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, 2002

                                       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)


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             Delaware                                     13-3871821
---------------------------------------         -----------------------------------
(State or Other Jurisdiction of                 (I.R.S. Employer Identification No.)
Incorporation or Organization)
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                 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, 2002 were
$7,702,798.

The aggregate market value of the voting stock on September 18, 2002 (consisting
of Common Stock, par value $0.001 per share) held by non-affiliates was
approximately $541,516 based upon the closing price for such Common Stock on
said date $.075. On such date, there were 7,472,244 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.
<PAGE>
"Dirty Laundry" is a romantic comedy shot in the New York tri-state area. It
stars Jay Thomas as Joey (a dry cleaner going through a mid-life crisis), and
Tess Harper as Beth (a sex advice columnist for a woman's magazine and Joey's
wife of 15 years). Joey's dry cleaning business is doing poorly, and he is
convinced that he is aging prematurely. Given their increasing lack of intimacy,
Beth encourages Joey to seek counseling, which he does unbeknownst to Beth, who
has become attracted to her chiropractor. Throughout the film, a variety of
bizarre mishaps occur which result in the couple's rekindling of their lost
romance 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."

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.
<PAGE>
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.

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, 2002, the
"Coral Cove" line accounted for approximately one-third 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.

For the six months ended June 30, 2001, the "Coral Cove" line accounted for
approximately one-third 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. Prior to the introduction of the "Coral Cove" and
"Gottex" lines, for the year ended December 31, 2000, the "All Waves" line
accounted for approximately one-third of Breaking Waves' total volume, with the
remaining two lines accounting for, in equal parts, the remainder of Breaking
Waves' volume.
<PAGE>
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, 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. For the six
months ended June 30, 2001, 80% of Breaking Waves' finished products were
purchased from an Indonesian manufacture, with the balance purchased from a
South Korean manufacturer. For the year ended December 31, 2000 Breaking Waves'
finished products were purchased 80%, 15% and 5% from Indonesian, Samoan and
Korean manufacturers, respectively. 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," "Daffy Waterwear," "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, 2002, Breaking Waves had three customers
representing in the aggregate, 36% of net sales, as compared to two customers
representing in the aggregate, 37% of net sales for the six months ended June
30, 2001 and three customers representing in the aggregate, 46% of net sales,
for the year ended December 31, 2000.

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.
<PAGE>
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 "Daffy Waterwear" 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.

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.
<PAGE>
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.

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.
<PAGE>
On or about December 2001, a group of over 275 foreign plaintiffs commenced an
action entitled Abeln v. Arbel, et. al in the United States District Court for
the Southern District of New York naming the Company, along with over 30 other
entities and individuals as defendants. The Company was never served with the
summons and complaint, and could not discern if such service was effectuated.
Thus, the Company was not yet a party to the suit. In August, 2002, the
Plaintiffs voluntarily dismissed this action.

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

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

Not applicable.



<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

The Company's common stock is 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

2000

<S>                                           <C>               <C>               <C>              <C>
01/01/00 - 03/31/00                           2.56              7.72              .13              .72
04/01/00 - 06/30/00                           2.44              5.13              .13              .47
07/01/00 - 09/30/00                           2.38              3.98              .25              .31
10/01/01 - 12/31/00                            .25              3.00              .16              .28

2001

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


</TABLE>
As of September 17, 2002, there were 42 holders of record of the Company's
Common Stock, although the Company believes that there are approximately 900
additional beneficial owners of shares of Common Stock held in street name. As
of September 17, 2002, the number of outstanding shares of the Company's Common
Stock was 7,472,244. 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.
<PAGE>
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 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.
<PAGE>
General

Shopnet.com, Inc. ("Shopnet" or the "Company") was incorporated in the State of
Delaware on December 1, 1995 as Hollywood Productions, Inc. On May 10, 1999,
Shopnet filed an amendment to its Articles of Incorporation effecting a change
in its name to its current one. On May 12, 1999, it incorporated a new
wholly-owned subsidiary, 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 31 to June 30.

The consolidated financial statements at June 30, 2002, June 30, 2001 and at
December 31, 2000 include the accounts of Shopnet and its wholly owned
subsidiaries, Breaking Waves and Hollywood (collectively referred to as the
"Company") except where otherwise indicated after elimination of all significant
intercompany transactions and accounts.

The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related footnotes which provide additional
information concerning the Company's financial activities and condition. Since
Shopnet and its subsidiaries operate in different industries, the discussion and
analysis is presented by entity 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.
<PAGE>
d)       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.

e)       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.

f)       Revenue and cost recognition

The terms of Breaking Waves' sales are FOB shipping point thereby revenue is
recognized upon shipment from the warehouse. Sales returns are recorded upon
acceptance of the goods by the warehouse. Duty costs, which are a component of
cost of sales, are recorded upon the clearance of such goods through customs.

Revenues from the theatrical distribution of motion pictures are recognized when
motion pictures are exhibited. Revenues from video sales are recognized,
together with related costs, on the date that video units are made widely
available for sale by retailers.

Revenues from the licensing of feature films, together with related costs, are
recorded when the material is available for telecasting by the licensee and when
certain other conditions are met. Film production and distribution costs are
stated at the lower of unamortized cost or estimated net realizable value. In
accordance with Financial Accounting Standards Board's Statement of Financial
Accounting Standards ("SFAS") No. 53, "Financial Reporting by Producers and
Distributors of Motion Pictures Films," the individual film forecast method is
used to amortize film costs.

g)       Earnings per share

Earnings per common share is computed pursuant to SFAS No. 128 "Earnings Per
Share." Basic earnings per share is computed as net income (loss) available to
common share holders divided by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects 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 assumption 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.
<PAGE>
i)       Fair value disclosure at June 30, 2002, June 30, 2001 and December 31,
         2000:

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

Year ended June 30, 2002 as compared to the six months ended June 30, 2001 and
the year ended December 31, 2000

Breaking Waves

For the year ended June 30, 2002, the six months ended June 30, 2001 and for the
year ended December 31, 2000, Breaking Waves generated net sales of $7,702,798,
$4,728,948 and $5,713,133, respectively, with related cost of sales amounting to
$5,065,879, $3,303,919 and $3,764,258, respectively.

The increase in sales from 2001 to 2002 was primarily attributable to the
greater acceptance of the Company's product line and increased marketing
efforts.

The gross profit for the year ended June 30, 2002, amounted to $2,636,919 or 34%
of sales, for the six months ended June 30, 2001 amounted to $1,425,029, or 30%
of sales and for the year ended December 31, 2000, amounted to $1,1948,845 or
34% of sales. The increase in gross profit percentage of 4% for the year ended
June 30, 2002 as compared to the six months ended June 30, 2001 can be
attributed to a percentage decrease in charge back returns for the year ended
June 30, 2002.

Selling, general, and administrative expenses during the year ended June 30,
2002, the six months ended June 30, 2001, and the year ended December 31, 2000
amounted to $2,238,211, and $ 1,216,127, and $1,638,809, respectively. The
increase is primarily attributable to an increase in selling and warehousing
expense which reflect the increase in sales volume.

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

                                                                                      Year             Six Months            Year
                                                                                      Ended               Ended             Ended
                                                                                    June 30,            June 30,           Dec. 31,
                                                                                     2002                 2001               2000
                                                                                ----------------    ----------------    ------------

<S>                                                                                    <C>                 <C>            <C>
          Officers, office staff, designer salaries and related benefits               $ 584,304           $225,242       $ 535,137

          Commission expense                                                             227,023            149,992          94,489
          Warehousing costs                                                              453,211            240,858         228,934
          Royalty fees                                                                   123,407            176,610         171,869
          Rent expense                                                                   100,787             44,200          87,690
          Factor commissions                                                              81,403             55,166          56,683

          Miscellaneous general corporate overhead expenses                              668,076            324,059         464,007
</TABLE>
The major components of the Breaking Waves selling, general, and
administrative expenses expressed as a percentage of net sales are as follows:

<TABLE>
<CAPTION>

                                                                           Year             Six Months            Year
                                                                           Ended               Ended              Ended
                                                                         June 30,            June 30,           Dec. 31,
                                                                          2002                 2001               2000
                                                                     ----------------    ----------------    --------------

<S>                                                                         <C>                <C>                 <C>
Officers, office staff, designer salaries and related benefits              8%                 5%                  9%

Commission expense                                                          3%                  3%                 2%
Warehousing costs                                                           6%                  5%                 4%
Royalty fees                                                                2%                  4%                 3%
Rent expense                                                                1%                  1%                 2%
Factor commissions                                                          1%                  1%                 1%

Miscellaneous general corporate overhead expenses                           9%                  7%                 8%
</TABLE>
<PAGE>

Interest expense in connection with its factoring agreement amounted to
$248,303, $256,429 and $305,309 for the year ended June 30, 2002, the six months
ended June 30, 2001 and for the year ended December 31, 2000, respectively.

