U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB
                                   (Mark One)

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

                For the quarterly period ended December 31, 2001

                                       OR

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

             For the transition period from __________ to __________

                         Commission File Number 0-28690

                                SHOPNET.COM, INC.
        (Exact Name of Small Business Issuer as Specified in its Charter)

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

            112 West 34th Street, Suite 902, New York, New York 10120
            ---------------------------------------------------------
                    (Address of Principal Executive Offices)

                                 (212) 967-8303
                  ----------------------------- ---------------
                (Issuer's Telephone Number, Including Area Code)

               14 East 60th Street, Suite 402, New York, NY 10022
            ------------------------- ------------------------------
              (Former Name, Former Address, and Former Fiscal Year,
                         if Changed Since Last Report)

         Check whether the Issuer (1) 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 [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares of each of the issuer's classes of common
equity outstanding as of the latest practicable date: Common Stock, par value
$.001 par value: 7,472,224 shares outstanding as of February 15, 2002.


                       SHOPNET.COM, INC. AND SUBSIDIARIES



                                TABLE OF CONTENTS




PART I.             FINANCIAL INFORMATION                                                                                     Page
                                                                                                                             Number
                                                                                                                           ---------
Item I.             FINANCIAL STATEMENTS
                                                                                                                             
                    Consolidated balance sheets as of December 31, 2001 (Unaudited) and June 30, 2001
                                                                                                                                3

                    Consolidated statements of operations and comprehensive income (Unaudited) for the six months
                    ended December 31, 2001 and December 31, 2000                                                               4

                    Consolidated statements of stockholders' equity for the six months ended December 31,
                    2001(Unaudited)                                                                                             5

                    Consolidated statements of cash flows for the six months ended December 31, 2001 and December 31,
                    2000 (Unaudited)                                                                                            6

                    Notes to consolidated financial statements (Unaudited)                                                      7

Item 2.             MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                                                                                                               20

PART II.            OTHER INFORMATION

Item 1.             LEGAL PROCEEDINGS

Item 2.             CHANGES IN SECURITIES AND USE OF PROCEEDS

Item 3.             DEFAULTS UPON SENIOR SECURITIES

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

Item 5.             OTHER INFORMATION

Item 6.             EXHIBITS AND REPORTS ON FORM 8-K

                    SIGNATURES




                       SHOPNET.COM, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                    As of December 31, 2001 and June 30, 2001



                                                                                                   Dec. 31       June 30,
                                                    ASSETS                                          2001           2001
                                                                                                 -----------    -----------
                                                                                                 (Unaudited)     (Audited)
Current assets:
                                                                                                          
     Cash ....................................................................................   $     1,040    $    24,703
     Cash-restricted .........................................................................          --          969,582
     Accounts receivable, net ................................................................        82,898         77,706
     Other receivables .......................................................................          --           62,734
     Inventory ...............................................................................     3,371,741        796,538
     Prepaid expenses ........................................................................       326,976         70,762
     Advances to officer .....................................................................        41,971         40,000
                                                                                                 -----------    -----------
                   Total current assets ......................................................     3,824,626      2,042,025
                                                                                                 -----------    -----------

     Property and equipment, net .............................................................        76,011         72,137
     Film production and distribution costs, net .............................................     1,204,728      1,204,728
     Costs in excess of net assets of business acquired ......................................       709,523        727,261
     Investments in movie ventures ...........................................................       246,376        246,439
     Deferred tax asset-non-current ..........................................................       202,500        202,500
     Other assets ............................................................................        20,706         20,635
     Marketable securities-affiliate .........................................................          --            6,350

                                                                                                 -----------    -----------
                   Total assets ..............................................................   $ 6,284,470    $ 4,522,075
                                                                                                 -----------    -----------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Due to factor ...........................................................................   $ 2,847,809    $ 1,700,337
     Accounts payable ........................................................................     1,259,250        138,218
     Accrued expenses ........................................................................        79,962         21,965
     Current portion of lease ................................................................        12,961         17,953
     Other taxes payable .....................................................................           276            743
     Deferred tax liability ..................................................................         3,606          3,606
                                                                                                 -----------    -----------
     Total current liabilities ...............................................................     4,203,864      1,882,822
                                                                                                 -----------    -----------

Capital lease obligations, net of current portion ............................................          --            3,758
                                                                                                 -----------    -----------

                   Total liabilities .........................................................     4,203,864      1,886,580
                                                                                                 -----------    -----------

Commitments and contingencies

Stockholders' equity
     Common stock- $.001 par value, 20,000,000 shares authorized, 7,472,244 shares issued and
       outstanding ...........................................................................         7,472          7,472
     Additional paid in capital ..............................................................     6,638,852      6,638,852
     Accumulated deficit .....................................................................    (4,565,718)    (4,017,179)
     Accumulated other comprehensive income ..................................................          --            6,350
                                                                                                 -----------    -----------
                   Total stockholders' equity ................................................     2,080,606      2,635,495
                                                                                                 -----------    -----------

     Total liabilities and stockholders' equity ..............................................   $ 6,284,470    $ 4,552,075
                                                                                                 ===========    ===========


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

                                       -3-

                       SHOPNET.COM, INC. AND SUBSIDIARIES
      Consolidated Statement of Operations and Comprehensive Income (Loss)
                                   (Unaudited)



                                                             Six Months Ended             Three Months Ended
                                                         Dec. 31,       Dec. 31,       Dec. 31,       Dec. 31,
                                                           2001           2000           2001           2000
                                                       -----------    -----------    -----------    -----------

                                                                                        
Net sales ..........................................   $ 1,700,705    $ 2,039,363    $ 1,335,592    $ 1,786,120

Cost of sales ......................................     1,098,622      1,272,470        693,300        974,335
                                                       -----------    -----------    -----------    -----------

Gross profit .......................................       602,083        766,893        642,292        811,785
                                                       -----------    -----------    -----------    -----------

Expenses:
Selling, general, and administrative ...............       979,147      1,112,064        508,318        558,021
Amortization of costs in excess of net assets of
    business acquired ..............................        35,476         35,476         17,738         17,738
                                                       -----------    -----------    -----------    -----------

Total expenses .....................................     1,014,623      1,147,540        526,056        575,759
                                                       -----------    -----------    -----------    -----------

Income (loss) before other income (expenses) and
provision for income taxes .........................      (412,540)      (380,647)       116,236        236,026
                                                       -----------    -----------    -----------    -----------

Other income (expenses):
Equity in earnings (loss) of affiliate .............           (63)        (4,290)          --           (4,290)
Write down of film costs ...........................          --         (208,564)          --         (158,564)
Rental income ......................................         9,050         11,171           --            5,671
Interest and financial expense .....................      (155,919)      (182,425)       (94,345)      (139,887)
Interest income ....................................        10,933         44,251          1,334         16,655
                                                       -----------    -----------    -----------    -----------

Total other income (expense) .......................      (135,999)      (339,857)       (93,011)      (280,415)
                                                       -----------    -----------    -----------    -----------

Income (loss) before provision for income taxes ....      (548,539)      (720,504)        23,225        (44,389)

Provision (benefit) for income taxes ...............          --          (16,974)          --          (22,384)
                                                       -----------    -----------    -----------    -----------

Net income (loss) ..................................      (548,539)      (703,530)        23,255        (22,005)
                                                       -----------    -----------    -----------    -----------

Other items of comprehensive (loss) income
                                                            (6,350)      (158,750)          --             --
                                                       -----------    -----------    -----------    -----------

