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

                                  FORM 10-KSB/A
                                AMENDMENT NO. 3

(Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2001.
                                       OR
[ ]     TRANSITION  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
        EXCHANGE  ACT  OF  1934
        FOR THE TRANSITION PERIOD FROM            TO
                                       ----------    -----------

                        Commission file number: 000-30326

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

            DELAWARE                                    77-0557617
(State or other jurisdiction                         (I.R.S. Employer
of incorporation or organization)                   Identification No.)

     5740 RALSTON STREET, SUITE 110
         VENTURA, CALIFORNIA                             93003
(Address of principal executive offices)               (Zip Code)

       Registrant's telephone number, including area code: (805) 677-6720

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
                                      NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
                    COMMON STOCK, PAR VALUE $0.01 PER SHARE

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

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-B  is  not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated  by  reference  in Part III of this Form 10-KSB or any amendment to
this  Form  10-KSB.   [X]

<TABLE>
<CAPTION>
<S>                                                                                           <C>
State issuer's revenues for the fiscal year ended January 31, 2001 . . . . . . . . . . . . .  $    35,000

Aggregate market value of the Registrant's Common Stock
(based on the price at which such equity was sold on April 30, 2001)
held by non-affiliates of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . .    5,066,517

Number of shares of common stock outstanding as of April 30, 2001. . . . . . . . . . . . . .   18,685,814
Number of shares of Series 1-A Convertible Preferred Stock outstanding as of April 30, 2001.    1,804,105
Number of shares of Series 2-A Convertible Preferred Stock outstanding as of April 30, 2001.    1,350,176
</TABLE>

                      Documents Incorporated By Reference

The information required by Part III of this report, to the extent not set forth
herein,  is  incorporated herein by reference from the issuer's definitive proxy
statement  relating  to  the  annual meeting of stockholders to be held in 2001,
which  definitive proxy statement will be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year to which this Report
relates.


<PAGE>

<TABLE>
<CAPTION>
                                            TABLE OF CONTENTS
                                            -----------------
                                                                                                  Page
                                                                                                  ----
                                                PART I
<S>                                                                                               <C>
Item 1.   DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2
Item 2.   DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    19
Item 3    LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     20
Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . .    20

                                               PART II
Item 5.   MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . .    20
Item 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . .    26
Item 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . . . . . . . . . . .    29
            REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . .    29
            CONSOLIDATED BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    30
            CONSOLIDATED STATEMENTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . .    32
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . .    33
            CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . . . . . . . . . . .    34
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .    35
Item 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE      48

                                              PART III
Item 9    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . .    49
Item 10.  EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .    51
Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . . . . . . . . .. .    53
Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . . . . .     56
Item 13.  EXHIBITS, REPORTS ON FORM 8-K, AND FINANCIAL STATEMENT SCHEDULES. . . . . . . . . . .     58
            EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    58
            REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    59
            SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    60
</TABLE>


<PAGE>
                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS

OVERVIEW

Vsource,  Inc.  (the  "Company"),  through  its  subsidiary  Online  Transaction
Technologies,  Inc.  ("OTT"),  is  an  Application Service Provider ("ASP") that
develops  and  hosts transaction solutions for public (many to many) and private
(one  to  many) exchanges. Among the solutions is LiquidMarketplace(TM), a suite
of  integrated  digital marketplace or transaction solutions, including auctions
and  fixed-price  catalogs.  These solutions are identified as LiquidAuction(TM)
and  LiquidCatalog(TM). This suite allows public exchange clients to handle both
seller  and buyer-initiated transactions in their e-Marketplaces.  The Company's
private  exchange  solution, LiquidStore(TM), offers private catalog and auction
functionality  to LiquidMarketplace(TM) participants or stand-alone clients.  In
addition  to offering a suite, the Company has developed a proprietary framework
that  reduces  customization  and  deployment  time  and simplifies integration.

Through  the  fiscal  year  ended  January  31,  2001,  the  Company was engaged
principally  in  the  development and sale of its Virtual Source Network ("VSN")
e-Procurement  software, also delivered as an ASP.  In March 2001, subsequent to
year-end,  the  Company announced that it was ceasing further development of VSN
and  withdrawing  it  from the market.  The Company also announced that it would
proceed  with  the  development  and sale of LiquidMarketplace(TM) and other OTT
products  added  with  the acquisition of Online Transaction Technologies, Inc.,
which  was  effective  January  22,  2001.

The  Company's  objective  is  to  create  the  leading  pure Internet-based ASP
electronic  commerce  network platform for the business-to-business customer and
supplier.  The  Company  intends  to  create  a  leading virtual marketplace for
business-to-business  goods  and  services,  and  feels  that the ASP technology
provides  customers an advantage not presently offered by competitive electronic
marketplace  providers.

PRODUCT  OFFERINGS

Business-to-Consumer

     -    LiquidAuction

The Company  launched  LiquidAuction,  its first dynamic pricing engine, in mid
2000, for businesses that seek to conduct live auctions over the Internet. This
market solution  provides  an outsourced application that allows companies to
set up an online  auction  in  minutes  and  be  in  business the same day under
their own storefront  and  brand  identity.  By bringing together buyers and
sellers, this product  helps  businesses  create new sales channels, manage
inventory, attract new  customers,  introduce  new  products,  and  strengthen
relationships  with existing  partners  and  customers.

LiquidAuction  provides  many  competitive  advantages to other solutions on the
market.  These  include  cost,  ease  of  use,  quick deployment, and the use of
advanced  technologies.  Online  auction  deployment is inherently expensive and
beyond  the  reach  of  most  companies.  In  many  cases,  merchants  find  it
uneconomical  and  inefficient  to  develop  these  complex  solutions in-house.
LiquidAuction  is  a completely outsourced solution that allows merchants to get
up and running quickly with limited up-front investment in hardware, software or
network  infrastructure.

     -    Superior  Economics

Through  data center scale economies and browser-based application architecture,
the  solution  reduces  the  total  cost  of  ownership  and  lowers  up-front
expenditures  for clients.  Additionally, the Company reduces up-front capital
costs by  supplying  the  necessary  services  and  infrastructure  required  to
run enterprise-class  applications  that  are  quickly  and  easily  deployable.


                                        2
<PAGE>
     -    Simplified  IT  Management

The Company's  applications  reduce  the  need  to  build  and  maintain
complex technological  competencies.  This  allows  merchants  to  get their
site up and running  quickly, using advanced technology.  The Company buys and
configures the hardware,  manages  the  application  and  server  architecture,
maintains  and upgrades  the  software  and  provides customer support for
back-end operations. The Company  manages  the  day-to-day  infrastructure
responsibilities,  allowing merchants  to  focus  on  their  core  business
objectives.

     -    Vsource--  -  One  Stop

LiquidAuction  is 100% web-based, allowing merchants to set  up  their  own
auction  utilizing  their  own  brand identity.  Using LiquidAuction,  online
merchants can run auctions at reduced cost and  with  professional  levels  of
service.


Business-to-Business

     -    Digital  Marketplace  Technology

The Company is currently developing solutions for creating digital marketplaces.
Among the solutions is LiquidMarketplace(TM), a suite of integrated digital
marketplace or transaction solutions, including auctions and fixed-price
catalogs. These solutions are identified as LiquidAuction(TM) and
LiquidCatalog(TM). This suite allows public exchange clients to handle both
seller and buyer-initiated transactions in the eMarketplaces. Unlike
single-sided solutions, these are specifically designed to enable
multi-buyer/multi-seller interaction and collaboration. They provide a common
trading hub, where buyers and sellers can come together to conduct auctions,
reverse auctions, and fixed-price transactions, without compromising individual
processes and relationships among the participants. Although the specific
business model and associated benefits differ across marketplace models, a
general set of core benefits can be recognized. The Company's private exchange
solution, LiquidStore(TM), offers private catalog and auction functionality to
LiquidMarketplace(TM) participants or stand-alone clients. Following are some of
the key benefits for each of the digital marketplace participants:

          -    Advanced  technology  and  expertise
          -    Lower  costs  or  risks
          -    New  marketing  and  distribution channels to customers
          -    Better  customer  service  through  online  interaction
          -    No  on-going  software  upgrades  and  maintenance  costs
          -    Outsourced  expertise

     -    New  Digital  Marketplace  Models

The Company  is  developing a set of core competencies, particularly in the
areas of exchanges.  The  technologies include seller-oriented tools such as
auctions and fixed  price  catalogs  as  well  as  buyer  enablement  tools.

The Company  provides technology to companies that possess expertise in a
particular industry  or  for  companies  seeking  to  exploit  critical
inefficiencies  in distribution  or  sales. These companies use the marketplace
as a strategy to bring buyers and  sellers  together.  Depending  on  the
industry  or  market, companies can automate  existing distribution channels or
divert business from  those channels by creating new exchanges.

Vertical  marketplaces  support industry-specific supply chains by providing new
distribution  channels  for  raw  materials,  secondary inventory, and supplies.
Transactions  are  streamlined,  information  flows  freely, inventory and sales
costs  are  reduced,  and  the  marketplace  host  generates  revenue.  Major
distributors,  resellers  or  new  market  makers  typically host these vertical
marketplaces.



                                        3
<PAGE>
INDUSTRY BACKGROUND

     GROWTH OF THE INTERNET AND E-COMMERCE

The Internet has emerged as the fastest growing communication medium in history.
The  Internet  is  dramatically  changing  how  businesses  and  individuals
communicate,  share  information  and  conduct  business,  such  as
business-to-consumer  and  person-to-person  electronic commerce.  Recently, the
widespread  adoption  of  intranets  and  the  acceptance  of  the Internet as a
business  communications  medium  have  created  a  foundation  for
business-to-business  electronic  commerce  that  will  enable  organizations to
streamline  complex  processes,  lower  costs  and  improve  productivity.

     INEFFICIENCIES IN TRADITIONAL BUSINESS PROCUREMENT

Historically,  most  organizations  have  sold  and purchased goods and services
through  paper-based  or  semi-automated processes.  These processes are costly,
time  consuming, complex and often include the re-keying of information, lengthy
approval  cycles  and  significant  attention  of  financial  and administrative
personnel.  Furthermore,  corporate  purchasing  has  historically  been  highly
fragmented  and decentralized, thus making it difficult for businesses to manage
employee  purchases,  control  spending  and prevent duplicative or unauthorized
ordering.  The  cost  of each corporate purchasing transaction often exceeds the
cost  of  the items being purchased.  Facing increasing competitive pressures to
lower  costs  and  improve productivity, businesses are seeking to replace these
traditional  paper-based  transactions  with  centralized eProcurement solutions
that provide cost-effective and efficient networks for the purchase of goods and
services.

     TRADITIONAL ELECTRONIC PROCUREMENT SOLUTIONS

The  Internet is changing the world.  It is launching a technological revolution
that  is resulting in explosive rates of growth.  It is changing how individuals
and  businesses  gather  information.  It  is  changing  how  consumers shop and
merchants  communicate with their customers and vendors.  It is making a reality
of  the  theoretical  economic  model of perfect competition in which buyers and
sellers  have  perfect  information  about each other and the markets.  Although
initially  acknowledged  for  its efficiency and cost savings opportunities, the
Internet  has  created  the  need  for  new  dynamic  pricing  models  that  are
confounding  established  corporations.

The  Internet  enables  market  information  to be disseminated more quickly, in
greater  quantity,  and  to  a  wider  audience  than  has  been  possible  with
traditional forms of media.  In addition, the interactive nature of the Internet
and its ability to transmit information on a real-time basis has caused users to
become  more  comfortable  with  continuous  market  refinement  of  pricing.
Currently  a number of companies provide traditional eProcurement solutions that
attempt  to  reduce  the  inefficiencies  of  corporate  purchasing  through the
implementation  of  information  technology.  However,  while these solutions do
facilitate  eProcurement  transactions,  the Company believes that each of these
solutions has limitations that will prevent widespread adoption of the platforms
by  business  consumers  and  suppliers.

     -    Businesses  have  historically  looked  to electronic data interchange
          ("EDI")  systems  to address procurement cycle inefficiencies. EDI has
          gained  wide  acceptance  in  automating  the  sale and procurement of
          goods, principally in environments characterized by high dollar-volume
          transactions with a limited number of suppliers. EDI systems involve a
          uniform  set  of  formats for commercial documents used in procurement
          that are exchanged across private networks without human intervention.
          Because  the  EDI model relies on the uniformity of documentation, and
          therefore  transactions,  it  is  not  well  suited  to  address  the
          requirements  of  a  dynamic procurement environment involving a large
          community  of  buyers  and  sellers  of  a  wide  variety of goods and
          services.  Furthermore,  the  EDI  model  does  not  provide real-time
          interaction  between the buyer and seller, thus leaving the buyer with
          supplier information that may not be up to date. Lastly, the EDI model
          involves  a  high-cost  of installation and maintenance in addition to
          significant transaction fees making it an unsuitable solution for most
          businesses.


                                        4
<PAGE>
     -    Many  vendors have developed purchasing software systems to coordinate
          the  purchasing  of  goods  and  services  across  large  enterprises.
          However,  these  systems  tend  to be cost-prohibitive due to up-front
          licensing  fees  that  can  exceed  $1  million  and maintenance fees.
          Furthermore,  these  systems tend to be very complex, thus requiring a
          lengthy and expensive implementation process.

Neither  of  these  current  solutions  provides  the  full  spectrum  of online
functions,  such  as  placing simultaneous bid requests with multiple suppliers,
that  is  needed to create an open electronic marketplace for the procurement of
goods  and  services. Furthermore, both solutions are too costly for all but the
largest businesses. The Internet, on the other hand, provides the cost-effective
medium  through  which  an  open  and  interoperable  trading  community  can be
established  and  grown.  With  the  widespread  adoption  of  the Internet as a
business  communication platform, a significant market opportunity exists for an
Internet-based  business-to-business  electronic  commerce  solution.

                          EMERGENCE OF DYNAMIC PRICING

Certain  characteristics  of  traditional  commerce,  such  as  multi-tiered
distribution,  costly  product  delivery  requirements,  and  limited ability to
collect  and process real-time pricing information, have led to fixed-pricing as
the  dominant  transactional format. The Internet has streamlined the process of
production  and  distribution of goods and has made large amounts of information
accessible  in  real  time.  These  factors  have  reduced the need to adhere to
fixed-pricing  of  goods  and  services.

AUCTIONS

Auctions  are among the oldest forms of dynamic pricing.  Prior to the Internet,
auctions  faced  critical shortcomings, including location and time constraints,
which  limited  the  degree  to  which  buyers and sellers could interact.  When
information  is  more  difficult to obtain, pricing is a less efficient process.
Even  in  cases where intermediaries, such as auction houses, become involved to
mitigate  some  of  these problems, their fees often reduce the practicality and
attractiveness  of  an  auction  marketplace.

The  Internet  alleviates  many of these problems.  It has no geographic or time
boundaries  and  allows  large  quantities  of  information  to  be  transmitted
instantaneously.  Accordingly,  online  auctions can offer more products to more
people  over  a  wider geographic area, providing a better pricing mechanism for
both  buyers  and  sellers.  The online auction fuels even the savviest consumer
with  a  competitive  spirit. Unlike other forms of electronic commerce, such as
online  catalog  sales, auctions create immediacy, urgency, and a willingness to
win.

The current online auction environment has, up to this point, catered to the end
user.  The potential market size for businesses with their own product and brand
identity  is  basically  unlimited,  according  to  Forrester  Research.

BENEFITS  OF  ONLINE  AUCTIONS

The benefits of online auctions are many. A few are summarized below:

-    Sellers  benefit by liquidating surplus or testing new delivery systems and
     price  points  for  first  run  products. The features of the LiquidAuction
     solution  allow  companies to sell excess or obsolete inventories when they
     want  to.  This  creates  an  immediate  impact  on  profitability.
-    Online  auctions  present  the  opportunity to refine business models since
     they  are  able  to aggregate geographically dispersed buyers interested in
     particular  products  and  let  targeted  demand  set  the  value  of these
     products.
-    Buyers  gain  access to a wider range of goods at highly competitive prices
-    with  lower  information  and  transaction  costs.
-    The  efficiency  of a real-time inventory auction can increase the velocity
     of  goods, allowing products to move through sales channels faster, thereby
     reducing  inventory carrying costs, write-downs, and write-offs. The market
     for  this type of auction is enormous. The excess inventory and idle assets
     market  represents  a  $362 billion market and will grow to $380 billion by
     2002.  Over $50 billion of excess inventories are traded annually in the US
     alone,  according  to  US  Department  of  Commerce  and  World  Bank.
-    Auctions  represent  a  new  source  of  revenue.
-    Internet auctions move goods quickly and at a lower cost than direct sales,
     catalogs  or  off-line auctions. Self-service, web-based, online facilities
     reduce  much  of  the  labor  costs  associated with other sales processes.
-    Auctions can be used as a stand-alone promotional tool to drive traffic and
     solicit  demographic  information  from  consumers.


                                        5
<PAGE>
                        BRANDED STOREFRONTS VS. PORTALS

A  key  feature of the LiquidStore(TM) is that the tools allow vendors to create
branded  storefronts.  Corporate  sites can provide a better customer experience
and can be perceived to be more legitimate. Additionally, corporate sites can be
perceived  to be better structured and ordered, allowing buyers to find products
more  easily.

The  Company  anticipates  that  a  growing number of online merchants will seek
auction  solutions  that  enable  them  to  create  and maintain their own brand
images,  control  their  customers' experience and collect bidder activity data.
Merchants  are  also  likely  to  be  attracted  to solutions that are simple to
implement,  become  quickly operational and facilitate targeted interaction with
visitors  to  their  sites.

                              DIGITAL MARKETPLACES

One  of  the  primary engines driving the acceleration of Internet growth in the
future  will  be  the  concept  of  the digital marketplace. Bringing together a
widely  diverse  group  of  buyers  and sellers, digital marketplaces will erase
geographic  boundaries,  bypass  today's conventional distribution channels, and
realign  buyer-seller  relationships,  many  of  which  have  been  in place for
decades.

Corporate  America  is  rapidly  recognizing  the opportunities inherent in this
shift. Throughout the 1990's, companies have primarily focused on re-engineering
internal  business  processes,  using  client/server  computing technologies and
integrated  ERP systems to streamline back-office operations.  Today's challenge
is  to  understand  the  competitive changes that will occur within the Internet
economy,  to  anticipate the various new business models that will be developed,
and  to  adopt  the  right technology to support the rapidly changing landscape.
Perhaps most importantly, businesses must understand how buyers and sellers will
come  together  in  new  ways  via  digital  marketplaces  and  exchanges.

Examples  of  possible  Digital  Marketplaces:

     -    A  large  distributor  who  seeks  to automate processes among several
          buyers,  suppliers  or  manufacturers.
     -    A  franchise or trade association that wants to aggregate its members'
          orders  from  approved  suppliers  by  providing  online  procurement
          services.
     -    A  new  market  maker  that is trying to replace existing distribution
          channels  by  offering  online  information and services to a specific
          industry.
     -    A  third-party  service  provider  who  wants  to  create  a  common
          marketplace by providing hosted procurement services to a specific set
          of  suppliers  and  their  customers.

The  formation  of new digital marketplaces and exchanges will change the way we
think  about  business-to-business  commerce  and  will play a major role in the
growth  of  the  Internet  economy.
Equally  important,  the creation of digital marketplaces enables innovative new
methods  of  dynamic exchange.  Digital marketplaces create entirely new methods
of  commerce,  such  as  online  sourcing, auctions, and negotiations. They also
enable  trading  communities  to  share  common  information  and knowledge more
easily.

According  to  AMR  Research, there are 600 to 800 public online marketplaces in
existence  today.  These  marketplaces  offer  big  advantages  over  extranets.
Companies  are  able  to  connect  to  many  buyers  without  having  to  create
point-to-point  connections  to  each,  allowing them to reach new customers and
leverage  information  from  competitors  to  increase  sales.




                                        6
<PAGE>
STRATEGIC  RELATIONSHIPS

The Company and International Business Machines Corporation ("IBM") entered into
an  Alliance Agreement in September 2000 wherein Vsource agreed to recommend IBM
as  a  preferred  Information  Technology  and  Systems  Integration provided to
certain  of  its  clients,  and  IBM  agreed  to  assist  Vsource in closing new
business, and both parties agreed to establish a marketing agreement to focus on
a  combined  offering  of  the  products  and  services  of both companies.  The
marketing agreement has not yet been implemented.  The Company was also a paying
client  of  IBM  for  services related to implementation of VSN client contracts
until  the  Company  withdrew  its  VSN  product  in  March  2001. The Company's
subsidiary,  OTT,  has  a  PartnerWorld  partnership  agreement  with  IBM.

The  Company,  during  the  year  ended  January  31,  2001,  through  its since
discontinued  VSN  product,  has  also  been  a  party to alliance agreements or
informal understandings with NeTune Corporation, Internet Commerce Corp ("ICC"),
U.S.  West, Inc, Vitria Technology, Inc., ZoomOn, Inc., Corporate Express, Inc.,
and PriceWaterhouseCoopers.  The U.S. West, Inc. agreement was terminated by its
successor, Qwest, Inc., in November 2000.  The Vitria Technology, Inc. agreement
was  terminated  by the Company in 2000 and is contested in litigation described
under  Item  3.  LEGAL  PROCEEDINGS.  All  other  agreements are dormant or have
expired.

SALES  AND  MARKETING

The  Company  sells  its  services through two primary channels. First, a direct
sales  force,  consisting  of  three  sales professionals, two based in Southern
California  and  one  in  the  Silicon Valley area of Northern California. These
sales  professionals  focus  on  selling  LiquidMarketplace(TM)  to  mid-sized
enterprise  organizations,  typically companies with annual sales of $50 million
to  $1  billion  per  year.  The  Company has also developed an indirect channel
through  its alliance relationship to leverage and accelerate market adoption of
LiquidMarketplace(TM).

REVENUE  MODEL

Revenue is derived from LiquidMarketplace(TM) products through a client contract
that  provides  for  an  initial  "set-up"  fee  and an ongoing license fee. The
"set-up" fee is based on specific client requirements, generally in the $100,000
to  $200,000  range. The license fee and accompanying service level agreement is
based  on  a  fixed  monthly  charge,  with  additional  charges  for  a  pilot
implementation  and  for  client-specific  modifications  to  the
LiquidMarketplace(TM) products. These are anticipated to be billed, as required,
on  a  time  and  materials  basis.

CUSTOMER  SERVICE,  TRAINING  AND  SUPPORT

The  Company  uses  IBM  as  its  preferred  provider  of consulting and systems
integration  services  for  its  clients  for  most  ERP  and  legacy  systems
integration.  The  Company  has  also  contracted IBM Global Services to provide
full  training  services  for  up  front system planning, user training, ongoing
training  design  and  help  desk  services.