Breaking Waves owns 1,270,000 unregistered common shares ("Play Co.
Shares") of Play Co. Toys & Entertainment Corp. ("Play Co, " a toy retailer and
a publicly traded company whose Chairman of the Board is also the President of
Shopnet and Breaking Waves).

Breaking Waves' ownership percentage is approximately 1.5% of Play Co.'s
outstanding Common Stock. The investment in Play Co. is accounted for under the
requirements of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities. " Under SFAS 115, the securities are considered available for
sale and therefore the carrying value is based on the fair market value of the
securities at June 30, 2002, June 30, 2001 and December 31, 2000, which amounted
to $0, $6,350 and $107,950, respectively. The change in the fair market value of
the securities during the periods is recorded as an unrealized gain or loss as a
component of comprehensive income. The company has pledged such shares as
collateral for a standby letter of credit in connection with Breaking Waves'
factoring agreement with Century Business Credit Corporation ("Century") and the
are therefore considered non-current.

On March 28, 2001, Play Co. filed for protection under Chapter Eleven of the
United States Bankruptcy Code with the United States Bankruptcy Court for the
Southern District of New York. The filing was converted into a Chapter Seven
filing on August 28, 2001. Breaking Waves generated net (loss) income of
$(82,366), $(84,561) and $663 for the year ended June 30, 2002, for the six
months ended June 30, 2001, and for the year ended December 31, 2000,
respectively.

Breaking Waves recorded an unrealized (loss) of $(6,350) and $(101,600) for
the year ended June 30, 2002 and for the six months ended June 30, 2001,
respectively. For the year ended December 31, 2000, the Company recorded
unrealized income of $107,950. These items were recorded as a component of
comprehensive income (loss) in the statement of operations. (See Note 7)

Hollywood

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

For the year ended June 30, 2002, for the six months ended June 30, 2001, and
for the year ended December 31, 2000, Hollywood generated no sales form its
motion picture "Dirty Laundry". Although sales prior to and including the year
ended June 30, 2002 were minimal, the Company is expending efforts to effect
increased sales during the fiscal year ending June 30, 2003 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 $145,272 and $100,000
write down was necessary as of June 30, 2002, for the six months ended June 30,
2001, and for the year ended December 31, 2000, respectively. Accordingly,
Hollywood generated a loss of $0, $149,270 and $314,064 for the year ended June
30, 2002, for the six months ended June 30, 2001, and for the year ended
December 31, 2000, respectively.
<PAGE>
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, 2002, for the six months ended June 30, 2001, and
for the year ended December 31, 2000, Shopnet generated minimal income comprised
of interest from its money market and sublet income from its corporate office.

Shopnet's selling, general, and administrative expense amounted to $367,902,
$283,581 and $554,434 for the year ended June 30, 2002, for the six months ended
June 30, 2001, and for the year ended December 31, 2000.

The major components of the Company's expenses are as follows:
<TABLE>
<CAPTION>

                                                                        Year Ended        Year Ended        Year Ended
                                                                         June 30,        June 30, 2001       June 30,
                                                                           2002                                2000
                                                                       --------------    ---------------   --------------
<S>                                                                       <C>                  <C>              <C>
    Salaries (officer and office staff) and stock compensation and
     related benefits                                                     $ 140,733            $93,454          $ 192,135
   Rent                                                                      19,510             39,286             76,234
   Legal and professional fees                                              109,193             54,529             99,610
   Consulting fees                                                           35,070             15,750             27,080
   Other general corporate and administrative expense                        63,396             80,562            159,375

</TABLE>
Shopnet generated a net loss of $352,501, $285,838 and $593,575 for the year
ended June 30, 2002, for the six months ended June 30, 2001, and for the year
ended December 31, 2000, respectively. These net losses include, on a
consolidated basis, amortization of goodwill of $0, $35,476 and $70,952
respectively. (See Note 5)

Liquidity and Capital Resources

At June 30, 2002, the Company's consolidated working capital deficit amounted to
$307,167.

At June 30, 2002, current assets consisted primarily of inventory of $230,049
and prepaid expenses of $298,968.

Factoring Arrangements

CIT Group

On August 20, 1997, Breaking Waves entered into a factoring and revolving
inventory loan and security agreement (as amended December 9,1998) with CIT
Group (formerly, Heller Financial, Inc. "CIT") to sell their interest in all
present and future receivables without recourse. Breaking Waves paid CIT a
factoring commission of .85% of the first $5,000,000 of receivables sold and
..65% of receivables sold in excess of $5,000,000 for each year.

Breaking Waves took advances of up to 85% of the receivables, with interest at
the rate of 1 3/4% over prime. In connection with the factoring agreement, the
Company agreed to maintain $1,150,000 of cash in a segregated account in order
to collateralize standby letters of credit. In addition, during 1999, Breaking
Waves was required to transfer an additional $200,000 of cash as collateral for
the standby letter of credit.

On or about September 12, 2000 the agreement with CIT was cancelled and a new
factoring agreement was entered into as stated below.
<PAGE>
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 receivables, with interest 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") and a relative of a principal stockholder,
pledged assets as collateral for securing a $250,000 letter of credit to replace
a portion of a letter of credit previously pledged by the Company. Accordingly,
on December 20, 2000 the original agreement with the factor was amended to allow
such replacement of collateral. Breaking Waves' Loan and Security Agreement with
Century dated December 20, 2000 requires the provision of one or more letters of
credit in the aggregate amount of $1,150,000 to partially secure the line of
credit. 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 and a
principal stockholder of the Company 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 expires on September 1, 2002 but can be extended year
to year at the Company's option for a period of ten years.

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 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.
The Agreement is guaranteed by Shopnet under a separate Security Agreement dated
September 15, 2001.

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.
<PAGE>
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.

   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, 2002:

                                   % of
                                Net Sales            Amount
                              ---------------     -------------
   RAYA                            0.42                $38,820
   ZAT                             0.83                 60,906
   ARC                             1.25                 91,725
                              ---------------     -------------
   Total                           2.50               $183,451
                              ===============     =============


Interest expense related to the factor agreement totaled $248,303 for the year
ended June 30, 2002, $256,429 for the six months ended June 30, 2001 and
$100,488 for the year ended December 31, 2000. Century has a secured interest in
Breaking Waves' inventory as collateral for the advances. As of June 30, 2002,
the net advances to Breaking Waves from Century amounted to $690,595.

During October 2001, Century released the Company from its requirement of
maintaining a minimum cash balance as a result of the events discussed in Note 9
(b). Upon Century removing the restriction, the Company paid and reduced the
amount due to Century in October and November 2001 by an aggregate of $620,000.

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, $218,765 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.

The Company accounts for the investment in Battle Studies on the equity method.
For the year ended June 30, 2002, and the six months ended June 30, 2001, and
the year ended December 31, 2000 the Company, recorded $695, $1,473, and $4,290,
respectively, of equity losses for its proportionate share of Battle Studies. No
revenues have been derived from this film as of June 30, 2002, June 30, 2001 and
December 31, 2000.

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.
<PAGE>
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, 2002 $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, 2002 and the six months ended June 30, 2001, and the
year ended December 31, 2000, the Company recorded $0 , $1,298 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, 2002 are as follows:

                                                   2003                 $ 84,915
                                                   2004                   84,915
                                                   2005                   90,338
                                                   2006                   95,760
                                                   2007                   95,760
                                                   Thereafter             23,940
                                                                        --------
                                                                        $475,628
                                                                        ========
<PAGE>
Rent expense for the year ended June 30, 2002 amounted to $120,297 for the six
months ended June 30, 2001 amounted to $83,500 and for the year ended December
31, 2000 and amounted to $163,900.

License Agreements

On October 16, 1995, Breaking Waves entered into a license agreement with Beach
Patrol, Inc. ("Beach") for the exclusive use of certain trademarks in the United
States. The agreement covered a term from January 1, 1996 to June 30, 1998 and
contained a provision for an additional three-year extension, at the option of
Breaking Waves, through and until June 30, 2001. Breaking Waves had exercised
this option, thereby so extending the agreement. The agreement called for
minimum annual royalties of $75,000 to $200,000 over the life of the agreement
with options based on sales levels from $1,000,000 for the first year to
$4,000,000 in the sixth year. Breaking Waves has negotiated an additional
two-year extension thereby extending the agreement through and until June 30,
2003, and it contains a provision for an additional two-year extension, at the
option of Breaking Waves, through and until June 30, 2005. The new agreement
signed February 28, 2001 and effectively July 1, 2001 calls for minimum annual
royalties of $50,000 to $87,500 over the life of the extension with option based
on sales levels from $1,000,000 for the seventh year to $1,750,000 in the tenth
year. The agreement was verbally terminated by both parties effective on or
about March 31, 2002. Breaking Waves recorded royalties under this agreement
totaling $50,000, $150,000, $163,009 during the year ended June 30, 2002 during
the six months ended June 30, 2001 and during the year ended December 31, 2000,
respectively.

