<PAGE>


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB

[X]    Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
       1934 for the fiscal year ended December 31, 2001


[_]    Transition Report under Section 13 or 15 (d) of the Securities Exchange
       Act of 1934 for the transition period from ______________to_____________

                           Commission File No. 0-23806
                                               -------

                                   I/NET, Inc.
                 (Name of Small Business Issuer in its Charter)

                 Delaware                                      87-0046720
       -------------------------------------------------------------------------
       (State or Other Jurisdiction of                   (IRS Employer I.D. No.)
       Incorporation or Organization)

                            643 W. Crosstown Parkway
                           Kalamazoo, Michigan 49008
                           -------------------------
                   (Address of Principal Executive Officers)

                   Issuer's Telephone Number: (616) 344-3017

         Securities Registered under Section 12(b) of the Exchange Act:

       Title of Each Class           Name of Each Exchange on Which Registered

            None                                       None

         Securities Registered under Section 12(g) of the Exchange Act:

                      $0.001 par value common voting stock
                      ------------------------------------
                                (Title of Class)

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

         (1)    Yes   X    No____          (2)   Yes   X     No____
                     ---                              ---

Check if there is no disclosure of delinquent files in response to item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

                                        1

<PAGE>

State Issuer's revenues for its most recent fiscal year: $1,389,197

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified date
within the past 60 days: $2,253,258. This valuation is based upon the average
bid price for shares of common voting stock of the Registrant on the
"Over-the-Counter Bulletin Board" of the National Association of Securities
Dealers, Inc. ("NASD") on March 1, 2002. There are approximately 18,777,149
shares of common voting stock of the Registrant held by non-affiliates.

State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:

                                   32,075,509

                             as of December 31, 2001

       Transitional Small Business Disclosure Format (check one): Yes___  No X
                                                                            ---

                      -THIS SPACE INTENTIONALLY LEFT BLANK-

                                       2

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                                  <C>
Item 1.  Description of Business ................................................................................    4

Item 2.  Description of Property ................................................................................    6

Item 3.  Legal Proceedings ......................................................................................    6

Item 4.  Submission of Matters to a Vote of Security Holders ....................................................    6

Item 5.  Market for Common Equity and Related Stockholder Matters ...............................................    7

Item 6.  Management's Discussion and Analysis of Financial Condition and Results of Operations ..................    7

Item 7.  Financial Statements ...................................................................................   10

Item 8.  Changes in and Disagreement with Accountants on Accounting and Financial Disclosure ....................   10

Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance with
          Section 16(a) of the Exchange Act .....................................................................   11

Item 10. Executive Compensation .................................................................................   13

Item 11. Security Ownership of Certain Beneficial Owners and Management .........................................   14

Item 12. Certain Relationships and Related Transactions .........................................................   14

Item 13. Exhibits, List and Reports on Form 8-K .................................................................   15

Signatures ......................................................................................................   15
</TABLE>

                                       3

<PAGE>

                                     PART 1

Item 1.  Description of Business

I/NET, Inc. (the "Company" or "I/NET") was organized under the laws of the state
of Delaware in 1986 under the name of a predecessor corporation. The Company
registered its initial public offering with the Securities and Exchange
Commission in 1987. The Company provides professional services in the areas of
software development and Internet-related consulting for businesses. I/NET also
develops and markets computer software for mid-range computers, including
International Business Machine's (IBM) AS/400 model.

The Company, or its affiliates, hold minority equity interests in three other
privately held companies. The Company has one wholly owned subsidiary, I/NET,
Inc. (a Michigan corporation) and its wholly owned subsidiary, Stek, Ltd. (a
Caymanian corporation). Stek was formed to receive and hold shares of SEGOES,
Ltd. (a privately held Caymanian corporation). The shares of SEGOES were earned
for the successful completion, installation and operation of the SEGOES website,
an Internet-based offshore asset management and trading system. The Company also
holds an 18% interest in both Career/NET and HRSmart, both privately held
internet resume tracking and applicant management systems.

Business

I/NET was formed as a contract research and development firm specializing in
software development for digital imaging and voice recognition. Systems created
by I/NET are currently in service in real estate, pharmaceutical research,
government, newspapers, and information management.

I/NET, in prior years, was engaged in the business of providing a wide range of
contract research systems planning, development, and implementation services on
a fee basis to public and private sector clients. It was founded in response to
demand for high-quality information systems services on the part of government,
commercial, and not-for-profit organizations, requiring digital imaging as part
of their overall solution. Since its formation, I/NET has delivered and
installed microcomputer-based decision support systems for systems sold
worldwide, supporting hundreds of users and employing distributed databases,
sophisticated telecommunications networks, and state-of-the-art development
tools. Past projects, which the Company has undertaken in multi-media
applications, have incorporated digital imaging and voice recognition.

The Company has performed development work under contract with IBM for many
years, including developing multi-media software running on the IBM system
AS/400, a mid-range computer system.

During 1995, I/NET brought to the marketplace its own Web Server/400(TM) as the
first commercially available product able to connect the AS/400 computers
worldwide to the Internet. I/NET's Commerce Server/400(TM) was introduced in
August 1996. This product provides AS/400 users with the ability to conduct
secured encrypted financial and other transactions over the Internet. In
February 1997, IBM bestowed upon I/NET the prestigious Partner in Development
"Product of the Year Award" for Commerce Server/400.(TM)

Recently developed products include Webulator/400 that provides instant Web
access to existing AS/400 applications without code changes, and I/NET's newest
product, NetPrint/400 which allows for seamless ad-hoc printing of AS/400
reports without requiring complex host or client setup.

The Company had a contract, which provided web site consulting services to IBM
through March 2002. During March 2002, the Company determined that that it would
scale back these consulting services as the profit margins on these services had
eroded. In connection with the reduction in these services, the Company
transferred a majority of its employees who were engaged in providing these
services to another organization so that they could continue to provide these
services to IBM. The Company currently provides minimal web site services to
IBM.

                                       4

<PAGE>

Conversational Interface Technology

In January 2001, the Company established a Chicago, Illinois office to
complement its Kalamazoo personnel in developing conversational interface (CI)
technology systems that use everyday spoken language to control computers and
other electronic devices and systems. The Kalamazoo office technology team is
headed by the Company's Chief Technology Officer, Dr. Will Fitzgerald. Dr.
Fitzgerald is co-investigator on I/NET's National Aeronautics and Space
Administration (NASA) contracts. The Chicago office is being staffed by some of
the world's leading authorities in the field, including Dr. R. James Firby, who
brings years of experience with such agencies as the Jet Propulsion Laboratory
and NASA.

In February 2001, the Company entered into a contract with NASA for the
development of "Complex Event Recognition Architecture" (CERA) software. The
CERA software is to be developed under a two-year contract valued at $600,000.
The contract calls for I/NET to provide NASA with a flexible, generally
applicable software system for describing complex events and recognizing event
occurrences. It can be applied to any area of automated control, including life
support systems, terrestrial and extraterrestrial planetary exploration, and
home and factory control. In November 2001, the Company entered into another
contract with NASA for the development of "Conversation Interface Domains for
Rapid Programming of Complex Natural Language Interfaces." This six-month
contract is valued at $70,000.