RESEARCH  AND  DEVELOPMENT

In  fiscal year 2001, the company spent $11,654,679 on research and development,
including  $5,432,372  of  stock  based  compensation.  In fiscal year 2000, the
Company spent $3,458,933. (These amounts do not include research and development
spending  of  Online  Transaction  Technologies,  Inc.,  acquired on January 22,
2001.)  The  significant  increase  is  due  to  the  increasing  development
requirements of the VSN product, which was withdrawn subsequent to year end. The
Company  is  presently  performing  applied  research  and development, based on
LiquidMarketplace(TM)  and  other  OTT  products.

COMPETITION

The  market  for  Company  software  products  is very competitive and likely to
become more so, and is subject to rapid technological change. (See "RISK FACTORS
-  COMPETITIVE "BUSINESS-TO-BUSINESS" INTERNET COMMERCE MARKET; EFFECT ON MARKET
SHARE  AND  BUSINESS)."  Although management believes that LiquidMarketplace(TM)
compares  favorably  with  respect to most competitive offerings (several having
greater  financial  capability  than the Company), and favorably with respect to
overall  cost, the Company's products do not yet have a large referral base, nor
large numbers of buyers or vendors using the network.  As a result, it is yet to
be  seen  whether  LiquidMarketplace(TM)  or  other Company products can compete
successfully.


                                        7
<PAGE>

In  1999  management  identified  Ariba (Nasdaq: ARBA) and Commerce One (Nasdaq:
CMRC)  as  the  principal  competitors  to  the  VSN  product, both of which had
significantly  larger  capital resources and were further into their development
than  the  Company.  VSN  was marketed by trade journal advertisements and trade
shows  and  sold  primarily  by  Company  executives  and sales representatives.

In  the  fall  of  2000  the  Company's marketing strategy was revised to target
mid-sized  businesses  (large public and private businesses smaller than Fortune
500  companies) with its competitor list expanded to include specialists such as
PurchasePro  (Nasdaq:PPRO)  and  a  broad  list  of  major  software  suppliers.

GOVERNMENT  APPROVALS

While  there  are no governmental approvals required specifically related to the
licensing  or  use  of  Company software, and no direct governmental regulation,
that  could  change.  In  those  circumstances,  competitors  with  larger
administrative  staffs and more financial resources will be in a better position
to  comply  with  this  regulation and obtain any necessary approvals.  However,
management  is  not  aware  of any pending or anticipated government regulations
that  will  negatively  impact  the  Company  in  a  material  way.

DEPENDENCE  UPON  SUPPLIERS

The  Company  is  not  dependent  on  suppliers of raw materials, although it is
dependent  on the Internet, including the ability to communicate with its remote
servers.  The  Company's  clients  are  also  dependent on the Internet for this
communication, without which clients would be unable to use any of the Internet-
based  services  provided by the Company. Should the Company and its clients not
be  able to access the Internet for an extended period of time, it could have an
adverse  material  effect  on  the  Company's  operations.

TRADEMARKS

The  Company  holds trademarks LiquidMarketplace(TM), LiquidAuction(TM), VIRTUAL
SOURCE(TM)  and  VSOURCE(TM).  It  also  has  applied  for  the  service  mark
"DELIVERING  ON  THE  PROMISE  OF  THE  INTERNET".

Neither  Vsource  nor  OTT have patents or patent applications pending.  Company
technology  is  protected  by the security of the Company-maintained Web site in
which  Company  software code resides, by confidentiality agreements it has with
its development personnel, and by the separation of development responsibilities
and  access  authorities.

EMPLOYEES

As  of May 11, 2001, the Company employed 14 full-time employees and 2 part-time
contract employees, consisting of 3 executives, 4 accounting and administrative,
4  marketing  and  sales,  and  6 research, development, operations and customer
relationship  management personnel. The Company believes that its future success
will  depend  in  part  on  its  ability to attract, hire and maintain qualified
personnel.  There  can  be  no assurance that the Company will be able to do so.
Competition  for  such personnel in the online industry is intense.  None of the
Company's  employees are represented by a labor union, and the Company has never
experienced  a  work  stoppage.  The  Company believes its relationship with its
employees  to  be  good.

The  following  table  sets forth the names, ages, and positions of the officers
and  directors  of  the  Company  as  of  May  11,  2001.


                                        8
<PAGE>
<TABLE>
<CAPTION>
NAME                 AGE  POSITION
<S>                  <C>  <C>
Sandford T. Waddell   60  Chief Financial Officer, Treasurer, and Secretary
Michael Shirman       38  Chief Technology Officer
Colin Kruger          39  Vice President, Business Development
I. Steven Edelson     41  Acting Chairman of the Board
Scott T. Behan        39  Director, Member of the Audit Committee
Ramin Kamfar          37  Director, Member of the Audit Committee
Robert N. Schwartz    61  Director, Member of the Audit Committee
Nathaniel Kramer      39  Director
</TABLE>

SANDFORD  T.  WADDELL.   Mr. Waddell has served as the Company's Chief Financial
Officer  and  Secretary  since March 2000.  From October 1999 to March 2000, Mr.
Waddell  served  as  the  Chief  Financial  Officer  for Snyder Diamond, Inc., a
privately  owned  retail  company.  From March 1998 to October 1999, Mr. Waddell
served as Chief Financial Officer for Rampage Clothing Company, a privately held
clothing  manufacturer  which  was  in  bankruptcy,  and  for which he helped to
restore to profitability and effected a successful reorganization.  From October
1966  to March 1988, Mr. Waddell served initially as Chief Financial Officer and
later also as Interim Chief Executive Officer at Reddi Brake Supply Corporation,
a  wholesale  auto  parts distributor, where he directed a reorganization of the
company's operating subsidiary.  From February 1992 to October 1996, Mr. Waddell
served  as  Interim  Chief  Financial  Officer  or  Financial  Consultant  for
approximately  twelve  privately  held  companies.  Mr.  Waddell holds a B.S. in
Engineering from Michigan Technological University and an M.B.A. from University
of  Minnesota.

MICHAEL  SHIRMAN.     Mr. Shirman joined the Company in January 2001 as a result
of  the  merger  with  Online  Transaction  Technologies,  Inc.  ("OTT").  As  a
co-founder  of  OTT,  he  has  over  15  years  of experience in the Information
Technology industry.  Prior to the formation of OTT in 1999, Mr. Shirman was CEO
and  co-founder  of  CODA  Software,  a developer of custom e-Commerce software,
served  as  President  of  InterSoft Consulting, a firm specializing in vertical
business  applications,  and held senior development and managerial positions in
the  banking,  manufacturing,  publishing,  finance,  distribution,  and
telecommunications industries.  Mr. Shirman holds a Masters Degree in Electrical
Engineering  (Telecommunications)  from  the  Institute  of  Telecommunication
Technology  in  Leningrad  (St.  Petersburg)  and  a  Masters Degree in Computer
Science  from  the  Leningrad  (St.  Petersburg)  Polytechnic  Institute.

COLIN  KRUGER.     Mr.  Kruger joined the Company in January 2001 as a result of
the  merger with Online Transaction Technologies, Inc. ("OTT").  As a co-founder
of  OTT,  he  was responsible for business development, strategic relationships,
and  finance.  Prior  to  OTT,  Mr.  Kruger  was  President of ZAUCTION, America
Online's  first  auction and a top 100 web site he founded in 1995.  Previously,
Mr.  Kruger was Vice President for the Glasser Group, Inc. and served as general
manager  for  Recycled  Computer  Outlets,  Inc.,  a Glasser Group subsidiary he
founded.  Earlier,  Mr.  Kruger held management roles with Equitable Real Estate
Investment  Management,  Inc.  Mr.  Kruger holds a GSE in Economics from Christs
College,  London,  and  a  BS  in  Business  Administration from San Diego State
University.

I.  STEVEN  EDELSON.     Mr.  Edelson  has  served  on the Company's board since
January 2001 and was elected Acting Chairman in March 2001. Mr. Edelson has been
Managing  Director  of  Mercantile  Companies, Inc., Northbrook, Illinois, since
1986.  He  is  also  a principal of Mercantile Capital Group, LLC, and he is the
Managing  Partner  of  Mercantile  Capital  Partners  I,  LP.

SCOTT T. BEHAN.  Mr. Behan has served on the Company's board since January 1998.
For  the  past  five  years,  Mr.  Behan has been employed as the Executive Vice
President  of  AML  Communications, Inc., a manufacturer of wireless amplifiers.
He  has  been  a  director  of  AML since February 1999. Mr. Behan has a B.S. in
Electrical  Engineering  from  Worcester  Polytechnic  Institute.

RAMIN  KAMFAR.  Mr.  Kamfar  has served on the Company's board since April 2000.
Mr.  Kamfar  is  a  Managing  Partner  at  New  World Venture Partners, Inc., an
investment  banking  boutique  focusing on technology and new economy companies.
Since 1993, Mr. Kamfar has also served in various capacities at New World Coffee
-  Manhattan  Bagel,  Inc., a company he founded. Most recently he has served as
Chairman and Chief Executive Officer. From 1988 to 1993 Mr. Kamfar worked in the
investment  banking department of Lehman Brothers, Inc., most recently as a Vice
President  in  private  placements.   Mr.  Kamfar has a B.S. in Finance from the
University  of  Maryland and an M.B.A. in Finance from The Wharton School at the
University  of  Pennsylvania.


                                        9
<PAGE>
ROBERT  N.  SCHWARTZ.  Mr.  Schwartz  has  served  on  the Company's board since
January 1998.  From 1981 to the present, Mr. Schwartz has been a Senior Research
Scientist  at  HRL  Laboratories,  LLC,  Malibu,  California.  From  1979 to the
present, Mr. Schwartz has been a visiting professor at U.C.L.A. He has a B.A. in
Mathematics,  Chemistry  and  Physics,  and an M.S. in Chemical Physics from the
University of Connecticut, and a PhD. in Chemical Physics from the University of
Colorado.

NATHANIEL  C.  A. KRAMER.     Mr. Kramer has served on the Company's Board since
January 2001.     Mr. Kramer is a principal of Mercantile Capital Group, LLC and
is  Managing  Director  of its New York office.  From 1999 to 2000 he was a vice
president  with Allen & Company, Inc., a private equity firm.  From 1994 to 1999
he  was  president  and  CEO  of  Greenhouse Film Group Limited and is currently
Chairman.  Mr.  Kramer produced the Emmy nominated documentary "Choices" and the
Tony  Award  winning  1998  revival  of Arthur Miller's "A View From the Bridge.

FACTORS THAT MAY AFFECT FUTURE PERFORMANCE



     RISK RELATED TO THE COMPANY'S BUSINESS

Need  For  Additional  Capital
------------------------------

The  Company  has  recorded  substantial operating losses and, as of January 31,
2001,  has  an  accumulated deficit of approximately $50.9 million.  The Company
received  funding  of  approximately  $10.7 million in August and September 2000
related to the issuance of preferred shares.  Although the Company believes that
these  funds  will  provide  operating capital for one year or more, the Company
anticipates  that  it  will require additional funding before it can finance its
operations  and  growth  wholly  on  internally  generated  funds.

Uncertainty  of  Realizing  New  Strategic  Relationships
---------------------------------------------------------

As  an alternative to total dependence of the LiquidMarketplace(TM) product line
and  potential  new  internally  developed products, the Company has announced a
search  for strategic relationships that could result in one or more new product
lines,  including businesses that are already producing significant revenues and
have  attained  or  are  approaching  a cash flow breakeven point.  However, the
Company's  prior  performance  and  current  financial market conditions present
obstacles for the development of such relationships.  There is no certainty that
such  a  relationship  or  relationships  can be realized within the foreseeable
future.

Anti-Takeover  Provisions
-------------------------

In  connection  with  the  Company's  reincorporation  in  Delaware, the Company
increased  the  number  of  shares  of  common  stock authorized for issuance to
100,000,000.  The  issuance  of additional shares of common stock could have the
effect  of delaying, deferring or preventing a change in control of the Company,
even  if  such  change  in  control  would  be  beneficial  to  the  Company's
stockholders.

The  terms  of  certain provisions of the Company's Certificate of Incorporation
and  Bylaws  may  have  the  effect  of  discouraging a change in control of the
Company.  Such  provisions  include  the requirement that all stockholder action
must  be  effected  at  a  duly  called annual meeting or special meeting of the
stockholders  and  the  requirement  that  stockholders  follow  an  advance
notification  procedure for stockholder business to be considered at any meeting
of  stockholders.

Limited  Operating  History
---------------------------

The  Company has had a limited operating history that makes an evaluation of the
Company's  future prospects very difficult.  There can be no assurances that the
Company's  products  will  meet  the  needs  of  potential customers or that the
products  will  operate  correctly.


                                       10
<PAGE>
Risks  of  Early  Stage  Company;  New, Rapidly Changing Market; Need to Attract
--------------------------------------------------------------------------------
Large  Corporations
-------------------

The  market  for  Internet  applications  and  services is at an early stage and
changing rapidly.  Internet procurement is a relatively new market.  Its rate of
growth  and  change  is  unpredictable,  as  is  the nature of this change.  The
Company  will  encounter  the  risks and difficulties often encountered by early
stage  companies  in  new  and  rapidly evolving markets.  The Company's initial
success  may  depend,  in  part,  upon attracting several large, technologically
advanced corporations to use the Company's products, and their favorable results
from  this  usage.  Subsequent  success  will depend on the Company's ability to
communicate  these  early  successes  to  the  marketplace,  thus  attracting
significant  numbers of other businesses and buying organizations.  No assurance
can  be  given  that  the  Company  will be successful in the marketplace, or if
successful,  that  it will attract significant numbers of clients.  There can be
no  assurance  that an adequate demand for, and usage of, the Company's products
will  develop.


Complex  Implementation  and  Integration  of  the Company's Products May Impede
--------------------------------------------------------------------------------
Market  Penetration
-------------------

The  installation  of  the  Company's  products,  including  integration  with a
client's  systems  currently  in  use,  can  be  a  complex,  time consuming and
expensive  process.  The  Company anticipates that some of its initial customers
will  be  mid-sized or larger organizations that will require that the Company's
products  undergo  substantial  customization  to meet their needs.  These firms
will also likely require that the Company's products be integrated with existing
internal  Enterprise  Resource  Planning  ("ERP") and other operational systems.
The Company's management estimates that the installation and integration process
may take anywhere from one month to six weeks or longer in some cases, depending
on  the size of the client, the complexity of its operations, the configurations
of its current computer systems, and other systems projects that compete for the
time  and  attention  of  the Information Technology departments of the clients.
Management  also expects that most integration projects in larger companies will
involve  various  integrators as outside systems consultants to the client.  The
Company's ability to continually enhance the features of the Company's products,
in  response  to  clients'  widely  differing  needs,  is yet to be proven.  The
Company's ability to develop a simplified version for smaller businesses that is
inexpensive  to implement is also unproven.  As a result, the Company's products
may  not  achieve  significant  market  penetration in the near future, or ever.

Large  Operating  Losses  Expected  to  Continue
------------------------------------------------

As  discussed  above, the Company has accumulated substantial net losses through
January  31,  2001.  Since inception, the Company has not had material revenues,
and  has  recognized only a small amount of revenue from the Internet version of
its  prior product, Virtual Source Network ("VSN") and very limited revenue from
the  LiquidMarketplace(TM)  product  acquired  in  January  2001.  Although  the
Company  has  significantly reduced ongoing expenses, there is no assurance that
the  Company  will achieve positive cash flow and operating profitability within
the  limits  of  its  available  capital.

Failure  to  Maintain  Listing  on  Major  Stock  Market
--------------------------------------------------------

Although  the Company's common stock began trading on the Nasdaq National Market
System on October 30, 2000, there is no assurance that the Company will continue
to  be  listed on the Nasdaq National Market System.  The Company's common stock
is  currently  trading  below $1.00 per share.  The Company received a notice of
noncompliance  with  the Nasdaq listing maintenance standards on April 24, 2001.
If  the  stock  continues  to trade below $1.00 per share consistently or if the
Company  is  unable  to  comply with any of the other Nasdaq listing maintenance
standards,  the  Company  may  be  the  subject  of delisting.  In addition, the
Company  received a second notice of noncompliance on May 3, 2001 asserting that
the  Company's  common  stock  has  failed to maintain a minimum market value of
public  float ("MVPF") of $5,000,000 over the last 30 trading days preceding the
notice.  In  both  instances  the  Company  has  a  90-day  period  to  cure the
non-compliance,  but  it  is  uncertain if the Company will be able to cure both
within  the allotted periods.  While the listing of the Company's stock does not
have  a  direct  effect  on  the  Company's  operations, it has an effect on the
perception  of  the  Company among potential investors and can have an effect on
the  ability  of  the Company to raise additional funds.  It can also impact the
dilution  associated  with  any  financing.


                                       11
<PAGE>
Dependence  on  Limited  Product  Line  for  Anticipated  Revenues
------------------------------------------------------------------

The  Company  expects  that when revenues do develop, substantially all of those
revenues will come from clients that buy or license its products.  Although fees
are  believed  by  management of the Company to be below those currently charged
for  leading  competitive systems and services, future reductions in competitive
prices  could  negatively  impact  the  demand  for,  or usage of, the Company's
products.  These  changes  may  impede  the  products'  ability to achieve broad
market  acceptance,  thus  negatively  impacting  the  Company's  opportunity to
eventually  become  profitable.  There can be no assurance that broad and timely
acceptance  of the Company's products, which is critical to the Company's future
success,  will  be achieved.  Failure to achieve anticipated revenues would have
adverse  consequences  for  the  Company.


Dependence  on  One  Product
----------------------------

At  the  present  time  all  of the Company's resources are being devoted to the
development  and  marketing  of  the  LiquidMarketplace(TM)  product line and to
finding  a strategic partner.  Unless it finds a partner, the Company expects to

depend  on LiquidMarketplace(TM) for substantially all of the Company's revenues
for  the  foreseeable  future.  Accordingly,  if  LiquidMarketplace(TM)  is  not
accepted by customers or potential customers, or does not generate the demand or
revenues  necessary  to  the  Company,  the Company may face significant adverse
financial  consequences.


Dependence  on  Sales  and  Marketing  Relationships  for  Growth
-----------------------------------------------------------------

The  Company's business model includes generating sales through its alliance and
affiliate  programs.  Consequently,  the  Company will depend, in part, on sales
and  marketing  strategic relationships for growth.  The Company has established
and  plans  to continue to establish sales and marketing strategic relationships
with large organizations as part of our growth strategy.  Such relationships may
not  contribute to increased use of the Company's services, help the Company add
new  clients, or increase the Company's revenue.  The Company may not be able to
enter into new relationships or renew existing relationships on favorable terms,
if  at  all.  In  addition, the Company may not be able to recover the costs and
the  expenses  associated  with  these  programs.


Third Party Implementation/Integration of Products; Negative Impact upon Revenue
--------------------------------------------------------------------------------
Goals  If  Third  Parties  Unavailable  or  Do  Not  Perform
------------------------------------------------------------

The  Company expects to rely, to a large degree, on a number of third parties to
propose  and  explain  its  products to prospective clients and to integrate its
products  with  clients'  existing systems, and to train users when its products
are  rolled  out for general usage.  The Company itself is planning to work with
clients  and  third  parties to implement the pilot projects.  If the Company is
unable  to  establish and maintain effective, long-term relationships with these
third  parties,  if  these  third  parties  are  unable  to  meet  the needs and
expectations  of  clients, the Company will likely have difficulty achieving its
revenue  goals.


Unsuccessful  Acquisitions Could Harm Our Operating Results, Business and Growth
--------------------------------------------------------------------------------

The Company may acquire businesses, products and technologies that complement or
augment  the  Company's  existing  businesses,  services  and technologies.  The
inability  to  integrate any newly acquired entities or technologies effectively
could  harm  the  Company's operating results, business and growth.  Integrating
any  newly  acquired  businesses  or  technologies  may  be  expensive  and time
consuming.  To  finance  any  acquisitions,  the  Company  may  need  to  raise
additional  funds  through  public  or  private  financings.  Any equity or debt


                                       12
<PAGE>
financings,  if  available at all, may be on terms that are not favorable to the
Company  and,  in  the  case of equity financings, may result in dilution to the
Company's  stockholders.  The  Company  may  not be able to operate any acquired
businesses  profitably  or  otherwise  implement the Company's business strategy
successfully.


Long  Sales  Cycle  for  Large  Corporate Accounts Could Cause Delays in Revenue
--------------------------------------------------------------------------------
Growth
------

The  Company's sales cycles for large corporate accounts may take many months to
complete  and  may vary from contract to contract.  Further, the Company expects
that  a  large number of the Company's clients may be introduced to its products
through  such large accounts.  Lengthy sales cycles for large corporate accounts
could  cause delays in revenue growth, and result in significant fluctuations in
the  Company's  quarterly  operating results.  The length of the sales cycle may
vary  depending on a number of factors over which the Company may have little or
no  control,  including  the  internal  decision making process of the potential
customer and the level of competition that the Company encounters in its selling
activities.  Additionally,  since the market for business-to-business e-commerce
is  relatively  new,  the  Company  believes  that  it will have to educate many
potential  customers  about  the  use and benefits of the Company's products and
services, which can in turn prolong the sales process.  Sales made through third
parties,  such  as  the  Company's  alliance  partners, can further extend sales
cycles.

Quarterly  Results  May  Be Subject to Significant Fluctuations; Expectations of
--------------------------------------------------------------------------------
Investors  and  Analysts  May  Not  Be  Met
-------------------------------------------

The  Company  expects  that  its  quarterly  operating  results  will  fluctuate
significantly  due to many factors, many of which are outside the control of the
Company.  Such  factors  include:

     -    Demand  for  and  market  acceptance  of  its  products
     -    Deletions  from,  additions  to  or  changes  to  its  product  line
     -    Inconsistent  growth,  if  any,  of  the  Company's  client  base
     -    Loss  of  key  customers  or  strategic  partners
     -    Timing  of  the  recognition  of  revenue  for  large  contracts
     -    Variations  in  the dollar volume of transactions effected through its
          products
     -    Intense  and  increased  competition
     -    Introductions  of  new services or enhancements, or changes in pricing
          policies,  by  the  Company  and  its  competitors
     -    The  Company's  ability  to  control  costs
     -    Reliable  continuity  of  the  Company's  products'  availability

The Company believes that quarterly revenues, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons of
results of operations are not necessarily meaningful and that, as a result, such
comparisons should not be relied upon as indications of future performance.  Due
to  these  and  other factors, it is likely that the Company's operating results
will be below market analysts' expectations in some future quarters, which would
cause  the  market  price  of  the  Company's  stock  to  decline.


