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 June 30, 2003

                                       OR

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


                         Commission File Number O-28690

                                SHOPNET.COM, INC.

                 (Name of Small Business Issuer in Its Charter)

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

                 112 West 34th Street, New York, New York 10120
                    (Address of Principal Executive Offices)

                                 (212) 967-8303
                (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 consolidated revenues for the year ended June 30, 2003 were
$7,599,223.

The aggregate market value of the voting stock on November 19, 2003 (consisting
of Common Stock, par value $0.001 per share) held by non-affiliates was
approximately $72,202.13 based upon the closing price for such Common Stock on
said date $.01. On such date, there were 8,067,462 of Registrant's Common Stock
outstanding.
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

The statements which are not historical facts contained in this 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

Since its inception in December 1995, the Company has co-produced three motion
pictures: "Dirty Laundry," "Machiavelli Rises" and "The Girl." Each such film
had limited theatrical runs shortly after release. The Company's primary focus
for the forseeable future will be to work directly, or through distribution
arrangements with third parties, to establish distribution for these completed
films through public or cable television - via pay-per-view, premium and
standard channels - the sale of video rights and/or foreign distribution. To a
lesser extent, the Company will continue to seek to acquire screenplays and
produce motion pictures, either directly or through collaborative arrangements,
to be distributed primarily through public or cable television and the sale of
video rights.

"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 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. The film had a limited run during the fall
of 1998 and received marginal reviews (two stars out of four). Currently, the
Company is working to distribute the film through various channels, including
public or cable television, the sale of video rights and foreign distribution.

                                       2
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"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 with a surprise ending. 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, until recently, was the host
of WTJM "Jammin" 105.1 FM, a New York radio station. 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."

"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. 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.

In September 2000 and January 2001, Battle Studies entered into two-year
agreements with each of 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." To date, the
film has not generated any distribution revenues.

"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 June 30, 2001, the Company
invested $35,000 for a 22.533% interest in Girl LLC. "The Girl" was completed in
the spring of 2001, has been exhibited at several film festivals and had a very
limited theatrical distribution in New York City. The Girl LLC is in the process
of attempting to secure video and foreign distribution arrangements. "The Girl,"
which was filmed in Paris, categorized as a faux film noir, chronicles a lesbian
relationship.

Production

The Company intends to continue to review screenplays for acquisition and
co-production, although to a lesser extent. 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 domestic and
foreign distributors.

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."

                                       3
<PAGE>
Distribution, Billing and Revenues

Generally, distribution of a film may be undertaken either by a motion picture
studio, an independent distributor or through an agent. The Company expects that
any existing films or future films it may produce will be distributed by an
independent distributor or itself through an agent. In a distribution
arrangement, the production 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. The release of
films may be done in platforming stages. 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 does not expect extensive theatrical distribution of its existing or
future films. Rather, after limited theatrical distribution a film may be
distributed through public or cable television - via pay-per-view, premium, and
standard channels - and/or through the sale or rental of videotapes. 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
licensees to secure, protect, and maintain copyright protection for all of the
motion pictures it distributes under the laws of all applicable jurisdictions.

The Company estimates that between 12 and 18 months will elapse between the
commencement of expenditures by the Company in the acquisition of a screenplay,
the production of a motion picture, and its release. The Company does not expect
to receive revenues, if any, from the exploitation of a film until approximately
24 to 36 weeks after its release. Notwithstanding there can be no assurance that
any completed film will ever establish distribution at any level or generate any
revenues to the Company. 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.

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 film industry is immense with many well capitalized industry leaders
producing commercial films capable of wide theatrical distribution. The Company
competes, and will continue to compete, with these and other institutions which
produce, distribute, exploit and finance films, many 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 smaller independent film companies and television and
cable 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.

                                       4
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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.

Breaking Waves markets swimwear under private brand labels including "Breaking
Waves," and "All Waves". In July 2000, Breaking Waves added a new line of girls'
swimwear which is sold under the label, "Coral Cove." Breaking Waves also
licenses rights to the name "Daffy Waterwear" and the "Gottex" trademark in
connection with the manufacture and sale of girls' swim and related beach wear.

Products, Design, Supplies and Inventory

Breaking Waves designs, manufactures, and sells both private label and name
brand girl's swimwear and accessories. It has an office in Homestead, Florida
where its designer designs all styles for its swimwear lines and accessory
items. Each season, roughly 20-25 prints and fabrics are developed for the
"Breaking Waves" line, with generally between 10 to 20 prints and fabrics
developed for each of its other lines. For the year ended June 30, 2003, the
"Coral Cove" line accounted for approximately 32% of Breaking Waves' total sales
volume, with the other four lines accounting for, in equal parts, the remainder
of Breaking Waves' volume for such period.

In designing its children's swimwear, Breaking Waves adapts certain of the
prints and styles it is provided by Beach Patrol Inc., the licensor of "Daffy
Waterwear" and Gottex Models Ltd., 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 and colors it desires to use for its
children's swimwear, it sends the artwork for the fabric to its agent in Korea
who disseminates them 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, the fabrics are
sent, with the desired design, to any one or more of several Indonesian or
Korean companies where the fabric is cut and sewn into a completed product.
Finished goods are shipped from the manufacturer 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, and the other is a blend of cotton, polyester,
and lycra spandex. Each product line uses different designs and emphasizes
different fabric blends.

For the year ended June 30, 2003, 74% of Breaking Waves' finished products were
purchased from two Indonesian manufacturers and 26% of Breaking Waves' finished
products were purchased from a South Korean manufacturer. For the year ended
June 30, 2002, 74% of Breaking Waves' finished products were purchased from two
Indonesian manufacturers and 26% of Breaking Waves' finished products were
purchased from a South Korean manufacturer. Although the Company 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 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 "Breaking Waves," "Coral Cove" and "Gottex" lines are distributed and sold
through 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 and
Marshalls. For the year ended June 30, 2003, Breaking Waves had three customers
representing in the aggregate 44% of net sales as compared to two customers
representing in the aggregate 36% of net sales for the year ended June 30, 2002.

                                       5
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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 on a non-exclusive basis. These representatives service
department stores and smaller specialty retailers. In some cases, separate
independent representatives sell the "Daffy Waterwear" line. None of these
representatives is under contract with Breaking Waves; nor does any receive a
salary. 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.

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

Breaking Waves relies on common law and registered trademarks for usage of its
private label swimwear lines under the names "Breaking Waves," "All Waves" and
"Coral Cove." Breaking Waves has licensed rights to the "Little Me" and "Gottex"
names for girls swim and beach wear. See "Management's Discussion and Analysis
or Plan of Operations of - License Agreements" for a description of each of such
license arrangements.

There can be no assurance that such trademarks owned or licensed by the Company
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 be successful in any resultant litigation it
may ultimately become involved in.

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 limited advertising and marketing 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, depending on price.

                                       6
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Seasonality

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

Employees

Mr. Harold Rashbaum, the Company's Chairman of the Board, President, Chief
Executive Officer and Chief Financial Officer oversees the Company's
consolidated operations. The Company has one other executive officer, a
designer, controller and 3 office personnel to oversee Breaking Wave's
operations on a full-time basis, and employs a Vice-President of Design,
Merchandising and Production on a part-time basis. Breaking Waves has
approximately twenty independent sales persons representing the Breaking Wave's
lines on a non-exclusive basis. Hollywood's operations are governed by Mr.
Rashbaum. Most screenwriters, performers, directors, and technical personnel
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.

Business Risks

Film Production

The likelihood of the success of any 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.

Swimwear

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 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.

ITEM 2. DESCRIPTION OF PROPERTY

The Company maintains its executive office at Breaking Waves' facilities.
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, at an
annual rental of $71,600. In July 2001, Breaking Waves terminated this lease,
effective August 31, 2001. A new 6-year lease for an aggregate of 2,200 square
feet expiring September 30, 2007 was signed, which became effective on December
1, 2001 Annual rent under the new lease is $84,915 through December 31, 2004 and
$95,760 for the remainder of the lease. Breaking Waves also maintains a Florida
office, comprising approximately 780 square feet, with annual payments of
approximately $11,000.

                                       7
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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

None.

                                       8
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                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

The Company's common stock is currently traded on the Over The Counter Bulletin
Board (the "OTCBB"), under the symbol "SPNT". The Company's warrants are
currently traded on the OTCBB under the symbol "SPNTW".

The following table sets forth the high and low sales prices for the common
stock and warrants for the fiscal periods indicated as reported by in the
over-the-counter market. The quotations shown represent inter-dealer prices
without adjustment for retail mark-ups, mark-downs or commissions, and may not
necessarily reflect actual transactions
<TABLE>
<CAPTION>
                                                  Common Stock                         Warrants

Calendar Period                              Low               High              Low              High
<C>                                           <C>               <C>             <C>              <C>
2001

01/01/01 - 03/31/01                             .19               .89             .09              .22
04/01/01 - 06/30/01                            1.00              2.18             .14              .18
07/01/01 - 09/30/01                             .42              1.56             .02              .15
10/01/01 - 12/31/01                             .36              1.25             .01              .08


2002

01/01/02 - 03/31/02                             .02               .85             .01              .07
04/01/02 - 06/30/02                             .02               .30             .01              .01
07/01/02 - 09/30/02                             .03               .15             .01              .01
10/01/02 - 12/31/02                             .03               .09             .01              .01

2003

01/01/03 - 03/31/03                             .01               .05             .01              .01
04/01/03 - 06/30/03                             .01               .03             .01              .01
07/01/03 - 09/30/03                             .02               .12             .01              .01
10/01/03 - 11/18/03                             .01               .04             .01              .01
</TABLE>

As of September 20, 2003, there were 49 holders of record of the Company's
Common Stock, although the Company believes that there are approximately 431
additional beneficial owners of shares of Common Stock held in street name. As
of November 20, 2002, the number of outstanding shares of the Company's Common
Stock was 8,067,462. 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. The table reflects the price for
post-dividend shares and post-adjustment Warrants since February 5, 1999.

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 or, each
Warrant, exercisable at an exercise price of $3.87 purchases 1 share of Common
Stock.

In August 2001, the Company extended the term of the Warrants for an 18 month
period. The current expiration date of the Warrants is March 10, 2003. There is
no current Registration Statement on file with the Securities and Exchange
Commission ("SEC") covering the shares of Common Stock issuable upon exercise of
the Warrants. Accordingly, the Warrants cannot currently be exercised. The
Company plans to file a Registration Statement with the SEC in the future.

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

                                       9
<PAGE>
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 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.

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.

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

CAUTIONARY STATEMENTS ON FORWARD-LOOKING STATEMENTS

Statements contained in this report which are not historical facts and 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.

General

Shopnet.com, Inc. 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 new wholly-owned subsidiary, Hollywood
Productions, Inc. ("Hollywood"), to which it assigned its motion picture
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. As of June 30, 2001, the
Company changed its year-end from December 31st to June 30th.

The consolidated financial statements at June 30, 2003, June 30, 2002 included
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.

                                       10
<PAGE>
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 entity (Shopnet, Hollywood and
Breaking Waves) in order to be more meaningful.