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 $73,408, $26,610 and
$8,859 for the year ended June 30, 2002, for the six months ended June 30, 2001
and for the year ended December 31, 2000.


<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<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, 2002                                                          1

   Independent auditors' report for the six months ended June 30, 2001 and the
year ended December 31, 2000
                                                                                                                          2

   Consolidated balance sheet as of June 30, 2002                                                                         3

   Consolidated statements of operations for the year ended June 30, 2002, the six months ended June 30, 2001
        and the year ended December 31, 2000                                                                              4

   Consolidated statements of stockholders' equity for the year ended June 30, 2002, the six months ended
        June 30, 2001 and the year ended December 31, 2000                                                                5

   Consolidated statements of cash flows for the year ended June 30, 2002, the six months ended June 30, 2001
        and the year ended December 31, 2000                                                                              7

   Notes to consolidated financial statements
                                                                                                                          9
</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, 2002 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 consolidated financial statements for the six months ended June 30, 2001 and
for the year ended December 31, 2000 were audited by another independent auditor
whose report dated September 27, 2002, expressed an unqualified opinion on those
statements.



/s/JEROME ROSENBERG, CPA, P.C.
JEROME ROSENBERG, CPA, P.C.





Melville, New York
August 28, 2002





                                        1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT



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

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Shopnet.com, Inc. and subsidiaries (the
"Company") for the six months ended June 30, 2001 and for the year ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management . Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of their operations
and their cash flows for the six months ended June 30, 2001 and for the year
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.

/s/Massella Rubenstein LLP
Massella Rubenstein LLP
Jericho, New York
July 31, 2002 except for notes 9(b) and 13(d), As to which the date is September
15, 2001
















                                        2
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet
                               As of June 30, 2002
<TABLE>
<CAPTION>

                                                                                                       June 30,
                                                                ASSETS                                   2002
                                                                ------
                                                                                                   ------------------

Current assets:
<S>                                                                                                <C>
     Cash                                                                                          $         3,309
     Accounts receivable, net                                                                               19,109
     Other receivables                                                                                      88,118
     Inventory                                                                                             230,049
     Prepaid expenses (Note 4)                                                                             298,968
     Advances to officer                                                                                    40,000
                                                                                                   ------------------
           Total current assets                                                                            679,553

     Property and equipment, net (Note 3)                                                                   70,044
     Film production and distribution costs, net                                                         1,204,728
     Costs in excess of net assets of business acquired (Note 5)                                           727,261
     Investments in movie ventures (Note 6)                                                                246,399
     Deferred tax asset-non-current                                                                        224,240
     Other assets                                                                                           27,078
                                                                                                   ------------------
           Total assets                                                                                $ 3,179,303
                                                                                                   ------------------

                                                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Due to factor (Note 9)                                                                        $      690,595
     Accounts payable                                                                                     280,003
     Accrued expenses (Note 8)                                                                              4,782
     Capital lease obligations                                                                              3,938
     Other taxes payable                                                                                    2,214
     Deferred tax liability                                                                                 5,188
                                                                                                   ------------------
           Total current liabilities                                                                      986,720
                                                                                                   ------------------

           Total liabilities                                                                              986,720
                                                                                                   ------------------

Commitments and contingencies

Stockholders' equity
     Common stock- $.001 par value, 20,000,000 shares authorized, 7,472,244 shares issued and
       outstanding                                                                                        7,472
     Capital in excess of par value                                                                   6,638,852
     Accumulated deficit                                                                             (4,453,741)
     Accumulated other comprehensive income                                                                   -
                                                                                                   ------------------
           Total stockholders' equity                                                                 2,192,583
                                                                                                   ------------------
     Total liabilities and stockholders' equity                                                    $  3,179,303
                                                                                                   ==================
</TABLE>

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

                                        3
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      Consolidated Statement of Operations

<TABLE>
<CAPTION>

                                                                  Year         Six Months       Year
                                                                 Ended           Ended         Ended
                                                                June 30,        June 30,      Dec. 31,
                                                                  2002           2001           2000
                                                               -----------    -----------    -----------

<S>                                                            <C>            <C>            <C>
Net sales ..................................................   $ 7,702,798    $ 4,728,948    $ 5,713,133

Cost of sales ..............................................     5,065,879      3,303,919      3,764,258
                                                               -----------    -----------    -----------

Gross profit ...............................................     2,636,919      1,425,029      1,948,875
                                                               -----------    -----------    -----------

Expenses:
Selling, general, and administrative .......................     2,642,847      1,500,707      2,208,724
Amortization of costs in excess of net assets of business
    acquired (Note 5) ......................................          --           35,476         70,952
                                                               -----------    -----------    -----------

Total expenses .............................................     2,642,847      1,536,183      2,279,676
                                                               -----------    -----------    -----------

Loss before other income (expenses) and income
tax benefit ................................................        (5,928)      (111,154)      (330,801)
                                                               -----------    -----------    -----------

Other income (expenses):
Equity in earnings loss of affiliate .......................          (695)        (2,771)        (4,290)
Write down of film costs ...................................          --         (145,272)      (308,564)
Rental income ..............................................         9,050         14,400         22,271
Interest and finance expense ...............................      (450,199)      (300,273)      (371,752)
Interest income ............................................        11,008         24,945         80,156
                                                               -----------    -----------    -----------

Total other income (expense) ...............................      (430,836)      (408,971)      (582,179)
                                                               -----------    -----------    -----------

Loss before for income tax benefit ......................         (436,764)      (520,125)      (912,980)

Income tax benefit .........................................          (202)          (456)        (6,004)
                                                               -----------    -----------    -----------

Net loss ...................................................      (436,562)      (519,669)      (906,976)
                                                               -----------    -----------    -----------

Other items of comprehensive loss ..........................        (6,350)      (101,600)       107,950
                                                               -----------    -----------    -----------

Comprehensive loss .........................................   $  (442,912)   $  (621,269)   $  (799,026)
                                                               -----------    -----------    -----------

Basic and diluted loss per share: ..........................   $      (.06)   $      (.07)   $      (.13)
                                                               ===========    ===========    ===========

Weighted average number of common shares outstanding
                                                                 7,472,244      7,472,244      7,021,917
                                                               ===========    ===========    ===========
</TABLE>
     The accompanying notes should be read in conjunction with the consolidated
financial statements

                                        4
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                 Consolidated Statement of Stockholders' Equity
      For the Year Ended June 30, 2002, The Six Months Ended June 30, 2001
                    and For The Year Ended December 31, 2000

<TABLE>
<CAPTION>

                                                                                                          Accumulated
                                                                               Capital                       Other          Total
                                                       Common Stock         In Excess of    Accumulated  Comprehensive Stockholders'
                                                    Shares        Amount      Par Value       Deficit    Income (loss)     equity
                                                  ----------- -----------   -----------    -----------    -----------    -----------

<S>                  <C> <C>                       <C>        <C>           <C>            <C>            <C>           <C>
Balances at December 31, 1999 .................    5,589,620  $     5,590   $ 6,345,836    $(2,590,534)   $     --      $ 3,760,892

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

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

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

Unrealized gain on marketable securities ......         --           --            --             --         107,950        107,950

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

                                                 -----------  -----------   -----------    -----------   -----------    -----------
Balances at December 31, 2000 .................    7,472,244        7,472     6,638,852     (3,497,510)      107,950      3,256,764

Unrealized loss on marketable securities ......         --           --            --             --        (101,600)      (101,600)

Net loss for the six months ended June 30, 2001         --           --            --         (519,669)         --         (519,669)

                                                 -----------  -----------   -----------    -----------   -----------    -----------
Balances at June 30, 2001 .....................    7,472,244  $     7,472   $ 6,638,852    $(4,017,179)  $     6,350    $ 2,635,495
</TABLE>

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

                                        5
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                 Consolidated Statement of Stockholders' Equity
 For the Year Ended June 30, 2002, The Six Months Ended June 30, 2001
                    and For The Year Ended December 31, 2000

<TABLE>
<CAPTION>

                                                                                                        Accumulated
                                                                             Capital                      Other          Total
                                                     Common Stock         In Excess of   Accumulated   Comprehensive   Stockholders'
                                                 Shares       Amount       Par Value      Deficit      Income (loss)     equity
                                              -----------   -----------   -----------    -----------    -----------    -----------

<S>              <C> <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 .................     7,472,244   $     7,472   $ 6,638,852    $(4,453,741)   $         0    $ 2,192,583
                                              ===========   ===========   ===========    ===========    ===========    ===========
</TABLE>
     The accompanying notes should be read in conjunction with the consolidated
financial statements

                                        6
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>


                                                                           Year        Six Months       Year
                                                                          Ended          Ended          Ended
                                                                         June 30,       June 30,       Dec. 31,
                                                                           2002           2001           2000
                                                                       -----------    -----------    -----------
Cash flows from operating activities:

