U.S. 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, 1996 [ ] 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 (I.R.S. 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: None

          Title of Each Class Name of Each Exchange on Which Registered

                                    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. [ ]

<PAGE>






State  Issuer's  revenues for its most recent  fiscal year:  December 31, 1996 -
                                    $724,032

State the  aggregate  market  value of the voting  stock 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.
                                  $11,181,863.

There  are  approximately  16,689,348  shares  of  common  voting  stock  of the
Registrant held by non-affiliates.  This valuation is based upon the average bid
price  ($0.68)  for  shares  of common  voting  stock of the  Registrant  on the
"Electronic  Bulletin Board" of the National  Association of Securities Dealers,
Inc. ("NASD") on January 31, 1997
 .

     (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

                                 Not Applicable.

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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

                                December 31, 1996

                                   30,837,652


                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------



Transitional Small Business Disclosure Format (check one): Yes X No ___









                     - THIS SPACE INTENTIONALLY LEFT BLANK -



<PAGE>





                                TABLE OF CONTENTS




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.................................................9

Item 8.  Changes in and Disagreement with Accountants on Accounting 
         and Financial Disclosure.............................................9

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act...................10

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

Item 11. Security Ownership of Certain Beneficial Owners and Management......15

Item 12. Certain Relationships and Related Transactions......................15

Item 13. Reports on Form 8-K and Exhibits....................................16

Signatures...................................................................17



<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 during 1986 under the name of a predecessor corporation. The Company
had its initial  public  offering with the  Securities  and Exchange  Commission
during 1987.

BUSINESS DEVELOPMENT

I/NET was  incorporated  in 1983 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.

During 1993 and 1994, the Company issued 1,428,571 shares of its stock for cash,
a trademark,  and reduction of debt totaling $4,455,000.  In connection with the
transactions,  the Company issued warrants to the purchaser to acquire 2,039,285
shares of common stock at prices  ranging  from $0.25 to $2.40 per share.  These
warrants expire in 1997. As part of these  transactions,  the underwriters  were
also issued 1,145,714 warrants exercisable at prices ranging from $0.29 to $2.10
and expire in 1999.  During 1995,  the Company  issued an additional  18,859,081
shares  of  common  stock for  $3,883,326.  These  shares  were  issued  for the
reduction of  indebtedness,  for a stock award  program for the officers and key
employees,  and to raise additional capital.  There were no warrants issued with
these transactions. All warrants were exercisable at December 31, 1996.

BUSINESS

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 1982 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.  The  Company's  contracts  with IBM, a
minority stockholder in the Company, were completed at the end of 1995.

During 1995,  I/NET  brought to the  marketplace  its own Web  Server/400 as the
first  commercially  available  product,  which can connect  the nearly  500,000
AS/400  midrange  computers  worldwide to the Internet.  The "Web" lets Internet
users  around the world  exchange  information  in the form of  displayed  text,
images, sound, and video.  Available since July, 1995, I/NET's Web Server/400 is
currently used by businesses around the world, with  installations in Hong Kong,
Germany, England, the Netherlands,  Italy, Korea, Japan, and Israel, in addition
to Canada and the  United  States.  Current  installations  include:  IBM AS/400
Homepage     (www.as400.ibm.com),     Pacific    Brokerage    Services,     Inc.
(www.tradepbs.com),  Software 2000, Inc., Marcam Corporation, Dynamic Healthcare
Technologies, Inc. (www.dht.com),  Automated Training Systems (www.ibmuser.com),
Mattel Toys, MCI, Eli Lilly, Builders Square, Toyota of America, Caesers Palace,
United Technologies Automotive, and Anheuser-Busch.



<PAGE>


I/NET's  Commerce  Server/400 was made available in August,  1996.  This product
provides AS/400 users with the ability to conduct secured,  encrypted  financial
and  other  transactions  over the  Internet.  Current  customers  include  IBM,
Enterprise  Rent-A-Car,  MCI,  State Bar of  California,  and Pacific  Brokerage
Services,  Inc. These companies have installed the product in various  locations
throughout the world.

IBM AS/400 is the world's most popular  multi-user  business  computing  system,
with nearly 500,000 units installed worldwide  supporting from 1 to 7,000 users.
IBM and its 8,000 Business Partners offer AS/400 customers 25,000  applications,
including 3,000 for the client/server.  Among AS/400 customers are 98 percent of
the Fortune 100 Industrials.

DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES

The Company has signed exclusive worldwide marketing and distribution agreements
with International  Marketing Strategies,  (IMS) for the distribution of its Web
Server/400 products. All marketing services will be performed by IMS.

COMPETITIVE  BUSINESS  CONDITIONS  AND THE SMALL BUSINESS  ISSUER'S  COMPETITIVE
POSITION IN THE INDUSTRY AND METHODS OF COMPETITION

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. As
mentioned previously,  the Company is currently finalizing an agreement with IBM
to provide future services for IBM's AS/400 Internet products. I/NET and IBM are
the only two  companies  with  software  available  to connect the AS/400 to the
Internet.  Currently, I/NET's products are installed on over 90% of the AS/400's
operating as Internet servers.

SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE NAMES OF 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.  It
recruits  top-of-the-class  talent from two Kalamazoo-based  colleges as well as
candidates from the Detroit and Chicago metropolitan areas.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

The Company provided Internet products, facilities management services, and
software development services to a few major customers during 1996 and 1995 as
follows:
                                                  1996                1995
                                         -------------------- ------------------
Internet Products
International Marketing Strategies (IMS)       $ 346,000            $ 50,000
SUPPORT NET, INC.                                158,000                 -
                                         -------------------- ------------------
                                                 504,000           $  50,000    
                                              
Facilities Management Services
     Greater Kalamazoo Associations of Realtors
                                               $ 120,000           $ 149,000
                                          ================    ==================
Software Development Services
     International Business Machines (IBM)
                                                  $ -              $ 978,000
                                      ====================    ==================

IBM is also a minority stockholder in the Company and $40,000 was due from it as
of December 31, 1995.



