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CYNET INC-10KSB40-ANNUAL REPORT
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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)
  /X/              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2000

                                       OR

  / /          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        Commission file number 000-28349

                                   CYNET, INC.
      (Exact name of small business issuer as specified in its charter)

                 Texas                                 76-0467099
      (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                   Identification No.)

      12777 Jones Road, Suite 400
      Houston, Texas                                   77070
      (Address of principal executive offices)         (Zip Code)

       Registrant's telephone number, including area code: (281) 897-8317

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                       Class A Common Stock, no par value
                       Class B Common Stock, no par value


      Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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 no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is 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. / /

      Issuer's revenues for its most recent fiscal year were $9,120,422.

      As of February 15, 2001, the aggregate market value of the voting and
non-voting common equity held by non-affiliates was approximately $13,066,961,
based on the closing sale price of such common equity on that date.

      As of February 15, 2001, 31,577,775 shares of the issuer's Class A Common
Stock were outstanding and 1,018,015 shares of the issuer's Class B Common Stock
were outstanding.

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                       DOCUMENTS INCORPORATED BY REFERENCE
                   Documents incorporated by reference: None.





                                   CYNET, INC.

                                   FORM 10-KSB


                          YEAR ENDED DECEMBER 31, 2000

                                      INDEX
<TABLE>
<CAPTION>
                                                                           PAGE
<S>                                                                         <C>
Part I.......................................................................2
Item 1. Description of Business .............................................2
Item 2. Description of Properties ..........................................13
Item 3. Legal Proceedings ..................................................13
Item 4. Submission of Matters to a Vote of Security Holders ................14
Part II.....................................................................14
Item 5. Market for Common Equity and Related Stockholder Matters ...........14
Item 6. Management's Discussion and Analysis or Plan of Operation ..........15
Item 7. Financial Statements ...............................................19
Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure ...............................................19
Part III....................................................................20
Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act ..................20
Item 10. Executive Compensation ............................................22
Item 11. Security Ownership of Certain Beneficial Owners and Management ....28
Item 12. Certain Relationships and Related Transactions ....................29
Item 13. Exhibits and Reports on Form 8-K ..................................31
</TABLE>

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                           FORWARD LOOKING STATEMENTS

         When used in this Form 10-KSB and elsewhere by management or CYNET,
Inc. ("CYNET" or the "Company") from time to time, the words "believes,"
"anticipates," "expects," "will" and similar expressions are intended to
identify forward-looking statements concerning CYNET's operations, economic
performance and financial condition. These include, but are not limited to,
forward-looking statements about CYNET's business strategy and means to
implement the strategy, CYNET's objectives, the amount of future capital
expenditures, the likelihood of CYNET's success in developing and introducing
new products and services and expanding its business, and the timing of the
introduction of new and modified products and services. For those statements,
CYNET claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. These
statements are based on a number of assumptions and estimates inherently
subject to significant risks and uncertainties, many of which are beyond the
control of CYNET, and reflect future business decisions, which are subject to
change. A variety of factors could cause actual results to differ materially
from those anticipated in CYNET's forward-looking statements, including the
following factors:

         -        factors described from time to time in the Company's press
                  releases, reports and other filings made with the Securities
                  and Exchange Commission;

         -        CYNET's ability to manage its growth and to respond to rapid
                  technological change and risk of obsolescence of its products,
                  services and technology;

         -        market acceptance of new products and services;

         -        development of effective marketing, pricing and distribution
                  strategies for new products and services;

         -        CYNET's strategic relationships, including the amount of
                  business generated and the viability of the strategic
                  partners, may not meet expectations;

         -        possible adverse results of pending or future litigation;

         -        risks associated with interruption in CYNET's services due to
                  the failure of the platforms and network infrastructure used
                  in providing its services; and

         -        legislative or regulatory changes may adversely affect the
                  business in which CYNET is engaged.

         CYNET cautions that these factors are not exclusive. Consequently, all
of the forward-looking statements made in this Form 10-KSB are qualified by
these cautionary statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
Form 10-KSB. CYNET assumes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date of this Form 10-KSB, or the date of the
statement, if a different date.

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

SERVICES

         The Company is an Application Services Provider ("ASP"), integrating
e-messaging with Internet, marketing and wireless services. The Company is
focused on developing customer-driven, business-to-business and business-to-
consumer solutions through its leading edge technology. During the year ended
December 31, 2000, the Company's core products and services included data
messaging and electronic document delivery, which includes: point-to-point
faxing, fax-broadcasting, fax-to-email, email-to-fax, as well as wireless
messaging. The Company's WIRELESS PRODUCT line includes the CYNET wireless
Cell/Modem.

           At the heart of CYNET's Electronic Messaging ("eMessaging") Center
is the Convergent Messaging Engine ("CME"). The engine processes and routes all
messages delivered to it via the XML, COM, or SMTP interfaces. By leveraging
these external interfaces, custom applications and web sites can instantly
provide fax, email and voice messaging capabilities.

         The Company is a Texas corporation and was founded in 1995 to provide
fax broadcast services to the business-to-business communications
market. The Company capitalized on the dramatic increase in the usage of
third-party fax services and created a niche market for itself with its fax
broadcast desktop client software and related services. In 1997, the Company
introduced its point-to-point desktop software and fax service in order to
expand its marketing efforts.

         In response to the rapid growth and popularity of e-mail and the
Internet as a primary communications medium, the Company set out to become an
applications service provider offering full service Internet messaging. In
1998, the Company added e-mail-to-fax, fax-to-e-mail and e-mail broadcast to
its product offerings. To further enhance its eMessaging services, the
Company, through its subsidiary, Worldwide Marketing Services, Inc., added
enhancement services such as list procurement and permission based email
marketing services to its customers. These additional services enabled the
Company to provide a broader range and spectrum of services to offer to its
customers.

         In July 1999, the Company began offering Internet-based services by
acquiring CYNET Interactive, LLC. ("CYNET Interactive"), a wholly owned
subsidiary of Cynet Holdings, LLC ("Cynet Holdings"). See "Certain
Relationships and Related Transactions." The acquisition of CYNET Interactive
was intended to expand the Company's messaging and broadcast enhancement
services to include web site design, Internet application development for
e-commerce and other Internet-based applications, and web site hosting.
Through a series of projects, the Company integrated its messaging services
with Internet applications, creating solutions that were more effective for
some customers. Throughout the year ended December 31, 2000, however, CYNET
Interactive did not generate the level of revenues anticipated by Company
management.

           On February 8, 2001, the Company, CYNET Interactive and AECsoft
USA, Inc. ("AECsoft") entered into an agreement pursuant to which the Company
and CYNET Interactive agreed to transfer all existing CYNET Interactive
accounts to AECsoft in exchange for AECsoft forgiving any and all outstanding
amounts owed by the Company to AECsoft. In addition, the Company agreed to
assign all accounts receivable related to CYNET Interactive clients. The
agreement provides that the Company will refer clients requesting services
including the ADC2000-TM- applications to AECsoft. The agreement also provides
that in the event of the sale of ADC 2000-TM-, the Company is entitled to
receive the lesser of 10% of the sale proceeds or $500,000.

           The Company has chosen to focus on eMessaging services and wireless
solutions to provide the Company with a better strategic marketing position
to compete in growing unified messaging and wireless solutions markets.
Management expects these competencies will provide the foundation and strength
from which the Company can grow and move forward in the future with quality
products and services customers have grown to expect.

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           As an Application Service Provider, the Company has one of the
leading convergent technologies associated with electronic messaging software
and wireless tools. Not only from an IT perspective, but from a market
perspective as well, the Company has identified a market niche, which includes
e-mail, fax and data messaging, and list management services.

           The Company's management believes its solutions selling approach
allows the Company to effectively deliver to its customers eMessaging services
regardless of the messaging transmission medium. The Company will continue to
pursue sales opportunities in the future by bundling its eMessaging services
into enterprise, point-to-point and wireless product solutions.

STRATEGY

         The Company's strategy is to position itself as a communications
service provider integrating eMessaging and wireless product solutions. The
open architecture and tight integration of the Company's eMessaging services
with Microsoft Exchange and Lotus Notes allows Fortune 500 companies to deploy
an e-business messaging solution that users can easily access and utilize
throughout the organization. As a standalone application, the CYNET suite of
eMessaging solutions enables customers to eliminate redundant and costly fax
machines, while improving worker productivity by bringing complete eMessaging
capabilities directly to employee desktops.

           By combining leading-edge server, network and communications
technologies with an open, flexible system architecture to deliver the
capabilities of its business solutions, the Company can reduce the cost of the
solution and integrate its components with the existing infrastructure already
in place within the organization. The Company coordinates the delivery of and
supports these services through a series of seamless strategic alliances
connecting through the Company's core business of products and services. See
"--Strategic Relationships" below.

           In realization of its goal to become an applications service
provider offering full service Internet messaging, during fiscal year 2000,
the Company developed and brought to market the CYNET Convergent Messaging
Client ("CCMC"). This cost-effective product is an Application Service Provider
solution enabling users to electronically transmit fax, email, and data
through a single interface. The management, launch and delivery of the message
takes place at CYNET's Convergent Messaging Center, thus reducing the expense
of telecommunication costs while eliminating an organization's need to invest
in equipment, infrastructure and people. The software is client-side and can
easily be installed onto desktop PCs.

           The Company's sales efforts continue to target Fortune 500 and
other large corporate and medium-sized companies offering customized
eMessaging solutions. The launch of the Company's Fortune 500 initiative began
during fiscal year 2000 with the enterprise-wide implementation of the
Company's eMessaging services at Enron Corporation (NYSE:ENE). The Company has
also enhanced its sales capabilities during 2000 by organizing its sales force
by industry specific segments. By utilizing a market focused salesforce, the
Company's management expects to better interface with prospective strategic
partners and resellers who are able to sell the Company's products and
services. See "--Strategic Relationships" below.

CURRENT MESSAGING AND INTERNET MARKET

TRENDS IN INTERNET MESSAGING

           In an age when an electronic environment of pagers, emails, and
cellular devices functions as the core of business communications, the Company
has considered whether traditional facsimile transmission remains a viable
means of business communications. After careful evaluation and industry
analysis, the Company believes the most viable solution is one that brings
age-old faxing into today's new standards of electronic technology and
requires incorporating the fax machine into the electronic world in the form
of Internet fax.

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           Internet protocol ("IP") fax minutes are expected to rise from 71
million minutes in 1997 to 7.7 billion minutes in 2002, according to the most
recent numbers from International Data Corp, a technology research firm. This
data leads to an annual compound growth rate of 156 percent, indicating the
definite boom in the Internet fax industry. This exceeded and changed market
analysts' perceptions of the Internet fax industry from last year.

           Essentially, the inevitability of the global proliferation of IP
will drive the services that will traverse its network. And with the advent
of full messaging solutions and continued strong international communications
traffic, Internet fax is finding a receptive audience. Another factor in the
Internet fax resurgence is international demand. While the cost of
long-distance in the U.S. is just pennies per minute, Asian and European
businesses, especially those incurring dollar-per-minute long-distance rates,
can substantially reduce transmission costs by using Internet fax. In
marketing Internet fax to the U.S. market, the focus should be on turning
employees' desktops or laptops into "fax-enabled machines," a flexibility
that is attractive to U.S. businesses.

           The market niche for eMessaging in the business communications
market encompasses both inbound and outbound facsimile transmission as one of
many middleware solutions that allows companies to communicate effectively
with employees, partners and customers. eMessages can be transmitted from a
variety of devices today such as fax machines, desktops, cellular phones,
web-based portals, and PocketPC devices or PDA's.

           Another business communications alternative is Internet faxing. One
of the advantages that exists for Internet faxing as opposed to a public
switch telephone network ("PSTN") is the ability to do away with fax machines
and the expense associated with maintaining these devices, including housing
and maintenance costs. With a fax machine, there is the recurring need to
replenish paper and toner. In addition, users of fax machines frequently
experience failed fax transmissions which can result from paper jams and lack
of memory.

           With Internet faxing or eMessaging, however, the virtual
transmission brings the document directly to any desktop with no human
intervention. There is also an abundant supply of bandwidth available for
Internet fax transmissions. Multiple page documents can be sent at a "click of
a button" without clogging the network or overloading the fax machine.

           Another key benefit of IP-based faxing or eMessaging is
convenience. Under the provisions of an Internet faxing service, the fax
document is converted into a digital, .TIFF attachment that can be printed,
copied, forwarded to another desktop, emailed to another desktop/PDA,
answered, or saved just as one would an email. In addition, for business
travelers who need to access their faxed documents en route or initiate
corporate broadcasts from a personal email account, it has become even more
critical for these individuals to have a web-based fax solution.

           Security is also a concern of business professionals. Tracking
confidential documents and securing their timely arrival proves difficult in
the average business environment with multiple users and a single fax machine.
With Internet fax or eMessaging, it is possible to have controlled access to
the faxed documents, whether it is through the limited number of viewers for a
single fax mail account, or the security settings provided by a desktop or
email client.

             Business professionals are also concerned with being able to
receive facsimile transmissions 24 hours per day. Email transmissions of faxes
can be received via the recipient's email inbox at any time, even though the
media device on the receiving end may be shut down. In contrast, the fax
machine must be monitored and kept on at all times in order to receive
transmissions in a timely manner. Additionally, the fax machine must be
monitored for possible paper jams and busy signals.

           Of all the factors affecting the method of delivery for fax, one of
the most compelling reasons explaining the shift from traditional fax to IP
faxing or eMessaging is transmission cost. Sending fax traffic over the Internet
eliminates the need to pay for dedicated fax lines or invest in costly
telecommunications hardware or equipment. It is more cost effective for
telecommunications companies

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and other service providers to offer these messaging services over an IP
network through centralized installations as opposed to the traditional method
of routing traffic to local central switch locations.

THE EVOLUTION OF CONVERGENT MESSAGING

           The first step in the evolution of Convergent consolidated
messaging services was in the area of integrated messaging, which provided
access to both fax and email from a single desktop interface.

           Although innovative at the time, this solution only partially
fulfilled the demands of business communications, leaving out voice, pager,
and a FULLY INTEGRATED PLATFORM capable of managing communications needs in a
manner most natural to the end-user. With the increased mobility of today's
modern corporate culture and the increased number of media and wireless
devices appearing in the business world today, the Company's management
believes there is significant demand for an entirely mobile solution with
increased flexibility. Management believes its customers seek the kind of
coverage from a full-bodied communications solution that transcends the
constraints of traditional media, messaging and communication devices.

           Internet faxing or eMessaging allows its users to transmit and
receive, e-mail, fax and electronic data communications which then can be
re-transmitted, edited and forwarded. CYNET's Convergent Messaging Services
can be accessed and managed from desktop PCs, wireless handheld PDA devices
and/or laptop computers.

           The e-messaging and Internet fax solutions marketplace is growing
rapidly and the Company is seeking to become a significant participant in this
market by providing effective e-business messaging solutions for its customers.

CONVERGENT MESSAGING

           Convergent messaging is defined as "an integrated source for
providing communication solutions to businesses - including email, voice, fax
and the Internet." Variations of convergent messaging solutions manipulate
various electronic formats into one that can be accessed by the device of
preference by the user. This is, in part, relative to the ability to receive
email, fax, data, and voicemail, and in part related to sending/receiving
mixed-media broadcasts alternatively as both fax and email. In fact, industry
sources make the following predictions for the whole convergent messaging
niche of the convergent communications market:

         o        Davidson Consulting estimates the convergence of messaging and
                  communications is going to create a $1 trillion market and
                  that, by 2005, messaging will be demanded by more than 1
                  billion mobile data users.

         o        The ARC Group estimates 600 million mobile data users will
                  demand Internet services.

         o        Frost & Sullivan estimates by 2001, IP telephony services will
                  reach the $43 billion mark.

         o        The Radicati Group projects outsourced messaging (managed and
                  hosted) will be a $7.5 billion industry by 2002.

         o        IDC projects that business email boxes in the U.S. will
                  increase 13.5 percent annually to 166 million in 2003.
                  Consumer mailboxes in the U.S. are projected to grow 10
                  percent annually to 121 million over the same period. At this
                  rate of growth, within the next two to three years there may
                  be more email accounts in the U.S. than either telephone lines
                  or televisions!

         o        IDC predicts hosted email boxes will grow 35 percent annually
                  between 1999 and 2003, while corporate mailboxes will increase
                  9 percent per annum.

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         o        The Radicati Group estimates every business day some 900
                  million-voicemail messages are exchanged. Voicemail is
                  currently a $15 billion market, with a 19 percent growth rate
                  for new accounts. While 96 percent of U.S. households have one
                  or more phone lines, only 15 percent have
                  service-provider-based voicemail. Additionally, mobile
                  telephone usage is growing by 26 percent per year, with
                  voicemail accounts fast gaining ground as free add-on
                  services.

         o        Ovum predicts there will be 25 million convergent messaging
                  mailboxes in service by 2003 and estimates convergent
                  messaging will be a $31 billion opportunity by 2006.

THE FUTURE AND OPPORTUNITIES FOR CONVERGENT MESSAGING SOLUTIONS

           The Company's management believes the future of communications will
focus on a centralized, bundled communications solution. A study done by IDC
states that the market for this brand of messaging services will grow from
approximately 90,000 universal mailboxes in 1998 to over 12.9 million boxes in
2002 in the United States alone generating $20 million in unified messaging
revenue per month.

           Positioning is essential to the growth of this new service and
market. In the beginning, the ideal environment for this service would be
where most users receive the bulk of their emails, voicemails, and faxes at
the office. The average corporate employee has up to six telecommunications
devices. In addition to this, there is also the volume of traffic, which must
be handled for each of these devices. In a recent study conducted by the Wall
Street Journal, the average employee has up to 200 messages coming across
their desk daily, whether it be inbound or outbound. The Company is seeking
to offer products and services that create a single point of preference that
can handle all these communications, as opposed to using all six telecom
devices to manage this traffic.

           Other functionality that has been made available with the advent of
convergent messaging and which has been lacking in other communications models
is the following:

         o        The ability to check messages anytime, anywhere

         o        Notification of new messages via SMS-enabled devices, cell
                  phones, pagers, etc.

         o        Ability to reply to messages anytime, anywhere, regardless of
                  media device

         o        Single point of contact to retrieve all messages

         o        Instant confirmation of successful message deliveries

         o        Confidentiality

         o        Convenience

         o        Personalization

           The primary forces driving success in the acceptance of convergent
messaging or eMessaging solutions, are the increased productivity, security
and cost-saving features provided by such an enhanced communications solution.
With technology moving at lightning speed, more time is spent trying to access
and locate the information than executing on the information received.
According to a study by ComGroup and AVT Corporation, on average, the
office worker saved upward to 50 percent of their time spent on managing
communications, by switching over to a standard with a main message store,
where they were able to do the same work by using a single interface of their
preference. This number only represents the worker in the office, when
directed to remote/mobile employees, the amount of efficiency in the time
spent on communications rose to 70 percent.

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           Management believes the increase in effective communications
solutions between employees, as well as between these same employees and their
clients, will cause an increase in productivity and improve client relations.
Employees who telecommute can now check a centralized inbox any time, anywhere
for their voicemails, faxes and emails.

CYNET'S PARTICIPATION IN CONVERGENT MESSAGING

           The Company's management believes businesses constantly seek to
manage cost-effective expansion via sophisticated communications systems. This
effort requires that those businesses increasingly utilize third parties to
manage their messaging and Internet needs. Moreover, the Company's management
believes businesses often find it difficult to implement state-of-the-art
technology in their own infrastructure, as experts are scarce and costly to
hire, train and retain. Consequently, the Company's management believes
organizations, in an effort to reduce costs and time-to-market with complex
technologies, will look to Internet-based communications solutions to
outsource non-core competencies.

           CYNET is competing in the eMessaging market by providing the
following capabilities and more: the ability to access, edit, forward, and
respond to email, fax, and data communications via a single interface which
can be reached by any desktop, laptop, PocketPC or handheld device.

           The added capability of CYNET's cellular modem and a dual slot
expansion sleeve enables the Compaq iPaq-TM- Pocket PC not only to facilitate
full web browsing, but also gives the iPaq-TM- Pocket PC voice capability.
Fully equipped with the cellular modem and a dual slot expansion sleeve, the
iPaq-TM- Pocket PC can now act as a single inbox for all messaging needs as
the browser connects the user to CYNET's Convergent Messaging Network. This
all-in-one solution gives users the power of a fully functional portable PC
at any time, anywhere.

           In summary, the Company provides businesses a convenient,
cost-effective and reliable Internet-based eMessaging solution through its
suite of electronic communication products and services. The integration of
the Company's eMessaging and Wireless solutions creates a wireless
communications network which enables remote access to voice, fax, email
messaging and Internet access via handheld pocket PC's. The Company's
management believes that by providing a fully integrated suite of products and
services, its customers are able to minimize the complexity in messaging and
maximize accessibility via remote access, thereby maximizing efficiency,
effectiveness and productivity.

OPERATIONS

           ELECTRONIC BROADCASTING. Convergent messaging and regular
electronic broadcasting services are customer driven using Microsoft
Windows(TM) based desktop client software which electronically transfers the
customer's message and delivery instructions to the Company (such as fax,
e-mail addresses, and merge fields for personalizing the message). The
customer elects whether to transfer the document and instructions to the
Company by using the Internet (e-mail) or a direct dial (modem-to-modem)
connection. The Company receives the document and instructions in an
electronic format and automatically executes those instructions without the
necessity of human intervention. The Company's operation software connects the
delivery instructions with the customer's document, organizes the packets of
data and transmits the information to the destination telephone numbers or
e-mail addresses as designated.

           The Company's technical staff monitors the job to ensure that the
system is efficiently delivering customer jobs. The Company's customer service
staff is available on an extended schedule to assist customers with questions
concerning the submission of jobs, the status of the jobs or any problems
needing resolution. After any customer job has been executed, the customer may
electronically view a detailed log showing the document delivery status for
each intended recipient.

           The Company's technical staff monitors the messaging job queues.
The Company's operations include Network Operations (technicians to monitor
the servers and messaging queues), Customer Service, and Engineering
(developers for custom messaging).

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         The Company uses various long distance carriers to provide least cost
routing of its services. Major telecommunications carriers have competed and
are expected to continue to compete to obtain the Company as a customer.
Deregulation in the telecommunications industry has enabled the Company to
enter into agreements with several carriers to provide long distance service
at cost-effective rates.

           The Company intends to add additional telecommunications facilities
and enhance its network infrastructure to meet the anticipated traffic needs
and maintain excess capacity to accommodate expected increases in demand for
its services.

         The Company has developed safeguards to minimize the impact of power
outages and other operational problems. It has installed power backup systems
at its computer center in Houston, Texas to provide an uninterrupted power
supply in the event of a disruption in local utility services. The Company has
not suffered any material interruption in its business due to power outages or
similar problems. As the Company grows, it intends to add another primary
computer center hub for back up and expansion or collocation.

CYNET MESSAGING PRODUCTS AND SERVICES

FAX BROADCASTING

           The Company's automated fax broadcasting service allows customers
to mass-distribute business documents at specified times. After the customer
electronically submits a batch order for a broadcast, the Company's system
automatically generates and delivers a complete report that details information
about the order, such as destination cities, area codes, number of pages and
all costs associated with transmission. After the Company has completed the
broadcast, customers can access a detailed report, which can be used for
monitoring results, updating telephone lists and other external applications.

CYNET's CONVERGENT DESKTOP SOFTWARE CLIENT

           This product is a cost-effective desktop application enabling users
to electronically transmit FAX, EMAIL and DATA messages through a single
interface. The management, launch and delivery of the message take place at
CYNET's Convergent Messaging Center, thus reducing telecom expenses and
eliminating investment in equipment infrastructure and people. The software is
client-side and can easily be installed onto any desktop PC.

           INBOUND FAXING automatically routes incoming faxes to the user's
email account, delivering a secure and confidential document as a tiff
attachment. The user is provided a personal fax number once an account is
established. Through the assigned number, INBOUND FAXING TO EMAIL TECHNOLOGY
enables the user to receive single or multiple paged documents as an email
document routed to a specified email inbox address.

           OUTBOUND FAXING enables users to electronically send documents to a
designated fax machine via a "File / Print" function or as an email
attachment. These electronic messages may be sent from the user's desktop
through the use of the CYNET print driver and fax wizard. Once the required
fields have been completed, the document and an optional cover page are sent
over the IP backbone into the Company's network over an HTTP connection. This
information is then processed and transmitted to the recipient's fax
number(s). Outbound faxing enables assignment of billing codes, generation of
confirmations and other customization options.

           FAX BROADCASTING sends electronic documents to an entire customer
base simultaneously. The Company's FAX BROADCASTING TECHNOLOGY utilizes
point-to-point faxing and broadcasts fax messages to numerous recipients at
one time. This service contains CYNET list memory, supports file attachments,
and may be integrated with opt-in email services.

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_______________________________________________________________________________

           EMAIL BROADCASTING, similar to fax broadcasting, sends out email
messages to an entire customer base of "permission-based" customers
simultaneously. The Company's EMAIL BROADCASTING TECHNOLOGY utilizes
point-to-point email and broadcasts and opt-in email messages to numerous
recipients at one time. This service contains CYNET list memory, supports
file attachments and rich media technology and may be integrated with other
Company services.

CYNET COMPLETE WIRELESS CELL/MODEM

           This product is a full-featured wireless V.34 modem that includes a
convenient landline connectivity. It can transmit at 21.6 kbps when used
wirelessly and at 33.6 kbps when connected to a landline. The product comes
with a jack for a one-piece Jabra (ear set with built in microphone/speaker),
enabling the CYNET Cellular/ Modem to make and receive wireless phone calls.
The unit comes with a removable flip antenna and an external magnetic mount
antenna to be used in a car. The cellular/modem package also includes software
that simulates a dialer keypad.

           When combined, CYNET's wireless Cell Phone/Modem, CYNET Dialer,
and CYNET Convergent Messaging software and services can transform the Compaq
(NYSE: CPQ) iPaq-TM- Pocket PC into a wireless cell phone capable of
transmitting and receiving faxes and emails as well as providing connectivity
access to the Internet for Web browsing.

           The modem works with analog cell phone service covering the entire
United States, Canada, Mexico and parts of both Central and South America.

MARKETING SOLUTIONS

           Worldwide Marketing Services, Inc. ("Worldwide") is a wholly owned
subsidiary of the Company. Worldwide specializes in providing verified list,
Opt-in email, and marketing services. The list services are expansive and may
be ordered to fill simple marketing specifications or highly customized
requirements for sophisticated clients requiring specialized data.

