U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                AMENDMENT NO. TWO

                                       TO

                                   FORM 10-KSB

   (Mark One)
      |X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934

                    For Fiscal Year Ended: December 31, 1999

                                       OR

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

            For the transition period from ________________ to ________________

            Commission file number 000-26751
                                   ---------------------------------------------

                               CyPost Corporation
                  --------------------------------------------
                     (Exact name of small business issuer as
                            specified in its charter)

            Delaware                                             98-0178674
---------------------------------                            -------------------
  (State or other jurisdiction                                  (IRS Employer
of incorporation or organization)                            Identification No.)

               900-1281 West Georgia St.
              Vancouver, British Columbia                              V6E 3J7
--------------------------------------------------------------------------------
       (Address of principal executive offices)                       (Zip Code)

Issuer's telephone number (604) 904 -4422
                          ------------------------------------------------------

Securities registered under Section 12(b) of the Act: NONE
                                                      --------------------------

Securities registered under Section 12(g) of the Act: Common Stock, par value
$.0001 per share

      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements  for the past 90 days.  Yes |X| No
|_|

      Check if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ ]


                                     Page 1

<PAGE>
      Aggregate  market  value of voting and  non-voting  common  equity held by
non-affiliates  computed by reference to the average bid and asked price of such
common equity as of January 31, 2000. $ 26,470,070

      State issuer's revenues for its most recent fiscal year. $ 1,020,347
                                                               -----------

Transitional Small Business Disclosure Format (check one):
Yes |_|; No |X|

                       DOCUMENTS INCORPORATED BY REFERENCE

      If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated:  (1) any annual report to security  holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule  424(b) or (c) of the  Securities  Act of 1933  ("Securities  Act"):  NONE,
however certain  exhibits hereto are incorporated by reference to the Form 10-SB
and amendment thereto previously filed by the Registrant with the Commission.

Item Number and Caption  Page
-----------------------  ----

PART I

     1.  Description of Business...........................................

     2.  Description of Property...........................................

     3.  Legal Proceedings.................................................

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

PART II

     5. Market for Common Equity and Related Stockholder Matters..........

     6. Management's Discussion and Analysis or Plan of Operations........

     7.  Financial Statements..............................................

     8.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure..............................................

PART III

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

     10. Executive Compensation............................................

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

     12. Certain Relationships and Related Transactions....................

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

Item 1. Description of Business.

                                     Page 2
<PAGE>
         (a) Business Development.

         CyPost Corporation  (hereinafter  referred to as the "Registrant",  the
"Issuer", or as "CyPost"),  a Delaware  corporation,  was formed on September 5,
1997 under the name "E Post Corporation" to operate as the parent company of two
wholly-owned,  sister  subsidiaries:  ePost  Innovations,  Inc.,  a  corporation
organized under the laws of British Columbia, Canada ("ePost Canada") and CyPost
USA,  Inc.,  a Delaware  corporation  formed on September 5, 1997 by the Company
("CyPost USA"). Shortly after its formation,  ePost Corporation changed its name
to "CyPost Corporation" to minimize potential trademark  difficulties with third
parties.  ePost  Canada was  formed on March 27,  1997 and was  acquired  by the
Issuer on  September  15, 1997 (the  "Acquisition").  Prior to the  Acquisition,
ePost  Canada was a wholly  owned  subsidiary  of Mushroom  Innovations,  Inc. a
corporation  organized  under the laws of British  Columbia  ("MII").  Under the
terms of the  Acquisition,  the Issuer  acquired  from MII all of the issued and
outstanding shares of ePost Canada, as well as all intellectual  property rights
then owned by ePost  Canada,  in exchange for  2,000,000  pre-split or 3,000,000
post-split shares of CyPost's Common Stock. On October 29, 1998, CyPost acquired
all of the  issued  and  outstanding  capital  stock of  Communication  Exchange
Management  Inc.,  a British  Columbia  corporation,  from MII in  exchange  for
4,180,000  pre-split  or  6,270,000  post-split  CyPost  shares.   Communication
Exchange  Management Inc.  remains a wholly owned  subsidiary of CyPost.  Unless
otherwise stated herein, all dollar amounts refer to U.S. Dollars  ("USD$")--not
Canadian Dollars ("CDN$).


         PRIOR TO THE FIRST  QUARTER  OF 1999,  CYPOST WAS A  DEVELOPMENT  STAGE
COMPANY.  IT BEGAN OFFERING THE FIRST OF ITS SIX VERSIONS OF ENCRYPTION SOFTWARE
FOR SALE DURING  MARCH 1999.  ON JUNE 30, 1999,  IT  COMPLETED  THE FIRST OF ITS
ACQUISITIONS OF INTERNET SERVICE  PROVIDERS  ("ISP'S").  SINCE THAT TIME, IT HAS
ACQUIRED SEVERAL MORE ISP'S WHOSE REVENUES ACCOUNT FOR  SUBSTANTIALLY ALL OF THE
COMPANY'S  OPERATIONS.  IN FEBRUARY 2000, CYPOST ACQUIRED PLAYA  CORPORATION,  A
JAPANESE- BASED PROVIDER OF ELECTRONIC INSTANT MESSAGING SERVICES.

         Through various acquisitions,  CyPost conducts its business through the
subsidiaries listed on Exhibit 21.

         (b) Business of the Issuer.


         THE ISSUER IS A HOLDING COMPANY,  THE PRINCIPAL ASSETS OF WHICH consist
of the capital  stock of CyPost USA,  the capital  stock of ePost Canada and the
capital  stock of the other  subsidiaries  listed on  Exhibit  21. To date,  the
ISSUER, THROUGH ITS OPERATING  SUBSIDIARIES,  HAS BEEN LARGELY INVOLVED IN THREE
separate,  but  complementary  businesses,  i.e.(i)the  development  and sale of
software   products  using  email   encryption  to  enhance  user  security  and
convenience ("Software  Products"),  (ii) providing internet connection services
TO SUBSCRIBERS AND (III) PROVIDING INSTANT MESSAGING AND ELECTONIC GREETING CARD
SERVICES.  (Unless otherwise  qualified herein, the term "Company" shall be used
to refer to the  business  operations  of the  Registrant  and its  consolidated
SUBSIDIARIES.)  THE COMPANY IS CURRENTLY  SELLING THREE versions of its "Navaho"
SOFTWARE  ENCRYPTION  PROGRAMS  (NAVAHO LOCK 2.4, NAVAHO ZIPSAFE AND NAVAHO LOCK
WITH VOICE) WHICH  ENCOMPASSES THE FIRST THREE BUSINESS MODEL  DESCRIBED  BELOW,
THE REMAINING  BUSINESS  MODEL IS IN THE INITIAL  PLANNING  STAGES AND SHOULD BE
ROLLED OUT BY YEAR  ENDING  DECEMBER  31,  2000.  The Company is  developing  or
partnering  with a number of companies  to provide  products and services to its
INTERNET SERVICE PROVIDER  CUSTOMERS  THROUGH AN Application  server model which
promotes  server level  distribution of products rather than end user solutions.
On February 23, 2000, the Company completed the acquisition of Playa Corporation
developers of the "Yabumi"  instant  messaging and e-greeting card service.  The
"Yabumi"  community  of  users  numbers  approximately  85,000  and  is  located
PRIMARILY in Japan.

         Markets for Software Products.

                                     Page 3
<PAGE>
         The Company has developed  the Navaho  family of software  products for
the following markets:

            1) Personal Use--consumers who have little or no technical knowledge
of   computers   and  computer   programs  but  who  wish  to  keep   electronic
correspondence private.

            2) Professional  Use--professional business users such as attorneys,
accountants,  medical  doctors,  as well  those  who need  secure  communication
capability while traveling

            3) Small Businesses--companies between 10-50 employees with a small,
or no Information Services department and who operate out of a single location

            4) Enterprise--large  businesses with more than 50 employees and who
use corporate  intranets  including LAN's and WAN's,  Extranets,  and government
institutions

Products

         The Company  currently  offers six (6)  different  security  encryption
software products each of which bear the name "Navaho". (See discussion of these
under "Status of any publicly announced new product or service").

Distribution Method of Software Products and ISP Service.

         The CyPost  family of Software  Products are delivered  both  digitally
over the Internet and through  distributors  who sell  shrink-wrapped  versions.
CyPost's website, www.cypost.com,  offers a full description of its products and
the chance for viewers to make a "cyber-purchase " of its software. In addition,
consumers  are able to purchase  products  directly  from popular  online retail
sites    such   as    www.beyond.com,    www.egghead.com,    www.cdw.com,    and
www.futureshop.com  to  name a  few.  CyPost  has  entered  into a  distribution
agreement with Digital River, Inc., a company that provides proprietary software
delivery  technology to more than 2000 software publishers and online retailers.
The Company has also negotiated with several distribution competitors of Digital
River, Inc. who offer similar capabilities including  ReleaseNow.com,  NetSales,
Inc.  and  ShopNow.com.  The  Company  estimates  that its Navaho  products  are
currently available at more than 1000 secure websites.

         CyPost's  acquisition  strategy  includes the  acquisition  of Internet
Service  providers  with a target  of  acquiring  an  additional  50,000-100,000
subscribers  to add to  its  approximately  20,000  existing  subscribers.  This
network  of  service  provider   subscribers   become  a  direct  marketing  and
distribution  channel for CyPost.  The Company plans to market the Navaho family
of products including Navaho Express (a promotional  version of Navaho Lock with
Voice) to the client base in early 2000.  CyPost will also  distribute a line of
privacy and protection  solutions through industry  partnerships such as content
management solutions and anti-virus protection.

         Further to the ISP distribution  network, the Company plans to secure a
relationship  with a major  advertising firm to work as  representatives  of the
aforementioned  Navaho Express,  the promotional version of the Navaho products.
This  relationship  will leverage the  advertising  firm's client base and their
need for one to one marketing tools.

Status of any publicly announced new product or service.

         Navaho Lock: Navaho Lock software enables consumers to send and receive
secure email and  attachments  such as  documents,  spreadsheets,  digital sound
files, and business presentation.  The program is intuitive,  simple to operate,
and  exceptionally  fast. The product's unique  combination of features include:
full integration with all major e-mail programs; built-in file compression for

                                     Page 4

<PAGE>

faster transmission  times; a user-friendly GUI (Graphical User Interface);  and
CyPost's  exclusive  "drag-and-drop"  feature that enables  users to encrypt and
compress  files simply by dragging and dropping them into an  encryption  field.
Users can select the strength of privacy protection according to their needs, by
simply specifying 40-, 56-, 112-, 128-, or 3DES 168-bit encryption algorithms.

      Navaho Lock is  available  for  purchase at  www.cypost.com  and over 1000
secure  distribution sites on the Internet.  This product has received favorable
product reviews from PC Magazine, Portable Computing, Secure Computing Magazine,
CNN Interactive, and PC World Online.

      Navaho Lock version 2.4 uses private  key, or symmetric  key,  encryption.
Many  regard  this as  superior to public key  encryption.  In  comparison,  the
largest-selling   competing  software  relies  on  an  "asymmetric"   method  of
encryption  commonly  known as  "public/private  key". In a  public/private  key
approach,  a  publicly  available  algorithm  is used in  combination  with  two
corresponding  private keys that generally must be issued by a third party.  Not
only is public key encryption notoriously slow (approximately 1,000 times slower
than  symmetrical  encryption),  but the  approach  also  exposes  users  to the
additional  costs and risks  involved  in relying on a third party to verify the
identity of the sender.

      Navaho Lock with Voice:  Currently  in the final  stages of beta  testing,
Navaho  Lock  with  Voice  software  is  the  successor  to  Navaho  Lock  v2.4.
Incorporating all the features of CyPost's  original  product,  Navaho Lock with
Voice  allows the user to send and receive  compressed  and  encrypted  document
packages,  as well as private voice messages,  over the Internet. It is expected
to be released in the 1st quarter of 2000.

Summary of new features include:

      o     Ability to send and receive encrypted Voice E-mail
      o     Addition of a shredder for securely deleting data from the hard disk
      o     A new and improved streamlined user interface for greater ease of
            use
      o     Numerous changes to increase user productivity and maximize usage

            Navaho  Viewer:  Navaho  Viewer  provides an  alternative  for those
      consumers  not wanting to purchase  the full  working copy of Navaho Lock,
      but who  require  the  ability  to read  encrypted  files  sent to them by
      friends or  colleagues.  Navaho  Viewer is available  for download free at
      CyPost's web site and numerous web sites on the Internet.

            Navaho  ZipSafe:  The third  product in  CyPost's  Navaho  family of
      security and encryption  software,  Navaho ZipSafe,  was released in March
      1999. The file-security  software,  designed to ensure the privacy of data
      on laptops and home PCS, is an extension of CyPost's Navaho product line.