<PAGE>


PATENTS, TRADEMARKS,  LICENSES, FRANCHISES,  CONCESSIONS,  ROYALTY AGREEMENTS OR
LABOR CONTRACTS, INCLUDING DURATION

I/NET  acquired the trademark  "Career/NET"  in prior years.  This trademark was
written off during 1995 as the  product  did not meet the market  acceptance  as
anticipated.

NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTIONS OR SERVICES

The  performance  of  services  and the supply of products by the Company is not
subject to governmental approval.

EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS

No present  governmental  regulations  have any adverse impact on the present or
contemplated   business  operations  of  the  Company,   and  no  such  probable
governmental regulations are anticipated to have any adverse effect.

ESTIMATE  OF THE  AMOUNT  SPENT  DURING  EACH OF THE  LAST TWO  FISCAL  YEARS ON
RESEARCH AND DEVELOPMENT ACTIVITIES,  AND IF APPLICABLE, THE EXTENT TO WHICH THE
COST OF SUCH ACTIVITIES ARE BORNE DIRECTLY BY CUSTOMERS

There were no research and development  costs incurred by the Company during the
calendar years ended December 31, 1996 and 1995.

COST AND EFFECTS OF COMPLIANCE  WITH  ENVIRONMENTAL  LAWS (FEDERAL,  STATE,  AND
LOCAL)

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

NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES

As of December 31, 1996, the Company had 13 full-time and total employees.


Item 2.   DESCRIPTION OF PROPERTY

The Company  leases its principal  executive  and operating  offices at 643 West
Crosstown Parkway, Kalamazoo, Michigan, which is comprised of 5,600 square feet.

Item 3.   LEGAL PROCEEDINGS

The  Company is not the subject of any  material  legal  proceeding,  and to the
knowledge of management,  no proceedings are presently  contemplated against the
Company by any federal, state, or local governmental agency.

To the knowledge of management,  no director or executive officer of the Company
is party to any legal proceeding in which it may have an interest adverse to the
Company.

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

No matter was submitted to a vote of the Company's stockholders during 1996.


<PAGE>




                                     PART II


Item 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Company's  common stock is listed on the "Electronic  Bulletin Board" of the
NASD.  The stock  activity for the calendar years 1996 and 1995 is summarized by
quarter below:

        1996     1996     1996     1996     1995      1995      1995     1995
        1st Qtr  2nd Qtr  3rd Qtr  4th Qtr  1st Qtr   2nd Qtr   3rd Qtr  4th Qtr
        -------  -------  -------  -------  -------   -------   -------  -------

HIGH   $1.13     $0.97    $0.81    $0.81    $0.71     $0.50     $0.41    $0.77
LOW    $0.63     $0.60    $0.41    $0.56    $0.37     $0.18     $0.25    $0.25

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

HOLDERS

The number of record  holders of the  Company's  common stock as of December 31,
1996,  was 299.  This  number  does  not  include  an  indeterminate  number  of
stockholders whose shares are held by brokers in street name.

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, 1996 AND 1995

RESULTS OF OPERATIONS

Revenues  for the year ended  December 31,  1996,  were  $724,032 as compared to
$1,276,757  for the year ended  December  31,  1995.  When  analyzed  by product
category,  revenues of software  development services to IBM were $0 in 1996, as
compared  to  $978,000  in 1995 as the  contract  with IBM expired at the end of
1995.  Revenues from  facilities  management  services were $120,000 in 1996 and
$149,000 in 1995 as the  contract  with the  Greater  Kalamazoo  Association  of
Realtors  expired in October  1996.  The new  Internet  products  accounted  for
revenues  of $563,000  in 1996 and  $96,000 in 1995 as new  products  were being
introduced to the market.

Cost of revenues  decreased by $101,000,  as compared to 1996. The primary cause
for this reduction was the closing of the Phoenix office and the  termination of
the employees at that location during the first quarter of 1995.

General and  administrative  expenses increased by $175,000 as compared to 1995.
The primary  cause for this increase was its accrual of a commission of $250,000
to a former exclusive  distributor of the Company's Internet products to release
this distributor from it's exclusive contract.



<PAGE>


Interest  expenses  decreased by $92,000 due to the  conversion  of vendor notes
payable in the amount of $597,000 into common stock during late 1995.

During the year ended  December 31,  1995,  it was  determined  that the Company
would not be able to  provide  the  additional  funding  necessary  to  develop,
market, deploy and maintain its previously capitalized computer software product
named Embarc.  This failure to obtain financing has resulted in the write-off of
the development costs of the product in the amount of $2,151,000.

In addition,  the Company has determined that the carrying amount of a trademark
which it acquired at a cost of $225,000 and the related  inventory in the amount
of  approximately  $107,000 for its  Career/NET  product  could not be recovered
through future operations. Accordingly, the Company wrote off these amounts.

In accordance with Statement of Financial  Accounting  Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to
Be  Disposed  Of," the  Company  assessed  the  expected  recoverability  of the
carrying amount of the trademark and related inventory  discussed above and, due
to significant  changes in the extent to which these assets were  anticipated to
be used, it  recognized  an impairment  loss measured as the amount by which the
carrying  amount of the assets  exceeded  the  expected  discounted  future cash
flows.

During 1995, the Company issued 12,400,000  shares of unregistered  common stock
to certain  officers and key employees in  recognition  of  outstanding  service
performed during a time of financial  instability and severe hardship.  Although
at the time of  issuance,  there was no active  market in the  Company's  common
stock and there was a deficit in  stockholders'  equity,  an accounting value of
$0.20 per share was assigned based upon  subsequent cash purchases of the stock.
The recipients are restricted in their ability to sell or otherwise transfer the
shares within a time frame of two to three years from the date of issuance.

FINANCIAL CONDITION AND LIQUIDITY

The Company's  primary need for capital has been to invest in computer  software
development.  As of December 31, 1996, the Company's working capital deficit was
$1,765,000,  as compared to a deficit of $897,000  at  December  31,  1995.  The
resulting  increase in working  capital  deficit is primarily from sales volumes
failing  to be  reached  under  its  distribution  agreements  for its  Internet
products, together with a lack of sales of additional products and services.