Critical 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)       Inventory

Inventory 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.

c)       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 revenue can change significantly due to the level of amortization, as
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.

c)       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.

d)       Income taxes

The Company accounts for income taxes in accordance with the "liability method"
of accounting for income taxes. Accordingly, deferred tax liabilities and assets
are determined based on the difference between the financial statement and tax
basis 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.

e)       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.

                                       11
<PAGE>
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 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 Accounting Standard, Statement of Position ("SOP 00-2"),
"Accounting by Producers and Distributors of Films,". SOP 00-2 establishes new
accounting standards for, among other things, marketing and development costs.
The Company uses the individual film forecast method to amortize film costs.

g)       Earnings per share

Earnings per common share is computed pursuant to SFAS No. 128 "Earnings Per
Share." Basic earnings per share are computed as net income (loss) available to
common shareholders divided by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution that could occur from common shares issuable through stock options,
warrants and convertible preferred stock.

h)       Use of estimates

In preparing financial statements in conformity with generally accepted
accounting principles generally accepted in the United States of America,
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.

i)       Fair value disclosure at June 30, 2003 and June 30, 2002:

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations

Year ended June 30, 2003 as compared to the year ended June 30, 2002

For the year ended June 30, 2003 and 2002, the Company reported a consolidated
net loss of $886,918 and $436,562. Comprehensive loss for the year ended June
30, 2003 was $886,918 as compared to a comprehensive loss of $442,912 for the
year ended June 30, 2002.

Breaking Waves

For the year ended June 30, 2003 and 2002, Breaking Waves generated net sales of
$7,599,223 and $7,702,798, respectively, with related cost of sales amounting to
$5,257,972 and $5,065,879, respectively. The decrease in net sales amounting to
$103,572, or approximately 2%, from 2002 to 2003 was primarily attributable to
an increase in product charge backs.

The gross profit for the year ended June 30, 2003 amounted to $2,341,251 or 31%
of sales as compared to the year ended June 30, 2002 during which it amounted to
$2,636,919 or 35% of sales. The decrease in the gross profit percentage can be
attributable to an increase in low margin sales during the last fiscal quarter.

                                       12
<PAGE>
Selling, general, and administrative expenses during the year ended June 30,
2003 and 2002 amounted to $2,471,263 and $2,238,211, respectively. The increase,
amounting to $233,052 or 11%, was primarily attributable to an increase in
royalty fees, advertising and postage and delivery and computer expenses.

The major components of the Breaking Waves selling, general, and administrative
expenses are as follows for the year ended June 30:
<TABLE>
<CAPTION>
                                                                                                   2003               2002
                                                                                             ----------------    --------------
<S>                                                                                                  <C>             <C>
          Officers, office staff, designer and  sales, salaries and related benefits                 $602,265        $ 584,304

          Commission expense                                                                          208,687          227,023
          Warehousing costs                                                                           466,283          453,211
          Royalty fees                                                                                173,019          123,407
          Rent expense                                                                                108,869          100,787
          Factor commissions                                                                          104,038           81,403

          Miscellaneous general corporate overhead expenses                                           808,102          668,076
</TABLE>

Interest expense in connection with its factoring agreement amounted to $205,591
and $248,303 for the year ended June 30, 2003 and 2002, respectively. The
decrease is due to a reduction in the stated prime interest rate.

Breaking Waves generated a net loss of $563,837 for the year ended June 30, 2003
and a net loss of $82,366 for the year ended June 30, 2002.

The major components of the Breaking Waves selling, general, and administrative
expenses as a percentage of sales are as follows for the year ended June 30:
<TABLE>
<CAPTION>
                                                                                             2003              2002
                                                                                        -------------     -------------
<S>                                                                                          <C>              <C>
  Officers, office staff, designer and sales, salaries and related benefits                  8%               8%

  Commission expense                                                                         3%               3%
  Warehousing costs                                                                          6%               6%
  Royalty fees                                                                               2%               2%
  Rent expense                                                                               1%               1%
  Factor commissions                                                                         1%               1%

  Miscellaneous general corporate overhead expense                                           11%              9%
</TABLE>

Hollywood

For the year ended June 30, 2003 and 2002, Hollywood generated no sales from its
motion picture "Dirty Laundry". Although sales prior to and including the year
ended June 30, 2003 were minimal, the Company is expending efforts to effect
increased sales during the fiscal year ending June 30, 2004 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". Upon a review of the net realizable value of
the movie cost, management has determined that a $0 and $208,564 write down was
necessary as of June 30, 2003 and 2002, respectively, Accordingly, Hollywood
generated a loss of $663 and $214,064 for the year ended June 30, 2003 and 2002,
respectively. The loss of $16,258 includes an equity loss of $14,241 from
Hollywood's investments in The Girl. LLC, a joint venture.

Subsequent to "Dirty Laundry", Hollywood also has invested in other movie
ventures, some of which have generated revenue to date. See "Investment in Joint
Ventures."

Shopnet.com

For the year ended June 30, 2003 and 2002, Shopnet generated no income.

Shopnet's selling, general, and administrative expense amounted to $306,553 and
$367,902 for the year ended June 30, 2003 and 2002. This represents a decrease
of $61,349 or approximately 17%.

                                       13
<PAGE>
The major components of the Company's expenses are as follows for the year ended
December 31:
<TABLE>
<CAPTION>
                                                                                                   2003              2002
                                                                                              --------------    --------------
<S>                                                                                                 <C>              <C>
    Salaries (officer and office staff) and stock compensation and related benefits                 $126,911         $ 140,733

    Rent                                                                                               -               19,510
    Legal and professional fees                                                                       48,619          109,193
    Consulting fees                                                                                   53,400           35,070
    Other general corporate and administrative expense                                                77,623           63,396
</TABLE>

Shopnet generated a net loss of $306,553 and $352,501 for the year ended June
30, 2003 and 2002, respectively.

Liquidity and Capital Resources

At June 30,2003, the Company's consolidated working capital deficit amounted to
$914,146.

At June 30, 2003, current assets consisted primarily of accounts receivables of
$158,963, and prepaid expenses of $237,708 and restricted cash of $250,000.

On or about September 12, 2000, Breaking Waves entered into a factoring and
revolving inventory loan and security agreement ("factoring agreement") with
Century Business Credit Corporation ("Century") to sell its 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 eligible
receivables and up to 50% of the value of finished goods in inventory, with
interest payable monthly at the rate of 1 3/4% over prime.

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 ("CEO"), 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. On September 15, 2001, Century required the
Company to increase the amount of collateralized standby letters of credit by
$300,000 raising such amount to $1,450,000.

On May 3, 2001, the Agreement with the Trust was amended so that the letter of
credit secured by the Trust was increased to $400,000. As a condition of the
amendment, the Company entered into a guarantee agreement with Gal Capital
Corp., whose President is a relative of the Company's President and CEO to act
as guarantor of the obligation to the Trust up to $400,000 in exchange for a fee
of $42,500 which the Company paid on May 3, 2001. The amended letter of credit
expired on September 1, 2001 and was subsequently amended on September 15, 2001.

On September 15, 2001, the Amended and Restated Reimbursement and Compensation
Agreement was entered into and further amended the agreement with the Trust, so
that the letter of credit secured by the Trust was increased to $750,000. The
amended letter of credit expired on September 1, 2002 but can be extended year
to year at the Company's option for a period of ten years. On September 1, 2002,
the letter of credit was extended. 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 are guaranteed by the
Company in addition to being secured by a first

                                       14
<PAGE>
security interest in all of the assets of the Company and a subordinate security
interest in all of the assets of Breaking Waves.

On September 15, 2001, the Company entered into a Reimbursement Agreement with
relatives of a principal stockholder who is related to the President and CEO of
the Company ("RAYA") who pledged assets as collateral for securing a $300,000
letter of credit as additional collateral to secure Breaking Waves' Loan and
Security Agreement with Century. Absent any default, the letter of credit will
remain in effect for ten years.

Shopnet under a separate Security Agreement dated September 15, 2001 guarantees
the agreement. In exchange for the letters of credit, the Trust and RAYA will
proportionately, based on the total outstanding letters of credit, receive a fee
of one and one quarter percent (1-1/4%) of net sales of Breaking Waves through
June 30, 2002 and thereafter one and three quarters percent (1-3/4%) of net
sales through September 30, 2011. In October 2001, the Trust and RAYA received
advance payments to be applied towards future fees of $24,500 and $12,250,
respectively. All future payments are payable forty five days after the close of
each fiscal quarter. The fees are effective October 1, 2001. In September 2003,
the letter of credit secured by RAYA was drawn on by Century, reducing Breaking
Waves' liability to Century.

In September 2001, the Company and Breaking Waves retained Arc Financial Corp.
("ARC"), a British Virgin Island company, for a ten-year term to provide
financial consulting services.

Pursuant to the terms of a consulting agreement ("ARC Consulting Agreement"),
ARC was retained to assist the Company in the acquisition of financing to
acquire inventory and for other corporate purposes ("Financing"), as well as
consult with the Company with regard to its ongoing operations, promote sales of
Breaking Waves' products and improving production.

Pursuant to the terms of the ARC Consulting Agreement, the Company and Breaking
Waves agreed to compensate ARC (i) an annual fee of $20,000 ("Base Fee") and
(ii) a percentage of annual net sales in the amount of 1-1/4% through June 30,
2002 and 1-3/4% of net sales for each year of the term thereafter through
September 30, 2011 ("ARC Percentage Fee"), payable 45 days after the closing of
each fiscal quarter.

In October 2001, ARC received (I) a lump sum payment of $209,000 reflecting full
advance payment of the Base Fee and (ii) $36,750 reflecting advance payment of
the Arc Percentage Fee. The agreement with Arc expires September 30, 2011. The
Company and Breaking Waves are entitled to terminate the ARC Consulting
Agreement any time after September 30, 2006, in which event all prepaid fees are
forfeited.

In December 2002, Breaking Waves entered into a Reimbursement and Compensation
Agreement with TERE, S.A., a Swiss entity. As a consequence of Century being
unwilling to grant credit to Breaking Waves unless it received one or more
letters of credit satisfactory to it as well as cash collateral to partially
secure the line of credit in such amounts as it deems appropriate, the Trust
reduced the letter of Credit secured by it to $500,000. TERE, S.A. agreed to
loan Breaking Waves the sum of $250,000 represented by a promissory note.

In September 2003, the letter of credit secured by the Trust was drawn upon by
Century, reducing Breaking Waves' liability to Century.

The funds were deposited as cash collateral with Century to replace the reduced
portion of the letter of credit secured by the Trust.

All obligations under this agreement are guaranteed by the Company as well as by
ARC Financial and are secured by a security interest in all of the Company's
assets, which are second in priority to Century.

As compensation, Breaking Waves paid to TERE all interest received from or
credited to it by Century on the sums deposited pursuant to the Cash Collateral
Agreement when received.

The term of the loan is for ten years.

                                       15
<PAGE>
ARC has agreed to pay to TERE, interest at the rate of 8% per annum on a
quarterly basis.

