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, 1998.


[ ] Transition Report under Section13 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]

<PAGE>

State Issuer's revenues for its most recent fiscal year:  $1,768,379

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: $20,356,973. This valuation is based upon the average bid price 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 15,
1999.

There  are  approximately  17,606,792  shares  of  common  voting  stock  of the
Registrant held by non-affiliates.

     (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, 1998

                                   31,037,652

                       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...............................................7

Item 3.  Legal Proceedings.....................................................7

Item 4.  Submission of Matters to a Vote of Security Holders...................7

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

Item 10. Executive Compensation...............................................11

Item 11. Security Ownership of Certain Beneficial Owners and Management.......13

Item 12. Certain Relationships and Related Transactions.......................13

Item 13. Reports on Form 8-K and Exhibits.....................................14

Signatures....................................................................15


<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.

On January 25, 1999,  I/NET,  Inc. signed a letter of intent for the acquisition
of Consolidated Graphics Group, Inc. (CGG), a privately-held  computer graphics,
multimedia,  printing and direct marketing firm based in Cleveland, Ohio. At the
closing of the  acquisition,  I/NET  will issue 16 million  shares of its common
stock to acquire  all of the  outstanding  stock of CGG,  which had  revenues of
approximately  $12  million in 1998 and has total  assets of  approximately  $20
million.

Completion  of the  acquisition  is subject to customary  terms and  conditions,
including  approval of definitive  documentation by the I/NET Board of Directors
and completion of due diligence,  as well as I/NET's common stock being eligible
for listing on the NASDAQ SmallCap Market.  The companies expect the acquisition
to be completed in the second  quarter of 1999. CGG will remain in Cleveland and
operate as a subsidiary of I/NET with corporate headquarters in Kalamazoo.

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  International
Business Machine (IBM) for many years, including developing multi-media software
running  on the IBM system  AS/400,  a  mid-range  computer  system.  I/NET also
performs Websight Consulting Services for IBM.

During 1995,  I/NET brought to the  marketplace its own Web Server/400 TM as the
first  commercially  available  product,  which can connect  the nearly  425,000
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:  Software 2000,
Inc., Marcam Corporation,  Dynamic Healthcare  Technologies,  Inc., Mattel Toys,
MCI, Eli Lilly,  Builders  Square,  Toyota of America,  Caesers  Palace,  United
Technologies Automotive, and Anheuser-Busch.

I/NET's Commerce Server/400 TM 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 Dreyfus  Brokerage
Services,  Inc. These companies have installed the product in various  locations
throughout the world.  In February 1997, IBM bestowed upon I/NET the prestigious
Partner in  Development  "Product of the Year Award" for Commerce  Server/400TM.
During  1998,  the  Company  was  licensed by the United  States  Department  of
Commerce to export its strong  encrypted  version of this product to various end
users throughout the world.
<PAGE>

IBM AS/400 is the world's most popular  multi-user  business  computing  system,
with nearly 425,000 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.

The  Company  successfully  negotiated  a  contract  with IBM in March  1997 for
providing Website consulting services. This contract, while cancelable, is for a
period of twenty-four months and an extension is currently being renegotiated.

I/NET has also signed an agreement with Netscape Communications Corp. (Netscape)
a world  leader  in  delivering  Internet  solutions  to the  marketplace.  This
agreement  gives I/NET the right to port their entire suite of Internet  servers
to the AS/400,  and also distribute these products for the next three years. IBM
was instrumental in arranging this agreement.  The Company released this product
during February 1999.

DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES

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

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.

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 develops 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 east coast of the United States.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

The Company provided Internet products and Website consulting  services to a few
major customers during 1998 and 1997 as follows:

Year ended December 31,                            1998               1997
--------------------------------------------------------------------------------
Internet Products

      IBM                                       $390,000            $200,000

      IMS                                        580,000             405,000

      LANSA, Inc.                                   -                300,000
--------------------------------------------------------------------------------

                                                $970,000            $905,000
--------------------------------------------------------------------------------
      Website Consulting Services

      IBM                                       $700,000            $702,000
--------------------------------------------------------------------------------

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

I/NET  has  various  trademarks  for its  products,  including  WEB  SERVER/400,
COMMERCE SERVER/400, and CAREER/NET.

On September 30, 1997,  the Company  entered into a software  license  agreement
with Netscape  wherein Netscape granted to the Company the right to port certain
of its Internet  Server products to the IBM AS/400  platform.  This agreement is
for a period of three years and allows the Company to market and  distribute the
ported products upon their modification to the AS/400 platform.