I/NET has made strong progress in building business relationships in CI in
telematics for use in the automotive industry. The Company recently submitted a
proposal for incorporating CI software in two concept vehicles being developed
by a major auto manufacturer. In addition, IBM has expressed an interest in
exploring ways to work directly with the Company in developing voice recognition
and natural language applications.

Distribution Methods of Products and Services

The Company currently is distributing its Webserver products directly to the end
user or through distributors for the Americas, Europe and Africa. General
Business Services Co. Ltd (GBS) of Tokyo, Japan has the exclusive territory of
Japan.

Competitive Business Conditions

The Company's contract work performed for IBM has been competitively acquired,
and usually the final selection is between I/NET and departments within IBM. The
business conditions for all Webserver products is intensely competitive with
many large organizations, including IBM, Advanced Business Links and ROI
Connect, offering similar products, sometimes at lower cost. These organizations
have significantly greater financial, technical, sales and marketing and other
resources than the Company.

There are also a number of competitors in the CI marketplace, primarily
automotive original equipment manufacturers (OEM's) such as Ford, General
Motors, and Daimler Chrysler and OEM research labs. These competitors tend to be
proprietary and OEM's are looking for improvements to the human-machine
interface, particularly for in-vehicle use. Tier 1 automotive parts suppliers
such as Visteon, Delphi, Johnson Controls, Rockwell and Donnelly are also
serious competitors. The Company believes its technology offers more safety and
conversational capabilities than these competitors. However, many of these
companies have significantly greater financial, technical, sales and marketing
and other resources than the Company.

Sources and Availability of Raw Materials and Principal Suppliers

Developing software requires few tangible raw materials. The most important
element in this process is the personnel who plan, design, and develop the
software code. I/NET has consistently hired the best talent available. The
Company recruits throughout the Midwest. I/NET's business is dependent on
attracting and retaining talented personnel. Today's market for technology
experts is highly competitive and there can be no assurances that I/NET will
continue to be able to attract and retain qualified personnel.

                                       5

<PAGE>

Dependence on Major Customers

The Company provided Internet products, contract development services, web site
consulting services and support services to two major customers, IBM and NASA,
totaling $906,000 for the year ended December 31, 2001 In 2000, the Company
provided $1,321,000 for the same types of services to three major customers,
IBM, General Business Services (Japan) and Appsmall.com. These major customers
accounted for 45% and 20% of the Company's revenues in 2001 and 61% 13% and 12%
in 2000.

Patents and Trademarks

I/NET has various trademarks for its products, including Webserver/400 and
Commerce Server/400.

Need for Any Government Approval of Principal Products or Services

The performance of services and the supply of products by the Company are not
subject to governmental approval or unusual regulation except as they relate to
strong encrypted software products, which are under government regulation.

Effect of Existing or Probable Governmental Regulations on the Business

No present governmental regulations have any adverse significant impact on the
present or contemplated business operations of the Company, and no such probable
governmental regulations are anticipated to have any adverse effect. However,
there are numerous proposals pending to regulate the Internet. The Company
cannot predict the impact that the adoption of any of these proposals could have
on the Company's business.

Research and Development Activities

There were minimal research and development costs incurred by the Company during
the calendar years ended December 31, 2001 and 2000.

Cost and Effects of Compliance with Environmental Laws

There are no foreseeable adverse effects on the Company's present or
contemplated business operations resulting from environmental laws, rules, or
regulations.

Employees

As of December 31, 2001, the Company had 16 full time employees.

Item 2.  Description of Property

The Company's principal executive and administrative offices are located at 643
West Crosstown Parkway, Kalamazoo, Michigan, which is comprised of approximately
5,600 square feet. This facility is leased and rental payments on the space
amounted to $78,000 for 2001.

In February 2001, the Company opened a leased office in Chicago, Illinois, with
rental payments of approximately $19,000 annually.

Management considers its offices to be well maintained, in good operating
condition and suitable and adequate for their intended purposes.

Item 3.  Legal Proceedings

The Company is not a party to any pending material legal proceeding.

Item 4.  Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of the Company's stockholders during the
fourth quarter of 2001.

                                       6

<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Market Information

The Company's common stock is listed on the NASDAQ Over-the Counter-Bulletin
Board under the symbol "INNI". The high and low bid prices for 2000 and 2001 are
summarized by quarter below:

<TABLE>
<CAPTION>
                    2000          2000        2000       2000        2001       2001       2001         2001
                  1/st/ qtr     2/nd/ qtr   3/rd/ qtr  4/th/ qtr   1/st/ qtr  2/nd/ qtr  3/rd/ qtr    4/th/ qtr
----------------------------------------------------------------------------------------------------------------
<S>               <C>           <C>         <C>        <C>         <C>        <C>        <C>          <C>
HIGH                $0.98         $0.56       $0.34      $0.27       $0.19      $0.17      $0.13        $0.12
LOW                 $0.55         $0.26       $0.20      $0.04       $0.08      $0.09      $0.07        $0.05
</TABLE>

These bid prices are quotations of broker-dealers that reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not represent
actual transactions.

Holders

The number of record holders of the Company's common stock as of December 31,
2001, was 285. There were approximately 3,000 beneficial holders as of that
date.

Dividends

There are currently present material restrictions that limit the ability of the
Company to pay dividends on its common stock as it has a deficit in its
stockholders' equity. The Company has not paid any dividends with respect to its
common stock nor does it intend to do so in the foreseeable future.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Calendar Years Ended December 31, 2001 and 2000

Results of Operations

Revenues for the year ended December 31, 2001, were $1,389,197 as compared to
$1,542,685 for the year ended December 31, 2000. When analyzed by product
category, revenues of web site consulting services to IBM were $621,000 in 2001,
as compared to $933,000 in 2000. Internet software products accounted for
revenues of $175,000 in 2001 and $388,000 in 2000. These decreases are primarily
due to severe competition for website consulting services and webserver product
sales in the United States and Europe. NASA revenues were $285,000 in 2001 as
compared to none in 2000. The increase in revenues is the result of the Company
obtaining two NASA contacts during 2001.

Cost of revenues increased by $364,000 to $ 1,274,000 in 2001 as compared
$910,000 in 2000. The primary cause for this increase was adding staff for the
NASA projects as well as development of conversational interface technology.
Gross profit as a percent of sales decreased from 41% in 2000 to 8% in 2001.

General and administrative expenses decreased by $142,000 to $402,000 in 2001 as
compared to $544,000 in 2000. The causes for this decrease were lower salary and
related fringe benefits as salaries were reduced for many personnel and in some
cases, were foregone. Selling and administrative expenses as a percentage of
sales decreased from 35% in 2000 to 29% in 2001.

Gain on sale of securities decreased from 2000 to 2001 due to Stek, Ltd. the
Company's wholly owned Caymanian subsidiary, sold approximately 20,000 shares
(1.33%) of SEGOES, Ltd. with net proceeds to the Company of approximately
$28,000 in January 2000.

                                       7

<PAGE>

During August 2000, the Company discharged a customer from $209,000 of
indebtedness and also assigned that customer certain proprietary computer
technology, software and trademark for products known as Career/NET and HR
Department. In exchange for this discharge and assignment, the Company received
2,000,000 shares (18% interest) each in common stock or units in two privately
held entities. These entities provide web-based resume tracking solutions and
career boards and were working towards raising additional capital to fund
expansion and growth. During the third quarter of 2000, the raising of
additional capital was suspended due to deteriorating market conditions for such
fund raising. The Company determined that it was appropriate to write down these
investments to their net realizable value at that time.

