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

                                   (Mark One)

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

                   For the fiscal year ended December 31, 1999

                                       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

                                SHOPNET.COM, INC.
                 (Name of Small Business Issuer in Its Charter)

Delaware                                     13-3871821
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

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

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

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

        Title of Each Class and Name of Each Exchange on Which Registered

                                      NONE

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

                          Common Stock, $.001 par value
                                (Title of Class)

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

     Check if no  disclosure  of  delinquent  filers in  response to Item 405 of
Regulation S-B is contained in this form,  and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB [X].

     The Registrant's  revenues for its fiscal year ended December 31, 1999 were
$4,758,296.

     The  aggregate  market  value  of  the  voting  stock  on  March  31,  2000
(consisting of Common Stock, par value $0.001 per share) held by  non-affiliates
was  approximately  $22,392,671,  based upon the  closing  price for such Common
Stock on said date ($5.06),  as reported by a market maker. On such date,  there
were 6,010,199 shares of Registrant's Common Stock outstanding.
<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

History

     Shopnet.com,  Inc.  (the  "Company" or  "Shopnet")  was founded in December
1995, in the State of Delaware,  as Hollywood  Productions,  Inc.  ("HPI").  Its
purpose was to acquire screenplays and produce motion pictures.

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

     On May 5, 1999, the Company held a special meeting of shareholders at which
it  requested  shareholder  approval  of a  proposal  to  change  its name  from
Hollywood  Productions,  Inc. to Shopnet. The proposal was approved,  and on May
10,  1999,  the Company  effected the name change via filing an amendment to its
Certificate of Incorporation with the Delaware Secretary of State. In accordance
with the name change,  the Company  also changed its Nasdaq  symbols from "FILM"
and "FILMW" to "SPNT" and "SPNTW," respectively.

     On  May  12,  1999,  Shopnet  incorporated  a  new  subsidiary,   Hollywood
Productions,  Inc.  ("Hollywood"),  to which Shopnet assigned its motion picture
business.  As a  result,  Shopnet  is now a  holding  company,  owning  100%  of
Hollywood and Breaking Waves.  Except where  delineation is needed,  Shopnet and
its subsidiaries are referred to herein as the "Company."

Motion Picture Business

General

     The  Company,  in general,  has sought to acquire  screenplays  and produce
motion  pictures  budgeted from $1 million to $3 million.  It also may invest in
the production of motion pictures though it may not receive  absolute  ownership
of either the screenplay, the motion picture, or certain ancillary rights (i.e.,
stage performances or novel adaptations) thereto.

Production

     Since its  inception,  the  Company has  actively  solicited  and  reviewed
screenplays  with  a  view  toward  acquiring  the  rights  to  those  which  it
anticipates  either producing or co-producing.  Typically,  once a screenplay is
acquired (i) a budget is prepared,  (ii)  revisions to the  screenplay are made,
(iii) the talent,  production  crews,  and all ancillary  items required for the
filming of the motion picture are hired and/or  otherwise  obtained,  and (iv) a
film  schedule is  established.  Once filming is  complete,  the film is edited,
sound and special effects are added, and a final print is produced.  The Company
then  arranges  private  showings of the film and elicits  foreign and  domestic
distributors therefor.


<PAGE>
         Production of a motion  picture  requires  approximately  five to eight
weeks of filming followed by approximately  fourteen weeks of editing and adding
sound and special  effects.  An additional  twelve to sixteen weeks generally is
required in order to secure a distributor  for the film.  If the Company  cannot
find a  distributor,  it will attempt to distribute  the film itself.  Once this
process is  complete,  the film will be ready for  release to  theaters or other
distribution channels. See "--Distribution, Billing and Revenues."

Distribution, Billing and Revenues

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

         The Company  expects that the films it produces will be distributed and
shown at movie theaters.  Once a film is distributed  throughout theaters in the
United  States,  it may be  distributed  in markets  throughout  the  world.  In
addition,  the film may be distributed  through public or cable television - via
pay-per-view,  premium,  and standard  channels - and/or 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 it distributes under the laws of all applicable jurisdictions.

         The Company estimates that between 12 and 18 months will elapse between
the  commencement  of  expenditures  by  the  Company  in the  acquisition  of a
screenplay,  the  production of a motion  picture,  and the release of same. The
Company  does not expect to receive  revenues  from the  exploitation  of a film
until  approximately  24 to 36 weeks after its release.  Billing in the industry
typically occurs quarterly:  theaters pay distributors on a quarterly basis, and
the Company is paid the following quarter. In the event a distributor desires to
distribute one of the Company's films,  however, such distributor may either (i)
offer an initial  payment to the  Company  against,  or in addition  to,  future
royalties or (ii) purchase the film outright.


<PAGE>
Production of "Dirty Laundry"

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

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

         Pursuant  to  the  terms  of  the  Purchase  Agreement  and  Production
Agreement,  the Company  financed  all but  $100,000  (which was invested by the
co-producer)  of the  production  costs  of  Dirty  Laundry.  Pursuant  to these
agreements  as well as the terms of the  participation  agreements  entered into
with the two stars of Dirty Laundry,  each of Jay Thomas and Tess Harper had the
right to receive $50,000 against a 5% participation  fee from the first revenues
received by the Company.  To date, Mr. Thomas and Ms. Harper each have been paid
approximately  $49,000  from funds which were  received by the Company  from the
licensing - by the  Company's  foreign  sales agent  (Trident  Releasing,  Inc.,
"Trident") - of the film in several territories in the overseas marketplace.  In
April 1997, Trident entered into one such license agreement with TaurusFilm GmbH
& Co. ("TF") whereby TF agreed to distribute a version of the film in Germany in
either a dubbed and/or  subtitled  fashion.  Gross receipts  generated from this
agreement were approximately $120,000.

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


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

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

         The film eventually was released to five New York and three Los Angeles
theaters  whereupon  it had a limited  run during the fall of 1998 and  received
marginal reviews.  Although the Company has been unsuccessful in securing video,
syndicated,  network, and cable television,  and pay-per-view  distribution,  it
intends to continue its efforts to distribute the film.

         Dirty Laundry is a romantic comedy shot in the New York tri-state area.
It stars Jay Thomas as Joey (a dry cleaner going through a mid-life crisis), and
Tess Harper as Beth (a sex advice  columnist  for a woman's  magazine and Joey's
wife of 15 years).  Joey's dry  cleaning  business  is doing  poorly,  and he is
convinced that he is aging prematurely. Given their increasing lack of intimacy,
Beth encourages Joey to seek counseling,  which he does unbeknownst to Beth, who
has become  attracted  to her  chiropractor.  Throughout  the film, a variety of
bizarre  mishaps  occur which  result in the couple's  rekindling  of their lost
romance.  Mr.  Thomas has most recently  co-starred  in the motion  picture "Mr.
Holland's  Opus" and is known for his television work in "Love & War," "Cheers,"
"Murphy Brown," and "Mork & Mindy." Ms. Harper earned a Golden Globe  nomination
for her performance in the film "Tender Mercies" and an Oscar nomination for her
role in the film "Crimes of the Heart."

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


<PAGE>
Production of "Machiavelli Rises"

         In April 1998, the Company entered into a co-production  agreement with
North Folk Films,  Inc.  ("North  Folk") for the  production  of a film entitled
"Machiavelli  Rises."  The  Company  and North Folk  formed a limited  liability
company,  Battle  Studies  Productions,  LLC  ("Battle  Studies"),  to  finance,
produce,  and  distribute  the film which  commenced  production  in April 1998.
Principal  photography  was  completed  in May 1998 at a total cost of $265,000.
Post-production  work on the film was completed in November  1998.  The film was
written,  directed,  and co-produced by Efraim Horowitz and can be characterized
as a contemporary ghost story about power,  greed, love, and Leonardo Da Vinci's
lost notebook.  Total  production  costs to date have  aggregated  approximately
$425,000 of which the Company  has funded 50%. In  accordance  with the terms of
the  co-production  agreement,  the proceeds of the film will be  distributed as
follows:  first,  both  parties  shall  be  entitled  to  recoup  their  initial
investment in the film, at 135% thereof; then, after repayment to the respective
parties of additional  costs incurred by same,  any remaining  proceeds shall be
distributed  50% to North  Folk and 50% to the  Company.  The film was  shown in
January 1999 in both New York and at the Brussels Film Festival.

         More  recently,  in  February  2000,  "Machiavelli  Rises"  was  one of
thirty-eight films showcased at the New York Independent Film Festival ("NYIFF")
in New York City where it was  honored  with the award for Best  Screenplay.  In
addition,  it has been chosen (along with only six other films) for  presentment
at the Los  Angeles  distribution  of the NYIFF on April 28,  2000.  The Company
hopes that its recent exposure and award will result in increased  interest from
the distribution community.

Regulations

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

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

Competition in the Film Industry

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


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

Swimwear Business

General

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

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

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

Products, Design, Supplies and Inventory

         Breaking Waves designs,  manufactures, and sells both private label and
name brand  girl's  swimwear  and  accessories.  It has an office in  Homestead,
Florida  where its  designer  designs  all  styles  for its  swimwear  lines and
accessory items. Each season, roughly 20-25 prints and fabrics are developed for
the "Breaking  Waves" line,  15-18 prints and fabrics are developed for the "All
Waves" line,  and 12-16 prints are  developed  for the "Daffy  Waterwear"  line.
These lines each comprised approximately one-third of Breaking Waves' volume for
the year ended December 31, 1999.

         In designing its children's swimwear,  Breaking Waves adapts certain of
the prints and styles it is provided by Beach Patrol which  management feels are
appropriate  for  children's  wear. Of each fabric or print chosen,  the Company
usually manufactures two swimsuits: a one-piece model and a two-piece model.


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

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

         For the year ended December 31, 1999,  approximately  50%, 40%, and 10%
of  Breaking  Waves'  finished  products  were  purchased  from  two  Indonesian
manufactures  and one Samoan  manufacturer,  respectively,  whereas for the year
ended December 31, 1998, 50%, 40%, and 10% of Breaking Waves' finished  products
were   purchased   from  two   Indonesian   manufacturers   and  one  Philippine
manufacturer.  Although  management of Breaking Waves is of the opinion that the
fabrics and  non-fabric  sub-materials  it uses are readily  available  and that
there are numerous  manufacturers  for such piece goods who offer  similar terms
and prices, there can be no assurance that management is correct in such belief.
The  unavailability of fabrics or the absence of clothiers,  or the availability
of either at  unreasonable  cost,  could  adversely  affect  the  operations  of
Breaking Waves and, hence, the Company.

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

Financing Arrangements

         In August 1997,  Breaking  Waves  terminated  its  accounts  receivable
financing  agreement with NationsBanc and entered into a Factoring and Revolving
Inventory  Loan and  Security  Agreement  (the "Heller  Agreement")  with Heller
Financial,  Inc.  ("Heller") pursuant to which Heller agreed to (i) purchase all
of Breaking  Waves' accounts  receivables,  (ii) provide  advances  against such
accounts receivables, (iii) provide a revolving loan, and (iv) guarantee letters
of credit in excess of $1.5 million as well as provide  certain other  services.
The Company is a guarantor of Breaking Waves' obligations to Heller. The Company
maintains a letter of credit with a financial institution in support of and as a
condition to its factoring  agreement.  The financial  institution  requires the
Company to maintain  $1.15 million on deposit as  collateral  for such letter of
credit.  Breaking  Waves may take advances of up to 85% of the purchase price of
its eligible accounts receivable.


<PAGE>
         Initially,  the  Heller  Agreement  provided  that at the  time  Heller
purchased each receivable, it would charge Breaking Waves a factoring commission
of 1%, but in no event less than $3.00 per  invoice.  In addition  to  advances,
Heller would make revolving loans to Breaking Waves, on Breaking Waves' request,
of up to 50% of eligible  inventory.  Moreover,  Breaking Waves would pay Heller
interest on the daily balance of outstanding advances and revolving loans at the
Base Rate.  "Base Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest  from time to time as  published by the Board
of  Governors  of the  Federal  Reserve  System as the "Bank Prime Loan" rate in
Federal  Reserve  Statistical  Release H.15 (519)  entitled  "Selected  Interest
Rates" or any successor  publication of the Federal Reserve System reporting the
Bank Prime Loan rate or its equivalent, or (b) the Federal Funds effective rate.

         In  December  1998,  Breaking  Waves  and  Heller  amended  the  Heller
Agreement  to provide  (i)  factoring  commissions  of (a) 0.85% on the first $5
million in accounts  sold and assigned to Heller  during each year and (b) 0.65%
on all accounts in excess of $5 million sold and assigned to Heller  during each
year,  but in no event less than $3 per  invoice;  and (ii) on accounts  bearing
terms  greater than 90 days, an increase in commission by 0.25% for each 30 days
or part  thereof that the terms  exceed 60 days.  The  interest  expense paid to
Heller under the Heller Agreement  totaled  approximately  $228,772 for the year
ended December 31, 1999.

Marketing and Sales

         The "Daffy Waterwear" label is sold to department and specialty stores.
The "Breaking  Waves" label is also  distributed  through better  department and
specialty  stores.  The "All Waves" label is sold to mass  merchants and also as
promotional goods in department  stores.  Private label programs are supplied to
several major chains and  department  store groups.  For the year ended December
31, 1999, the "Breaking  Waves," "All Waves," and "Daffy  Waterwear" labels each
accounted for  approximately  1/3 of Breaking  Waves' volume,  and the "Jet Ski"
label accounted for approximately 1% of same.

         Breaking  Waves sells its  swimwear  and  accessory  items  through its
showroom  sales  staff  and  through  independent  sales  representatives.   Its
customers  include the Dillard and Federated  department store groups as well as
Kids R Us, Sears,  Wal-Mart,  T.J. Maxx, Kohl's Department Store, and Marshalls.
Pursuant to a sales  agreement  entered into with Play Co. Toys &  Entertainment
Corp.  ("Play  Co.," (a toy retailer and  publicly  traded  company  whose board
chairman is the  President  of both the Company and  Breaking  Waves),  Breaking
Waves  also  sells its  swimwear  in  certain  of Play  Co.'s toy  stores.  (See
"--Acquisition of Minority Interest in Play Co. Toys & Entertainment Corp.") For
the years ended  December 31, 1999 and 1998,  Breaking  Waves had four and three
concentrations of customers, respectively, comprising 17%, 13%, 12%, and 10% and
13%, 13%, and 11% of net sales, respectively.

         Breaking Waves' merchandise is shipped pursuant to purchase orders sent
by its customers and is sent f.o.b. (freight on board) meaning Breaking Waves is
neither  responsible for the goods during shipment nor for the delivery  charge.
Payment  is due 30 days after  shipment.  No goods are  shipped on  consignment;
therefore,  except for  non-conforming  or damaged goods,  all goods shipped are
considered sold.


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

Internet Sales

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

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

         The  Company  has since  found that most  individual  consumers  do not
purchase  swimwear  until April or May and that the  Company's  website  thus is
ineffective,  for the Company has sold all of its  merchandise  to  retailers by
March,  leaving  nothing for internet  consumers to  purchase.  Accordingly,  at
present,  the  www.breakingwaves.com  website and the two others  created by the
Company in May 1999  (www.usa-shopnet.com  and  www.smallwavesswimwear.com)  lie
dormant.

         Also dormant at present are the two  websites  developed by the Company
last  fall  (www.videonostalgia.com,  www.videooncall.com)  for the  purpose  of
selling full length  motion  pictures and short  subjects on video  cassette and
DVD.  These  sites were  developed  with the  intention  of offering up to 5,000
motion  pictures:  from  musicals,  action and horror films,  and vintage motion
pictures to more contemporary, collector, out of print, genre, and foreign films
and film memorabilia.  In mid-1999,  after extensive  consideration of the costs
required to market and  advertise  these sites and to  purchase  the films,  the
Company decided to delay the launch of these e-commerce websites.