Comprehensive loss .................................   $  (554,889)   $  (862,280)   $    23,225    $   (22,005)
                                                       -----------    -----------    -----------    -----------

Basic:
Net loss per share .................................   $      (.07)   $     (0.09)   $      .003    $     (.003)
                                                       ===========    ===========    ===========    ===========

Weighted average number of common shares outstanding
                                                         7,472,244      7,472,244      7,472,244      7,472,244
                                                       ===========    ===========    ===========    ===========


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

                                      -4-

                       SHOPNET.COM, INC. AND SUBSIDIARIES
                 Consolidated Statement of Stockholders' Equity
                   For The Six Months Ended December 31, 2001
                                   (Unaudited)



                                                                                                 Accumulated
                                                                     Additional                     Other          Total
                                              Common Stock            Paid-in     Accumulated   Comprehensive    Stockholders'
                                         Shares         Amount        Capital       Deficit        Income (loss)  equity
                                      -----------    -----------    -----------   -----------    -----------    -----------

                                                                                        
Balances at June 30, 2001 (Audited)     7,472,244    $     7,472    $ 6,638,852   $(4,017,179)   $     6,350    $ 2,635,495

Net loss (Unaudited) ..............                                                  (548,539)                     (548,539)

Comprehensive loss ................          --             --             --            --      $    (6,350)        (6,350)
                                      -----------    -----------    -----------   -----------    -----------    -----------

Balances at December 31, 2001 .....   $ 7,472,244    $     7,472    $ 6,638,852   $(4,565,718)   $      --      $ 2,080,606
                                      ===========    ===========    ===========   ===========    ===========    ===========
















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

                                       -5-

                       SHOPNET.COM, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
               For The Six Months Ended December 31, 2001 And 2000
                                   (Unaudited)




                                                                                        Dec. 31,         Dec. 31,
                                                                                          2001             2000
                                                                                      -----------    -----------
Cash flows from operating activities:

                                                                                               
   Net loss .......................................................................   $  (548,539)   $  (703,530)
   Adjustments to reconcile net income to net cash used in operating activities:
        Equity in loss of affiliate ...............................................            63        (35,710)
        Amortization and depreciation .............................................        57,876
                                                                                                          31,665

Decrease (increase) in:
        Accounts receivable .......................................................        (5,186)       (35,810)
        Other receivables .........................................................        62,734        (27,922)
        Inventory .................................................................    (2,575,203)    (2,896,383)
        Prepaid expenses ..........................................................      (256,220)       (29,607)
        Advances to officer .......................................................        (1,971)          --
        Other assets ..............................................................           (71)           (54)
        Investment in securities available for sale ...............................          --          266,700
Increase (decrease) in:
        Due to factor .............................................................     1,147,472      2,127,967
        Accounts payable ..........................................................     1,121,032      1,039,046
        Accrued expenses ..........................................................        57,997         61,102
        Other taxes payable .......................................................          (467)        11,051
                                                                                      -----------    -----------

Net cash used in operating activities .............................................      (966,694)      (165,274)
                                                                                      -----------    -----------

Cash flows from investing activities:
   Acquisition of property and equipment ..........................................       (17,801)        (3,408)
                                                                                      -----------    -----------

Net cash used in investing activities .............................................       (17,801)        (3,408)
                                                                                      -----------    -----------
Cash flows from financing activities:
  Principal payments on capital leases ............................................        (8,750)       (37,950)
  Reduction in line of credit .....................................................          --         (213,894)
                                                                                      -----------    -----------

Net cash used in financing activities .............................................        (8,750)      (251,844)
                                                                                      -----------    -----------

Net decrease in cash and restricted cash ..........................................      (993,245)      (420,526)

Cash and restricted cash, beginning of period .....................................       994,285      1,642,832
                                                                                      -----------    -----------

Cash and restricted cash, end of period ...........................................   $     1,040    $ 1,122,306
                                                                                      ===========    ===========

Supplemental disclosure of cash flow information: cash paid during the period for :

        Interest ..................................................................   $   155,919    $   182,425
                                                                                      ===========    ===========

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


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

                                       -6-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1-  ORGANIZATION

                  Shopnet.com, Inc. ("Shopnet" or the "Company") was
                  incorporated in the State of Delaware on December 1, 1995
                  under the name of Hollywood Productions, Inc. It was formed
                  for the purpose of acquiring screenplays and producing motion
                  pictures. On May 10, 1999, the Company filed an amendment to
                  its Articles of Incorporation to change its name to
                  Shopnet.com. Inc. On May 12, 1999, Shopnet incorporated a new
                  wholly owned subsidiary, Hollywood Productions, Inc.
                  ("Hollywood"), to which the Company assigned all of its film
                  rights. Accordingly, Shopnet is considered a holding company.
                  During September 1996, simultaneously with the completion of
                  its Initial Public Offering ("IPO"), Shopnet acquired all of
                  the capital stock of Breaking Waves, Inc. ("Breaking Waves").
                  Breaking Waves designs, manufactures, and distributes private
                  and brand name labels of children's swimwear nationally. As of
                  June 30, 2001, Shopnet and all of its subsidiaries changed
                  their financial year end from December 31 to June 30.

NOTE 2-  INTERIM RESULTS AND BASIS OF PRESENTATION

                  The accompanying unaudited consolidated financial statements
                  as of December 31, 2001 and for the six month periods ended
                  December 31, 2001 and December 31, 2000 and for the three
                  month periods ended December 31, 2001 and December 31,2000
                  have been prepared in accordance with generally accepted
                  accounting principles for interim financial information and
                  with the instructions to Form 10-QSB and Items 303 and 310 of
                  Regulation S-B. In the opinion of management, the unaudited
                  financial statements have been prepared on the same basis as
                  the annual financial statements and reflect all adjustments,
                  which include only normal recurring adjustments, necessary to
                  present fairly the financial position as of December 31, 2001
                  and the results of operations and cash flows for the six month
                  periods ended December 31, 2001 and December 31, 2000 are not
                  necessarily indicative of the results to be expected for any
                  subsequent quarter or the entire fiscal year. The balance
                  sheet at June 30, 2001 has been derived from the audited
                  financial statements at that date.

                  Certain information and footnote disclosures normally included
                  in financial statements prepared in accordance with generally
                  accepted accounting principles have been condensed or omitted
                  pursuant to the Securities and Exchange Commission's rules and
                  regulations. The Company believes, however, that the
                  disclosures in this report are adequate to make the
                  information presented not misleading in any material respect.
                  The accompanying consolidated financial statements should be
                  read in conjunction with the audited financial statements of
                  Shopnet.com, Inc. and Subsidiaries as of June 30, 2001 and for
                  the six month period then ended and notes thereto included in
                  the Company's report on Form 10-KSB filed on October 15, 2001.

                  The Company in the quarter ended December 31, 2001 has
                  implemented a number of initiatives which it believes will
                  reduce its costs of operations and alleviate in the following
                  six months its working capital deficiency. In particular, the
                  Company believes that the repayment of its indebtedness to
                  Century (See Note 6 (b) ) and the recent reductions in
                  interest rates will reduce interest expense. Shopnet has
                  chosen not to renew its lease for its executive facilities.

                                       -7-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2-  INTERIM RESULTS AND BASIS OF PRESENTATION  (continued)

                  In December 2001, the Company consolidated all of its
                  operation's in the New York metropolitan region into one new
                  facility (See Note 9(a) ), creating a savings through
                  synergies in office expense and decrease in rent and salaries.
                  The Company has, also, recently refocused its sales efforts,
                  to the extent possible, to eliminate unprofitable or low
                  margin sales and has had improved sales and orders for the
                  current fiscal year.