      Utilizing the same advanced encryption and compression  technology used in
      Navaho Lock and  offering  comparable  ease-of-use  features  (including a
      user-friendly GUI and similar  "drag-and-drop"  methodology),  ZipSafe has
      the  ability to  encrypt  and then  condense  files by as much as 70% in a
      matter of  seconds.  This  product  enables  users to secure all  computer
      files,  folders,  and directories on a local hard drive such as that found
      on a laptop  computer.  Navaho  ZipSafe is available on a free thirty (30)
      day trial basis.

            Navaho Express: The promotional version of the single user Navaho

                                     Page 5
<PAGE>
      product,  Navaho Express offers a unique one to one marketing  opportunity
      for any business  concerned  about their clients'  privacy and protection.
      This product  integrates the functionality of Navaho Lock with Voice and a
      promotional HTML window allowing the sponsor company to communicate offers
      and promotions directly to their client base.

      Competition-Encryption Software

            CyPost's  Navaho  line of  privacy  and  protection  solutions  face
      competition  from a  number  of  rival  products.  The  largest  and  most
      noteworthy   competitors   are:  Network   Associates   Inc.,   InvisiMail
      International Ltd., and OpenSoft Corporation. The following table compares
      these  products  to Navaho  Lock,  version  2.4.  Based on  Navaho  Lock's
      superior  functionality  and  easy-to-use  features  (including  its  file
      compression   capability,   "drag-and-drop"   routine,  and  user-friendly
      interface), CyPost believes that Navaho Lock is well positioned to compete
      successfully in the marketplace.

      Competitive Comparisons

                            Product Comparison Table

EATURE   NAVAHO LOCK 2.4   PGP 6.5  RPK INVISIMAIL Deluxe  MAILSECURE 2.4

Company CyPost Corp. Network InvisiMail Baltimore Associates Intl.Technologies

Price         $39.95            $39.95           $49.95              $49.95

Key Strength   40/168 bit    1024-4906 bit    607-1279 bit      128/2048 bit

              secret key     public key       public key       public key

Target user   Single, Multi  Single, Multi    Single, Multi   Single Exportable

outside U.S.    Y                 Y                N                   N

Encryption Method  Symmetric   Asymmetric       Asymmetric  Asymmetric

File Compression   Y               N                Y                  N

Drag & Drop Encryption    Y         Y                N                 N

                                     Page 6



<PAGE>

Evaluation
 Version
 Available     Y                 Y                Y                   Y

 Attachment
  Feature       Y                 Y                Y                   Y

           Key Lengths With Similar Resistance to Brute-Force Attacks

     Symmetric Key Length     Public Key Length

        56 bits                     384 bits
        64 bits                     512 bits
        80 bits                     768 bits
       112 bits                     1792 bits
       128 bits                     2304 bits
       168 bits                     3840+ bits

              Competition - Encryption Software

            Network   Associates   Inc.   (Nasdaq:   NETA),   a  public  company
      headquartered   in  Santa  Clara,   California  is  the  world's   largest
      independent  network  security and management  software  company,  and the
      tenth largest independent software company with more than 30 million users
      worldwide,  $612  million  in  revenue  in  fiscal  1997,  and over  1,500
      employees worldwide.

            Network  Associates has the largest market share of email encryption
      software. Its PGP Personal Privacy software program is the most well known
      email encryption  software program  currently on the market.  PGP Personal
      Privacy's unique selling proposition is they use the strongest  encryption
      available  in the United  States  using PGP's  strong  public/private  key
      technology  with at least 128 bit keys.  It was voted as the easiest email
      encryption  program  to  use in  the  September  1998  issue  of PC  World
      Magazine.  PGP Personal  Privacy ($39.95) is available for purchase at the
      Network  Associates web site as well as most Internet  shareware  download
      sites.

      Notable  differences  between  PGP  Personal  Privacy and Navaho Lock with
      Voiceare  encrypted  voice email,  document  shredding,  a Drop area which
      allows  for  one-step  drag  and  drop  file  encryption,  built  in  file
      compression,  and use of symmetric key encryption which is faster and less
      cumbersome to set up than public/private key.

      Baltimore  Technologies  (London Stock  Exchange:  BLM), a public  company
      headquartered in Dublin,  Ireland  develops and markets security  products
      and services for a wide range of e-commerce and  enterprise  applications.
      Its   products   include   Public  Key   Infrastructure   (PKI)   systems,
      cryptographic  toolkits,  security applications and hardware cryptographic
      devices.

      The company was formed in  December  1998 by the merger of two  companies,
      Baltimore  Technologies and Zergo Holdings plc. BALTIMORE now employs over
      500 people across over twenty global locations, and reported Unaudited pro
      forma group revenues for the 12 months to 31 December 1998 of $30 million

      Baltimore's  email  encryption  software,  named  MailSecure  is an S/MIME
      plugin for Microsoft email clients,  Lotus Notes and Eudora. Unlike Navaho
      Lock, MailSecure is based on public key infrastructure technology.


                                     Page 7


<PAGE>
      InvisiMail  International  Ltd.,  founded in 1997,  specializes  in secure
      Internet commerce and communications solutions for a wide range of

      applications.  Developed using RPK Security,  Inc.'s core technology,  the
      RPK Encryptonite  Engine(tm),  the InvisiMail  range of products  supports
      secure message-based  applications including Client Services,  E-Commerce,
      and EDI.

      InvisiMail  International Ltd., email encryption program called InvisiMail
      Deluxe  automatically  encrypts  and  decrypts  e-mail  using 607- 1279bit
      public/private  key  encryption  and signs files  using DSA  Digital  File
      Signing.  The  program  was  selected  in the  September  1999 issue of PC
      Magazine as the Editors Choice for email encryption.

      Based on Navaho Lock with Voice's superior  functionality  and easy-to-use
      features  (including  encrypted  voice  email,  document  shredding,  file
      compression   capability,   one-step   "drag-and-drop"   encryption,   and
      user-friendly  interface),  CyPost believes that Navaho Lock with Voice is
      well positioned to compete successfully in the marketplace.

      Market - ISP Division

            CyPost  Network  of Service  Providers:  Through  ISP  acquisitions,
      CyPost has  established  approximately  20,000  subscribers  to date.  The
      Company hopes to acquire a target of 50,000 to 100,000 ISP customers.  Its
      goal is not to  establish  itself as a  competitor  of the  large  service
      providers,  including telecommunication and cable companies, but rather to
      establish a niche  market in response to the growing  concerns for privacy
      and  protection.  The CyPost network offers a range of services  including
      web hosting,  connectivity,  custom  programming,  roaming  services,  web
      design and  e-commerce  solutions.  These  services  will be  extended  to
      include privacy and protection  solutions such as the previously mentioned
      content  management and anti-virus  solutions as well as a number of other
      testing and solution consulting services for network security issues, such
      as testing the integrity of client networks. The company has negotiated an
      arrangement with UUNet Canada to provide  connectivity  across the country
      and plans to enter into a similar arrangement in the U.S. These agreements
      allow the CyPost  Network of Service  Providers to offer  subscribers  the
      convenience  that larger  Service  Providers  can offer while  maintaining
      focus on excellent customer service and solutions to protect their privacy
      rather than merely providing points of connectivity.


         THE 'NICHE' MARKET THAT THE COMPANY HOPES TO SERVE WILL FOCUS ON END TO
         END SECURE  COMMUNICATION  SERVICES AND  SOLUTIONS  FOR SMALL TO MEDIUM
         SIZED   BUSINESSES.   THESE   CUSTOMERS  TEND  TO  REQUIRE  BOTH  EXTRA
         HAND-HOLDING (WHICH LARGER TELECOMMUNICATION  COMPANIES MAY NOT PROVIDE
         UNDER  HIGH-  VOLUME,   LOW-COST  SERVICE  STRUCTURES)  AND  ADDITIONAL
         SERVICES  (AS  SMALLER  COMPANIES  ARE LESS  LIKELY  TO HAVE  DEDICATED
         INDIVIDUALS TO MANAGE  NETWORKING  ISSUES,  WEB PROGRAMMING,  AND OTHER
         TECHNICAL  ISSUES).  CYPOST DOES NOT BELIEVE THAT LARGER ISPS WILL FAIL
         TO ADDRESS SECURITY ISSUES ALTOGETHER, BUT RATHER THE SMALLER COMPANIES
         WITH  SPECIFIC  SECURITY  NEEDS,  MAY BE  OVERLOOKED.  THE COMPANY ALSO
         BELIEVES THAT ITS RANGE OF PRODUCTS DUE TO ITS 'FOCUS' ON SECURITY WILL
         BE GREATER THAN THOSE OF THE LARGER ISPS WHO ARE UNDER MORE PRESSURE TO
         OBTAIN LARGER QUANTITIES OF SUBSCRIBERS,  RATHER THAN CYPOST'S FOCUS ON
         FEWER CLIENTS BUT OFFERING MORE SERVICES TO EACH.


      Competition - ISP Division


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<PAGE>
            The CyPost  Network of Service  providers  operates in the extremely
      competitive  Internet  services market.  The fragmented U.S.  consumer ISP
      market  has  been  dominated  to date by  approximately  seven  companies.
      According  to a July 1999 report by Cahners  In-Stat  Group  however,  the
      market  share of the dominant  players in the U.S.  consumer ISP market is
      being  threatened  by new business  models.  The report cites  despite the
      enormous  marketing dollars  allocated to advertising,  AOL's market share
      slipped  2.8% between the final  quarter of 1997 and the first  quarter of
      1999, while MSN saw its marketshare drop by more than half during the same
      period.

            Moreover,  the report notes that during 1998 the combined subscriber
      base for non-traditional  service providers grew 137 percent,  compared to
      only 37  percent  growth  among  traditional  ISPs  (including  AOL,  MSN,
      Mindspring, Earthlink, Prodigy, and Flashnet).

            DESPITE THE FACT THAT NON-TRADITIONAL ISP'S ARE GROWING MORE QUICKLY
         THAN TRADITIONAL ISP'S, MANY OBSERVERS ANTICIPATE OVER THE NEXT SEVERAL
         YEARS  FURTHER  CONSOLIDATION  WITHIN  THE ISP  MARKET.  RECENT  MERGER
         ACTIVITY HAS SEEN BUSINESS  COMBINATIONS BETWEEN AOL AND NETSCAPE;  MCI
         WORLDCOM AND SPRING AND  EARTHLINK AND  MINDSPRING.  It is not CyPost's
         intent to compete head to head with these large ISP's but to compete in
         the growing security niche markets by providing value-added privacy and
         protection solutions in addition to providing  connectivity to business
         and individuals.

            Our competitors include many large companies that have substantially
      greater  market  presence,  financial,   technical,  marketing  and  other
      resources than we have. The Company  competes  directly or indirectly with
      the following types of companies:

            -     established online services, such as America Online, the
                  Microsoft Network, Earthlink and Prodigy;

            -     local, regional and national ISPs;

            -     national telecommunications companies, such as AT&T and GTE;

            -     regional Bell operating companies; and

            -     online cable services.

            Competition  in the future is likely to increase and we believe this
      will happen as diversified  telecommunications and media companies acquire
      ISPs, and as ISPs  consolidate  into larger,  more  competitive  entities.
      Competitors   may  bundle  other   services  and  products  with  Internet
      connectivity  services,  potentially placing the CyPost Network of Service
      providers  at  a  significant  competitive   disadvantage.   In  addition,
      competitors may charge less than we do for Internet  services,  forcing us
      to reduce  and/or  prevent us from raising our fees.  Subsequently  future
      revenue growth and earnings may suffer.

      Government Regulation

            The Company believes that the design features of the Navaho products
      are unique in connecting to existing  Crypto  Service  Providers and using
      them without itself  containing any direct encryption  coding.  Because of
      this feature,  the Navaho products fall outside of government  regulations
      such as the munition or export laws that previously restricted other forms
      of software encryption programs. The term "crypto service provider" is


                                     Page 9



<PAGE>
     short for  "cryptographic  service  provider"  and  refers to the  computer
     language by which cryptographic standards and algorithms are implemented or
     used.  Different  "crypto  service  providers " use  different  programming
     assumptions and data  formatting  protocols.  Thus one software  encryption
     program  may  work  well  one  type  of  crypto  service  provider  but not
     necessarily work well with another type. The result is that it is difficult
     to design  encryption  software  that will be readily  compatible  with the
     widely varying crypto service provider  formats/protocols  which are in use
     today in today's digital communication environment.  In contrast,  CyPost's
     "Navaho"  family of Software  Products is readily  compatible  with a broad
     range of provider formats/protocols.