Work in Progress

         Breaking  Waves  manufactures  its swimwear lines from June to December
based on its knowledge of the market and past sales.  Customer orders  generally
start arriving in June and July. Goods are reordered by customers on a continual
basis through the following  June.  The quantity of open purchase  orders at any
date may be affected by, among other things, the timing and recording of orders.
Breaking  Waves does not sell on  consignment  and  accepts  return of only such
products as are imperfect or shipped in error.


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

Trademarks and Licensing; New Product Line

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

         Breaking Waves also entered into a licensing agreement with Kawasaki to
use the trademark "Jet Ski" for a line of girls',  boys', and men's swimwear and
accessories.  In October 1998, the "Jet Ski" line was discontinued.  The license
agreement expired May 31, 1999.

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

         On October  31,1996,  Breaking  Waves entered into a license  agreement
with North-South  Books,  Inc. ("NSB") for the exclusive use of certain art work
and text in the making of swimsuits  and  accessories  in the United  States and
Canada. The agreement expired on March 1, 1999. Breaking Waves recorded $784 and
$4,852 in royalties  under this  agreement  during the years ended  December 31,
1999 and 1998, respectively.


<PAGE>
Competition

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

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

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

Seasonality

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

Employees

         During the year ended  December 31, 1999, the Company had two executive
officers (and one  administrative  assistant) to oversee both its operations and
those  of  Breaking  Waves.  In  January  2000,  the  Company's  secretary  (and
director),  Robert  DiMilia,  resigned  from his position.  Most  screenwriters,
performers,  directors,  and technical  personnel who are or will be involved in
the Company's  films are members of guilds or unions which bargain  collectively
with producers on an  industry-wide  basis from time to time. Any work stoppages
or other labor difficulties could delay the production of the films resulting in
increased production costs and delayed return of investments. Breaking Waves has
three  executive  officers - including two vice  presidents in charge of design,
merchandising, marketing, and sales - and one administrative assistant. Breaking
Waves has approximately  twenty independent road sales people and accounting and
clerical staff.


<PAGE>
Business Risks

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

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

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

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

10% Common Stock Dividend

         On January 7, 2000,  the Company's  Board of Directors  authorized  the
issuance  of a 10% stock  dividend  to all  holders  of shares of the  Company's
common stock, par value $0.001 per share (the "Common Stock"), as of January 20,
1999 (the  "Record  Date").  Pursuant to the terms of the dividend (i) every ten
shares of Common Stock owned by a shareholder  generated one additional share of
Common  Stock and (ii)  owners of five or more  shares  but less than ten shares
were  issued one share of Common  Stock as were owners of five or more shares in
excess of the ten share  "block"  which  generated  the  dividend.  Shareholders
owning  (i)  fewer  than five  shares  in total or (ii) four or fewer  shares in
excess of the ten share "block" did not receive the dividend on such shares. The
dividend was paid on February 1, 2000.


<PAGE>
         The  exercise  terms  of  the  Company's   outstanding   warrants  (the
"Warrants") were adjusted to reflect the dividend such that a warrantholder must
exercise three  Warrants,  at an aggregate  exercise price of $8.10, in order to
purchase two shares of Common Stock. No single shares are issuable.

Consulting Agreement

         In September 1999, the Company entered into a consulting agreement with
Robb Peck McCooey Clearing Corporation  ("RPMCC") pursuant to which RPMCC agreed
to perform  corporate  finance and advisory  services to the Company in exchange
for compensatory  options as follows:  100,000 options  exercisable at $2.50 per
share,  100,000 exercisable at $3.00 per share, 100,000 exercisable at $3.50 per
share,  and 100,000  exercisable at $4.00 per share, all of which options expire
in September 2000.

100% Common Stock Dividend

         On January 14, 1999,  the Company's  Board of Directors  authorized the
issuance of a stock  dividend to all holders of shares of the  Company's  Common
Stock as of January 29, 1999.  Pursuant to such  dividend,  each share of Common
Stock held on January 29, 1999 generated the issuance of one  additional  share.
The dividend was paid on February 5, 1999.

Frankfurt Exchange

         In July  1999,  the  Company's  Common  stock  was  listed on the Third
Segment of the Frankfurt Stock Exchange.

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

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

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


<PAGE>
Private Offerings of Common Stock and Registration Thereof

         In February 1998,  pursuant to private  transactions,  the Company sold
660,000 shares of Common Stock for approximately $195,000. In May 1998, pursuant
to private transactions, the Company sold an additional 770,000 shares of Common
Stock for an aggregate $560,000.  The proceeds from these private offerings were
utilized by the Company for general  working  capital and to fund the  Company's
interest in Battle Studies.

         In May 1998,  the Company  filed a Form S-3  registration  statement to
register the 660,000 shares issued in the February 1998 private placement and an
additional  2,156,770  shares  (adjusted  for the  Company's  stock  splits  and
dividends)  of Common Stock held by the  Company's  then  majority  shareholder,
European  Ventures Corp.  ("EVC"),  a company whose sole officer and director is
related to the Company's president. The registration was deemed effective by the
Securities and Exchange Commission (the "SEC") on July 30, 1998.

Warrant Distribution

         On April 15, 1998,  the  Company's  Board of Directors  authorized  the
distribution of Warrants (the "Distribution  Warrants") to all holders of shares
of the  Company's  Common Stock as of May 8, 1998 (the "Warrant  Record  Date").
Pursuant to the  distribution,  each share held on the Warrant Record Date shall
generate  the  issuance of one  Distribution  Warrant to  purchase  one share of
Common Stock at an exercise price of $4.00 per share. The Distribution Warrants,
which are  exercisable  for a period of three  years  commencing  one year after
issuance,  shall  be  issued  and  distributed  once  the  Company  has  filed a
registration statement for same and same has been declared effective by the SEC.
The Company intends to file the registration statement in the summer of 2000.

One for Three Reverse Split

         In February 1998, the Company effected a one for three reverse split of
its Common Stock.

Initial Public Offering and Acquisition of Breaking Waves, Inc.

         In September 1996, the Company consummated a public offering of 586,667
shares  of  its  Common  Stock  and  1,600,000  Warrants  through  Euro-Atlantic
Securities,  Inc.  ("Euro-Atlantic").  The  Company  received  net  proceeds  of
$3,813,294  from the  offering.  Also  included in the offering  were  1,026,667
shares and 2,000,000  Warrants  registered  for resale by EVC, the then majority
shareholder of the Company.

         Pursuant to a stock  purchase  agreement,  dated May 31, 1996,  entered
into  between  the  Company  and  the   shareholders  of  Breaking  Waves,   the
shareholders  of  Breaking  Waves  exchanged  all of the issued and  outstanding
shares of Breaking Waves common stock for 110,000 shares of the Company's Common
Stock. The acquisition  (the  "Acquisition")  was consummated  contemporaneously
with the closing of the Company's initial public offering.


<PAGE>
         Pursuant  to the terms of the  agreement,  on the  closing  date of the
Acquisition, Breaking Waves performed a recapitalization and exchanged of all of
its  common  stock for new  common  stock and for a series  of  preferred  stock
designated  the  "Series A Preferred  Stock." For each share of Breaking  Waves'
common stock exchanged, the holder received one share of new common stock and 28
shares of Series A Preferred  Stock.  In connection  therewith,  Breaking  Waves
amended its certificate of  incorporation to authorize 5,600 shares of preferred
stock,  designated  as the Series A  Preferred  Stock.  One-half of the Series A
Preferred Stock was redeemable by Breaking Waves at $100 per share on January 1,
1997, and the remaining  one-half was redeemable at $100 per share on January 1,
1998. All Series A Preferred Stock, which had no dividend, conversion, or voting
rights (but had a preference on liquidation  equal to $100 per share),  has been
redeemed.

         Also pursuant to the terms of the agreement,  the Company  replaced the
personal  guarantees  the prior  shareholders  of  Breaking  Waves has issued to
NationsBanc Commercial Corp.  ("NationsBanc"),  in accordance with the Company's
then line of credit.  The Company replaced the guarantees with letters of credit
secured by bank deposits.  The Company  contributed  $100,000 of the proceeds to
the capital of Breaking Waves, and  simultaneously,  Breaking Waves repaid loans
made by Daniel  Stone  and  Susan  Stone in the  aggregate  amount of  $100,000.
Immediately  preceding  the  consummation  of the  Acquisition,  Breaking  Waves
distributed to its  shareholders an amount equal to 45% of the net income before
taxes of Breaking Waves for the period from January 1, 1996 to the closing date.
This was done in order to pay taxes owed by such  shareholders,  since  Breaking
Waves was a subchapter S corporation.

    UNLESS OTHERWISE NOTED, ALL SHARE AND PER SHARE INFORMATION CONTAINED IN
      THIS ANNUAL REPORT REFLECTS RETROACTIVE APPLICATION OF THE COMPANY'S
       REVERSE STOCK SPLIT OF FEBRUARY 1998 AND ITS COMMON STOCK DIVIDENDS
                       OF FEBRUARY 1999 AND FEBRUARY 2000.

ITEM 2.  DESCRIPTION OF PROPERTY

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

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


<PAGE>
ITEM 3.  LEGAL PROCEEDINGS

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

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

         On May 10, 1999, the Company held a special meeting of its shareholders
to vote on a proposal to authorize an amendment to the Company's  Certificate of
Incorporation  to  effect a change  in the name of the  Company  from  Hollywood
Productions, Inc. to Shopnet.com, Inc. The proposal was approved: votes cast for
same  aggregated  2,966,569;  votes cast  against  same  aggregated  9,666;  and
abstentions aggregated 666.


<PAGE>
                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

         The  Company's  Common  Stock is quoted on the  SmallCap  Market of the
Nasdaq Stock Market and the Third Segment of the Frankfurt Stock  Exchange.  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 January 1, 1998 through March 31, 2000. Sales prices reflect prices between
dealers  and do not  include  resale  mark-ups,  mark-downs,  or  other  fees or
commissions.
<TABLE>
<CAPTION>

                                                         Common Stock                         Warrants
Calendar Period                                     Low               High              Low              High

                      1998

<S>                                           <C>               <C>               <C>              <C>
01/01/98 - 02/04/98 (1)                       7/32              5/16              1/32             1/8
02/05/98 - 03/31/98                           2 3/4             3 3/16            1/32             7/32
04/01/98 - 06/30/98                           2 1/16            4 13/16           1/16             1/4
07/01/98 - 09/30/98                           7/16              3/32              1/32             1/8
10/01/98 - 12/31/98                           5/16              1 1/4             1/32             1/16

                    1999 (2)

01/01/99 - 03/31/99                           1/2               2 25/32           1/32             5/16
04/01/99 - 06/30/99                           1 1/16            3 3/32            1/16             13/32
07/01/99 -  09/30/99                          2 1/16            2 3/4             1/8              9/32
10/01/99 - 12/31/99                           2 1/16            3 7/16            1/8              5/16

                      2000

01/01/00 - 03/31/00                           2 9/16            7 23/32           1/8              23/32
</TABLE>

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

(2) The table reflects the price for  post-dividend  shares and  post-adjustment
    Warrants since February 5, 1999.

         As of March 31, 2000,  there were 54 holders of record of the Company's
Common Stock,  although the Company  believes that there are  approximately  900
additional  beneficial  owners of shares of Common Stock held in street name. As
of March 31, 2000,  the number of  outstanding  shares of the  Company's  Common
Stock was 6,010,199.  (This number is subject to change, nominally, as the 2,751
pre-reverse  split and pre-dividend  shares which have not been exchanged as yet
are offered for such exchange by the Company's shareholders.)


<PAGE>
         Initially,  each Warrant  entitled the holders  thereof to purchase one
share of the  Company's  Common  Stock at an exercise  price of $6.50 per share,
until  September 9, 2001.  On June 23, 1997,  the Board of Directors  approved a
reduction in the exercise price of the Warrants from $6.50 to $3.00. On February
5, 1998,  the Company  effected a one for three  reverse  split of the Company's
Common  Stock.  Accordingly,  the Company  adjusted the terms of the Warrants to
reflect the reverse split such that exercise of three Warrants would entitle the
holder to purchase one share of Common Stock at an exercise  price of $9.00.  On
February  5,  1999,  the  Company  issued  a  100%  Common  Stock  dividend  and
accordingly  adjusted  the terms of the  Warrants  such that  exercise  of three
Warrants  at $9.00 would  entitle  the holder to  purchase  two shares of Common
Stock.  On February 1, 2000,  the Company issued a 10% Common Stock dividend and
adjusted  the  terms of the  Warrants  accordingly,  such that  pursuant  to the
existing  terms,  exercise of three Warrants at an aggregate  $8.10 will entitle
the holder thereof to two shares of Common Stock.

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

         On April 15, 1998,  the  Company's  Board of Directors  authorized  the
distribution of Distribution  Warrants to all holders of shares of the Company's
Common  Stock  as of the  May 8,  1998  Warrant  Record  Date.  Pursuant  to the
distribution,  each share held on the  Warrant  Record Date shall  generate  the
issuance of one Distribution Warrant to purchase one share of Common Stock at an
exercise  price of  $4.00  per  share.  The  Distribution  Warrants,  which  are
exercisable  for a period of three  years  commencing  one year after  issuance,
shall be issued  and  distributed  once the  Company  has  filed a  registration
statement for same and same has been declared  effective by the SEC. The Company
intends to file the registration statement in the summer of 2000.

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

Recent Sales of Unregistered Securities

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


<PAGE>
         In September  1996,  simultaneously  with the Company's  initial public
offering and pursuant to a stock purchase agreement, dated May 31, 1996, entered
into between the Company and the  shareholders  of Breaking  Waves,  the Company
issued 110,000 shares of Common Stock to the  shareholders  of Breaking Waves in
exchange for all of said shareholders' issued and outstanding shares of Breaking
Waves common stock

         In February  1998,  in private  transactions,  the Company sold 660,000
shares of Common  Stock to three  entities at a price of $0.295 per share for an
aggregate  price of  $195,000.  These  shares were  purchased  by the  following
accredited investors:  Full Moon Development,  Inc., Volcano Trading,  Inc., and
American Telecom Corp. (whose president, secretary, and a director is related to
the Company's  President).  The private  offering was conducted in reliance upon
Rule 506 of the General Rules and  Regulations  under the Act. The proceeds from
these sales were used by the Company for general working capital and to fund the
Company's interest in Battle Studies. No underwriter was used in connection with
this offering.

         In April 1998, in private transactions, the Company sold 770,000 shares
of Common Stock to three entities at a price of $0.73 per share for an aggregate
price of $560,000.  These  shares were  purchased  by the  following  accredited
investors:  Amir Overseas  Capital,  Ltd., HDS Capital Corp. (whose secretary is
related  to the  Company's  President),  and Galit  Capital,  Ltd.  The  private
offering  was  conducted  in  reliance  upon Rule 506 of the  General  Rules and
Regulations  under the Act.  The  proceeds  from  these  sales  were used by the
Company for general working capital and to fund the Company's interest in Battle
Studies. No underwriter was used in connection with this offering.