In  exchange  for this  license  agreement,  I/NET  has  agreed  to pay  minimum
royalties to Netscape in the amount of  $3,000,000  according  to the  following
repayment schedule:

                    Paid by IBM on behalf of
                       I/NET in October, 1997           $  250,000
                    Paid by IBM on behalf of
                       I/NET in September, 1998         $  750,000
                       September 30, 1999               $1,000,000
                       September 30, 2000               $1,000,000

IBM has  guaranteed  to Netscape  the above  listed  royalties in the event that
product sales are  insufficient  to repay amounts due under this  agreement.  In
addition,  I/NET has agreed to pay to Netscape annual development  support feels
in the amount of $250,000  for a period of three  years.  Netscape has agreed to
waive its fee for 1998.
<PAGE>
IBM is providing advances against royalties in the amount of $600,000 as certain
tasks are  completed  during the  porting of the  Netscape  products  to the IBM
platform.  These amounts will be  reimbursed to IBM after  deduction of Netscape
royalties in the amount of 10% of total  revenue  received  from the sale of the
ported  products.  If the revenue from the sales of these Netscape  products are
insufficient,  I/NET will not have to repay any of these royalties advanced. The
Company recognized  $390,000 of revenue from these advances in 1998 and $200,000
in 1997 as certain milestone events were met.

NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTIONS OR SERVICES

The  performance  of services  and the supply of products by the Company are not
subject  to  governmental  approval  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 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 was no research and  development  costs incurred by the Company during the
calendar years ended December 31, 1998 and 1997.

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,  1998,  the Company had 18 full time  employees  and one part
time employee.

<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

The Company has its 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 $77,000 for 1998.

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 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 1998.


                                     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 1998 and 1997 is summarized by
quarter  below:  

                 1998    1998    1998    1998    1997    1997    1997    1997
               1st qtr 2nd qtr 3rd qtr 4th qtr 1st qtr 2nd qtr  3rd qtr 4th qtr
--------------------------------------------------------------------------------
HIGH            $0.24   $0.36   $0.28   $1.03   $0.75   $0.50   $0.41    $0.36
LOW             $0.18   $0.17   $0.13   $0.08   $0.50   $0.34   $0.34    $0.21

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,
1998,  was 291.  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, 1998 AND 1997

RESULTS OF OPERATIONS

Revenues for the year ended  December 31, 1998,  were  $1,768,379 as compared to
$1,692,170  for the year ended  December  31,  1997.  When  analyzed  by product
category,  revenues of Website consulting services to IBM were $700,000 in 1998,
as compared to $702,000 in 1997.  Internet  products  accounted  for revenues of
$970,000 in 1998 and $905,000 in 1997. Cost of revenues increased by $161,000 as
compared  to 1997.  The  primary  cause  for this  increase  was the  hiring  of
additional personnel for the Netscape and IBM projects.

<PAGE>
General and  administrative  expenses  decreased by $67,000 as compared to 1997.
The cause for this decrease was continued cost containment measures.

Interest  expenses  decreased  by  $26,000  due to the  continued  repayment  of
borrowings.

During March 1997,  the Company  entered into an agreement with a note holder to
form a  joint  venture.  I/NET  contributed  previously  written-off  technology
together  with a trademark and web presence in exchange for the  forgiveness  of
$97,946 of  indebtedness.  The  noteholder  is required to  contribute  cash and
marketing  expertise in this joint  venture.  There have been minimal  operating
activities  on this joint  venture to date.  This $97,946 has been treated as an
extraordinary item for financial statement purposes for 1997.

FINANCIAL CONDITION AND LIQUIDITY

The Company's  primary need for capital has been to invest in computer  software
development.  As of December 31, 1998, the Company's working capital deficit was
$1,037,000,  compared to a deficit of  $1,106,000  at  December  31,  1997.  The
resulting  decrease in working  capital  deficit is primarily due to earnings in
1998 of $288,000 and continued repayment of its debt obligations.

The Company  believes that the additional  sales provided by the above mentioned
agreements  and the continued  development  of new products  should  provide the
Company  with  sufficient  working  capital  to fund its needs for 1998 with the
proposed  anticipated  acquisition of  Consolidated  Graphics  Group,  Inc., the
Company should be able to benefit from additional financial resources.  However,
there can be no assurance these activities will be successful.

All I/NET developed software is year 2000 compliant. All I/NET internal computer
software is year 2000 compliant.

The Company is in the process of reviewing the  insurance,  regulatory and legal
implications  as they relate to the year 2000. The Company at this time does not
anticipate  that the costs  associated  with this review will be material to the
Company's financial condition or results of operations.