<S>                                                                    <C>            <C>            <C>
   Net loss ........................................................   $  (436,562)   $  (519,669)   $  (906,976)
   Adjustments to reconcile net income to net cash used in operating
     activities:
        Equity in loss of affiliate ................................           695          2,771          4,290
        Amortization and depreciation ..............................        36,286         49,473        117,328
        Deferred income tax benefit ................................          --           (1,098)       (10,336)
        Write down of film costs ...................................          --          145,272        308,564

Decrease (increase) in:
        Cash-restricted ............................................       969,582        144,990           --
        Accounts receivable ........................................        58,597        (29,740)       (16,862)
        Other receivables ..........................................       (25,384)       (34,812)       (27,922)
        Inventory ..................................................       566,489      2,667,691       (602,176)
        Prepaid expenses ...........................................      (228,206)        36,870        (36,973)
        Deferred tax asset .........................................       (21,740)          --             --
        Other assets ...............................................        (6,443)          --             --
Increase (decrease) in:
        Accounts payable ...........................................       141,170       (957,272)       (33,340)
        Accrued expenses ...........................................       (17,183)       (77,878)        40,598
        Deferred tax liability .....................................         1,582           --             --
        Other taxes payable ........................................         1,471        (10,308)        11,051
                                                                       -----------    -----------    -----------

Net cash (used for) provided by operating activities ...............     1,040,354      1,416,290     (1,152,754)
                                                                       -----------    -----------    -----------

Cash flows from investing activities:

   Acquisition of  property and equipment ..........................       (34,193)       (24,426)       (15,267)
  Investment in movie ventures .....................................           (40)        (1,000)        (5,000)
                                                                       -----------    -----------    -----------

Net cash used in investing activities ..............................   $   (34,233)   $   (25,426)   $   (20,267)
                                                                       -----------    -----------    -----------

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

                                        7
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
                                   (Continued)
<TABLE>
<CAPTION>

                                                         Year         Six Months         Year
                                                        Ended           Ended           Ended
                                                       June 30,        June 30,       Dec. 31,
                                                         2002           2001            2000
                                                      -----------    -----------    -----------

Cash flows from financing activities:

<S>                                                   <C>            <C>            <C>
    Net proceeds from factoring agreement .........   $(1,009,742)   $(1,465,572)   $ 1,389,635
    Proceeds from sale of common stock ............          --             --          294,898
    Proceeds from line of credit ..................          --             --          250,000
    Repayments of line of credit ..................          --             --         (250,000)
    Repayments to related parties .................          --             --         (650,000)
    Principal payments on capital lease obligations       (17,773)        (8,323)       (15,445)
                                                      -----------    -----------    -----------

Net cash used in financing activities .............    (1,027,515)    (1,473,895)     1,019,088
                                                      -----------    -----------    -----------

Net decrease in cash ..............................       (21,394)       (83,031)      (153,933)

Cash, beginning of period .........................        24,703        107,734        261,667
                                                      -----------    -----------    -----------

Cash, end of period ...............................   $     3,309    $    24,703    $   107,734
                                                      ===========    ===========    ===========

Supplemental disclosure of cash flow information:
cash paid for :

        Interest ..................................   $   415,456    $   300,273    $   379,802
                                                      ===========    ===========    ===========

        Income taxes ..............................   $      --      $      --      $      --
                                                      ===========    ===========    ===========

</TABLE>

     The accompanying notes should be read in conjunction with the consolidated
financial statements
                                        8
<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 31 to June 30.


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, 2002 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 a review of the
                  individual accounts outstanding based on the surrounding
                  facts. As of June 30, 2002 a management provided an allowance
                  of $20,000. The accounts receivable balance on the balance
                  sheet as of June 30, 2002 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.




                                        9
<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 an 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 six months ended June 30, 2001 and for the year ended
                  December 31, 2000, the Company had written down film
                  production and distribution cost by $145,272 and $308,564,
                  respectively, in order to reduce the balance to its estimated
                  net realizable value. For the year ended June 30, 2002,the
                  Company determined that the estimated net realizable value had
                  not changed from what was reported at June 30, 2001 and
                  accordingly made no adjustment to the estimated net realizable
                  value.






                                       10
<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, 2002. 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.


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

k)       Revenue and cost recognition:

                  In accordance with Financial Accounting Standards Board's
                  Statement of Financial Accounting Standards ("SFAS") No. 53,
                  "Financial Reporting by Producers and Distributors of Motion
                  Pictures Films," the individual film forecast method is used
                  to amortize film costs.

l)       Earnings per share:

                  Earnings per common share is computed pursuant to SFAS no. 128
                  "Earnings Per Share." Basic earnings per share is 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 reflects 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, 2002:

                  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, 2001 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
                  year ended June 30, 2002. (See Note 5)


                                       12
<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:
<TABLE>
<CAPTION>

                                                                       June 30,              June 30,             Dec. 31,
                                                                         2002                  2001                 2000
                                                                    -----------------    -----------------    -----------------
                  Net income (loss)-
<S>                                                                     <C>                    <C>                 <C>
                           as reported                                  $ (436,562)            $ (519,669)         $ (906,976)
                                                                    =================    =================    =================
                           pro forma                                    $ (436,562)            $ (519,669)         $ (906,976)
                                                                    =================    =================    =================

                  Basic and Diluted EPS-
                           as reported                                    $   (.06)              $   (.07)           $   (.13)
                                                                    =================    =================    =================
                           pro forma                                      $   (.06)              $   (.07)           $   (.13)
                                                                    =================    =================    =================
</TABLE>

                    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.

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  3 -          PROPERTY AND EQUIPMENT

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

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

<S>                                                                                   <C>
                          Furniture & fixtures                                        $41,207
                          Computer equipment and software                             132,000
                          Leasehold improvements                                       17,199
                                                                                --------------
                                                                                      190,406
                          Less: accumulated depreciation
                                                                                --------------
                                  and amortization                                    120,362
                                                                                --------------
                                                                                      $70,044
                                                                                ==============
</TABLE>

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

                   Depreciation and amortization expense for the year ended June
                   30, 2002, for the six months ended June 30, 2001 and for the
                   year ended December 31, 2000 amounted to $36,286, $13,997 and
                   $21,376, respectively.

NOTE 4-  PREPAID EXPENSES

                  Prepaid expenses are comprised of the following:
<TABLE>
<CAPTION>

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

<S>                                                                                  <C>
                          Prepaid insurance                                          $ 23,167
                          Prepaid taxes                                                22,641
                          Prepaid consulting fee (See Note 9)                         198,550
                          Prepaid salaries                                              3,422
                          Other prepaid expenses                                       51,188
                                                                              ----------------
                                 Total prepaid expenses                              $298,968
                                                                              ================
</TABLE>

NOTE 5-  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. Amortization expense totaled
                  $0, $35,476 and $70,952 for the year ended June 30, 2002, the
                  six months ended June 30, 2001 and the year ended December 31,
                  2000, respectively.


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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5-  ACQUISITION OF BREAKING WAVES, INC (Continued)

                  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, 2002. Accordingly, the book value has not been
                  written down.

NOTE 6-  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, 2002, $218,765 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.

                  The Company accounts for the investment in Battle Studies on
                  the equity method. For the year ended June 30, 2002, and the
                  six months ended June 30, 2001, and the year ended December
                  31, 2000 the Company, recorded $695, $1,473, and $4,290,
                  respectively, of equity losses for its proportionate share of
                  Battle Studies. No revenues have been derived from this film
                  as of June 30, 2002 and 2001 and December 31, 2000.

                  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.

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6-  INVESTMENTS IN MOVIE VENTURES (Continued)

a)       The Girl

                  Pursuant to an agreement dated July 1, 1999 with Artistic
                  License Films Inc., Hollywood invested through June 30, 2002
                  $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, 2002 and the six
                  months ended June 30, 2001, and the year ended December 31,
                  2000, the Company recorded $0 , $1,298 and $0, respectively,
                  in net equity losses.

NOTE 7-  MARKETABLE SECURITIES- AFFILIATE

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

                  Breaking Waves accounted for its investment under the equity
                  method. For the year ended December 31, 1999 Breaking Waves
                  recorded $994,305 of equity loss for its proportionate share
                  of Play Co.'s loss for that year.