         In February  2000, in a private  transaction,  the Company sold 100,000
shares of Common Stock to Value Management & Research, AG for an aggregate price
of $300,000. The private offering was conducted in reliance upon Rule 506 of the
General  Rules and  Regulations  under the Act. The  proceeds  from the sale are
being used by the Company for general  corporate  purposes.  No underwriter  was
used in connection with this offering.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
        CAUTIONARY STATEMENTS ON FORWARD-LOOKING STATEMENTS

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


<PAGE>
General

         Shopnet.com,  Inc. ("Shopnet" or the "Company") was incorporated in the
State of Delaware on December 1, 1995 as Hollywood Productions,  Inc. On May 10,
1999,  Shopnet filed an amendment to its Articles of  Incorporation  effecting a
change in its name to its  current  one.  On May 12,  1999,  it  incorporated  a
wholly-owned subsidiary,  Hollywood Productions, Inc. ("Hollywood"), to which it
assigned  its film  production  business  thereby  rendering  Shopnet  a holding
company for Hollywood and another wholly-owned subsidiary,  Breaking Waves, Inc.
("Breaking  Waves").  Shopnet was formed  initially for the purpose of acquiring
screenplays and producing motion pictures. In September 1996, in connection with
the completion of its Initial Public  Offering  ("IPO"),  it acquired all of the
capital stock of Breaking Waves which  designs,  manufactures,  and  distributes
private and brand name label children's swimwear.

         The consolidated  financial statements at December 31, 1999 include the
accounts  of  Shopnet  and its wholly  owned  subsidiaries,  Breaking  Waves and
Hollywood  (collectively  referred to as the  "Company"  except  where  specific
delineation  is required),  after  elimination of all  significant  intercompany
transactions and accounts.  As of December 31, 1998, the consolidated  financial
statements include the accounts of Shopnet and Breaking Waves.

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

     Year ended  December  31, 1999 as compared to the year ended  December  31,
     1998

Breaking Waves

         For the  years  ended  December  31,  1999  and  1998,  Breaking  Waves
generated net sales of $4,756,497 and $5,156,247 (inclusive of $204,000 of sales
made to an affiliate), respectively with a cost of sales amounting to $3,214,704
and $3,221,238,  respectively.  The decrease in sales amounting to $399,750,  or
approximately  8%,  from  1998 to 1999 was  primarily  attributable  to the late
arrival of goods caused by material delays at ports.  These delays resulted from
companies having  accelerated  their shipments and receipts of goods in order to
avoid any  disruption  anticipated  by the year 2000 issue.  Breaking  Waves was
unable  to  receive  its goods and ship its  orders  on a timely  basis  since a
majority of such goods  remained on board one such ship which was  delayed.  The
gross profit for the year ended  December 31, 1999  amounted to  $1,541,793,  or
32%, as compared to the year ended December 31, 1998 during which it amounted to
$1,935,009, or 38%.


<PAGE>
         Selling,  general,  and administrative  expenses during the years ended
December 31, 1999 and 1998 amounted to $1,503,993 and $1,665,524,  respectively.
The  decrease,   amounting  to  $161,531,  is  primarily   attributable  to  the
discontinuation of its Jet Ski line in the latter part of 1998 and early 1999 in
addition to an effort to reduce overall corporate costs.

         The major  components  of the  Breaking  Waves  selling,  general,  and
administrative expenses are as follows for the years ended December 31:
<TABLE>
<CAPTION>

                                                             1999         1998
                                                             ----         ----
Officers, office staff and
<S>                                                        <C>          <C>
      designer salaries and related benefits .........     $499,642     $554,402
Commission expense ...................................      112,475      123,016
Warehousing costs ....................................      178,479      213,471
 Royalty fees ........................................      173,700      140,989
Rent expense .........................................       96,404       85,917
Factor commissions ...................................       50,956       56,545
Miscellaneous general corporate
       overhead expenses .............................      392,337      491,184
</TABLE>

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

     Play Co.'s operations are highly seasonal with approximately  30-40% of its
net sales  historically  falling  within the last three  months of the  calendar
year.  Accordingly,  the equity  earnings in Play Co. are not  indicative of the
results to be expected if the investment in Play Co. had been consummated at the
beginning of the year.

     The  following  unaudited  pro forma  information  presents  the results of
operations  of  Breaking  Waves for the year ended  December  31, 1998 as if the
investment in Play Co. had been consummated at the beginning of the year:
<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                                                  1998
                                                                               (Unaudited)

<S>                                                                    <C>
                  Net Sales                                            $        5,156,247
                  Cost of Sales                                                 3,221,238
                  Selling, general and administrative expenses                  1,665,524
                  Other Income (Expenses)                                        (315,091)
                  Net Loss                                                        (81,912)

</TABLE>
<PAGE>
         These  unaudited pro forma results of operations have been prepared for
comparative  purposes only and do not purport to be indicative of either (a) the
results of  operations  which would have actually  resulted had the  acquisition
occurred on the date indicated or (b) of future results of operations.

         Breaking  Waves  generated  net  (loss)  income  of  $(1,025,449)   and
$436,420,  respectively, for the years ended December 31, 1999 and 1998 after an
income tax (benefit) provision of $(41,085) and $36,306,  respectively,  for the
years ended  December  31, 1999 and 1998.  The net loss  generated  for the year
ended  December 31, 1999  includes an equity loss pick up of $994,305  from Play
Co. This  equity  loss  reduced  the  carrying  value of Play Co. to $ -0-.  The
remaining  portion of the 1999 net loss, after the equity loss pick up from Play
Co.  and the  gain on the sale of a  portion  of Play  Co.'s  common  stock,  is
primarily  attributable  to a decrease of  approximately  6% in Breaking  Waves'
gross  profit as a result of its  discontinuance  and selling off of the Jet Ski
line.

         Subsequent to December 31, 1999, as a result of the  conversion of Play
Co.'s series E preferred  stock into common  stock,  Breaking  Waves'  ownership
percentage was reduced to 16.9%.  Therefore,  the investment in Play Co. will no
longer be recorded under the equity method.

         Interest expense in connection with its factoring agreement amounted to
$228,772  and  $224,192  for  the  years  ended   December  31,  1999  and  1998
respectively.

Hollywood

         On May  12,  1999,  Shopnet  incorporated  a  wholly-owned  subsidiary,
Hollywood,  to which it assigned its film production business.  All film related
operations  for 1998 and prior to May 12, 1999 were  conducted by Shopnet  under
its former name.

         For the years ended  December  31, 1999 and 1998,  Hollywood  generated
sales from its motion picture "Dirty  Laundry"  amounting to $ -0- and $120,211,
respectively.  Although  sales have been  minimal  since the  completion  of the
motion  picture,  the  Company  expects  increases  in  sales  during  2000  and
thereafter  as a result of a new  marketing  strategy.  Upon a review of the net
realizable  value of the movie costs,  management has determined that a $261,000
write  down was  necessary  as of  December  31,  1999.  Accordingly,  Hollywood
generated a loss for the fiscal year in the approximate amount of $265,000.

Shopnet.com

         For the years  ended  December  31,  1999 and 1998,  Shopnet  generated
minimal  revenue  comprised of interest from its money market and minimal sublet
rental income from its corporate office.

         Shopnet's  selling,  general,  and  administrative  expense amounted to
$630,014  and  $683,986  for  the  years  ended  December  31,  1999  and  1998,
respectively. This represents a decrease of $53,972, or approximately 8%.


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

<TABLE>
<CAPTION>
                                                                                        1999      1998
<S>                                                                                  <C>        <C>
         Salaries  (officer and office staff) and stock compensation
          and related benefits                                                       $231,631   $242,313
         Rent                                                                          74,907     72,257
         Legal and professional fees                                                   61,634     94,767
         Consulting fees                                                               57,824     52,000
         Other general corporate and administrative expenses                          204,018    222,649
</TABLE>

         Shopnet generated a net loss of $614,524 after an income tax expense of
$53,369  for the year ended  December  31,  1999.  The income  tax  expense  was
primarily a result of an increase in the  valuation  allowance  associated  with
some  of  the  Company's  federal  net  operating  losses.  The  Company  has  a
consolidated  net operating loss carry forward of  approximately  $1,860,000 for
federal tax purposes  which is expected to be utilized in the future as a result
of filing  consolidated  federal  income taxes with its  subsidiaries,  Breaking
Waves and Hollywood. For the year ended December 31, 1998, the Company had a net
loss of $334,476 with an income tax benefit of $229,658.

Liquidity and Capital Resources

         At December 31, 1999,  the Company has a consolidated  working  capital
amounting to $797,447.  The Company  anticipates that its current available cash
will be sufficient  for the next twelve months and does not  anticipate any cash
shortfalls.   Breaking  Waves'  ownership  interest  in  Play  Co.  amounted  to
approximately  23% as of December 31, 1999 as evidenced by the 1,270,000  shares
of common stock. Play Co.'s  stockholder's  equity amounted to $16,322,547 as of
December 31, 1999 as to which Breaking Waves' proportionate interest amounted to
$3,754,186.  As of  December  31,  1999,  Breaking  Waves has  written  down its
investment in Play Co. to -0- since pursuant to the equity method of accounting,
it must record its  proportionate  share of Play Co. although such shares have a
material fair market value.

         The Company  considers  highly liquid  investments  with  maturities of
three months or less at the time of purchase to be cash equivalents. Included in
cash are certificates of deposit of $1,150,874.  Shopnet maintains cash deposits
in accounts which are in excess of Federal Deposit Insurance  Corporation limits
by approximately $1,051,000. Shopnet believes that such risk is minimal. Shopnet
maintains a letter of credit with a financial  institution as a condition of its
factoring  agreement.  The financial  institution  requires  Shopnet to maintain
$1,150,000  on deposit as  collateral  for the  letter of credit.  In  addition,
during 1999,  Breaking Waves was required to transfer a $200,000 cash collateral
deposit to its factoring agent. Accordingly, both cash amounts are designated as
restricted.

         For  the  year  ended  December  31,  1999,  the  Company   reported  a
consolidated  net loss of  $1,976,079  after an income tax  provision of $12,273
whereas for the year ended December 31, 1998, the Company reported  consolidated
net income of $30,994 after an income tax benefit of $192,383.


<PAGE>
Investment in Joint Venture

         Pursuant to a co-production agreement dated April 17, 1998, the Company
invested  $212,500 for a 50% interest in a newly formed  entity,  Battle Studies
Productions,  LLC ("Battle  Studies"),  a limited liability company.  North Folk
Films,  Inc., an unrelated party,  also invested  $212,500 for the remaining 50%
interest in Battle Studies. Battle Studies will be treated as a joint venture in
order to co-produce  motion  pictures and to finance the costs of production and
distribution  of such motion  pictures.  The joint venture retains all rights to
the motion pictures, the screenplays, and all ancillary rights attached thereto.
Total production costs to date have aggregated  approximately  $425,000 of which
the Company has funded 50%. In  accordance  with the terms of the  co-production
agreement,  the proceeds of the film will be distributed as follows: first, both
parties  shall be entitled to recoup their  initial  investment  in the film, at
135% thereof;  then,  after  repayment to the  respective  parties of additional
costs incurred by same, any remaining proceeds shall be distributed 50% to North
Folk and 50% to the Company. The film was shown in January 1999 in both New York
and at the Brussels Film Festival.

         More  recently,  in  February  2000,  "Machiavelli  Rises"  was  one of
thirty-eight films showcased at the New York Independent Film Festival ("NYIFF")
in New York City where it was  honored  with the award for Best  Screenplay.  In
addition,  it has been chosen (along with only six other films) for  presentment
at the Los  Angeles  distribution  of the NYIFF on April 28,  2000.  The Company
hopes that its recent exposure and award will result in increased  interest from
the distribution community.

         The Company accounts for the investment in Battle Studies on the equity
method.  Accordingly, as of December 31, 1999, the Company has only recorded its
initial  $212,500  investment in the joint venture since operations have not yet
commenced.

Factoring Arrangements

         On August  20,  1997,  Breaking  Waves  entered  into a  factoring  and
revolving  inventory loan and security  agreement (as amended  December 9, 1998)
with Heller Financial,  Inc.  ("Heller")  pursuant to which Heller agreed to (i)
purchase all of Breaking  Waves'  accounts  receivables,  (ii) provide  advances
against such  accounts  receivables,  (iii) provide a revolving  loan,  and (iv)
guarantee  letters of credit in excess of $1,500,000 as well as provide  certain
other services. Shopnet is a guarantor of Breaking Waves' obligations to Heller.
Shopnet maintains a letter of credit with a financial  institution in support of
and as a  condition  to  its  factoring  agreement.  The  financial  institution
requires Shopnet to maintain $1,150,000 on deposit as collateral for such letter
of credit.  Breaking  Waves may take advances of up to 85% of the purchase price
of its eligible accounts receivable.

         The factoring agreement provides (i) factoring commissions of (a) 0.85%
on the first $5 million in accounts sold and assigned to Heller during each year
and (b) 0.65% on all  accounts  in excess of $5  million  sold and  assigned  to
Heller during each year,  but in no event less than $3 per invoice;  and (ii) on
accounts  bearing terms greater than 90 days, an increase in commission by 0.25%
for each 30 days or part thereof that the terms exceed 60 days. Interest expense
related to this agreement totaled $228,772 and $224,603,  respectively,  for the
years ended  December  31, 1999 and 1998.  Heller has a  continuing  interest in
Breaking  Wave's  inventory as collateral  for the advances.  As of December 31,
1999, the net advances to Breaking Waves from the factor amounted to $1,776,274.


<PAGE>
Capital Lease Obligations

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

         On August 13, 1998, the Company  acquired  various computer and related
components for $28,583 by entering into a capital lease obligation with interest
at approximately 9.2% per annum,  requiring 48 monthly payments of principal and
interest of $762. The lease is secured by the related computer equipment.

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

Lease Commitments

         Shopnet and its  subsidiaries  have entered into lease  agreements  for
administrative offices. Shopnet leases its administrative office pursuant to a 5
year lease expiring  November 30, 2001 at annual rent amounting to approximately
$70,000, before annual escalations. Breaking Waves leased administrative offices
through  January  1998  pursuant  to  a  lease  requiring   annual  payments  of
approximately  $64,000.  Breaking Waves cancelled such lease and  simultaneously
entered into a new lease for additional  space with the same landlord  requiring
annual payments of $71,600 expiring December 2004. Breaking Waves also leases an
offsite  office for one of its  designers  on a month to month basis with annual
payments approximating $11,000.

         Rent expense for the years ended December 31, 1999 and 1998 amounted to
approximately $172,709 and $158,174, respectively.

License Agreements

         On October 16, 1995,  Breaking  Waves entered into a license  agreement
with Beach Patrol, Inc. ("Beach"). Pursuant to the licensing agreement, Breaking
Waves was given the right to use certain  designs for its children's  line under
the "Daffy  Waterwear" label from January 1, 1996 to June 30, 1998.  Thereafter,
the  agreement  provided for a three year  extension,  at the option of Breaking
Waves,  through  and until June 30,  2001.  Breaking  Waves has  exercised  this
option, thereby so extending the agreement.  For its right to use the trademark,
Breaking Waves agreed to pay Beach, subject to certain variables, the greater of
5% of net sales or as follows:  (i) during the first six months, an aggregate of
$75,000,  (ii) during the next twelve  months,  an aggregate  of $85,000,  (iii)
during the final twelve months,  an aggregate of $100,000,  and (iv) during each
of the final three years of the agreement,  an aggregate of $150,000,  $175,000,
and $200,000, respectively. The Company recorded royalties and advertising under
this agreement  totaling  $162,501 and $135,000  during the years ended December
31, 1999 and 1998, respectively.


<PAGE>
         On October 31, 1996,  Breaking  Waves entered into a license  agreement
with North-South  Books,  Inc. ("N-S") for the exclusive use of certain art work
and text in the making of swimsuits  and  accessories  in the United  States and
Canada.  The agreement expired on March 1, 1999. The Company recorded  royalties
totaling $784 and $4,852 under this  agreement  during the years ended  December
31, 1999 and 1998, respectively.

