32

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X]    Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
       1934 for the fiscal year ended December 31, 1999.

[ ]    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:  $1,792,881

State the aggregate market value of the voting and non-voting common equity held
by  non-affiliates  computed  by  reference  to the price at which the stock was
sold, or the average bid and asked prices of such stock,  as of a specified date
within the past 60 days:  $10,690,075.  This valuation is based upon the average
bid  price  for  shares  of  common  voting  stock  of  the  Registrant  on  the
"Over-the-Counter  Bulletin  Board" of the National  Association  of  Securities
Dealers, Inc. ("NASD") on February 29, 2000.

There  are  approximately  17,816,792  shares  of  common  voting  stock  of the
Registrant held by non-affiliates.

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

                                   31,037,652

                               as of March 1,2000

     Transitional Small Business Disclosure Format (check one): Yes___ NO__X_







                      -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..............8

Item 6.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.............................................8

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

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

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

Item 10. Executive Compensation...............................................12

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

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

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  in 1986 under the name of a  predecessor  corporation.  The Company
registered  its  initial  public  offering  with  the  Securities  and  Exchange
Commission in 1987. The Company currently develops Internet computer systems for
International  Business Machines Corporation (IBM) and its computer software for
IBM's AS/400 midrange computer. The Company also provides web site consulting as
well as services to deliver secure financial transactions over the Internet.

BUSINESS DEVELOPMENT

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

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 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 with nearly 500,000 installations worldwide.

During 1995,  I/NET brought to the marketplace  its own Web  Server/400TM as the
first  commercially  available  product  which can connect the AS/400  computers
worldwide to the Internet.

I/NET's  Commerce  Server/400TM  was  introduced  in August  1996.  This product
provides  AS/400 users with the ability to conduct secured  encrypted  financial
and other  transactions  over the Internet.  In February 1997, IBM bestowed upon
I/NET the  prestigious  Partner in  Development  "Product of the Year Award" for
Commerce  Server/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>
Another  I/NET  product,  Merchant/400,  allows  Commerce  Server/400  users the
opportunity to easily sell goods and services over the Web. This product ensures
security and complete credit card authorization.

Recently  developed  products include Netscape  Enterprise Server for the AS/400
which I/NET  ported for use on the AS/400.  Webulator/400  provides  instant Web
access to existing  AS/400  applications  without code changes.  I/NET's  newest
product,  NetPrint/400,  was introduced in November of 1999, allows for seamless
ad-hoc  printing of AS/400  reports  without  requiring  complex  host or client
setup.

The Company currently has a contract with IBM for providing  Website  consulting
services.  This contract,  while  cancelable  upon ninety days notice,  has been
extended until March 2001.

The Company has a ten year  contract  with  Internet  Financial  Services,  Ltd.
(IFS), a privately  held Internet and software  services  company,  based in the
Cayman Islands,  which  specializes in website design,  hosting and servicing of
financial  transactions for offshore  clients.  IFS has contracted with I/NET to
design and develop the first-ever  Internet based offshore asset  management and
trading system for a client of IFS, SEGOES, LTD, a Caymanian corporation. SEGOES
is the  first  and  only  Internet  based  securities  trading  system  designed
exclusively  for the offshore  world.  SEGOES is  operational  and is conducting
brokerage  transactions  in the U.S.  market  today.  Much  like  other  trading
systems, SEGOES offers U.S. stocks, options, and mutual funds over the Internet.
But SEGOES also offers its users fixed income  products,  IPO access,  secondary
offerings and private  placement  securities over the same interface.  SEGOES is
also  currently  preparing to offer these same products to exchanges  around the
world such as Canada, London, Frankfurt, Tokyo, Hong Kong and Singapore.The past
few years have seen a  significant  increase in the use of  Internet  securities
trading and the Company  expects  this trend to  continue  even in the  offshore
financial  services  industry,  which  has  been  traditionally  slow  to  adopt
innovative change.

I/NET  in  prior  years  created  certain   computer   technology  and  software
(Career/NET)  to facilitate the placement of job applicants  with employers over
the Internet. I/NET granted to Career/NET,  L.L.C. the exclusive license to sell
this product in consideration  for providing I/NET with a percentage of revenues
generated by the licensee,  as well as fees for ongoing  programming and website
development work. Ownership of the product remains with I/NET.

DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES

The Company has signed exclusive worldwide marketing and distribution agreements
with various  organizations  for the  distribution  of its  Webserver  products.
Appsmall.com  (formerly  International  Marketing  Strategies) has the exclusive
right until September,  2000 to distribute the Company's  products in the United
States,  Canada,  Europe, the Middle East and Africa.  General Business Services
Co. LTD (GBS) of Tokyo, Japan has the exclusive territory of Japan for 2000.

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. The
business  conditions for all Webserver  products is very  competitive  with many
large  organizations,  including IBM,  Advanced  Business Links and ROI Connect,
offering similar products, sometimes at lower cost.

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 East  Coast  of the  United  States.  I/NET's  business  is
dependent on attracting  and retaining  talented  personnel.  Today's market for
technology  experts is highly  competitive  and there can be no assurances  that
I/NET will continue to be able to attract and retain quality personnel.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

The Company provided Internet products,  Website consulting services and support
services to three major  customers  totaling  $1,734,000  and $1,746,000 for the
years ended December 31, 1999 and 1998  respectively.  These three  customers in
the aggregate  accounted  for 97% and 99% of the Company's  revenues in 1999 and
1998, respectively.


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

I/NET has various trademarks for its products, including Webserver/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,  which  are fully  guaranteed
by IBM in the event that  product sales are  insufficient  to repay  amounts due
under the  agreement  according  to the following repayment schedule:

                 Paid by IBM in October, 1997       $  250,000
                 Paid by IBM in September, 1998     $  750,000
                 Paid by IBM in September 1999      $1,000,000
                 September 30, 2000                 $1,000,000

IBM provided advances against royalties in the amount of $600,000. 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
$10,000 of revenue in 1999 and $390,000 of revenue in 1998 from these  advances.
Sales of this product have been insignificant to date.

NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

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

EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGUALTIONS ON THE BUSINESS

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

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 minimal research and development costs incurred by the Company during
the calendar years ended  December 31, 1999 and 1998. The Company  completed the
development  of the Netscape and  NetPrint/400  products with little  additional
costs.

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

There   are  no  foreseeable  adverse   effects  on  the  Company's  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, 1999, the Company had 15 full time employees.
<PAGE>
ITEM 2.  DESCRIPTION OF PROPERTY

The Company's principal executive and administrative  offices are located at 643
West Crosstown Parkway, Kalamazoo, Michigan, which is comprised of approximately
5,600  square  feet.  This  facility is leased and rental  payments on the space
amounted to $78,000 for 1999.

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

Item 3.  LEGAL PROCEEDINGS

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

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

No matter  was  submitted  to a vote of the  Company's  stockholders  during the
fourth quarter of 1999.
<PAGE>
                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Market Information

The Company's  common stock is listed on the Nasdaq  Over-the  counter  Bulletin
Board  under the symbol  "INNI".  The high and low bid prices for the  calendars
1999 and 1998 are summarized by quarter below:

                1998    1998    1998    1998    1999    1999    1999    1999
              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   $1.91   $1.03   $0.66   $0.79
LOW           $0.18    $0.17   $0.13   $0.08   $0.74   $0.50   $0.31   $0.29

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,
1999,  was 279. There were  approximately  3,000  beneficial  holders as of that
date.

DIVIDENDS

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

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Calendar Years Ended December 31, 1999 and 1998

RESULTS OF OPERATIONS

Revenues for the year ended  December 31, 1999,  were  $1,792,881 as compared to
$1,768,379  for the year ended  December  31,  1998.  When  analyzed  by product
category,  revenues of Website consulting services to IBM were $941,000 in 1999,
as compared to $700,000 in 1998.  This  increase is due to  additional  services
being  requested by IBM,  which were not provided for in the original  contract.
Internet  products  accounted  for  revenues of $534,000 in 1999 and $970,000 in
1998.  This  decrease is  primarily  due to the  substantial  completion  of the
Netscape  product  during  1998.  Licensing  fees  from the  Career/NET  product
increased by $193,000 over 1998 due to  Career/NET,  LLC's desire to be relieved
of its  original  support  agreement  with I/NET.  In exchange  for this relief,
Career/NET   issued  I/NET  a  $209,000  interest  bearing  demand  note.  I/NET
negotiated a fee for and is performing ongoing support services.

