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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Form 10-KSB

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| | [X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
| | --- | ---------------------------------------------------------------------------------------------------------------------------

| | [   ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | ----- | ----------------------------------------------------------------------------------

For the transition period from ______ to ______

33-19345-LA(Commission File Number)

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VPN COMMUNICATIONS CORPORATION(Name of Small Business Issuer in its Charter)

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| | Nevada
(State or Other Jurisdiction of
Incorporation or Organization) |  | 93-0943718
(I.R.S. Federal Employer ID No.) | 
| | --------------------------------------------------------------------- |  | ------------------------------------------- | 

| | 1012 Brioso Drive, Suite 101,Costa Mesa, California
(Address of Principal Executive Offices) |  | 92627
(Zip Code) | 
| | -------------------------------------------------------------------------------------------- |  | ---------------- | 

(949) 650-8325(Issuers telephone number, including area code)

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

| | Title of each class
N/A |  | Name of exchange on which registered
N/A | 
| | ----------------------- |  | ---------------------------------------- | 

Securities registered under Section 12(g) of the Exchange Act:Common Stock, $0.001 value

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. Yes [x] No [  ]

Check if there is no disclosure of delinquent filers 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]

The issuers revenues for its most recent fiscal year:  $55,875

The aggregate market value of voting stock held by non-affiliates of the registrant as of September 30, 2000: Common stock, $0.001 par value:  $349,020

The number of shares of the registrants common stock outstanding as of September 30, 2000: 10,158,276 shares

Documents incorporated by reference: As listed under Item 13(a) Exhibits.

Transitional Small Business Disclosure Format: Yes [  ] No [x]

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PART I Item 1.   Description of Business. History and Organization VPN Communications Corporation, formerly Exhibitronix, Inc., was organized under the laws of the State of Nevada on September 29, 1986, for
the primary purpose of seeking selected mergers or acquisitions with a small number of business entitles expected to be private companies, partnerships, or sole proprietorships. In November of 1988, the Company completed the first of
its three business combination transactions, through a merger with Mimetics, Inc., a California corporation, following which the Company changed its name to Exhibitronix, Inc. Thereafter, the Company had a total of three subsidiaries Tabery
Corporation, Shows Up, and Modular Display Systems, Inc. The Company divested one half of Modular Display Systems, Inc., in 1991; the Tabery Corporation filed for protection under Chapter 7 or the United Stated Bankruptcy Code in 1991.
During 1990 and 1991, the Company disposed of all of its assets to satisfy its creditors and, between 1991 and April of 2000 conducted no operations. Commencing the first quarter of 1997, the Company began to engage in preliminary efforts intended to identify possible merger or acquisition
targets. Following a change of control of ownership, on March 2, 2000 the Company changed its name to VPN Communications Corporation and a Certificate of Amendment to Articles of Incorporation was filed with the Secretary of State of
Nevada on March 10, 2000. On April 19, 2000, the Company entered into an Agreement and Plan of Reorganization with VPNCOM.NET Corporation, a Nevada corporation (
VCNC) and the stockholders of VCNC, and consummated a transaction with VCNC and its stockholders, whereby the Company acquired all of the outstanding stock of VCNC, which became a wholly-owned subsidiary of the Company. VCNC is a provider of integrated communications involving the provision of virtual private network and Internet solutions for corporations and
multi-dwelling unit properties and entities. All assets of VCNC, including, but not limited to, its tangible assets, such as computers, servers, and related telecommunications equipment, as well as its non-tangible assets such as contracts, on-going
business relationships, and goodwill, were included in the acquisition. In exchange for the stock of VCNC, the Company issued 1,500,000 shares of its Common Stock to the selling stockholders of VCNC. The valuation of the
exchange was based upon VCNCs historical financial statements, assets and liabilities, historical operations, and the value of the Common Stock of the Company at the time negotiations began, with a 15% discount from the then market price of the
Common Stock in consideration of the restricted nature of the securities issued. E. G. Marchi, Chief Executive Officer, President and a Director of the Company, received 1,300,000 shares of Common Stock of the Company as a selling
stockholder of VCNC. Theodore A. Bohrer, Secretary, Chief Financial Officer, Chief Accounting Officer and a Director of the Company, received 100,000 shares of Common Stock of the Company as a selling stockholder. The remaining selling stockholder,
Richard E. Floegel, a party otherwise unrelated to the Company, received 100,000 shares of Common Stock of the Company. VPNC engaged in the business of providing last mile Internet and telecommunications connectivity to multi-unit residential complexes, hotels, and
convention centers. It developed relationships with complementary suppliers so that it could provide complete Internet/telecommunications services both permanently (for apartment complexes) and temporarily (for convention centers). VPNC engaged in the business of web broadcasting. It developed relationships with appropriate entities to broadcast National Football League games on
the Internet. Due to changes on the marketplace and the upheaval surrounding dot com ventures, the Company elected to divest itself of VPNC, its
wholly owned subsidiary. On November 6, 2000, VPN Communications Corporation (the Company) entered into an Enforceable Letter of Intent with Paul Stevens, a related party, to
sell to Mr. Stevens 1,500 shares, which constitutes all of the issued shares, of the Companys wholly owned Subsidiary VPNC. 1