     Dependence on Key Customers


          THE COMPANY DERIVES SUBSTANTIALLY ALL OF ITS REVENUES FROM ITS ISP AND
     ELECTRONIC MESSAGING OPERATIONS AND AS SUCH ENJOYS THE BENEFIT OF A BROADLY
     DIVERSIFIED  CUSTOMER  BASE OF  APPROXIMATELY  115,000  LOCATED  THROUGHOUT
     ONTARIO, THE CANADIAN AND PACIFIC NORTHWEST AND IN JAPAN.

               WITH  RESPECT  TO  ITS  DIRECT  SOFTWARE  SALES  WHICH  COMPRISED
         APPROXIMATELY  1.5% OF ITS 1999  REVENUES,  THE  COMPANY  HAS DERIVED A
         SIGNIFICANT  PORTION OF ITS SALES  REVENUES FROM A "PREFERRED  PROVIDER
         CONTRACT".   UNDER  THIS  MARCH  1999   AGREEMENT,   THE  CANADIAN  BAR
         ASSOCIATION,  BRITISH COLUMBIA BRANCH will license 250 copies of Navaho
         Lock and Navaho ZipSafe. In addition, clients of these bar members will
         be able, for a fee, to license their own versions of these programs.


            The Company is actively  seeking to broadly  market its products and
      has taken a number of steps to actively market its products  including use
      of a variety of print and communications media to build consumer awareness
      such as direct  mailings,  featured  appearances  of Company  personnel on
      various  television  and radio  shows  broadcast  in the U.S.  and  Canada
      (Caspar  Weinberger's  World Business Review,  Dave Chalk's Computer Show;
      Dotto's  Cafe,  CKNW  radio and CKWX  radio),  and  features  in  selected
      magazines (Security Magazine, PC Magazine Online,  Portable Computing,  PC
      Magazine OnLine, Portable Computing , Computer Paper, and Canadian Bar).

              The  Company  has hired a director of  marketing  and  anticipates
         hiring a director of sales in the near future. In addition, during 1999
         the  Company  has  concluded  acquisitions  of  five  internet  service
         providers.  See "The  1999  Acquisitions  and the  Company's  Broadened
         Strategic Focus".

      Research and Development

            The  Company  has  abandoned  its former  development  of the CyPost
      Terminal,  a type of  communications  software  designed  to  operate on a
      remote terminal network.  Since December 1998, the Company has focused its
      research and development efforts on refinements and/or improvements to its
      Software  Products.  The Company has  introduced  six (6)  versions of its
      "Navaho"  encryption  software  during 1999.  It is  currently  developing
      English and other  language  versions of the  "Yabumi"  Instant  Messaging
      software which it acquired when it bought Playa Corporation in February of
      2000.  Any monies  expended on research and  development  will be absorbed
      directly by the Company and cannot be "passed through" to customers in the
      form of any "cost plus" type of contract.

      The 1999 Acquisitions and the Company's Broadened Strategic Focus


            THE COMPANY HAS ACQUIRED FIVE (5) Internet service  providers during
      1999.

                                     Page 10
<PAGE>
            Acquisition of Hermes Net Solutions, Inc. and Intouch Internet Inc.:
      Effective  June  30,  1999,  the  Company  purchased  all the  issued  and
      outstanding shares of Hermes Net Solutions,  Inc. for a cash consideration
      of $528,000 USD. Also effective  June 30, 1999, the Company  purchased all
      the issued and outstanding shares of Intouch.Internet  Inc. for a purchase
      price of $293,000 USD. The  consideration  for this purchase  consisted of
      cash of  $265,000  USD and the  issuance  of  6,570  pre-split,  or  9,855
      post-split,  common shares valued at $28,000 USD. Both  acquisitions  have
      been  accounted  for  by  the  purchase  method  of  accounting.  In  both
      acquisitions, the net assets acquired included goodwill and customer lists
      which will be amortized over three years on the straight line basis.

            Acquisition of NetRover Inc. and NetRover Office Inc.: On October 4,
      1999, the Company purchased all the issued and outstanding shares of
      NetRover Inc. and NetRover Office Inc. for a purchase price of $2,700,000

             USD.  The  purchase  price  was  satisfied  by a  cash  payment  of
      $2,000,000 USD, and the issue of 219,000  post-split  common shares valued
      at  $680,000  USD.  These  purchases  have  been  accounted  for under the
      purchase method of accounting.

            Acquisition of Connect  Northwest and Internet Arena: On October 24,
      1999,  the  Company  purchased  the  assets  of the  business  of  Connect
      Northwest for a net purchase  price of $1,400,000  USD. The purchase price
      was  satisfied  by a cash  payment of  $670,000  USD and the  issuance  of
      147,985 of the Company's  common shares.  On November 9, 1999, the Company
      purchased  the assets of the  business  of  Internet  Arena for a purchase
      price of $600,000 USD. The purchase  price was satisfied by a cash payment
      of  $242,000  USD,  the  issuance of 100,698 of the  Company's  post-split
      common shares,  and a deferred cash payment of $58,000 USD due in January,
      2000. These purchases have been accounted for under the purchase method of
      accounting.


          ISP's  provide  several  complementary  features to CyPost's  business
strategy.  CyPost  gains the  advantage  of an  existing  client base who, it is
hoped, will become significant  purchasers of encryption  products while the ISP
gains the ability to work  hand-in-hand  with an encryption  services  provider.
ALSO,  MUCH OF AN ISP'S  BUSINESS IS  SERVICE-BASED  AND BASED ON NINE MONTHS OF
OPERATING  HISTORY HAVE PROVIDED  predictable cash flows.  CyPost has undertaken
negotiations to license  software which will protect against virus  transmission
at the ISP level and is  developing  programs  to  regulate  content and provide
"Family Safe Surfing"at the Server level.

            THE ISPS  GENERATE  MONTHLY  REVENUES  FROM  CONNECTIVITY  SERVICES,
SERVER  CO-LOCATIONS,  WEB HOSTING,  EMAIL  SERVICES  (LISTSERVS  FOR  CORPORATE
EMAILINGS)  AS WELL AS LUMP  SUM  PAYMENTS  FOR  CUSTOM  PROGRAMMING  AND  OTHER
SPECIFIC  PROJECTS.  AN  EXAMPLE  OF  CUSTOM  OR  SPECIFIC  PROJECTS  IS  HERMES
GENERATING  REVENUE  FROM  CREATING  A SECURE  AREA ON A WEB SITE FOR A  GRAPHIC
DESIGN  FIRM'S  CLIENTS  TO  VIEW  THEIR  WORKS  IN  PROGRESS,  WITHOUT  FEAR OF
COMPETITOR'S  EYES.  THE BULK OF THE REVENUE CAN BE ATTRIBUTED  TO  CONNECTIVITY
CURRENTLY,  ALTHOUGH THE ENTIRE  CYPOST  NETWORK OF SERVICE  PROVIDERS IS MOVING
TOWARDS  FOCUSING ON THE CUSTOM  PROJECTS,  WEB HOSTING AND SERVER  CO-LOCATION,
ANTICIPATING A STRONG HOLD OVER  CONNECTIVITY  BY THE LARGER ISPS IN A FEW YEARS
TIME.  A BRIEF  SURVEY OF THE VARIOUS  MEMBERS OF THE CYPOST  NETWORK OF SERVICE
PROVIDERS IS PROVIDED BELOW:

HERMES NET SOLUTIONS

BASED IN VANCOUVER, BRITISH COLUMBIA, HERMES SERVICES 800 BUSINESS CLIENTS. THEY
OFFER A RANGE OF SERVICE FROM CONNECTIVITY  (VARIETY OF DIAL UP SPEEDS TO ADSL),
SERVER CO-LOCATION, WEB HOSTING, CUSTOM PROGRAMMING AND EMAIL SERVICES.

INTOUCH INTERNET, INC.

                                     Page 11
<PAGE>

BASED IN VANCOUVER,  BRITISH COLUMBIA, INTOUCH HAS 2000 RESIDENTIAL/SMALL OFFICE
HOME OFFICE ("SOHO") CLIENTS.  INTOUCH HAS AN EXCELLENT "COMMUNITY" FEEL, AND IS
PRIMARILY FOCUSED ON DIAL UP CONNECTIVITY, BASIC WEB HOSTING AND EMAIL SERVICES.

HERMES  AND  INTOUCH  HAVE  BEEN  INTEGRATED   (STAFFING  AND  TECHNICALLY)  AND
ESSENTIALLY RUN AS A SINGLE UNIT.

NETROVER INC.

NETROVER,  BASED IN TORONTO  AND  CHATHAM,  ONTARIO,  IS THE LARGEST OF CYPOST'S
ISPS.  CURRENTLY WITH 14,000  RESIDENTIAL AND SMALL BUSINESS  CLIENTS,  NETROVER
OFFERS INEXPENSIVE  PACKAGES FOCUSING ON WEB HOSTING AND DIAL UP AS WELL AS SOME
SERVER  CO-LOCATION.   NETROVER'S   MANAGEMENT  OFFERS  CYPOST  EXPERIENCE  WITH
INTEGRATING  ISPS (THEY HAD COMPLETED 3  ACQUISITIONS  WHEN WE PURCHASED THEM IN
OCTOBER 1999). NETROVER HAS A DIVISION CALLED NETROVER OFFICE INC. WHICH FOCUSES
MORE  SPECIFICALLY WITH THE COMPANY'S  BUSINESS  CLIENTELE.  NETROVER  CURRENTLY
OFFERS DIAL UP SERVICE THROUGH A PARTNERSHIP WITH UUNET IN CANADA,  AND HAS DIAL
UP AVAILABILITY  ACROSS CANADA.  WITH THIS NATIONAL  REACH,  CYPOST WILL USE THE
NETROVER BRAND FOR EXPANSION.

CONNECT NORTHWEST

CNW,  BASED IN MT.  VERNON AND SEATTLE,  WASHINGTON,  HAS OVER 1800 BUSINESS AND
RESIDENTIAL  SERVICES.  MORE FOCUSED ON CUSTOM WORK, CNW'S MANAGEMENT EXPERIENCE
INCLUDES  ETHICAL  HACKING AND OTHER  SECURITY  MONITORING.  CNW ALSO OFFERS WEB
HOSTING, DIAL UP AND DSL CONNECTIVITY TO ITS CLIENTS.

INTERNET ARENA

INTERNET ARENA, BASED IN PORTLAND,  OREGON, WITH 1500 PRIMARILY RESIDENTIAL/SOHO
CLIENTS, OFFERS A SIMILAR RANGE OF SERVICES TO INTOUCH INTERNET.  INTERNET ARENA
WAS A STRATEGIC ACQUISITION GEOGRAPHICALLY AS IT OPENED UP THE PACIFIC NORTHWEST
AND A LINK TO THE LARGE CALIFORNIA MARKET.

          CyPost is also actively  seeking  further  opportunities  to ally with
ISP's and other  cyber-businesses  both within  North  America  and  abroad.  On
February 23, 2000, the Company concluded the purchase of Playa Corporation,  the
developers of YABUMI instant  messaging and e-greeting  technologies.  YABUMI is
based in Japan and with its 85,000 current users offers a promising  opportunity
for both  community-building  as well as rolling out an  integrated  and private
solution for instant  messaging using the existing  messaging  technology as the
base. The purchase  price was  $3,000,000  with $300,000 being paid in cash with
THE BALANCE PAID IN 785,455 shares.

          The Yabumi  website at  Yabumi.com  currently  generates  over 500,000
visitors per month and offers  several  "value added"  communications  services.
Yabumi  "Instant   Messaging"   Software  allows  users  to  instantly   receive
ecommunications by way of a desktop notification. This allows message recipients
to bypass the need for frequent  checking of email  mailboxes  and permits "real
time messaging".  The Yabumi software to do this, Yabumi v.2.1, is available via
a free download and can be downloaded  in  approximately  2 minutes or less by a
user using a 56K modem. In keeping with CyPost's design philosophy, the software
is easy to install and its user  interface  is  extremely  "user  friendly".  In
addition  to its ease of use,  the  program  also  features  real time chat line
capabilities  and will easily allow attachment of files and URL's. The number of
Yabumi users has grown by approximately 25% during the last 3 months of 1999 and
CyPost anticipates that an additional 100,000 Japanese users may be added by the
end of 2000. Yabumi is particularly popular among young Japanese woman who are a
demographically important group for marketing purposes. The Company has recently
introduced a MacIntosh-compatible version of its "Instant Messaging Software" as


                                     Page 12
<PAGE>

well as a "Business to Business" version designed for use in a networked
computing environment.

      CyPost  believes that the Yabumi  software can be readily  "localized" for
use in English-  language and other cultural  settings.  The task of translating
and making the software compatible with existing CyPost technolgicy. has already
begun and will use both internal and outsourced software development  personnel.
CyPost anticipates that English-language  versions of the Yabumi technology will
be  developed  during  the first six  months of 2000 and will be  available  for
product introduction during the second half of 2000.

      Item 2. Description of Property.

