Edgar Filing: SHOPNET COM INC

SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

Filed by the registrant |X|
Filed by a party other than the registrant |_|

Check the appropriate box:

|_| Preliminary proxy statement. |_| Confidential, for use of the
|X| Definitive proxy statement. Commission only (as permitted
|_| Definitive additional materials. by Rule 14a-6(e)(2)).
|_| Soliciting material under Rule 14a-11(c) or Rule 14a-12.

ShopNet.Com, Inc.
---------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of filing fee (Check the
appropriate box):

|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-(6)(i) (1) and
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|_| Fee paid previously with preliminary materials.
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|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.

(1) Amount Previously Paid:
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(4) Date Filed:

SHOPNET.COM, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON FRIDAY, MARCH 9, 2001

To the Stockholders of SHOPNET.COM, INC.

NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders (the "Annual
Meeting") of ShopNet.Com, Inc. (the "Company") will be held at the Company's
offices located at 14 East 60th Street, Suite 402, New York, New York 10022, on
Friday, March 9, 2001, at 10:00 a.m. Eastern Standard Time, for the following
purposes:

1. To elect six (6) directors to serve until the next Annual Meeting of
stockholders and until their successors are duly elected and qualified; and

2. To ratify the appointment of Massella, Tomaro & Co. as the independent
auditors of the Company for the fiscal year end December 31, 2000; and

3. To transact such other business as properly may be brought before the
meeting or any adjournment thereof.

Stockholders of record at the close of business on January 19, 2001 are
entitled to notice of, and to vote at the Annual Meeting or any adjournment or
postponement thereof. A list of such stockholders will be available at the
Annual Meeting and, for any purpose germane to the Annual Meeting, during the
ten days prior to the Annual Meeting, at the offices of the Company, 14 East
60th Street, Suite 402, New York, New York, during ordinary business hours.

You are cordially invited to attend the meeting. Whether or not you plan to
attend, please complete, date, and sign the accompanying proxy, and return it
promptly in the enclosed envelope to assure that your shares are represented at
the meeting. If you do attend, you may revoke any prior proxy and vote your
shares in person if you wish to do so. Any prior submitted proxy will
automatically be revoked if you execute the accompanying proxy or if you notify
the Secretary of the Company, in writing, prior to the Annual Meeting.

By Order of the Board of Directors

Harold Rashbaum, President

Dated: February 5, 2001

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND SIGN
THE ENCLOSED PROXY, AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.

SHOPNET.COM, INC.

PROXY STATEMENT

FOR ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MARCH 9, 2001

This proxy statement and the accompanying form of proxy were mailed on
February 5, 2001 to the stockholders of record (as of January 19, 2001) of
ShopNet.Com, Inc. (the "Company"), a Delaware corporation, in connection with
the solicitation of proxies by the Board of Directors of the Company for use at
the Annual Meeting to be held on March 9, 2001 and at any adjournment thereof.

All references to share amounts contained herein reflect (i) a 100% stock
dividend paid on February 5, 1999 to stockholders of record on January 29, 1999,
(ii) a 10% stock dividend paid on February 1, 2000 to all stockholders of record
on January 20, 2000 and (iii) a 20% stock dividend paid on June 19, 2000 to all
stockholders of record on May 19, 2000.

SOLICITATION, VOTING AND REVOCABILITY OF PROXIES

PURPOSE OF THE ANNUAL MEETING

The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this proxy statement.

RECORD DATE AND OUTSTANDING SHARES

The Board has fixed the close of business on January 19, 2001 as the record
date (the "Record Date") for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting. Only stockholders of record at
the close of business on that date will be entitled to vote at the Annual
Meeting or any and all adjournments or postponements thereof. As of February 1,
2001, the Company had issued and outstanding 7,470,721 shares of common stock,
$.001 par value per share ("Common Stock"), comprising all of the Company's
issued and outstanding voting stock.

REVOCABILITY AND VOTING OF PROXIES

Any person signing a proxy in the form accompanying this proxy statement
has the power to revoke it prior to the Annual Meeting or at the Annual Meeting
prior to the vote pursuant to the proxy. A proxy may be revoked by any of the
following methods:

o by writing a letter delivered to Jeanne Falletta, Secretary of the
Company, stating that the proxy is revoked;

o by submitting another proxy with a later date; or

o by attending the Annual Meeting and voting in person.

Please note, however, that if a stockholder's shares are held of record by
a broker, bank or other nominee and that stockholder wishes to vote at the
Annual Meeting, the stockholder must bring to the Annual Meeting a letter from
the broker, bank or other nominee confirming that stockholder's beneficial
ownership of the shares.

Unless we receive specific instructions to the contrary or unless such
proxy is revoked, shares represented by each properly executed proxy will be
voted: (i) FOR the election of each of the Company's nominees as a director;
(ii) FOR the ratification of the appointment of Massella, Tomaro & Co. as the
independent auditors of the Company for the fiscal year ending December 31,
2000; and (iii) with respect to any other matters that may properly come before
the Annual Meeting, at the discretion of the proxy holders. The Company does not
presently anticipate any other business will be presented for action at the
Annual Meeting.

VOTING AT THE ANNUAL MEETING

Each share of common stock outstanding on the Record Date will be entitled
to one vote on each matter submitted to a vote of the stockholders, including
the election of directors. Cumulative voting by stockholders is not permitted.

The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote at the Annual
Meeting is necessary to constitute a quorum. Abstentions and broker "non-votes"
are counted as present and entitled to vote for purposes of determining a
quorum. A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner.

A plurality of the votes cast is required for the election of directors.
Abstentions and broker "non-votes" are not counted for purpose of the election
of directors.

SOLICITATION

We will pay the costs relating to this proxy statement, the proxy and the
Annual Meeting. We may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to beneficial owners. Directors, officers and regular employees may
also solicit proxies. They will not receive any additional pay for the
solicitation.