Cost of revenues  decreased by $102,000 as compared to 1998.  The primary  cause
for this decrease was the termination of personnel for the Netscape project,  as
well as other expenses  associated with the Netscape project.  Gross profit as a
percent of sales  increased  from 49% in 1998 to 56% in 1999.  In addition,  the
recognition  of the  revenue  associated  with  the  Career/NET  L.L.C.  support
services agreement increased margins as there were minimal costs associated with
this transaction.

General and  administrative  expenses  increased by $82,000 as compared to 1998.
The cause for this  increase was  additional  Michigan  Single  Business Tax and
increased  professional fees relating to increased public relations  activities.
Selling and administrative  expenses as a percentage of sales increased from 29%
in 1998 to 33% in 1999.

Interest  expenses  decreased  by  $22,000  due to the  continued  repayment  of
borrowings during 1999 and 1998.

FINANCIAL CONDITION AND LIQUIDITY

The Company's primary need for capital will  be to  invest  in computer software
development.  As of December 31, 1999, the Company's working capital deficit was
$639,000, compared to a deficit of $936,000 at December 31, 1998. The  resulting
decrease  in  working  capital  deficit is  primarily due to earnings in 1999 of
$355,000 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 2000.  However,
there can be no  assurance  these  activities  will be  successful.  The Company
continues to explore alternative  options to reduce its debt obligations,  which
could also increase the Company's financial stability.

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.  Accordingly,  the Company's  independent  public  accountants have
included a modification  in their report on the Company's  financial  statements
for the year  ended  December  31,  1999  discussing  the  Company's  ability to
continue as a going concern.  Management believes the Company will continue as a
going  concern and is actively  marketing  its products to enable the Company to
meet its current  obligations  and provide  additional  funds for  continued new
product development.  In addition,  management is currently  negotiating several
additional contracts for its services and products. Management is also embarking
on other strategic  initiatives to expand its business  opportunities.  However,
there can be no assurance these activities will be successful.

NEW ACCOUNTING PRONOUNCEMENTS

SFAS 133 regarding  derivative  instruments is effective for all fiscal quarters
of fiscal  years  beginning  after June 15,  2000,  as amended by SFAS 137.  The
statement will become  effective for the Company for the quarter ended March 31,
2001. Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative  purposes.  Accordingly,  the Company
does not expect  the  adoption  of this new  standard  to affect  its  financial
statements.


<PAGE>
ITEM 7.  FINANCIAL STATEMENTS

Section                                                            Page Number

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

Consolidated Balance Sheets as of December 31, 1999 and 1998...............19-20

Consolidated Statements of Earnings for the years ended
December 31, 1999 and 1998....................................................21

Consolidated Statements of Capital Deficit for the years
ended December 31, 1999 and 1998..............................................22

Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and l998....................................................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

<PAGE>
                                    PART III

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

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

The  following  table sets forth the names and offices held by all directors and
executive officers of the Company for the calendar year ended December 31, 1999,
and to the date hereof, and the year since 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


TERM OF OFFICE

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

BUSINESS EXPERIENCE

James C, Knapp,  Chairman:  Mr. Knapp,  one of I/NET's initial  founders,  is 49
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 54 years of age. He
received  a BS  Degree  from  Ferris  State  University  in 1970 and an MBA from
Western Michigan  University  ("WMU") in 1971. He is a licensed certified public
accountant in the state of Michigan. Mr. Markee served in the United States Army
during the Viet Nam conflict,  and was decorated and medically  retired in 1968.
After completing his education,  he served as assistant  Auditor General for the
State of Michigan  before joining WMU as Director of Internal  Auditing in 1976.
While at WMU,  he also taught  accounting  classes in the MBA  program.  He then
changed directions, from public to private sector, as Vice President of Planning
and Control for a division of Standex  International  Corporation,  where he was
responsible for information systems,  accounting, and human resources. He joined
I/NET in 1985 as President  and CEO. He has guided I/NET to a successful  equity
partnership with IBM, and engineered the sale of intellectual property rights to
IBM. Mr.  Markee has served on the Board of Directors  of the  Kalamazoo  County
Chamber of Commerce,  Chairman of the Kalamazoo  County  Convention and Visitors
Bureau,  Past  President of the local  chapter of the  Institute  of  Management
Accountants, and President of the Parchment Schools Foundation. He is a frequent
speaker to civic and business  groups,  and has appeared on the  Financial  News
Network ("FNN").