EQUIPMENT SAFEGUARDS AND SUPPLIERS

         The success of the Company is largely dependent upon the efficient
and uninterrupted operation of its eMessaging services and Internet system
infrastructure. The Company's systems and operations are vulnerable to damage
or interruption from fire, earthquake or other natural disaster and from power
loss, telecommunications failure, break-ins and similar events. Furthermore,
the hardware, software and network systems developed by the Company are
relatively new and, therefore, have not withstood the demands of the larger
volume associated with the Company's revenue projections. Substantially all of
the Company's computing equipment is readily available from large, well-known
suppliers.

CUSTOMERS

         Historically, the Company's customers consisted of small and
medium-size businesses with business messaging needs. Customers purchased
messaging services from the Company pursuant to specific purchase orders and
other short-term arrangements. Presently, the Company targets enterprise
clients, Fortune 500 and middle-tier companies seeking full service Internet
messaging solutions. In addition, the Company is focused on selling to small
to medium size electronic broadcast faxing clients. Although the Company
actively pursues long-term contracts with its present customers and prospects,
no single customer accounted for more than 10% of the Company's revenues
during the years ended December 31, 2000 and 1999.

SALES AND MARKETING

         From inception through 1997, the Company marketed its products and
services almost exclusively through a telephone sales program. The basis of the
Company's

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marketing strategy was price-based selling and the Company sought to acquire
customers by providing the lowest cost service in the messaging industry.
Beginning in 1998, the Company underwent a fundamental shift away from
price-based selling to solution-based selling and increased its offerings to
include more value-added services.

         To enhance the promotion and sale of its solution-based suite of
products and services, the Company expanded and reorganized its sales force
during 1999 with the goal of developing and maintaining a professional sales
team consisting of individuals with specialized and technical knowledge. As of
March 1, 2001, the Company employed a team of 28 sales and support personnel
in its Houston, Texas office and two in its Yorba Linda, California office.
The Company's sales personnel are trained to target large and middle tier
corporate accounts with the charge to build vertical value-added markets for
the Company's products and services.

         The Company engages in telephone and direct contact with customers
and prospects as part of its marketing efforts. The Company also actively
seeks to forge strategic alliances to enable the Company to market its
products and services through alternate distribution channels. The Company
will continue to utilize, as part of its marketing campaign (i) advertisements
in trade journals, (ii) television and radio promotions, (iii) concentrated
marketing through large reseller channels, (iv) Internet-based advertising and
promotions, (v) Internet business solutions seminars and (vi) participation in
trade shows.

STRATEGIC RELATIONSHIPS

         The Company is actively pursuing strategic relationships that the
Company's management expects will complement its existing services or increase
the functionality and variety of products and services it currently offers.
The service providers with whom the Company engages in strategic transactions
generally have pre-existing relationships with their customers who, typically,
require messaging and Internet services the Company provides. Consequently,
management of the Company expects these strategic relationships will provide
the Company with access to consumers for its services.

         The following is a summary of certain of the strategic relationships
that the Company has established or is currently pursuing. All strategic
transactions into which the Company enters are subject to a variety of risks
and conditions, including conditions beyond the Company's control.
Furthermore, some of these relationships are in the early stages of
development and have not been finalized. The Company's management considers
its strategic alliances to be important to future success.

           COMPAQ COMPUTER CORPORATION ("COMPAQ"). Compaq and the Company
entered into a summary of terms for a strategic business agreement whereby
(i) the Company will designate Compaq as its exclusive deployment of
Compaq's product offerings to provide computer hardware and software to power
the Company's Application Service Provider infrastructure, and (ii) Compaq
will work with the Company to determine opportunities for Compaq to promote
the deployment of the Company's wireless, Internet applications, and convergent
messaging solutions in certain Compaq business groups. In addition, Compaq,
through its wholly owned subsidiary, CPQ Holdings, Inc., made a $2 million
equity investment in the Company and subsequently made a $750,000 secured loan
to the Company, which is in default as of February 7, 2001 and bears a 15%
annual default rate of interest.

         AECsoft USA, INC. ("AECSOFT"). The Company previously entered into an
agreement with AECsoft pursuant to which AECsoft provided to the Company and
certain of its clients Internet web-based software and web site building tools
(the "ADC2000" system and modules). AECsoft granted the Company the right to
resell licenses to use the ADC2000 system and/or its modules to the Company's
clients. Also, AECsoft agreed to provide web building and customization
services to the Company for ADC2000 related projects. In addition, AECsoft
agreed to grant the Company up to 50% ownership of the ADC2000 system and
modules based on the Company's sales of ADC2000 projects. During February,
2001, CYNET Interactive sold to AECsoft the assets of CYNET Interactive
including, among other things, its Accounts Receivable and client accounts in
exchange for AECsoft's forgiveness of CYNET Interactive's $95,100 of Accounts
Payable due to AECsoft from CYNET Interactive and

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AECsoft's agreement to service and maintain CYNET Interactive customers.
Furthermore, AECsoft and the Company have agreed to allow each Company to
resell the other's products and services or to earn fees from business
referrals. (see--ITEM 1. DESCRIPTION OF BUSINESS-SERVICES).

         TELIRAN ELECTRONICS, LTD. ("TELIRAN"). The Company previously
entered into an alliance agreement with GlobeWave, Inc. ("GlobeWave"), a
subsidiary of Teliran, pursuant to which the Company sold and distributed
units of the Teliran Complete PC card (the "Cell Phone/Modem") in the United
States from October 1999 through January 2000. On February 16, 2000, the
Company, Cynet Holdings and Teliran entered into another agreement (the
"Teliran Agreement"), pursuant to which Teliran granted Cynet Holdings
exclusive worldwide sales and marketing rights with respect to the Cell
Phone/Modem for a term of three years. In consideration for these rights,
Cynet Holdings committed to sell a minimum of 23,700 Cell Phone/Modem units
during each of the years 2000, 2001 and 2002, with a provision for additional
sales targets for 2001 and 2002 to be mutually agreed upon by the parties.
Teliran agreed to pay up to $10,000 per month in technical support with
respect to the Cell Phone/Modem units. The Teliran Agreement also
contemplated certain equity purchase rights among the Company, Cynet Holdings
and Teliran if performance by the parties to the Teliran Agreement was
satisfactory after one year. Pursuant to the Teliran Agreement, the Company
has acquired from Cynet Holdings the exclusive sales, marketing and technical
support rights with respect to the Cell Phone/Modem under the Teliran
Agreement for an initial term of one year, subject to the Company's
satisfaction of the minimum sales and other requirements under the Teliran
Agreement. See "Certain Relationships and Related Transactions." On June 29,
2000, the Teliran Agreement was modified to grant the Company exclusive sales
and marketing rights for the Cell Phone/Modem in North America, Argentina and
Peru through September 30, 2000. In the event the Company placed a firm order
for 16,700 units or more of the Cell Phone/Modem, accompanied by financial
guarantee of payment for the order not later than September 30, 2000, Teliran
was to reinstate the worldwide exclusive sales and marketing rights of the
product to the Company for the rest of fiscal year 2000. Under this amendment
the Company also committed to purchase 5,000 units of the Cell Phone/Modem
between June 1, 2000 and December 31, 2000. As of the date of this report,
the Company has not completed the purchase of either the 16,700 or the 5,000
units of the Cell/Phone Modem and the Company continues to discuss with
Teliran how business will be conducted in the future.

RESEARCH AND DEVELOPMENT

         CYNET's research and development and engineering personnel are
responsible for developing, testing and supporting proprietary software
applications, as well as creating and improving enhanced system features and
services. CYNET's research and development strategy is to focus efforts on
enhancing its proprietary software and integrating it with readily available
software and hardware when practicable. CYNET maintains both internal and
outsourced software development programs through which the Company introduces
new products and enhances existing ones. CYNET's research, development, and
engineering personnel also engage in joint development efforts with CYNET's
strategic partners.

COMPETITION

         The market and demand for business-to-business messaging services and
Internet application services is highly competitive and growing rapidly, and
the Company faces a high degree of competition in each of its service areas.
The Company believes there are currently no dominant market leaders in the
industries in which the Company competes. The Company's ability to compete
successfully depends on a number of factors, including: (i) the Company's
market presence, (ii) the capacity, reliability and security of the Company's
network infrastructure, (iii) the pricing policies of the Company's
competitors and suppliers, (iv) the timing of the introduction of new services
and service enhancements, and (v) the industry's response to general economic
trends.

         Due to the changing messaging industry and the explosive growth in
the Internet services industry, the Company's management is unable to identify
direct competitors except with respect to the Company's specific product and
service offerings. The Company's current and potential competitors fall into
the following categories:

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         -        Convergent Messaging Providers (e.g., Mail.com, Critical Path,
                  Inc.);

         -        Enhanced fax service providers (e.g., Mail.com, Premiere
                  Technologies, Inc.); and

         -        Unified Internet messaging providers (e.g., JFAX.COM, INC.
                  FaxNet Corp.)


         The Company's management is unaware of any other entity that combines
Convergent Messaging Services and Wireless Product Offerings in a unified
service offering. Nevertheless, it is believed competitors will emulate the
Company's current business strategy in the future and such competitors will
enter the markets served by the Company. Some of those competitors may possess
significantly greater financial, marketing, technical and other resources than
the Company. However, it is also believed the Company's software and product
development and sales approach distinguishes it from its competitors. The
Company's software development resources enables it to develop and introduce
new products and react to changes in customer requirements more quickly than
many of its competitors. In addition, the Company offers pricing policies that
result in competitive cost-saving solutions for its customers. The Company's
sales personnel are trained to utilize selling techniques aimed at specific
customer needs.

           Although the Company will continue to offer competitive products
and services and seek to maintain and enlarge its market share, there can be
no assurance that additional competitors will not enter markets that the
Company's management plans to serve or that the Company will be able to
compete successfully. Increased competition may result in reductions of prices
and gross margin or erosion of the Company's market share, any of which would
have a material adverse effect on the Company's business, financial condition
and operational results.

GOVERNMENT REGULATIONS

         The telecommunications industry is subject to regulation by the FCC,
by various state public service and public utility commissions and by various
international regulatory authorities. The FCC has the power to impose
regulatory requirements on the Company and currently classifies the Company as
a "nondominant carrier." Generally, the FCC has chosen not to closely regulate
the charges or practices of nondominant carriers. The FCC also has the power
to impose more stringent regulatory requirements on the Company and to change
regulatory classification of the Company. As a result, there can be no
assurance that the FCC will not change the Company's regulatory classification
or otherwise subject the Company to more burdensome regulatory requirements
that would have a material adverse effect on the Company's business, financial
condition or results of operations.

         The Company is subject to federal and state laws regulating the
unsolicited transmission of fax and e-mail transmissions for advertisement
purposes. The Company has adopted a policy to refrain from transmitting fax
and e-mail advertisements except to its own customers and other recipients who
have expressed an interest in receiving the transmitted information or
otherwise have given their permission to receive such transmissions. The
Company's customers are encouraged to familiarize themselves with the relevant
laws and to conduct their businesses in accordance with applicable laws.
Nevertheless, the Company's management believes it is not responsible or
liable for customer transmissions in violation of governmental regulations.

         There are currently few laws or regulations that specifically
regulate communications on the Internet. However, laws and regulations may be
adopted in the future that address issues such as online content, user
privacy, security, pricing and characteristics and quality of products and
services.

          In connection with its anticipated international operations, the
Company may be required to satisfy a variety of foreign regulatory
requirements. The Company's management intends to explore and seeks to comply
with these requirements on a country-by-country basis. There can be no
assurance that the Company will be

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                                                                      PAGE -12-
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able to satisfy the regulatory requirements in foreign countries and the
failure to satisfy such requirements may prevent the Company from operating in
such countries. The failure to comply with foreign regulatory requirements
could have a material adverse effect on the Company's business, financial
conditions and results of operations.

EMPLOYEES

         As of February 15, 2001, the Company employed 80 persons,
substantially all of whom were full-time employees. None of the Company's
employees is currently covered by a collective bargaining arrangement. The
majority of the employees is and has historically been located at the
Company's headquarters in Houston, Texas. The Company also had employees in
Yorba Linda, California and Portland, Oregon during fiscal year 2000. The
Company considers the relations with its employees to be satisfactory.

INTELLECTUAL PROPERTY

         The Company currently holds no United States or foreign patents. The
Company has registered the trademark names CYNET, HYPERCAST and HYPERLINE in
the United States. Certain of the Company's computer software is considered
proprietary and management seeks to protect such software with common law
copyrights, trade secret laws, non-disclosure agreements and other safeguards.
There can be no assurance, however, that the steps taken by the Company's
management to protect its proprietary rights will be adequate or that others
will not independently develop technologies similar or superior to the
Company's, or obtain access to the Company's know-how or software codes,
concepts, ideas or documentation. Further, there can be no assurance that the
Company's non-disclosure agreements with its employees will adequately protect
the Company's trade secrets. The Company also licenses certain technology from
third parties as necessary for the operation of certain of its products and
services. In the event that a third party successfully develops technologies
similar or superior to the Company's technology, the Company may be subject to
claims that its products and services infringe on the intellectual property
rights of others.

ITEM 2.  DESCRIPTION OF PROPERTIES

         The Company does not own any real property. The Company's
headquarters, which includes its administrative, sales, marketing, management
information systems and development offices and its operations center, is
located in approximately 24,000 square feet of leased space in Houston, Texas.
The lease on the Houston facility expires in March 2003. The Company also has
approximately 1,000 square feet of leased space in Yorba Linda, California.
The Company's management believes its existing facilities are adequate to meet
current requirements. Suitable additional space in close proximity to its
headquarters will be available as needed to accommodate growth of its
operations.

ITEM 3.  LEGAL PROCEEDINGS

           The Company and its subsidiary, CYNET Interactive, have been named
as defendants in a suit filed November 19, 1999 in the District Court of
Harris County, Texas, 61 Judicial District (Cause No. 1999-57579) by Bank &
Estate Liquidators, Inc., a former customer of CYNET Interactive. On March 8,
2001, the parties entered into a settlement agreement settling all matters in
the case, with the Company agreeing to pay the plaintiff $15,000 cash on March
27, 2001, deliver to the plaintiff certain software, and pay an additional
$65,000 by May 27, 2001.

           The Company has been named as defendant in a suit filed June 26,
2000 in the United States District Court, Southern District of California
(Cause No. 00CV 1282 W (NLS)) by Clearfax, Inc. The plaintiff alleges, among
other things, that the Company infringed upon plaintiff's federal copyright by
unauthorized use of plaintiff's software in certain of the Company's fax
resolution software and is seeking to recover actual and exemplary damages.
The Company has retained counsel to defend the matter. Although the Company
has not completed its discovery investigation of the claims asserted by the
plaintiff in this matter, the Company does not believe that this suit will
have a material adverse effect on the Company.

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                                                                      PAGE -13-
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           The Company has been named as defendant in a suit filed December
13, 2000, in the Circuit Court for Montgomery County, Maryland (Civil No.
216130 Civil). The case is filed as a class action lawsuit for sending
unsolicited fax materials concerning certain financial securities promotions.
The Company has not completed its discovery and investigations at this time
but, based on the information it presently has, the Company is of the opinion
that the allegations against it in this case are without legal merit under
federal and Maryland state laws. The plaintiff is seeking to recover general
damages. The Company has been advised that the case has been dismissed.

           On December 21, 2000, AT&T filed a suit in Federal District Court
against the Company in reference to past due Accounts Payable owed by the
Company(Civil Action No. H-00-4452 United States District Court for the
Southern District of Texas, Houston Division). AT&T asks for $262,447.97 in
actual damages, reasonable attorneys fees, and cost of suit pursuant to a
contract for telephone services. The companies are actively engaged in
settlement discussions and expects to settle the case through a negotiated
installment payment schedule.

           The Company has been named as defendant in a suit filed December
28, 2000, to which one of the Company's fax broadcasting customers is a party.
The case is filed as a California class action lawsuit and is seeking monetary
damages for receipt of unsolicited facsimiles. The Company has not completed
its discovery and investigations at this time however, based on the
information it presently has, the Company is of the opinion that the
allegations against the Company in this case are without legal merit under
federal and the State of California laws. The plaintiff is seeking to recover
general and exemplary damages and injunctive relief. The Company has retained
outside counsel to vigorously defend the Company.

         The Company is a party to other legal proceedings, none of which the
Company believes will have a material adverse effect on the Company.

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

         No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

         Since January 19, 2000, the Company's Class A Common Stock, no par
value per share (the "Class A Common Stock"), has been approved for trading on
the NASDAQ OTC Bulletin Board Service under the trading symbol "CYNE." As of
February 15, 2001, there were approximately 386 shareholders of record of the
Company's Class A Common Stock.

         Since January 28, 2000, the Company's Class B Common Stock, no par
value per share (the "Class B Common Stock"), has been approved for trading on
the NASDAQ OTC Bulletin Board Service under the trading symbol "CYNEB." As of
February 15, 2001, there were approximately 26 shareholders of record of the
Company's Class B Common Stock.

         The following table sets forth the range of high and low closing bid
prices for "CYNE" each period indicated.
<TABLE>
<CAPTION>
                     QUARTER ENDING                  HIGH        LOW
                     -------------------------   -------------------------
<S>                                              <C>             <C>
                     December 31, 2000                  0.688       0.090
                     September 30, 2000                 1.500       0.730
                     June 30, 2000                      1.938       1.000
                     March 31, 2000                     4.000       1.938
</TABLE>

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                                                                      PAGE -14-
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CYNET INC-10KSB40-ANNUAL REPORT
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           The following table sets forth the range of high and low closing
bid prices for "CYNEB" each period indicated.
<TABLE>
<CAPTION>
                     QUARTER ENDING                  HIGH        LOW
                     -------------------------   -------------------------
<S>                                              <C>             <C>
                     December 31, 2000                  0.500       0.156
                     September 30, 2000                 1.750       0.750
                     June 30, 2000                      1.500       0.750
                     March 31, 2000                     2.000       1.750
</TABLE>

DIVIDENDS

         The Company has never paid dividends on its Class A Common Stock or
its Class B Common Stock. The current policy of the Company's Board of
Directors is to retain any available earnings for use in the operations and
expansion of the Company's business. As a result, cash dividend payments on
the Class A Common Stock or the Class B Common Stock are unlikely in the near
future. Any future decision to pay cash dividends will be at the discretion of
the Board of Directors and will depend on the Company's earnings, capital
requirements, financial condition and any other factors deemed relevant by the
Board of Directors.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

         The following is a discussion of the financial condition of the
Company as of December 31, 2000 and 1999 and results of operations of the
Company for the years ended December 31, 2000 and 1999. It should be read in
conjunction with the financial statements and the notes thereto included
elsewhere in this report. The following information contains forward-looking
statements.

OVERVIEW

         In January 1998, the Company underwent a change of control and
management. The new management team completed a registered rescission offering
in December 1999 and stock began publicly trading on the NASDAQ OTC Bulletin
Board Service in January 2000. In 1999, the Company transitioned itself from a
messaging company (delivering fax, e-mail, voice and data between businesses)
to an Internet applications solutions provider incorporating full convergent
messaging and wireless capabilities.

         The Company's strategy is to position itself as a one-stop-shop for
convergent messaging and Wireless product solutions. The Company coordinates
the delivery of and supports these diverse but related services through a
series of seamless strategic alliances connecting through the Company's core
products and services. The Company's sales efforts have been refocused to
Fortune 500, other large corporate and medium-size companies offering a
unified service solution. This sales effort has been further enhanced by the
vertical market segmentation of the Company's sales force. With a vertical
market focused sales force, the Company expects to better interface with a
number of strategic alliance partners and reseller agent sales persons who
sell the Company's products and services.

CERTAIN ACCOUNTING POLICIES

         Revenues from messaging and Internet services are recognized as
services are performed. Revenues from sales of customer lists and other
related services are recognized when the list is provided, or the other
services are performed. Cell/Modem revenue is recognized upon final acceptance
of product by the customer under the terms of the right of return policy.

         Expenditures for research and development of telecommunication
technology as it relates to messaging and Internet application services needs
are charged to expense as incurred. For the years ended December 31, 2000 and
1999, research and development expenditures were approximately $2,008,258 and
$755,000, respectively.

         Deferred taxes result from temporary differences between the
financial statement and income tax bases of assets and liabilities. The
deferred tax asset valuation allowance is adjusted based on judgments as to
future realization of the

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deferred tax benefits supported by demonstrated trends in the Company's
operating results. At December 31, 2000, the Company provided a 100% valuation
allowance for the deferred tax asset because the Company's management could
not ascertain whether it was more likely than not that the deferred tax asset
would be realized.

ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 requires the Company to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. 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 on
January 1, 2001 to affect its financial statements.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31,2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

         Revenues increased to $9,120,422 for the year ended December 31, 2000
from $8,626,675 for the year ended December 31, 1999. The increase of $493,747
or 6% was primarily attributable to increases the Company's Convergent
Messaging software license income, cellular fax card income, marketing list
income and website construction income offset by decreases in revenues from
the Company's fax broadcasting product offering. For the years ended 2000 and
1999, revenues from the Company's fax broadcasting services represented 71%
and 93% respectively, of the Company's total revenues. Conversely, the
Company's Convergent Messaging software license income, cellular fax card
income, marketing list income and website construction income were 8%, 4%, 10%
and 4% during the year ended December 31, 2000, whereas they were deminimus
(less than 1% of net revenues) during the year ended December 31, 1999.

         Cost of revenues increased to $4,884,319 for the year ended December
31, 2000 from $4,807,061 for the year ended December 31, 1999. The cost of
revenues as a percentage of revenues decreased to 54% for the period ended
December 31, 2000 as compared to 56% for the period ended December 31, 1999.
The increase in cost of revenues of $77,258 or 2% was primarily attributable
to additional costs required to purchase prospect lists for resale, cellular
modems, and website development outsourcing. Gross margins increased to 46%
for the year ended December 31, 2000 from 44% for the year ended December 31,
1999 due to the increase in the Company's convergent messaging software
licenses income which has little cost directly related to revenues.
Additionally, there were further decreases in telephone rates via management
negotiations during the year ended December 31, 2000.

         Selling, general and administrative (SG&A) expenses increased to
$12,885,098 for the year ended December 31, 2000 from $10,223,558 for the year
ended December 31, 1999. The increase of $2,661,540 was primarily attributable
to increases of (i)$1,179,569 of salaries expense related primarily to
increases in executive and administrative salaries by $509,000 and sales
management and salespersons salaries by $453,000, (ii)$1,568,215 of contract
salaries related primarily to research and development dedicated programming
staff, (iii) $601,452 of investor relations and $495,140 of legal expenses,
(iv) $137,896 of office rent expense, and (v) $274,258 in advertising and
promotion expense. The increases in SG&A expenses during 2000 are offset by
the 1999 non-cash charge of $1,334,000 resulting from the Company's agreement
to extend the expiration date of certain warrants until November 4, 2001 (See
Note 5 to the Consolidated Financial Statements).

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         Depreciation and amortization increased to $1,498,477 for the year
ended December 31, 2000 from $930,450 for the year ended December 31, 1999.
The increase was attributable primarily to additional equipment acquired in
2000, including equipment acquired in the expansion of the Company's
convergent messaging infrastructure.

           There were no write-downs of long-lived assets during the year
ended December 31, 2000 and 1999.

         Other expense totaled $2,162,513 for the year ended December 31, 2000
compared to other expense of $969,544 for the year ended December 31, 1999.
The increase in other expense was primarily attributable to interest and the
amortization on discounts from conversion options and attached warrants on the
Augustine Debt related to its subsequent conversion to Equity.

         The Company incurred a net loss of $12,309,985 for the year ended
December 31, 2000 compared to a net loss of $8,303,938 for the year ended
December 31, 1999. The increase in net loss was due to the factors discussed
above.

         Net loss per common share increased to $0.49 from $0.33 for the year
ended December 31, 2000 compared to the year ended December 31, 1999.

         In the future the Company may experience significant fluctuations in
its results of operations. Such fluctuations may result in volatility in the
price of the Company's common stock. Results of operations may fluctuate as a
result of a variety of factors, including the demand for the Company's
services, the introduction of new services and service enhancements by the
Company or its competitors, the market acceptance of new services, the mix of
revenues between Internet-based versus telephony-based delivery, the timing of
significant marketing programs, the number and timing of hiring of additional
personnel, competitive conditions in the industry and the general condition of
the economy. Shortfalls in revenues may adversely and disproportionately
affect the Company's results of operations because a high percentage of the
Company's operating expenses are relatively fixed. Accordingly, the Company
believes that period-to-period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as an indication of
future results of operations. There can be no assurance that the Company will
be profitable or that the Company's operating results will meet management's
current expectations.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operating activities was $7,188,830 and $4,595,011
for the years ended December 31, 2000 and 1999, respectively. The increase in
net cash used in operating activities for the year ended December 31, 2000 was
primarily due to the increase in the Company's net operating loss.

         Net cash used in investment activities was $824,569 and $312,768 for
the years ended December 31, 2000 and 1999, respectively. These amounts were
due primarily to capital expenditures for operating equipment, including
computer equipment and software, furniture and fixtures and telecommunications
equipment.

         Net cash provided by financing activities was $7,910,527 and
$5,035,563 for the years ended December 31, 2000 and 1999, respectively. The
Company has obtained financing primarily through a series of public and
private sales of common and preferred stock and debt securities.

           During the year ended December 31, 2000, the Company entered into
agreements with certain investors providing working capital to the Company in
amounts of $1,000,000, $1,869,500, $2,000,000, $1,600,000, and $750,000.
Pursuant to these transactions the Company issued shares of Class A Common
Stock, shares of Series E and Series F Preferred Stock, debt securities,
shares of Series D Preferred Stock, and shares of Class B Common Stock.
Additionally, during 2000 the Company received proceeds of $1,670,000 from
Cynet Holdings in the form of short-term loans on which the Company made
payments of $775,000. Dividend payments of $385,348 were made during fiscal
year 2000 related to Series A and Series B Preferred Stock of which all
shares have subsequently been converted to shares of Class A Common and Class
B Common Stock. The Company also obtained a $750,000 secured loan from
Compaq Computer Corporation. The loan is in default as of February 7, 2001
and bears a 15% annual default rate of interest. See "Certain Relationships
and Related Transactions--Compaq Computer Corporation."