      The  Company  entered  into a net lease  with  respect  to its new  office
premises located at 900-1281 West Georgia  St.,Vancouver,  British Columbia (the
"Premises") for approximately  6500 square feet of office space. The term of the
lease is for 60 months and ends on June 1,  2005.  The  monthly  rent under this
lease is $12,171 CDN$ or approximately  $7,911 USD. The Company believes that it
could secure comparable office space in the event that it needed to do so.

      Item 3. Legal Proceedings.

                    ON JUNE 11, 1999,  CANADA POST CORPORATION FILED A STATEMENT
OF CLAIM IN THE  FEDERAL  COURT OF  CANADA  IN WHICH IT  SOUGHT  INJUNCTIVE  AND
UNSPECIFIED  MONETARY  RELIEF FOR THE ALLEGEDLY  "IMPROPER USE BY THE COMPANY OF
CERTAIN MARKS AND NAMES WHICH CONTAIN THE COMPONENT "POST". ON OCTOBER 18, 1999,
THE COMPANY FILED ITS DEFENCE AND  COUNTERCLAIM.  IN A MOTION HEARD NOVEMBER 24,
1999, CANADA POST CORPORATION  CHALLENGED  CERTAIN PARTS OF THE COUNTERCLAIM AND
THE FEDERAL COURT RESERVED JUDGMENT.  THERE HAS BEEN NO PRE-TRIAL  DISCOVERY AND
NO TRIAL DATE HAS BEEN SET.

      ON MAY 25,  1999,  THE COMPANY  FILED A STATEMENT OF CLAIM IN THE BC COURT
SEEKING A  DECLARATION  THAT THE  PUBLIC  NOTICE OF  CANADA  POST  CORPORATION'S
ADOPTION AND USE OF  CYBERPOSTE  AND CYBERPOST ON NOVEMBER 18, 1998 AND DECEMBER
9, 1998  RESPECTIVELY,  DID NOT AFFECT THE  COMPANY'S USE OF CYPOST AND EPOST AS
TRADE-MARKS  AND  TRADE-NAMES  PRIOR TO SAID DATES.  THE COMPANY  SOUGHT SUMMARY
JUDGMENT FOR SUCH A DECLARATION AND ON SEPTEMBER 14, 1999, THE BC COURT REJECTED
SUMMARY  JUDGMENT ON THE BASIS THAT NO RIGHT OF THE COMPANY WAS BEING  INFRINGED
AND THAT A TRIAL OF THE ISSUES WAS MORE  APPROPRIATE.  THE  REJECTION IS PENDING
APPEAL.  THERE HAS BEEN NO PRE-TRIAL  DISCOVERY  (EXCEPT TO THE EXTENT THAT SOME
WAS DONE AS PART OF THE SUMMARY JUDGMENT APPLICATION) AND NO TRIAL DATE HAS BEEN
SET.

         On or about  April 13,  2000,  Steven  Berry,  the former CEO of CyPost
brought an action in the civil  court of the State of New York,  New York County
(Manhattan).   The  suit  alleges   claims  of   conversion,   fraud,   wrongful
cancellation,  breach of contract and breach of fiduciary  duty and names CyPost
and Continental Stock Transfer & Trust Company as defendants,  and seeks damages
of $3 Million per claim. It also sought  injunctive  relief via an Order to Show
Cause which has been denied by the court.  The suit arises out of the  Company's
cancellation  of  stock  awarded  to Mr.  Berry in  contemplation,  and upon the
condition,  of his  remaining in the employ of the Company.  Mr. Berry  resigned
from the Company on January 17, 2000 citing personal  reasons for his departure.
The Company  believes his claims to be without merit and intends to contest them
vigorously.

      Item 14: Submission of Matters to a Vote of Security Holders.

      There were no matters submitted during the fourth quarter of fiscal 1999


                                     Page 13
<PAGE>

to a vote of security holders, through the solicitation of proxies or otherwise.

                                     PART II

       Item 5. Market Price for Common Equity
               and Related Shareholder Matters.

      1. (a) The Issuer's Common Stock is listed on the National  Association of
      Securities  Dealers,  Inc.  Electronic  Bulletin  Board  under the trading
      symbol of "POST".  The Common Stock became  listed on September  21, 1998.
      Prior to that  time,  there had been no  trading  in the  Issuer's  Common
      Stock.  Pending the  resolutions  of comments  previously  received in the
      ordinary  course  from the SEC when it filed its Form  10-SB  Registration
      Statement,  the OTC  "Bulletin  Board"  has  placed  an "E"  symbol on the
      Company's  stock.  The  Company has filed an  Amendment  No. 1 to its Form
      10-SB with the SEC.  The  Company,  its  attorneys  and  accountants  have
      submitted   their  responses  to  these  SEC  comments  and  are  awaiting
      processing  of them by the SEC.  The Company is required to resolve  these
      comments  with the SEC  before  April 14,  2000 in order to retain its OTC
      Bulletin Board eligibility.  Should these comments not be resolved by such
      time, the Company's  Common Stock will be removed from the OTC and will be
      traded in the "pink sheets"  which is generally  regarded as a less liquid
      trading forum.  The Company will be able to reapply for listing on the OTC
      as soon as it resolved all comments with the SEC.

            Accordingly,  the high and low bid  prices for the  Issuer's  Common
      Stock for each quarter since its date of listing,  as reported by National
      Quotation Bureau, LLC, are as follows:

               QUARTER              HIGH BID PRICE     LOW BID PRICE

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

          1999 Q4 (10/01-12/31)        $6.50               $3.00

          1999 Q3 (7/1-9/30)           $8.25               $3.00



          1999 Q2 (4/1 -6/30)          $3.00               $1.78

          1999 Q1 (01/01 - 03/31)      $1.78               $0.83

          1998 Q4 (10/01- 12/31)       $0.89               $0.05


            These  quotations  reflect  inter-dealer   prices,   without  retail
      mark-up,   mark-down  or   commission,   and  may  not  represent   actual
      transactions.

                  (b) The approximate number of record holders of the Issuer's
                   Common Stock according to its transfer agent is 74. Included
                   in this number

      are shares held by Cede & Co., the nominee for Depository Trust Company, a
      stock clearing house for financial institutions. The Issuer has not

contacted stock brokerage firms shown on the Issuer's stock transfer  records to
determine the number of beneficial holders whose stock is held in "street name",
or the  name of the  brokerage  house  with  which a  shareholder's  account  is
maintained.

            (c) The Issuer has not paid any cash  dividends on its Common Stock,
      nor does it intend to do so in the foreseeable  future.  Under the General
      Corporation  Law of the  State  of  Delaware,  the  Issuer  may  only  pay
      dividends  out of  capital  and  surplus,  or out  of  certain  delineated
      retained earnings, all as defined in the General Corporation Law. There

                                     Page 14
<PAGE>
      can be no assurance that the Issuer will have such funds legally available
      for the payment of dividends in the event that the Issuer should decide to
      do so.

            (d) On June 30, 1999, the Company issued 6,570  pre-split,  or 9,855
      post-split   shares  of  its  common   stock  to  the  former   owners  of
      InTouch.Internet, Inc. as partial payment for the Company's acquisition of
      that  company.  These shares were issued under the Section 4(2)  exemption
      for  transactions  by an issuer not involving a public  offering under the
      Securities Act.

            On August 13,  1999,  the Company  issued  1,000,000  pre-split,  or
      1,500,000  post-split,  shares of its common  stock to Blue Heron  Venture
      Fund Ltd ("Blue Heron") pursuant to Regulation S under the Securities Act.
      No  underwriting  commissions,  fees, or discounts were paid in connection
      therewith.

            On September  29,  1999,  the Company  agreed to issue  219,000 post
      split  shares of its common stock to the former  owners of NetRover,  Inc.
      The shares issued in the Net Rover  transaction  were disclosed in the 8-K
      Report filed by the

      Company on October 2, 1999. The shares issued in the Net Rover acquisition
      were  issued  pursuant  to  the  Section  4(2)  Securities  Act  statutory
      exemption for transactions by an issuer not involving a public offering.

            On October 26, 1999, the Company issued 147,985 shares of its common
      stock to the former owners of Connect  Northwest  Internet Services LLC as
      partial  payment  for  the  Company's  acquisition  of the  assets  of the
      business of Connect Northwest.  These shares were issued under the Section
      4(2) Securities Act exemption for  transactions by an issuer not involving
      a public offering.

            On  November  4, 1999 the  Company  issued  3,000,000  shares of its
      common stock to Blue Heron in  consideration of which Blue Heron cancelled
      indebtedness  owing from the Company in the aggregate  principal amount of
      $3,000,000  together  with  accrued  interest.  These  shares  were issued
      directly to Blue Heron  pursuant to Regulation S under the  Securities Act
      and no underwriting commissions, fees or discounts were paid in connection
      therewith.

            On November 9, 1999,  the Company issued 20,140 shares of its common
      stock to the former owners of Internet Arena,  Inc. as partial payment for
      the Company's  acquisition of that entity.  These shares were issued under
      the Section 4(2)  Securities Act exemption for  transactions  by an issuer
      not involving a public offering.

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

      General: End of development stage activities and commencement of business

      operations

            Cypost produces and markets computer privacy protection technologies
      and provides Internet conductivity to business and residential  customers.
      From the Company's inception date until  approximately  mid-March of 1999,
      the Company was  considered a  development  stage  enterprise.  Since that
      time,  the Company has (i) publicly  marketed six (6) software  encryption
      products  under its  "Navaho"  trademark,  (ii)  acquired  five  U.S.  and
      Canadian  Internet  service  providers during the year ending December 31,
      1999, and (iii) acquired Playa Corporation, the developers of "Yabumi"

                                     Page 15
<PAGE>
      Japanese-language  instant  messaging and greeting card services,  with an
      existing customer base of 85,000 customers.

The Company's results of operations for the year ending December 31, 1999 should
be viewed with considerable caution due to the following factors:

      1) Results of  operations  for the year  ending  December  31, 1999 do not
reflect a full year's worth of revenues but rather six (6) months of revenues as
the Company only commenced generating revenues beginning in the third quarter of
1999.

      2) The Company  completed five (5)  acquisitions  of ISP's and most of its
revenues are based on these. The future growth rate of the present customer base
cannot be predicted  with  certainty and it is not certain that the Company will
be able to continue its strategy of expansion by acquisition.

      3) Inherent in any  acquisitions are costs which arise from integration of
operations into the Company's existing business operations. Many of these may be
viewed as one-time,  non- recurring  charges which are not likely to be repeated
in future performance periods.

Due to these factors,  the 1999 results of operations discussed below may not be
an accurate indication of future performance. In addition, comparison of results
for the year ended  December 31, 1999 with those for the year ended December 31,
1998 are difficult to make due to the basic  dissimilarity  between a developing
stage company and a company that has commenced substantial business operations.

      Results of  operations  for the year ended  December  31, 1999 and for the
year ended December 31, 1998.

      The Company  commenced  substantial  business  operations during the third
quarter of 1999 and its revenues are  attributed to operations  since that time.
These  revenues are  attributable  virtually  entirely to the  operations of the
various  Internet  service  providers which the Company acquired during the year
ending December 31, 1999. The Company  generated  revenues of $1,020,347 for the
year ended  December  31,  1999.  It had no revenues for the prior year when the
Company was a development stage company.

      Direct costs of $563,118  for the year ended  december 31, 1999 consist of
telecommunication  charges in respect of providing internet  connection services
to customers. Selling, general and administrative expenses of $2,007,779 for the
year ended december 31, 1999 includes $342,888 for sales and marketing, $707,799
for salaries and benefits,  $425,604 for professional services, and $531,488 for
general and administrative  expenses.  Development costs of $209,303 and $86,260
for the years  ended  december  31,  1999 and  december  31,  1998  respectively
represent  amounts  incurred in  developing  the company's  encryption  software
products.  The  increase in the above noted costs  during 1999 over 1998 results
from the company  emerging  from the  development  stage in 1999 and  commencing
revenue generating activities.

      Interest  expense of $2,212,500 for the year ended December 31, 1999 is in
respect of the beneficial  conversion  features on convertible  promissory notes
between the Company and a lender. A beneficial  conversion  feature arises when,
at the commitment date of the promissory  note, the convertible  promissory note
is "in-the-money."  The interest expense is calculated as the difference between
the conversion  price and the fair value of the common stock,  multiplied by the
number of common stock into which the promissory note is convertible  (intrinsic
value) at the commitment date of the loan.

      Liquidity and capital resources

      The  accompanying  financial  statements  have  been  prepared  on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred net losses
of $4,491,123 for the year ending December 31, 1999 compared to $275,539 for the
year ending  December  31,  1998.  Although  expenses in 1999  include  non-cash
charges of $2,731,270  (amortization  and  depreciation  charges of $518,770 and
interest  expenses of $2,212,500),  the Company has not generated  positive cash

                                     Page 16
<PAGE>

flow  from  operations  in 1999.  These  factors  indicate  that  the  Company's
continuation  as a going concern is dependent  upon,  amoung other  things,  its
ability to obtain adequate financing.