<PAGE>
Paul A. Bertoldi, Vice President,  Systems Development: Mr. Bertoldi is 37 years
of age. He has received  BBA and MBA degrees  from WMU. He  graduated  magna cum
laude and was named a Presidential  Scholar as one of the top  undergraduates of
WMU.  Since  becoming one of I/NET's first  employees,  Mr.  Bertoldi has helped
design  the  architecture  of  state-of-the-art  imaging  and voice  recognition
systems in the field of real estate,  medical imaging, and document imaging. Mr.
Bertoldi is currently  involved in the  development  of website  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.

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.  However, 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.

ITEM 10.    EXECUTIVE COMPENSATION

Cash Compensation

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

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

  -----------------------------------------------------------------------------
  ------------------- ------------ -------------- ------------- ---------------
  Name and            Year Ended     Salary          Bonus        All Other
  Principal Position    Dec. 31                                 Compensation
  ------------------- ------------ -------------- ------------- ---------------
  ------------------- ------------ -------------- ------------- ---------------
  James C. Knapp         1999      $115,092                        $5,130*
  ------------------- ------------ -------------- ------------- ---------------
  ------------------- ------------ -------------- ------------- ---------------
  Stephen J. Markee      1999      $125,680
  ------------------- ------------ -------------- ------------- ---------------
  ------------------- ------------ -------------- ------------- ---------------
  Paul A. Bertoldi       1999      $ 75,660
  ------------------- ------------ -------------- ------------- ---------------
  -----------------------------------------------------------------------------

       *Approximate value of life insurance premiums 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:

                                                                    Weighted
                                               Option Price    Average Price Per
                                  Shares         Per Share           Share
--------------------------------------------------------------------------------
January 1, 1998 and 1999          115,000     $ .37-  2.50           $.65
    Lapsed in October 1999       (100,000)         .37                .37
    Granted in December 1999       50,000          .29                .29
--------------------------------------------------------------------------------
December 31, 1999                  65,000       $0.29-2.50           $.80
--------------------------------------------------------------------------------

At December  31,  1999,  582,255  shares of common  stock are  reserved  for the
incentive stock option plan and 15,000 options were vested and exercisable.  The
remaining weighted average  contractual life of these options is five years. The
remaining 50,000 options are not vested and have a remaining contractual life of
ten years.

PENSION PLAN

The Company has a profit sharing and defined  contribution pension plan covering
substantially  all  employees.  Under the plan,  employees may make tax deferred
voluntary  contributions  which,  at the  discretion of the  Company's  Board of
Directors, may be matched within certain limits by the Company. In addition, the
Company may make additional  discretionary  contributions  to the plan as profit
sharing  contributions.  All contributions to the plan are limited by applicable
Internal Revenue Code regulations.  There were no Company  contributions charged
against operations in 1999 or 1998.

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, 1999.

TERMINATION OF EMPLOYMENT AND CHANGES OF CONTROL ARRANGEMENT

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

Section 16(a) Beneficial Ownership Reporting Compliance

Based  solely on its  review of Forms 3,4 and 5  furnished  to it,  the  Company
believes that each director,  officer and beneficial owner of 10% or more of the
Company's  stock made all required  filings  under Section 16(a) of the Exchange
Act during 1999.

Item 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

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

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 are  provided  at an  interest  rate of 8%.  The  balance  outstanding  at
December 31, 1999 was $407,142.  At December 31, 1999, the Company owed $146,892
to Mr. Knapp and $260,250 to Mr.  Markee.  These loans are secured by all of the
Company's assets. With the exception of this transaction, there were no material
transactions to which the Company or any of its  subsidiaries  was or is to be a
party, in which the amount involved  exceeded $60,000 and in which any promoter,
founder,  director or executive officer,  or any security holder who is known to
the  Company to own 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, 1999 and 1998.

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

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

ITEM 13.     REPORTS ON FORM 8-K AND EXHIBITS

REPORTS ON FORM 8-K:

None

EXHIBITS:

None
<PAGE>

Signatures

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

                                                                     I/NET, Inc.