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

                  During the year ended December 31, 2000, Play co. converted a
                  portion of its series E preferred stock into common stock
                  thereby reducing Breaking Waves' ownership percentage to
                  approximately 1.5%. Accordingly, upon this event the
                  accounting method for the investment in Play Co. was changed
                  to the requirements of SFAS No. 115 "Accounting for Certain
                  Investments in Debt and Equity Securities." Under SFAS 115,
                  the securities are considered available for sale and therefore
                  the carrying value is based on the fair market value of the
                  securities at June 30, 2001 and December 31, 2000 which
                  amounted to $6,350 and $107,950, respectively. The change in
                  unrealized gain or loss has been recorded as a component of
                  comprehensive income. The Company has pledged such shares as
                  collateral for a standby letter of credit in connection with
                  Breaking Waves entering into a new factoring agreement with
                  Century Business Credit Corporation ("Century") and are
                  therefore considered non-current. (See Note 9 (b) )



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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7-  MARKETABLE SECURITIES- AFFILIATE (Continued)

                  On March 28, 2001, Play Co. filed for protection under Chapter
                  Eleven of the United States Bankruptcy Code with the United
                  States Bankruptcy Court for the Southern District to New York.
                  The filing was converted into a Chapter Seven filing on August
                  28, 2001. Play Co. is in the process of developing a plan for
                  the orderly liquidation of Play Co.'s operations through
                  discussions with representatives of its secured lender, other
                  creditors, landlords and others under the supervision of the
                  Bankruptcy Court.

NOTE 8-  ACCRUED EXPENSES
<TABLE>
<CAPTION>

                  Accrued expenses are comprised of the following:
                                                                                          June 30,
                                                                                            2002
                                                                                        -------------

<S>                                                                                           <C>
                  Professional fees                                                           $ 4,718
                  Other corporate overhead                                                         64
                                                                                        -------------
                                                                                              $ 4,782
                                                                                        =============
</TABLE>

NOTE 9-  DUE TO FACTOR

a)       CIT Group

                  On August 20, 1997, Breaking Waves entered into a factoring
                  and revolving inventory loan and security agreement (as
                  amended December 9,1998) with CIT Group (formerly, Heller
                  Financial, Inc.) ("CIT") to sell their interest in all present
                  and future receivables without recourse. Breaking Waves paid
                  CIT a factoring commission of .85% of the first $5,000,000 of
                  receivables sold and .65% of receivables sold in excess of
                  $5,000,000 for each year.

                  Breaking Waves took advances of up to 85% of the receivables,
                  with interest at the rate of 1 3/4% over prime. In connection
                  with the factoring agreement, the Company agreed to maintain
                  $1,150,000 of cash in a segregated account in order to
                  collateralize standby letters of credit. In addition, during
                  1999, Breaking Waves was required to transfer an additional
                  $200,000 of cash as collateral for the standby letter of
                  credit.

                  On or about September 12, 2000 the agreement with CIT was
                  cancelled and a new factoring agreement was entered into as
                  stated below. Interest expense related to this agreement
                  totaled $204,821 for the year ended December 31, 2000.

              b)  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.

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9-  DUE TO FACTOR (Continued)

b)       Century Business Credit Corporation (continued)

                  Breaking Waves may take advances of up to 85% of receivables,
                  with interest at the rate of 13/4% over prime.

                  In connection with the factoring agreement, the Company agreed
                  to continue maintaining $1,150,000 of cash in a segregated
                  account in order to collateralize standby letters of credit
                  for Breaking Waves. The requirement was ended in October 2001,
                  when Century released the company form this requirement.
                  Additionally, Breaking Waves was required to pledge as
                  additional collateral $200,000 of its own cash and its
                  investment in Play Co., which is represented by 1,270,000
                  share of Play Co.'s common stock.

                  DUE TO FACTOR (CONTINUED
                  Pursuant to the terms of a Reimbursement and Compensation
                  Agreement (the "Agreement"), a trust ("Trust"), the
                  beneficiary of which is a relative of the Company's President
                  and Chief Executive Officer ("CEO") and a relative of a
                  principal stockholder, pledged assets as collateral for
                  securing a $250,000 letter of credit to replace a portion of a
                  letter of credit previously pledged by the Company.
                  Accordingly, on December 20, 2000 the original agreement with
                  the factor was amended to allow such replacement of
                  collateral. Breaking Waves' Loan and Security Agreement with
                  Century dated December 20, 2000 requires the provision of one
                  or more letters of credit in the aggregate amount of
                  $1,150,000 to partially secure the line of credit. 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 and a principal stockholder of the Company 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 expires on September 1, 2002 but can
                  be extended year to year at the Company's option for a period
                  of ten years. 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.

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9-  DUE TO FACTOR (Continued)

b)       Century Business Credit Corporation (continued)

                  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. The Agreement is guaranteed by Shopnet under a
                  separate Security Agreement dated September 15, 2001.

                  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. For the year ended June 30, 2002 the Trust
                  and RAYA were entitled to payments totaling $60,905 and
                  $30,820, respectively.

                  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. ARC was entitled to receive $91,725 for the
                  year ended June 30, 2002. 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.

                  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, 2002:

                                                  % of
                                                Net Sales           Amount
                                             ----------------    -------------
                  RAYA                            0.42                $38,820
                  ZAT                             0.83                 60,906
                  ARC                             1.25                 91,725
                                             ----------------    -------------
                  Total                           2.50               $183,451
                                             ================    =============

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9-  DUE TO FACTOR (Continued)

b)       Century Business Credit Corporation (continued)

                  Interest expense related to the factor agreement totaled
                  $248,303 for the year ended June 30, 2002, $256,429 for the
                  six months ended June 30, 2001 and $100,488 for the year ended
                  December 31, 2000. Century has a secured interest in Breaking
                  Waves' inventory as collateral for the advances. As of June
                  30, 2002, the net advances to Breaking Waves from Century
                  amounted to $690,595.

                  During October 2001, Century released the Company from its
                  requirement of maintaining a minimum cash balance as a result
                  of the events discussed above. Upon Century removing the
                  restriction, the Company paid and reduced the amount due to
                  Century in October and November 2001 by an aggregate of
                  $620,000.


NOTE 10- (BENEFIT OF) PROVISION FOR INCOME TAXES

                  (Benefit of) provision for income taxes is comprised of the
                  following:
<TABLE>
<CAPTION>

                                                                           Year             Six Months             Year
                                                                          Ended                Ended              Ended
                                                                         June 30,            June 30,            Dec. 31,
                                                                           2002                 2001               2000
                                                                     -----------------    ----------------    --------------
                  Current:
<S>                                                                  <C>                  <C>                 <C>
                      Federal                                        $            -       $          -        $        -
                      State and local                                          1,380                 642             4,332
                                                                     -----------------    ----------------    --------------
                                                                               1,380                 642             4,332
                                                                     -----------------    ----------------    --------------

                  Deferred:
                      Federal                                                    -                  -                (6,150)
                      State and local                                          (1,582)            (1,098)            (4,186)
                                                                     -----------------    ----------------    --------------
                                                                               (1,582)            (1,098)           (10,336)
                                                                     -----------------    ----------------    --------------

                  Total (benefit of ) provision
                      for income taxes                               $          (202)            $  (456)          $ (6,004)
                                                                     =================    ================    ==============

</TABLE>
                                       20
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                  A reconciliation of the provision for income taxes on income
                  per the federal statutory rate to the reported income tax
                  expense is as follows:
<TABLE>
<CAPTION>

                                                                                    Year           Six Months             Year
                                                                                   Ended              Ended              Ended
                                                                                  June 30,          June 30,            Dec. 31,
                                                                                    2002              2001                2000
                                                                               --------------    ---------------     --------------

<S>                                                                            <C>               <C>                 <C>
                  Federal statutory rate applied to pretax loss                $      -          $        -          $       -
                  State and local income taxes, net of federal income tax
                      benefit, applied to pretax loss                                 -                   -                  -
                  Permanent differences                                               -                   -                  -
                  Increase in valuation allowance                                     -                   -              865,023
                  Current provision for state and local taxes                         1,380                642             4,332
                  (Increase) in deferred tax assets                                  (1,582)            (1,098)         (875,359)
                                                                               --------------    ---------------     --------------
                  Increase (decrease) in deferred tax liability                      $ (202)           $  (456)      $    (6,004)
                                                                               ==============    ===============     ==============
</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.

                  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,
                                                                                   2002
                                                                             -----------------

<S>                                                                          <C>
                  Net operating loss carryforwards                           $ 1,401,500
                  Inventory capitalization                                        38,462
                  Write down of film costs                                       150,000
                  Valuation allowance                                         (1,365,722)
                                                                             -----------------
                  Deferred non-current tax asset                                 224,240
                                                                             -----------------

                  Equity earnings of affiliate                                     4,440
                  Depreciable assets                                                 748
                                                                             -----------------
                  Deferred non-current tax liability                               5,188
                                                                             -----------------
                  Net non-current deferred tax asset                         $   219,052
                                                                             =================
</TABLE>
                                       21
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                  Shopnet and its subsidiaries have a tax year end of December
                  31 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, 2002 and December 31, 2001, the Company had a net
                  operating loss carryforward (NOL) of approximately $3,090,000
                  for federal tax purposes and $3,190,000 for state tax
                  purposes, all of which expire between 2011 and 2021,
                  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 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, 2002 are as follows:
<TABLE>
<CAPTION>

<S>                             <C>                                                            <C>
                                2003                                                           $          84,915
                                2004                                                                      84,915
                                2005                                                                      90,338
                                2006                                                                      95,760
                                2007                                                                      95,760
                                Thereafter                                                                23,940
                                                                                               -----------------
                                                                                               $         475,628
                                                                                               =================
</TABLE>

                  Rent expense for the year ended June 30, 2002 amounted to
                  $120,297 for the six months ended June 30, 2001 amounted to
                  $83,500 and for the year ended December 31, 2000 and amounted
                  to $163,900.