_______________________________________________________________________________
                                                                      PAGE -17-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

           During the year ended December 31, 1999, the Company entered into
agreements with certain stand-by investors to provide $6,151,598 to fund the
Company's registered rescission offer of which $5,536,899 was used to
repurchase the securities tendered for rescission by the shareholders that
elected to accept the rescission offer. The amount required to fund the
rescission offer was $5,536,899, including $4,781,699 for the repurchase of
securities plus $858,018 in interest expenses less $102,818 in dividends
previously paid.

         As of December 31, 2000 the Company had a cash balance of $80,009 and
a deficit working capital position of $6,059,831. In January 2001, the Company
received the remaining $400,000 related to a private placement of debt
securities of which partial payment was made in the year ended December 31,
2000. During the first quarter of 2001, Cynet Holdings provided an additional
$385,000 and the Company repaid Cynet Holdings $125,500. See Note 13 to the
Consolidated Financial Statements for the terms of these transactions.

         The Company's internally generated cash flows from operations have
historically been and continue to be insufficient for its cash needs. The
Company does not expect that internal sources of liquidity will improve until
additional operating revenues are generated and, until such time, the Company
will continue to rely on external sources for liquidity. Until the Company can
obtain monthly gross revenues sufficient to fund current working capital
needs, there is uncertainty as to the ability of the Company to expand its
business and continue as a going concern. There is also no assurance that the
current working capital will be sufficient to cover cash requirements during
that period or to bring the Company to a positive cash flow position. In
addition, lower than expected earnings resulting from adverse economic
conditions or otherwise, could restrict the Company's ability to expand its
business as planned, and, if severe enough, may shorten the period in which
the current working capital may be expected to satisfy the Company's
requirements, force curtailed operations, or cause the Company to sell assets.

         The Company's capital requirements depend on a number of factors
including market acceptance of its products and services, the amount of
resources the Company devotes to network expansion, new product development,
sales and marketing expansion, brand promotions and other factors. The
Company's management expects a substantial increase in capital expenditures
and operating leases consistent with the planned growth in its convergent
messaging and Internet infrastructures and anticipates that this will continue
for the foreseeable future. Additionally, the Company's management expects to
make additional investments in technologies and its network, and plans to
expand its sales and marketing programs and conduct more aggressive brand
promotions.

         The Company's management has been advised by its counsel that it is
unclear whether its registered rescission offer (which was completed in
December 1999) has eliminated the Company's liability, if any, for failure to
register the issuances of the securities under the Securities Act of 1933 or
applicable state and foreign securities laws. The staff of the Securities and
Exchange Commission takes the position that a person's right of rescission
under federal securities law may, under certain circumstances, survive a
rescission offer, while most state securities laws provide that a person may
lose any rescission rights by rejecting or failing to respond to a valid
rescission offer. Generally, the statute of limitations for noncompliance with
the requirement to register securities under the Securities Act of 1933 is one
year, while under the various state securities laws, the statute of
limitations ranges from one to seven years from the date of the transaction.
The Company is also subject to the anti-fraud provisions of applicable
securities law or rights under common law or equity in respect of the issuance
of the Subject Securities.

           The Company currently does not have sufficient capital to meet its
cash flow requirements over the next 12 months. As a result, the Company will
be required to satisfy cash flow shortages through private placements, public
offerings and/or bank financing. The Company is currently in discussions with
several investors and financial institutions, however, no definitive
agreements have been reached.

         There can be no assurance that the Company will either (i) achieve a
level of revenues adequate to generate sufficient cash flow from operations,
or (ii) receive additional debt or equity financing necessary to support the
Company's

_______________________________________________________________________________
                                                                      PAGE -18-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

working capital requirements. To the extent that funds generated from
operations and any additional financing are insufficient, the Company will
have to raise additional working capital. No assurance can be given that
additional financing will be available, or if available, will be on terms
acceptable to the Company's management. Further, any future additional
financing could be dilutive to existing shareholders. If adequate working
capital is not available, the Company may be required to curtail its
operations. Accordingly, the Company's independent public accountants have
issued their report for the years ending 2000 and 1999 containing a paragraph
discussing substantial doubt surrounding the Company's ability to continue as
a going concern.

YEAR 2000 COMPLIANCE

         The Company has incorporated a compliance standard with rules and
definitions into its operations systems with respect to Year 2000 compliance.
Based upon an initial evaluation of its broader list of vendors and results of
operations in the year ended December 31, 2000, there is no reason to believe
that these providers are not in compliance with Year 2000 protocol. The
Company experienced no interruption of services related to Year 2000
compliance during the year ended December 31, 2000. The Company does not
anticipate any material future costs associated with Year 2000 compliance.

ITEM 7. FINANCIAL STATEMENTS.

         The Company's Consolidated Financial Statements, Notes to
Consolidated Financial Statements and the report of Mann, Frankfort, Stein
& Lipp CPAs, L.L.P., independent certified public accountants, with respect
thereto, referred to in the Index to Financial Statements, appear elsewhere in
this report beginning on Page F-1.

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

         On January 5, 2001 the Company engaged the accounting firm of Mann,
Frankfort, Stein & Lipp CPAs, L.L.P., Houston, Texas as independent public
accountants to audit the Company's financial statements for the fiscal years
ended December 31, 2000, 1999, and 1998.

_______________________________________________________________________________
                                                                      PAGE -19-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                                    PART III

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

DIRECTORS AND OFFICERS

         The following table sets forth information concerning directors,
executive officers and significant employees of the Company, including their
ages and positions with the Company as of February 15, 2001:
<TABLE>
<CAPTION>
                       NAME       AGE                          POSITION
          ----------------------  ---   ------------------------------------------------------
<S>                               <C>   <C>
          Vincent W. Beale, Sr.    52   Chairman of the Board, Chief Executive Officer,
                                        President and Director
          Bernard B. Beale         44   Executive Vice President, Chief Operating Officer
                                        and Director
          David R. Hearon, Jr.     63   Senior Vice President, Institutional Development
          Samuel C. Beale          45   Vice President, General Counsel and Secretary
          R. Greg Smith            42   Vice President, Chief Financial Officer and Director
          John Tollefsen           32   Vice President, Chief Technical Officer
          Menashe Ben David        48   Vice President
          Wayne Schroeder          58   Director
          Daniel C. Lawson         55   Director
          Craig T. Jackson         50   Director
          Gerald M. McIntosh       60   Director
          Gregory E. Webb          54   Director
</TABLE>

         VINCENT W. BEALE, SR. was elected Chairman of the Board of Directors,
Chief Executive Officer and President of the Company on January 28, 1998. Mr.
Beale acted as a consultant to the Company from June 1997 until January 1998.
Mr. Beale is the President and majority owner of Cynet Holdings, a limited
liability company, which is the largest shareholder of the Company. Mr. Beale
is also the President and Managing Director of BNB Capital, Inc., an
investment banking firm. Prior to joining the Company, Mr. Beale was employed
for more than fifteen years with various investment banking firms including
Merrill Lynch, Pierce, Fenner & Smith, Inc., Kidder Peabody & Co., Inc., Paine
Webber, Inc. and Shearson Lehman Hutton, Inc.

         BERNARD B. BEALE joined the Company in January 1998 as a special
consultant to the Chairman to assist in the reorganization of the Company's
business operations. In July 1998, Mr. Beale was named Executive Vice
President and Chief Operating Officer of the Company. Before joining the
Company, Mr. Beale was employed by The Equitable Company, a financial services
firm, and certain other investment banking firms from 1985 to 1998. From 1979
to 1985, he was employed in various positions including accounting, human
resources and project management with Western Electric and AT&T. Mr. Beale
holds a Master of Science degree in Business Management from Aurora
University, Aurora, Illinois, and a Bachelor of Arts degree from Oakwood
College, Huntsville, Alabama.

           DAVID R. HEARON, JR. joined the Company in March 1998 as Vice
President and Chief Technical Officer. In March 2000, Mr. Hearon was promoted
to Senior Vice President, Institutional Development. From July 1996 until
joining the Company, Mr. Hearon was President of Hearon & Associates, an
independent consulting firm providing consulting services in the areas of
information technology, manufacturing, customer support, re-engineering and
human resource development. From 1959 to May 1996, Mr. Hearon was employed by
Lucent Technologies and its predecessors, AT&T and Western Electric, in
management positions related to telecommunications and information technology,
including engineering, manufacturing voice and data networks, and call
centers. Mr. Hearon holds a Bachelor's degree in Mechanical Engineering from
the City College of New York and has participated in post-graduate business
and engineering programs at the University of Chicago and City College of New
York.

_______________________________________________________________________________
                                                                      PAGE -20-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         SAMUEL C. BEALE became Vice President, General Counsel and Secretary
of the Company in May 1998. Mr. Beale was an attorney engaged in private law
practice for eight years prior to joining the Company. Prior to entering the
practice of law in November 1990, Mr. Beale spent more than ten years in the
computer industry with companies such as IBM Corporation, Sperry Univac,
Martin Marietta and IOCS, in positions ranging from systems engineer to data
processing manager to sales. Mr. Beale holds a Juris Doctor degree from the
Ohio State University College of Law and a Bachelor of Arts degree from
Harvard University.

         R. GREG SMITH joined the Company in August 1998 as Vice President and
Chief Financial Officer. Mr. Smith was employed for more than 12 years in the
health care information systems industry prior to joining the Company. ADAC
Healthcare information Systems ("ADAC") most recently employed Mr. Smith as
Vice President Finance and Chief Financial Officer from 1995 until joining the
Company. In 1996, ADAC became the first health care manufacturer to receive
the Malcolm Baldridge National Quality Award. Before joining ADAC, Mr. Smith
held numerous financial management positions from 1985 through 1995 for
Community Health Computing, Inc. ("CHC"), including Vice President Finance and
Chief Financial Officer from 1994 through 1995. ADAC acquired CHC in 1995 and
retained Mr. Smith as the Chief Financial Officer for their combined health
care information systems businesses. Mr. Smith holds a Bachelor of Business
Administration degree in Finance from Sam Houston State University.

           JOHN TOLLEFSEN joined the Company in August 2000 as Vice President
and Chief Technical Officer. Mr. Tollefsen was formerly Senior Director of
Infrastructure and Integration for Enron Networks, a division of Enron Corp.
Mr. Tollefsen was employed with Enron approximately five years and led a team
of more than 330 employees and contractors in the Microsoft
Windows/Intel/Compaq infrastructure group that designed and implemented the
server-based systems that now power Enron's information systems. Mr.
Tollefsen's last position at Enron was Senior Director of Market Intelligence,
which involved developing decision support systems and pre-trade applications.
Prior to his employment with Enron, Mr. Tollefsen was employed by American
General Life and several privately owned companies.

         MENASHE BEN-DAVID joined the Company in January 2000 and serves as a
Vice President of the Company. Mr. Ben-David brings over 20 years of
communications and technology experience to his position with CYNET. Prior to
joining the Company, Mr. Ben-David served one year as President of GlobeWave,
Inc., a wholly owned subsidiary of Teliran Electronics, Ltd. where he was
instrumental in bringing new wireless cell/modem technology to the market. Mr.
Ben-David also provided senior sales, marketing, financial, operational and
executive-level leadership to domestic and global wireless resellers and end
users. Before joining GlobeWave, Mr. Ben-David held positions with Geotek
Communications as Vice President of Field Operations and Bogen Communications
as Executive Vice President and Chief Operating Officer.

         WAYNE SCHROEDER joined the Company in October 1997 as Chief Financial
Officer and Secretary and was elected to the Board of Directors in February
1998. In April 1998, Mr. Schroeder resigned as an officer of the Company to
become the Controller of Capstar Broadcasting Corporation. Mr. Schroeder was
Vice President - Finance, Secretary and Director of Boundless Corporation from
November 1996 to October 1997. Mr. Schroeder was self-employed as a financial
and accounting consultant from June 1994 to October 1996. From July 1987 to
May 1994, Mr. Schroeder served as Chief Operating Officer, Chief Financial
Officer and a director of Arrhythmia Research Technology, Inc. Mr. Schroeder
graduated from the University of Texas at Austin with a degree in finance and
accounting.

         DANIEL C. LAWSON was appointed to the Board of Directors during
January 2000 to fill a vacancy in the Board of Directors when the number of
directors was increased from three to four directors. Mr. Lawson is Chairman
and Chief Executive Officer of the DCL Company, Inc. ("DCLC"), a Houston-based
diversified group of companies with expertise in all phases of supplying
products and services to urban public transportation services. Through a joint
effort with Penske Corporation and GE Capital, Mr. Lawson and Roger Penske
created the first turnkey maintenance program for transportation systems.

         CRAIG T. JACKSON was appointed to the Board of Directors during June
2000 at the Annual Meeting of Shareholders. Mr. Jackson is the Chairman of the
Board of

_______________________________________________________________________________
                                                                      PAGE -21-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

Directors and Chief Executive Officer of Sanders Engineering Co., Inc., a
general and mechanical contracting company in Orange County, California. Prior
to his position at Sanders Engineering Co., Inc., Mr. Jackson served ten years
at Carrier Air Conditioning Co. in Southern California. Mr. Jackson is also
the Vice President and co-founder of Northern Neck Enterprises, Inc. Mr.
Jackson holds a Masters of Business Administration from Pepperdine University
and a Bachelors of Science in Mechanical Engineering from Howard University.

           GERALD M. MCINTOSH was appointed to the Board of Directors during
June 2000 at the Annual Meeting of Shareholders. Mr. McIntosh is an
entrepreneur, founder and President of Partners 5 West, a not-for-profit
community development company. Prior to founding Partners 5 West, Mr. McIntosh
co-founded and acquired several for profit companies including Administaff,
which currently trades on the New York Stock Exchange. Mr. McIntosh holds a
Masters of Public Administration and an Associates degree in Hospital
Administration from the University of Southern California and a Bachelors of
Science degree in Biology from LaSierra University.

         GREGORY E. WEBB was appointed to the Board of Directors during June
2000 at the Annual Meeting of Shareholders. Mr. Webb is Chairman, Chief
Executive Officer and President of CityMainStreet.com, Inc., an IP Telephony
business focused on Latin America, India, and the United States for
utilization of alternative wireless and cable access. Prior to founding
CityMainStreet.com, Inc. and over the last 33 years, Mr. Webb held numerous
senior executive level positions in communications and computer industries,
including a successful 20 year career with AT&T from 1967-1987 ending with his
last position as Group Market Manager-Market and Product Line Management. One
of Mr. Webb's more recent positions includes Chief Executive Officer of
Qualcomm, Inc. from 1995-1996. Mr. Webb holds a Masters in Management from
Northwestern University a Bachelors of Science in Economics from Xavier
University and graduate studies in marketing, high-speed communication and
econometrics from Harvard Business School, Northwestern University and Xavier
University, respectively. Mr. Webb has also been a guest speaker at numerous
wireless conferences and electronic trade shows.

         Vincent W. Beale, Sr., Bernard B. Beale and Samuel C. Beale are
siblings. There are no other family relationships among any of the Company's
directors and executive officers.

         STRUCTURE OF BOARD OF DIRECTORS. The Board of Directors of the
Company consists of Vincent Beale, Sr. (Chairman of the Board), Bernard B.
Beale (officer and director), R. Greg Smith (officer and director), Samuel C.
Beale (officer and director), Danny C. Lawson (outside director), Wayne
Schroeder (outside director), Craig T. Jackson (outside director), Gregory E.
Webb (outside director), and Gerald M. McIntosh (outside director). Directors
are elected annually by the shareholders. The Board is required to have an
annual meeting following the annual shareholder meeting. Actions can be taken
without a meeting if all of the directors consent in the form of a written
consent action. A majority vote at a duly called meeting of the Board at which
a quorum is present is required for a motion to be carried at such meeting. A
majority of the total number of directors constitutes a quorum.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors, executive officers and persons who own
more than ten percent of a registered class of the Company's voting equity
securities, to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of the Class
A Common Stock and other equity securities of the Company. Officers,
directors, and greater than ten-percent beneficial owners are required by SEC
regulation to furnish the Company with copies of all Section 16(a) reports
they file.

         During the fiscal year ended December 31, 2000, (i) a Form 3
reporting initial beneficial ownership was not timely filed by Daniel C.
Lawson, Craig T. Jackson and Gerald M. McIntosh, (ii) one Form 4 reporting
one transaction was not timely filed by Vincent W. Beale, Sr., and (iii) one
Form 4 reporting one transaction was not timely filed by Gerald M. McIntosh.

         Except as described above, based solely upon a review of the copies
of such reports furnished to the Company, the Company believes there was
compliance for the fiscal year ended December 31, 2000 with all Section 16(a)
filing requirements applicable to the Company's officers, directors and
greater than ten percent beneficial owners.

_______________________________________________________________________________
                                                                      PAGE -22-
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth information with respect to all forms
of compensation paid by the Company to the named individuals for the years
ended December 31, 2000, 1999 and 1998. No other director or executive officer
received a combined salary and bonus exceeding $100,000 during any of the
three fiscal years ended December 31, 2000. See "--Employment Agreements"
below for information regarding the current compensation of certain of the
Company's directors and the executive officers named below.
<TABLE>
<CAPTION>
                                                                                     LONG-TERM
                                                                                    COMPENSATION
                                                                                     SECURITIES
         NAME AND           FISCAL                             OTHER ANNUAL          UNDERLYING        ALL OTHER
    PRINCIPAL POSITION       YEAR      SALARY      BONUS       COMPENSATION(3)        OPTIONS(1)      COMPENSATION
    ------------------       ----      ------      -----       --------------        ----------       ------------
<S>                         <C>        <C>         <C>         <C>                <C>                 <C>
   Vincent W. Beale, Sr.     2000      $225,192         --        $71,885                  --                  --
   President and Chief       1999      $180,000         --             --                  --                  --
    Executive Officer        1998      $133,693    $30,000             --            100,000 shares            --
     (since 1/98)

       Ray C. Davis          1998      $110,287         --             --                  --            $188,326(2)
   President and Chief
    Executive Officer
       (until 1/98)

     Bernard B. Beale        2000      $179,796    $35,000        $ 4,558                  --                  --
     Executive Vice          1999      $153,136    $30,000             --                  --                  --
    President, Chief         1998      $131,696         --             --            150,000 shares            --
    Operating Officer
       (since 1/98)

   David R. Hearon, Jr.      2000      $163,269         --             --             25,000 shares            --
  Vice President, Chief      1999      $150,000         --             --                  --                  --
    Technical Officer        1998      $122,226    $30,000             --             75,000 shares            --
      (since 3/98)

     Samuel C. Beale         2000      $145,962    $30,000        $ 6,793                  --                  --
     Vice President,         1999      $108,000         --             --                  --                  --
     General Counsel and     1998      $ 90,845         --             --            100,000 shares            --
        Secretary
       (since 3/98)

      R. Greg Smith          2000      $147,596         --             --                  --                  --
  Vice President, Chief      1999      $125,000    $30,000             --                  --                  --
   Financial Officer         1998      $ 42,308         --             --            100,000 shares            --
      (since 8/98)

    Menashe Ben-David        2000      $123,595         --             --             50,000 shares            --
Vice President, Director
   of CYNET Wireless
     (since 1/2000)
</TABLE>

(1)     Refers to incentive stock options to purchase shares of Class A Common
        Stock at a purchase price of $0.39 per share granted to Vincent W.
        Beale, Sr., Bernard B. Beale, David R. Hearon, Jr., Samuel C. Beale and
        R. Greg Smith under the 1997 Restated Stock Option Plan in accordance
        with their respective employment agreements with the Company. (See
        "--Employment Agreements" and "--Stock Option Plan" below).

(2)     Represents (i) a $121,043 account receivable owed by Mr. Davis to the
        Company which was forgiven in exchange for the termination of Mr.
        Davis' employment agreement pursuant to the Settlement Agreement and
        Mutual Release in Full executed between the Company and Mr. Davis. See
        "--Employment Agreements" below and (ii) $67,283 of property
        transferred to Mr. Davis as compensation for services rendered. See
        "Certain Relationships and Related Transactions."

(3)     Represents advances to executives deemed to be compensation under
        federal tax regulations. See "Certain Relationships and Related
        Transactions."

STOCK OPTION PLAN

         On October 20, 1997, the Board of Directors and a majority of the
holders of the Class A Common Stock adopted the Company's 1997 Stock Option
Plan, which plan was restated effective July 31, 1999 (the "1997 Plan").

         The 1997 Plan provides for the granting of stock options("Options")
to key employees of the Company. Within certain limitations provided by the
1997 Plan, such

_______________________________________________________________________________
                                                                      PAGE -23-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

Options may include provisions regarding vesting, exercise price, the amount
of each grant and other terms as shall be approved by the Board of Directors
or by a committee designated by the Board of Directors. Options granted under
the 1997 Plan may be either options that qualify as "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("Incentive Options"), or those that do not qualify as such "incentive
stock options" ("Non-qualified Options"). The 1997 Plan, which permits up to
2,000,000 shares of the Company's Class A Common Stock to be issued,
terminates on October 19, 2007.

         The 1997 Plan is administered by the Board of Directors or by a
Compensation Committee of the Board of Directors, which committee, to the
extent required to qualify for certain exemptions under Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, to
satisfy the requirements of Section 162(m) of the Code, will at all times
consist of at least two non-employee directors. Subject to the terms of the
1997 Plan, the Board of Directors or a Compensation Committee determines to
whom Options are granted, the terms, and the number of shares covered by each
Option. The term of each Option may not exceed ten years from the date the
option is granted, or five years in the case of an Incentive Option granted to
a holder of more than 10% of the fully diluted capital stock of the Company.
Nonqualified Options and Incentive Options may become exercisable six months
after the date of grant and may continue to be exercisable, in whole or in
part, up to ten years after the date of grant, as determined by the Board of
Directors or the Compensation Committee.

         The 1997 Plan provides that all Incentive Options and Non-qualified
Options which are not exercisable on the date of termination of an option
holder's employment generally expire when the optionee ceases to be employed
by the Company; however, the Board of Directors or the Compensation Committee
may, in its discretion, permit the holder to exercise unvested options upon
such termination. Options may not be transferred other than by will or the
laws of descent and distribution, and during the lifetime of an optionee may
be exercised only by the optionee. The 1997 Plan provides that each stock
option agreement with respect to any Non-qualified Option or Incentive Option
shall specify the effects of termination of employment on exercisability of
such options.

         The 1997 Plan contains a provision accelerating the exerciseablity of
Options upon the occurrence of specified events, including a merger,
consolidation, dissolution or liquidation of the Company. The acceleration of
vesting of the Options in the event of a merger or other similar event may
have the effect of discouraging a proposal for merger, a takeover attempt or
other efforts to gain control of the Company.

         Incentive Options to purchase shares of the Class A Common Stock have
been granted to Vincent W. Beale, Sr., Bernard B. Beale, David R. Hearon, Jr.,
Samuel C. Beale and R. Greg Smith under the 1997 Plan in accordance with their
respective employment agreements described in "--Employment Agreements" above
as follows: 100,000 shares to Vincent W. Beale, Sr. which vested immediately
on the date of grant, 150,000 shares to Bernard B. Beale which vested
immediately on the date of grant, 100,000 shares to Samuel C. Beale which
vested immediately on the date of grant, 75,000 shares to David R. Hearon, Jr.
which vest ratably over a four-year period, 100,000 shares to R. Greg Smith,
which vest ratably over a three-year period, and , and 650,000 shares to John
Tollefsen, 162,500 of which vested immediately on the date of grant and the
remaining 487,500 vest ratably over a three-year period. Each of these stock
options has an exercise price of $0.39 per share, except John Tollefsen's
options which have an exercise price of $1.22 per share.

AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

         The table below reflects the number of shares covered by both
exercisable and non-exercisable stock options as of December 31, 2000 for the
executive officers named below. Values for "in the money" options represent
the position spread between the exercise price of existing options and the
market value for the Company's Class A Common Stock on December 31, 2000:

_______________________________________________________________________________
                                                                      PAGE -24-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

<TABLE>
<CAPTION>
                                   Shares                                                         Value of Unexercised
                                  Acquired                   Number of Unexercised                in-the-money Options
                                on Exercise     Value     Options at Fiscal Year End             at December 31, 1999
Name                                (#)       Realized    Exerciseable/Unexerciseable (1)    Exerciseable/Unexerciseable(2)
----                            -----------   --------    ---------------------------        ---------------------------
<S>                             <C>           <C>         <C>                                <C>
Vincent W. Beale, Sr.
President,
Chief Executive Officer             (3)          (3)                  100,000                               n/a
(since 1/98)                                                          -------                           --------
                                                                     100,000/0                              n/a
Bernard B. Beale
Executive Vice
President,                          (3)          (3)                  150,000                               n/a
Chief Operating                                                       -------                           --------
Officer                                                              150,000/0                              n/a
(since 1/98)

David R. Hearon, Jr.
Vice President,
Chief Technical Officer             (3)          (3)                  100,000                               n/a
(since 3/98)                                                          -------                           --------
                                                                   37,500/62,500                            n/a
Samuel C. Beale
Vice President, General
Counsel and Secretary               (3)          (3)                  100,000                               n/a
(since 3/98)                                                          -------                           --------
                                                                     100,000/0                              n/a
R. Greg Smith
Vice President,
Chief Financial Officer             (3)          (3)                  100,000                               n/a
(since 8/98)                                                          -------                           --------
                                                                   66,667/33,333                            n/a
John Tollefsen
Vice President,
Chief Technical Officer             (3)         (3)                   650,000                               n/a
(since 9/2000)                                                        -------                           --------
                                                                  162,500/487,500                           n/a
Menashe Ben-David
Vice President, Director
of CYNET Wireless                   (3)         (3)                    50,000                               n/a
(since 1/2000)                                                         ------                           --------
                                                                      0/50,000                              n/a
</TABLE>

1)    Indicates number of options exercisable and unexerciseable as of December
      31, 2000.

2)    Based upon $0.16 per share, the closing market value of a share of the
      Class A Common Stock at December 31, 2000, none of the shares above are in
      the money and thus valuation is not applicable.

3)    None of the Company's executive officers exercised any options during the
      fiscal year ended December 31, 2000. The Company did not issue any SARs
      during the fiscal year ended December 31, 2000.

         Directors who are employees or consultants of the Company do not
receive any compensation for serving as directors. All directors are
reimbursed for ordinary and necessary expenses incurred in attending any
meeting of the Board of Directors or any committee thereof or otherwise
incurred in their capacities as directors.

         None of the Company's executive officers was granted awards under any
long-term incentive plan during the fiscal year ended December 31, 2000.