NO DISSENTERS RIGHTS

The corporate action described in this proxy statement will not afford to
stockholders the opportunity to dissent from the action described herein and to
receive an agreed or judicially appraised value for their shares.

The Company's annual report on Form 10-KSB for the fiscal year ended
December 31, 1999 and Audit Committee Charter accompany this proxy statement.

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of February 1, 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.

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

----------------------------------------- ------------------------------------ --------------------------------------

European Ventures Corp.
P.O. Box 47 Road Town 1,783,836(3)(7) 23.9%
Tortola, BVI
----------------------------------------- ------------------------------------ --------------------------------------
American Telecom Corp.
C/o MW Todtman McNamara Chamber
P.O. Box 47 Road Town 594,000(4)(5)(6)(7) 8.0%
Tortola, BVI
----------------------------------------- ------------------------------------ --------------------------------------

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

----------------------------------------- ------------------------------------ --------------------------------------
HDS Capital Corp.
C/o MW Todtman McNamara Chamber
P.O. Box 47 Road Town 330,000(6)(7) 4.4%
Tortola, BVI
----------------------------------------- ------------------------------------ --------------------------------------
Amir Capital Overseas Ltd.
P.O. Box 47 Road Town 303,600(8) 4.1%
Tortola, BVI
----------------------------------------- ------------------------------------ --------------------------------------
Volcano Trading Inc.
C/o Valor Invest
Via Cantalone 16 250,800 (8) 3.4%
6900 Lugano, Switzerland
----------------------------------------- ------------------------------------ --------------------------------------
Full Moon Development Corp.
C/o Valor Invest
Via Cantalone 16 277,200(8) 3.7%
6900 Lugano, Switzerland
----------------------------------------- ------------------------------------ --------------------------------------
Galit Capital, Ltd.
Via Vanoni #6 290,400(8) 3.9%
Lugano, Switzerland CH 6901
----------------------------------------- ------------------------------------ --------------------------------------
Harold Rashbaum 252,000(9) 3.3%
----------------------------------------- ------------------------------------ --------------------------------------
Jeanne Falletta -- --
----------------------------------------- ------------------------------------ --------------------------------------
Alain Le Guillou, M.D. -- --
----------------------------------------- ------------------------------------ --------------------------------------
James Frakes -- --
----------------------------------------- ------------------------------------ --------------------------------------
Michael Friedland 167,720(10) 2.3%
----------------------------------------- ------------------------------------ --------------------------------------
Debra Riggs -- --
----------------------------------------- ------------------------------------ --------------------------------------
All Officers and Directors as a Group 419,720(9) 5.5%
(six persons)
----------------------------------------- ------------------------------------ --------------------------------------

* Less than 1% of the outstanding common stock.

(1) Unless otherwise indicated, the address for each listed director or
officer is c/o ShopNet.Com, Inc., 14 East 60th Street, New York, New York 10022.
As used in this table, "beneficial ownership" means the sole or shared power to
vote or direct the voting or to dispose or direct the disposition of any
security. For the purposes of this table, a person is deemed to be the
beneficial owner of securities that can be acquired within 60 days from February
1, 2001 through the exercise of any option or warrant. Shares of Common Stock
subject to options or warrants that are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership percentage of
the person holding such options or warrants, but are not deemed outstanding for
computing the ownership percentage of any other person. The amounts and
percentages are based upon 7,470,721 shares of common stock outstanding as of
February 1, 2001.

(2) Does not give effect to the issuance of (i) 3,379,200 shares of Common
Stock issuable upon exercise of the 3,840,000 outstanding Warrants (the exercise
of each warrant at an exercise price of $3.41 purchases .88 of a share of Common
Stock) or (ii) 128,333 shares of Common Stock reserved for issuance under the
Company's Senior Management Incentive Plan.

(3) Includes an aggregate of 2,112 shares of common stock underlying 2,400
warrants. Each warrant is exercisable at a purchase price of $3.41 for .88 of a
share of Common Stock. European Ventures Corp. ("EVC") is formed under the laws
of the British Virgin Islands. Mr. Ilan Arbel, father-in-law of Harold Rashbaum,
President, Chief Executive Officer and a director of the Company, is President
of EVC and as such, has voting and dispositive control of shares of the Company
beneficially owned by EVC and therefore may be deemed to beneficially own such
shares.

(4) American Telecom Corp. ("ATC") is a corporation organized under the
laws of the British Virgin Islands which is wholly-owned by Europe American
Capital Foundation ("EACF"), a Liechtenstein Trust with an address at Pradafont
Street #7, Vaduz Liechtenstein, c/o Dr. Wohlwerd. Mr. Arbel controls EACF and is
President of ATC. By virtue of such positions, Mr. Arbel has voting and
dispositive control over shares of the Company beneficially owned by ATC and
therefore may be deemed to beneficially own such shares.

(5) Includes 330,000 shares owned by HDS Capital Corp. ("HDS"), a Company
organized under the laws of the British Virgin Islands, which is wholly owned by
ATC.

(6) Mr. Arbel is President of HDS and by virtue of such position and his
control over ATC and EACF (see footnotes (3) and (4) above), Mr. Arbel has
voting and dispositive control over shares of the Company beneficially owned by
HDS and therefore may be deemed to beneficially own such shares.

(7) Shares of the Company beneficially owned by EVC, ATC and HDS are held
of record in the name of "Fiduciara Biaggini, as trustee" ("Fiduciara
Biaggini"), on behalf of such respective entities which have retained beneficial
ownership of such shares. Fiduciara Biaggini is a fiduciary company with an
address at via Vanoni #6, Lugano, Switzerland CH 6901.