Net interest expense increased by $5,000 to $47,000 from $42,000 due to
increased borrowings during 2001 and a decrease in interest income.

During 2001, the Company successfully negotiated with three vendors to forgive
the Company's indebtedness to them. These forgiven debts have been recorded as
extraordinary items of $733,000 net of income tax benefits of $249,000. During
2000, the Company also successfully negotiated with a vendor the forgiveness of
$74,000 of indebtedness less an income tax benefit of $25,000. This transaction
was also recorded as an extraordinary item in 2000.

Financial Condition and Liquidity

The Company's primary need for capital will be to invest in computer software
development. As of December 31, 2001, the Company's working capital deficit was
$418,000, compared to a deficit of $773,000 at December 31, 2000. This decrease
in working capital deficit is primarily due to earnings of $399,000 in 2001 due
to the forgiveness of indebtedness. During March 2002, the Company received an
unsecured $35,000 line of credit from a bank.

In addition, the Company is currently seeking an equity infusion of $750,000 to
support its development and marketing of CI technologies.

The Company believes that new sales provided by the development of
conversational interface technologies, the continued development of new products
and an equity infusion should provide the Company with sufficient working
capital to fund its needs for 2002. However, there can be no assurance these
activities will be successful. The Company continues to explore alternative
options to reduce its debt obligations, which could also increase the Company's
financial stability. During January 2002, the Company reached an agreement with
a noteholder whereby the noteholder would forgive $157,691 of a note together
with $9,081 of accrued interest in exchange for $10,000 in cash and 100,000
shares of common stock. This item will be recorded as an extraordinary item
during the first quarter of 2002.

The preparation of these financial statements requires that the Company adopt
and follow certain accounting policies. Certain amounts presented in these
financial statements have been determined based upon estimates and assumptions.
Although the Company believes that these estimates and assumptions are
reasonable, actual results could differ.

The Company has included below a discussion of the critical accounting policy it
believes is affected by the more significant judgements and estimates used in
the preparation of the financial statements, how such policies are applied and
how results differing from these estimates and assumptions would affect the
amounts presented in the financial statements. Other accounting policies also
have a significant effect on the financial statements. Some of these policies
also require the use of estimates and assumptions and are discussed in the
Summary of Accounting Policies in the Consolidated Financial Statements.

Developed Computer Software: Software development costs, when significant, are
capitalized subsequent to the establishment of technological feasibility for the
product and prior to the general release of the product to customers. If actual
market conditions for the sale of the products are less favorable than those
anticipated by management, potential write-downs of capitalized costs may be
required.

                                       8

<PAGE>

The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has suffered
recurring losses from operations, has a significant working capital deficit, and
requires additional capital to continue its product development. Accordingly,
the Company's independent public accountants have included a modification in
their report on the Company's financial statements for the year ended December
31, 2001 and 2000 discussing the Company's ability to continue as a going
concern. Management believes the Company will continue as a going concern and is
actively marketing its products to enable the Company to meet its current
obligations and provide additional funds for continued new product development.
In addition, management is currently negotiating several additional contracts
for its services and products. Management is also embarking on other strategic
initiatives to expand its business opportunities (see Business- Conversational
Interface). However, there can be no assurance these activities will be
successful.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations. This
SFAS requires the use of the purchase method of accounting and prohibits the use
of the pooling-of-interest method of accounting for business combinations
initiated after June 30, 2001. This SFAS also requires that the Company
recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. This SFAS applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. Also, this SFAS requires that
the Company reclassify the carrying amounts of goodwill and other intangible
assets based on the criteria of this SFAS. The Company anticipates the
implementation of this standard will not have an impact on its financial
position or results of operations.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This SFAS requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, the SFAS requires that the Company identify reporting units for the
purpose of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. The SFAS is
required to be applied in fiscal years beginning after December 15, 2001 to all
goodwill and other intangible assets recognized at that date, regardless of when
those assets were initially recognized. The Company anticipates that the
implementation of this standard will not have an impact on its financial
position or results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions for the Disposal of a
Segment of a Business. This statement is effective for financial statements
issued for fiscal years beginning after December 15, 2001. The Company
anticipates this standard will not have a material impact on its financial
position or results of operations.

                                       9

<PAGE>

Item 7.  Financial Statements

<TABLE>
<CAPTION>
Section                                                                                          Page Number
<S>                                                                                              <C>
Report of Independent Certified Public Accountants .........................................          18

Consolidated Balance Sheets as of December 31, 2001 and 2000 ...............................       19-20

Consolidated Statements of Operations for the years ended December 31, 2001 and 2000........          21

Consolidated Statements of Capital Deficit for the years
    ended December 31, 2001 and 2000 .......................................................          22

Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000........          23

Summary of Accounting Policies .............................................................       24-26

Notes to Consolidated Financial Statements .................................................       27-32


Item 8.  Changes in and Disagreement with Accountants on Accounting and Financial Disclosure

None
</TABLE>

                                       10

<PAGE>

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act

Identification of Directors and Executive Officers

The following table sets forth the names and offices held by all directors and
executive officers of the Company for the year ended December 31, 2001, and to
the date hereof, and the year since which each such director or executive
officer has served in their respective positions.

<TABLE>
<CAPTION>
      Name                                  Position Held                      Date of Election or Designation
------------------                  -------------------------------------   -------------------------------------
<S>                                 <C>                                                   <C>
James C. Knapp                      Chairman of the Board of Directors                    1986

Stephen J. Markee                   President and Chief Executive Officer                 1985
                                    And Director                                          1986

Dale H. Wierenga                    Chief Financial Officer                               2002

Paul A. Bertoldi                    Vice President Systems Development                    1989

Dr. William A. Fitzgerald           Chief Technology Officer                              2000
</TABLE>

Term of Office

The terms of office of the current directors and executive officers shall
continue until their replacements are duly qualified and elected.

Business Experience

James C. Knapp, Chairman: Mr. Knapp, one of I/NET's initial founders, is 51
------------------------
years of age, and received a BBA Degree from the University of Maryland in 1972.
He began his computer education at the age of 15 in a special program sponsored
by IBM, and served in the United States Air Force as a teacher for missile
computer guidance systems. He has been listed in the ACR Directory of Top
Computer Executives since 1981, and was inducted into the "Who's Who in the
Computer Industry" in 1990. His efforts in digital imaging and voice recognition
have been recognized internationally. Mr. Knapp has been a featured speaker at
the Massachusetts Institute of Technology and the Harvard Business School. He is
also an international speaker on Internet security.

Stephen J. Markee, President and CEO: Mr. Markee is 56 years of age. He received
------------------------------------
a BS Degree from Ferris State University in 1970 and an MBA from Western
Michigan University ("WMU") in 1971. He is a licensed certified public
accountant in the state of Michigan. Mr. Markee served in the United States Army
during the Viet Nam conflict, and was decorated and medically retired in 1968.
After completing his education, he served as assistant Auditor General for the
State of Michigan before joining WMU as Director of Internal Auditing in 1976.
While at WMU, he also taught accounting classes in the MBA program. He then
changed directions, from public to private sector, as Vice President of Planning
and Control for a division of Standex International Corporation, where he was
responsible for information systems, accounting, and human resources. He joined
I/NET in 1985 as President and CEO. He has guided I/NET to a successful equity
partnership with IBM, and engineered the sale of intellectual property rights to
IBM. Mr. Markee has served on the Board of Directors of the Kalamazoo County
Chamber of Commerce, Chairman of the Kalamazoo County Convention and Visitors
Bureau, Past President of the local chapter of the Institute of Management
Accountants, and President of the Parchment Schools Foundation. He is a frequent
speaker to civic and business groups, and has appeared on the Financial News
Network ("FNN").

