I NET INC
10QSB, 2000-05-15
COMPUTER PROGRAMMING SERVICES
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                                  United States
                       Securities and Exchange Commission

                             Washington, D.C. 20549

                                   FORM 10-QSB

[X] QUARTERLY  REPORT  UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

    For the quarterly period ended March 31, 2000
                                   --------------

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

    For the transition period from ___________________ to ______________________


                           Commission File No. 0-23806

                                   I/NET, INC.

        (Exact Name of Small Business Issuer as specified in its Charter)
        -----------------------------------------------------------------


        DELAWARE                                                  87-0046720
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of                          (IRS Employer I.D. No.)
Incorporation or Organization)

                           643 West Crosstown Parkway

                            Kalamazoo, Michigan 49008

                    (Address of Principal Executive Officers)

                    Issuer's Telephone Number: (616) 344-3017

Check  whether  the Issuer:  (1) has 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 __

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

                                 March 31, 2000

                                   31,037,652

Transitional Small Business Disclosure Format (check one)

                                    Yes No X

<PAGE>

ITEM 1.  FINANCIAL INFORMATION

                                   I/NET, Inc.

                           Consolidated Balance Sheet

                                   (Unaudited)

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

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

                                                           March 31, 2000
                                                           --------------
Assets (Notes 2 and 3)
         Current Assets
         Cash                                                          $175,398
         Receivables:
                  Trade                                                $180,352
                  Note (Note 5)                        209,000          389,352
                                                       -------          -------
         Total Current Assets                                           564,750

         Office Furniture and Equipment, Net of
                  Accumulated Depreciation of  $25,995                   13,587
                                                                        -------

         Total Assets                                                 $ 578,337
                                                                       =========

Liabilities and Capital Deficit
         Current Liabilities
         Accounts Payable                                               $12,020
         Accruals:
                  Commissions (Note 1)                  258,000
                  Interest                              179,005
                  Other                                  23,500         460,505
                                                        -------
         Advances from Stockholders' (Note 2)                            95,500
         Current maturities of long-term debt (Note 3)                  591,000
                                                                      ---------
         Total Current Liabilities                                    1,159,025
         Long-term Debt, less current maturities (Note 3)               469,804
                                                                      ---------

         Total Liabilities                                            1,628,829

Commitments and Contingencies (Notes 7,8,11 and 14)
Capital Deficit (Notes 4 and 9)
         Common Stock $.001 par value; Authorized
           50,000,000 Shares:
         Issued and outstanding 31,037,652                               31,038
         Additional Paid in Capital                                  11,886,674
         Deficit                                                    (12,968,204)
                                                                    ------------
         Total Capital Deficit                                       (1,050,492)
                                                                    -----------
         Total Liabilities and Capital Deficit                         $578,337
                                                                    ===========
See  accompanying  summary  of  accounting policies  and  notes to consolidated
financial statements


<PAGE>

                                   I/NET, Inc.

                       Consolidated Statements of Earnings

                                   (Unaudited)

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

- --------------------------------------------------------------------------------
                                                         Three Months Ended
                                                         ------------------
                                                      March 31,       March 31,
                                                        2000            1999
                                                     ----------      ----------
Revenues (Note 5)                                   $  409,901      $  520,618
Cost of Revenues                                       209,393         272,894
                                                     ----------      ----------
         Gross Profit                                  200,508         247,724

Selling, General, and Administrative Expenses          143,678         175,812
                                                     ----------      ----------

         Earnings from operations                       56,830          71,912

Other income (expense):
         Interest expense                              (15,042)        (16,675)
         Interest income                                 5,332           1,134
         Other income                                      883           5,585
         Gain on sale of securities ( Note 13)          28,199             -
                                                     ----------      ----------
                                                        19,372          (9,956)
                                                     ----------      ----------
         Net Earnings                               $   76,202      $   61,956
                                                     ==========      ==========
Net Earnings per Share (Note 12)
         Basic and Diluted                          $     -         $    -
                                                     ==========      ==========
Average Number of Basic Common Shares
Outstanding (Note 12)                               $31,037,652    $31,037,652
                                                     ==========     ===========

Average Number of Diluted Common Shares
Outstanding (Note 12)                                31,118,421     31,854,945
                                                     ==========     ==========

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


<PAGE>
                                   I/NET, Inc.

