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, 2000

                                       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                         (I.R.S. Employer
        of Incorporation or Organization)                   Identification No.)

            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 [ ].

     The Registrant's  revenues for its fiscal year ended December 31, 2000 were
$5,713,133.

     The  aggregate  market  value  of  the  voting  stock  on  March  31,  2001
(consisting of Common Stock, par value $0.001 per share) held by  non-affiliates
was approximately $4,626,843, based upon the closing price for such Common Stock
on said date ($1.00),  as reported by a market maker.  On such date,  there were
7,472,224 of Registrant's Common Stock outstanding.
<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     The  statements  which are not  historical  facts  contained in this Annual
Report are forward  looking  statements  that involve  risks and  uncertainties,
including,  but not  limited  to  instability  of  revenues,  future  losses and
unpredictable  operating  results.  The  Company's  actual  results  may  differ
materially from the results discussed in any forward looking  statement.  Unless
otherwise indicated,  all references to the number of our shares of common stock
give effect to the 1 for 3 reverse stock split effected in February  1998,  100%
Common Stock  dividend  effected in February  1999,  10% Common  Stock  dividend
effected in February  2000 and the 20% Common  Stock  dividend  effected in June
2000.

History

     ShopNet.com,  Inc. (the "Company" or "Shopnet") was formed in December 1995
in the State of Delaware,  as Hollywood  Productions,  Inc. ("HPI"). Its purpose
was to acquire screenplays and produce motion pictures.  The Company changed its
name from "Hollywood Productions, Inc." to "Shopnet.Com, Inc." in May 1999.

     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  ("IPO") 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 May 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  otherwise  indicated,  Shopnet and its  subsidiaries  are
collectively 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).

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 attempts to secure  foreign and
domestic distributors.
<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 can show numerous movies at the
same time.  There is a continuous  demand for new films.  In negotiating  with a
distributor to sign onto 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.
<PAGE>
     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 its release. 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.

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 its profits 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.

     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.

     In June 1998, the Company  entered into an agreement with Artistic  License
Films,  Inc. ("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. To date, the film has not
generated any significant revenues for the Company.

     The film was released to five New York and three Los Angeles  theaters.  It
had a  limited  run  during  the fall of 1998  and  received  marginal  reviews.
Currently,  the  Company  is  reviewing  plans to  distribute  the film  through
numerous distribution channels,  including video, syndicated,  network and cable
television and pay-per-view.
<PAGE>
     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 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," and, most recently, is hosting WTJM "Jammin" 105.1 FM, a New
York radio  station  which hopes to air  nationwide.  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."

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
$433,000, of which the Company has funded approximately  $217,500. 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.

     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 was
chosen  (along  with only six other  films) for  presentment  at the Los Angeles
distribution of the NYIFF in April, 2000.  Recently,  Battle Studies has entered
into  agreements  with  Raven  Pictures  International  and Koan,  Inc.  for the
distribution   of  "Machiavelli   Rises"   internationally   and   domestically,
respectively.  See "Management's  Discussion and Analysis or Plan of Operation -
Investment in Joint Ventures - Battle Studies Productions, LLC."

Production of "The Girl"

     In July 1999,  the Company  entered into an agreement with ALF with respect
to the production of a film entitled "The Girl." Pursuant to such agreement, the
Company and ALF formed a limited liability company,  The Girl, LLC ("Girl LLC"),
to finance,  produce and  distribute  the film.  As of December  31,  2000,  the
Company  invested  $35,000  for a 22.533%  interest  in Girl LLC.  "The Girl" is
completed,  has been  exhibited at several film festivals and Girl LLC is in the
process of attempting to secure distribution arrangements.
<PAGE>
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,  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.

     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.
<PAGE>
     Breaking  Waves  markets  swimwear  under  private  brand labels  including
"Breaking Waves," "All Waves," and "Making Waves." In July 2000,  Breaking Waves
added a new line of girls' swimwear which is sold under the label, "Coral Cove."
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,"  "Coral Cove" and other marks in  connection  with its
manufacture and sale of girls' swim and beach wear.

     During June 2000,  Breaking Waves entered into a license  agreement with an
effective  date of  November  1,  2000  with  Gottex  Models  Ltd.,  an  Israeli
Corporation and Gottex Models (USA) Corp., a New York Corporation for the use of
the  trademark  "Gottex"  in the United  States  for  children's  swimwear.  See
"Agreement with Gottex Models Ltd."

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 and
15 prints and fabrics are developed for "Karl Cove." For the year ended December
31, 2000, the "All Waves" line accounted for approximately one-third of Breaking
Waves' total  volume,  and the  remaining  three lines  accounted  for, in equal
parts, the remainder of Breaking Waves' volume.

     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.

     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.
<PAGE>
     For the year ended  December 31,  2000,  half of Breaking  Waves'  finished
products were purchased from an Indonesian  manufacturer and half were purchased
from a Samoan  manufacturer,  whereas for the year ended December 31, 1999, 50%,
40%,  and 10% of Breaking  Waves'  finished  products  were  purchased  from two
Indonesian  manufacturers and one Samoan  manufacturer.  Although  management of
Breaking Waves believes 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.

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.

     Breaking Waves sells its swimwear and accessory  items through its showroom
sales staff and through independent sales representatives. Over the past several
years,  certain  of its  customers  have  included  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.  For the year ended December 31, 2000, Breaking
Waves  had  three  customers  representing  22%,  14%  and  10%  of  net  sales,
respectively.  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 and
a company  in which  Breaking  Waves  owns  1,270,000  Shares of Common  Stock),
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.")

     Breaking Waves'  merchandise is shipped pursuant to purchase orders sent by
its  customers  and is sent f.o.b.  shipping  point  (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.

     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.
<PAGE>
Suspended Internet Activities

     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 Company
has  determined,  however,  not to pursue this method of  distribution,  and its
website is now dormant.

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.

     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. 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,  through and until June 30,  2001.
Breaking Waves has exercised this opinion,  thereby 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.  Breaking  Waves has  negotiated an
additional two year extension  thereby extending the agreement through and until
June 30, 2003, and it contains a provision for an additional two year extension,
at the  option of  Breaking  Waves,  through  and until June 30,  2005.  The new
agreement  signed February 28, 2001 and effective July 1, 2001 calls for minimum
annual  royalties  of  $50,000 to $87,500  over the life of the  extension  with
options based on sales levels from $1,000,000 for the seventh year to $1,750,000
in the tenth  year.  Breaking  Waves  recorded  royalties  under this  agreement
totaling  $163,009  and  $162,501  during the years ended  December 31, 2000 and
1999, respectively.

     During June 2000,  Breaking Waves entered into a license  agreement with an
effective  date of  November  1,  2000  with  Gottex  Models  Ltd.,  an  Israeli
Corporation and Gottex Models (USA) Corp., a New York Corporation for the use of
the  trademark  "Gottex"  in the United  States  for  children's  swimwear.  The
agreement  calls for a royalty fee of 7% of net sales (as defined in the license
agreement) with guaranteed  minimum annual royalties of $70,000 to $140,000 over
the life of the agreement,  subject to certain exceptions. The license agreement
also requires the Company to expend certain minimum amounts on advertising  each
year.  The license  agreement is for a term of three  years,  subject to earlier
termination in accordance with its terms.
<PAGE>
     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.


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,"  "Ralph  Lauren," 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.
<PAGE>
Employees

     During the year ended  December  31,  2000,  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 these  positions and was replaced in
February 2000 by Jeanne  Falletta,  who is also a Controller of Breaking  Waves.
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 two full-time  executive  officers including a vice president
of design,  marketing  and sales and a controller,  and a part-time  employee--a
vice president of design,  marketing and sales. Breaking Waves has approximately
twenty independent road sales people and accounting and clerical staff.

Business Risks

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

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

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

     Breaking Waves believes that its success in the swimwear  industry  depends
in substantial part on its ability to anticipate, gauge, and respond to changing
consumer demands and fashion trends in a timely manner.  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.
<PAGE>
ITEM 2.  DESCRIPTION OF PROPERTY

     The Company's  executive offices are located at 14 East 60th Street,  Suite
402, New York, New York 10022, (212) 688-9223,  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.

ITEM 3.  LEGAL PROCEEDINGS

     On or about  June of 2000,  an action  was  brought  in the  Queens  County
Supreme  Court  against the Company and  several  others  claiming,  among other
things, that the Company allegedly breached a contract and engaged in fraudulent
statements  (including  supposedly  promising the plaintiff options and then not
allowing the plaintiff to exercise these options).  The plaintiff  seeks,  among
other things,  compensatory damages in the amount of $497,500,  punitive damages
in the amount of $995,000,  together with costs and attorney's fees. The Company
has responded to the complaint and denied the  allegations.  The Company intends
to contest this action  vigorously  and believes that such claims against it are
baseless and without merit.

     The  Company  is not a party to any other  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

     Not applicable.



<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  December 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

      1999(1)(2)
<S>                                           <C>               <C>              <C>                <C>
01/01/99 - 03/31/99                            .50              2.78              .03              .31

04/01/99 - 06/30/99                           1.06              3.09              .06              .41

07/01/99 -  09/30/99                          2.06              2.75              .13              .28

10/01/99 - 12/31/99                           2.06              3.44              .13              .31

      2000(2)
01/01/00 - 03/31/00                           2.56              7.72              .13              .72

04/01/00 - 06/30/00                           2.44              5.13              .13              .47

07/01/00 - 09/30/00                           2.38              3.98              .25              .31

10/01/01 - 12/31/00                             .25             3.00              .16              .28

      2001(2)
01/01/01 - 03/31/01                             .19               .89             .09              .22

04/01/01 - 04/12/01                            1.00              1.45             .16              .16
---------------------------------------------
</TABLE>

     As of March 31,  2001,  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, 2001,  the number of  outstanding  shares of the  Company's  Common
Stock was  7,472,224.  (This  number  includes an  aggregate  of 2,420 shares of
Common Stock being held by the Company on behalf of certain shareholders pending
their submission for exchange of stock  certificates  outstanding on the date of
the Company's  one-for-three  reverse  stock split,  as adjusted for the reverse
stock split and subsequent stock dividends.)
<PAGE>
     Initially,  each Warrant issued in the IPO 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.  Giving effect to the February 1999 100% Common Stock dividend,  February
2000 10% Common  Stock  dividend and June 2000 20% Common  Stock  dividend,  the
Warrants have been cumulatively  adjusted such that the exercise of each Warrant
at an exercise price of $3.41 purchases .88 of a share of Common Stock.

     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
to date has not filed the registration statement.

Common Stock Dividends

20% Common Stock Dividend

     On May 8, 2000, the Company's Board of Directors authorized the issuance of
a 20% stock dividend to all holders of shares of the Company's Common Stock, par
value $0.001 per share (the  "Common  Stock") as of May 19, 2000 payable on June
19, 2000.

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, payable February 1, 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, payable on February 5, 1999.
<PAGE>
     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

     In February 1998, in private transactions, the Company sold an aggregate of
792,000  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 an aggregate of
924,000  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 120,000 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 were
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 OPERATION
                  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  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, to which it
assigned  its film  production  business  thereby  rendering  Shopnet  a holding
company for  Hollywood  and another  wholly-owned  subsidiary,  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 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, 2000 and 1999 include
the accounts of Shopnet and its wholly owned  subsidiaries,  Breaking  Waves and
Hollywood  (collectively  referred to as the  "Company"  except where  otherwise
indicated),  after elimination of all significant intercompany  transactions and
accounts.

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


<PAGE>
  Year ended December 31, 2000 as compared to the year ended December 31, 1999

Breaking Waves

     For the years ended December 31, 2000 and 1999,  Breaking  Waves  generated
net  sales  of  $5,713,133  and  $4,756,497,  respectively  with a cost of sales
amounting to  $3,764,258  and  $3,214,704,  respectively.  The increase in sales
amounting to $956,636,  or  approximately  20%,  from 1999 to 2000 was primarily
attributable to the introduction of the new "Coral Cove" product line. The gross
profit for the year ended December 31, 2000 amounted to  $1,948,875,  or 34%, as
compared  to the year ended  December  31,  1999  during  which it  amounted  to
$1,541,793, or 32%.

     Selling,  general,  and  administrative  expenses  during  the years  ended
December 31, 2000 and 1999 amounted to $1,638,809 and $1,503,993,  respectively.
The  increase,  amounting to $134,816,  is primarily  attributable  to increased
factoring and warehousing costs.