         Although the Company's  cash position at December 31, 1999 had improved
to $415,779,  as compared to $47,212 at December 31, 1998,  the  improvement  in
cash  position  can be  attributed  to loans  made to the  Company by Blue Heron
Venture Fund, Ltd. These loans were made under agreements with that lender under
which the  Company may draw up to $16 million in  unsecured  loans.  These loans
bear  interest at 8% per annum and are payable on demand.  At December  31, 1999
the  outstanding  loans are convertible at the lender's option into Common Stock
of the Company at $1.33 per share.  The lender is free to withdraw  this line of
credit at any time,  and since the loans are  payable  on demand  the  Company's
ability to continue  operations is dependent upon the  willingness of its lender
to forebear from demanding  payment.  The Company  believes that its lender will
continue  to refrain  from  demanding  payment for the  immediately  foreseeable
future,  but it is under no obligation  to do so.  Should the  Company's  lender
demand  payment the  Company  would be  required  to seek  financing  from other
sources. The Company does not believe that bank borrowings would be available to
it under present circumstances, and there can be no assurance that the necessary
financing  could be obtained from other sources.  Even if the necessary  funding
were available,  it might be available only on terms which  management would not
find acceptable.

      The Company's investing activities in 1999 include the acquisition of five
(5) ISP's for net cash payment of $3.6 million.

Item 7. Financial Statements.

      Registrant's Consolidated Financial Statements as of December 31, 1999 and
for the year ending December 31, 1999, and the independent  auditor's  report of
Arthur Andersen LLP, independent public accountant, with respect thereto, appear
in pages F1 -F16 of this Report on Form 10-KSB.

Item  8.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

      None.  As  disclosed  in the 8-K filed on  October  19,  1999,  CyPost has
engaged Arthur Andersen LLP to act as its auditor.

                                    Part III

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

      Directors  of the  Company  serve  for a term of one year or  until  their
successors are elected. Officers are appointed by, and serve at the pleasure of,
the Board.  Profiles  of the current  Directors  and  Executive  Officers of the
Issuer are set forth below:

      Robert Sendoh, 47, Director and Chief Executive Officer

      Mr.Sendoh  acted  as a  Director  throughout  1999  and in  January,  2000
succeeded to the position of Chief Executive Officer formerly occupied by Steven
Berry. Bob has successfully  conceived and operated three separate companies and
brings a  wealth  of  business  knowledge  and  financial  understanding  to the
Company. After receiving his B.A. in Economics from Meiji University in Tokyo in
1973, he founded KKG Incorporated, a project planning and development firm, also
located in Tokyo,  Japan.  KKG Incorporated was responsible for the planning and
construction of major shopping centers,  golf courses and residential  complexes
around the world.

Dissatisfied  with the lack of spreadsheet and product  management  software for
businesses,  Bob developed his own, as well as  implementing a highly  efficient
security and  communication  system to maintain and expand the reputation of his
company. After moving to Vancouver,  Canada in 1991, Bob started his own sailing

                                     Page 17
<PAGE>

school, Windvalley Sailing School, which now has franchises located in Singapore
and Japan.  He is  currently  an  Instructor/Director,  and  Evaluator  with the
International Sail and Power Association, a non-profit organization.

      Rounding  out  his  business  expertise,  Bob is also a  co-owner  of EPPE
Sportswear,  which  manufactures  and markets  their high  quality  snowboarding
apparel internationally.

Carl Whitehead, 28, Director and Head of Strategic Acquisitions and Partnerships

      During the period  1996-99,  Carl was a corporate  officer and director in
Mushroom Innovations, Inc. and ePost Innovations,  Inc., two technology-oriented
companies the latter of which was acquired by CyPost. Between 1993-97 he was the
founder and owner of Futuresite  Productions,  a computer  service company which
supplies,  maintains,  and  services,  home and business  computers in the lower
mainland.  Specializing  in the Windows95  environment  and TCP/IP  protocols he
naturally  embraced this opportunity to develop CyPost into a competitive leader
in the software  industry.  Carl has  completed  secondary  business  courses in
accounting and finance.

James T. Johnston, 59, Director.

      Mr.  Johnston joined our Board in order to fill the vacancy created by the
resignation of Steve Berry.  Mr. Johnston is, and has been, a licensed pilot for
Canadian Airlines for 34 years and an airline Captain for 28 years. Mr. Johnston
has been  active  in  representing  the  airline  pilot's  union in a number  of
capacities and has been involved in several high-level contract negotiations.

      Steven M.  Berry,  40,  acted as  Director,  Chief  Executive  Officer and
President  during  1999.  Mr.  Berry  resigned  from  all  positions,  including
directorships,  held with CyPost and its subsidiaries on January 17, 2000 citing
personal reasons for his departure.

Item 10. Executive Compensation.

      Steven M. Berry became Chief Executive Officer and Chief Operating Officer
in  January  1999 and  received  an annual  salary of  $120,000.  Mr.  Berry had
previously  rendered  consulting  services  to the  Company  prior to his formal
installation  as Chief Executive  Officer and President.  In connection with his
agreement  to become Chief  Executive  Officer,  Mr.  Berry was awarded  400,000
pre-split,  or 600,000  post-split  shares.  Prior to that time,  Carl Whitehead
exercised  primary  executive  responsibilities.  Neither Mr.  Whitehead nor any
other executive officer received cash compensation in excess of $100,000 for the
years 1997 and 1998.  For the year  ending  December  31,  1998,  Mr.  Whitehead
received cash compensation and expense reimbursement of $10,000.

      Mr. Robert Sendoh  currently  serves as Chief Executive  Officer of CyPost
for an annual salary of $82,759.

      All directors currently serve without pay.

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

      (a) Security Ownership of Certain Beneficial Owners.

      The following  information relates to those persons known to the Issuer to
be the beneficial  owner of more than five percent (5%) of the Common Stock, par
value  $.001 per  share,  the only  class of  voting  securities  of the  Issuer
outstanding.
                                     Page 18

<PAGE>
<TABLE>
<CAPTION>
                            Name and                  Amount and
   Title of                 Address of                Nature of                          Percentage
    Class                   Beneficial Owner          Beneficial Ownership               of Class*

<S>                         <C>                       <C>                                <C>
Common Stock, par value     Kelly Shane Montalban     6,062,550 Million shares           29.8%
$0.001 per share            P.O Box 700,              direct and indirect beneficial
                            British Columbia VON 2EO  ownership
</TABLE>

      * Based on 20,353,538 shares issued and outstanding. Mr. Montalban's
      holdings indicated above include shares owned by Blue Heron Venture Fund
      Ltd. and Pacific Gate Capital Fund, the beneficial ownership of which is
      attributed to Mr. Montalban.

      ----------

      The Company has not contacted  stock brokerage firms holding shares of the
Company's  Common  Stock  in  "street  name"  to  determine  whether  there  are
additional substantial shareholders of the Company. 5,314,997 shares or 26.1% of
the Common  Stock  outstanding  is held in the name of Cede & Co., a nominee for
Depository   Trust  Company,   a  stock  clearing  house   servicing   financial
institutions.

      (b) Security Ownership of Management.

      The number of shares of Common Stock of the Issuer owned by the  Directors
and Executive Officers of the Issuer is as follows:

<TABLE>
<CAPTION>
                            Name and                  Amount and
   Title of                 Address of                Nature of                          Percentage
    Class                   Beneficial Owner          Beneficial Ownership               of Class*

<S>                         <C>                       <C>                                <C>
Common stock, par value     Carl Whitehead            327,000 shares                     1.6%
$0.001 per share            20 Oceanview Road         direct ownership
                            Vancouver, British
                            Columbia VON 2EO

Common stock, par value     Robert Sendoh             330,000 shares                     1.6%
$0.001 per share            990 Beach Avenue, #304    direct ownership
                            Vancouver, British
                            Columbia V6Z 2N9

All Officers and Directors (2 persons):               657,000 shares                     3.2%
</TABLE>
      ----------
                                     Page 19
<PAGE>
      * Based on 20,353,538 shares issued and outstanding. Forward-Looking
        Statements

      Item 12. Certain Relationships and Related Transactions.

            On September 17, 1997,  CyPost  purchased all of the shares of ePost
      Canada  Inc., a  corporation  organized,  controlled,  and operated by Mr.
      Whitehead. At the time of the negotiation and the actual purchase of these
      shares,  Mr.  Whitehead was not affiliated  with CyPost and was neither an
      officer,  director,  nor a  shareholder  of  CyPost.  As a result  of that
      transaction, Mr. Whitehead became a substantial shareholder in CyPost, and
      subsequent to that transaction became an officer and a Director of CyPost.

            On September 18, 1998,  CyPost  acquired,  through a stock purchase,
      Communications   Exchange  Management,   Inc.,  a  corporation  indirectly
      controlled  by Mr.  Whitehead.  At  the  time  of  this  transaction,  Mr.
      Whitehead was an officer,  Director and large  shareholder of CyPost.  The
      transaction was approved by a majority of CyPost's Directors.  The Company
      issued 4,180,000 pre-split shares (6,270,000  post-split shares) of common
      stock valued at $0.01 per share for an aggregate  consideration  of $4,180
      in asset cost. The Company acquired all the issued stock of Communications
      Exchange  Management and its assets  consisting of source code written for
      data encryption software,  personal information  management and electronic
      mail functionality along with the intellectual property rights to a number
      of other projects.

            CyPost has secured  financing  through  its  issuance of certain 8 %
      Demand  Notes  payable  to Blue Heron  Venture  Capital  Fund Ltd.  ("Blue
      Heron"), a corporation in which Kelly Shane Montalban is deemed to have an
      "indirect  pecuniary"  interest as a result of Mr.  Montalban's  status as
      investment  adviser for Blue Heron. The Demand Notes are unsecured and are
      convertible  into common  stock at such terms as may be agreed upon by the
      holder  and the  obligor.  Between  May and June of 1999,  at a time  when
      CyPost had  virtually  no  operating  revenues,  it obtained $1 Million in
      financing through issuance of these Demand Notes.  These Demand Notes were
      later  converted  into  common  shares with $ 1 Million of  principal  and
      associated  accrued  interest being  converted at a price of $1 per share.
      Between July and November of 1999, the Company  executed  various  further
      demand  notes  with  similar  terms and in  November  1999,  an  aggregate
      principal amount of $3 Million  together with associated  accrued interest
      was converted at a price of $1 per share. Each borrowing and the execution
      of the associated Demand Note was approved by a disinterested  majority of
      Directors.

            In  connection   with  its  February  2000   acquisition   of  Playa
      Corporation,  CyPost borrowed an additional  $300,000 from Blue Heron, the
      terms of which are substantially similar to those described above.

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

      (a)  Exhibit No.          Description
           -----------          -----------

             2                  Certificate of Incorporation of Registrant*

             2.1                Certificate of Amendment to Certificate of
                                Incorporation of Registrant *

                                     Page 20
<PAGE>
             2.2                Amended and Restated Certificate of
                                Incorporation *

             2.3                ByLaws *

             6.1                Preferred Supplier Agreement with Canadian
                                Bar Association **

             6.2                Lease re: CyPost headquarters (W. Georgia St.)
                                (Omitted - will be supplied on request)

             8.1                Acquisition Agreement dated as of
                                September 17, 1997 between the Issuer and
                                ePost Canada *

             8.2                Share Purchase Agreement dated as of
                                October 29,1998 between the Issuer and
                                Mushroom Innovations, Inc.*

             8.3                Share Purchase Agreement dated as of June
                                30, 1999 regarding acquisition of Hermes
                                Net Solutions Inc. shares *

             8.4                Share Purchase Agreement dated as of June
                                30, 1999 regarding acquisition of
                                InTouch.Internet Inc. shares *

             8.5                ACQUISITION AGREEMENT DATED AS OF OCTOBER 4 1999
                                BETWEEN THE ISSUER AND NET ROVER INC ***

             8.6                ACQUISITION AGREEMENT DATED AS OF
                                OCTOBER 4, 1999 BETWEEN THE ISSUER AND
                                NET ROVER OFFICE INC ****

             8.7                ACQUISITION AGREEMENT DATED AS of
                                OCTOBER 26, 1999 BETWEEN THE ISSUER AND
                                CONNECT NORTHWEST SERVICES *****


             21                 List of Subsidiaries

             23                 Consent of Arthur Andersen LLP, Certified
                                Public Accountants

             27                 Financial Statement Schedule

      *Incorporated by reference from the  Registration  Statement on Form 10-SB
filed with the Commission on July 19, 1999.