(8) Shares of the Company beneficially owned by each of Amir Capital
Overseas Ltd. ("Amir"), Volcano Trading Inc. ("Volcano"), Full Moon Development
Corp. ("Full Moon") and Galit Capital Ltd ("Galit"), all companies organized
under the laws of the British Virgin Islands, are held of record in the name of
"Fiduciara Biaggini, as trustee," on behalf of such respective entities. Fabio
Rossi, a manager of Fiduciara Biaggini, is the President and sole director of
each such entity. Accordingly, Mr. Rossi by virtue of such positions, may have
voting and dispositive control over shares of the Company owned by each of Amir,
Volcano, Full Moon and Galit and therefore may be deemed to be the beneficial
owner of such shares, representing in the aggregate 15.1% of the Company's
outstanding Common Stock.

(9) Includes an aggregate of 132,000 shares of Common Stock underlying
options granted to Mr. Rashbaum, the President and Chief Executive Officer and a
director of the Company. See "Executive Compensation."

(10) Includes 139,471 shares of Common Stock underlying an option granted
to BBC Corp. ("BBC), a company controlled by Mr. Arbel. BBC also has an option
to purchase an additional 76,074 shares of Common Stock from Malcolm Becker
("BBC Option"), an officer of Breaking Waves, Inc., a wholly-owned subsidiary of
the Company. Mr. Arbel controls BBC, and as such may be deemed to be the
beneficial owner of the shares of Common Stock underlying the BBC Option.

By virtue of Mr. Arbel's voting and dispositive control of shares of the
Company owned by each of EVC, ATC, HDS (see footnotes 3, 4, 5 and 6 above) and
giving effect to the BBC Option (see footnote 10 above), Mr. Arbel may be deemed
to beneficially own 34.8% of the Company's outstanding Common Stock.

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

MATTERS WHICH SHALL BE CONSIDERED AT THE MEETING AND WITH RESPECT
TO WHICH ACTION WILL BE TAKEN THEREAT:

I. ELECTION OF DIRECTORS

The Board of Directors currently consists of six members elected for a term
of one year or until their successors are duly elected and qualified.

An affirmative vote of a plurality of the shares of Common Stock, present
in person or represented by proxy, at the Annual Meeting and entitled to vote
thereon is required to elect the Directors. All proxies received by the Board of
Directors will be voted for the election as Directors of the nominees listed
below if no direction to the contrary is given. In the event any nominee is
unable to serve, the proxy solicited hereby may be voted, in the discretion of
the proxies, for the election of another person in his/her stead. The Board of
Directors knows of no reason to anticipate this will occur.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
THE NOMINEES FOR DIRECTORS.

The following provides information about each nominee director, including
data on their business backgrounds and the names of public companies and other
selected entities for which they also serve as directors. The information
concerning the directors and their security holdings has been furnished to us by
each director.

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

Harold Rashbaum, age 73, has been the President, Chief Executive Officer,
and a Director of the Company since January 1997. Since September 1996, he has
also been the President, Secretary, and sole Director of Breaking Waves, Inc.
("Breaking Waves"), a New York company which is a wholly-owned subsidiary of the
Company. From May 1996 to January 1997, Mr. Rashbaum served as Secretary and
Treasurer of the Company. Since September 1996, Mr. Rashbaum has been the
Chairman of the Board of Directors of Play Co. Toys & Entertainment Corp. ("Play
Co."), a public entity whose Common Stock, Series E Stock and Series E Warrants
are quoted on the over-the-counter market on the OTC Bulletin Board. Mr.
Rashbaum was a management consultant to Play Co. from July 1995 to September 10,
1996. In May 1998, he was elected as a Director of Toys International, Inc.
("Toys"), a majority-owned subsidiary of Play Co. whose Common stock is traded
on the SMAX segment of the Frankfurt Stock Exchange. Since February 1996, Mr.
Rashbaum has also been the President and a Director of H.B.R. Consultant Sales
Corp. ("HBR"), of which his wife is the sole shareholder.

Jeanne Falletta, age 43, was elected a director of the Company in May 2000
and has been its Secretary since February 2000. Since October 1997, Ms. Falletta
has been the controller of Breaking Waves where she has been employed since
February 1997, initially having been hired as a bookkeeper. From January 1996 to
February 1997, Ms. Falletta consulted with various companies as a freelance
accountant.

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

James Frakes, age 45, has been a Director of the Company since January 1998
and was appointed Chairman of the Company's Audit Committee in June 2000. Since
July 1997, Mr. Frakes has served as Chief Financial Officer and Secretary of
Play Co. In August 1997, he was elected as a Director of Play Co. In January
1998, Mr. Frakes was appointed Secretary and Chief Financial Officer of Toys. He
was elected as a Director of Toys in May 1998. From June 1990 to March 1997, Mr.
Frakes was Chief Financial Officer of Urethane Technologies, Inc. ("UTI") and
two of its subsidiaries, Polymer Development Laboratories, Inc. ("PDL") and BMC
Acquisition, Inc. These were specialty chemical companies, which focused on the
polyurethane segment of the plastics industry. Mr. Frakes was also Vice
President and a Director of UTI during this period. In March 1997, three
unsecured creditors of PDL filed a petition for the involuntary bankruptcy of
PDL. From 1985 to 1990, Mr. Frakes was a manager for Berkeley International
Capital Corporation, an investment banking firm specializing in later stage
venture capital and leveraged buyout transactions.

Michael Friedland, age 63, has been a Director of the Company since May
2000. Mr. Friedland has been the Vice President of Design, Marketing and Sales
of Breaking Waves since its inception in 1991. Mr. Friedland has over 40 years
experience in the children's swimwear industry. Prior to joining Breaking Waves,
Mr. Friedland co-founded Making Waves, Inc., a manufacturer of children's
swimwear.