The  Company's  plan to  determine  the year 2000  compliance  status of its key
suppliers and customers is in progress. The plan involves soliciting information
from suppliers and customers through use of surveys,  and follow-up  discussions
and testing  where  needed.  The Company will send out surveys to all of its key
suppliers and certain key customers and anticipates receiving back a majority of
these surveys.  While the Company cannot  guarantee year 2000  compliance by its
key  suppliers  and  customers,  and in many cases will be relying on statements
from outside vendors without independent  verification,  preliminary  indicators
indicate  that key  suppliers  and  customers  are aware of the  issues  and are
working on a  solution  to achieve  compliance  on or before the year 2000.  The
Company is also in the process of  developing  a  contingency  plan to deal with
those key suppliers and  customers who may not be year 2000  compliant  prior to
the year  2000.  If  certain  key  suppliers  or  customers  were not year  2000
compliant  and the  Company  was  unaware of the  noncompliance,  the  Company's
results of operations and financial condition could be significantly  negatively
impacted. However, at this time the Company is not aware of any key suppliers or
customers  who will not be year 2000  compliant by the year 2000.  The Company's
next steps will be to complete the  solicitation  of key customers,  obtain more
detailed  information  from certain key suppliers and customers,  follow-up with
those companies who will not respond to the surveys and testing of systems.

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  in prior years,  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. In addition, management is currently negotiating several additional
contracts for its services and products.  Management is also  embarking on other
strategic initiates to expand its business opportunities.  However, there can be
no assurance these activities will be successful. 
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

Section                                                            Page Number

Report of Independent Certified Public Accountants.......................18

Consolidated Balance Sheets as of December 31, 1998 and 1997..........19-20

Consolidated Statements of Earnings for the years ended
  December 31, 1998 and 1997.............................................21

Consolidated Statements of  Capital Deficit for the years
  ended December 31, 1998 and 1997.......................................22

Consolidated Statements of Cash Flows for the years
  ended December 31, 1998 and l997.......................................23

Summary of Accounting Policies........................................24-25

Notes to Consolidated Financial Statements............................26-32


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

None


                                    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 positions,  and offices
held by all  directors  and  executive  officers of the Company for the calendar
year ended December 31, 1998, and to the date hereof,  and the period or periods
during  which  each such  director  or  executive  officer  has  served in their
respective positions.

Name                      Position Held          Date of Election or Designation
--------------------------------------------------------------------------------
James C. Knapp*      Chairman of the Board of Directors          1986

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

Paul A. Bertoldi*    Vice President Systems Development          1989

*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.

<PAGE>

BUSINESS EXPERIENCE

JAMES C, KNAPP,  CHAIRMAN:  Mr. Knapp, one of I/NET's initial  founders,  is 48
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,  CEO and CFO:  Mr.  Markee is 53 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 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. 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 36 years
of age.  He  received  a BBA  Degree  from WMU in 1984,  and an MBA 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
websight  consulting and Internet  computer software  products.  He is an active
member in various professional organizations.

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, either by blood or by happenstance of marriage.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

Under the Delaware 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>
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 Annual  
Principal Position        Dec. 31                                 Compensation  
                                                                       ($)      
----------------------- ------------- ------------- ------------ ---------------
----------------------- ------------- ------------- ------------ ---------------
James C. Knapp              1998        $125,674
     Chairman               1997        $125,000        -0-           -0-       
----------------------- ------------- ------------- ------------ ---------------
----------------------- ------------- ------------- ------------ ---------------
Stephen J. Markee           1998        $125,674
 President, CEO,            1997        $125,000        -0-           -0-       
 CFO and Director
----------------------- ------------- ------------- ------------ ---------------
----------------------- ------------- ------------- ------------ ---------------
Paul A. Bertoldi            1998        $ 75,660
 Vice President,            1997        $ 77,103        -0-           -0-       
     Systems
   Development
----------------------- ------------- ------------- ------------ ---------------
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
                             Long Term Compensation
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                   Awards                  Payouts              
--------------------------------------------------------------------------------
------------------- ----------- ------------ ------------- --------- -----------
                                    (f)*          (g)         (h)        (i)**  
------------------- ----------- ------------ ------------- --------- -----------
------------------- ----------- ------------ ------------- --------- -----------
                                  Restricted  Option/SAR's   LTIP     All Other 
Name and            Year Ended    Stock Award     (#)      Payouts  Compensation
Principal Position    Dec. 31        ($)                     ($)        ($)
------------------- ----------- ------------ ------------- --------- -----------
------------------- ----------- ------------ ------------- --------- -----------
James C. Knapp         1998                                            $4,410   
 Chairman              1997          -0-          -0-         -0-      $3,470   
------------------- ----------- ------------ ------------- --------- -----------
------------------- ----------- ------------ ------------- --------- -----------
Stephen J. Markee      1998                                              0
 President, CEO,       1997         -0-          -0-         -0-         0
 CFO and Director
------------------- ----------- ------------ ------------- --------- -----------
------------------- ----------- ------------ ------------- --------- -----------
Paul A. Bertoldi       1998                                              0
 Vice President,       1997         -0-          -0-        -0-          0
     Systems
   Development
------------------- ----------- ------------ ------------- --------- -----------
--------------------------------------------------------------------------------
   *See the caption "All Other Compensation" herein for restricted stock award
            **Approximate value of life insurance paid by the Company
--------------------------------------------------------------------------------