                                       11

<PAGE>

Dale H. Wierenga, Chief Financial Officer: Mr. Wierenga is 56 years of age. He
-----------------------------------------
received his BBA from Western Michigan University. He joined I/NET in 1994 as a
project manager following 25 years in public accounting most recently as a
partner in the Entrepreneurial Practices area with Ernst & Young. He has held
various civic leadership roles including Chairmanships of the Kalamazoo County
Chamber of Commerce and the Kalamazoo County Convention and Visitors Bureau.

Paul A. Bertoldi, Vice President, Systems Development: Mr. Bertoldi is 39 years
-----------------------------------------------------
of age. He has received BBA and MBA degrees from WMU. He graduated magna cum
laude and was named a Presidential Scholar as one of the top undergraduates of
WMU. Since becoming one of I/NET's first employees, Mr. Bertoldi has helped
design the architecture of state-of-the-art imaging and voice recognition
systems in the field of real estate, medical imaging, and document imaging. Mr.
Bertoldi is currently involved in the development of web site consulting and
Internet computer software products. He is an active member in various
professional organizations.

Dr. William A. Fitzgerald, Chief Technology Officer: Dr. Fitzgerald is 45 years
---------------------------------------------------
of age. He received his Ph.D. in computer sciences from Northwestern
University's Institute for Learning Sciences. Dr. Fitzgerald joined I/NET in
September 2000 from after spending the previous four years at Neodesic, a
Chicago-based company which developed a system to support the rapid growth of
online communities and hubs. As vice-president of research and development at
that company, he also directed projects in natural language understanding,
intelligent control and smart web sites. He worked extensively on research for
the National Aeronautics and Space Administration (NASA), specializing in the
areas of complex event recognition and intelligent information workbenches. He
has published extensively in these areas.

Family Relationships

With the exception that Mr. Bertoldi is married to the sister of Mr. Knapp,
there are no family relationships between any directors or executive officers of
the Company.

                                       12

<PAGE>

Item 10.  Executive Compensation

Cash Compensation

The following table sets forth the aggregate compensation paid by the Company
for services rendered during the periods indicated.

  ----------------------------------------------
  SUMMARY COMPENSATION TABLE

  ----------------------------------------------
  Name and            Year Ended       Salary
  Principal Position  Dec. 31
  ----------------------------------------------
  Stephen J. Markee      2001         $ 78,125
    President, CEO,      2000         $125,530
    and Director         1999         $125,680
  ----------------------------------------------

Compensation Pursuant to Plans

The Company maintains an incentive stock option plan that provides for the
granting of options to officers and other key employees at an exercise price not
less than 100% of the fair market value on the date of the grant. Twenty percent
of the options become exercisable each year following the date they were
granted, and can remain outstanding for five years following the day they become
fully vested.

At December 31, 2001, 5,000,000 shares of common stock are reserved for the
incentive stock option plan and 85,000 options were vested and exercisable at
prices ranging from $.24 to $2.50 per share. The remaining weighted average
contractual life of these options is six years. An additional 1,980,000 options
outstanding are not vested and have a remaining contractual life of nine years.

Pension Plan

The Company has a profit sharing and defined contribution pension plan covering
substantially all employees. Under the plan, employees may make tax deferred
voluntary contributions which, at the discretion of the Company's Board of
Directors, may be matched within certain limits by the Company. In addition, the
Company may make additional discretionary contributions to the plan as profit
sharing contributions. All contributions to the plan are limited by applicable
Internal Revenue Code regulations. There were no Company contributions charged
against operations in 2001 or 2000.

Compensation of Directors

The Company's directors are not compensated for serving on the Board.

Employment Contracts

There are no employment contracts for any employees or officers as of December
31, 2001.

Termination of Employment and Changes of Control Arrangement

There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in the Summary
Compensation Table set out above which would in any way result in payments to
any such person because of his or her resignation, retirement or other
termination of such person's employment with the Company or its subsidiaries, or
any change in control of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on its review of Forms 3, 4 and 5 furnished to it, the Company
believes that each director, officer and beneficial owner of 10% or more of the
Company's stock made all required filings under Section 16(a) of the Exchange
Act during 2001.

                                       13

<PAGE>

Item 11.   Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the share holdings of the Company's directors and
executive officers and those persons or entities who own more than 5% of the
Company's outstanding common stock as of December 31, 2001.

<TABLE>
<CAPTION>
                                                      Amount and Nature of
            Name                 Address              Beneficial Ownership        Percent of Class
----------------------------------------------------------------------------------------------------
<S>                        <C>                        <C>                         <C>
   James C. Knapp          Grand Cayman Islands             5,417,719                 16%

   Stephen J. Markee       Richland, MI                     6,142,743                 18%

   Paul A. Bertoldi        Kalamazoo, MI                      410,699                  2%

   Dale H. Wierenga        Kalamazoo, MI                      215,000                  1%

   William A. Fitzgerald   Kalamazoo, MI                       56,500*                 0%
                                                           ----------                 --

All directors and officers as a group                      12,242,661                 37%
                                                           ==========                 ==
</TABLE>

* Includes 50,000 exercisable stock options as of December 31, 2001.

Item 12.   Certain Relationships and Related Transactions

James C. Knapp, Chairman of the Board of Directors, and Stephen J. Markee,
President, CEO have loaned the Company funds for working capital. These funds
are provided at an interest rate of 8%. The balance outstanding at December 31,
2001 was $385,548. At December 31, 2001, the Company owed $91,448 plus accrued
interest of $56,000 to Mr. Knapp and $294,100 plus accrued interest of $125,000
to Mr. Markee. These loans are secured by all of the Company's assets. With the
exception of this transaction, there were no material transactions to which the
Company or any of its subsidiaries was or is to be a party, in which the amount
involved exceeded $60,000 and in which any promoter, founder, director or
executive officer, or any security holder who is known to the Company to own of
record or beneficially more than 5% of any class of the Company's common stock,
or any member of the immediate family of any of the foregoing persons, had an
interest during the last two calendar years ended December 31, 2001 and 2000.

"Safe Harbor" Provisions Under the Private Securities Litigation Act of 1995

Statements in this filing that are not historical facts are forward-looking
statements, which involve risks and uncertainties that could affect the
Company's results of operations, financial position and cash flows. Actual
results may differ materially from those projected in the forward-looking
statements, due to a variety of factors, some of which may be beyond the control
of the Company.

The Company faces the challenge of rapid technological change and competition.
Rapid change, uncertainty due to new and emerging technologies, and market
competition characterize the software industry, which means that I/NET's market
position is always at risk. I/NET's ability to satisfy customer requirements and
to develop and introduce new products and achieve market acceptance is a
challenge, which the Company must continue to meet.

Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report.