The following table summarizes the percentage due each party, as noted above, as
a percentage of net sales for the year ended June 30, 2003:

                                             % of
                                           Net Sales           Amount
                                        ---------------     -------------

                  RAYA                       0.58                $ 44,076
                  ZAT                         .24                  17,934
                  ARC                        1.75                 132,988
                                        ---------------     -------------

                                             2.57               $ 194,998
                                        ===============     =============

Interest expense related to the factor agreement totaled $205,591 and $248,303
for the year ended June 30, 2003 and 2002, respectively. Century has a secured
interest in Breaking Waves' inventory as collateral for the advances. As of June
30, 2003, the net advances to Breaking Waves from Century amounted to
$1,054,187.

On November 8, 2002, the Company borrowed the sum of $50,000 in the form of a
promissory note from Amigal Salit, Ltd., an unrelated party. The note, which is
non-interest bearing, is due on or before August 15, 2003.

On the same date, the Company entered into an agreement with ARC Financial
Corporation, whereby the Company using the proceeds received from Amigal Salit,
Ltd., agreed to pay $50,000 as an advance against fees to be owned by Breaking
Waves to ARC Financial Corporation in connection with Breaking Waves obligation
to pay certain fees to ARC as part of a consulting agreement as described in
Note 9 herein.

The Company and Breaking Waves have experienced a significant cash shortfall in
the months following June 30, 2003. In September, the Company obtained a loan in
the amount of $44,000 from U.S. Biomedical Corporation, a company whose former
chief operating officer is the son-in-law of the Company's president. The term
of the loan is for one year and it matures on September 9, 2004. The loan may be
repaid, at U.S. Biomedical's option, either in cash or non-registered stock of
the Company. Additionally, in September, the Company's president loaned the sum
of $5,000 to the Company on an interest free basis. On October 21, 2003,
Breaking Waves was notified by Century that it was in default of its factoring
agreement due to non payment of its obligations and that Century, under its
factoring agreement with Breaking Waves, now has the option to foreclose on
Breaking Waves' trademark and other collateral at anytime subsequent to October
21, 2003. As of November 18, 2003, no such action has been taken by Century.

The Company has incurred losses since its inception and has not yet been
successful in establishing profitable operations. Further, the Company has
current liabilities in excess of current assets. These factors raise substantial
doubt about the ability of the Company to continue as a going concern. In this
regard, management is proposing to raise any necessary additional funds not
provided by operations through loans or through additional sales of its common
stock or through a possible business combination with another company. There is
no assurance that the Company will be successful in (a) raising this additional
capital on acceptable terms or at all or (b) achieving profitable operations.

Investments in Joint Ventures

Battle Studies

Pursuant to a co-production agreement dated April 17, 1998 with North Folk
Films, Inc., the Company invested through June 30, 2002, $212,385 for a 50%
interest in a new entity, Battle Studies Productions, LLC ("Battle Studies") a
limited liability company. Battle Studies will be treated as 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.

                                       16
<PAGE>
The Company accounts for the investment in Battle Studies on the equity method.
For the year ended June 30, 2003, and the year ended June 30, 2002 the Company
recorded $793 and $2,355, respectively, of equity losses for its proportionate
share of Battle Studies. No revenues have been derived from this film as of June
30, 2003 and June 30, 2002.

On October 12, 2000, Battle Studies entered into a distribution agreement with
Raven Pictures International ("Raven Pictures") to distribute Battle Studies'
motion picture ("Macheavelli 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 expense.

On January 17, 2001, Battle Studies entered into a distribution agreement with
KOAN to distribute and promote Battle Studies' motion picture ("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.

The Girl

Pursuant to an agreement dated July 1, 1999 with Artistic License Films Inc.,
Hollywood invested, through June 30, 2003, $35,000 for a 22.533% interest in a
new entity, The Girl, LLC ("The Girl") a limited liability company. In return
for its participation in The Girl, Hollywood is 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 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 investments in The Girl under the equity method. For
the year ended June 30, 2003, and the year ended June 30, 2002, the Company
recorded $14,241 and $0, respectively, in net equity losses.

Lease Commitments

Shopnet and Breaking Waves have entered into lease agreements for their
administrative offices. Shopnet leases its administrative offices. Shopnet
leased its administrative office pursuant to a 5-year lease that expired on
November 30, 2001 at annual rent amounting to approximately $70,000, before
annual escalations.

Breaking Waves terminated its lease effective November 30, 2001. A new 6-year
lease expiring September 30, 2007 was signed in July 2001 and is effective
beginning December 1, 2001. Annual rent under the new lease is $84,915 through
December 31, 2004 and $95,760 for the remainder of the lease. 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 June 30, 2003 are as follows:

      For the fiscal year ended June 30:

      2004                                                    $84,915
      2005                                                     90,338
      2006                                                     95,760
      2007                                                     95,760
      Thereafter                                               23,940
                                                        --------------
                                                            $ 390,713
                                                        ==============

Rent expense for the year ended June 30, 2003 amounted to $81,646 and for the
year ended June 30, 2002 amounted to $94,508.

License Agreements

                                       17
<PAGE>
During June 2000, Breaking Waves entered into a license agreement with an
effective date of November 1, 2000 with Gottex Models Ltd., as 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 $163,019 and $73,408 for
the year ended June 30, 2003 and for the year ended June 30, 2002.

On July 29, 2002, Breaking Waves entered into a licensing agreement with LMH,
Inc. whereby Breaking Waves was granted exclusive use of certain trademarks,
namely "Little Me" and "Muffings" in the United States, Canada and Mexico, and
the use of "Tapioca" and "Juniper" solely in the United States.

The licensing agreement has a term of three years ending on July 31, 2005,
unless terminated earlier and agreed to by both parties.

In consideration of both the license granted and the design services to be
performed by LMH, Breaking Waves has agreed to pay a sales royalty equal to 5%
of net sales of the Licensor's products.

Under the terms of the agreement, Breaking Waves agreed to guarantee a minimum
royalty payment of $10,000 for the period August 1, 2002 to July 31, 2003.

For the second and third years of the agreement, Breaking Waves agreed to pay a
minimum royalty of $20,000 payable in four quarterly installments.

ITEM 7. FINANCIAL STATEMENTS

The financial statements for the year ended June 30, 2003 are attached to this
filing after the signature page.

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

On approval of its Audit Committee, on January 23, 2002 the Registrant dismissed
Massella Rubenstein LLP (formerly Massella, Tomaro & Co. L.L.P., hereinafter
"Massella"). The dismissal was not due to any discrepancies or disagreements
between same and the Company on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
Massella's report on the Registrant's financial statements for the six month
transition period ended June 30, 2001 ("Transition Period") and fiscal years
ended December 30, 2000 and December 30, 1999 did not contain any adverse
opinions or disclaimers of opinion. Nor were such modified as to uncertainty,
audit scope, or accounting principles. During the Transition Period and the two
most recent fiscal years and any subsequent interim period through the date of
the dismissal, the Company and Massella had no disagreements or "reportable
events."

The Registrant dismissed Massella as part of a recently initiated cost savings
program. The Registrant's Audit Committee approved, as of January 23, 2002, the
engagement of Jerome Rosenberg CPA, P.C. as its principal accountant to audit
its and its subsidiary's financial statements.

Item 8A. Controls and Procedures

Evaluation of disclosure controls and procedures

     As of June 30, 2003, we carried out an evaluation of the effectiveness of
the design and operation of its disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-14. This evaluation was done under the
supervision and with the participation of our Principal Executive Officer and
Principal Financial Officer. Based upon that evaluation, they concluded that our
disclosure controls and procedures are effective in gathering, analyzing and
disclosing information needed to satisfy our disclosure obligations under the
Securities Exchange Act.

Changes in internal controls

     There were no significant changes in our internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.

                                       18
<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:

Name                               Age                  Position

Harold Rashbaum                    75                   President, CEO, CFO and
                                                        Director

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.

Harold Rashbaum, age 75, has been the President, Chief Executive Officer, Chief
Financial 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 Chapter 11 of the United States
Code with the United States Bankruptcy Court for the Southern District of New
York. In August 2001, the case was converted to a Chapter 7 filing. 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.

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 year ended June 30, 2003was 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 Section 12 of the Securities Exchange Act of 1934, as amended,
failed to file on a timely basis reports required by Section 16 of the Act. The
foregoing is based solely upon a review by the Company of (i) Forms 3 and 4
during the most recent fiscal year as furnished to the Company under Rule
16a-3(e) under the Act, (ii) Forms 5 and amendments thereto furnished to the
Company with respect to its most recent fiscal year, and (iii) any
representation received by the Company from any reporting person that no Form 5
is required, except as described herein.

ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash And Certain Other Compensation

The following table provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, or paid to the named executive officer during the years ended
June 30, 2003, June 30, 2002 and the six month period ended June 30, 2001.

                                       19
<PAGE>
<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
<S>                                <C>         <C>       <C>          <C>            <C>             <C>          <C>
Position                  Year     ($)         ($)       ($)          ($)            (#)             ($)          ($)
Harold Rashbaum
  President,  CEO, CFO
  And Director            2003     116,645     --        --           --             --              --           --
                          2002     115,929     --        --           --             --              --           --
                          2001     70,000(1)   --        --           --             --              --           --
========================= ======== =========== ========= ============ ============== =============== ============ ============
</TABLE>

(1) Mr. Rashbaum received $70,000 of salary during the six month period ended
June 30, 2001.
(2) 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 June 30, 2003 and June 31, 2002 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>

(1) No options were exercised in the years ended June 30, 2003 and June 30,
2002.

(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 at either June 30, 2003 or June 30, 2002, since as
of such 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.)

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.
                                       20
<PAGE>
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.

In November 1996, 3,667 shares of the Company's Common Stock were issued to each
of Messrs. Becker and Friedland, subject to the 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. In January 1999, Mr. Becker's employment
agreement was further amended to reflect an increase in the amount of time Mr.
Becker would be required to devote to the business of Breaking Waves and a
concomitant increase in salary to $70,000 per annum.

In each of May and November 2000, pursuant to their respective employment
agreements, Messrs. Becker and Friedland received their final share issuances.
Mr. Becker received an aggregate of 91,289 shares of Common Stock, 45,644 in May
2000 and 45,645 in November 2000. Mr. Friedland received an aggregate of 167,365
shares of Common Stock, 83,683 in May 2000 and 83,683 in November 2000. Messrs.
Becker and Friedland each granted an option to BBC Capital Corp. ("BBC"), of
which Ilan Arbel is President, 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 expired to the
extent of 1/2 of the underlying shares on May 27, 2001. The balance of the
options scheduled to expire in November 2001 were terminated by BBC in August
2001.

Breaking Waves entered into a one-year consulting agreement in August 2000 with
Larry Nash, Inc. ("Consultant") a New York corporation, whereby Mr. Nash, the
Consultant's sole stockholder provides sales and consulting services in
connection with Breaking Waves' 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. The agreement is automatically extended
from year to year thereafter unless cancelled by either party on thirty (30)
days' prior written notice. Pursuant to such agreement, the Consultant is
compensated a percentage of net sales (as such term is defined) on all orders
exclusively procured by him, ranging from 2.5 to 5%. He is entitled to
additional compensation ranging from 1.5% to 3% of net sales for the Coral Cove,
Gottex and Breaking Waves lines, generated by Company sales personnel he
introduces to the Company.

See "Management's Discussion and Analysis or Plan of Operations-Factoring
Agreements-Century Business Credit Corporation" for a description of the Arc
Consulting Agreement.