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

                                                                        2000                             1999
                                                              ---------------------              ------------------
<S>                                                            <C>                              <C>
         Officers, office staff and
               designer salaries and related benefits          $       535,137                  $    499,642
         Commission expense                                             94,489                       112,475
         Warehousing costs                                             228,934                       178,479
         Royalty fees                                                  171,869                       173,700
         Rent expense                                                   87,690                        96,404
         Factor commissions                                             56,683                        50,956
         Miscellaneous general corporate
                overhead expenses                                      464,007                       392,337
</TABLE>

     In November 1998,  Breaking Waves  purchased  1,400,000  shares of Play Co.
Toys &  Entertainment  Corp.  ("Play Co.") for a total of $504,000  comprised of
$300,000 in cash and by shipping  $204,000 in  merchandise.  After the purchase,
Breaking Waves owned 25.4% of the outstanding common stock of Play Co.

     For the year ended December 31, 1999, Breaking Waves recognized $994,305 of
equity loss (non-cash  loss) in Play Co. in connection with the equity method of
accounting.

     During  the year  ended  December  31,  2000,  certain  Play Co.  preferred
shareholders converted their Series E Convertible Preferred Stock into Play Co's
common stock thereby diluting Breaking Waves ownership  interest in Play Co. The
percentage  ownership of Breaking Waves' investment was diluted to approximately
1.5% as of December 31, 2000.  Breaking  Waves  accounted for its  investment in
Play Co.  pursuant to the equity method through the point it maintained at least
a 20% ownership  interest.  Once its investment  fell below 20%,  Breaking Waves
used the cost method of accounting. At the time that Breaking Waves shifted from
the equity to the cost method of  accounting  its basis in Play Co. was $0 since
its share of Play Co.'s loss for 1999  exceeded  its cost basis.  In  accordance
with  SFAS No.  115  "Accounting  for  certain  investments  in debt and  equity
securities,"  since such  securities  are  classified as available for sale, the
value of such  investment  was  revalued  and  recorded at the fair market value
which was approximately $108,000 as of December 31, 2000. Accordingly,  Breaking
Waves recorded an unrealized gain of  approximately  $108,000 for the year ended
December  31,  2000,  which has been  recorded as a component  of  comprehensive
income (loss) on the statements of operations.
<PAGE>
     Interest  expense in connection  with its factoring  agreement  amounted to
$305,309  and  $228,772,  for the  years  ended  December  31,  2000  and  1999,
respectively.

     Breaking Waves'  generated a net income (loss) of $663 and ($1,025,449) for
the years ended December 31, 2000 and 1999, respectively. The net loss generated
for the year ended  December 31, 1999  includes an equity loss (non - cash loss)
of $994,305 from Play Co.

     Breaking  Waves'comprehensive  income  was  $108,615  for  the  year  ended
December 31, 2000 versus a  comprehensive  loss of $1,025,449 for the year ended
December 31, 1999. The  comparisons of the  comprehensive  net income (loss) for
the two years  excluding  the affect of the  investment in Play Co. are $663 for
2000 and ($31,144) for 1999.

Hollywood

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

     For the years ended  December  31, 2000 and 1999,  Hollywood  generated  no
sales from its motion picture "Dirty Laundry."  Although sales prior to the year
ended December 31, 1999 were minimal,  the Company  expects to effect  increased
sales  during 2001 and  thereafter  as a result of the  implementation  of a new
marketing strategy which, among other things,  emphasizes the development of new
marketing and  distribution  arrangements  for "Dirty  Laundry." There can be no
assurance that the Company's new marketing and  distribution  strategies will be
successful in generating  sales from "Dirty  Laundry."  Upon a review of the net
realizable value of the movie costs,  management  determined that a $308,564 and
$261,000   write  down  was   necessary  as  of  December  31,  2000  and  1999,
respectively.  Accordingly, Hollywood generated a loss of approximately $314,000
and $265,000 for the years ended  December 31, 2000 and 1999,  respectively.  In
addition to "Dirty Laundry," Hollywood has also invested in other movie ventures
which are in the  distribution  phase,  which the Company believes will generate
revenue in the future. See "- Liquidity and Capital Resources."

Shopnet.com

     For the years ended December 31, 2000 and 1999,  Shopnet  generated minimal
revenue  comprised of interest from its money market and other ancillary revenue
from its corporate office.

     Shopnet's selling, general, and administrative expense amounted to $554,434
and $630,014 for the years ended December 31, 2000 and 1999, respectively.  This
represents a decrease of $75,580, or approximately 12%.
<PAGE>
     The major components of the Company's expenses are as follows for the years
ended December 31:
<TABLE>
<CAPTION>

                                                                            2000                     1999
<S>                                                                      <C>                  <C>
         Salaries  (officer and office staff) and stock
              compensation and related benefits                          $   192,135          $   231,631
         Rent                                                                 76,234               74,907
         Legal and professional fees                                          99,610               61,634
         Consulting fees                                                      27,080               45,824
         Other general corporate and administrative expenses                 159,375              204,018
</TABLE>
     Shopnet  generated a net loss of $594,576 and $685,476  after an income tax
(benefit)  expense of ($8,140) and $53,369 for the years ended December 31, 2000
and 1999, respectively. The income tax expense in 1999 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  $2,148,000  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.

Liquidity and Capital Resources

     At December 31, 2000, the Company's  consolidated  working capital amounted
to $515,984.  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  1.5% as of December 31, 2000 as evidenced by the 1,270,000 shares
of common stock it currently  owns.  As of December  31, 2000,  Breaking  Waves'
investment in Play Co.  increased to $107,950  based on the fair market value of
its common  stock  holdings.  On March 28,  2001,  Play Co.  and  certain of its
subsidiaries  all filed for protection  under Title 11 of the United States Code
with the United States Bankruptcy Court for the Southern District of New York.

     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 $900,690.  Shopnet  maintains  cash deposits in
accounts which are in excess of Federal Deposit Insurance  Corporation limits by
approximately  $800,000.  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.  The $900,690 of
certificates  of deposit  represents a portion of the  $1,150,000.  In addition,
during 1999,  Breaking Waves was required to transfer a $200,000 cash deposit to
its factoring agent as additional collateral. Accordingly, both cash amounts are
designated as restricted.

     For the years  ended  December  31, 2000 and 1999,  the Company  reported a
consolidated  net loss of ($906,976) and $1,976,079 after an income tax (benefit
of) provision of ($6,004) and $12,273 and a comprehensive net loss of ($799,026)
and($1,976,079) respectively
<PAGE>
Investment in Joint Ventures

Battle Studies Productions, LLC

     In April 1998,  the Company  entered into a  co-production  agreement  with
North Fork for  "Machiavelli  Rises." The  Company and North Fork formed  Battle
Studies to finance,  produce and  distribute  the film.  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 $433,000 of which the Company has funded approximately
$217,500.  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.

     The Company  accounts for the  investment  in Battle  Studies on the equity
method.  As of December 31, 2000,  the Company has  recorded its  investment  at
$213,210.  This  represents  its initial  investment  of $217,500 less $4,290 of
equity loss for its proportionate share of Battle Studies.

     On October 12, 2000,  Battle Studies entered into a distribution  agreement
with Raven  Pictures  International  ("Raven  Pictures")  to  distribute  Battle
Studies  motion  picture  ("Machiavelli  Rises")  to foreign  countries.  Battle
Studies  has granted  rights  under the  agreement  for the  theatrical,  video,
non-theatrical  and  television  markets.  The  term  of  the  agreement  is for
twenty-four  months for all portions of territory  outside of the United  States
and English speaking Canada. Battle Studies expects to realize 75% (which is net
of a 25% fee to Raven Pictures) of the expected  estimated gross revenue derived
from foreign countries less $20,000 for marketing and advertising expenses.

     On January 17, 2001,  Battle Studies entered into a distribution  agreement
with  KOAN  to  distribute  and  promote   Battle   Studies'   motion   pictures
("Machiavelli  Rises")  in the United  States and  Canada.  Battle  Studies  has
granted rights under the agreement for Free TV, pay TV, cable, satellite,  video
and DVD markets.  The terms of the  agreement is for twenty - four months and it
will be  automatically  renewed unless KOAN receives a letter of cancellation at
least thirty days prior to the date of termination or if sales have not exceeded
$250,000 over the twenty - four month period.  Battle Studies expects to realize
70% (which is net of a 30% fee to KOAN) of the expected estimated gross revenues
derived from the United  States and Canada less $5,000 per year for  promotional
costs.

<PAGE>
The Girl, LLC

     Pursuant to an agreement  dated July 1, 1999 with ALF for the production of
a film entitled "The Girl," Hollywood invested through December 31, 2000 $35,000
for a 22.533%  interest  in a new  entity,  The Girl,  LLC, a limited  liability
company ("Girl LLC").  In return for its  participation  in Girl LLC,  Hollywood
shall be entitled to receive a non-contested,  non-dilutable  22.533%  ownership
interest in Girl LLC, a recoupment of its investment on no less favorable  terms
than any other investor and 22.533% of 100% of any contingent compensation which
shall be  actually  received  by Girl LLC.  Girl LLC  retains  all rights to the
motion  pictures,  the screenplays,  and all ancillary rights attached  thereto.
"The Girl" is completed and has been exhibited at several film  festivals.  Girl
LLC is in the process of attempting to secure distribution rights for the film.

     Hollywood  accounts for the investment in The Girl under the equity method.
Accordingly, as of December 31, 2000 and 1999, the Company has only recorded its
initial $35,000 investment since no revenues have been derived from this film as
of December 31, 2000.

Factoring Arrangements

CIT Group

     On August 20, 1997,  Breaking  Waves entered into a factoring and revolving
inventory  loan and security  agreement  (as amended  December 9, 1998) with CIT
Group  (formerly,  Heller  Financial,  Inc. "CIT") to sell their interest in all
present  and future  receivables  without  recourse.  Breaking  Waves paid CIT 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.  Breaking Waves
took  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 of cash as collateral for the standby letter of
credit. Interest expense related to this agreement totaled $204,821 and $228,772
for the  years  ended  December  31,  2000  and  1999,  respectively.  CIT had a
continuing interest in Breaking Wave's inventory as collateral for the advances.
As of December  31,  2000,  the net due to Breaking  Waves from CIT  amounted to
$312. On or about  September 12, 2000 the agreement with CIT was cancelled and a
new  factoring   agreement  was  entered  into  with  Century   Business  Credit
Corporation ("Century").

Century Business Credit Corporation

     On or about September 12, 2000, Breaking Waves entered into a factoring and
revolving  inventory  loan and  security  agreement  with  Century to sell their
interest in all present and future receivables without recourse.  Breaking Waves
submits all sales offers to Century for credit  approval prior to shipment,  and
pays a factoring  commission of .75% of receivables  sold.  Century retains from
the amount payable to Breaking Waves a reserve for possible  obligations such as
customer disputes and possible credit losses on unapproved receivables. Breaking
Waves may take  advances of up to 85% of the  receivables,  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 for Breaking  Waves.  Additionally,
Breaking Waves was required to pledge as additional  collateral  $200,000 of its
own cash and its investment in Play Co. which is represented by 1,270,000 shares
of Play  Co.'s  common  stock.  Pursuant  to the  terms of a  Reimbursement  and
Compensation  Agreement,  a trust  ("Trust"),  the  beneficiary  of  which  is a
relative of the Company's  President and Chief Executive  Officer and a relative
of a majority stockholder,  pledged assets as collateral for securing a $250,000
letter of credit to replace a portion of a letter of credit  previously  pledged
by the Company.  Accordingly,  on December 20, 2000 the original  agreement with
the factor was amended to allow such replacement of collateral.  Breaking Waves'
Loan and Security  Agreement  with Century dated  December 20, 2000 requires the
provision of one or more letters of credit in the aggregate amount of $1,150,000
to partially secure the line of credit.
<PAGE>
     Breaking Waves agreed to reimburse the Trust for any and all losses,  fees,
charges and expenses to the Trust in the event the letter of credit is called by
Century and/or the issuing bank demands  reimbursement from the Trust.  Breaking
Waves'  obligations to the Trust are secured by a subordinate  security interest
in Breaking  Waves' assets.  In addition,  the Company has  guaranteed  Breaking
Waves' obligations to the Trust; such guaranty is secured by a security interest
in all of the  Company's  assets.  Breaking  Waves  paid a fee of $42,500 to the
Trust and  reimbursed  the Trust for all  related  professional  and other  fees
incurred by the Trust in  connection  with such  transaction.  Interest  expense
related to this agreement totaled $100,488 for the year ended December 31, 2000.
Century has a continuing interest in Breaking Wave's inventory as collateral for
the advances.  As of December 31, 2000,  the net advances to Breaking Waves from
Century amounted to $3,165,597.