During  February,  1997, the Company signed an agreement to provide  development
and training of enhanced internet products for HBO & Company.  This customer has
also  committed to purchase an additional  $200,000 of Internet  products by the
end of 1997.  In  addition,  IMS  during  the first  quarter  of 1997 has signed
non-exclusive   distribution  agreements  with  various  IBM  Managing  Industry
Remarketers  ("MIR's")  in the United  States.  These  MIR's  provide  access to
hundreds of software  distributors  through which I/NET's  products can be sold.
These  agreements  are in addition to  worldwide  agreements  signed  during the
fourth quarter of 1996.

During  February,  1997, the Company was awarded IBM's highest  recognition  for
development of Commerce  Server/400 by IBM's Partners in Development  Program as
The AS/400 1996  Product of the Year.  This honor was  bestowed at IBM's  annual
Business   Partner's   Executive   Conference,   which  was  attended  by  6,000
international guests.

The Company  believes that the additional  sales provided by the above mentioned
agreements,  the  continued  development  of new  products,  together  with  the
renegotiation of its defaulted debt,  should provide the Company with sufficient
working capital to fund its needs for 1997.  However,  there can be no assurance
these activities will be successful.



<PAGE>



Item 7.   FINANCIAL STATEMENTS

                                                                    
Report of Independent Certified Public Accountants............................20
Consolidated Balance Sheets as of December 31, 1996 and 1995..................21
Consolidated Statements of Operations for the years ended December 31, 1996
and 1995......................................................................22
Consolidated Statements of Stockholders' Equity (Capital Deficit) for the years
ended December 31, 1996 and 1995..............................................23
Consolidated Statements of Cash Flows for the years ended December 31, 1996
and 1995......................................................................24
Summary of Accounting Policies.............................................25-26
Notes to Consolidated Financial Statements.................................27-35


Item 8.   CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.


<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,  nature of all position,  any offices
held by all  directors  and  executive  officers of the Company for the calendar
year ended December 31, 1996, and to the date hereof,  and the period or periods
during  which  each such  director  or  executive  officer  has  served in their
respective positions.
                         Position                            Date of Election or
  Name                   Held                                Designation



James C. Knapp*          Chairman of the                      1986
                         Board of Directors

Stephen J. Markee*       President, CEO,                      1985
                         Director,                            1986
                         and CFO                              1995

Paul A. Bertoldi*        Vice President                       1989
                         Systems Development

* These individuals  presently serve in the capacities  indicated opposite their
respective names.

TERM OF OFFICE

The terms of office of the current  directors  shall  continue  until the annual
meeting of  stockholders,  which has been scheduled by the Board of Directors to
be held on the third Friday in May of each year; the annual meeting of the Board
of Directors  immediately  follows the annual meeting of stockholders,  at which
executive officers for the coming year are elected.







               - THIS SPACE INTENTIONALLY LEFT BLANK -





<PAGE>




BUSINESS EXPERIENCE

James C. Knapp,  Chairman.
Mr. Knapp, one of I/NET's initial  founders,  is 46 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.

Stephen J. Markee,  President,  CEO and CFO.
Mr.  Markee is 51 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 Vietnam  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 relations. He joined I/NET in 1986 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 in 1989. 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").

Paul A. Bertoldi, Vice President,  Systems Development.
Mr. Bertoldi is 34 years of age. He received a BBA Degree from Western  Michigan
University  ("WMU") in 1984,  and a MBA Degree  from WMU in 1992.  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
application in multi-media and pen computing. He is an active member in both the
Data  Processing  Management  Association  ("DPMA") and  Association of Computer
Machinery  ("ACM").  In 1988, he was recognized as a Certified Data Processor by
the Association for Certification for Computer Professionals.

FAMILY RELATIONSHIPS

With the exception that Mr. Knapp and Mr.  Bertoldi are  brother-in-laws,  there
are no family  relationships  between any directors or executive officers of the
Company, either by blood or by happenstance of marriage.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

Under the  Delaware  General  Corporation  Law, a  corporation  has the power to
indemnify any person who is made a party to any civil, criminal,  administrative
or  investigative  proceeding,  other  than  action  by  or  any  right  of  the
corporation,  by reason of the fact that such  person was a  director,  officer,
employee or agent of the corporation,  against  expenses,  including  reasonable
attorney's  fees,  judgments,  fines and amounts paid in  settlement of any such
actions;  provided,  however, in any criminal proceeding, the indemnified person
shall  have had no  reason  to  believe  the  conduct  committed  was  unlawful.
Regardless,  it is the position of the Securities and Exchange  Commission  that
indemnification against liabilities for violation of the federal securities law,
rules and regulations is against public policy.


<PAGE>



INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

To the knowledge of management, during the past five years, no present or former
director,  executive  officer or person  nominated  to become a  director  or an
executive officer of the Company:

 -   Filed a petition under the federal  bankruptcy laws or any state insolvency
     law, nor had a receiver, fiscal agent or any partnership in which he or she
     was a general  partner  at or  within  two  years  before  the time of such
     filing,  or any  corporation  or  association  of  which  he or she  was an
     executive officer at or within two years before the time of such filing;
 
 -   Was  convicted  in a  criminal  proceeding  or named  subject  of a pending
     criminal   proceeding   (excluding   traffic  violations  and  other  minor
     offenses);
 
 -   Was  the  subject  of any  order,  judgment  or  decree,  not  subsequently
     reversed,  suspended or vacated,  of any court of  competent  jurisdiction,
     permanently or temporarily  enjoining him from or otherwise  limiting,  the
     following activities:
 
 -   Acting as a futures  commission  merchant,  introducing  broker,  commodity
     trading   advisor,   commodity  pool  operator,   floor  broker,   leverage
     transaction merchant,  associated person of any of the foregoing,  or as an
     investment advisor,  underwriter,  broker or dealer in securities, or as an
     affiliated person,  director or employee of any investment  company,  bank,
     savings  and loan  association  or  insurance  company,  or  engaging in or
     continuing any conduct or practice in connection with such activity;

 -   Engaging in any activity in  connection  with the purchase or sale of any
     security or commodity  or in  connection  with any  violation of federal or
     state securities laws or federal commodities laws;

 -   Was  the  subject  of any  order,  judgment  or  decree,  not  subsequently
     reversed,  suspended or vacated, of any federal or state authority barring,
     suspending  or  otherwise  limiting for more than 60 days the right of such
     person to engage in any activity  described above under this Item, or to be
     associated with person engaged in any such activity;
 
 -   Was found by a court of  competent  jurisdiction  a civil  action or by the
     Securities  and Exchange  Commission  to have violated any federal or state
     securities  law,  and the  judgment in such civil  action or finding by the
     Securities  and Exchange  Commission  has not been  subsequently  reversed,
     suspended or vacated.
 