         On October 17, 1997,  Breaking  Waves entered into a license  agreement
with Kawasaki  Motors Corp.,  U.S.A.  ("KMC") with an effective  date of July 1,
1997 for the  exclusive  use of certain  trademarks in the making of swimwear in
the United States.  The fee for the exclusive use of certain  trademarks is five
percent  (5%) of net sales.  The  agreement  expired May 31,  1999.  The Company
recorded  royalties under this agreement  totaling $10,415 and $- 0 - during the
years ended December 31, 1999 and 1998, respectively.

Internet Sales

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

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

         The  Company  has since  found that most  individual  consumers  do not
purchase  swimwear  until April or May and that the  Company's  website  thus is
ineffective,  for the Company has sold all of its  merchandise  to  retailers by
March,  leaving  nothing for internet  consumers to  purchase.  Accordingly,  at
present,  the  www.breakingwaves.com  website and the two others  created by the
Company in May 1999  (www.usa-shopnet.com  and  www.smallwavesswimwear.com)  lie
dormant.

         Also dormant at present are the two  websites  developed by the Company
last  fall  (www.videonostalgia.com,  www.videooncall.com)  for the  purpose  of
selling full length  motion  pictures and short  subjects on video  cassette and
DVD.  These  sites were  developed  with the  intention  of offering up to 5,000
motion  pictures:  from  musicals,  action and horror films,  and vintage motion
pictures to more contemporary, collector, out of print, genre, and foreign films
and film memorabilia.  In mid-1999,  after extensive  consideration of the costs
required to market and  advertise  these sites and to  purchase  the films,  the
Company decided to delay the launch of these e-commerce websites.


<PAGE>
Loans from Play Co.

     In October 1999, the Company  borrowed  $50,000 from Play Co., and Breaking
Waves  borrowed  $200,000  from Play Co. The loans bore  interest at 9% and were
repaid in March 2000.

     In November 1999,  Breaking Waves borrowed  $400,000 from Play Co. pursuant
to a promissory note bearing interest at 9% per annum. Breaking Waves has repaid
$100,000 of the loan, the balance to be remitted on April 30, 2000.

Common Stock Dividend

     On January 7, 2000, the Company declared a 10% common stock dividend to all
shareholders of record as of January 20, 2000. The dividend was paid on February
1, 2000.

Stock Options Granted

     During  April  1999,  the  Company  granted  its  President  and then  Vice
President approximately 50,000 stock options. The options are exercisable at 85%
of the  closing bid price on April 16,  1999.  In  accordance  with the grant of
options, the Company recorded $12,250 as compensation expense.

ITEM 7. FINANCIAL STATEMENTS

                  See attached Financial Statements.

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

                  Not Applicable.
<PAGE>
                                    PART III

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

Officers and Directors

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

<TABLE>
<CAPTION>
         Name                               Age                  Position

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

         Alain Le Guillou, M.D.             43                   Director

         James B. Frakes                    43                   Director

         Jeanne Falletta                    42                   Director

</TABLE>

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

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

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


<PAGE>
     Jeanne  Falletta  was elected  Secretary  of the Company in February  2000.
Since October 1997, Ms. Falletta has been the controller of Breaking Waves where
she has been employed  since  February  1997,  initially  having been hired as a
bookkeeper.  From January 1996 to February  1997,  Ms.  Falletta  consulted with
various  companies as a freelance  accountant.  From  September 1994 to December
1995, Ms. Falletta was employed by Nostalgia Jeans,  Inc. as an accountant.  Ms.
Falletta received a bachelors degree in accounting from the Rochester  Institute
of Technology in 1981.

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

     James  Frakes was  elected  Director of the  Company in January  1998.  Mr.
Frakes was appointed Chief  Financial  Officer and Secretary of Play Co. in July
1997.  In August 1997, he was elected as a Director of Play Co. In January 1998,
Mr. Frakes was appointed  Secretary and Chief Financial  Officer of Toys. He was
elected as a Director  thereof in May 1998.  From June 1990 to March  1997,  Mr.
Frakes was Chief Financial  Officer of Urethane  Technologies,  Inc. ("UTI") and
two of its subsidiaries,  Polymer Development Laboratories, Inc. ("PDL") and BMC
Acquisition,  Inc. These were specialty chemical companies, which focused on the
polyurethane  segment  of the  plastics  industry.  Mr.  Frakes  was  also  Vice
President  and a Director  of UTI  during  this  period.  In March  1997,  three
unsecured  creditors of PDL filed a petition for the  involuntary  bankruptcy of
PDL.  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,   64,  has  been  the  Vice   President   of  Design,
Merchandising, and Production of Breaking Waves since its inception in 1991.

         Michael  Friedland,   62,  has  been  the  Vice  President  of  Design,
Marketing, and Sales of Breaking Waves since its inception in 1991.

         The Company has agreed to indemnify  its officers  and  directors  with
respect to certain liabilities  including  liabilities which may arise under the
Act.  Insofar as  indemnification  for liabilities  arising under the Act may be
permitted  to  directors,  officers,  and  controlling  persons  of the  Company
pursuant to any charter, provision, by-law, contract,  arrangement,  statute, or
otherwise,  the Company has been  advised  that in the opinion of the SEC,  such

<PAGE>
indemnification  is  against  public  policy  as  expressed  in the  Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the Company of expenses incurred or
paid by a  director,  officer,  or  controlling  person  of the  Company  in the
successful defense of any such action,  suit, or proceeding) is asserted by such
director,  officer,  or controlling person of the Company in connection with the
securities  being  registered,  the Company  will,  unless in the opinion of its
counsel the matter has been settled by controlling precedent,  submit to a court
of appropriate  jurisdiction the question whether such  indemnification by it is
against  public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Compliance with Section 16(a) of the Exchange Act.

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's  officers,  directors,  and persons who  beneficially own
more than ten percent of a registered class of the Company's  equity  securities
to file reports of securities  ownership and changes in such  ownership with the
SEC.  Officers,  directors,  and greater than ten percent beneficial owners also
are required by rules  promulgated by the SEC to furnish the Company with copies
of all Section 16(a) forms they file.

         No person ("a  Reporting  Person")  who  during  the fiscal  year ended
December 31, 1999 was a director,  officer, or beneficial owner of more than ten
percent  of the  Company's  Common  Stock  [which is the only  classes of equity
securities of the Company registered under ss.12 of the Securities  Exchange Act
of 1934],  failed to file on a timely basis reports required by ss.16 of the Act
during the most recent fiscal year except that Mr. Rashbaum and Mr. DiMilia have
not filed Forms 4 or Forms 5, and EVC has not filed a Form 5. The  foregoing  is
based  solely  upon a review by the Company of (i) Forms 3 and 4 during the most
recent  fiscal year as furnished to the Company  under Rule  16a-3(e)  under the
Act, (ii) Forms 5 and amendments  thereto  furnished to the Company with respect
to its most recent  fiscal year,  and (iii) any  representation  received by the
Company  from  any  reporting  person  that no  Form 5 is  required,  except  as
described herein.

ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

         The following table provides  certain  information  concerning all Plan
and Non-Plan  (as defined in Item 402 (a)(ii) of  Regulation  S-B)  compensation
awarded to, earned by, or paid to the named executive officer during the periods
ended December 31, 1999, 1998, and 1997:


<PAGE>
<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                             Annual Compensation                             Long-Term Compensation
                                                                                        Awards                        Payouts
                                         ($)        ($)
                                                                                                 Securities
                                                                    Other      Restricted         Underlying              All Other
Name and Principal                                                  Annual    Stock Award(s)      Options/      LTIP       Compen-
Position                    Year         Salary      Bonus         Compen-        ($)              SARs        Payouts     sation
                                                                   sation                            (#)            ($)      ($)

<S>                         <C>          <C>            <C>            <C>              <C>        <C>               <C>        <C>
Harold Rashbaum             1999         162,000        --             --               --         36,667(1)         --         --
  President,  CEO,
  And Director
                            1998         156,000        --             --               --                --         --         --
                            1997         147,000        --             --               --        73,333 (2)         --         --

</TABLE>


(1)      Represents shares of Common Stock underlying an option granted in April
         1999.  Initially,  the option  entitled Mr. Rashbaum to purchase 33,334
         shares at $1.38 per share.  In accordance  with the Company's  February
         2000 10% Common Stock Dividend,  the shares underlying the options have
         been adjusted to 36,667.

(2)      Represents  shares of Common Stock  underlying an granted in March 1997
         under the Company's Senior Management  Incentive Plan.  Initially,  the
         option entitled Mr.  Rashbaum to purchase  100,000 shares at $5.125 per
         share. In March 1998, the Board of Directors approved a revision of the
         terms of the options  granted to Mr.  Rashbaum in accordance with the 1
         for 3 reverse  split of the Company's  Common Stock.  The revised terms
         reduced the number of shares underlying the option to 33,333 shares and
         decreased the exercise  price to $2.93.  In February 1999, the Board of
         Directors  approved a second  revision of the terms in accordance  with
         the  Company's  issuance of a 100% Common Stock  dividend.  The revised
         terms  increased the number of shares  underlying  the option to 66,666
         and decreased the exercise  price from to $1.46.  In February 2000, the
         Board of Directors approved another revision of the terms in accordance
         with the Company's issuance of the 10% Common Stock dividend.  Pursuant
         to the current terms,  Mr.  Rashbaum holds an option to purchase 73,333
         shares of Common  Stock at an  exercise  price of $1.46 per share.  See
         "Senior Management Incentive Plan."

Stock Options

         The  following  table  provides  information  with  respect  to (i) the
exercise of stock options by the named executive  officer during the fiscal year
ended  December  31, 1999 and (ii) the fiscal year end value of all  unexercised
options:
<TABLE>
<CAPTION>

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

                                                                         Number of               Value of
                                                                        Securities              Unexercised
        Name                   Shares               Value               Underlying             In-The-Money
                            Acquired on            Realized             Unexercised          Options/SAR's at
                              Exercise               ($)             Options/SAR's at           FY-End ($)
                                (#)                                     FY-End (#)             Exercisable/
                                                                       Exercisable/            Unexercisable
                                                                       Unexercisable

<S>                              <C>                  <C>              <C>    <C>             <C>      <C>
   Harold Rashbaum               0                    0                73,333/0 (1)           $94,600*/0 (2)

   Harold Rashbaum               0                    0                36,667/0 (3)           $50,234*/0 (2)

</TABLE>


<PAGE>
(reference is made to the table on the previous page)

*Value rounded to the nearest dollar.

(1)    Represents  shares of Common  Stock  underlying  an granted in March 1997
       under the Company's  Senior  Management  Incentive Plan.  Initially,  the
       option  entitled Mr.  Rashbaum to purchase  100,000  shares at $5.125 per
       share.  In March 1998, the Board of Directors  approved a revision of the
       terms of the options granted to Mr. Rashbaum in accordance with the 1 for
       3 reverse split of the Company's  Common Stock. The revised terms reduced
       the number of shares underlying the option to 33,333 shares and decreased
       the exercise  price to $2.93.  In February  1999,  the Board of Directors
       approved a second  revision of the terms in accordance with the Company's
       issuance of a 100% Common Stock dividend. The revised terms increased the
       number of shares  underlying  the  option to  66,666  and  decreased  the
       exercise  price from to $1.46.  In February  2000, the Board of Directors
       approved  another  revision of the terms in accordance with the Company's
       issuance of the 10% Common Stock dividend. Pursuant to the current terms,
       Mr. Rashbaum holds an option to purchase 73,333 shares of Common Stock at
       an exercise price of $1.46 per share.  See "Senior  Management  Incentive
       Plan."

(2)    The closing sales price on December 31, 1999 was $2.75 per share.

(3)    Represents  shares of Common Stock  underlying an option granted in April
       1999.  Initially,  the option  entitled Mr.  Rashbaum to purchase  33,334
       shares at $1.38 per share. In accordance with the Company's February 2000
       10% Common Stock  Dividend,  the shares  underlying the options have been
       adjusted to 36,667.

Employment and Consulting Agreements

Shopnet.com, Inc.

         Before  he  became an  officer  and  director  of the  Company,  Harold
Rashbaum provided  consulting  services to the Company through HBR, a company of
which  he is an  officer  and  director  and of  which  his  wife  is  the  sole
shareholder.  HBR entered  into an oral  consulting  agreement  with the Company
whereby it will  receive 5% of the net profits  received by the Company from the
distribution of "Dirty  Laundry".  In addition,  HBR received  $40,000 and 5,500
shares of the  Company's  Common Stock at the closing of the  Company's  initial
public offering.  From October 1996 through March 1997, Mr. Rashbaum  received a
salary of $104,000  per annum for being an officer and  director of the Company.
In March 1997,  Mr.  Rashbaum's  salary was increased to $156,000 per annum.  In
addition,  Mr.  Rashbaum  received  36,666  shares  of  Common  Stock  under the
Company's Senior  Management  Incentive Plan, one half of which shares vested in
each  of June  1997  and  June  1998.  These  shares  were  sold.  See  "Certain
Relationships and Related Transactions."

Breaking Waves, Inc.

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

         In November  1996,  Breaking Waves entered into  employment  agreements
with each of Malcolm Becker and Michael  Friedland;  these agreements expires in
November  1999.  The  agreements  initially  provided  that  Messrs.  Becker and
Friedland each would be compensated at a salary of $110,000 per annum during the
term of his agreement and that each would be issued  restricted shares of Common

<PAGE>
Stock, subject to a vesting schedule, annually during the term of his agreement.
The number of shares of Common Stock issuable  thereunder is based on the market
value (as  hereinafter  defined) of $25,000 on the date of issuance,  subject to
the  following  vesting  schedule:  (i) 1/2 of the shares issued on November 27,
1996 vested 90 days from issuance, and the balance vested 270 days from the date
of issuance and (ii) for each subsequent annual issuance commencing November 27,
1997, 1/2 of the shares vested six months from issuance,  and the balance vested
on the following anniversary. "Market Value" shall mean (i) $5.00 per share with
respect  to the  shares  issued in  November  1996 and (ii) the  average  of the
closing bid and asked prices for a share of Common Stock for a period of 30 days
ending five days prior to the date of issuance,  as  officially  reported by the
principal  securities  exchange  on  which  the  Common  Stock  is  quoted.  The
agreements include non-disclosure and non-compete clauses.

         In November  1996,  3,667  shares of the  Company's  Common  Stock were
issued to each of Messrs. Becker and Friedland, subject to the aforesaid vesting
schedule.  In November  1997,  15,888 shares of the Company's  Common Stock were
issued to each of Messrs. Becker and Friedland, subject to the aforesaid vesting
schedule.

         In January 1998, Mr.  Friedland's  employment  agreement was amended to
provide  for an  increase  in salary to  $130,000  per annum,  and Mr.  Becker's
employment  agreement  was amended to reflect a reduction  in the amount of time
Mr.  Becker  would be required to devote to the  business of Breaking  Waves,  a
concomitant  reduction  in salary to $60,000 per annum,  and a reduction  in the
number  of shares of  Common  Stock to be issued  (the  number to equal a market
value of $13,636).  In January  1999,  Mr.  Becker's  employment  agreement  was
further amended to reflect an increase in the amount of time Mr. Becker would be
required to devote to the business of Breaking Waves and a concomitant  increase
in salary to $70,000 per annum.

