  Company  adjusted  the terms of the  Warrants  to reflect the
reverse  split.  The new terms  provided that three  Warrants  would entitle the
holder to purchase one share of Common Stock at the exercise price of $9.00.

     As of March 31,  1998 the  number of post  reverse  split  shares of Common
Stock outstanding of the Company was 2,336,944.

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

     The Company has paid no dividends and has no present plan to pay dividends.
Payment of future dividends will be determined from time to time by its board of
directors, based upon its future earnings, if any, financial condition,  capital
requirements,  and other  factors.  The Company is not presently  subject to any
contractual or similar  restriction on its present or future ability to pay such
dividends.
<PAGE>
ITEM 6.           MANAGEMENT=S DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATIONS

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

     On April 8, 1996, the Company formed a wholly owned  subsidiary  named D.L.
Productions.  D.L.  Productions  was  formed  in the  State  of New York for the
purpose of purchasing and producing the motion picture  ADirty  Laundry@.  As of
December 31, 1997,  the motion  picture  Dirty  Laundry was completed and all of
D.L.  Production=s  assets and  liabilities  were  effectively  merged  into the
Company.  Accordingly,  as of November 30, 1997 D.L.  Productions was dissolved.
The  financial  information,as  well as share  and per share  information,  give
retroactive  effect to a 1 for 3 reverse stock split effectuated during February
1998.

Year ended December 31, 1997 as compared to the year ended December 31, 1996

         The  consolidated  financial  statements  at December 31, 1997 and 1996
include the  accounts of the Company and its wholly owned  subsidiary,  Breaking
Waves,  after  elimination  of all  significant  intercompany  transactions  and
accounts.  Additionally,  purchase  accounting  requires the  elimination of all
operating  transactions  of the acquired  subsidiary  from the  inception of its
fiscal year to the date of acquisition.  Hence,  the  consolidated  statement of
operations and consolidated  statement of cash flows for the year ended December
31, 1996 reflects the  transactions of the subsidiary,  Breaking Waves,  for the
period from September 24, 1996, the  acquisition  date, to December 31, 1996. If
the  operating  transactions  from  January 1, 1996 to  September  24, 1996 were
included in the December 31, 1996  consolidated  statement  of  operations;  the
effect by major components would be as follows: <TABLE> <CAPTION>

                                                                    Increase
<S>                                                                 <C>
Net sales ................................................          $ 3,596,982
Cost and expenses:
     Cost of sales .......................................            2,401,586
     Operating and interest expense ......................            1,221,040

Net Loss .................................................          $   (25,644)
                                                                    ===========
</TABLE>

         For the  year  ended  December  31,  1997,  the  Company=s  subsidiary,
Breaking Waves, generated net sales of $5,262,240 with a cost of sales amounting
to $3,222,478.  From September 24, 1996 (the date the Company acquired  Breaking
Waves) to  December  31,  1996  Breaking  Waves  generated  sales  amounting  to
$1,217,152,  with cost of sales amounting to $667,722.  Breaking Waves generated
operating  profit amounting to $638,851 for the year ended December 31, 1997 and
$294,908  for the period  September  24, 1996 to December  31,  1996.  Operating
profit is total revenue less cost of sales and  operating  expenses and excludes
general  corporate  expenses,  interest  expenses,  and income taxes.  The gross
profit for the year ended  December 31, 1997  amounted to  $2,045,898 or 39%, as
compared to the year ended  December 31, 1996 which amounted to $549,430 or 45%.
Breaking  Wave=s  gross  profit for 1996  represents  only the sales and related
costs from September 24, 1996 (date of  acquisition)  to December 31, 1996. This
period  represents  a portion of Breaking  Waves peak season as far as sales are
concerned and accordingly,  the products are sold at a higher gross profit. When
comparing the full year of 1996 to the full year 1997,  the  difference in gross
profit is an increase of 2% for 1997 over 1996.  Of the total  selling,  general
and administrative expenses during the year ended December 31, 1997 amounting to
$2,193,495,  $1,400,911  were  incurred by Breaking  Waves,  with the  remainder
amounting  to  $792,584,  incurred  by the  Company,  and of the total  selling,
general and  administrative  expenses  during the year ended  December  31, 1996
amounting  to  $668,697,  $246,654  were  incurred by Breaking  Waves,  with the
remainder amounting to $422,043, incurred by the Company. Accordingly,  Breaking
Waves= income  before  income taxes  amounts to $341,148 and $201,  814, for the
years ended December 31, 1997 and 1996, respectively.
<PAGE>
         The  major  components  of the  Company=s  general  and  administrative
expenses  during the year ended December 31, 1997 are composed of the following:
$78,500 of consulting paid to affiliates, $367,216 of officer salaries, $118,056
of officers  salaries  paid in stock,  $352,074 of  payroll,  related  taxes and
benefits,  $188,460 of  warehousing  costs,  $111,000 of royalties,  $151,679 of
rent,  $107,200 of consulting,  $97,099 of legal and professional fees, $186,760
of miscellaneous selling and design expenses,  and $435,451 of other general and
corporate administrative expenses.

         The  major  components  of the  Company=s  general  and  administrative
expenses  during the year ended December 31, 1996 are composed of the following:
$58,750 of consulting expenses paid to an officer of the Company whereby $40,000
was paid in cash with the remainder in 2,500 shares of common stock at $2.50 per
share;  $62,500 of consulting  expenses paid to two officers of the Company paid
in the form of 33,333  shares of common  stock  which vest on June 30,  1997 and
1998; and amortization of organization  costs and acquisition  costs of $25,000.
The  remainder of expenses  amounting to  approximately  $264,774 is composed of
rent  amounting  to  $15,666,  officer's  salaries  and  related  payroll  taxes
amounting to approximately $105,670, legal and professional fees of $85,537, and
other general corporate overhead amounting to $57,901.

         For the years ended  December 31, 1997 and 1996,  the Company  reported
consolidated losses amounting to $423,467 and $221,982, respectively.

Liquidity and Capital Resources

     On  September  24,  1996,  the Company  successfully  completed  its public
offering.  As a result,  the Company sold 800,000 pre-split shares and 1,840,000
Warrants  (pre-split)  of which  240,000  Warrants  were  sold  pursuant  to the
underwriter's  over-allotment  option. The Company yielded total net proceeds of
$3,813,294  after deducting  underwriter  selling  expenses and  non-accountable
expense  allowance.  Simultaneously  with the offering,  the Company charged all
deferred  offering costs incurred to additional  paid-in capital,  which totaled
$996,182.

     At December 31, 1997 and 1996, the Company has a working capital  amounting
to  $2,263,109  and  $4,629,441,  respectively.  The Company  received  $195,000
pursuant to a private  placement  transaction  during  February  1998 by selling
shares of common stock.

     On April 4,  1991,  Breaking  Waves  entered  into an  accounts  receivable
financing  agreement with  NationsBanc to sell their interest in all present and
future  receivables  without recourse.  Interest expense in connection with such
financing  arrangement  amounted to  approximately  $156,785  for the year ended
December  31,  1997.  Effective  on or about  August 20,  1997,  such  financing
agreement was cancelled and replaced with factoring and revolving inventory loan
and  security  agreement  with Heller to sell their  interest in all present and
future receivables without recourse.  Breaking Waves submits all sales offers to
Heller for credit  approval  prior to  shipment,  and pays  Heller 1% of the net
amount of the receivable. Heller retains from amount payable to Breaking Waves a
reserve for possible  obligations such as customer  disputes and possible credit
losses on unapproved  receivable.  Breaking Waves may take advances of up to 85%
of the purchase price on the receivable,  with interest charges at the rate of 1
3/4% over prime.  Interest charged to expense totaled approximately $67,611 from
August 1997 to December 31, 1997.  Heller has a continuing  interest in Breaking
Waves=s  inventory as collateral for the advances.  As of December 31, 1997, the
net  advances to Breaking  Waves from the factors  amounted to  $1,750,894.  The
Company maintains a letter of credit with a financial  institution in support of
and as a  condition  of  its  factoring  agreement.  The  financial  institution
requires the Company to maintain  $1,500,000 on deposit as  collateral  for such
letter of credit.

     On October 16, 1995,  Breaking Waves entered into a license  agreement with
Beach for the exclusive  use of certain  trademarks  in the United  States.  The
agreement  expires June 30, 1998 with  options to extend to June 30,  2001.  The
agreement  calls for minimum  annual  royalties of $75,000 to $200,000  over the
life  of  the  agreement  with  options.  The  Company  recorded  royalties  and
advertising under this agreement  totaling $25,500 and $111,000 during the years
ended December 31, 1996 and 1997, respectively.
<PAGE>
     On October  31,1996,  Breaking Waves entered into a license  agreement with
North-South  Books,  Inc. for the  exclusive use of certain art work and text in
the making of swimsuits and  accessories  in the United  States and Canada.  The
agreement  expires  March 1, 1999.  The Company  recorded $0 and $355  royalties
under  this  agreement  during  the  years  ended  December  31,  1996 and 1997,
respectively.

     On October 17, 1997,  Breaking Waves entered into a license  agreement with
Kawasaki for the exclusive  use of certain  trademarks in the making of swimwear
in the United States. The agreement expires May 31, 1999. No royalties were paid
under the agreement during the year ended December 31, 1997.

     During May,  1996,  the  Company  established  the 1996  Senior  Management
Incentive  Plan  ("Incentive  Plan")  pursuant to which 83,333  shares of common
stock are reserved for issuance.  The Incentive  Plan is designed to serve as an
incentive for retaining  qualified  and  competent key  employees,  officers and
directors of the Company.

     During June 1996,  pursuant to the plan the Company issued 16,667 shares to
each of two  officers  of the  Company,  subject to  vesting,  all of which have
vested.  Such shares were valued at 50% of the IPO price of $2.50.  Accordingly,
the Company recorded  deferred  compensation  expense in the amount of $250,000,
which expense is being amortized as the shares vest. During January 1997, one of
the  officers  resigned,  and as a result,  8,333 shares were  cancelled.  As of
December  31,  1996  and  1997,  $62,500  and  $93,750,  respectively,  has been
amortized as a compensation expense.