 -   Was found by a court of competent  jurisdiction in a civil action or by the
     Commodity   Futures  Trading   Commission  to  have  violated  any  federal
     commodities  law,  and the  judgment in such civil action or finding by the
     Commodity Futures Trading  Commission has not been  subsequently  reversed,
     suspended or vacated.
 
 
 
 
 
 
                     - THIS SPACE INTENTIONALLY LEFT BLANK -     

 


<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
================================================================================

                               Annual Compensation                              
                                                                                
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(a)                                    (b)          (c)   (d)        (e)        
--------------------------------------------------------------------------------
NAME AND ........................   Year Ended   $ Salary   $ Bonus    Other    
PRINCIPAL  POSITION .............                           Dec. 31,   Annual   
                                                                       Compensa-
                                                                        tion    
--------------------------------------------------------------------------------
James C. Knapp ..................         1996   $130,208   -0-        -0-      
  Chairman ......................         1995   $ 36,458   -0-        -0-      
                                                                                

Stephen J. Markee ...............         1996   $130,208   -0-        -0-      
  President, CEO, ...............         1995   $ 36,458   -0-        -0-      
  CFO and Director
                                                                                

Brian W. Wood ...................         1995   $  9,375   -0-        -0-      
  Former
  Vice President,
  Finance
                                                                               

Paul A. Bertoldi ................         1996   $ 72,917   -0-        -0-      
  Vice President, ...............         1995   $ 61,250   -0-        -0-      
  Systems

--------------------------------------------------------------------------------
                       Year         (f)*           (g)           (h)       (i)**
                       ended       ----           ---           ---        -----
NAME AND ...................   Restricted    Options/SAR's    LTIP     All other
PRINCIPAL  POSITION ........   Stock Award   (#)              Payouts  Compensa-
                                                                            tion
--------------------------------------------------------------------------------
                                                                      
                            
James C. Knapp ........1996        -0-            -0-         -0-         $8,104
  Chairman ............1995       $1,000,000      -0-         -0-         $5,445
                            
                            
Stephen J. Markee .....1996        -0-            -0-         -0-         $6,420
  President, CEO, .....1995       $1,000,000      -0-         -0-         $5,738
  CFO and Director          
                            
                            
Brian W. Wood .........1995        -0-            -0-         -0-         $6,989
  Former 
  Vice President,           
  Finance                   
                            
                            
Paul A. Bertoldi ......1996        -0-            -0-         -0-         $5,564
  Vice President, .....1995       $40,000         -0-         -0-         $5,254
  Systems                                                                       
--------------------------------------------------------------------------------
*See the caption "All Other Compensation" herin for restricted stock award
**Approximate value of health, dental and life insurance paid by the Company
================================================================================

BONUSES AND DEFERRED COMPENSATION

None.

Compensation Pursuant to Plans

     The Company has an Incentive  Stock  Option Plan  ("ISOP").  All  full-time
     employees  are  eligible  under the plan to receive  shares that vest 20% a
     year and must be  exercised  within 10 years  from the award date or within
     three months of termination of employment. The exercise price is determined
     by the market price at the date of award.  The ISOP reserved 582,255 shares
     of common  stock as an  incentive  for  directors,  executive  officers and
     employees.  In January, 1994, the Company allocated 280,279 shares at $2.50
     per share to current  employees  who were not  shareholders.  Six  thousand
     (6,000)  shares lapsed during 1994,  212,477 shares lapsed during 1995, and
     99,936  shares  lapsed  during 1996.  The  outstanding  shares total 42,500
     leaving  539,755  shares  available to be granted and to be  exercisable at
     market price on the date of such grant.


<PAGE>



PENSION TABLE

     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  direction  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
     during the last two calendar years ended December 31, 1996 and 1995.

     The Company does not follow a practice of paying  post-retirement  benefits
     to  its  former  employees.  Therefore,  the  provisions  of  Statement  of
     Financial  Accounting  Standards No. 106  "Employers"  Accounting for Post-
     Retirement  Benefits  Other  Than  Pensions"  will  have no  effect  on the
     Company

OTHER COMPENSATION

     During 1995, the Company issued  12,400,000  shares of unregistered  common
     stock to certain  officers and key employees in  recognition of outstanding
     service  performed  during  a time  of  financial  instability  and  severe
     hardship.  Although at the time of issuance, there was not an active market
     in the  Company's  common  stock and there was a deficit  in  stockholders'
     equity,  an  accounting  value of $0.20 per share was  assigned  based upon
     subsequent  cash  purchases of the stock.  The recipients are restricted in
     their ability to sell or otherwise  transfer the shares within a time frame
     of two to three years from the date of issuance.

     Of the shares awarded,  Messieurs Knapp and Markee received  5,000,000 each
     while Mr. Bertoldi received 200,000 shares.

COMPENSATION OF DIRECTORS

See Cash Compensation of this Item.

EMPLOYMENT CONTRACTS

There are no  employment  contracts for any employees or officers as of December
31, 1996.

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.







                     -THIS SPACE INTENTIONALLY LEFT BLANK -






<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 common stock.

                                         Amount and Nature of
Name                      Address        Beneficial Ownership   Percent of Class
------------------------------------------------------------------------------
                                  

Executive Officers and Directors


    Paul A. Bertoldi     Kalamazoo, MI         410,699                     1.33%

    James C. Knapp       Kalamazoo, MI       5,692,719                    18.46%

    Stephen J. Markee    Richland, MI        6,039,187                    19.58%
                                            ------------------------------------

Total                                       12,142,605                    39.37%
================================================================================

Owners of 5%

    Steven Wallace       Beverly Hills, CA   1,844,000                     5.98%
                                       
================================================================================
CHANGES IN CONTROL

     To the  knowledge  of  management,  there are no  present  arrangements  or
     pledges  of  securities  of the  Company  which  may  result in a change in
     control of the Company.

