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 QUARTER ENDED JUNE 30, 2001

                                       OR

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


                         Commission file number 0-18410



                                NETCURRENTS, INC.
             (Exact name of Registrant as specified in its charter)


           DELAWARE                                         95-4233050
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

             9720 WILSHIRE BLVD., SUITE 700, BEVERLY HILLS, CA 90212
               (Address of Principal Executive Offices) (Zip Code)

                                 (310) 860-0200
              (Registrant's Telephone Number, Including Area Code)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                Yes   X   No
                                     ---     ---

Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.

       Common Stock, $.001 par value 33,610,279 shares as of July 31, 2001


<PAGE>


                                NETCURRENTS, INC.

                                TABLE OF CONTENTS


                                                                          PAGE
                                                                         NUMBER
PART I     FINANCIAL INFORMATION

      ITEM 1.  Financial Information

         Consolidated Balance Sheet as of June 30, 2001
         and December 31, 2000................................................3

         Consolidated Statements of Operations For The
         Three Months Ended June 30, 2001 and 2000
         and for the Six Months Ended June 30, 2001 and 2000..................5

         Consolidated Statements of Cash Flows
         For the Six Months Ended June 30, 2001
         and June 30, 2000....................................................7

         Notes to Consolidated Financial Statements...........................9

      ITEM 2.  Management's Discussion and Analysis or Plan of Operation......11



PART II    OTHER INFORMATION .................................................30

      ITEM 1.  Legal Proceedings .............................................30

      ITEM 2.  Changes In Securities And Use Of Proceeds .....................31

      ITEM 3.  Defaults Upon Senior Securities ...............................31

      ITEM 4.  Submission Of Matters To A Vote Of Security Holders ...........31

      ITEM 5.  Other Information .............................................31

      ITEM 6.  Exhibits And Reports On Form 8-K And Form 8-K/A ...............31


                                     Page 2
<PAGE>


<TABLE>
<CAPTION>
                                                            NETCURRENTS, INC. AND SUBSIDIARIES
                                                                   CONSOLIDATED BALANCE SHEETS
                                     JUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000 (AUDITED)
----------------------------------------------------------------------------------------------
                                     ASSETS
                                                                     June 30,     December 31,
                                                                       2001            2000
                                                                 -------------    ------------
                                                                 (UNAUDITED)
<S>                                                              <C>              <C>
CURRENT ASSETS
    Cash and cash equivalents                                    $      46,889    $  2,754,487
    Accounts receivable, net of allowance for doubtful
        accounts of nil and nil                                        263,695         544,869
    Note receivable                                                    464,886               -
    Prepaid assets                                                     112,200         158,356
                                                                 -------------    ------------

           Total current assets                                        887,670       3,457,712

FIXED ASSETS, at cost, net                                             943,005         913,876
GOODWILL, less accumulated amortization and write-off
    of $611,195 and $486,195                                           375,000         500,000
INVESTMENTS                                                             38,000          43,500
OTHER ASSETS                                                            34,864          54,538
                                                                 -------------    ------------
               TOTAL ASSETS                                      $   2,278,539    $  4,969,626
                                                                 =============    ============
</TABLE>


                                     Page 3
<PAGE>


<TABLE>
<CAPTION>
                                                            NETCURRENTS, INC. AND SUBSIDIARIES
                                                                   CONSOLIDATED BALANCE SHEETS
                                     JUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000 (AUDITED)
----------------------------------------------------------------------------------------------
                      LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                    June 30,      December 31,
                                                                       2001            2000
                                                                 -------------    ------------
                                                                 (UNAUDITED)
<S>                                                              <C>              <C>
CURRENT LIABILITIES
    Accounts payable and accrued expenses                        $   1,456,548    $  1,030,934
    Dividends payable                                                  343,663         237,413
    Current portion of accrued settlement                              190,000               -
    Current portion of capital lease obligation                         48,007               -
    Note payable                                                       250,000               -
                                                                 -------------    ------------
        Total current liabilities                                    2,288,218       2,041,669

Accrued settlement, net of current portion                              64,000
Capital Lease Obligation, net of current portion                        32,229               -
                                                                 -------------    ------------
           Total liabilities                                         2,384,447       2,041,669
                                                                 -------------    ------------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
    Preferred stock, Series A, C, D, E, and F, $0.001 par
        value 5,400,000 shares authorized
        1,100,000 and 2,625,000 shares issued and outstanding            1,400           1,500
    Preferred stock, Series G, $0.001 par value
        4,000 shares authorized
        30 and 1,875 shares issued and outstanding                           -               -
    Common stock, $0.001 par value
        50,000,000 shares authorized
        33,313,670 and 32,998,073 shares issued and outstanding         33,314          32,998
    Treasury stock, at cost
        93,536 shares                                               (1,010,192)     (1,010,192)
    Subscription receivable                                         (4,503,303)     (4,223,284)
    Additional paid-in capital                                      49,116,815      48,532,031
    Accumulated other comprehensive income                            (308,688)       (410,813)
    Accumulated deficit                                            (43,435,254)    (39,220,961)
                                                                 -------------    ------------
           Total shareholders' equity                                 (105,908)      3,701,279
                                                                 --------------   ------------
               TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $   2,278,539    $  4,969,626
                                                                 =============    ============
</TABLE>


                                     Page 4
<PAGE>


<TABLE>
<CAPTION>
                                                                        NETCURRENTS, INC. AND SUBSIDIARIES
                                                                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                  FOR THE THREE MONTHS ENDED JUNE 30, 2001
                                                               AND 2000 (UNAUDITED) AND FOR THE SIX MONTHS
                                                                  ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
----------------------------------------------------------------------------------------------------------

                                           For the Three Months Ended         For the Six Months Ended
                                                    June 30,                          June 30,
                                         -------------------------------    ------------------------------
                                              2001            2000              2001            2000
                                         ---------------  --------------    --------------  --------------
                                          (unaudited)      (unaudited)       (unaudited)     (unaudited)
REVENUES                                     $  285,942      $  345,363        $  742,997      $  612,780
                                         ---------------  --------------    --------------  --------------
<S>                                      <C>              <C>               <C>             <C>
SELLING GENERAL AND ADMINISTRATIVE

Salaries and Benefits                         1,086,034         939,108         2,486,359       1,755,602
Selling and Marketing Expenses                   58,973         364,581           117,484       1,137,202
Professional Fees                               196,302         268,569           425,668         523,834
Consulting Fees                                 340,989         225,933           482,256         434,345
Occupancy Costs                                  89,753          69,297           185,518         111,216
General and administrative expenses             278,682         338,478           814,145         718,629
                                         ---------------  --------------    --------------  --------------
                                              2,050,733       2,205,966         4,511,430       4,680,828

LOSS FROM OPERATIONS                         (1,764,791)     (1,860,603)       (3,768,433)     (4,068,048)
                                         ---------------  --------------    --------------  --------------
OTHER INCOME (EXPENSE)
   Interest and dividend income                  70,329         157,775           145,746         228,594
   Interest and financing expense                (3,933)           (400)           (6,558)         (7,061)
   Write-off of notes receivable and
        other assets                            (38,792)              -           (63,774)        (55,405)
   Amortization of goodwill                     (62,500)        (22,500)         (125,000)        (45,000)
   Settlement expense                          (254,000)        (95,000)         (254,000)       (166,400)
   Gain on sale of investment                      (280)              -           (20,675)        168,250
   Other income (expense)                       (18,421)            317           (15,349)          6,275
                                         ---------------  --------------    --------------  --------------
        Total other income (expense)           (307,597)         40,192          (339,610)        129,253
                                         ---------------  --------------    --------------  --------------
</TABLE>


                                     Page 5
<PAGE>


<TABLE>
<CAPTION>
                                                                         NETCURRENTS, INC. AND SUBSIDIARIES
                                                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                   FOR THE THREE MONTHS ENDED JUNE 30, 2001
                                                                AND 2000 (UNAUDITED) AND FOR THE SIX MONTHS
                                                                   ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------