     In March 1997,  pursuant  to the plan,  the  Company  granted an  aggregate
50,000  options to two  officers  of the  Company:  each  option  was  initially
exercisable  at $5.125 per share  which were  subsequently  amended to $2.93 per
share.  The  exercise  price  equaled the market  value at the grant date and no
additional compensation was recorded.

     Pursuant to co-production and property purchase  agreements dated March 15,
1996,  as  amended,  the  Company,  through  is wholly  owned  subsidiary,  D.L.
Productions,  acquired the rights to co-produce a motion  picture and has agreed
to finance the costs of production and  distribution of such motion picture with
the  co-producer  agreeing to finance  $100,000 of the costs of production.  The
Company  retains  all  rights to the motion  picture,  the  screenplay,  and all
ancillary rights attached  thereto.  As of December 31, 1997, the motion picture
was completed and the Company has begun the marketing and distribution  process.
Subsequent  to year end, the motion  pictures  was  licensed to certain  foreign
countries for $205,000. As of December 31, 1996 the Company had invested a total
of $1,381,750 in D.L. Productions for the co-production and distribution of such
motion  picture.  As of December  31, 1997 this  amount had  increased,  through
additional investments,  to $1,687,236.  The co-producers have invested $100,000
which has been recorded as a capital contribution to the Company.

     For the years ended  December 31, 1997 and 1996,  the Company used cash for
operating  activities  amounting to $484,375 and $1,899,878,  respectively.  The
major  component of such use of cash for 1997 was the  Company=s  net  operating
loss of $423,467. The major components of such use of cash during the year ended
December 31, 1996 was for the  acquisition of Breaking  Waves  inventory and the
costs   incurred  for  the  production  of  the  motion  picture  which  totaled
$3,334,165.   The  majority  of  cash  for  operating  activities  amounting  to
$1,434,686  was provided from advances  from the factor  (NationsBanc).  For the
year ended  December  31, 1997,  the Company used $81,189 of cash for  financing
activities  primarily for offering  costs related to Breaking Waves IPO. For the
year ended  December  31, 1996,  the Company  provided  $4,548,204  of cash from
financing  activities  which was  primarily  from the Company=s  initial  public
offering and the initial investment by the Company=s majority stockholder, EVC.

ITEM 7.           FINANCIAL STATEMENTS

         See attached Financial Statements.


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

         Not Applicable.

<PAGE>
PART III


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

Officers and Directors.

         The names, ages and positions of the Company's  executive  officers and
directors are as follows:
<TABLE>
<CAPTION>

         Name                                                          Age              Position

<S>                                                                    <C>              <C>
         Harold Rashbaum                                               71               President, CEO and Director

         Robert DiMilia                                                52               Vice President, Secretary and Director

         Alain A. Le Guillou, M.D.                                     41               Director

         James Frakes                                                  41               Director
</TABLE>


         The directors of the Company are elected  annually by its  stockholders
and  the  officers  of the  Company  are  appointed  annually  by its  Board  of
Directors.  Vacancies on the Board of Directors  may be filled by the  remaining
directors.  Each  current  director  and officer will hold office until the next
annual meeting of stockholders, or until his successor is elected and qualified.
All outside  directors  receive a directors= fee of $1,000 per month,  for their
participation as a director.  The outside directors are Alain D. Le Guillou, M.D
and James Frakes. The Company does not have key man insurance on the life of any
of its officers or directors. Harold Rashbaum is the father-in-law of Alain A.
Le Guillou, M.D.

     Harold  Rashbaum  has been the  President,  Chief  Executive  Officer,  and
director of the Company since January 1997. Mr. Rashbaum served as Secretary and
Treasurer of the Company from May 1996 until January 1997 when he was elected as
President and Chief Executive  Officer.  From May 1996, until its dissolution in
November 1997, Mr. Rashbaum served as the secretary, treasurer and a director of
D.L.  Productions  and became  President in January 1997.  From February 1996 to
present, Mr. Rashbaum has been the president and a director of H.B.R. Consultant
Sales Corp., of which his wife is the sole stockholder.  From March 1992 to June
1995,  Mr.  Rashbaum was a consultant to 47th Street Photo,  Inc., a retailer of
electronics,  which position was at the request of the bankruptcy court,  during
the time it was in Chapter 11. Mr. Rashbaum was a consultant for Play Co. Toys &
Entertainment Corp. (APlay Co.@), since June 1995 and became the Chairman of the
board in October 1996,  which company is a wholesaler and retailer of children=s
toys.  From  January  1991 to  March  1992,  he was a  consultant  for  National
Wholesale Liquidators, Inc., a retailer of household goods and housewares.

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

     Alain A. Le Guillou,  M.D.  has been a director  of the  Company  since May
1996. Since July 1995, Dr. Guillou has been a doctor of Pediatrics at Montefiore
Medical Group. From July 1992 to June 1995 Dr. Guillou was a Pediatric  resident
at the University of Minnesota,  Gillette Hospital,  St. Paul,  Minnesota.  From
July 1991 to June 1992 Dr. Guillou was an intern at Montefiore  Medical  Center,
Bronx, N.Y. Dr. Guillou is the son-in-law of Harold Rashbaum.
<PAGE>
     James  Frakes was  elected  Director of the  Company in January  1998.  Mr.
Frakes has been the Chief  Financial  Officer and a Director  of Play Co.  since
June 1997 and August 1997 respectively.  Prior thereto,  from June 1990 to March
1997,  Mr. Frakes was Chief  Financial  Officer of Urethane  Technologies,  Inc.
(AUTI@) and two of its  subsidiaries:  Polymer  Development  Laboratories,  Inc.
(APDL@) and BMC Acquisition,  Inc. These were specialty chemical companies which
focused on the  polyurethane  segment of the plastics  industry.  Mr. Frakes was
also Vice  President  and a Director of UTI during this  period.  In March 1997,
three unsecured creditors of PDL filed a petition for the involuntary bankruptcy
of PDL.  This  matter is  pending  before the United  States  Bankruptcy  Court,
Central  District of California.  In 1989, Mr. Frakes and his wife purchased JLJ
Enterprises  d/b/a TME Travel (AJLJ@),  a travel agency which provided  services
primarily for the business community.  Mr. Frakes was the Vice President,  Chief
Financial  Officer,  and a Director  of JLJ;  his wife was the  President  and a
Director. In November 1992, Mr. Frakes and his wife sold JLJ. From 1985 to 1990,
Mr.  Frakes was a manager for Berkeley  International  Capital  Corporation,  an
investment  banking  firm  specializing  in  later  stage  venture  capital  and
leveraged  buyout  transactions.  In 1980,  Mr.  Frakes  obtained  a Masters  in
Business Administration from University of Southern California.  He obtained his
Bachelor  of Arts  degree in  history  from  Stanford  University  from which he
graduated with honors in 1978.

Significant Employees

     Malcolm Becker,  62, has been the  vice-president of design,  merchandising
and production of Breaking Waves, Inc., since its inception in 1991.

     Michael Friedland, 60, has been the vice-president of design, marketing and
sales of Breaking Waves, Inc., since its inception in 1991.

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


                                        7


<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

         The following  provides  certain  information  concerning  all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, paid by the Company  during the periods ended  December 31, 1995,
1996, and 1997 to each of the named executive officers of the Company.


Summary Compensation Table
<TABLE>
<CAPTION>
                                                                Securities            Restricted
Name and Principal                                              Underlying            Stock              All Other
Position                            Year         Salary($)      Options/SARS (#)      Award(s) ($)       Compensation
--------                            ----         ---------      ----------------      ------------       ------------

<S>                                 <C>          <C>            <C>
Harold Rashbaum                     1997 (1)     147,000        33,333 (2)            --                 --
Chief Executive Officer             1996 (1)      26,000        --                    100,000 (3)        --
President

Robert DiMilia                      1997          81,000        16,667 (2)            --                 --
Vice President                      1996 (4)      --            --                    --                 --
Secretary

Robert Melillo                      1997 (5)       4,000        --                    --                 --
Former Chief Executive              1996 (5)      69,200        --                    -- (6)             --
Officer

</TABLE>

     Commenced  employment in May 1996. At the closing of the Company=s  initial
public  offering H.B.R.  Consulting  Sales,  Corp., a company  controlled by Mr.
Rashbaum  and owned by his wife  received  7,500  shares  of Common  Stock and a
consulting fee of $40,000.

     Includes  options to purchase  shares of Common  Stock issued in March 1997
under the Company=s  Senior  Management  Incentive Plan. See ASenior  Management
Incentive Plan@.

     Includes 16,667 shares issued under the Senior Management Incentive Plan in
June 1996, subject to a two year vesting schedule.

     The shares  were valued on issuance  at  $100,000.  See ASenior  Management
Incentive Plan@.

     Commenced employment in January 1997.

     Mr. Melillo  received an annual salary of $104,000 per annum up and through
January 10, 1997, when he resigned as an officer and director of the Company. He
continued as a consultant until April 1997 and received a consulting fee of $600
per week. See ACertain Relationships and Related Transactions@.

     Mr. Melillo  received 16,667 shares of Common Stock in the Company pursuant
to  the  Company=s  Senior  Management  Incentive  Plan,  subject  to a  vesting
schedule, whereby 8,333 shares would vest in each of June of 1997 and 1998. Upon
the  resignation  of Mr.  Melillo on January 10, 1997, he agreed to return 8,333
the shares to the Company,  however, since Mr. Melillo failed to comply with his
agreement, the Company had all 16,667 shares cancelled.


<PAGE>
Stock Options

         The following table sets forth certain information concerning the grant
of stock  options  made  during  the year  ended  December  31,  1997  under the
Company's Senior Management Incentive Plan.


OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>


====================================================================================================================================


                                                Individual Grants

------------------------------------------------------------------------------------------------------------------------------------
             (a)                           (b)                      (c)                     (d)                      (e) )

                                                            % of Total
                                                            Options/SAR's
                                 # of Securities            Granted to
                                      underlying            Employees in
                                      Options/SAR's         Fiscal Year
                                       Granted (1)                                  Exercise or Base
       Name                                                                         Price ($/SH) (2)           Expiration Date
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                       <C>                    <C>                        <C>
       Harold Rashbaum                    33,333                    67%                    $5.125               March 14, 2002

       Robert DiMilia                     16,667                    33%                    $5.125               March 14, 2002
====================================================================================================================================
------------------------
</TABLE>

     (1) Represents  incentive stock options granted under the Company's  Senior
Management  Incentive  Plan.  Options  granted  under  the  Management  Plan are
intended to qualify as incentive  stock options under the Internal  Revenue Code
of 1986, as amended.  Under the terms of the  Management  Plan, the option price
per share may not be less than the fair market value of the Corporation's shares
on the date the option is granted.  However,  options  granted to persons owning
more than 10% of the Corporation's Common Stock may not have a term in excess of
five years and may not have an option price of less than 110% of the fair market
value per share of the Company's shares on the date the option is granted.

     (2) On March 10, 1998,  the Board of  Directors  approved a revision of the
terms of the options granted to Harold Rashbaum and Robert DiMilia. The exercise
price was changed to $2.93.  In accordance  with the February 1998 one for three
reverse split of the Company=s Common Stock, the number of shares underlying the
options was  decreased to 33,333 and 16,667 for Mr.  Rashbaum  and Mr.  DiMilia,
respectively.


     The following table contains  information  with respect to employees of the
Corporation concerning options held as of December 31, 1997.

<PAGE>
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>


=================================================================================================================================
             (a)                         (b)                    (c)                     (d)                       (e)
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Value of Unexercised
                                                                                   Number of             In-The-Money Options/SAR=s
                                                                                   Unexercised           at FY-End ($)
                                                                                   Options/SAR's         Exercisable/
                                Shares Acquired             Value                  Exercisable/          Unexercisable /
            Name                on Exercise                 Realized($)            Unexercisable         at FY-End (#)
---------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                    <C>               <C>    <C>                   <C> <C>
Harold Rashbaum                           0                      0                 33,333/0 (1)                 0/0 (2)

Robert DiMilia                            0                      0                 16,667/0 (1)                 0/0 (2)
=================================================================================================================================
</TABLE>

     On March 10, 1998, the Board of Directors  approved a revision of the terms
of the options granted to Harold Rashbaum and Robert DiMilia. The exercise price
was changed to $2.93.  In  accordance  with the  February  reverse  split of the
Company=s  Common  Stock,  the  number  of shares  underlying  the  options  was
decreased to 33,333 and 16,667 for Mr. Rashbaum and Mr.  DiMilia,  respectively.
The closing price on December 31, 1997 was $0.47 per pre-split share.  Therefore
the options had no value.

Employment and Consulting Agreements

     Prior to Harold  Rashbaum  becoming an officer and director of the Company,
he provided  consulting to the Company  through H.B.R.  Consultant  Sales Corp.,
("HBR"),  a Company of which he is an officer and director and of which his wife
is the sole stockholder.  HBR entered into an oral consulting agreement with the
Company  whereby,  it will  receive 5% of the net profits of the Motion  Picture
received by the Company.  In addition,  HBR received $40,000 and 7,500 shares of
the  Company's  Common  Stock at the  closing of the  Company=s  initial  public
offering.  From October 1996 until March 1997, Mr. Rashbaum received a salary of
$104,000 per annum for being an officer and  director of the  Company.  In March
1997 Mr.  Rashbaum=s  salary was raised to $156,000 per annum. In addition,  Mr.
Rashbaum  received  50,000  shares of Common  Stock under the  Company's  Senior
Management Incentive Plan which shares vest at the rate of 25,000 shares on each
of June 1997 and 1998.  Pursuant to the  restricted  share  agreement the shares
only vest if Mr. Rashbaum  continues to provide services to the Company.  Shares
not vested  shall be  returned to the  Company's  treasury.  In March 1997,  the
Company granted Mr.  Rashbaum as chief  executive  officer an option to purchase
100,000 shares at $5 1/8 per share,  pursuant to the Company=s Senior Management
Incentive Plan. The terms of this option were revised subsequent to the February
1998 reverse split of the Company=s Common Stock. See ACertain Relationships and
Related Transactions@.

     Dan Stone entered into a two year consulting  agreement with Breaking Waves
as of January  1996,  pursuant to which he oversees  the  operation  of Breaking
Waves in return for a yearly  consulting  fee of $100,000.  Mr.  Stone  received
$50,000 from the proceeds of the Company=s  initial public offering,  as payment
in advance of half of the 1997  consulting fee, the balance of which was paid in
weekly  installments.  On January 1, 1998, the term of the consulting  agreement
expired and Mr. Stone=s relationship with the company was terminated.
<PAGE>
     In  November  1997,  Breaking  Waves  entered  into three  year  employment
agreements  with each of Malcolm  Becker and Michael  Friedland.  The agreements
provide for a salary of $110,000 for the term of  employment  and the receipt of
shares of the Company=s Common Stock in each year of the agreements.  The number
of shares of the Common Stock shall be equal to a Market  Value (as  hereinafter
defined) of $25,000 on the date of issuance,  subject to a vesting schedule. The
vesting schedule is as follows;  (i) half of the shares received on November 27,
1996 vested 90 days from  issuance  with the  balance  vesting 270 days from the
date of issuance and (ii) on each subsequent annual issuance commencing November
27,  1997,  half of the shares  vest six months from  issuance  with the balance
vesting on the following anniversary. In November 1997, 7,222 shares were issued
to each of Messrs.  Becker and  Friedland,  subject to vesting.  The shares vest
pursuant to restricted share agreements. AMarket Value@ shall mean (i) $5.00 per
share with respect to the shares issued in November 1996 and (ii) the average of
the closing bid and asked  prices for a share of Common Stock for a period of 30
days ending five days prior to the date of issuance,  as officially  reported by
the  principal  securities  exchange  on which the Common  Stock is quoted.  The
agreements include non-disclosure and non-compete clauses.

Senior Management Incentive Plan

     In May 1996, the Board of Directors adopted the Senior Management Incentive
Plan (the  "Management  Plan"),  which was adopted by stockholder  consent.  The
Management  Plan  provides  for the  issuance  of up to  250,000  shares  of the
Company's  Common Stock in  connection  with the  issuance of stock  options and
other stock  purchase  rights to executive  officers and other key employees and
consultants.

     The  Management  Plan was  adopted to provide the Board of  Directors  with
sufficient  flexibility regarding the forms of incentive  compensation which the
Company will have at its disposal for rewarding  executive  officers,  employees
and  consultants  of the  Company or a  subsidiary  or the  Company,  who render
significant  services to personnel  equity  ownership in the Company through the
grant of stock  options  and other  rights  pursuant to the  Management  Plan to
enable  the  Company  to  attract  and  retain   qualified   personnel   without
unnecessarily  depleting the Company's  cash reserves.  The  Management  Plan is
designed to augment the Company's existing compensation programs and is intended
to enable the Company to offer a personal  interest in the Company's  growth and
success  through  awards of either  shares of Common  Stock or rights to acquire
shares of Common Stock to individuals  who provide  significant  services to the
Company.

     The Management  Plan is intended to help the Company attract and retain key
executive   management  personnel  whose  performance  is  expected  to  have  a
substantial  impact on the Company's  long-term  profit and growth  potential by
encouraging and assisting those persons to acquire equity in the Company.  It is
contemplated  that only employees who perform services of special  importance to
the Company will be eligible to participate  under the Management  Plan. A total
of 250,000  shares of Common  Stock has been  reserved  for  issuance  under the
Management  Plan. It is anticipated  that awards made under the Management  Plan
will be subject to three-year vesting periods,  although the vesting periods are
subject to the discretion of the Administrator (as defined below).

     The Management  Plan is to be  administered  by the Board of Directors or a
committee of the Board,  if one is appointed for this purpose (the Board or such
committee,  as the case may be, will be referred to in the following description
as the "Administrator").  Members of the Board of Directors who are eligible for
awards or have been  granted  awards may not vote on any matters  affecting  the
administration  of the  Management  Plan or the grant of any  award  thereunder.
Subject to the specific  provisions of the Management  Plan,  the  Administrator
will have the discretion to determine the  recipients of the awards,  the nature
of the awards to be granted,  the dates such  awards will be granted,  the terms
and conditions of awards and the  interpretation  of the Management Plan, except
that any award  granted to any employee of the Company who is also a director of
the Company will also be subject, in the event the persons serving as members of
the  Administrator of such plan at the time such award is proposed to be granted
do not satisfy the requirements  regarding the  participation of  "disinterested
persons" set forth in Rule 16b-3 ("Rule 16b-3") promulgated under the Securities
Exchange Act of 1934,  as amended (the  "Exchange  Act"),  to the approval of an
auxiliary  committee  consisting of not less than three individuals (all of whom
qualify as "disinterested persons" as defined under Rule 16b-3. In the event the
Board of Directors  deems the formation of an auxiliary  committee  impractical,
the Board is  authorized to approve any award under the  Management  Plan. As of
the date  hereof,  the  Company  has not yet  determined  who will serve on such
auxiliary committee,  if one is required. The Management Plan generally provides
that,  unless  the  Administrator  determines  otherwise,  each  option or right
granted under the plan will become  exercisable in full upon certain  "change of
control" events as described in the plan.
<PAGE>
     If any  change  is made in  respect  of the  Common  Stock  subject  to the
Management  Plan or subject to any right or option  granted under the Management
Plan (through merger,  consolidation,  reorganization,  recapitalization,  stock
dividend,  dividend  in  property  other than  cash,  stock  split,  liquidating
dividend,  combination  of  shares,  exchange  of  shares,  change in  corporate
structure, or otherwise), the Administrator will make appropriate adjustments to
the Management Plan and the number of shares and price per share of Common Stock
subject to outstanding rights or options.  Generally, the Management Plan may be
amended by action of the Board of  Directors,  except that any  amendment  which
would  change the class of  securities  subject to the plan,  increase the total
number of shares  subject  to such  plan,  extend  the  duration  of such  plan,
materially  increase the benefits  accruing to participants  under such plan, or
change the  category of persons who can be eligible  for awards  under such plan
must be approved by the  affirmative  vote of the owners of a majority of Common
Stock entitled to vote. The Management Plan permits awards to be made thereunder
until November 2004.