      **Incorporated by reference from Amendment No. 1 to the Registration
Statement on Form

         *** INCORPORATED BY REFERENCE FROM THE FORM 8-K
FILED WITH THE COMMISSION ON.

         **** INCORPORATED BY REFERENCE FROM THE FORM 8-K

                                     Page 21

<PAGE>

FILED WITH THE COMMISSION ON OCTOBER 12, 1999.

         *****  INCORPORATED  BY  REFERENCE  FROM THE FORM  8-K  FILED  WITH THE
COMMISSION ON NOVEMBER 12, 1999.


10-SB filed with the Commission on March 9, 2000.

      (b)   The  Registrant  filed the  following  8-K  Reports  during the last
            quarter of 1999:

            1. October 12, 1999 re: acquisition of Net Rover Inc. and Net Rover
               Office Inc.

(Item 2)

            2. October 19, 1999 re: change in Registrant's Certifying Accountant

(Item 4)

            3. November 12, 1999 re:  acquisition of Connect Northwest  Services
               LLC assets

(Item 2)

                                   SIGNATURES

            In  accordance  with  Section 12 of the  Securities  Exchange Act of
      1934, the registrant  caused this  registration  statement to be signed on
      its behalf by the undersigned, thereunto duly authorized.

                               CYPOST CORPORATION


      DATE: APRIL 14, 2000                  By: /s/
                                             ----------------------------
                                             Robert Sendoh
                                             Chief Executive Officer

<PAGE>

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

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

To the Shareholders of

CYPOST CORPORATION:

WE  HAVE  AUDITED  THE  ACCOMPANYING   CONSOLIDATED   BALANCE  SHEET  OF  CYPOST
CORPORATION  (a Delaware  corporation)  as of December  31, 1999 and the related
consolidated  statements of operations,  cash flows and shareholders' equity for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted our audit 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 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 audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of CyPost  Corporation  as of
December 31, 1999 and the results of its  operations  and its cash flows for the
year then ended in accordance 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 described in Note 1, the
Company  has  incurred   operating  losses  since  its  inception  and  requires
additional financing to continue operations.  These conditions raise substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in regard  to these  matters  are  described  in Note 1. 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 may result should the Company be unable to
continue as a going concern.

The consolidated  financial  statements of CyPost Corporation as of December 31,
1998 and for the  periods  ended  December  31,  1998 and 1997 were  audited  by
another  auditor  whose  report dated March 12, 1999  expressed  an  unqualified
opinion with an explanatory going concern paragraph on those statements.

"ARTHUR ANDERSEN LLP"

Vancouver, British Columbia
March 23, 2000.


<PAGE>

                               CYPOST CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
                                 (U.S. Dollars)
<TABLE>
<CAPTION>

                                                                              1999           1998
                                                                          -----------    -----------

                                                  ASSETS

CURRENT ASSETS

<S>                                                                       <C>            <C>
   CASH ...............................................................   $   415,779    $    47,212
   Accounts receivable, net of allowance for

      DOUBTFUL ACCOUNTS OF $34,000 (1998- $NIL) .......................       233,188           --
   PREPAIDS AND DEPOSITS ..............................................       173,319         27,998
   OTHER ASSETS .......................................................        69,389         28,657
                                                                          -----------    -----------

                                                                              891,675        103,867
PROPERTY AND EQUIPMENT, NET ...........................................       599,582         22,330

GOODWILL AND OTHER INTANGIBLES, net of

   AMORTIZATION OF $458,758 (1998- $NIL) ..............................     5,036,785           --
                                                                          -----------    -----------

                                                                          $ 6,528,042    $   126,197

                                   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

   ACCOUNTS PAYABLE ...................................................   $   849,300    $    11,090
   ACCRUED LIABILITIES ................................................       133,937           --
   LOANS ..............................................................       875,000           --
   DEFERRED REVENUE ...................................................       626,143           --
   PURCHASE OF INTERNET ARENA .........................................       240,000           --
                                                                          -----------    -----------

                                                                            2,724,380         11,090
                                                                          -----------    -----------
SHAREHOLDERS' EQUITY

   Share capital
      Authorized

         5,000,000 preferred stock with a par value of $.001
         30,000,000 common stock with a par value of $.001

      Issued and outstanding
         Nil preferred stock

         20,246,480 COMMON STOCK (1998- 13,264,500) ...................        20,246         13,264
   PAID-IN CAPITAL ....................................................     8,533,002        343,416
   DEFICIT ............................................................    (4,766,662)      (275,539)
   CURRENCY TRANSLATION ADJUSTMENT ....................................        17,076         33,966
                                                                          -----------    -----------

                                                                            3,803,662        115,107
                                                                          -----------    -----------

                                                                          $ 6,528,042    $   126,197
                                                                          ===========    ===========
</TABLE>

Approved by the Directors:

 ......................................................................  Director

 ......................................................................  Director

        The  accompanying  notes  are an  integral  part of these  consolidated
financial statements.

<PAGE>


                               CYPOST CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (U.S. Dollars)
<TABLE>
<CAPTION>

                                                                        Period From
                                                                        September 5,
                                         YEAR ENDED      Year Ended        1997 to
                                         DECEMBER 31,    December 31,    December 31,
                                             1999            1998            1997
                                         ------------    ------------    ------------

<S>                                      <C>             <C>             <C>
REVENUE ..............................   $  1,020,347    $       --      $       --

DIRECT COSTS .........................        563,118            --              --
                                         ------------    ------------    ------------

                                              457,229            --              --
                                         ------------    ------------    ------------

EXPENSES

   SELLING, GENERAL AND ADMINISTRATIVE      2,007,779         183,046            --
   AMORTIZATION AND DEPRECIATION .....        518,770           6,233            --
   DEVELOPMENT .......................        209,303          86,260            --
                                         ------------    ------------    ------------

                                            2,735,852         275,539            --
                                         ------------    ------------    ------------

                                           (2,278,623)       (275,539)           --

INTEREST EXPENSE .....................      2,212,500            --              --
                                         ------------    ------------    ------------

NET LOSS .............................   $ (4,491,123)   $   (275,539)   $       --
                                         ============    ============    ============


LOSS PER SHARE, BASIC AND DILUTED ....   $      (0.28)   $      (0.04)   $       --
                                         ============    ============    ============

WEIGHTED AVERAGE NUMBER OF

   SHARES OUTSTANDING ................     15,816,232       7,720,603         961,644
                                         ============    ============    ============
</TABLE>

         The  accompanying  notes  are an  integral  part of these  consolidated
financial statements.

<PAGE>

                               CYPOST CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (U.S. Dollars)
<TABLE>
<CAPTION>

                                                                           Period From
                                                                           September 5,
                                              YEAR ENDED     Year Ended     1997 to
                                              DECEMBER 31,   December 31,  December 31,
                                                  1999           1998           1997
                                              -----------    -----------    -----------

CASH FLOWS FROM OPERATING
   ACTIVITIES
<S>                                           <C>            <C>            <C>
      NET LOSS ............................   $(4,491,123)   $  (275,539)   $      --
      Add items not affecting cash
         AMORTIZATION AND DEPRECIATION ....       518,770          6,233           --
         INTEREST EXPENSE .................     2,212,500           --             --
         NON-CASH EXPENSES ................          --            9,500           --
                                              -----------    -----------    -----------
                                               (1,759,853)      (259,806)          --

      Changes in non-cash operating
         accounts
             ACCOUNTS RECEIVABLE ..........       (90,017)          --             --
             PREPAIDS AND DEPOSITS ........      (109,550)       (27,998)          --
             OTHER ASSETS .................       (15,972)         9,966           --
             ACCOUNTS PAYABLE .............       583,787          9,125          1,965
             ACCRUED LIABILITIES ..........        61,417           --             --
             DEFERRED REVENUE .............       149,921           --             --
                                              -----------    -----------    -----------

                                               (1,180,267)      (268,713)         1,965
                                              -----------    -----------    -----------

CASH FLOWS FROM INVESTING
   ACTIVITIES
      Acquisitions of businesses, less cash
         THEREIN OF $115,953 ..............    (3,612,066)          --             --
      PROPERTY AND EQUIPMENT, NET .........      (270,100)       (11,310)       (17,730)
                                              -----------    -----------    -----------

                                               (3,882,166)       (11,310)       (17,730)
                                              -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
      LOAN ................................     4,875,000           --             --
      SALE OF COMMON STOCK ................       556,000        323,000         20,000
                                              -----------    -----------    -----------

                                                5,431,000        323,000         20,000
                                              -----------    -----------    -----------

INCREASE IN CASH ..........................       368,567         42,977          4,235
CASH, BEGINNING OF PERIOD .................        47,212          4,235           --
                                              -----------    -----------    -----------

CASH, END OF PERIOD .......................   $   415,779    $    47,212    $     4,235
                                              ===========    ===========    ===========

CASH PAID DURING THE PERIOD FOR
   INTEREST ...............................   $      --      $      --      $      --
   INCOME TAXES ...........................          --             --             --

</TABLE>

         The  accompanying  notes  are an  integral  part of these  consolidated
financial statements.

<PAGE>

                               CYPOST CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (U.S. Dollars)
<TABLE>
<CAPTION>

                                                                                  Additional
                                                           COMMON STOCK             Paid-in
                                                         NUMBER        AMOUNT       CAPITAL        DEFICIT         TOTAL
                                                      -----------   -----------   -----------    -----------    -----------
Incorporation date, September 5, 1997
    Issued for acquisition of
<S>                                                     <C>         <C>           <C>            <C>            <C>
       ePOST Innovations, Inc. ....................     3,000,000   $     3,000   $    (1,000)   $      --      $     2,000
    ISSUED ON SALE OF UNITS .......................       600,000           600        19,400           --           20,000
                                                      -----------   -----------   -----------    -----------    -----------
Balance, December 31, 1997 ........................     3,600,000         3,600        18,400           --           22,000
    Issued on sale of units .......................     2,400,000         2,400        77,600           --           80,000
    Issued for cash ...............................        57,000            57        18,943           --           19,000
    Issued for legal services .....................        22,500            22         7,478           --            7,500
    Issued for acquisition of
      Communication Exchange Management, Inc. .....     6,270,000         6,270        (2,090)          --            4,180
    Issued for exercise of warrants ...............       915,000           915       243,085           --          244,000
    Offering expenses .............................          --            --         (20,000)          --          (20,000)
    NET LOSS ......................................          --            --            --         (275,539)      (275,539)
                                                      -----------   -----------   -----------    -----------    -----------

Balance, December 31, 1998 ........................    13,264,500        13,264       343,416       (275,539)        81,141
    Issued for acquisition of InTouch.Internet Inc.         9,855            10        28,515           --           28,525
    Issued for acquisition of NetRover Inc. .......
      and NetRover Office Inc. ....................       219,000           219       679,324           --          679,543
    Issued for acquisition of Connect Northwest ...       147,985           148       659,852           --          660,000
    Issued for acquisition of Internet Arena ......        20,140            20        59,980           --           60,000
    Issued for loan conversion ....................     4,500,000         4,500     3,995,500           --        4,000,000
    Issued for exercise of warrants ...............     2,085,000         2,085       553,915           --          556,000
    Beneficial conversion feature on loans ........          --            --       2,212,500           --        2,212,500
    NET LOSS ......................................          --            --            --       (4,491,123)    (4,491,123)
                                                      -----------   -----------   -----------    -----------    -----------

BALANCE, DECEMBER 31, 1999 ........................    20,246,480   $    20,246   $ 8,533,002    $(4,766,662)   $ 3,786,586
                                                      ===========   ===========   ===========    ===========    ===========
</TABLE>

         The  accompanying  notes  are an  integral  part of these  consolidated
financial statements.
<PAGE>

                               CYPOST CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
                                 (U.S. Dollars)

1.    NATURE OF OPERATIONS AND GOING CONCERN

      CyPost  Corporation  was formed on September 5, 1997 under the laws of the
      State of  Delaware  and its head office is located in  Vancouver,  Canada.
      CyPost Corporation and its subsidiaries (the "Company")  generate revenues
      from value-added protected internet connection services, web-site hosting,
      advertising  sales,  promotional  opportunities,  and sales of privacy and
      protection products. The Company's activities also include determining the
      feasibility of encryption software products, beginning initial programming
      and product  development,  conducting  market  research,  and  undertaking
      various  private  placement  offerings.   The  Company  emerged  from  the
      development stage in 1999 and commenced revenue generating activities.

      The accompanying  consolidated  financial statements have been prepared on
      the basis of accounting principles applicable to a "going concern",  which
      assume that the Company will  continue in operation  for at least one year
      and will be able to realize its assets and  discharge its  liabilities  in
      the normal course of operations.