EMPLOYMENT AGREEMENTS

         On June 17, 1997, the Company entered into a Consulting Agreement
with Vincent W. Beale, Sr., pursuant to which Mr. Beale agreed to assist the
Company with respect to an initial public offering and certain proposed
mergers and acquisitions. Mr. Beale was paid an aggregate of $189,000 in
consulting fees under the terms of the Consulting Agreement. Effective
February 1, 1998, the Company terminated his Consulting Agreement and entered
an employment agreement with Vincent W. Beale, Sr. pursuant to which Mr. Beale
serves as the Chairman of the Board and Chief Executive Officer of the
Company. The agreement has an initial term of five years and can continue for
additional one-year periods upon the agreement of Mr. Beale and the Company,
and requires Mr. Beale to devote substantially all of his business time,
attention and energy exclusively to the business of the Company, and to use
his best efforts to promote the success of the Company's business. In
exchange, Mr. Beale is

_______________________________________________________________________________
                                                                      PAGE -25-
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

entitled to (i) receive an annual salary, commencing February 1, 1998, of
$180,000 (subject to annual review by the Board of Directors), (ii) earn an
incentive bonus in accordance with the Company's bonus plan to be established
for its executives, (iii) receive a signing bonus of $30,000, (iv) an option
under the Company's 1997 Amended and Restated Stock Option Plan to purchase
100,000 shares of Class A Common Stock at a price of $0.39 per share which
vests immediately when granted and (v) participate in the Company's other
employee benefit plans. Mr. Beale's employment agreement is terminable by the
Company at any time for "cause," as specified in the agreement, and in certain
other events. The employment agreement also contains covenants limiting Mr.
Beale's right to compete with the Company during the term of the employment
agreement and for two years after the termination of his employment.

         Effective March 1, 1998, the Company entered into an employment
agreement with David R. Hearon, Jr. pursuant to which Mr. Hearon served as the
Vice President of Operations of the Company. The agreement had an initial term
of four years and can continue for additional one-year periods upon the
agreement of Mr. Hearon and the Company, and requires Mr. Hearon to devote
substantially all of his business time, attention and energy exclusively to
the business of the Company, and to use his best efforts to promote the
success of the Company's business. In exchange, Mr. Hearon is entitled to (i)
receive an annual salary, commencing March 1, 1998, of $150,000 (subject to
annual review by the Board of Directors), (ii) earn an incentive bonus in
accordance with the Company's bonus plan to be established for its executives,
(iii) receive a signing bonus of $30,000, (iv) an option under the Company's
1997 Amended and Restated Stock Option Plan to purchase 75,000 shares of Class
A Common Stock at a price of $0.39 per share which vests ratably over a
four-year period and (v)participate in the Company's other employee benefit
plans. Mr. Hearon's employment agreement is terminable by the Company at any
time for "cause," as specified in the agreement, and in certain other events.
The employment agreement also contains covenants limiting Mr. Hearon's right
to compete with the Company during the term of the employment agreement and
for two years after his termination of employment. In March 2000, Mr. Hearon
was promoted to Senior Vice President, Institutional Development under the
same terms of the existing employment and granted 25,000 additional options at
an exercise price of $1.21 in conjunction with the promotion.

         Effective March 3, 1997, the Company entered into a three-year
executive employment agreement with Ray C. Davis, the founder of the Company.
The agreement was automatically renewable at the end of its initial term for
consecutive one-year terms and provided for an annual base salary of $220,000,
and incentives (annual and long-term), retirement benefits, welfare benefits,
and fringe benefits, which were available to other executive employees of the
Company. Mr. Davis received a $50,000 signing bonus from the Company upon
execution of his agreement. The agreement also contained provisions for the
acceleration of certain compensation due to Mr. Davis in the event of a
"change of control" of the Company, as defined in the agreement.

          Effective July 22, 1998, the Company entered into an employment
agreement with Bernard B. Beale pursuant to which Mr. Beale serves as the
Executive Vice President of the Company. The agreement has an initial term of
four years and can continue for additional one-year periods upon the agreement
of Mr. Beale and the Company, and requires Mr. Beale to devote substantially
all of his business time, attention and energy exclusively to the business of
the Company, and to use his best efforts to promote the success of the
Company's business. In exchange, Mr. Beale is entitled to (i) receive an
annual salary, commencing July 22, 1998, of $150,000 (subject to annual review
by the Board of Directors), (ii) earn an incentive bonus in accordance with
the Company's bonus plan to be established for its executives, (iii) receive a
signing bonus of $30,000, (iv) an option under the Company's 1997 Amended and
Restated Stock Option Plan to purchase 150,000 shares of Class A Common Stock
at a price of $0.39 per share which vests immediately when granted and (v)
participate in the Company's other employee benefit plans. Mr. Beale's
employment agreement is terminable by the Company at any time for "cause," as
specified in the agreement, and in certain other events. The employment
agreement also contains covenants limiting Mr. Beale's right to compete with
the Company during the term of the employment agreement and for two years
after his termination of employment.

         Effective July 22, 1998, the Company entered into an employment
agreement with Samuel C. Beale pursuant to which Mr. Beale serves as the Vice
President, General Counsel and Secretary of the Company. The agreement has an
initial term of

_______________________________________________________________________________
                                                                      PAGE -26-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

three years and can continue for additional one-year periods upon the
agreement of Mr. Beale and the Company, and requires Mr. Beale to devote
substantially all of his business time, attention and energy exclusively to
the business of the Company, and to use his best efforts to promote the
success of the Company's business. In exchange, Mr. Beale is entitled to (i)
receive an annual salary, commencing July 22, 1998, of $108,000 (subject to
annual review by the Board of Directors), (ii) earn an incentive bonus in
accordance with the Company's bonus plan to be established for its
executives,(iii) receive a signing bonus of $30,000, (iv) an option under the
Company's 1997 Amended and Restated Stock Option Plan to purchase 100,000
shares of Class A Common Stock at a price of $0.39 per share which vests
immediately when granted and (v) participate in the Company's other employee
benefit plans. Mr. Beale's employment agreement is terminable by the Company
at any time for "cause," as specified in the agreement, and in certain other
events. The employment agreement also contains covenants limiting Mr. Beale's
right to compete with the Company during the term of the employment agreement
and for two years after his termination of employment.

         Effective August 26, 1998, the Company entered into an employment
agreement with R. Greg Smith pursuant to which Mr. Smith serves as the Vice
President Finance and Chief Financial Officer of the Company. The agreement
has an initial term of three years and can continue for additional one-year
periods upon the agreement of Mr. Smith and the Company, and requires Mr.
Smith to devote substantially all of his business time, attention and energy
exclusively to the business of the Company, and to use his best efforts to
promote the success of the Company's business. In exchange, Mr. Smith is
entitled to (i) receive an annual salary, commencing August 26, 1998, of
$125,000 (subject to annual review by the Board of Directors), (ii) earn an
incentive bonus in accordance with the Company's bonus plan to be established
for its executives, (iii) receive a signing bonus of $30,000, (iv) an option
under the Company's 1997 Amended and Restated Stock Option Plan to purchase
100,000 shares of Class A Common Stock at a price of $0.39 per share which
vests ratably over a three-year period and (v) participate in the Company's
other employee benefit plans. Mr. Smith's employment agreement is terminable
by the Company at any time for "cause," as specified in the agreement, and in
certain other events. The employment agreement also contains covenants
limiting Mr. Smith's right to compete with the Company during the term of the
employment agreement and for two years after his termination of employment.

           Effective August 3, 2000, the Company entered into an employment
agreement with John Tollefsen pursuant to which Mr. Tollefsen serves as Vice
President and Chief Technical Officer of the Company. The agreement has an
initial term of one year and can continue at will upon the agreement of Mr.
Tollefsen and the Company, and requires Mr. Tollefsen to devote substantially
all of his business time, attention and energy exclusively to the business of
the Company, and to use his best efforts to promote the success of the
Company's business. In exchange, Mr. Tollefsen is entitled to (i) receive an
annual salary, commencing August 28, 2000, of $175,000 (subject to annual
review by the Board of Directors), (ii) earn an incentive bonus in accordance
with the Company's bonus plan to be established for its executives, (iii)
receive a signing bonus of $100,000 payable as follows: $50,000 upon signing
the agreement, $25,000 at the end of the first 6 months of employment, and
$25,000 at the completion of one year of employment, (iv) an additional
guaranteed year end bonus of $50,000,(v) an option under the Company's 1997
Amended and Restated Stock Option Plan to purchase 650,000 shares of Class A
Common Stock at a price of $1.22 per share which vest 25% upon signing the
agreement and ratably thereafter over a three-year period and (vi) participate
in the Company's other employee benefit plans. Mr. Tollefsen's employment
agreement is terminable by the Company at any time for "cause," as specified
in the agreement, and in certain other events.

CONSULTING SERVICES

         Pursuant to the terms of the financing of the Company's rescission
offer, the Company entered into a Consulting Agreement (the "Enron Advisory
Agreement") with Houston Economic Opportunity Fund, L.P. ("HEOF"), an
investor in the funding of the Company's rescission offer and an affiliate of
Enron Corporation, pursuant to which HEOF agreed to provide certain business
advisory services to the Company. Pursuant to the Enron Advisory Agreement,
the Company issued a warrant entitling HEOF to purchase up to 413,600 shares
of Class A Common Stock at a purchase price of $2.00 per share

_______________________________________________________________________________
                                                                      PAGE -27-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

upon the completion of the rescission financing. The warrant is exercisable,
in whole or in part, at any time during the three-year period beginning on
September 30, 1999.

LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION

         Texas law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their shareholders for monetary
damages under certain conditions and circumstances. The Articles of
Incorporation of the Company limit the liability of directors of the Company
(in their capacity as directors, but not in their capacity as officers) to the
Company or its shareholders to the fullest extent permitted by Texas law.
Specifically, no director of the Company will be personally liable to the
Company or its shareholders for monetary damages for any act or omission in
such director's capacity as a director, except for (i) a breach of the
director's duty of loyalty to the Company or its shareholders, (ii) an act or
omission not in good faith which involve intentional misconduct or a knowing
violation of the law, (iii) an act or omission for which the liability of a
director is expressly provided for by an applicable statute or (iv) any
transaction from which the director derived an improper personal benefit,
whether or not the benefit resulted from an action taken in the person's
official capacity.

         The inclusion of this provision in the Company's Articles of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter shareholders or
management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefited the Company and its shareholders. However, such limitation on
liabilities does not affect the standard of conduct with which directors must
comply, the availability of equitable relief or any causes of action based on
federal law.

         The Company's Articles of Incorporation provide for the
indemnification of its current and former officers and directors to the
fullest extent permitted by applicable law.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

           The following table sets forth certain information regarding the
beneficial ownership of the shares of common stock as of February 15, 2001 by
(i) each person who is known by the Company to be the beneficial owner of
more than five percent (5%) of the issued and outstanding shares of Class A
Common Stock (the Company's only class of voting securities), (ii) each of
the Company's directors and executive officers and (iii) all directors and
executive officers as a group. Except as otherwise indicated, each
shareholder listed below has sole voting power and investment power with
respect to the shares beneficially owned by such person.
<TABLE>
<CAPTION>
                                   Shares of
                                     Common
Name of Beneficial Owner(1)    Stock Beneficially Owned         Percent of Class(2)
---------------------------  -------------------------------   ---------------------
<S>                          <C>                               <C>
Vincent W. Beale, Sr.                     9,958,090 shares(3)                  29.9%
Cynet Holdings, LLC                       8,810,090 shares(4)                  27.3%
Houston Economic Opportunity Fund, L.P.   3,744,800 shares(6)                  10.6%
    1400 Smith Street
    Houston, TX 77002
Compaq Computer Corporation               2,822,072 shares                      8.7%
    20555 S.H. 249, MS 110701
    Houston, TX 77070
Guy M. Lewis                              2,758,888 shares(5)                   8.2%
Bernard B. Beale                          1,150,000 shares(7)(8)                3.6%
Samuel C. Beale                           1,100,000 shares(7)(8)                3.5%
Gerald M. MacIntosh                         840,008 shares(8)                   2.7%
Craig T. Jackson                            813,500 shares(8)                   2.6%
John Tollefsen                              165,750 shares(7)                    *
Daniel C. Lawson                            100,000 shares(8)                    *
Wayne Schroeder                             100,000 shares(7)                    *
R. Greg Smith                                66,667 shares(7)                    *
David R. Hearon, Jr.                         56,250 shares(7)                    *
Menashe Ben-David                            12,500 shares(7)                    *
Gregory E. Webb                                       -                          -
All directors and executive officers
    as a group (12 people)               10,812,765 shares(9)                  32.5%
</TABLE>
_______________________________________________________________________________
                                                                      PAGE -28-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

-------------------
*        Less than one percent.

1)    Unless otherwise indicated, the business address of each of the
      beneficial owners listed in this table is: c/o CYNET, Inc. 12777 Jones
      Rd., Suite 400, Houston, TX 77070.

2)    Percentages shown are based upon 31,577,775 shares of Class A Common
      Stock outstanding, plus with respect to each person or group, any Class
      A Common Stock that person or group has the right to acquire within 60
      days pursuant to options, warrants, conversion privileges or other rights.

3)    Represents (i) 8,810,090 shares of beneficially owned by Cynet Holdings,
      of which Mr. Beale is the President and majority owner, (ii) 1,048,000
      shares subject to warrants which Mr. Beale received from Ray C. Davis in
      July 1998, and (iii) 100,000 shares subject to vested stock options.

4)    Includes shares remaining of the (i) 9,473,000 shares purchased from
      Ray C. Davis and related entities controlled by Mr. Davis, (ii) 5,225,472
      shares purchased pursuant to the Subscription Agreement between the
      Company and Cynet Holdings (the "Holdings Subscription Agreement"),
      (iii) 1,090,000 shares which may be purchased at any time prior to
      July 22, 2003, at a purchase price of $1.00 per share, upon exercise of a
      warrant issued pursuant to the Holdings Subscription Agreement, and
      (iv) 152,811 shares purchased as part of the Rescission Financing.

5)    Includes 758,888 shares of Class A Common stock and 2,000,000 shares which
      may be purchased at any time prior to July 22, 2003, at a purchase price
      of $1.00 per share, upon exercise of a warrant originally issued pursuant
      to the Holdings Subscription Agreement.

6)    Represents (i) 3,331,200 shares into which an equal number of shares of
      the Series D Redeemable Convertible Preferred Stock (of which HEOF owns
      100%) may be converted and (ii) 413,600 shares, which may be purchased
      upon exercise of a warrant issued pursuant to the Enron Advisory
      Agreement.

7)    Includes shares subject to vested stock options.

8)    Includes shares deemed beneficially owned as a result of an interest in
      Cynet Holdings.

9)    Includes an aggregate of 7,425,683 shares that such persons have the right
      to acquire within 60 days pursuant to warrants and options held by such
      persons.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         KEITH SHAFFNER. In 1996, the Company paid Mr. Shaffner an aggregate
of $111,315 for services rendered. On November 14, 1997, the Company entered
into a Settlement Agreement and Mutual Release with Mr. Shaffner for services
rendered by him during 1996 and 1997. In exchange for a complete release of
all claims by Mr. Shaffner and his affiliate, CyFax, Inc. ("CyFax"), against
the Company, the Company issued to Mr. Shaffner: (i) a warrant to purchase
1,150,000 shares of Class B Common Stock at a price of $1.00 per share,
exercisable on or before August 30, 1999 (which the Company extended until
November 4, 2001), valued at $184,000 at the time of issuance, (ii) a warrant
to purchase 1,050,000 shares of Class B Common Stock at a price of $1.00 per
share, exercisable on or before February 28, 2000 (which the Company extended
until November 4, 2001), valued at $178,500 at the time of issuance, (iii)
500,000 shares of Class A Common Stock, valued at $500,000 at the time of
issuance, and (iv) $51,000 in cash. The extension of these warrants required
the Company to recognize a non-cash charge of approximately $1,344,000 during
the third quarter of 1999. See Note 5 of the Notes to Consolidated Financial
Statements. In addition, the Company issued 200,000 shares of Class A Common
Stock, valued at $78,000, to CyFax for the termination of an exclusive agent
management agreement with the Company. The Company also paid Mr. Shaffner,
individually, $91,636, and CyFax an aggregate of $893,527 for services
rendered in 1997.

         CYNET HOLDINGS, LLC. From February 1998 through July 1998, Cynet
Holdings purchased an aggregate of 9,473,000 shares of Class A Common Stock from
the Davis Interests for an aggregate amount of $1,250,000. The funds utilized by
Cynet Holdings to purchase such shares were generated from Cynet Holdings'
equity capital. Vincent W. Beale, Sr. is the President and majority owner of
Cynet Holdings. In July 1998 the Company entered into a Subscription Agreement
with Cynet Holdings, pursuant to which Cynet Holdings committed to purchase up
to 10,000,000 shares of Class A Common Stock of the Company for $1.00 per share
prior to December 31, 1998. In

_______________________________________________________________________________
                                                                      PAGE -29-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

August 1999 the Subscription Agreement was amended to (i) extend the duration
of the Subscription Agreement to December 31, 1999 and (ii) permit the
issuance of Class B Common Stock to the extent that no authorized Class A
Common Stock is available. In January 2000 the Subscription Agreement was
amended to extend the duration of the agreement to June 30, 2000 and increase
the purchase price per share payable by Cynet Holdings from $1.00 to $1.51 per
share. As of March 15, 2000, the Company issued an aggregate of 5,225,472
shares of Class A Common Stock to Cynet Holdings pursuant to the Holdings
Subscription Agreement in exchange for (i) $4,106,000 in cash contributions,
and (ii) the conversion of $1,119,472 in short-term unsecured borrowings that
were converted into shares of Class A Common Stock at a price of $1.00 per
share.

         In July 1999, the Company entered into a Purchase and Sale Agreement
with Cynet Holdings (the "CYNET Interactive Agreement"), pursuant to which
Cynet Holdings transferred all of the outstanding membership interests of
CYNET Interactive to the Company, resulting in CYNET Interactive becoming a
wholly-owned subsidiary of the Company. In consideration for this transfer,
the Company forgave a $118,936 account receivable due from CYNET Interactive.

         During 1999, Cynet Holdings provided the Company short-term financing
of an aggregate of $1,119,472 for working capital and other corporate
purposes. These borrowings were unsecured, non-interest bearing and due on
demand by Cynet Holdings. On December 31, 1999, in accordance with the
Holdings Subscription Agreement, the Company issued 1,119,472 shares of Class
A Common Stock to Cynet Holdings.

         On March 1, 2000, Cynet Holdings assigned to the Company its sales
and marketing rights with respect to the Cell Phone/Modem under the Teliran
Agreement for an initial term of one year in consideration for, among other
things, the Company's agreement to satisfy the minimum sales requirements
applicable to the Cell Phone/Modem units as provided in the Teliran Agreement.
(See Strategic Relationships.)

         During fiscal year 2000, Cynet Holdings provided the Company
additional short-term financing of $1,670,000 for working capital and other
corporate purposes. These borrowings were unsecured, non-interest bearing and
due on demand by Cynet Holdings. During fiscal year 2000, the Company repaid
$775,000 of the short-term financing. During the first quarter of 2001, Cynet
Holdings provided an additional $385,000 and the Company repaid Cynet Holdings
$125,500.

         CYNET INTERACTIVE. On July 31, 1999, the Company acquired from Cynet
Holdings all of the outstanding membership interests of CYNET Interactive,
LLC, a wholly-owned subsidiary of Cynet Holdings, pursuant to the terms of a
Purchase and Sale Agreement (the "CYNET Interactive Agreement") between the
Company and Cynet Holdings. CYNET Interactive, LLC is a Houston, Texas-based
Internet content provider, whose services include graphic and copy design,
application development and web hosting services. Pursuant to the CYNET
Interactive Agreement, the Company acquired all of the membership interests of
CYNET Interactive from Cynet Holdings in exchange for the Company's
forgiveness of a $118,936 account receivable due from CYNET Interactive. As a
result of the acquisition of CYNET Interactive, CYNET Interactive became a
wholly-owned subsidiary of the Company. The acquisition of CYNET Interactive
was approved by the disinterested members of the Company's Board of Directors.

         On February 8, 2001, the Company, CYNET Interactive and AECsoft USA,
Inc.("AECsoft") entered into an agreement pursuant to which the Company and
CYNET Interactive agreed to transfer all existing CYNET Interactive accounts
and customer contracts to AECsoft in exchange for AECsoft forgiving any and
all outstanding amounts owed by the Company to AECsoft. In addition, the
Company agreed to assign all accounts receivable related to CYNET Interactive
clients. The agreement provides that the Company will refer clients requesting
services including the ADC2000(TM) applications to AECsoft. The agreement also
provides in the event of the sale of the ADC2000(TM) software, the Company is
entitled to receive the lesser of 10% of the sale proceeds or $500,000.

         HOUSTON ECONOMIC OPPORTUNITY FUND, L.P. In December 1999, Houston
Economic Opportunity Fund, L.P. ("HEOF") acquired 1,766,423 shares of Class A
Common Stock for a purchase price of $1.37 per share as part of the Rescission
Financing. The

_______________________________________________________________________________
                                                                      PAGE -30-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

Company also issued HEOF a warrant to purchase 413,600 shares of Class A
Common Stock for a purchase price of $1.00 per share pursuant to the Enron
Advisory Agreement. The warrant is exercisable, in whole or in part, at any
time during the three-year period beginning on September 30, 1999. On February
4, 2000, the Company also completed a private placement (the "HEOF Financing")
of its securities to HEOF, pursuant to which HEOF (i) invested $1,600,000 in
the Company in exchange for 1,600,000 shares of the Company's newly-issued
Series C Redeemable Callable Preferred Stock, no par value, and (ii) exchanged
1,766,423 shares of Common Stock owned by HEOF for 1,766,423 shares of the
Company's newly-issued Series D Redeemable Convertible Preferred Stock, no par
value. The HEOF Financing was completed pursuant to a Stock Purchase Agreement
dated as of January 31, 2000 by and between the Company and HEOF.

         COMPAQ COMPUTER CORPORATION.  On August 8, 2000, the Company issued
to CPQ Holdings, Inc., a wholly-owned subsidiary of Compaq,  1,801,802 shares
of Class A Common Stock and three-year warrants to purchase 270,270 shares of
Class A Common Stock at an exercise price of $1.21 per share. CPQ Holdings,
Inc. paid an aggregate purchase price for the shares and the warrants of
$2,000,000, consisting of $1 million in cash and $1 million in a combination
of equipment and future equipment credits. The Company also entered into a
summary of terms for a strategic business agreement with Compaq simultaneously
with the closing of this investment. The summary contemplates that Compaq
equipment will be used to deliver certain of the Company's products and
services and that Compaq will work with the Company to determine opportunities
for Compaq to promote deployment of the Company's products and services to
certain Compaq business groups.

         On December 28, 2000, Compaq, a holder of Class A Common Stock, and
the Company entered into an agreement pursuant to which Compaq made a secured
loan to the Company for $750,000. In connection with the loan, the Company
issued to Compaq warrants to purchase 750,000 shares of the Company's Class A
Common Stock at a purchase price of $0.10 per share (based on the market
price of the Company's Class A Common Stock at or near the date the loan
was completed). The loan is in default as of February 7, 2001 (the original
maturity date) and bears a 15% annual default rate of interest. Interest on
the loan is payable monthly in arrears until the principal balance is paid in
full.

         EXECUTIVE EMPLOYMENT AGREEMENTS AND OTHER TRANSACTIONS. In 1998 the
Company entered into employment agreements with each of Vincent W. Beale,
Sr., Bernard B. Beale, David P. Hearon, Jr., Samuel C. Beale and R. Greg
Smith. In 2000, the Company entered into an employment agreement with John
Tollefsen. See "Executive Compensation--Employment Agreements."

         During the year ended December 31, 2000, $83,236 of advances to
Vincent W. Beale, Sr., Bernard B. Beale and Samuel C. Beale were deemed to be
compensation under federal tax regulations. See "Executive Compensation."

         In November 2000, G&B McIntosh Family Limited Partnership, an entity
controlled by Gerald M. McIntosh, a director, guaranteed the Company's
purchase of certain computer equipment and subsequently paid for such
equipment on behalf of the Company in the amount of $308,310.

         Future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal and will be made or entered into
on terms that are no less favorable to the Company than those that could be
obtained from an unaffiliated third party. Any such transactions will be
approved in advance by a majority of the disinterested members of the Board of
Directors.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS
<TABLE>
<S>                        <C>
         3.1               Articles of Incorporation of the Company, as amended
                           (incorporated by reference to the same numbered
                           exhibit to Amendment No. 2 to the Company's
                           Registration Statement on Form SB-2, No. 333-60765,
                           filed September 17, 1999).


         3.2               Bylaws of the Company (incorporated by reference to
                           the same numbered exhibit to Amendment No. 2 to the
                           Company's Registration Statement on Form SB-2, No.
                           333-60765, filed September 17, 1999).

         4.1               Form of Certificate Representing Class A Common Stock
                           (incorporated by reference to the same numbered
                           exhibit to Amendment No. 2 to the Company's
                           Registration Statement on Form SB-2, No. 333-60765,
                           filed September 17, 1999).

         4.2               Form of Certificate Representing Class B Common Stock
                           (incorporated by reference to the same numbered
                           exhibit to Amendment No. 2 to the Company's
                           Registration Statement on Form SB-2, No. 333-60765,
                           filed September 17, 1999).


         4.3               Form of Certificate Representing the Series D
                           Redeemable Convertible Preferred Stock
                           (incorporated by reference to the same numbered
                           exhibit to the Company's Quarterly Report for the
                           period ended June 30, 2000 (file no. 000-30412)).

         4.4               Form of Certificate Representing the Series E
                           Convertible Preferred Stock(incorporated by reference
                           to the same numbered exhibit to the Company's
                           Quarterly Report for the period ended June 30, 2000
                           (file no. 000-30412).
_______________________________________________________________________________
                                                                      PAGE -31-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         4.5               Form of Certificate Representing the Series F
                           Convertible Preferred Stock(incorporated by reference
                           to the same numbered exhibit to the Company's
                           Quarterly Report for the period ended June 30, 2000
                           (file no. 000-30412).

         4.6               Statement of the Powers, Designations, Preferences
                           and Rights of the Series D Preferred
                           Stock(incorporated by reference to the same numbered
                           exhibit to the Company's Quarterly Report for the
                           period ended June 30, 2000 (file no. 000-30412).