Item 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management and Others

     Except as stated below,  during the last two calendar  years ended December
     31, 1996 and 1995,  there were no material  transactions  or any  currently
     proposed  transaction,  or series  of  similar  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  director or executive
     officer,  or any  security  holder  who is known to the  Company  to own of
     record of  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. See the caption "Dependence of One or a Few Major
     Customers" of the caption "Business" of Item 1, for information  concerning
     contractual  services provided to IBM, a stockholder of the Company,  which
     services  were  the  result  of  competitive   bids,  and  Note  5  to  the
     Consolidated Financial Statements.

<PAGE>



CERTAIN BUSINESS RELATIONSHIPS

     Except as stated below,  during the last two calendar  years ended December
     31, 1996 and 1995,  there were no material  transactions  or any  currently
     proposed  transactions,  or series of  similar  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  director or executive
     officer,  or any  security  holder  who is known to the  Company  to own of
     record of  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.  Services  were  provided  during 1995 to IBM as
     outlined in Item 2, "Dependence on One or a Few Major Customers."

INDEBTEDNESS OF MANAGEMENT

     James C. Knapp,  Chairman of the Board of Directors  and Stephen J. Markee,
     President,  CEO and CFO, have loaned the Company funds for working capital.
     These funds were provided at an interest rate of prime plus 2%. The balance
     outstanding  at December 31, 1996 was $390,500.  At December 31, 1995,  the
     Company owed $83,500 to Mr. Markee. 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  director or  executive  officer,  or any security
     holder who is known to the  Company to own or record of  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, 1995 and 1994.

TRANSACTIONS WITH PROMOTERS

     During the last two calendar years ended December 31, 1996 and 1995,  there
     were no material  transactions or any currently proposed  transactions,  or
     series  of  similar  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,  or member of their  immediate
     family of any of the foregoing persons, had an interest.

Item 13.   REPORTS ON FORM 8-K AND EXHIBITS

Reports on Form 8-K:

None

EXHIBITS:

None






                     -THIS SPACE INTENTIONALLY LEFT BLANK -


<PAGE>







SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
     Exchange  Act of 1934,  the  Registrant  has duly  caused this Report to be
     signed on its behalf by the undersigned, thereto duly authorized.

I/NET, Inc.



Date:  March 28, 1997                         By:        /s/  Stephen J. Markee 
                                                    Stephen J. Markee, Director
                                                    President, CEO, and CFO


     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 28, 1997                            By       /s/  Stephen J. Markee
                                                    Stephen J. Markee, Director
                                                    President, CEO, and CFO



Date:  March 28, 1997                            By:        /s/  James C. Knapp 
                                                       James C. Knapp, Chairman
                                                      of the Board of Directors



Date:  March 28 ,1997                            By:       /s/  Paul A. Bertoldi
                                               Paul A. Bertoldi, Vice President
                                                            Systems Development














 




<PAGE>






I/NET, Inc.






















                        Consolidated Financial Statements
                     Years Ended December 31, 1996 and 1995
                     --------------------------------------



<PAGE>





I/NET, Inc.















Report of Independent Certified Public Accountants                  20


Financial Statements:

    Consolidated Balance Sheets                                     21

    Consolidated Statements of Operations                           22

    Consolidated Statements of Stockholders' Equity                 23

    Consolidated Statements of Cash Flows                           24


Summary of Accounting Policies                                 25 & 26


Notes to Consolidated Financial Statements                     27 - 35


<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,  1996 and  1995,  and the  related  consolidated
     statements of operations,  stockholders' equity (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 generally accepted auditing
     standards.  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,  1996  and  1995,  and the  results  of its
     operations  and its cash flows for the years then ended in conformity  with
     generally accepted accounting principles.
          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  recurring 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.

                                                            /s/ BDO SEIDMAN, LLP
                                                    Certified Public Accountants

     January 17, 1997


<PAGE>

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






December 31,                                             1996            1995
--------------------------------------------------------------------------------


Assets  (Note 3)                                   


Current:                                          

     Cash and cash equivalents                     $    20,517     $   682,828

     Receivables:

     Trade                                              28,982          12,300

     Note                                                   -           30,000

     Billed contracts (Note 5)                              -           40,000
--------------------------------------------------------------------------------
Total Current Assets                                    49,499         765,128

Office Furniture and Equipment,
less accumulated depreciation
of $482,553 and $446,095                                62,392          85,142

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


                                                      $111,891        $850,270

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

























                                                



<PAGE>

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



I/NET, Inc.





                           Consolidated Balance Sheets






          
December 31,                                             1996             1995  
--------------------------------------------------------------------------------

Liabilities and Capital Deficit

Current Liabilities:
    Accounts payable                               $    142,605    $     358,958
    Accruals:
        Commissions (Note 1)                            250,000                -
        Other                                           179,698          258,124
    Advances from stockholders (Note 2)                 119,778          119,778
    Current maturities of long-term debt (Note 3)     1,122,000          925,000
--------------------------------------------------------------------------------

Total Current Liabilities                             1,814,081        1,661,860

Long-Term Debt, less current maturities (Note 3)        494,642          253,190
--------------------------------------------------------------------------------

Total Liabilities                                     2,308,723        1,915,050
--------------------------------------------------------------------------------

Commitments and Contingency (Notes 1, 8 and 11)

Capital Deficit (Notes 4 and 9):

Common stock, $.001 par value -
shares authorized 50,000,000;                                                  
issued and outstanding 30,837,652 in 1996 and 1995       30,838           30,838
 
                                                        
    Additional paid-in capital                       11,836,874       11,836,874
    Deficit                                         (14,064,544)    (12,932,492)
--------------------------------------------------------------------------------
Total Capital Deficit                               (2,196,832)      (1,064,780)
--------------------------------------------------------------------------------
                                                   $    111,891    $     850,270
--------------------------------------------------------------------------------


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

                                       21

<PAGE>

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






I/NET, Inc.