BONUSES AND DEFERRED COMPENSATION

None

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. Changes in options outstanding are summarized as follows:

<PAGE>

                                                                   Weighted
                                               Option Price    Average Price Per
                                Shares          Per Share           Share
--------------------------------------------------------------------------------
January 1, 1997                 42,500           $2.50              $2.50
--------------------------------------------------------------------------------
   Granted June 1997           100,000             .37                .37
   Lapsed                     ( 27,500)           2.50               2.50
--------------------------------------------------------------------------------
December 31, 1997 and 1998     115,000         $.37-2.50            $ .65
--------------------------------------------------------------------------------

At December  31,  1998,  582,255  shares of common  stock are  reserved  for the
incentive stock option plan and 32,000 options were vested and exercisable.  The
remaining  weighted average  contractual life of these options is six years. The
remaining weighted average  contractual life of the 83,000 shares outstanding in
nine years.

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  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 1998 or 1997.

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, 1998.

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 outstanding.


                                      Amount and Nature of
        Name             Address      Beneficial Ownership      Percent of Class
--------------------------------------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS

    Paul A. Bertoldi   Kalamazoo, MI         410,699                 1.32%

    James C. Knapp     Kalamazoo, MI       5,417,719                17.46%

    Stephen J. Markee  Richland, MI        6,196,743                19.97%
                                          ----------                ------
Total                                     12,025,161                38.75%
                                          ----------                ------
                                          ----------                ------
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,
1998 and 1997,  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  beneficially  more than 5% of any
class of the Company'  common stock,  or any member of the immediate  family of
any of the foregoing persons, had an interest.

CERTAIN BUSINESS RELATIONSHIPS

Except as stated below,  during the last two calendar  years ended  December 31,
1998 and 1997,  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  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.

INDEBTEDNESS OF MANAGEMENT AND STOCKHOLDERS

James  C.  Knapp,  Chairman  of the  Board  of  Directors,  Stephen  J.  Markee,
President, CEO and CFO, have loaned the Company funds for working capital. These
funds are  provided  at an  interest  rate of 8%.  The  balance  outstanding  at
December 31, 1998 was $441,349.  At December 31, 1998, the Company owed $174,209
to Mr. Knapp and $267,140 to Mr.  Markee.  These loans are secured by all of the
Compan'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 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, 1998 and
1997. 
<PAGE>
TRANSACTIONS WITH PROMOTERS

During the last two calendar years ended December 31, 1998 and 1997,  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.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995

Certain  information  contained  in this form 10-KSB may  constitute  or include
forward-looking  statements. Such forward-looking information involves important
known and unknown risks and  uncertainties  and other factors that may cause the
actual  results,  performance,  or  achievements of the Company to be materially
different from any future results,  performance,  or  achievements  expressed or
implied  by such  forward-looking  statements.  These  risks  and  uncertainties
include,  but are not limited to uncertainties  relating to economic conditions;
possible  future  acquisitions  and  divestitures;   technological  changes  and
developments  in the  competitive  environment  in which the  company  operates;
spending  patterns  of  the  Company's  customers;  success  of the  Company  in
negotiations  with its lenders;  size,  timing,  and recognition of revenue from
significant  orders;  ability  of the  Company  to  successfully  implement  its
business  strategy of developing and licensing  client/server  decision  support
application  software designed to address specific industry markets; new product
introductions and announcements by the Company's competitors; changes in Company
strategy;  product life cycles,  cost and continued  availability of third party
software and  technology  incorporated  into the Company's  products;  potential
obsolescence  of  the  Company's   existing  products  or  services;   cost  and
availability  of  developers,   success  in  and  expense  associated  with  the
development, production, testing, marketing, and shipping of products, including
a failure to ship new products and  technologies  when  anticipated,  failure of
customers  to accept these  products  and  technologies  when  planned,  and any
defects  in  products;  perceived  absolute  or  relative  overall  value of the
Company's products by the Company's customers including features,  quality,  and
pricing compared to other competitive products;  amounts, and rate of growth in,
the Company's selling,  general and administrative  expenses;  occurrence of any
expenditures and expenses,  including  depreciation and research and development
expenses;  costs  and  other  effects  of legal  and  administrative  cases  and
proceedings  (whether  civil  or  criminal),  settlements,  and  investigations,
claims, and changes in those items; developments or assertions by or against the
Company relating to intellectual  property  rights;  adoption of new, or changes
in,  accounting  policies and practices and the application of such policies and
practices;  and  effects or  changes  within the  Company's  organization  or in
compensation and benefit plans.  Since the purchase of the Company's products is
relatively  discretionary and involves a commitment of capital,  in the event of
any  downturn in any  potential  customers'  business or the economy in general,
purchases of the company's  products may be deferred or canceled.  Further,  the
Company's  expense levels are based,  in part, on its  expectations as to future
revenue and a  significant  portion of the  Company's  expenses do not vary with
revenue.  As a result, if revenue is below  expectations,  results of operations
are likely to be materially  adversely affected.  Shareholders are cautioned not
to place undue  reliance  on the  forward-looking  statements  made in this Form
10-KSB, which speaks only as of the date hereof.