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  Breaking  Waves  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 leases its  administrative
offices  pursuant  to a lease  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.

     Rent  expense for the years ended  December  31, 2000 and 1999  amounted to
approximately $163,924 and $172,709, respectively.
<PAGE>
License Agreements

     On October 16, 1995,  Breaking Waves entered into a license  agreement with
Beach Patrol, Inc. 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  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.  Breaking  Waves has  negotiated  an additional  two year  extension
thereby extending the agreement through and until June 30, 2003, and it contains
a provision  for an  additional  two year  extension,  at the option of Breaking
Waves,  through and until June 30, 2005. The new agreement  signed  February 28,
2001 and effective July 1, 2001 calls for minimum annual royalties of $50,000 to
$87,500 over the life of the  extension  with options based on sales levels from
$1,000,000 for the seventh year to $1,750,000 in the tenth year.  Breaking Waves
recorded  royalties under this agreement  totaling  $163,009 and $162,501 during
the years ended December 31, 2000 and 1999, respectively.

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

     On October 17, 1997,  Breaking Waves entered into a license  agreement with
Kawasaki  Motors Corp.,  U.S.A.  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 and was not renewed.  Breaking
Waves recorded  royalties under this agreement  totaling $10,415 during the year
ended December 31, 1999.

     During June 2000,  Breaking Waves entered into a license  agreement with an
effective  date of  November  1,  2000  with  Gottex  Models  Ltd.,  an  Israeli
Corporation and Gottex Models (USA) Corp., a New York Corporation for the use of
the trademark "Gottex" in the United States of America for children's  swimwear.
The agreement calls for a royalty fee of 7% of net sales with guaranteed minimum
annual royalties of $70,000 to $140,000 over the life of the agreement,  subject
to certain exceptions. The license agreement also requires the Company to expend
certain minimum amounts on advertising each year. The License agreement is for a
term of three  years,  subject to earlier  termination  in  accordance  with its
terms.  Breaking Waves recorded  royalties under this agreement  totaling $8,859
for the year ended December 31, 2000.

     In connection with such licensing agreement,  Breaking Waves entered into a
consulting   agreement  with  Larry  Nash,  Inc.   ("Consultant")   a  New  York
corporation,  whereby Mr. Nash, the Consultant's  sole stockholder shall provide
sales and  consulting  services in connection  with  Breaking  Waves' new Gottex
line.  Mr. Nash has  provided  similar  services  for the past twelve years with
another  company for which he represented the Gottex  children's  swimwear line.
This agreement is effective  August 5, 2000 and shall continue to August 5, 2001
and from year to year thereafter unless cancelled by either party on thirty (30)
days' prior written notice.
<PAGE>
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                    73                   President, CEO, and Director

         Jeanne Falletta                    43                   Secretary and Director

         Alain Le Guillou, M.D.             43                   Director

         James B. Frakes                    44                   Director

         Michael Friedland                  63                   Director

         Debra Riggs                        47                   Director
</TABLE>

     The Directors of the Company are elected annually by the stockholders,  and
the Officers of the Company are  appointed  annually by the Board of  Directors.
Vacancies on the Board of Directors  may be filled by the  remaining  Directors.
Each current Director and Officer will hold office until the next annual meeting
of  stockholders  or until his successor is elected and  qualified.  The outside
Directors do not receive a Director's fee for their  participation as Directors.
The outside Directors are Alain Le Guillou, M.D. (Until recently Harold Rashbaum
was the  father-in-law  of Alain Le  Guillou,  M.D.),  James B. Frakes and Debra
Riggs.  The  Corporation  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.
<PAGE>
     Harold Rashbaum,  age 73, 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,  Inc.
("Breaking Waves"), a New York company which is a wholly-owned subsidiary of the
Company.  From May 1996 to January 1997,  Mr.  Rashbaum  served as Secretary and
Treasurer  of the  Company.  Since  September  1996,  Mr.  Rashbaum has been the
Chairman of the Board of Directors of Play Co. Toys & Entertainment Corp. ("Play
Co."), a public entity whose Common Stock,  Series E Stock and Series E Warrants
are  quoted  on the  over-the-counter  market  on the OTC  Bulletin  Board.  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 majority-owned  subsidiary of Play Co. whose Common stock is traded
on the SMAX segment of the Frankfurt  Stock  Exchange.  On March 28, 2001,  Play
Co., Toys and Play Co. Toys Canyon  Country,  Inc. ("Play Co. Toys Canyon") each
filed for  protection  under Title 11 of the United  States Code with the United
States  Bankruptcy  Court for the Southern  District of New York. 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.

     Jeanne Falletta,  age 43, was elected a director of the Company in May 2000
and has been its Secretary since 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.

     Alain Le Guillou, M.D., age 44, has been a Director and a consultant of the
Company  since  1996.  Since  July  1995,  Dr. Le  Guillou  has been a doctor of
pediatrics at Montefiore Medical Group.  Until recently,  Dr. Le Guillou was the
son-in-law of Harold Rashbaum.

     James Frakes, age 45, has been a Director of the Company since January 1998
and was appointed  Chairman of the Company's Audit Committee in June 2000. Since
July 1997,  Mr.  Frakes has served as Chief  Financial  Officer and Secretary of
Play Co. 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 of Toys in May 1998. On March 28, 2001, Play Co., Toys
and Play Co. Toys Canyon each filed for protection  under Title 11 of the United
States Code with the United States Bankruptcy Court for the Southern District of
New York. 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.

     Michael  Friedland,  age 63, has been a Director of the  Company  since May
2000. Mr.  Friedland has been the Vice President of Design,  Marketing and Sales
of Breaking Waves since its inception in 1991.  Mr.  Friedland has over 40 years
experience in the children's swimwear industry. Prior to joining Breaking Waves,
Mr.  Friedland  co-founded  Making  Waves,  Inc., a  manufacturer  of children's
swimwear.
<PAGE>
     Debra  Riggs,  age 46, has been a Director of the  Company  since June 2000
when she was also appointed to the Company's Audit Committee. Ms. Riggs has been
the Controller of Play Co. since  February,  1999. On March 28, 2001,  Play Co.,
Toys and Play Co. Toys Canyon  each filed for  protection  under Title 11 of the
United  States Code with the United  States  Bankruptcy  Court for the  Southern
District of New York.  From June,  1998  through  January,  1999,  Ms. Riggs was
Controller of National Customer  Engineering,  a private company.  Prior to NCE,
Ms. Riggs was Assistant  Controller  of Factory 2-U Inc., a public  company with
over 200 retail stores in the business of selling discount clothing.

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 Securities and Exchange  Commission ("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, 2000 was a director,  officer,  or beneficial owner of more than ten percent
of the  Company's  Common Stock which is the only class of equity  securities of
the Company  registered  under ss.12 of the Securities  Exchange Act of 1934, as
amended,  failed to file on a timely basis reports  required by ss.16 of the Act
during the most recent fiscal year except that, to the Company's knowledge, each
of Mr.  Michael  Friedland  and Ms.  Falletta  and Riggs,  all  directors of the
Company,  filed their  Forms 3 in March  2001.  In  addition,  to the  Company's
knowledge,  Mr.  Rashbaum and Mr. Di Milia (a former officer of the Company) did
not file  Forms 4 or  Forms 5, and EVC did not file a Form 5 for the year  ended
December 31, 1999. 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.



<PAGE>
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, 2000, 1999 and 1998.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                          Annual Compensation                         Long-Term Compensation
                                                                           Awards                      Payouts
                                                         Other                       Securities
                                                         Annual       Restricted     Underlying                   All Other
                                                         Compen-      Stock          Options/        LTIP         Compen-
Name and Principal                 Salary      Bonus     sation       Award(s)       SARs            Payouts      sation
Position                  Year     ($)         ($)       ($)          ($)            (#)             ($)          ($)
<S>                       <C>      <C>         <C>       <C>          <C>            <C>             <C>          <C>
Harold Rashbaum
  President,  CEO,
  And Director            2000     160,000     --        --           --             --              --           --
                          1999     162,000     --        --           --             44,000(1)       --           --
                          1998     156,000     --        --           --             --              --           --
========================= ======== =========== ========= ============ ============== =============== ============ ============
</TABLE>

(1)  Represents an aggregate of 44,000 shares of Common Stock underlying options
     exercisable at $1.38 per share, granted in April 1999.


Stock Options

     The following  table  contains  information  regarding  options to purchase
Common Stock held at December 31, 2000 by the Company's  executive officer named
in the Executive Compensation Table above.
<TABLE>
<CAPTION>


===============================================================================================================================
                                   AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                              FISCAL YEAR END OPTION VALUES
--------------------------------------------------------- --------------------------------- -----------------------------------

                                                          Number of Securities Underlying   Value of Unexercised In-the-Money
                                                           Unexercised Options at Fiscal        Options at Fiscal Year End
                                                                      Year End
                             Shares
                           Acquired on      Value
           Name              Exercise      Realized       Exercisable     Unexercisable     Exercisable      Unexercisable
------------------------- --------------- --------------- ---------------- ---------------- ---------------- ------------------

<S>                            <C>              <C>         <C>                 <C>               <C>               <C>
     Harold Rashbaum           (1)              (1)         132,000(2)           --               (3)               --

========================= =============== =============== ================ ================ ================ ==================
</TABLE>
<PAGE>
(1)  No options were exercised in the year ending December 31, 1999 or 2000.

(2)  Represents an aggregate of 88,000 shares of Common Stock underlying options
     granted in March 1997 under the Company's Senior Management Incentive Plan,
     currently exercisable at $1.46 per share, and an aggregate of 44,000 shares
     of  Common  Stock  underlying  options  granted  in April  1999,  currently
     exercisable at $1.38 per share.

(3)  The options had no value on December 31, 2000 or January 19, 2001, since on
     each of those dates,  the aggregate  exercise price of the options exceeded
     the aggregate  market value of the underlying  shares (based on the closing
     sales prices of the Company's Common Stock on those dates.)

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."  To date,  HBR has not  received  any fees as a result  of the
distribution  of "Dirty  Laundry" not generating  any net profits.  See "Certain
Relationships and Related Transactions."

Breaking Waves, Inc.

     In November 1996,  Breaking Waves entered into  employment  agreements with
each of Malcolm  Becker  and  Michael  Friedland;  these  agreements  expired 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
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.
<PAGE>
     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  91,289 shares in two  allotments,  45,644 shares of Common
Stock to be  issued on May 27,  2000 and  45,645  shares  of Common  Stock to be
issued on November 27, 2000.  Mr.  Friedland also agreed to accept his aggregate
167,365 shares in two allotments,  83,683 shares of Common Stock to be issued on
May 27,  2000 and 83,683  shares of Common  Stock to be issued on  November  27,
2000.  Such shares were issued.  As part of the foregoing  transaction,  Messrs.
Becker and  Friedland  each granted an option to BBC Capital  Corp.  ("BBC"),  a
company  controlled by Ilan Arbel,  to purchase an aggregate of 76,074 shares of
common  stock in the case of Mr.  Becker and  139,471  shares in the case of Mr.
Friedland,  at an exercise price of $4.50 per share.  Such options expire to the
extent  of 1/2 of the  underlying  shares  on May 27,  2001 and the  balance  on
November 21, 2001 for each such individual.

     Effective  August  5,  2000,  Breaking  Waves  entered  into  a  consulting
agreement with Larry Nash, Inc. ("Consultant") a New York corporation,  pursuant
to  which  the  Consultant  shall  provide  sales  and  consulting  services  in
connection  with, and be in charge of sales of Breaking  Waves' Gottex and Coral
Cove lines.  Consultant is to be paid a commission  equal to a percentage of net
sales on specified  orders,  as further set forth in the  consulting  agreement.
This agreement  continues  annually,  unless cancelled by either party on thirty
(30) days' prior written notice.

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 750,000  shares of
Common Stock 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.
<PAGE>
     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.