         4.7               Statement of the Powers, Designations, Preferences
                           and Rights of the Series E Convertible Preferred
                           Stock (incorporated by reference in the same numbered
                           exhibit to the Company's Quarterly Report on form
                           10-QSB for the period ended June 30, 2000 (file no.
                           000-30412).

         4.8               Statement of the Powers, Designations, Preferences
                           and Rights of the Series F Convertible Preferred
                           Stock (incorporated by reference in the same numbered
                           exhibit to the Company's Quarterly Report on form
                           10-QSB for the period ended June 30, 2000 (file no.
                           000-30412).

         10.1              Settlement Agreement and Mutual Release dated as of
                           November 14, 1997, among the Company, Keith Shaffner
                           and CyFax, Inc. (incorporated by reference to Exhibit
                           10.4 to the Company's Registration Statement on Form
                           SB- 2, No. 333-60765, filed August 6, 1998).

         10.2              1997 Restated Stock Option Plan (incorporated by
                           reference to Exhibit 10.5 to Amendment No. 1 to the
                           Company's Registration Statement on Form SB-2, No.
                           333- 60765, filed August 12, 1999).

         10.3              Employment Agreement dated as of February 1, 1998,
                           between the Company and Vincent W. Beale,
                           Sr.(incorporated by reference to Exhibit 10.6 to
                           the Company's Registration Statement on Form SB-2,
                           No. 333- 60765, filed August 6, 1998).

         10.4              Employment Agreement dated as of March 1, 1998,
                           between the Company and David R. Hearon, Jr.
                           (incorporated by reference to Exhibit 10.7 to the
                           Company's Registration Statement on Form SB-2, No.
                           333-60765, filed August 6, 1998).

         10.5              Warrant dated April 13, 1998, issued to Ray C. Davis
                           (incorporated by reference to Exhibit 10.9 to the
                           Company's Registration Statement on Form SB-2, No. 333-
                           60765, filed August 6, 1998).

         10.6              Employment Agreement dated as of July 22, 1998,
                           between the Company and Bernard B. Beale
                           (incorporated by reference to Exhibit 10.10 to the
                           Company's Registration Statement on Form SB-2, No.
                           333- 60765, filed August 6, 1998).

         10.7              Employment Agreement dated as of July 22, 1998,
                           between the Company and Samuel C. Beale (incorporated
                           by reference to Exhibit 10.11 to the Company's
                           Registration Statement on Form SB-2, No.
                           333-60765, filed August 6, 1998).
_______________________________________________________________________________
                                                                      PAGE -32-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         10.8              Subscription Agreement dated as of July 22, 1998,
                           between the Company and Cynet Holdings, LLC
                           (incorporated by reference to Exhibit 10.12 to the
                           Company's Registration Statement on Form SB-2, No.
                           333- 60765, filed August 6, 1998).

         10.9              Registration Rights Agreement dated as of July 22,
                           1998, between the Company and Cynet Holdings,
                           LLC(incorporated by reference to Exhibit 10.13 to the
                           Company's Registration Statement on Form SB-2, No.
                           333- 60765, filed August 6, 1998).

         10.10             Warrant dated July 22, 1998 issued to Cynet Holdings,
                           LLC (incorporated by reference to Exhibit 10.14 to the
                           Company's Registration Statement on Form SB-2, No.
                           333- 60765, filed August 6, 1998).

         10.11             Employment Agreement dated as of August 26, 1998,
                           between the Company and R. Greg Smith (incorporated
                           by reference to Exhibit 10.18 to Amendment No. 1 to the
                           Company's Registration Statement on Form SB-2, No.
                           333-60765, filed August 12, 1999).

         10.12             First Amendment to Subscription Agreement dated July
                           31, 1999, between the Company and Cynet Holdings, LLC
                           (incorporated by reference to Exhibit 10.20 to Amendment
                           No. 1 to the Company's Registration Statement on Form
                           SB-2, No. 333-60765, filed August 12, 1999).

         10.13             Purchase and Sale Agreement as of July 31, 1999,
                           between the Company and Cynet Holdings, LLC
                           (incorporated by reference to Exhibit 10.21 to Amendment
                           No. 1 to the Company's Registration Statement on Form
                           SB-2, No. 333-60765, filed August 12, 1999).

         10.14             Form of Rescission Fund Escrow Agreement by and among
                           the Company, First Bank Texas, N.A. and each of the
                           Rescission Underwriters (incorporated by reference to
                           Exhibit 10.25 to Amendment No. 3 to the Company's
                           Registration Statement on Form SB-2, No.333-60765,
                           filed October 15, 1999).

         10.15             Letter Agreement dated September 22, 1999 and
                           Addendum dated October 22, 1999, among the Company,
                           GlobeWave, Inc. and Teliran Electronic Industries,
                           Inc. (incorporated by reference to Exhibit 10.26 to
                           the Company's Registration Statement on Form SB-2,
                           No. 333-92099, filed December 3, 1999).

         10.16             Second Amendment to Subscription Agreement dated
                           January 12, 2000, between the Company and Cynet
                           Holdings, LLC. (incorporated by reference to
                           Exhibit 10.27 to the Company's Annual Report on
                           Form 10-KSB for the year ended December 31, 1999
                           (file no. 000-30412)).

         10.17             Securities Purchase Agreement dated as of January 31,
                           2000 by and between the Company and Augustine Fund,
                           L.P. (incorporated by reference to Exhibit 10.28
                           to the Company's Annual Report on Form 10-KSB for
                           the year ended December 31, 1999 (file no.
                           000-30412)).

         10.18             Stock Purchase Agreement dated as of January 31, 2000
                           by and between the Company and Houston Economic
                           Opportunity Fund, L.P. (incorporated by reference
                           to Exhibit 10.29 to the Company's Annual Report on
                           Form 10-KSB for the year ended December 31, 1999
                           (file no. 000-30412)).
_______________________________________________________________________________
                                                                      PAGE -33-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         10.19             Agreement dated February 16, 2000 among the Company,
                           Teliran Electronics, Ltd., and Cynet Holdings, LLC.
                           (incorporated by reference to Exhibit 10.30 to the
                           Company's Annual Report on Form 10-KSB for the
                           year ended December 31, 1999 file no. 000-30412)).

         10.20             Agreement dated March 1, 2000 between the Company and
                           Cynet Holdings, LLC. (incorporated by reference to
                           Exhibit 10.31 to the Company's Annual Report on
                           Form 10-KSB for the year ended December 31, 1999
                           (file no. 000-30412)).

         10.21             Form of Stock Exchange Agreement dated as of May 26,
                           2000 by and between the Company and Houston Economic
                           Opportunity Fund, L.P.

         10.22             Amended and Restated Registration Rights Agreement
                           dated as of May 26, 2000 by and between the Company
                           and Houston Economic Opportunity Fund, L.P.

         10.23             Form of Augustine Securities Purchase Agreement
                           dated as of May 26, 2000 by and between the Company
                           and Augustine Fund, L.P.

         10.24             Form of The Shaar Securities Purchase Agreement
                           dated as of May 26, 2000 by and between the Company
                           and The Shaar Fund, Ltd.

         10.25             Form of Triton Securities Purchase Agreement dated
                           as of May 26, 2000 by and between the Company and
                           Triton Private Equities Fund, L.P.

         10.26             Funding Agreement dated June 15, 2000 by and
                           between the Company and American Nortel
                           Communications, Inc.

         10.27             Employment agreement dated as of August 3, 2000
                           between the Company and John Tollefsen.

         10.28             Form of Securities Purchase Agreement dated as of
                           August 8, 2000 by and between the Company and CPQ
                           Holdings, Inc.

         10.29             Summary of Strategic Business Agreement Terms dated
                           August 8, 2000 by and between the Company and Compaq
                           Computer Corporation.

         10.30             Form of Loan Agreement dated December 28, 2000 by
                           and between the Company and Compaq Computer
                           Corporation.

         10.31             Form of Agreement dated February 8, 2001, among the
                           Company, AECsoft USA, Inc., and CYNET Interactive,
                           LLC.

         21                Subsidiaries of the Company

         23                Consent of Mann, Frankfort, Stein & Lipp CPAs,
                           L.L.P.
</TABLE>

REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF THE PERIOD COVERED BY
THIS FORM 10-KSB.

_______________________________________________________________________________
                                                                      PAGE -34-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         The Company filed a Form 8-K Current Report, dated October 12, 2000,
concerning the resignation of BDO Seidman, L.L.P. as the Company's independent
certified public accountants.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: April 18, 2000                           CYNET, INC.

                                      By:      /s/ Vincent W. Beale, Sr.
                                               ---------------------------------
                                               Vincent W. Beale, Sr., Chairman
                                               of the Board and Chief Executive
                                               Officer
                                               (Principal Executive Officer)

                                      By:      /s/ R. Greg Smith
                                               ---------------------------------
                                               R. Greg Smith, Chief Financial
                                               Officer
                                               (Principal Financial and
                                               Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE                   TITLE                                                  DATE
---------                   -----                                                  ----
<S>                         <C>                                                <C>
/s/ VINCENT W. BEALE, SR.   Chairman of the Board of Directors                 April 18, 2001
--------------------------  and Chief Executive Officer
Vincent W. Beale, Sr.       (Principal Executive Officer)

/s/ BERNARD B. BEALE        Executive Vice President,                          April 18, 2001
--------------------------  Chief Operating Officer
Bernard B. Beale            and Director

/s/ R. GREG SMITH           Chief Financial Officer and Director               April 18, 2001
--------------------------  (Principal Financial and Accounting Officer)
R. Greg Smith

/s/ SAMUEL C. BEALE         Vice President, General Counsel,                   April 18, 2001
--------------------------  Secretary and Director
Samuel C. Beale

/s/ WAYNE SCHROEDER         Director                                           April 18, 2001
--------------------------
Wayne Schroeder

/s/ DANIEL C. LAWSON        Director                                           April 18, 2001
--------------------------
Daniel C. Lawson

/s/ GREGORY E. WEBB         Director                                           April 18, 2001
--------------------------
Gregory E. Webb

/s/ GERALD M. MCINTOSH      Director                                           April 18, 2001
--------------------------
Gerald M. McIntosh
</TABLE>

_______________________________________________________________________________
                                                                      PAGE -35-
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                     PAGE
                                                                     ----
<S>                                                                  <C>
CYNET, INC. CONSOLIDATED FINANCIAL STATEMENTS:

     Report of Independent Certified Public Accountants...........    F-2
     Consolidated Balance Sheet...................................    F-3
     Consolidated Statements of Loss..............................    F-4
     Consolidated Statements of Capital Deficit...................    F-5
     Consolidated Statements of Cash Flows .......................    F-9
     Notes to Consolidated Financial Statements...................    F-10 - F-31
</TABLE>

_______________________________________________________________________________
                                        F-1
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of CYNET, Inc.
Houston, Texas


We have audited the accompanying consolidated balance sheet of CyNet, Inc. as
of December 31, 2000 and the related consolidated statements of loss, capital
deficit and cash flows for each of the two years in the period ended December
31, 2000. 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 auditing standards generally
accepted in the United States. 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
consolidated 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 CyNet, Inc. at December 31, 2000 and the consolidated results of their
operations and its cash flows for each of the two years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has incurred losses for the
years ended December 31, 2000 and 1999 totaling $12,309,985 and $8,303,938,
respectively, and at December 31, 2000 had a capital deficit of $3,411,766.
The Company will require additional working capital to develop and support its
technologies and business until the Company either (1) achieves a level of
revenues adequate to generate sufficient cash flows from operations; or (2)
obtains additional financing necessary to support its working capital
requirements. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 2. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.

                                        Mann Frankfort Stein & Lipp CPAs, LLP


Houston, Texas
March 30, 2001


_______________________________________________________________________________
                                        F-2
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                                  CYNET, INC.
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                                2000
                                                                                            ------------
                                                      ASSETS
                                                      ------
<S>                                                                                         <C>
Current Assets:
    Cash...........................................................................           $  80,009
    Accounts receivable:
       Trade, less allowance for doubtful accounts of $90,286 .....................             318,957
       Employees...................................................................              11,961

    Inventory......................................................................             582,400
    Work in Progress...............................................................              62,200
    Prepaid expenses...............................................................             141,892
    Other current assets...........................................................              74,877
                                                                                           --------------
       Total Current Assets........................................................          $1,272,296

Property and Equipment, net (Note 3)...............................................           2,687,293
                                                                                           --------------
                                                                                            $ 3,959,589
                                                                                           ==============
                                          LIABILITIES AND CAPITAL DEFICIT
                                          -------------------------------
Current Liabilities:

   Accounts payable................................................................        $  4,937,364
   Accrued expenses................................................................             456,575
   Note Payable, including accrued interest (Note 4)...............................             777,510
   Advances from affiliates (Note 5) ..............................................             895,000
   Accrued stock and warrant rights (Note 6).......................................             173,900
   Unearned Revenues...............................................................              52,550
   Short term capital lease payable................................................              39,228
                                                                                            ------------

   Total Current Liabilities.......................................................           7,332,127
Long term capital lease payable....................................................              39,228
                                                                                            ------------
    Total Liabilities                                                                      $  7,371,355

Commitments and Contingencies (Notes 6, 8, 9 and 11)

Capital Deficit (Note 6):
   Cumulative Convertible Preferred Stock:
     Series D, non-voting, $1.25 stated value; 4,000,000 shares authorized;
       3,331,200 shares issued and outstanding.....................................        $  4,164,000
     Series E, non-voting, $1,000 stated value; 1,635 shares authorized;
       1601 shares issued and outstanding.........................................            1,601,000
      Series F, non-voting, $1,000 stated value; 2,185 shares authorized;
       2184 shares issued and outstanding.........................................            2,184,000
   Common stock:
     Class A voting, no par value; 100,000,000 shares authorized;
       30,068,893 shares issued and outstanding ...................................          21,040,380
     Class B nonvoting, no par value; 20,000,000 shares authorized;
       1,018,015 shares issued and outstanding ....................................           1,294,744
     Additional paid-in capital....................................................           3,380,985
     Outstanding warrants..........................................................           3,112,506
     Deficit.......................................................................         (40,189,381)
                                                                                           -------------
     Total Capital Deficit.........................................................          (3,411,766)
                                                                                           -------------
                                                                                           $  3,959,589
                                                                                            ============
</TABLE>

          See accompanying notes to consolidated financial statements.

_______________________________________________________________________________
                                        F-3
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                                   CYNET, INC.
                         CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
                                                                                                     Years Ended
                                                                                                     December 31,
                                                                                              --------------------------
                                                                                                  2000          1999
                                                                                              -----------   ------------
<S>                                                                                           <C>           <C>
Revenues........................................................................             $  9,120,422   $ 8,626,675

Cost of revenues................................................................                4,884,319     4,807,061
                                                                                             ------------   -----------

Gross profit....................................................................                4,236,103     3,819,614


Selling, general and administrative expenses (Notes 2 and 1)....................               12,885,098    10,223,558

Depreciation and amortization...................................................                1,498,477       930,450

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


Loss from operations............................................................              (10,147,472)   (7,334,394)

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

Other income (expense):
  Interest expense (Note 4).....................................................               (1,794,276)     (939,557)
  Interest income...............................................................                    4,082        24,902
  Other.........................................................................                 (372,319)      (54,889)
                                                                                             ------------   -----------


                                                                                               (2,162,513)     (969,544)
                                                                                             ------------   -----------



Net loss before dividends on preferred stock....................................              (12,309,985)   (8,303,938)

Deemed dividend on convertible preferred stock..................................               (2,252,940)           --
Cumulative dividend requirement on preferred stock..............................                 (370,010)           --
Dividends on preferred stock....................................................                  (23,795)      (46,304)
Accretion on redeemable Class A voting common stock-net.........................                       --      (247,299)

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


Net loss applicable to common stockholders......................................             $(14,956,730)  $(8,597,541)

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


Net loss per common share - basic and assuming dilution.........................             $       (.50)  $      (.33)

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

Weighted average number of common shares outstanding............................               29,756,702    25,809,272
                                                                                             ============   ===========
</TABLE>


          See accompanying notes to consolidated financial statements.
_______________________________________________________________________________
                                        F-4
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                                   CYNET, INC.
                   CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
<TABLE>
<CAPTION>
                                                          Series                  Series                     Series
                                                            A                        B                          C
                                                         Preferred               Preferred                  Preferred
                                                          Stock                    Stock                      Stock
                                                --------------------------------------------------------------------------------
 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999     Shares      Amount       Shares        Amount       Shares         Amount
                                                --------------------------------------------------------------------------------
<S>                                             <C>           <C>            <C>         <C>            <C>            <C>
BALANCE, December 31, 1998                          103,500   $        -       87,349    $       -             -       $      -
Issuance of Class A common stock                          -            -            -            -             -              -
Issuance of Class A common stock on conversion
of advances from CyNet Holdings, LLC                      -            -            -            -             -              -
Reclassification of recission liability (Note 5)          -            -            -       30,000             -              -
Modification of terms of previously issued
Class B common stock warrants (Note 5)                    -            -            -            -             -              -
Acquisition of CYNET Interactive, LLC (Note 5)            -            -            -            -             -              -
Accrued dividends on preferred stock                      -            -            -            -             -              -
Issuance of Class A common stock in recission
offer                                                     -            -            -            -             -              -
Issuance of Class A common stock warrants in
recission offer                                           -            -            -            -             -              -
Reclassification and accretion of redeemable
Class A voting common stock                               -            -            -            -             -              -
Shares rescinded pursuant to the recission
offer (Note 7)                                      (37,500)     109,997      (26,517)      96,240             -              -
Cost of issuance of Class A common stock                  -            -            -            -             -              -
Net loss                                                  -            -            -            -             -              -
                                                  ---------  -----------  -----------   ----------  ------------   ------------
BALANCE, at December 31, 1999                        66,000    $ 109,997       60,832     $126,240             -       $      -
                                                  =========  ===========  ===========   ==========  ============   ============
Issuance of Class A common stock                          -            -            -            -             -              -
Issuance of Class B common stock                          -            -            -            -             -              -
Issuance of Preferred C shares                            -            -            -            -     1,600,000      1,600,000
Issuance of Preferred E shares                            -            -            -            -             -              -
Issuance of Preferred F shares                            -            -            -            -             -              -
Issuance of common stock and/or warrants for
finder's fees, consulting and other services              -            -            -            -             -              -
Conversion of notes payable into Preferred E &
F shares                                                               -            -            -             -              -
Conversion of Preferred C shares into Preferred
D shares                                                  -            -            -            -    (1,600,000)    (1,600,000)
Conversion of Class A common redeemable stock
to Preferred D shares                                     -            -            -            -             -              -
Conversion of Class B common stock to Class A
common stock                                              -            -            -            -             -              -
Conversion of Preferred A shares to Class A
common stock                                        (66,000)    (109,997)           -            -             -              -
Conversion of Preferred B shares to Class B
common stock                                              -            -      (60,832)    (126,240)            -              -
Exercises of warrants                                     -            -            -            -             -              -
Deemed dividends                                          -            -            -            -             -              -
Accretion on redeemable stock-net                         -            -            -            -             -              -
Adjustment to recission shares and related
dividends                                                 -            -            -            -             -              -
Adjustment to issuance of Class A common stock
on conversion of advances from CyNet Holdings, LLC        -            -            -            -             -              -
Net loss                                                  -            -            -            -             -              -
                                                  ---------  -----------  -----------   ----------  ------------   ------------
BALANCE, at December 31, 2000                             -   $        -            -    $       -             -       $      -
                                                  =========  ===========  ===========   ==========  ============   ============
</TABLE>
_______________________________________________________________________________
                                        F-5
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                                   CYNET, INC.
                   CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
<TABLE>
<CAPTION>
                                                    Series                      Series                  Series
                                                       D                           E                       F
                                                   Preferred                   Preferred               Preferred
                                                     Stock                      Stock                    Stock
                                                --------------------------------------------------------------------------------
 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999      Shares        Amount      Shares       Amount       Shares         Amount
                                                --------------------------------------------------------------------------------
<S>                                             <C>           <C>            <C>         <C>            <C>            <C>
BALANCE, December 31, 1998                                  -    $        -          -    $        -           -       $       -
Issuance of Class A common stock                            -             -          -             -           -               -
Issuance of Class A common stock on conversion
of advances from CyNet Holdings, LLC                        -             -          -             -           -               -
Reclassification of recission liability (Note 5)            -             -          -             -           -               -
Modification of terms of previously issued
Class B common stock warrants (Note 5)                      -             -          -             -           -               -
Acquisition of CYNET Interactive, LLC (Note 5)              -             -          -             -           -               -
Accrued dividends on preferred stock                        -             -          -             -           -               -
Issuance of Class A common stock in recission
offer                                                       -             -                        -           -               -
Issuance of Class A common stock warrants in
recission offer                                             -             -          -             -           -               -
Reclassification and accretion of redeemable
Class A voting common stock                                 -             -          -             -           -               -
Shares rescinded pursuant to the recission
offer (Note 7)                                              -             -          -             -           -               -
Cost of issuance of Class A common stock                    -             -          -             -                           -
Net loss                                                    -             -          -             -           -               -
                                                   -----------   -----------   --------   -----------  ----------    -----------
BALANCE, at December 31, 1999                               -    $        -          -    $        -           -       $       -
                                                   ===========   ===========   ========   ===========  ==========    ===========
Issuance of Class A common stock                            -             -          -             -           -               -
Issuance of Class B common stock                            -             -          -             -           -               -
Issuance of Preferred C shares                              -             -          -             -           -               -
Issuance of Preferred E shares                              -             -        534       534,000           -               -
Issuance of Preferred F shares                              -             -          -             -         716         716,000
Issuance of common stock and/or warrants for
finder's fees, consulting and other services                -             -          -             -           -               -
Conversion of notes payable into Preferred E &
F shares                                                    -             -      1,067     1,067,000       1,468       1,468,000
Conversion of Preferred C shares into Preferred
D shares                                            1,395,200     1,600,000          -             -           -               -
Conversion of Class A common redeemable stock
to Preferred D shares                               1,936,000     2,667,299          -             -           -               -
Conversion of Class B common stock to Class A
common stock                                                -             -          -             -           -               -
Conversion of Preferred A shares to Class A
common stock                                                -             -          -             -           -               -
Conversion of Preferred B shares to Class B
common stock                                                -             -          -             -           -               -
Exercises of warrants                                       -             -          -             -           -               -
Deemed dividends                                            -             -          -             -           -               -
Accretion on redeemable stock-net                           -      (103,299)         -             -           -               -
Adjustment to recission shares and related
dividends                                                   -             -          -             -           -               -
Adjustment to issuance of Class A common stock
on conversion of advances from CyNet Holdings, LLC          -             -          -             -           -               -
Net loss                                                    -             -          -             -           -               -
                                                   -----------   -----------   --------   -----------  ----------    -----------
BALANCE, at December 31, 2000                       3,331,200    $4,164,000      1,601    $1,601,000       2,184      $2,184,000
                                                   ===========   ===========   ========   ===========  ==========    ===========
</TABLE>
_______________________________________________________________________________
                                        F-6



<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                                   CYNET, INC.
                   CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
<TABLE>
<CAPTION>
                                                           Class A                   Class B
                                                         Common Stock              Common Stock        Additional
                                                -------------------------------------------------------  Paid-in
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999       Shares        Amount      Shares       Amount       Capital
                                                ------------------------------------------------------------------
<S>                                             <C>           <C>            <C>         <C>            <C>

BALANCE, December 31, 1998                         20,970,072    $4,116,703  3,137,803    $  700,000    $      -
Issuance of Class A common stock                    2,595,000     2,595,000          -             -           -
Issuance of Class A common stock on conversion
of advances from CyNet Holdings, LLC                1,119,472     1,119,472          -             -           -
Reclassification of recission liability (Note 5)            -             -          -             -           -
Modification of terms of previously issued
Class B common stock warrants (Note 5)                      -             -          -             -           -
Acquisition of CYNET Interactive, LLC (Note 5)              -             -          -             -     308,039
Accrued dividends on preferred stock                        -             -          -             -           -

Issuance of Class A common stock in recission
offer                                               4,490,216     6,151,598          -             -           -
Issuance of Class A common stock warrants in
recission offer                                             -             -          -             -           -
Reclassification and accretion of redeemable
Class A voting common stock                                 -    (2,420,000)         -             -           -
Shares rescinded pursuant to the recission
offer (Note 7)                                     (1,390,553)    4,742,304 (1,014,539)    2,499,119           -
Cost of issuance of Class A common stock                    -       (41,294)         -             -           -
Net loss                                                    -             -          -             -           -
                                                  -----------   -----------  ---------   -----------   ---------
BALANCE, at December 31, 1999                      27,784,207   $16,263,783  2,123,264    $3,199,119   $ 308,039
                                                  ===========   ===========  =========   ===========   =========
Issuance of Class A common stock                    1,801,802     1,873,033          -             -           -
Issuance of Class B common stock                            -             -    750,000       642,177           -
Issuance of Preferred C shares                              -             -          -             -           -
Issuance of Preferred E shares                              -             -          -             -    (190,254)
Issuance of Preferred F shares                              -             -          -             -           -
Issuance of common stock and/or warrants for
finder's fees, consulting and other services           10,000        15,000          -             -     (88,519)
Conversion of notes payable into Preferred E &
F shares                                                    -             -          -             -     968,487
Conversion of Preferred C shares into Preferred
D shares                                                    -             -          -             -           -
Conversion of Class A common redeemable stock
to Preferred D shares                              (1,766,423)            -          -             -           -
Conversion of Class B common stock to Class A
common stock                                        1,989,828     2,645,668 (1,989,828)   (2,645,668)          -
Conversion of Preferred A shares to Class A
common stock                                           66,000       109,997          -             -           -
Conversion of Preferred B shares to Class B
common stock                                                -             -     60,832       126,240           -
Exercises of warrants                                  95,989        64,500     65,356        51,875      26,993
Deemed dividends                                            -             -          -             -   2,252,940
Accretion on redeemable stock-net                           -             -          -             -     103,299
Adjustment to recission shares and related
dividends                                              18,962        68,399      8,391       (78,999)          -
Adjustment to issuance of Class A common stock
on conversion of advances from CyNet Holdings, LLC     68,528             -          -             -           -
Net loss                                                    -             -          -             -           -
                                                  -----------   -----------  ---------   -----------   ---------
BALANCE, at December 31, 2000                      30,068,893   $21,040,380  1,018,015    $1,294,744  $3,380,985
                                                  ===========   ===========  =========   ===========   =========
</TABLE>
_______________________________________________________________________________
                                        F-7
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________
<TABLE>
<CAPTION>