                                            For the Three Months Ended        For the Six Months Ended
                                                     June 30,                         June 30,
                                          -------------------------------   -------------------------------
                                                 2001           2000              2001            2000
                                          ---------------  --------------   ---------------  --------------
                                             (unaudited)     (unaudited)      (unaudited)     (unaudited)
<S>                                       <C>              <C>              <C>              <C>
LOSS BEFORE PROVISION FOR INCOME TAXES        (2,072,388)     (1,820,411)       (4,108,043)     (3,938,795)

PROVISION FOR INCOME TAXES                             -          (2,405)                -         (12,155)
                                          ---------------  --------------   ---------------  --------------
NET LOSS                                   $  (2,072,388)   $ (1,822,816)    $  (4,108,043)   $ (3,950,950)

DIVIDEND REQUIREMENT OF SERIES A
  PREFERRED STOCK                               (106,250)       (106,250)         (212,500)       (212,500)
DIVIDEND REQUIREMENT OF SERIES E
  PREFERRED STOCK                                      -               -                 -               -
DIVIDEND REQUIREMENT OF SERIES G
  PREFERRED STOCK                                (24,663)              -           (24,663)        (22,250)
                                          ---------------  --------------   ---------------  --------------
LOSS APPLICABLE TO COMMON SHAREHOLDERS        (2,203,301)     (1,929,066)       (4,345,206)   $ (4,185,700)

UNREALIZED GAIN ON INVESTMENT                          -         487,273            94,500         317,163
                                          ---------------  --------------   ---------------  --------------
COMPREHENSIVE LOSS APPLICABLE TO
   COMMON SHAREHOLDERS                     $  (2,203,301)   $ (1,441,793)    $  (4,250,706)   $ (3,868,537)
                                          ===============  ==============   ===============  ==============
BASIC AND DILUTED LOSS PER COMMON SHARE    $       (0.07)   $      (0.05)    $       (0.13)   $      (0.13)
                                          ===============  ==============   ===============  ==============
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
        OUTSTANDING                           32,528,786      31,886,783        31,849,385      29,859,961
                                          ===============  ==============   ===============  ==============
</TABLE>


                                     Page 6
<PAGE>


<TABLE>
<CAPTION>
                                                          NETCURRENTS, INC. AND SUBSIDIARIES
                                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------------

                                                            For the                For the
                                                          Six Months             Six Months
                                                             Ended                  Ended
                                                           June 30,               June 30,
                                                             2001                   2000
                                                        -------------           -------------
                                                          (unaudited)            (unaudited)
<S>                                                     <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss                                                $ (4,108,043)           $ (3,950,950)
  Adjustments to reconcile net loss to net cash
    used in operating activities
      Depreciation and amortization of fixed assets          186,902                  74,936
      Amortization of goodwill                               125,000                  45,000
      Write-off of notes receivable and other assets          63,774                  55,405
      Issuance of common stock for services                   50,000                  71,400
      Interest from subscription receivable                 (120,019)               (109,769)
      Gain on sale of investments                                  -                (168,250)
  (Increase) decrease in
    Accounts receivable                                      217,400                 (69,692)
    Other assets and prepaid expenses                         65,830                      47
    Prepaid advertising expense                                    -                 583,392
  Increase (decrease) in
    Accounts payable and accrued expenses                    425,614                (328,001)
    Deferred revenue                                               -                 (63,025)
    Accrued settlement                                       254,000                (270,669)
                                                        -------------           -------------
Net cash used in operating activities                     (2,839,542)             (3,859,507)
                                                        -------------           -------------
</TABLE>


                                     Page 7
<PAGE>


<TABLE>
<CAPTION>
                                                                  NETCURRENTS, INC. AND SUBSIDIARIES
                                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 (UNAUDITED)
----------------------------------------------------------------------------------------------------

                                                            For the                For the
                                                          Six Months             Six Months
                                                             Ended                  Ended
                                                           June 30,               June 30,
                                                             2001                   2000
                                                        -------------           -------------
                                                          (unaudited)            (unaudited)
<S>                                                     <C>                     <C>
  CASH FLOWS FROM INVESTING ACTIVITIES

  Capital expenditures on fixed assets                  $   (117,931)           $   (343,119)
  Additions to film costs                                          -                       2
  Purchase of investments                                          -                (169,316)
  Increase in subscriptions receivable                             -                 200,000
  Increase in note receivable                               (464,886)                      -
  Proceeds from sale of investments                          107,625                 383,125
                                                        -------------           -------------

Net cash provided by (used in) investing activities         (475,192)                 70,692
                                                        -------------           -------------

  CASH FLOWS FROM FINANCING ACTIVITIES

  Payments on notes payable                                        -                 (44,046)
  Borrowings from notes payable - related parties            250,000                       -
  Payments on capital lease obligation                       (17,864)                 (4,320)
  Proceeds from issuance of preferred stock                        -                 311,525
  Proceeds from issuance of common stock                     400,000               8,723,305
  Offering costs                                             (25,000)                      -
  Proceeds from convertible debentures, net of
    offering costs                                                 -               1,098,000
                                                        -------------           -------------

Net cash provided by financing activities                    607,136              10,084,464
                                                        -------------           -------------

Net increase (decrease) in cash and cash equivalents      (2,707,598)              6,295,649
                                                        -------------           -------------

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD             2,754,487                 798,855
                                                        -------------           -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                $     46,889            $  7,094,504
                                                        =============           =============
</TABLE>


                                     Page 8
<PAGE>


(1)     BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements
of NetCurrents, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all material adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2001. The
information contained in this Form 10-QSB should be read in conjunction with the
audited financial statements filed as part of the Company's Form 10-KSB for the
six months ended December 31, 2000.

(2)     GOING CONCERN

        The accompanying unaudited 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. As a result of the
Company's low stock price, a financing source with whom the Company had an
investment agreement to sell up to $2.0 million in Preferred Stock, declined to
complete the financing after having purchased $400,000 of Preferred Stock and
giving the Company a secured loan for $250,000 during the three months ended
June 30, 2001. As a result, the Company is seeking additional financing to meet
existing debt obligations and to fund operations. Our ability to operate as a
going concern is dependent on our ability to successfully obtain the additional
financing.

(3)     GOODWILL

        Goodwill was recorded in connection with the acquisition of MWI
Distribution, Inc. in July 1998 and is being amortized over a period of two
years.

(4)     MINDFULEYE, INC.

        On February 28, 2001, we entered into a letter of intent to acquire
MindfulEye, Inc., a subscription-based Internet monitoring company that
automatically alerts investors in real time to online news, rumors, information,
and changes in the public sentiment about companies in which they have interest.
On July 24, 2001, the discussions to acquire the company were discontinued due
to the market conditions and the low stock price of our stock at that time.
Although we entered into a license agreement with MindfulEye, the agreement was
rescinded due to the financial issues facing both companies.

        On February 21, 2001, we entered into a bridge loan agreement with
MindfulEye Inc, which was later amended as of June 2001. Under the amended terms
of the bridge loan, we agreed to provide them with advances totaling $455,000
prior to the closing of the acquisition, all of which was funded by June 30,
2001. Interest on the advances accrues at 10% per annum and will be paid in a
single installment on the earlier of (i) October 31, 2001 (ii) the closing of


                                     Page 9
<PAGE>


the acquisition of MindfulEye, Inc. (iii) or the closing of any funding
MindfulEye, Inc. if our acquisition does not close. If we acquire MindfulEye,
Inc., the principal and accrued interest shall be deemed paid as of the closing
date of the acquisition. These advances have been secured by a pledge of all of
the assets of MindfulEye, Inc. and its subsidiary.

(5)     DIVIDENDS ON PREFERRED STOCK

        During the six months ended June 30, 2001, the Company issued 240,292
shares of its Common Stock at a market value to pay a required $106,250
quarterly dividend ending September 30, 2000 on the Series A Preferred Stock.

(6)     AGREEMENTS

        On February 7, 2001, we entered into a marketing agreement for a term of
twelve months under which the marketing firm received 100,000 shares of the
Company's common stock on May 10, 2001, valued at $40,000. The marketing firm
also received 150,000 options exercisable at $1.50, $2.00 and $2.50, valued at
$10,000. The options vest immediately and expire 24 months from the date the
registration statement registering the shares underlying the option is deemed
effective.