                                       14

<PAGE>

Item 13.  Reports on Form 8-K and Exhibits

Reports on Form 8-K:

None

Exhibits:

None

Signatures

In accordance with the requirements of the Exchange Act of 1934, as amended, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto being duly authorized.

                                             I/NET, Inc.


Date:  March 25, 2002               By:      /s/ Stephen J. Markee
                                             -----------------------------------
                                             Stephen J. Markee, Director
                                               President and CEO


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

Date:  March 25, 2002               By:      /s/ Stephen J. Markee
                                             -----------------------------------
                                             Stephen J. Markee, Director
                                               President and CEO


Date:  March 25, 2002               By:      /s/ Dale H. Wierenga
                                             -----------------------------------
                                             Dale H. Wierenga
                                             Chief Financial Officer

                                       15

<PAGE>

                                   I/NET, Inc.

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

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


                        Consolidated Financial Statements
                     Years ended December 31, 2001 and 2000

                                       16

<PAGE>

                                                                     I/NET, Inc.

                                    Contents

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

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

<TABLE>
<S>                                                                         <C>
      Report of Independent Certified Public Accountants                    18


      Financial Statements:

               Consolidated Balance Sheets                             19 - 20

               Consolidated Statements of Operations                        21

               Consolidated Statements of Capital Deficit                   22

               Consolidated Statements of Cash Flows                        23

      Summary of Accounting Policies                                   24 - 26


      Notes to Consolidated Financial Statements                       27 - 32
</TABLE>

                                       17

<PAGE>

Report of Independent Certified Public Accountants

Board of Directors
I/NET, Inc.
Kalamazoo, Michigan

     We have audited the accompanying consolidated balance sheets of I/NET, Inc.
as of December 31, 2001 and 2000, and the related consolidated statements of
operations, capital deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of I/NET, Inc.
at December 31, 2001, and 2000, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has suffered losses from operations, has a
significant working capital deficit and requires additional capital to continue
its product development. These factors raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 13. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Kalamazoo, Michigan                         /s/ BDO SEIDMAN, LLP
                                            ------------------------------------
March 25, 2002                              Certified Public Accountants

                                       18

<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------

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

December 31,                                                             2001        2000
---------------------------------------------------------------------------------------------
<S>                                                                     <C>       <C>

Assets (Notes 1 and 2)


Current:

         Cash and cash equivalents                                    $   6,570   $ 88,693

         Trade Receivables (Note 4)                                     104,004    156,457

         Prepaid Expense                                                      -     17,500

         Deposit                                                          3,090          -


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


Total Current Assets                                                    113,664    262,650


Office Furniture and Equipment,
         Less accumulated depreciation of $32,814 and $36,524             8,756     18,754

Intellectual Property,
         Less accumulated amortization of $12,596 in 2001                18,397          -


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


                                                                      $ 140,817   $281,404


=============================================================================================
</TABLE>

                                       19

<PAGE>

                                                                     I/NET, Inc.

<TABLE>
<CAPTION>
Consolidated Balance Sheets
-----------------------------------------------------------------------------------------------------------

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

December 31,                                                                    2001             2000
-----------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Liabilities and Capital Deficit

Current Liabilities:
         Accounts payable                                                $      62,421     $       1,922
         Accruals:
              Interest                                                         185,768           193,803
              Commissions (Note 3)                                                   -           258,000
              Other                                                              7,400                 -
         Advances from stockholders (Note 1)                                    95,500            95,500
         Current maturities of long-term debt (Notes 2 and 3)                  181,000           486,000

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

Total Current Liabilities                                                      532,089         1,035,225

Long-term Debt, less current maturities (Notes 2 and 3)                        266,739           403,304

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

Total Liabilities                                                              798,828         1,438,529

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

Commitments and Contingencies (Notes 6, 7, 11 and 13)

Capital Deficit (Note 8):
         Common stock, $.001 par value - shares authorized
              50,000,000: issued and outstanding 32,075,509 in 2001
              and 31,182,652 in 2000                                            32,076            31,183
         Additional paid-in capital                                         12,015,661        11,916,554
         Deficit                                                           (12,705,748)      (13,104,862)

-----------------------------------------------------------------------------------------------------------
Total Capital Deficit                                                         (658,011)       (1,157,125)

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

                                                                         $     140,817     $     281,404

===========================================================================================================
</TABLE>

          See accompanying summary of accounting policies and notes to
                       consolidated financial statements.

                                       20

<PAGE>

                                                                     I/NET, Inc.

Consolidated Statements of Operations

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

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

<TABLE>
<CAPTION>
Year ended December 31,                                                    2001                   2000
-----------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                   <C>
Revenues (Note 4)                                                       $ 1,389,197           $ 1,542,685

Cost of Revenues                                                          1,273,754               909,961

-----------------------------------------------------------------------------------------------------------
         Gross profit                                                       115,443               632,724

Selling, General, and Administrative Expenses                               402,217               544,239

Loss on writedown of investments (Note 9)                                         -              (209,000)
-----------------------------------------------------------------------------------------------------------

         Loss from operations                                              (286,774)             (120,515)

Interest Expense - net of interest income of $768 in 2001
         and $15,789 in 2000                                                 46,712                42,114

Gain on sale of securities (Note 9)                                               -                28,199
-----------------------------------------------------------------------------------------------------------

         Loss before Extraordinary Item and Income Taxes                   (333,486)             (134,430)

Income Tax Benefit (Note 5)                                                 249,000                25,000
-----------------------------------------------------------------------------------------------------------

         Loss before Extraordinary Item                                     (84,486)             (109,430)

Extraordinary Item:
         Gain on extinguishment of debt, net of tax (Note 3)                483,600                48,975

Net Earnings (Loss)                                                     $   399,114           $   (60,455)


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

Net Earnings per Share- Basic and Diluted (Note 12)
         Net Earnings before extraordinary item                         $       .00           $       .00
         Extraordinary item                                             $       .01           $       .00
         Net Earnings                                                   $       .01           $       .00


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

Average Number of Basic Common Shares Outstanding (Note 12)              32,075,509            31,106,401

Average Number of Diluted Common Shares Outstanding (Note 12)            32,075,509            31,106,401

===========================================================================================================
</TABLE>

    See accompanying summary of accounting policies and notes to consolidated
                              financial statements.

                                       21

<PAGE>

                                                                     I/NET, Inc.

<TABLE>
<CAPTION>
Consolidated Statements of Capital Deficit
--------------------------------------------------------------------------------------------------------------

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


                                             Common Stock            Additional
                                             ------------             Paid in
--------------------------------------------------------------------------------------------------------------
                                        Shares          Amount         Capital        Deficit          Total
                                        ------          ------         -------        -------          -----
<S>                                    <C>               <C>         <C>           <C>             <C>
Balance, January 1, 2000               31,037,652        $31,038     $11,886,674   $(13,044,407)   $(1,126,695)

         Net loss for the year                  -              -               -        (60,455)       (60,455)

         Issuance of stock (Note 10)      145,000            145          29,880              -         30,025

--------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000             31,182,652         31,183      11,916,554    (13,104,862)    (1,157,125)

         Net earnings for the year              -              -               -        399,114        399,114

         Issuance of stock for cash       892,857            893          99,107              -        100,000

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

Balance, December 31, 2001             32,075,509        $32,076     $12,015,661   $(12,705,748)   $  (658,011)

--------------------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying summary of accounting policies and notes to
                       consolidated financial statements.