ITEM 13. REPORTS ON FORM 8-K AND EXHIBITS

Reports on Form 8-K:

None

EXHIBITS:

None

<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 10, 1999                    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 10, 1999                     By: /s/  Stephen J. Markee
                                          --------------------------------------
                                          Stephen J. Markee, Director
                                          President, CEO and CFO


Date:  March 10, 1999                     By: /s/  James C. Knapp
                                          --------------------------------------
                                          James C. Knapp, Chairman
                                          of the Board of Directors


Date:  March 10, 1999                     By: /s/ Paul A. BertoldI
                                          --------------------------------------
                                          Paul A. Bertoldi, Vice President
                                          Systems Development

<PAGE>





                                   I/NET, Inc.

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

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


                        Consolidated Financial Statements
                     Years ended December 31, 1998 and 1997


<PAGE>
                                                                     I/NET, Inc.

                                    Contents

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

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


         Report of Independent Certified Public Accountants         18


         Financial Statements:

              Consolidated Balance Sheets                      19 - 20

              Consolidated Statements of Earnings                   21

              Consolidated Statements of Capital Deficit            22

              Consolidated Statements of Cash Flows                 23

          Summary of Accounting Policies                       24 - 25

          Notes to Consolidated Financial Statements           26 - 32

<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,  1998 and 1997,  and the related  consolidated  statements  of
earnings,  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, 1998,  and 1997,  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 12 to the
financial statements,  the Company has suffered recurring losses from operations
in  prior  years,  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 12. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.




Kalamazoo, Michigan                                /s/BDO SEIDMAN, LLP
January 13, 1999, except for                       Certified Public Accountants
Note 13, as to which date is
January 25, 1999

<PAGE>

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

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

December 31,                                  1998                   1997
--------------------------------------------------------------------------------
Assets ( Note 3)

Current:

      Cash and cash equivalents           $  103,847              $135 ,939


      Trade Receivables                      201,961                 79,756

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

Total Current Assets                         305,808                215,695

Office Furniture and Equipment,
       less accumulated depreciation
       of $123,308 and $162,091               31,100                 36,295

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

                                          $  336,908               $251,990

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

<PAGE>
                                                                     I/NET, Inc.

                                                     Consolidated Balance Sheets
--------------------------------------------------------------------------------

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

December 31,                                          1998              1997
--------------------------------------------------------------------------------

Liabilities and Capital Deficit

Current Liabilities:
    Accounts payable                              $  124,500       $  92,068
    Accruals:
          Commissions (Note 1)                       258,000         250,000
          Interest                                   141,507         110,451
          Other                                       21,600          85,325
    Advances from stockholders (Note 2)              100,780         134,778
    Current maturities of long-term debt (Note 3)    696,000         649,000

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

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

Total Current Liabilities                          1,342,387        1,321,622

Long-term Debt, less current maturities (Note 3)     475,736          699,479

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

Total Liabilities                                  1,818,123        2,021,101

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

Commitments and Contingencies (Notes 1, 8, 11, 12 and 13)

Capital Deficit (Notes 4 and 9):
     Common stock, $.001 par value - shares authorized
         50,000,000 issued and outstanding 31,037,652 
         in 1998 and 1997                             31,038           31,038
     Additional paid-in capital                   11,886,674       11,886,674
     Deficit                                     (13,398,927)     (13,686,823)
--------------------------------------------------------------------------------
Total Capital Deficit                             (1,481,215)      (1,769,111)
--------------------------------------------------------------------------------
                                                $    336,908      $   251,990
--------------------------------------------------------------------------------

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


<PAGE>
                                                                     I/NET, Inc.

                                             Consolidated Statements of Earnings
--------------------------------------------------------------------------------

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

Year ended December 31,                              1998              1997
--------------------------------------------------------------------------------

Revenues   (Note 5)                               $1,768,379       $ 1,692,170

Cost of Revenues                                     899,606           739,093

--------------------------------------------------------------------------------
     Gross profit                                    868,773           953,077

Selling, General, and Administrative Expenses        506,270           573,003

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

Earnings  from operations                            362,503           380,074

Interest Expense - net of interest income
     $6,502 in 1998 and $1,843 in 1997                74,607           100,299

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

Earnings before Extraordinary Item                   287,896           279,775

Extraordinary Item: Gain on extinquishment
     of debt (Note 3)                                   -               97,946
--------------------------------------------------------------------------------

Net Earnings                                      $  287,896        $  377,721
--------------------------------------------------------------------------------

Net Earnings per Share
    Basic and Diluted
       Earnings before extraordinary item         $    .01          $   .01
       Extraordinary item                              -                -     
       Net earnings  per share                         .01              .01

Basic and Diluted Weighted Average
Number of Common Shares Outstanding               31,037,652        30,987,652

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

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

<PAGE>
                                                                     I/NET, Inc.