        On April 13, 2001, we entered into a consulting agreement under which
the consultant received 2,000,000 options, valued at $160,000. The options
vested immediately and were exercised as of May 7, 2001, creating a promissory
note for $160,000. Interest shall accrue at an annual interest rate of five
percent per annum and shall be due on or before June 30, 2002. At any time prior
to the due date, the promissory note may be paid in cash and/or tendering
400,000 shares of NetCurrents' common stock. Subsequent to June 30, 2001, the
Company received 250,000 shares of the Company's commons stock as partial
repayment of the promissory note.

(7)     NOTE PAYABLE

        In May 2001, we received a loan from a financing company totaling
$250,000. The terms of the loan have yet to be finalized.

(8)     SHAREHOLDERS' DEFICIT

        In May 2001, we received proceeds totaling $400,000, net of offering
costs, from a financing company, for which the terms of the offering have yet to
be finalized.

(9)     SETTLEMENT AGREEMENT

        On May 31, 2001, we entered into a settlement agreement with a former
management employee whereby we agree to pay $254,000 without interest as
follows: (i) $25,000 on or before July 1, 2001 (ii) $15,000, on or before the
first day of each month commencing on


                                    Page 10
<PAGE>


August 1, 2001, and continuing until such time as the total sum is paid in
full. As of the date of this filing, the payments set out above have not been
made.

        If prior to the time the total sum has been paid in full, the Company
actually receives from a third party investor an amount of not less than
$1,500,000 in cash, the Company shall pay to the former employee, the lesser of
the balance of the total sum still unpaid or $50,000. Such amount shall be
payable within five days from the receipt of the financing, then the payments
above shall be increased to $20,000 per month commencing on the date when the
next monthly payment would otherwise be due, until the total sum is paid in
full.

(10)    LOSS PER SHARE

        Loss per share for the three and six months ended June 30, 2001, has
been computed after deducting the dividend requirements of the Series A and
Series G Preferred Stock. It is based on the weighted average number of common
and common equivalent shares reported outstanding during the entire period ended
on June 30, 2001.

(11)    SUBSEQUENT EVENTS

        DIVIDEND PAYMENT

        In July 2001, we issued 296,609 shares of our common stock with a fair
market value of $106,250 in payment of the required quarterly dividend on the
Series A Preferred Stock for the quarter ended December 31, 2000.

        LEASES

       The Company is in arrears on two non-cancelable office leases that
provide for minimum annual base rents and payment of certain operating expenses.
One lease expires in May 2005 and the other in January 2002. As a result, the
landlord has drawn down on one letter of credit with a financial institution for
$86,000. In addition, total future minimum commitments under this obligation as
of June 30, 2001 amount to $419,000. The Company is currently in negotiations
with the landlords to sublease the facilities.

        STOCKHOLDER APPROVALS

Effective August 15, 2001, the stockholders approved our Company's name change
to NetCurrents Information Services, Inc. We also received approval to increase
the aggregate number of shares of common stock authorized for issuance from
50,000,000 shares to 100,000,000 shares. In addition, our 2001 Stock Incentive
Plan was approved.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD LOOKING STATEMENTS.

This report contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the


                                    Page 11
<PAGE>


Securities Act of 1933 with respect to our operations that are subject to
various risks and factors which could cause our future actual results of
operations and future financial condition to differ materially from those
described herein. The words "expect," "estimate," "anticipate," "predict,
"believe" "project" and similar expressions and variations thereof are intended
to identify forward-looking statements. These statements appear in a number of
places in this filing and include statements regarding our intent, belief or
current expectations with respect to, among other things: the operations of
NetCurrents Services Corporation, which we refer to as NC Services, execution of
business plans, completion of strategic alliances, the ability to work
effectively with our alliance partners, demand for our products and services,
the ability to continue to develop new products and services, the ability to
attract skilled personnel to meet our target in our business plan, expected
capital expenditures, anticipated business and economic conditions and trends
affecting our financial condition and our business and strategies. We caution
you not to put undue reliance on these forward-looking statements. We further
caution you that forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in this filing, including, without
limitation, those risks and uncertainties discussed under the headings "Factors
That Could Impact Future Results" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form
10-KSB for the year ended December 31, 2000 as well as the information set forth
below. We do not ordinarily make projections of our future operating results and
we undertake no obligation to publicly update or revise any forward looking
statements, whether as a result of new information, future events or otherwise.

OVERVIEW

Since our last 10Q, the economy has continued to slow down and the stock
markets, in particular Nasdaq, have been volatile and weak. The investor who
provided the financing commitment at the time of our last 10Q has failed to
continue to fund our operations in accordance with the agreement, as specified.
As a result, we have redirected our business and engaged in a complete
restructuring and significant cost cutting. We are now exploring new
distribution and licensing alliances for our core technology and existing
products, particularly PR Manager. The remainder of this report will provide
additional details as to our plans and where we see new business opportunities.

PATENT GRANT

On July 10, 2001, a patent (US# 6,260,041 B1) was granted on our FIRST
technology, which is the core of our search technology. The patent is very broad
and relates to the use and application of our technology for monitoring the
Internet and delivering specific information to our clients. We have additional
patent applications pending in an effort to create a multi-layer protection
strategy for our technology. If granted, these patents would afford us further
patent protection, which we believe will assist us in becoming a leader in
providing up-to-the-minute real-time monitoring and online analysis of Internet
message activity.


                                    Page 12
<PAGE>


NASDAQ AND FINANCIAL DEVELOPMENTS

On July 16, 2001, the Nasdaq Listing Panel notified us that it decided to
de-list our stock from the Nasdaq Small Cap Market effective July 17, 2001. The
reasons stated were failure to meet the minimum bid price and net tangible asset
requirements of the Marketplace rules. Our stock began trading on the OTC
Bulletin Board on July 17, 2001.

Although we are actively negotiating with several investment groups who have
informed us that they are prepared to fund a Bulletin Board company, until a
financing is concluded, we cannot assure you that we will be able to secure the
amount of funds needed to continue operations or execute on our business plan.
We have a current, immediate need for capital in order to meet our existing debt
obligations and pay our day-to-day expenses. The recent de-listing of our common
stock from the Nasdaq Small Cap Market and its current price significantly
impairs our ability to raise additional capital. If we are unable to secure
financing in a timely manner, we will not be able to accomplish any or all of
our initiatives and could be forced to consider steps that would protect our
assets against our creditors.

As a result of the de-listing and the current stock price, the Target Growth
Fund, or TGF, with whom we had an investment agreement to sell up to $2.0
million in Preferred Stock, declined to complete the financing after having
purchased $400,000 of Preferred Stock and giving the Company a secured loan for
$250,000. TGF has, however, indicated its desire to proceed with a $10 million
equity line of credit, should we care to proceed. Since draw downs under this
financing would be based in part on the price and trading volume of our common
stock we would not be able to use the equity line until our price and volume
increases. We are, however, still considering the TGF proposal, along with the
proposals from other investment groups.

INTEGRATION AND DEVELOPMENT OF THE INFOLOCITY BUSINESS

The last 18 months, since we acquired Infolocity, has been a time of both
success and disappointment. When we acquired this small, privately owned
company, it was engaged in the business of monitoring the Internet, primarily
for fraud and misinformation, for a small group of public companies. During the
year 2000, we built its small client base into one that generated Internet
related revenues of approximately $1.3 million for the year ended December 31,
2000. With the rapid downturn of the stock market, starting in the early spring
of 2000, the stock prices of many of our clients tumbled. Trillions of dollars
of market cap were lost in the technology sector and the ability of many public
companies to raise capital was severely curtailed. Many of our clients were
fighting for survival. Some went bankrupt. With others, budgets were cut. We
considered the possibility that we were at the beginning of a protracted decline
in revenue and an extended accounts receivable collection cycle.