      Several  conditions  and events cast doubt about the Company's  ability to
      continue as a "going concern".  The Company has incurred net losses before
      interest  expense  of  approximately  $2.5  million  for the  period  from
      inception  September 5, 1997 to December 31, 1999,  has a working  capital
      deficiency, and requires additional financing for its business operations.
      As of  December  31,  1999,  the  Company  has $11.1  million  of  funding
      available  which can be drawn against a promissory  note  agreement with a
      lender;  however,  the lender has the option, at any time, to withdraw its
      offer to lend this amount.

      The Company's future capital  requirements will depend on numerous factors
      including,  but not  limited to,  continued  progress  in  developing  its
      software products,  and market penetration and profitable  operations from
      its  internet  connection  services.  The  Company  is  actively  pursuing
      alternative  financing and has had discussions with various third parties,
      although  no firm  commitments  have  been  obtained.  Management  is also
      pursuing  acquisitions  of other  businesses  with existing  positive cash
      flows. In addition, management is working on attaining cost and efficiency
      synergies by consolidating the operations of the businesses acquired.

      These  financial  statements  do not  reflect  adjustments  that  would be
      necessary  if the Company  were  unable to continue as a "going  concern".
      While  management  believes that the actions already taken or planned,  as
      described  above,  will mitigate the adverse  conditions  and events which
      raise doubt about the validity of the "going  concern"  assumption used in
      preparing these financial statements, there can be no assurance that these
      actions will be successful.

      If the  Company  were  unable  to  continue  as a  "going  concern",  then
      substantial  adjustments  would be  necessary  to the  carrying  values of
      assets, the reported amounts of its liabilities, the reported revenues and
      expenses, and the balance sheet classifications used.


<PAGE>


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      CONSOLIDATION

      The  consolidated  financial  statements  include  the  accounts of CyPost
      Corporation and its subsidiaries. The principal subsidiaries, all of which
      are wholly owned,  include ePost Innovations Inc., NetRover Inc., NetRover
      Office Inc., Hermes Net Solutions Inc. and InTouch.Internet Inc.

      FOREIGN CURRENCY TRANSLATION

      The  functional  currency of the Company is U.S.  dollars.  Balance  sheet
      accounts  of  international  self-sustaining   subsidiaries,   principally
      Canadian,  are  translated at the current  exchange rate as of the balance
      sheet date.  Income  statement  items are  translated at average  exchange
      rates during the period. The resulting translation  adjustment is recorded
      as a separate component of shareholders' equity.

      USE OF ESTIMATES

      The  preparation  of financial  statements in conformity  with  accounting
      principles  generally accepted in the United States requires management to
      make estimates and assumptions  that affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements, and the reported amounts of revenues and
      expenses  during the reporting  period.  Actual  results could differ from
      those estimates.

      FINANCIAL INSTRUMENTS

      The Company has, where practicable,  estimated the fair value of financial
      instruments based on quoted market prices or valuation  techniques such as
      present value of estimated future cash flows. These fair value amounts may
      be significantly  affected by the assumptions used, including the discount
      rate and  estimates  of cash  flow.  Accordingly,  the  estimates  are not
      necessarily  indicative of the amounts that could be realized in a current
      market  exchange.  Where these  estimates  approximate  carrying value, no
      separate disclosure of fair value is shown.

      PROPERTY AND EQUIPMENT

      Property and equipment are stated at cost less  accumulated  depreciation.
      Depreciation  is  computed  over the  estimated  useful  lives  using  the
      straight-line method over a period of five years.  Maintenance and repairs
      are charged against operations and betterments are capitalized.

      EARNINGS (LOSS) PER SHARE

      Earnings  (loss) per share has been computed in accordance  with SFAS 128.
      Basic  earnings  (loss)  per share is  computed  by  dividing  net  income
      attributable  to common  shareholders  by the weighted  average  number of
      common shares outstanding during the respective periods.  Diluted earnings
      (loss)  per share is  computed  similarly,  but also  gives  effect to the
      impact that convertible securities,  such as warrants, if dilutive,  would
      have on net  earnings  (loss) and average  common  shares  outstanding  if
      converted at the  beginning of the year.  The effects of potential  common
      shares  such as  warrants  would be  antidilutive  in each of the  periods
      presented in these financial statements.

      The number of shares used in calculating basic and diluted earnings (loss)
      per share is 15,816,232 for 1999 (1998- 7,720,603).


<PAGE>


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      REVENUE RECOGNITION AND DEFERRED REVENUE

      The Company's primary source of revenue is earned from internet connection
      services. For contracts which exceed one month, revenue is recognized on a
      straight-line  basis  over  the  term  of the  contract  as  services  are
      provided. Revenues applicable to future periods are classified as deferred
      revenue.

      DIRECT COSTS

      Direct costs consist of telecommunications charges in respect of providing
      internet  connection  services to  customers.  These costs are expensed as
      incurred.

      SELLING AND MARKETING COSTS

      Selling and marketing costs are expensed as incurred.

      SOFTWARE DEVELOPMENT COSTS

      Under SFAS No. 86,  "Accounting  for the Costs of Computer  Software to Be
      Sold,   Leased,  or  Otherwise   Marketed",   capitalization  of  software
      development   costs  begins  upon  the   establishment   of  technological
      feasibility  of  the  product,  which  the  Company  has  defined  as  the
      completion  of beta testing of a working  product.  The  establishment  of
      technological feasibility and the ongoing assessment of the recoverability
      of these costs require considerable judgment by management with respect to
      certain  external  factors,  including,  but not limited  to,  anticipated
      future  gross  product  revenue,  estimated  economic  life and changes in
      software and hardware technology.  No software development costs have been
      capitalized by the Company to date.

      GOODWILL AND OTHER INTANGIBLE ASSETS

      Intangible assets consist primarily of customer lists and goodwill related
      to  acquisitions  accounted for under the purchase  method of  accounting.
      Amortization   of  these   purchased   intangibles   is  provided  on  the
      straight-line  basis over the  respective  useful lives of the  intangible
      assets which is estimated to be three years.

      The Company  identifies and records impairment losses on intangible assets
      when events and circumstances indicate that such assets might be impaired.
      The  Company  considers  factors  such  as  significant   changes  in  the
      regulatory or business climate and projected future cash flows. Impairment
      losses  are  measured  as the amount by which the  carrying  amount of the
      asset exceeds the fair value of the asset.

      INCOME TAXES

      The Company  computes  income taxes using the asset and liability  method,
      under  which  deferred   income  taxes  are  provided  for  the  temporary
      differences between the financial reporting basis and the tax basis of the
      Company's assets and liabilities.  Deferred tax assets and liabilities are
      measured using  currently  enacted tax rates that are expected to apply to
      taxable  income  in the years in which  those  temporary  differences  are
      expected to be recovered or settled. A valuation  allowance is established
      when necessary to reduce deferred tax assets to the amounts expected to be
      realized.


<PAGE>


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      RECLASSIFICATIONS

      Certain  reclassifications  have been made to conform prior years' figures
      to the current year presentation.

      ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

      SFAS  No.  133,   "Accounting  for  Derivative   Instruments  and  Hedging
      Activities",  requires the recognition of all derivatives as either assets
      or liabilities  and the  measurement  of those  instruments at fair value.
      SFAS  No.  137,   "Accounting  for  Derivative   Instruments  and  Hedging
      Activities - Deferral of the  Effective  Date of SFAS No. 133",  issued in
      August  1999,  postpones  for one year the  mandatory  effective  date for
      adoption of SFAS No. 133 to January 1, 2001.

      The Company does not  currently  engage in  derivative  trading or hedging
      activities;  hence, SFAS No. 133 and SFAS No. 137 will not have a material
      impact on its financial position or results of operations.

      STOCK-BASED COMPENSATION

      SFAS No. 123, "Accounting for Stock-Based  Compensation",  encourages, but
      does not require,  companies to record  compensation  cost for stock-based
      employee  compensation  under a fair value  based  method.  Alternatively,
      stock-based  employee  compensation can be accounted for under APB No. 25,
      "Accounting for Stock Issued to Employees", under which no compensation is
      recorded.

      The Company has not granted any  stock-based  compensation  for any of the
      periods presented in these financial statements.

      PENSIONS AND OTHER POSTRETIREMENT BENEFITS

      SFAS  No.  132,   "Employers'   Disclosures   about   Pensions  and  Other
      Postretirement  Benefits,  an amendment of FASB  Statements No. 87, 88 and
      106",   revises   employers'   disclosures   about   pension   and   other
      postretirement  benefit  plans.  It does not  change  the  measurement  or
      recognition of those plans.  It standardizes  the disclosure  requirements
      for pension and other  postretirement  benefits to the extent practicable,
      requires additional information on changes in benefit obligations and fair
      values  of plan  assets  that  will  facilitate  financial  analysis,  and
      eliminates certain disclosures that are no longer considered useful.

      The Company does not offer any pension or other postretirement benefits.

      RECENT ACCOUNTING PRONOUNCEMENTS

      In March 1998,  the American  Institute of  Certified  Public  Accountants
      issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
      Computer  Software  Developed or Obtained for Internal  Use".  SOP 98-1 is
      effective for financial  statements for years beginning after December 15,
      1998. SOP 98-1 provides  guidance over  accounting  for computer  software
      developed  or obtained  for  internal use  including  the  requirement  to
      capitalize   specified  costs  and   amortization   of  such  costs.   The
      implementation  of SOP  98-1  does  not  have  a  material  impact  on the
      Company's financial position or results of operations.


<PAGE>


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      In April 1998,  the American  Institute of  Certified  Public  Accountants
      issued  Statement of Position 98-5 (SOP 98-5),  "Reporting on the Costs of
      Start-Up  Activities".  SOP 98-5,  which is  effective  for  fiscal  years
      beginning  after  December 15, 1998,  provides  guidance on the  financial
      reporting of start-up costs and  organization  costs. It requires costs of
      start-up activities and organization costs to be expensed as incurred. The
      implementation  of SOP  98-5  does  not  have  a  material  impact  on the
      Company's financial position or results of operations.

      In December 1999, the  Securities and Exchange  Commission  released Staff
      Accounting  Bulletin  (SAB) No. 101,  "Revenue  Recognition  in  Financial
      Statements",  to provide  guidance on the  recognition,  presentation  and
      disclosure of revenues in financial  statements.  The Company believes its
      revenue  recognition  practices  are in  conformity  with  the  guidelines
      prescribed in SAB No. 101.

3.    ACQUISITIONS

      During  1999,  the  Company  completed  a number  of  business  and  asset
      acquisitions.  These  acquisitions  are  accounted  for using the purchase
      method, and accordingly,  these consolidated  financial statements include
      the results of operations  from the date of acquisition of each respective
      business.

      NETROVER INC. AND NETROVER OFFICE INC.

      On October 4, 1999,  the  Company  acquired  all of the shares of NetRover
      Inc. and NetRover Office Inc. for Cdn. $4 million (U.S. $2.7 million). The
      consideration  for the purchase  included cash of Cdn. $3 million (U.S. $2
      million)  and 219,000  shares of common  stock for Cdn.  $1 million  (U.S.
      $680,000).  NetRover  Inc. and NetRover  Office Inc. are based in Toronto,
      Canada.

      The purchase  included goodwill and other intangibles of Cdn. $4.2 million
      (U.S. $2.9 million) which will be amortized on a straight-line  basis over
      its estimated useful life of three years.

      HERMES NET SOLUTIONS INC.

      On June 30,  1999,  the Company  acquired  all of the shares of Hermes Net
      Solutions Inc. for cash  consideration of Cdn.  $777,000 (U.S.  $528,000).
      Hermes Net Solutions Inc. is based in Vancouver,

      Canada.

      The purchase  included  goodwill and other  intangibles  of Cdn.  $644,000
      (U.S.  $437,000) which will be amortized on a straight-line basis over its
      estimated useful life of three years.

      INTOUCH.INTERNET INC.

      On  June  30,   1999,   the  Company   acquired   all  of  the  shares  of
      InTouch.Internet Inc. for Cdn. $428,000 (U.S. $293,000). The consideration
      for the purchase included cash of Cdn. $386,000 (U.S.  $265,000) and 9,855
      shares of common stock for a value of $42,000 (U.S. $28,000).

      InTouch.Internet Inc. is based in Vancouver, Canada.

      The purchase  included  goodwill and other  intangibles  of Cdn.  $470,000
      (U.S.  $322,000) which will be amortized on a straight-line basis over its
      estimated useful life of three years.


<PAGE>


3.    ACQUISITIONS (CONTINUED)

      INTERNET ARENA

      On November 9, 1999, the Company  purchased certain assets and liabilities
      of the business of Internet Arena for $600,000.  The consideration for the
      purchase included cash of $242,000,  amount payable of $58,000 and 100,698
      shares of common stock for a value of  $300,000.  As of December 31, 1999,
      20,140  shares of common stock were issued and the  remaining  80,558 were
      issued subsequent to year end.  Internet Arena is based in Oregon,  United
      States.