Competitive  "Business-to-Business"  Internet  Commerce Market; Effect on Market
--------------------------------------------------------------------------------
Share  and  Business
--------------------

The  market for the Company's products is very competitive, evolving and subject
to  rapid  technological change.  Intensity of competition is likely to increase
in  the  future.  Increased competition from new competitors is likely to result
in  loss  of  any  future  market  share  the  Company  may achieve, which could
negatively  impact  the Company's business. Competitors vary in size, and in the
scope  and  breadth  of  the  products  and  services  offered. The Company will
encounter competition from Ariba, Clarus, Commerce One, GE Information Services,
i2  Technologies,  Intelisys,  PurchasePro, TRADE'ex Electronic Commerce Systems
and  other eProcurement competitors.  The Company may also encounter competition
from  several  major  enterprise software developers, such as Oracle, PeopleSoft
and  SAP who are not presently considered to be direct competitors, but who have
announced  intentions  to enter into the market.  In addition, because there are
relatively  low  barriers  to  entry in this market, additional competition from
other  established  and  emerging  companies  may  develop.


                                       13
<PAGE>
Many  current  and  potential  competitors  have  longer  operating  histories,
significantly  greater  financial, technical, marketing and other resources than
the Company, significantly greater name recognition, and a larger installed base
of  customers.  In  addition,  many  of  the  competitors  have well-established
relationships  with  the  Company's  clients  and  potential  clients,  and have
extensive  knowledge  of  the  industry.  Current and potential competitors have
established  or may establish cooperative relationships among themselves or with
third  parties  to  increase  the  ability of their products to address customer
needs.  Accordingly,  it  is  possible  that new competitors, or alliances among
competitors,  may  emerge and rapidly acquire significant market share.  Actions
taken  by  the  Company  competitors,  including  price  cuts,  new  product
introductions and enhancements, could have material adverse consequences for the
Company.  There  can  be  no  assurance that the Company will be able to compete
with price cuts, or develop, introduce and market enhancements to its service on
a  timely  basis  to  compete  successfully  in  this  market.

Revenues  Expected from a Limited Number of Clients, Meaning Increased Potential
--------------------------------------------------------------------------------
Impact  of  Customer  Loss
--------------------------

The  Company  expects that revenues, if any, during the current fiscal year will
come  from a small number of clients, perhaps as few as 20 or less.  The loss of
customers  or  a  change  in a client's budget could have a substantial negative
impact  on  the  business  of  the  Company.

Vendors  Are  Essential to Success of the Company's Products; Negative Impact of
--------------------------------------------------------------------------------
Vendors'  Failure  to  Join  the  Network
-----------------------------------------

In certain applications, LiquidMarketplace(TM) requires that vendors (suppliers)
be  able  to  access the LiquidMarketplace(TM) network and that client buyers be
able  to  communicate  their  requirements  electronically  to  vendors.  It  is
necessary  that  a client's key vendors join the network in order to achieve the
full  benefits  of  the  system,  such  as  buying  from  an electronic catalog.

Ability  to Enhance Features and Functionality of Products; Change in the Market
--------------------------------------------------------------------------------

The success of the Company may depend on the need to tailor its products to meet
the  requirements  of  its  clients, not only as such requirements are presently
known  and  understood  by  the  Company  and  its client base, but also as such
requirements evolve.  Such requirements may be driven by competitive products or
the  changing  preferences  of the Company's client base.  An inability to offer
enhanced  products  or  features  that anticipate or meet such requirements in a
timely  and  efficient manner may result in a loss of sales and revenues and the
obsolescence  of  the  Company's  products.  There  can be no assurance that the
Company  can make the changes and enhancements to its products necessary to meet
and  satisfy  the  demands  of  its  clients.

In  addition,  the  rapid  technological  changes  and rapidly changing industry
standards  that  have characterized the Internet and companies doing business on
the  Internet  may  have the effect of rendering the Company, its business model
and  products  obsolete.  Making  the  adjustments,  changes  and  adaptations
necessary in this market may also require significant expenditures in equipment,
infrastructure  and  product  development.  There  can  be no assurance that the
Company  will  be  able  to  adapt  to  such  rapid  changes.

Failure  to  Maintain  Accurate  Databases
------------------------------------------

The  Company  must  update  and  maintain  extensive  databases of the products,
services  and  procurement  network transactions for its clients.  The Company's
computer  systems  and databases must allow for expansion as a client's business
grows  without  losing performance.  Database capacity constraints may result in
data  maintenance  and  accuracy  problems,  which  could  cause a disruption in
service  and  the  Company's  ability  to  provide  accurate  information to its
clients.  These  problems  may  result  in a loss of clients that could severely
harm  the  Company's  business.


                                       14
<PAGE>
Defects  in  Software;  New  Versions
-------------------------------------

The  Company's  products are complex software.  Software often contains defects,
particularly  when  first  introduced  or  when  new versions are released.  The
Company's  testing  procedures may not discover software defects that affect new
or current services or enhancements until after they are deployed.  New versions
of  the  products may not have the features or capability originally believed to
exist  by the Company or could reveal the lack of such features or capability in
earlier  versions  of  the  products.  Such  defects  could  cause  service
interruptions,  which  could  damage  the  Company's  reputation or increase its
service  costs,  cause  it  to  lose  revenue, delay market acceptance or divert
development  resources, any of which could severely harm the Company's business.


System  Failures,  Service  Delays  and  Interruptions
------------------------------------------------------

The  Company's  ability to provide acceptable levels of customer service largely
depends  on  the efficient and uninterrupted operation of the Company's computer
and  communications hardware and procurement network systems.  Any interruptions
could  severely  harm  the Company's business and result in a loss of customers.
The  Company's  computer  and  communications systems are located in California.
The  Company  does not maintain a redundant site, although is currently planning
to  do  so.  The  Company's  systems  and operations are vulnerable to damage or
interruption  from  a  variety of sources including human error, sabotage, fire,
flood,  earthquake,  power  loss, telecommunications failure and similar events.
The  Company  cannot give assurances that it will not experience system failures
in the future.  The occurrence of any system failure or similar event could harm
the  Company's  business  dramatically.


Incomplete  Disaster  Recovery  Plan
------------------------------------

The  Company  has  developed  a  disaster  recovery  plan  that  is still in the
implementation  process.  A  second  phase  of the plan will include a dedicated
backup  facility in another state.  Until the plan is completed, there are risks
of  localized  Internet  failure.  The  Company  is  also  in  the  process  of
implementing  redundancy  and  other  improvements  in  its  internal  network
operations.  Until these improvements are completed, there will be greater risks
of  periodic  network  disruptions.


Substantial  Costs  of  Any  Product  Liability  Claims;  No  Product  Liability
--------------------------------------------------------------------------------
Insurance
---------

Errors,  defects or other performance problems with the Company's products could
result  in  financial or other damages to our clients.  Management believes that
contractual  limits  of liability, indemnification provisions and disclaimers of
warranties should minimize the exposure of the Company in the event of a product
liability  claim.  A  product  liability claim, however, even if not successful,
would  likely be time consuming and costly and could seriously harm the Company.
The  Company  presently does not maintain product liability insurance.  Although
the terms and conditions in the Company's user agreements contain disclaimers of
warranties  designed to limit exposure to these claims, existing or future laws,
or  unfavorable  judicial decisions, could weaken or negate these provisions and
have  materially  adverse  consequences  for  the  Company.


Legal  Liability  for  Communication  on  Procurement  Network
--------------------------------------------------------------

The  Company  may  be  subject  to  legal  claims relating to the content in its
procurement  network,  or  the  downloading  and  distribution  of such content.
Claims  could involve matters such as fraud, defamation, invasion of privacy and
copyright  infringement.  Providers  of Internet products and services have been
sued  in  the  past,  sometimes  successfully, based on the content of material.
Even  if  the Company were ultimately successful in its defense of these claims,
any  such  litigation  is  costly  and  these  claims  could  harm the Company's
reputation  and  business.


                                       15
<PAGE>
Success  Depends  on  Key  Personnel;  No  "Key  Man"  Life  Insurance
----------------------------------------------------------------------

Future  performance  depends  on the continued service of key personnel, and the
ability  to attract, train, and retain additional technical, marketing, customer
support,  and management personnel.  The loss of one or more key employees could
negatively impact the Company, and there is no "key man" life insurance in force
at  this time.  Competition for qualified personnel is intense, and there can be
no  assurance  that the Company will retain key employees, or attract and retain
other  needed  personnel.


Protection  of  Intellectual  Property;  Lack  of  Patents;  Potential  Pirating
--------------------------------------------------------------------------------

The Company's success depends to a large extent on its exclusive technology, and
relies  on  a combination of contractual provisions, confidentiality procedures,
trade secrets, copyrights and trademark protections.  The Company has no patents
at  this  point,  and the Company's technologies may not be patentable.  Despite
efforts  to  protect  its  exclusive rights, unauthorized parties may attempt to
copy aspects of that technology, or to obtain and use our exclusive information.
Policing  unauthorized  use  of this technology is difficult.  While the Company
does  not suspect that any of the Company's software has been subject to piracy,
there  can  be  no  assurances  that  such  piracy  will  not  occur.  Further,
competitors  may  independently  develop  similar  technology  or  duplicate the
Company's services without violating the Company's intellectual property rights.

At  present,  the  Company's  technologies  are  owned  outright by the Company.
However,  the  Company  may  in  the  future have to license or otherwise obtain
access  to intellectual property of third parties in order to remain competitive
in  the  marketplace.

Strain  on  Limited  Resources  Due  to  Need  to  Manage  Growth  and Expansion
--------------------------------------------------------------------------------

The Company may experience a period of renewed expansion and growth, which would
likely  place  significant  strain  upon  management,  employees,  systems,  and
resources.  Because the market could develop rapidly, it is difficult to project
the rate of growth, if any.  Failure to properly manage growth and expansion, if
and  when  it  occurs, will jeopardize the ability of the Company to sustain its
third  party  and  customer  relationships.  There  can be no assurance that the
Company  will  properly  be  able to manage growth, especially if such growth is
more  rapid  than  anticipated.


Inability  to  Accurately Predict Usage Rates and Difficulty in Adapting Systems
--------------------------------------------------------------------------------
in  a  Timely  Manner
---------------------

Traffic in the Company's marketplace network may increase to the point where the
Company  must  expand and upgrade some of its transaction processing systems and
procurement  network  hardware and software.  The Company's systems have limited
scalability.  The  Company  may  not  be  able to accurately predict the rate of
increase in the usage of its procurement network.  This may affect the Company's
timing  and  ability  to  expand and upgrade its systems and procurement network
hardware  and software capabilities to accommodate increased use of its network.
If the Company does not upgrade its systems and procurement network hardware and
software  in  a  timely  fashion, the Company may experience downgraded service,
interruptions  or delays that could damage its business reputation, relationship
with  clients  and  its  operating  results.  It  might  also be forced to delay
bringing additional customers onto the system until such upgrades are completed.


Risks  of  International  Operation
-----------------------------------

The  Company is exploring international markets and considering the expansion of
its  operations  and marketing efforts to include international markets.  If the
Company  should  elect  to expand into such markets, it would be confronted with
risks  including:

     -    Increased  impact  of  recessions  in  economies outside of the United
          States


                                       16
<PAGE>
     -    Difficulties  staffing  and  managing  foreign  operations
     -    Political  instability
     -    The  burdens  of  compliance  with  a wide variety of foreign laws and
          legal  regimes
     -    Unexpected  changes  in  regulatory  requirements
     -    Tariffs,  export  controls  and  other  barriers  to  trade
     -    Potentially  adverse  tax  consequences
     -    Fluctuations  in  currency  exchange  rates
     -    Longer  payment  cycles  and  difficulties  in  collecting  accounts
          receivables
     -    Seasonal  fluctuations  in  business  activity

RISKS  RELATED  TO  THE  INTERNET  AND  E-COMMERCE
Year  2000  Risk
----------------

While  the  Year 2000 issue has generally been considered resolved, there can be
no  assurances  that  the  issue will not impact the rate at which the Company's
products  will  be  implemented inside client organizations. Management believes
that its internally developed systems and technology are Year 2000 compliant and
has  so  far  had  no  indications  that  its  products  are  not Y2K compliant.
Nevertheless,  because  the Company relies on information technology supplied by
third parties, it is still possible that year 2000 problems may yet surface that
could  adversely  affect  the  Company,  although  none  have  surfaced to date.
Further,  the  Internet  itself could face serious disruptions arising from Year
2000  problems,  although  none  have surfaced to date.  Many potential clients,
furthermore,  may have implemented policies that prohibit or strongly discourage
making  changes  or additions to their internal computer systems until after the
impact  of  Year  2000  has  been  assessed.

Volatility  in  Stock  Price
----------------------------

The  stock  market and especially the stock prices of Internet related companies
have  been  very  volatile.  This volatility may not be related to the operating
performance  of  the  companies.  The  broad  market  volatility  and  industry
volatility  may  reduce  the  price of the Company's stock without regard to the
Company's  operating performance.  The market price of the company's stock could
significantly decrease at any time due to this volatility.  The uncertainty that
results  from  such  volatility  can  itself  depress  the  market  price of the
company's  stock.

Substantial Costs of Any Securities Litigation Could Divert Limited Resources of
--------------------------------------------------------------------------------
the  Company
------------

In the past, securities class action litigation has often been brought against a
company  following  periods of volatility in the market price of its securities.
The  Company  could  become a target of similar securities litigation based upon
the  volatility  of its stock in the marketplace.  Litigation of this type could
result  in  substantial  costs  and divert management's attention and resources.

Substantial  Costs  of  Any  Intellectual  Property  Infringement  Claims
-------------------------------------------------------------------------

There  has  been a substantial amount of litigation in the software industry and
the  Internet  industry  regarding intellectual property rights.  It is possible
that  in  the  future, third parties may claim that the Company's technology may
infringe  their  intellectual  property.  Management  is  not  aware  of  any
infringement  or  claim  of  infringement  by  a  third  party.  It is expected,
however,  that  software product developers and providers of electronic commerce
solutions  will  increasingly be subject to infringement claims as the number of
products  and  competitors  grows and the functionality of products in different
industry  segments  overlaps.  Any  claims,  with  or  without  merit,  could be
time-consuming  and  result  in  costly  litigation.

Dependence  Upon,  and  Risks  Related  To,  the  Internet
----------------------------------------------------------

The  use  of  the Company's products and other ASP-based products depends on the
increased  acceptance  and  use  of  the  Internet  as  a medium of commerce and
communication.  While  management  believes  that  acceptance  and  use  of  the
Internet  will  continue  to  increase  at  very  rapid  rates,  there can be no


                                       17
<PAGE>
assurances  that  such  increase  will  continue  to develop, or that use of the
Internet as a means of conducting business will continue or increase.  If growth
in the use of the Internet does not continue, clients may not adopt or use these
new  Internet  technologies  at  the  rates  or  for the purposes management has
assumed.  This  could,  in turn, adversely impact the Company and the results of
its  business  operations.  Further,  even if acceptance and use of the Internet
does  increase  rapidly,  but  the  technology underlying the Internet and other
necessary  technology  and  related  infrastructure does not effectively support
that  growth,  the  Company's  future  would  be  negatively  impacted.

Potential  Breaches  of  the  Company's  Security  Systems
----------------------------------------------------------

A  significant  barrier  to electronic commerce and communications is the secure
transmission  of  confidential  information  over  public networks.  Advances in
computer  capabilities,  new  discoveries  in the field of cryptography or other
events  or developments could result in compromises or breaches of the Company's
security  systems or those of other web sites to protect the Company's exclusive
information.  If  any  well-publicized compromises of security were to occur, it
could  have the effect of substantially reducing the use of the web for commerce
and  communications.  Anyone  who  circumvents  the  Company's security measures
could  misappropriate  its  exclusive  information  or  cause  interruptions  in
services or operations.  The Internet is a public network, and data is sent over
this  network  from  many  sources.  In  the  past,  computer  viruses, software
programs  that  disable  or  impair  computers,  have  been distributed and have
rapidly  spread  over  the  Internet.  Computer  viruses  could theoretically be
introduced into the Company's systems, or those of our clients or vendors, which
could  disrupt  products  offered  by  the  Company,  or make it inaccessible to
clients  or  vendors.  Although  language  in  its  user  agreement  places
responsibility  with  users to protect the Company's products from such threats,
the Company may be required to expend significant capital and other resources to
protect  against the threat of security breaches or to alleviate problems caused
by  breaches.  To  the  extent  that  the  Company's  activities may involve the
storage  and transmission of exclusive information, such as credit card numbers,
security  breaches  could expose the Company to a risk of loss or litigation and
possible  liability.  Despite  provisions  in its user agreements, which provide
that  the  Company  would  not  be  liable  for security breaches, the Company's
security  measures  may  be  inadequate  to  prevent  security breaches, and the
Company's  business  could  be  seriously  impacted  if  they are not prevented.

Government  Regulation
----------------------

As  Internet commerce continues to grow, the risk that federal, state or foreign
agencies  will  adopt regulations covering issues such as user privacy, pricing,
content  and  quality  of products and services, increases.  It is possible that
legislation could expose companies involved in electronic commerce to liability,
which  could  limit  the  growth  of electronic commerce generally.  Legislation
could  dampen  the  growth  in  Internet  usage and decrease its acceptance as a
communications  and  commercial  medium.  If  enacted,  these  laws,  rules  or
regulations  could  limit  the  market  for  the  Company's  services.

One  or  more  states,  furthermore,  may  seek  to  impose sales tax collection
obligations  on  out-of-state  companies  like  the  Company  that  engage in or
facilitate  electronic commerce throughout numerous states.  These proposals, if
adopted,  could substantially impair the growth of electronic commerce and could
adversely  affect  the  Company's  opportunity  to derive financial benefit from
these  activities.

HISTORY

The  Company  was  incorporated  in the state of Nevada on October 22, 1980, and
ultimately adopted the name Vsource, Inc. on December 16, 1999.  The Company was
reincorporated  in  the  state  of Delaware on November 8, 2000.  In conjunction
with  the  Delaware  reincorporation,  the Company's authorized common stock was
increased  from  50,000,000  shares  to  100,000,000  shares.

On  June  1, 1998, the Company acquired all of the outstanding stock of Wpg.Net,
Inc.  for  500,000 shares of common stock plus stock options for 500,000 shares.
The options vest ratably, on a monthly basis, over the 3 years subsequent to the
purchase.  If  Wpg.Net,  Inc. division revenues reach $500,000 before the 3-year
vesting  period  has  expired,  the 500,000 options vest immediately. The former
shareholders  of  Wpg.Net,  Inc.  (Wpg.Net, Inc. Shareholders) are entitled to a


                                       18
<PAGE>
commission  of 50% of revenue generated by the Wpg.Net, Inc. division.  However,
no  Wpg.Net,  Inc.  revenues  have  been  recorded  since it was acquired and no
revenue  producing  activities are contemplated.  Wpg.Net, Inc. shareholders are
entitled  to  25% of revenues produced by Virtual Source, Inc. relating to sales
of the currently inactive Virtual Source Publisher. In the event that Vsource is
sold,  the  Wpg.Net,  Inc.  shareholders  are  entitled to a one-time payment of
$3,000,000,  the  options vest immediately, and all commission obligations cease
at  that  time.  The Company guaranteed a minimum stock price of $7.00 per share
for  the  stock held by Wpg.Net, Inc. shareholders upon the sale of the Company.
The  acquisition  was  accounted  for  as  a  purchase and was included with the
combined operations for the dates subsequent to June 1, 1998. As a result of the
acquisition, goodwill was recorded in the amount of $1,186,555.  During the year
ended  January 31, 2000, the Company determined that the present value of future
cash  flows  related  to  the  acquisition  of  Wpg.Net,  Inc. was not material.
Consequently,  the  remaining  unamortized  goodwill  has been written off as of
January 31, 2000.  Wpg.Net, Inc. was merged into Vsource, Inc. effective January
4,  2001.

On  December  14, 2000, the Company entered into an Agreement and Plan of Merger
with  OTT  Acquisition  Corp.,  a  California  corporation,  Online  Transaction
Technologies,  Inc.,  a  California  corporation  ("OTT"),  Colin  P. Kruger and
Michael  Shirman  (the  "Merger  Agreement")  and  on  January  22,  2001,  the
transaction  closed  in  accordance  with  the  Merger  Agreement. The merger is
recorded on the purchase method of accounting and was included with the combined
operations  for  the  dates  subsequent  to  January  22,  2001.The merger was a
tax-free  reorganization  under Section 368(a) of the Internal Revenue Code. OTT
is  an  Application  Service  Provider (ASP) that develops and hosts transaction
solutions  for public and private exchanges. Among the solutions that OTT brings
to  Vsource  is  LiquidMarketplace(TM)  a  complete  suite  of  fully integrated
transaction  solutions,  including  auctions,  fixed-price  catalogs and RFP/RFQ
engines.


Item 2.  DESCRIPTION  OF  PROPERTY

The  Company,  through its subsidiary Virtual Source, Inc., leases approximately
5,500 square feet of standard office space at its principal location in Ventura,
California.  The  lease  expires  on  March 21, 2002.  Rent is $8,307 per month.
The  Company is currently seeking a sub-tenant for part of this space during the
remainder  of  the  lease.

The Company rents approximately 6,700 square feet of standard office in Bothell,
Washington.  The  lease  expires  on  October  21, 2002, under a 36-month lease.
Rent is $11,117 per month.   The Company vacated this office in March 2001.  The
premises  are  available  for  a  sub-tenancy  for  the  remainder of the lease.

The  Company,  through  its  subsidiary  OTT, rents 10,666 square feet of office
space  in Los Angeles, California.  The Company's principal technical operations
are  housed in this facility.  The lease expires March 6, 2002.  Rate is $12,728
during  the  last  year  of  the  lease.  The  Company  is  currently  seeking a
sub-tenant  for  up to one half of this space during the remainder of the lease.


                                       19
<PAGE>
Item 3.  LEGAL  PROCEEDINGS

On October 23, 2000, the Company filed a suit in the Superior Court of the State
of  California  for  the County of Los Angeles for fraudulent misrepresentation,
fraudulent  concealment,  rescission  and  mutual  mistake, seeking to rescind a
contract  the  Company  entered  into with Vitria Technology, Inc. ("Vitria") in
February  2000.  The  suit  was transferred to Santa Clara County. Subsequent to
January 31, 2001, Vitria denied the substantive allegations in the complaint and
seeks  the award of monetary damages against the Company for breach of contract.
Because  discovery  is  in  the  early  stages,  the Company cannot evaluate the
likelihood  of  an  outcome.  On  April 10, 2001 the Santa Clara County Superior
Court  granted  Vitria's request for a writ of attachment against the Company in
the  sum  of  $600,000  to  secure  potential  recovery  in  this  case.