                                       22

<PAGE>

                                                                     I/NET, Inc.

<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Year ended December 31,                                         2001      2000

---------------------------------------------------------------------------------
<S>                                                           <C>       <C>
Operating Activities

         Net earnings (loss)                                  399,114   $ (60,455)
         Depreciation and amortization.                        40,094      26,028
         Gain on sale of securities (Note 9)                        -     (28,199)
         Loss on writedown of investments                           -     209,000
         Extraordinary item:
              Gain on extinguishment of debt (Note 3)        (732,600)    (73,975)
         Changes in assets and liabilities:
              Receivables                                      52,453      (1,204)
              Deposits                                         (3,090)          -
              Accounts payable                                 60,499     (15,696)
              Accruals                                         43,486      (3,730)

---------------------------------------------------------------------------------
Cash Provided by (Used In) Operating Activities              (140,044)     51,769

---------------------------------------------------------------------------------
Investing Activities

         Proceeds from sale of securities (Note 9)                  -      28,199
         Capital expenditures                                 (30,993)    (15,695)

---------------------------------------------------------------------------------
Cash Provided by (Used In) Investing Activities               (30,993)     12,504

---------------------------------------------------------------------------------
Financing Activities

         Proceeds from issuance of common stock               100,000           -
         Proceeds from issuance of notes to stockholders       36,000           -
         Principal payments on long-term debt                 (27,686)   (109,067)
         Principal payments on notes to stockholders          (19,400)    (38,194)

---------------------------------------------------------------------------------
Cash Provided by (Used In) Financing Activities                88,914    (147,261)

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

Decrease in Cash and Cash Equivalents                         (82,123)    (82,988)

Cash and Cash Equivalents, beginning of year                   88,693     171,681

---------------------------------------------------------------------------------
Cash and Cash Equivalents, end of year                        $ 6,570    $ 88,693

---------------------------------------------------------------------------------
</TABLE>

          See accompanying summary of accounting policies and notes to
                       consolidated financial statements.

                                       23

<PAGE>

                                                                     I/NET, Inc.

Summary of Accounting Policies
--------------------------------------------------------------------------------

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

Basis of Presentation          The consolidated financial statements include the
                               accounts of the Company, I/NET, Inc. (a Delaware
                               Corporation), and its wholly owned subsidiary
                               I/NET, Inc. (a Michigan Corporation), and its
                               wholly owned subsidiary, Stek, Ltd. (a Caymanian
                               corporation). I/NET, Inc. the Delaware
                               Corporation is not active, therefore the
                               consolidated financial statements presented
                               within are those of I/NET, Inc. the Michigan
                               corporation and Stek, Ltd., its wholly owned
                               subsidiary. Stek, Ltd. was formed to receive and
                               hold shares of SEGOES, Ltd. (a privately held
                               Caymanian corporation). These shares were earned
                               for the successful completion of the development,
                               installation and operation of the SEGOES web
                               site, an Internet-based offshore asset management
                               and trading system.

Description of the Business    The Company operates in one segment consisting of
                               software development and Internet consulting
                               services. The Company does not operate based upon
                               product lines but as one business unit. Its major
                               customers in 2001 were International Business
                               Machines Corporation (IBM) and the National
                               Aeronautics and Space Administration.(NASA) (See
                               Note 4).

Use of Estimates               The preparation of financial statements in
                               conformity with generally accepted accounting
                               principles requires management to make estimates
                               and assumptions that affect the reported amounts
                               of assets and liabilities and disclosure of
                               contingent assets and liabilities at the date of
                               the financial statements and the reported amounts
                               of revenues and expenses during the reporting
                               period. Actual results could differ from those
                               estimates.

Cash and Cash Equivalents      For purposes of the statement of cash flows, the
                               Company considers all highly liquid investments
                               with maturity of three months or less when
                               purchased to be cash equivalents.

Office Furniture, Equipment,   Office furniture and equipment are stated at
and Depreciation               cost. Depreciation is computed principally by
                               the straight-line method for financial reporting
                               purposes and by accelerated methods for tax
                               purposes over the estimated useful lives of the
                               assets ranging from three to seven years.

Intellectual Property          Purchased intellectual property is stated at
                               cost. Amortization is computed by the
                               straight-line method over the estimated useful
                               life of twenty-four months.

Developed Computer Software    Software development costs and certain product
                               enhancements, when significant, are capitalized
                               subsequent to the establishment of technological
                               feasibility for the product and prior to the
                               products general release to customers.

                               Costs incurred prior to technological feasibility
                               or subsequent to the product's general release to
                               customers, as well as selling, general, and
                               administrative costs associated with the
                               products, are expensed as incurred.

          See accompanying notes to consolidated financial statements.

                                       24

<PAGE>

                                                                     I/NET, Inc.

Summary of Accounting Policies

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

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

Fair Value of Financial       The Company's financial instruments consist of
Instruments                   cash, receivables, notes payable, accounts
                              payable and long-term debt. Due to the short-term
                              nature of the items, other than long-term debt,
                              and the variable interest rates on a substantial
                              portion of the long-term debt, management
                              estimates that carrying amounts of the Company's
                              financial instruments approximate their fair
                              values at December 31, 2001.

Revenue Recognition           Revenues for the sale of the Company's Internet
                              products are recognized when the customer has
                              accepted the product. The Company records its
                              revenues from consulting contracts on a monthly
                              basis as amounts are invoiced for time and
                              expenses incurred.

Earnings (Loss) Per Share     Basic earnings (loss) per share includes no
                              dilution and is computed by dividing income
                              available to common stockholders by the weighted
                              average number of common shares outstanding for
                              the period. Diluted earnings (loss) per share
                              reflect, in periods in which they have a dilutive
                              effect, the effect of common shares issuable upon
                              exercise of stock options and warrants.

New Accounting                In June 2001, the Financial Accounting Standards
Pronouncements                Board (FASB) issued Statement of Financial
                              Accounting Standards (SFAS) No. 141, Business
                              Combinations. This SFAS requires the use of the
                              purchase method of accounting and prohibits the
                              use of the pooling-of- interest method of
                              accounting for business combinations initiated
                              after June 30, 2001. This SFAS also requires that
                              the Company recognize acquired intangible assets
                              apart from goodwill if the acquired intangible
                              assets meet certain criteria. This SFAS applies to
                              all business combinations initiated after June 30,
                              2001 and for purchase business combinations
                              completed on or after July 1, 2001. Also, this
                              SFAS requires that the Company reclassify the
                              carrying amounts of goodwill and other intangible
                              assets based on the criteria of this SFAS. The
                              Company anticipates the implementation of this
                              standard will not have an impact on its financial
                              position or results of operations.

                              In June 2001, the FASB issued SFAS No. 142,
                              Goodwill and Other Intangible Assets. This SFAS
                              requires, among other things, that companies no
                              longer amortize goodwill, but instead test
                              goodwill for impairment at least annually. In
                              addition, the SFAS requires that the Company
                              identify reporting units for the purpose of
                              assessing potential future impairments of
                              goodwill, reassess the useful lives of other
                              existing recognized intangible assets, and cease
                              amortization of intangible assets with an
                              indefinite useful life. The SFAS is required to be
                              applied in fiscal years beginning after December
                              15, 2001 to all goodwill and other intangible
                              assets recognized at that date, regardless of when
                              those assets were initially recognized. The
                              Company anticipates that the implementation of
                              this standard will not have an impact on its
                              financial position or results of operations.