With the symptoms of global economic problems growing early in 2001, we
anticipated the need for capital to compensate for a shortage of cash generation
from operations, we entered into the agreement on February 28, 2001, with TGF.
As earlier noted, after funding $400,000


                                    Page 13
<PAGE>


of its $2 million preferred share commitment, TGF ceased funding our needs in
accordance with the agreement as specified. These changes led to a need to
restructure and redirect the business.

In an effort to improve cash flow and revenues during the first half of 2001, we
accelerated the development of our flagship automated product, PR Manager, that
incorporated both the AgencyFacts and WebClipper (now called PressClipper)
modules into one package for the investor relations, public relations
advertising and marketing communities. This new product went beyond the
identification of purely financial information with its capability to assess
consumer opinions of products and services of both our clients and their
competitors. We originally anticipated a release date in the fall of 2000. Due
to technical delays, we released the product into beta test at the end of April
2001. Many potential clients who expected delivery earlier were disappointed. We
released the product for trial to more than 40 public relations firms in mid May
of 2001 and continued to make further revisions to the feature set and
capabilities based on their comments through June 2001. Provided that we are
able to continue to use Webmind or MindfulEye's artificial intelligence, we
believe the product is currently marketable in its present Version 1 format and
we have initiated a sales program designed to license PR Manager to as many
public relations firms as we can, while actively negotiating with large,
independent corporations to take over the product sales for us and pay us a
license fee per client.

MINDFULEYE ACQUISITION

As announced on July 24, 2001, we discontinued our acquisition negotiations with
MindfulEye. Our termination of these discussions was a function of several
factors: our declining stock price, the limited number of common shares
available for issuance to the stockholders of MindfulEye and our inability to
complete a financing. Instead, we plan to integrate MindfulEye's patent pending
LEXANT artificial intelligence technology into PR Manager and other Netcurrents
products. Although we entered into a license agreement with MindfulEye in June,
2001, the agreement was rescinded due to the financial issues facing both
companies. Should we conclude a revised agreement we would discontinue our
relationship with Webmind, our current AI supplier. We also plan to establish a
strategic alliance with MindfulEye under which we will represent MindfulEye in
the sale of its SURVEILLANCE technology to the financial industry and jointly
develop platform technology systems for our corporate clients' sales team. We
anticipate these sales will be made primarily through outside third parties
rather than through a direct sales force, as a further measure to minimize
operating costs.

Over the past few months we advanced funds to MindfulEye secured by a first lien
on their LEXANT technology. Should MindfulEye be unable to deliver and service
its LEXANT technology, we would continue using WebMind's AI. Should we decide to
proceed with another AI technology, from another company, it could take as long
as six months during product integration. As a protective measure, we are
currently investigating other companies with similar artificial intelligence
technology should MindfulEye discontinue operations.


                                    Page 14
<PAGE>


REVISED STRATEGIC PLAN

We recently decided to fundamentally redirect the manner in which we do business
in order to enhance our opportunities for success. We carefully analyzed all of
the critical elements of our business from technology development to sales
methodology. We believe that if we are able to expediently complete a bridge
financing of at least $1 million dollars, and if MindfulEye is able to continue
to operate, our strategic alliance with them could result in numerous benefits
including: reduced costs of technology and product development in Vancouver,
lower overhead costs, low cost access to the west coast market and the ability
to add the MindfulEye technology infrastructure to those products sold through
our alliance partners. A key component of our revised approach includes
extending our revenue focus beyond the Internet and utilizing FIRST and LEXANT
to retrieve and analyze unstructured information from other types of databases.
Under this new plan, we intend to continue to offer our PR Manager and
AgencyFacts products as well as developing further spin off products for
specific vertical markets. We expect that this plan would enable us to expand
our potential market to include companies worldwide that need to retrieve and
analyze unstructured information whether from the Internet or from their own
internal databases.

Our plan, subject to concluding a definitive agreement with MindfulEye, can be
summed up as follows.

     o    LICENSING TECHNOLOGY. Using LEXANT, and FIRST, we plan to offer
          companies access to technology that will not only retrieve the
          unstructured information they want, in real time, from public or
          internal sources, but also analyze the retrieved text to assess its
          meaning, sentiment, and relevance. These companies may license the
          individual technologies or license the entire integrated platform of
          FIRST, LEXANT, and a relational database for use with the Internet
          and/or internal data sources.

     o    LICENSING ACCESS TO INTERNET PLATFORM. Customers will be able to
          license access to the integrated platform hosted by NetCurrents that
          constantly scans and analyzes the Internet for information relevant to
          the client. The customer can interface an existing application to this
          platform through a data stream or a query interface.

     o    DEVELOPMENT OF PRIVATE LABEL WEB APPLICATIONS USING THE INTEGRATED
          PLATFORM. New end user web applications can be rapidly developed for
          individual clients leveraging the capabilities of the integrated
          platform. PRManager is an example of such an application.


                                    Page 15
<PAGE>


OPERATIONAL DEVELOPMENTS

The result of our revised strategic plan has been a complete reorganization of
our company and a restructuring of our sales and marketing programs. The
changing economic environment and opportunities for expansion into retrieval and
analysis of unstructured information have led us to institute the following
changes to our overall corporate strategy:

     o    We eliminated our in-house sales force and plan to sell our technology
          through partner relationships.

     o    We reduced our technology department to a minimum number of people in
          Burlingame and are planning to outsource part of the technology
          operations to MindfulEye in Vancouver, subject to their ability to
          continue to deliver and service their technology. We expect that this
          will allow us to continue our technology enhancements and development
          at significantly lower costs as a result of both the Canadian foreign
          currency advantage and lower costs of personnel in the area. We closed
          our Burlingame office and plan to sub-lease the space to recover
          costs.

     o    We are redirecting our primary focus from a product and service
          oriented company to a platform technology company that does not
          require unrecoverable upfront application development costs. We
          believe that by licensing our software and embedding it into existing
          programs, our cost of operations will decrease significantly, our
          market potential will be larger, and our profit margins will increase.

     o    We have reduced our overhead, and reduced our total monthly burn rate
          by approximately 60% since June 2000.

STRATEGIC PARTNERS

        HILL & KNOWLTON

Hill & Knowlton, one of the largest public relations firms in the world,
representing more than 300 of the Fortune global 500 companies, was the first to
order PR Manager. The confidence expressed by Hill & Knowlton in our technology
is very encouraging. We are informed by representatives of Hill & Knowlton that
the current launch for PR Manager is scheduled for September. We have been
working closely with Hill & Knowlton and are anxiously awaiting the rollout of
R Manager to their clients.


                                    Page 16
<PAGE>


        KROLL RISK CONSULTING SERVICES

We continue to service Kroll's crisis management clients on an "as needed"
basis. We are disappointed with the adoption rate of our monitoring products by
their case managers and we are currently discussing with them a restructuring of
our approach in an effort to serve a greater number of their domestic cases. We
hope to do this through the development of a uniform program and pricing
structure for their case managers. We also are discussing with Kroll the
development of a customized desktop application built on top of our integrated
Internet platform that will allow Kroll to specifically identify information for
their clients and eliminate the need to retain us to analyze each account's
information and submit reports to them.

        BURRELLES INFORMATION SERVICES

When we began working with Burrelles, we agreed to develop a co-branded product
based on their specifications. Burrelles was not satisfied with the performance
of the Webmind artificial intelligence technology that was an integral part of
the product and, as a result, the product launch was delayed. In view of
Burrelle's very strong position in the marketplace and their large sales force,
we are now negotiating with them to license our technology for their own use.

        THOMSON FINANCIAL

Our alliance with Thomson Financial remains, although it has changed
significantly as a result of corporate changes within Thomson. As a result, we
have negotiated with them to license PR Manager rather than AgencyFacts, a
system that will deliver more information to its clients and will allow it to
monitor consumer perceptions about the companies, their competitors and
products. Thomson has authorized us to offer 500 of its clients PR Manager on a
test basis. We are currently working out the technical aspects of placing
Thomson's clients online and over the next few months, should we decide to
proceed, we will contact each client to offer this service.