Date:  March 30, 2000                     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 30, 2000                      By: /s/ Stephen J. Markee
                                               --------------------------------
                                               Stephen J. Markee, Director
                                               President, CEO and CFO


Date:  March 30, 2000                      By: /s/ James C. Knapp
                                               --------------------------------
                                               James C. Knapp, Chairman
                                               of the Board of Directors

Date:  March 30, 2000                      By: /s/ Paul A. Bertoldi
                                               --------------------------------
                                               Paul A. Bertoldi, Vice President
                                               Systems Development


<PAGE>

                                   I/NET, Inc.

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

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

                        Consolidated Financial Statements

                     Years ended December 31, 1999 and 1998


<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,  1999 and 1998,  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, 1999,  and 1998,  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
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 13. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

Kalamazoo, Michigan                                     /s/BDO SEIDMAN, LLP
                                                    ----------------------------
January 12, 2000                                    Certified Public Accountants
<PAGE>
--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------
December 31,                                        1999                1998
--------------------------------------------------------------------------------


Assets (Note 3)

Current:

         Cash and cash equivalents                $ 171,681          $ 103,847

         Trade Receivables (Note 5)                 364,253            201,961

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

Total Current Assets                                535,934            305,808

Office Furniture and Equipment,
         less accumulated depreciation
         of $97,451 and $123,308                     16,587             31,100

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

                                                  $ 552,521           $336,908


--------------------------------------------------------------------------------
<PAGE>
                                                                     I/NET, Inc.

                                                     Consolidated Balance Sheets

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

--------------------------------------------------------------------------------
December 31,                                         1999              1998
--------------------------------------------------------------------------------

Liabilities and Capital Deficit

Current Liabilities:

   Accounts payable                              $  17,618          $ 124,500
   Accruals:
         Commissions (Note 1)                      258,000            258,000
         Interest                                  171,402            141,507
         Other                                      33,500             21,600
    Advances from stockholders (Note 2)             95,500            100,780
    Current maturities of long-term debt (Note 3)  599,000            595,000
--------------------------------------------------------------------------------

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

Total Current Liabilities                        1,175,020           1,241,387

Long-term Debt, less current maturities (Note 3)   504,196             576,736

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

Total Liabilities                                1,679,216           1,818,123

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

Commitments and Contingencies (Notes 7, 8, 11 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 1999
        and 1998                                    31,038              31,038
         Additional paid-in capital             11,886,674          11,886,674
         Deficit                               (13,044,407)        (13,398,927)

--------------------------------------------------------------------------------
Total Capital Deficit                           (1,126,695)         (1,481,215)
--------------------------------------------------------------------------------
                                              $    552,521         $   336,908
--------------------------------------------------------------------------------

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

                                                                     I/NET, Inc.

                                             Consolidated Statements of Earnings

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

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

Year ended December 31,                               1999             1998
--------------------------------------------------------------------------------

Revenues   (Note 5)                                $1,792,881      $1,768,379

Cost of Revenues                                      797,507         899,606

--------------------------------------------------------------------------------
gross profit                                          995,294         868,773

Selling, General, and Administrative Expenses         588,474         506,270

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

Earnings from operations                              406,820         362,503

Interest Expense - net of interest income
    $10,764 in 1999
     and $6,502 in 1998                                52,300          74,607

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

Net Earnings                                         $354,520        $287,896

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

Net Earnings per Share (Note 12)
         Basic and Diluted                           $  .01          $ .01

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

Average Number of Basic Common
        Shares Outstanding (Note 12)                31,037,652     31,037,652

Average Number of Diluted Common
        Shares Outstanding (Note 12)                31,178,533     31,037,652

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

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,
1998                31,037,612 $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)

Net earnings
for the year           -          -          -            354,520      354,520

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

Balance, December 31,
1999                31,037,652 $31,038   $11,886,674  $(13,044,407) $(1,126,695)

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


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,                              1999                1998

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

Operating Activities

    Net earnings                                 $  354,520         $  287,896
    Depreciation                                     17,238             28,345
    Changes in assets and liabilities:
         Receivables                               (162,292)          (122,205)
         Accounts payable                          (106,882)           (32,432)
         Accruals                                    41,795            (24,669)

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

Cash Provided by Operating Activities               144,379            201,799

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

Investing Activities
    Capital expenditures                             (2,725)           (23,150)

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

Cash Used In Investing Activities                    (2,725)           (23,150)

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

Financing Activities

    Principal payments on long-term debt            (39,613)          (167,312)
    Principal payments on notes to stockholders     (34,207)           (43,429)
--------------------------------------------------------------------------------