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

During the year ended January 31, 2001, the following matters were submitted to
a vote of security holders:

At the annual meeting of shareholders held July 7, 2000, shareholders voted as
follows by proxy or in person:

     Of  the  18,532,777  shares outstanding and entitled to votes on the record
     date for the meeting, 16,668,123 shares were present in person or by proxy.

     The  following  nominees, being the only nominees, and having each received
     over  a  majority  of  the eligible votes, were elected as directors of the
     Corporation  until  the  next  annual  meeting or their successors are duly
     elected  and  qualified:

          Robert C. McShirley
          Samuel E. Bradt
          Scott T. Behan
          Robert N. Schwartz
          Ramin Kamfar

     The resolution to reincorporate the Corporation in Delaware was approved by
     10,795,408  votes  in  favor  and  34,812  votes  against.

     The  resolution  to  ratify  the  appointment  of Grant Thornton LLP as the
     Corporation's  independent  public  accountants  was approved by 16,573,943
     votes  in  favor  and  44,139  votes  against.


                                     PART II

Item 5.  MARKET  FOR  COMMON  EQUITY  AND  RELATED  SHAREHOLDER  MATTERS

MARKET INFORMATION

Prior  to  January  4,  2000, the Company's common stock traded under the symbol
"IBNL"  in  the  over-the-counter  securities  market.  On  January 4, 2000, the
Company's  common  stock  began  trading  under  the  symbol  "VSRC.OB"  in  the
over-the-counter  securities  market.  The  over-the-counter  quotations reflect
interdealer  bid prices, without retail mark-up, markdown or commission, and may
not  represent  actual  transactions.  The  over-the-counter  market  does  not
constitute  active  trading and trading in the Company's common stock is limited
and sporadic.  On October 30, 2000, the Company began trading on Nasdaq National
Market  system under the symbol "VSRC". The following table sets forth the range
of high bid and low bid quotations and the closing price for the fiscal quarters
within  the  last  two  years.  Prior  to  October 30, 2000, the source for this
information is the Nasdaq OTC Bulletin Board. Since October 30, 2000, the source
for  this  information  is  the  Nasdaq  National  Market  System.


                                       20
<PAGE>
<TABLE>
<CAPTION>
Common  Stock
-------------

For Fiscal Year Ended January 31, 2000   High    Low    Close
--------------------------------------  ------  ------  ------
<S>                                     <C>     <C>     <C>
Quarter ended April 30, 1999            $ 2.38  $ 1.38  $ 1.41
Quarter ended July 31, 1999             $ 2.13  $ 1.38  $ 2.13
Quarter ended October 31, 1999          $ 2.88  $ 1.53  $ 1.88
Quarter ended January 31, 2000          $19.88  $ 1.88  $15.19

For Fiscal Year Ended January 31, 2001  High    Low     Close
--------------------------------------  ------  ------  ------
Quarter ended April 30, 2000            $85.00  $14.50  $26.69
Quarter ended July 31, 2000             $28.13  $ 9.13  $15.63
Quarter ended October 31, 2000          $16.25  $ 6.38  $14.13
Quarter ended January 31, 2001          $15.81  $ 1.47  $ 2.25
</TABLE>


SHAREHOLDERS

As  of  April  30,  2001, there were 958 stockholders of record of the Company's
common  stock.  Of  the  18.6 million outstanding shares of the Company's common
stock at April 30, 2001, 13.5 million shares were held in "street name" by Cede,
Inc.  on  behalf  of  shareholders.

As  of  April  30,  2001,  there  were  48  holders  of the Company's Series 1-A
convertible  preferred  stock  and 19 of Series 2-A convertible preferred stock.

DIVIDENDS

The  Company has never declared or paid cash dividends on its common stock.  The
Company currently intends to retain all future earnings to finance future growth
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future.

RECENT  SALE  OF  UNREGISTERED  SECURITIES

The  following  are  all  securities  sold  by the Company or issued as warrants
within  the  three  (3)  year  period  prior  to January 31, 2001 which were not
registered  under  the  Securities  Act:

In  June 1998, the Company issued 500,000 shares of its common stock and granted
an  option  to  purchase an additional 500,000 shares in exchange for all of the
shares  of Wpg.Net, Inc., a Washington corporation.  The shares and options were
issued to DX3, Inc., a Washington corporation wholly owned by the three Wpg.Net,
Inc.  shareholders.  The  options  have an exercise price of $0.59 per share and
vest  ratably  each  month over a three-year period subject to acceleration upon
the  achievement  of  certain  revenue goals.  No underwriters were used, and no
commissions  were  paid.  The issuances were a private placement and exempt from
registration  under  Section  4(2) of the Securities Act.   The transactions did
not  involve  a public offering.  There were three shareholders of Wpg.Net, Inc.
who  were  also the sole shareholders of DX3, each of whom was familiar with the
Company.  DX3  represented  its  intention  to acquire the shares and option for
investment  purposes  only,  and  not with a view to resale or distribution, and
appropriate  stop  transfer  instructions and restrictive legends indicating the


                                       21
<PAGE>
transfer  restrictions  were placed on each stock certificate issued and will be
placed  on  each  stock  certificate  issued upon exercise of the options.  Each
individual  had  ample access to the kind of information from the Company that a
registration  statement  would  include.

During  March and April of 1999, the Company sold 737,493 shares of unrestricted
common  stock,  and received $999,942 less offering costs.  No underwriters were
used,  and  no  commissions  were  paid.  Legal  fees approximated $5,000.  This
offering  was  a  private  placement  and was exempt from registration under the
Securities  Act and made in accordance with Regulation D.  The Company was again
eligible  under  Securities  and Exchange Commission Rule 504, which allowed the
shares  sold  in this private placement to be issued without restrictive legend.
Because  Rule  504  was changed effective April 7, 1999, the last sale of shares
under  this  offering was made on April 6, 1999. The recipients of these shares,
primarily  existing  Company  investors,  or  friends,  relatives  and  business
associates  of  the Company officers, directors and investors, represented their
intention  to  acquire  the  shares for investment purposes only, and not with a
view  to  resale  or  distribution.

On  May  15,  1999,  the Company issued an aggregate of 636,100 shares of common
stock upon the exercise of options by three of the Company's executive officers.
The exercise prices ranged from $0.18 to $0.625.  No underwriters were used, and
no  commissions  were  paid.  The  issuances  were  exempt  pursuant to Rule 701
promulgated  by the Securities and Exchange Commission under the Securities Act.
The  option  grants were made under written compensatory contracts.  Appropriate
stop  transfer  instructions  and  restrictive  legends  indicating the transfer
restrictions  were  placed  on  each  stock  certificate  when  issued.

During  the  period  May  1999  to  October 1999, the Company granted options to
purchase  1,039,500  shares  of  its  common  stock  to  officers, employees and
consultants.  The  exercise prices ranged from $0.75 to $1.10.  The options vest
over  periods of 27 to 36 months from date of grant.  No underwriters were used,
and  no  commissions  were paid.  The issuances were exempt pursuant to Rule 701
promulgated  by the Securities and Exchange Commission under the Securities Act.
The  consultants  were  natural  persons  and  the option grants were made under
written  compensatory  contracts.  Appropriate  stop  transfer  instructions and
restrictive  legends indicating the transfer restrictions will be placed on each
stock  certificate  when  issued.

During  the  period  July 1, 1999 to December 31, 1999, the Company sold 757,720
shares  of  restricted  common  stock, and received $1,140,000.  No underwriters
were  used and no commissions were paid.  The sales were a private placement and
exempt  from  registration  under  Section  4(2)  of  the  Securities Act.   The
transactions  did not involve a public offering.  There were eleven offerees and
nine  purchasers, each of whom was an accredited investor, and familiar with the
Company  and four of whom were existing shareholders.  The investors represented
their intention to acquire the shares for investment purposes only, and not with
a view to resale or distribution, and appropriate stop transfer instructions and
restrictive  legends indicating the transfer restrictions will be placed on each
stock  certificate when issued.  Each individual had ample access to the kind of
information  from  the  Company  that  a  registration  statement would include.

As  of  July  31,  1999,  the  Company  converted  all  of  its then outstanding
convertible  debt  to  equity.  The convertible demand notes totaled $971,553 in
aggregate  principal  amount  and  accrued interest at 10% per annum.  The notes
were  convertible  at  rates ranging from $0.20 to $1.30 per share.  In order to
induce  the  conversion,  the  Company  offered  an  additional  three months of
interest.  Interest  and principal were converted into an aggregate of 2,210,201
shares  of  the  company's  common  stock.  No  underwriters  were  used, and no
commissions  were  paid.  The  issuance  of  the Company's common stock upon the
conversion  of the notes was a private placement to 22 investors and exempt from
registration  under  Section  4(2)  of  the  Securities  Act.  The  investors
represented  their intention to acquire the shares for investment purposes only,
and  not  with  a  view to resale or distribution, and appropriate stop transfer
instructions  and  restrictive legends indicating the transfer restrictions will
be placed on each stock certificate when issued.  Each investor had ample access
to  the kind of information from the Company that a registration statement would
include.

In November 1999, the Company issued an aggregate of $150,000 of 10% convertible
demand notes due on demand after December 2000 to two accredited investors.  The
notes,  principal  and  interest,  are convertible into restricted shares of the
Company's  common  stock  at  a rate of $2.50 per share.    No underwriters were
used,  and  no commissions were paid.  The issuance of the Company's notes was a
private  placement exempt from registration under Section 4(2) of the Securities
Act.  Prior  to  conversion,  the  investors  must  represent their intention to
acquire  the conversion shares for investment purposes only, and not with a view
to  resale  or  distribution,  and  appropriate  stop  transfer instructions and
restrictive  legends indicating the transfer restrictions will be placed on each


                                       22
<PAGE>
stock  certificate  when  issued.  Each investor had ample access to the kind of
information  from the Company that a registration statement would include. These
notes  were  converted  as  of  January  31,  2001.

During  the  period  November  1999  to  February  2000,  the  Company issued or
committed  to  issuing  warrants  to  purchase an aggregate of 870,000 shares of
common  stock  to  one consultant and four corporations at exercise prices which
range from $2.00 to $25.00 in exchange for financial consulting and distribution
and  marketing  services.  No  underwriters  were  used, and no commissions were

paid.  The  warrants were issued or will be issued as a private placement exempt
from registration under Section 4(2) of the Securities Act.  The warrant holders
represented  their  intention  to  acquire  the warrants for investment purposes
only,  and  not  with  a  view  to  resale or distribution, and appropriate stop
transfer  instructions  and  restrictive  legends  indicating  the  transfer
restrictions  will  be  placed  on  each warrant and each stock certificate when
issued.  Each  warrant  holder  had ample access to the kind of information from
the  Company  that  a  registration  statement  would  include.

During  the  period  December  1,  1999  to  February 24, 2000, the Company sold
2,802,000  shares  of  Series  1-A  Convertible Preferred Stock to 46 accredited
investors  and received $7,005,000 less offering costs.  Each share of preferred
stock is initially convertible into one share of common stock at the election of
the  holder, upon an underwritten public offering with aggregate proceeds to the
Company  of  at  least  $10  million  or  upon the election of a majority of the
outstanding  shares  of  preferred  stock.  No underwriters were used.  Offering
costs were approximately $109,583 including transfer agent fees, printing costs,
legal  fees  and  commissions  or  finders'  fees.  The  offering  was a private
placement  made  in  accordance  with  Regulation D.  All of the purchasers were
accredited  investors.  No  form  of general solicitation or general advertising
was  used  for  any offer or sale.  The investors represented their intention to
acquire  the  shares for investment purposes only, and not with a view to resale
or  distribution,  and appropriate restrictive legends were placed on each stock
certificate  issued  pursuant  to  this  offering.

In  connection with the sales of the Series 1-A Convertible Preferred Stock, the
Company  issued warrants to purchase an aggregate 386,691 shares of common stock
at  exercise  prices ranging from $2.50 to $6.00 as additional finder's fees and
commissions  and  for  other  services  in  connection  with  the  offering.  No
underwriters were used, and no commissions were paid.  The warrants were issued,
or  will  be  issued, to five consultants and as a private placement exempt from
registration  under  Section  4(2)  of  the Securities Act.  The warrant holders
represented  their  intention  to  acquire  the warrants for investment purposes
only,  and  not  with  a  view  to  resale or distribution, and appropriate stop
transfer  instructions  and  restrictive  legends  indicating  the  transfer
restrictions  will  be  placed  on  each warrant and each stock certificate when
issued.  Each  investor  had  ample  access  to the kind of information from the
Company  that  a  registration  statement  would  include.

On  January  14,  2000,  the Company granted options to purchase an aggregate of
78,750 shares of common stock to 6 key employees exercisable at $1.66 per share.
No  underwriters  were  used,  and  no  commissions  were paid.  The grants were
intended to be private placements exempt from registration under Section 4(2) of
the  Securities  Act.  The  option  grants  were made under written compensatory
contracts.  Appropriate  stop  transfer  instructions  and  restrictive  legends
indicating  the  transfer  restrictions will be placed on each stock certificate
when  issued.

On  February  3,  2000,  the Company granted options to purchase an aggregate of
125,000  shares of common stock to an executive officer exercisable at $2.50 per
share.  No  underwriters  were  used,  and no commissions were paid.  The grants
were  a  private  placement  exempt  from registration under Section 4(2) of the
Securities  Act.  The  option  grants  were  made  under  written  compensatory
contracts.  Appropriate  stop  transfer  instructions  and  restrictive  legends
indicating  the  transfer  restrictions will be placed on each stock certificate
when  issued.

On  March  27,  2000,  the  Company  granted options to purchase an aggregate of
100,000  shares of common stock to an executive officer exercisable at $3.00 per
share.  No  underwriters  were  used,  and no commissions were paid.  The grants
were  a  private  placement  exempt  from registration under Section 4(2) of the
Securities  Act.  The  option  grants  were  made  under  written  compensatory
contracts.  Appropriate  stop  transfer  instructions  and  restrictive  legends
indicating  the  transfer  restrictions will be placed on each stock certificate
when  issued.

During  the  period  August  28,  2000  to  September 18, 2000, the Company sold
1,672,328  shares  of  Series  2-A  Convertible Preferred Stock to 25 accredited
investors and received $10,719,623 less offering costs.  Each share of preferred
stock  is  convertible  into  one  share  of common stock at the election of the
holder.  Each  purchaser  also received a warrant to purchase common stock at an
exercise price of $6.41 per share, with a five-year term.  The aggregate of such


                                       23
<PAGE>
shares of common stock is 145,550.  No underwriters were used and offering costs
were  $531,792  including  transfer  agent  fees,  printing cost, legal fees and
commissions  or  finders  fees.  The  offering  was  a private placement made in
accordance  with  Regulation D. All of the purchasers were accredited investors.
No form of general solicitation or general advertising was used for any offer or
sale.  The  investors  represented  their  intention  to  acquire the shares for
investment  purposes  only,  and not with a view for resale or distribution, and
appropriate  restrictive  legends  were  placed on each stock certificate issued
pursuant  to  this  offering.

The  Company  is obligated to register the shares of Common Stock underlying the
Series  2-A  Preferred  and  the  warrants held by the holders of the Series 2-A
Preferred.  The registration statement was required to be effective on or before
January  16, 2001, or the Company was required to issue to each holder of Series
2-A  Preferred  an  additional  warrant to purchase Common Stock in an aggregate
amount  equal  to two percent (2%) of the registrable shares held by such holder
for  each  thirty  day  period  this  registration statement is not effective by
January  16,  2001.  The  additional warrants would have terms of five (5) years
and  an  exercise  price  of  $6.41  per  share.  The registration statement was
effective  prior to January 16, 2001. In connection with the sales of the Series
2-A  Convertible  Preferred  Stock,  the  Company issued warrants to purchase an
aggregate  of  144,881  shares  of  common stock at exercise prices ranging from
$6.41  to  $6.69  as additional finder's fees, commissions and other services in
connection with the offering. No underwriters were used, and no commissions were
paid.  The  warrants  were  issued to two consultants and as a private placement
exempt  from  registration under section 4(2) of the Securities Act. The warrant
holders  represented  their  intention  to  acquire  the warrants for investment
purposes  only,  and not with a view for resale or distribution, and appropriate
stop  transfer  instructions  and  restrictive  legends  indicating the transfer
restrictions  will  be  placed  on  each warrant and each stock certificate when
issued.  Each  investor  had  ample  access  to the kind of information from the
Company  that  a  registration  statement  would  include.

In the event of any liquidation or dissolution, either voluntary or involuntary,
the  holders  of the series 2-A Convertible Preferred Stock shall be entitled to
receive,  prior  and  in  preference to any distribution of any of the assets or
surplus  funds,  to the holders of the Common Stock by reason of their ownership
thereof,  a  preference  amount per share consisting of the sum of (A) $6.41 for
each outstanding share of Series 2-A Preferred Stock, and (B) an amount equal to
declared  but  unpaid dividends on such shares, if any. Each share of Series 2-A
Preferred  Stock  shall be convertible at any time after the date of issuance of
such  shares,  into  such  number  of  fully  paid  shares of Common Stock as is
determined  by  dividing  the  Original  Issue  Price  by  the  then  applicable
Conversion Price, in effect on the date the certificate evidencing such share is
surrendered  for conversion.  Under certain circumstances, such as stock splits,
these  shares  are  subject  to  stated  Conversion  Price  Adjustments.

In  September  2000, the Chief Financial Officer and the Chief Operating Officer
each  purchased  shares  of the Company's Series 2-A Convertible Preferred Stock
for  nominal  cash  and three-year promissory notes of $124,000 each, which bear
interest  at  a  rate  of 8% per annum and principal amounts each. The preferred
stock  purchased  was  19,501  for  each  officer.  In  connection  with  these
transactions,  they  also  each  received  a warrant to purchase 1,697 shares of
common  stock  with  an  exercise  price  of  $6.41  and  a  term of five years.

In  December  2000,  the  Company  terminated a strategic relationship with U.S.
West, Inc. (now known as Qwest Communications) of Denver, Colorado, to which the
two  firms  had  agreed  to make VSN available to Qwest's business customers. In
exchange  for  services to be rendered and a nominal amount of cash, Vsource had
granted  to  Qwest 600,000 warrants with a three-year term, at an exercise price
of  $5.00.  The terms of the distribution and marketing agreement were renewable
each year, however, it was subject to cancellation by either party giving notice
of  its  intent  to terminate the agreement. When the warrants were granted, the
Company's  stock  was  valued  at $17.50 per share, resulting in a charge to the
Company  of  $8,412,000.  The Company recognized the full balance as a marketing
expense  in  the  year  ended  January  31, 2001 due to the cancellation of this
arrangement.

On  January 22, 2001, Company closed an Agreement and Plan of Merger with Online
Transaction  Technologies, Inc., a California corporation ("OTT"). The aggregate
purchase  price  payable at Closing was 1,089,389 shares of the Company's common
stock.  The  number  of shares was calculated based on a specific formula in the
Merger  Agreement.  Such aggregate price shall be subject to adjustment based on
reductions  or  increases  in  the  net  book  value  of the assets of OTT since
September  30,  2000.  As a result of the acquisition, including direct expenses
related  to  the transaction, goodwill was recorded in the amount of $4,592,863.
In connection with the Closing, two key employees of OTT were granted options to
purchase  100,000  shares  each of the Company's common stock which vest over 24
months  and  have  an  exercise  price  of  $6.41  per  share.


                                       24
<PAGE>
During the year ended January 31, 2001, 364,646 shares of Series 1-A Convertible
Preferred  Stock  and  296,411  shares of Series 2-A Convertible Preferred Stock
were  converted  into  common shares, 307,391 shares of common stock were issued
upon  exercise  of  stock options and warrants, 65,654 shares upon conversion of
convertible  demand  notes,  and 8,250 shares in return for services provided to
the  Company.


Item  6.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

The  following  discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's financial
statements  and  the  related  notes  thereto  appearing  elsewhere  herein.

FORWARD  LOOKING  STATEMENTS

 This  Annual  Report  on  Form 10-KSB  and the documents incorporated herein by
reference  contain  forward-looking  statements  based  on current expectations,
estimates and projections about the Company's industry, management's beliefs and
certain  assumptions  made  by management.  All statements, trends, analyses and
other  information  contained  in  this  report relative to trends in net sales,
gross margin, anticipated expense levels and liquidity and capital resources, as
well  as  other  statements  including,  but  not  limited  to,  words  such  as
"anticipate,"  "believe,"  "plan,"  "estimate,"  "expect," "seek," "intend," and
other  similar  expressions,  constitute  forward-looking  statements.  These
forward-looking  statements  are  not  guarantees  of future performance and are
subject  to  certain  risks  and  uncertainties  that  are difficult to predict.
Accordingly,  actual  results  may  differ  materially from those anticipated or
expressed  in  such  statements.  PARTICULAR  ATTENTION  SHOULD  BE  PAID TO THE
CAUTIONARY  STATEMENTS  INVOLVING  THE  COMPANY'S LIMITED OPERATING HISTORY, THE
UNPREDICTABILITY  OF  ITS  FUTURE  REVENUES,  THE  COMPANY'S  NEED  FOR  AND THE
AVAILABILITY  OF  CAPITAL  RESOURCES, THE EVOLVING NATURE OF ITS BUSINESS MODEL,
THE  INTENSELY  COMPETITIVE MARKET FOR BUSINESS-TO-BUSINESS ELECTRONIC SOFTWARE,
AND  THE  RISKS  ASSOCIATED  WITH  SYSTEMS  DEVELOPMENT, MANAGEMENT OF GROWTH OF
BUYER/SELLER  ENABLEMENT  SOFTWARE  AND  TOOLS.  Except  as required by law, the
Company  undertakes  no  obligation  to  update  any  forward-looking statement,
whether  as  a  result of new information, future events or otherwise.  Readers,
however,  should  carefully  review  the  factors  set forth in other reports or
documents  that  the  Company  files  from  time to time with the Securities and
Exchange  Commission  ("SEC").