The Company will receive, in exchange for the Subsidiary, $1 and the assumption, by Mr. Stevens, of all of the outstanding liabilities of the
Subsidiary in the amount of $1,483,308. As of the date of this transaction the Subsidiary has no on-going revenue and has produced no profit. After the sale of VPNC the Company is back to its pre-April 2000 mode. It has no revenue and one employee. As of the filing of this 10K, the Company is actively engaged in efforts intended to identify new merger or acquisition targets. It is
the Companys intention to seek these candidates in the areas of technology or telecommunications. These types of companies, management feels, are in keeping with the direction the Company has been going and with the expertise it has developed. Plan of Operations The Company has, and for the foreseeable future expects to have, insufficient capital with which to provide merger or acquisition
candidates with substantial cash or other assets. However, Management believes the Company will offer owners of potential merger or acquisition candidates the opportunity to acquire a controlling ownership interest in a public company at
substantially less cost than would be required for them to conduct an initial public offering. A target company will, however, incur significant post merger or acquisition registration costs in the event target company shareholders wish to
offer a portion of their shares for subsequent sale. Further, while target company shareholders will receive restricted securities in any merger or acquisition transaction, those
restricted securities will represent, if a trading market develops for the Companys common stock, ownership in a publicly traded as opposed to a privately held company. Management also believes target company
shareholders may benefit in obtaining a greater ownership percentage in the Company remaining after a merger or acquisition than may be the case in the event a target company offered it shares directly for sale to the public. 
Nevertheless, the officers and directors of the Company have not conducted market research and are not aware of statistical data, which would support the perceived benefits of a merger or acquisition transaction for target company shareholders. The Company expects to concentrate primarily on the identification and evaluation of prospective merger or acquisition target
entities including private companies, partnerships, or sole proprietorships. The Company does not intend to act as a general or limited partner in connection with partnerships it may merge with or acquire. Management has not identified more
specifically that mentioned above (technology and telecommunications) any particular area of interest within which the Company will concentrate its efforts. Management contemplates that the Company will seek to merge with or acquire a target company with either assets or earnings, or both, and
that preliminary evaluations undertaken by the Company will assist in identifying possible target companies. The Company has not established a specific level of earnings or assets below which the Company would not consider a merger or
acquisition with a target company. Moreover, management may identify a target company, which is generating losses, which it will seed to acquire or merge with the Company. The merger with or acquisition of a target company which is generating losses
or which has negative shareholders equity may have a material adverse effect on the price of the Companys Common Shares. Plan of Acquisition The Company intends to follow a systematic approach to identify its most suitable acquisition candidates. First, management intends to concentrate on identifying any number of preliminary prospects that may be brought to the attention of
management through present association. Management will then apply certain of its broad criteria to the preliminary prospects. Essentially, this will entail a determination by management as to whether or not the prospects themselves 
have potential within their own industries. During this initial screening process, management will ask and receive answers to questions framed to provide appropriate threshold information, depending upon the nature of the prospects
business. Such evaluation is not expected to be an in depth analysis of the target companys operations although it will encompass a look
at most, if not all, of the same areas to be examined once one or more target companies are selected for an in depth review. For instance, at this stage, management may look at a prospects unaudited balance sheet. Once a prospect is
selected for an in depth review, management will review the prospects audited financial statements. Nevertheless, management anticipates that this evaluation will provide a broad overview of the business 2


of the target company and should allow a large percentage of preliminary prospects to be eliminated from further consideration. Assuming management is able to complete the preliminary evaluation process and select a limited number of companies for further study, of which
there can be no assurance, the Company may enter into preliminary negotiations with target company management in order to obtain detailed financial and operational information. Following the Companys receipt of such information,
management will conduct an in depth analysis of five (5) major areas of concern with respect of the target company as follows: 1
Managerial and Financial Stability. Management of the Company will review audited financial statements of the target company and will also research the background of each director and member of management of the target
company in order to discern whether the stability of the Company is such that further negotiations are warranted.2
Industry Status. Management will research the potential of the target  companys industry. The concern here is whether the industry is in a growth, stagnant or declining stage.3
Production of Product. If the target company is a manufacturer, management will review whether it has the necessary resources or access to the necessary resources and supplies to produce a quality product in a timely
manner.4
Acceptance and Potential of Product. Management will review the acceptance of the target companys product in the market place Management will also review whether or not the product is realistic (therefore, is
there potential for the product to be workable and for to fulfill its intended purpose.5
Development of Target Company. Management will review the target companys stage of development, e.g., start up or established company. The foregoing is an outline of the areas of concern, which most often arise and merit careful scrutiny by management. Because of the
possible varieties of target companies, which may come to the attention of management, additional factors will most likely be considered in any given analysis. Also, the procedures used in such a review are expected to vary depending
upon the target company being analyzed. Management may select a target company for further negotiations even though the target may not receive a favorable evaluation as to some of the five areas of concern. Management considers it unlikely that it will evaluate more than two or three firms on this basis in view of capital and managerial time 
constraints. Following the identification of at most one or two target companies which appear to be suitable merger or acquisition candidates, the Company expects to commission appraisals, professional studies of reserve and asset reports
to be conducted by outside consultants. The Company has limited funds with which to engage consultants and, accordingly, management intends to conserve such funds pending managements evaluation. Management expects to enter into further negotiations with target company management following successful conclusion of financial and
evaluation studies. Negotiations with target company management will be expected to focus on the percentage of the Company which target company shareholders would acquire in exchange for their shareholdings in the target company. 
Depending upon, among other things, the target companys assets and liabilities, the Companys stockholders will in all likelihood hold a lesser percentage ownership interest in the Company following any merger or acquisition. The
percentage ownership may be subject to significant reduction in the event the Company acquires a target company with substantial assets. Any merger or acquisition effected by the Company can be expected to have a significant dilutive effect
on the percentage of shares held by the Companys then stockholders. The final stage of any merger or acquisition to be effected by the Company will require the Company to retain the services of counsel and a 
qualified accounting firm in order to properly effect the merger or acquisition. The Company may be expected to incur significant legal fees and accounting costs during the final stages of a merger or acquisition. Also, if the merger or
acquisition is successfully completed, management anticipates that certain costs will be incurred for public relations, such as the dissemination of information to the public, to the stockholders and to the financial community. If the
Company is unable to complete the merger or acquisition for any reason, the Companys capital may be substantially depleted if legal fees and accounting costs have been incurred. Management intends to retain legal and accounting
services only on an as needed basis in the latter stages of a proposed merger or acquisition. 3