Debra Riggs, age 46, has been a Director of the Company since June 2000
when she was also appointed to the Company's Audit Committee. Ms. Riggs has been
the Controller of Play Co. since February, 1999. 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.

BOARD MEETINGS AND AUDIT COMMITTEE

The Board of Directors held one meeting during the fiscal years ended
December 31, 1999 and 2000 and acted 15 times by unanimous consent. The Board of
Directors has an Audit Committee

The Audit Committee of the Board of Directors was established in June 2000
and operates pursuant to a written Audit Committee Charter. This Committee has
been established to review, act on and report to the Board of Directors with
respect to various auditing and accounting matters, including the selection of
independent auditors, the scope of the annual audit, fees to be paid to the
auditors, the performance of the independent auditors and accounting practices.
The members of the Audit Committee are Mr. James B. Frakes, who is the Chairman
of the Committee, and Ms. Debra Riggs, both deemed to be independent members as
that term is defined in Rule 4200(a)(15) of the National Association of Security
Dealer's listing standards. The Audit Committee plans to hold its first meeting
with Massella, Tomaro & Co. in 2001 to discuss the scope of the audit for the
year ended December 31, 2000. The Audit Committee's Charter is attached as
Appendix A to this Proxy Statement.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

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

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

EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides certain information concerning all Plan
and Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation
awarded to, earned by, or paid to the named executive officer during the periods
ended December 31, 2000, 1999 and 1998.

SUMMARY COMPENSATION TABLE

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

Harold Rashbaum 2000 160,000 -- -- -- -- -- --
President, CEO,
And Director 1999 162,000 -- -- -- 44,000(1) -- --

1998 156,000 -- -- -- -- -- --

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

STOCK OPTIONS

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

===============================================================================================================================
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 Unexcercisable Exercisable Unexercisable

Harold Rashbaum (1) (1) 132,000(2) -- (3) --

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

(1) No options were exercised in the year ending December 31, 1999 or 2000.

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

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

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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. 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, as reported on its
Form 10-QSB for the quarter ended September 30, 2000. Pursuant to the agreement
which bore an initial term of one year and automatically extended for an
additional one year term since it was not terminated by either of the parties -
Play Co. agreed to purchase (on a wholesale basis) a minimum of 250 pieces of
merchandise for each of its retail locations and to provide advertising
promotional materials and ads of the merchandise in all of its brochures,
advertisements, catalogs, and all other promotional materials, merchandising
programs, and sales promotion methods. Breaking Waves had previously sold a
limited number of pieces of its swimwear to Play Co. As consideration for the
stock, Breaking Waves remitted $504,000, which represented an approximate price
of $0.36 per share: $300,000 of the consideration was remitted in cash, and the
remaining $204,000 was provided in the form of merchandise, primarily girls'
swimsuits.

In March 1998, Breaking Waves loaned $300,000 to Play Co. with such loan
bearing interest at 9% per annum. The note called for five monthly installments
of principal and interest commencing on August 15, 1998 and ending December 30,
1998 and has been repaid in full.

In March 1998 Breaking Waves loaned $250,000 to Play Co. with such loan
bearing interest at 15% interest per annum. The note called for ten monthly
installments of principal and interest commencing on March 31, 1998 and ending
on December 31, 1998 and has been repaid in full.

In October 1996, pursuant to a promissory note, the Company loaned Harold
Rashbaum its President and Chief Executive Officer a total of $50,000 bearing
interest at 6 1/2% payable over three years. As of September 30, 2000, the
unpaid portion, which is due on demand, amounted to $37,000, which has been
classified as current. In 1998, the Company's President was also advanced
additional funds totaling $3,000 which are non-interest bearing and due on
demand and are classified as current.

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

During the years ended December 31, 2000, 1999 and 1998, the Company paid
$48,000, $24,000, and $27,000, respectively, in financial consulting fees to DRA
Consulting, Inc., a company whose president is the daughter of the Company's
President and Chief Executive Officer. II. RATIFICATION OF INDEPENDENT AUDITORS

The Board of Directors has selected the firm of Massella, Tomaro & Co. as
its independent auditors to audit the financial statements of the Company for
the fiscal year ending December 31, 2000, and recommends that stockholders vote
for ratification of this appointment. Massella, Tomaro & Co. has audited the
Company's financial statements since October 1998 Representatives of Massella,
Tomaro & Co. are expected to be present at the Annual Meeting and will have the
opportunity to make a statement if they desire to do so, and are expected to be
available to respond to appropriate questions. The affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
and voting at the Annual Meeting will be required to ratify the selection of
Massella, Tomaro & Co.

Stockholder ratification of the selection of Massella, Tomaro & Co. as the
Company's independent auditors is not required by the Company's By-Laws or
otherwise. However, the Board of Directors is submitting the selection of
Massella, Tomaro & Co. to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board of Directors will reconsider whether or not to retain
that firm. Even if the selection is ratified, the Board of Directors in its
discretion may direct the appointment of different independent auditors at any
time during the year if it determines that such change would be in the best
interests of the Company and its stockholders.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"THE RATIFICATION OF
THE APPOINTMENT OF MASSELLA, TOMARO & CO. TO SERVE AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.

FINANCIAL INFORMATION

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1999 (WITHOUT EXHIBITS), FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, ACCOMPANIES THIS PROXY STATEMENT. SAME SHALL BE FURNISHED
(WITHOUT EXHIBITS) TO STOCKHOLDERS, WITHOUT CHARGE, UPON WRITTEN REQUEST
THEREFOR SENT TO JEANNE FALLETTA, SECRETARY, SHOPNET.COM, INC., 14 EAST 60TH
STREET, SUITE 402, NEW YORK, NEW YORK 10022.