                                       25

<PAGE>

                                                                     I/NET, Inc.

Summary of Accounting Policies

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

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

                              In August 2001, the FASB issued SFAS No. 144,
                              Accounting for the Impairment or Disposal of
                              Long-Lived Assets, which addresses financial
                              accounting and reporting for the impairment or
                              disposal of long lived assets. This statement
                              supercedes SFAS No. 121, Accounting for the
                              Impairment of Long-Lived Assets and for Long
                              -Lived Assets to be Disposed of, and the
                              accounting and reporting provisions of APB Opinion
                              No. 30, Reporting the Results of Operations-
                              Reporting the Effects of Disposal of a Segment of
                              a Business, and Extraordinary, Unusual and
                              Infrequently Occurring Events and Transactions for
                              the Disposal of a Segment of a Business. This
                              statement is effective for financial statements
                              issued for fiscal years beginning after December
                              15, 2001. The Company anticipates this standard
                              will not have a material impact on its financial
                              position or results of operations.

Investments                   The Company has a minority interest in three
                              privately held companies. These investments are
                              carried at the lower of cost or estimated fair
                              market value. (Note 9).

          See accompanying notes to consolidated financial statements.

                                       26

<PAGE>

                                                                     I/NET, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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


<TABLE>
<CAPTION>
1. Short-term Advances   Advances from stockholders consist of:
   from Stockholders

                         December 31,                                    2001                2000
                         -----------------------------------------------------------------------------
<S>                                                                   <C>                 <C>
                         Non-interest bearing notes payable to
                         stockholders, due on demand                  $  13,500           $  13,500

                         Stockholders' advances bearing
                         interest at 8%, due on demand and secured
                         by all the Company's assets                     82,000              82,000

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

                                                                      $  95,500           $  95,500

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

<CAPTION>
2. Long-term Debt        Long-term debt consists of:

                         December 31,                                    2001                2000
                         -----------------------------------------------------------------------------
<S>                                                                   <C>                 <C>
                         Notes payable to vendors (see below)         $ 157,691           $ 615,856

                         Notes payable to stockholders,
                         bearing interest at 8%, due in
                         December 2002 and 2003, secured by all
                         the Company's assets                           290,048             273,448

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

                                                                        447,739             899,304
                         Less current maturities                        181,000             486,000

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

                         Total Long-term Debt                         $ 266,739           $ 403,304

======================================================================================================
</TABLE>

                                       27

<PAGE>

                                                                     I/NET, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

Note Payable to Vendors             An unsecured note in the amount of $157,691
                                    was due in monthly installments of 5% of the
                                    previous month's cash receipts (as defined)
                                    but at a minimum rate of $10,000 bi-monthly
                                    and bears interest at the prime rate plus 2%
                                    (effectively 6.75% at December 31,2001).
                                    This note is classified as a current
                                    liability. During the first quarter of 2002,
                                    the Company successfully negotiated the
                                    extingquishment of this note together with
                                    related accrued interest for $10,000 in cash
                                    and 100,000 shares of its common stock.

                                    Aggregate maturities of long-term debt
                                    assuming repayment of stockholders' advances
                                    (Note 1) and notes are as follows:

                                           2002                    $276,000
                                           2003                    $267,000

3. Extinguishment of Debt           During 2001, the Company reached agreements
                                    with various debt holders.

                                    A distributor agreed to forgive the Company
                                    of $258,000 of commissions due them.

                                    The Company also reached agreements with
                                    note holders whereby the note holders
                                    forgave $430,000 of indebtedness together
                                    with $44,000 of accrued interest.

                                    The forgiveness of debt in 2001 resulted in
                                    extraordinary gains of $483,600, net of
                                    income taxes of $249,000.

                                    During April 2000, the Company reached an
                                    agreement with a note holder, whereby the
                                    Company exchanged 25,000 of its common
                                    shares of stock for the forgiveness of
                                    $74,000 of indebtedness. This forgiveness of
                                    indebtedness, less an income tax benefit of
                                    $25,000, has been treated as an
                                    extraordinary item for financial statement
                                    purposes.

                                       28

<PAGE>

                                                                     I/NET, Inc.

Notes to Consolidated Financial Statements

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

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

4.   Major Customers                The Company provided Internet products, web
                                    site consulting services and support
                                    services and contract services to two major
                                    customers totaling $906,000 for the year
                                    ended December 31, 2001. In 2000, the
                                    Company provided the same types of services
                                    totaling $1,321,000 to three major
                                    customers. These major customers accounted
                                    for 45% and 20% of the Company's revenue in
                                    2001 and 61%, 13% and 12% in 2000.

5.   Taxes on Income                Income taxes are calculated using the
                                    liability method.

                                    Deferred income taxes reflect the net
                                    effects of temporary differences between the
                                    carrying amounts of assets and liabilities
                                    for financial reporting purposes and the
                                    amounts used for income tax purposes.

                                    Significant components of the Company's
                                    deferred tax assets are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                    December 31,                                    2001                2000
--------------------------------------------------------------------------------------------------------------
                                    <S>                                         <C>                <C>
                                    Deferred Tax Assets:

                                    Net operating loss carryforward             $2,914,000         $ 3,042,000
                                    Reserves                                             -             159,000

--------------------------------------------------------------------------------------------------------------
                                    Total Deferred Tax Assets                    2,914,000           3,201,000

                                    Valuation Allowance                         (2,914,000)         (3,201,000)

--------------------------------------------------------------------------------------------------------------
                                                                                $        -         $         -

--------------------------------------------------------------------------------------------------------------
</TABLE>

                                    As of December 31, 2001, the Company had net
                                    operating loss carryforwards of
                                    approximately $8,561,000 available to reduce
                                    future taxable income. These carryforwards
                                    expire from 2003 through 2011.

                                    Income tax expense of $249,000 and $25,000
                                    for the years ended December 31, 2001 and
                                    2000, respectively, was recognized in
                                    conjunction with the extraordinary items.
                                    Corresponding income tax benefits from
                                    operations of like amounts were recorded.
                                    The income tax benefits varied from the
                                    statutory rate due to the valuation
                                    allowance listed above.

                                       29

<PAGE>

                                                                     I/NET, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

6.   Employee Benefit Plan          The Company has a profit sharing and defined
                                    contribution pension plan covering
                                    substantially all employees. Under the plan,
                                    employees may make tax deferred voluntary
                                    contributions which, at the discretion of
                                    the Company's Board of Directors, may be
                                    matched within certain limits by the
                                    Company. In addition, the Company may make
                                    additional discretionary contributions to
                                    the plan as profit sharing contributions.
                                    All contributions to the plan are limited by
                                    applicable Internal Revenue Code
                                    regulations. There were no Company
                                    contributions charged against operations in
                                    2001 or 2000.