NOTE 3-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)       Recently adopted accounting principles - Film accounting

                  Pursuant to SFAS no. 139, the Company adopted Statement of
                  Position ("SOP") 00-2, "Accounting by Producers or
                  Distributors of Films" during the six months ended December
                  31, 2001. SOP 00-2 established new film accounting standards,
                  including changes in revenue recognition and accounting for
                  advertising, development and overhead costs. Specifically, SOP
                  00-2 requires advertising costs for theatrical and television
                  products to be expensed as incurred. This compares to the
                  Company's previous policy of first capitalizing these costs
                  and then expensing them over the related revenue streams. In
                  addition, SOP 00-2 requires development costs for abandoned
                  projects and certain indirect overhead costs to be charged to
                  film costs, which was required under the previous accounting
                  rules, SOP 00-2 also in other areas, such as revenue
                  recognition, generally are consistent with the Company's
                  existing accounting policies. SOP-002 was adopted as of July
                  1, 2001, and had no effect on the Company's consolidated
                  results of operations, financial position or cash flows.

b)       Recently issued accounting pronouncements

                  The Company does not believe that any recently issued but not
                  yet effective accounting standards, have a material effect on
                  the Company's consolidated financial position, results of
                  operations or cash flows except for the effect of adoptions of
                  SFAS No. 142, " Goodwill and Other Intangible assets". It
                  addresses how intangible assets that are acquired individually
                  or with a group of other assets (but not those acquired in a
                  business combination) should be accounted for in financial
                  statements upon their acquisition. SFAS 142 also addresses how
                  goodwill and other intangible assets should be accounted for
                  after they have been initially recognized in the financial
                  statements. The Company will be adopting the provisions of
                  this new standard beginning with the first quarter of 2002.
                  During June 2001 SFAS No. 141, "Business Combinations" (SFAS
                  No, 141") was released. This standard addresses financial
                  accounting and reporting for business combinations. All
                  business combinations within the scope of SFAS 141 are to be
                  accounted for using one method - the purchase method. The
                  provisions of SFAS 141 apply to all business combinations is
                  prohibited. It also applies to all business combinations
                  accounted for using the purchase method for which the date of
                  acquisition is July 1, 2001 or later.

                                       -8-


                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

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 $35,476
                  for each of the six months ended December 31, 2001 and 2000.

NOTE 5-  INVESTMENTS IN MOVIE VENTURES

a)       Battle Studies

                  Pursuant to a co-production agreement dated April 17, 1998
                  with North Folk Films, Inc., the Company invested through
                  December 31, 2001, $217,500 for a 50% interest in a new
                  entity, Battle Studies Productions, LLC ("Battle Studies") a
                  limited liability company. Battle Studies will be treated as
                  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.

b)       The Girl

                  Pursuant to an agreement dated July 1, 1999 with Artistic
                  License Films Inc., Hollywood invested through December 31,
                  2001 $35,000 for a 22.533% interest in a new entity, The Girl,
                  LLC ("The Girl") a limited liability company. In return for
                  its participation in The Girl, Hollywood is entitled to
                  receive a non-contested, non-dilutable 22.533% ownership
                  interest in The Girl, a recoupment of its investment on no
                  less favorable terms than any other investor and 22.533% of
                  100% of any contingent compensation which shall be actually
                  received by The Girl. The Girl retains all rights to the
                  motion pictures, the screenplays, and all ancillary rights
                  attached thereto.

                  The Company accounts for the investments in Battle Studies and
                  The Girl under the equity method. For the six months ended
                  December 31, 2001 and 2000, the Company recorded $63 and $0,
                  respectively, in net equity losses.

NOTE 6-  MARKETABLE SECURITIES- AFFILIATE

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

                  Breaking Waves' ownership percentage is approximately 1.5% of
                  Play Co. The investment in Play Co. is accounted for under the
                  requirements of SFAS No. 115, "Accounting for Certain
                  investments in Debt and Equity Securities." Under SFAS 115,
                  the securities are considered available for sale and therefore
                  the carrying value is based on the fair market value of the
                  securities at December 31, 2001 and 2000 which amounted to $0
                  and $337,000, respectively.

                                       -9-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 6-  MARKETABLE SECURITIES- AFFILIATE (continued)

                  The change in the fair market value of the securities during
                  the periods are recorded as an unrealized gain or loss as a
                  component of comprehensive income. The Company pledged such
                  shares as collateral for a standby letter of credit in
                  connection with Breaking Waves entering into a new factoring
                  agreement with Century Business Credit Corporation ("Century")
                  and are therefore considered non-current (See Note 6 (b)).

                  On March 28, 2001 Play Co. filed for protection under Chapter
                  Eleven of the United States Code with the United States
                  Bankruptcy Court for the Southern District of New York. The
                  filing was converted into a Chapter Seven filing on August 28,
                  2001.

NOTE 7-  DUE TO FACTOR

a)       CIT Group

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

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

                  On or about September 12, 2000 the agreement with CIT was
                  cancelled and a new factoring agreement was entered into as
                  discussed below. As of September 30, 2000, there was a balance
                  due CIT for the net advances to Breaking Waves which amounted
                  to $24,921. Interest expense related to this agreement totaled
                  $0 and $33,686 for the six months ended December 31, 2001 and
                  2000.

b)       Century Business Credit Corporation

                  On or about September 12, 2000, Breaking Waves entered into a
                  factoring and revolving inventory loan and security agreement
                  ("factoring agreement") with Century Business Credit
                  Corporation ("Century") to sell its interest in all present
                  and future receivables without recourse. Breaking Waves
                  submits all sales offers to Century for credit approval prior
                  to shipment, and pays a factoring commission of .75% of
                  receivables sold. Century retains from the amount payable to
                  Breaking Waves a reserve for possible obligations such as
                  customer disputes and possible credit losses on unapproved
                  receivables. Breaking Waves may take advances of up to 85% of
                  eligible receivables and up to 50% of the value of finished
                  goods in inventory, with interest payable monthly at the rate
                  of 1 3/4% over prime.

                                      -10-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



NOTE 7-  DUE TO FACTOR

         b)       Century Business Credit Corporation (continued)

                  Pursuant to the terms of a Reimbursement and Compensation
                  Agreement, a trust ("Trust"), the beneficiary of which is a
                  relative of the Company's President and Chief Executive
                  Officer ("CEO") and a relative of a principal stockholder,
                  pledged assets as collateral for securing a $250,000 letter of
                  credit to replace a portion of a letter of credit previously
                  pledged by the Company. Accordingly, on December 20, 2000 the
                  original agreement with the factor was amended to allow such
                  replacement of collateral. Breaking Waves' Loan and Security
                  Agreement with Century dated December 20, 2000 requires the
                  provision of one or more letters of credit in the aggregate
                  amount of $1,150,000 to partially secure the line of credit.
                  On September 15, 2001, Century required the Company to
                  increase the amount of collateralized standby letters of
                  credit by $300,000 raising such amount to $1,450,000.

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

                  On September 15, 2001, the Amended and Restated Reimbursement
                  and Compensation Agreement was entered into and further
                  amended the agreement with the Trust, so that the letter of
                  credit secured by the Trust was increased to $750,000. The
                  amended letter of credit expires on September 1, 2002 but can
                  be extended year to year at the Company's option for a period
                  of ten years. Breaking Waves agreed to reimburse the Trust for
                  any and all losses, fees, charges and expenses to the Trust in
                  the event the letter of credit is called by Century and / or
                  the issuing bank demands reimbursement from the Trust.
                  Breaking Waves' obligations are guaranteed by the Company in
                  addition to being secured by a first security interest in all
                  of the assets of the Company and a subordinate security
                  interest in all of the assets of Breaking Waves.