                      Consolidated Statements of Operations







Year ended December 31,                                    1996             1995
--------------------------------------------------------------------------------

Revenues (Note 5)                                $      724,032   $    1,276,757

Cost of Revenues                                        729,070          830,449
--------------------------------------------------------------------------------

    Gross profit (loss)                                  (5,038)         446,308

Selling, General, and Administrative Expenses         1,060,402          886,057

Special Charges (Note 12)                                     -        4,962,604
--------------------------------------------------------------------------------

    Loss from operations                            (1,065,440)      (5,402,353)

Interest Expense - net of interest
income $12,888 in 1996 and $7,084 in 1995
                                                         66,612          159,149
--------------------------------------------------------------------------------

Net Loss                                         $  (1,132,052)   $  (5,561,502)
--------------------------------------------------------------------------------


Net Loss per Common Share                        $       (0.04)   $       (0.37)
--------------------------------------------------------------------------------


Weighted Average Number of Common
Shares Outstanding                                   30,837,652       15,199,191
--------------------------------------------------------------------------------


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

                                       22

<PAGE>

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


I/NET, Inc.






                 Consolidated Statements Of Stockholders' Equity
                                (Capital Deficit)






           Common Stock             Additional
      -------------------------
                                    Paid-in
          Shares     Amount         Capital           Deficit           Total
--------------------------------------------------------------------------------
Balance, January 1, 1995


        11,978,571  $  11,979   $   7,972,407   $   (7,370,990)   $     613,396

Issuance of common stock:
For accounts & notes payable

  
         2,659,081      2,659         640,667                 -         643,326

For compensation 

        12,400,000     12,400       2,467,600                 -       2,480,000

For cash 
  
         3,800,000      3,800         756,200                 -         760,000

Net loss for the year  
                 -          -               -       (5,561,502)     (5,561,502)
--------------------------------------------------------------------------------

Balance, December 31, 1995

        30,837,652     30,838      11,836,874      (12,932,492)     (1,064,780)

Net loss for the year

                 -          -               -       (1,132,052)     (1,132,052)
--------------------------------------------------------------------------------

Balance, December 31, 1996

        30,837,652  $  30,838   $  11,836,874   $  (14,064,544)   $ (2,196,832)
--------------------------------------------------------------------------------


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

                                       23

<PAGE>

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

                     Consolidated Statements of Cash Flows







Year ended December 31,                                  1996               1995
--------------------------------------------------------------------------------

Operating Activities (Note 10):
    Net loss                                      (1,132,052)     $  (5,561,502)
    Depreciation and amortization                     36,458             93,855
    Provision for bad debts                                -            154,805
    Write-down of miscellaneous other assets               -             35,015
    Special charges (Note 12)                              -          4,962,604
    Changes in assets and liabilities:
        Receivables                                   23,318             62,028
        Inventories                                        -             20,787
        Prepaid expenses and other assets                  -             47,282
        Accounts payable                                7,140           (64,042)
        Accruals                                      207,220           214,456

--------------------------------------------------------------------------------
Cash Used in Operating Activities                   (857,916)           (34,712)
--------------------------------------------------------------------------------

Investing Activities (Note 10):
    Proceeds from note receivable                     30,000             97,600
    Developed computer software                             -           (44,564)
    Capital expenditures                             (13,708)                 -
--------------------------------------------------------------------------------

Cash Provided by Investing Activities                 16,292             53,036
--------------------------------------------------------------------------------
Financing Activities (Note 10):                                       
--------------------------------------------------------------------------------
Proceeds from issuance of notes to stockholders      300,000              8,500
Proceeds from issuance of common stock                     -            760,000
Proceeds from issuance of notes payable                    -            100,000
Principal payments on long-term debt                (120,687)          (221,114)
--------------------------------------------------------------------------------

Cash Provided by Financing Activities                179,313            647,386
--------------------------------------------------------------------------------

Increase (Decrease) in Cash and Cash Equivalents   (662,311)            665,710

Cash and Cash Equivalents, beginning of year         682,828             17,118
--------------------------------------------------------------------------------

Cash and Cash Equivalents, end of year        $       20,517     $      682,828
--------------------------------------------------------------------------------


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

                                       25

<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).  Only the
subsidiary remains an active Company and therefore the consolidated
financial statements presented within are those of the subsidiary.

Description of the
Business

Prior to 1996, the Company 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.  The Company, during 1996, further developed and began to
market Internet computer software products.  It's major customer was
International Marketing Strategies (IMS) in 1996 and International
Business Machines (IBM) in 1995.  (See Note 5)

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 a maturity of three months or less
when purchased to be cash equivalents.

Office Furniture,Equipment,and Depreciation

Office furniture and equipment are stated at cost.  Depreciation is
computed principally by the straight-line method for financial
reporting purposes over the estimated useful lives of the assets and by
accelerated methods for tax purposes.

Taxes on Income

Deferred income taxes are recorded to reflect the future tax
consequences of temporary differences between the tax bases of assets
and liabilities and their financial reporting amounts at year end.


          See accompanying notes to consolidated financial statements.

                                       26

<PAGE>

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


I/NET, Inc.




Summery of Accounting Policies




Developed Computer
Software

Software development costs are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS)
No. 86, "Accounting for the Cost of Computer Software To Be Sold,
Leased or Otherwise Marketed."  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 product's 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 Note 12 for write-off of capitalized computer software
costs in 1995.

Fair Value of Financial
Instruments

The Company's financial instruments consist of 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 the carrying amounts of the Company's
financial instruments approximate their fair values at December 31,
1996.

Revenue Recognition

Revenues from the sale of the Company's Internet products are
recognized when the product has been accepted by the customer.  The
Company records revenue for its long-term contracts on the
percentage-of-completion basis.  Under this method, revenues are
determined by comparing costs incurred to date to the estimated total
costs for the contract.  The proportionate amounts of contract revenue
are then recorded based on this percentage of completion of costs.

Advertising Costs

The Company expenses the cost of advertising as incurred.
Advertising expenses were approximately $12,000 and $50,000 in
1996 and 1995, respectively.