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

Cash Used In Financing Activities                   (73,820)          (210,741)

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

Increase (Decrease) in Cash and Cash Equivalents     67,834            (32,092)

Cash and Cash Equivalents, beginning of year        103,847            135,939

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

Cash and Cash Equivalents, end of year            $ 171,681          $ 103,847

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

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 Deleware Corporation),  and it's 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
---------------------------
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 Corporation (IBM) and Appsmall.com formerly
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,  and notes
payable,  accounts  payable and long-term debt. Due to the short-term  nature of
the items,  other than  long-term  debt,  and the variable  interest  rates on a
substantial  portion of the long-term debt,  management  estimates that carrying
amounts of the Company's financial instruments  approximate their fair values at
December 31, 1999.

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

NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
SFAS 133 regarding  derivative  instruments is effective for all fiscal quarters
of fiscal  years  beginning  after June 15,  2000,  as amended by SFAS 137.  The
statement will become  effective for the Company for the quarter ended March 31,
2001. 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.

          See accompanying notes to consolidated financial statements.


<PAGE>
                                                                     I/NET, Inc.

                                      Notes to Consolidated Financial Statements

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

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

1.  COMMISSIONS

During a prior year,  the Company  negotiated to release a distributor  from its
exclusive  contract to distribute  certain I/NET products.  In exchange for this
release I/NET is required to pay commissions  totaling  $258,000 at December 31,
1999.

2.  SHORT-TERM ADVANCES FROM STOCKHOLDERS

    Advances from stockholders consist of:
    December 31,                                    1999                1998
 -------------------------------------------------------------------------------
    Non-interest bearing notes payable to
    stockholders, due on demand                  $ 13,500            $ 10,280

    Secured stockholder's advances bearing
    Interest at 8%,  due on demand                 82,000              96,500
--------------------------------------------------------------------------------
                                                 $ 95,500          $  100,780
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3.  LONG-TERM DEBT
    Long-term debt consists of:

    December 31,                                   1999                 1998
--------------------------------------------------------------------------------
    Notes payable to vendors (see below)        $ 791,554          $  831,167

    Notes payable to stockholders
    bearing interest at 8% and due in
    December, 2001, secured by all
    the Company's assets                          311,642             340,569
--------------------------------------------------------------------------------
                                                1,103,196           1,171,736
    Less current maturities                       599,000             595,000
--------------------------------------------------------------------------------
    Total Long-term Debt                       $  504,196          $  576,736
--------------------------------------------------------------------------------
<PAGE>
                                                                     I/NET, Inc.

                                      Notes to Consolidated Financial Statements

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

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

NOTES PAYABLE TO VENDORS
------------------------
Unsecured notes payable to various vendors totaling  $791,554 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 10.50 % at December 31, 1999).

Another note in the amount of $80,948 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
payments as required by the original note. This note bears interest at 8% and is
classified as current.

Another note in the amount of $217,587 is due in monthly  installments  of 5% of
the previous month's cash receipts (as defined) but at a minimum rate of $10,000
bi-monthly and bears interest at the prime rate plus 2%. Final payment, assuming
minimum payments only, is July 2004.

Another vendor note in the amount of $52,364 is due in monthly  installments  of
5% of the previous  month's cash  receipts (as defined) but at a minimum rate of
$3,500  monthly  and bears  interest at 10%.  Final  payment,  assuming  minimum
payments only, is May 2001.

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

                               2000   $695,000
                               2001   $369,000
                               2002    $49,000
                               2003    $54,000
                               2004    $32,000
<PAGE>
                                                                     I/NET, Inc.

                                      Notes to Consolidated Financial Statements

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

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


4.   STOCK WARRANTS

The Company issued 460,000 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 Internet products to the IBM AS/400 platform.  These warrants expire
in 2000.

5.   MAJOR CUSTOMERS

The Company provided Internet products, websight consulting services and support
services to three major  customers  totaling  $1,734,000  and $1,746,000 for the
years ended December 31, 1999 and 1998  respectively.  These three  customers in
the aggregate  accounted  for 97% and 99% of the  Company's  revenue in 1999 and
1998, respectively.

During 1998, the Company signed a licensing  agreement and supplemental  support
services agreement for its previously  developed Career/NET product, an Internet
resume management  service,  with Career/NET L.L.C. These agreements allowed the
licensee the perpetual license to use and sell the product. In consideration for
granting the license,  I/NET would  receive 30% of the net revenues  received by
the  licensee.  In  exchange  for  these  revenues,   I/NET  would  perform  all
programming and website design and development.