Management expects that it will be necessary to raise funds at such time as significant evaluation work is undertaken regarding prospective
mergers of acquisitions. There can be no assurance that funds for such purposes will be available to the Company on acceptable terms or at all. Competition The Company will remain an insignificant participant among the firms which engage in mergers with and acquisitions of privately financed
entities. There are many established venture capital and financial concerns which have significantly greater financial and personnel resources and technical expertise than the Company. In view of the Companys combined limited 
financial resources and limited management availability, the Company will continue to be at a significant competitive disadvantage compared to the Companys competitors. Regulation and Taxation The Company could be subject to regulation under the Investment Company Act of 1940 in the event the Company obtains and continues to hold a
minority interest in a number of entities. However, management intends to seek at most one or two mergers or acquisitions and managements plan of operation is based upon the Company obtaining a controlling interest in any merger
or acquisition target company and, accordingly, the Company may be required to discontinue any prospective merger or acquisition of any company in which a controlling interest will not be obtained. The Company could also be required to register under the Investment Company Act of 1940 in the event the Company comes within the definition of
an Investment Company contained in that Act due to its assets consisting principally of shareholdings held in a number of subsidiaries. Management intends to seek at most one or two mergers or acquisitions, which transactions will not
result in the Company holding an interest in any subsidiaries. Any securities which the Company acquires in exchange for its Common Stock will be restricted securities within the meaning of the
Securities Act of 1933 (the 1933 Act). If the Company elected to resell such securities, such sale could not proceed unless a registration statement had been declared effective by the Securities and Exchange Commission or
an exemption from registration was available. Section 4 (2) of the 1933 Act, which exempts sales of securities not involving any public offering, would in all likelihood be available since it is likely that any such sale would be a
block sale to a private investor to raise additional capital. Although managements plan of operation does not contemplate resale of securities acquired, in the event such a sale were necessary, the
Company would be required to comply with the provisions of the 1933 Act. As a condition to any merger or acquisition, it is possible that management of the target company may request registration of the Companys
Common Shares to be received by target companys shareholders. In such event, the Company could incur registration costs, and management intends to require the target company to bear most, if not all, of the cost of any such 
registration. If the Company does contribute toward the cost of such registration, its maximum contribution will be limited to the extent that it can raise capital, on a debt or equity basis. No such offering is currently planned and there
can be no assurance that any funds will be available for the Company at the time or under terms acceptable to the Company or at all. Alternatively, the Company may issue restricted securities to any prospective target company,
which securities may be subsequently registered for sale or sold in accordance with Rule 144 of the Securities Act of 1933. The Company intends to structure a merger or acquisition in such a manner as to minimize federal and state tax consequences to the Company and
any target company. Additional Risk Factors We have incurred substantial operating losses and our auditors have issued a going concern audit opinion Our financial statements filed with the United States Securities and Exchange Commission have been prepared assuming that we will continue as a going
concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Our auditors have expressed reservations in their audit letter for the fiscal year ended September, 2000 about our ability to continue
as a going concern. As discussed in our 4


financial statements, we have incurred significant operating losses in our most recent fiscal year and have a working capital deficit and negative tangible net worth. You may be unable to effectively evaluate our company for investment purposes because our businesses have existed for only a short period of time We began our current operations in April 2000. As stated above, we have recently divested our primary subsidiary, VCNC. As a result, we have no
significant operating history upon which you may evaluate our business and prospects. In addition, you must consider our prospects in light of the risks and uncertainties encountered by companies in an early stage of development in new and rapidly
evolving markets. We had no revenues from operations prior to the acquisition of our VCNC subsidiary, and with its divestiture we again have no current revenue source. In addition, we have no significant assets or financial resources  The success of the
our proposed plan of operation will depend to a great extent on the operations, financial condition and management of any future acquisitions. Our ability to integrate these subsidiaries activities into our consolidated operations is uncertain. The
success of our operations may be dependent upon numerous factors beyond our control. The market price of our common stock may experience fluctuation unrelated to operating performance, including future private or public offerings of our capital stock The market price of the Common Stock of the Company may experience fluctuations that are unrelated to the Companys operating performance. In
particular, the Company may increase its capital by making private or public offerings of its Common Stock, securities convertible into its Common Stock, preferred stock or debt securities. The actual or perceived effect of such offerings, the timing of
which cannot be predicted, may be the dilution of the book value or earnings per share of the Common Stock outstanding, which may result in the reduction of the market price of the Common Stock and affect the Companys ability to access the capital
markets. Because of intense competition for skilled personnel, we may not be able to recruit or retain necessary personnel on a cost-effective basis Our future success will depend in large part upon our ability to identify, hire, retain and motivate highly skilled employees. We plan to
significantly increase the number of our marketing, sales, customer support and operations employees to effectively serve the evolving needs of our present and future customers. Competition for highly skilled employees in our industry is intense. In
addition, employees may leave our company and subsequently compete against us. Our failure to attract and retain these qualified employees could significantly harm our business. The loss of the services of any of our qualified employees, the inability to
attract or retain qualified personnel in the future or delays in hiring required personnel could hinder the development and introduction of new and enhanced products and harm our ability to sell our products. Moreover, companies in our industry whose
employees accept positions with competitors frequently claim that their competitors have engaged in unfair hiring practices. We may be subject to such claims in the future as we seek to hire qualified personnel, some of whom may currently be working for
our competitors. Some of these claims may result in material litigation. We could incur substantial costs in defending ourselves against these claims, regardless of their merits. The loss of any of our key personnel could significantly harm our business Our success depends to a significant degree upon the continuing contributions of our key management, technical, marketing and sales employees. The
loss of the services of any key employee could significantly harm our business, financial condition and results of operations. There can be no assurance that we will be successful in retaining our key employees or that we can attract or retain additional
skilled personnel as required. Failure to retain key personnel could significantly harm our business, financial condition and results of operations. Any acquisitions that we may undertake could be difficult to integrate, disrupt our business, dilute shareholder value and significantly harm our operating results We expect to review opportunities to buy other businesses or technologies that would complement our current products, expand the breadth of our
markets or enhance our technical capabilities, or that may otherwise offer growth opportunities. While we have no current agreements or negotiations underway, we may buy businesses, products or technologies in the future. If we make any future
acquisitions, we could issue stock that would dilute existing stockholders percentage ownership, incur substantial debt or assume contingent liabilities. We have no 5


experience in acquiring other businesses and technologies. Potential acquisitions also involve numerous risks, including: problems assimilating the purchased operations, technologies or products; unanticipated costs associated with the acquisition; diversion of managements attention from our core business; adverse effects on existing business relationships with suppliers and customers; risks associated with entering markets in which we have no or limited prior experience; and potential loss of the purchased organizations or our own key employees. We cannot assure that we would be successful in overcoming problems encountered in connection with such acquisitions, and our inability to do so
could significantly harm our business. Certain penny stock regulations may apply to our common stock Our stock is considered so-called penny stock. The so-called penny stock low-priced securities regulations could affect the
resale of our stock. These regulations require broker-dealers to disclose the risk associated with buying penny stocks and to disclose their compensation for selling the stock. They may have the effect of reducing the level of trading activity in the
secondary market for the Common Stock. We may need and be unable to obtain additional funding on satisfactory terms, which could dilute our stockholders or impose burdensome financial restrictions on our business If our capital requirements or revenue vary materially from our current plans or if
unforeseen circumstances occur, we may require additional financing sooner than we anticipate. This may not be available on a timely basis, in sufficient amounts or on terms acceptable to us. This financing may also dilute existing stockholders. Any debt
financing or other financing of securities senior to common stock will likely include financial and other covenants that will restrict our flexibility. At a minimum, we expect these covenants to include restrictions on our ability to pay dividends on our
common stock. Any failure to comply with these covenants would have a material adverse effect on our business, prospects, financial condition and results of operation. Our stock price may be volatile The recent trading volume for our common stock has been small, and the market for our common  stock has been less liquid than that of many other
publicly traded companies. Since shares started trading after the reorganization of April 19, 2000, the average daily trading volume has been approximately 14,830 shares. There can be no assurance that a stockholder who desires to sell shares of common
stock can sell all of the shares that the stockholder desires to sell, either at all or at the desired times or prices. Like the stock of other technology companies, the price at which our common stock will trade is likely to be volatile and may fluctuate substantially
due to factors such as: fluctuations in our quarterly results of operations, trading volume, the announcement of technological innovations or new products by us or our competitors, general conditions in the computer hardware and software industries, economic conditions generally, our ability to successfully increase its market share with its existing products while expanding its product base into other markets, the strength of our distribution channels, and variances between actual results of operations and the results expected by securities analysts 6