OVERVIEW

Vsource,  Inc.  ("Vsource"  or the "Company") creates and markets Internet-based
applications  for businesses. An Internet-based application is best described as
computer  software  and  data  that  reside  on a remote server, rather than the
user's  computer,  where  that software and data are accessed over the Internet.
The  Company  intends  to  generate  fees  by  licensing  its  Internet-based
applications  for  use  by  businesses.  Currently,  the  Company  offers
LiquidMarketplace(TM)  as its primary application.  LiquidMarketplace(TM) may be
used  by corporate clients to purchase goods and services via the Internet.  The
Company  has  also developed and has previously offered non-Internet procurement
software,  Virtual Source Publisher, a do-it-yourself Internet web site builder,
and  Virtual  Source  Network  ("VSN"),  an Internet based procurement software.
These  products  are  currently  inactive,  but  the Company retains all related
technology  and  rights.

The  Company's  product,  LiquidMarketplace(TM),  has  been used on a continuing
basis  for over one year by one client. This limited operating history makes the
prediction  of  future  operating  results  very  difficult.  In particular, the
Company  believes  that period-to-period comparisons of operating results should
not  be  relied  upon as predictive of future performance. Operating results are
expected  to  vary  significantly  from  quarter to quarter and are difficult or
impossible  to  predict. The Company's operating prospects must be considered in
relationship  to the risks, expenses and difficulties encountered by any company
at  an  early  stage  of  development, particularly companies in new and rapidly
evolving markets. The Company may not be successful in addressing such risks and
difficulties.


                                       25
<PAGE>
Management  has  taken steps to revise its operating and financial requirements,
which  it  believes  are  sufficient  to provide the company with the ability to
continue  its  operations through January 31, 2002.  These steps include expense
reductions,  marketing and sale of LiquidMarketplace(TM) products, consideration
of  merger  opportunities,  and plans to raise additional capital through equity
transactions.

The  Company  has  implemented  cash  conservation  measures  and  is  currently
expending  approximately  $325,000  per  month of cash and cash equivalents.  At
this  rate,  without additional capital or revenues, the Company believes it can
continue  operations,  with  minimum  cash  reserves,  through January 31, 2002.

The  Company  is  presently  engaged  in  marketing  and  sales  of  its
LiquidMarketplace(TM)  products, but has not determined that these products, and
the  markets  toward  which  they  are directed, represent a sufficient business
opportunity for a major commitment of the Company's available capital resources.
The  Company,  therefore, is limiting further development and marketing expenses
related to LiquidMarketplace(TM), while it evaluates consolidation opportunities
with  compatible  technology companies and plans for raising additional capital.
For more information, please refer to "Item 1. DESCRIPTION OF BUSINESS - FACTORS
THAT  MAY  AFFECT  FUTURE  PERFORMANCE."

Doubt About the Company's Ability To Continue as a Going Concern

     The  Company  has  sustained  operating  and  cash  losses since inception,
resulting  in  an accumulated deficit of approximately $52 million as at January
31,  2001.  Continued  losses  are projected for the foreseeable future, raising
doubt  as to the Company's ability to raise new financing to fund operations and
continue as a going concern.  The accompanying consolidated financial statements
have  been  prepared in conformity with generally accepted accounting principles
and  contemplate the continuation of the Company as a going concern.  The report
of the auditors of the Company's financial statements for the year ended January
31,  2001 states in an explanatory paragraph that there is substantial doubt and
uncertainty  about  the  Company's  ability  to  continue  as  a  going concern.

     Numerous  factors  could  affect the Company's operating results including,
but  not  limited  to,  general  economic  conditions,  competition and changing
technologies.  A  change in any of these factors could have an adverse effect on
the  Company's consolidated financial position or results of operations.  During
the  2001  fiscal  year, the Company was required to raise additional capital in
order to continue its operations.  The issuances of Series 1-A and 2-A Preferred
Stock  were completed to finance the Company's operations at the end of the 2000
fiscal year.  If the current economic slowdown continues, the Company may not be
able  to generate revenues, control costs and attract needed additional capital.

RECENT  EVENTS

RESULTS  OF  OPERATIONS  -  FISCAL  YEAR  2001  VERSUS  FISCAL  YEAR  2000

REVENUES: Revenues for the year ended January 31, 2001 increased to $35,000 from
revenues  of $3,500 for the year ended January 31, 2000, an increase of $31,500,
or  900%.  Revenues increased primarily because the Company had ceased its sales
of  subscriptions  to  the software version of VSN in the year ended January 31,
2000,  and  began  the  implementation of the new Internet version of VSN in the
year  ended  January  31,  2001.

GENERAL  AND  ADMINISTRATIVE  EXPENSES:  General  and  administrative  expenses
increased to $16,123,943 for the year ended January 31, 2001 from $1,167,328 for
the  year  ended  January  31,  2000,  an increase of $14,956,615, or 1281%. The
increase  was  due to major increases of $1,440,241 in advertising and marketing
to support the product implementation, and including expenses associated with an
increase  in  personnel,  including  payroll,  rent and travel and a substantial
increase  of  $11,846,863  in  the  recognition  of  stock-based  compensation.

RESEARCH  AND  DEVELOPMENT:  Research  and  development  expenses  increased  to
$11,654,679  for  the  year  ended January 31, 2001 from $3,458,933 for the year
ended January 31, 2000, an increase of $8,195,746, or 237%. The increase was due
to  increased  costs  associated  with the development of the Company's Internet
version  of  its  VSN electronic purchasing system. Such increased costs include
additional  personnel  and  personnel-related  expenses at $2,458,264 as well as
increased  licensing  fees  for  development-related  tools  and  systems  and a
substantial  increase  of  $5,432,372  in  the  recognition  of  stock-based
compensation.


                                       26
<PAGE>
TOTAL  EXPENSES:  Total  expenses  increased  to  $27,778,622 for the year ended
January  31,  2001  from  $4,626,261  for  the  year  ended January 31, 2000, an
increase  of  $23,152,361,  or  501%.  The  increase  in  total expenses was due
primarily  to  the  increases  in  both research and development and general and
administrative expenses of $8,195,746 and $14,956,615, respectively, including a
substantial  increase  of  $17,279,235  in  the  recognition  of  stock-based
compensation.


LOSS  FROM OPERATIONS: The Company had a loss from operations of $27,743,622 for
the  year  ended January 31, 2001 versus a loss of $4,622,761 for the year ended
January  31,  2000,  an  increase  of  $23,120,861,  or 500%. The loss increased
because  of  increased  costs associated with developing the Internet version of
VSN  versus  a  decline  in  revenues associated with discontinuing the software
version  of  VSN  and  a  substantial increase in the recognition of stock-based
compensation.

INTEREST  INCOME:  Interest  income  increased  to  $152,431  for the year ended
January  31,  2001 from $15,394 for the year ended January 31, 2000, an increase
of  $137,037, or 890%. The increase was due primarily to the increase in cash in
interest  bearing accounts. The cash was received from the issuance of preferred
stock  through  two  private  placements.

LOSS  ON  IMPAIRMENT  OF  INTANGIBLE  ASSETS:  The  Company  incurred no loss on
impairment  of  assets  in  the  year ended January 31, 2001; however, a loss of
$527,356  was  incurred  for  the  year  ended  January  31,  2000.  The Company
determined  in the year ended January 31, 2000, that its June 1998 investment in
Wpg.Net,  Inc.,  and  its  technology,  did  not  continue  to  carry  the value
originally  anticipated.  As a result, the goodwill remaining on the books as of
January  31,  2000  was  eliminated  and  charged  to  expense.

OTHER  INCOME:  Other  Income increased to $4,018 for the year ended January 31,
2001 an increase from no other income for the year ended January 31, 2000. Other
income  in  2001 was derived primarily from the sale of miscellaneous short-term
assets.

INTEREST  EXPENSE:  Interest  expense  decreased  to  $11,589 for the year ended
January  31,  2001 from $388,571 for the year ended January 31, 2000, a decrease
of  $376,982,  or  97.0%.  The  decrease  was  due  primarily to the decrease in
Convertible  Demand  Notes.

NET  LOSS:  The  net  loss  of  $27,598,762  for the year ended January 31, 2001
increased  from  $5,523,294  for the year ended January 31, 2000, an increase of
$22,075,468,  or  400%,  almost  entirely  as  a  result  of increased loss from
operations,  including  a substantial increase in the recognition of stock-based
compensation.

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: The weighted average
number  of  shares  of  16,020,510 for the year ended January 31, 2001 increased
from  13,931,634  for  the year ended January 31, 2000, an increase of 2,088,876
shares,  or  15%.  The increase resulted from issuing 2,131,741 shares of common
stock,  resulting from issuing 307,391 shares upon exercise of stock options and
warrants,  65,654  shares  upon  conversion  of  convertible  demand  notes, the
conversion  of  661,057  shares of preferred stock and the issuance of 1,089,389
shares  in  relation  to  the  acquisition of OTT and 8,250 shares in return for
services  provided  to  the  Company.

NET LOSS PER COMMON SHARE: The net loss per common share of ($2.63) for the year
ended  January  31, 2001 increased from net loss per common share of ($0.40) for
the year ended January 31, 2000, an increase of ($2.23), or 558%, as a result of
the  increased  net  loss  for  the  year,  partially  offset by the increase in
outstanding  Common  Shares,  as  noted  above.

CHANGES  IN  CONSOLIDATED  STATEMENT  OF  CASH  FLOWS

CASH  FLOWS  FROM  OPERATING  ACTIVITIES: The Company used $9,593,418 of cash in
operating  activities  in  the year ended January 31, 2001, versus $2,863,183 of
cash  used  in  operating  activities  in  the  year  ended January 31, 2000, an
increase of $6,730,235 or 235%, in the use of cash for operations. The increased
use  of  cash  resulted  from a net loss of $27,598,762 offset by non-cash items
affecting income and changes in operating assets and liabilities of $18,005,344.
The  net  loss  was primarily due to increases in general and administrative and
research  and  development  expenses  associated  with  the  development  of the
Company's  now  discontinued  Internet  version of its VSN procurement software,
while  the  Company  generated  little  revenue.


                                       27
<PAGE>
CASH  FLOWS FROM INVESTING ACTIVITIES: For the year ended January 31, 2001, cash
used  in investing activities was $1,187,652 primarily because of the investment
in  OTT  of  $407,163,  acquisition  of  property and equipment of $689,801, and
advances to employees of $90,688. For the year ended January 31, 2000, cash used
in investing activities was $282,028 because of advances to employees of $41,820
and  acquisition  of  property  and  equipment  of  $240,208.

CASH  FLOWS FROM FINANCING ACTIVITIES: For the year ended January 31, 2001, cash
provided by financing activities was $10,982,165, consisting of $10,789,936 from
the  private  placement  of  preferred  stock  and $192,229 from the issuance of
common  stock.  For  the year ended January 31, 2000, cash provided by financing
activities  was  $8,292,441, consisting of $6,002,500 from the private placement
of  preferred  stock, $2,139,941 from the issuance of common stock, and $150,000
from  borrowings  on  convertible  notes.  This debt has all been converted into
equity  (See  Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS -
RECENT  SALE  OF  UNREGISTERED  SECURITIES).

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's principal sources of cash and cash equivalents for the year ended
January  31,  2001  were  derived from private sales of the Company's equity and
debt  securities  and  funds received from implementation fee revenues of VSN of
$35,000.  The  major  source of funds for the Company from the date of inception
through  January  31,  2001,  has  been from sale of equity and debt securities.

The  Company  completed  the  year  ended  January  31,  2001 with cash and cash
equivalents totaling approximately $5.4 million.  As of April 30, 2001 the total
of  cash  and  cash  equivalents  was  approximately  $3.4  million.

The  Company  has  implemented  cash  conservation  measures  and  is  currently
expending  approximately  $325,000  per  month of cash and cash equivalents.  At
this  rate,  without additional capital or revenues, the Company believes it can
continue  operations,  with  minimum  cash  reserves,  through January 31, 2002.

The  Company  is  presently  engaged  in  marketing  and  sales  of  its
LiquidMarketplace(TM)  products, but has not determined that these products, and
the  markets  toward  which  they  are directed, represent a sufficient business
opportunity for a major commitment of the Company's available capital resources.
The  Company,  therefore, is limiting further development and marketing expenses
related to LiquidMarketplace(TM), while it evaluates consolidation opportunities
with  compatible  technology companies and plans for raising additional capital.


                                       28
<PAGE>
Item 7.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors

Vsource, Inc.

We  have audited the accompanying consolidated balance sheet of Vsource, Inc. (a
Delaware  corporation) and subsidiaries as of January 31, 2001 and 2000, and the
related  consolidated  statements  of operations, shareholders' equity (deficit)
and  cash  flows for the years then ended. The consolidated financial statements
are  the  responsibility  of  the Company's management. Our responsibility is to
express  an  opinion  on  these  financial  statements  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements  are free of material misstatement. An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

In  our opinion, the consolidated financial statements referred to above present
fairly,  in  all  material respects, the financial position of Vsource, Inc. and
subsidiaries  as  of  January  31,  2001  and  2000,  and  the  results of their
operations and cash flows for the years then ended in conformity with accounting
principles  generally  accepted  in  the  United  States  of  America.

The  accompanying  financial  statements  have  been  prepared assuming that the
Company  will  continue  as a going concern. As discussed in Note 2, the Company
has  sustained  substantial  losses  from  operations since inception, has used,
rather  than  provided,  cash  from operations and has an accumulated deficit of
approximately  $52  million.  Continued losses are projected for the next fiscal
year.  At  present,  the  Company  has no proven plan for generation of material
revenue.  These factors, and others, raise substantial doubt about the Company's
ability  to  continue as a going concern. The ability of the Company to continue
operations  is  subject  to its ability to secure additional capital to meet its
obligations  and  to  fund  operations.  Management's  plans  in regard to these
matters  are  also  described in Note 2. The financial statements do not include
any  adjustments  that  might  result  from  the  outcome  of  this uncertainty.



/s/  Grant Thornton LLP
Los Angeles, California
April 13, 2001 (except for Note 13,
as to which the date is May 3, 2001
and except for Note 14, as to which
the date is September 24, 2001.)


                                       29
<PAGE>
<TABLE>
<CAPTION>
                                        VSOURCE, INC.
                                 CONSOLIDATED BALANCE SHEETS
                                         January 31,
                                         (Restated)
                                           ASSETS

                                                                       2001         2000
                                                                   ------------  -----------
<S>                                                                <C>           <C>
CURRENT ASSETS
     Cash                                                          $ 5,360,525   $5,124,399
     Restricted cash                                                    47,737       82,768
     Accounts receivable                                                 4,200           --
     Notes receivable-related parties                                  150,000           --
     Prepaid expenses                                                  103,687           --
                                                                   ------------  -----------
          Total current assets                                       5,666,149    5,207,167

PROPERTY AND EQUIPMENT
     Equipment and fixtures                                          1,099,628      240,208
     Less - accumulated depreciation                                  (167,283)     (17,708)
                                                                   ------------  -----------
                                                                       932,345      222,500

OTHER ASSETS
     Goodwill                                                        4,592,863           --
     Notes receivable-related parties                                   50,000      110,728
     Other assets                                                       19,559           --
                                                                   ------------  -----------
                                                                   $11,260,916   $5,540,395
                                                                   ============  ===========

                     LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
     Accounts payable                                              $   598,717   $  247,472
     Accrued expenses                                                  311,686      100,937
     Amounts related to in-process
       private placement of preferred stock                                 --    6,002,500
     Convertible notes payable                                              --      150,000
                                                                   ------------  -----------
                                                                       910,403    6,500,909

COMMITMENTS AND CONTINGENCIES                                               --           --

PREFERRED STOCK
     Preferred stock Series 1-A ($0.01 par value, 2,900,000
     shares authorized; 2,437,354 shares issued and outstanding.
      Aggregate liquidation value is $6,093,385.)                    5,984,802           --

     Preferred stock Series 2-A ($0.01 par value, 2,100,000
     shares authorized; 1,375,917 shares issued and outstanding.
     Aggregate liquidation value is $8,819,628)                      8,244,026           --
                                                                   ------------  -----------
          Total preferred stock                                     14,228,828           --
                                                                   ------------  -----------
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       30
<PAGE>

<TABLE>
<CAPTION>
                                  VSOURCE,  INC.
                          CONSOLIDATED  BALANCE  SHEETS
                                  January  31,
                                   (Restated)

                                                              2001          2000
                                                          ------------  ------------
SHAREHOLDERS' EQUITY (DEFICIT)
<S>                                                       <C>           <C>
     Common stock ($0.01 par value, 100,000,000
          shares authorized; 17,938,912 and 15,807,130
          issued and outstanding as of January 31, 2001
          and 2000, respectively)                             179,389       158,071
     Additional paid-in capital                            54,073,495    10,645,934
     Deferred compensation                                 (5,804,851)   (1,780,817)
     Accumulated deficit                                  (51,899,550)   (9,804,904)
     Notes receivable from the sale of stock                 (426,798)     (178,798)
                                                          ------------  ------------
          Total shareholders' equity (deficit)             (3,878,315)     (960,514)
                                                          ------------  ------------
                                                           11,260,916   $ 5,540,395
                                                          ============  ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                       VSOURCE, INC.
                           CONSOLIDATED STATEMENTS OF OPERATIONS
                              For the years ended January 31,
                                         (Restated)


                                                                    2001           2000
                                                                -------------  ------------
<S>                                                             <C>            <C>
Revenue                                                         $     35,000   $     3,500

General and administrative expenses (including $12,271,129
    and $424,266 of stock based compensation for the
    years ended January 31, 2001 and 2000, respectively)          16,123,943     1,167,328

Research and development (including $5,432,372 of stock based
    compensation for the year ended January 31, 2001.
    No stock based compensation is included for the
    year ended January 31, 2000)                                  11,654,679     3,458,933
                                                                -------------  ------------

    Total expenses                                                27,778,622     4,626,261
                                                                -------------  ------------

Loss from operations                                             (27,743,622)   (4,622,761)

Other income (expense):
    Interest expense                                                 (11,589)     (388,571)
    Loss on impairment of intangible asset                                --      (527,356)
    Interest income                                                  152,431        15,394
    Other income                                                       4,018            --
                                                                -------------  ------------

    Net loss                                                    $(27,598,762)  $(5,523,294)
                                                                =============  ============

Loss available to
    common stockholders (See notes 11 and 14)                   $(42,094,646)  $(5,523,294)
                                                                =============  ============

Basic and diluted weighted average number of
  common shares outstanding                                       16,020,510    13,931,634
                                                                =============  ============

Basic and diluted net loss per share
    available to common stockholders
    (See note 14)                                               $      (2.63)  $     (0.40)
                                                                =============  ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       32
<PAGE>
<TABLE>
<CAPTION>
                                                           VSOURCE, INC.
                                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                                            (Restated)


                                                                                        Total
                                   Common     Stock     Additional      Deferred        Notes       Accumulated    Shareholder's
                                   Shares     Amount     Paid-in-     Compensation    Receivable      Deficit         Equity
                                 ----------  --------  ------------  --------------  ------------  -------------  ---------------
<S>                              <C>         <C>       <C>           <C>             <C>           <C>            <C>
Balance at January 31, 1999      11,401,492  $114,014  $ 4,296,392              --            --   $ (4,281,610)  $      128,796
Issuance of common stock,
     net of issuance costs        1,495,213    14,952    2,124,990                                                     2,139,942
Issuance of common stock upon
     conversion of demand notes   2,210,201    22,102      949,451                                                       971,553
Issuance of common
     stock for services              64,165       642      112,735                                                       113,377
Granting of common stock
     options for services                                2,123,832      (1,780,817)                                      343,015
Issuance of warrants
    - related party                                        435,136                                      435,136               --
Beneficial conversion feature                              349,710                                                       349,710
Modification in terms of
   stock options                                            81,251                                                        81,251
Exercise of stock options           636,100     6,361      172,437                      (178,798)                             --
Net loss                                                                                             (5,523,294)      (5,523,294)
                                 ----------  --------  ------------  --------------  ------------  -------------  ---------------
Balance at January 31, 2000      15,807,171  $158,071   10,645,934      (1,780,817)     (178,798)    (9,804,904)        (960,514)
Issuance of preferred stock              --        --                                                  (248,000)        (248,000)
Conversion of preferred stock       661,057     6,610    2,804,999                                                     2,811,609
Issuance of common stock-
    acquisition of OTT            1,089,389    10,894    4,047,360                                                     4,058,254
Issuance of common stock
     Upon conversion of
     demand notes                    65,654       657      163,480                                                       164,137
Beneficial conversion feature
    and deemed non-cash
    dividend to preferred
    stockholders                                        14,495,884                                  (14,495,884)              --
Compensation related to:
    options granted for
    services                                            11,942,646      (6,684,383)                                    5,258,263
    warrants issued for
    services                                            10,966,310                                                    10,966,310
Issuance of stock
    for services                      8,250        83      319,216                                                       319,299
Expired and forfeited options                           (2,660,349)      2,660,349                                            --
Exercise of stock options           209,334     2,094    1,348,995                                                     1,351,089
Exercise of warrants                 98,057       980         (980)                                                           --
Net loss                                                                                            (27,598,762)     (27,598,762)
                                 ----------  --------  ------------  --------------  ------------  -------------  ---------------
Balance at January 31, 2001      17,938,912  $179,389  $54,073,495   $  (5,804,851)  $  (426,798)  $(51,899,550)  $   (3,878,315)
                                 ==========  ========  ============  ==============  ============  =============  ===============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       33
<PAGE>

<TABLE>
<CAPTION>
                                   VSOURCE, INC.
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                          For the years ended January 31,
                                     (Restated)


                                                   2001           2000
                                               -------------  ------------
<S>                                            <C>            <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net loss                                       $(27,598,762)  $(5,523,294)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization                       150,457       436,671
Interest expense related to
the beneficial conversion feature                        --       349,710
Interest expense converted to equity                     --        36,568
Impairment of intangible asset                           --       527,356
Compensation expense on stock options granted     4,643,928       424,266
Compensation expense on warrants issued          10,966,310            --
Services paid with equity                         2,093,263       548,513
Settlement of rent litigation                            --        37,500
Changes in assets and liabilities:
Accounts receivable                                      --         3,590
Prepaid expenses                                   (103,687)           --
Accounts payable                                    139,829       198,250
Deferred revenue                                         --        (3,250)
Accrued liabilities                                 115,244       100,937
                                               -------------  ------------
      Net cash used in operating activities      (9,593,418)   (2,863,183)

Cash flows from investing activities:
Investment in OTT                                  (407,163)           --
Purchase of property and equipment                 (689,801)     (240,208)
Advances to related parties                         (90,688)      (41,820)
                                               -------------  ------------
Net cash used in investing activities            (1,187,652)     (282,028)

Cash flows from financing activities:
Proceeds from issuance of common stock              192,229     2,139,941
   Proceeds from issuance of preferred stock     10,789,936     6,002,500
Proceeds from borrowings                                 --       150,000
                                               -------------  ------------
Net cash provided by financing activities        10,982,165     8,292,441
                                               -------------  ------------
Net increase in cash                                201,095     5,147,230
                                               -------------  ------------
Cash at beginning of period                       5,207,167        59,937
                                               -------------  ------------
Cash at end of period                          $  5,408,262   $ 5,207,167
                                               =============  ============
</TABLE>


Supplemental  disclosure:
     See  Note  1 - STATEMENT OF CASH FLOWS

        The accompanying notes are an integral part of these statements.