In March 1999, the licensee desired to be relieved of the  supplemental  support
services  agreement.  In exchange for this  relief,  it gave to I/NET a $209,000
demand  promissory  note which bears interest at 7% per annum.  The revenue from
this  transaction  has been  recorded  in 1999 and the note is included in trade
receivables  as of December 31, 1999. In addition,  the Company has negotiated a
fee-for-service  agreement for all ongoing  programming and website  development
work.


<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,                                    1999                1998
--------------------------------------------------------------------------------
Deferred Tax Assets:

     Accruals                              $    88,000          $   88,000
     Trademark                                  51,000              56,000
     Net operating loss carryforward         3,406,000           3,409,000
     Tax credit carryforwards                   27,000              42,000
     Capital loss carryforwards                 24,000              24,000
--------------------------------------------------------------------------------
Total Deferred Tax Assets                    3,596,000           3,619,000

Valuation Allowance                         (3,596,000)         (3,619,000)
--------------------------------------------------------------------------------
                                            $    -              $    -
--------------------------------------------------------------------------------

As of December 31, 1999,  the Company had a net operating loss  carryforward  of
approximately   $10,017,000   and   investment  tax  credit   carryforwards   of
approximately  $22,000  available  to reduce  future  taxable  income and taxes,
respectively. These carryforwards expire from 2000 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 1999 or 1998.

<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  $117,000
and  $105,000  for each of the years ended  December  31, 1999 and 1998.  Future
minimum annual lease payments subsequent to December 31, 1999 are as follows:

                           2000       $ 101,000
                           2001      $   69,000

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, 1998 and 1999      115,000         $.37-2.50            $  .63
  Lapsed October 1999        (100,000)           .37                  .37
  Granted December 1999        50,000            .29                  .29
--------------------------------------------------------------------------------
December 31, 1999              65,000         $.29-2.50            $  .80
--------------------------------------------------------------------------------

At December  31,  1999,  582,255  shares of common  stock are  reserved  for the
incentive  stock option plan and 15,000  options were vested and  exercisable at
$2.50 per  share.  The  remaining  weighted  average  contractual  life on these
options is five  years.  The 50,000  options are not vested and have a remaining
contractual life of ten 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  1999:  expected  volatility  of 80  percent,-risk  free
interest  rate of 6.2  percent and an  expected  option  life of 7.2 years.  Net
income for 1999 and 1998 would not have been materially affected. The fair value
of the options granted during 1999 was $.19 per share.


<PAGE>
                                                                     I/NET, Inc.

                                      Notes to Consolidated Financial Statements

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

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

10.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest  paid for the years ended  December 31, 1999 and 1998,  was $22,000 and
$50,000, respectively. The Company paid no income taxes during 1999 and 1998.

11.  CONTINGENCIES
       ROYALTIES

In a prior year,  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
                 Paid by IBM on behalf
                  of I/NET in September, 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.

IBM has provided  advances against royalties in the amount of $600,00 as certain
tasks were completed. 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  $10,000 of revenue  from  these  advances  in 1999 and
$390,000 in 1998 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.

<PAGE>

                                                                     I/NET, Inc.

                                      Notes to Consolidated Financial Statements

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12.  EARNINGS PER SHARE

A  reconciliation  of shares used in calculating  basic and diluted earnings per
share follows:

Year ended December 31,                         1999                1998
--------------------------------------------------------------------------------
Basic Effect of assumed conversion of
   options and warrants                      31,037,652          31,037,652

                                                140,881             -

--------------------------------------------------------------------------------
Diluted                                      31,178,533          31,037,652
--------------------------------------------------------------------------------

For 1999, warrants to purchase 115,000 shares of common stock at $1.00 per share
and options to purchase  15,000  shares of common  stock at $2.50 per share were
not included in the computation of diluted  earnings per share because they were
anti-dilutive.   For  1998,   all   warrants   and  options   outstanding   were
anti-dilutive.

13.  CONTINUED EXISTENCE

The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of  liabilities  in the normal  course of  business.  The Company  has  suffered
recurring  losses from  operations  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 initiatives to expand its business  opportunities.  However, there can
be no assurance these activities will be successful.