Over the counter bulletin board trading Our Common Stock is listed on the over-the-counter electronic bulletin board sponsored by Nasdaq and is not traded on a national securities exchange.
Because of this fact, investors may find it more difficult to trade in our Common Stock or to obtain accurate, current information concerning market prices. This could have a substantially negative impact on the trading prices and the liquidity of the
market for our Common Stock. In addition, there may be a negative perception of our Company by investors, customers and third parties doing business or considering doing business with us. Also, our Company is treated less favorably with respect to
regulatory requirements that are dependent upon listing on a national stock exchange, such as an exemption from state securities registration or qualification requirements. Forward-looking statements are inherently uncertain Some statements herein are forward-looking statements. These forward-looking statements include, but are not limited to, statements about our
industry, plans, objectives, expectations, intentions and assumptions and other statements that are not historical facts. When used in this Form 10-K, the words expect, anticipate, intend, plan, 
believe, seek, estimate and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by these forward-looking statements. We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Employees The Company presently has
one employee; its President, E. G. Marchi, will devote as much time as necessary to the affairs of the Company. Consultants The Company will employ consultants on an as-needed basis to perform services in addition to those provided by Mr. Marchi. Item 2.   Description of Property. The Company currently rents executive office space on a month to month basis. The offices are located at 1012 Brioso Drive, Costa Mesa, California
92627. The facility includes approximately 400 square feet, in two offices, at a monthly rental of approximately $400 per month. The Company believes that its new facilities are adequate for its current needs. Item 3.   Legal Proceedings. The Company is not a party to any legal proceedings and management is not aware of any threatened legal proceedings. Item 4.   Submission of Matters to A Vote of Security Holders. No matters were submitted during the fiscal year ended September 30, 2000, to a vote of security holders through the solicitation of
proxies or otherwise. Due to the change in fiscal year end from December 31 to September 30, this covers three fiscal quarters. 7


PART II Item 5.   Market for Common Equity and Related Stockholder Matters. The over-the-counter bulletin board high and low quotations, as provided by Commodity Systems, Inc. (CSI) and reported on Yahoo.com, for the previous
two fiscal years are included in the table below. Fiscal Year Ended September 30, 2000
  
  High
  
  Low1st Quarter
  
  $0.05
  
  $0.052nd Quarter
  
  $0.05
  
  $0.053rd Quarter
  
  $1.50
  
  $0.754th Quarter
  
  $1.25
  
  $0.05 Fiscal Year Ended September 30, 1999
  
  High
  
  Low1st Quarter
  
  $0.03
  
  $0.032nd Quarter
  
  $0.03
  
  $0.033rd Quarter
  
  $0.03
  
  $0.034th Quarter
  
  $0.03
  
  $0.03 On December 31, 2000, the closing bid and asked prices of the Common Stock were $0.05 bid and $0.06 asked per share. As of December 29, 2000, there were 17,915,979 shares of Common Stock issued and outstanding which were held by approximately 320 holders of record. During the fiscal years ended December 31, 1999, and September 30, 2000, the Company has not paid any dividends on its Common Stock and does not
expect to do so in the foreseeable future. The Company intends to apply its earnings, if any, in expanding its operations and related activities. The payment of cash dividends in the future will be at the discretion of the Board of
Directors and will depend upon such factors as earnings levels, capital requirements, the Companys financial condition and other factors deemed relevant by the Board of Directors. Item 6.   Management Discussion and Analysis or Plan of Operation. Results of Operations During the year ended September 30, 2000 the Company acquired its wholly owned subsidiary, VPNCOM.NET Corporation (VCNC). Through the activities of
VCNC the Company generated revenues of $55,875. During this fiscal year the Company had a net loss of $1,919,973. On November 6, 2000, the Company entered into a binding letter of intent to sell VPNC to a related party, Paul Stevens. As of November 6, 2000, the
Company has no revenue producing operations. Management does not anticipate the Company will earn any revenue except a minimal amount of interest until following the conclusion of a
merger or acquisition. There can be no assurance that the Company will enter any such merger or acquisition or that such transaction will prove profitable to the Company or its stockholders. Liquidity and Capital Resources The Company has virtually no assets and, with the sale of VPNC, no liabilities. As of November 6, 2000 it has been dependent upon its officers for
its minimal cash requirements. Management anticipates operational costs will remain limited until such time as significant evaluation work is undertaken regarding prospective mergers or acquisitions. There can be no assurance that funds for
such purposes will be available to the Company on acceptable terms or at all. The Company has no long-term capital commitments. Item 7.   Financial Statements. Information with respect to this Item is set forth in Index to Financial Statements. Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There have no events or conditions requiring reporting under the requirements of this item. 8


PART III Item 9.   Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(A) of the Exchange Act. The directors and executive officers of the Company, since March 2000, are as follows: Name of Individual
  
  Age
  
  PositionE.G. Marchi
  
  70
  
  President, Chief Executive Officer and a DirectorTheodore A. Bohrer
  
  56
  
  Chief Financial Officer, Secretary and a Director (November 6, 2000)Paul A. Stevens
  