STOCKHOLDER PROPOSALS

Proposals of stockholders intended to be presented at the Company's 2000
Annual Meeting of Stockholders must be received by the Company on or prior to
September 1, 2001 to be eligible for inclusion in the Company's proxy statement
and form of proxy to be used in connection with the 2000 Annual Meeting of
Stockholders.

OTHER BUSINESS

As of the date of this proxy statement, the only business which the Board
of Directors intends to present and knows that others will present at the Annual
Meeting is that herein set forth. If any other matter is properly brought before
the Annual Meeting or any adjournments thereof, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their judgment. By Order of the Board of Directors

Harold Rashbaum
President

February 5, 2001

Whether Or Not You Expect To Attend The Meeting, Please Complete And Return Your
Proxy Promptly In The Enclosed Envelope. No Postage Is Required If It Is Mailed
In The United State of America.

SHOPNET.COM, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 23, 2001

The undersigned hereby appoints Harold Rashbaum and Jeanne Falletta, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Shopnet.com, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
ShopNet.Com, Inc. to be held at the offices of the Company located at 14 East
60th Street, Suite 402, New York, New York 10022 on March 9, 2001 at 10:00 a.m.
(local time), and at any and all postponements, continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions, with discretionary authority as to any and all other
matters that may properly come before the meeting.

UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2, AS MORE SPECIFICALLY DESCRIBED
IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL
BE VOTED IN ACCORDANCE THEREWITH.

MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.

FOR all nominees below (except as marked to the contrary below)

WITHHOLD AUTHORITY to vote for all nominees below

NOMINEES: Harold Rashbaum, Jeanne Falletta, Alain Le Guillou, M.D.,
James Frakes, Michael Friedland, Debra Riggs

TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)

------------------------- -------------------------

MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.

To ratify selection of Massella, Tomaro & Co. as independent auditors of
ShopNet.Com, Inc. for its fiscal year ending December 31, 2000.

[] FOR [] AGAINST [] ABSTAIN

SEE REVERSE FOR
VOTING INSTRUCTIONS

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT MAY BE REVOKED
PRIOR TO ITS EXERCISE.

RECEIPT OF NOTICE OF THE ANNUAL MEETING AND PROXY STATEMENT IS HEREBY
ACKNOWLEDGED, AND THE TERMS OF THE NOTICE AND PROXY STATEMENT ARE HEREBY
INCORPORATED BY REFERENCE INTO THIS PROXY. THE UNDERSIGNED HEREBY REVOKES ALL
PROXIES HERETOFORE GIVEN FOR SAID MEETING OR ANY AND ALL ADJOURNMENTS,
POSTPONEMENTS AND CONTINUATIONS THEREOF.

PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.

Address Change? Mark Box []
Indicate Changes Below

-------------------------

Dated:__________________ 2001

-------------------------

-------------------------
SIGNATURE(S)

PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED
IN THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR
TITLES. IF SIGNER IS A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A
DULY AUTHORIZED OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE
SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.

Appendix A

ShopNet.com, Inc.

Audit Committee Charter

This Audit Committee Charter ("Charter") has been adopted by the Board of
Directors (the "Board") of ShopNet.com, Inc. (the "Company"). The Audit
Committee of the Board (the "Committee") shall review and reassess this Charter
annually and recommend any proposed changes to the Board for approval.

I. Role and Independence: Organization

a. The Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing, internal
control and financial reporting practices of the Company. It may also have such
other duties as may from time to time be assigned to it by the Board. The
membership of the Committee shall consist of at least two directors, who are
each free of any relationship that, in the opinion of the Board, may interfere
with such member's individual exercise of independent judgment. The members of
the Committee shall also meet the independence requirements for serving on audit
committees, as set forth in the applicable rules of The Nasdaq Stock Market. The
Committee shall maintain free and open communication with the independent
auditors, and Company management. In discharging its oversight role, the
Committee is empowered to investigate any matter relating to the Company's
accounting, auditing, internal control or financial reporting practices brought
to its attention, with full access to all Company books, records, facilities and
personnel. The Committee may retain outside counsel, auditors or other advisors.

b. One member of the Committee shall be appointed as chair. The chair shall
be responsible for leadership of the Committee, including scheduling and
presiding over meetings, preparing agendas, and making regular reports to the
Board. The chair will also maintain regular liaison with the CEO, CFO, the lead
independent audit partner.

c. The Committee shall meet at least four times a year, or more frequently
as the Committee considers necessary. At least once each year the Committee
shall have separate private meetings with the independent auditors, management.

II. Responsibilities

Although the Committee may wish to consider other duties from time to time,
the general recurring activities of the Committee in carrying out its oversight
role are described below. The Committee shall be responsible for:

a. Recommending to the Board the independent auditors to be retained (or
nominated for shareholder approval) to audit the financial statements of the
Company. Such auditors are ultimately accountable to the Board and the
Committee, as representatives of the shareholders.

b. Evaluating, together with the Board and management, the performance of
the independent auditors and, where appropriate, replacing such auditors.

c. Obtaining annually from the independent auditors a formal written
statement describing all relationships between the auditors and the Company,
consistent with Independence Standards Board Standard Number 1. The Committee
shall actively engage in a dialogue with the independent auditors with respect
to any relationships that may impact the objectivity and independence of the
auditors and shall take, or recommend that the Board take, appropriate actions
to oversee and satisfy itself as to the auditors' independence.

d. Reviewing the audited financial statements and discussing them with
management and the independent auditors. These discussions shall include the
matters required to be discussed under Statement of Auditing Standards No. 61
and consideration of the quality of the Company's accounting principles as
applied in its financial reporting, including a review of particularly sensitive
accounting estimates, reserves and accruals, judgmental areas, audit adjustments
(whether or not recorded), and other such inquiries as the Committee or the
independent auditors shall deem appropriate. Based on such review, the Committee
shall make its recommendation to the Board as to the inclusion of the Company's
audited financial statements in the Company's Annual Report on Form 10-KSB (or
the Annual Report to Shareholders, if distributed prior to the filing of the
Form 10-KSB.