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

                                      -11-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 7-  DUE TO FACTOR

         b)       Century Business Credit Corporation (continued)

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

                  In September 2001, the Company and Breaking Waves retained Arc
                  Financial Corp. ("ARC"), a British Virgin Island company, for
                  a ten year term to provide financial consulting services.
                  Pursuant to the terms of a consulting services. Pursuant to
                  the terms of a consulting agreement ("ARC Consulting
                  Agreement"), ARC was retained to assist the Company in the
                  acquisition of financing to acquire inventory and for other
                  corporate purposes ("Financing"), as well as consult with the
                  Company with regard to its ongoing operations, promote sales
                  of Breaking Waves' products and improving production. Pursuant
                  to the terms of the ARC Consulting Agreement, the Company and
                  Breaking Waves agreed to compensate ARC (i) an annual fee of
                  $20,000 ("Base Fee") and (ii) a percentage of annual net sales
                  in the amount of 1-1/4% through June 30, 2002 and 1-3/4% of
                  net sales for each year of the term thereafter through
                  September 30, 2011 ("ARC Percentage Fee"), payable 45 days
                  after the closing of each fiscal quarter. In October 2001, ARC
                  received (I) a lump sum payment of $209,000 reflecting full
                  advance payment of the Base Fee and (ii) $36,750 reflecting
                  advance payment of the Arc Percentage Fee. The agreement with
                  Arc expires September 30, 2011. The Company and Breaking Waves
                  are entitled to terminate the ARC Consulting Agreement any
                  time after September 30, 2006, in which event all prepaid fees
                  are forfeited.

                  Interest expense related to the factor agreement totaled
                  $102,833 and $100,488 for the six months ended December 31,
                  2001 and 2000, respectively. Century has a secured interest in
                  Breaking Waves' inventory as collateral for the advances. As
                  of December 31, 2001, the net advances to Breaking Waves from
                  Century amounted to $2,847,809.

                  During October 2001, Century released the Company from its
                  requirement of maintaining a minimum cash balance as a result
                  of the events discussed in Note 6 (b). Upon Century removing
                  the restriction, the Company paid and reduced the amount due
                  to Century in October and November 2001 by an aggregate of
                  $620,000.



                                      -12-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 8-  OTHER EVENTS

                  On January 23, 2002, the Company notified the Nasdaq Stock
                  Market, Inc. ("Nasdaq") of the withdrawal of its listing from
                  the SmallCap Market, effective with that date.

                  The Company had previously received notification from Nasdaq
                  in late November 2001, advising that it did not satisfy the
                  minimum net tangible assets or equity standards for continued
                  listing on the Nasdaq SmallCap Market.

                  The Company has explored its options in this regard, and has
                  determined that its resources would best be allocated in areas
                  that could improve its results of operations. The Company's
                  common stock and warrants have traded on the Nasdaq SmallCap
                  Market since September 1996.

                  Following the delisting from Nasdaq, the Company's securities
                  began trading on the OTC Bulletin Board.


NOTE 9-  COMMITMENTS AND CONTINGENCIES

a)       Lease commitments

                  Shopnet and Breaking Waves have entered into lease agreements
                  for their administrative offices. Shopnet leases its
                  administrative offices. Shopnet leased its administrative
                  office pursuant to a 5-year lease that expired on November 30,
                  2001 at annual rent amounting to approximately $70,000, before
                  annual escalations. Breaking Waves terminated its lease
                  effective November 30, 2001. A new 6 year lease expiring
                  September 30, 2007 was signed in July 2001 and is effective
                  beginning December 1, 2001.Annual rent under the new lease is
                  $84,915 through December 31, 2004 and $95,760 for the
                  remainder of the lease. Lastly, Breaking Waves leases an
                  offsite office for one of its designers on a month to month
                  basis with annual payments approximating $11,000. The Company
                  and Breaking Waves' approximate future minimum rentals under
                  non-cancelable operating leases in effect on December 31, 2001
                  are as follows:

                                2002                             $       111,861
                                2003                                      84,915
                                2004                                      84,915
                                2005                                      90,338
                                2006                                      95,760
                                Thereafter                               119,700
                                                                ----------------
                                                                 $       587,489
                                                                ================

                  Rent expense for the six months ended December 31, 2001 and
                  2000 amounted to $68,127 and $84,400, respectively.


                                      -13-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 9-  COMMITMENTS AND CONTINGENCIES (continued)

b)       Significant vendors and customers

                  Breaking Waves purchases 100% of its inventory from two
                  vendors, one in Indonesia and the other in Samoa. Breaking
                  Waves believes other sources and vendors are available and
                  that it is not dependent exclusively on these vendors.

c)       Seasonality

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

d)       License agreements

        i)          On October 16,  1995,  Breaking  Waves  entered  into a
                    license agreement with Beach Patrol,  Inc. ("Beach") for the
                    exclusive use of certain  trademarks  in the United  States.
                    The  agreement  covered a term from  January 1, 1996 to June
                    30,  1998  and  contained  a  provision  for  an  additional
                    three-year  extension,  at the  option  of  Breaking  Waves,
                    through  and  until  June  30,  2001.   Breaking  Waves  had
                    exercised  this option,  thereby so extending the agreement.
                    The agreement called for minimum annual royalties of $75,000
                    to  $200,000  over the life of the  agreement  with  options
                    based on sales levels from  $1,000,000 for the first year to
                    $4,000,000 in the sixth year.  Breaking Waves has negotiated
                    an  additional  two-year  extension  thereby  extending  the
                    agreement through and until June 30, 2003, and it contains a
                    provision  for  an  additional  two-year  extension,  at the
                    option of Breaking  Waves,  through and until June 30, 2005.
                    The new agreement  signed  February 28, 2001 and effectively
                    July 1, 2001 calls for minimum  annual  royalties of $50,000
                    to $87,500 over the life of the extension  with option based
                    on sales  levels from  $1,000,000  for the  seventh  year to
                    $1,750,000  in  the  tenth  year.  Breaking  Waves  recorded
                    royalties under this agreement  totaling $10,000 and $63,897
                    during  the six  months  ended  December  31,  2001 and 2000
                    respectively.

        ii)         During June 2000,  Breaking  Waves  entered  into a
                    license agreement with an effective date of November 1, 2000
                    with Gottex Models Ltd., as Israeli  corporation  and Gottex
                    Models (USA) Corp.,  a New York  corporation  for the use of
                    the  trademark  "Gottex" in the United States of America for
                    children's  swimwear.  The agreement calls for a royalty fee
                    of 7% of net sales with guaranteed  minimum annual royalties
                    of  $70,000  to  $140,000  over the  life of the  agreement.
                    Breaking  Waves  recorded   royalties  under  the  agreement
                    totaling  $42,611  and  $8,859  for  the  six  months  ended
                    December 31, 2001 and 2000, respectively.


                                       14-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 9-  COMMITMENTS AND CONTINGENCIES (continued)

e)       Co-production and property purchase agreements

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

                  As of December 31, 2001, the Company invested $1,971,956 for
                  the co-production and distribution of such motion pictures
                  whereas the co-producers have invested $100,000. For the six
                  months ended December 31, 2001 and 2000, the Company derived
                  no revenue from the motion picture and amortized no film
                  costs.