Over the last 18 months we entered into alliances with Bowdens Media
Intelligence and Cobion Inc. Unfortunately, they did not result in the
generation of any revenues through June 30, 2001 and we do not expect them to be
of material benefit to the Company in the future. As a result, we will be
terminating these relationships. On a more positive note, we are still working
with the following alliance partners on enhancing our relationships with them.

Like many of our technology company counterparts, NetCurrents has been through a
difficult period. We experienced the challenges that face evolving early stage
technology companies attempting to penetrate a new market including the need to
address numerous management changes, infrastructure ramped up in anticipation of
unrealized demand, technology department shortfalls and product fulfillment
issues. Management continues to


                                    Page 17
<PAGE>


address these issues and revise the Company's business plans in an effort to
deliver improved results in the future.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001 (Fiscal 2001) COMPARED TO THE THREE MONTHS
ENDED JUNE 31, 2000 (Fiscal 2000)

        Revenues for Fiscal June 30, 2001 were $285,942, comprised of $228,309
for our Internet division and $57,633 for our Entertainment division. Our
Internet revenues represent a decrease of 2% from the same period in 2000.
Revenues for Fiscal 2000 were $345,363 and consisted of sales of $233,878
attributable to our Internet division and $111,485 attributable to our
Entertainment division.

        Selling, general and administrative expenses were $2,050,733 for Fiscal
2001 as compared to $2,205,966 for Fiscal 2000. Salaries and Benefits for Fiscal
2001 were $1,086,034 compared to $939,108 in Fiscal 2000. The major changes in
cost were as follows: Technology and Product Development increased by 225%,
Client Operations increased by 100%, Sales salaries and commissions increased by
62%, Strategist salaries and commissions decreased by 9% and San Francisco
management and administrative wages decreased by 89%. The increases are
primarily attributable to our efforts to address our technology needs through
the use of added internal and independent personnel, organize and implement
client support capabilities for the release of PR Manager and other toolset
based products and refocus our sales capabilities. The decreases are primarily
attributed to the reorganization of the San Francisco office.

        Sales and marketing expenses were $58,973 for Fiscal 2001 and $364,581
in Fiscal 2000. These expenses were significantly higher in Fiscal 2000 because
we incurred initial launch and marketing costs in that period. Current marketing
expenditures are focused on specific target markets.

        Professional fees were $196,302 for Fiscal 2001 and $268,569 for Fiscal
2000. Of this amount, 20% related to litigation in Fiscal 2001 and 47% related
to litigation and the acquisition of Infolocity in Fiscal 2000. As well, 20%
related to audit, NASDAQ and SEC filings in Fiscal 2001 and 27% in Fiscal 2000.
In Fiscal 2001, 4% related to the Mindfuleye, Inc. acquisition negotiations.

        Consulting fees increased to $340,989 for Fiscal 2001 from $225,933 in
Fiscal 2000. A portion of these fees related to our funding efforts.

        Occupancy costs increased to $89,753 in Fiscal 2001 from $69,297 in
Fiscal 2000 as the size of our San Francisco operations grew and a small sales
office was opened in Toronto as of May 2000. The San Francisco operations have
been downsized since June 30, 2001 and we are attempting to sub-lease our office
space in San Francisco.


                                    Page 18
<PAGE>


        General and Administrative costs were $278,682 in Fiscal 2001 and
$338,478 in Fiscal 2000. The major components of these costs for Fiscal 2001
were: travel 21%, and depreciation 18%. For Fiscal 2000, these costs were:
travel 28%, and depreciation 25%.

        The net comprehensive loss applicable to common shareholders was
$2,203,301 and $1,441,793 for the three months ended June 30, 2001 and 2000,
respectively.

SIX MONTHS ENDED JUNE 30, 2001 (Fiscal 2001) COMPARED TO THE SIX MONTHS ENDED
JUNE 31, 2000 (Fiscal 2000)

        Revenues for Fiscal June 30, 2001 were $742,997, comprised of $607,429
for our Internet division and $135,568 for our Entertainment division. Our
Internet revenues represent an increase of 43% from the same period in 2000.
Revenues for Fiscal 2000 were $612,780 and consisted of sales of $425,547
attributable to our Internet division and $187,233 attributable to our
Entertainment division.

        Selling, general and administrative expenses were $4,511,430 for Fiscal
2001 as compared to $4,680,828 for Fiscal 2000. Salaries and Benefits for Fiscal
2001 were $2,486,359 compared to $1,755,602 in Fiscal 2000. The major changes in
cost were as follows: Technology and Product Development increased by 265%,
Client Operations increased by 100%, Sales salaries and commissions increased by
43%, Strategists salaries and commissions increased by 60% and San Francisco
management and administrative wages decreased by 69%. The increases are
primarily attributable to our efforts to address our technology needs through
the use of added internal and independent personnel, organize and implement
client support capabilities for the release of PR Manager and other toolset
based products and refocus our sales capabilities. The decrease is primarily
attributed to the reorganization of the San Francisco office.

        Sales and marketing expenses were $117,484 for Fiscal 2001 and
$1,137,202 in Fiscal 2000. These expenses were significantly higher in Fiscal
2000 because we incurred initial launch and marketing costs in that period.
Current marketing expenditures are focused on specific target markets.

        Professional fees were $425,668 for Fiscal 2001 and $523,834 for Fiscal
2000. Of this amount, 25% related to litigation in Fiscal 2001 and 45% related
to litigation and the acquisition of Infolocity in Fiscal 2000. As well, 28%
related to audit, NASDAQ and SEC filings in Fiscal 2001 and 31% in Fiscal 2000.
In Fiscal 2001, 8% related to the Mindfuleye, Inc, acquisition negotiations.

        Consulting fees increased to $482,256 for Fiscal 2001 from $434,345 in
Fiscal 2000 A portion of these fees related to our funding efforts.

        Occupancy costs increased to $185,518 in Fiscal 2001 from $111,216 in
Fiscal 2000 as the size of our San Francisco operations grew and a small sales
office was opened in Toronto


                                    Page 19
<PAGE>


as of May 2000. The San Francisco operations have been downsized since June 30,
2001 and we are attempting to sub-lease our office space in San Francisco.

        General and Administrative costs were $814,145 in Fiscal 2001 and
$718,629 in Fiscal 2000. The major components of these costs for Fiscal 2001
were: travel 37%, and depreciation 23%. For Fiscal 2000, these costs were:
travel 32%, and depreciation 17%.

        The net comprehensive loss applicable to common shareholders was
$4,250,706 and $3,868,537 for the three months ended June 30, 2001 and 2000,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

        Net cash used in operating activities for the Fiscal 2001 was
($2,839,542) and for the Fiscal 2000 was ($3,859,507). Net cash provided by
(used in) investing activities during Fiscal 2001 was ($475,192) and during
Fiscal 2000 was $70,692. Net cash provided by financing activities during Fiscal
2001 was $607,136 and during Fiscal 2000 was $10,084,464.

        Our total cash and cash equivalent balance at June 30, 2001 was $46,889
as compared to December 31, 2000 which was $2,754,487.

        On May 9, 2001, we entered into an agreement under which we may sell
$2.0 million of convertible preferred stock on an as needed basis. The investor
will receive 10% of the amount of the proceeds in warrants to purchase our
common stock at an exercise price equal to the fair market value of our common
stock on the date we sell the preferred stock. The investor may convert the
preferred shares into shares of our common stock at a conversion price equal to
90% of the average closing price of our common stock during the five trading
days prior to the date of the notice of conversion. The investor will receive an
origination fee equal to 5% of the proceeds of the sale for arranging the
financing. The investor will also provide us with an Equity Credit Line under
which we will be able to draw down a minimum of $100,000 per month based upon a
predetermined formula. The maximum amount we may draw down under this Equity
Credit Line is $10,000,000. At such time as we draw down on the Equity Credit
Line, we will issue to the investor shares with a market value, based on the
fair market value of our common stock on the date of notice of draw down, equal
to one hundred seven and one-half percent of the amount of the draw. With each
draw under the Equity Line, we will grant to the investor warrants to purchase
that number of shares of our common stock equal to 10% of the number of shares
issued in connection with that draw at an exercise price equal to 110% of the
closing bid price of our common stock on the day we receive the funds. An Equity
Credit Line fee of 3% of the amount of each draw will also be payable.