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

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

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

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

     Upon  termination of  employment,  an optionee will be entitled to exercise
the vested  portion of an option  for a period of up to three  months  after the
date of termination  except that if the reason for  termination  was a discharge
for  cause,  the  option  shall  expire  immediately,  and  if  the  reason  for
termination  was death or  permanent  disability  of the  optionee,  the  vested
portion  of the  option  shall  remain  exercisable  for a period  of 12  months
thereafter.
<PAGE>
     In March 1997,  the Company  granted to Mr.  Rashbaum an option to purchase
88,000 shares of Common Stock at an exercise price of $1.46 per share,  pursuant
to the Management Plan.

Incentive Stock Rights

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

Stock Appreciation Rights (SARs)

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

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

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

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

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

Non-Executive Director Stock Option Plan

     The Company  terminated  its  Non-Executive  Director  Stock Option Plan on
December 31, 1998, in accordance with the terms thereof.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth  information  as of April 12, 2001 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known by the Company to be the owner of more than 5% of the  outstanding  shares
of Common  Stock,  (ii) each  director or director  nominee of the Company (iii)
each  executive  officer of the  Company  for whom  information  is given in the
Summary  Compensation  Table in this proxy  statement  and (iv) all officers and
directors as a group.  Except to the extent  indicated  in the  footnotes to the
following table or otherwise as specified in this Proxy  Statement,  each of the
individuals/entities  listed below  possesses  sole voting power with respect to
the shares of Common Stock listed opposite his/its name.
<TABLE>
<CAPTION>
            Name and Address                       Number of Shares            Percent of Common Stock Beneficially
        of Beneficial Owner (1)                 Beneficially Owned (1)                     Owned (1)(2)
        -----------------------                 ----------------------                     ------------
<S>                                                 <C>                                        <C>
European Ventures Corp.
P.O. Box 47 Road Town                               1,783,836(3)(7)                            23.9%
Tortola, BVI

American Telecom Corp.
C/o MW Todtman McNamara Chamber
P.O. Box 47 Road Town                             594,000(4)(5)(6)(7)                          8.0%
Tortola, BVI

HDS Capital Corp.
c/o MW Todtman McNamara Chamber
P.O. Box 47 Road Town                                330,000(6)(7)                             4.4%
Tortola, BVI

Amir Capital Overseas Ltd.
P.O. Box 47 Road Town                                 303,600(8)                               4.1%
Tortola, BVI

Volcano Trading Inc.
C/o Valor Invest
Via Cantalone 16                                      250,800 (8)                              3.4%
6900 Lugano, Switzerland

Full Moon Development Corp.
C/o Valor Invest
Via Cantalone 16                                      277,200(8)                               3.7%
6900 Lugano, Switzerland

Galit Capital, Ltd.
Via Vanoni #6                                         290,400(8)                               3.9%
Lugano, Switzerland CH 6901

Harold Rashbaum                                       252,000(9)                               3.4%

Jeanne Falletta                                           --                                    --

Alain Le Guillou, M.D.                                    --                                    --

James Frakes                                              --                                    --

Michael Friedland                                     167,720(10)                              2.3%

Debra Riggs                                               --                                    --

All Officers and Directors as a Group                 419,720(9)                               5.5%
(six persons)
</TABLE>
<PAGE>
* Less than 1% of the outstanding common stock.

(1)  Unless otherwise indicated, the address for each listed director or officer
     is c/o ShopNet.Com, Inc., 14 East 60th Street, New York, New York 10022. As
     used in this table,  "beneficial  ownership" means the sole or shared power
     to vote or direct the voting or to dispose or direct the disposition of any
     security.  For the  purposes  of this  table,  a person is deemed to be the
     beneficial  owner of  securities  that can be acquired  within 60 days from
     February 1, 2001 through the  exercise of any option or warrant.  Shares of
     Common Stock subject to options or warrants that are currently  exercisable
     or  exercisable  within 60 days are deemed  outstanding  for  computing the
     ownership  percentage of the person  holding such options or warrants,  but
     are not deemed  outstanding  for computing the ownership  percentage of any
     other person.  The amounts and percentages are based upon 7,472,224  shares
     of common stock outstanding as of April 12, 2001.
(2)  Does not give  effect to the  issuance  of (i)  3,379,200  shares of Common
     Stock  issuable upon exercise of the  3,840,000  outstanding  Warrants (the
     exercise of each warrant at an exercise  price of $3.41  purchases .88 of a
     share of Common Stock) or (ii) 128,333  shares of Common Stock reserved for
     issuance under the Company's Senior Management Incentive Plan.
(3)  Includes an  aggregate of 2,112  shares of common  stock  underlying  2,400
     warrants.  Each warrant is exercisable at a purchase price of $3.41 for .88
     of a share of Common Stock. European Ventures Corp. ("EVC") is formed under
     the laws of the British Virgin Islands.  Mr. Ilan Arbel,  father-in-law  of
     Harold Rashbaum,  President,  Chief Executive Officer and a director of the
     Company,  is  President  of EVC and as such,  has  voting  and  dispositive
     control of shares of the Company  beneficially  owned by EVC and  therefore
     may be deemed to beneficially own such shares.
(4)  American  Telecom Corp.  ("ATC") is a corporation  organized under the laws
     of  the  British  Virgin  Islands  which is wholly-owned by Europe American
     Capital  Foundation  ("EACF"),  a  Liechtenstein  Trust  with an address at
     Pradafont  Street  #7,  Vaduz  Liechtenstein,  c/o  Dr. Wohlwerd. Mr. Arbel
     controls  EACF  and  is  President of ATC. By virtue of such positions, Mr.
     Arbel  has  voting  and  dispositive  control  over  shares  of the Company
     beneficially  owned  by ATC and therefore may be deemed to beneficially own
     such shares.
(5)  Includes  330,000  shares  owned by HDS Capital  Corp.  ("HDS"),  a Company
     organized  under the laws of the British  Virgin  Islands,  which is wholly
     owned by ATC.
(6)  Mr.  Arbel is  President  of HDS and by  virtue  of such  position  and his
     control over ATC and EACF (see footnotes (3) and (4) above),  Mr. Arbel has
     voting and  dispositive  control  over shares of the  Company  beneficially
     owned by HDS and therefore may be deemed to beneficially own such shares.
(7)  Shares of the Company  beneficially  owned by EVC,  ATC and HDS are held of
     record  in  the  name  of  "Fiduciara  Biaggini,  as  trustee"  ("Fiduciara
     Biaggini"),  on behalf of such  respective  entities  which  have  retained
     beneficial  ownership  of such  shares.  Fiduciara  Biaggini is a fiduciary
     company with an address at via Vanoni #6, Lugano, Switzerland CH 6901.
(8)  Shares of the Company  beneficially  owned by each of Amir Capital Overseas
     Ltd.  ("Amir"),  Volcano Trading Inc.  ("Volcano"),  Full Moon  Development
     Corp.  ("Full  Moon")  and  Galit  Capital  Ltd  ("Galit"),  all  companies
     organized under the laws of the British Virgin Islands,  are held of record
     in the  name  of  "Fiduciara  Biaggini,  as  trustee,"  on  behalf  of such
     respective entities.  Fabio Rossi, a manager of Fiduciara Biaggini,  is the
     President and sole director of each such entity. Accordingly,  Mr. Rossi by
     virtue of such  positions,  may have voting and  dispositive  control  over
     shares of the Company owned by each of Amir,  Volcano,  Full Moon and Galit
     and  therefore  may be deemed to be the  beneficial  owner of such  shares,
     representing  in the aggregate  15.1% of the Company's  outstanding  Common
     Stock.
(9)  Includes an aggregate of 132,000 shares of Common Stock underlying  options
     granted  to  Mr.  Rashbaum, the President and Chief Executive Officer and a
     director of the Company. See "Executive Compensation."
(10) Includes 139,471  shares of Common Stock  underlying  an option  granted to
     BBC Corp. ("BBC), a company controlled by Mr. Arbel. BBC also has an option
     to purchase an additional 76,074 shares of Common Stock from Malcolm Becker
     ("BBC  Option"),  an  officer  of  Breaking  Waves,  Inc.,  a  wholly-owned
     subsidiary  of  the  Company.   Mr.  Arbel controls BBC, and as such may be
     deemed to be the beneficial owner of the shares of  Common Stock underlying
     the BBC Option.
<PAGE>
     By virtue of Mr.  Arbel's voting and  dispositive  control of shares of the
Company owned by each of EVC,  ATC, HDS (see  footnotes 3, 4, 5 and 6 above) and
giving effect to the BBC Option (see footnote 10 above), Mr. Arbel may be deemed
to beneficially own 34.7% of the Company's outstanding Common Stock.

     Each of Mr. Arbel and several defendants were named in a complaint filed in
May 1998 by the Securities and Exchange Commission ("Commission") alleging fraud
and other  violations of the securities  laws during 1993 regarding three public
companies:  Viral Testing Systems, Inc., LS Capital Corporation and RMS Titanic,
Inc.  Simultaneously  with the filing of the complaint,  the Commission  filed a
judgment  on consent  against  Mr.  Arbel.  Without  admitting  or  denying  the
allegations of the complaint,  Mr. Arbel and one other named defendant consented
to (1) permanent  injunctions  against  violating  Sections 5(a) and 5(c) of the
Securities Act of 1933, as amended  ("Securities  Act"),  and Sections 13(d) and
16(a) of the Securities  Exchange Act ("Exchange  Act") and Rules 13d-1,  16a-2,
and 16a-3  thereunder,  and (2) a joint and several  disgorgement  obligation of
$218,118,  plus prejudgment interest.  Mr. Arbel also consented to pay a penalty
of $100,000 pursuant to Sections 20(d) of the Securities Act and 21(d)(3) of the
Exchange Act.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Breaking  Waves' Loan and Security  Agreement with Century  Business Credit
Corporation ("Century") dated December 20, 2000 requires the provision of one or
more letters of credit in the aggregate amount of $1,150,000 to partially secure
the line of credit.  Pursuant to the terms of a Reimbursement  and  Compensation
Agreement,  a trust ("Trust"),  the beneficiary of which is the granddaughter of
Harold Rashbaum,  the Company's  President and Chief Executive Officer,  and the
daughter of Mr.  Arbel,  provided the security  underlying a letter of credit in
the  amount of  $250,000  issued by a bank to  replace a portion  of a letter of
credit  previously  provided by the Company.  Breaking Waves agreed to reimburse
the Trust for any and all losses, fees, charges and expenses to the Trust in the
event the  letter of credit is called by  Century  and the  issuing  bank  makes
payment  and  then  demands   reimbursement  from  the  Trust.  Breaking  Waves'
obligations  are  guaranteed  by the Company in  addition to being  secured by a
first  security  interest in all of the assets of the Company and a  subordinate
security interest in all of the assets of Breaking Waves.  Breaking Waves paid a
fee  of  $42,500  to  the  Trust  and  reimbursed  the  Trust  for  all  related
professional  and  other  fees  incurred  by the Trust in  connection  with such
transaction.

     In August 2000,  Breaking Waves  received an $80,000  advance from Play Co.
against  future  orders of  merchandise.  No orders were  received  against this
advance and in December 2000 Breaking Waves repaid the full $80,000 to Play Co.

     In November 1999,  Breaking Waves borrowed $400,000 from Play Co. with such
loan bearing  interest at 9% per annum.  Breaking  Waves repaid  $100,000 of the
loan in January 2000 and the balance in April 2000.
<PAGE>
     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 February 1999,  the Company  loaned  $100,000 to Play Co. with such loan
bearing  interest  at 9% per annum.  In each of April and May 1999,  the Company
loaned an  additional  $100,000 to Play Co. at an interest rate of 9% per annum.
All such loans have been repaid.

     In  November  1998,  pursuant to a sales  agreement  entered  into  between
Breaking Waves and Play Co.,  Breaking Waves purchased 1.4 million  unregistered
shares  of  Play  Co.'s  common  stock  in  a  private  transaction,  which  was
subsequently  reduced to  1,270,000  shares.  The shares  purchased  represented
approximately  25.4% of the  outstanding  common  stock of Play Co.  immediately
after the  transaction.  Such percentage has since been reduced to approximately
1.5% of Play Co.'s  outstanding  common stock.  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.

     In October 1996,  pursuant to a promissory  note, the Company loaned Harold
Rashbaum its President and Chief  Executive  Officer a total of $50,000  bearing
interest at 6 1/2%  payable  over three years.  As of  September  30, 2000,  the
unpaid  portion,  which is due on demand,  amounted to  $37,000,  which has been
classified  as current.  In 1998,  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.