         In November 1998, pursuant to their respective  employment  agreements,
Messrs.  Becker and Friedland were entitled to their final share issuances,  1/2
of which  would have  vested in May 1999,  and the other 1/2 of which would have
vested in November  1999.  Messrs.  Becker and Friedland  agreed to postpone the
issuance,  however,  and in March  2000,  they  amended  such  portion  of their
respective  employment  agreements  as set forth  herein:  Mr.  Becker agreed to
accept his aggregate  78,074 shares in two  allotments,  38,037 shares of Common
Stock to be  issued on May 27,  2000 and  38,037  shares  of Common  Stock to be
issued on November 27, 2000.  Mr.  Friedland also agreed to accept his aggregate
139,471 shares in two allotments,  69,735 shares of Common Stock to be issued on
May 27,  2000 and 69,736  shares of Common  Stock to be issued on  November  27,
2000. Such shares,  when issued, will be fully vested and saleable in accordance
with Rule 144 of the General Rules and Regulations under the Act, as amended. As
part of the foregoing transaction,  each of Messrs. Becker and Friedland granted
an option to BBC Capital Corp.  ("BBC")  allowing same to purchase his shares as
follows: BBC has the right to purchase from each of Messrs. Becker and Friedland
all  shares to be issued to same in May 2000,  for a period of one year from the
date of issuance, at an exercise price of $4.50 per share; likewise, BBC has the
right to purchase  from each of Messrs.  Becker and  Friedland  all shares to be
issued  to same in  November  2000,  for a period  of one year  from the date of
issuance, at an exercise price of $4.50 per share.


<PAGE>
Senior Management Incentive Plan

General

         In May 1996,  the Board of  Directors  adopted  the  Senior  Management
Incentive Plan (the "Management Plan") which was adopted by shareholder consent.
The Management  Plan provides for the issuance of an aggregate of 128,333 shares
of Common Stock  (adjusted  for the February 1998 reverse split and the February
1999 and 2000 Common Stock  dividends) in connection  with the issuance of stock
options and other stock purchase  rights to executive  officers,  key employees,
and consultants.

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

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

         The Management  Plan is to be administered by the Board of Directors or
a committee of the Board if one is appointed for this purpose (the Board or such
committee,  as the case may be, will be referred to in the following description
as the "Administrator").  Members of the Board of Directors who are eligible for
awards or have been  granted  awards may not vote on any matters  affecting  the
administration  of the  Management  Plan or the grant of any  award  thereunder.
Subject to the specific  provisions of the Management  Plan,  the  Administrator
will have the discretion to determine the  recipients of the awards,  the nature
of the awards to be granted,  the dates such  awards will be granted,  the terms
and conditions of awards,  and the interpretation of the Management Plan, except
that any award  granted to any employee of the Company who is also a director of
the Company will also be subject - in the event the  Administrator  of such plan
at the  time  such  award  is  proposed  to be  granted  does  not  satisfy  the
requirements regarding the participation of "disinterested persons" set forth in
Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934,
as amended (the  "Exchange  Act") - to the  approval of an  auxiliary  committee
consisting  of  not  less  than  three  individuals  (all  of  whom  qualify  as
"disinterested  persons" as defined under Rule 16b-3.  In the event the Board of
Directors deems the formation of an auxiliary committee  impractical,  the Board
is  authorized  to approve any award under the  Management  Plan. As of the date
hereof,  the Company  has not yet  determined  who will serve on such  auxiliary
committee,  if one is required.  The  Management  Plan  generally  provides that
unless the  Administrator  determines  otherwise,  each option or right  granted
under the plan will become  exercisable in full upon certain "change of control"
events as described therein.


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

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

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

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

         Payment for shares of Common  Stock  purchased  pursuant to exercise of
stock options may be remitted in cash or by certified check or at the discretion
of the  Administrator (i) by promissory note, (ii) promissory note combined with
cash,  (iii) by shares of Common  Stock  having a fair market value equal to the

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

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

     In March 1997, the Company  granted to each of Mr. Rashbaum and Mr. DiMilia
an option to purchase 73,333 and 36,665 shares, respectively, of Common Stock at
an exercise  price of $1.46 per share,  pursuant  to the  Management  Plan.  See
"Certain Relationships and Related Transactions."

Incentive Stock Rights

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

Stock Appreciation Rights (SARs)

     SARs may be granted to recipients  of stock  options  under the  Management
Plan.  In  the  discretion  of the  Board  of  Directors,  SARs  may be  granted
simultaneously  with, or subsequent  to, the grant of a related stock option and
may be exercised to the extent that the related  option is  exercisable,  except
that no general SAR (as hereinafter defined) may be exercised within a period of
six months of the date of grant of such SAR,  and no SAR granted with respect to
an ISO may be exercised  unless the fair market value of the Common Stock on the
date of exercise  exceeds the exercise price of the ISO. An option holder may be
granted general SARs ("general  SARs"),  limited SARs ("limited SARs"), or both.

<PAGE>
General SARs permit the holder  thereof to receive - without  payment of cash or
property to the Company - cash, shares of Common Stock, or a combination of both
in an amount  determined  by dividing  (i) that  portion,  elected by the option
holder,  of the total  number of shares which the holder is eligible to purchase
multiplied  by the amount,  if any, by which the fair market value of a share of
Common Stock (on the exercise  date)  exceeds the option  exercise  price of the
related  option by (ii) the fair market  value of a share of Common Stock on the
exercise date.  Limited SARs are similar to general SARs except that, unless the
Administrator determines otherwise,  limited SARs may be exercised only during a
prescribed  period  following  the  occurrence  of one or more of the  following
"change of control" transactions: (i) the approval of the Board of Directors and
shareholders of the Company of a consolidation or merger in which the Company is
not the  surviving  corporation,  the  sale of all or  substantially  all of the
assets of the Company,  or the  liquidation or dissolution of the Company,  (ii)
the  commencement  of a tender or exchange offer for the Company's  Common Stock
(or securities  convertible  into Common Stock) without the prior consent of the
Board,  (iii) the  acquisition  of  beneficial  ownership by any person or other
entity  (other than the Company or any employee  benefit  plan  sponsored by the
Company) of  securities  of the Company  representing  25% or more of the voting
power of the Company's outstanding securities,  or (iv) in the event, during any
period of two  consecutive  years or less,  individuals  who at the beginning of
such period  constitute  the entire Board cease to  constitute a majority of the
Board, unless the election, or the nomination for election, of each new director
is approved by at least a majority of the directors then still in office.

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

Restricted Stock Purchase Agreements

         Restricted  share  agreements  provide for the  issuance of  restricted
shares of Common Stock to eligible  participants  under the Management Plan. The
Board of Directors may determine the price to be paid by the participant for the
shares or that the  shares  may be issued  for no  monetary  consideration.  The
shares issued shall be subject to restrictions  for a stated  restricted  period
during which the  participant  must remain in the  Company's  employ in order to
retain the shares.  Payment may be made in cash,  by  promissory  note, or via a
combination  of both.  In June 1996,  the Company  issued an aggregate of 54,999
restricted  shares under the Management  Plan: (i) each of Mr.  Rashbaum and Mr.
Melillo  received  36,666  shares and (ii) Charles  Rosen,  a consultant  to the
Company,  received  18,333  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, his 18,333 shares were
cancelled by the Company;  likewise,  Mr. Mellilo's 36,666 shares were cancelled
upon his resignation.


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

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

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

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


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

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

Non-Executive Director Stock Option Plan

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

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding beneficial
ownership of the  outstanding  shares of the Company's  Common Stock as of March
31, 2000  (aggregating  6,010,199) by (i) each beneficial owner of 5% or more of
the Company's  Common  Stock;  (ii) each of the  Company's  executive  officers,
directors and key employees;  and (iii) all executive officers,  directors,  and
key  employees as a group.  All numbers  reflected  herein and in the  footnotes
hereto  have been  adjusted  to reflect  the 1 for 3 reverse  split  effected on
February 5, 1998,  the Common Stock  dividend paid on February 5, 1999,  and the
Common Stock dividend paid on February 1, 2000.


<TABLE>
<CAPTION>
------------------------------------------ ------------------------------------ --------------------------------------
            Name and Address                        Number of Shares            Percent of Common Stock Beneficially
           of Beneficial Owner                   Beneficially Owned (1)                     Owned (2)(3)
           -------------------                   ------------------                         -----
<S>      <C>                                          <C>       <C>                             <C>
European Ventures Corp.
P.O. Box 47                                           1,486,370 (4)                             24.7%
Road Town,
Tortola, British Virgin Islands

Harold Rashbaum
c/o Shopnet.com, Inc.                                  210,000(5)                               3.4%
14 East 60th Street, Suite 402
New York, New York 10022

<PAGE>
(table continued from previous page)
            Name and Address                        Number of Shares            Percent of Common Stock Beneficially
           of Beneficial Owner                   Beneficially Owned (1)                     Owned (2)(3)
           -------------------                   ------------------                         -----

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

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

All Officers and Directors as a Group
(four persons)                                              210,000(5)                          3.4%

------------------------------------------ ------------------------------------ --------------------------------------
</TABLE>

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

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

(3)  Does not give  effect to the  issuance  of (i)  2,560,000  shares of Common
     Stock  issuable  upon  exercise  of  the  3,840,000  outstanding  Warrants,
     pursuant to the following terms: exercise of three warrants at an aggregate
     exercise  price of $8.10 will  entitle the holder  thereof to two shares of
     Common Stock or (ii) 128,333  shares of Common Stock  reserved for issuance
     under the Company's Senior Management Incentive Plan.

(4)  Includes  1,600 shares of Common Stock  underlying  2,400 Warrants owned by
     EVC, the president of which is the son-in-law of the Company's president.

(5)  Includes 110,000 shares of Common Stock underlying options.  See "Executive
     Compensation."

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In  November  1999,  Breaking  Waves  borrowed  $400,000  from Play Co.
pursuant to a promissory note bearing  interest at 9% per annum.  Breaking Waves
has repaid $100,000 of the loan, the balance to be repaid on April 30, 2000.

         In October  1999,  the Company  borrowed  $50,000  from Play Co. (a toy
retailer and publicly  traded  company whose board  chairman is the President of
both the Company and Breaking Waves),  and Breaking Waves borrowed $200,000 from
Play Co. The loans bore interest at 9% and were repaid in March 2000.


<PAGE>
         In April 1999, the Company granted options to purchase 36,667 shares to
Mr.  Rashbaum and 18,335 shares to Mr.  DiMilia.  The options are exercisable at
$1.38 per share.

         On  February  1, 1999,  the  Company  loaned  $100,000  to Play Co. and
received in exchange  therefor an unsecured  promissory note bearing interest at
9% per  annum.  The note was paid in full.  In each of April and May  1999,  the
Company loaned an additional  $100,000 to Play Co.  pursuant to unsecured  notes
bearing interest at 9% per annum. All notes have been repaid.

         On November 24, 1998, pursuant to a sales agreement entered into by and
between  Breaking  Waves and Play Co.,  Breaking  Waves  purchased  1.4  million
unregistered  shares of Play Co.'s  Common Stock in a private  transaction.  The
shares purchased represented  approximately 25.4% of the then total Common Stock
issued and outstanding after the transaction.  Pursuant to the agreement - which
bore an initial term of one year and  automatically  extended for an  additional
one year term since it was not  terminated  by either of the  parties - Play Co.
agreed to purchase (on a wholesale basis) a minimum of 250 pieces of merchandise
for  each  of its  retail  locations  and  to  provide  advertising  promotional
materials and ads of the  merchandise in all of its  brochures,  advertisements,
catalogs, and all other promotional materials, merchandising programs, and sales
promotion methods. Breaking Waves had previously sold a limited number of pieces
of its  swimwear  to Play Co. As  consideration  for the stock,  Breaking  Waves
remitted  $504,000,  which  represented an approximate price of $0.36 per share:
$300,000 of the consideration  was remitted in cash, and the remaining  $204,000
was provided in the form of merchandise, primarily girls' swimsuits.

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

     In April 1998, the Company  completed a private placement of 770,000 shares
of the Company's  Common Stock at a price of $0.73 per share. HDS Capital Corp.,
a company  whose  secretary  is related to the  Company's  President,  purchased
275,000 such shares thereby.  See "Description of Business-Private  Offerings of
Common Stock and Registration Thereof."

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

         In February 1998, the Company  completed a private placement of 660,000
shares of the  Company's  Common Stock at a price of $0.295 per share.  American
Telecom  Corporation,  a company whose president,  secretary,  and a director is
related to the  Company's  President,  purchased  220,000  shares  thereby.  See
"Description  of  Business-Private  Offerings of Common  Stock and  Registration
Thereof."

         During the years ended  December 31, 1999,  1998, and 1997, the Company
remitted $24,000,  $27,000, and $69,500,  respectively,  in financial consulting
fees to DRA  Consulting,  Inc.,  a company  whose  president  is  related to the
Company's President.


<PAGE>
     In March 1997,  the Company  granted to each of Harold  Rashbaum and Robert
DiMilia an option to  purchase  100,000  and 50,000  pre-reverse  split  shares,
respectively, of Common Stock at an exercise price of $5.125 per share, pursuant
to the  Management  Plan.  The terms of such options were revised in  accordance
with the  February  1998  reverse  split of the  Company's  Common Stock and the
February  1999 Common  Stock  dividend to provide for the purchase of 66,666 and
33,332  shares,  respectively,  at  $1.46  per  share.  In  accordance  with the
Company's  February  2000 Common Stock  dividend,  the terms of the options were
amended  again to provide that Mr.  Rashbaum  has the option to purchase  73,333
shares of Common Stock and Mr. DiMilia has the option to purchase  36,665 shares
of Common Stock.  The terms of See "Executive  Compensation - Senior  Management
Incentive Plan."

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

     In June 1996,  the  Company  issued  36,666  shares of Common  Stock to Mr.
Melillo  under the  Management  Plan.  The shares were to vest at the rate of in
each of June 1997 and 1998. On January 10, 1997, Mr. Melillo resigned and agreed
to return 18,333 shares to the Company.  Mr.  Melillo  failed to comply with the
terms of his  resignation;  therefore,  all 36,666  shares were  cancelled.  See
"Executive Compensation - Senior Management Incentive Plan."

     Before he became an Officer  and  Director  of the  Company,  Mr.  Rashbaum
provided  consulting  services to the Company through HBR, a company of which he
is an officer and  director and of which his wife is the sole  shareholder.  HBR
entered  into an oral  consulting  agreement  with the  Company  whereby it will
receive 5% of the net profits  received by the Company from the  distribution of
Dirty  Laundry.  In  addition,  HBR  received  $40,000  and 5,500  shares of the
Company's Common Stock at the closing of the Company's  initial public offering.
From October 1996 through March 1997, Mr. Rashbaum received a salary of $104,000
per annum for being an officer and director of the Company.  In March 1997,  Mr.
Rashbaum's salary was increased to $156,000 per annum. In addition, Mr. Rashbaum
received  73,333 shares of Common Stock under the  Management  Plan, one half of
which  shares  vested  in  each of June  1997  and  June  1998.  See  "Executive
Compensation - Employment and Consulting Agreements."

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


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

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

<S>                                                                                                <C>
         Index to Financial Statements                                                           F-0
         Report of Independent Certified Public Accountants                                      F-1
         Balance Sheets                                                                          F-2
         Statements of Operations                                                                F-3
         Statement of Stockholders' Equity                                                       F-4
         Statements of Cash Flows                                                                F-5 to F-6
         Notes to Financial Statements                                                           F-7 to F-26
</TABLE>

(b) No  reports on Form 8-K were  filed  during  the last  quarter of the period
covered by this report.