  41
  
  Executive Vice President and a Director (November 6, 2000)Ken Gough
  
  62
  
  DirectorBruce Thomsen
  
  68
  
  Director  Each of the Companys directors has been elected to serve until the next annual meeting of stockholders. Except as described below, there
are no arrangements or understandings between any director and any other person pursuant to which any person was elected or nominated as a director. The Companys executive officers serve at the discretion of the Board of Directors. E.G. Marchi has been President and Director of VPN Communications Corporation since March 3, 2000. Before acquiring control of the
Company, he had been President, Secretary/Treasurer and sole Director of City Pacific International, USA, Inc., a wholly owned subsidiary of e-Net Financial.Com corporation since March 1999. From August 1997 through August 1998, in
addition to his executive consulting business, Mr. Marchi served as Chief Executive Officer of a publicly held company, Alliance Biotechnology International, where he directed its activities towards its ultimate sale and merger. From
July 1994 through 1997, he was general partner of American Capital Growth, where he was responsible for its development as an investment banking organization. Mr. Marchi completed his undergraduate work in Electrical and Mechanical
Engineering at Illinois Institute of Technology in 1957. Theodore A. Bohrer served as Secretary, Chief Financial Officer, and a Director of the Company from March 3, 2000 to November 6,
2000. From March 1, 1999 to March 3, 2000, Mr. Bohrer served as Vice President of e-Net Financial.Com Corporation and also as broker of record for its subsidiary, e-Net Mortgage Corporation. From January 1995 to March 1999 he held
a variety of positions as a consultant in the communications industry specializing in transport of compressed long distance voice and data traffic. Mr. Bohrers career in financial institutions and information services has
spanned 25 years after serving as a Naval Lieutenant Commander. Before joining e-Net Mortgage as broker of record in March 1999, his previous position involved developing Net Fund, a mortgage company in San Jose. Mr. Bohrer received a
BS degree in Business and Industrial Management from San Jose State University in 1965. Paul C. Stevens served as Executive Vice President and a Director of the Company from March 3, 2000 until November 6, 2000. From December
1999 to March 2000, Mr. Stevens was Vice President with VPNCOM.NET Corporation, a former subsidiary of e-Net Financial.Com Corporation. From 1995 to 1998 he served as Chairman of Digital Integrated Systems, Inc. From January 1992 to
December 1994 he served as President and CEO of Paul Stevens Associates. Mr. Stevens received a degree in Industrial Electronics from Norwich Regional Technical Institute in 1997. To the best of the knowledge of the Company, its directors, officers and 10% beneficial owners have filed all reports in compliance with
the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year ended September 30, 1999. Item 10.   Executive Compensation. Name
  
  Salary Received
  
  Stock Awards
  
  Options
  
  OtherE. G. Marchi
  
  0
  
  235,598
  
  0
  
  0Paul Stevens
  
  $40,918
  
  461,794
  
  0
  
  0Theodore Bohrer
  
  $12,996
  
  132,075
  
  0
  
  0Ken Gough
  
  0
  
  41,872
  
  0
  
  0 9


Item 11.   Security Ownership of Certain Beneficial Owners and Management. The following tables set forth certain information regarding the beneficial ownership of Common Stock as of December 31, 2000, (except as
otherwise indicated by footnote) by (i) each person (including any group as that term is used in Section 13 (d) (3) of the Securities Exchange Act of 1934) known by management to own beneficially more than five percent of
the Companys outstanding Common Stock, (ii) each of the Companys directors, and (iii) all executive officers and directors of the Company as a group: Management Shareholders
  
  Shares of Common Stock Beneficially Owned
  
  Percent of Outstanding StockE.G. Marchi   3200 Bristol Street, Suite 725   Costa Mesa, CA 92626
  
  7,298,297
  (2)
  40.7
  %Theodore A. Bohrer   3200 Bristol Street, Suite 725   Costa Mesa, CA 92626
  
  232,075
  
  1.3
  %Paul A. Stevens   3200 Bristol Street, Suite 725,   Costa Mesa, CA 92626
  
  311,794
  
  1.7
  %Bruce Thomsen   3200 Bristol Street, Suite 725   Costa Mesa, CA 92626
  
  0
  
  0
  %Kenneth Gough   3200 Bristol Street, Suite 725   Costa Mesa, CA 92626
  
  6,328
  
  <1
  %Directors and officers as a group
  
  7,848,494
  
  43.8
  % ______________ 23
Except as otherwise noted, it is believed by the Company that all persons have full voting and investment power with respect to the shares, except as otherwise specifically indicated. Under the rules of the Securities and
Exchange Commission, a person (or group of persons) is deemed to be a beneficial owner of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or
to direct the disposition of such security. Accordingly, more than one person may be deemed to be an owner of the same security. A person is also deemed to be a beneficial owner of any security which that person has the right to acquire within 60 days,
such as warrants or options to purchase the Common Stock of the Company.24
E. G. Marchi, President of the Company, is deemed to be the beneficial owner of shares of Common Stock of the Company owned by MAI Financial LLC, of which Mr. Marchi is the sole owner. Security Ownership of Certain Beneficial Owners Name and Address of Beneficial Owner
  
  Title of Class
  
  Amount and Nature of Beneficial Ownership
  
  Percent of Class of Equity SecuritiesMAI Financial LLC    3200 Bristol Street, Suite 725   Costa Mesa, CA 92626
  
  Common Stock
  
  5,812,699
  (1)
  3.2
  % ______________ (1)
E. G. Marchi, President of the Company, is deemed to be the beneficial owner of these shares of Common Stock of the Company owned by MAI Financial LLC, of which Mr. Marchi is the sole owner. Item 12.   Certain Relationships and Related Transactions As of December 31, 2000, no officers or directors were indebted to the Company in any amount. 10


Item 13.   Exhibits and Reports on Form 8-K The following documents are filed as a part of this report: (a)   Exhibits ExhibitNumber
Description2.1
Amended and Restated Articles of Incorporation of the Registrant as filed with the Secretary of State of Nevada on November 28, 1988,filed as Exhibit 3 to the Registrants Post-Effective Amendment to the
Registration Statement on Form S-18 filed with the Securities and Exchange Commission on January 26, 1989, and is incorporated herein by reference.2.2
By laws of the Registrant as currently in effect, filed as Exhibit 3 to the Registrants Registration Statement on Form S-18 filed with the Securities and Exchange Commission on February 24, 1987, and as
incorporated herein by reference.23.1*
Consent of Kabani and Company ______________ *
Exhibits filed herewith. Other exhibits are incorporated by reference to previous filings. (b)   Reports on Form 8-K. 8K filed on 5/3/2000 - Acquisition of VPNCOM.NET Corporation. 8K filed on 5/30/2000  Change in Accountant from Schvaneveldt & Company to Kabani & Company. 8K filed on 6/16/2000  Change in fiscal year end to September 30. 8K/A filed on 6/19/2000  Audited Financials and Pro Forma of VPNCOM.NET Corporation. 8K/A filed on 6/20/2000  Adjusted Audited Financials and Pro Forma of VPNCOM.NET Corporation. 8K filed on 11/20/2000  Sale of subsidiary, VPNCOM.NET Corporation. 11