Loss Per Share

Loss per share amounts have been calculated using the weighted
average number of common shares outstanding, for the respective
periods.  The antidilutive effect of the Company's outstanding options
and warrants is excluded from the loss per share calculations.


          See accompanying notes to consolidated financial statements.

                                       27

<PAGE>

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


I/NET, Inc.





Notes to Consolidated Financial Statements





1.      Commissions

During 1996, the Company agreed to release a distributor from it's
exclusive contract to distribute certain I/NET products.  In exchange
for this release, I/NET agreed to pay a commission to the distributor
of 7.5% of sales of certain I/NET products sold through September
30, 1999 but at a minimum amount of $250,000 and a maximum
amount of $500,000.  A commission payable amount of $250,000 has
been recorded as of December 31, 1996 as there has not been any
commissionable sales of these products to date.

2.  Short-Term Advances
    from Stockholders

Advances from stockholders consist of:

                                                           1996          1995
-----------------------------------------------------------------------------

Non-interest bearing notes payable to                                         
    stockholders, due on demand                      $   29,278   $    29,278

Stockholders' advances bearing interest at                                    
    the prime rate plus 2% (effectively                                       
    10.25% at December 31, 1996), due on                                      
    demand                                               90,500        90,500
-----------------------------------------------------------------------------

                                                     $  119,778   $   119,778
-----------------------------------------------------------------------------
3.      Long-Term Debt
Long-term debt consists of:

                                                          1996          1995
----------------------------------------------------------------------------

Notes payable to vendors (see below)            $    1,134,304   $   927,929
                                                  
Notes payable to bank with monthly                                           
payments of $5,000, including interest                                       
at 1.5% above the bank's prime rate                                          
(effectively 9.75% at December 31,                                           
1996), with final payment due in                                             
December, 1997.  The note is                                                 
collateralized by all of the Company's                                       
assets                                                  50,375       102,261



                                       28

<PAGE>

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


I/NET, Inc.



                                                                         
Notes to Consolidated Financial Statements


                                                        1996           1995
--------------------------------------------------------------------------------



Note payable for a trademark, with                                           
monthly payments of $1,500 including                                         
interest at the prime rate (8.25% at                                         
December 31, 1996) with the balance                                          
due February 15, 1997                           $      131,963   $   148,000

Notes payable to stockholders bearing                                        
interest at 8% and due in December,                                          
2001                                                   300,000             -
----------------------------------------------------------------------------

                                                     1,616,642     1,178,190
Less current maturities                              1,122,000       925,000
----------------------------------------------------------------------------

Total Long-Term Debt                            $      494,642   $   253,190
----------------------------------------------------------------------------


Notes payable to various vendors totaling $1,134,304 are due in
various installments and at varying interest rates.

    Two notes totaling $440,655 are due on demand.  These notes
    bear interest at the prime rate plus 2% (effectively 10.25% at
    December 31, 1996).

    The Company is in default on two notes totaling $437,974 and
    is renegotiating alternative repayment terms with the
    noteholders.

    Another vendor note in the amount of $59,694 is due in
    monthly installments of 5% of the previous month's cash
    receipts (as defined) but at a minimum rate of $2,000 bi-
    monthly and bears interest at the prime rate plus 2%.  Final
    payment, assuming minimum payments only, is due September
    2004.

    Another vendor note in the amount of $42,155 is due in
    monthly installments of $2,998 including interest at 11%.
    Final payment is due March 1998.

    Another vendor note in the amount of $153,826 is due in
    monthly installments of 5% of the previous month's cash
    receipts (as defined) but at a minimum rate of $3,000 monthly
    and bears interest at 10%.  Final payment, assuming minimum
    payments only, is due July 2002.

Aggregate maturities of long-term debt over the next five years
assuming repayment of stockholders' advances (Note 2) and notes are
as follows:

           1997                                      $   1,122,000
           1998                                      $      40,000
           1999                                      $      34,000
           2000                                      $      37,000
           2001                                      $     341,000



4.      Stock Warrants

During prior years, the Company sold and issued approximately
6,000,000 shares of its common stock for cash, trademark, and
extinguishment of debt.  In connection with the issuances, the
Company issued warrants to the purchasers of the common stock to
acquire up to 2,039,285 shares of common stock at prices ranging
from $.25 to $2.40 per share.  The warrants expire in 1997.  In
connection with these sales, underwriters were also issued warrants
for 1,145,714 shares of common stock at prices ranging from $0.29
to $2.10 and are exercisable for five years, expiring in 1999.  All
warrants were exercisable at December 31, 1996.


                                       29

<PAGE>

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

I/NET, Inc.




Notes to Consolidated Financial Statements







5.      Related Party
        Transactions/Major
        Customers
The Company provided Internet products, facilities management
services and software development services to a few major customers
as follows:

                                                           1996         1995
----------------------------------------------------------------------------

Internet Products:
    International Marketing Strategies -                                     
        (IMS)                                        $  346,000   $   50,000
    SUPPORT NET, INC.                                   158,000            -
----------------------------------------------------------------------------

                                                     $  504,000   $   50,000
----------------------------------------------------------------------------

Facilities Management Services:
    Greater Kalamazoo Association of                                         
        Realtors                                     $  120,000   $  149,000
----------------------------------------------------------------------------

Software Development:
    International Business Machines (IBM)            $        -   $  978,000
----------------------------------------------------------------------------



IBM is also a minority stockholder in the Company and $40,000 was
due from it as of December 31, 1995.

6.      Taxes on Income
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."


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


                                       30

<PAGE>

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


I/NET, Inc.




                                                                         
Notes to Consolidated Financial Statements




Significant components of the Company's deferred tax assets as of
December 31, are as follows:

                                                       1996             1995
----------------------------------------------------------------------------

Deferred Tax Assets:
    Accruals                                  $      99,000    $      15,000
    Deferred revenue                                      -           13,000
    Depreciation and amortization                    12,000           19,000
    Trademark                                        66,000          100,000
    Net operating loss carryforwards              3,624,000        2,332,000
    Tax credit carryforwards                         42,000           42,000
    Capital loss carryforwards                       24,000           24,000
----------------------------------------------------------------------------

Total Deferred Tax Assets                         3,867,000        2,545,000

Valuation Allowance                             (3,867,000)      (2,545,000)
----------------------------------------------------------------------------

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



As of December 31, 1996, the Company had a net operating loss
carryforward of approximately $10,659,000 and investment tax credit
carryforwards of approximately $42,000 available to reduce future
taxable income and taxes, respectively.  These carryforwards expire
from 1998 through 2011.