                                      Consolidated Statements of Capital Deficit
--------------------------------------------------------------------------------

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

                          Common Stock     Additional
                                             Paid
                        Shares    Amount    Capital      Deficit       Total

Balance, January 1,
 1997                 30,837,652 $30,838  $11,836,874 $(14,064,544) $(2,196,832)

  Issuance of stock 
  for cash               200,000     200       49,800        -           50,000

  Net earnings for 
  the year                  -         -         -          377,721      377,721

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

Balance, December 31,
 1997                  31,037,652  31,038   11,886,674  (13,686,823) (1,769,111)

   Net earnings 
   for the year             -         -          -          287,896     287,896

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

Balance, December 31,
 1998                  31,037,652 $31,038  $11,886,674 $(13,398,927)$(1,481,215)

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

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

<PAGE>
                                                                     I/NET, Inc.

                                           Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------

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

Year ended December 31,                             1998                 1997

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

Operating Activities (Note 10):
  Earnings                                       $ 287,896           $  377,721
  Depreciation and amortization                     28,345               26,097
  Extraordinary Item: Gain on extinquishment of debt
      (Note 3)                                       -                  (97,946)
  Changes in assets and liabilities:
      Receivables                                ( 122,205)             (50,774)
      Accounts payable                              32,432               (1,460)
      Accruals                                     (24,669)              (8,214)

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

Cash Provided by Operating Activities              201,799              245,424

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

Investing Activities (Note 10):
  Capital expenditures                             (23,150)               -

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

Cash Used In Investing Activities                  (23,150)               -

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

Financing Activities (Note 10):
  Proceeds from issuance of notes to stockholders     -                 100,000
  Proceeds from issuance of common stock              -                  50,000
  Principal payments on long-term debt            (167,312)            (245,002)
  Principal payments on notes to stockholders       43,429)             (35,000)
--------------------------------------------------------------------------------

Cash Used In Financing Activities                 (210,741)            (130,002)

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

Increase (Decrease) in Cash and Cash Equivalents   (32,092)             115,422

Cash & Cash Equivalents, beginning of year         135,939               20,517

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

Cash and Cash Equivalents, end of year           $ 103,847           $  135,939

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

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


<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 BUSINESS

The Company operates in one segment  consisting of Website  consulting  services
and development of Internet  computer  software  products.  The Company does not
operate based upon product lines but as one business unit.  Its major  customers
are International Business Machines (IBM) and International Marketing Strategies
(IMS). (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 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.

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 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.

<PAGE>
                                                                     I/NET, Inc.

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

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

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 carrying amounts of the
Companys  financial  instruments  approximate their fair values at December 31,
1998.

REVENUE RECOGNITION

Revenues for 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.

EARNINGS PER SHARE

Earnings per share  amounts  have been  calculated  using the  weighted  average
number of common  shares  outstanding,  for the  respective  periods.  Effective
December 31, 1997, the Company adopted SFAS No. 128, "Earnings per Share".  This
pronouncement requires dual presentation of basic and diluted earning per share.
Outstanding  warrants  and options  were not  dilutive at December  31, 1998 and
1997.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting for Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded  in other  contracts,  and for  hedging  activities.  This
statement is effective for all fiscal  quarters of fiscal years  beginning after
June 15,  1999.  Historically,  the  Company  has not  entered  into  derivative
contracts   either  to  hedge  existing  risks  or  for  speculative   purposes.
Accordingly,  the Company does not expect adoption of the new standard to affect
its financial statements.

In October 1997, Statement of Position (SOP) 97-2 "Software Revenue Recognition"
was  issued by the AICPA  Accounting  Standards  Executive  Committee.  This SOP
provides  guidance on when revenue  should be recognized and in what amounts for
licensing,  selling,  leasing or otherwise marketing computer software. This SOP
had no effect on the financial statements of the Company.



          See accompanying notes to consolidated financial statements.

<PAGE>
                                                                     I/NET, Inc.

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

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

1. COMMISSIONS

During a prior  year,  the  Company  agreed to  release a  distributor  from its
exclusive  contract to distribute  certain I/NET products.  In exchange for this
release  I/NET agreed to pay a 7.5%  commission  to the  distributor  of I/NET's
sales of certain  products  sold through  September 30, 1999 but at a minimum of
$250,000 and a maximum amount of $500,000.