      The purchase  included  goodwill and other  intangibles  of $536,000 which
      will be amortized on a straight-line  basis over its estimated useful life
      of three years.

      CONNECT NORTHWEST

      On October 27, 1999, the Company  purchased certain assets and liabilities
      of the business of Connect  Northwest for $1.4 million.  The consideration
      for the purchase included cash of $670,000,  amount payable of $70,000 and
      147,985 shares of common stock for a value of $660,000.  Connect Northwest
      is based in Washington State, United States.

      The purchase included goodwill and other intangibles of $1.3 million which
      will be amortized on a straight-line  basis over its estimated useful life
      of three years.

      During 1998 and 1997,  the Company  completed  two  business  acquisitions
      which are described below.

      EPOST INNOVATIONS, INC.

      On September 17, 1997,  the Company  acquired ePOST  Innovations,  Inc., a
      wholly-owned  subsidiary of Mushroom Innovations,  Inc. ("Mushroom").  The
      Company and Mushroom have officers and directors in common.

      The Company issued 3,000,000 post-split shares of common stock to Mushroom
      in  consideration  for all of the issued and  outstanding  shares of ePost
      Innovations,  Inc.  The shares of common  stock  were  valued at $.001 per
      share for an aggregate  consideration of $2,000.  The Company acquired all
      the  rights,  title  and  interest  to  all  the  assets  owned  by  ePost
      Innovations,  Inc., and those assets consisted of proprietary knowledge of
      various computer software products under development by ePost Innovations,
      Inc.

      The  transaction has been accounted for as a related party transfer and is
      accounted  for using  historic  costs (as if the  entities had always been
      together)  with  the  recording  of  the  net  assets  acquired  at  their
      historical book value.  Operating results prior to the date of acquisition
      were not significant.

      COMMUNICATION EXCHANGE MANAGEMENT, INC.

      On  October  29,  1998,  the  Company  acquired   Communication   Exchange
      Management,  Inc.  ("CEM"),  a subsidiary of Mushroom.  The Company issued
      6,270,000  post - split  shares of  common  stock  valued  at  $4,180  for
      consideration of all of the issued and outstanding stock of CEM.

      The  transaction has been accounted for as a related party transfer and is
      accounted  for using  historic  costs (as if the  entities had always been
      together)  with  the  recording  of  the  net  assets  acquired  at  their
      historical book value.  Operating results prior to the date of acquisition
      were not significant.


<PAGE>


4.    PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>

      Property and equipment consist of the following:

                                                                                             1999             1998
                                                                                        -------------     -------------

<S>                                                                                     <C>               <C>
      OFFICE AND COMPUTER EQUIPMENT                                                     $   1,008,405     $     28,563
         LESS- ACCUMULATED DEPRECIATION                                                      (408,823)           (6,233)
                                                                                        -------------     --------------

                                                                                        $     599,582     $     22,330

5.    GOODWILL AND OTHER INTANGIBLES

      Goodwill and other intangibles consist of the following:

                                                                                             1999             1998
                                                                                        -------------     -------------

      CUSTOMER LISTS                                                                    $   3,663,000     $     -
      GOODWILL                                                                              1,832,543           -
                                                                                        -------------     -------------

                                                                                            5,495,543           -
         LESS- ACCUMULATED AMORTIZATION                                                      (458,758)          -
                                                                                        -------------     -------------

                                                                                        $   5,036,785     $     -
                                                                                        =============     =============
</TABLE>

6.    LOANS

      During 1999, the Company  borrowed  $4,875,000  pursuant to two promissory
      note agreements.  The loans are unsecured,  bear interest at 8% per annum,
      and the principal and accrued  interest are due on demand.  The lender may
      elect to convert the loans into  shares of common  stock of the Company as
      follows:
<TABLE>
<CAPTION>

                                                                                                     SHARES
                                                                         PRINCIPAL         PRE-SPLIT       POST-SPLIT
<S>                                                                    <C>                  <C>               <C>
                                                                       $   1,000,000        1,000,000         1,500,000
                                                                           3,000,000        2,000,000         3,000,000
                                                                             875,000          437,500           656,250
</TABLE>

      At the commitment  dates of the promissory  notes,  the conversion  prices
      were less than the fair  values of the common  stock,  hence a  beneficial
      conversion  feature is attached to these convertible  notes. The amount of
      this beneficial  conversion feature is $2,212,500 and has been recorded as
      interest  expense  and  additional  paid-in-capital  for  the  year  ended
      December 31, 1999.


<PAGE>


6.    LOANS (CONTINUED)

      During  1999,  $4,000,000  of loans were settled by the issuance of common
      stock valued at  $4,000,000.  At December 31, 1999,  the loans  balance is
      $875,000.  Subsequent  to year end,  the Company  borrowed  an  additional
      $625,000  against  the  promissory  note.  This will result in an interest
      charge for the  beneficial  conversion  feature of  $243,750  in the first
      quarter of 2000.

      The fair values of the loans at December 31, 1999 are not  practicable  to
      estimate  because of the conversion  features  associated  with the loans;
      accordingly,  it is not  possible  to estimate  the  present  value of the
      future cash flows with any reasonable degree of precision.

      Subsequent  to  year  end,  the  lender  has  offered  to  lend a  further
      $10,000,000  to the Company  under similar terms except that the loans are
      convertible to 4,000,000  shares of common stock at a conversion  price of
      $2.50 per share.  The lender has the option to withdraw  its offer to lend
      any amount of the $10,000,000 at any time.

7.    SHARE CAPITAL

      AUTHORIZED STOCK

      The Company is authorized to issue:

      (a)   30,000,000  shares  of common  stock at a par  value of  $0.001  per
            share.

      (b)   5,000,000  shares  of  preferred  stock at a par  value of $.001 per
            share.  The Board of  Directors  of the Company  has the  authority,
            without further action by the holders of the  outstanding  shares of
            common stock,  to issue shares of preferred  stock from time to time
            in one or more  classes  or  series,  to fix the  number  of  shares
            constituting  any class or series and the stated value, if different
            from the par  value,  and to fix the  terms of any  such  series  or
            class,  including  dividend  rights,  dividend rates,  conversion or
            exchange  rights,  voting  rights,  rights  and terms of  redemption
            (including  sinking fund  provisions),  the redemption price and the
            liquidation  preference of such class or series.  The  designations,
            rights and preferences of any shares of preferred stock would be set
            forth in a Certificate of Designation  which would be filed with the
            Secretary of State of the State of Delaware.

      SHARE SPLIT

      On September 24, 1999, the Company effected a three-for-two subdivision of
      its shares of common  stock.  All  share,  per share,  unit,  and  warrant
      amounts  in the  accompanying  financial  statements  have  been  adjusted
      retroactively to give effect to this subdivision.

      COMMON STOCK SUBSCRIBED

      As at December 31, 1999,  the Company is obligated to issue 80,558  shares
      of  common  stock as  consideration  for the  purchase  of the  assets  of
      Internet  Arena and this  obligation  has been  reported as a liability of
      $240,000 on the balance sheet. These shares were issued subsequent to year
      end.


<PAGE>


7.    SHARE CAPITAL (CONTINUED)

      SALE OF UNITS AND WARRANTS

      In  1997,  the  Company  offered  for sale to  persons  who  qualified  as
      "accredited  investors" as defined under  Regulation D promulgated  by the
      Securities and Exchange Commission 3,000,000 units at $0.05 per unit. Each
      unit consists of one share of the  Company's  common stock and one warrant
      to purchase one share of common stock at $0.27 per share.

      In 1997,  the Company sold 600,000  units for aggregate  consideration  of
      $20,000.  In 1998,  the Company  sold an  additional  2,400,000  units for
      aggregate consideration of $80,000 less offering expenses of $20,000.

      During 1998, the Company issued 915,000 shares of common stock through the
      exercise of 915,000 warrants for aggregate  consideration of $244,000.  As
      of December 31, 1998, 2,085,000 warrants were outstanding.  These warrants
      were  exercised  for  2,085,000  shares of common stock during 1999 and at
      December 31, 1999, there are no warrants outstanding.

      PRIVATE PLACEMENT

      Pursuant to a private placement  pursuant to Rule 504 of Regulation D, the
      Company offered on March 26, 1998,  57,000 shares of common stock at $0.33
      per share.  As of April 30, 1998,  the Company  sold an  aggregate  57,000
      shares of common stock for an aggregate consideration of $19,000. On April
      30, 1998,  the Company sold 22,500 shares of common stock pursuant to Rule
      504  of  Regulation  D  to  Kaplan   Gottbetter   and  Levenson,   LLP  in
      consideration for $7,500 in legal fees valued at $0.33 per share.

8.    INCOME TAXES

      In accordance with SFAS 109,  "Accounting for Income Taxes",  income taxes
      are accounted for under the liability method. Under this method,  deferred
      tax assets and liabilities are determined based on differences between the
      financial  statement  reporting  and  the  tax  bases  of the  assets  and
      liabilities,  and are  measured  at the  enacted tax rates that will be in
      effect when the  differences  are  expected to reverse.  Such  differences
      principally  arise from the timing of income and expense  recognition  for
      accounting and tax purposes.

      The  application  of SFAS 109 does not  have any  material  effect  on the
      assets,  liabilities,  or  operations  for the periods  presented in these
      consolidated  financial  statements.  Deferred tax assets arising from the
      Company's net  operating  loss  carryforwards  have been fully offset by a
      valuation allowance.


<PAGE>


8.    INCOME TAXES (CONTINUED)

      At December 31, 1999, the Company has net operating loss carryforwards for
      income tax  purposes of  approximately  $600,000  which are  available  to
      offset  future  taxable  income.   The  Company's   utilization  of  these
      carryforwards   may  be   restricted   due  to  changes  in  ownership  of
      subsidiaries  during the year. The components of the deferred tax asset as
      of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>

                                                                                             1999             1998
                                                                                        -------------     -------------

<S>                                                                                     <C>               <C>
      NET OPERATING LOSS CARRYFORWARDS                                                  $     270,000     $      82,000
         LESS- VALUATION ALLOWANCE                                                            270,000            82,000
                                                                                        -------------     -------------

                                                                                        $      -          $         -
</TABLE>

9.    COMMITMENTS

      The Company leases office space and  equipment,  and its lease payments in
      the next five years and thereafter are as follows:

      2000                                                  $     1,236,000
      2001                                                        1,091,000
      2002                                                          293,000
      2003                                                          122,000
      2004                                                          109,000
      THEREAFTER                                                     55,000
                                                              -------------
                                                            $     2,906,000


<PAGE>


10.   PRO FORMA DISCLOSURES ON BUSINESS COMBINATIONS (UNAUDITED)

      As described in Note 3, the Company  completed  various business and asset
      acquisitions  during 1999.  The  following  presents  unaudited  pro forma
      financial  information  as though  each of the  transactions  occurred  on
      January 1, 1999 and 1998.

      PRO FORMA  CONDENSED  STATEMENT OF OPERATIONS  FOR THE YEAR ENDED DECEMBER
      31, 1999
<TABLE>
<CAPTION>

                                                         CYPOST           HERMES            INTOUCH         NETROVER

<S>                                                  <C>               <C>              <C>               <C>
      Revenue                                        $      13,000     $     428,000    $     322,000     $   1,812,000
      Net income (loss)                                 (4,050,000)           24,000           35,000           138,000

                                                                         Internet           Connect
                                                                           ARENA           NORTHWEST          TOTAL

      Revenue                                                          $     537,000    $     653,000      $  3,765,000
      Net income (loss)                                                      (53,000)         (90,000)       (3,996,000)

      Loss per share                                                                                              (0.25)

      PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998

                                                         CYPOST           HERMES            INTOUCH         NETROVER

      Revenue                                        $      -          $     205,000    $     406,000      $  1,852,000

      Net income (loss)                                   (276,000)           90,000          (22,000)           11,000

                                                                         Internet           Connect

                                                                           ARENA           NORTHWEST          TOTAL

      Revenue                                                          $     342,000    $     535,000      $  3,340,000

      Net income (loss)                                                     (221,000)         (29,000)         (447,000)

      Loss per share                                                                                              (0.06)
</TABLE>

11.   NON-CASH INVESTING AND FINANCING ACTIVITIES

      Loans of $4 million  were  converted  into  shares of common  stock of the
Company.


<PAGE>


12.   SUBSEQUENT EVENT

      ACQUISITION OF PLAYA CORPORATION

      On February 23,  2000,  the Company  completed  the  acquisition  of Playa
      Corporation (a Japan company),  developer of Yabumi instant  messaging and
      e-greeting card services. The acquisition totals $3 million,  comprised of
      $300,000 in cash and $2.7 million in the Company's shares of common stock.