                  For the six months ended December 31, 2001 and 2000 the
                  Company has written down its film production and distribution
                  costs by $0 and $50,000, respectively, in order to reduce the
                  asset to its estimated net realizable value.

f)       Litigation

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

                  In or about December 2001, a group of over 275 foreign
                  plaintiffs commenced an action entitled Abeln v. Arbel, et. al
                  in the United States District Court for the Southern District
                  of New York naming the Company, along with over 30 other
                  entities and individuals as defendants. The Company has not
                  yet been served with the summons and complaint, and cannot
                  discern if such service will be effectuated. Thus, the Company
                  is not yet a party to the suit.

                  The Complaint purports to state claims, among others, for
                  securities fraud, RICO, breach of contract, common law fraud
                  and breach of fiduciary duty allegedly arising out of the
                  defendants' supposed involvement with the preferred stock of
                  Europe American Capital Corporation ("EACC"). The complaint is
                  unclear but it appears that only the RICO and common law fraud
                  claim are alleged as against the Company.


                                      -15-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 9-  COMMITMENTS AND CONTINGENCIES (continued)

f)              Litigation (continued)

                  Among other things, the plaintiffs claim that a large amount
                  of EACC's funds have been invested in the Company. The
                  plaintiffs allege that they incurred losses and damages in
                  excess of $25,000,000. The action seeks an unstated amount of
                  monetary damages together with punitive damages.

                  Should the Company be served, it anticipates seeking Court
                  approval to make a motion to dismiss the complaint for among
                  other reasons, failure to state claim.

                  In light of the early stage of this action, the Company's
                  counsel is unable to form an opinion as to the likelihood of
                  an unfavorable outcome.

NOTE 10- STOCKHOLDERS' EQUITY

a)       Earnings per share

                  Earnings per common share is computed pursuant to Statement of
                  Financial Accounting Standards (SFAS) No. 128 "Earnings Per
                  Share" ("EPS"). Basic earnings per share is computed as net
                  income (loss) available to common shareholders divided by the
                  weighted average number of common shares outstanding for the
                  period. Diluted EPS reflects the potential dilution that could
                  occur from common shares issuable through stock options,
                  warrants and other convertible securities. Diluted EPS is not
                  presented since the effect would be anti-dilutive.

b)       Warrants

        i)          Initially,  each Warrant  issued in the initial  public
                    offering of September 24, 1996 entitled the holders  thereof
                    to purchase  one share of the  Company's  common stock at an
                    exercise price of $6.50 per share,  until September 9, 2001.
                    On August 31,  2001,  the Company  extended  the term of its
                    warrants by 18 months, the Warrants will now expire on March
                    10, 2003. On June 23, 1997, the Board of Directors  approved
                    a reduction in the exercise price of the Warrants from $6.50
                    to $3.00.  On February 5, 1998,  the Company  affected a one
                    for  three  reverse  split of the  Company's  common  stock.
                    Accordingly,  the Company adjusted the terms of the Warrants
                    to reflect  the  reverse  split such that  exercise of three
                    Warrants  would  entitle the holder to purchase one share of
                    common stock at an exercise price of $9.00. Giving effect to
                    the January  1999 100% common  stock  dividend,  the January
                    2000 10% common  stock  dividend and the May 2000 20% common
                    stock dividend, the warrants have been cumulatively adjusted
                    such that the exercise of each warrant at an exercise  price
                    of $3.41 purchases .88 of a share of common stock.

                                      -16-


                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 10- STOCKHOLDERS' EQUITY (continued)

         b)       Warrants (continued)

                ii) On April 15,  1998,  the  Company's  Board of Directors
                    authorized the  distribution of warrants to all shareholders
                    of the Company's common stock as of May 8, 1998. Pursuant to
                    the  distribution,  each  shareholder of record will receive
                    one  warrant  to  purchase  one share of common  stock at an
                    exercise price of $4.00 per share.  The warrants,  which are
                    exercisable for a period of three years, commencing one year
                    after issuance and receipt by  shareholder,  shall be issued
                    and  distributed  once the Company  has file a  registration
                    statement for same and same has been  declared  effective by
                    the Securities and Exchange Commission.  The Company to date
                    has not filed the registration statement.

NOTE - 11         RELATED PARTIES TRANSACTIONS

a)                         For the six months ended December 31, 2001 and 2000
                           financial consulting fees were paid to a corporation
                           and an individual who are related to the Company's
                           President and CEO amounting to $17,445 and $22,800,
                           respectively.

b)                         During October 1996, pursuant to two promissory
                           notes, the Company loaned two of its officers a total
                           of $87,000 bearing interest at six and one-half
                           percent (6 1/2) payable over three years. As of
                           December 31, 2001, the unpaid portion amounted to
                           $37,000, which has been classified as current. As of
                           December 31, 2001, 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.




                                      -17-

                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE - 12         SEGMENT INFORMATION

                  The Company's operations have been classified into two
                  segments: swimwear sales and film productions. These operating
                  segments were based on the nature of the projects and services
                  offered. Operating segments are defined as components of an
                  enterprise about which separate financial information is
                  available that is evaluated regularly by the chief operating
                  decision maker in deciding how to allocate resources and
                  assess performance. The Company's CEO has been identified as
                  the chief decision maker. The Company's chief operating
                  decision maker directs the allocation of resources to
                  operating segments based on the profitability and cash flow of
                  the respective segments. Information about the two segments is
                  as follows:



                                                                   Six Months Ended
                                                        2001                           2000
                                               ---------------------------      ----------------------------
                                                 Segment      Consolidated        Segment       Consolidated
                                               -----------   -------------      ------------    ------------
   Sales:

                                                                                    
      Swimwear sales .......................   $ 1,700,705                      $ 2,039,363
      Film production ......................          --                               --
                                               -----------                      -----------

Total sales ................................                  $ 1,700,705                       $ 2,039,363
                                                              ===========                       ===========

Operating income (loss):
      Swimwear sales .......................                  $  (187,260)                      $   (58,498)
      Film production ......................                         (600)                         (214,135)
                                                              -----------                       -----------

Total operating income (loss) ..............                  $  (187,860)                      $   272,633
                                                              -----------                       -----------

Corporate:
      General and administrative expense ...                  $  (189,204)                      $  (281,102)
                                                               -----------                      -----------

      (Loss) equity in earnings of affiliate                          (63)                           (4,290)
      Amortization expense .................                      (35,476)                          (35,476)
      Interest income ......................                       10,933                            44,251
      Interest and finance expense .........                     (155,919)                         (182,425)
      Other ................................                        9,050                            11,171
                                                               -----------                      -----------

Loss from operating before (benefit) .......                     (548,539)                         (720,504)

Provision for income tax ...................                         --                             (16,974)
                                                               -----------                       -----------

Net (loss) income ..........................                  $  (548,539)                      $  (703,530)
                                                               ===========                       ===========

Identifiable assets:
      Swimwear sales .......................                  $ 3,604,624                       $ 4,072,174
      Film productions .....................                    1,451,104                         1,598,210
      Corporate ............................                    1,228,942                         1,993,411
                                                              -----------                       -----------

Total assets ...............................                  $ 6,284,670                       $ 7,663,795
                                                              ===========                       ===========



                                      -18-



                       SHOPNET.COM, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE - 12         SEGMENT INFORMATION (continued)

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











































                                      -19-

   ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

   CAUTIONARY STATEMENTS ON FORWARD-LOOKING STATEMENTS

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

   General

   Shopnet.com, Inc. ("Shopnet" or the "Company") was incorporated in the State
   of Delaware on December 1, 1995 as Hollywood Productions, Inc. On May 10,
   1999, Shopnet filed an amendment to its Articles of Incorporation effecting a
   change in its name to its current one. On May 12, 1999, it incorporated a new
   wholly-owned subsidiary, Hollywood, to which it assigned its motion picture
   business thereby rendering Shopnet a holding company for Hollywood and
   another wholly-owned subsidiary, Breaking Waves. Shopnet was formed initially
   for the purpose of acquiring screenplays and producing motion pictures. In
   September 1996, in connection with the completion of its IPO, it acquired all
   of the capital stock of Breaking Waves which designs, manufactures, and
   distributes private and brand name label children's swimwear. As of June 30,
   2001, the company changed its year end from December 31 to June 30.