                      Consolidated Statements of Cash Flows

                                   (Unaudited)

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

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

                                                         Three Months Ended
                                                         ------------------
                                                      March 31,        March 31,
                                                        2000             1999
                                                     -----------      ----------
Operating Activities

         Net Earnings                                  $76,202         $ 61,956
         Depreciation and Amortization                   3,000            7,500
         Gain on sale of securities (Note 13)          (28,199)            -
         Changes in Assets and Liabilities
                  Trades Receivables                   (25,099)         (61,020)
                  Accounts Payable                      (2,397)          17,624
                  Accruals                              (5,597)         (13,399)
                                                      ---------        ---------

Cash Provided By Operating Activities                   17,910           12,661

Investing Activities

         Proceeds from sale of securities (Note 13)     28,199             -
         Capital expenditures                             -              (2,725)
                                                      ---------        ---------

Cash Used In Investing Activities                       28,199           (2,725)

Financing Activities

         Principal payments on notes to stockholders    (7,332)          (5,280)
         Principal payments on long-term debt          (35,060)         (15,890)
                                                      ---------         --------

Cash Used In Financing Activities                      (42,392)         (21,170)

Increase (Decrease) in Cash and Cash Equivalents         3,717          (11,234)

Cash and Cash Equivalents, Beginning of Period         171,681          103,847
                                                       -------          --------

Cash and Cash Equivalents, End of Period              $175,398          $92,613
                                                       =======          ========

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


<PAGE>
                                   I/NET, Inc.

                         Summary of Accounting Policies

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

Basis of Presentation
- ---------------------
The  consolidated  financial  statements  included  herein have been prepared by
I/NET, Inc. (the "Company") without audit, pursuant to the rules and regulations
of  the  Securities  and  Exchange  Commission.   It  is  suggested  that  these
consolidated  financial  statements be read in conjunction with the consolidated
financial  statements  and notes thereto  included in the Company's  1999 annual
report on Form 10-KSB.

In the opinion of management,  the accompanying unaudited consolidated financial
statements  contain all  adjustments  necessary to present  fairly the financial
position of the Company as of March 31, 2000,  the results of its operations for
the three month periods ended March 31, 2000 and 1999 and its cash flows for the
three month periods ended March 31, 2000 and 1999. All such adjustments are of a
normal and recurring nature.

The  consolidated  financial  statements  include the  accounts of the  Company,
I/NET,  Inc. (a Delaware  corporation),  and its wholly-owned  subsidiary I/NET,
Inc. (a Michigan  corporation)  and its wholly-owned  subsidiary,  Stek, Ltd. (a
Caymanian corporation).

Stek, Ltd. was formed to receive shares of SEGOES,  Ltd. which it earned for the
successful  completion  of the  development,  installation  and operation of the
SEGOES website which  operates an Internet  based offshore asset  management and
trading system.

Description of the Business
- ---------------------------
The Company  operates as one business segment  consisting of Website  consulting
services and development of Internet  computer  software  products.  The Company
does not operate  based upon product lines but as one business  unit.  Its major
customers are  International  Business Machines (IBM) and Appsmall.com (See Note
5).

Use of Estimates
- ----------------
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ significantly from those estimates.
<PAGE>
                                   I/NET, Inc.

                         Summary of Accounting Policies

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

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

Cash and  Cash  Equivalents
- ---------------------------
For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  investments  with maturity of three months or less when  purchased to be
cash equivalents.

Office Furniture, Equipment and Depreciation
- --------------------------------------------
Office  equipment  and furniture  are stated at cost.  Depreciation  is computed
principally by the straight-line  method for financial  reporting  purposes over
the  estimated  useful  lives of the assets and by  accelerated  methods for tax
purposes.