     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.  In
1996, HBR entered into an oral consulting  agreement with the Company  providing
for the payment to HBR of 5% of the net profits received by the Company from the
distribution  of "Dirty  Laundry."  To date,  HBR has not received any fees as a
result of the distribution of "Dirty Laundry" not generating any net profits.

     Alain Le Guillou,  a director of the Company,  has been a consultant to the
Company  since  1996,  receiving  $12,000  per  annum for such  services.  Until
recently, Dr. Le Guillou was the son-in-law of Harold Rashbaum.

     During the years ended  December 31, 2000 and 1999 the Company paid $49,080
and $24,000 respectively,  in financial consulting fees to DRA Consulting, Inc.,
a company whose  president is the daughter of the Company's  President and Chief
Executive Officer.
<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
         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
                         Transfer & Trust Company
4.5                      Form of Restricted Stock Agreement
10.2                     The Company's Senior Management Incentive Plan
10.4                     Consulting Agreement between Breaking Waves, Inc. and Dan Stone
10.5                     Lease for premises at 112 West 34th Street, New York, New York
10.6                     Lease for premises at 8410 N.W. 53rd Terrace, Miami, Florida
10.6(a)                  Amendment to lease at 8410 N.W. 53rd Terrace, Miami, Florida
10.7                     Stock Purchase  Agreement  between the Company,  European  Ventures Corp.,  Breaking Waves,
                         Inc., and the shareholders of Breaking Waves, Inc., dated May, 1996
10.9                     Property Acquisition  Agreement between the Company and Rogue Features,  Inc., dated March,
                         1996
10.10                    Co-production  agreement  between the Company and Rogue Features,  Inc., dated March,  1996
                         and all amendments thereto
<PAGE>
10.11                    Right of First Refusal Agreement with principals of Rogue Features, Inc.
10.13                    Shippers  Agency  Agreement   between   Hollywood   Productions,   Inc.,  and  Third  Party
                         Enterprises, Inc.
10.14                    License Agreement between Breaking Waves, Inc. and Beach Patrol, Inc.
10.16                    Employment  Agreement with Michael  Friedland  (incorporated  by reference to the indicated
                         exhibit in the Company's 10-KSB for the year ended December 31, 1996)
10.17                    Employment  Agreement  with Malcolm  Becker  (incorporated  by  reference to the  indicated
                         exhibit in the Company's 10-KSB for the year ended December 31, 1996)
10.18                    Termination of Employment Agreement with Robert Melillo
                         (incorporated by reference to the indicated  exhibit in
                         the  Company's  10-KSB for the year ended  December 31,
                         1996)
10.19                    Trident  Releasing,  Inc.  License  Agreement  (incorporated  by reference to the indicated
                         exhibit in the Post-Effective Amendment No. 1)
10.20                    Cyclone  Option  Agreement  (incorporated  by  reference  to the  indicated  exhibit in the
                         Post-Effective Amendment No. 1)
10.21                    Cyclone  Co-Writer  Agreement  (incorporated  by reference to the indicated  exhibit in the
                         Post-Effective Amendment No.)
10.22                    Heller  Financial  Agreement  (incorporated  by reference to the  indicated  exhibit in the
                         Post-Effective Amendment No. 2)
10.23                    Non-Executive  Director Stock Option Plan  (incorporated  by reference to Appendix B in the
                         Proxy Statement for the Company's June 1997 Annual Meeting)
10.24                    Kawasaki Motors Corp.,  USA "Jet Ski" License  Agreement  (incorporated by reference to the
                         indicated exhibit in the Company's 10-KSB for the year ended December 31, 1997)
10.25                    Amendment to lease at 112 West 34th  Street,  New York,
                         New York  (incorporated  by reference to the  indicated
                         exhibit  in the  Company's  10-KSB  for the year  ended
                         December 31, 1997)
10.26                    Form of Subscription  Agreement used in connection with the Company's February 1998 Private
                         Placement  (incorporated  by reference to the indicated
                         exhibit  in the  Company's  10-KSB  for the year  ended
                         December 31, 1997)
10.27                    Form of  Subscription  Agreement  used in  connection  with the  Company's May 1998 Private
                         Placement  (incorporated  by reference to the indicated
                         exhibit  in the  Company's  10-KSB  for the year  ended
                         December 31, 1998)
10.28                    Amendment  to  Employment   Agreement  with  Michael   Friedland   dated  January  1,  1998
                         (incorporated  by reference to the indicated  exhibit in the Company's  10-KSB for the year
                         ended December 31, 1998)
10.29                    Amendment to Employment  Agreement with Malcolm Becker dated January 1, 1998  (incorporated
                         by reference to the indicated  exhibit in the Company's  10-KSB for the year ended December
                         31, 1998)
10.30                    Second  Amendment  to  Employment  Agreement  with  Malcolm  Becker  dated  January 1, 1999
                         (incorporated  by reference to the indicated  exhibit in the Company's  10-KSB for the year
                         ended December 31, 1998)

<PAGE>
10.31                    Lease for premises at 14 East 60th Street,  Room 402, New York, New York  (incorporated  by
                         reference to the indicated  exhibit in the Company's  10-QSB for the quarter ended June 30,
                         1999)
10.32                    Option   Agreement   -  Robb  Peck   McCooey   Clearing
                         Corporation (incorporated by reference to the indicated
                         exhibit in the  Company's  10-QSB for the quarter ended
                         September 30, 1999)
10.33*                   License Agreement with Gottex Models Ltd, dated November 1, 2000
10.34*                   Factoring Agreement with Century Business Credit Corp. dated September 12, 2000
10.35*                   Supplement to factoring or Security  Agreement with Century  Business  Credit  Corporation,
                         dated August 14, 2000
10.36*                   Corporate  Guaranty  unlimited  between Century  Business  Credit  Corporation and ShopNet,
                         dated August 14, 2000
10.37*                   Trademark  Collateral  Security  Agreement between Century Business Credit  Corporation and
                         Breaking Waves, dated August 14, 2000.
10.38*                   Consulting Agreement with Larry Nash, Inc., dated August 5, 2000
16.1                     Letter from Scarano & Tomaro,  P.C.  regarding  dismissal of Scarano & Tomaro,  P.C. as the
                         Company's  auditors  (incorporated  by reference to the indicated  exhibit in the Company's
                         Form 8-K/A filed on November 24, 1998)
21.1                     Subsidiaries of the Registrant
</TABLE>
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                     (FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

                                   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 16th day of April, 2001.


                                                         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,            04/16/01
Harold Rashbaum                             President, and Director             Date


/s/ Jeanne Falletta                         Secretary and Director,             04/16/01
Jeanne Falletta                                                                 Date


/s/ Alain Guillou, M.D.                     Director                            04/16/01
Alain Le Guillou, M.D.                                                          Date


/s/ James B. Frakes                         Director                            04/16/01
James B. Frakes                                                                 Date


/s/ Michael Friedland                       Director                            04/16/01
Michael Friedland                                                               Date


/s/ Debra Riggs                             Director                            04/16/01
Debra Riggs                                                                     Date

</TABLE>
                                       42
<PAGE>
                       SHOPNET. COM, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>




                                                                                              Page
                                                                                             number
---------------------------------------------------------------------------------------------------------

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

Consolidated balance sheet at December 31, 2000                                                F-2

Consolidated statements of operations for the years ended
 December 31, 2000 and 1999                                                                    F-3

Consolidated statement of stockholders' equity for the years ended
 December 31, 2000 and 1999                                                                    F-4

Consolidated statements of cash flows for the years ended
 December 31, 2000 and 1999                                                                 F-5 - F-6

Notes to consolidated financial statements                                                  F-7 - F-25

</TABLE>
<PAGE>
                          INDEPENDENT AUDITORS' REPORT




     To the Board of Directors and Stockholders of
     Shopnet.com, Inc.

     We have audited the accompanying consolidated balance sheet of Shopnet.com,
     Inc. and  subsidiaries  (the  "Company"),  as of December 31, 2000, and the
     related  consolidated  statements of operations,  stockholders'  equity and
     cash  flows  for  the  years  ended  December  31,  2000  and  1999.  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  auditing  standards  generally
     accepted in the United States of America.  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,  2000 and the  consolidated
     results of its  operations  and cash flows for the years ended December 31,
     2000 and 1999 in conformity with accounting  principles  generally accepted
     in the United States of America.





     Massella, Tomaro & Co., LLP
     Jericho, New York
     March 22, 2001



<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2000

                                     ASSETS
<TABLE>
<CAPTION>

Current assets:
<S>                                                                                                              <C>
    Cash                                                                                                         $         107,734
    Cash - restricted                                                                                                    1,114,572
    Accounts receivable, net                                                                                                47,966
    Other receivables                                                                                                       27,922
    Inventory                                                                                                            3,464,229
    Prepaid expenses                                                                                                       107,632
    Advances to officer                                                                                                     40,000
                                                                                                                 -----------------
         Total current assets                                                                                            4,910,055
                                                                                                                 =================

Furniture, computer equipment, and leasehold improvements, net                                                              61,708
Film production and distribution costs, net                                                                              1,350,000
Costs in excess of net assets of business acquired                                                                         762,737
Investments in movie ventures                                                                                              248,210
Deferred tax asset - non - current                                                                                         202,500
Other assets                                                                                                                20,635
Marketable securities - affiliate (Note 6 and 16)                                                                          107,950
                                                                                                                 -----------------
         Total assets                                                                                            $       7,663,795
                                                                                                                 =================

                                                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Due to factor                                                                                                $       3,165,909
    Accounts payable                                                                                                     1,095,490
    Accrued expenses                                                                                                        99,843
    Capital lease obligations                                                                                               17,074
    Other taxes payable                                                                                                     11,051
    Deferred tax liability                                                                                                   4,704
                                                                                                                 -----------------
         Total current liabilities                                                                                       4,394,071
                                                                                                                 -----------------

Capital lease obligations, net of current portion                                                                           12,960
                                                                                                                 -----------------

         Total liabilities                                                                                               4,407,031
                                                                                                                 -----------------

Commitments and contingencies (Note 12)                                                                                          -
                                                                                                                 -----------------

Stockholders' equity:
    Common stock - $.001 par value, 20,000,000 shares authorized,
         7,472,244 shares issued, outstanding and subscribed (Note 13)                                                       7,472
    Additional paid-in capital                                                                                           6,638,852
    Accumulated deficit                                                                                                 (3,497,510)
    Accumulated other comprehensive income                                                                                 107,950
                                                                                                                 -----------------
         Total stockholders' equity                                                                                      3,256,764
                                                                                                                 -----------------

Total liabilities and stockholders' equity                                                                       $       7,663,795
                                                                                                                 =================

</TABLE>
           See accompanying notes to consolidated financial statements

                                       F-2
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>


                                                                                               2000                    1999
----------------------------------------------------------------------------------------------------------    --------------------

<S>                                                                                    <C>                    <C>
Net sales                                                                              $         5,713,133    $          4,756,497

Cost of sales                                                                                    3,764,258               3,214,704
                                                                                       -------------------    --------------------

Gross profit                                                                                     1,948,875               1,541,793
                                                                                       -------------------    --------------------

Expenses:
    Selling, general, and administrative expenses                                                2,208,724               2,137,895
    Amortization of costs in excess of net assets of business
        acquired                                                                                    70,952                  70,952
                                                                                       -------------------    --------------------

Total expenses                                                                                   2,279,676               2,208,847
                                                                                       -------------------    --------------------

Loss before other income (expense)
 and provision for income taxes                                                                   (330,801)               (667,054)
                                                                                       --------------------   ---------------------

Other income (expense):
    Equity in earnings (loss) of affiliate                                                          (4,290)               (994,305)
     Write down of film costs                                                                     (308,564)               (261,153)
     Gain on sale of equity investment in affiliate                                                      -                 130,093
    Rental and other income                                                                         22,271                  15,549
    Interest and finance expense                                                                  (371,752)               (243,148)
    Interest income                                                                                 80,156                  56,212
                                                                                       -------------------    --------------------
         Total other income (expense)                                                             (582,179)             (1,296,752)
                                                                                       --------------------   ---------------------

Loss before (benefit of) provision for
 income taxes                                                                                     (912,980)             (1,963,806)

(Benefit of) provision for income taxes                                                             (6,004)                 12,273
                                                                                       --------------------   --------------------