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.

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).

                                       21
<PAGE>
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.

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.

                                       22
<PAGE>
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.

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.

                                       23
<PAGE>
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.

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.

                                       24
<PAGE>
Upon expiration of the applicable restricted period(s) and the satisfaction of
any other applicable conditions, the restricted shares and any dividends or
other distributions not distributed to the holder (the "retained distributions")
thereon will become vested. Any restricted shares and any retained distributions
thereon which do not so vest will be forfeited to the Company. If prior to the
expiration of the restricted period a holder's employ is terminated without
cause or because of a total disability (in each case as defined in the
Management Plan) or the holder dies, unless otherwise provided in the restricted
share agreement providing for the award of restricted shares, the restricted
period applicable to each award of restricted shares will thereupon be deemed to
have expired. Unless the Administrator determines otherwise, if a holder's
employment terminates prior to the expiration of the applicable restricted
period for any reason other than as set forth above, all restricted shares and
any retained distributions thereon will be forfeited. Upon forfeiture of any
restricted shares, the Company will repay to the holder thereof any amount the
holder originally paid for such shares.

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

(b) a "Control Purchase," or (c) a "Board Change."

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

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.

                                       25
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of November 20, 2003 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>                                    <C>
Fiduciara Biaggini
Via Vanoni # 6                                        5,075,120                              62.9%
Lugano, Switzerland
CH 6901 (3)

American Telecom Corp.
C/o MW Todtman McNamara Chamber
P.O. Box 47 Road Town                                   53,100(4)                             .65%
Tortola, BVI

Harold Rashbaum                                        252,000(5)                            3.12%

All Officers and Directors as a Group                   252,000                              3.12%
(one person)
</TABLE>

* 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., 112 West 34th Street, New York, New York 10120. 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
September 20, 2003 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 8,067,462 shares of common stock
outstanding as of September 20, 2003.

(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) Fiduciara Biaggini is a fiduciary company with an address at via Vanoni #6,
Lugano, Switzerland CH 6901. Fiduciara Biaggini owns of record 5,075,120 shares
of common stock. The Company believes that these shares are held trust for the
benefit of other parties. The Company has contacted Fiduciara Biaggini in order
to determine the ownership of the shares of common stock held of record by
Fiduciara Biaggini. As of the date hereof, Fiduciara Biaggini has not responded
to the Company's attempt to contact it.

(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 controlled EACF through
October 2000 and has been President of ATC since July 2000. By virtue of his
position with ATC, 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 an aggregate of 132,000 shares of Common Stock underlying options
granted to Mr. Rashbaum, the Chairman of the Board, President, Chief Financial
Officer and Chief Executive Officer of the Company. See "Executive
Compensation."

By virtue of Mr. Arbel's voting and dispositive control of shares of the Company
owned by each of ATC (see footnote 4 above), Mr. Ilan Arbel may be deemed to
beneficially own 0.71% of the Company's outstanding Common Stock.

                                       26
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For the year ended June 30, 2003 and 2002 financial consulting fees were paid to
a corporation and an individual who are related to the Company's President and
CEO amounting to $37,000 and $22,900, respectively.

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 ("Reimbursement and Compensation Agreement"), a trust ("Trust"), the
beneficiary of which is the granddaughter of Harold Rashbaum, the Company's
Chairman of the Board, President, Chief Financial Officer and Chief Executive
Officer, and the daughter of Mr. Arbel, a former principal stockholder, 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.

On May 3, 2001, the Company, Breaking Waves and the Trust entered into a First
Amendment to Reimbursement and Compensation Agreement ("Amendment") pursuant to
which the Trust increased the amount of security an additional $150,000 for a
total of $400,000, including the original $250,000. The Trust conditioned the
additional $150,000 of security upon the receipt of an additional Guaranty from
a party satisfactory to it. Gal Capital Corp. ("Gal") provided a Guaranty
agreeing to pay all obligations of Breaking Waves as contained in the original
Reimbursement and Compensation Agreement and all related expenses in enforcing
same. Gal received a fee of $42,500 for the issuance of such guaranty. Mr. Arbel
is President of Gal.

In September 2001, Century increased the required security in the form of
letters of credit from $1,150,000 to 1,450,000. The Company also sought to raise
additional funds to secure the letter of credit in order to have available to it
additional working capital.

Pursuant to an Amended and Restated Reimbursement and Compensation Agreement
dated as of September 15, 2001, between the Trust and Breaking Waves, which
superceded the original Reimbursement and Compensation Agreement, the Trust
agreed to provide additional security to a bank in return for the issuance of a
letter of credit from such bank to Century in the amount of $350,000 (in
addition to the original $400,000) to replace a portion of a letter of credit
previously provided by Shopnet in a similar amount. The Trust agreed to continue
such letter of credit for a period of ten years, absent any default. The terms
include the same reimbursement, guarantee and security provisions as in the
original Reimbursement and Compensation Agreement. As compensation, the Trust is
entitled to .83 percent of net sales of Breaking Waves through June 30, 2001,
and 1.16% of net sales of Breaking Waves for each year thereafter ("Trust L/C
Fees"). Such amounts are payable 45 days after the close of each fiscal quarter.
On the closing date, Breaking Waves paid $24,500 to the Trust as an advance of
future Trust L/C Fees and reimbursed the Trust for all related professional
fees.

In addition, Breaking Waves entered into a Reimbursement Agreement dated as of
September 15, 2001 with Rivka and Yair Arbel ("RAYA") (Mr. Arbel's brother and
sister-in-law), pursuant to which RAYA agreed to provide security to a bank in
return for a letter of credit from such bank to Century in the amount of
$300,000 reflecting the increase of security required by Century. RAYA agreed to
continue such letter of credit for a period of ten years, absent any default.
The Reimbursement Agreement includes reimbursement provisions in favor of the
Trust in the event the letter of credit is called by Century and is paid by the
bank. All of Breaking Waves obligations are guaranteed by Shopnet and secured by
Shopnet's assets. As compensation, the Trust and RAYA are entitled,
proportionally based on the total outstanding letters of credit, to a fee equal
to one and one quarter percent (1 1/4%) of net sales of Breaking Waves through
June 30, 2002 and thereafter one and three quarters percent (1 3/4%) of net
sales of Breaking Waves through September 30, 2011 ("RAYA L/C Fees"). Such
amounts are payable forty-five days after the close of each fiscal quarter. In
October 2001, the Trust and RAYA received advance payments to be applied towards
future fees of $24,500 and $12,250, respectively.

                                       27
<PAGE>
The following table summarizes the percentage due to each party, as noted above,
as a percentage of net sales for the year ended June 30, 2003:

                                                  % of
                                                Net Sales           Amount
                                             ----------------    -------------
                  RAYA                            0.58                $44,076
                  ZAT                             0.24                 17,934
                  ARC                             1.75                132,988
                                             ----------------    -------------
                  Total                           2.57               $194,998
                                             ================    =============

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 October 1996, pursuant to a promissory note, the Company loaned Harold
Rashbaum its President, Chief Financial Officer and Chief Executive Officer a
total of $50,000 bearing interest at 6 1/2% payable over three years. As of June
30, 2003, the unpaid portion, which is due on demand, amounted to $37,000, which
has been classified as current. As of June 30, 2003, 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. Prior to July, 2001, he received $12,000 per annum for such
services which was subsequently reduced to $6,000 per annum. Until recently, Dr.
Le Guillou was the son-in-law of Harold Rashbaum.

During the years ended June 30, 2003 and June 30, 2002, the Company paid $24,000
and $24,000, respectively, in financial consulting fees to DRA Consulting, Inc.,
a company whose president is the daughter of the Company's Chairman of the
Board, President, Chief Executive Officer.

                                       28
<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:

         Index to Financial Statements                              F
         Independent Auditor's Report                               F-1
         Independent Accountants' Report                            F-2
         Balance Sheets                                             F-3
         Statements of Operations                                   F-4 to F-5
         Statement of Stockholders' Equity                          F-6 to F-7
         Statements of Cash Flows                                   F-8 to F-11
         Notes to Financial Statements                              F-12 to F-35

(b)  Form 8-K

None.

(c) The following exhibits which are designated by an asterisk (*) are to be
filed by amendment. 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. 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
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)
</TABLE>
                                       29
<PAGE>
<TABLE>
<CAPTION>
<S>                                 <C>
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)
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
10.39                    Lease  between 112 West 34th Street  Company,  as landlord,  and Breaking  Waves,  Inc., as
                         tenant, dated August 8, 2001.
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)
16.2                     Letter from Massella Rubenstein LLP   regarding  dismissal of Massella Rubenstein LLP as the
                         Company's  auditors  (incorporated  by reference to the indicated  exhibit in the Company's
                         Form 8-K filed on January 29, 2002)
21.1                     Subsidiaries of the Registrant
31.1                     Certification of the Chief Executive Officer and Chief Financial Officer of ShopNet.com, Inc.
                         Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(filed herewith)
32.1                     Certification of the Chief Executive Officer and Chief Financial Officer of ShopNet.com, Inc.
                         Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)
</TABLE>
                                       30
<PAGE>
Item 14. Principal Accountant Fees and Services.

Audit Fees. The aggregate fees billed by our auditors, for professional services
rendered for the audit of the Company's annual financial statements for the
years ended June 30, 2003 and 2002, and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-QSB during the
fiscal years were $21,500 and $15,000, respectively.

Audit Related Fees. For the years ended June 30, 2003 and 2002, the Company
incurred fees to auditors of $1,500 and $1,500 for audit related fees,
respectively.

All Other Fees. The aggregate fees billed by auditors for services rendered to
the Company, other than the services covered in "Audit Fees" and for the fiscal
years ended June 30, 2003 and 2002 were $11,740 and $-0-, which fees primarily
related to the Company's tax returns.

The Audit Committee has considered whether the provision of non-audit services
is compatible with maintaining the principal accountant's independence.

                                       31
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
Undersigned hereunto duly authorized on the 25th day of November, 2003.

                                ShopNet.Com, Inc.





                By: /s/ Harold Rashbaum
                    -----------------------------------------
                    Harold Rashbaum
                    Chairman of the Board, Chief Executive
                    Officer, Chief Financial Officer and President



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.