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

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

   Three months ended December 31, 2001 as compared to the three months ended
   December 31, 2000

   For the three months ended December 31, 2001, the Company reported
   consolidated net income of $23,225 as compared to a consolidated net loss of
   $22,005 for the three months ended December 31, 2000 after an income tax
   expense of $0 and a tax benefit of $22,384 and comprehensive net income of
   $23,225 and a comprehensive net loss of $22,005, respectively.

   Breaking Waves
   For the three months ended December 31, 2001 and 2000, Breaking Waves
   generated net sales of $1,335,592 and $1,786,120, respectively, with related
   cost of sales amounting to $693,300 and $974,335, respectively. The decrease
   in sales amounting to $450,528, or approximately 25%, from 2000 to 2001 was
   primarily attributable to the economic impact of the September 11th disaster
   and the subsequent deferment of new orders into the new year.

                                      -20-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

   Breaking Waves (continued)

   The gross profit for the three months ended December 31, 2001 amounted to
   $642,292, or 48% of sales as compared to the three months ended December 31,
   2000 during which it amounted to $811,785 or 45% of sales.

   Selling, general, and administrative expenses during the three months ended
   December 31, 2001 and 2000 amounted to $ 404,277 and $ 425,280, respectively.
   The decrease amounting to $21,003 or approximately 5%, is primarily
   attributable to a decrease in selling expenses as a result of the decrease in
   sales due to the September 11th disaster.

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



                                                                                                          2001              2000
                                                                                                    ----------------    ------------

                                                                                                                  
          Officers, office staff, designer and  sales , salaries and related benefits                     $169,966      $ 153,172

          Commission expense                                                                                 11,135         40,282
          Warehousing costs                                                                                  76,541         77,115
          Royalty fees                                                                                       13,080          8,859
          Rent expense                                                                                       25,814         23,997
          Factor commissions                                                                                  8,663         14,683

          Miscellaneous general corporate overhead expenses                                                 99,078         107,172




   Interest expense in connection with its factoring agreement amounted to
   $51,461 and $96,638 for the three months ended December 31, 2001 and 2000,
   respectively. The decrease is due to a decrease in sales, as well as a
   reduction in the stated prime interest rate.

   Breaking Waves generated net income of $238,056 and a loss of $134,691 for
   the three months ended December 31, 2001 and 2000 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 prior to May 12, 1999 were conducted by Shopnet under its former
   name.

   For the three months ended December 31, 2001 and 2000, Hollywood generated no
   sales form its motion picture "Dirty Laundry". Although sales prior to and
   including the six months ended June 30, 2001 were minimal, the company
   expects to effect increased sales during the fiscal year ending June 30, 2002
   and thereafter as a result of the implementation of a new marketing strategy
   which among other things, emphasizes the development of new marketing and
   distribution arrangements for "Dirty Laundry". Upon a review of the net
   realizable value of the movie cost, management has determined that a $0 and
   $50,000 write down was necessary as of December 31, 2001 and 2000,
   respectively, Accordingly, Hollywood generated a loss of $600 and $0 for the
   three months ended December 31, 2001 and 2000, respectively.

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

                                      -21-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


   Shopnet.com

   For the three months ended December 31, 2001 and 2000, Shopnet generated
   minimal income comprised of interest from its money market and other
   ancillary revenue from its corporate office.

   Shopnet's selling, general, and administrative expense amounted to $104,082
   and $132,741 for the three months ended December 31, 2001 and 2000. This
   represents a decrease of $28,659, or approximately 22%.

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



                                                                                              2001               2000
                                                                                          ---------------    --------------
           Salaries (officer and office staff) and stock compensation and related benefits
                                                                                                $30,586            $36,306
                                                                                                              
           Rent                                                                                   6,442             19,118
           Legal and professional fees                                                           47,330             27,500
           Consulting fees                                                                        5,945              6,000
           Other general corporate and administrative expense                                    13,779             43,817


   Shopnet generated a net loss of $103,784 and $235,283 for the three months
   ended December 31, 2001 and 2000, respectively. These net losses include, on
   a consolidated basis, amortization of goodwill of $17,738 in each period.


Six months ended December 31, 2001 as compared to the six months ended
December 31, 2000

   For the six months ended December 31, 2001 and 2000, the Company reported a
   consolidated net loss of $548,539 and $703,530 after an income tax expense of
   $0 and a tax benefit of $16,974 and a comprehensive net loss of $554,889 and
   $862,280, respectively.

   Breaking Waves
   For the six months ended December 31, 2001 and 2000, Breaking Waves generated
   net sales of $1,700,715 and $2,039,363, respectively, with related cost of
   sales amounting to $1,098,622 and $1,272,470, respectively. The decrease in
   sales amounting to $338,648, or approximately 17%, from 2000 to 2001 was
   primarily attributable to the economic impact of the September 11th disaster
   and the subsequent deferment of new orders into the new year.

   The gross profit for the six months ended December 31, 2001 amounted to
   $602,083, or 35% of sales as compared to the six months ended December 31,
   2000 during which it amounted to $766,893 or 38% of sales.

   Selling, general, and administrative expenses during the six months ended
   December 31, 2001 and 2000 amounted to $789,343 and $825,393, respectively.
   The decrease amounting to $36,050 or approximately 4%, is primarily
   attributable to a decrease in selling expenses as a result of the decrease in
   sales due to the September 11th disaster.

                                      -22-

   ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

   Breaking Waves (continued)

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



                                                                                                          2001              2000
                                                                                                    ----------------    ------------

                                                                                                                  
          Officers, office staff, designer and  sales , salaries and related benefits                   $ 246,138      $ 273,076

          Commission expense                                                                               (6,819)        30,005
          Warehousing costs                                                                                85,664         77,713
          Royalty fees                                                                                     52,611         72,765
          Rent expense                                                                                     48,617         46,781
          Factor commissions                                                                               13,464         16,689

          Miscellaneous general corporate overhead expenses                                               349,668        308,364



   Interest expense in connection with its factoring agreement amounted to
   $102,833 and $137,194 for the six months ended December 31, 2001 and 2000,
   respectively. The decrease is due to a decrease in sales, as well as a
   reduction in the stated prime interest rate.

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

   Breaking Waves' ownership percentage is approximately 1.5% of Play Co.'s
   outstanding Common Stock. The investment in Play Co. is accounted for under
   the requirements of SFAS No. 115, "Accounting for Certain Investments in Debt
   and Equity Securities. " Under SFAS 115, the securities are considered
   available for sale and therefore the carrying value is based on the fair
   market value of the securities at December 31, 2001 and 2000 which amounted
   to $0 and $337,000, respectively. The change in the fair market value of the
   securities during the periods is recorded as an unrealized gain or loss as a
   component of comprehensive income. The company has pledged such shares as
   collateral for a standby letter of credit in connection with Breaking Waves'
   factoring agreement with Century Business Credit Corporation ("Century") and
   the are therefore considered non-current.