                                                         Warrants (1)                          Treasury Stock
                                                ---------------------------              ----------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999       Shares        Amount      Deficit       Shares       Amount       Total
                                                ---------------------------  ---------   ----------------------------  -----
<S>                                             <C>           <C>            <C>         <C>            <C>            <C>


BALANCE, December 31, 1998                         10,599,954      362,500  $(17,079,508)    18,041     $(317,767)   $(12,218,072)
Issuance of Class A common stock                            -            -             -          -             -       2,595,000
Issuance of Class A common stock on conversion
of advances from CyNet Holdings, LLC                        -            -             -          -             -       1,119,472
Reclassification of recission liability (Note 5)            -            -             -          -             -          30,000
Modification of terms of previously issued
Class B common stock warrants (Note 5)                      -    1,344,004             -          -             -       1,344,004
Acquisition of CYNET Interactive, LLC (Note 5)              -            -             -          -             -         308,039
Accrued dividends on preferred stock                        -            -       (46,304)         -             -         (46,304)

Issuance of Class A common stock in recission
offer                                                       -            -             -          -             -       6,151,598
Issuance of Class A common stock warrants in
recission offer                                       413,600            -             -          -             -               -
Reclassification and accretion of redeemable
Class A voting common stock                                 -            -      (247,299)         -             -      (2,667,299)
Shares rescinded pursuant to the recission
offer (Note 7)                                              -      181,933        74,388    (18,041)      317,767       8,021,748
Cost of issuance of Class A common stock                    -            -             -          -             -         (41,294)
Net loss                                                    -            -    (8,303,938)         -             -    $ (8,303,938)
                                                   ----------   ----------  ------------    -------     ---------    ------------
BALANCE, at December 31, 1999                      11,013,554   $1,888,437  $(25,602,661)         -     $       -    $ (3,707,046)
                                                   ==========   ==========  ============    =======     =========    ============
Issuance of Class A common stock                      270,270      126,967             -          -             -       2,000,000
Issuance of Class B common stock                      250,000      107,823             -          -             -         750,000
Issuance of Preferred C shares                              -            -             -          -             -       1,600,000
Issuance of Preferred E shares                        215,000      190,254             -          -             -         534,000
Issuance of Preferred F shares                              -            -             -          -             -         716,000
Issuance of common stock and/or warrants for
finder's fees, consulting and other services          700,000      475,004             -          -             -         401,485
Conversion of notes payable into Preferred E &
F shares                                              160,000      351,014             -          -             -       3,854,501
Conversion of Preferred C shares into Preferred
D shares                                                    -            -             -          -             -               -
Conversion of Class A common redeemable stock
to Preferred D shares                                       -            -             -          -             -       2,667,299
Conversion of Class B common stock to Class A
common stock                                                -            -             -          -             -               -
Conversion of Preferred A shares to Class A
common stock                                                -            -             -          -             -               -
Conversion of Preferred B shares to Class B
common stock                                                -            -             -          -             -               -
Exercises of warrants                                (207,375)     (26,993)            -          -             -         116,375
Deemed dividends                                            -            -    (2,252,940)         -             -               -
Accretion on redeemable stock-net                           -            -             -          -             -               -
Adjustment to recission shares and related
dividends                                                   -            -       (23,795)         -             -         (34,395)
Adjustment to issuance of Class A common stock
on conversion of advances from CyNet Holdings, LLC          -            -             -          -             -               -
Net loss                                                    -            -   (12,309,985)         -             -     (12,309,985)
                                                   ----------   ----------  ------------    -------     ---------    ------------
BALANCE, at December 31, 2000                      12,401,449   $3,112,506  $(40,189,381)         -     $       -    $ (3,411,766)
                                                   ==========   ==========  ============    =======     =========    ============
</TABLE>

          (1) Outstanding warrants consisted of the following at December 31:
<TABLE>
<CAPTION>
                                           1999                     2000
                                           ----                     ----
                                      Shares    Amount      Shares        Amount
                                   ---------   --------   ----------     --------
<S>                                <C>         <C>        <C>          <C>
Class A common stock warrants       8,462,600 $  181,933   9,077,370   $  921,300
Class B common stock warrants       2,550,954 $1,706,504   3,324,079   $2,191,206
                                    --------- ----------   ---------   ----------
                                   11,013,554 $1,888,437   12,401,449  $3,112,506
                                   ========== ==========   ==========  ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

_______________________________________________________________________________
                                        F-8
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                                   CYNET, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                           INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
                                                                                                           Years Ended
                                                                                                           December 31,
                                                                                                 -----------------------------
                                                                                                      2000            1999
                                                                                                 -------------    ------------
<S>                                                                                              <C>             <C>
Cash flows from operating activities:
Net loss ...............................................................................         $(12,309,985)   $ (8,303,938)
Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization.......................................................            1,498,477         930,450
    Amortization of debt discount.......................................................            1,355,145              --
    Loss on disposal of property and equipment..........................................                 (468)         31,628
    Provision for bad debts.............................................................              207,063         200,272
    Stock and warrants issued for compensation and services.............................                   --       1,344,004
    Stock and warrant rights issued for loan costs and services.........................               35,000          65,748
    Adjustment to recission offer.......................................................              (10,600)             --
    Registration penalty due in stock...................................................              123,900              --
    Write off of employee advances to compensation expense..............................               84,806              --
    Loss on conversion of debt..........................................................              250,429              --
    Warrants issued for services rendered...............................................              320,737              --
    Expensing of deferred offering costs pursuant to the rescission offer...............                   --         712,567
    Changes in assets and liabilities:
      Accounts receivable...............................................................             (220,116)       (126,763)
      Inventory.........................................................................             (582,400)             --
      Prepaid expenses and other assets.................................................             (236,989)         11,865
      Accounts payable and accrued expenses.............................................            2,296,171         539,156
                                                                                                 ------------    ------------
   Net cash used in operating activities...............................................            (7,188,830)     (4,595,011)
                                                                                                 ------------    ------------
Cash flows from investing activities:
   Purchase of property and equipment..................................................              (950,150)       (349,678)

   Proceeds from sale of property and equipment........................................               125,581          37,000
                                                                                                 ------------    ------------
   Net cash used in investing activities...............................................              (824,569)       (312,678)
                                                                                                 ------------    ------------
Cash flows from financing activities:
   Issuance of common stock - Class A, net of issuance costs...........................             1,000,000       8,705,302
   Issuance of common stock - Class B, net of issuance costs...........................               750,000              --
   Issuance of preferred stock - Class D, net of issuance costs........................             1,600,000              --
   Issuance of preferred stock - Classes E&F, net of issuance costs....................             1,869,500              --
   Proceeds from note payable and advances.............................................             3,720,000       1,119,472
   Proceeds from warrants and options exercised........................................               131,375              --
   Payments on note payable............................................................              (775,000)         (7,512)
   Payment of cash dividends...........................................................              (385,348)             --
   Payment of rescission liability.....................................................                    --      (4,781,699)
                                                                                                 ------------    ------------
   Net cash provided by financing activities...........................................             7,910,527       5,035,563
                                                                                                 ------------    ------------
Net increase (decrease) in cash........................................................              (102,872)        127,874
   Cash, beginning of period...........................................................               182,881          55,007
                                                                                                 ------------    ------------
   Cash, end of period.................................................................          $     80,009    $    182,881
                                                                                                 ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.
_______________________________________________________________________________
                                        F-9
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

                                   CYNET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS AND BASIS OF PRESENTATION

         The accompanying consolidated financial statements include the
accounts of CYNET, Inc., and its wholly-owned subsidiaries Worldwide
Marketing, Inc. formed April 24, 1998 and CyNet Interactive, LLC, acquired in
July 1999. All significant intercompany accounts and transactions have been
eliminated. CYNET, Inc., Worldwide Marketing, Inc., CyNet Interactive, LLC
and the LLCs are referred to herein as the Company. During 1998, the Company
dissolved each of the LLCs.

         The Company is an Internet business solutions provider integrating
full convergent messaging services with wireless product offerings. The
Company's products and services are convergent messaging which includes Fax,
Data, E-Mail and Mobile Messaging, and wireless products which include the
CYNET CYPAQ PocketPack and Complete Cell Phone/Modem.

         The Company is a Texas corporation and was founded in April 1995 to
provide fax services for business-to-business communication. The Company
capitalized on the dramatic increase in the usage of third-party fax services
and created a niche market for itself with its HYPERCAST fax broadcast
desktop client software and service. In 1997, the Company introduced
HYPERLINE, its point-to-point desktop software and fax service in order to
expand its existing fax service.

         Having built a reputation for high performance in communications
through its fax services, the Company responded to the rapid growth and
popularity of e-mail and the Internet as a primary communications medium and
set out to become a full service Internet messaging provider. In 1998, the
Company added to its product offering HYPERWEB, its e-mail-to-fax service;
and HYPERMAIL, its fax-to-e-mail service. To further enhance its messaging
services, the Company, through its subsidiary Worldwide Marketing Services,
Inc., also added enhancement services such as list procurement. These
additional services enabled the Company to sell complete messaging solutions
with end-to-end control of the solution.

         In July 1999, the Company acquired CyNet Interactive, LLC from CyNet
Holdings, LLC, at the time a 56.2% stockholder of the Company, prior to the
rescission offer and rescission financing, (see Note 5). The acquisition of
CyNet Interactive, LLC by the Company was intended to expand its messaging
and broadcast enhancement services to include web site design, Internet
application development for e-commerce and other Internet-based applications,
and web site hosting.

           The Company discovered during the year 2000 that by focusing on
its core competencies, convergent messaging and wireless product solutions,
the Company will be better able to conquer the burgeoning unified messaging
and wireless solutions markets. These competencies will provide the
foundation & strength from which the Company will grow. They will provide the
Company the ability to furnish the quality products and services customers
have grown to expect.

           As an Application Service Provider, the Company is leading the
convergence of technologies associated with dialer software, messaging
software and wireless tools. Not only from an IT perspective, but from a
market perspective as well, the Company is the lead developer in the
convergent messaging niche including voice, e-mail, fax and data messaging,
wireless Internet connectivity and list management services.

           The Company's management maintains that its solutions selling
approach allows the Company to effectively deliver its customers' messages
irrespective of the transmission medium and will continue to pursue sales via
the bundling of convergent messaging and wireless product solutions in the
future.

_______________________________________________________________________________
                                        F-10
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

INVENTORY

           Inventory consists of wireless cell/modems and is stated at the
lower of cost or market using the first-in, first-out (FIFO)method. Inventory
was written down during 2000 by $565,350 due to lower price initiatives by
competitors.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Depreciation is computed
over the estimated useful lives of the assets using the straight-line method
for financial reporting purposes and accelerated methods for income tax
purposes. Maintenance and repairs are charged to operations as incurred.

         The Company reviews property and equipment for impairment whenever
events or changes in circumstances indicate the carrying value of an asset
may not be fully recoverable.

INCOME TAXES

         Deferred income taxes result from temporary differences between the
financial statement and income tax bases of assets and liabilities (see Note
8). The Company adjusts the deferred tax asset valuation allowance based on
judgments as to future realization of the deferred tax benefits supported by
demonstrated trends in the Company's operating results.

 RESEARCH AND DEVELOPMENT

         Expenditures for research and development of telecommunication
technology as it relates to fax broadcasting and to various customer
interface and application needs are charged to expense as incurred. For the
years ended December 31, 2000 and 1999, research and development expenditures
were approximately $2,008,000 and $755,000, respectively.

REVENUE RECOGNITION

         Messaging service revenues are recognized as services are performed.
Wireless product revenues are recognized when shipped to the customer.
Revenues from sales of customer lists and other related services are
recognized when the list is provided, or the other services are performed.
The Company also earned revenue from fees relating to web site design,
Internet application development for e-commerce and other Internet-based
applications, and web site hosting. These fees are recognized as revenue once
the related activities have been performed and the project is complete.

GOODWILL

         Goodwill recorded in connection with the acquisition of CyNet
Interactive, LLC (see Note 5) was being amortized using the straight-line
method over three years during the years ended December 31, 1999 and 2000.
The goodwill of $95,221 was written off as of December 31, 2000 in
anticipation of the agreement between the Company and AECsoft dated February
8, 2001. See NOTE 12.

LOSS PER COMMON SHARE

         The Company is required to provide basic and dilutive earnings
(loss) per common share information.

         The basic net loss per common share is computed by dividing the net
loss applicable to common stockholders by the weighted average number of
common shares outstanding.

         Diluted net loss per common share is computed by dividing the net
loss applicable to common stockholders, adjusted on an "as if converted"
basis, by the weighted average number of common shares outstanding plus
potential dilutive securities. For the years ended December 31, 2000 and
1999, potential dilutive

_______________________________________________________________________________
                                        F-11
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

securities had an anti-dilutive effect and were not included in the calculation
of diluted net loss per common share.

         These securities at December 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
                                                                                      2000            1999
                                                                                   ----------     -----------
                                                                                     (shares)        (shares)
<S>                                                                                <C>            <C>
            Conversion of Series A preferred stock - Class A....................            -            66,000
            Conversion of Series B preferred stock - Class B....................            -            60,832
            Conversion of Series D preferred stock - Class A....................     3,331,200                -
            Conversion of Series E preferred stock - Class A....................     2,225,166                -
            Conversion of Series F preferred stock - Class A....................     2,225,166                -
            Incentive stock option plan - Class A...............................     3,605,000        2,176,249
            Stock warrants outstanding - Class A................................     9,077,370        8,462,600
            Stock warrants outstanding - Class B ...............................     3,324,079        2,550,954
                                                                                    ----------     ------------
                                                                                    23,787,981       13,316,635
                                                                                    ==========       ==========
</TABLE>

STOCK OPTIONS AND WARRANTS

         The Company accounts for stock options and warrants issued to
employees in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. For financial statement disclosure
purposes and issuance of options and warrants to non-employees for services
rendered, the Company follows statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation.

RISKS AND UNCERTAINTIES

         The Company is subject to the business risks inherent in the
telecommunications industry. These risks include, but are not limited to, a
high degree of competition within the telecommunications industry and
continuous technological advances. Future technological advances in the
telecommunications industry may result in the availability of new services or
products that could compete with the enhanced messaging services and wireless
products and services currently provided by the Company or decreases in the
cost of existing products or services that could enable the Company's
established or potential customers to fulfill their own needs for enhanced
messaging services and wireless products more cost efficiently. There can be
no assurance that the Company would not be adversely affected in the event of
such technological change.

FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

         The Company's financial instruments include accounts receivable,
accounts payable and notes payable. The fair market value of accounts
receivable, accounts payable and notes payable approximates their carrying
values because their maturities are generally less than one year in duration.
The Company extends credit to customers in a wide variety of industries and
does not consider there to be a concentration of credit risk.

MANAGEMENT'S ESTIMATES AND ASSUMPTIONS

         The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles which 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 revenue
and expenses during the reporting period. Actual results could differ from
those estimates.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged

_______________________________________________________________________________
                                        F-12
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

asset or liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income
in the period of change. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.

         Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2001 to
affect its financial statements.

NOTE 2 - FINANCIAL CONDITION AND GOING CONCERN

         For the years ended December 31, 2000 and 1999, the Company incurred
net losses totaling $12,309,985 and $8,303,938, respectively, and at December
31, 2000 had a capital deficit of $3,411,766. Because of these recurring
losses, the Company will require additional working capital to develop and
support its technologies and business until the Company either (1) achieves a
level of revenues adequate to generate sufficient cash flows from operations;
or (2) receives additional financing necessary to support the Company's
working capital requirements.

           Subsequent the year ended December 31, 2000, the Company raised an
additional $450,000 (less legal costs) through debt financing initiated and
partially funded prior to year end. See NOTE 5 RELATED PARTY TRANSACTIONS
below. In addition, the Company received additional cash advances totaling
$385,000 from CyNet Holdings, LLC, and repaid $125,500 to CyNet Holdings, LLC
during the first quarter of 2001.

         Additionally, the Company intends to raise additional working
capital through either private placements, public offerings and/or bank
financing. As of March 1, 2001, the Company is in discussions with several
investors and lending institutions, however no definitive agreements have
been reached.

         There are no assurances that the Company will be able to either (1)
achieve a level of revenues adequate to generate sufficient cash flow from
operations; or (2) obtain additional financing through either private
placement, public offerings and/or bank financing necessary to support the
Company's working capital requirements. To the extent that funds generated
from operations and any private placements, public offerings and/or bank
financing are insufficient, the Company will have to raise additional working
capital. No assurance can be given that additional financing will be
available, or if available, will be on terms acceptable to the Company. If
adequate working capital is not available the Company may be required to
curtail its operations.

         These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might be necessary should the Company be unable to continue as a going
concern.

NOTE 3 - PROPERTY AND EQUIPMENT

         At December 31, 2000, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
                                                                                   Estimated Useful
                                                                                    Lives (Years)         Amount
                                                                                    -------------      -------------
<S>                                                                                <C>               <C>
         Computer equipment................................................               3-5        $   3,263,239
         Computer software.................................................               5              1,074,250
         Furniture and fixtures............................................               7                612,646
         Telephone and electrical equipment................................               3-5              430,203
         Automobiles.......................................................               5                129,113
         Leasehold improvements............................................               5                242,453
          Capital leases...................................................               2                 78,455
                                                                                                       -------------
                                                                                                     $   5,830,359
         Less - accumulated depreciation and amortization..................                          $   3,143,066
                                                                                                     $   2,687,293
                                                                                                       =============
</TABLE>
_______________________________________________________________________________
                                        F-13
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

NOTE 4 - NOTES PAYABLE

           On January 31, 2000, the Company entered into a securities
purchase agreement with a non-related entity. In accordance with the
agreement the Company issued a $1,600,000 Series A (8%) Convertible
promissory note. The promissory note bore interest at 8% payable quarterly in
cash or common stock beginning June 30, 2000, with outstanding principal and
interest due January 31, 2002. At the holders' option at any time commencing
at the earlier of the effective date of the registration statement or May 30,
2000, the original face amount of the note or a portion could be converted
into the Company's Class A common stock at a per share conversion rate
equaled to the lesser of (1) 110% of the average of the closing bid prices
for the Company's Class A common stock five trading days prior to January 31,
2000 or (2) 75% of the average of the three lowest closing bid prices for the
Company's Class A common stock thirty trading days immediately preceding the
conversion date.

         On issuance of the promissory note the Company recorded a debt
discount of approximately $1,250,000 to record the effect of the beneficial
conversion rate of the promissory note at date of issuance. The debt discount
was amortized as a non-cash charge to interest expense from the date the
promissory note was issued to the first date the promissory note is eligible
for conversion. Accordingly, the Company incurred a non-cash interest charge
of approximately $625,000 in each of the first and second quarters of 2000.

         In addition, the Company issued the note holder a warrant to
purchase 160,000 shares of the Company's Class A common stock at a per share
price equaled to 120% of the average of the closing bid prices of the
Company's Class A common stock five trading days prior to January 31, 2000.
The warrant vested immediately and expires January 31, 2003. At the date of
issuance the Company recorded a debt discount of approximately $350,000 for
the value of the warrant. The debt discount was amortized as a non-cash
charge to interest expense until the Company and the note holder entered into
a subsequent agreement during 2000 discussed below. As of the date of the
subsequent agreement, the remaining debt discount was immediately written off
to interest expense.

         In association with the issuance of this promissory note the Company
paid finders fees totaling $145,000, which consisted of issuance of 10,000
shares of the Company's Class A common stock valued at $15,000 and a cash
payment of $130,000.

           During 2000, the debt was converted to Preferred Series E&F
through a subsequent equity financing agreement. See NOTE 7- CAPITAL below.

           On December 28, 2000, Compaq, a Class A common shareholder, and
the Company entered into an agreement pursuant to which Compaq made a secured
loan to the Company for $750,000. As of December 31, 2000, $350,000 of the
funds related to the note had been received by the Company. The loan has been
in default as of February 7, 2001 (the original maturity date) and bears a
15% annual default rate of interest. Interest on the loan is payable monthly
in arrears until the principal balance is paid in full. The outstanding
balance of the loan as of December 31, 2000 was classified as a current
liability in the Company's consolidated balance sheet.

           In August 1998, the Company entered into a five-year agreement
with an early cancellation provision to sell certain of its eligible accounts
receivable, on a revolving basis to a non-affiliated entity. The Company
continues to service the receivables and maintains an allowance for doubtful
accounts based upon the expected collectibility of all accounts receivables,
including the receivables sold. The Company agreed to pay a finance charge on
the accounts receivable sold at rates ranging from 5% to 34.01% based on the
aging of the receivables. However, the Company has not been remitting the
collection of the sold accounts receivable to the factoring agent and has
been using the agreement as a line of credit and is paying finance charges of
approximately 5% per month (60% annually) on the advances. For the year ended
December 31, 2000 and 1999, the Company incurred finance charges of $169,120
and $154,366, respectively. As of December 31, 2000 the note payable was
$421,695, including accrued finance charges of $21,965.

           As of December 31, 2000, there were other notes payable balances
at various interest rates totaling $5,815.

_______________________________________________________________________________
                                        F-14
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

NOTE 5 - RELATED PARTY TRANSACTIONS

           Related party transactions for the year ended December 31, 2000 are
as follows:

              (a) During 2000, the Company was advanced $1,670,000 from
                  CyNet Holdings, LLC for working capital. The unsecured
                  advances were non-interest bearing and due on demand. As of
                  December 31, 2000, the Company owed CyNet Holdings $895,000.


              (b) During 2000, the Company received $350,000 less legal fees
                  of a $750,000 promissory note with 750,000 detachable warrants
                  at an exercise price of $0.10 per share (based on the
                  market price of the Company's Class A Common Stock at or near
                  the date the loan was completed) issued to a shareholder. The
                  remaining balance OF $400,000 was received in January 2001.
                  Interest on the note is 10% and is due on demand. See Note 12.


         Related party transactions for the year ended December 31, 1999 are as
follows:

              (a) In July 1999, the Company entered into a purchase
                  agreement with CyNet Holdings, LLC. Pursuant to the agreement
                  CyNet Holdings, LLC transferred all of the outstanding
                  membership interest of CyNet Interactive, LLC, a wholly-owned
                  subsidiary of CyNet Holdings, LLC, formed March 1999, to the
                  Company, resulting in CyNet Interactive, LLC becoming a
                  wholly-owned subsidiary of the Company. In consideration for
                  this transfer, the Company forgave a $118,936 account
                  receivable due from CyNet Interactive, LLC. Prior to the
                  transfer both the Company and CyNet Interactive, LLC were
                  considered under common control of CyNet Holdings, LLC.
                  Accordingly, the transfer was accounted for at historical cost
                  in a manner similar to a pooling of interest. The operations
                  of CyNet Interactive, LLC from date of inception through date
                  of acquisition were minimal.

              (b) In September 1999, the Company modified the terms of
                  previously issued warrants to purchase 2,200,000 shares of
                  Class B common stock. The new terms of the warrants call for
                  the warrants to vest immediately, are exercisable at $1.00 per
                  share and expire November 4, 2001. Due to the modification of
                  the terms of the warrants, the Company recorded a third
                  quarter 1999 non-cash charge of approximately $1,344,000 based
                  on the fair value of the warrants at the date of modification.

              (c) During 1999, the Company was advanced $1,119,472 from
                  CyNet Holdings, LLC for working capital, pending the outcome
                  of the rescission offer. The unsecured advances were
                  non-interest bearing and due on demand. As of December 31,
                  1999, all advances from CyNet Holdings, LLC were converted
                  into Class A common stock at $1.00 per share under the
                  subscription agreement discussed below.

NOTE 6 - CAPITAL

COMMON STOCK

         The Company is authorized to issue up to 120,000,000 shares of its
no par value common stock of which 100,000,000 shares have been designated as
Class A voting common stock and 20,000,000 shares have been designated as
Class B non-voting common stock. The holders of shares of Class A common
stock are entitled to one vote for each share on all matters submitted to a
vote of stockholders. Holders of Class B common Stock are entitled under the
Texas Business Corporation Act to vote in connection with the voluntary
dissolution of the Company but have no voting privileges with respect to
other matters. The holders of both Class A and Class B common stock are
entitled to receive such dividends, if any, as may be declared by the Board
of Directors from time to time out of legally available funds. Upon
liquidation or dissolution of the Company, the holders of both Class A and
Class B common stock are entitled to share ratably in all assets of the
Company that are legally available for distribution, after payment of all
debts and other liabilities and subject to the priority rights of any holders
of preferred stock then

_______________________________________________________________________________
                                        F-15
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

outstanding. Holders of Class A and Class B common stock have no preemptive
rights to acquire new securities issued by the Company and have no rights to
convert their common stock into any other securities of the Company.

CLASS A COMMON STOCK

           On August 8, 2000, for a combined consideration of cash, equipment
and future equipment credit, the Company issued to CPQ Holdings, Inc., a
wholly-owned subsidiary of Compaq Computer Corporation ("Compaq"), 1,801,802
shares of Class A Common Stock and three-year warrants to purchase 270,270
shares of Class A Common Stock. In connection with their investment, Compaq
and the Company entered into an agreement contemplating that Compaq equipment
will be used to deliver certain of the Company's products and services.

           On May 26, 2000, the Company issued to Delano Securities Group
five-year warrants to purchase 100,000 shares of the Company's Class A Common
Stock at an exercise price of $1.76 per share as part of Delano Securities
Group's compensation for arranging the Company's financing transactions with
Augustine, The Shaar Fund Ltd. and Triton Private Equities Fund, L.P.

           Additionally, 66,000 shares of Series A preferred and 1,989,828
shares of Class B common were converted to 66,000 and 1,989,828 shares of
Class A common, respectively, during the year ended December 31, 2000 under
the mandatory conversion option elected at the Company's discretion.

           During the year ended December 31, 1999, in association with the
completion of the rescission offer, the Company issued 4,490,216 shares of
Class A common stock at $1.37 per share, in accordance with the terms of the
stand-by investor agreements. Of the shares issued, 1,766,423 shares are
subject to a put option. See Rescission Offer below for discussion of this
put option.

       During the year ended December 31, 1999, in association with the
completion of the rescission offer, the Company purchased and retired
1,390,553 shares of Class A common stock for $2,220,150, not including
interest and dividends paid. See Rescission Offer below.

       During the years ended December 31, 1999, the Company sold 3,714,472
shares of common stock at $1.00 per share to CyNet Holdings, LLC, a related
entity.