INDEX TO FINANCIAL STATEMENTS Page Independent Auditors Report
  F-1Balance sheets as of September 30, 1999 and 2000
  F-2Statements of operations for each of the years in the two-year period ended September  30, 2000
  F-3 Statements of stockholders equity for each of the yearsin the two-year period ended September  30, 2000
  F-4Statements of cash flows for each of the yearsin the two-year period ended September  30, 2000
  F-5Notes to financial statements for each of the yearsin the two-year period ended September  30, 2000
  F-6 12


SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. VPN COMMUNICATIONS CORPORATIONDated:   January 12, 2001
  
  By:
  /s/ E. G. MARCHIE. G. Marchi, President  In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated: Signature
  
  Title
  
  Date/s/ E. G. MARCHIE. G. Marchi
  
  President, Chief Executive Officer, and a Director
  
  January 12, 2001/s/ BRUCE THOMSENBruce Thomsen
  
  Director
  
  January 12, 2001/s/ KEN GOUGHKen Gough
  
  Director
  
  January 12, 2001  13


INDEX TO EXHIBITS ExhibitNumber
Description23.1
Consent of Kabani and Company 14


INDEPENDENT AUDITORS REPORT To the Stockholders and Board of DirectorsVPN Communication Corporation We have audited the accompanying consolidated balance sheets of VPN Communication Corporation and subsidiary as of September 30, 2000 and 1999 and
the related statements of operations, stockholders deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated 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 consolidated 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 consolidated financial position
of VPN Communication Corporation and subsidiary as of September 30, 2000 and 1999 and the consolidated results of their operations and their consolidated 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 3 to the
consolidated financial statements, the company has suffered losses from operations since inception. These factors, among others, as discussed in Note 3 to the consolidated financial statements, raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. KABANI & COMPANY, INC.CERTIFIED PUBLIC ACCOUNTANTSFountain Valley, CaliforniaJanuary 12, 2001  F-1


CONSOLIDATED BALANCE SHEETSSeptember 30, 2000 and 1999 September 30,2000
  
  1999ASSETSCurrent Assets:Cash and cash equivalent
  
  $1,399
  
  $9,369Prepaid expenses
  
  46,040
  
  Total current assets
  
  47,439
  
  9,369Property and Equipment, net
  
  116,603
  
  Other Assets:Note receivable
  
  
  
  103,500$164,042
  
  $112,869LIABILITIES AND STOCKHOLDERS' DEFICITCurrent Liabilities:Accounts Payable
  
  $368,900
  
  $Accrued expenses
  
  298,927
  
  16,015Notes payable -Related parties
  
  652,287
  
  60,413Loans payable -Others
  
  
  
  51,000Total current liabilities
  
  1,320,114
  
  127,428CommitmentStockholders' Deficit:Common stock, $.001 par value; 50,000,000 shares authorized; 10,998,904 shares       issued and outstanding
  
  10,999
  
  40,675Additional paid in capital
  
  808,136
  
  Accumulated deficit
  
  (1,975,207
  )
  (55,234
  )Total stockholders' deficit
  
  (1,156,072
  )
  (14,559
  )$164,042
  
  $112,869 The accompanying notes are an integral part of these financial statements. F-2


VPN COMMUNICATIONS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONSFor the Years Ended September 30, 2000 and 1999 September 30,2000
  
  1999Net Revenue
  
  $55,875
  
  $Cost of revenue
  
  217,425
  
  Gross loss
  
  (161,550
  )
  Total Operating Expenses
  
  1,662,233
  
  22,705Loss from Operations
  
  (1,823,783
  )
  (22,705
  )Non-Operating Income (expense):Interest expense
  
  (28,395
  )
  (3,220
  )Other income
  
  2,820
  
  8,966Gain on sale of assets
  
  5,821
  
  Loss on retirement of assets
  
  (75,636
  )
  (37,475
  )Total Non-Operating Income (Expenses)
  
  (95,390
  )
  (31,729
  )Loss before income taxes
  
  (1,919,173
  )
  (54,434
  )Provision for income taxes
  
  800
  
  800Net Loss
  
  $(1,919,973
  )
  $(55,234
  )Basic & diluted weighted average number of common stock outstanding *
  
  7,808,856
  
  6,428,080Basic & diluted net Loss per share
  
  $(0.25
  )
  $(0.01
  ) ______________ *
Basic and diluted weighted average number of common stock outstanding have been retroactively adjusted in 1999 to effect recapitalization upon reverse merger which took place on April 19, 2000. The accompanying notes are an integral part of these financial statements. F-3


VPN COMMUNICATIONS CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICITFor the Years Ended September 30, 2000 & 1999 Common Stock
  
  
  
  TotalNumber of
  
  
  
  Additional
  
  Accumulated
  
  Stockholders'Shares
  
  Amount
  
  paid in capital
  
  Deficit
  
  DeficitIssuance of Shares
  
  1,000
  
  $40,675
  
  
  
  
  
  40,675Net Loss for year ended September 30, 1999
  
  
  
  
  
  
  
  (55,234
  )
  (55,234
  )Balance, September 30, 1999
  
  1,000
  
  40,675
  
  
  
  (55,234
  )
  (14,559
  )Recapitalization upon reverse merger
  
  6,427,080
  
  (34,247
  )
  (41,175
  )
  
  
  (75,422
  )Issuance of shares for consulting services
  
  4,553,491
  
  4,554
  
  836,328
  
  
  
  840,882Issuance of shares for cash
  
  17,333
  
  17
  
  12,983
  
  
  
  13,000Net loss for the year
  
  
  
  
  
  
  
  (1,919,973
  )
  (1,919,973
  )Balance, March 1, 2000
  
  10,998,904
  
  $10,999
  
  808,136
  
  (1,975,207
  )
  (1,156,072
  ) The accompanying notes are an integral part of these financial statements. F-4


VPN COMMUNICATIONS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Years Ended September 30, 2000 and 1999 September 30,2000
  