Developed Computer Software
- ---------------------------
Software  development  costs are accounted for in accordance with the provisions
of Statement of Financial Accounting Standard (SFAS) No. 86, "Accounting for the
Cost of Computer  Software To Be Sold, Leased or Otherwise  Marketed."  Software
development  costs and  certain  product  enhancements,  when  significant,  are
capitalized subsequent to the establishment of technological feasibility for the
product and prior to the product's general release to customers.

Costs incurred prior to technological feasibility or subsequent to the product's
general release to customers,  as well as selling,  general,  and administrative
costs associated with the products, are expensed as incurred.

Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist of cash, receivables, notes payable,
accounts payable and long-term debt. Due to the short-term  nature of the items,
other than  long-term  debt,  and the variable  interest  rates on a substantial
portion of the long-term debt, management estimates that carrying amounts of the
Company's financial instruments approximate their fair values at March 31, 2000.

Revenue Recognition
- -------------------
Revenues for the sale of the Company's Internet products are recognized when the
customer has accepted the product. The Company records its revenue from Websight
consulting  contracts  on a monthly  basis as amounts are  invoiced for time and
expenses incurred.

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

                                   I/NET, Inc.

                         Summary of Accounting Policies

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

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

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

          See accompanying notes to consolidated financial statements.


<PAGE>
                                   I/NET, Inc.

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

- --------------------------------------------------------------------------------
1. Commissions

During a prior year,  the Company  negotiated to release a distributor  from its
exclusive contract to distribute certain Company products.  In exchange for this
release,  the Company agreed to pay commissions  totaling  $258,000 at March 31,
2000.

2.   Short-term Advances from Stockholders
     Advances from stockholders as of March 31, 2000 consists of:

          Non-interest bearing notes payable to
          Stockholders, due on demand                              $  20,500

          Stockholder's advances bearing
          interest at 8%, due on demand and
          secured by all the Company's assets                         75,000
                                                                    --------
                                                                   $  95,500

3.   Long-term Debt
     Long-term debt as of March 31, 2000 consists of:

          Notes payable to vendors (see below)                     $ 756,494

          Notes payable to stockholders bearing interest
          at 8% and due in December, 2001, secured
          by all the Company's assets                                304,310
                                                                   ----------
                                                                   1,060,804

          Less current maturities                                    591,000
                                                                   ----------

          Total Long-term Debt                                      $469,804
                                                                   ==========
<PAGE>
                                   I/NET, Inc.

                   Notes to Consolidated Financial Statements

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

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

Notes Payable to Vendors
- ------------------------
Unsecured notes payable to various vendors totaling  $756,494 are due in various
installments and at varying interest rates.

Two notes totaling $440,655 are due on demand.  These notes bear interest at the
prime rate plus 2% (effectively 10.75 % at March 31, 2000).

Another note in the amount of $69,523 is due in monthly installments at the rate
of 5% of the  previous  months cash  receipts  (as  defined) but at a minimum of
$2,000  bi-monthly.  The principle  balance of this note,  which the Company was
unable to pay, was due in September 1996. The Company  continues to make monthly
payments as required by the original note. This note bears interest at 8% and is
classified as current.

Another note in the amount of $205,708,  is due in monthly installments of 5% of
the previous month's cash receipts (as defined) but at a minimum rate of $10,000
bi-monthly and bears interest at the prime rate plus 2%. Final payment, assuming
minimum payments only, is June 2004.

Another  note in the amount of $40,608 is due in monthly  installments  of 5% of
the previous  month's cash receipts (as defined) but at a minimum rate of $3,500
monthly and bears  interest at 10%.  Final payment,  assuming  minimum  payments
only, is April 2001.