2. SHORT-TERM ADVANCES FROM  STOCKHOLDERS

   Advances from stockholders consist of:
   December 31,                                        1998            1997     
--------------------------------------------------------------------------------
   Non-interest bearing notes payable to
   stockholders, due on demand                    $   10,280      $    29,278

   Secured stockholder's advances bearing
   interest at 8%, and are due on demand              90,500          105,500
--------------------------------------------------------------------------------
                                                  $  100,780       $  134,778
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3. LONG-TERM DEBT
   Long-term debt consists of:
   December 31,                                        1998            1997     
--------------------------------------------------------------------------------
   Notes payable to vendors (see below)            $ 831,167       $ 998,479

   Notes payable to stockholders
   bearing interest at 8% and due in
   December, 2001, secured by all
   the company's assets                              340,569         350,000
--------------------------------------------------------------------------------
                                                   1,171,736       1,348,479
  Less current maturities                            696,000         649,000
--------------------------------------------------------------------------------
  Total Long-term Debt                            $  475,736      $  699,479
--------------------------------------------------------------------------------
<PAGE>
                                                                     I/NET, Inc.

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

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

NOTES PAYABLE TO VENDORS 

Unsecured notes payable to various vendors totaling  $831,167 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 9.75% at December 31, 1998).

Another note in the amount of $84,806 is due in monthly installments at the rate
of 5% of the  previous  month's  cash  receipts (as defined) but at a minimum of
$2,000  bi-monthly.  The  principle  balance of this note was due in  September,
1996.  The Company is in default on repayment on this note but continues to make
repayments as required by the original note.  This note bears interest at 8% and
is classified as current.

During March 1997, the Company  reached  agreement with a vendor on a previously
defaulted note in the amount of $279,158  together with accrued  interest in the
amount of $24,784.  The new  agreement in the then amount of $303,942  calls for
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%.  This note has an  outstanding  balance of  $233,407  as of December 31
1998. Final payment, assuming minimum payments only, is December 2003.

During March 1997,  the Company  entered into an agreement with a note holder to
form a  joint  venture.  I/NET  contributed  previously  written-off  technology
together  with a trademark and web presence in exchange for the  forgiveness  of
$97,946 of  indebtedness.  The  noteholder  is required to  contribute  cash and
marketing  expertise  to this newly  formed  joint  venture.  There have been no
operating  activities  on this joint  venture  to date.  This  $97,946  has been
treated as an extraordinary item for financial statement purposes.

Another vendor note in the amount of $72,299 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 March 2001.

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

                          1999               $   696,000
                          2000               $    76,000
                          2001               $   397,000
                          2002               $    52,000
                          2003               $    51,000
<PAGE>
                                                                     I/NET, Inc.

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

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

4. STOCK WARRANTS

During prior  years,  the Company  sold common  stock for cash,  trademark,  and
extinguishment of debt. In connection with these sales, underwriters were issued
warrants for 860,000 shares of common stock at a weighted  average price of $.48
and are  exercisable  for five  years,  expiring in 1999.  In 1997,  the Company
issued 460,000 additional  warrants at prices ranging from $.50 to $1.00, with a
weighted  average price of $.69.  These warrants were issued in connection  with
obtaining  the right for the  Company to port  certain  Netscape  Communications
Corporation  Netscape  Internet  Products  to the  IBM  AS/400  platform.  These
warrants expire in 2000. During April 1997, a warrantholder exercised its option
to  purchase  200,000  shares  of  common  stock at $.25  per  share  for  cash.
Outstanding warrants were not dilutive at December 31, 1998 and 1997.

5. MAJOR CUSTOMERS

The Company provided Internet products and websight consulting services to a few
major customers as follows:

Year ended December 31,                     1998                   1997
--------------------------------------------------------------------------------
Internet Products:
  IBM                                     $390,000               $200,000

  IMS                                      580,000                405,000

  LANSA, INC.                                 -                  $300,000
--------------------------------------------------------------------------------
                                          $970,000               $905,000
--------------------------------------------------------------------------------
Websight Consulting Services:
  IBM                                     $700,000               $702,000
--------------------------------------------------------------------------------
<PAGE>
                                                                     I/NET, Inc.

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

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

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 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:

December 31,                                        1998              1997
--------------------------------------------------------------------------------
Deferred Tax Assets:
  Accruals                                     $   88,000         $   97,000
  Trademark                                        56,000             61,000
  Net operating loss carryforward              $3,409,000          3,594,000
  Tax credit carryforwards                         42,000             42,000
  Capital loss carryforwards                       24,000             24,000
  Deferred Revenue                                    -               17,000
--------------------------------------------------------------------------------
Total Deferred Tax Assets                       3,619,000          3,835,000

Valuation Allowance                            (3,619,000)        (3,835,000)
--------------------------------------------------------------------------------
                                                $     -           $    -
--------------------------------------------------------------------------------

As of December  31,  1998,  the Company had a net  operating  loss  carryforward
approximately   $10,026,000   and   investment  tax  credit   carryforwards   of
approximately  $42,000  available  to reduce  future  taxable  income and taxes,
respectively. These carryforwards expire from 1999 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  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 1998 or 1997.