Net loss                                                                                          (906,976)             (1,976,079)

Other items of comprehensive income                                                                107,950                       -
                                                                                       -------------------    --------------------

Comprehensive net loss                                                                 $          (799,026)   $         (1,976,079)
                                                                                       --------------------   ---------------------

Basic and diluted loss per share:                                                      $              (.13)   $               (.33)
                                                                                       ====================   =====================
Weighted average number of
     common shares outstanding                                                                   7,021,917               5,983,188
                                                                                       ===================    ====================
</TABLE>
           See accompanying notes to consolidated financial statements

                                       F-3
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>


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

<S>                                   <C>         <C>           <C>            <C>            <C>           <C>
Balances at December 31, 1998 ...     2,686,944   $     2,687   $ 6,310,103    $  (614,455)   $      --     $ 5,698,335

Issuance of common stock in
 connection with January 1999
 stock dividend .................     2,686,944         2,687        (2,687)          --             --            --

Stock issued for compensation in
 accordance with 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 ...     5,589,620         5,590     6,345,836     (2,590,534)          --       3,760,892

Issuance of common stock in
 connection with January 2000
 stock dividend .................       537,389           537          (537)          --             --            --

Sale of common stock in February
  2000, net of costs ............       100,000           100       294,798           --             --         294,898

Issuance of common stock in
 connection with May 2000
 stock dividend .................     1,245,235         1,245        (1,245)          --             --            --

Unrealized gain on mark to market
  securities ....................          --            --            --             --          107,950       107,950

Net loss for the year ended
   December 31, 2000 ............          --            --            --         (906,976)          --        (906,976)
                                    -----------   -----------   -----------    -----------    -----------   -----------

Balances at December 31, 2000 ...     7,472,244   $     7,472   $ 6,638,852    $(3,497,510)   $   107,950   $ 3,256,764
                                    ===========   ===========   ===========    ===========    ===========   ===========
</TABLE>

     See accompanying notes to consolidated financial statements (unaudited)
                                       F-4
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>

                                                                                          2000                    1999

Cash flows from operating activities:
<S>                                                                             <C>                       <C>
   Net loss                                                                     $        (906,976)        $      (1,976,079)
   Adjustments to reconcile net loss to net
    cash provided by (used for) operating activities:
       Equity in earnings (loss) of affiliate                                               4,290                   994,305
       Amortization and depreciation                                                      117,328                   114,974
       Deferred income tax (benefit) expense                                              (10,336)                   (8,961)
       Write down of film costs                                                           308,564                   261,153
       Stock issued for services rendered                                                       -                    38,636
   Decrease (increase) in:
       Accounts receivable                                                                (16,862)                   22,124
       Other receivables                                                                  (27,922)                        -
       Inventory                                                                         (602,176)                 (199,050)
       Prepaid expenses                                                                   (36,973)                  (17,991)
       Film production and distribution costs                                                   -                   (18,495)
   Increase (decrease) in:
       Due to factor                                                                    1,389,635                  (287,280)
       Accounts payable                                                                   (33,340)                  209,516
       Accrued expenses                                                                    40,598                   368,153
       Other taxes payable                                                                 11,051                         -
                                                                                -----------------         -----------------

Net cash provided by (used for) operating activities                                      236,881                  (498,995)
                                                                                -----------------         ------------------

Cash flows from investing activities:
   Proceeds from sale of equity investment in affiliate                                         -                   130,093
   Acquisition of furniture, computer equipment, and
     leasehold improvements                                                               (15,267)                   (7,964)
   Acquisition costs                                                                            -                   (17,035)
   Investment in movie ventures                                                            (5,000)                  (47,500)
                                                                                ------------------        ------------------

Net cash (used for) provided by investing activities                                      (20,267)                   57,594
                                                                                ------------------        ------------------

Cash flows from financing activities:
   Proceeds from sale of common stock                                                     294,898                         -
   Proceeds from line of credit                                                           250,000                         -
   Repayments of line of credit                                                          (250,000)                        -
   Advances from related parties                                                                -                   650,000
   Repayments to related parties                                                         (650,000)                 (130,000)
   Principal payments on capital lease obligations                                        (15,445)                  (11,886)
                                                                                ------------------        ------------------

Net cash (used for) provided by financing activities                                     (370,547)                  508,114
                                                                                ------------------        -----------------

Net (decrease) increase in cash                                                          (153,933)                   66,713

Cash, beginning of period                                                               1,376,239                 1,309,526
                                                                                -----------------         -----------------

Cash, end of period                                                             $       1,222,306         $       1,376,239
                                                                                =================         =================

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

                                       F-5
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                              2000                    1999
                                                                       -----------------         -----------------

Supplemental disclosure of non-cash flow information:
    Cash paid during the year for:
<S>                                                                    <C>                       <C>
         Interest                                                      $         379,802         $         235,098
                                                                       =================         =================
         Income taxes                                                  $          17,106         $          16,255
                                                                       =================         =================

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

</TABLE>











          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 1     -    ORGANIZATION

                Shopnet.com,  Inc.  ("Shopnet") was incorporated in the State of
                Delaware  on  December  1,  1995  under  the  name of  Hollywood
                Productions,  Inc.  It was formed for the  purpose of  acquiring
                screenplays and producing motion  pictures.  On May 10, 1999, it
                filed an amendment to its  Articles of  Incorporation  to change
                its  name  to  Shopnet.com,   Inc.  On  May  12,  1999,  Shopnet
                incorporated   a  new   wholly   owned   subsidiary,   Hollywood
                Productions,  Inc. ("Hollywood"),  to which the Company assigned
                all of its film  rights.  Accordingly,  Shopnet is  considered a
                holding company. During September 1996,  simultaneously with the
                completion  of its  Initial  Public  Offering  ("IPO"),  Shopnet
                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.

NOTE 2       -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a)     Principles of consolidation
                ---------------------------

                The accompanying  consolidated  financial statements include the
                accounts of Shopnet and its wholly owned subsidiaries,  Breaking
                Waves and Hollywood (the  "Company"),  after  elimination of all
                significant intercompany  transactions and accounts.  Affiliated
                companies  which are 20 to 50 percent  owned are  accounted  for
                under 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 and
                cash equivalents.  Included in these amounts are certificates of
                deposit  of  approximately   $900,000.   The  Company  maintains
                balances  in  accounts  which are in excess of  Federal  Deposit
                Insurance  Corporation  limits by  approximately  $800,000.  The
                Company  believes  that  such  risk  is  minimal  based  on  the
                reputation  of  the  financial  institution.   The  Company  has
                classified  $1,114,000 as restricted  cash which is comprised of
                approximately  $900,000 on deposit with a bank and $214,000 with
                its factor as collateral pursuant to its factoring agreement.

         c)     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,  2000,  no  allowance  was  deemed   necessary  by
                management.

        d)      Marketable securities
                ---------------------

                Marketable  securities  are classified as available for sale and
                recorded  at current  market  value.  Net  unrealized  gains and
                losses on marketable  securities available for sale are credited
                or charged to other  comprehensive  income. All of the Company's
                marketable   securities   were  classified  as  non-current  and
                available  for sale at December 31,  2000,  as a result of being
                pledged pursuant to the factoring agreement.


                                       F-7
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



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

         e)     Inventory
                ---------

                Inventory  amounting to $3,464,229 at December 31, 2000 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.

         f)     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.

         g)     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 years ended  December 31, 2000 and 1999, the Company has
                written down film production and distribution  costs by $308,564
                and  $261,153,  respectively,  in order to reduce the balance to
                its estimated net realizable value.

         h)     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.


                                       F-8
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

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

        i)      Income taxes
                ------------

                The Company  accounts  for income taxes in  accordance  with 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.

          j)    Revenue and cost recognition
                ----------------------------

                The  terms of  Breaking  Waves'  sales  are FOB  shipping  point
                thereby  revenue is 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.

         k)     Earnings per share
                ------------------

                During 1997,  the Financial  Accounting  Standards  Board issued
                Statement of Financial  Accounting  Standards  ("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.

         l)     Use of estimates
                ----------------

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


                                       F-9
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



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


         m)     Fair value disclosure at December 31, 2000
                -------------------------------------------

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

         n)     Reclassifications
                -----------------

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

         o)     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.

         p)     Accounting for stock-based compensation
                ---------------------------------------

                The Company  elected to continue  to measure  compensation  cost
                using   Accounting   Principles   Board   Opinion   ("APB")  No.
                25,"Accounting  for Stock Issued to  Employees," as is permitted
                by SFAS No.  123,  "Accounting  for  Stock-Based  Compensation."
                Accordingly,  no  compensation  cost has been recognized for the
                options  issued under the Incentive  Plan as the exercise  price
                and market value at the date of grant were the same.

                For companies that choose to continue  applying APB No. 25, SFAS
                No. 123 requires  certain pro forma  disclosures  as if the fair
                value method had been utilized.  Had  compensation  cost for the
                Company's stock- based  compensation  plan been determined based
                on the fair value at the grant  dates for awards  under the plan
                consistent  with the method of SFAS No. 123, the  Company's  net
                income  (loss) and earnings per share would have been reduced to
                the pro forma amounts indicated below utilizing the Black-Sholes
                option pricing model:
<TABLE>
<CAPTION>

                                                                                 2000                1999
                                                                          ----------------     ---------------
                  Net income (loss)-
<S>                                                                       <C>                  <C>
                                   as reported                            $       (906,976)    $    (1,976,079)
                                                                          =================    ================
                                   pro forma                              $       (906,976)    $    (1,988,329)
                                                                          =================    ================

                  Basic EPS -      as reported                            $           (.13)    $          (.33)
                                                                          =================    ================
                                   pro forma                              $           (.13)    $          (.33)
                                                                          =================    ================
</TABLE>

                                      F-10
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



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

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

                The fair market  value of each option  grant is estimated at the
                date of grant  using the Black - Scholes  option  pricing  model
                with the following weighted-average assumptions:
<TABLE>
<CAPTION>

<S>                                                                             <C>
                                    Dividend yield                              0.00%
                                    Expected volatility                         30%
                                    Risk-free interest rate                     6%
                                    Expected life                               1-5 years
</TABLE>

       q)       Effect of new accounting standards
                ----------------------------------

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

NOTE 3    -     FURNITURE, COMPUTER EQUIPMENT & LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>

                Furniture, computer equipment, and leasehold improvements are as
                follows at December 31, 2000:
<S>                                                                             <C>
                           Furniture & fixtures                                 $ 38,727
                           Computer equipment and software                        79,645
                           Leasehold improvements                                 13,415
                                                                                --------
                                                                                 131,787
                           Less: accumulated depreciation
                                    and amortization                              70,079
                                                                                --------
                                                                                $ 61,708
                                                                                ========
</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, 2000 and 1999  amounted  to $21,376  and  $19,023,
                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, 2000 and 1999.



                                      F-11
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 5    -     INVESTMENTS IN MOVIE VENTURES

           a)   Battle Studies
                --------------

                Pursuant to a co-production  agreement dated April 17, 1998 with
                North Folk Films,  Inc., the Company  invested  through December
                31, 2000  $217,500  for a 50%  interest in a new entity,  Battle
                Studies Productions,  LLC ("Battle Studies") a limited liability
                company.  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.

                The Company  accounts for the investment in Battle Studies under
                the equity  method.  For the years ended  December  31, 2000 and
                1999, the Company  recorded  $4,290 and $-0- equity loss for its
                proportionate share of Battle Studies.

                On October 12, 2000,  Battle Studies entered into a distribution
                agreement with Raven Pictures  International  ("Raven Pictures")
                to  distribute  Battle  Studies  motion  picture   ("Machiavelli
                Rises") to foreign countries.  Battle Studies has granted rights
                under the agreement for the  theatrical,  video,  non-theatrical
                and television markets.  The term of the agreement is for twenty
                - four  months  for all  portions  of  territory  outside of the
                United  States  and  English  speaking  Canada.  Battle  Studies
                expects  to  realize  75%  (which  is net of a 25% fee to  Raven
                Pictures) of the expected  estimated gross revenues derived from
                foreign  countries  less $20,000 for marketing  and  advertising
                expenses.

         b)     The Girl
                --------

                Pursuant  to an  agreement  dated  July 1,  1999  with  Artistic
                License Films Inc., Hollywood invested through December 31, 2000
                $35,000 for a 22.533% interest in a new entity,  The Girl, LLC a
                limited  liability  company  ("The  Girl").  In  return  for its
                participation  in The  Girl,  Hollywood  shall  be  entitled  to
                receive  a  non-contested,   non-dilutable   22.533%   ownership
                interest in The Girl, a recoupment of its  investment on no less
                favorable  terms than any other  investor and 22.533% of 100% of
                any contingent  compensation which shall be actually received by
                The Girl.  The Girl  retains all rights to the motion  pictures,
                the screenplays, and all ancillary rights attached thereto.