Date 11/25/03

                 /s/ Harold Rashbaum
                     Harold Rashbaum
                     Chairman of the Board,
                     Chief Executive Officer,
                     Chief Financial Officer
                     President, and Director

                                       32
<PAGE>
                SHOPNET.COM, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                                   Page
                                                                                                  Number
                                                                                              ---------------
<S>                                                      <C> <C>                                      <C>
    Independent auditors' report for the year ended June 30, 2003                                   F-1

    Consolidated balance sheets as of June 30, 2003 and June 30, 2002                               F-2

    Consolidated statements of operations for the years ended June 30, 2003 and
     June 30, 2002                                                                                  F-3

    Consolidated statements of stockholders' equity for the years ended June 30,
     2003 and June 30, 2002                                                                         F-4

    Consolidated statements of cash flows for the years ended June 30, 2003 and
     June 30, 2002                                                                                  F-5

    Notes to consolidated financial statements                                                      F-7
</TABLE>

<PAGE>
                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet, statements of
operations, stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management . Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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
Shopnet.com, Inc. and subsidiaries as of June 30, 2003 and the consolidated
results of its operations, changes in stockholders' equity and cash flows for
the year ended in conformity with accounting principles generally accepted in
the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 16 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 16. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

JEROME ROSENBERG, CPA, P.C.
August 21, 2003

                                      F-1

<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet
                      As of June 30, 2003 and June 30, 2002

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                          June 30,               June 30,
                                                                                           2003                    2002
                                                                                    -------------------     ------------------
     Current assets:
<S>                                                                                 <C>                     <C>
          Cash                                                                      $           21,248      $           3,309
          Restricted cash (Note 9)                                                             250,000                      -
          Accounts receivable, net (Note 3)                                                    158,963                107,227
          Inventory                                                                             78,250                230,049
          Prepaid expenses (Note 5)                                                            237,708                298,968
          Advances to officer                                                                   40,000                 40,000
                                                                                    -------------------     ------------------
                Total current assets                                                           786,169                679,553

          Property and equipment, net (Note 4)                                                  82,344                 70,044
          Film production and distribution costs, net                                        1,204,728              1,204,728
          Costs in excess of net assets of business acquired (Note 6)                          727,261                727,261
          Investments in movie ventures (Note 7)                                               232,158                246,399
          Deferred tax asset-non-current                                                       225,822                224,240
          Other assets                                                                          12,498                 27,078
                                                                                    -------------------     ------------------
                Total assets                                                        $        3,270,980      $       3,179,303
                                                                                    ===================     ==================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

     Current liabilities:
          Note payable (Note 17)                                                    $           50,000      $               -
          Due to factor (Note 9)                                                             1,054,187                690,595
          Accounts payable                                                                     533,497                280,003
          Accrued expenses (Note 8)                                                             42,587                  4,782
          Capital lease obligations                                                             14,108                  3,938
          Other taxes payable                                                                    2,316                  2,214
          Deferred tax liability                                                                 3,620                  5,188
                                                                                    -------------------     ------------------
                Total current liabilities                                                    1,700,315                986,720
                                                                                    -------------------     ------------------


     Long Term Liabilities:
          Note Payable (Note 9)                                                                250,000                      -
                                                                                    -------------------     ------------------
                Total liabilities                                                            1,950,315                986,720
                                                                                    -------------------     ------------------

     Commitments and contingencies

     Stockholders' equity
          Common stock- $.001 par value, 20,000,000 shares authorized, 8,067,462
            shares issued and outstanding at June 30, 2003 and 7,472,224 shares
            issued and
            outstanding at June 30, 2002                                                         8,067                  7,472
          Capital in excess of par value                                                     6,653,257              6,638,852
          Accumulated deficit                                                               (5,340,659)            (4,453,741)
                                                                                    -------------------     ------------------
                Total stockholders' equity                                                   1,320,665              2,192,583
                                                                                    -------------------     ------------------
          Total liabilities and stockholders' equity                                $        3,270,980      $       3,179,303
                                                                                    ===================     ==================

            The accompanying notes should be read in conjunction with
                     the consolidated financial statements
</TABLE>

                                      F-2
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      Consolidated Statement of Operations
               For the Years ended June 30, 2003 and June 30, 2002
<TABLE>
<CAPTION>

                                                                           June 30,              June 30,
                                                                             2003                  2002
                                                                      ------------------    ------------------
<S>                                                                   <C>                   <C>
     Net sales                                                        $       7,599,223     $       7,702,798
     Cost of sales                                                            5,257,972             5,065,879
                                                                      ------------------    ------------------
     Gross profit                                                             2,341,251             2,636,919
                                                                      ------------------    ------------------
     Expenses:
     Selling, general, and administrative                                     2,806,222             2,642,847
                                                                      ------------------    ------------------
     Total expenses                                                           2,806,222             2,642,847
                                                                      ------------------    ------------------

     Loss before other income (expenses) and income tax benefit                (464,971)               (5,928)
                                                                      ------------------    ------------------
     Other income (expenses):
     Equity in earnings (loss) of affiliate                                     (14,241)                 (695)
     Rental income                                                                    -                 9,050
     Interest and finance expense                                              (409,419)             (450,199)
     Interest income                                                              1,713                11,008
                                                                      ------------------    ------------------

     Total other income (expense)                                              (421,947)             (430,836)
                                                                      ------------------    ------------------

     Loss before income tax benefit                                            (886,918)             (436,764)
     Income tax benefit                                                               -                   202
                                                                      ------------------    ------------------

     Net loss                                                                  (886,918)             (436,562)
                                                                      ------------------    ------------------

     Other items of comprehensive loss                                                -                (6,350)
                                                                      ------------------    ------------------

     Comprehensive loss                                               $        (886,918)    $        (442,912)
                                                                      ------------------    ------------------

     Basic and diluted loss per share:                                $            (.11)    $            (.06)
                                                                      ==================    ==================

     Weighted average number of common shares outstanding                     7,869,049             7,472,244
                                                                      ==================    ==================
</TABLE>

            The accompanying notes should be read in conjunction with
                     the consolidated financial statements

                                      F-3
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                 Consolidated Statement of Stockholders' Equity
               For The Years Ended June 30, 2003 and June 30, 2002
<TABLE>
<CAPTION>

                                                                                                           Accumulated
                                                                 Additional                      5%          Other          Total
                                          Common Stock            Paid-in     Accumulated    Convertible  Comprehensive Stockholders
                                     Shares           Amount      Capital       Deficit      Debentures   Income (loss)     Equity
                                    ------------  ------------  ------------  ------------  ------------  ------------  ------------
<S>                                   <C>         <C>           <C>           <C>           <C>           <C>           <C>
Balances at June 30, 2001
(Balance forward)                     7,472,244   $     7,472   $ 6,638,852   $(4,017,179)  $         -   $     6,350   $ 2,635,495

Unrealized loss on marketable
 securities                                   -             -            -              -             -        (6,350)       (6,350)

Loss for the year ended
 June 30, 2002                                -             -            -       (436,562)            -             -      (436,562)
                                    ------------  ------------  ------------  ------------  ------------  ------------  ------------
Balances at June 30, 2002             7,472,224         7,472     6,638,852    (4,453,741)            -             -     2,192,583

August 28, 2002, issuance of
 5% Convertible debentures                    -             -            -              -        15,000             -        15,000

Nov. 6, 2002-Conversion of
 debentures into 595,238 shares         595,238           595       14,405              -       (15,000)            -             -

Net loss for the year ended
 June 30, 2003                                -             -             -      (886,918)            -             -      (886,918)
                                    ------------  ------------  ------------  ------------  ------------  ------------  ------------
Balances at June 30, 2003             8,067,462   $     8,067   $ 6,653,257   $(5,340,659)  $         -   $         -   $ 1,320,665
                                    ============  ============  ============  ============  ============  ============  ============
</TABLE>


           The accompanying notes should be read in conjunction with
                     the consolidated financial statements

                                      F-4
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
               For the Years Ended June 30, 2003 and June 30, 2002
<TABLE>
<CAPTION>
                                                                                      June 30,              June 30,
                                                                                       2003                  2002
                                                                                 ------------------    -----------------
     Cash flows from operating activities:
<S>                                                                              <C>                   <C>
        Net loss                                                                 $        (886,918)    $       (436,562)
                                                                                 ------------------    -----------------
        Adjustments to reconcile net income to net cash used in operating
        activities:
             Equity in loss of affiliate                                                    14,241                  695
             Amortization and depreciation                                                  27,871               36,286

     Decrease (increase) in:
             Cash-restricted                                                              (250,000)             969,582
             Accounts receivable                                                             5,848               58,597
             Other receivables                                                             (57,584)             (25,384)
             Inventory                                                                     151,799              566,489
             Prepaid expenses                                                               61,260             (228,206)
             Deferred tax asset                                                             (1,582)             (21,740)
             Other assets                                                                   14,580               (6,443)
     Increase (decrease) in:
             Accounts payable                                                              253,494              141,170
             Accrued expenses                                                               37,805              (17,183)
             Deferred tax liability                                                         (1,568)               1,582
             Other taxes payable                                                               102                1,471
                                                                                 ------------------    -----------------
             Net adjustment                                                                256,266            1,476,916

     Net cash (used for) provided by operating activities                                 (630,652)           1,040,354
                                                                                 ------------------    -----------------

     Cash flows from investing activities:

        Acquisition of property and equipment                                              (40,171)             (34,193)
        Investment in movie ventures                                                             -                  (40)
                                                                                 ------------------    -----------------

     Net cash used in investing activities                                       $         (40,171)    $        (34,233)
                                                                                 ==================    =================
</TABLE>

            The accompanying notes should be read in conjunction with
                     the consolidated financial statements

                                      F-5
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
               For the Years Ended June 30, 2003 and June 30, 2002
                                   (Continued)
<TABLE>
<CAPTION>

                                                                                      June 30,              June 30,
                                                                                        2003                  2002
                                                                                 ------------------    ------------------
     Cash flows from financing activities:

<S>                                                                              <C>                   <C>
         Principal payments on capital lease obligations                         $          (7,493)    $         (17,773)
         Net proceeds from factoring agreement                                             363,592            (1,009,742)
         Proceeds from sale of common stock                                                 15,000                     -
         Issuance of note payable                                                           50,000                     -
         Issuance of long-term note payable                                                250,000                     -
         Increase in capital leases                                                         17,663                     -
                                                                                 ------------------    ------------------

     Net cash provided by (used in) financing activities                                   688,762            (1,027,515)
                                                                                 ------------------    ------------------

     Net decrease in cash                                                                   17,939               (21,394)

     Cash, beginning of period                                                               3,309                24,703
                                                                                 ------------------    ------------------

     Cash, end of period                                                         $          21,248     $           3,309
                                                                                 ==================    ==================
     Supplemental disclosure of cash flow information:
     cash paid for:

             Interest                                                            $         314,572     $         415,456
                                                                                 ==================    ==================
             Income taxes                                                        $               -     $               -
                                                                                 ==================    ==================
</TABLE>

            The accompanying notes should be read in conjunction with
                     the consolidated financial statements

                                      F-6
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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,  the Company  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.  As of June
          30, 2001, Shopnet and all of its subsidiaries  changed their financial
          year-end from December 31st to June 30th.


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  (collectively  referred  to as 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  equivalents.
          As of June 30, 2003 the Company did not maintain balances in accounts,
          which were in excess of Federal Deposit Insurance Corporation limits.

     c)   Accounts Receivable:

          The  Company   utilizes  the  allowance  method  for  recognizing  the
          collectibility  of its  accounts  receivables.  The  allowance  method
          recognizes bad debt expense based on review of the individual accounts
          outstanding  based  on the  surrounding  facts.  As of June  30,  2003
          management  provided an allowance of $20,000.  The accounts receivable
          balance on the balance  sheet as of June 30, 2003 is shown net of this
          allowance.

     d)   Marketable securities

          All the Company's  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.  Marketable  securities  were
          classified as  non-current  as a result of being  pledged  pursuant to
          certain factoring agreements.