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11-          COMMITMENTS AND CONTINGENCIES (Continued)

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, 2002, the six
                  months ended June 30, 2001 and the year ended December 31,
                  2000 Breaking Waves had three, two and three customers,
                  respectively, which comprised 36%, 37% and 46% 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

i)                         On October 16, 1995, Breaking Waves entered into a
                           license agreement with Beach Patrol, Inc. ("Beach")
                           for the exclusive use of certain trademarks in the
                           United States. The agreement covered a term from
                           January 1, 1996 to June 30, 1998 and contained a
                           provision for an additional three-year extension, at
                           the option of Breaking Waves, through and until June
                           30, 2001. Breaking Waves had exercised this option,
                           thereby so extending the agreement. The agreement
                           called for minimum annual royalties of $75,000 to
                           $200,000 over the life of the agreement with options
                           based on sales levels from $1,000,000 for the first
                           year to $4,000,000 in the sixth year.

                           Breaking Waves has negotiated an additional two-year
                           extension thereby extending the agreement through and
                           until June 30, 2003, and it contains a provision for
                           an additional two-year extension, at the option of
                           Breaking Waves, through and until June 30, 2005. The
                           new agreement signed February 28, 2001 and
                           effectively July 1, 2001 calls for minimum annual
                           royalties of $50,000 to $87,500 over the life of the
                           extension with options based on sales levels from
                           $1,000,000 for the seventh year to $1,750,000 in the
                           tenth year. The agreement was verbally terminated by
                           both parties effective on or about March 31, 2002.
                           Breaking Waves recorded royalties under this
                           agreement totaling $50,000, $150,000, $163,009 during
                           the year ended June 30, 2002 during the six months
                           ended June 30, 2001 and during the year ended
                           December 31, 2000, respectively.

ii)                        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 $73,408, $26,610 and $8,859 for the year
                           ended June 30, 2002, for the six months ended June
                           30, 2001 and for the year ended December 31, 2000.

                                       23
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11- COMMITMENTS AND CONTINGENCIES (Continued)

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, 2002 and for the six months ended June 30,
                  2001, 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, 2002 and for the six months ended June 30, 2001 and
                  for the year ended December 31, 2000, the Company derived no
                  revenues from the motion picture and had not amortized film
                  costs.

                  For the six months ended June 30, 2001 and for the year ended
                  December 31, 2000, the Company had written down its film
                  production and distribution cost by $145,272 and $308,564
                  respectively, in order to reduce the asset to its estimated
                  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).

                  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.

                  On or about December 2001, a group of over 275 foreign
                  plaintiffs commenced an action entitled Abeln v. Arbel, et. al
                  in the United States District Court for the Southern District
                  of New York naming the Company, along with over 30 other
                  entities and individuals as defendants. The Company was never
                  served with the summons and complaint, and could not discern
                  if such service was effectuated. Thus, the Company was not yet
                  a party to the suit.

                  In August, 2002, the Plaintiffs voluntarily dismissed this
                  action.


NOTE 12- STOCKHOLDERS' EQUITY

a)       Stock Dividends

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

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 12- STOCKHOLDERS' EQUITY (Continued)

a)       Stock Dividends (continued)

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

b)       Sale of common stock

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

c)       1996 Senior Management Incentive Plan

                  The shareholders approved the 1996 Senior Management Incentive
                  Plan ("Incentive Plan") in May 1996. Officers, key employees
                  and non-employees, who in the judgment of the Company render
                  significant service to the Company, are eligible to
                  participate.

                  The Incentive Plan 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.






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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12- STOCKHOLDERS' EQUITY (Continued)

                  A summary of the status of the Company's stock options
                  outstanding as of June 30, 2002, are 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           $1.461.38
                      Granted                                                                        -               -
                      Exercised                                                                      -               -
                      Cancelled                                                                132,000                1.46
                                                                                       -----------------    ----------------
                  Outstanding at June 30, 2002                                                  44,000            $   1.38
                                                                                       =================    ================
</TABLE>

d)       Warrants

i)                         Initially, each Warrant issued in the initial public
                           offering of September 24, 1996 entitled the holders
                           thereof to purchase one share of the Company's common
                           stock at an exercise price of $6.50 per share, until
                           September 9, 2001. On August 31, 2001, the Company
                           extended the term of its warrants by 18 months, the
                           Warrants will now expire on March 10, 2003. 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.

                           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 2000 10%
                           common stock dividend and the May 2000 20% common
                           stock dividend, the warrants have been cumulatively
                           adjusted such that the exercise of each warrant at an
                           exercise price of $3.41 purchases .88 of a share of
                           common stock.

ii)                        On April 15, 1998, the Company's Board of Directors
                           authorized the distribution of warrants to all
                           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
                           filed a registration statement for same and same has
                           been declared effective by the Securities and
                           Exchange Commission. The Company to date has not
                           filed the registration statement.



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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13- RELATED PARTY TRANSACTIONS

a)                For the year ended June 30, 2002, the six months ended
                  June 30, 2001 and the year ended December 31, 2000 financial
                  consulting fees were paid to a corporation and an individual
                  who are related to the Company's President and CEO amounting
                  to $46,900, $24,000 and $51,080, respectively. (See Note 9)

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, 2002, the unpaid portion amounted
                  to $37,000, which has been classified as current.
                  Additionally, 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.

c)                On December 20, 2000, the Company entered into the Agreement
                  with the Trust, the beneficiary of which is a relative of the
                  Company's President and CEO and a relative of a principal
                  stockholder. The Trust pledged assets as collateral for
                  securing a $250,000 letter of credit to replace a portion of
                  the collateral previously pledged by the Company in connection
                  with the Agreement. The Company paid $42,500 to the Trust in
                  connection with the Agreement. (See Note 9)

d)                On May 3, 2001, the Agreement 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 and a principal
                  stockholder of the Company 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 15, 2001.

                  On September 15, 2001, the Agreement was further amended so
                  that the letter of credit secured by the Trust was increased
                  to $750,000. The amended letter of credit expired on September
                  1, 2001, and was renewed for another year ending September 1,
                  2002. The Agreement automatically renews on each anniversary
                  date, at the Company's option, for the next nine years.

                  On September 15, 2001, the Company entered into a new
                  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 in
                  connection with Breaking Waves' factoring agreements with
                  Century.

                  Absent any default, the letter of credit will remain in effect
                  for ten years. In exchange of the above 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 (11/4%) of net sales of Breaking Waves through
                  June 30, 2002 and thereafter one and three quarters percent
                  (13/4 %) of net sales through September 30, 2011. Upon the
                  signing of the Agreement, 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. (See Note 9)




                                       27
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14- INDUSTRY SEGMENT

                    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                       Six Months Ended                  Year Ended
                                 ---------------------------------    -------------------------------  -----------------------------
                                             June 30,                            June 30,                      December 31,
                                               2002                                2001                            2000
                                 ---------------------------------    -------------------------------  -----------------------------
                                     Segment         Consolidated        Segment      Consolidated       Segment       Consolidated
                                 --------------    ---------------    ------------    ---------------  ------------    ------------
   Sales:
<S>                              <C>               <C>                <C>             <C>              <C>            <C>
     Swimwear sales              $  7,702,798                         $ 4,728,948                       $5,713,133
     Film production                   -                                    -                                  -
                                 --------------                       ------------                     ------------

   Total sales                                        $ 7,702,798                      $  4,728,948                   $   5,713,133
                                                   ===============                    ===============                ===============

   Operating income(loss):
     Swimwear sales                                       363,173                           208,902                       310,068
     Film production                                       (1,263)                         (145,272)                      (314,135)
                                                   ---------------                    ---------------                ---------------

   Total operating income (loss)
                                                          361,910                            63,630                         (4,067)
                                                   ---------------                    ---------------                ---------------

   Corporate:
     General and administrative
     expense                                             (367,838)                         (284,580)                      (564,346)
     (Loss) equity in earnings
     of affiliate                                            (695)                           (2,771)                        (4,290)
     Amortization expense                                       -                           (35,476)                       (70,952)
     Interest income                                       11,008                            24,945                         80,156
     Interest and finance expense
                                                         (450,199)                         (300,273)                      (371,752)
     Other                                                  9,050                            14,400                         22,271
                                                    ---------------                    ---------------               ---------------

   Loss from operating before
   (benefit)                                             (436,764)                         (520,125)                      (912,980)

   (Benefit) provision for
   income tax                                                (202)                             (456)                        (6,004)
                                                   ---------------                    ---------------                ---------------

   Net (loss) income                                   $ (436,562)                       $ (519,669)                     $ (906,976)
                                                   ===============                    ===============                ===============

   Identifiable assets:
     Swimwear sales                                  $    506,727                      $  1,313,223                  $   4,072,174
     Film productions                                   1,451,127                         1,451,167                      1,598,210
     Corporate                                          1,199,709                         1,757,685                      1,993,411
                                                   ---------------                    ---------------                ---------------

   Total assets                                       $ 3,157,563                       $ 4,522,075                  $   7,663,795
                                                   ===============                    ===============                ===============

</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.