e. Issuing annually a report to be included in the Company's proxy
statement as required by the rules of the Securities and Exchange Commission.

f. Overseeing the relationship with the independent auditors, including
discussing with the auditors the nature and rigor of the audit process,
receiving and reviewing audit reports, and providing the auditors full access to
the Committee (and the Board) to report on any and all appropriate matters.

g. Discussing with a representative of management and the independent
auditors: (1) the interim financial information contained in the Company's
Quarterly Report on Form 10-QSB prior to its filing, (2) the earnings
announcement prior to its release (if practicable), and (3) the results of the
review of such information by the independent auditors. These discussions may be
held with the Committee as a whole or with the Committee chair in person or by
telephone.

h. Overseeing internal audit activities, including discussing with
management and the internal auditors the internal audit function's organization,
objectivity, responsibilities, plans, results, budget and staffing.

i. Discussing with management, the internal auditors and the independent
auditors the quality and adequacy of and compliance with the Company's internal
controls.

j. Discussing with management and/or the Company's general counsel any
legal matters (including the status of pending litigation) that may have a
material impact on the Company's financial statements, and any material reports
or inquiries from regulatory or governmental agencies.

The Committee's job is one of oversight. Management is responsible for the
preparation of the Company's financial statements and the independent auditors
are responsible for auditing those financial statements. The Committee and the
Board recognize that management (including the internal audit staff) and the
independent auditors have more resources and time, and more detailed knowledge
and information regarding the Company's accounting, auditing, internal control
and financial reporting practices than the Committee does: accordingly the
Committee's oversight role does not provide any expert or special assurance as
to the financial statements and other financial information provided by the
Company to its shareholders and others.

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

(Mark One)

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

For the fiscal year ended December 31, 1999

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

For the transition period from __________ to __________

Commission File Number O-28690

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

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

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

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

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

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

NONE

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

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

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

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

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

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

PART I

ITEM 1. DESCRIPTION OF BUSINESS

History

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

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

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

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

Motion Picture Business

General

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

Production

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

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

Distribution, Billing and Revenues

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

The Company expects that the films it produces will be distributed and
shown at movie theaters. Once a film is distributed throughout theaters in the
United States, it may be distributed in markets throughout the world. In
addition, the film may be distributed through public or cable television - via
pay-per-view, premium, and standard channels - and/or through the sale and/or
rental of videotapes. There are many avenues for the distribution of a film and
the exploitation of all ancillary rights thereto. The Company may enter into
agreements with different distributors for different markets or sell all the
rights to one distributor. Revenues generated are distributed to all parties
involved including the distributor, the producers, the owners, and the talent
pursuant to extensive formulas previously agreed upon.

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

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

Production of "Dirty Laundry"

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

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

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

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

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

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

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

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

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

Production of "Machiavelli Rises"

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

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

Regulations

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

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

Competition in the Film Industry

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

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

Swimwear Business

General

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

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

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

Products, Design, Supplies and Inventory

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

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

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

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

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

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

Financing Arrangements

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

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

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

Marketing and Sales

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

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

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

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

Internet Sales

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

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

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

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

Work in Progress

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

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

Trademarks and Licensing; New Product Line

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

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

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

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

Competition

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

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

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

Seasonality

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

Employees

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

Business Risks

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

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

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

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

10% Common Stock Dividend

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

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

Consulting Agreement

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

100% Common Stock Dividend

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

Frankfurt Exchange

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

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

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

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

Private Offerings of Common Stock and Registration Thereof

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

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

Warrant Distribution

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

One for Three Reverse Split

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

Initial Public Offering and Acquisition of Breaking Waves, Inc.

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

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

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

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

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

ITEM 2. DESCRIPTION OF PROPERTY

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

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

The Company's Common Stock is quoted on the SmallCap Market of the
Nasdaq Stock Market and the Third Segment of the Frankfurt Stock Exchange. The
following table sets forth representative high and low sale prices as reported
by a market maker for the Company's Common Stock and Warrants, during the period
from January 1, 1998 through March 31, 2000. Sales prices reflect prices between
dealers and do not include resale mark-ups, mark-downs, or other fees or
commissions.

Common Stock Warrants
Calendar Period Low High Low High

1998

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

1999 (2)

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

2000

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

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

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

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

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

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

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

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

Recent Sales of Unregistered Securities

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

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

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

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

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

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

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

General

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

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

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

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

Breaking Waves

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

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

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

1999 1998
---- ----
Officers, office staff and

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

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

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

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

Year Ended December 31,
1998
(Unaudited)

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

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

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

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

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

Hollywood

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

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

Shopnet.com

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

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

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

1999 1998

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

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

Liquidity and Capital Resources

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

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

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

Investment in Joint Venture

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

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

Factoring Arrangements

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

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

Capital Lease Obligations

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

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

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

Lease Commitments

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

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

License Agreements

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

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

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

Internet Sales

Loans from Play Co.

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

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

Common Stock Dividend

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

Stock Options Granted

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

ITEM 7. FINANCIAL STATEMENTS

See attached Financial Statements.

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

Not Applicable.