        The financing commitment we received on May 9, 2001 replaces the
financing commitment received on February 28, 2001, which was terminated by the
parties thereto.

     As indicated in the Overview section of this filing, the investor who
provided the financing commitment at the time our last 10Q has failed to
continue to fund our operations in accordance with the agreement, as specified.
Currently, our cash on hand, together


                                    Page 20
<PAGE>


with cash generated by operations, cannot sufficiently fund future operating
losses and capital requirements. If we are unable to obtain other financing on
terms acceptable to us, or at all, or if we are not able immediately to
recognize significant revenue from sales of our products, we may not be able to
accomplish any or all of our initiatives and could be forced to consider steps
that would protect our assets against our creditors.

RISKS RELATED TO OUR BUSINESS

        IF WE ARE NOT ABLE TO OBTAIN ADDITIONAL CAPITAL, WE MAY SUBSTANTIALLY
REDUCE OUR OPERATIONS AND MAY NOT BE ABLE TO EXECUTE ON OUR BUSINESS PLAN.

        We experienced significant operating losses in the fiscal year ended
December 31, 2000 and we expect that these losses will continue through the
third quarter of fiscal 2001. Our cash and short-term investment balances have
continued to decline since December 31, 2000 and we expect to experience further
declining balances until we either obtain additional capital or our accounts
receivable and other collections exceed our cash outflows We actively continue
to pursue additional equity or debt financings but to date have not received any
other funding commitments. We intend to improve liquidity by enhancing the
efficiency of our operations, the continued monitoring and reduction of
administrative costs and through sales of existing products including PR
Manager. Currently, our cash on hand, together with cash generated by
operations, cannot sufficiently fund future operating losses and capital
requirements. If we are unable to obtain other financing on terms acceptable to
us, or at all, or if we are not able immediately to recognize significant
revenue from sales of our products, we may not be able to accomplish any or all
of our initiatives and could be forced to consider steps that would protect our
assets against our creditors.

WE HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.

        We have a history of revenues and losses as follows:

        The Company has a history of revenues and losses as follows:

<TABLE>
<CAPTION>
                                                       Revenues           Losses
                                                     --------------    --------------
         <S>                                         <C>               <C>
         Year ended June 30, 1999                    $  2,991,953      $  2,722,239
         Six months ended December 31, 1999          $    342,985      $  4,724,582
         Six months ended June 30, 2000              $    612,780      $  3,950,950
         Year ended December 31, 2000                $ 1,665,225       $  8,360,125
         Three months ended March 31, 2001           $    457,055      $  2,035,652
         Three months ended June 30, 2001            $    285,942      $  2,072,388
</TABLE>

(without giving effect to the payment in 1997, 1998, 1999 and 2000 of dividends
of $425,000 annually, and $212,500 for the six months ended December 31, 1999 on
the Series A Preferred Stock and a payment in 1999 of dividends of $66,250 on
the Series E Preferred Stock). Because a substantial portion of our expenses are
fixed, achieving profitability depends upon our ability to generate and sustain
substantially higher revenues. We cannot assure you that we will be able to do
so and consequently we may experience additional losses in fiscal 2001.


                                    Page 21
<PAGE>


        Our new business strategy, including our investment and acquisition
activities, requires substantial working capital. We spent substantial funds in
our acquisition of NetCurrents Services Corporation and since the acquisition
have spent a significant amount of money developing our technology and bringing
products to market. We expect to continue to spend significant amounts
developing new products and enhancements to existing products, in our related
marketing efforts and in expanding our existing management team with additional
experienced Internet personnel. UPDATE We estimate that, as of June 30, 2001,
our cash commitments for the next twelve months will be approximately
$1,053,000; a significant portion of this amount is allocated to the business of
NC.

        We incur expenses associated with general and administrative costs
including:

     o    staff salaries;

     o    employee benefits;

     o    employer taxes;

     o    premiums on insurance policies;

     o    advertising and marketing costs;

     o    office expenses;

     o    professional fees;

     o    consulting fees; and

     o    other expenses.

        In addition to general and administrative expenses, the required
dividends on the shares of Series A Preferred Stock are $425,000 annually. The
dividends on the Series A Preferred Stock may be paid either in shares of our
common stock or in cash.

        In addition, while we attempt to accurately forecast our capital
requirements, we cannot anticipate all of our future capital needs. We need to
obtain additional funds to continue our product development efforts and
otherwise to execute our business plan. If we raise additional funds by issuing
equity or convertible debt securities, the percentage ownership of our
stockholders will be diluted. Any new securities may have rights, preferences,
and privileges senior to those of our common stock. If we do not obtain
sufficient funds to further develop and market our products, or to enhance our
management team, we may not successfully penetrate our Internet market sectors,
establish any brand recognition or successfully grow our business, all of which
may adversely affect our sales, revenues and overall financial condition.


                                    Page 22
<PAGE>


UNANTICIPATED TECHNOLOGICAL PROBLEMS MAY AFFECT OUR ABILITY TO MEET OUR RELEASE
AND DELIVERY SCHEDULES AND ADVERSELY AFFECT OUR OVERALL FINANCIAL CONDITION.

        During fiscal 2000, we launched several new products. In addition, we
plan to release additional new products and enhancements to our existing
products in fiscal 2001. All of our products undergo thorough quality assurance
testing prior to release. We have experienced delays in bringing our products to
market due to unanticipated technological issues. While we believe we have
resolved these issues, we cannot anticipate all of the technological and other
issues that may arise in connection with our planned product enhancements and
future product development. We may be unable to meet delivery commitments if
technological or other development issues arise in connection with our continued
product development and enhancement. Our reputation may suffer if we fail to
meet our release and delivery schedules or if our products upon release do not
perform as expected. Consequently, it may become more difficult forming
strategic alliances with distribution and other partners, and our results of
operations and financial condition could be materially and adversely affected.

OUR PRODUCTS MAY NOT BE COMMERCIALLY ACCEPTED WHICH WILL ADVERSELY AFFECT OUR
REVENUES AND PROFITABILITY.

        Our ability to enter into the online commerce market, establish brand
recognition and compete effectively depends upon many factors, including broad
commercial acceptance of our products. The success of our products will depend
in large part on the breadth of the information these products capture and the
timeliness of delivery of that information to the client. The commercial success
of or products also depends upon the quality and acceptance of other competing
products, in-house capabilities of our clients to perform the same or similar
functions as do our products, general economic conditions and other tangible and
intangible factors, all of which can change and cannot be predicted with
certainty. We cannot assure you that our new products will achieve significant
market acceptance or will generate significant revenue. If the marketplace does
not broadly accept our products, our results of operations and financial
condition could be materially and adversely affected.

OUR ABILITY TO UTILIZE ANY AI TECHNOLOGY DEPENDS ON THE OPERATIONS OF OTHER
PARTIES. ANY INTERRUPTION OF OUR ABILITY TO UTILIZE AI TECHNOLOGY CAN AFFECT OUR
PRODUCT INTEGRATION.

        Our revised strategic plan calls for migration of our AI to MindfulEye's
LEXANT technology from our present licensor, Webmind. Should MindfulEye be
unable to deliver and service its LEXANT technology, we would continue using
WebMind's AI. Should we decide to proceed with another AI technology, from
another company, it could take as long as six months during product integration.
As a protective measure, we are currently investigating other companies with
similar artificial intelligence technology should MindfulEye discontinue
operations.


                                    Page 23
<PAGE>


FUTURE ACQUISITIONS INVOLVE RISKS FOR US.

        We evaluate future acquisitions of complementary product lines and
businesses as part of our business strategy. Acquisitions may result in dilutive
issuances of equity securities, the use of our cash resources, the incurrence of
additional debt and increased goodwill, intangible assets, and amortization
expense, which could negatively impact our profitability. In addition,
acquisitions involve numerous risks, including difficulties in the integration
of the operations and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which we have no or limited direct prior experience, and the potential loss
of key employees of the acquired company.