<PAGE>
                                                                      I/NET Inc.

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

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

8. OPERATING LEASE

The Company leases its facilities and certain  equipment  under non-  cancelable
operating leases.  Rental expense under these leases was approximately  $105,000
and $80,000 for the years ended December 31, 1998 and 1997 respectively.  Future
minimum annual lease payments subsequent to December 31, 1998 are as follows:

                         1999              $107,000
                         2000              $ 93,000
                         2001              $ 40,000

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 were
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        Weighted Average
                          Shares              Per Share         Price Per Share
--------------------------------------------------------------------------------
January 1, 1997           42,500             $  2.50                 $  2.50
  Granted June 1997      100,000                 .37                     .37
  Lapsed                 (27,500)               2.50                    2.50
--------------------------------------------------------------------------------
December 31, 1997        115,000            $.37-2.50                $   .65
  and 1998
--------------------------------------------------------------------------------

At December  31,  1998,  582,255  shares of common  stock are  reserved  for the
incentive stock option plan and 32,000 options were vested and exercisable.  The
remaining  weighted average  contractual life on these options is six years. The
remaining weighted average  contractual life of the 83,000 shares outstanding is
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  grant in  1997:  expected  volatility  of 93  percent;  risk-free
interest rate of 6.4 percent; and an expected option life of 10 years.

<PAGE>
                                                                     I/NET, Inc.

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

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

Net income for 1998 and 1997 would not have been materially affected.

10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Noncash investing and financing activities are summarized as follows: Year ended

December 31,                                      1998                   1997
--------------------------------------------------------------------------------
Extinquishment of indebtedness                      -              $    98,000
--------------------------------------------------------------------------------
Conversion of accrued interest payable
into vendor notes payable                      $    -              $    25,000
--------------------------------------------------------------------------------


Interest  paid for the years ended  December 31, 1998 and 1997,  was $50,000 and
$57,000, respectively. The Company paid no income taxes during 1998 and 1997.

11. CONTINGENCIES
      ROYALTIES

On September 30, 1997,  the Company  entered into a software  license  agreement
with Netscape  wherein Netscape granted to the Company the right to port certain
of its Internet  Server products to the IBM AS/400  platform.  This agreement is
for a period of three years and allows the Company to market and  distribute the
ported products upon their modification to the AS/400 platform.

In  exchange  for this  license  agreement,  I/NET  has  agreed  to pay  minimum
royalties to Netscape in the amount of  $3,000,000  according  to the  following
repayment schedule.

                 Paid by IBM on behalf
                   of I/NET in October, 1997        $  250,000
                 Paid by IBM on behalf
                   of  I/NET in September, 1998     $  750,000
                 September 30, 1999                 $1,000,000
                 September 30, 2000                 $1,000,000

IBM  Corporation  has  guaranteed to Netscape the above listed  royalties in the
event  that  product  sales are  insufficient  to repay  amounts  due under this
agreement.

In addition, I/NET has agreed to pay to Netscape annual development support fees
in the amount of $250,000  for a period of three  years.  Netscape has agreed to
waive its fee for one year.
<PAGE>
                                                                     I/NET, Inc.

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

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

IBM is providing advances against royalties in the amount of $600,000 as certain
tasks are  completed  during the  porting of the  Netscape  products  to the IBM
platform.  These amounts will be  reimbursed to IBM after  deduction of Netscape
royalties in the amount of 10% of total  revenue  received  from the sale of the
ported  products.  If the revenue from the sales of these Netscape  products are
insufficient,  I/NET will not have to repay any of these royalties advanced. The
Company recognized  $390,000 of revenue from these advances in 1998 and $200,000
in 1997 as certain milestone events were met.

       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. 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  in prior years,  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. In addition, management is currently negotiating several additional
contracts  for its services and  products.  As noted below,  management  is also
embarking on other strategic  initiatives to expand its business  opportunities.
However, there can be no assurance these activities will be successful.

13. SUBSEQUENT EVENT

On January 25, 1999, the Company  announced the signing of a letter of intent to
acquire  for  16,000,000   shares  of  its  common  stock,  all  the  assets  of
Consolidated  Graphics Group, Inc., a privately held company based in Cleveland,
Ohio. This acquisition, pending completion of customary terms and conditions and
due diligence, is expected to be completed in the second quarter of 1999.