                                       34
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

1.   NATURE  OF  BUSINESS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  PRINCIPLES

ORGANIZATION  AND  BUSINESS

Vsource,  Inc.  ("Vsource"  or the "Company") creates and markets Internet-based
applications  for businesses. An Internet-based application is best described as
computer  software  and  data  that  reside  on a remote server, rather than the
user's  computer,  where  that software and data are accessed over the Internet.
The  Company  intends  to  generate  fees  by  licensing  its  Internet-based
applications  for  use  by  businesses.  Currently,  the  Company  offers
LiquidMarketplace(TM)  as its primary application.  LiquidMarketplace(TM) may be
used  by corporate clients to purchase goods and services via the Internet.  The
Company has also developed and has previously offered a non-Internet procurement
software,  Virtual Source Publisher, a do-it-yourself Internet web site builder,
and  Virtual  Source  Network  ("VSN"),  an Internet based procurement software.
These  products  have  been  discontinued,  but  the Company retains all related
technology  and  rights.

Vsource  was  incorporated  in  Nevada  on  October  22,  1980  as  Cinema-Star
Corporation and, in September 1989, was renamed Dyna-Seal Corporation.  Prior to
February  1,  1995, the Company's name was changed several times, and its former
line  of  business  (manufacturing,  packaging  and  distribution  of  coatings,
sealants  and adhesive for use in aircraft and marine industries) was completely
discontinued.  In  July 1995, the Company changed its name to Interactive Buyers
Network  International,  Ltd.,  and  acquired  all  of the outstanding shares of
Buyer/Seller  Interactive  Software,  Inc.,  a Nevada corporation whose name was
subsequently changed to Virtual Source, Inc., ("VSI").   The Company changed its
name  to  Vsource,  Inc.  in  December  1999.

On  June  1, 1998, the Company acquired all of the outstanding stock of Wpg.Net,
Inc.  for  500,000 shares of common stock plus stock options for 500,000 shares.
The options vest ratably, on a monthly basis, over the 3 years subsequent to the
purchase.  If  Wpg.Net,  Inc. division revenues reach $500,000 before the 3-year
vesting  period  has  expired,  the 500,000 options vest immediately. The former
shareholders  of  Wpg.Net,  Inc.  (Wpg.Net, Inc. Shareholders) are entitled to a
commission  of 50% of revenue generated by the Wpg.Net, Inc. division.  However,
no  Wpg.Net,  Inc.  revenues  have  been  recorded  since it was acquired and no
revenue  producing  activities are contemplated.  Wpg.Net, Inc. shareholders are
entitled  to  25% of revenues produced by Virtual Source, Inc. relating to sales
of the currently inactive Virtual Source Publisher. In the event that Vsource is
sold,  the  Wpg.Net,  Inc.  shareholders  are  entitled to a one-time payment of
$3,000,000,  the  options vest immediately, and all commission obligations cease
at  that  time.  The Company guaranteed a minimum stock price of $7.00 per share
for  the  stock held by Wpg.Net, Inc. shareholders upon the sale of the Company.
The  acquisition  was  accounted  for  as  a  purchase and was included with the
combined operations for the dates subsequent to June 1, 1998. As a result of the
acquisition, goodwill was recorded in the amount of $1,186,555.  During the year
ended  January 31, 2000, the Company determined that the present value of future
cash  flows  related  to  the  acquisition  of  Wpg.Net, Inc.  was not material.
Consequently,  the  remaining  unamortized  goodwill  has been written off as of
January 31, 2000.  Wpg.Net, Inc. was merged into Vsource, Inc. effective January
4,  2001.

The  Company  reincorporated  in  the  state  of  Delaware  on November 8, 2000.

On  December  14, 2000, the Company entered into an Agreement and Plan of Merger
with  OTT  Acquisition  Corp.,  a  California  corporation,  Online  Transaction
Technologies,  Inc.,  a  California  corporation  ("OTT"),  Colin  P. Kruger and
Michael  Shirman  (the "Merger Agreement") to acquire OTT.  On January 22, 2001,
the  transaction  closed in accordance with the Merger Agreement. The merger was
recorded  using  the purchase method of accounting and the results of operations
of OTT are included in the consolidated operations of the Company for the period
subsequent  to  January  22, 2001.The merger was a tax-free reorganization under
Section  368(a)  of  the  Internal  Revenue  Code.

OTT  is  an  Application  Service  Provider  ("ASP")  that  develops  and  hosts
transaction solutions for public and private exchanges. Among the solutions that
OTT  brings  to  Vsource  is  LiquidMarketplace(TM),  a  complete suite of fully
integrated  transaction  solutions, including auctions, fixed-price catalogs and
RFQ  (request  for  quotations)  /RFP  (request  for  proposal)  engines.


                                       35
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

These  solutions  are  identified  as  LiquidAuction(TM),  LiquidCatalog(TM) and
RFP/RFQ  products.  This  suite  allows  public  exchange clients to handle both
seller- and buyer-initiated transactions in their e-Marketplaces.  OTT's private
exchange  solution,  LiquidStore(TM),  offers  private  catalog  and  auction
functionality  to LiquidMarketplace(TM) participants or stand-alone clients.  In
addition to offering a complete suite, OTT has developed proprietary modules and
applications  that  reduce  customization  and  deployment  time  and  simplify
integration.  See  Note  3.

The  Company  is  presently  engaged  in  marketing  and  sales  of  its
LiquidMarketplace(TM)  products, but has not determined that these products, and
the  markets  toward  which  they  are directed, represent a sufficient business
opportunity for a major commitment of the Company's available capital resources.
The  Company,  therefore, is limiting further development and marketing expenses
related to LiquidMarketplace(TM), while it evaluates consolidation opportunities
with  compatible  technology companies and plans for raising additional capital.

PRINCIPLES  OF  CONSOLIDATION

The  consolidated financial statements include the accounts of Vsource, Inc. and
its  wholly  owned  subsidiaries  Virtual  Source,  Inc.  and Online Transaction
Technologies,  Inc.  Significant  intercompany  accounts  have  been eliminated.

REVENUE  RECOGNITION

The  Company  accounts  for  revenue in accordance with the Financial Accounting
Standards  Board issued EITF 00-3, which provides guidance on applying generally
accepted  accounting  principles  for recognizing revenues. The Company provides
Web based auction services and presently has one client operating month-to-month
under an expired services agreement.  A monthly maintenance fee is charged which
is  recognized  currently  in the month during which the services are performed.

Revenue is derived from LiquidMarketplace(TM) products through a client contract
that  provides  for  an  initial  "set-up"  fee  and an ongoing license fee. The
"set-up" fee is based on specific client requirements, generally in the $100,000
to  $200,000  range. The license fee and accompanying service level agreement is
based  on  a  fixed  monthly  charge,  with  additional  charges  for  a  pilot
implementation  and  for  client-specific  modifications  to  the
LiquidMarketplace(TM)  products.  These  are typically billed, as required, on a
time  and  materials  basis.

RESEARCH  AND  DEVELOPMENT

Research  and  development  expenditures  are charged to operations as incurred,
until  technological  feasibility has been established, at which time such costs
are capitalized until the product is available for general release to customers.
To  date, the Company's software has been not been available for general release
concurrent with technological feasibility, and accordingly, no development costs
have  been  capitalized.  (See  discussion  under  Software  Development Costs.)

SOFTWARE  DEVELOPMENT  COSTS

Software  development costs have been accounted for in accordance with Statement
of  Financial  Accounting  Standard  (SFAS)  No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Under that standard,
capitalization  of  software  development costs begins upon the establishment of
technological  feasibility,  subject  to  net  realizable  value considerations.
Capitalized  software  costs  are  amortized  over the greater of: 1) the amount
computed  using  the ratio that current gross revenues for a product bear to the
total  current and anticipated future gross revenues for that product; or 2) the
straight-line  method over the remaining estimated useful life of the product in
which  the  life  is  generally estimated to be three years. The Company has not
incurred  any  significant capitalizable costs, other than those acquired in the
merger  with  OTT.


                                       36
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

PROPERTY  AND  EQUIPMENT

Property  and equipment are stated at cost. The assets are depreciated using the
straight-line  method  over their estimated useful lives of five to seven years.
Carrying  values  are  reviewed  periodically  for impairment whenever events or
changes  in circumstances indicate that the carrying amount of assets may not be
recoverable.

The  policy  of  the  Company  is  to capitalize significant improvements and to
expense  repairs  and  maintenance.

Depreciation  expense for the years ended January 31, 2001 and 2000 was $149,575
and  $40,275,  respectively.

IMPAIRMENT  OF  LONG-LIVED  ASSETS

The  Company  reviews  long-lived assets, certain identifiable intangible assets
and  goodwill  related to these assets for impairment. For assets to be held and
used,  including  acquired  intangibles, the Company initiates a review whenever
events  or  changes  in  circumstances  indicate  that  the  carrying value of a
long-lived  asset may not be recoverable. Recoverability of an asset is measured
by  comparison  of its carrying value to the future undiscounted cash flows that
the  asset  is expected to generate. Any impairment to be recognized is measured
by  the  amount  by  which  the  carrying value exceeds the projected discounted
future  operating  cash flows. Assets to be disposed of and for which management
has  committed  a  plan  to  dispose  of  the  assets,  whether  through sale or
abandonment,  are  reported  at  the  lower of carrying value or fair value less
costs  to  sell.

INTANGIBLE  ASSETS

Intangible  assets,  principally  goodwill,  are  amortized on the straight-line
method  over a period of 3 years. Goodwill represents the excess of the purchase
price  paid  over  the  fair  value  of tangible and identifiable intangible net
assets  acquired.  The  Company  regularly  assesses  the  carrying  amounts  of
intangible  assets  for impairment when operating profit (loss) from the related
business  indicates  the  carrying amounts of the assets may not be recoverable.
Carrying  values  are  reviewed  for  impairment  whenever  events or changes in
circumstances indicate that the carrying amounts of intangible assets may not be
recoverable.  No  such  impairment  is  indicated for the year ended January 31,
2001.  The  Company recorded an impairment of goodwill in the amount of $527,356
for  the  year  ended  January  31,  2000.

The  Company  allocated  $3,949,039 of the purchase price of OTT to goodwill. In
addition,  $643,824 of direct expenses related to the transaction were recorded.
Goodwill  for  the  year ended January 31, 2001 was $4,592,863. Amortization for
the  years  ended  January 31, 2001 and 2000 was $881and $396,396, respectively.

STOCK  BASED  COMPENSATION

The  Company  accounts for stock based compensation in accordance with Statement
of  Financial  Accounting  Standards  No.  123,  "Accounting  for  Stock-Based
Compensation,"  ("SFAS  123"),  which  allows companies to continue to recognize
compensation  expense  pursuant  to  Accounting  Principles Board Opinion No. 25
("APB  25"),  "Accounting for Stock Issued to Employees", but requires companies
to  disclose  the  effect  on earnings of compensation expense for stock options
based  on the fair value of the options at the grant date. Accordingly, employee
compensation cost for stock options is measured as the excess of the fair market
value  over  the  exercise  price  at  the  measurement  date.

LOSS  PER  SHARE

Basic  and  diluted  loss  per share of common stock is computed by dividing the
loss  available  to common stockholders by the weighted average number of common
shares  outstanding  during  the  period shown. Common stock equivalents are not
included  in  the  determination  of  diluted loss per share, as their inclusion
would  be  antidilutive.

ADVERTISING  COST

The  Company  charges  advertising  costs  to  expense  as incurred. Advertising
expense for the years ended January 31, 2001 and 2000 was $939,576 and $245,680,
respectively.


                                       37
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

STATEMENT  OF  CASH  FLOWS

For  the purpose of the statement of cash flows, cash includes amounts "on-hand"
and  amounts  deposited  with  financial  institutions.

Supplemental disclosure of cash flow information is as follows:

     Cash paid during the period:

<TABLE>
<CAPTION>
                                           For the Years Ended January 31,
                                         ----------------------------------
                                               2001              2000
                                         --------------  ------------------
<S>                                      <C>             <C>
Interest                                  $          --  $               --
                                         ==============  ==================
Income taxes                              $       1,600  $            1,600
                                         ==============  ==================
</TABLE>

Supplemental schedule of non-cash investing and financing transactions:

     Issuance of common stock in connection with the following transactions:

<TABLE>
<CAPTION>
                                          For the Years  Ended January 31,
                                          ----------------------------------
                                               2001              2000
                                          --------------  ------------------
<S>                                       <C>             <C>

Conversion of debt to equity              $    6,002,500  $          996,553
                                          ==============  ==================
Purchase of OTT                           $    4,058,854  $               --
                                          ==============  ==================
</TABLE>

For  the year ended January 31, 2000, options for 636,100 shares of common stock
were exercised for notes receivable in the amount of $178,798. In the year ended
January  31,  2001  the  Chief Financial Officer and the Chief Operating Officer
each  purchased  19,501 shares of the Company's Series 2-A Convertible Preferred
Stock  for  nominal cash and three-year promissory notes of $124,000 each, which
bear  interest  at  a  rate  of  8%  per  annum.

USE  OF  ESTIMATES

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


2.     REALIZATION  OF  ASSETS

The  accompanying  financial  statements  have  been prepared in conformity with
accounting  principles  generally  accepted in the United States of America ("US
GAAP"),  which  contemplate  continuation  of  the  company  as a going concern.
However,  as  shown  in  the  accompanying financial statements, the Company has
sustained  substantial losses since its inception.  In addition, the company has
used,  rather  than  provided,  cash  in  its operations and, at present, has no
committed  plan  for  generation  of  material  revenue.

In view of the matters described in the preceding paragraph, recoverability of a
major  portion  of  the recorded asset amounts shown in the accompanying balance
sheet  is  dependent  upon continued operations of the company, which in turn is
dependent  upon  the  company's  ability to meet its financing requirements on a
continuing  basis,  to  maintain present financing, and to succeed in its future
operations.  The  financial  statements


                                       38
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

do not include any adjustments relating to the recoverability and classification
of  recorded  asset  amounts  or  amounts and classification of liabilities that
might  be  necessary  should  the  company  be  unable to continue in existence.

Management  has  taken steps to revise its operating and financial requirements,
which  it  believes  are  sufficient  to provide the company with the ability to
continue  its operations.  These steps include expense reductions, marketing and
sale  of  LiquidMarketplace(TM)  products, consideration of presently identified
merger  opportunities,  and  plans  to  raise  additional capital through equity
transactions.

The  Company  has  implemented  cash  conservation  measures  and  is  currently
expending  approximately  $325,000,  per month of cash and cash equivalents.  At
this  rate,  without additional capital or revenues, the Company believes it can
continue  operations,  with  minimum  cash  reserves,  through January 31, 2002.

3.     ACQUISITION  OF  OTT

On  December  14, 2000, the Company entered into an Agreement and Plan of Merger
with  OTT  Acquisition  Corp.,  a  California  corporation,  Online  Transaction
Technologies,  Inc.,  a  California  corporation  ("OTT"),  Colin  P. Kruger and
Michael  Shirman (the "Merger Agreement").  On January 22, 2001, the transaction
closed  in  accordance  with the Merger Agreement. The merger is recorded on the
purchase  method  of  accounting  and is a tax-free reorganization under Section
368(a)  of  the  Internal  Revenue  Code.

The  aggregate  purchase  price  payable  at Closing was 1,089,389 shares of the
Company's  common  stock.  The  number  of  shares  was  calculated based upon a
specific  formula  in  the  Merger  Agreement. The purchase price was subject to
adjustment  based on reductions or increases in the net book value of the assets
of  OTT  from  September 30, 2000 through Closing. In accordance with Accounting
Principles  Board  Opinion 16, the total recorded value of the shares issued was
based  on  the  average  market price of the Company's stock for a stated period
both before and after the Company's announcement of the acquisition. The Company
recorded  $3,949,039  of  the  purchase  price of OTT and $643,824 of direct and
accrued  expenses  as  Goodwill.  The  Company  is in the process of obtaining a
valuation  of the acquired assets. Accordingly, the amounts recorded are subject
to  adjustment.

In connection with the Closing, two key employees of OTT entered into employment
contracts  with  the  Company  providing  for,  among  other things, salaries of
$125,000  and  options  to purchase 100,000 shares of the Company's common stock
which  vest  over  24  months  and  have  an  exercise price of $6.41 per share.
Twenty-five  percent  of the equity securities comprising the aggregate purchase
price  will  be  held  for  six months in escrow (the "Escrow Securities").  The
Escrow  Securities and Company shares issued to OTT management shareholders will
be  the  sole  recourse  for  the Company for indemnification against claims and
losses  arising  from  breaches  by  OTT  of  representations  and warranties or
covenants  made pursuant to the definitive agreements.  Such representations and
warranties  shall  terminate over varying periods. The Escrow Securities will be
valued  for  purposes of any such indemnification at the Acquisition Price.  OTT
shareholders  may  at  their  option  pay  any such indemnity in cash in lieu of
Escrow  Securities.

4.     NOTES  RECEIVABLE  -  RELATED  PARTIES

     A.     Notes  receivable-related  parties:

In  October  2000,  Robert  C.  McShirley,  then  the  Company's Chief Executive
Officer, borrowed $400,000 from the Company in exchange for a secured ninety-day
promissory  note, which bears interest at a rate of 8% per annum, and was due on
January 9, 2001. In late October 2000, Mr. McShirley repaid the Company $250,000
of  the  original  balance,  leaving  a balance of $150,000 which is included in
current  assets.  On January 30, 2001, the Company's board of directors approved
an  extension  of  this  note  for  90  days.  (See Note 13 - Subsequent Events)


                                       39
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)


In  addition, the then Chief Operating Officer borrowed $50,000 from the Company
in exchange for a two-year promissory note, which bears interest at a rate of 8%
per  annum,  is  due  on  October  12,  2002  and  is  included in other assets.

     B.     Notes  receivable  from  the  sale  of  stock:

The  Company has unsecured notes receivables from several officers which totaled
$426,798  and  $178,798 as of January 31, 2001 and 2000, respectively. The notes
as  of  January  31,  2000  are unsecured, due on demand and bear interest at an
annual  rate  of  6%.  The notes were granted in connection with the exercise of
636,100  stock options on May 15, 1999. Notes received in the year ended January
31,  2001  for  $248,000  were granted in connection with the issuance of 39,002
shares  of  Series 2-A convertible Preferred Stock. The notes are secured by the
39,002  shares  of  related stock, bear interest at an annual rate of 8% and are
due  on  September  15,  2003.


5.   CONVERTIBLE  NOTES  PAYABLE

In  November  1999,  the  Company  issued  $150,000 of 10% convertible notes due
December  31, 2000 to certain investors.  The notes were convertible into shares
of  restricted  common stock at a price per share of $2.50. All of the notes had
been  converted  as  of  January  31,  2001.

During  the  year ended January 31, 2000, the Company allocated a portion of the
convertible  notes  to  the  embedded  beneficial  conversion  feature  in  the
convertible  notes  and  credited paid-in capital.  The portion allocated to the
beneficial  conversion  feature  was  charged to interest expense at the date of
issuance.

The  amount charged to interest expense related to convertible notes was $11,589
for  the year ended January 31, 2001 and $349,710 for the year ended January 31,
2000.

6.   STOCK  OPTIONS  AND  WARRANTS

     OPTIONS

The  Company  has granted various non-qualified stock options to key executives,
management  and  other employees at exercise prices equal to or below the market
price at the date of grant. In general, options become exercisable from 8 months
to  3  years  from  the  grant  date.

On  June  10,  1998,  the Board of Directors granted options to shareholders' of
Wpg.Net,  Inc.  to  purchase  500,000  shares of the Company's restricted common
stock  at an exercise price of $0.59 per share. The options are fully vested and
have  a  term  ending  in  June  2008.

In  July  2000,  the  Company  approved  a stock option plan ("Plan").  The Plan
authorizes  the grant of Incentive Stock Options and Non-statutory Stock Options
covering  an  aggregate of 795,000 shares of the Company's common stock (subject
to  limitations  of  applicable  laws,  and  adjustment  in  the  event of stock
dividends,  stock  splits,  reverse  stock  splits  and  certain other corporate
events.)  The  Plan  expires  on July 6, 2010, unless it is sooner terminated or
suspended  by  the  board.  The  Plan  is  not  subject to any provisions of the
Employee  Retirement  Income  Security  act  of  1974.


                                       40
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)


The  following  table summarizes information about stock option transactions for
the  years  ended  January  31,  2001  and  2000:

<TABLE>
<CAPTION>
                                                  Weighted
                                              Average Exercise
                                    Shares         Price
                                  ----------  ----------------
<S>                               <C>         <C>
Outstanding at January 31, 1999   1,136,100               0.49
Granted                           1,273,250               0.93
Exercised                          (636,100)              0.28
Cancelled                          (130,000)              1.25
                                  ----------
Outstanding at January 31, 2000:  1,643,250               0.85
Granted                           1,053,469               4.72
Exercised                          (209,334)              0.92
Cancelled                          (642,073)              2.24
                                  ----------
Outstanding at January 31, 2001   1,845,312               2.57
                                  ==========
Exercisable at January 31, 2001   1,065,390               1.24
                                  ==========
</TABLE>

Weighted  average  fair  value of options granted during the year is as follows:

<TABLE>
<CAPTION>
<S>                                                         <C>
     Exercise price below market value at date of grant     $21.04
     Exercise price equal to market value at date of grant      --
     Exercise price above market value at date of grant     $ 7.59
</TABLE>

The  following  table  summarizes information about stock options outstanding at
January  31,  2001:

<TABLE>
<CAPTION>
                                             Weighted
                                              Average
                                 Weighted    Remaining                  Exercisable
                     Number of    Average    Years of     Number Of      Weighted
Range of Exercise     Options    Exercise   Contractual    Options        Average
Prices              Outstanding    Price       Life      Exercisable  Exercise Price
------------------  -----------  ---------  -----------  -----------  ---------------
<S>                 <C>          <C>        <C>          <C>          <C>
0.59  -  1.10          947,625  $     .74          8.0      778,455  $           .72
1.66  -  3.05          568,839  $    2.57          8.6      282,890  $          2.63
6.00  -  9.43          270,169  $    6.73          9.7        4,045  $          6.00
10.00 - 16.01           58,679  $   13.20          9.6           --               --
                    -----------                           ----------
  Total              1,845,312                            1,065,390
                    ===========                           ==========
</TABLE>

The  Company  has  elected  to  continue  using  the  intrinsic-value  method of
accounting  for  stock-based  awards granted to employees in accordance with APB
25.