     Directors  who  are not  otherwise  employed  by the  Company  will  not be
eligible for  participation in the Management Plan. The Management Plan provides
for  four  types  of  awards:  stock  options,  incentive  stock  rights,  stock
appreciation rights (including limited stock appreciation rights) and restricted
shares.  The Management Plan may be either incentive stock options which qualify
as such under the Code  ("ISOs") or options  which do not qualify under the Code
as ISOs  ("non-ISOs").  ISOs may be granted at an option  price of not less than
100% of the fair market value of the Common  Stock on the date of grant,  except
that an ISO granted to any person who owns Common Stock  representing  more than
10% of the total  combined  voting  power of all classes of Common  Stock of the
Company  ("10%  Stockholder")  must be granted at an exercise  price of at least
110% of the fair market value of the Common Stock on the date of the grant.  The
exercise  price of non-ISOs may not be less than 85% of the fair market value of
the Common Stock on the date of grant.  The  Administrator  will  determine  the
exercise period of the options granted which shall be no less than one year from
the date of grant.  Non-ISOs may be  exercisable  for a period of up to 13 years
from the date of grant.  ISOs granted to persons other than 10% Stockholders may
be  exercisable  for a period  of up to 10 years  from the date of  grant;  ISOs
granted to 10%  Stockholders may be exercisable for a period of up to five years
from the date of grant. The aggregate fair market value  (determined at the time
an ISO is granted) of shares of Common  Stock that are subject to ISOs held by a
plan participant that may be exercisable for the first time during each calendar
year may not exceed  $100,000.  In March 1997,  the Company  granted  options to
purchase  100,000 and 50,000 pre-split shares of Common Stock to Harold Rashbaum
and Robert DiMilia  respectively,  at $5.125 per share, 100% of the market price
on the date of grant.  In March 1998,  the exercise price was decreased to $2.93
and pursuant to the February  1998 one for three  reverse split of the Company=s
Common  Stock,   the  number  of  shares  was  reduced  to  33,333  and  16,667,
respectively. See ACertain Relationships and Related Transactions@.

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

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

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

Stock Appreciation Rights (SARs)

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

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

Restricted Stock Purchase Agreements.

     Restricted share agreements  provide for the issuance of restricted  shares
of Common Stock to eligible participants under the Management Plan. The Board of
Directors may determine the price to be paid by the  participant  for the shares
or that the  shares  may be issued  for no  monetary  consideration.  The shares
issued shall be subject to restrictions  for a stated  restricted  period during
which the  participant  must  continue  employment  with the Company in order to
retain  the  shares.  Payment  can be  made  in  cash,  a  promissory  note or a
combination  of both.  The Company had issued an aggregate of 41,667  restricted
shares of which (i) each of Mr. Rashbaum and Mr. Melillo  received 16,667 shares
and (ii) Charles Rosen, a consultant to the Company  received 8,333 shares.  All
such shares were subject to a vesting schedule whereby,  half of the shares were
to vest in each of June  1997 and  1998.  Upon the  termination  of Mr.  Rosen=s
consulting agreement the 8,333 shares were returned to the Company. In addition,
upon the  resignation  of Mr.  Melillo,  the 16,667 shares were cancelled by the
Company.
<PAGE>
     Restricted  shares awarded under the  Management  Plan will be subject to a
period of time designated by the Administrator (the "restricted  period") during
which  the  recipient   vested.   The   Administrator   may  also  impose  other
restrictions,  terms and conditions that must be fulfilled before the restricted
shares  may  vest.  Upon the  grant of  restricted  shares,  stock  certificates
registered  in the name of the  recipient  will be issued and such  shares  will
constitute  issued  and  outstanding  shares of Common  Stock for all  corporate
purposes.  The holder will have the right to vote the  restricted  shares and to
receive  all  regular  cash  dividends  (and  such  other  distributions  as the
Administrator may designate,  other than  distributions made solely with respect
to the restricted shares ("retained distributions")),  if any, which are paid or
distributed on the restricted shares, and generally to exercise all other rights
as a holder of  Common  Stock,  except  that,  until  the end of the  restricted
period:  (i) the holder  will not be entitled  to take  possession  of the stock
certificates   representing   the   restricted   shares  or   receive   retained
distributions  and (ii) the holder will not be entitled  to sell,  transfer,  or
otherwise dispose of the restricted shares. A breach of any restrictions, terms,
or conditions  established by the  Administrator  with respect to any restricted
shares will cause a forfeiture of such restricted shares.

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

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

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

     A "Control  Purchase" is defined as  circumstances  in which any person (as
such term is defined in Sections  13(d)(3) and  14(d)(2) of the  Exchange  Act),
corporation or other entity (other than the Company or any employee benefit plan
sponsored by the Company) (A) shall purchase any Common Stock of the Company (or
securities  convertible into the Company's Common Stock) for cash, securities or
any other  consideration  pursuant to a tender offer or exchange offer,  without
the prior consent of the Board of Directors, or (B) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act),  directly
or indirectly,  of securities of the Company  representing  twenty-five  percent
(25%) or more of the combined voting power of the then outstanding securities of
the  Company   ordinarily   (and  apart  from  rights   accruing  under  special
circumstances) having the right to vote in the election of directors (calculated
as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire
the Company's securities).
<PAGE>
     A "Board Change" is defined as circumstances in which, during any period of
two consecutive  years or less,  individuals who at the beginning of such period
constitute  the entire Board shall cease for any reason to constitute a majority
thereof  unless the election,  or the  nomination  for election by the Company's
stockholders, of each new director was approved by a vote of at least a majority
of the directors then still in office.

Non-Executive Director Stock Option Plan

     In April 1997,  the Company=s  Board of Directors  unanimously  adopted the
Company=s  Non-Executive  Director  Stock Option Plan (the  ADirector=s  Plan@),
which was adopted by  stockholder  consent.  The  following  is a summary of the
principal features of the Director=s Plan and is qualified by and subject to the
actual  provisions  of the  Director=s  Plan. As of January 1998, no options had
been granted.

Purpose and Eligibility

     The  Director=s  Plan provides for the grant of stock options as a means of
attracting and retaining highly qualified independent Directors for the Company.
The only persons  eligible to participate  in the Director=s  Plan are Directors
who are not  employees  of the Company and who have within the past fiscal year,
neither  received  any equity  securities  of the Company  under any plan of the
Company,  nor been an employee of the Company  nor  otherwise  been  eligible to
receive  equity  securities  under  any  plan  of  the  Company  (the  AEligible
Directors@).

     The Company currently has two Eligible Directors under the Director=s Plan,
Dr.  Alain Le Guillou and Mr.  James  Frakes.  Grants under this plan shall have
exercise prices equal to the market price on the date of grant.

Option Awards

     The  Director=s  Plan provides that each  Eligible  Director  automatically
receives an option to purchase up to 5,000 shares of Common Stock immediately on
January 1 of each year in which the  Director has been a member of the Board for
a continuous 12 month period.

     All  options  granted  under the  Director=s  Plan are to be  evidenced  by
written  option  agreements  or  confirming  memoranda,  each of  which  must be
consistent  with the  Director=s  Plan but  which  may  otherwise  contain  such
additional or unique features as the Company  determines.  Options granted under
the Director=s Plan are not transferable.

Vesting and Exercise

     Options granted under the Director=s Plan vest and become  exercisable upon
issuance.  The  option  exercise  price  may be paid  in  cash  or in any  other
consideration  the Company deems  acceptable as provided in the Director=s Plan,
including  shares of Common Stock  surrendered  by the optionee or withheld from
the shares otherwise deliverable upon exercise. The Company is permitted to loan
the  exercise  price  to  the  optionee  or  to  allow  exercise  in a  broker=s
transaction  in which  the  exercise  price  will not be  received  until  after
exercise and  subsequent  sale of the  underlying  Common  Stock.  Consideration
received by the Company upon exercise of options  granted  under the  Director=s
Plan will be used for general working capital purposes.

     Options  granted under the Director=s Plan may be exercised at any time and
before the expiration of five years from the date of their grant.

Securities Subject to Directors Plan

     No more than 150,000  shares of Common Stock may be issued upon exercise of
options granted under the Director=s  Plan. The number of shares of Common Stock
available to individual  optionees or under the Director=s  Plan in general,  as
well as the  number  of shares  for which  issued  or  unissued  options  may be
exercised,   and  the  exercise  price  per  share  of  such  options,  will  be
proportionately  adjusted to reflect stock splits, stock dividends,  and similar
capital stock transactions.
<PAGE>
Administration, Amendment, and Termination

     Two Officers of the Company who are also Directors but who are not eligible
under the plan will administer the Director=s Plan. These Officers will have the
power to  discontinue,  suspend,  or amend the  Director=s  Plan in any  manner,
except  that the  Company  may not alter the  Director=s  Plan or  exercise  any
discretion  with respect to persons  eligible to receive grants of options,  the
number of shares of Common Stock subject to options,  the timing of such grants,
the  exercise  price of  options,  or the final date upon which  options  may be
granted. Options may be granted under the Director=s Plan until January 1, 2007.


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

     The following  table sets forth certain  information  as of March 31, 1998,
based upon information  obtained by the persons named below, with respect to the
beneficial  ownership  of shares of Common Stock by (i) each person known by the
Company to be the owner of 5% or more of the outstanding shares of Common Stock;
(ii) by each officer and director;  and (iii) by all officers and directors as a
group.  All  numbers  reflected  herein and in the  footnotes  hereto  have been
adjusted to reflect  the 1 for 3 reverse  split,  which the Company  effected on
February 5, 1998 
<TABLE>
 <CAPTION>

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

<S>                                                           <C>                                 <C>
European Ventures Corp. (2)                                   1,200,350                           58.2%
P.O. Box 47
Road Town, Tortola, British
Virgin Islands

Harold Rashbaum  (2)                                          52,500 (3)                          2.6%
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022

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

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

All Officers and Directors                                    69,167 (4)                          3.3%
(3 as a Group) (2)-(4)

* Less than 1%
</TABLE>

     (1) Does not give effect to the issuance of (i) 1,466,667  shares of Common
Stock  reserved for  issuance  upon the  exercise of the  Warrants;  (ii) 83,333
shares of Common Stock  reserved for issuance  under the  Company's  1995 Senior
Management  Incentive  Plan; or (iii) 50,000 shares of Common Stock reserved for
issuance upon the grant of options  underlying the Non-Executive  Director Stock
Option Plan.