7.   Operating Lease                The Company leases its facilities and
                                    certain equipment under non-cancelable
                                    operating leases. Management expects that in
                                    the normal course of business, leases will
                                    be renewed or replaced with other leases.
                                    Rental expense under these leases was
                                    approximately $120,000 and $103,000 for each
                                    of the years ended December 31, 2001 and
                                    2000. Future minimum annual lease payments
                                    subsequent to December 31, 2001 are as
                                    follows:

                                             2002                    $ 66,000
                                             2003                    $ 32,000
                                             2004                    $  2,000

8.   Incentive Stock Option Plan    The Company maintains an incentive stock
                                    option plan that provides for the granting
                                    of options to officers and other key
                                    employees at an exercise price not less than
                                    100% of the fair market value on the date of
                                    the grant. Twenty percent of the options
                                    become exercisable each year following the
                                    date they were granted, and can remain
                                    outstanding for five years following the day
                                    they become fully vested. Changes in options
                                    outstanding are summarized as follows:

<TABLE>
<CAPTION>
                                                                                Option Price       Weighted Average
                                                               Shares             Per Share         Price Per Share
------------------------------------------------------------------------------------------------------------------------
                                    <S>                       <C>               <C>               <C>
                                    January 1, 2000              65,000          $ .29-2.50             $  .80

                                      Granted September
                                        2000                    250,000                 .24                .24

------------------------------------------------------------------------------------------------------------------------
                                    December 31, 2000           315,000          $ .24-2.50             $  .36

                                    Granted January
                                            2001              1,750,000                 .07                .07
------------------------------------------------------------------------------------------------------------------------

                                    December 31, 2001         2,065,000          $.07-$2.50             $  .11

------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       30

<PAGE>

                                                                     I/NET, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

                                    At December 31, 2001, 5,000,000 shares of
                                    common stock were reserved for the incentive
                                    stock option plan and 85,000 options were
                                    vested and exercisable at prices ranging
                                    from $.24 to $2.50 per share. The remaining
                                    weighted average contractual life on these
                                    options is six years. The remaining
                                    1,980,000 options were not vested and have a
                                    remaining contractual life of nine years.

                                    Under SFAS No. 123, "Accounting for Stock
                                    Based Compensation", the Company is required
                                    to provide pro forma information regarding
                                    net income and earnings per share as if
                                    compensation cost for the Company's stock
                                    option plan had been determined in
                                    accordance with the fair value based method
                                    prescribed in SFAS No. 123. The Company
                                    estimates the fair value of each stock
                                    option at the grant date by using the
                                    Black-Scholes option-pricing model with the
                                    following assumptions used for the grants in
                                    2001 and 2000: expected volatility of 90
                                    percent-risk free interest rate of 5.1
                                    percent and an expected option life of 7.2
                                    years. Net earnings (loss) for 2001 and 2000
                                    would not have been materially affected. The
                                    fair value of the options granted during
                                    2001 was $.04 per share and the fair value
                                    of the options granted during 2000 was $.24
                                    per share.

                                    As permitted by SFAS No. 123, the Company
                                    has elected to continue following the
                                    guidance of Accounting Principals Board
                                    (APB) Opinion No. 25, Accounting for Stock
                                    Issued to Employees, for measurement and
                                    recognition of stock-based transactions with
                                    employees. Accordingly, no compensation cost
                                    has been recognized in either 2001 or 2000
                                    for the Company's option plan.

9. Investments                      During August 2000, the Company discharged a
                                    customer from $209,000 of indebtedness and
                                    also assigned that customer certain
                                    proprietary computer technology, software
                                    and a trademark for products known as
                                    Career/NET and HR Department. In exchange
                                    for this discharge and assignment, the
                                    Company received 2,000,000 shares (18%
                                    interest) each in common stock or units in
                                    two privately held entities. These entities
                                    provide web-based resume tracking solutions
                                    and career boards and were working towards
                                    raising additional capital to fund expansion
                                    and growth. During the third quarter of
                                    2000, the raising of additional capital was
                                    suspended due to deteriorating market
                                    conditions for such fund raising. The
                                    Company determined that it was appropriate
                                    to write down these investments to their net
                                    realizable value at that time.

                                    In addition, the Company holds a minority
                                    equity stake in SEGOES, Ltd, a privately
                                    held Caymanian company which offers offshore
                                    securities trading on the web. The Company
                                    received approximately 1,500,000 shares of
                                    SEGOES, Ltd. in January 1999 for the
                                    successful completion of the development,
                                    installation and operation of the SEGOES
                                    website. In January 2000, Stek, Ltd. the
                                    Company's wholly owned Caymanian subsidiary,
                                    sold approximately 20,000 shares of SEGOES,
                                    Ltd. stock with net proceeds to the Company
                                    of approximately $28,000.

                                       31

<PAGE>

                                                                     I/NET, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

10. Supplemental Disclosure of      Interest paid for the years ended December
Cash Flow Information               31, 2001 and 2000, was $11,000 and $27,000,
                                    respectively. The Company paid no income
                                    taxes during 2001 and 2000.

                                    Non-cash investing and financing activities
                                    are summarized as follows:

                                    Forgiveness of indebtedness in the amount of
                                    $74,000 in exchange for 25,000 shares of
                                    common stock in April 2000 and issuance of
                                    120,000 shares of common stock in exchange
                                    for public relations and related consulting
                                    services in August 2000 of $30,000.

11.  Contingencies                  The Company is not involved in any legal
                                    actions arising from the normal course of
                                    business.

12.Earnings (Loss) Per Share        A reconciliation of shares used in
                                    calculating basic and diluted earnings
                                    (loss) per share follows:

<TABLE>
<CAPTION>
                                    Year ended December 31,                        2001                2000
---------------------------------------------------------------------------------------------------------------
                                    <S>                                         <C>                 <C>
                                    Basic                                       32,075,509          31,106,401

---------------------------------------------------------------------------------------------------------------
                                    Diluted                                     32,075,509          31,106,401

---------------------------------------------------------------------------------------------------------------
</TABLE>

                                    For 2001 and 2000, options to purchase
                                    15,000 shares of common stock at $2.50,
                                    options to purchase 50,000 shares of common
                                    stock at $.29 and options to purchase
                                    250,000 shares of common stock at $.24 were
                                    not included in the computation of diluted
                                    loss per share as they were anti-dilutive.
                                    For 2001, options to purchase an additional
                                    1,750,000 shares of common stock at $.07
                                    were not included in the computation of
                                    diluted earnings per share as they were
                                    anti-dilutive.

13.  Continued Existence            The Company's financial statements have been
                                    presented on the basis that it is a going
                                    concern, which contemplates the realization
                                    of assets and the satisfaction of
                                    liabilities in the normal course of
                                    business. The Company has suffered recurring
                                    losses from operations, has a significant
                                    working capital deficit, and requires
                                    additional capital to continue its product
                                    development. Management believes the Company
                                    will continue as a going concern and is
                                    actively marketing its products, which would
                                    enable the Company to meet its current
                                    obligations and provide additional funds for
                                    continued new product development.
                                    Management has negotiated settlements of all
                                    of its non-current indebtedness to vendors,
                                    which has improved its working capital
                                    position and cash flows. In addition,
                                    management has secured an unsecured line of
                                    credit in the amount of $35,000 and is
                                    negotiating several additional contracts for
                                    its services and products. Management is
                                    also embarking on other strategic
                                    initiatives to expand its business
                                    opportunities. However, there can be no
                                    assurance these activities will be
                                    successful.

                                       32