OUR FUTURE OPERATING RESULTS MAY FLUCTUATE AND ARE UNPREDICTABLE. IF WE FAIL TO
MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE
OF OUR COMMON STOCK AND REDEEMABLE WARRANTS MAY DECLINE SIGNIFICANTLY.

     Our limited operating history in the Internet and online commerce
industries makes it difficult to forecast accurately our revenues, operating
expenses and operating results. As a result, we may be unable to adjust our
spending in these areas in a timely manner to compensate for any unexpected
revenue shortfall. Consequently, we may not satisfy the expectations of analysts
or investors that may cause our stock price to decline. Investors may not be
able to resell their shares of our common stock at or above the cost of their
purchase prices.

BECAUSE OF THE LIMITED BARRIERS TO ENTRY IN THE INTERNET COMPETITION IN THESE
MARKETS IS INTENSE. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND
FUTURE COMPETITORS THAT ENTER THESE MARKETS, OUR REVENUES AND OPERATING RESULTS
COULD BE IMPAIRED.

        The Internet markets are new, rapidly evolving and intensely
competitive, and we expect that competition could further intensify in the
future. Barriers to entry are limited, and current and new competitors can
launch web sites and other similar businesses at a relatively low cost. Many of
our current and potential competitors have significantly greater financial,
marketing, and other resources than us. Increased competition may result in
reduced operating margins, additional barriers to our entry into the Internet
and online commerce fields and to establishing brand recognition, and loss of
market share.

OUR GROWTH AND OPERATING RESULTS WILL BE IMPAIRED IF THE INTERNET AND ONLINE
COMMERCE INDUSTRIES DO NOT CONTINUE TO GROW.

        Our growth and operating results depend in part on widespread acceptance
and use of the Internet as a point of convergence in the telecommunications,
entertainment and technology industries, as well as on continued consumer and
corporate acceptance of the Internet as a communications medium and for other
forms of communication. These practices are at an early stage of development,
and demand and market acceptance are uncertain.

        The Internet may not become a viable medium for telecommunications,
entertainment and technology convergence or a healthy commercial marketplace due
to inadequate


                                    Page 24
<PAGE>

development of network infrastructure and enabling technologies that address the
public's concerns about:

     o    network performance;

     o    reliability;

     o    speed of access;

     o    ease of use; and

     o    bandwidth availability.

        In addition, the Internet's overall viability could be adversely
affected by increased government regulation. Changes in or insufficient
availability of telecommunications or other services to support the Internet
could also result in slower response times and adversely affect general usage of
the Internet. Also, negative publicity and consumer concern about the
security of transactions conducted on the Internet and the privacy of users may
also inhibit the growth of commerce on the Internet.

BURDENSOME GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD IMPAIR OUR
RESULTS OF OPERATIONS.

        It is possible that a number of laws and regulations may be adopted
concerning the Internet, relating to, among other things:

     o    user privacy;

     o    content;

     o    copyrights;

     o    distribution;

     o    telecommunications; and

     o    characteristics and quality of products and services.

        The adoption of any additional laws or regulations may decrease the
popularity or expansion of the Internet. A decline in the growth of the Internet
could decrease demand for our services and increase our cost of doing business.
The application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and other online services could also harm our
business.


                                    Page 25
<PAGE>


OUR OUTSTANDING OPTIONS AND WARRANTS MAY DILUTE OUR STOCKHOLDERS' INTERESTS AND
COULD HINDER US FROM OBTAINING ADDITIONAL FINANCING.

        As of July 31, 2001, we have granted options and warrants to purchase a
total of 9,112,802 shares of common stock that have not been exercised. To the
extent that these outstanding options and warrants are exercised, our
stockholders' interests will be diluted. Also, we may not be able to obtain
additional equity capital on acceptable terms, since the holders of the
outstanding options and warrants may exercise those securities at a time when we
may be able to obtain such capital on better terms than those in the options and
warrants.

THE CONVERSION OF OUR CONVERTIBLE PREFERRED STOCK MAY DILUTE OUR STOCKHOLDERS'
INTERESTS AND COULD HINDER US FROM OBTAINING ADDITIONAL FINANCING.

        As of July 31, 2001, we have issued and outstanding 1,000,000 shares of
our Series A Preferred Stock, and 400,000 shares of our Series C Preferred
Stock. At our option, we can pay the dividends on our Series A Preferred Stock
in cash or in shares of common stock. We are required to pay dividends on our
Series C Preferred Stock if we have net income in excess of $1,000,000 in the
applicable fiscal year. We have not yet paid dividends on the Series A
Preferred Stock for the periods ended March 31, 2001 and June 30, 2001. No
dividends are currently due on the Series C Preferred Stock.

        Holders of shares of our convertible preferred stock may convert their
shares into shares of our common stock at any time in the future. To the extent
all of the shares of our outstanding convertible preferred stock are converted
into shares of our common stock, our common stockholders' interests will be
diluted. Since these shares of common stock will be registered for resale in the
marketplace, future offers to sell these shares could potentially depress the
price of our common stock. In the future, this could make it difficult for us or
our stockholders to sell the common stock. Also, we may have problems obtaining
additional equity capital on acceptable terms, since we can expect the holders
of our convertible preferred stock to convert their shares into common stock at
a time when we would be able to obtain any needed capital on more favorable
terms than those of the convertible preferred stock.

STOCK PRICES OF INTERNET-RELATED COMPANIES HAVE FLUCTUATED WIDELY IN RECENT
MONTHS AND THE TRADING PRICE OF OUR COMMON STOCK AND REDEEMABLE WARRANTS IS
LIKELY TO BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES TO INVESTORS.

        The trading price of our common stock and redeemable warrants is
volatile and could fluctuate widely in response to factors including the
following, some of which are beyond our control:

     o    variations in our operating results;

     o    announcements of technological innovations or new services by us or
          our competitors;


                                    Page 26
<PAGE>


     o    changes in expectations of our future financial performance, including
          financial estimates by securities analysts and investors;

     o    changes in operating and stock price performance of other
          Internet-related companies similar to us;

     o    conditions or trends in the Internet and technology industries;

     o    additions or departures of key personnel;

     o    future sales of our common stock; and

     o    acceptance by the market of our acquisitions.

        Domestic and international stock markets often experience significant
price and volume fluctuations. These fluctuations, as well as general economic
and political conditions unrelated to our performance, may adversely affect the
price of our common stock and redeemable warrants.

TAKEOVER EFFORTS COULD BE DETERRED AS A RESULT OF OUR RIGHT TO ISSUE PREFERRED
STOCK IN THE FUTURE AND CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION.

        Our Certificate of Incorporation permits our Board of Directors to issue
up to 20,000,000 shares of "blank check" Preferred Stock. Our Board of Directors
also has the authority to determine the price, rights, preferences, privileges
and restrictions of those shares without any further vote or action by our
stockholders. We have issued and outstanding 1,000,000 shares of Series A
Preferred Stock, and 400,000 shares of Series C Preferred Stock. If we issue
additional shares of preferred stock with voting and conversion rights, the
rights of our common stockholders could be adversely affected by, among other
things, the loss of their voting control to others. Any additional issuances
could also delay, defer or prevent a change in our control, even if these
actions would benefit our stockholders.

        Additionally, provisions of Delaware law and our Certificate of
Incorporation could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders.

WE HAVE NEVER PAID DIVIDENDS ON OUR COMMON STOCK. WE PAY ANNUAL CASH OR STOCK
DIVIDENDS ON CERTAIN SERIES OF OUR PREFERRED STOCK.

        We have never paid cash dividends on our common stock and we do not
expect to pay these dividends in the foreseeable future. Holders of our Series A
Preferred Stock are entitled to annual dividends of 8 1/2% (aggregating $425,000
annually, in cash or stock at our option, assuming no conversion). Holders of
our Series C Preferred Stock are entitled to dividends of 8% annually, so long
as we have net income in excess of $1,000,000 in the applicable fiscal year. We
pay these dividends, if any, quarterly, in cash or in shares of our common
stock. For the foreseeable future, we anticipate that we will retain all of our
cash resources and

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<PAGE>


earnings, if any, for the operation and expansion of our business, except to the
extent required to satisfy our obligations under the terms of the Series A
Preferred Stock and Series C Preferred Stock.