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

<S>                      <C>
  3.1                    Certificate of Incorporation of the Company
  3.2                    Amendment to Certificate of Incorporation of the Company, filed in June 7, 1996
  3.4                    By-Laws of the Company
  3.6                    Certificate of Incorporation of Breaking Waves, Inc.
  3.7                    By-Laws of Breaking Waves, Inc.
  3.8*                   Certificate of Amendment to Certificate of Incorporation
  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
  4.5                    Form of Restricted Stock Agreement
 10.2                    The Company's Senior Management Incentive Plan
 10.4                    Consulting Agreement between Breaking Waves, Inc. and Dan Stone
 10.5                    Lease for premises at 112 West 34th Street, New York, New York
 10.6                    Lease for premises at 8410 N.W. 53rd Terrace, Miami, Florida
 10.6(a)                 Amendment to lease at 8410 N.W. 53rd Terrace, Miami, Florida
 10.7                    Stock Purchase  Agreement  between the Company,  European  Ventures Corp.,  Breaking Waves,

<PAGE>
 10.9                    Property Acquisition  Agreement between the Company and Rogue Features,  Inc., dated March,
 10.10                   Co-production  agreement  between the Company and Rogue Features,  Inc., dated March,  1996
 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
 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
 10.17                   Employment  Agreement  with Malcolm  Becker  (incorporated  by  reference to the  indicated
 10.18                   Termination of Employment  Agreement with Robert Melillo  (incorporated by reference to the
 10.19                   Trident  Releasing,  Inc.  License  Agreement  (incorporated  by reference to the indicated
 10.20                   Cyclone  Option  Agreement  (incorporated  by  reference  to the  indicated  exhibit in the
 10.21                   Cyclone  Co-Writer  Agreement  (incorporated  by reference to the indicated  exhibit in the
 10.22                   Heller  Financial  Agreement  (incorporated  by reference to the  indicated  exhibit in the
 10.23                   Non-Executive  Director Stock Option Plan  (incorporated  by reference to Appendix B in the
 10.24                   Kawasaki Motors Corp.,  USA "Jet Ski" License  Agreement  (incorporated by reference to the
 10.25                   Amendment to lease at 112 West 34th Street,  New York, New York  (incorporated by reference
 10.26                   Form of Subscription  Agreement used in connection with the Company's February 1998 Private
 10.27                   Form of  Subscription  Agreement  used in  connection  with the  Company's May 1998 Private
 10.28                   Amendment  to  Employment   Agreement  with  Michael   Friedland   dated  January  1,  1998
 10.29                   Amendment to Employment  Agreement with Malcolm Becker dated January 1, 1998  (incorporated
 10.30                   Second  Amendment  to  Employment  Agreement  with  Malcolm  Becker  dated  January 1, 1999
 10.31                   Lease for premises at 14 East 60th Street,  Room 402, New York, New York  (incorporated  by
 10.32                   Option  Agreement - Robb Peck McCooey  Clearing  Corporation  (incorporated by reference to
 16.1                    Letter from Scarano & Tomaro,  P.C.  regarding  dismissal of Scarano & Tomaro,  P.C. as the
 21.1*                   Subsidiaries of the Registrant
 27.1*                   Financial Data Schedule
</TABLE>
<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 10th day of April, 2000.

                                                               Shopnet.com, Inc.



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

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

<S>                                         <C>                                 <C>
/s/ Harold Rashbaum                         Chief Executive Officer,            04/10/00
Harold Rashbaum                             President, and Director             Date


/s/ Alain Guillou, M.D.                     Director                            04/10/00
Alain Le Guillou, M.D.                                                          Date

/s/ James B. Frakes                         Director                            04/10/00
James B. Frakes                                                                 Date

</TABLE>
<PAGE>
                       SHOPNET. COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                        CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998


<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




<TABLE>
<CAPTION>

                                                                                              Page
                                                                                             number

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

Consolidated balance sheet at December 31, 1999                                                F-2

Consolidated statements of operations for the years ended
 December 31, 1999 and 1998                                                                    F-3

Consolidated statement of stockholders' equity for the years ended
 December 31, 1999 and 1998                                                                    F-4

Consolidated statements of cash flows for the years ended
 December 31, 1999 and 1998                                                                 F-5 - F-6

Notes to consolidated financial statements                                                 F-7 - F-26

</TABLE>

<PAGE>
                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors and Stockholders of
Shopnet.com, Inc. (formerly Hollywood Productions, Inc.)

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

Massella, Tomaro & Co., LLP
Jericho, New York
February 25, 2000, except for
Note 12 as to which
the date is March 29, 2000



<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1999

                                     ASSETS

<TABLE>
<CAPTION>
Current assets:
<S>      <C>                                                                                             <C>
    Cash $ ......................................................................................        24,479
    Cash - restricted ...........................................................................     1,351,760
    Accounts receivable, net ....................................................................        31,104
    Prepaid expenses ............................................................................        70,659
    Inventory ...................................................................................     2,862,053
    Advances to officer .........................................................................        40,000
    Deferred tax asset ..........................................................................        55,000

         Total current assets ...................................................................     4,435,055
                                                                                                    -----------

Furniture, computer equipment, and leasehold improvements, net ..................................        67,817
Film production and distribution costs, net .....................................................     1,693,564
Costs in excess of net assets of business acquired ..............................................       833,689
Investments in joint venture ....................................................................       212,500
Organizational costs, net .......................................................................        25,000
Deferred tax asset - non current ................................................................       139,360
Other assets ....................................................................................        20,635
                                                                                                    -----------
         Total assets ...........................................................................   $ 7,427,620
                                                                                                    ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable ............................................................................   $   279,718
    Accrued expenses ............................................................................       908,357
    Due to factor ...............................................................................     1,776,274
     Due to related party .......................................................................       650,000
    Capital lease obligations ...................................................................        16,359
    Deferred tax liability ......................................................................         6,900
                                                                                                    -----------
         Total current liabilities ..............................................................     3,637,608
                                                                                                    -----------

Capital lease obligations, net of current portion ...............................................        29,120
                                                                                                    -----------

         Total liabilities ......................................................................     3,666,728
                                                                                                    -----------

Commitments and contingencies (Note 9) ..........................................................          --

Stockholders' equity:
    Common stock - $.001 par value, 20,000,000 shares authorized,
     6,127,009 shares issued, outstanding and subscribed (Notes 1 and 13) .......................         6,127
    Additional paid-in capital ..................................................................     6,345,299
    Accumulated deficit                                                                              (2,590,534)
         Total stockholders' equity .............................................................     3,760,892
                                                                                                    -----------

Total liabilities and stockholders' equity ......................................................   $ 7,427,620
                                                                                                    ===========
</TABLE>

           See accompanying notes to consolidated financial statements

<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                        FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>


                                                                                                  1999                    1998

<S>                                                                                    <C>                    <C>
Net sales                                                                              $         4,758,296    $          5,276,459

Cost of sales                                                                                    3,214,704               3,343,364
                                                                                       -------------------    --------------------

Gross profit                                                                                     1,543,592               1,933,095
                                                                                       -------------------    --------------------

Expenses:
    Selling, general, and administrative expenses                                                2,137,895               2,349,510
    Amortization of costs in excess of net assets of business
    acquired                                                                                        70,952                  70,952
                                                                                       -------------------    --------------------

Total expenses                                                                                   2,208,847               2,420,462
                                                                                       -------------------    --------------------

Loss before other income (expense)
 and provision for income taxes                                                                   (665,255)               (487,367)
                                                                                       --------------------   ---------------------

Other income (expense):
    Equity in (loss) earnings of affiliate                                                        (994,305)                473,270
     Write down of film costs                                                                     (261,153)                      -
     Gain on sale of equity investment in affiliate                                                130,093                       -
    Rental income                                                                                   13,750                  15,947
    Cancellation (issuance) of stock issued in lieu of compensation                                      -                  62,500
    Public offering costs                                                                                -                 (91,385)
    Interest and finance expense                                                                  (243,148)               (224,603)
    Interest income                                                                                 56,212                  90,249
                                                                                       -------------------    --------------------
         Total other income (expense)                                                           (1,298,551)                325,978
                                                                                       --------------------   --------------------

Loss before (benefit) provision for
 income taxes                                                                                   (1,963,806)               (161,389)

Provision for (benefit of) income taxes                                                             12,273                (192,383)
                                                                                       -------------------    ---------------------

Net (loss) income                                                                               (1,976,079)                 30,994

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

Comprehensive net (loss) income                                                        $        (1,976,079)   $             30,994
                                                                                       --------------------   --------------------

Basic:
    Net (loss) income                                                                  $              (.33)   $                .01
                                                                                       ====================   ====================

Weighted average number of
 common shares outstanding                                                                       5,983,188               4,990,554
                                                                                       ===================    ====================
</TABLE>

           See accompanying notes to consolidated financial statements
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<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, 1997               4,499,612     $       4,499    $   5,615,809     $    (645,449)   $   4,974,859

Sale of common stock                        1,430,000             1,430          753,552               -            754,982

Cancellation of common stock
 in connection with Senior
 Management Plan                              (18,335)              (18)         (62,482)              -            (62,500)

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

Balances at December 31, 1998               5,911,277             5,911        6,306,879          (614,455)       5,698,335

Stock due pursuant to employment
     agreements                               215,732               216           38,420                 -           38,636

Net loss for the year ended
 December 31, 1999                                -                 -                -           (1,976,079)     (1,976,079)
                                        -------------     -------------    -------------     -------------    -------------
Balances at December 31, 1999               6,127,009       $    6,127       $ 6,345,299      $  (2,590,534)   $  3,760,892
                                        =============     =============    =============     ==============   =============
</TABLE>

           See accompanying notes to consolidated financial statements

<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                                       1999               1998
                                                                                  --------------    ----------

Cash flows from operating activities:

<S>                                                                               <C>               <C>
   Net income (loss)                                                              $   (1,976,079)   $       30,994
   Adjustments to reconcile net income (loss) to net
    cash (used for) operating activities:
       Equity loss (earnings) in affiliate                                               994,305          (473,270)
       Amortization and depreciation                                                     114,974           283,584
       Expensing of deferred offering cost                                                     -            87,385
       Sale of inventory to acquire common stock                                               -          (204,000)
       Deferred income tax (benefit) expense                                              (8,961)         (195,660)
       Write down of film costs                                                          261,153                 -
       Stock issued for services rendered                                                 38,636           (62,500)
       Decrease (increase) in:
          Accounts receivable                                                             22,124           (29,911)
          Prepaid expenses                                                               (17,991)           (6,427)
          Inventory                                                                     (199,050)         (279,811)
          Film production costs                                                          (53,495)         (277,378)
          Security deposits                                                                    -            (1,533)
       Increase (decrease) in:
          Accounts payable                                                               209,516           (64,216)
          Accrued expenses                                                               368,153           336,743
          Due to factor                                                                 (287,280)          312,660
                                                                                  ---------------   --------------

Net cash (used for) operating activities                                                (533,995)         (543,340)
                                                                                  ---------------   ---------------

Cash flows from investing activities:

   Proceeds from sale of investment in affiliate                                         130,093                 -
   Acquisition of furniture, computer equipment, and
     leasehold improvements                                                               (7,964)          (10,891)
   Acquisition costs                                                                     (17,035)                -
   Investment in common stock of affiliate                                                     -          (300,000)
   Investment in joint venture                                                           (12,500)         (200,000)
   Subsidiary's redemption of preferred stock                                                  -          (280,000)
                                                                                  --------------    ---------------

Net cash provided by (used for) investing activities                                      92,594          (790,891)
                                                                                  --------------    ---------------

Cash flows from financing activities:

   Sale of common stock                                                                        -           754,982
   Advances from related parties                                                         650,000            40,028
   Repayments to related parties                                                        (130,000)                -
   Principal payments on capital leases                                                  (11,886)           (4,234)
                                                                                  ---------------   ---------------

Net cash provided by financing activities                                                508,114           790,776
                                                                                  --------------    --------------

Net increase (decrease) in cash                                                           66,713          (543,455)

Cash, beginning of period                                                              1,309,526         1,852,981
                                                                                  --------------    --------------

Cash, end of period                                                               $    1,376,239    $    1,309,526
                                                                                  ==============    ==============
</TABLE>

          See accompanying notes to consolidated financial statements.
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998

<TABLE>
<CAPTION>


                                                                              1999                      1998
                                                                          ------------              --------

Supplemental disclosure of non-cash flow information:
 Cash paid during the year
    for:
<S>                                                                    <C>                       <C>
         Interest                                                      $         235,098         $        224,603
                                                                       =================         ================
         Income taxes                                                  $          16,225         $          3,277
                                                                       =================         ================

In connection with the issuance (cancellation) of
    compensation, 215,732 and 18,335 shares of
     common stock were issued (cancelled), respectively                $          50,886         $        (62,500)
                                                                       =================         =================

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

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

</TABLE>
          See accompanying notes to consolidated financial statements.
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 1       -    ORGANIZATION

                  Shopnet.com,  Inc. (the  "Company")  was  incorporated  in the
                  State of  Delaware  on  December  1,  1995  under  the name of
                  Hollywood  Productions,  Inc.  The  Company was formed for the
                  purpose  of  acquiring   screenplays   and  producing   motion
                  pictures.  On May 10, 1999,  the Company filed an amendment to
                  its   Articles  of   Incorporation   to  change  its  name  to
                  Shopnet.com,  Inc. In  accordance  with the name  change,  the
                  Company  also  changed  its  Nasdaq  symbols  from  "FILM" and
                  "FILMW" to "SPNT" and SPNTW,"  respectively.  On May 12, 1999,
                  the  Company  incorporated  a  new  wholly  owned  subsidiary,
                  Hollywood  Productions,  Inc.  ("Hollywood"),   to  which  the
                  Company has assigned all of its film rights. Accordingly,  the
                  Company is  considered  a holding  Company.  During  September
                  1996, simultaneously with the completion of its Initial Public
                  Offering  ("IPO"),  the  Company  acquired  all of the capital
                  stock of Breaking Waves,  Inc.  ("Breaking  Waves").  Breaking
                  Waves designs, manufactures, and distributes private and brand
                  name labels of children's swimwear nationally.