  1999Cash Flows From Operating Activities:Net Loss
  
  $(1,919,973
  )
  $(55,234
  )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
  
  26,529
  
  Issuance of shares for consulting services
  
  840,882
  
  Recapitalization of the company
  
  (75,422
  )
  (Gain) loss on disposal of equipment
  
  (5,821
  )
  37,475(Increase) / decrease in current assets:Prepaid expenses
  
  (46,040
  )
  Increase / (decrease) in current liabilities:Accounts payable
  
  368,900
  
  Accrued expenses
  
  282,912
  
  16,015Net cash used in operating activities
  
  (528,033
  )
  (1,744
  )Cash Flows From Financing Activities:Net proceeds from Loans
  
  540,874
  
  111,413Proceeds from sale of common stock
  
  13,000
  
  3,200Note receivable
  
  103,500
  
  (103,500
  )Net cash provided by financing activities
  
  657,374
  
  11,113Cash Flows From Investing Activities:Acquisition of property & equipment
  
  (137,311
  )
  Net Increase (Decrease) In Cash & Cash Equivalent
  
  (7,970
  )
  9,369Cash & Cash Equivalent, Beginning Balance
  
  9,369
  
  Cash & Cash Equivalent, Ending Balance
  
  $1,399
  
  $9,369Supplemental Information:Cash paid for Interest
  
  $0
  
  $0Cash paid for Income Taxes
  
  $0
  
  $0 Supplemental Schedule of Non-Cash Investing Activity (1)
On April 19, 2000 the company acquired all the outstanding shares of VPNCOM.Net in exchange for 1,500,000 ordinary shares of the company.(2)
The company issued 4,570,824 shares for consulting services of $840,882 The accompanying notes are an integral part of these financial statements. F-5


VPN COMMUNICATIONS CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2000 and 1999 1.   Description of Business And Basis Of Presentation Organization and Nature of Operation The Company was organized November 29, 1986, under the laws of the state of Nevada, as Fernwood Financial, Inc. In 1988, the Company merged with
Mimetics, Inc., a California Corporation and changed its name to Exhibitronix, Inc. In 1990-1991, the Company became insolvent and disposed of all of its assets to satisfy its creditors. From 1991 until June 30, 2000 the Company had no operations. On
March 14, 2000, the Company changed its name from Exhibitronix, Inc. to VPN Communications Corporation. Pursuant to a reorganization agreement dated April 19, 2000, VPN Communications Corporation (VCC) acquired one hundred percent (100%) of the common
shares of VPNCOM.Net Corporation (VPN). VPNCOM.Net Corporation, formerly City Pacific International USA., Inc., was incorporated in the state of Nevada on July 15,1997 to
provide telecommunications products and services for commercial and residential customers and clientele, directly or through joint ventures with strategic partners. VPNs activities from inception until 1998 consisted primarily of reviewing possible
business opportunities and acquisitions, and maintaining the business entity. During the year, VPNs  activities included providing integrated communications involving virtual private networks and Internet solutions for corporations and
multi-dwelling unit properties and entities. Currently, the Company has no on-going revenue or any operation. Principles of Consolidation The accompanying consolidated financial statements include the accounts of VCC and its 100% wholly owned subsidiary, VPN. All significant
inter-company accounts and transactions have been eliminated in consolidation. The acquisition of VPNCOM.Net has been accounted for as a purchase and treated as a reverse acquisition since the former owners of VPNCOM.Net controlled 100% of the total
shares of common stock of the Company outstanding immediately following the acquisition on April 19, 2000 (See note #5). The historical results for the year ended September 30, 2000 include both VPN Communications Corporation and VPNCOM.Net, while the
historical results for year ended September 30, 1999 include only VPNCOM.Net. 2.   Summary of Significant Accounting Policies Cash and cash equivalents The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash
to be cash equivalents. 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. Property & Equipment Property and equipment is carried at cost. Depreciation of property and equipment is provided using the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are charged to expense as incurred. Income taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income F-6


VPN COMMUNICATIONS CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)September 30, 2000 and 1999 (loss). Valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. Basic and diluted net loss per share Net loss per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), Earnings per
share. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average
number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Stock-based compensation In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value
method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, Accounting for stock issued to employees (APB 25) and related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value method. The Company adopted this standard in 1998 and the implementation of this standard did not have any impact on its financial statements. Fair value of financial instruments Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose
estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value. Comprehensive income Statement of financial accounting standards No. 130, Reporting comprehensive income (SFAS No. 130), establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in financial statements that are displayed with the same prominence as other financial statements. The Company
adopted this standard in 1998 and the implementation of this standard did not have a material impact on its financial statements. Reporting segments Statement of financial accounting standards No. 131, Disclosures about segments of an enterprise and related information (SFAS No. 131), which
superceded statement of financial accounting standards No. 14, Financial reporting for segments of a business enterprise, establishes standards for the way that public enterprises report information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about
which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. The Company adopted this standard in 1998 and the implementation of
this standard did not have a material impact on its financial statements. F-7


VPN COMMUNICATIONS CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)September 30, 2000 and 1999 Pension and other benefits In February 1998, the Financing accounting standards board issued statement of financial accounting standards No. 132, Employers disclosures
about pension and other post-retirement benefits (SFAS No. 132), which standardizes the disclosure requirements for pension and other post -retirement benefits. The Company adopted this standard in 1998 and the implementation of this standard did not have
any impact on its financial statements. Costs of start-up activities In April 1998, the ASEC of AICPA issued SOP No. 98-5, Reporting on the costs of start-up activities, effective for fiscal years beginning
after December 15, 1998. SOP 98-5 requires the costs of start-up activities and organization costs to be expensed as incurred. The Company adopted this standard in fiscal 1999 and the implementation of this standard did not have a material impact on its
financial statements. Research and Development Expenditures for software development costs and research are expensed as incurred. Such costs are required to be expensed until the point that
technological feasibility is established. The period between achieving technological feasibility and the general availability of such software has been short. Consequently, costs otherwise capitalizable after technological feasibility is achieved are
generally expensed because they are insignificant. Revenue Revenue represents estimated net realizable amounts from clients, third-party payers and others for services rendered and products sold. Revenue was
recognized when services were performed or products were delivered to the customers. Advertising The Company expenses advertising costs as incurred. Accounting developments In June 1998, the FASB issued SFAS No. 133, Accounting for derivative instruments and hedging activities, effective for fiscal
years beginning after June 15, 1999, which has been deferred to June 30, 2000 by publishing of SFAS No. 137. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the Statement of financial condition and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative instrument depends on its intended use and the resulting designation. The Company does not expect that the adoption of this standard will have a material impact on its financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) 101, Revenue
Recognition, which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange
Commission. The effective date of this pronouncement is the fourth quarter of the fiscal year beginning after December 15, 1999. The Company believes that adopting SAB 101 will not have a material impact on its financial position and results of operations. In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44) Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a no
compensatory plan, (c) the accounting consequence for various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of F-8