                                      F-7
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2-   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


     e)   Inventory:

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

     f)   Property and Equipment:

          Property  and  equipment   are  recorded  at  cost  less   accumulated
          depreciation and  amortization.  The Company provides for depreciation
          and amortization using the Straight-Line and the Modified  Accelerated
          Cost Recovery System (MACRS) method over the estimated useful lives of
          the assets which range between three and seven years. Expenditures for
          maintenance  and  repairs  are  charged  to  operations  as  operating
          expenses, when 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 year ended June 30,  2003,  the  Company  determined  that the
          estimated net realizable  value had not changed from what was reported
          at June 30, 2002 and  accordingly  made no adjustment to the estimated
          net realizable value.

                                      F-8
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2-   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     h)   Intangible assets:

          Effective  for the year ended June 30, 2002,  the Company  adopted FAS
          142 (Goodwill and Other Intangible  assets).  Under FAS 142,  goodwill
          and indefinite lived intangible assets are no longer amortized but are
          reviewed annually for impairment. Goodwill is tested for impairment at
          the reporting unit level. Under FAS 142, the fair value of a reporting
          unit is compared to its carrying  amount,  including its goodwill.  If
          the book value (carrying  amount) is below the fair value  assessment,
          there will be no  impairment  or loss.  If the fair value is below the
          book value  (carrying  amount),  then the  Company  needs to perform a
          second test to determine  the gap between the  impaired  fair value of
          goodwill and its carrying amount.

          The Company has  determined  that no impairment  exists as of June 30,
          2003. Accordingly, the book value has not been written down.

     i)   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.

     j)   Income taxes:

          The Company  accounts for income taxes in accordance with Statement of
          Financial  Accounting  Standards  ("SFAS")  No. 109,  "Accounting  for
          Income  Taxes"  which  requires the use of the  "liability  method" of
          accounting for income taxes. Accordingly, deferred tax liabilities and
          assets are determined  based on the  difference  between the financial
          statement and tax basis 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.

     k)   Revenue and cost recognition:

          The terms of Breaking  Waves'  sales are FOB  shipping  point  thereby
          revenue is recognized  upon  shipment  from the  Company's  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.

                                      F-9
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2-   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     k)   Revenue and cost recognition: (continued)

          The company  recognizes  revenue in accordance  with the provisions of
          statement  or  financial  Accounting  Standard  No.  139 and  American
          Institute of Certified Public Accountants,  Statement of Position 00-2
          ("SOP 00-2"),  "Accounting by Producers and  Distributors  of Films,".
          SOP 00-2 establishes new accounting standards for, among other things,
          marketing and development  costs. The Company uses the individual film
          forecast method to amortize film costs.

     l)   Earnings per share:

          Earnings  per  common  share are  computed  pursuant  to SFAS no.  128
          "Earnings  Per Share."  Basic  earnings  per share are computed as net
          income (loss) available to common shareholders divided by the weighted
          average number of common shares  outstanding  for the period.  Diluted
          earnings per share  reflect the  potential  dilution  that could occur
          from common  shares  issuable  through  stock  options,  warrants  and
          convertible preferred stock. Both basic earnings per share and diluted
          earnings per share are the same since the Company's  outstanding stock
          options and warrants have not been included in the calculation because
          their effect would have been anti-dilutive.


     m)   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.


     n)   Fair value disclosure at June 30, 2003:

          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.

     o)   Reclassifications:

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

     p)   Cost in excess of net assets of business acquired:

          Cost in excess of net assets of business  acquired in connection  with
          the acquisition of Breaking Waves were amortized through June 30, 2002
          on a straight line basis over the estimated useful life of the related
          assets  acquired for a period of fifteen years.  No  amortization  was
          recorded  for the years  ended June 30, 2003 and June 30,  2002.  (See
          Note 6)

                                      F-10
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2-   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


     q)   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:


                                            June 30,              June 30,
                                              2003                 2002
                                        -----------------    -----------------
          Net income (loss)-
                as reported             $       (886,918)    $       (436,562)
                                        =================    =================
                pro forma               $       (886,918)    $       (436,562)
                                        =================    =================

          Basic and Diluted EPS-
                as reported             $           (.11)    $           (.06)
                                        =================    =================
                pro forma               $           (.11)    $           (.06)

          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:


                Dividend yield                                   0.00%
                Expected volatility                                30%
                Risk-free interest rate                             6%
                Expected life                                1-5 years

     r)   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.

                                      F-11
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 -  ACCOUNTS RECEIVABLE

          Accounts receivable is comprised of the following:
<TABLE>
<CAPTION>

                                                            June 30,          June 30,
                                                              2003              2002
                                                         --------------    -------------

<S>                                                      <C>               <C>
              Accounts receivable                        $      33,261     $     41,207
              Charge back receivables                          145,702          132,000
                                                         --------------    -------------
              Total receivables                                178,963           17,199
                                                         --------------    -------------

              Less: allowance for doubtful accounts            (20,000)         (20,000)
                                                         --------------    -------------
              Net accounts receivables                   $     158,233     $    107,227
                                                         ==============    =============
</TABLE>

          Charge back receivables represent various amounts that are temporarily
          withheld for payment by various customers until certain conditions are
          fulfilled.  These amounts are considered fully collectible by Breaking
          Waves and are categorized as a current asset.


NOTE 4 -  PROPERTY AND EQUIPMENT

          Property and equipment is comprised of the following:
<TABLE>
<CAPTION>

                                                           June 30,          June 30,
                                                             2003              2002
                                                         --------------    -------------

<S>                                                      <C>               <C>
              Furniture & fixtures                       $      43,869     $     41,207
              Computer equipment and software                  170,134          132,000
              Leasehold improvements                            16,574           17,199
                                                         --------------    -------------
                                                               230,577          190,406
              Less: accumulated depreciation
                    and amortization                           148,233          120,362
                                                         --------------    -------------
                                                         $      82,344     $     70,044
                                                         ==============    =============
</TABLE>

          Computer  equipment  and  software  amounting to $79,169 is pledged in
          connection with capital lease obligations.

          Depreciation and amortization expense for the year ended June 30, 2003
          and for the year ended June 30, 2002 amounted to $27,871, and $36,286,
          respectively.

                                      F-12
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5-  PREPAID EXPENSES
<TABLE>
<CAPTION>

          Prepaid expenses are comprised of the following:

                                                            June 30,            June 30,
                                                              2003                2002
                                                         ----------------    ---------------
<S>                                                      <C>                 <C>
              Prepaid insurance                          $         4,454     $       23,167
              Prepaid taxes                                        6,120             22,641
              Prepaid consulting fee (See Note 9)                177,650            198,550
              Prepaid salaries                                         -              3,422
              Other prepaid expenses                              49,484             51,188
                                                         ----------------    ---------------
              Total prepaid expenses                     $       237,708           $298,968
                                                         ================    ===============
</TABLE>
NOTE 6-  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 was being  amortized over the useful lives
          of the related assets which was fifteen years.

          Effective  for the year ended June 30, 2002,  the Company  adopted FAS
          142 (Goodwill and Other Intangible  assets).  Under FAS 142,  goodwill
          and indefinite lived intangible assets are no longer amortized but are
          reviewed annually for impairment. Goodwill is tested for impairment at
          the reporting unit level. Under FAS 142, the fair value of a reporting
          unit is compared to its carrying  amount,  including its goodwill.  If
          the book value (carrying  amount) is below the fair value  assessment,
          there will be no  impairment  or loss.  If the fair value is below the
          book value  (carrying  amount),  then the  Company  needs to perform a
          second test to determine  the gap between the  impaired  fair value of
          goodwill and its carrying amount.

          The Company has  determined  that no impairment  exists as of June 30,
          2003. Accordingly, the book value has not been written down.

                                      F-13
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7-  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 June 30, 2003, $212,385 for a 50%
     interest  in  a  new  entity,  Battle  Studies  Productions,  LLC  ("Battle
     Studies") a limited liability  company.  Battle Studies is accounted for as
     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,  screenplays,  and all
     ancillary rights attached thereto.

     The Company  accounts for the  investment  in Battle  Studies on the equity
     method.  For the years ended June 30,  2003 and June 30, 2002 the  Company,
     recorded  equity  losses  of  $793  and  $2,355,   respectively,   for  its
     proportionate share of Battle Studies losses. No revenues have been derived
     from this film as of June 30, 2003.

     On October 12, 2000,  Battle Studies entered into a distribution  agreement
     with Raven Pictures  International  ("Raven Pictures") to distribute Battle
     Studies' motion picture ("Macheavelli 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 expense.

     On January 17, 2001,  Battle Studies entered into a distribution  agreement
     with KOAN,  Inc.  ("KOAN") to distribute and promote Battle Studies' motion
     picture  ("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.

b)   The Girl

     Pursuant to an agreement  dated July 1, 1999 with  Artistic  License  Films
     Inc.,  Hollywood  invested  through  June 30,  2003  $35,000  for a 22.533%
     interest in a new entity,  The Girl,  LLC ("The Girl") a limited  liability
     company. In return for its participation in The Girl, Hollywood is 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 investments in The Girl under the equity method.
     For the year ended June 30,  2003 and the year  ended  June 30,  2002,  the
     Company recorded $14,241 and $0, respectively, in net equity losses.

                                      F-14
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8-  ACCRUED EXPENSES
<TABLE>
<CAPTION>
         Accrued expenses are comprised of the following:
                                                          June 30,         June 30,
                                                            2003             2002
                                                        -------------    ------------
<S>                                                     <C>              <C>
             Professional fees                          $      6,729     $     4,718
             Other corporate overhead                         35,858              64
                                                        -------------    ------------
                                                        $     42,587     $     4,782
                                                        =============    ============
</TABLE>
NOTE 9-  DUE TO FACTOR

          Century Business Credit Corporation

          On or  about  September  12,  2000,  Breaking  Waves  entered  into  a
          factoring  and  revolving   inventory  loan  and  security   agreement
          ("factoring  agreement")  with  Century  Business  Credit  Corporation
          ("Century") to sell its 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  eligible  receivables  and  up to  50% of the  value  of
          finished goods in inventory, with interest payable monthly at the rate
          of 1 3/4% over prime.

          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  ("CEO"),  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.
          On September  15, 2001,  Century  required the Company to increase the
          amount of collateralized standby letters of credit by $300,000 raising
          such amount to $1,450,000.

          On May 3, 2001,  the Agreement  with the Trust was amended so that the
          letter of credit secured by the Trust was increased to $400,000.  As a
          condition  of the  amendment,  the  Company  entered  into a guarantee
          agreement with Gal Capital Corp., whose President is a relative of the
          Company's  President and CEO to act as guarantor of the  obligation to
          the Trust up to $400,000 in  exchange  for a fee of $42,500  which the
          Company paid on May 3, 2001.  The amended  letter of credit expired on
          September 1, 2001 and was subsequently amended on September 15, 2001.

                                      F-15
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9-  DUE TO FACTOR (Continued)

          Century Business Credit Corporation (continued)

          On September  15, 2001,  the Amended and  Restated  Reimbursement  and
          Compensation  Agreement  was  entered  into and  further  amended  the
          agreement with the Trust,  so that the letter of credit secured by the
          Trust was increased to $750,000.  The amended letter of credit expired
          on September 1, 2002 but can be extended year to year at the Company's
          option for a period of ten years.  On September 1, 2002, the letter of
          credit was extended.  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
          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.