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

NOTE 2       -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            a)    Principles of Consolidation

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

            b)    Cash and cash equivalents
                  -------------------------

                  The  Company   considers   highly  liquid   investments   with
                  maturities  of three months or less at the time of purchase to
                  be  cash   equivalents.   Included   in  these   amounts   are
                  certificates  of  deposit  of  approximately  $1,151,000.  The
                  Company  maintains  cash  deposits  in  accounts  which are in
                  excess of  Federal  Deposit  Insurance  Corporation  limits by
                  approximately $1,051,000.  The Company believes that such risk
                  is minimal.  The  Company  maintains a letter of credit with a
                  financial   institution   as  a  condition  of  its  factoring
                  agreement.  The financial  institution requires the Company to
                  maintain $1,150,000 on deposit as collateral for the letter of
                  credit. In addition,  during 1999, the Company was required to
                  transfer a $200,000 cash  collateral  deposit to its factoring
                  agent.  Accordingly,  both  cash  amounts  are  designated  as
                  restricted.
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 2       -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

            c)    Inventory

                  Inventory   amounting  to  $2,862,053  at  December  31,  1999
                  consists of finished  goods and is valued at the lower of cost
                  (using  the  first-in,   first-out  method)  or  market.   All
                  inventory is pledged as  collateral  for factored  receivables
                  pursuant   to  a   factoring   agreement   with  a   financial
                  institution.

             d)   Film production and distribution costs
                  --------------------------------------

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

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

                  For the year ended  December 31, 1999, the Company has written
                  down film  production  and  distribution  costs by $261,153 in
                  order to reduce the balance to its  estimated  net  realizable
                  value.

            e)    Income taxes

                  The  Company  accounts  for income  taxes in  accordance  with
                  Statement of Financial  Accounting Standards ("SFAS") No. 109,
                  "Accounting  for Income  Taxes" which  requires the use of the
                  "liability   method"   of   accounting   for   income   taxes.
                  Accordingly,   deferred   tax  assets  and   liabilities   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>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 2       -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

            f)    Revenue and cost recognition
                  ----------------------------

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

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

            g)    Earnings per share
                  ------------------

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

            h)    Use of estimates
                  ----------------

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

            i)    Fair value disclosure at December 31, 1999
                  ------------------------------------------

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


<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 2       -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

            j)    Reclassifications

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

            k)    Deferred compensation

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

            l)    Organizational costs

                  Organizational costs consist of common stock issued in lieu of
                  cash payment for 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.

            m)    Costs in excess of net assets of business acquired

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

            n)    Deferred offering costs

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

            o)    Accounting for stock-based compensation

                  The Company elected to continue to measure  compensation  cost
                  using  Accounting  Principles  Board  Opinion  ("APB") No. 25,
                  "Accounting for Stock Issued to Employees," as is permitted by
                  SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation."
                  Accordingly,  no compensation cost has been recognized for the
                  options  issued under the Incentive Plan as the exercise price
                  and  market  value  at the date of grant  were the  same.  For
                  companies  that choose to continue  applying  APB No. 25, SFAS
                  No. 123 requires certain pro forma  disclosures as if the fair
                  value method had been utilized.  Had compensation cost for the
                  Company's stock- based compensation plan been determined


<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 2       -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

            o)    Accounting for stock-based compensation (cont'd)

                  based on the fair value at the grant  dates for  awards  under
                  the plan  consistent  with the  method  of SFAS no.  123,  the
                  Company's  net income (loss) and earnings per share would have
                  been  reduced  to  the  pro  forma  amounts   indicated  below
<TABLE>
<CAPTION>
                  utilizing the Black-Sholes option pricing model:

                                                                                 1999                1998
                                                                          ----------------     ----------
                  Net income (loss)-
<S>                                                                       <C>                  <C>
                                   as reported                            $     (1,988,329)    $        30,994
                                                                          =================    ===============
                                   pro forma                              $     (2,000,579)    $        30,994
                                                                          =================    ===============

                  Basic EPS -      as reported                            $           (.33)    $           .01
                                                                          =================    ===============
                                   pro forma                              $           (.33)    $           .01
                                                                          =================    ===============
</TABLE>

            p)    Effect of New Accounting Standards

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

            q)    Furniture, Computer Equipment, and Leasehold Improvements

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

             r)   Equity Method of Accounting

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

            s)      Accounts Receivables

                  The Company  utilizes the allowance method for recognizing the
                  collectibility  of its  accounts  receivables.  The  allowance
                  method  recognizes  bad debt expense  based on a review of the
                  individual  accounts  outstanding  based  on  the  surrounding
                  facts.  As of  December  31,  1999,  no  allowance  was deemed
                  necessary by management.


<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998


NOTE 3   -        FURNITURE, COMPUTER EQUIPMENT & LEASEHOLD IMPROVEMENTS

                      Furniture,  computer equipment, and leasehold improvements
                       are as follows at December 31, 1999:
<TABLE>
<CAPTION>

<S>                                                                             <C>
                           Furniture & fixtures                                 $         37,944
                           Computer equipment and software                                72,630
                           Leasehold improvements                                          5,946
                                                                                ----------------
                                                                                         116,520

                           Less: accumulated depreciation
                                    and amortization                                      48,703
                                                                                ----------------
                                                                                $         67,817
</TABLE>


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

                  Depreciation  and  amortization  expense  for the years  ended
                  December  31, 1999 and 1998  amounted to $19,023 and  $11,340,
                  respectively.

NOTE 4 -          ACQUISITION OF BREAKING WAVES, INC.

                  Pursuant to a stock purchase agreement dated May 31, 1996 (the
                  "Agreement"),  on  September  24,  1996,  the  Company  issued
                  110,000  shares of  common  stock in  exchange  for all of the
                  issued and outstanding  capital stock of Breaking  Waves.  The
                  transaction  was  accounted  for using the purchase  method of
                  accounting.  As a result  of the  transaction,  excess of cost
                  over net assets acquired totaling  $1,064,283 was recorded and
                  is being amortized over the useful lives of the related assets
                  which is fifteen years.  Amortization  expense totaled $70,952
                  for each of the years ended December 31, 1999 and 1998.

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


<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 5   -        INVESTMENTS IN JOINT VENTURE AND AFFILIATE

            a)    Investment in Joint Venture

                  Pursuant to a  co-production  agreement  dated April 17, 1998,
                  the Company  invested  $212,500  for a 50% interest in a newly
                  formed  entity,  Battle  Studies  Productions,   LLC  ("Battle
                  Studies") a limited liability company.  North Folk Films, Inc.
                  ("NFF"),  an unrelated party,  also invested  $212,500 for the
                  remaining 50% interest in Battle Studies.  Battle Studies will
                  be treated as a joint  venture in order to  co-produce  motion
                  pictures   and  to  finance  the  costs  of   production   and
                  distribution  of  such  motion  pictures.  The  joint  venture
                  retains all rights to the motion  pictures,  the  screenplays,
                  and all ancillary  rights  attached  thereto.  During the year
                  ended  December 31, 1999 and  subsequent  thereto,  the motion
                  picture was shown at various film festivals.

                  The Company  accounts for the  investment in Battle Studies on
                  the equity method.  Accordingly,  as of December 31, 1999, the
                  Company has only recorded its initial  $212,500  investment in
                  the  joint  venture  since  no  operations  have  begun  as of
                  December 31, 1999.

         b)       Investment in Affiliate

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

                  Breaking Waves  accounts for its  investment  under the equity
                  method.  For the year ended December 31, 1999,  Breaking Waves
                  recorded a $994,305 equity loss for its proportionate share of
                  Play Co.'s loss for that year. For the year ended December 31,
                  1998,  Breaking Waves recorded $473,270 of equity earnings for
                  its  proportionate  share in Play Co.'s earnings from November
                  24, 1998 to December 31, 1998.

                  During the year  ended  December  31,  1999,  Breaking  Waves'
                  investment  in Play Co. was reduced to $-0- since its share of
                  Play Co.'s loss for 1999 exceeded its cost basis. In addition,
                  during the year ended  December 31, 1999,  as a result of Play
                  Co.'s issuance of additional common stock, and Breaking Waves'
                  sale of 130,000  shares of Play Co.'s common  stock,  Breaking
                  Waves'  percentage  of Play Co's  common  stock was reduced to
                  22.88% as of December 31, 1999.

                  Subsequent to December 31, 1999, as a result of the conversion
                  of Play Co.'s  series E  preferred  stock into  common  stock,
                  Breaking Waves' common stock percentage was reduced

NOTE 5   -        INVESTMENTS IN JOINT VENTURE AND AFFILIATE (cont'd)

           b)     Investment in Affiliate (cont'd)

                  to 16.9%.  Therefore, the investment in Play Co. will be
                  accounted for under the requirements of SFAS
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

                  No. 115, " Accounting for Certain Investments in Debt and
                  Equity Securities."

                  Play Co.'s  operations are highly seasonal with  approximately
                  30-40% of its net sales  historically  falling within the last
                  three months of the  calendar  year.  Accordingly,  the equity
                  earnings in Play Co. are not  indicative  of the results to be
                  expected if the investment in Play Co. was  consummated at the
                  beginning of the year.

                  The  following  unaudited pro forma  information  presents the
                  results  of  operations  of the  Company  for the  year  ended
                  December 31, 1998 as if the  investment in Play Co. on January
                  1, 1998:
<TABLE>
<CAPTION>

                                                                                (Unaudited)
<S>                                                                       <C>
                              Net Sales                                   $      5,276,459
                              Cost of Sales                                      3,343,364
                              Total Expenses                                     2,420,462
                              Other Income (Expenses)                             (192,354)
                              Net Loss                                            (487,338)
                              Net Loss per share                                      (.10)
</TABLE>

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

NOTE 6    -       ACCRUED EXPENSES

                  Accrued  expenses  consist of the  following  at December  31,
                  1999:
<TABLE>
<CAPTION>

<S>                                                                                            <C>
                                   Purchases                                                   $       812,357
                                   Commissions                                                          22,138
                                   Payroll and other taxes                                              15,908
                                   Deferred rent                                                        12,797
                                   Professional fees                                                    11,322
                                   Interest                                                              8,050
                                   Other                                                                25,785
                                                                                               ---------------
                                                                                               $       908,357
</TABLE>

NOTE 7       -    DUE TO FACTOR

                  On August 20, 1997,  Breaking  Waves  entered into a factoring
                  and  revolving  inventory  loan  and  security  agreement  (as
                  amended  December  9,  1998)  with  Heller   Financial,   Inc.
                  ("Heller")  to sell their  interest  in all present and future
                  receivables without recourse. Breaking Waves submits all sales
                  offers to Heller for credit  approval  prior to shipment,  and
                  pays  Heller  a  factoring  commission  of .85%  of the  first
                  $5,000,000 of receivables sold and .65% of receivables sold in
                  excess of $5,000,000  for each year.  Heller  retains from the
                  amount  payable  to  Breaking  Waves a  reserve  for  possible
                  obligations  such as customer  disputes  and  possible  credit
                  losses  on  unapproved  receivables.  Breaking  Waves may take

<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

                  advances of up to 85% of the receivable,  with interest at the
                  rate of 1 3/4% over prime.  In  connection  with the factoring
                  agreement,  the Company agreed to maintain  $1,150,000 of cash
                  in a  segregated  account  in order to  collateralize  standby
                  letters of credit.  In addition,  during 1999, the Company was
                  required to transfer an additional  $200,000  cash  collateral
                  deposit to Heller.  Interest expense related to this agreement
                  totaled  $228,772 and  $224,603,  respectively,  for the years
                  ended  December  31,  1999 and 1998.  Heller has a  continuing
                  interest in Breaking  Wave's  inventory as collateral  for the
                  advances.  As of  December  31,  1999,  the  net  advances  to
                  Breaking Waves from the factor amounted to $1,776,274.

NOTE 8 -          CAPITAL LEASE OBLIGATIONS

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

                     i)    On August 13,  1998,  the  Company  acquired  various
                           computer  and  related   components  for  $28,583  by
                           entering  into  a  capital  lease   obligation   with
                           interest at approximately  9.2% per annum,  requiring
                           48 monthly  payments  of  principal  and  interest of
                           $762.  The lease is secured by the  related  computer
                           equipment.

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

NOTE 8 -             CAPITAL LEASE OBLIGATIONS (cont'd)

                     At December 31, 1999,  the aggregate  future  minimum lease
                     payments   due   pursuant  to  the  above   capital   lease
                     obligations are as follows:
<TABLE>
<CAPTION>

                                                                                     Year
                                                                                     ended
                                                                                     December
                                                                                     31:

<S>                           <C>                                          <C>
                              2000                                         $           19,335
                              2001                                                     19,335
                              2002                                                     13,486
                                                                                   ------------
                              Total minimal lease payments                             52,156
                                                                                   ------------
                              Less: Amounting representing Interest                     6,677
                                                                                   ------------

                              Present value of net minimum
                                 lease payments                            $           45,479
                                                                                   ============

</TABLE>
                  At December  31, 1999  equipment  and software  under  capital
                   leases is carried at a book value of $44,752.

NOTE 9 -          PROVISION (BENEFIT) FOR INCOME TAX

                  Provision (benefit) for income tax is comprised of the
                  following for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>

                                                                                   1999            1998
                                                                                ----------      -------
                  Current:
<S>                                                                             <C>             <C>
                           Federal                                              $        -      $        -
                           State and local                                          21,234             3,277
                                                                                ----------      ------------
                                                                                    21,234             3,277
                                                                                ----------      ------------
                  Deferred:
                           Federal                                                       -          (145,501)
                           State and local                                          (8,961)          (50,159)
                                                                                -----------     -------------
                                                                                    (8,961)         (195,660)
                                                                                -----------     -------------

                              Total provision (benefit) for income taxes        $   12,273      $   (192,383)
                                                                                ===========     =============

</TABLE>

NOTE 9 -          PROVISION (BENEFIT) FOR INCOME TAX (cont'd)

                  A  reconciliation  of the provision for income taxes on income
                  per the  federal  statutory  rate to the  reported  income tax
                  expense is as follows  for the years ended  December  31, 1999
                  and 1998:


<PAGE>
<TABLE>
<CAPTION>

                                                                                    1999             1998

                           Federal statutory rate applied to
<S>                                                                             <C>             <C>
                              pretax loss                                       $           -   $    (38,187)
                           State and local income taxes, net of federal
                              income tax benefit, applied to pretax loss                    -        (13,478)
                           Permanent differences                                            -          8,447
                           (Decrease) Increase in valuation allowance                  34,298        (63,175)
                           Current provision for state and local taxes                 21,234          3,277
                           (Increase) in deferred tax assets                                -       (122,265)
                           (Decrease) increase in deferred tax liability              (43,259)        32,998
                                                                                --------------  ------------

                                  Total provision (benefit) for income taxes    $      12,273   $   (192,383)
                                                                                =============   =============
</TABLE>

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

                  The tax effect of significant  items  comprising the Company's
                  current  deferred tax assets are as follows as of December 31,
                  1999:
<TABLE>
<CAPTION>

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

                  Deferred current tax asset                                                       $       55,000
                                                                                                   ==============
</TABLE>


<PAGE>
NOTE 9 -          PROVISION (BENEFIT) FOR INCOME TAX (cont'd)

                  The tax effect of significant  items  comprising the Company's
                  net  non-current  deferred  tax  asset  and  liability  are as
                  follows as of December 31, 1999:
<TABLE>
<CAPTION>

<S>                                                                                                <C>
                  Net operating loss carryforwards                                                 $      302,292
                  Valuation allowance                                                                    (162,932)
                                                                                                   ---------------
                  Deferred non-current tax asset                                                          139,360
                                                                                                   --------------

                  Equity  earnings of affiliate                                                    $       12,430
                  Depreciable assets                                                                       (5,530)
                                                                                                   ---------------
                  Deferred non-current tax liability                                                        6,900
                                                                                                   --------------

                  Net non-current deferred tax asset                                               $      132,460
                                                                                                   ==============
</TABLE>

                  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,  1999,  the Company had a net  operating  loss
                  carryforward  (NOL) for  federal  and state  tax  purposes  of
                  approximately $1,860,000 and $1,549,000, respectively, both of
                  which expire between 2010 and 2014.  Management believes it is
                  more  likely  than not that the  results of future  operations
                  will  generate   sufficient  taxable  income  to  realize  the
                  deferred tax asset.

NOTE 10      -    COMMITMENTS AND CONTINGENCIES

             a)   Lease commitments

                  The  Company  and its  subsidiaries  have  entered  into lease
                  agreements for administrative  offices. The Company leases its
                  administrative  office  pursuant  to a 5 year  lease  expiring
                  November 30, 2001 at annual rent  amounting  to  approximately
                  $70,000,  before  annual  escalations.  Breaking  Waves leased
                  administrative  offices  through  January  1998  pursuant to a
                  lease  requiring  annual  payments of  approximately  $64,000.
                  Breaking Waves cancelled such lease and simultaneously entered
                  into a new lease for  additional  space with the same landlord
                  requiring annual payments of $71,600  expiring  December 2004.
                  Lastly, Breaking Waves leases an offsite office for one of its
                  designers  on a month  to month  basis  with  annual  payments
                  approximating $11,000.