CLASS B COMMON STOCK

           On June 15, 2000, the Company entered into an agreement with
American Nortel Communications, pursuant to which the Company agreed to issue
American Nortel Communications 750,000 shares of Class B Common Stock and
three-year warrants to purchase 250,000 shares of Class B Common Stock at an
exercise price of $1.50 per share for $750,000 paid to the Company by
American Nortel Communications.

           During the year ended December 31, 2000, 1,989,828 shares of Class
B common were converted to Class A common shares under the mandatory
conversion option elected at the Company's discretion. Additionally, 60,832
shares of Series B preferred were converted to 60,832 shares of Class B
common during the year ended December 31, 2000 under the mandatory conversion
option elected at the Company's discretion.

           During the year ended December 31, 1999, in association with the
completion of the rescission offer, the Company purchased and retired
1,014,539 shares of Class B common stock for $2,376,999, not including
interest and dividends paid. See Rescission Offer below.

_______________________________________________________________________________
                                        F-16
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         At December 31, 2000, the Company had common stock reserved for
future issuance as follows:
<TABLE>
<CAPTION>
                                                                                                      2000
                                                                                                 ------------
                                                                                                    (shares)
<S>                                                                                              <C>
         Stock rights - Class A..............................................                        360,000
         Incentive stock option plan - Class A...............................                      3,605,000
         Stock warrants outstanding - Class A................................                      9,077,370
         Stock warrants outstanding - Class B................................                      3,324,079
                                                                                                 ------------
                                                                                                  16,366,449
                                                                                                 ============
</TABLE>

PREFERRED STOCK

         The Company is authorized to issue up to 10,000,000 shares of no par
value preferred stock. The preferred stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on a particular
matter), preferences as to dividends and liquidation, conversion, redemption
rights and sinking fund provisions.

SERIES A PREFERRED STOCK

         The Company is authorized to issue a total of 3,600,000 shares of
Series A preferred stock. The preferred stock is non-voting, has a $2.00 per
share stated value and has an annualized dividend rate of $0.24 per share.
Attributes of the Series A preferred stock are discussed below:

         RANKING. The Series A preferred stock is senior to the Company's
common and Series B preferred stock with respect to dividends and rights upon
liquidation or dissolution of the Company. As long as any Series A preferred
stock is outstanding, the Company will not be entitled to authorize or issue
any class of securities that is senior to or on parity with the Series A
preferred stock without the approval of holders of at least 66-2/3% of the
Series A preferred stock.

         VOTING RIGHTS. Holders of Series A preferred stock are not entitled
to vote.

         DIVIDEND RIGHTS. The holders of Series A preferred stock are
entitled to receive out of funds of the Company legally available, dividends
at an annual rate of $0.24 per share, payable semi-annually in arrears in two
equal installments of $0.12 in June and December of each year. Dividends
accrue and accumulate from the date of first issuance and are paid to holders
of record as they appear on the books of the Company as of the record date of
the last day of May and November in each year which immediately precedes each
respective dividend payment date. Accumulation of dividends does not bear
interest. So long as the Series A preferred stock is outstanding, the Company
may not declare or pay any dividends on the common stock or other stock
unless the full cumulative dividends on the Series A preferred stock have
been paid in full.

         CONVERSION AND MANDATORY CONVERSION. Shares of Series A preferred
stock are convertible by the holder at any time (a) on or after the date of
issuance and before November 1, 1997 into shares of Class A common stock at a
conversion rate of 1.2 shares of Class A common stock for each share of
Series A preferred stock tendered; and (b) after November 1, 1997 and before
September 1, 1998 at a conversion rate of 1.1 shares of Class A common stock
for each share of Series A preferred stock (c) after September 1, 1998 the
conversion rate is 1.0. Any accrued and unpaid dividends will be paid to
holders of the Series A preferred stock at the time of conversion. The
Company at its sole discretion and option has the right to require that
holders of Series A preferred stock to convert their shares to Class A common
stock at any time on or after January 1, 1999. In the event of this mandatory
conversion election by the Company, holders of Series A preferred stock will
receive one share of Class A common stock for each share of Series A
preferred stock.

         LIQUIDATION RIGHTS. In the event of liquidation or dissolution of the

_______________________________________________________________________________
                                        F-17
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

Company, whether voluntary or otherwise, after payment or provision for
payment of the debts and other liabilities of the Company, the holders of the
Series A preferred stock are entitled to receive, out of the remaining net
assets of the Company available for distribution to stockholders before any
distribution or payment made to holders of common stock or Series B preferred
stock other junior capital stock, the Series A preferred stock stated value
of $2.00 per share plus any accrued and unpaid dividends. Upon payment of the
full amount of the Series A preferred stock stated value plus any unpaid
dividends, the holders of Series A preferred stock shall not be entitled to
any further participation in any distribution of assets of the Company.

           During the year ended December 31, 2000, the remaining outstanding
66,000 shares of previously issued Series A preferred stock were converted
into 66,000 shares of Class A common stock at a conversion rate of one share
of Class A common stock for each share of Series A Preferred stock.
Subsequent to the conversion, no shares of Series A preferred remain
outstanding.

           During the year ended December 31, 1999, in association with the
completion of the rescission offer, the Company purchased and retired 37,500
shares of Series A preferred stock for $75,000, not including interest and
dividends paid. See Note 7 Rescission offer.

 SERIES B PREFERRED STOCK

         The Company is authorized to issue a total of 2,000,000 shares of
Series B cumulative convertible preferred stock. The preferred stock is
non-voting, has a $3.00 per share stated value and has an annualized dividend
rate of $0.30 per share. Attributes of the Series B preferred stock are
discussed below:

         RANKING. The Series B preferred stock is junior to the Series A
preferred stock and senior to the Company's common stock with respect to
dividends and rights upon liquidation or dissolution of the Company. As long
as any Series B preferred stock is outstanding, the Company will not be
entitled to authorize or issue any class of securities that is senior to or
on parity with the Series B preferred stock without the approval of holders
of at least 66-2/3% of the Series B preferred stock.

         VOTING RIGHTS. Holders of Series B preferred stock are not entitled
to vote.

         DIVIDEND RIGHTS. The holders of Series B preferred stock are
entitled to receive out of funds of the Company legally available, dividends
at an annual rate of $0.30 per share, payable semi-annually in arrears in two
equal installments of $0.15 in June and December of each year. Dividends
accrue and accumulate from the date of first issuance and are paid to holders
of record as they appear on the books of the Company as of the record date of
the last day of May and November in each year which immediately precedes each
respective dividend payment date. Accumulation of dividends will not bear
interest. So long as the Series A or B preferred stock is outstanding, the
Company may not declare or pay any dividend on the common stock or other
capital stock unless the full cumulative dividends on the Series A and Series
B preferred stock have been paid in full.

         CONVERSION AND MANDATORY CONVERSION. Shares of Series B preferred
stock are convertible by the holder at any time (a) on or after the date of
issuance and before November 1, 1997 into shares of Class B non-voting common
stock at a conversion rate of 1.2 shares of such common stock for each share
of Series B preferred stock; and (b) after November 1, 1997 and before
September 1, 1998 at a conversion rate of 1.1 shares of Class B non-voting
common stock for each share of Series B preferred stock after September 1,
1998 the conversion rate is 1.0. Any accrued and unpaid dividends will be
paid to holders of the Series B preferred stock at the time of conversion.
The Company at its sole discretion and option has the right to require that
holders of Series B preferred stock to convert their shares to Class B
non-voting common stock at any time on or after January 1, 1999. In the event
of this mandatory conversion election by the Company, holders of Series B
preferred stock will receive one share of Class B non-voting common stock for
each share of Series B preferred stock.

_______________________________________________________________________________
                                        F-18
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         LIQUIDATION RIGHTS. In the event of liquidation or dissolution of
the Company, whether voluntary or otherwise, after payment or provision for
payment of the debts, other liabilities of the Company, and Series A
preferred shareholders, the holders of the Series B preferred stock are
entitled to receive, out of the remaining net assets of the Company available
for distribution to stockholders before any distribution or payment made to
holders of common stock or other junior capital stock, the Series B preferred
stock stated value of $3.00 per share plus any accrued and unpaid dividends.
Upon payment of the full amount of the Series B preferred stock stated value
plus any unpaid dividends, the holders of Series B preferred stock shall not
be entitled to any further participation in any distribution of assets of the
Company.

           During the year ended December 31, 2000, 60,832 shares of
previously issued Series B preferred stock were converted into 60,832 shares
of Class B common stock at a conversion rate of one share of Class B common
stock for each share of Series A Preferred stock. Subsequent to the
conversion, no shares of Series B preferred remain outstanding.

           During the year ended December 31, 1999, in association with the
completion of the rescission offer, the Company purchased and retired 26,517
shares of Series B preferred stock for $109,500, not including interest and
dividends paid. See Rescission Offer below.

SERIES C PREFERRED STOCK

         The Company is authorized to issue a total of 1,600,000 shares of
Series C preferred stock. The preferred stock is non-voting, has a $1.09 per
share stated value and are entitled to no dividends except liquidating
dividends. Attributes of the Series C preferred stock are discussed below:

         RANKING. The Series C preferred stock is senior to the Company's
common and Series D preferred stock with respect to dividends and rights upon
liquidation or dissolution of the Company. As long as any Series C preferred
stock is outstanding, the Company will not be entitled to authorize or issue
any class of securities that is senior to or on parity with the Series C
preferred stock without the approval of holders of at least 66-2/3% of the
Series C preferred stock.

         VOTING RIGHTS. Holders of Series C preferred stock are not entitled
to vote.

         DIVIDEND RIGHTS. The holders of Series C preferred stock are not
entitled to dividends except liquidating dividends.

         CONVERSION AND MANDATORY CONVERSION. The shares of Series C
preferred are not convertible at the option of the shareholder or the Company.

         LIQUIDATION RIGHTS. In the event of liquidation or dissolution of
the Company, whether voluntary or otherwise, after payment or provision for
payment of the debts and other liabilities of the Company, the holders of the
Series A preferred stock are entitled to receive, out of the remaining net
assets of the Company available for distribution to stockholders before any
distribution or payment made to holders of common stock or Series B preferred
stock other junior capital stock, the Series C preferred stock call
redemption price of (i)$1.09 per share from the date of issuance through July
31, 2000, (ii) $1.18 per share from August 1, 2000 through January 31, 2001,
(iii) $1.31 per share from February 1, 2001 through July 31, 2001, (iv) $1.45
from August 1, 2001 through January 31, 2002, (v) $1.64 from February 1, 2002
through July 31, 2002, and (vi) $1.86 on and after August 1, 2002. Upon
payment of the full amount of the Series C preferred stock stated value, the
holders of Series C preferred stock shall not be entitled to any further
participation in any distribution of assets of the Company.

           During the year ended December 31, 2000, the Company issued
1,600,000 shares of Series C preferred in a private placement. Shortly
thereafter, the directors of the Company determined it was desirable to
exchange these shares into Series D preferred shares at an exchange value of
$1.09 per share of Series C preferred and

_______________________________________________________________________________
                                        F-19
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

$1.25 per share of Series D preferred resulting in the issuance of 1,395,200
shares of Series D preferred as described below.

SERIES D PREFERRED STOCK

         The Company is authorized to issue a total of 4,000,000 shares of
Series D preferred stock. The preferred stock is non-voting, has a $1.25 per
share stated value and has an annualized dividend rate of $0.1125 per share.
Attributes of the Series D preferred stock are discussed below:

         RANKING. The Series D preferred stock ranks pari passu to the
Company's Series E preferred shares and senior to any other capital stock of
the organization with respect to dividends and rights upon liquidation or
dissolution of the Company. As long as any Series D preferred stock is
outstanding, the Company will not be entitled to authorize or issue any class
of securities that is senior to or on parity with the Series D preferred
stock without the approval of holders of at least 66-2/3% of the Series D
preferred stock.

         VOTING RIGHTS. Holders of Series D preferred stock are entitled to
vote, in person or by proxy, at a special or annual meeting of stockholders,
on all matters entitled to be voted on by holders of Class A common stock
voting together as a single class with other shares entitled to vote thereon.
With respect to any such vote, each share of Series D preferred stock shall
entitle the holder to cast that number of votes per share equal to the number
of votes that such holder would be entitled to cast had such holder converted
its shares of Series D preferred into shares of Class A common on the record
date for determining the stockholders of the Company eligible to vote on any
such matters. Series D preferred shareholders shall not be entitled to vote
as a separate class.

         DIVIDEND RIGHTS. The holders of Series D preferred stock are
entitled to receive out of funds of the Company legally available, dividends
at an annual rate of $0.1125 per share, payable quarterly in arrears in four
equal installments of $0.028125 on January 1, April 1, June 1 and October 1
of each year. Dividends accrue and accumulate from the date of first issuance
and are paid to holders of record as they appear on the books of the Company
as of the record date of the last day of December, March, May, and September
in each year which immediately precedes each respective dividend payment
date. Accumulation of dividends does not bear interest. So long as the Series
D preferred stock is outstanding, the Company may not declare or pay any
dividends on the common stock or other stock unless the full cumulative
dividends on the Series D preferred stock have been paid in full.

         CONVERSION. Shares of Series D preferred stock are convertible by
the holder at any time on or after the date of into shares of Class A common
stock at a conversion rate of 1.0. Any accrued and unpaid dividends will be
paid to holders of the Series A preferred stock at the time of conversion.

         LIQUIDATION RIGHTS. In the event of liquidation or dissolution of
the Company, whether voluntary or otherwise, after payment or provision for
payment of the debts and other liabilities of the Company, the holders of the
Series D preferred stock are entitled to receive, out of the remaining net
assets of the Company available for distribution to stockholders before any
distribution or payment made to holders of common stock or Series B or Series
F preferred stock other junior capital stock, the Series D preferred stock
liquidation preference value of $1.51 per share plus any declared and unpaid
dividends. Upon payment of the full amount of the Series D preferred stock
stated value plus any unpaid dividends, the holders of Series D preferred
stock shall not be entitled to any further participation in any distribution
of assets of the Company.

           On January 31, 2000, the Company exchanged 1,766,423 shares of
Class A common for 1,766,423 shares of Series D preferred. In exchange for
eliminating the Company's obligation to the Series D preferred shareholders
put option on Class A common shares issued in 1999, an additional 169,577
shares of Series D preferred were issued to the investor.

           On May 26, 2000, the Company exchanged 1,600,000 shares of Series
C preferred for Series D preferred shares at an exchange value of $1.09 per
share of Series C

_______________________________________________________________________________
                                        F-20
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

preferred and $1.25 per share of Series D preferred resulting in the issuance
of 1,395,200 Series D preferred shares.

SERIES E PREFERRED STOCK

         The Company is authorized to issue a total of 1,635 shares of Series
E preferred stock. The preferred stock is non-voting, has a $1,000 per share
stated value and has an annualized dividend rate of 8% per annum. Attributes
of the Series E preferred stock are discussed below:

         RANKING. The Series E preferred stock ranks pari passu to the
Company's Series D preferred shares and senior to any other capital stock of
the organization with respect to dividends and rights upon liquidation or
dissolution of the Company. As long as any Series E preferred stock is
outstanding, the Company will not be entitled to authorize or issue any class
of securities that is senior to or on parity with the Series E preferred
stock without the approval of holders of at least 66-2/3% of the Series E
preferred stock.

         VOTING RIGHTS. Holders of Series E preferred stock are not entitled
to vote.

         DIVIDEND RIGHTS. The holders of Series E preferred stock are
entitled to receive out of funds of the Company legally available, dividends
at an annual rate of 8% per annum, payable semi-annually in arrears in two
equal installments of $40 on June 30 and December 31 of each year. Dividends
accrue and accumulate from the date of first issuance and are paid to holders
of record as they appear on the books of the Company as of the record date of
the last day of May and November in each year which immediately precedes each
respective dividend payment date. Accumulation of dividends does not bear
interest. So long as the Series E preferred stock is outstanding, the Company
may not declare or pay any dividends on the common stock or other stock
unless the full cumulative dividends on the Series E preferred stock have
been paid in full.

         CONVERSION AND MANDATORY CONVERSION. Shares of Series E preferred
stock are convertible by the holder at any time on or after the date of
issuance at a conversion price per share of Class A common equal to the
lesser of: (i) 110% of the lowest of the closing bid prices for the Class A
common shares on the OTCBB for the five trading days immediately preceding
the closing date, or (ii) 75% of the market price; provided that, if the
registration statement has not been declared effective on or before August
26, 2000, then the conversion percentage shall decrease by 2% for each month
or partial month in which the said registration statement has not been
declared, or does not remain, effective; if such registration statement has
not been declared and does not remain effective on the date which is one year
after the closing date and until the Series E preferred shares have been
redeemed or converted in full, then the conversion percentage shall be 50%.
On May 26, 2003, the Company will convert all Series E preferred shares
outstanding at the conversion price utilizing the stated value plus accrued
or unpaid dividends as the value of each share of Series E preferred, into
shares of Class A common for resale in open market transactions on the
registration statement which will then be effective under the Securities Act.

         LIQUIDATION RIGHTS. In the event of liquidation or dissolution of
the Company, whether voluntary or otherwise, after payment or provision for
payment of the debts and other liabilities of the Company, the holders of the
Series E preferred stock are entitled to receive per share, out of the
remaining net assets of the Company available for distribution to
stockholders with Series D preferred and before any distribution or payment
made to holders of other capital stock and amount equal to the sum of (i) the
stated value, plus (ii) am amount equal to 30% of such stated value, plus
(iii) the aggregate of all accrued and unpaid dividends until the most recent
dividend payment due date; provided that, in the event of an actual
liquidation the amount in clause (iii) above shall be calculated by including
accrued and unpaid dividends to the actual date of such liquidation,
dissolution or winding up, rather than the dividend payment due date referred
to above. Upon payment of the full amount of the Series E preferred stock
stated value plus any unpaid dividends, the holders of Series E preferred
stock shall not be entitled to any further participation in any distribution
of assets of the Company.

_______________________________________________________________________________
                                        F-21
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

            On May 26, 2000, a $1.6 million Series A 8% convertible note
issued by the Company and additional investor financing of $2,150,000 in cash
were converted into Series E and Series F preferred shares. The total number
of Series E preferred shares issued were 1,601 valued at $1,601,000. In
association with the E and F shares issued, a deemed dividend totaling $2.3
million was booked to equity associated with the beneficial conversion
feature.

SERIES F PREFERRED STOCK

 The Company is authorized to issue a total of 2,185 shares of Series F
preferred stock. The preferred stock is non-voting, has a $1,000 per share
stated value and has an annualized dividend rate of 8% per annum. Attributes
of the Series F preferred stock are discussed below:

         RANKING. The Series F preferred stock ranks junior to the Company's
Series D and E preferred shares and senior to any other capital stock of the
Company with respect to dividends and rights upon liquidation or dissolution
of the Company. As long as any Series F preferred stock is outstanding, the
Company will not be entitled to authorize or issue any class of securities
that is senior to or on parity with the Series F preferred stock without the
approval of holders of at least 66-2/3% of the Series F preferred stock.

         VOTING RIGHTS. Holders of Series F preferred stock are not entitled
to vote.

         DIVIDEND RIGHTS. The holders of Series F preferred stock are
entitled to receive out of funds of the Company legally available, dividends
at an annual rate of 8% per annum, payable semi-annually in arrears in two
equal installments of $40 on June 30 and December 31 of each year. Dividends
accrue and accumulate from the date of first issuance and are paid to holders
of record as they appear on the books of the Company as of the record date of
the last day of May and November in each year which immediately precedes each
respective dividend payment date. Accumulation of dividends does not bear
interest. So long as the Series F preferred stock is outstanding, the Company
may not declare or pay any dividends on the common stock or other stock
unless the full cumulative dividends on the Series F preferred stock have
been paid in full.

         CONVERSION AND MANDATORY CONVERSION. Shares of Series F preferred
stock are convertible by the holder at any time on or after the date of
issuance at a conversion price per share of Class A common equal to the
lesser of: (i) 110% of the lowest of the closing bid prices for the Class A
common shares on the OTCBB for the five trading days immediately preceding
the closing date, or (ii) 75% of the market price; provided that, if the
registration statement has not been declared effective on or before August
26, 2000, then the conversion percentage shall decrease by 2% for each month
or partial month in which the said registration statement has not been
declared, or does not remain, effective; if such registration statement has
not been declared and does not remain effective on the date which is one year
after the closing date and until the Series F preferred shares have been
redeemed or converted in full, then the conversion percentage shall be 50%.
On May 26, 2003, the Company will convert all Series F preferred shares
outstanding at the conversion price utilizing the stated value plus accrued
or unpaid dividends as the value of each share of Series F preferred, into
shares of Class A common for resale in open market transactions on the
registration statement which will then be effective under the Securities Act.

         LIQUIDATION RIGHTS. In the event of liquidation or dissolution of
the Company, whether voluntary or otherwise, after payment or provision for
payment of the debts and other liabilities of the Company, the holders of the
Series F preferred stock are entitled to receive per share, out of the
remaining net assets of the Company available for distribution to
stockholders after Series D and E preferred but before any distribution or
payment made to holders of other capital stock and amount equal to the sum of
(i) the stated value, plus (ii) am amount equal to 30% of such stated value,
plus (iii) the aggregate of all accrued and unpaid dividends until the most
recent dividend payment due date; provided that, in the event of an actual
liquidation the amount in clause (iii) above shall be calculated

_______________________________________________________________________________
                                        F-22
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

by including accrued and unpaid dividends to the actual date of such
liquidation, dissolution or winding up, rather than the dividend payment due
date referred to above. Upon payment of the full amount of the Series F
preferred stock stated value plus any unpaid dividends, the holders of Series
F preferred stock shall not be entitled to any further participation in any
distribution of assets of the Company.

           On May 26, 2000, a $1.6 million Series A 8% convertible note
issued by the Company and additional investor financing of $2,150,000 in cash
were converted into Series E and Series F preferred shares. An additional 35
shares valued at $35,000 were issued in lieu of interest on the note payable
due at the time of conversion. The total number of Series F preferred shares
issued was 2,184 valued at $2,184,000 In association with the E and F shares
issued, a deemed dividend totaling $2.3 million was booked to equity
associated with the beneficial conversion feature.

RESCISSION OFFER

           During 1998, 1997 and 1996, the Company sold certain common and
preferred stock which were not registered pursuant to the federal and state
securities laws, but were sold in a series of three private placement
offerings in reliance upon the exemptions from registration afforded by (i)
Sections 3(b) and 4(2) of the Securities Act of 1933, as amended, and
Regulation D promulgated thereunder and (ii) various state limited offering
provisions, respectively. In addition, the Company issued certain common and
preferred stock and stock warrants for services provided to the Company.

           However, the Company was advised that under the integration
provisions of Regulation D, the private placement offerings may be viewed by
the Securities and Exchange Commission as one continuous offering and, as
such, may not have been conducted in compliance with all applicable
Regulation D limited offering conditions. If the private placement offerings
were not conducted in compliance with the securities laws, the purchasers of
the common and preferred stock would have the right to have such securities
repurchased by the Company for an amount equal to the purchase price paid
less any dividends received plus interest, or if the common and preferred
stock have been disposed of by the holder at a loss, the difference between
the purchase price and the price received upon disposal less dividends
received plus interest. In addition, the Company determined that certain
issuances of common and preferred stock and stock warrants issued for
services were also subject to rescission for an amount equal to the estimated
value of services rendered to the Company. As a result, the Company elected
to make a rescission offer to the holders of certain issuances of common and
preferred stock and stock warrants. The rescission offer was effective
October 18, 1999, and was outstanding for approximately thirty-five days. Of
the common stock and preferred stock sold during 1998, 1997 and 1996, taking
into consideration the conversion of Series A and B preferred stocks,
5,300,304 and 2,050,093 shares of Class A and B common stock for net proceeds
of $7,988,989 and $5,119,475, respectively; 103,500 shares of Series A
preferred stock for net proceeds of $207,000 and 77,349 shares of Series B
preferred stock for net proceeds of $232,047, were subject to the rescission
offer, less dividends paid on Series A and B preferred stock of $192,478 and
$55,650, respectively, prior to the conversion to common stock.

         Regarding the common and preferred stock and stock warrants issued
for services in prior periods, as previously discussed; 214,187 shares of
Class A common stock valued at $149,887, taking into consideration the
conversion of Series A preferred stocks; 669,640 shares of Class B common
stock valued at $299,099 taking into consideration conversion of Series B
preferred stock; and 799,000 Class A common stock warrants valued at
$201,640, were subject to the rescission offer.

         Accordingly, the Company was precluded from classifying these
securities and proceeds as capital until such time as the rescission offer
was completed. At which time the Company classified as capital such
securities and proceeds to the extent the security holders elected to retain
their ownership in the Company. For security holders electing to rescind
their ownership, the rescission price was paid in cash.

_______________________________________________________________________________
                                        F-23
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         The Company's rescission offer was effective October 18, 1999 and was
outstanding for approximately thirty-five days. The following is a summary of
the outcome of the rescission offer:
<TABLE>
<CAPTION>
                                  Stockholders
                             Securities Subject to     Electing to Accept
                                Rescission Offer        Rescission Offer                                Total
                          ------------------------  ----------------------     Interest Dividends     Rescission
Class of Stock                Shares        Amount      Shares      Amount    Expenses        Paid    Liability
--------------            ----------  ------------  ----------  ----------   ---------  ----------   -----------
<S>                       <C>         <C>           <C>         <C>          <C>        <C>          <C>
Series A Preferred Stock     103,500  $    201,265      37,500  $   75,000   $  12,775  $   (2,333)  $    85,442
Series B Preferred Stock      77,349       229,923      26,517     109,550      22,720        (855)      131,415
Class A Common Stock       5,514,491     7,952,134   1,390,553   2,220,150     421,791     (81,497)    2,560,444
Class B Common Stock       2,719,733     5,365,047   1,014,539   2,376,999     400,732     (18,133)    2,759,598
Warrants - Class A           799,000       201,640           -           -           -           -             -
                                      ------------              ----------   ---------  ----------   -----------
                                      $ 13,950,009              $4,781,699   $ 858,018  $ (102,818)  $ 5,536,899
                                      ============              ==========   =========  ===========  ===========
</TABLE>

         To fund the rescission liability of $5,536,899, the Company arranged
for stand-by investors. During the year ended December 31, 1999, the Company
entered into agreements with stand-by investors to provide $6,151,598 to fund
the rescission offer. The agreements provided that the stand-by investors
purchase up to $6,151,598 of Class A common stock at $1.37 per share to the
extent stockholders elected to accept the rescission offer. In addition with
the consent of the stand-by investors, any unused proceeds from the stand-by
investors that remained after the funding of the rescission offer was used by
the Company for general working capital purposes.