          On  September  15,  2001,  the Company  entered  into a  Reimbursement
          Agreement  with  relatives  of an  individual  who is  related  to the
          President  and CEO of the  Company  ("RAYA")  who  pledged  assets  as
          collateral  for  securing  a $300,000  letter of credit as  additional
          collateral to secure Breaking Waves' Loan and Security  Agreement with
          Century.  Absent  any  default,  the letter of credit  will  remain in
          effect for ten years.  Shopnet  under a  separate  Security  Agreement
          dated September 15, 2001 guarantees the agreement.  In September 2003,
          the  letter  of  credit  secured  by RAYA was  drawn  upon by  Century
          reducing Breaking Waves' liability to Century.

          In  exchange  for the  letters  of  credit,  the  Trust  and RAYA will
          proportionately,  based on the total  outstanding  letters  of credit,
          receive a fee of one and one quarter percent  (1-1/4%) of net sales of
          Breaking  Waves  through  June 30, 2002 and  thereafter  one and three
          quarters percent (1-3/4%) of net sales through  September 30, 2011. In
          October  2001,  the Trust and RAYA  received  advance  payments  to be
          applied towards future fees of $24,500 and $12,250,  respectively. All
          future  payments are payable  forty-five  days after the close of each
          fiscal quarter. The fees are effective October 1, 2001.

          In  September  2001,  the  Company and  Breaking  Waves  retained  Arc
          Financial  Corp.  ("ARC"),  a British  Virgin  Island  company,  for a
          ten-year term to provide financial consulting services.

          Pursuant to the terms of a consulting services.  Pursuant to the terms
          of a  consulting  agreement  ("ARC  Consulting  Agreement"),  ARC  was
          retained  to assist the Company in the  acquisition  of  financing  to
          acquire inventory and for other corporate purposes  ("Financing"),  as
          well  as  consult   with  the  Company  with  regard  to  its  ongoing
          operations,  promote sales of Breaking  Waves'  products and improving
          production.

          Pursuant to the terms of the ARC Consulting Agreement, the Company and
          Breaking  Waves agreed to compensate  ARC (i) an annual fee of $20,000
          ("Base Fee") and (ii) a  percentage  of annual net sales in the amount
          of 1-1/4%  through June 30, 2002 and 1-3/4% of net sales for each year
          of the term  thereafter  through  September 30, 2011 ("ARC  Percentage
          Fee"), payable 45 days after the closing of each fiscal quarter.

          In October  2001,  ARC  received  (I) a lump sum  payment of  $209,000
          reflecting  full  advance  payment  of the Base  Fee and (ii)  $36,750
          reflecting  advance  payment of the Arc Percentage  Fee. The agreement
          with Arc expires  September 30, 2011.  The Company and Breaking  Waves
          are entitled to terminate the ARC Consulting  Agreement any time after
          September 30, 2006, in which event all prepaid fees are forfeited.

                                      F-16
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

NOTE 9-  DUE TO FACTOR (Continued)

          Century Business Credit Corporation (Continued)

          The following table summarizes the percentage due each party, as noted
          above, as a percentage of net sales for the year ended June 30, 2003:

                                             % of
                                           Net Sales            Amount
                                        ---------------     --------------
                 RAYA                        0.58                 $ 44,076
                  ZAT                        0.24                   17,934
                  ARC                        1.75                  132,988
                                        ---------------     --------------
                                             2.57                 $194,998
                                        ===============     ==============

          In December  2002,  Breaking  Waves entered into a  Reimbursement  and
          Compensation   Agreement  with  TERE,  S.A.,  a  Swiss  entity.  As  a
          consequence  of Century  being  unwilling  to grant credit to Breaking
          Waves unless it received one or more letters of credit satisfactory to
          it as well as cash  collateral to partially  secure the line of credit
          in such amounts, as it deems appropriate, the Trust reduced the letter
          of  Credit  secured  by it to  $500,000.  TERE,  S.A.  agreed  to loan
          Breaking Waves the sum of $250,000  represented by a promissory  note.
          The funds were  deposited as cash  collateral  with Century to replace
          the reduced portion of the letter of credit secured by the Trust.

          In September 2003, the letter of credit secured by the Trust was drawn
          upon by Century,  reducing  Breaking Waves' liability to Century.  The
          sum of $250,000 in cash on deposit with Century has been classified on
          the accompanying balance sheet as restricted cash.

          All obligations under this agreement are guaranteed by the Company and
          are secured by a security interest in all of the Company's assets.

          As  compensation,  Breaking  Waves paid to TERE all interest  received
          from or  credited to it by Century on the sums  deposited  pursuant to
          the Cash Collateral Agreement when received.

          The term of the loan is for ten years.

          ARC has agreed to pay to TERE, interest at the rate of 8% per annum on
          a quarterly basis.

          Interest expense related to the factor agreement  totaled $205,591 and
          $248,303  for the year  ended  June 30,  2003 and 2002,  respectively.
          Century  has a  secured  interest  in  Breaking  Waves'  inventory  as
          collateral for the advances.  As of June 30, 2003, the net advances to
          Breaking Waves from Century amounted to $1,054,187.

          Additionally, see Note 18 (Subsequent Events).

                                      F-17
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 10- (BENEFIT OF) PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
          (Benefit of) provision for income taxes is comprised of the following:

                                                                                  Year ended              Year ended
                                                                                 June 30, 2003          June 30, 2002
                                                                               -----------------       -----------------
<S>             <C>                                                           <C>                      <C>
                  Current:
                      Federal                                                  $             -         $              -
                      State and local                                                       980                   1,380
                                                                               -----------------       -----------------

                                                                                            980                   1,380
                                                                               -----------------       -----------------
                  Deferred:
                      Federal                                                                 -                      -
                      State and local                                                    (1,582)                 (1,582)
                                                                               -----------------       -----------------

                                                                                         (1,582)                 (1,582)
                                                                               -----------------       -----------------
                  Total (benefit of) provision
                      for income taxes                                         $           (602)       $          (202)
                                                                               =================       =================

                  A reconciliation of the provision for income taxes on income
                  per the federal statutory rate to the reported income tax
                  expense is as follows:
                                                                                   Year ended              Year ended
                                                                                 June 30, 2003           June 30, 2002
                                                                               -------------------    --------------------

                  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                                               -                       -
                  Current provision for state and local taxes                                 980                   1,380
                  (Increase) in deferred tax assets                                        (1,582)                 (1,582)
                                                                               -------------------     -------------------
                  Increase (decrease) in deferred tax liability                $             (602)     $             (202)
                                                                               ===================     ===================
</TABLE>
          Income taxes are provided for the tax effects of transactions reported
          in the financial  statements  and consist of taxes  currently due plus
          deferred taxes related to difference  between the financial  statement
          and  income  tax  bases  of  assets  and   liabilities  for  financial
          statements 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 differential are computed at a rate
          of 34% federal and 11% state and local pursuant to SFAS No. 109.

                                      F-18
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10- (BENEFIT OF) PROVISION FOR INCOME TAXES (Continued)

          The tax effect of  significant  items  comprising  the  Company's  net
          non-current deferred tax assets and liability are as follows:
<TABLE>
<CAPTION>
                                                                                 June 30,           June 30,
                                                                                   2003               2002
                                                                             ----------------    ---------------
<S>                                                                          <C>                 <C>
                  Net operating loss carryforwards                           $     1,477,334     $    1,401,500
                  Inventory capitalization                                            51,736             38,462
                  Write down of film costs                                                 -            150,000
                  Valuation allowance                                             (1,303,248)        (1,365,722)
                                                                             ----------------    ---------------
                  Deferred non-current tax asset                                     225,822            224,240
                                                                             ----------------    ---------------

                  Equity earnings (loss) of affiliate                                (14,241)             4,440
                  Depreciable assets                                                  17,861                748
                                                                             ----------------    ---------------
                  Deferred non-current tax liability                                   3,620              5,188
                                                                             ----------------    ---------------
                  Net non-current deferred tax asset                         $       222,202     $      219,052
                                                                             ================    ===============
</TABLE>
          Shopnet and its subsidiaries  have a tax year-end of December 31st and
          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 June 30, 2003 and June 30,  2002,  the Company had a net  operating
          loss carry-forward  (NOL) of approximately  $3,576,000 for federal tax
          purposes and  $3,676,000  for state tax purposes,  all of which expire
          between 2012 and 2022,  Management believes it is more likely than not
          that the results of future operations will generate sufficient taxable
          income to realize the deferred tax assets.


NOTE 11-  COMMITMENTS AND CONTINGENCIES

a)   Lease commitments

     Shopnet and Breaking Waves jointly share their administrative offices under
     a lease agreement  signed July 2001 by Breaking Waves.  Shopnet is provided
     office space by Breaking Waves on a rent-free  basis.  The lease  agreement
     expires on  September  30,  2007.  Annual  rent under this lease is $84,915
     through  December  31,  2004 and  $97,560  for the  remainder  of the lease
     period.  Additionally,  Breaking  Waves leases an offsite office for one of
     its designers on a month-to-month basis with annual payments  approximating
     $13,200.

                                      F-19
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-  COMMITMENTS AND CONTINGENCIES (Continued)

          Lease commitments (continued)

          The  approximate  annual future minimum  rentals under  non-cancelable
          operating lease signed by Breaking Waves are as follows:

                  For the fiscal year ended June 30:
                  2004                $      84,915
                  2005                       90,338
                  2006                       95,760
                  2007                       95,760
                  Thereafter                 23,940
                                      --------------
                                      $     390,713
                                      ==============

          Rent  expense  for the year ended June 30,  2003 and 2002  amounted to
          $108,869 and $94,508, respectively.

b)   Significant vendors and customers

          Breaking Waves purchases 100% of its inventory from three vendors, two
          in  Indonesia  (74%) and the  other in The  Republic  of Korea  (26%).
          Breaking  Waves  believes  other sources and vendors are available and
          that it is not dependent  exclusively on these  vendors.  For the year
          ended June 30, 2003,  the year ended June 30, 2002 Breaking  Waves had
          three   customers,   which   comprised  44%  and  36%  of  net  sales,
          respectively.

c)   Seasonality

          Breaking Waves'  business is considered  seasonal with a large portion
          of its revenues and profits being derived between  November and March.
          Each year from April through  October,  Breaking  Waves engages in the
          process of designing and manufacturing the following season's swimwear
          lines,  during  which time it incurs the  majority  of its  production
          costs with limited revenues and also engages in the sale of product at
          negative  gross  margin to remove slow moving  items and  decrease its
          carrying cost.

d)   License agreements

          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 $163,019 and $73,408
          for the year ended June 30, 2003 and for the year ended June 30, 2002.

          On July 29, 2002  Breaking  Waves  entered into a licensing  agreement
          with LMH, Inc.  whereby  Breaking  Waves was granted  exclusive use of
          certain trademarks, namely "Little Me" and

                                      F-20
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-  COMMITMENTS AND CONTINGENCIES (Continued)

          License agreements (continued)

          "Muffings"  in the United  States,  Canada and Mexico,  and the use of
          "Tapioca" and "Juniper" solely in the United States.

          The  licensing  agreement has a term of three years ending on July 31,
          200, unless terminated earlier and agreed to by both parties.