<PAGE>
NOTE 10      -    COMMITMENTS AND CONTINGENCIES (cont'd)

             a)   Lease commitments (cont'd)

                  The Company and Breaking  Waves'  approximate  future  minimum
                  rentals  under  non-cancelable  operating  leases in effect on
                  December 31, 1999 are as follows:
<TABLE>
<CAPTION>

<S>                          <C>                                                     <C>
                             2000                                                    $      141,257
                             2001                                                           135,452
                             2002                                                            71,600
                             2003                                                            71,600
                             2004                                                            71,600
                             Thereafter                                                           -
                                                                                     --------------
                                                                                     $      491,509
</TABLE>

                  Rent  expense for the years ended  December  31, 1999 and 1998
                  amounted to approximately $172,709 and $158,174, respectively.

            b)    Significant vendors and customers

                  Breaking  Waves  purchases  100%  of its  inventory  from  two
                  vendors  in  Indonesia  and one in Samoa.  For the year  ended
                  December 31, 1999  Breaking  Waves had four  customers,  which
                  comprise 17%,  13%, 12%, and 10%, of net sales,  respectively.
                  For the year ended December 31, 1998, Breaking Waves had three
                  customers  which  compromised  13%, 13%, and 11% of net sales,
                  respectively.

            c)    Seasonality

                  Breaking Waves'  business is considered  seasonal with a large
                  portion of its  revenues  and profits  being  derived  between
                  November  and  March.  Each year from April  through  October,
                  Breaking  Waves  engages  in  the  process  of  designing  and
                  manufacturing the following  season's  swimwear lines,  during
                  which time its incurs the  majority  of its  production  costs
                  with limited revenues.

            d)    License agreements

                  i)  On October 16, 1995, Breaking Waves entered into a license
                      agreement  with  Beach  Patrol,  Inc.  ("Beach")  for  the
                      exclusive use of certain  trademarks in the United States.
                      The agreement  covered a term from January 1, 1996 to June
                      30, 1998 and contained a provision for an additional three
                      year extension, at the option of Breaking Waves,


<PAGE>
NOTE 9       -    COMMITMENTS AND CONTINGENCIES (cont'd)

            d)        License agreements (cont'd)

                      through  and  until  June 30,  2001.  Breaking  Waves  has
                      exercised this option, thereby so extending the agreement.
                      The  agreement  calls  for  minimum  annual  royalties  of
                      $75,000 to $200,000  over the life of the  agreement  with
                      options  based on sales  levels  from  $1,000,000  for the
                      first year to  $4,000,000  in the sixth year.  The Company
                      recorded  royalties and  advertising  under this agreement
                      totaling  $162,501  and  $135,000  during the years  ended
                      December 31, 1999 and 1998, respectively.

                  ii) On October 31, 1996, Breaking Waves entered into a license
                      agreement with  North-South  Books,  Inc.  ("N-S") for the
                      exclusive  use of certain  art work and text in the making
                      of  swimsuits  and  accessories  in the United  States and
                      Canada. The agreement expired on March 1, 1999 and was not
                      renewed.  The Company recorded royalties totaling $784 and
                      $4,852  under  this  agreement   during  the  years  ended
                      December 31, 1999 and 1998, respectively.

                  iii)On October 17, 1997, Breaking Waves entered into a license
                      agreement with Kawasaki Motors Corp., U.S.A.  ("KMC") with
                      an effective date of July 1, 1997 for the exclusive use of
                      certain trademarks in the making of swimwear in the United
                      States.   The  fee  for  the   exclusive  use  of  certain
                      trademarks  is  five  percent  (5%)  of  net  sales.   The
                      agreement expired on May 31, 1999 and was not renewed. The
                      Company recorded  royalties under this agreement  totaling
                      $10,415 and $-0- during the years ended  December 31, 1999
                      and 1998, respectively.

            e)    Co-production and property purchase agreements
                  ----------------------------------------------

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

                  As of December 31, 1999, the Company  invested  $2,006,956 for
                  the  co-production  and  distribution  of such motion  picture
                  whereas the co-producers have invested $100,000. For the years
                  ended December 31, 1999 and 1998,  revenue associated with the
                  motion  picture  amounted to $-0- and $120,211,  respectively,
                  and  amortized  film  costs  amounted  to  $-0-and   $122,126,
                  respectively.

                  For the year ended  December 31, 1999, the Company has written
                  down its film production and distribution costs by $261,153 in
                  order to reduce the balance to its  estimated  net  realizable
                  value.


<PAGE>
NOTE 10      -    COMMITMENTS AND CONTINGENCIES (cont'd)

f)       Employment agreements

                  On November 27, 1996, the Company  entered into two employment
                  agreements  (as  amended)  with two key  employees of Breaking
                  Waves.  Such  employees  are  responsible  for the  designing,
                  marketing  and  sales  of  Breaking   Waves.   The  employment
                  agreements are for a term of three years with annual  salaries
                  of $110,000  each for 1997 and $60,000 and  $130,000  for 1998
                  (as amended),  respectively.  One of the employment agreements
                  was further amended  effective  January 1, 1999 with an annual
                  salary  increase  from $60,000 to $70,000.  In addition to the
                  salaries,  the Company  agreed that the employees are entitled
                  to receive  on each of  November  27,  1996,  1997,  and 1998,
                  shares of common  stock in the amount equal to the fair market
                  value of $25,000 (before  amendment) to each employee  subject
                  to a vesting  schedule.  In  connection  with the  decrease in
                  salary from  originally  $110,000 per year to $70,000 per year
                  for one of the key employees, the Company reduced the value of
                  shares to be issued to $13,636  for  November  27,  1998.  The
                  shares the  employees  were  entitled on November 27, 1998 did
                  not vest  until  during  the year  ended  December  31,  1999.
                  Although  the shares  have not yet been  issued,  the  Company
                  recorded  compensation expense amounting to $38,636 during the
                  year ended  December 31, 1999,  since the shares  vested as of
                  May 1999.

                  As of December 31, 1999, the Company has not  renegotiated the
                  employment  agreements  with the two key employees of Breaking
                  Waves and accordingly, all prior arrangements are in effect.

NOTE 11      -    STOCKHOLDER'S EQUITY

            a)    Private placement

                  During February and May 1998, pursuant to two separate private
                  transactions,  the Company sold 660,000 and 770,000  shares of
                  its common  stock for a total of  approximately  $195,000  and
                  $560,000,  respectively to various entities. An officer of two
                  of  the  entities  who  invested  in  the  Company's   private
                  placement is affiliated with the Company's President.

            b)    1996 Senior Management Incentive Plan

                  During May 1996, the Board of Directors  adopted the Incentive
                  Plan.  The  Incentive  Plan provides for the issuance of up to
                  128,333 shares of Common Stock in connection with the issuance
                  of stock options and common shares.

                  On March 14,  1997,  the Company  granted  109,998  options to
                  purchase  shares of common  stock  pursuant  to the  Company's
                  Incentive  Plan  consisting of 73,333 options to the Company's
                  President and 36,665 options to another officer.  The exercise
                  price of each option was fixed at $1.46 (as revised) per share
                  and such options expire March 2002.


<PAGE>
NOTE 11      -    STOCKHOLDER'S EQUITY (cont'd)

                  A  summary  of the  status  of  the  Company's  stock  options
                  outstanding  as of December  31,  1999 and changes  during the
                  years ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>

                                                                           Number of         Exercise
                                                                           Options               Price

<S>                                           <C> <C>                        <C>        <C>
                      Outstanding at December 31, 1997                       109,998    $          1.46
                                                                       -------------    ---------------
                         Granted                                                    -               -
                         Exercised                                                  -               -
                         Cancelled                                                  -               -
                                                                       --------------   ---------------
                      Outstanding at December 31, 1998                         109,998            1.46
                         Granted                                                    -               -
                         Exercised                                                  -               -
                         Cancelled                                                  -               -
                                                                       --------------   ---------------
                      Outstanding at December 31, 1999                         109,998  $         1.46
                                                                       ===============  ===============
</TABLE>

            c)     Cancellation of shares

                  During  1998,  the 36,667  shares of common  stock  previously
                  issued  and  vested to a former  officer  of the  Company  and
                  recorded as compensation  expense  amounting to $62,500 during
                  1997 were cancelled by the Company.

            d)    Distribution Warrants

                  On April 15, 1998, the Company's Board of Directors authorized
                  the  distribution  of warrants to all holders of shares of the
                  Company's  common  stock as of May 8,  1998.  Pursuant  to the
                  distribution,  each shareholder of record received one warrant
                  to purchase one share of common stock at an exercise  price of
                  $4.00 per share.  The warrants,  which are  exercisable  for a
                  period of three  years,  commencing  one year after  issuance,
                  shall be issued and  distributed  once the Company has filed a
                  registration  statement  for same  and same has been  declared
                  effective  by the  Securities  and  Exchange  Commission.  The
                  Company intends to file the registration  statement during the
                  year 2000.

            f)    Stock Dividend - 1999
                  ---------------------

                  On  January  14,  1999,  the  Company  declared  a 100%  stock
                  dividend to all  shareholders of record as of January 29, 1999
                  amounting to a total of 2,686,944  shares of common stock. The
                  stock  dividend  was issued on February 5, 1999.  In order for
                  shareholders  to  receive  their  stock  dividend,  they  must
                  exchange  the old  shares for the new  shares.  As a result of
                  such stock dividend,  the Company issued  2,686,027  shares of
                  its common stock. An additional 917 shares are entitled to the
                  dividend,  and such shares shall be issued to the holders upon
                  then redeeming the old shares.



<PAGE>
NOTE 11      -    STOCKHOLDER'S EQUITY (cont'd)

            f)    Stock Dividend - 1999 (cont'd)
                  ------------------------------

                  These  additional  shares are included in the total issued and
                  outstanding common stock at December 31, 1999.

            g)    Stock Dividend - 2000
                  ---------------------

                  On January 7, 2000, the Company  declared a 10% stock dividend
                  to all shareholders of record as of January 20, 2000 amounting
                  to 557,000  shares of common  stock.  Such stock  dividend was
                  issued  on  February  1,  2000.  The stock  dividend  has been
                  retroactively reflected in the financial statements.

            h)    Grant of Stock Options

                  i) In  connection  with  a  consulting  and  option  agreement
                  entered on  September  1, 1999,  the Company  granted  400,000
                  options to purchase shares of the Company as follows;  100,000
                  shares at an exercise price of $2.50 per share, 100,000 shares
                  at an exercise of $3 per share,  100,000 shares at an exercise
                  price of $3.50  per share and  100,000  shares at an  exercise
                  price of $4.00 per share. No consulting expenses were recorded
                  in connection with such options based on the underlying  value
                  of the stock on the grant date.  As of December 31,  1999,  no
                  options have been exercised.

                  ii) During April 1999,  the Company  granted its President and
                  Vice President approximately 50,000 stock options. The options
                  are  exercisable  as 85% of the closing bid price on April 16,
                  1999.

NOTE 12      -    RELATED PARTIES TRANSACTIONS

a)               During June 1996,  the Company  issued 36,666 shares to each of
                 two  officers  of the  Company as  consideration  for  services
                 rendered. Vesting of such shares will be 50% one year from date
                 of  issuance  and 50% two  years  from date of  issuance.  Such
                 shares  were  valued at 50% of the IPO price or $2.50.  For the
                 year ended December 31, 1998 the Company recorded  compensation
                 expense amounting to $31,250.

            b)   During  November  1998,  the Company  agreed to issue shares of
                 common  stock in the amount  equal to the fair market  value of
                 $25,000 and  $13,636,  respectively,  to two key  employees  of
                 Breaking Waves in connection with their employment  agreements.
                 Although  the  shares  have not yet been  issued,  the  Company
                 recorded  compensation  expense amounting to $38,636 during the
                 year ended  December  31, 1999,  since the shares  vested as of
                 November 1999.



<PAGE>
NOTE 12      -   RELATED PARTIES TRANSACTIONS (cont'd)

                    c) For the years ended  December 31, 1999 and 1998,  $24,000
               and $27,000,  respectively of financial consulting fees were paid
               to an affiliate of the Company's President.

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

                    e) During October 1996,  pursuant to two  promissory  notes,
               the Company loaned two of its officers a total of $87,000 bearing
               interest at six and one-half  percent (6 1/2%) payable over three
               years.  As of  December  31,  1999,  the one note  remains  which
               amounted to $37,000,  which has been  classified as current As of
               December 31, 1999,  the  Company's  President  was also  advanced
               additional funds totaling $3,000 which are  non-interest  bearing
               and due on demand and are classified as current.

                    f) During  October  1999,  Play Co loaned  funds to Breaking
               Waves in return for an unsecured promissory note in the amount of
               $200,000.  Such note was due and was  repaid in full on March 29,
               2000 plus interest at 9% per annum.

                    g) On November 29, 1999, Play Co. loaned additional funds to
               Breaking Waves in return for an unsecured  promissory note in the
               amount of  $400,000.  Such note is due in two  installments.  The
               first installment of $100,000 was due January 30, 2000 (which was
               repaid) and the second  installment  of $300,000 is due April 30,
               2000. Interest accrues at 9% per annum.

                    h) During October 1999, Play Co. loaned funds to the Company
               in  return  for an  unsecured  promissory  note in the  amount of
               $50,000.  Such  note is due in full and was  repaid  on March 29,
               2000 plus interest at 9% per annum.

                    i) During  February  and May 1998,  pursuant to two separate
               private transactions, the Company sold 660,000 and 770,000 shares
               of its common  stock for a total of  approximately  $195,000  and
               $560,000,  respectively to various entities. An officer of two of
               the entities who invested in the Company's  private  placement is
               affiliated with the Company's President.



<PAGE>
NOTE 13      -    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, 1999
                  and 1998, is as follows:
<TABLE>
<CAPTION>

                                                                 1999                         1998
                                                         Segment       Consolidated       Segment     Consolidated

                  Sales:
<S>                                                 <C>               <C>            <C>            <C>
                    Swimwear sales                  $   4,758,296                    $   5,156,248
                    Film production                            -                           120,211
                                                    -------------                    -------------
                  Total Sales                                         $   4,758,296                 $    5,276,459
                                                                      =============                 ==============

                  Operating profit (loss):
                    Swimwear sales                                    $      35,872                 $      269,486
                    Film production                                        (265,153)                        (1,915)
                                                                      --------------                ---------------
                                                                      $    (229,281)                $      267,571
                  Corporate:
                    General and administrative

                      expense                                              (638,425)                      (775,438)
                    (Loss) equity in earnings of affiliate                 (994,305)                       473,270
                    Gain on sale of equity investment                       130,093                              -
                    Amortization expense                                    (70,952)                       (70,952)
                    Interest income                                          56,212                         90,316
                    Interest and finance expense                           (243,148)                      (224,603)
                    Other                                                    13,750                         78,447
                                                                      ---------------             ----------------
                  Loss from operations before (benefit)
                  provision for income tax                               (1,976,056)                      (161,389)

                  (Benefit) provision for income tax                         12,273                       (192,383)
                                                                      ---------------             -----------------

                  Net (loss) income                                   $  (1,988,329)                $       30,994
                                                                      ==============                ==============

                  Identifiable assets:
                    Swimwear sales                                    $   3,219,328                 $    2,849,354
                    Film productions                                      1,906,064                      2,101,221
                    Corporate                                             2,302,228                      3,529,151
                                                                 ------------------                 --------------

                      Total assets                                    $   7,427,620                 $    8,479,726
                                                                      =============                 ==============

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

NOTE 14      -    SUBSEQUENT EVENTS

                  On February 1, 2000, the Company sold 100,000 shares of common
                  stock for $300,000 pursuant to a transaction with an unrelated
                  party.