     (2) Harold Rashbaum is the  father-in-law  of Ilan Arbel,  the sole officer
and director of EVC, and Alain Le Guillou.
<PAGE>
     (3) Includes (i) 33,333 shares of Common Stock underlying an option granted
under the  Company=s  Senior  Management  Incentive  Plan and (ii) 2,500  shares
issued to H.B.R.  Consultants  Sales Corp.  in September  1996.  See  AExecutive
Compensation@.

     Includes  16,667  shares of Common Stock  issuable  upon the exercise of an
option granted to Robert DiMilia under the Company=s Senior Management Incentive
Plan. See AExecutive Compensation@.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company  entered into a two year  consulting  agreement with Dan Stone,
the former  president and majority  stockholder of Breaking Waves, as of January
1996, pursuant to which he oversaw the operation of Breaking Waves in return for
a yearly  consulting  fee of  $100,000.  On  January  1,  1998,  the term of the
consulting  agreement expired and Mr. Stone=s  relationship with the company was
terminated.

     In June 1996,  the Company  issued  16,667 shares of Common Stock to Robert
Melillo,  the former  chief  executive  officer,  president  and director of the
Company under the Company senior  management  incentive plan. The shares were to
vest at the rate of 8,333 in each of June 1997 and 1998.  On January  10,  1997,
Mr.  Melillo  resigned and agreed to return  8,333  shares to the  Company.  Mr.
Melillo  failed to  comply  with the terms of his  resignation,  therefore,  all
16,667 shares have been cancelled.

     Prior to Harold  Rashbaum  becoming an officer and director of the Company,
commencing in March 1996 he provided  consulting to the Company  through  H.B.R.
Consultant  Sales  Corp.,  ("HBR"),  a  Company  of which he is an  officer  and
director and of which his wife is the sole stockholder. HBR entered into an oral
consulting  agreement  with the  Company  whereby it will  receive 5% of the net
profits of the Motion Picture received by the Company. In addition, HBR received
$40,000 and 2,500 shares of the  Company's  Common Stock from the Company at the
closing of the Acquisition.  In June 1996 Mr. Rashbaum received 16,667 shares of
Common Stock under the Company's Senior  Management  Incentive Plan which shares
vest at the rate of 8,333 shares on each of June 1997 and 1998.

     In March 1997,  Harold  Rashbaum and Bob DiMilia  were  granted  options to
purchase shares of the Company=s  Common Stock pursuant to the Company=s  Senior
Management Incentive Plan. Mr. Rashbaum was granted an option to purchase 33,333
shares of Common Stock and Mr. DiMilia was granted an option to purchase  16,667
shares of Common Stock.  All of the options are  exercisable  at the closing bid
price of March 14,  1998,  the day of the  grant  ($5  1/8).  The terms of these
options  were revised  subsequent  to the  February  1998  reverse  split of the
Company=s Common Stock. The revised terms, as approved by the Board of Directors
on March 10, 1998, provide for a reduction in the exercise price to $2.93.

     In February  1998,  the Company  completed a private  placement  of 300,000
shares of the  Company=s  Common  Stock at a price of $.65 per  share.  American
Telecom  Corporation,  a company of which Ilan Arbel,  the  son-in-law of Harold
Rashbaum,  is President,  Secretary,  and a Director,  purchased  100,000 shares
during this offering.

     See AExecutive  Compensation-Employment  and Consulting  Agreements@  for a
discussion of the Company=s employment and consulting arrangements.

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

(a) The following  financial  statements of the Company are included as Part II,
Item 8:
<TABLE>
<CAPTION>

<S>                                                                            <C>
Index to Financial Statements ............................................   F-0

Report of Independent Certified Public Accountants .......................   F-1

Balance Sheets ...........................................................   F-2

Statements of Operations .................................................   F-3

Statements of Stockholders' Equity .......................................   F-4

Statements of Cash Flows .................................................   F-5
Notes to Financial Statements ............................................   F-6
</TABLE>

(b) During the last quarter, the Company has not filed any reports on Form 8-K.

     The following  exhibits have  previously been filed with the Securities and
Exchange Commission either with the Registration Statement on Form SB-2 file No.
333-5098-NY; or with, as appropriately marked herein, the Registration Statement
on  Form  SB-2  file  No.  333-5098-NY,   Post-Effective   Amendment  No.1;  the
Registration  Statement  on  Form  SB-2  file  No.  333-5098-NY,  Post-Effective
Amendment  No.2; the Proxy Statement for the Company=s June 1997 Annual Meeting,
filed on May 23, 1997 (SEC file number 000-28690),  or the Company's Form 10-KSB
for the year ended  December 31, 1996;  and pursuant to 17 C.F.R.  230.411,  are
incorporated  by reference  herein.  The exhibits  designated by an asterisk (*)
have been filed with this Form 10-KSB for the year ended December 31, 1997.
<TABLE>
<CAPTION>

<S>                                 <C>
  3.1                      -        Certificate of Incorporation of the Company
  3.2                      -        Amendment to Certificate of Incorporation of the Company, filed in June 7, 1996.
  3.4                      -        By-Laws of the Company
  3.6                      -        Certificate of Incorporation of Breaking Waves, Inc.
  3.7                      -        By-Laws of Breaking Waves, Inc.
  4.1                      -        Specimen Common Stock Certificate.
  4.2                      -        Specimen Warrant Certificate.
  4.4                      -        Form of Warrant Agreement between the Company, the Underwriter and Continental Stock Transfer
                                    & Trust Company.
  4.5                      -        Form of Restricted Stock Agreement.
 10.2                      -        The Company's Senior Management Incentive Plan.
 10.4                      -        Consulting Agreement between Breaking Waves, Inc., and Dan Stone.
 10.5                      -        Lease at 112 West 34th Street, New York, New York.
                           -        Lease at 8410 N.W. 53rd Terrace, Miami, Florida.
 10.6(a)                   -        Amendment to lease at 8410 N.W. 53rd Terrace, Miami, Florida.(k)
 10.7                      -        Stock Purchase Agreement between the Company, European Ventures Corp., Breaking Waves, Inc.,
                                    and the stockholders of Breaking Waves, Inc., dated May, 1996.
 10.9                      -        Property Acquisition Agreement between the Company and Rogue Features, Inc., dated March, 1996.
 10.10                     -        Co-production agreement between the Company and Rogue Features, Inc.,
                                    dated March, 1996 and all amendments thereto.
 10.11                     -        Right of First Refusal Agreement with principals of Rogue Features, Inc.
 10.13                     -        Shippers Agency Agreement between Hollywood Productions, Inc., and Third Party Enterprises, Inc.
 10.14                     -        License Agreement between Breaking Waves, Inc. and Beach Patrol, Inc.
 10.16                     -        Employment Agreement with Michael Friedland. (Incorporated by reference to the indicated exhibit
                                    in the Company=s 10-KSB for the year ended December 31, 1996).

<PAGE>
 10.17                     -        Employment Agreement with Malcolm Becker. (Incorporated by reference to the indicated exhibit in
                                    the Company=s 10-KSB for the year ended December 31, 1996).
 10.18                     -        Termination of Employment Agreement with Robert Melillo. (Incorporated by reference to the
                                    indicated exhibit in the Company=s 10-KSB for the year ended December 31, 1996).
 10.19                     -        Trident Releasing, Inc. License Agreement. (Incorporated by reference to the indicated exhibit
                                    in the Post-Effective Amendment No.1).
 10.20                     -        Cyclone Option Agreement. (Incorporated by reference to the indicated exhibit in the Post-
                                    Effective Amendment No.1).
 10.21                     -        Cyclone Co-Writer Agreement. (Incorporated by reference to the indicated exhibit in the Post-
                                    Effective Amendment No.1).
 10.22                     -        Heller Financial Agreement. (Incorporated by reference to the indicated exhibit in the Post-
                                    Effective Amendment No.2).
 10.23                     -        Non-Exectutive Director Stock Option Plan. (Incorporated by reference to Appendix B in the Proxy
                                    Statement for the Company=s June 1997 Annual Meeting).
 10.24 *                   -        Kawasaki Motors Corp., USA AJet Ski@ License Agreement.
 10.25 *                   -        Amendment to lease at 112 West 34th Street, New York, New York.
 10.26 *                   -        Form of Subscription Agreement used in connection with the Company=s February 1998 Private
                                    Placement.
 27.1                      -        Financial Data Schedule.
</TABLE>
<PAGE>
                  HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>




                                                                                              Page
                                                                                             number

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

Consolidated balance sheet at December 31, 1997                                                F-2

Consolidated statements of operations for the years ended
 December 31, 1997 and 1996                                                                    F-3

Consolidated statement of stockholders' equity for the years ended
 December 31, 1997 and 1996                                                                    F-4

Consolidated statements of cash flows for the years ended
 December 31, 1997 and 1996                                                                    F-5

Notes to consolidated financial statements                                                 F-6 - F-17

</TABLE>




<PAGE>
                          INDEPENDENT AUDITORS' REPORT





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



     We have audited the  accompanying  consolidated  balance sheet of Hollywood
Productions,  Inc. and  subsidiary,  (the "Company") as of December 31, 1997 and
the related consolidated statements of operations, stockholders' equity and cash
flows for years ended December 31, 1997 and 1996. These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

     In our opinion,  based on our audits, the consolidated financial statements
referred to above  present  fairly,  in all  material  respects,  the  financial
position of the Company as of December 31, 1997 and the consolidated  results of
its  operations and cash flows for the years ended December 31, 1997 and 1996 in
conformity with generally accepted accounting principles.