          In  consideration  of both the license granted and the design services
          to be  performed  by LMH,  Breaking  Waves  has  agreed to pay a sales
          royalty equal to 5% of net sales of the Licensor's products.

          Under the terms of the agreement, Breaking Waves agreed to guarantee a
          minimum  royalty  payment of $10,000 for the period  August 1, 2002 to
          July 31, 2003.

          For the second and third years of the agreement, Breaking Waves agreed
          to pay a  guaranteed  minimum  royalty  of  $20,000  payable  in  four
          quarterly installments.

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-production. The Company retains all
          rights to the motion picture with the co-producer  agreeing to finance
          $100,000 of the cost 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 June 30,  2003  and June 30,  2002,  the  Company  had  invested
          $1,971,956  for the  co-production  and  distribution  of such  motion
          pictures whereas the co-producers have invested $100,000. For the year
          ended June 30, 2003 and for the year ended June 30, 2002,  the Company
          derived no revenues from the motion picture and had not amortized film
          costs.

          For the years ended June 30, 2003 and June 30,  2002,  the Company has
          not written down its film  production  and  distribution  costs as the
          carrying value of the asset equals its estimated net realizable value.

f)   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 such
          options).

                                      F-21
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-  COMMITMENTS AND CONTINGENCIES (Continued)

          Litigation (continued)

          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  intends to
          contest the action vigorously and believes that such claims against it
          are baseless and without merit.


NOTE 12-  STOCKHOLDERS' EQUITY

     a)   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  provided  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 expired in March
          2002. No options were exercised.

          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.

                                      F-22
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12-  STOCKHOLDERS' EQUITY (continued)

          1996 Senior Management Incentive Plan (continued)

          A summary of the status of the Company's stock options  outstanding as
          of June 30, 2003 is as follows:
<TABLE>
<CAPTION>
                                                                                          Number of             Exercise
                                                                                           Options                Price
                                                                                       -----------------    ----------------
<S>                                       <C> <C>                                               <C>             <C>    <C>
                  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
                      Granted                                                                         -                   -
                      Exercised                                                                       -                   -
                      Cancelled                                                                       -                   -
                                                                                       -----------------    ----------------
                  Outstanding at June 30, 2001                                                  176,000         $ 1.46-1.38
                      Granted                                                                         -                   -
                      Exercised                                                                       -                   -
                      Cancelled                                                                 132,000                1.46
                                                                                       -----------------    ----------------
                  Outstanding at June 30, 2002                                                   44,000                1.38
                      Granted                                                                         -                   -
                      Exercised                                                                       -                   -
                      Cancelled                                                                       -                   -
                                                                                       -----------------    ----------------
                  Outstanding at June 30, 2003                                                   44,000            $   1.38
                                                                                       =================    ================
</TABLE>
b)   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, 2002. On August 31, 2002, the Company  extended the
          term of its  warrants  by 18 months.  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  affected a one
          for three reverse split of the Company's common stock.

     ii)  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,  the January 2001 10% common stock dividend and the May 2001
          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.  The  warrants
          expired on March 10, 2003.

                                      F-23
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12-  STOCKHOLDERS' EQUITY (continued)

          Warrants (continued)


     iii) On April 15, 1998,  the Company's  Board of Directors  authorized  the
          distribution of warrants to all  shareholders of the Company's  common
          stock  as  of  May  8,  1998.  Pursuant  to  the  distribution,   each
          shareholder  of record will  receive 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  and  receipt  by  shareholder,  shall be  issued  and
          distributed  once the Company has file 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.


NOTE 13-  RELATED PARTIES TRANSACTIONS


          a)   For the year ended June 30,  2003 and 2002  financial  consulting
               fees were paid to a corporation and an individual who are related
               to the  Company's  President  and CEO  amounting  to $37,000  and
               $22,900, respectively.

          b)   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 June 30,  2003,  the  unpaid  portion  amounted  to
               $37,000,  which has been  classified  as current.  As of June 30,
               2003, the Company's  President was also advanced additional funds
               totaling $3,000, which are non-interest bearing and due on demand
               and are classified as current.

                                      F-24
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14-  INDUSTRY SEGMENTS

          The  Company's  operations  have been  classified  into two  segments:
          swimwear  sales  and  film  productions.  Information  about  the  two
          segments is as follows:
<TABLE>
<CAPTION>

                                                                Year Ended                                Years ended
                                                   ---------------------------------------    --------------------------------------
                                                                  June 30,                                  June 30,
                                                                    2003                                      2002
                                                   ---------------------------------------    --------------------------------------
                                                       Segment            Consolidated            Segment         Consolidated
                                                   -----------------    ------------------    -----------------    -----------------
  Sales:

<S>                                                    <C>                                        <C>
    Swimwear sales                                     $  7,599,223                               $  7,702,798
    Film production                                           -                                          -
                                                   -----------------                          -----------------

  Total sales                                                                  $7,599,223                                $7,702,798
                                                                        ==================                         =================

  Operating income (loss):
    Swimwear sales                                                               (156,081)                                  363,173
    Film production                                                                (2,287)                                   (1,263)
                                                                        ------------------                         -----------------

  Total operating income (loss)                                                  (158,368)                                  361,910
                                                                        ------------------                         -----------------

  Corporate:
    General and administrative expense                                           (306,553)                                 (367,838)
    (Loss) equity in earnings of affiliate                                        (14,291)                                     (695)
    Amortization expense                                                                -                                         -
    Interest income                                                                     -                                     11,008
    Interest and finance expense                                                 (409,419)                                 (450,199)
    Other                                                                           1,713                                     9,050
                                                                        ------------------                         -----------------

  Loss from operating before (benefit)                                           (886,918)                                 (436,764)

  (Benefit) provision for income tax                                                    -                                      (202)
                                                                        ------------------                         -----------------

  Net (loss) income                                                            $ (886,918)                               $ (436,562)
                                                                        ==================                         =================

  Identifiable assets:
    Swimwear sales                                                              $ 652,432                                 $ 506,727
    Film productions                                                            1,436,887                                 1,451,127
    Corporate                                                                   1,181,661                                 1,199,709
                                                                        ------------------                         -----------------

  Total assets                                                                 $3,270,980                               $ 3,157,563
                                                                        ==================                         =================
</TABLE>
          Operating  profit is total  revenue  less cost of sales and  operating
          expenses and excludes general  corporate  expenses,  interest expenses
          and income taxes.  Identifiable  assets are those used by each segment
          of the Company's  operations.  Corporate assets are primarily cash and
          investments.

                                      F-25
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15- PRIVATE PLACEMENT

          On June 17, 2002,  the Company  appointed  Alliance  Long Term Capital
          Corp. as its placement agent in connection  with the proposed  private
          placement  on a  best  "efforts  basis"  of  up  to  $1,500,000  of 5%
          Convertible  Debentures  and up to $1,500,000  of 10%  Non-Convertible
          Debentures.  The term of this Agreement commenced on June 17, 2002 and
          was terminated on December 19, 2002.

          Both of the  Convertible  Debentures  and the Debt  will pay  interest
          semi-annually  and shall have a  maturity  date of four years from the
          date of issuance.  The  Convertible  Debentures will be secured by the
          assets of the Company and will be  subordinated  to the factor's first
          security interest in all the assets of the Company.

          On  August  28,  2002,  the  Company   received  the  sum  of  $15,000
          representing   payment  for  a  subscription  of  $15,000  of  the  5%
          Convertible  Debentures as referenced in above.  As of August 28, 2002
          the  Company  did  not  issue  these  Debentures.   No  additional  5%
          Convertible  Debentures nor any 10%  Non-Convertible  Debentures  have
          been issued.

          On November 6, 2002,  the  subscription  was  converted  into  595,238
          shares of common stock.

NOTE 16- GOING CONCERN

          The accompanying financial statements have been prepared in conformity
          with  generally  accepted  accounting  principles,  which  contemplate
          continuation of the Company as a going concern.  However,  the Company
          has  incurred  losses  since  its  inception  and  has  not  yet  been
          successful in establishing profitable operations. Further, the Company
          has current  liabilities  in excess of current  assets.  These factors
          raise  substantial  doubt about the ability of the Company to continue
          as a going concern.  In this regard,  management is proposing to raise
          any  necessary  additional  funds not provided by  operations  through
          loans or through  additional  sales of its  common  stock or through a
          possible  business  combination  with  another  company.  There  is no
          assurance  that the Company  will be  successful  in (a) raising  this
          additional  capital  on  acceptable  terms or at all or (b)  achieving
          profitable  operations.  The  financial  statements do not include any
          adjustments that might result from the outcome of these uncertainties.
          Additionally, see Note 18 (Subsequent Events).

NOTE 17- NOTE PAYABLE

          On November 8, 2002,  the Company  borrowed  the sum of $50,000 in the
          form of a promissory note from Amigal Salit, Ltd., an unrelated party.
          The note, which is non-interest  bearing,  was due on or before August
          15, 2003. The Company is in default not having  remitted  payment when
          due.  Amigal  Salit,  Ltd.  has not  contacted  the Company  regarding
          payment of the note.  This note  payable is shown on the  accompanying
          balance sheet as a current liability.

                                      F-26
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17- NOTE PAYABLE (Continued)

          In  connection  with this Note,  the Company  issued to Amigal  Salit,
          Ltd.,  100,000  warrants to purchase  shares of the  Company's  common
          stock,  par value,  $.001 per share at $.05 per share (the "Warrant").
          Holder  shall  purchase the Warrant for its own account and not with a
          view toward public resale or distribution.  Upon exercise,  the shares
          underlying the Warrant shall be  "restricted  securities" as that term
          is defined  in Rule 144.  The shares of common  stock  underlying  the
          Warrant shall be appropriately  legended to prevent the resale of said
          securities without registration or an exemption from registration.

          On the same date,  the  Company  entered  into an  agreement  with ARC
          Financial Corporation, whereby the Company using the proceeds received
          from Amigal Salit,  Ltd.,  agreed to pay $50,000 as an advance against
          fees to be owed by  Breaking  Waves to ARC  Financial  Corporation  in
          connection  with Breaking Waves  obligation to pay certain fees to ARC
          as part of a consulting agreement as described in Note 9 herein.


NOTE 18- SUBSEQUENT EVENTS

          The Company and Breaking  Waves have  experienced a  significant  cash
          shortfall in the months following June 30th.

          In  September,  The  Company  obtained a loan in the amount of $44,000
          from  U.S.  biomedical  Corporation,  a  company  whose  former  chief
          operating  officer is the son-in-law of the company's  president.  The
          term of the loan is for one year and it matures on  September 9, 2004.
          The loan may be repaid, at U.S. Biomedical's option, either in cash or
          non-registered stock of the Company.

          Additionally,  in September, the Company's president loaned the sum of
          $5,000 to the Company on an interest free basis.

          On October  21st,  Breaking  Waves was  notified  by Century  Business
          Credit Corporation,  that it was in default of its factoring agreement
          due to non  payment of its  obligations  and that  Century,  under its
          factoring  agreement  with  Breaking  Waves,  now  has the  option  to
          foreclose on Breaking Waves' trademark and other collateral at anytime
          subsequent to October 21st.

          As of November 18, 2003, no such action has been taken by Century.

                                      F-27