                Hollywood  accounts  for the  investment  in The Girl  under the
                equity  method.  Accordingly,  as of December 31, 2000 and 1999,
                the Company has only  recorded  its initial  $35,000  investment
                since  no  revenues  have  been  derived  from  this  film as of
                December 31, 2000.



                                      F-12
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 6    -     MARKETABLE SECURITIES - 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 Shopnet and the Company),
                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  accounted for its  investment  under the equity
                method.  For the year ended  December  31, 1999  Breaking  Waves
                recorded $994,305 of equity loss for its proportionate  share of
                Play Co.'s loss for that year.

                As of December 31, 1999,  the  Company's  investment in Play Co.
                was  reduced  to $-0-  since  its  share  of Play  Co.'s  losses
                exceeded its cost basis.  In addition,  as of December 31, 1999,
                as a result of Play Co.'s  issuance of  additional  common stock
                and the  Company's  sale of 130,000  shares of Play Co.'s common
                stock, the Company's percentage ownership was reduced to 22.88%.

                During the year ended  December 31, 2000,  Play Co.  converted a
                portion  of its series E  preferred  stock  into  common  stock,
                thereby  reducing   Breaking  Waves'  ownership   percentage  to
                approximately 1.5%. Accordingly,  upon this event the accounting
                method  for  the  investment  in Play  Co.  was  changed  to the
                requirements   of  SFAS  No.   115,   "Accounting   for  Certain
                Investments in Debt and Equity Securities."

                Under SFAS 115, the securities are considered available for sale
                and  therefore  the  carrying  value is based on the fair market
                value of the  securities at December 31, 2000 which  amounted to
                $107,950.  The  change  in  unrealized  gain  or loss  has  been
                recorded as a component of comprehensive income. The Company has
                pledged such shares as collateral for a standby letter of credit
                in connection  with Breaking Waves entering into a new factoring
                agreement with Century Business Credit  Corporation  ("Century")
                and are therefore  considering  non-current (See Note 8 (b)). In
                addition, see Note 16 for subsequent event.

NOTE 7  -       ACCRUED EXPENSES

                Accrued expenses consist of the following at December 31, 2000:

<TABLE>
<CAPTION>

<S>                                                                                            <C>
                               Commissions                                                     $        33,610
                               Professional fees                                                        17,500
                               Other corporate overhead                                                 48,733
                                                                                               ---------------
                                                                                               $        99,843
</TABLE>
                                      F-13
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999


NOTE 8 -   DUE TO FACTOR

         a)     CIT Group
                ---------

                On August 20, 1997,  Breaking Waves entered into a factoring and
                revolving  inventory  loan and  security  agreement  (as amended
                December 9, 1998) with CIT Group  (formerly,  Heller  Financial,
                Inc.  "CIT") to sell their  interest  in all  present and future
                receivables   without  recourse.   Breaking  Waves  paid  CIT  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.

                Breaking  Waves took  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 the
                year ended  December  31, 1999,  Breaking  Waves was required to
                transfer an additional  $200,000 of cash as  collateral  for the
                standby letter of credit.

                On or  about  September  12,  2000  the  agreement  with CIT was
                cancelled  and a new  factoring  agreement  was entered  into as
                discussed  below.  As of December 31, 2000, a balance of $312 is
                due CIT.  Interest  expense  related to this  agreement  totaled
                $204,821 and $228,772 for the years ended  December 31, 2000 and
                1999.

         b)     Century Business Credit Corporation
                -----------------------------------

                On or about  September 12, 2000,  Breaking  Waves entered into a
                factoring and revolving  inventory  loan and security  agreement
                with  Century to sell their  interest  in all present and future
                receivables  without recourse.  Breaking Waves submits all sales
                offers to Century for credit  approval  prior to  shipment,  and
                pays a factoring commission of .75% of receivables sold. Century
                retains from the amount  payable to Breaking Waves a reserve for
                possible  obligations  such as customer  disputes  and  possible
                credit losses on unapproved receivables. Breaking Waves may take
                advances of up to 85% of the  receivables,  with interest at the
                rate of 1 3/4% over prime.

                In connection with the factoring  agreement,  the Company agreed
                to  continue  maintaining  $1,150,000  of cash  in a  segregated
                account in order to collateralize  standby letters of credit for
                Breaking  Waves.  Additionally,  Breaking  Waves was required to
                pledge as additional collateral $200,000 of its own cash and its
                investment in Play Co. which is represented by 1,270,000  shares
                of Play Co's common stock.

                Pursuant  to  the  terms  of a  Reimbursement  and  Compensation
                Agreement,  a trust  ("Trust"),  the  beneficiary  of which is a
                relative of the Company's  President and Chief Executive Officer
                and a majority  stockholder,  pledged  assets as collateral  for
                securing a  $250,000  letter of credit to replace a portion of a
                letter of credit previously pledged by the Company. Accordingly,
                on December 20, 2000 the original  agreement with the factor was
                amended to allow such replacement of collateral. Breaking Waves'
                Loan and Security Agreement with Century dated December 20, 2000
                requires  the  provision of one or more letters of credit in the
                aggregate  amount of $1,150,000 to partially  secure the line of
                credit.



                                      F-14
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999


NOTE 8   -      DUE TO FACTOR (cont'd)

           b)   Century Business Credit Corporation (cont'd)
                --------------------------------------------

                Breaking  Waves  agreed to  reimburse  the Trust for any and all
                losses, fees, charges and expenses to the Trust in the event the
                letter of credit is called by Century  and/or the  issuing  bank
                demands   reimbursement   from  the   Trust.   Breaking   Waves'
                obligations  to the Trust are secured by a subordinate  security
                interest in Breaking Waves' assets. Breaking Waves paid a fee of
                $42,500 to the Trust and  reimbursed  the Trust for all  related
                professional  and other fees incurred by the Trust in connection
                with such transaction.

                Interest expenses related to this agreement totaled $100,488 for
                the year ended December 31, 2000.  Century has secured  interest
                in Breaking Wave's inventory as collateral for the advances.  As
                of December  31, 2000,  the net advances to Breaking  Waves from
                Century amounted to $3,165,597.

NOTE 9  -       LINE OF CREDIT

                On March 30, 2000, the Company  entered into a revolving line of
                credit  agreement with a bank.  Total available credit under the
                line of credit was $250,000. The outstanding balance was payable
                in monthly installments including 9% interest. As a condition of
                the line of credit, the Company was required to deposit $250,000
                in a  certificate  of deposit as collateral  with the bank.  The
                line of  credit  was  repaid  in full and  closed as of July 12,
                2000.

NOTE 10   -     CAPITAL LEASE OBLIGATIONS

                During the year ended  December 31, 1998,  the Company  acquired
                computer equipment and proprietary  software for its subsidiary,
                Breaking Waves, pursuant to the following terms and conditions:

                       i) 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)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.

                                      F-15
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 10   -          CAPITAL LEASE OBLIGATIONS (cont'd)

             ii)  At December 31,  2000,  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>
                                   2001                                           $      19,335
                                   2002                                                  13,486
                                                                                  -------------
                                   Total minimal lease payments                          32,821
                                                                                  -------------
                                 Less: Amounting representing interest                    2,787
                                                                                  -------------

                                 Present value of net minimum
                                   lease payments                                 $      30,034
                                                                                  =============
</TABLE>

                  At December  31, 2000  equipment  and software  under  capital
                  leases is carried at a book value of $30,750.

NOTE 11  - (BENEFIT OF) PROVISION FOR INCOME TAXES

                (Benefit  of)  provision  for income  taxes is  comprised of the
                following for the years ended December 31, 2000 and 1999:
<TABLE>
<CAPTION>

                                                                                   2000            1999
                                                                             -------------      ------------
                  Current:
<S>                                                                          <C>                <C>
                           Federal                                           $           -      $        -
                           State and local                                           4,332            21,234
                                                                             -------------      ------------
                                                                                     4,332            21,234
                                                                             -------------      ------------
                  Deferred:
                           Federal                                                  (6,150)                -
                           State and local                                          (4,186)           (8,961)
                                                                             --------------     -------------
                                                                                   (10,336)           (8,961)
                                                                             -------------      ------------

                  Total (benefit of) provision for income taxes               $     (6,004)     $     12,273
                                                                              =============     ============

</TABLE>

                                      F-16
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 11  - (BENEFIT OF) PROVISION FOR INCOME TAXES (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, 2000 and 1999:
<TABLE>
<CAPTION>

                                                                                    2000            1999
                                                                                -------------   ------------
<S>                                                                             <C>             <C>

                           Federal statutory rate applied to
                              pretax loss                                       $           -   $          -
                           State and local income taxes, net of federal
                              income tax benefit, applied to pretax loss                    -              -
                           Permanent differences                                            -              -
                           Increase in valuation allowance                            865,023         34,298
                           Current provision for state and local taxes                  4,332         21,234
                           (Increase) in deferred tax assets                                -              -
                           Increase (Decrease)  in deferred tax liability            (875,359)       (43,259)
                                                                                --------------  -------------

                                  Total provision (benefit) for income taxes    $      (6,004)  $     12,273
                                                                                ==============  ============
</TABLE>

               Income    taxes   are    provided    fo r  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 income 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 11% state and local  pursuant to SFAS
               No. 109.

               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, 2000:
<TABLE>
<CAPTION>

<S>                                                                                                <C>
                  Net operating loss carryforwards                                                 $      966,552
                  Section 263A - inventory capitalization                                                   7,530
                  Write down of film costs                                                                256,373
                  Valuation allowance                                                                  (1,027,955)
                                                                                                   ---------------
                  Deferred non-current tax asset                                                          202,500
                                                                                                   ---------------

                  Equity earnings of affiliate                                                             12,430
                  Depreciable assets                                                                       (7,726)
                                                                                                   ---------------
                  Deferred non-current tax liability                                                        4,704
                                                                                                   ---------------

                  Net non-current deferred tax asset                                               $      197,796
                                                                                                   ===============

</TABLE>

                                      F-17
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



 NOTE 11  -     (BENEFIT OF) PROVISION FOR INCOME TAXES (cont'd)

                Shopnet and its subsidiaries  file a consolidated tax return for
                federal tax purposes. For state and local purposes,  Shopnet 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,  2000,  the Company  had a net  operating  loss
                carryforward  (NOL)  for  federal  and  state  tax  purposes  of
                approximately $2,148,000 and $1,941,000,  respectively,  both of
                which expire  between 2010 and 2015.  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 12     -  COMMITMENTS AND CONTINGENCIES

          a)    Lease commitments

                Shopnet and Breaking  Waves have  entered into lease  agreements
                for   their   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 leases its
                administrative  offices  pursuant  to a lease  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.

                The Company  and  Breaking  Waves'  approximate  future  minimum
                rentals  under  non-cancelable  operating  leases  in  effect on
                December 31, 2000 are as follows:
<TABLE>
<CAPTION>

<S>                          <C>                                                    <C>
                             2001                                                   $       135,452
                             2002                                                            71,600
                             2003                                                            71,600
                             2004                                                            71,600
                             Thereafter                                                           -
                                                                                    ---------------
                                                                                    $       350,252
</TABLE>

                Rent  expense  for the years  ended  December  31, 2000 and 1999
                amounted to approximately $163,924 and $172,709, respectively.

         b)     Significant vendors and customers
                ---------------------------------

                Breaking Waves purchases 100% of its inventory from two vendors,
                one in  Indonesia  and the  other  from  Samoa.  Breaking  Waves
                believes  other sources and vendors are available and that it is
                not dependent  exclusively on these vendors. For the years ended
                December  31, 2000 and 1999,  Breaking  Waves had three and four
                customers,  respectively,  which comprised 22%, 14%, and 10% and
                17%, 13%, 12%, and 10% of net sales, respectively.