The following table reflects pro forma net income and earnings per share had the
Company  elected  to  adopt  the  fair  value approach of SFAS 123 for the years
ended:


                                       41
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

<TABLE>
<CAPTION>
                             January 31,    January 31,
                            -------------  -------------
                                2001           2000
                            -------------  -------------
<S>                         <C>            <C>
Net loss as reported        $(27,598,762)  $ (5,523,294)
Pro forma                   $(28,411,728)  $ (6,921,005)
Loss per share as reported  $      (2.63)  $      (0.40)
Pro forma                   $      (2.68)  $      (0.50)
</TABLE>

For  the  year  ended  January 31, 2001, the estimated fair value of each option
granted  is  calculated  using  the  Black-Scholes  option-pricing  model with a
weighted average risk free rate of 6.0%, volatility of 161% and expected life of
10  years.

WARRANTS

The  Company  has  granted various warrants for payment of services. The Company
accounts  for  warrants  issued  under  the  fair  value  approach  of SFAS 123.

The  following  table  summarizes information about warrant transactions for the
years  ended  January  31,  2001  and  2000:

<TABLE>
<CAPTION>
                                                                 Weighted
                                                             Average Exercise
                                                   Shares         Price
                                                 ----------  ----------------
<S>                                              <C>         <C>
Outstanding at January 31, 1999                         --                 --
Granted                                            120,000               2.00
Exercised                                               --                 --
Cancelled                                               --                 --
Outstanding at January 31, 2000                    120,000               2.00
                                                 ----------
Granted                                          1,733,421               6.37
Exercised                                         (120,000)              2.00
Cancelled                                               --                 --
                                                 ----------

Outstanding and exercisable at January 31, 2001  1,733,421               6.37
                                                 ==========
</TABLE>

In  December  2000,  the  Company  cancelled a strategic relationship with Qwest
Communications  of Denver, Colorado. In exchange for services to be rendered and
a  nominal  amount of cash, Vsource had granted to Qwest 600,000 warrants with a
three-year  term, at an exercise price of $5.00. When the warrants were granted,
the Company's stock was valued at $17.50 per share, resulting in a charge to the
Company  of  $8,412,000. Due to the cancellation of this arrangement the Company
recognized the full balance as a marketing expense in the year ended January 31,
2001.

For  the years ended January 31, 2001 and 2000, the Company recorded stock-based
compensation  expense  in the amounts of $17,703,501 and $424,266, respectively.

7.     INCOME  TAXES

Income  taxes are provided pursuant to SFAS No. 109 Accounting for Income Taxes.
The  statement requires the use of an asset and liability approach for financial
reporting  for  income taxes. If it is more likely than not that some portion or
all  of  a  deferred  tax  asset  will not be realized, a valuation allowance is
recognized.


                                       42
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

Accordingly,  as  the realization and use of the net operating loss carryforward
is  not  probable  at  January  31,  2001  or  2000, the tax benefit of the loss
carryforward  has  been  offset  by  a  valuation  allowance of the same amount.

The composition of deferred tax assets is as follows:

<TABLE>
<CAPTION>
                                           January 31,
                                   ----------------------------
                                       2001           2000
                                   -------------  -------------
<S>                                <C>            <C>
Total deferred tax assets          $ 10,095,923   $  2,424,637
Total valuation allowance           (10,095,923)    (2,434,637)
                                   -------------  -------------
Total deferred tax assets          $          -   $          -
                                   =============  =============
</TABLE>

The  tax  effects  of  temporary differences and carryforwards that give rise to
deferred  assets  are  as  follows:

<TABLE>
<CAPTION>
                                             January 31,
                                      -------------------------
                                         2001        2000
                                      ------------  -----------
<S>                                   <C>           <C>

Deferred tax assets:
Net operating loss carryforwards      $ 38,097,821   $9,149,575
                                      ============  ===========
Stock option conversion               $  1,294,403   $  164,217
                                      ============  ===========
</TABLE>

As of January 31, 2001, the Company had approximately $38,097,821 of federal and
$19,048,000  of  state loss carryforwards available to reduce future federal and
state  tax  liability  through  the year 2021 for federal loss carryforwards and
2006  for  the  state  loss  carryforwards.

8.     FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

The  Company  has  used  market  information for similar instruments and applied
judgment  to  estimate fair values of financial instruments. At January 31, 2001
and 2000, the fair values of cash, accounts receivable, notes receivable-related
parties, notes payable and accounts payable approximated carrying values because
of  the  short-term  nature  of  these  instruments.

9.     PREFERRED  STOCK

Effective  February  24,  2000,  the  Company  authorized  5,000,000  shares  of
preferred  stock  of  which  2,900,000 shares were designated as preferred stock
"Series  1-A  Convertible  Preferred  Stock",  of  which  2,802,000  shares were
initially  issued,  with  a  conversion  feature of $2.50 per share. The Company
allocated  the  net  proceeds  of  $6,868,397 from the issuance of the preferred
stock  to  an embedded beneficial conversion feature. Also recorded was a deemed
non-cash  discount  resulting  from  the  allocation,  which was fully amortized
through  retained  earnings  at  issuance.  In  the  event of any liquidation or
dissolution,  either  voluntary  or  involuntary,  the holders of the Series 1-A
Convertible  Preferred  Stock  shall  be  entitled  to  receive,  prior  and  in
preference  to  any  distribution  of any of the assets or surplus funds, to the
holders  of  the Common Stock by reason of their ownership thereof, a preference
amount  per  share consisting of the sum of (A) $2.50 for each outstanding share
of  Series  1-A  Preferred Stock, and (B) an amount equal to declared but unpaid
dividends on such shares, if any. Each share of Series 1-A Preferred Stock shall
be  convertible at any time after the date of issuance of such shares, into such


                                       43
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)


number  of  fully  paid  shares of Common Stock as is determined by dividing the
Original  Issue  Price by the then applicable Conversion Price, in effect on the
date  the  certificate  evidencing  such  share  is  surrendered for conversion.
Under  certain  circumstances, such as stock splits, these shares are subject to
stated  Conversion  Price Adjustments. The remaining 2,100,000 authorized shares
were  designated as "Series 2-A Convertible Preferred Stock", of which 1,672,328
were  initially issued, with rights, preferences and privileges as designated by
the  board  of  directors.  (See  discussion  below  on  Series  2-A Convertible
Preferred  Stock.)

Each  share  of  Series  1-A Preferred Stock, subject to the surrendering of the
certificates of the Series 1-A Preferred Stock, shall be automatically converted
into  shares of Common Stock at the then effective Conversion Price, immediately
upon  closing  of  a  public  offering  of  the  Company's  Common Stock with an
aggregate  gross  proceeds  of  at least $10,000,000 and a per share price of at
least  five  dollars,  or  at  the  election of the holders of a majority of the
outstanding  shares  of  Series 1-A Preferred Stock. The holder of each share of
Series 1-A Preferred Stock shall have the right to that number of votes equal to
the  number  of  shares of common stock issued upon conversion of the Series 1-A
Preferred  Stock.  Holders  of  the  Series  1-A Convertible Preferred Stock are
entitled  to  noncumulative dividends, if declared by the Board of directors, of
$0.20  per  share  annually. In the event of a liquidation or dissolution of the
Company,  the  holders  of  the  Series 1-A Convertible Preferred Stock shall be
entitled  to  receive  a  preference  amount for each outstanding share equal to
$2.50  plus  declared  but  unpaid  dividends.  The recorded value of Series 1-A
Convertible  Preferred  Stock was $5,984,802 on January 31, 2001.  There were no
shares  of Series 1-A Convertible Preferred Stock issued as of January 31, 2000.

In  conjunction  with  expenses  relating  to  the  issuance  of the "Series 1-A
Convertible Preferred Stock", 235,985 warrants were granted at an exercise price
of  $6.00  per  share  and 150,706 warrants were granted at an exercise price of
$2.50  per  share. During the quarter ended July 31, 2000, 120,000 warrants were
granted  at  an  exercise price of $2.00 per share, as compensation for services
rendered.  Ramin  Kamfar,  who  subsequently  was  elected  as a director of the
Company,  is  a  partner in a partnership that was awarded 60,000 of the 120,000
warrants  granted  at  an  exercise  price  of  $2.00  per  share.

During  the  period  August  28,  2000  to  September 18, 2000, the Company sold
1,672,328  shares  of  Series  2-A  Convertible Preferred Stock to 25 accredited
investors  and  received  $10,719,623,  less  offering  costs.  Each  share  of
preferred stock is convertible into one share of common stock at the election of
the  holder.  Each purchaser also received a warrant to purchase common stock at
an  exercise  price of $6.41 per share, with a five-year term.  The aggregate of
such  shares of common stock is 145,550.  No underwriters were used and offering
costs  were  $531,792,  including transfer agent fees, printing cost, legal fees
and  commissions  or  finders fees. The offering was a private placement made in
accordance  with  Regulation D. All of the purchasers were accredited investors.
No form of general solicitation or general advertising was used for any offer or
sale.  The  investors  represented  their  intention  to  acquire the shares for
investment  purposes  only,  and not with a view for resale or distribution, and
appropriate  restrictive  legends  were  placed on each stock certificate issued
pursuant  to  this  offering.  In  connection  with  the sales of the Series 2-A
Convertible  Preferred  Stock,  the  Company  issued  warrants  to  purchase  an
aggregate  of  144,881  shares  of  common stock at exercise prices ranging from
$6.41  to  $6.69  as additional finder's fees, commissions and other services in
connection with the offering. No underwriters were used, and no commissions were
paid.  The  warrants  were  issued to two consultants and as a private placement
exempt  from  registration under Section 4(2) of the Securities Act. The warrant
holders  represented  their  intention  to  acquire  the warrants for investment
purposes  only,  and not with a view for resale or distribution, and appropriate
stop  transfer  instructions  and  restrictive  legends  indicating the transfer
restrictions  will  be  place  on  each  warrant and each stock certificate when
issued.  Each  investor  had  ample  access  to the kind of information from the
Company  that  a  registration  statement  would  include.


                                       44
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

The  Company  allocated  $7,627,487 of the net proceeds from the issuance of the
Series 2-A Preferred Stock to Common Stock as required by an embedded beneficial
conversion  feature.  The deemed non-cash discount resulting from the allocation
was  fully amortized through retained earnings at issuance.  In the event of any
liquidation  or dissolution, either voluntary or involuntary, the holders of the
series  2-A  Convertible Preferred Stock shall be entitled to receive, prior and
in  preference to any distribution of any of the assets or surplus funds, to the
holders  of  the Common Stock by reason of their ownership thereof, a preference
amount  per  share consisting of the sum of (A) $6.41 for each outstanding share
of  Series  2-A  Preferred Stock, and (B) an amount equal to declared but unpaid
dividends on such shares, if any. Each share of Series 2-A Preferred Stock shall
be  convertible at any time after the date of issuance of such shares, into such
number  of  fully  paid  shares of Common Stock as is determined by dividing the
Original  Issue  Price by the then applicable Conversion Price, in effect on the
date the certificate evidencing such share is surrendered for conversion.  Under
certain  circumstances, such as stock splits, these shares are subject to stated
Conversion  Price  Adjustments.  The  recorded  value  of Series 2-A Convertible
Preferred  Stock  was  $8,244,026  on January 31, 2001.  There were no shares of
Series  2-A  Convertible  Preferred  Stock  issued  as  of  January  31,  2000.

In  September  2000, the Chief Financial Officer and the Chief Operating Officer
each  purchased  shares  of the Company's Series 2-A Convertible Preferred Stock
for  nominal  cash  and three-year promissory notes of $124,000 each, which bear
interest  at  a  rate  of 8% per annum and principal amounts each. The preferred
stock  purchased  was  19,501  for  each  officer.  In  connection  with  these
transactions,  they  also  each  received  a warrant to purchase 1,697 shares of
common  stock  with  an  exercise  price  of  $6.41  and  a  term of five years.

During the year ended January 31, 2001, 364,646 shares of Series 1-A Convertible
Preferred  Stock  and  296,411  shares of Series 2-A Convertible Preferred Stock
were  converted  into  common shares, 307,391 shares of common stock were issued
upon  exercise  of  stock options and warrants, 65,654 shares upon conversion of
convertible  demand  notes,  and 8,250 shares in return for services provided to
the  Company.


10.     SHAREHOLDERS'  EQUITY  (DEFICIT)

In  December  2000,  the  Company  terminated a strategic relationship with U.S.
West, Inc. (now known as Qwest Communications) of Denver, Colorado, to which the
two  firms  had  agreed  to make VSN available to Qwest's business customers. In
exchange  for  services to be rendered and a nominal amount of cash, Vsource had
granted  to  Qwest 600,000 warrants with a three-year term, at an exercise price
of  $5.00.  The terms of the distribution and marketing agreement were renewable
each year; however, it was subject to cancellation by either party giving notice
of its intent to terminate the agreement. The warrants were granted in the third
quarter  of  the  fiscal  year when the Company's stock was valued at $17.50 per
share,  resulting  in  a  charge  to  the  Company  of  $8,412,000.  The Company
recognized the full balance as a marketing expense in the year ended January 31,
2001  due  to  the  cancellation  of  this  arrangement.

On  January 22, 2001, Company closed an Agreement and Plan of Merger with Online
Transaction  Technologies, Inc., a California corporation ("OTT"). The aggregate
purchase  price  payable at Closing was 1,089,389 shares of the Company's common
stock.  The  number  of shares was calculated based on a specific formula in the
Merger  Agreement.  Such aggregate price shall be subject to adjustment based on
reductions  or  increases  in  the  net  book  value  of the assets of OTT since
September  30,  2000.  As a result of the acquisition, including direct expenses
related  to  the transaction, goodwill was recorded in the amount of $4,592,863.
In connection with the Closing, two key employees of OTT were granted options to
purchase  100,000  shares  each of the Company's common stock which vest over 24
months  and  have  an  exercise  price  of  $6.41  per  share.


                                       45
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

11.     BASIC  LOSS  AVAILABLE  TO  SHAREHOLDERS

Basic  earnings  per  share excludes dilution and is computed by dividing income
available  to  common  shareholders  by  the  weighted  average  common  shares
outstanding  for  the  period.

The  loss  available to common shareholders for the years ended January 31, 2001
and  2000 is the net loss for the period, adjusted for deemed non-cash dividends
on  preferred  stock.

The  following  table  is a calculation of basic and diluted earnings/(loss) per
share:

<TABLE>
<CAPTION>
                                                                2001             2000
                                                           ---------------  ---------------
<S>                                                        <C>              <C>
Net loss                                                   $ ( 27,598,762)  $(   5,523,294)

Less - deemed non-cash dividend to preferred shareholders   (  14,495,884)              --
                                                           ---------------  ---------------
Basic loss available to common shareholders                $ ( 42,094,646)  $(   5,523,294)
                                                           ===============  ===============
</TABLE>

Weighted  average  common  shares  outstanding for dilution purposes do not take
into  account  the  exercise  of  options  or warrants because to do so would be
antidilutive.

12.     COMMITMENTS  AND  CONTINGENCIES

LEASES

The  Company  leases its main office facilities under a noncancellable operating
lease agreement expiring March 31, 2002. The Company leases a second facility in
Bothell, Washington, under a noncancellable operating lease expiring October 31,
2002.  The  Company  is  in  the  process  of finding a sub-lessee to assume the
liability, however, the estimated liability is included below. The company has a
third location in Los Angeles, California under a noncancellable operating lease
expiring  April  6, 2002.  The future minimum rent expense that will be incurred
under  operating  leases  are  as  follows:

<TABLE>
<CAPTION>
<S>                              <C>
               2001               $407,505
               2002                165,537
               2003                     --
               2004                     --
                                  --------
                                  $573,042
                                  ========
</TABLE>

Rent  expense  for  the  years  ended January 31, 2001 and 2000 was $243,315 and
$114,221,  respectively.


EMPLOYMENT  AGREEMENTS

The  Company has employment agreements with two officers at the rate of $125,000
per  year.  The  employment  agreements  are "at will"; however, the Company has
agreed  to a severance payment of the greater of the base year through the first
anniversary of the date of employment or twelve weeks of the salary in effect at
the  date of termination.  In no event shall the Company be required to make any
severance  payment  unless  and  until  the employee executes a general release,
discharging  the  Company of any claims related to said employment. In addition,
the  company  agreed  to  pay employment bonuses to the two officers, of $50,000
each,  within  30  days  of  the  fiscal  year  ended  January  31,  2001.


                                       46
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

LEGAL

On  October 23, 2000, the Company filed a suit for fraudulent misrepresentation,
fraudulent  concealment,  rescission  and  mutual  mistake, seeking to rescind a
contract  the  Company  entered  into with Vitria Technology, Inc. ("Vitria") in
February  2000.  Subsequent  to  January 31, 2001, Vitria denied the substantive
allegations in the complaint and seeks the award of monetary damages against the
Company  for breach of contract. Because discovery is in the early stages, it is
not  possible for the Company to evaluate the likelihood of an outcome. On April
10,  2001,  the Santa Clara County Superior Court granted Vitria's request for a
writ  of  attachment in the sum of $600,000 to secure potential recovery in this
case.  (See  Note  13  -  Subsequent  Events)

FILING  OF  REGISTRATION  STATEMENT

The  Company was obligated to register the shares of Common Stock underlying the
Series  2-A  Preferred  and  the  warrants held by the holders of the Series 2-A
Preferred.  The registration statement was required to be effective on or before
January  16,  2001  or  the  Company  must  issue  to  each holder of Series 2-A
Preferred  an additional warrant to purchase Common Stock in an aggregate amount
equal to two percent (2%) of the registrable shares held by such holder for each
thirty  day  period this registration statement was not effective by January 16,
2001.  The  SB-2  Registration  statement  was  filed  on  December 29, 2000 and
brought  effective  January  11,  2001.  (See  Note  13  -  Subsequent  Events)

13.     SUBSEQUENT  EVENTS

On  March  12,  2001,  the Company announced it had received resignations of the
Chairman  of the Board and Chief Executive Officer, Robert C. McShirley, and the
Chief  Operating Officer, P. Scott Turner, and Director, Samuel E. Bradt. On the
same date the Company announced that it was withdrawing its VSN product, closing
its Bothell, Washington development center, and would lay off at least of 60% of
its  workforce.  It  also announced that it would move forward with the recently
acquired  LiquidMarketplace(TM)  product  line  while evaluating other strategic
alternatives.  In  the  quarter  ended  January  31,  2001, the Company reversed
$165,000  of  VSN  related revenue recorded during the nine months ended October
31,  2000.

On  February  26, 2001, the board of directors named I. Steven Edelson as Acting
Chairman  of  the Board. Mr. Edelson is a Managing partner of Mercantile Capital
Group,  LLC,  one  of  the  largest  individual  shareholders  of  the  Company.

On  March  8,  2001,  in  accordance  with the above mentioned resignations, the
Company  approved  a  revision  of the notes receivable from officers. The notes
receivable  from  Robert C. McShirley are collectively collateralized by 300,000
shares  of the Company stock as sole recourse. The terms of the notes receivable
from  Robert C. McShirley were extended to August 27, 2001. The notes receivable
from  P.  Scott  Turner  are collectively collateralized by 19,507 shares of the
Company stock and all associated warrants, as sole recourse. The Turner note for
$50,000, per the terms of the agreement, shall become payable on demand, 60 days
from  the  last  day  of employment.   The Turner note for $124,000 shall become
payable  on  demand,  90  days  from  the  last  day  of  employment.

Due to pending inquiries by its board of directors leading to the March 12, 2001
announcement,  on  February  7,  2001, the Company suspended registration of its
securities  under  the  Form  SB-2  registration statement referenced in Note 11
above.  The  Company plans to file an amended registration statement on Form S-3
subsequent  to  the filing of the Company's annual report on Form 10-KSB for the
year-end  January  31,  2001.

The Company was engaged in a lawsuit with Vitria Technology, Inc. as of the year
ended  January  31,  2001, as referenced in Note 11 - LEGAL.  On April 10, 2001,
the  Santa  Clara  County  Superior Court granted Vitria's request for a writ of
attachment  in  the  sum  of $600,000 to secure potential recovery in this case.
This  was  executed on April 20, 2001. Because discovery is in the early stages,
it  is  not  possible  for the Company to evaluate the likelihood of an outcome.


                                       47
<PAGE>

                                  VSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                JANUARY 31, 2001
                                   (Restated)

On April 24, 2001, the Company received notice from Nasdaq, citing the Company's
failure  to maintain a minimum bid price of $1.00 per share of common stock over
the  previous 30 consecutive trading days.  The Company will be given until July
23,  2001  to  regain  compliance.  If  the  Company  is  unable  to demonstrate
compliance  with  the minimum bid price requirement for at least ten consecutive
trading days prior to July 23, 2001, the Nasdaq staff will issue notification to
the  Company  that  its  securities  will  be  delisted.

In  addition,  the  Company  received a second notice of noncompliance on May 3,
2001  asserting that the Company's common stock has failed to maintain a minimum
market  value  of  public  float ("MVPF") of $5,000,000 over the last 30 trading
days  preceding  the notice.  If the Company is unable to demonstrate compliance
with  the  minimum  MVPF  requirement  for at least ten consecutive trading days
prior to August 1, 2001, the Nasdaq staff will issue notification to the Company
that  its  securities  will  be  delisted.

14.  RESTATEMENT  OF  FINANCIAL  STATEMENTS

The  consolidated  balance sheets at January 31, 2001 and 2000 have been changed
to reflect a reclassification of Series 1-A and Series 2-A Convertible Preferred
Stock,  previously  included  in Shareholders' equity (deficit) and now shown as
preferred  stock  at  January  31, 2001, in accordance with EITF-D98 issued July
2001.  The  deemed non-cash dividend to preferred shareholders was restated from
$13,499,177  to  $14,495,884  for  the year ended January 31, 2001. Net loss per
share  available  to  common shareholders increased from ($2.57) to ($2.63) as a
result  of  the  restatement.