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

                                  2000 $686,000
                                  2001 $351,000
                                  2002 $ 50,000
                                  2003 $ 56,000
                                  2004 $ 13,000

4. Stock Warrants

In 1997,  the Company  issued  460,000  warrants at prices  ranging from $.50 to
$1.00 with a weighted  average  price of $.69.  These  warrants  were  issued in
connection  with  obtaining  the right for the Company to port certain  Netscape
Communications   Corporation  Netscape  Internet  products  to  the  IBM  AS/400
platform. These warrants expire in September 2000.
<PAGE>

                                   I/NET, Inc.

                   Notes to Consolidated Financial Statements

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

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

5. Major Customers

The Company provided Internet products, websight consulting services and support
services to three major customers  totaling  $376,000 and $495,000 for the three
months ending March 31, 2000 and 1999 respectively. These three customers in the
aggregate  accounted for 92% and 95% of the Company's  revenue for these periods
respectively.

During 1998, the Company signed a licensing  agreement and supplemental  support
services   agreement  with  Career/NET  L.L.C.  for  its  previously   developed
Career/NET product. In March of 1999,  Career/NET L.L.C.  desired to be relieved
of the  support  services  agreement  in exchange  for giving a $209,000  demand
promissory note which bears interest at 7% per annum.  The Company  continues to
perform ongoing programming and website development services for Career/NET.

6. Taxes on Income

Income taxes are calculated using the liability method.

Deferred income taxes reflect the net effects of temporary  differences  between
the carrying amounts of assets and liabilities for financial  reporting purposes
and the amounts used for income tax purposes.

Significant components of the Company's deferred tax assets as of March 31, 2000
are as follows:

       Accruals                                             $88,000
       Trademark                                             51,000
       Net operating loss carryforwards                   3,406,000
       Tax Credit carryforwards                              27,000
       Capital loss carryforwards                            24,000
                                                         -----------
       Total Deferred Tax Assets                         $3,596,000

       Valuation Allowance                               (3,596,000)
                                                         ------------
                                                         $    -
                                                         ------------
As of March 31,  2000,  the Company had a net  operating  loss  carryforward  of
approximately   $10,017,000   and   investment  tax  credit   carryforwards   of
approximately  $22,000  available  to reduce  future  taxable  income and taxes,
respectively. These carryforwards expire from 2000 through 2011.
<PAGE>
                                   I/NET, Inc.

                   Notes to Consolidated Financial Statements

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

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

7. Employee Benefit Plan

The Company has a profit  sharing  defined  contribution  pension plan  covering
substantially  all  employees.  Under the plan,  employees may make tax deferred
voluntary  contributions  which,  at the  discretion  of the  Company  Board  of
Directors, may be matched within certain limits by the Company. In addition, the
Company may make additional  discretionary  contributions  to the plan as profit
sharing  contributions.  All contributions to the plan are limited by applicable
Internal Revenue Code regulations.  There were no Company  contributions charged
against operations during the three months ended March 31, 2000 or 1999.

8. Operating Leases

The Company  leases its facilities and certain  equipment  under  non-cancelable
operating  leases.  Management  expects  that in the normal  course of business,
leases will be renewed or replaced with other leases. Rental expense under these
leases was  approximately  $26,000 and $24,000 for the three  months ended March
31, 2000 and 1999 respectively.  Future minimum annual lease payments subsequent
to March 31, 2000 are as follows:

                                 2000        $99,000
                                 2001        $47,000

9. Incentive Stock Option Plan

The Company  maintains  an  incentive  stock  option plan that  provides for the
granting of options to officers and other key employees at an exercise price not
less than 100% of the fair market value on the date of the grant. Twenty percent
of the  options  become  exercisable  each  year  following  the date  they were
granted, and can remain outstanding for five years following the day they become
fully vested. Options outstanding are summarized as follows:

                                          Option Price          Weighted Average
                       Shares              Per Share            Price Per Share
                       ---------------------------------------------------------
January 1, 1999        115,000             $.37-2.50                 $.63
Lapsed October
    1999              (100,000)               .37                     .37
Granted December
    1999                50,000                .29                     .29
                       -------              ---------                 ---

December 31, 1999
and March 31, 2000      65,000             $.29-2.50                  $.80
                       =======              =========                 ====

<PAGE>
                                   I/NET, Inc.