Scarano & Tomaro, P.C.
Syosset, New York
March 9, 1998




                                       F-1

<PAGE>

                   HOLLYWOOD PRODUCTION, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1997
<TABLE>
<CAPTION>


                                     ASSETS

Current assets:
<S>                                                                                                                        <C>
    Cash                                                                                                                   352,981
    Cash - restricted                                                                                                    1,500,000
    Accounts receivable                                                                                                     23,317
    Prepaid expenses                                                                                                        41,608
    Inventory                                                                                                            2,383,192
    Advances to officer and affiliate                                                                                       67,445
                                                                                                                 -----------------
         Total current assets                                                                                            4,368,543

Deferred compensation, net                                                                                                  54,166
Advances to officer - non-current portion                                                                                   32,083
Film production and distribution costs, net                                                                              1,745,970
Organizational costs, net                                                                                                   75,000
Excess of cost over net assets acquired, net                                                                               975,593
Deferred offering costs                                                                                                     67,385
Other assets                                                                                                                41,553
                                                                                                                 -----------------

Total assets                                                                                                           $ 7,360,293

                      LIABILITIES AND STOCKHOLDERS= EQUITY

Current liabilities:
    Accounts payable                                                                                                   $   133,918
    Accrued expenses                                                                                                       203,461
    Due to factor                                                                                                        1,750,894
    Deferred taxes payable                                                                                                  17,161
                                                                                                                 -----------------
         Total current liabilities                                                                                       2,105,434

Redeemable preferred stock of subsidiary:
    Series A redeemable preferred stock, 2,800 shares
     authorized, issued and outstanding, full liquidation
     value $280,000                                                                                                        280,000

Commitments and contingencies (Note 6)                                                                                           -

Stockholders= equity:
    Common stock - $.001 par value, 20,000,000 shares authorized,
     2,045,278 shares issued and outstanding                                                                                 2,045
    Additional paid-in capital                                                                                           5,618,263
    Accumulated deficit                                                                                                   (645,449)
                                                                                                                 -----------------
         Total stockholders= equity                                                                                      4,974,859

Total liabilities and stockholders= equity                                                                           $   7,360,293
</TABLE>

                 See notes to consolidated financial statements


<PAGE>
                  HOLLYWOOD PRODUCTIONS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>



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

<S>                  <C> <C>                     <C>          <C>            <C>            <C>            <C>
Balances at December 31, 1995 ..............     1,666,667    $     5,000    $ 1,095,000    $      --      $ 1,100,000

Contributed capital in connection with
 co-production and property purchase
 agreement .................................          --             --          100,000           --          100,000

Issuance of common stock as
 consideration for services
 rendered to the Company ...................        16,667             50        124,950           --          125,000

Issuance of common stock and warrants in
 connection with the initial public offering       266,667            800      4,459,440           --        4,460,240

Costs associated with initial
 public offering ...........................          --             --         (996,182)          --         (996,182)

Issuance of common stock in connection
 with acquisition of Breaking Waves ........        50,000            150        574,850           --          575,000

Issuance of common stock in connection
 with senior management incentive plan .....        33,333            100        249,900           --          250,000

Issuance of common stock pursuant to a
 consulting agreement ......................         2,500              8         18,742           --           18,750

Issuance of common stock pursuant to a
 management employment agreement ...........         3,333             10         24,990           --           25,000

Net loss for the year
 ended December 31, 1996 ...................          --             --             --         (221,982)      (221,982)
                                               -----------    -----------    -----------    -----------    -----------

Balances at December 31, 1996 ..............     2,039,167          6,118      5,651,690       (221,982)     5,435,826

Cancellation of common stock in
 connection with senior management
 incentive income plan .....................        (8,333)           (25)       (62,475)          --          (62,500)

Issuance of common stock pursuant to a
 management employment agreement ...........        14,444             43         24,957           --           25,000

Effect of 1 for 3 reverse stock split ......          --           (4,091)         4,091           --             --

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

Balances at December 31, 1997 ..............     2,045,278    $     2,045    $ 5,618,263    $  (645,449)   $ 4,974,859
                                               ===========    ===========    ===========    ===========    ===========

</TABLE>
                 See notes to consolidated financial statements

                                        4
<PAGE>

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

                                                                                  1997            1996
Cash flows from operating activities:
<S>                                                                                <C>            <C>         
    Net loss ...................................................................   $  (423,467)   $  (221,982)
Adjustments to reconcile net loss to
 net cash used for operating activities
    Issuance of common stock for services ......................................          --           18,750
    Amortization and depreciation ..............................................       257,480        108,490
    Deferred income taxes ......................................................         4,852         12,309
    Forgiveness of note receivable in lieu of compensation .....................        30,130           --
    Decrease (increase) in:
         Accounts receivable ...................................................          (966)       (22,351)
         Prepaid expenses ......................................................        42,319        (86,698)
         Inventory .............................................................      (567,666)    (1,815,526)
         Film production costs .................................................      (268,597)    (1,518,639)
         Security deposits .....................................................        (9,924)        (9,178)
    Increase (decrease) in:
         Accounts payable ......................................................        72,130         61,788
         Accrued expenses ......................................................        98,405        103,194
         Due to factor .........................................................       316,208      1,434,686
         Income taxes payable ..................................................       (35,279)        35,279
         Net cash used for operating activities ................................      (484,375)    (1,899,878)

Cash flows from investing activities:
    Acquisition of furniture and fixtures ......................................       (19,084)        (1,414)
    Decrease (Increase) in restricted cash .....................................       200,000     (1,700,000)
    Net assets acquired from subsidiary ........................................          --           70,717
    Subsidiary=s redemption of preferred stock .................................      (280,000)          --
         Net cash used for investing activities ................................       (99,084)    (1,630,697)

Cash flows from financing activities:
    Advances to related parties ................................................       (13,804)      (115,854)
    Proceeds from issuance of common stock and warrants ........................          --        5,560,240
    Offering costs incurred ....................................................       (67,385)      (996,182)
    Proceeds from capital contributions ........................................          --          100,000
         Net cash provided from financing activities ...........................       (81,189)     4,548,204

Net (decrease) increase in cash ................................................      (664,648)     1,017,629

Cash, beginning of period ......................................................     1,017,629           --

Cash, end of period ............................................................   $   352,981    $ 1,017,629

Supplemental disclosure of non-cash flow information:  Cash paid during the year
    for:
         Interest ..............................................................   $   224,397    $    85,098
         Income taxes ..........................................................   $    57,528             $-

Schedule of non-cash operating activities:
    In connection  with the  recognition  of deferred  compensation,  14,444 and
    55,833 shares of common stock were issued as
    consideration for services .................................................   $    25,000    $   418,750

    In connection with the cancellation of deferred compensation,
     8,333 shares of common stock were cancelled ...............................   $   (62,500)   $      --

</TABLE>


See notes to consolidated financial statements


<PAGE>
NOTE 1       -    ORGANIZATION

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

     On April 8, 1996, the Company formed a wholly-owned  subsidiary  named D.L.
Productions,  Inc.  ("D.L.").  D.L.  was formed in the State of New York for the
purpose of purchasing and producing the motion picture  ADirty  Laundry@.  As of
December 31, 1997,  the motion  picture  Dirty  Laundry was completed and all of
D.L.=s  assets  and  liabilities  were  effectively  merged  into  the  Company.
Accordingly,  as  of  November  30,  1997  D.L.  was  dissolved.  The  financial
statements give retroactive  effect to a 1 for 3 reverse stock split effectuated
during February 1998.

NOTE 2       -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            a)    Basis of presentation

     The consolidated financial statements at December 31, 1997 and 1996 include
the accounts of the Company and its wholly owned  subsidiaries after elimination
of all significant intercompany  transactions and accounts.  Purchase accounting
requires the  elimination of all operating  activity of the acquired  subsidiary
from the  inception of its fiscal year to the date of  acquisition.  Hence,  the
consolidated statements of operations and cash flows for the year ended December
31, 1996 reflect the transactions of the subsidiary,  Breaking Waves,  only from
the period from September 24, 1996, the acquisition date.

<PAGE>

     If the  operating  transactions  from January 1, 1996 to September 24, 1996
were included in the December 31, 1996  consolidated  statements of  operations,
the effect by major components would be as follows:
<TABLE>
<CAPTION>

                                    Increase 

<S>                                 <C>        
Net sales .......................   $ 3,596,982
Cost and expenses:
   Cost of sales ................     2,401,586
   Operating and interest expense     1,221,040
Net Loss ........................   $   (25,644)
</TABLE>


            b)    Cash and cash equivalents

     The Company  considers  highly liquid  investments with maturities of three
months or less at the time of purchase to be cash equivalents. Included in these
amounts are  certificate  of deposits of $1,752,033 and mutual funds of $75,820.
The Company  maintains  its cash  deposits  in  accounts  which are in excess of
Federal  Deposit  Insurance  Corporation  limits  by  $1,658,873.   The  Company
maintains a letter of credit with a financial  institution in support of, and as
a condition of, its factoring agreement.  The financial institution requires the
Company  to  maintain  $1,500,000  on deposit  as  collateral  for the letter of
credit. Accordingly, such cash is designated as restricted.


<PAGE>
          NOTE  2 -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont=d)

            c)    Inventory

     Inventory amounting to $2,383,192 at December 31, 1997 consists of finished
goods, and is valued at the lower of cost (using the first-in, first-out method)
or market.  All  inventory is pledged as  collateral  for  factored  receivables
pursuant to an agreement with a financial institution.

            d)    Film production and distribution costs

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

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

     As of December 31, the Company has amortized $41,266 of film production and
distribution costs.

            e)    Income taxes

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

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

NOTE   2          -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont=d)

                  f)  Revenue and cost recognition

     Breaking  Waves sales are  recognized  upon the transfer to the customer of
title to the goods  (generally  upon shipment to the customer  from  warehouse).
Sales returns are recorded upon acceptance of the goods  (generally upon receipt
of goods in the warehouse with prior approved authorization).  Duty costs, which
are a component of cost of sales,  are recorded upon the clearance of such goods
through customs.