PART III

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

Officers and Directors

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

Name Age Position

Harold Rashbaum 72 President, CEO, and Director

Alain Le Guillou, M.D. 43 Director

James B. Frakes 43 Director

Jeanne Falletta 42 Director

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

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

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

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

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

James Frakes was elected Director of the Company in January 1998. Mr.
Frakes was appointed Chief Financial Officer and Secretary of Play Co. in July
1997. In August 1997, he was elected as a Director of Play Co. In January 1998,
Mr. Frakes was appointed Secretary and Chief Financial Officer of Toys. He was
elected as a Director thereof in May 1998. From June 1990 to March 1997, Mr.
Frakes was Chief Financial Officer of Urethane Technologies, Inc. ("UTI") and
two of its subsidiaries, Polymer Development Laboratories, Inc. ("PDL") and BMC
Acquisition, Inc. These were specialty chemical companies, which focused on the
polyurethane segment of the plastics industry. Mr. Frakes was also Vice
President and a Director of UTI during this period. In March 1997, three
unsecured creditors of PDL filed a petition for the involuntary bankruptcy of
PDL. From 1985 to 1990, Mr. Frakes was a manager for Berkeley International
Capital Corporation, an investment banking firm specializing in later stage
venture capital and leveraged buyout transactions. In 1980, Mr. Frakes obtained
a Masters in Business Administration from University of Southern California. He
obtained his Bachelor of Arts degree in history from Stanford University, from
which he graduated with honors in 1978.

Significant Employees

Malcolm Becker, 64, has been the Vice President of Design,
Merchandising, and Production of Breaking Waves since its inception in 1991.

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

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

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

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

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

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

ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

SUMMARY COMPENSATION TABLE

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

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

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

Stock Options

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

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

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

Harold Rashbaum 0 0 73,333/0 (1) $94,600*/0 (2)

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

(reference is made to the table on the previous page)

*Value rounded to the nearest dollar.

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

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

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

Employment and Consulting Agreements

Shopnet.com, Inc.

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

Breaking Waves, Inc.

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

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

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

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

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

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

Senior Management Incentive Plan

General

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

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

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

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

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

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

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

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

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

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

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

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

Incentive Stock Rights

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

Stock Appreciation Rights (SARs)

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

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

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

Restricted Stock Purchase Agreements

Restricted share agreements provide for the issuance of restricted
shares of Common Stock to eligible participants under the Management Plan. The
Board of Directors may determine the price to be paid by the participant for the
shares or that the shares may be issued for no monetary consideration. The
shares issued shall be subject to restrictions for a stated restricted period
during which the participant must remain in the Company's employ in order to
retain the shares. Payment may be made in cash, by promissory note, or via a
combination of both. In June 1996, the Company issued an aggregate of 54,999
restricted shares under the Management Plan: (i) each of Mr. Rashbaum and Mr.
Melillo received 36,666 shares and (ii) Charles Rosen, a consultant to the
Company, received 18,333 shares. All such shares were subject to a vesting
schedule whereby half of the shares were to vest in each of June 1997 and 1998.
Upon the termination of Mr. Rosen's consulting agreement, his 18,333 shares were
cancelled by the Company; likewise, Mr. Mellilo's 36,666 shares were cancelled
upon his resignation.

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

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

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

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

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

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

Non-Executive Director Stock Option Plan

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

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

------------------------------------------ ------------------------------------ --------------------------------------
Name and Address Number of Shares Percent of Common Stock Beneficially
of Beneficial Owner Beneficially Owned (1) Owned (2)(3)
------------------- ------------------ -----

European Ventures Corp.
P.O. Box 47 1,486,370 (4) 24.7%
Road Town,
Tortola, British Virgin Islands

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

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

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

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

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

------------------------------------------ ------------------------------------ --------------------------------------

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

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

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

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

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

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

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

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

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

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

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
Undersigned hereunto duly authorized on the 10th day of April, 2000.

Shopnet.com, Inc.

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

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

/s/ Harold Rashbaum Chief Executive Officer, 04/10/00
Harold Rashbaum President, and Director Date

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

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

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

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

Page
number

Independent auditors' report F-1

Consolidated balance sheet at December 31, 1999 F-2

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

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

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

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

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of Shopnet.com, Inc.
(formerly Hollywood Productions, Inc.) and subsidiaries (the "Company"), as of
December 31, 1999 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1999 and the consolidated results of its operations
and cash flows for the years ended December 31, 1999 and 1998 in conformity with
generally accepted accounting principles.

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

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

ASSETS

Current assets:

Cash $ ...................................................................................... 24,479
Cash - restricted ........................................................................... 1,351,760
Accounts receivable, net .................................................................... 31,104
Prepaid expenses ............................................................................ 70,659
Inventory ................................................................................... 2,862,053
Advances to officer ......................................................................... 40,000
Deferred tax asset .......................................................................... 55,000

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

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

LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

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

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

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

Total liabilities and stockholders' equity ...................................................... $ 7,427,620
===========

See accompanying notes to consolidated financial statements

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

FOR THE YEARS ENDED DECEMBER 31,

1999 1998

Net sales $ 4,758,296 $ 5,276,459

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

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

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

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

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

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

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

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

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

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

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

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

Weighted average number of
common shares outstanding 5,983,188 4,990,554
=================== ====================

See accompanying notes to consolidated financial statements

SHOPNET.COM, INC. AND SUBSIDIARIES
(FORMERLY HOLLYWOOD PRODUCTIONS, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

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

Balances at December 31, 1997 4,499,612 $ 4,499 $ 5,615,809 $ (645,449) $ 4,974,859

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

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

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

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

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

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

See accompanying notes to consolidated financial statements

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

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

Cash flows from operating activities:

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

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

Cash flows from investing activities:

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

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

Cash flows from financing activities:

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

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

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

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

Cash, end of period $ 1,376,239 $ 1,309,526
============== ==============

See accompanying notes to consolidated financial statements.

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

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

Supplemental disclosure of non-cash flow information:
Cash paid during the year
for:

Interest $ 235,098 $ 224,603
================= ================
Income taxes $ 16,225 $ 3,277
================= ================

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

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

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

See accompanying notes to consolidated financial statements.