                                       28
<PAGE>
                       SHOPNET.COM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 15- PROPOSED 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 shall terminate on the earlier
                  of the completion of the Placement or can be terminated at any
                  time after six months from June 17, 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.


NOTE 16- SUBSEQUENT EVENTS

                  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 Note 15. As of August
                  28, 2002 these Debentures were not issued by the Company. No
                  additional 5% Convertible Debentures nor any 10%
                  Non-Convertible Debentures have been issued.


























                                       29

<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.
<PAGE>
                                    PART III

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

Officers and Directors

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

<TABLE>
<CAPTION>
Name                               Age                  Position

<S>                                <C>                  <C>
Harold Rashbaum                    74                   President, CEO, CFO and
                                                        Director

Jeanne Falletta                    44                   Secretary and Director

Alain Le Guillou, M.D.             44                   Director

James B. Frakes                    45                   Director

Debra Riggs                        48                   Director

</TABLE>

The Directors of the Company are elected annually by the stockholders, and the
Officers of the Company are appointed annually by the Board of Directors.
Vacancies on the Board of Directors may be filled by the remaining Directors.
Each current Director and Officer will hold office until the next annual meeting
of stockholders or until his successor is elected and qualified. The outside
Directors do not receive a Director's fee for their participation as Directors.
The outside Directors are Alain Le Guillou, M.D. (Until recently Harold Rashbaum
was the father-in-law of Alain Le Guillou, M.D.), James B. Frakes and Debra
Riggs. The Corporation does not have key man insurance on the lives of any of
its Officers or Directors.

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

Harold Rashbaum, age 74, 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.

Jeanne Falletta, age 44, was elected a director of the Company in May 2000 and
has been its Secretary since February 2000. Since October 1997, Ms. Falletta has
been the controller of Breaking Waves where she has been employed since February
1997, initially having been hired as a bookkeeper. From January 1996 to February
1997, Ms. Falletta consulted with various companies as a freelance accountant.

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

James Frakes, age 45, has been a Director of the Company since January 1998 and
was appointed Chairman of the Company's Audit Committee in June 2000. Since May
2001, Mr. Frakes has been Chief Financial Officer of NTN Communications, Inc. a
public company whose common stock trades on the American Stock Exchange. From
July 1997 to May 2001, Mr. Frakes served as Chief Financial Officer and
Secretary of Play Co. In August 1997, he was elected as a Director of Play Co.
In January 1998, Mr. Frakes was appointed Secretary and Chief Financial Officer
of Toys. He was elected as a Director of Toys in May 1998. On March 28, 2001,
<PAGE>
Play Co., Toys and Play Co. Toys Canyon each filed for protection under Title 11
of the United States Code with the United States Bankruptcy Court for the
Southern District of New York. In August 2001, the case was converted to a
Chapter 7 filing. From June 1990 to March 1997, Mr. Frakes was Chief Financial
Officer of Urethane Technologies, Inc. ("UTI") and two of its subsidiaries,
Polymer Development Laboratories, Inc. ("PDL") and BMC Acquisition, Inc. These
were specialty chemical companies, which focused on the polyurethane segment of
the plastics industry. Mr. Frakes was also Vice President and a Director of UTI
during this period. In March 1997, three unsecured creditors of PDL filed a
petition for the involuntary bankruptcy of PDL. From 1985 to 1990, Mr. Frakes
was a manager for Berkeley International Capital Corporation, an investment
banking firm specializing in later stage venture capital and leveraged buyout
transactions.

Debra Riggs, age 48, has been a Director of the Company since June 2000
when she was also appointed to the Company's Audit Committee. In September 2001,
Ms. Riggs joined Premier Food Services Incorporated as a branch controller. Ms.
Riggs was the Controller of Play Co. since February, 1999 until September 2001.
On March 28, 2001, Play Co., Toys and Play Co. Toys Canyon each filed for
protection under Title 11 of the United States Code with the United States
Bankruptcy Court for the Southern District of New York. In August 2001, the case
was converted to a Chapter 7 filing. From June, 1998 through January, 1999, Ms.
Riggs was Controller of National Customer Engineering, a private company. Prior
to NCE, Ms. Riggs was Assistant Controller of Factory 2-U Inc., a public company
with over 200 retail stores in the business of selling discount clothing.

Compliance with Section 16(A) of the Exchange Act

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

No person ("a Reporting Person") who during the year ended June 30, 2002 was a
director, officer, or beneficial owner of more than ten percent of the Company's
Common Stock which is the only class of equity securities of the Company
registered under 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
except that, to the Company's knowledge, each of Mr. Michael Friedland and Ms.
Falletta and Riggs, all directors of the Company, filed their Forms 3 late in
March 2001. In addition, to the Company's knowledge, Mr. Rashbaum and Mr. Di
Milia (a former officer of the Company) did not file Forms 4 or Forms 5, and EVC
did not file a Form 5 for the year ended December 31, 1999. The foregoing is
based solely upon a review by the Company of (i) Forms 3 and 4 during the most
recent fiscal year as furnished to the Company under Rule 16a-3(e) under the
Act, (ii) Forms 5 and amendments thereto furnished to the Company with respect
to its most recent fiscal year, and (iii) any representation received by the
Company from any reporting person that no Form 5 is required, except as
described herein.

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, 2002, December 31, 2000 and 1999 and the six month period ended June
30, 2001.
<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                          Annual Compensation                         Long-Term Compensation
                                                                           Awards                      Payouts
                                                         Other                       Securities
                                                         Annual       Restricted     Underlying                   All Other
                                                         Compen-      Stock          Options/        LTIP         Compen-
Name and Principal                 Salary      Bonus     sation       Award(s)       SARs            Payouts      sation
Position                  Year     ($)         ($)       ($)          ($)            (#)             ($)          ($)
Harold Rashbaum
  President,  CEO, CFO
<S>                       <C>      <C>         <C>      <C>           <C>            <C>             <C>          <C>
  And Director            2002     115,929     --        --           --             --              --           --
                          2001      70,000(1)  --        --           --             --              --           --
                          2000     160,000     --        --           --             --              --           --
========================= ======== =========== ========= ============ ============== =============== ============ ============
</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.

<PAGE>
Stock Options

The following table contains information regarding options to purchase Common
Stock held at June 30, 2002 and June 31, 2001 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 year ended June 30, 2002, the six month
period ended June 30, 2001 or the years ended December 31, 1999 or 2000.

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

(3) The options had no value at either June 30, 2002 or June 30, 2001, 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.

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.
<PAGE>
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).

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.
<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.
<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
<PAGE>
of the restricted period: (i) the holder will not be entitled to take possession
of the stock certificates representing the restricted shares or receive retained
distributions, and (ii) the holder will not be entitled to sell, transfer, or
otherwise dispose of the restricted shares. A breach of any restrictions, terms,
or conditions established by the Administrator with respect to any restricted
shares will cause a forfeiture of such restricted shares.

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

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

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

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.



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

The following table sets forth information as of September 25, 2001 with respect
to the beneficial ownership of shares of Common Stock by (i) each person known
by the Company to be the owner of more than 5% of the outstanding shares of
Common Stock, (ii) each director or director nominee of the Company (iii) each
executive officer of the Company for whom information is given in the Summary
Compensation Table in this proxy statement and (iv) all officers and directors
as a group. Except to the extent indicated in the footnotes to the following
table or otherwise as specified in this Proxy Statement, each of the
individuals/entities listed below possesses sole voting power with respect to
the shares of Common Stock listed opposite his/its name.
<TABLE>
<CAPTION>




            Name and Address                       Number of Shares            Percent of Common Stock Beneficially
        of Beneficial Owner (1)                 Beneficially Owned (1)                     Owned (1)(2)
        -----------------------                 ----------------------                     ------------


<S>                                                  <C>                                    <C>
Fiduciara Biaggini
Via Vanoni # 6                                       5,075,120                              67.9%
Lugano, Switzerland
CH 6901 (3)

American Telecom Corp.
C/o MW Todtman McNamara Chamber
P.O. Box 47 Road Town                                   53,100(4)                             .71%
Tortola, BVI

Harold Rashbaum                                        252,000(5)                            3.4%

Jeanne Falletta                                           --                                   --

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

James Frakes                                              --                                   --

Debra Riggs                                               --                                   --

All Officers and Directors as a Group                   252,000                              3.4%
(five persons)
</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 25, 2001 through the exercise of any option or warrant. Shares of
Common Stock subject to options or warrants that are currently exercisable or
exercisable within 60 days are deemed outstanding for computing the ownership
percentage of the person holding such options or warrants, but are not deemed
outstanding for computing the ownership percentage of any other person. The
amounts and percentages are based upon 7,472,244 shares of common stock
outstanding as of September 25, 2002.