SALES OF ADDITIONAL SHARES OF OUR COMMON STOCK INTO THE PUBLIC MARKET MAY CAUSE
OUR STOCK PRICE TO FALL.

        If our stockholders or we sell substantial amounts of our common stock
(including shares issued upon the exercise of outstanding options and warrants
or upon the conversion of shares of our convertible preferred stock) in the
public market, the market price of our common stock could fall. As of July 31,
2001, we had outstanding 34,250,094 shares of our common stock. The unregistered
shares of common stock and the shares of common stock held by our officers and
directors are "restricted" securities, as that term is defined by Rule 144 under
the Securities Act. In the future, these restricted securities may be sold only
in compliance with Rule 144 or if they are registered under the Securities Act
or under an exemption. Generally, under Rule 144, each person who holds
restricted securities for a period of one year may, every three months, sell in
ordinary brokerage transactions an amount of shares which does not exceed the
greater of 1% of our then-outstanding shares of common stock, or the average
weekly volume of trading of our common stock as reported during the preceding
four calendar weeks. A person who has not been an affiliate of ours for at least
the three months immediately preceding the sale and who has beneficially owned
shares of common stock for at least two years can sell such shares under Rule
144 without regard to any of the limitations described above. Sales of
substantial amounts of common stock in the public market, or the perception that
such sales could occur, may adversely affect the prevailing market price for our
common stock and could impair our ability to raise capital through a public
offering of equity securities.

        In addition, as of July 31, 2001, holders of options and warrants may
acquire approximately 9,112,802 shares of common stock and holders of shares of
our Series A Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, and Series F Preferred Stock may acquire shares of common stock at
various conversion rates. This figure consists of 4,531,350 options held by our
employees at exercise prices ranging from $0.38 to $3.03. This figure also
represents 1,000,000 warrants exercisable at $5.25 (the warrant holder must
tender three warrants and $5.25 for one share of our common stock), which expire
in September 2001, and 3,498,000 warrants held by one investor exercisable at
$1, which expire in March 2005.

WE MAY BE EXPOSED TO CONTINGENT LIABILITY ARISING FROM OUR FAILURE TO MAINTAIN
AN EFFECTIVE REGISTRATION STATEMENT COVERING OUR REDEEMABLE WARRANTS AND
UNDERLYING COMMON STOCK.

        We initially registered the issuance of the redeemable warrants and the
offer to purchase the shares of common stock issuable upon exercise of the
redeemable warrants with the SEC though the filing of a registration statement
in 1996. We did not update the registration statement with current information
until August 30, 2000. A warrant holder may claim that our failure to maintain
an effective registration statement covering the exercise of


                                    Page 28
<PAGE>


the redeemable warrants for the period of time that the price of our common
stock exceeded the cost associated with the exercise of the warrants constituted
a breach of their Warrant Agreement. If all warrant holders made this assertion,
which we believe has no legal basis based on federal case law, the amount of
damages they could allege, may aggregate up to $9.5 million, which represents
the difference between the highest closing trading price of the common stock
($11.06) which occurred on March 27, 2000, and the cash exercise price ($5.25),
multiplied by the number of outstanding warrants divided by three - as three
warrants need to be tendered in addition to the cash exercise price in order to
receive one share of common stock. However, a warrant holder who was unable to
realize $5.81 by tendering three warrants and $5.25 in cash to the Company,
could have on March 27, 2000, sold those three warrants and realized $6.27,
thereby eliminating any lost opportunity, since the warrants publicly traded on
the Nasdaq Small Capital Market.

        Accordingly, we also believe that this opportunity to mitigate any
damages incurred by a warrant holder resulting from an inability to exercise his
or her warrants further diminishes the likelihood of a successful claim for any
damages by a warrant holder.

        We do not believe that the warrant holders, or any warrant holder, would
be successful in this claim in light of the fact that no warrant holder complied
with the contractual obligations to exercise their redeemable warrants and no
warrant holder ever indicated to us or our transfer agent a desire to exercise
his or her warrants.

        Our failure to maintain an effective registration statement covering the
exercise of the warrants also may constitute a violation of Section 5 of the
Securities Act of 1933. A violation of Section 5 of the Securities Act may give
a warrant holder who exercised warrants the right for some period of time up to
one year, to demand rescission of that exercise in which event the warrant
holder would be required to return to us the shares of common stock acquired
upon exercise and we would return to the warrant holder the warrants tendered
and the cash exercise price previously paid. Rescission would result in no
proceeds to us from the warrant offering and no damages to us except for minimal
transactional costs associated with the rescission.

        As of the date of this statement, we are not aware of any claims for
damage or rescission.


                           PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        In the normal course of our business, we are subject to various claims
and legal actions. We believe that we will not be materially adversely affected
by the ultimate outcome of any of these matters either individually or in the
aggregate. At this time, the Company is not engaged in any legal proceeding with
the exception of the following:


                                    Page 29
<PAGE>


        On November 13, 2000, NetCurrents, Inc. and NetCurrents Services Corp.
(collectively "NetCurrents") initiated a lawsuit entitled NETCURRENTS, INC., ET
AL. V. HOLTORF ET AL., Los Angeles Superior Court, Case No. BC 240089 (the
"Lawsuit"). A First Amended Complaint was filed on December 18, 2000, alleging
claims against Victor Holtorf ("Holtorf") for defamation, unfair competition and
conversion. In addition, NetCurrents also filed a Demand for Arbitration against
Holtorf with the American Arbitration Association on December 18, 2000,
Reference No. 72 160 01297 00 RSR (the "Arbitration"), alleging claims for
breach of contract, breach of fiduciary duty and breach of the implied covenant
of good faith and fair dealing. The claims alleged against Holtorf by
NetCurrents in both the Lawsuit and the Arbitration arose out of alleged
wrongful conduct by Holtorf following the termination of his employment with
NetCurrents in late August 2000, including the public dissemination of
defamatory and disparaging statements about NetCurrents.

        Holtorf did not respond to the First Amended Complaint in the Lawsuit
but had responded to the Demand for Arbitration with a general denial. In
addition, Holtorf filed counter-claims against NetCurrents for the following:
breach of contract, breach of covenant of good faith and fair dealing, fraud in
the inducement and negligent misrepresentation relating to his previous
Employment Agreement with NetCurrents; breach of contract, breach of covenant of
good faith and fair dealing, fraud in the inducement and negligent
misrepresentation relating to the Consulting Agreement he entered into with
NetCurrents as part of his termination of employment in August 2000; defamation;
false light; and constructive termination of his previous employment with
NetCurrents. NetCurrents did not respond to Holtorf's Counter-Claims in the
Arbitration.

        On May 31, 2001, we entered into a settlement agreement with Holtorf
whereby we agree to pay $254,000 without interest as follows: (i) $25,000 on or
before July 1, 2001 (ii) $15,000, on or before the first day of each month
commencing on August 1, 2001, and continuing until such time as the total sum is
paid in full. As of the date of this filing, the payments set out above have not
been made.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

           Not applicable.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

           None.

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

           None.

ITEM 5.    OTHER INFORMATION

           None.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

        (a)    Exhibits.

               None


                                    Page 30
<PAGE>

        (b)    Reports on Form 8-K

               Current Report on Form 8-K filed March 7, 2001, Items 5 and 7.


                                    Page 31
<PAGE>
                                   SIGNATURES


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


                                               NetCurrents, Inc.
                                               (Registrant)


Dated:  August 14, 2001                        /S/ IRWIN MEYER
                                               -----------------------------
                                               Irwin Meyer
                                               Chief Executive Officer


Dated:  August 14, 2001                        /S/ MICHAEL ISCOVE
                                               -----------------------------
                                               Michael Iscove
                                               Chief Financial Officer


                                    Page 32