   On March 28, 2001, Play Co. filed for protection under Chapter Eleven of the
   United States Code with the United States Bankruptcy Court for the Southern
   District of New York. The filing was converted into a Chapter Seven filing on
   August 28, 2001.
                                      -23-

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Breaking Waves (continued

Breaking Waves recorded an unrealized (loss) gain of $(6,350) and $337,312 for
the six months ended December 31, 2001 and 2000 respectively, which has been
recorded as a component of comprehensive income (loss) in the statement of
operations.


Breaking Waves generated a net loss of $187,860 for the six months ended
December 31, 2001 and a net loss of $179,583 for the six months ended December
31, 2000.


Hollywood

   For the six months ended December 31, 2001 and 2000, Hollywood generated no
   sales form its motion picture "Dirty Laundry". Although sales prior to and
   including the six months ended June 30, 2001 were minimal, the company
   expects to effect increased sales during the fiscal year ending June 30, 2002
   and thereafter as a result of the implementation of a new marketing strategy
   which among other things, emphasizes the development of new marketing and
   distribution arrangements for "Dirty Laundry". Upon a review of the net
   realizable value of the movie cost, management has determined that a $0 and
   $208,564 write down was necessary as of December 31, 2001 and 2000,
   respectively, Accordingly, Hollywood generated a loss of $1,241 and $214,064
   for the six months ended December 31, 2001 and 2000, respectively.

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

   Shopnet.com

   For the six months ended December 31, 2001 and 2000, Shopnet generated
   minimal income comprised of interest from its money market and other
   ancillary revenue from its corporate office.

   Shopnet's selling, general, and administrative expense amounted to $189,204
   and $271,190 for the six months ended December 31, 2001 and 2000. This
   represents a decrease of $81,986, or approximately 30%.

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



                                                                                           2001               2000
                                                                                        -------------     ------------
                                                                                                        
           Salaries (officer and office staff) and stock compensation and
           related benefits                                                                 $70,644           $ 87,101
           Rent                                                                              19,510             38,063
           Legal and professional fees                                                       55,080             58,646
           Consulting fees                                                                   11,945              4,000
           Other general corporate and administrative expense                                32,025             77,584




   Shopnet generated a net loss of $209,532 and $593,575 for the six months
   ended December 31, 2001 and 2000, respectively. These net losses include, on
   a consolidated basis, amortization of goodwill of $17,738 in each period.

                                      -24-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


    Liquidity and Capital Resources

         At December 31, 2001, the Company's consolidated working capital
deficit amounted to $379,238.

         At December 31, 2001, current assets consisted primarily of inventory
of $3,371,741.

    In September 2000, Breaking Waves entered into a factoring and revolving
    inventory loan and security agreement with Century to sell its interest in
    all present and future receivables without recourse. Breaking Waves submits
    all sales offers to Century for credit approval prior to shipment, and pays
    a factoring commission of .75% of receivables sold. Century retains from the
    amount payable to Breaking Waves a reserve for possible obligations such as
    customer disputes and possible credit losses on unapproved receivables.
    Breaking Waves may take advances of up to 85% of the receivables, with
    interest at the rate of 1 3/4% over prime. In connection with the factoring
    agreement, the Company agreed to maintain $1,150,000 of cash in segregated
    account in order to collateralize standby letters of credit for Breaking
    Waves. Additionally, Breaking Waves was required to pledge as additional
    collateral, $200,000 of its own cash and the Play Co. shares. Additional
    collateral of $400,000 came from a third party which is a trust ("Trust"),
    the beneficiary of which is the granddaughter of the Company's President and
    Chief Executive Officer and the daughter of a principal stockholder of the
    Company.

    In September 2001, Century increased the required collateral in the amount
    of $300,000, from $1,150,000. Subsequent to December 31, 2001, the Company
    effected financing arrangements with two parties (one of which is the Trust,
    the other relatives of as principal stockholder of the Company) providing
    for assets in the aggregate amount of $1,050,000 ("Financing"), representing
    a portion of the $1,450,000 required collateral. The provision of the assets
    in connection with the financing arrangements provided for the $300,000
    increase in required collateral and replacement of the Company's
    certificates of deposit in the amount of $350,000.

    The assets provided by such parties are available to Breaking Waves for a
    ten year term, subject to earlier termination in the event of default.
    Breaking Waves is obligated to make an annual payment to each of the two
    entities which provided such assets, equal to an aggregate of 1-1/4% of net
    sales of Breaking Waves through June 30, 2002, and an aggregate of 1-3/4% of
    net sales of Breaking Waves for each year the letter of credit is available
    thereafter, payable 45 days after the end of each fiscal quarter. In October
    2001, such entities received funds in the aggregate amount of $36,750
    reflecting advance payment of such amounts.

    At December 31, 2001, the Company was indebted to Century in the aggregate
    amount of approximately $1,800,000. In November 2001, the Company obtained
    the consent of Century to utilize its restricted cash in the amount of
    approximately $620,000 (consisting of the certificates of deposit in the
    amount of $400,000 and the approximately $220,000 in cash pledged to Century
    by Breaking Waves) to pay down its indebtedness, reducing it to
    approximately $1,200,000 in November 2001.

   Interest expense related to the Century factoring agreement totaled $102,833
   and $100,488 for the six months ended December 31, 2001 and 2000,
   respectively. Century has a continuing interest in Breaking Waves' inventory
   as collateral for the advances.





                                      -25-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

   Liquidity and Capital Resources


   In September 2001, the Company and Breaking Waves retained Arc Financial
   Corp. ("ARC"), a British Virgin Island company, for a ten year term to
   provide financial consulting services. Pursuant to the terms of a consulting
   agreement ("ARC Consulting Agreement"), ARC was retained to assist the
   Company n the acquisition of financing to acquire inventory and for other
   corporate purposes, as well as consult with the Company with regard to its
   ongoing operations, including systems to control expenses, method to enhance
   and promote sales of Breaking Waves' products and improving production. ARC
   assisted the Company in the Financing. Pursuant to the terms of the ARC
   Consulting Agreement, the Company in the Financing. Pursuant to the term of
   the ARC Consulting Agreement, the Company and Braking Waves agreed to
   compensate ARC (i) an annual fee of $20,000 (`Base Fee") and (ii) a
   percentage of annual net sales in the amount of 1-1/4% through June 30, 2002
   and 1-3/4% of net sales for each year of the term thereafter ("ARC Percentage
   Fee"), payable 45 days after the closing of each fiscal quarter. In October
   2001, ARC received (I) a lump sum payment of $209,000 reflecting full advance
   payment of the Base Fee and (ii) $36,750 reflecting advance payment of the
   ARC Percentage Fee. The Company and Breaking Waves are entitled to terminate
   the ARC Consulting Agreement any time after September 30, 2006, in which
   event all prepaid fees are forfeited.

   The Company anticipates that its current available cash will be sufficient
   for the next twelve months and does not anticipate any cash shortfalls. In
   the December 31, 2001 quarter, the Company implemented a number of
   initiatives which it believes will reduce its cost of operations and
   overhead. In particular, the Company believes that the repayment of its
   indebtedness to Century in the amount of approximately $620,000 in the
   aggregate will translate into decreased interest expense projected to be
   approximately $30,000 per annum. Notwithstanding, the Company expects its
   indebtedness to Century to increase to more than $4 million during the months
   of January and February 2002 as it builds-up its inventory for its peak
   season. Although there can be no assurance that interest rates will remain at
   their current low levels, based on the Company's anticipated borrowings in
   the current fiscal year, the Company believes that recent reductions in
   interest rates will generate additional savings of approximately $60,000 in
   the current fiscal year.