        One of the agreements entered into by the Company discussed above
contains a put option. In accordance with the agreement, this stand-by
investor, who committed to fund $2,420,000 of the rescission financing, can
put its shares back to the Company by the anniversary date of the expiration
of the rescission offer at a $1.51 per share. Accordingly, the $2,420,000 was
immediately accreted up to $2,667,299 to reflect the put option and
classified outside of the equity section as mezzanine capital until such time
the put option has expired. In addition, in August 1999 the Company entered
into an agreement with a related entity of the stand-by investor to provide
financial advisory services to the Company. In accordance with the agreement
the related entity received warrants to purchase 413,600 shares of the
Company's Class A common stock. The warrants have an exercise price of $2.00
per share, vest immediately and expire three years from issuance.

COMMON STOCK OPTIONS AND WARRANTS

         During the year ending December 31, 2000, the Company issued
warrants attached to equity and debt financing totaling 895,270. Of these,
160,000 were granted January 31, 2000 at an exercise price of $7.98 in
association with issuance a promissory note, 215,000 were granted May 26,
2000 at an exercise price of $1.76 in association with issuance of Series E&F
Preferred shares, 250,000 were granted June 15, 2000 at an exercise price of
$1.50 in association with issuance of Class B common shares, and 270,270 were
granted August 8, 2000 at an exercise price of $1.21 in association with
issuance of Class A common shares. The Company additionally issued warrants
as compensation for finder's fees, consulting and other services during the
year totaling 700,000. Of these, 100,000 were granted May 26, 2000 at an
exercise price of $1.76, 500,000 were granted July 25, 2000 at an exercise
price of $1.50, and 100,000 were granted August 1, 2000 at an exercise price
of $1.00. Throughout the year, warrants were exercised in exchange for common
shares totaling 207,375 at an exercise price of $1.00 per share.

           In September, 1999, the Company agreed in principle with a
stockholder of the Company to issue a warrant to purchase 100,000 share of
Class B common stock for assistance with the private placement of preferred
stock. The warrant vests immediately, is exercisable at $1.00 per share and
expires November 4, 2001. Due to the settlement of the claim with the
stockholder, the Company accrued a third quarter 1999 non-cash charge of
approximately $66,000 based on the fair value of the warrant.

         During the year ended December 31, 1997, the Company's Board of

_______________________________________________________________________________
                                        F-24
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

Directors approved and the Company adopted the 1997 Incentive Stock Option
Plan (the Plan) which was amended and restated effective July 1999. The Plan
provides for the granting of Class A common stock options to key employees of
the Company. Within certain limitations provided by the Plan, such options
may include provisions regarding vesting, exercise price, the amount of each
grant and other terms as shall be approved by the Board of Directors or by a
committee designated by the Board of Directors. Options granted under the
Plan may be either options that qualify as "incentive stock options", within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
or those that do not qualify as such "incentive stock options"
("non-qualified options"). The Plan, which permits up to 5,000,000 shares of
the Company's Class A Common Stock to be issued, terminates on October 19,
2007.

         A summary of the Company's stock option plan for the years ended
December 31, 2000 and 1999 is presented below:
<TABLE>
<CAPTION>
                                                               2000                              1999
                                                    -------------------------      ----------------------------
                                                                   Weighted                        Weighted
                                                                    Average                         Average
                                                                   Exercise                         Exercise
                                                        Shares       Price           Shares           Price
                                                 -------------   -------------      ----------    --------------
<S>                                              <C>             <C>                <C>           <C>
         Options outstanding at
           beginning of year.....................     2,148,750     $    .63        1,793,750      $     .39
         Options granted.........................     1,745,000         1.08          585,000           1.28
         Options exercised.......................             -            -                -              -
         Options cancelled.......................      (288,750)         .81         (230,000)           .39
                                                 --------------   -------------      ----------    ------------
         Options outstanding at
           end of year...........................     3,605,000          .84        2,148,750      $     .63
                                                 ==============   =============    =============   =============
         Options exercisable......................    1,552,917          .56        1,077,083      $     .39
                                                 ==============   =============    =============   =============
         Weighted-average fair value of
           options from during the year..........                   $    .75                       $     .62
                                                                  =============                    =============
</TABLE>

         The following table summarizes information about stock options
outstanding at December 31, 2000:
<TABLE>
<CAPTION>
                      OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
-------------------------------------------------------- ---------------------------
                                Weighted Average Weighted                   Weighted
  Range of          Number         Remaining     Average       Number       Average
  Exercise        Outstanding     Contractual    Exercise    Exercisable    Exercise
   Prices         At 12/31/00         Life        Price      At 12/31/00      Price
---------------  --------------  ------------- -----------  -------------  ---------
<S>              <C>            <C>            <C>          <C>            <C>
$ .21 - $ .40      1,621,250          3.9          $ .39      1,277,917       $ .39
$ .69 - $ .98        360,000          9.7          $ .86              -           -
$1.09 - $1.51      1,623,750          9.3          $1.28        275,000       $1.34
                   ---------                                    -------
                   3,605,000                                  1,552,917
</TABLE>

         SFAS 123 requires the Company to provide pro forma information
regarding net loss applicable to common stockholders and loss per share as if
compensation cost for the Company's stock options granted had been determined
in accordance with the fair value based method prescribed in that Statement.
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 weighted
average assumptions used for grants in 2000 and 1999:
<TABLE>
<CAPTION>
                                                       2000            1999
                                                   ------------    ------------
<S>                                                <C>             <C>
Dividend yield...............................         0%               0%
Expected volatility..........................        70%              60%
Risk-free interest rate......................         6%               6%
Expected lives...............................       5 years         5 years
</TABLE>
_______________________________________________________________________________
                                        F-25
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         Under the accounting provisions of SFAS No. 123, the Company's net
loss applicable to common stockholders and loss per share would have been
revised to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                                         For the Years Ended
                                                                                             December 31,
                                                                                     ---------------------------
                                                                                         2000            1999
                                                                                     -----------    ------------
<S>                                                                                  <C>            <C>
         Net loss applicable to common stockholders:
              As reported..............................................              $(14,956,730)    $(8,597,541)
                                                                                     ============   =============
              Pro forma................................................              $(15,208,838)    $(8,666,125)
                                                                                     ============   =============
         Net loss per common share:
            Basic and assuming dilution
              As reported..............................................                $     (.50)      $    (.33)
                                                                                     ============   =============
              Pro forma................................................                $     (.51)      $    (.34)
                                                                                     ============   =============
</TABLE>
NOTE 7 - INCOME TAXES

         Deferred taxes are determined based on the temporary differences
between the financial statement and income tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse.

         The components of deferred income tax assets (liabilities) at
December 31, 2000, were as follows:
<TABLE>
<CAPTION>
                                                                                    Amount
                                                                                -------------
<S>                                                                             <C>
         Net operating loss carryforward....................................    $  10,893,000
            Loss on write-off of investments ...............................          419,000
         Property and Equipment.............................................          (19,000)
                                                                                -------------
         Gross deferred tax assets...........................................      11,293,000
         Valuation allowance.................................................     (11,293,000)
                                                                                --------------
         Net deferred tax assets.............................................   $           -
                                                                                 =============
</TABLE>

         At December 31, 2000, the Company provided a 100% valuation allowance
for the deferred tax asset because it could not determine whether it was more
likely than not that the deferred tax asset would be realized.

         For the years ended December 31, 2000 and 1999, the income tax benefit
determined by applying the statutory income tax rate to pre-tax loss from
operations differs from the actual benefit as follows:
<TABLE>
<CAPTION>
                                                                                           2000            1999
                                                                                      ------------     ------------
<S>                                                                                <C>               <C>
         Provision for income tax benefit at statutory rate..................      $   (4,185,000)   $  (2,823,000)
         Change in deferred tax asset valuation allowance....................           3,585,000        2,815,000
         Other...............................................................             600,000            8,000
                                                                                      ------------     ------------
                                                                                   $           -     $           -
                                                                                     =============    =============
</TABLE>

         At December 31, 2000, the Company had a net operating loss
carryforwards for federal income tax purposes totaling approximately
$32,038,000 which, if not utilized, will expire as follows:

_______________________________________________________________________________
                                        F-26
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________
<TABLE>
<CAPTION>
        Years Ended December 31,                                                   Amount
        ------------------------                                                -----------
<S>                                                                             <C>
         2010 ...............................................................   $    61,000
         2011 ...............................................................       888,000
         2012 ...............................................................     8,025,000
         2018 ...............................................................     4,802,000
         2019 ...............................................................     5,952,000
         2020 ...............................................................    12,310,000
                                                                                -----------
                                                                                $32,038,000
                                                                                ===========
</TABLE>

         In April 1998, the Company had a change in ownership, which has
resulted in the Company's net operating loss carryforwards being subject to
certain utilization limitations in the future.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

LEASES

         The Company is obligated under several long-term non-cancelable
operating leases for office space, furniture and equipment expiring through
the year 2003, at a minimum annual rent as follows:
<TABLE>
<CAPTION>
         Years ended December 31,                                                 Amount
         -----------------------                                                  ------
<S>                                                                               <C>
         2001 ...............................................................     477,145
         2002 ...............................................................     417,928
         2003 ...............................................................     101,980
                                                                                ----------
                                                                                $  997,053
                                                                                ==========
</TABLE>

         Rent expense for the years ended December 31, 2000 and 1999 totaled
$560,618 and $378,508, respectively.

LITIGATION

           The Company and its subsidiary, CYNET Interactive, have been named
as defendants in a suit filed November 19, 1999 in the District Court of
Harris County, Texas, 61 Judicial District (Cause No. 1999-57579) by Bank &
Estate Liquidators, Inc., a former customer of CYNET Interactive. On March 8,
2001, the parties entered into a settlement agreement settling all matters in
the case, with the Company agreeing to pay the plaintiff $15,000 cash on
March 27, 2001, deliver to the plaintiff certain software, and pay an
additional $65,000 by May 27, 2001.

           The Company has been named as defendant in a suit filed June 26,
2000 in the United States District Court, Southern District of California
(Cause No. 00CV 1282 W (NLS)) by Clearfax, Inc. The plaintiff alleges, among
other things, that the Company infringed upon plaintiff's federal copyright
by unauthorized use of plaintiff's software in certain of the Company's fax
resolution software and is seeking to recover actual and exemplary damages.
The Company has retained counsel to defend the matter. Although the Company
has not completed its discovery investigation of the claims asserted by the
plaintiff in this matter, the Company does not believe that this suit will
have a material adverse effect on the Company.

           The Company has been named as defendant in a suit filed December
13, 2000,in the Circuit Court for Montgomery County, Maryland (Civil No.
216130 Civil). The case is filed as a class action lawsuit for sending
unsolicited fax materials concerning certain financial securities promotions.
The Company has not completed its discovery and investigations at this time
but, based on the information it presently has, the Company is of the opinion
that the allegations against it in this case are without legal merit under
federal and Maryland state laws. The plaintiff is seeking to

_______________________________________________________________________________
                                        F-27
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

recover general damages. The Company will be retaining outside counsel to
vigorously defend the Company.

           On December 21, 2000, AT&T filed a suit in Federal District Court
against the Company in reference to past due Accounts Payable owed by the
Company(Civil Action No. H-00-4452 United States District Court for the
Southern District of Texas, Houston Division). AT&T asks for $262,447.97 in
actual damages, reasonable attorneys fees, and cost of suit pursuant to a
contract for telephone services. The companies are actively engaged in
settlement discussions. The Company expects to settle the case through a
negotiated installment payment schedule.

           The Company has been named as defendant in a suit filed December
28, 2000, to which one of the Company's fax broadcasting customers is a
party. The case is filed as a California class action lawsuit and is seeking
monetary damages for receipt of unsolicited facsimiles. The Company has not
completed its discovery and investigations at this time however, based on the
information it presently has, the Company is of the opinion that the
allegations against the Company in this case are without legal merit under
federal and the State of California laws. The plaintiff is seeking to recover
general and exemplary damages and injunctive relief. The Company has retained
outside counsel to vigorously defend the Company.

         The Company is a party to other legal proceedings, none of which the
Company believes will have a material adverse effect on the Company.

WIRELESS CELL/MODEM SALES AND MARKETING AGREEMENT

           The Company previously entered into an alliance agreement with
GlobeWave, Inc. ("GlobeWave"), a subsidiary of Teliran, pursuant to which the
Company sold and distributed units of the Teliran Complete PC card (the "Cell
Phone/Modem") in the United States from October 1999 through January 2000. On
February 16, 2000 the Company, Cynet Holdings and Teliran entered into
another agreement (the "Teliran Agreement"), pursuant to which Teliran
granted Cynet Holdings exclusive worldwide sales and marketing rights with
respect to the Cell Phone/Modem for a term of three years. In consideration
for these rights, Cynet Holdings committed to sell a minimum of 23,700 Cell
Phone/Modem units during each of the years 2000, 2001 and 2002, with a
provision for additional sales targets for 2001 and 2002 to be mutually
agreed upon by the parties. Teliran agreed to pay up to $10,000 per month in
technical support with respect to the Cell Phone/Modem units. The Teliran
Agreement also contemplates certain equity purchase rights among the Company,
Cynet Holdings and Teliran if performance by the parties to the Teliran
Agreement is satisfactory after one year. Pursuant to the Teliran Agreement,
the Company has acquired from Cynet Holdings the exclusive sales, marketing
and technical support rights with respect to the Cell Phone/Modem under the
Teliran Agreement for an initial term of one year, subject to the Company's
satisfaction of the minimum sales and other requirements under the Teliran
Agreement. On June 29, 2000, the agreement above was amended. Instead of
being granted exclusive marketing and sales rights in all territories for
three years, the agreement was modified to grant the Company exclusive sales
and marketing rights for the Cell Phone/Modem in North America, Argentina and
Peru through September 30, 2000. In the event that the Company placed a firm
order for 16,700 units or more of the Cell Phone/Modem, accompanied by
financial guarantee of payment for the order not later than September 30,
2000, Teliran was to reinstate the worldwide exclusive sales and marketing
rights of the product to the Company for the rest of fiscal year 2000. Under
this amendment the Company also committed to purchase 5,000 units of the Cell
Phone/Modem between June 1, 2000 and December 31, 2000. As of the date of
this document, the Company has not completed the purchase of the 5,000 units
of the Cell/Phone Modem and the Company continues to discuss with Teliran how
business will be conducted in the future. See "Certain Relationships and
Related Transactions."

EMPLOYMENT AGREEMENTS

_______________________________________________________________________________
                                        F-28
<PAGE>
CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

         On February 1, 1998, the Company entered into an employment
agreement with the Chairman of the Board and Chief Executive Officer of the
Company. The five year agreement provides for an annual salary of $180,000,
plus incentives and certain employee benefits, as defined by the agreement.
The agreement also provides for a $30,000 signing bonus and an option under
the Company's 1997 Incentive Stock Option Plan to purchase 100,000 shares of
Class A common stock at a price of $.39 per share which vests immediately and
is exercisable over a five year period.

         On March 1, 1998, the Company entered into an employment agreement
with the Vice President of Operations of the Company. The four year agreement
provides for an annual salary of $150,000, plus incentives and certain
employee benefits, as defined by the agreement. The agreement also provides
for a $30,000 signing bonus, which was accrued for as of December 31, 1998
and subsequently paid, and an option under the Company's 1997 Incentive Stock
Option Plan to purchase 75,000 shares of Class A common stock at a price of
$.39 per share which vests 25% annually and is exercisable over a five year
period.

         On July 22, 1998, the Company entered into an employment agreement
with the Executive Vice President of the Company. The four year agreement
provides for an annual salary of $150,000, plus incentives and certain
employee benefits, as defined by the agreement. The agreement also provides
for a $30,000 signing bonus, which was accrued for as of December 31, 1998
and subsequently paid, and an option under the Company's 1997 Incentive Stock
Option Plan to purchase 150,000 shares of Class A common stock at a price of
$.39 per share which vests immediately and is exercisable over a five year
period.

         On July 22, 1998, the Company entered into an employment agreement
with the Vice President, General Counsel and Secretary of the Company. The
three year agreement provides for an annual salary of $108,000, plus
incentives and certain employee benefits, as defined by the agreement. The
agreement also provides for a $30,000 signing bonus, which was accrued for as
of December 31, 1998 and remains unpaid, and an option under the Company's
1997 Incentive Stock Option Plan to purchase 100,000 shares of Class A common
stock at a price of $.39 per share which vests immediately and is exercisable
over a five year period.

         On August 26, 1998, the Company entered into an employment agreement
with the Chief Financial Officer. The three year agreement provides for an
annual salary of $125,000, plus incentives and certain employee benefits, as
defined by the agreement. The agreement also provides for a $30,000 signing
bonus, which was accrued for as of December 31, 1998 and subsequently paid,
and an option under the Company's 1997 Incentive Stock Option Plan to
purchase 100,000 shares of Class A common stock at a price of $.39 per share
which vests 33% annually and is exercisable over a five year period.

         In March 1997, the former President of the Company, who was also a
stockholder, entered into an employment agreement. The agreement provided for
a three year employment term that automatically renewed annually with the
first year compensation set at $220,000, plus incentives and certain employee
benefits, as defined by the agreement. If the former President terminated his
employment for good reason or the Company terminated the President other than
for cause or disability, the former President was entitled to receive three
times his annual salary and bonus, as defined by the agreement, vesting of
any options and any such amounts credited to a qualified plan, continuation
of certain benefits for a year and any other amount due the former President.
The agreement also provided for a $50,000 signing bonus.

         On April 13, 1998, the former President of the Company terminated
his original employment agreement discussed above, resigned as president and
sold his stock ownership interest in the Company to an entity which is
partially owned by certain existing stockholders of the Company. In
accordance with the agreement the former president entered into a new
five-year employment agreement which provides for an annual salary of
$150,000, a 2,000,000 Class A common stock warrant that vests immediately and
is exercisable over a five year period at $1 per share and participation in
certain of the Company's employee benefit plans. Subsequent to receiving this
warrant the Company's former president assigned the warrant to various
stockholders, including 1,710,000 warrants to the new Chairman of the board

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                                        F-29
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________

and Chief Executive Officer of the Company. The agreement provides that the
individual will devote approximately one-half of his business time and
attention to the business of the Company.

           On August 3, 2000, the Company entered into an employment
agreement with John Tollefsen pursuant to which Mr. Tollefsen serves as Vice
President and Chief Technical Officer of the Company. The agreement has an
initial term of one year and can continue at will upon the agreement of Mr.
Tollefsen and the Company, and requires Mr. Tollefsen to devote substantially
all of his business time, attention and energy exclusively to the business of
the Company, and to use his best efforts to promote the success of the
Company's business. In exchange, Mr. Tollefsen is entitled to (i) receive an
annual salary of $175,000 (subject to annual review by the Board of
Directors), (ii) earn an incentive bonus in accordance with the Company's
bonus plan to be established for its executives, (iii) receive a signing
bonus of $100,000 to be paid as follows: $50,000 upon signing the agreement,
$25,000 upon completion of six months employment, and $25,000 upon completion
of one year's employment, (iv) an additional $50,000 guaranteed year-end
bonus,(iv) an option under the Company's 1997 Amended and Restated Stock
Option Plan to purchase 650,000 shares of Class A Common Stock at a price of
$1.22 per share which vest ratably over a three-year period and (v)
participate in the Company's other employee benefit plans. Mr. Tollefsen's
employment agreement is terminable by the Company at any time for "cause," as
specified in the agreement, and in certain other events.

NOTE 9 - EMPLOYEE BENEFIT PLAN

         The Company has a savings and profit sharing plan, which allows
participants to make contributions by salary reduction pursuant to Section
401(k) of the Internal Revenue Code. Participants may elect to defer up to
15% of their compensation annually based on certain limits established by the
Internal Revenue Code. The Company may elect a discretionary matching
contribution annually. Participants' salary deferral contributions are fully
vested when made and Company discretionary match contributions vest over a
five year period. The Company made no discretionary matching contributions
for the years ended December 31, 2000 and 1999.

NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION

           During the year ended December 31, 2000, the Company had the
following material non-cash investing and financing activities:

            (a) The Company accrued dividends payable totaling $23,795.
            (b) The Company converted 1,989,828 Class B common shares to
                1,989,828 Class A common shares each valued at $2,645,668.
            (c) The Company converted 66,000 Series A preferred shares to 66,000
                Class A common shares each valued at $109,997.
            (d) The Company converted 60,832 Series B preferred shares to 66,000
                Class B common shares each valued at $126,240.
            (e) As part of a private placement of equity partially purchased
                with $1 million in equipment credits, $976,853 worth of
                equipment was obtained and an equipment receivable of $23,147
                booked for remaining equipment credits due as of December 31,
                2000.
            (f) The Company converted a $1.6 million promissory note, $35,000
                interest payable and $900,000 additional capital to 1067 shares
                of Series E and 1468 shares of Series F preferred shares
                totaling $2,535,000.
            (g) The Company converted 1.6 million shares of Series C Preferred
                shares to 1,395,200 Series D Preferred shares each valued at
                $1.6 million.
            (h) The Company converted 1,766,423 shares of Redeemable Class A
                common mezzanine stock to 1,766,423 shares of Series D Preferred
                shares each valued at 2,420,420. Additionally, the Company
                issued 169,577 shares of Series D Preferred valued at $247,299
                to reverse the put option outstanding on the Series D Preferred
                shares. (h)
            (i) Interest paid during the year ended December 31, 2000 was
                $169,000.

During the year ended December 31, 1999, the Company had the following
material non-cash investing and financing activities:

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                                        F-30
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CYNET INC-10KSB40-ANNUAL REPORT
_______________________________________________________________________________


            (a) During 1999, the Company completed a rescission offer as
                discussed in Note 7. Of the outstanding liability at December
                31, 1998, of $13,980,009, $4,781,699 was rescinded for cash and
                the remainder was reclassified as follows:
<TABLE>
<CAPTION>
                                                                                                Amount
                                                                                             -------------
<S>                                                                                          <C>
              Rescission liability at December 31, 1998.................................     $  13,980,009
              Rescinded for cash........................................................         4,781,699
                                                                                             -------------
              Reclass to equity.........................................................         9,198,310
              Reclass deferred offering costs to equity for shares not rescinded........        (1,366,258)
              Reclass accrued dividends no longer payable to equity.....................           219,696
              Reclass shares purchased by CyNet Holdings, LLC during 1999...............           (30,000)
                                                                                             --------------
              Net reclass to equity to reflect the rescission offer.....................     $   8,021,748
                                                                                              =============
</TABLE>
            (b) The Company accrued dividends payable totaling $46,304.

            (c) The Company acquired CyNet Interactive, LLC from CyNet Holdings,
                LLC in a transaction accounted for at historical cost in a
                manner similar to a pooling of interest (see Note 5). This
                transaction resulted in an increase to additional paid-in
                capital of $308,039, increase in property, plant and equipment
                of $53,895 and an increase in goodwill of $254,144.

            (d) The Company issued 1,119,472 shares of the Company's Class A
                common stock on conversion of advance totaling $1,119,472 from
                CyNet Holdings, LLC.

NOTE 11 - SUBSEQUENT EVENTS

           In January 2001, the Company entered into a definitive agreement
with I-Media France, S.A. ("I-Media"), pursuant to which I-Media agreed to
purchase the Company's fax broadcasting business unit. The transaction was
scheduled to close on January 31, 2001. The Company later agreed to modify
the agreement. In exchange for I-Media's payment of a non-refundable fee, the
Company agreed to extend the closing date for the transaction to March 15,
2001. I-Media failed to obtain financing as expected and the transaction was
not completed.

           In January 2001, the Company received the remaining $400,000
related to a private placement of debt securities of which partial payment
was made in the year ended December 31, 2000. During 2000, the Company
received $350,000 less legal fees from this $750,000 promissory note with
detachable warrants issued to a shareholder.

           On February 8, 2001, the Company, CYNET Interactive and AECsoft
USA, Inc. ("AECsoft") entered into an agreement pursuant to which the Company
and CYNET Interactive agreed to transfer all existing CYNET Interactive
accounts and customer contacts to AECsoft in exchange for AECsoft forgiving
any and all outstanding amounts owed by the Company to AECsoft. In addition,
the Company agreed to assign all CYNET Interactive accounts and customer
contacts to AECsoft in exchange for AECsoft forgiving any and all outstanding
amounts owed by the Company to AECsoft. The agreement provides that the
Company will refer clients requesting services including the ADC2000(TM)
applications to AECsoft. The agreement also provides that in the event of the
sale of ADC2000TM, the Company is entitled to receive the lesser of 10% of
the sale proceeds or $500,000.

           From August 2000 through December 2000, Gerald M. McIntosh
("McIntosh"), individually and through certain McIntosh controlled entities,
made loans to the Company through transactions with Cynet Holdings, LLC. The
transactions are as follows: (i) McIntosh individually made a loan of
$300,000; (ii) CRTLP, Inc. made a loan of $650,000; and (iii) G & B McIntosh
Family Limited Partnership guaranteed the Company's purchase of certain
computer equipment and subsequently paid for the equipment in the amount of
$308,310. These loan transactions were made with the understanding that the
Company would repay the loans from the proceeds of a then imminent sale of
the assets of the Company's electronic broadcast division. In March 2001, the
Company agreed to convert the McIntosh loans into a secured direct obligation
of the Company to the McIntosh entities. The due date of the loans was
extended to the earlier of March 1, 2003, a change in control of the Company,
or the date the Company receives proceeds from the sale of the assets of the
Company's electronic broadcast assets. The unpaid principal and/or accrued
interest due and payable pursuant to the loans is convertible into shares of
the Company's restricted Class A Common Stock, at the sole and exclusive
option of the payee and at the rate of the average of the closing market
price for the ten trading days prior to the date of conversion. The security
for these notes is a lien on all of the Company's assets which lien is junior
only to the lien from the Compaq Loans of December and January 2001.
Furthermore, the collective McIntosh entities are to be issued 3 year
warrants to purchase 4,779,693 shares of CYNET Class A Common Stock at an
exercise price of $0.11 per share.

           During the first quarter of 2001, Cynet Holdings provided an
additional $385,000 and the Company repaid Cynet Holdings $125,500. The
unsecured advances were non-interest bearing and due on demand.

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                                        F-31