                                      F-18
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

NOTE 12   -   COMMITMENTS AND CONTINGENCIES (cont'd)

        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, through and
                    until  June 30,  2001.  Breaking  Waves has  exercised  this
                    opinion,  thereby  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.  Breaking Waves has negotiated an additional
                    two year extension  thereby  extending the agreement through
                    and until June 30, 2003,  and it contains a provision for an
                    additional  two year  extension,  at the option of  Breaking
                    Waves,  through and until June 30, 2005.  The new  agreement
                    signed  February 28, 2001 and  effective  July 1, 2001 calls
                    for minimum annual  royalties of $50,000 to $87,500 over the
                    life of the  extension  with  options  based on sales levels
                    from  $1,000,000  for the seventh year to  $1,750,000 in the
                    tenth year.  Breaking  Waves recorded  royalties  under this
                    agreement  totaling  $163,009 and $162,501  during the years
                    ended December 31, 2000 and 1999, 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.  Breaking
                    Waves recorded $-0- and $784 royalties  under this agreement
                    during  the  years  ended   December   31,  2000  and  1999,
                    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.  Breaking Waves
                    recorded  royalties  under this agreement  totaling $-0- and
                    $10,415  during the years ended  December 31, 2000 and 1999,
                    respectively.

                         iv) During June 2000,  Breaking  Waves  entered  into a
                    license agreement with an effective date of November 1, 2000
                    with Gottex Models Ltd., an Israeli  corporation  and Gottex
                    Models (USA) Corp.,  a New York  corporation  for the use of
                    the  trademark  "Gottex" in the United States of America for
                    children's  swimwear.  The agreement calls for a royalty fee
                    of 7% of net sales with guaranteed  minimum annual royalties
                    of  $70,000  to  $140,000  over the  life of the  agreement.
                    Breaking  Waves  recorded   royalties  under  the  agreement
                    totaling $8,859 for the year ended December 31, 2000. .

                                      F-19
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 12   -     COMMITMENTS AND CONTINGENCIES (cont'd)

          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, 2000, the Company invested $1,971,956 for the
                co-production  and  distribution  of such motion picture whereas
                the  co-producers  have invested  $100,000.  For the years ended
                December 31, 2000 and 1999, the Company derived no revenues from
                the motion picture and amortized no film costs.

                For the year ended  December 31, 2000 and 1999,  the Company has
                written  down  its film  production  and  distribution  costs by
                $308,564  and  $261,153,  respectively,  in order to reduce  the
                asset to its estimated net realizable value.

          f)    Employment agreements
                ---------------------

                On November 27, 1996, Breaking Waves entered into two employment
                agreements (as amended) with two key  employees.  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 to
                issue on each of November 27, 1996,  1997,  and 1998,  shares of
                common  stock in the amount  equal to the fair  market  value of
                $25,000 (before amendment) 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  1998.  As of  December  31,  2000,  the
                employees are still  employed,  however,  Breaking Waves has not
                renegotiated   the  employment   agreements  with  the  two  key
                employees and accordingly, all prior arrangements are in effect.

        g)      Litigation
                ----------

                On or about June of 2000,  an action  was  brought in the Queens
                County  Supreme  Court  against the  Company and several  others
                claiming,   among  other  things,  that  the  Company  allegedly
                breached  a  contract  and  engaged  in  fraudulent   statements
                (including  supposedly  promising the plaintiff options and then
                not  allowing  the  plaintiff to exercise  these  options).  The
                plaintiff seeks, among other things, compensatory damages in the
                amount of $497,500,  punitive damages in the amount of $995,000,
                together  with  costs  and  attorney's  fees.  The  Company  has
                responded  to the  complaint  and  denied the  allegations.  The
                Company  intends to contest the action  vigorously  and believes
                that such claims against it are baseless and without merit.

                                      F-20
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 13     -   STOCKHOLDER'S EQUITY

         a)     Stock Dividends
                ----------------

                         i) 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 the redemption of the old shares. Effective for
                    stock dividends these shares are 2,420 at December 31, 2000.

                         ii) On  January  7, 2000,  the  Company  declared a 10%
                    stock dividend to all  shareholders  of record as of January
                    20, 2000 amounting to 537,389  shares of common stock.  Such
                    stock dividend was issued on February 1, 2000.

                         iii) On May 8, 2000,  the Company  declared a 20% stock
                    dividend  to all  shareholders  of record as of May 19, 2000
                    amounting to 1,245,235  shares of common  stock.  Such stock
                    dividend was distributed on June 19, 2000.

         b)     Sale of common stock
                --------------------

                On February 1, 2000,  the Company sold 100,000  shares of common
                stock for $300,000 (before certain  transaction  costs) pursuant
                to a private  transaction with an unrelated party. Giving effect
                to the May  2000 20%  stock  dividend  the  related  shares  are
                120,000.

         c)     1996 Senior Management Incentive Plan
                -------------------------------------

                The shareholders  approved the 1996 Senior Management  Incentive
                Plan ("Incentive Plan") in May 1996. Officers, key employees and
                non-employees,  who  in  the  judgment  of  the  Company  render
                significant service to the Company, are eligible to participate.
                The Incentive  Plan provides for the award of a broad variety of
                stock-based  compensation  alternatives  such  as  non-qualified
                stock  options,  incentive  stock  options,   restricted  stock,
                performance awards and stock appreciation  rights. The Incentive
                Plan provided  750,000 shares of common stock to be offered from
                either  authorized and unissued  shares or issued shares,  which
                have been reacquired by the Company.

                On March 14,  1997,  the  Company  granted  132,000  options  to
                purchase  shares  of  common  stock  pursuant  to the  Company's
                Incentive  Plan  consisting  of 88,000  options to the Company's
                President and 44,000  options to another  officer.  The exercise
                price of each option was fixed at $1.46 (as  revised)  per share
                and the  options  expire  March  2002.  The terms of the options
                state that in the event of termination of optionee's  employment
                the vested portion of the options shall remain  exercisable  for
                six months after termination, at which time the options expire.

                The  officer  granted  the 44,000  options  has  resigned  as an
                officer of the Company and is  currently  performing  consulting
                services  for the  Company.  Based on the  terms  of the  option
                agreement his options  should have  terminated.  The Company has
                agreed to extend the expiration date of such options to December
                2001.

                                      F-21
<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 13       - STOCKHOLDER'S EQUITY (cont'd)

         c)     1996 Senior Management Incentive Plan (cont'd)
                ----------------------------------------------

                During  April 1999,  the Company  granted its  President  44,000
                stock options.  The exercise price of each option is a $1.38 per
                share and the options expire April 16, 2004.

                A  summary  of  the  status  of  the  Company's   stock  options
                outstanding as of December 31, 2000 and changes during the years
                ended December 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>

                                                                           Number of                     Exercise
                                                                               Options
                                                                         ----------------       ------------------
Price
<S>                                           <C> <C>                            <C>                          <C>
                      Outstanding at December 31, 1998                           132,000                      1.46
                         Granted                                                  44,000                      1.38
                         Exercised                                                     -                         -
                         Cancelled                                                     -                         -
                                                                       -----------------        -------------------
                      Outstanding at December 31, 1999                           176,000               1.46 - 1.38
                         Granted                                                       -                         -
                         Exercised                                                     -                         -
                         Cancelled                                                     -                         -
                                                                       -----------------        -------------------
                      Outstanding at December 31, 2000                           176,000        $      1.46 - 1.38
                                                                       =================        ===================
</TABLE>


         d)     Warrants
                --------

                i)Initially,  each Warrant issued in the initial public offering
                  of September 24, 1996 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.  Giving  effect to the January  1999 100% common  stock
                  dividend,  January 2000 10% common stock dividend and May 2000
                  20% common stock dividend the warrants have been  cumulatively
                  adjusted such that the exercise of each Warrant at an exercise
                  price of $3.41 purchases .88 of a share of common stock.

               ii)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 to date has not filed the registration statement.


                                      F-22

<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 13 -  STOCKHOLDER'S EQUITY (cont'd)

         e)     Grant of Stock Options

                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 September  2000,  the options  expired and no
                options were ever exercised.

NOTE 14 -    RELATED PARTIES TRANSACTIONS

           a)   During November 1998, the Company agreed to issue 215,732 shares
                of common  stock in the amount equal to the fair market value of
                $38,636,  to two key  employees of Breaking  Waves in connection
                with their employment agreements.  The shares vested in November
                1999 and the Company recorded  compensation expense amounting to
                $38,636  during the year ended  December 31, 1999. The employees
                agreed to postpone  the  issuance of such shares of common stock
                as  follows  fifty  percent  of the shares in May 2000 and fifty
                percent of the shares in November 2000.

          b)    For the years  ended  December  31,  2000 and 1999,  $51,080 and
                $36,000, respectively, of financial consulting fees were paid to
                a corporation and an individual who are related to the Company's
                President.

          c)    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,  2000,  the one note  remains  which
                amounted to $37,000 and has been  classified  as current.  As of
                December 31, 2000,  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.

          d)    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.

          e)    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 and repaid  January 30,
                2000 and the second  installment  of $300,000 was due and repaid
                April 30, 2000. Interest accrued at 9% per annum.

          f)    During October  1999,  Play Co.  loaned  funds to the Shopnet 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.




                                      F-23


<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 15      -    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,  2000 and 1999,  is as
             follows:
<TABLE>
<CAPTION>

                                                                 2000                         1999
                                                         ------------------             -----------------
                                                         Segment       Consolidated       Segment     Consolidated
                Sales:
<S>                                                 <C>               <C>            <C>            <C>
                    Swimwear sales                  $   5,713,133                    $   4,756,497
                    Film production                             -                                -
                                                    -------------                    -------------
                Total sales                                           $   5,713,133                 $    4,756,497
                                                                      =============                 ==============

                Gross profit (loss):
                    Swimwear sales                                    $     310,068                 $       37,800
                    Film production                                        (314,135)                      (268,880)
                                                                      --------------                ---------------
                Total gross profit                                           (4,067)                      (231,080)

                Corporate:
                    General and administrative
                     expense                                               (564,346)                      (626,175)
                    (Loss) equity in earnings of affiliate                   (4,290)                      (994,305)
                    Gain on sale of equity investment                             -                        130,093
                    Amortization expense                                    (70,952)                       (70,952)
                    Interest income                                          80,156                         56,212
                    Interest and finance expense                           (371,752)                      (243,148)
                    Other                                                    22,271                         15,549
                                                                      --------------                ---------------
                Loss from operations before (benefit)
                  provision for income tax                                 (912,980)                    (1,963,806)

                (Benefit) provision for income tax                           (6,004)                        12,273
                                                                      --------------                ---------------

                Net (loss) income                                     $    (906,976)             $      (1,976,079)
                                                                      ==============             ==================

                Identifiable assets:
                    Swimwear sales                                    $   4,072,174                 $    3,219,328
                    Film productions                                      1,598,210                      1,906,064
                    Corporate                                             1,993,411                      2,302,228
                                                                      -------------                 --------------

                Total assets                                          $   7,663,795                 $    7,427,620
                                                                      =============                 ==============
</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.

                                      F-24

<PAGE>
                          SHOPNET INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



NOTE 16      -  SUBSEQUENT EVENTS (UNAUDITED)

                Investment in Affiliates

        a)      On March 28,  2001,  Play Co. filed for  protection  under Title
                Eleven  of  the  United  States  Code  with  the  United  States
                Bankruptcy  Court for the  Southern  District  of New York.  The
                Company is in the process of  developing  a plan for the orderly
                liquidation of the Company's operations through discussions with
                representatives   of  its  secured  lender,   other   creditors,
                landlords  and others under the  supervision  of the  Bankruptcy
                Court.  The fair market value of the  investment as of March 29,
                2001 is $12,700.

              b)On January 17, 2001,  Battle Studies entered into a distribution
                agreement  with KOAN,  Inc.  ("KOAN") to distribute  and promote
                Battle  Studies' motion  pictures  ("Machiavelli  Rises") in the
                United  States and Canada.  Battle  Studies  has granted  rights
                under the agreement for free TV, pay TV, cable, satellite, video
                and DVD markets. The terms of the agreement is for twenty - four
                months and it will be automatically renewed unless KOAN receives
                a letter of  cancellation at least thirty days prior to the date
                of termination  or if sales have not exceeded  $250,000 over the
                twenty - four month period.  Battle  Studies  expects to realize
                70%  (which  is  net  of a 30%  fee to  KOAN)  of  the  expected
                estimated  gross  revenues  derived  from the United  States and
                Canada less $5,000 per year for promotional costs.








                                      F-25