     Revenues from the theatrical distribution of motion pictures are recognized
when motion  pictures are exhibited.  Revenues from video sales are  recognized,
together  with  related  costs,  on the date that  video  units are made  widely
available for sale by retailers.  Revenues from the licensing of feature  films,
together  with related  costs,  are recorded  when the material is available for
telecasting by the licensee and when certain other conditions are met.

                  g)  Earnings per share

     During the year ended December 31, 1997, the Company adopted the provisions
of SFAS No. 128,  AEarnings per Share@.  Basic earnings per share is computed by
dividing income (loss) available to common  stockholders by the weighted average
number of common shares  outstanding.  The computation of dilutive  earnings per
share is similar to the  computation of basic earnings per share except that the
denominator is increased to include the number of additional  common shares that
would have been  outstanding  if the dilutive  potential  common shares had been
issued. Pursuant to SFAS No, 128 no dilutive shares are computed for years which
have a net loss.

                  h)  Use of estimates

     In preparing  financial  statements in conformity  with generally  accepted
accounting principles,  management is required to make estimates and assumptions
which affect the reported  amounts of assets and  liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

            i) Fair value disclosure at December 31, 1997

     The  carrying  value  of cash,  accounts  receivable,  inventory,  accounts
payable, accrued expenses and short-term debt are a reasonable estimate of their
fair value.

            j)    Deferred compensation

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



                                        6


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

NOTE   2          -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont=d)

            k)    Organizational costs

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

            l)    Excess of cost over net assets acquired

     Excess of cost over net assets  acquired  are being  amortized on a monthly
basis over the estimated useful life of the related assets acquired for a period
of fifteen (15) years.

            m)    Deferred offering costs

     Deferred  offering costs consists of  professional  fees and advances to an
underwriter relating to the IPO of Breaking Waves.  Deferred offering costs will
be charged to  additional  paid-in  capital upon  successful  completion  of the
offering or expensed if such offering is not successful.

            n)    Accounting for stock-based compensation

     The  Company  elected  to  continue  to  measure  compensation  cost  using
Accounting Principles Board Opinion (AAPB@) No. 25, AAccounting for Stock Issued
to  Employees@,  as is permitted by SFAS No. 123,  AAccounting  for  Stock-Based
Compensation@.  Accordingly,  no  compensation  cost has been recognized for the
options issued under the 1996 Senior  Management  Incentive Plan as the exercise
price and market value at date of grant were the same. For companies that choose
to  continue  applying  APB No. 25,  SFAS No.  123  requires  certain  pro forma
disclosures as if the fair value method had been utilized. Had compensation cost
for the Company=s  stock-based  compensation  plan been determined  based on the
fair value at the grant  dates for  awards  under the plan  consistent  with the
method of SFAS No. 123,  the  Company=s  net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

                                                  1997           1996
                                           -----------    -----------

Net income - as reporte                 $    (423,467)      $(221,982)
                                           ===========    ===========
                 pro forma              $    (706,967)      $(221,982)
                                           ===========    ===========

Basic EPS - as reported                 $        (.21)      $    (.12)
                                           ===========    ===========
                 pro forma              $        (.35)      $    (.12)
                                           ===========    ===========

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

            o)    Reclassifications

     Certain reclassifications have been made to the December 31, 1996 financial
statements in order to conform to the December 31, 1997 presentation.

                                        7


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




NOTE 3       -    ADVANCES TO RELATED PARTIES

     During October 1996,  pursuant to two promissory  notes, the Company loaned
two of its then officers a total of $87,000 bearing interest at six and one-half
percent (62%) payable over three years.  During January 1997, the balance of one
of the notes amounting to $30,130 was written off as part of a severance package
for one of its previous  officers.  As of December 31, 1997,  the remaining note
amounted to $50,750 of which,  $18,667 has been  classified  as current with the
remaining balance of $32,083 classified as non-current.

     During  1997,  the  Company=s   President  was  advanced  additional  funds
amounting to $29,278 which are non interest bearing and due on demand.

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

NOTE 4       -    DUE TO FACTOR

     On April 4,  1991,  Breaking  Waves  entered  into an  accounts  receivable
financing agreement with NationsBanc  Commercial Corp. ("Nations") to sell their
interest  in all  present  and future  receivables  without  recourse.  Interest
expense in connection with such financing  arrangement amounted to approximately
$156,785 for the year ended December 31, 1997.  Effective on or about August 20,
1997,  such financing  agreement was cancelled and replaced with a factoring and
revolving  inventory  loan and security  agreement with Heller  Financial,  Inc.
(AHeller@) to sell their interest in all present and future receivables  without
recourse.  Breaking Waves submits all sales offers to Heller for credit approval
prior to  shipment,  and pays  Heller 1% of the net  amount  of the  receivable.
Heller  retains  from amount  payable to Breaking  Waves a reserve for  possible
obligations  such as customer  disputes and possible credit losses on unapproved
receivable.  Breaking Waves may take advances of up to 85% of the purchase price
on the receivable, with interest charges at the rate of 1:% over prime. Interest
charged to expense  totaled  approximately  $67,611 from August 1997 to December
31, 1997.  Heller has a  continuing  interest in Breaking  Waves=s  inventory as
collateral  for the  advances.  As of December  31,  1997,  the net  advances to
Breaking Waves from the factors amounted to $1,750,894.

NOTE 5       -    PROVISION FOR INCOME TAX

     Provision  for income tax is comprised of the following for the years ended
December 31,:

                                               1997      1996
                                               --------  -------
Current:
         Federal ...........................   $  --     $  --
         State and local ...................    23,013    24,260
                                               -------   -------
                                               $23,013   $24,260
                                               -------   -------
Deferred:
         Federal ...........................   $ 2,257   $ 9,289
         State and local ...................     2,595     4,715
                                               -------   -------
                                                 4,852    14,004
                                               -------   -------

            Total provision for income taxes   $27,865   $38,264
                                               =======   =======

     The Company's  provision for income taxes  includes  state and local income
taxes.
<PAGE>
NOTE 5       -    PROVISION FOR INCOME TAX (Cont=d)

     A  reconciliation  of the provision for income taxes on income per the U.S.
Federal  statutory rate to the reported income tax expense is as follows for the
years ended December 31,:

                                               1997             1996
                                             -------------   ---------
U.S. Federal statutory rate applied to
 pretax loss ...............................   $(129,155)   $ (58,718)
State and local income taxes, net of federal
 income tax benefit, applied to pretax loss      (55,992)     (25,456)
Permanent differences ......................      14,302        3,337
Increase in valuation allowance ............     170,845       80,837
Current provision for state and local taxes       23,013       24,260
Increase in deferred tax liability .........       4,852       14,004
                                               ---------    ---------
      Total provision for income taxes .....   $  27,865    $  38,264
                                               =========    =========

     The Company  has  adopted  SFAS No.  109,  "Accounting  for Income  Taxes",
effective   December  1,  1995.   Management   has   evaluated   the  effect  of
implementation  and has  determined  that  there is no  material  impact  on the
Company's financial position except for the effect of Breaking Waves IRC Section
263A inventory capitalization  adjustment, the differential between book and tax
treatment  with  respect to SEC Section  144 stock  issued as  compensation  for
services and the different lives used for book and tax purposes for amortization
of the excess of cost over net assets acquired.

     Income taxes are provided for the tax effects of  transactions  reported in
the financial  statements and consist of taxes currently due plus deferred taxes
related  to  differences  between  the  financial  and tax basis of  assets  and
liabilities for financial and income tax reporting purposes. Deferred tax assets
and liabilities  represent the future tax return consequences of these temporary
differences,  which will  either be taxable or  deductible  in the year when the
assets or liabilities are recovered or settled.

     The  Company  has a  policy  of  capitalizing  certain  indirect  costs  to
inventory  attributable  to the  current  year for tax  reporting  purposes  and
expensing such amounts currently for financial statement  purposes.  The Company
expects to continue this policy for an indeterminable time period.  Accordingly,
measurement  of the deferred tax liability  attributable  to the book-tax  basis
differentials  is  computed  at a rate of 34%  federal  and 11%  state and local
pursuant to SFAS No. 109.

     The tax effect of significant  items comprising the Company's  deferred tax
assets are as follows:

                                             December 31,
                                             1997

Net operating loss carryforwards .......   $ 139,098
SEC Section 144 stock compensation .....     112,584
Valuation allowance ....................    (251,682)
                                           ---------

Long-term portion of deferred tax assets   $    --
                                           =========

                                        8


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




NOTE 5       -    PROVISION FOR INCOME TAX (Cont=d)

     The tax effect of significant  items comprising the Company's  deferred tax
liability are as follows:

                                              December 31,
                                              1997
Section 263A differential .................   $17,161
                                              -------
Long-term portion of deferred tax liability   $17,161
                                              =======

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

     At December 31, 1997,  the Company had a net  operating  loss  carryforward
(NOL) for federal tax purposes of approximately $311,000 and a NOL for state tax
purposes of  approximately  $537,000  which expire in 2011 and 2012. The Company
has  recorded a full  valuation  allowance  against  the  deferred  tax asset at
December 31, 1997  pursuant to SFAS 109,  since  management  could not determine
that it was "more likely than not" that the deferred  asset would be realized in
the future.


NOTE 6 - COMMITMENTS AND CONTINGENCIES

     a) Lease commitments

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


     The Company and its subsidiary  approximate  future  minimum  rentals under
non-cancelable operating leases in effect on December 31, 1997 are as follows:

      1998   $141,257
      1999    141,257
      2000    141,257
      2001    135,452
      2002     71,600
Thereafter    143,200
             --------
             $774,023

     Rent expense  charged to operations  for the years ended  December 31, 1997
and 1996 amounted to approximately $147,180 and $33,500, respectively.

                  b)         Significant vendors and customers

     Breaking Waves purchases the majority of it's inventory from two vendors in
Indonesia and Korea.  For the years ended  December 31, 1997 and 1996,  Breaking
Waves  has two  customers  which  comprise  36% and 12%,  and 16% and 12% of net
sales, respectively.
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Cont=d)

            c)    Seasonality

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

            d)    License agreements

     i) On October 16, 1995,  Breaking  Waves  entered into a license  agreement
with Beach Patrol, Inc. (ABeach@) for the exclusive use of certain trademarks in
the United States. The agreement expires June 30, 1998 with options to extend to
June 30, 2001. The agreement  calls for minimum  annual  royalties of $75,000 to
$200,000  over the life of the  agreement  with  options.  The Company  recorded
royalties and  advertising  under this agreement  totaling  $111,000 and $26,000
during the years ended December 31, 1997 and 1996, respectively.

     ii) On October 17, 1997,  Breaking  Waves entered into a license  agreement
with Kawasaki Motors Corp.  (AKMC@) for the exclusive use of certain  trademarks
in the making of swimwear in the United  States.  The agreement  expires May 31,
1999. No royalties were paid under the agreement  during the year ended December
31, 1997.

     e) Co-production and property purchase agreements

     Pursuant to co-production and property purchase  agreements dated March 15,
1996, as amended, the Company acquired the rights to co-produce a motion picture
and to financed the costs of production and  distribution of such motion picture
with the  co-producer  agreeing to finance  $100,000 of the costs of production.
The Company  retains all rights to the motion picture,  the screenplay,  and all
ancillary rights attached  thereto.  As of December 31, 1997, the motion picture
was  completed  and,  accordingly,  the Company has  commenced the marketing and
distribution process.