   In December 2001, the Company consolidated all of its operations in the New
   York metropolitan region into new facilities where Breaking Waves currently
   operates, resulting in annualized rental savings estimated at approximately
   $60,000 over the next 12 months, plus additional savings in utilities and
   other office and personnel expenses resulting from the economies generated by
   the consolidated operations. The Company expects that these savings as well
   as salary reductions that the Company implemented during the December 31,
   2001 quarter, will amount to approximately $130,000 during the current fiscal
   year ending June 30, 2002.

   The Company has recently refocused its sales efforts, to the extent possible,
   to eliminate unprofitable or low margin sales. This is compounded with
   improved sales and orders during the month of January 2002. Breaking Waves
   did ship sales orders during the month of January 2002 of approximately
   $1,065,000. There can be no assurance that such figures will be indicative of
   future results, that the Company will be successful in collecting all
   receivables, or that any orders booked as of January 2002 will not ultimately
   be cancelled.





                                      -26-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

   Investments in Joint Ventures

   Battle Studies Productions, LLC

   In April 1998, the Company entered into a co-production agreement with North
   Fork Bank for "Machiavelli Rises." The Company and North Fork formed Battle
   Studies to finance, produce and distribute the film. Battle Studies will be
   treated as a joint venture in order to co-produce motion pictures and to
   finance the cost 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
   approximately $218,500. In accordance with the terms of the co-production
   agreement, the proceeds of the film will be distributed as follows: first,
   both parties shall be entitled to recoup their initial investment in the
   film, at 135% thereof; then, after repayment to the respective parties of
   additional cost incurred by same, any remaining proceeds shall be distributed
   50% to North Fork and 50% to the Company. The film was shown in January 1999
   in both New York and the Brussels Film Festival.

   The Company accounts for the investment in Battle Studies on the equity
   method. For the six months ended December 31, 2001 and 2000, the Company,
   recorded $63 and $0, respectively, of equity losses for its proportionate
   share of Battle Studies. No revenues have been derived from this film as of
   December 31, 2001.

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

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

   The Girl, LLC

   Pursuant to an agreement dated July 1, 1999 with ALF for the production of a
   film entitled "The Girl", Hollywood invested through December 31, 2001,
   $35,000 for a 22.533% interest in a new entity, The Girl, LLC a limited
   liability company ("Girl LLC"). In return for its participation in Girl LLC,
   Hollywood shall be entitled to receive a non-contested, non-dilutable 22.533%
   ownership interest in Girl LLC, a recoupment of its investment on no less
   favorable terms than any other investor and 22.533% of 100% of any contingent
   compensation which shall be actually received by Girl LLC. Girl LLC retains
   all rights to the motion pictures, the screenplays, and all ancillary rights
   attached thereto. "The Girl" is completed and has been exhibited at several
   film festivals. Girl LLC is in the process of attempting to secure video and
   foreign distribution arrangements for the film.

                                      -27-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

   Investments in Joint Ventures (continued)

   The Girl, LLC (continued)

   Hollywood accounts for the investment in Girl LLC under the equity method.
   Accordingly, as of December 31, 2001, the Company has recorded its investment
   at $33,702. This represents its initial investment of $35,000 less $1,298 of
   equity loss for its proportionate share of Girl LLC.

   Factoring Arrangements

   CIT Group

   On August 20, 1997, Breaking Waves entered into a factoring and revolving
   inventory loan and security agreement (as amended December 9, 1998) with CIT
   Group (formerly, Heller Financial, Inc. "CIT") to sell their interest in all
   present and future receivables without recourse. Breaking Waves paid CIT a
   factoring commission of .85% of the receivable, with interest at the rate of
   1 3/4% over prime. In connection with the factoring agreement, the Company
   agreed to maintain $1,150,000 of cash in a segregated account in order to
   collateralize standby letters of credit. In addition, during 1999, the
   Company was required to transfer an additional $200,000 of cash as collateral
   for the standby letter of credit. Interest expense related to this agreement
   totaled $0 and $33,686 for the six months ended December 31, 2001 and 2000,
   respectively. On or about September 12, 2000 and the agreement with CIT was
   cancelled and a new factoring agreement was entered into with Century.

   Lease Commitments

   Shopnet leased its administrative office pursuant to a 5-year lease that
   expired on November 30, 2001 at annual rent amounting to approximately
   $70,000, before annual escalations. Upon the lease expiration, Shopbnet
   relocated to Breaking Waves's facilitiies. Breaking Waves terminated its
   lease effective November 30, 2001. A new 6-year lease expiring September 30,
   2007 was signed by Breaking Waves in July 2001 and is effective beginning
   December 1, 2001. Annual rent under the new lease is $84,915 through December
   31, 2004 and $95,760 for the remainder of the lease. Breaking Waves also
   maintains a Florida office, comprising approximately 780 square feet, with
   annual payments of approximately $11,000.

   License Agreements

   On October 16, 1995, Breaking Waves entered into a license agreement with
   Beach Patrol, Inc. Pursuant to the licensing agreement, Breaking Waves was
   given the right to use certain designs for its children's line under the
   "Daffy Waterwear" label from January 1, 1996 to June 30, 1998. Thereafter,
   the agreement provided for a three year extension, at the option of Breaking
   Waves, through and until June 30, 2001. Breaking Waves has exercised this
   option, thereby extending the agreement. The agreement calls for minimum
   annual royalties of $75,000 to $200,000 over the life of the agreement with
   options based on sales levels from $1,000,000 for the first year to
   $4,000,000 in the sixth year. Breaking Waves has negotiated an additional two
   year extension thereby extending the agreement through June 30, 2003, and it
   contains a provision for an additional two year extension, at the option of
   Breaking Waves, through and until June 30, 2005. The new agreement signed
   February 28, 2001 and effective July 1, 2001 calls for minimum annual
   royalties of $50,000 to $87,500 over the life of the extension with option
   based on sales levels from $1,000,000 for the seventh year to $1,750,000 in
   the tenth year. Breaking Waves recorded royalties and advertising under this
   agreement totaling $10,000 and $63,897 during the six months ended December
   31, 2001 and 2000, respectively.

                                      -28-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


   license agreements (continued)

   During June 2000, Breaking Waves entered into a license agreement with an
   effective date of November 1, 2000 with Gottex Models Ltd., and Israeli
   Corporation and Gottex Models (USA) Corp., a New York corporation for the use
   of the trademark "Gottex" in the United States of America for children's
   swimwear. The agreement calls for a royalty fee of 7% of net sales with
   guaranteed minimum annual royalties of $70,000 to $140,000 over the life of
   the agreement, subject to certain exceptions. The license agreement also
   requires the Company to expend certain minimum amounts on advertising each
   year. The license agreement is for a term of three years, subject to earlier
   termination in accordance with its terms. In the six months ending December
   31, 2001, Breaking Waves recorded $42,611 in royalty expenses related to the
   minimum guaranteed royalties contained in its agreement with Gottex. In the
   corresponding six months ended December 31, 2000, Breaking Waves recorded
   royalties of $8,859.





































                                      -29-

                                   SIGNATURES


In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 19th day of February 2002.

                                           SHOPNET.COM, INC.


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







































                                      -30-