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

NOTE 1 - ORGANIZATION

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Principles of Consolidation

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

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

The Company considers highly liquid investments with
maturities of three months or less at the time of purchase to
be cash equivalents. Included in these amounts are
certificates of deposit of approximately $1,151,000. The
Company maintains cash deposits in accounts which are in
excess of Federal Deposit Insurance Corporation limits by
approximately $1,051,000. The Company believes that such risk
is minimal. The Company maintains a letter of credit with a
financial institution as a condition of its factoring
agreement. The financial institution requires the Company to
maintain $1,150,000 on deposit as collateral for the letter of
credit. In addition, during 1999, the Company was required to
transfer a $200,000 cash collateral deposit to its factoring
agent. Accordingly, both cash amounts are designated as
restricted.

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

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

c) Inventory

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

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

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

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

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

e) Income taxes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

j) Reclassifications

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

k) Deferred compensation

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

l) Organizational costs

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

m) Costs in excess of net assets of business acquired

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

n) Deferred offering costs

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

o) Accounting for stock-based compensation

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

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

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

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

based on the fair value at the grant dates for awards under
the plan consistent with the method of SFAS no. 123, the
Company's net income (loss) and earnings per share would have
been reduced to the pro forma amounts indicated below

utilizing the Black-Sholes option pricing model:

1999 1998
---------------- ----------
Net income (loss)-

as reported $ (1,988,329) $ 30,994
================= ===============
pro forma $ (2,000,579) $ 30,994
================= ===============

Basic EPS - as reported $ (.33) $ .01
================= ===============
pro forma $ (.33) $ .01
================= ===============

p) Effect of New Accounting Standards

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

q) Furniture, Computer Equipment, and Leasehold Improvements

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

r) Equity Method of Accounting

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

s) Accounts Receivables

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

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

NOTE 3 - FURNITURE, COMPUTER EQUIPMENT & LEASEHOLD IMPROVEMENTS

Furniture, computer equipment, and leasehold improvements
are as follows at December 31, 1999:

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

Less: accumulated depreciation
and amortization 48,703
----------------
$ 67,817

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

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

NOTE 4 - ACQUISITION OF BREAKING WAVES, INC.

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

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

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

NOTE 5 - INVESTMENTS IN JOINT VENTURE AND AFFILIATE

a) Investment in Joint Venture

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

b) Investment in Affiliate

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

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

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

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

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

b) Investment in Affiliate (cont'd)

to 16.9%. Therefore, the investment in Play Co. will be
accounted for under the requirements of SFAS

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

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

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

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

(Unaudited)

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

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

NOTE 6 - ACCRUED EXPENSES

Accrued expenses consist of the following at December 31,
1999:

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

NOTE 7 - DUE TO FACTOR

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

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

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

NOTE 8 - CAPITAL LEASE OBLIGATIONS

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

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

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

NOTE 8 - CAPITAL LEASE OBLIGATIONS (cont'd)

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

Year
ended
December
31:

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

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

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

NOTE 9 - PROVISION (BENEFIT) FOR INCOME TAX

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

1999 1998
---------- -------
Current:

Federal $ - $ -
State and local 21,234 3,277
---------- ------------
21,234 3,277
---------- ------------
Deferred:
Federal - (145,501)
State and local (8,961) (50,159)
----------- -------------
(8,961) (195,660)
----------- -------------

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

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

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

1999 1998

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

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

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

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

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

Deferred current tax asset $ 55,000
==============

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

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

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

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

Net non-current deferred tax asset $ 132,460
==============

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

At December 31, 1999, the Company had a net operating loss
carryforward (NOL) for federal and state tax purposes of
approximately $1,860,000 and $1,549,000, respectively, both of
which expire between 2010 and 2014. Management believes it is
more likely than not that the results of future operations
will generate sufficient taxable income to realize the
deferred tax asset.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

a) Lease commitments

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

NOTE 10 - COMMITMENTS AND CONTINGENCIES (cont'd)

a) Lease commitments (cont'd)

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

2000 $ 141,257
2001 135,452
2002 71,600
2003 71,600
2004 71,600
Thereafter -
--------------
$ 491,509

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

b) Significant vendors and customers

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

c) Seasonality

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

d) License agreements

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

NOTE 9 - COMMITMENTS AND CONTINGENCIES (cont'd)

d) License agreements (cont'd)

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

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

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

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

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

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

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

NOTE 10 - COMMITMENTS AND CONTINGENCIES (cont'd)

f) Employment agreements

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

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

NOTE 11 - STOCKHOLDER'S EQUITY

a) Private placement

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

b) 1996 Senior Management Incentive Plan

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

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

NOTE 11 - STOCKHOLDER'S EQUITY (cont'd)

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

Number of Exercise
Options Price

Outstanding at December 31, 1997 109,998 $ 1.46
------------- ---------------
Granted - -
Exercised - -
Cancelled - -
-------------- ---------------
Outstanding at December 31, 1998 109,998 1.46
Granted - -
Exercised - -
Cancelled - -
-------------- ---------------
Outstanding at December 31, 1999 109,998 $ 1.46
=============== ===============

c) Cancellation of shares

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

d) Distribution Warrants

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

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

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

NOTE 11 - STOCKHOLDER'S EQUITY (cont'd)

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

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

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

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

h) Grant of Stock Options

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

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

NOTE 12 - RELATED PARTIES TRANSACTIONS

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

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

NOTE 12 - RELATED PARTIES TRANSACTIONS (cont'd)

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

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

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

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

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

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

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

NOTE 13 - INDUSTRY SEGMENTS

The Company's operations have been classified into two
segments: swimwear sales and film productions. Information
about the two segments for the years ended December 31, 1999
and 1998, is as follows:

1999 1998
Segment Consolidated Segment Consolidated

Sales:

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

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

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

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

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

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

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

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

NOTE 14 - SUBSEQUENT EVENTS

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