                   Notes to Consolidated Financial Statements

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

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

At March 31,  2000,  582,255  shares  of  common  stock  were  reserved  for the
incentive stock option plan and 15,000 options were vested and exercisable.  The
remaining weighted average  contractual life on these options is five years. The
50,000  options  are not vested  and have a  remaining  contractual  life of ten
years.

Under SFAS No. 123,  "Accounting  for Stock Based  Compensation"  the Company is
required to provide pro forma information  regarding net income and earnings per
share as if  compensation  cost for the  Company's  stock  option  plan had been
determined in accordance with the fair based method  prescribed in SFAS No. 123.
The Company  estimates  the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the following assumptions used
for the grant in 1999:  expected  volatility of 80 percent;  risk-free  interest
rate of 6.2 percent,  and an expected option life of 7.2 years. Net earnings for
the three  month  periods  ending  March 31,  2000 and 1999  would not have been
materially affected.  The fair value of the options granted during 1999 was $.19
per share.

10. Supplemental Disclosure of Cash Flow Information

Interest  paid for the three months ended March 31, 2000 and 1999 was $7,000 and
$9,000 respectively. The Company paid no income taxes during 2000 and 1999.

11. Contingencies

         Royalties

In a prior year, the Company entered into a software license  agreement  wherein
Netscape granted to the Company the right to port certain of its Internet Server
products  to the IBM  AS/400  platform.  This  agreement,  which  terminates  on
September  30,  2000,  allows the  Company to market and  distribute  the ported
products upon their modification to the AS/400 platform.

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

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

<PAGE>
                                   I/NET, Inc.

                   Notes to Consolidated Financial Statements

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

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

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

During prior years, IBM has provided advances against royalties in the amount of
$600,000.  These amounts will be  reimbursed to IBM after  deduction of Netscape
royalties in the amount of 10% of total revenue received from sale of the ported
products.  If  the  revenue  from  the  sales  of  these  Netscape  products  is
insufficient,  the  Company  will  not  have  to  repay  any of  these  advanced
royalties. To date, sales of this product have been insignificant.

         Litigation

From time to time,  the Company is involved in various legal actions  arising in
the normal  course of  business.  Management  does not  anticipate  any material
losses as a result of these proceedings.

12. Earnings Per Share

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

Three months ended March 31,                      2000              1999
                                                  ----              ----
Basic                                          31,037,652        31,037,652
Effect of assumed conversion of
 options and warrants                              80,769           817,293
                                               ----------        ----------
Diluted                                        31,118,421        31,854,945
                                               ==========        ==========

For the three months   ended  March  31,  2000,   warrants  to  purchase 230,000
shares of  common  stock at  prices  ranging  from $.75 to $1.00 per  share  and
options to purchase  15,000  shares of common  stock at $2.50 per share were not
included  in  the computation  of  the  diluted  earnings per share as they were
anti-dilutive.

For the three months ended March 31 1999, options to  purchase 15,000 shares  of
common  stock at $2.50 per  share were  not included  in the  computation of the
diluted earnings as they were anti-dilutive.

13. Sale of Securities

In January 2000, Stek, Ltd., the  Company's wholly  owned Caymanian   subsidiary
sold approximately  20,000 shares of its 1,500,000  shares of SEGOES, Ltd. stock
with  net  proceeds  to  the  Company of $28,199. The Company had received these
shares  in  January  1999  for  the  successful  completion  of the development,
installation and operation of the SEGOES website.

14.  Continued Existence

The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of  liabilities  in the  normal course  of business. The  Company  has  suffered
recurring losses  from operations  in  prior  years,  has  a significant  workin
capital deficit,  and  requires  additional  capital  to  continue   its product
development.  Management  believes  the Company will continue as a going concern
and is actively marketing its products, which would enable  the  Company to meet
its current obligations and provide additional funds for continued  new  product
development.In  addition, management is currently negotiating several additional
contracts for its services and  products. Management is also  embarking on other
strategic initiatives to expand  its business opportunities.  However, there can
be no assurance these activities will be successful.