7.      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 1996 or 1995.


                                       31

<PAGE>

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


I/NET, Inc.




                                                                         
Notes to Consolidated Financial Statements
                                                            





8.      Operating Leases

The Company leases its facilities and certain equipment under non-
cancelable operating leases.  Rental expense under these leases was
approximately $138,000 for the year ended December 31, 1996 and
$195,000 in 1995.  Future minimum annual lease payments
subsequent to December 31, 1996 are as follows:

                      1997                                $   88,000
                      1998                                $   84,000
                      1999                                $   80,000
                      2000                                $   80,000
                      2001                                $   59,000


9.      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 are granted, and can remain outstanding
for five years following the day they become fully vested.  Changes
in options outstanding are summarized as follows:

                                                                Option Price
                                                    Shares        Per Share
----------------------------------------------------------------------------

January 1, 1995                                    351,913     $   0.18-2.50
    Lapsed                                       (212,477)     $   0.18-2.50
----------------------------------------------------------------------------

December 31, 1995                                  139,436     $   0.18-2.50
    Lapsed                                        (96,936)     $   0.18-2.50
----------------------------------------------------------------------------

December 31, 1996                                   42,500     $        2.50
----------------------------------------------------------------------------


Of the 351,913 options outstanding at January 1, 1995, all but 77,634
had an exercise price of $2.50.  The 77,634 had been granted to one
employee, had an exercise price of $.18 and lapsed in 1996.



                                       32

<PAGE>

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


I/NET, Inc.





Notes to Consolidated Financial Statements






At December 31, 1996, 582,255 shares of common stock are reserved
for the incentive stock option plan and 17,000 options were vested
and exercisable.  The remaining contractual life of the 42,500 shares
outstanding is seven years.

10.     Supplemental
        Disclosure of
        Cash Flow
        Information

Noncash investing and financing activities are summarized as follows:


                                                      1996       1995
                                                      ----       ----

Issuance of commonstock for retirement of debt    $    -      $  597,000
--------------------------------------------------------------------------------
Conversion of accounts payable into vendor
- notes payable                                   $  223,000  $1,417,000
--------------------------------------------------------------------------------
Conversion of accrued interest payable into
vendor notes payable                              $   36,000   $      -
--------------------------------------------------------------------------------

Interest paid for the years ended December 31, 1996 and 1995 was
$78,000 and $11,000, respectively.  The Company paid no income
taxes during 1996 and 1995.

11.     Litigation

The Company is involved in various legal actions arising from the
normal course of business.  Management does not anticipate any
material losses as a result of these proceedings.

12.     Special Charges

During the year ended December 31, 1995, it was determined that the
Company would not be able to provide the additional funding
necessary to develop, market, deploy and maintain its previously
capitalized computer software product named Embarc.  This failure
to obtain financing has resulted in the write-off of the development
costs of the product in the amount of $2,151,000.

In addition the Company has determined that the carrying amount of
a trademark which it acquired at a cost of $225,000 and related
inventory in the amount of approximately $107,000 for its
Career/NET product could not be recovered through future
operations.  Accordingly, the Company wrote off these amounts.  The
product had not reached the market acceptance as anticipated.

In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and For Long-Lived Assets to Be Disposed Of," the Company
assessed the expected recoverability of the carrying amount of the
trademark and related inventory discussed above and, due to
significant changes in the extent to which those assets were anticipated
to be used, it recognized an impairment loss measured as the amount
by which the carrying amount of the assets exceeded the expected
discounted future cash flows.

During 1995, the Company issued 12,400,000 shares of unregistered
common stock to certain officers and key employees in recognition of
outstanding service performed during a time of financial instability
and severe hardship.  Although at the time of issuance, there was not
an active market in the Company's common stock and there was a
deficit in stockholders' equity, an accounting value of $0.20 per share
was assigned based upon subsequent cash purchases of the stock.  The
recipients are restricted in their ability to sell or otherwise transfer the
shares within a time frame of two to three years from the date of
issuance.

Special charges consist of the following for the year ended December
31, 1995:

Capitalized computer software costs                            $   2,151,000
Trademark                                                            225,000
Inventory                                                            107,000
Stock award                                                        2,480,000
----------------------------------------------------------------------------

Total                                                          $   4,963,000
----------------------------------------------------------------------------


                                       33

<PAGE>

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






                                   I/NET, INC.













NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






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.
Although 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.  Management is actively
marketing its new products which would 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.
However, there can be no assurance these activities will be
successful.


                                       34

<PAGE>

PERIOD-TYPE                           12 MONTH
FISCAL-YEAR-END                       DEC-31-1996
PERIOD-END                            DEC-31-1996
CASH                                  20,517
SECURITIES                            0
RECEIVABLES                           28,982
ALLOWANCES                            0
INVENTORY                             0
CURRENT-ASSETS                        49,499
PP&E                                  544,945
DEPRECIATION                          482,553
TOTAL-ASSETS                          111,891
CURRENT-LIABILITIES                   1,814,081
BONDS                                 0
PREFERRED-MANDATORY                   0
PREFERRED                             0
COMMON                                30,838
OTHERSE                               11,836,874
TOTAL-LIABILITY-AND-EQUITY            111,891
SALES                                 724,032
TOTAL REVENUES                        724,032
CGS                                   729,070
OTHER EXPENSES                        1,060,402
LOSS-PROVISION                        0
INTEREST-EXPENSE                      79,500
INCOME-PRETAX                         (1,132,052)
INCOME-TAX                            0
INCOME-CONTINUING                     (1,132,052)
DISCONTINUED                          0
EXTRAORDINARY                         0
0
CHANGES                               0
NET-INCOME                            (1,132,052)
EPS-PRIMARY                           (.04)
EPS-DILUTED                           (.04)