     As  of  December  31,  1997,  the  Company  invested   $1,687,236  for  the
co-production  and  distribution of such motion picture whereas the co-producers
have invested $100,000.

     f) Employment agreements

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

                                        9


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

NOTE 6 - COMMITMENTS AND CONTINGENCIES (Cont=d)

            g)    Letter of Intent

     On June 17, 1997,  Breaking  Waves  entered into a letter of intent with an
underwriter  to proceed on a firm  commitment  basis with an IPO with  estimated
proceeds of $4,000,000.  As of December 31, 1997, Breaking Waves paid $67,385 of
costs associated with the IPO.

NOTE 7       -    STOCKHOLDER=S EQUITY

     a) Initial public offering

     On  September  24,  1996,  the Company  successfully  completed  its public
offering. As a result, the Company sold 266,667 shares and 1,840,000 Warrants of
which 240,000  Warrants were sold pursuant to the  underwriter's  over-allotment
option.  The Company yielded a total net proceeds of $3,813,294  after deducting
underwriter   selling   expenses   and   non-accountable    expense   allowance.
Simultaneously  with the  offering,  the  Company  charged  all  offering  costs
incurred to additional  paid-in capital which totaled  $996,182.  Effective June
23, 1997, the Company  amended the exercise price of the IPO warrants from $6.50
per share to $3.00 per share. (See Note 10(b) for additional information).

     b) Acquisition of Breaking Waves, Inc.

     Pursuant to a stock purchase agreement dated May 31, 1996 (the "Agreement")
among the Company,  EVC,  Breaking Waves and it's respective  shareholders,  the
Company on September  24, 1996 issued  50,000 shares of Common Stock in exchange
for all of the issued and  outstanding  capital  stock of  Breaking  Waves.  The
transaction has been accounted for using the purchase method of accounting, and,
accordingly,  the accompanying  consolidated  financial  statements  include the
results of operations of Breaking Waves from the date of acquisition,  September
24,  1996.  As a result  of the  transaction,  excess  of cost  over net  assets
acquired totaling $1,064,283 was recorded and is amortized over the useful lives
of the related assets.  Amortization expense from September 24, 1996 to December
31,  1996  totaled  $17,738  and for the  year  ended  December  31,  1997,  the
amortization expense totalled $70,952.

     Prior to the  consummation  of the Company=s IPO,  during  September  1996,
Breaking Waves performed a  recapitalization  and exchanged all its common stock
for new common  stock,  and for a series of  preferred  stock.  Pursuant  to the
Agreement,  Breaking Waves issued 5,600 shares of its newly authorized  Series A
Preferred Stock to its previous  stockholders in proportion to their  respective
holdings.  The holders of the share of the Series A  Preferred  Stock shall have
the right to redemption  whereby, on each of January 1, 1997 and 1998 subject to
legally available funds, Breaking Waves shall redeem one-half of the outstanding
shares of the Series A Preferred  Stock, at a redemption price of $100 per share
on a pro rata  basis.  During  January  1997,  2,800 such shares of the Series A
Preferred  Stock of Breaking  Waves was redeemed  for a total of $280,000.  (See
Note 10(a) for additional information).

                                       10


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




NOTE 7       -    STOCKHOLDER=S EQUITY (Cont=d)

     c) 1996 Senior Management Incentive Plan

     On March 14, 1997, the Company granted 50,000 options to purchase shares of
common stock  pursuant to the  Company=s  Incentive  Plan.  33,333  options were
granted to the Company=s  President  and 16,667  options were granted to another
officer.  The exercise  price of the options was fixed at $2.93 (as revised) per
share and such options expire March 2002.

     A summary of the status of the Company=s  stock options  outstanding  as of
December 31, 1997 and changes during the year ended is as follows:


                                                       1997
                                                       Weighted
                                                       Average
                                                       Exercise
                  Stock Options         Shares         Price
                  -------------         ------------   ---------

Outstanding at beginning of year .....     --          $      N/A
Additional options granted ...........   50,000              2.93
Options exercised ....................     --                 N/A
                                                         -----------
Outstanding at end of year ...........   50,000
                                                         ===========
Options exercisable at year end ......   50,000
                                                         ===========
Weighted average fair value of options
  granted during the year ............                   $      5.67
                                                         ===========

            d)    Cancellation of shares

     Effective  January  10,  1997,  upon the  resignation  of an officer of the
Company,  8,333 of the 16,667 shares originally issued to such officer under the
Incentive  Plan were caused to be  immediately  vested and the  remaining  8,334
shares cancelled.

            e)    Employment agreement

     Pursuant to employment agreements,  3,333 and 14,444 shares of common stock
were issued during the years ended December 31, 1996 and 1997.  Such shares were
valued at $50,000 with a 50% discount due to the restricted nature of the stock,
resulting in $25,000 being recorded each year as deferred compensation which has
been amortized over the vesting period of the stock issued.

NOTE 8 - RELATED PARTIES TRANSACTIONS

     a) During June 1996,  pursuant to the Agreement,  the Company issued 16,667
shares to each of two  officers of the Company.  50% of such shares  issued will
vest 12 months from the issuance  date and the remaining 50% will vest 24 months
from the  issuance  date.  Such  shares  were  valued at 50% of the IPO price of
$2.50.  Accordingly,  the Company recorded a deferred compensation  amounting to
$250,000,  which is being  amortized as the shares vest. As of December 31, 1997
and  1996,  $93,750  and  $62,500,   respectively,   has  been  amortized  as  a
compensation expense.

                                       11


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

NOTE 8       -    RELATED PARTIES TRANSACTIONS (Cont=d)

     b) During  September 1996, the company paid $40,000 and issued 2,500 shares
of common stock to an affiliate of the Company's President and Director pursuant
to a  consulting  agreement.  The shares  were valued at 50% of the IPO price or
$2.50 per share.  Accordingly,  during the year ended  December  31,  1996,  the
Company recorded total  consulting  expense  amounting to $58,750.  For the year
ended  December 31, 1997,  the Company  paid $9,000 of  consulting  fees to this
affiliate.

     c) For the year ended  December 31, 1997,  $69,500 of financial  consulting
fees were paid to a relative of the Company=s President.

NOTE 9       -    INDUSTRY SEGMENTS

     The Company's  operations have been classified into two segments:  swimwear
sales and film  productions.  Information  about the two  segments for the years
ended December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>

                                 1996           1997
                               -------------    ---------------
                                 Segment        Consolidated
Sales:
<S>                              <C>            <C>        
  Swimwear sales .............   $ 1,217,152    $ 5,262,240
  Film production ............          --           44,875
                                 -----------    -----------
                                 $ 1,217,152    $ 5,307,115
                                 ===========    ===========

Operating profit:
  Swimwear sales .............   $   294,908    $   638,851
  Film production ............          --            3,609
                                 -----------    -----------
                                 $   294,908    $   642,460

Corporate:
  General and administrative
    expense ..................      (414,175)      (787,877)
  Amortization expense .......       (17,738)       (70,952)
  Interest income ............        38,386         98,316
  Interest and finance expense       (85,099)      (277,549)
                                 -----------    -----------

Loss from operations before
  provision for income tax ...   $  (183,718)   $  (395,602)

Provision for income tax .....        38,264         27,865
                                 -----------    -----------

Net loss .....................   $  (221,982)   $  (423,467)
                                 ===========    ===========

Identifiable assets:
  Swimwear sales .............   $ 1,947,789    $ 2,525,716
  Film productions ...........     1,536,487      1,745,970
  Corporate ..................     4,096,306      3,088,607
                                 -----------    -----------

    Total assets .............   $ 7,580,582    $ 7,360,293
                                 ===========    ===========
</TABLE>
<PAGE>
NOTE 9       -    INDUSTRY SEGMENTS (Cont=d)

     Total revenue by segment  includes only sales to unaffiliated  customers as
there are no intersegment sales.  Operating profit is total revenue less cost of
sales and operating expenses, and excludes general corporate expenses,  interest
expense and income taxes.  Identifiable assets are those used by each segment of
the Company=s  operations.  Corporate  assets are primarily  cash and marketable
securities.

NOTE 10           -   SUBSEQUENT EVENTS

     a) Redemption of Preferred Stock

     During January 1998,  Breaking Waves redeemed the remaining 2,800 shares of
its Series A preferred stock for a total of $280,000.

     b) Reverse stock split

     Effective  February 5, 1998,  the Company  effected a 1 for 3 reverse stock
split. The  consolidated  financial  statements give  retroactive  effect of the
reverse stock split. As a result of the reverse stock split, the exercise of the
IPO  warrants  was  revised to provide for a of a share on  exercise,  requiring
three  warrants  at a total of $9.00 to be  exercised  for the  purchase  of one
share.

     c) Private placement

     During  February 1998,  pursuant to a private  transaction the Company sold
300,000 shares of its common stock for a total of $195,000.



                                       12


<PAGE>
                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
Undersigned hereunto duly authorized on the 7th day of April, 1998.



HOLLYWOOD PRODUCTIONS, INC.



By: \s\ Harold Rashbaum
Harold Rashbaum,
Chief Executive Officer


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

<TABLE>
<CAPTION>

<S>                                         <C>                                                  <C>
\s\ Harold Rashbaum                         Chief Executive Officer,
Harold Rashbaum                             President and Director                               04/07/98
                                            (Principal Executive Officer)                        Date


\s\ Robert DiMilia                          Vice President, Secretary,                           04/07/98
Robert DiMilia                              and Director                                         Date



\s\ Alain A. Guillou, M.D.                  Director                                             04/07/98
Alain A. Le Guillou, M.D.                                                                        Date



\s\ James Frakes                            Director                                             04/07/98
James Frakes                                                                                     Date

</TABLE>