VPN COMMUNICATIONS CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)September 30, 2000 and 1999 stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain provisions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of certain other
provisions of FIN 44 prior to March 31, 2000 did not have a material effect on the financial statements. The Company does not expect that the adoption of the remaining provisions will have a material effect on the financial statements. 3.   Going Concern Uncertainty The accompanying financial statements have been prepared in conformity with generally acceptedaccounting principles which contemplate
continuation of the company as a going concern. However, the Company has incurred net losses from inception to September 30, 2000 of  $1,975,207. The continuing losses have adversely affected the liquidity of the company. Losses are expected to continue
for the immediate future. The Companys total liabilities exceed its total assets by $1,156,072. The Company faces continuing significant business risks, including, but not limited to, its ability to maintain vendor and supplier relationships by
making timely payments when due. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Companys ability o raise additional capital, obtain financing and succeed in its future operations. The financial statements do not
include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company
with the ability to continue as a going concern. The Company is actively pursuing additional funding and potential merger or acquisition candidates and strategic partners which would enhance stockholders investment. Management believes that the
above actions will allow the Company to continue operations through the next fiscal year. 4.   Property And Equipment The Property and equipment as of September 30, 2000 and 1999, consist of the following: September 30,2000
  
  1999Machinery & Equipment
  
  $3,558
  
  $Furniture & fixtures
  
  2,941
  
  Computer equipment
  
  132,542
  
  139,041
  
  Less Accumulated Depreciation
  
  (22,438
  )
  $116,603
  
  $ 5.   Acquisition On April 19, 2000, the company acquired all of the outstanding stock of VPNCOM.NET Corporation, which became a wholly owned subsidiary of the
Company. In exchange for the stock of VPNCOM.NET, the Company issued 1,500,000 shares of its common stock to the selling stockholders of VPNCOM.NET. The transaction was considered a related party transaction, since the major shareholder of VPNCOM.NET is
also the major shareholder of the Company. The transaction has been recorded through purchase method of accounting as follows: Assets acquired
  
  $258,509Liabilities assumed
  
  $(410,028
  ) The acquisition of VPNCOM.NET has been treated as a reverse acquisition since the former owners of VPNCOM.NET controlled 100% of the total shares of
Common Stock of the Company outstanding immediately following the acquisition on April 19, 2000. F-9


VPN COMMUNICATIONS CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)September 30, 2000 and 1999 6.   Accrued Expenses Accrued expenses as of September 30, 2000 and 1999, consist of the following: September 30,2000
  
  1999Accrued payroll
  
  $108,778
  
  $Payroll taxes payable
  
  46,643
  
  Professional fees
  
  64,082
  
  15,000Accrued interest
  
  30,411
  
  215Other accruals
  
  49,013
  
  800$298,927
  
  $16,015 7.   Notes PayableRelated Parties Notes payable consist of amounts payable to affiliated companies related through common ownership and shareholders. Notes are due on demand,
unsecured and carry an interest rate of 10% per year. Interest expenses for the period ended September 30, 2000 and 1999 was $28,395 and $3,220, respectively. Subsequent to the year ended September 30, 2000, the Company issued 7,757,703 shares of common stock in exchange of notes payable amounting to $465,462
 . 8.   Income Taxes Since the Company has not generated taxable income since inception, no provision for income taxes has been provided (other than minimum franchise
taxes paid to the State of California). Differences between income tax benefits computed at the federal and state statutory rate and reported income taxes for the periods ended September 30, 2000 and 1999 are primarily attributable to the valuation
allowance for net operating losses (NOL) and other permanent difference. The net deferred tax (benefit) due to NOL carried forward, as of September 30, 2000 and 1999, consisted of the following: September 30,2000
  
  1999Deferred tax asset
  
  $796,570
  
  $24,495Deferred tax asset valuation allowance
  
  (796,570
  )
  (24,495
  )Balance
  
  $
  
  $ A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carryforwards cannot reasonably be
assured. Through September 30, 2000, the Company incurred net operating losses for federal tax purposes of approximately $2,046,060. Differences between
financial statement and tax losses consist primarily of Depreciation and allowance for doubtful accounts. The net operating loss carryforwards may be used to reduce taxable income through the year 2016. Net operating loss for carryforwards for the State
of California are approximately $974,680 and are generally available to reduce taxable income through the year 2006. The availability of the Companys net operating loss carryforwards are subject to limitation if there is a 50% or more positive
change in the ownership of the Company. Therefore, the availability of the Companys net operating loss carryforwards is limited. The provision for income taxes consists of the California state minimum taxes imposed on corporations. 9.   Subsequent Events On November 6, 2000, the Company agreed to an Enforceable Letter of Intent with Paul Stevens, an officer of VPNCOM.net (a Subsidiary), to sell to
Mr. Stevens 1,500 shares, which constitutes all of the issued shares, of the Companys wholly owned Subsidiary VPNCOM.net (the Subsidiary). F-10


VPN COMMUNICATIONS CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)September 30, 2000 and 1999 The Company will receive, in exchange for the Subsidiary, $1 and the assumption, by Mr. Stevens, of all of the outstanding liabilities of the
Subsidiary in the amount of $976,622. As of the date of this transaction the Subsidiary has no on-going revenue and has produced no profit. 10.   Commitment The Company has entered into agreements with Securities Compliance Control, LLC (SCC), a related party, whereby, SCC agrees to provide certain
consulting services for a term of three years beginning on July 1, 2000 and ending on July 1, 2003. SCC was paid a retainer of $25,000 plus 20,000 shares of the companys common stock. Future compensation will be paid based upon number of hours of
services provided at a predetermined rate plus 20,000 shares of the companys Common stock registered under S-8 registration, per month for the duration of the contract. The S-8 stock will be nondilutive, regardless of recapitalization,
reconstruction or reorganization. SCC may elect to receive compensation in all or in part, in the form of stock at 85% of the trading price of each share as of one week prior to
submission of monthly invoice to the Company. F-11