<PAGE>

                                   I/NET, Inc.

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

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

Item 2.  Management's Discussion and Analysis or Plan of Operation

Results of Operations
- ---------------------
Revenues for the three months ended  March 31, 2000 were  $410,000  compared  to
$521,000 for the three months  ended March 31,  1999.  When  analyzed by product
category, revenues of Website consulting  services provided to IBM were $251,000
in the first  quarter of 2000, as compared to $184,000 in 1999. Sale of Internet
products accounted for revenues of $141,000 in 2000 and $90,000 in 1999. Revenue
from the  termination  of a support  services  agreement and ongoing programming
revenues from Career/NET L.L.C. accounted for  revenues of $221,000 in  1999 and
from programming  revenues amounted to $7,000 in 2000.

Cost  of  revenues decreased  by  approximately $64,000 to $209,000  in  2000 as
compared  to $273,000 in 1999. The cause for this decrease  was the reduction in
support fees charged for the Netscape project.

General  and  administrative  expenses  deceased  by  approximately  $32,000  to
$144,000 in 2000 as compared  to $176,000 in 1999. The  cause for this  decrease
was reduced professional fees as well as lower employee costs.

Other income  (expense)  increased by $29,000  primarily due to the gain on  the
sale by Stek Ltd. of SEGOES, Ltd. stock in the amount of $29,000.

Financial Condition and Liquidity
- ---------------------------------
The Company's primary need for capital  will be to invest  in  computer software
development.  As of March 31, 2000, the  Company's  working capital deficit  was
$594,000,  as  compared to a deficit of $986,000 at March 31, 1999. Earnings and
continued debt  repayment  have  provided  the  resulting  decrease  in  working
capital deficit in 2000 and 1999.

In  March  2000, the  Company  signed  an  extension  to  its  current  Websight
consulting  agreement  with IBM through the end of March 2001. In addition,  the
Company has signed new exclusive worldwide marketing and distribution agreements
for the distribution  of its Webserver products. Appsmall.com has  the exclusive
right through September 2000 to market and  distribute the Company's products in
the  United  States,  Canada, Europe  and  the Middle  East and  Africa. General
Business  Services Co. LTD (GBS) of Tokyo, Japan  has the exclusive territory of
Japan for 2000.

<PAGE>
                                   I/NET, Inc.

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

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

The  Company  believes  that  the  additional   sales  provided   by  the  above
mentioned agreements, the continued development of new  products, together  with
the  renegotiations  of  its defaulted debt, should  provide the Company    with
sufficient  working capital  to market  its products,  which  would  enable  the
Company  to  meet  its  current  obligations  and  provide  additional funds for
continued new product development. The Company  continues to explore alternative
options  to  reduce  its debt  obligations,  which could increase  the Company's
financial stability.  In addition,  management is currently negotiating  several
additional  contracts  for its services  and products.  However, there can be no
assurance these activities will be successful.

"Safe Harbor" Provisions Under the Private Securities Litigation Reform Act
- ---------------------------------------------------------------------------
Statements  in  this  filing  that  are not historical facts are forward-looking
statements,  which  involve  risks  and  uncertainties  that  could  affect  the
Company's results of  operations,  financial  position  and cash flows.  of 1995
Actual results may differ materially from those projected in the forward-looking
statements, due  to  variety of factors, some of which may be beyond the control
of the Company.  Readers are  cautioned not to  place  undue reliance  on  these
forward-looking statements,  which  speak only as of the date of this report.

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

I/NET, Inc.

Date: May 10, 2000

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

<TABLE> <S> <C>


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<LEGEND>
     (Replace this text with the legend)
</LEGEND>
<CIK>                         0000789860
<NAME>                        I/NET
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<CURRENCY>                                     $

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