(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.
<PAGE>
(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.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Breaking Waves' Loan and Security Agreement with Century Business Credit
Corporation ("Century") dated December 20, 2000 requires the provision of one or
more letters of credit in the aggregate amount of $1,150,000 to partially secure
the line of credit. Pursuant to the terms of a Reimbursement and Compensation
Agreement ("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 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.
<PAGE>
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. 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, 2002:

Raya            0.42   $ 38,820
ZAT             0.83     60,906
ARC             1.25     91,725
                ----   --------
Total           2.50   $183,451
                ====   ========
In August 2000, Breaking Waves received an $80,000 advance from Play Co. against
future orders of merchandise. No orders were received against this advance and
in December 2000 Breaking Waves repaid the full $80,000 to Play Co.

In November 1999, Breaking Waves borrowed $400,000 from Play Co. with such loan
bearing interest at 9% per annum. Breaking Waves repaid $100,000 of the loan in
January 2000 and the balance in April 2000.

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

In February 1999, the Company loaned $100,000 to Play Co. with such loan bearing
interest at 9% per annum. In each of April and May 1999, the Company loaned an
additional $100,000 to Play Co. at an interest rate of 9% per annum. All such
loans have been repaid.

In November 1998, pursuant to a sales agreement entered into between Breaking
Waves and Play Co., Breaking Waves purchased 1.4 million unregistered shares of
Play Co.'s common stock in a private transaction, which was subsequently reduced
to 1,270,000 shares. The shares purchased represented approximately 25.4% of the
outstanding common stock of Play Co. immediately after the transaction. Such
percentage has since been reduced to approximately 1.5% of Play Co.'s
outstanding common stock. Pursuant to the agreement which bore an initial term
of one year and automatically extended for an additional one year term since it
was not terminated by either of the parties - Play Co. agreed to purchase (on a
wholesale basis) a minimum of 250 pieces of merchandise for each of its retail
locations and to provide advertising promotional materials and ads of the
merchandise in all of its brochures, advertisements, catalogs, and all other
promotional materials, merchandising programs, and sales promotion methods.
Breaking Waves had previously sold a limited number of pieces of its swimwear to
<PAGE>
Play Co. As consideration for the stock, Breaking Waves remitted $504,000, which
represented an approximate price of $0.36 per share: $300,000 of the
consideration was remitted in cash, and the remaining $204,000 was provided in
the form of merchandise, primarily girls' swimsuits.

In October 1996, pursuant to a promissory note, the Company loaned Harold
Rashbaum its President, 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, 2001, the unpaid portion, which is due on demand, amounted to $37,000, which
has been classified as current. In 1998, the Company's President was also
advanced additional funds totaling $3,000 which are non-interest bearing and due
on demand and are classified as current.

Before he became an Officer and Director of the Company, Mr. Rashbaum provided
consulting services to the Company through HBR, a company of which he is an
officer and director and of which his wife is the sole shareholder. In 1996, HBR
entered into an oral consulting agreement with the Company providing for the
payment to HBR of 5% of the net profits received by the Company from the
distribution of "Dirty Laundry." To date, HBR has not received any fees as a
result of the distribution of "Dirty Laundry" not generating any net profits.

Alain Le Guillou, a director of the Company, has been a consultant to the
Company since 1996. 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 six months ended June 30, 2001 and years ended December 31, 2000 and
1999 the Company paid $24,000, $49,080 and $24,000 respectively, in financial
consulting fees to DRA Consulting, Inc., a company whose president is the
daughter of the Company's Chairman of the Board, President, Chief Executive
Officer.



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

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

<S>                                                                                     <C>
         Index to Financial Statements                                                  F
         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

</TABLE>
(b)  Form 8-K

(i) On January 25, 2002, the Company filed a Form 8-K disclosing the
notification of The Nasdaq Stock Market, Inc of the withdrawal of its listing
from the SmallCap Market and the commencement of trading on the trading on the
OTC Bulletin Board.

(ii) On January 29, 2002, the Company filed a Form 8-K disclosing the dismissal
of Massella Rubenstein LLP as its principal accountant and the engagement of
Jerome Rosenberg CPA, P.C. as its principal accountant.

(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

<PAGE>
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)
10.20                    Cyclone  Option  Agreement  (incorporated  by  reference  to the  indicated  exhibit in the
                         Post-Effective Amendment No. 1)
10.21                    Cyclone  Co-Writer  Agreement  (incorporated  by reference to the indicated  exhibit in the
                         Post-Effective Amendment No.)
10.22                    Heller  Financial  Agreement  (incorporated  by reference to the  indicated  exhibit in the
                         Post-Effective Amendment No. 2)
10.23                    Non-Executive  Director Stock Option Plan  (incorporated  by reference to Appendix B in the
                         Proxy Statement for the Company's June 1997 Annual Meeting)
10.24                    Kawasaki Motors Corp.,  USA "Jet Ski" License  Agreement  (incorporated by reference to the
                         indicated exhibit in the Company's 10-KSB for the year ended December 31, 1997)
10.25                    Amendment to lease at 112 West 34th Street, New York,
                         New York (incorporated by reference to the indicated
                         exhibit in the Company's 10-KSB for the year ended
                         December 31, 1997)
10.26                    Form of Subscription  Agreement used in connection with the Company's February 1998 Private
                         Placement (incorporated by reference to the indicated
                         exhibit in the Company's 10-KSB for the year ended
                         December 31, 1997)
10.27                    Form of  Subscription  Agreement  used in  connection  with the  Company's May 1998 Private
                         Placement (incorporated by reference to the indicated
                         exhibit in the Company's 10-KSB for the year ended
                         December 31, 1998)
10.28                    Amendment  to  Employment   Agreement  with  Michael   Friedland   dated  January  1,  1998
                         (incorporated  by reference to the indicated  exhibit in the Company's  10-KSB for the year
                         ended December 31, 1998)
10.29                    Amendment to Employment  Agreement with Malcolm Becker dated January 1, 1998  (incorporated
                         by reference to the indicated  exhibit in the Company's  10-KSB for the year ended December
                         31, 1998)
10.30                    Second  Amendment  to  Employment  Agreement  with  Malcolm  Becker  dated  January 1, 1999
                         (incorporated  by reference to the indicated  exhibit in the Company's  10-KSB for the year
                         ended December 31, 1998)


<PAGE>
10.31                    Lease for premises at 14 East 60th Street,  Room 402, New York, New York  (incorporated  by
                         reference to the indicated  exhibit in the Company's  10-QSB for the quarter ended June 30,
                         1999)
10.32                    Option Agreement - Robb Peck McCooey Clearing
                         Corporation (incorporated by reference to the indicated
                         exhibit in the Company's 10-QSB for the quarter ended
                         September 30, 1999)
10.33                    License Agreement with Gottex Models Ltd, dated November 1, 2000
10.34                    Factoring Agreement with Century Business Credit Corp. dated September 12, 2000
10.35                    Supplement to factoring or Security  Agreement with Century  Business  Credit  Corporation,
                         dated August 14, 2000
10.36                    Corporate  Guaranty  unlimited  between Century  Business  Credit  Corporation and ShopNet,
                         dated August 14, 2000
10.37                    Trademark  Collateral  Security  Agreement between Century Business Credit  Corporation and
                         Breaking Waves, dated August 14, 2000.
10.38                    Consulting Agreement with Larry Nash, Inc., dated August 5, 2000
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
99.1                     Certification of the Chief Executive Officer of ShopNet.com, Inc. Pursuant to 18 U.S.C. Section 1350,
                         As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2                     Certification of the Chief Financial Officer of ShopNet.com, Inc., Pursuant to 18 U.S.C. Section 1350,
                         As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

<PAGE>
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
Undersigned hereunto duly authorized on the 11th day of October, 2002.

                                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.



<TABLE>
<CAPTION>

<S>                                         <C>                                    <C>
/s/ Harold Rashbaum                         Chairman of the Board,
    Harold Rashbaum                         Chief Executive Officer,               10/11/02
                                            Chief Financial Officer                Date
                                            President, and Director

/s/ Jeanne Falleta                          Secretary and Director                 10/11/02
    Jeanne Falletta                                                                Date


    Alain Le Guillou, M.D.                  Director                               Date


/s/ James B. Frakes                         Director                               10/11/02
    James B. Frakes                                                                Date

/s/ Debra Riggs                             Director                               10/11/02
    Debra Riggs                                                                    Date

</TABLE>