15.  SUBSEQUENT  EVENT  (UNAUDITED)

The  Company  has  received letters from Nasdaq stating, inter alia, that Nasdaq
has determined that the company's acquisition of Netcel360 constituted a reverse
merger.  The  Company  disagrees  with  Nasdaq's  determination  and  has made a
submission to Nasdaq refuting this determination. The Company has prepared these
financial  statements  as  if the acquisition of Netcel360 is an acquisition and
not  a  reverse  merger.  The  Company has been granted an oral hearing before a
Nasdaq  Listing  Qualifications  Panel (the "Panel") scheduled for September 28,
2001 to inter alia appeal this determination. Should the Company be unsuccessful
in  respect of this issue at the Panel meeting then it is highly likely that the
Company  would  need  to  restate  its  financial  statements  in respect of the
transaction  with  Netcel360  to  account  for  it  as  a  reverse  merger  and,
accordingly,  the  financial  statements  of the Company will then revert to the
financial  statements  of  Netcel360  as  of  the  acquisition  date.


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

     On  February  8,  2000, the Audit Committee of Vsource's Board of Directors
accepted  the resignation of Lucas, Horsfall, Murphy & Pindroh, LLP as Vsource's
independent  public  accountants  with  respect  to  the  audit  of  Vsource's
consolidated  financial  statements  for  the fiscal year ended January 31, 2000
(the  "2000  Audit").

     On  February 8, 2000, the Audit Committee also selected and appointed Grant
Thornton  LLP  ("GT")  to serve as Vsource's independent public accountants with
respect  to  the  2000  Audit.

     Neither  the report of GT with respect to the 2000 Audit nor the reports of
Lucas,  Horsfall,  Murphy & Pindroh, LLP with respect to the audits of Vsource's
consolidated financial statements for the fiscal years ended January 31, 1999 or
January  31,  1998  contained  an adverse opinion or a disclaimer of opinion, or
were  qualified  or  modified  as  to  uncertainty,  audit  scope, or accounting
principles.  In  addition,  during Vsource's fiscal years ended January 31, 2000
and  January  31,  1999 and through February 8, 2000 there were no disagreements
with  Lucas,  Horsfall,  Murphy  &  Pindroh,  LLP  on  any  matter of accounting
principles  or  practices,  financial statement disclosure, or auditing scope or
procedure  with  respect  to  Vsource's consolidated financial statements, which
disagreements,  if not resolved to the satisfaction of Lucas, Horsfall, Murphy &
Pindroh,  LLP,  would  have caused it to make reference to the subject matter of
the  disagreements  in  connection  with  its  reports.



                                       48
<PAGE>
                                    PART III

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

     Our  directors  and executive officers, as of May 11, 2001, are as follows:

<TABLE>
<CAPTION>
     Name                 Age  Principal Position with Registrant
     -------------------  ---  ------------------------------------------------
<S>                       <C>  <C>
     I. Steven Edelson     41  Acting Chairman of the Board
     Scott T. Behan        39  Director
     Ramin Kamfar          37  Director
     Robert N. Schwartz    61  Director
     Nathaniel Kramer      39  Director
     Sandford T. Waddell   60  Chief Financial Officer, Treasurer and Secretary
     Michael Shirman       38  Chief Technology Officer
     Colin Kruger          39  Vice President, Business Development
</TABLE>

I.  STEVEN  EDELSON. Mr. Edelson has served on the Company's board since January
2001  and  was  elected  Acting  Chairman  in  March  2001. Mr. Edelson has been
Managing  Director  of  Mercantile  Companies, Inc., Northbrook, Illinois, since
1986.  He  is  also  a principal of Mercantile Capital Group, LLC, and he is the
Managing  Partner  of  Mercantile  Capital  Partners  I,  LP.

SCOTT  T.  BEHAN. Mr. Behan has served on the Company's board since August 1998.
For  the  past  five  years,  Mr.  Behan has been employed as the Executive Vice
President of AML Communications, Inc., a manufacturer of wireless amplifiers. He
has  been  a  director  of  AML  since  February  1999.  Mr. Behan has a B.S. in
Electrical  Engineering  from  Worcester  Polytechnic  Institute.

RAMIN KAMFAR. Mr. Kamfar has served on the Company's board since April 2000. Mr.
Kamfar  is a Managing Partner at New World Venture Partners, Inc., an investment
banking  boutique  focusing on technology and new economy companies. Since 1993,
Mr.  Kamfar has also served in various capacities at New World Coffee- Manhattan
Bagel,  Inc.,  a company he founded. Most recently he has served as Chairman and
Chief  Executive  Officer. From 1988 to 1993 Mr. Kamfar worked in the investment
banking  department  of Lehman Brothers, Inc., most recently as a Vice President
in  private  placements. Mr. Kamfar has a B.S. in Finance from the University of
Maryland  and  an M.B.A. in Finance from The Wharton School at the University of
Pennsylvania.

ROBERT  N. SCHWARTZ. Dr. Schwartz has served on the Company's board since August
1998.  From  1979  to the present, Dr. Schwartz has been a visiting professor at
U.C.L.A.  From 1981 to 2000, Dr. Schwartz was a Senior Research Scientist at HRL
Laboratories,  LLC,  Malibu, California. He has a B.A. in Mathematics, Chemistry
and Physics, and an M.S. in Chemical Physics from the University of Connecticut,
and  a  PhD.  in  Chemical  Physics  from  the  University  of  Colorado.

NATHANIEL  C.  A.  KRAMER.  Mr.  Kramer  has served on the Company's Board since
January  2001. Mr. Kramer is a principal of Mercantile Capital Group, LLC and is
Managing  Director  of  its  New  York  office.  From 1999 to 2000 he was a vice
president  with  Allen & Company, Inc., a private equity firm. From 1994 to 1999
he  was  president  and  CEO  of  Greenhouse Film Group Limited and is currently
Chairman.  Mr.  Kramer produced the Emmy nominated documentary "Choices" and the
Tony  Award  winning  1998  revival  of Arthur Miller's "A View From the Bridge.

SANDFORD  T.  WADDELL.  Mr.  Waddell has served as the Company's Chief Financial
Officer  and  Secretary  since  March 2000. From October 1999 to March 2000, Mr.
Waddell  served  as  the  Chief  Financial  Officer  for Snyder Diamond, Inc., a
privately  owned  retail  company.  From March 1998 to October 1999, Mr. Waddell
served as Chief Financial Officer for Rampage Clothing Company, a privately held
clothing  manufacturer  which  was  in  bankruptcy,  and  for which he helped to
restore  to profitability and effected a successful reorganization. From October
1966  to March 1988, Mr. Waddell served initially as Chief Financial Officer and
later also as Interim Chief Executive Officer at Reddi Brake Supply Corporation,
a  wholesale  auto  parts distributor, where he directed a reorganization of the
company's  operating subsidiary. From February 1992 to October 1996, Mr. Waddell
served  as  Interim  Chief  Financial  Officer  or  Financial  Consultant  for
approximately  twelve  privately  held  companies.  Mr.  Waddell holds a B.S. in
Engineering from Michigan Technological University and an M.B.A. from University
of  Minnesota.


                                       49
<PAGE>
MICHAEL  SHIRMAN.  Mr. Shirman joined the Company in January 2001 as a result of
the  merger  with Online Transaction Technologies, Inc. ("OTT"). As a co-founder
of  OTT,  he  has  over  15  years  of  experience in the Information Technology
industry.  Prior  to  the  formation  of  OTT  in  1999, Mr. Shirman was CEO and
co-founder  of  CODA Software, a developer of custom e-Commerce software, served
as  President  of InterSoft Consulting, a firm specializing in vertical business
applications,  and  held  senior  development  and  managerial  positions in the
banking,  manufacturing,  publishing,  finance,  distribution,  and
telecommunications  industries. Mr. Shirman holds a Masters Degree in Electrical
Engineering  (Telecommunications)  from  the  Institute  of  Telecommunication
Technology  in  Leningrad  (St.  Petersburg)  and  a  Masters Degree in Computer
Science  from  the  Leningrad  (St.  Petersburg)  Polytechnic  Institute.

COLIN  KRUGER.  Mr. Kruger joined the Company in January 2001 as a result of the
merger  with  Online  Transaction Technologies, Inc. ("OTT"). As a co-founder of
OTT,  he  was responsible for business development, strategic relationships, and
finance.  Prior  to  OTT, Mr. Kruger was President of ZAUCTION, America Online's
first  auction and a top 100 web site he founded in 1995. Previously, Mr. Kruger
was Vice President for the Glasser Group, Inc. and served as general manager for
Recycled Computer Outlets, Inc., a Glasser Group subsidiary he founded. Earlier,
Mr.  Kruger  held  management  roles  with  Equitable  Real  Estate  Investment
Management,  Inc.  Mr.  Kruger  holds  a GSE in Economics from Christ's College,
London,  and  a  BS  in Business Administration from San Diego State University.

             Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a)  of the Securities Exchange Act of 1934 (the "Exchange Act")
requires  the Company's directors and officers, and persons who beneficially own
more  than  ten  percent  of  our  common stock, to file with the Securities and
Exchange  Commission  ("SEC")  reports  of  beneficial  ownership and changes in
beneficial ownership of common stock and other equity securities of the Company.
Officers,  directors  and  greater than ten-percent stockholders are required by
SEC  regulations  to  furnish the Company with copies of all Section 16(a) forms
they  file.

     Based  solely  on the review of the copies of such reports furnished to the
Company  or  written  representations  that  no other reports were required, the
Company  believes  that  all Section 16(a) filing requirements applicable to its
officers,  directors and ten-percent stockholders were complied with in a timely
fashion.


                                       50
<PAGE>
ITEM  10.  EXECUTIVE  COMPENSATION

     The  following  summary compensation table sets forth information regarding
the compensation for the last three completed fiscal years of (a) the person who
served  as Chief Executive Officer of the Company during the most recent fiscal,
(b)  the  mostly  highly  compensated  executive  officers  other than the Chief
Executive Officer who were serving as executive officers as of January 31, 2001,
and  (c)  another  executive  officer who would have been among the highest paid
executive  officers  if  he had been an executive officer as of January 31, 2001
(the  "Named  Executive  Officers").
<TABLE>
<CAPTION>
                                         SUMMARY COMPENSATION TABLE

                                Fiscal    Annual Compensation      Long-Term Compensation
                                  Year  ------------------------  ------------------------
                                 Ended                            Restricted     Securities
Name and                          Jan.                              Stock        Underlying      All Other
Principal Position                 31,       Salary        Bonus    Awards     Options/SARs    Compensation
------------------------------  ------  -----------  -----------  ----------  -------------  --------------
<S>                             <C>     <C>          <C>          <C>         <C>            <C>

+Robert C. McShirley              2001  $   147,115  $         0           0             0   $   115,000(1)
  Former Chief Executive          2000      114,000            0           0     200,000(2)              0
Officer                           1999       63,750            0           0      80,000(3)              0

                                  2001  $   147,115  $         0           0             0   $    48,000(4)
+Richard McShirley                2000      110,250            0           0      85,000(5)              0
  Former Vice President           1999       90,000            0           0      35,000(6)              0

                                  2001  $   105,629  $         0           0       125,000               0
Sandford T. Waddell(7)            2000            0            0           0             0               0
  Chief Financial Officer         1999            0            0           0             0               0

+Ronald Sanderson(8)              2001  $   104,500  $         0           0             0               0
  Former Vice President of        2000       33,312            0           0       125,000               0
  Marketing                       1999            0            0           0             0               0
</TABLE>

---------------------
+  No  longer  employed  by  the  Company
(1)  Represents  the  forgiveness  of  amounts  that had been advanced to Robert
     McShirley  by  the Company and related payments to compensate Mr. McShirley
     for  the  tax  consequences  of  such  advances.
(2)  Options  to  purchase  100,000  shares of common stock were granted May 15,
     1999,  with  an  exercise price of $0.75 per share. In addition, options to
     purchase  100,000  shares  of  common stock granted on August 4, 1998, were
     repriced  on  May  15,  1999.
(3)  Options granted August 4, 1998, and exercised May 25, 1999. The options had
     an  exercise price of $1.25 per share and were repriced to $0.625 per share
     on  May  15,  1999.
(4)  Represents  the  forgiveness  of  amounts that had been advanced to Richard
     McShirley  by  the Company and related payments to compensate Mr. McShirley
     for  the  tax  consequences  of  such  advances.
(5)  Options  to  purchase  50,000  shares  of common stock were granted May 15,
     1999,  with  an  exercise price of $0.75 per share. In addition, options to
     purchase  35,000  shares  of  common  stock granted on August 4, 1998, were
     repriced  on  May  15,  1999.
(6)  Options granted August 4, 1998, and exercised May 25, 1999. The options had
     an  exercise price of $1.25 per share and were repriced to $0.625 per share
     on  May  15,  1999.
(7)  Mr.  Waddell  joined  the  Company  in  March  2000.
(8)  Mr.  Sanderson  was employed by the Company from September 1999 to December
     2000.

                                     OPTIONS

     The  following  table  sets  forth certain information with respect to each
Named  Executive  Officer  concerning  individual  grants of options to purchase
common  stock  made  during  the  year  ended  January  31,  2001:


                                       51
<PAGE>
<TABLE>
<CAPTION>
                        OPTION GRANTS IN LAST FISCAL YEAR
                              (Individual Grants)

                                                       % of Total
                                        Number of       Options
                                         Shares        Granted to    Exercise of
Name and                               Underlying     Employees in    Base Price   Expiration
Principal Position                   Options Granted   Fiscal Year    Per Share       Date
-----------------------------------  ---------------  -------------  ------------  ----------
<S>                                  <C>              <C>            <C>           <C>

+Robert C. McShirley                               0             0              -           -
  Former Chief Executive
Officer

+Richard McShirley                                 0             0              -           -
  Former Vice President

Sandford T. Waddell                          125,000            12%  $       2.50      3/1/10
  Chief Financial Officer

+Ronald Sanderson                                  0             0              -           -
  Former Vice President
</TABLE>

--------------------
+  No  longer  employed  by  the  Company.

     The  following  table  sets  forth certain information with respect to each
Named  Executive Officer concerning unexercised options to purchase common stock
held  as  of  end  of the fiscal year ended January 31, 2001.  None of the Named
Executive  Officers  exercised  any options to purchase common stock during such
fiscal  year.

<TABLE>
<CAPTION>
                        FISCAL YEAR-END OPTION/SAR VALUES

                                            Number of Securities
                                                Underlying               Value of Unexercised
                                           Unexercised Options at        In-the-Money Options
Name                                          January 31, 2001            January 31, 2001(1)
----                                     --------------------------  ----------------------------
                                         Exercisable  Unexercisable  Exercisable   Unexercisable
                                         -----------  -------------  ------------  --------------
<S>                                      <C>          <C>            <C>           <C>
+Robert C. McShirley                          50,000         50,000  $     75,000  $       75,000
  Former Chief Executive Officer

+Richard McShirley                            25,000         25,000  $     37,500  $       37,500
  Former Vice President

Sandford T. Waddell                           46,875         78,125             -               -
  Chief Financial Officer

+Ronald Sanderson                             93,750         31,250  $     36,875  $      110,625
  Former Vice President of Marketing
</TABLE>

------------------------
+  No  longer  employed  by  the  Company.
(1)  Value  is calculated in accordance with the rules of the SEC by subtracting
     the  exercise price per share for each option from the fair market value of
     the  underlying  common  stock  as of January 31, 2001 and multiplying that
     difference  by  the number of shares of common stock subject to the option.
     The  fair  market value of one share of common stock as of January 31, 2001
     was  $2.25  per  share.


                                       52
<PAGE>
                             DIRECTORS' COMPENSATION

     Upon  election  to  the  Board of Directors in April 2000, Ramin Kamfar was
granted  2,500  shares  of  the  Company's  common  stock.  The Company does not
currently  offer  any  other  compensation  to  the  directors.

ITEM  11.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT

                                  Common Stock

     The  following  table  sets  forth certain information as of April 30, 2001
regarding  the  beneficial  ownership of the common stock by (i) all individuals
known  to beneficially own 5% or more of the outstanding common stock, (ii) each
of  the Named Executive Officers (as defined above under Executive Compensation)
and directors and (iii) all of the Company's executive officers and directors as
a  group,  in  each  case,  to  the  best of the Company's knowledge.  Except as
otherwise  indicated,  the  Company  believes  that the beneficial owners of the
securities  listed  below  have sole investment and voting power with respect to
such shares.  As of April 30, 2001, there were 18,685,814 shares of common stock
outstanding.

<TABLE>
<CAPTION>
                                            Number of Shares
                                              Beneficially      Percent of   Percent of Total
Name of Beneficial Owner                          Owned           Class       Outstanding **
------------------------------------------  -----------------  -----------  -----------------
<S>                                         <C>                <C>          <C>
Trusthouse 86 Ltd.                               1,030,069(1)        5.50%              4.72%
4660 La Jolla Village Drive
Suite 480
San Diego, CA 92122

I. Steven Edelson                                  773,336(2)        4.14%              3.54%
1372 Shermer Road
Northbrook, IL 60062

Nathaniel C. A. Kramer                             678,337(3)        3.63%              3.11%
641 Lexington Avenue
Suite 1450
New York, NY 10022

Ramin Kamfar                                           2,500            *                  *
666 Greenwich St., #710
New York, NY 10014

Scott Behan                                           10,240            *                  *
P.O. Box 1244
Somis, CA 91384

Robert N. Schwartz                                    19,647            *                  *
UCLA, Dept. of Chemistry and Biochemistry
1224 Young Hall, 607 Circle Drive South
Los Angeles, CA  90095

+Robert C. McShirley                               867,442(4)        4.63%              3.97%
4536 Falkirk Bay
Oxnard, CA 93035

+Richard S. McShirley                              380,918(5)        2.04%              1.74%
794 Hot Springs Road
Santa Barbara, CA 93108

Sandford T. Waddell                                 88,906(6)           *                  *
5740 Ralston St., Suite 110
Ventura, CA 93003

+Ronald J. Sanderson                                93,750(7)           *                  *
1425 London Lane
Glenview, IL 60025

Executive Officers and Directors                 2,751,505(8)       13.80%             12.60%
 as a group (11 individuals)
</TABLE>


                                       53
<PAGE>
------------------------
*    Less  than  1%.
**   Based  on  21,840,095  shares of common stock outstanding as of April 30,
     3001, which is derived from (i) 18,685,814 shares of common stock, (ii)
     1,804,105 shares of Series 1-A Preferred Stock converted into common stock
     on a 1:1 basis and (iii) 1,350,176 shares of Series 2-A Preferred Stock
     converted into common stock on a 1:1 basis.
+    No  longer  employed  by  the  Company.
(1)  Includes 38,374 shares of common stock issuable upon conversion of 38,374
     shares of Series 1-A Preferred Stock.
(2)  Solely in his capacity as (a) a managing member of Mercantile Equity
     Partners III, LLC ("MEP, LLC"), and a trustee of the Edelson Family Trust
     dated September 17, 1997, which is also a managing member of MEP, LLC, (b)
     a member of Mercantile Capital Group, LLC ("MCG"), and (c) a member of the
     Investment Committee of Mercantile Capital Management Corp. ("MCM"). MCG is
     the general partner of Mercantile Capital Partners I, L.P ("MCP"). MEP, LLC
     is the general partner of Mercantile Equity Partners III, L.P. ("MEP, LP").
     MEP, LP directly holds 91,161 shares of Series 1-A Preferred Stock, which
     are convertible into 91,161 shares of common stock. MCP directly holds
     624,025 shares of Series 2-A Preferred Stock, which are convertible into
     624,025 shares of common stock, and has a Warrant to purchase 54,312 shares
     of common stock. In addition, Mr. Edelson is the trustee of the Mercantile
     Companies Inc. Money Purchase Plan, which holds 3,838 shares of Series 1-A
     Preferred Stock, which are convertible into 3,838 shares of common stock.
(3)  Solely in his capacity as (a) a member of MCG and (b) a member of the
     Investment Committee of MCM. MCG is the general partner of MCP. MCP
     directly holds 624,025 shares of Series 2-A Preferred Stock, which are
     convertible into 624,025 shares of common stock, and has a Warrant to
     purchase 54,312 shares of common stock.
(4)  Includes 50,000 shares of common stock subject to options exercisable
     within 60 days of April 30, 2001.
(5)  Includes 25,000 shares of common stock subject to options exercisable
     within 60 days of April 30, 2001.
(6)  Includes (i) 19,501 shares of common stock issuable upon the conversion of
     19,501 shares of Series 2-A Preferred Stock, (ii) 1,697 shares of common
     stock issuable upon the exercise of Warrants, and (iii) 67,708 shares of
     common stock subject to options exercisable within 60 days of April 30,
     2001.
(7)  Includes 93,750 shares of common stock subject to options exercisable
     within 60 days of April 30, 2001.
(8)  Includes a total of (i) 738,525 shares of common stock issuable upon the
     conversion of Series 1-A and Series 2-A Preferred Stock, and (ii) 292,467
     shares of common stock subject to options or warrants exercisable within 60
     days of April 30, 2001.


                                 Preferred Stock

Series  1-A  Convertible  Preferred  Stock

     The  Series  1-A  Preferred  Stock  votes as a single class with the common
stock,  with  each share entitled to the number of votes equal to that number of
shares  of  common  stock  into which it would then be converted. The Series 1-A
Preferred  Stock  is  currently  convertible  on  a 1:1 basis into common stock.

     The  following  table  sets  forth certain information as of April 30, 2001
regarding  the  beneficial  ownership  of  Series 1-A Preferred Stock by (i) all
individuals  known  to  beneficially own 5% or more of the outstanding shares of
such  class  of  security, (ii) each of the Named Executive Officers (as defined
above  under  Executive Compensation) and directors who own any shares of Series
1-A  Preferred  Stock  and  (iii)  all  of  the Company's executive officers and
directors as a group, in each case to the best of the Company's knowledge. As of
April  30,  2001,  there  were  1,804,105  shares  of Series 1-A Preferred Stock
outstanding.


                                       54
<PAGE>

<TABLE>
<CAPTION>
                                    Number of Shares
                                    Beneficially       Percent of   Percent of Total
Name of Beneficial Owner            Owned              Class*       Outstanding **
----------------------------------  -----------------  -----------  ----------------
<S>                                 <C>                <C>          <C>
787, LLC                                     191,918        10.64%                 *
c/o James F. Voelker
9919 S.E. Fifth Street
Bellvue, WA 98004

Jeffries Employees Merchant                  136,318         7.56%                 *
Banking Fund LLD
11100 Santa Monica Blvd.
Los Angeles, CA 90025

Denmore Investments Ltd                      115,151         6.38%                 *
C/o Refco Securities
One World Financial Center
200 Liberty St., Tower A
New York, NY 10281

Qwest Investment Company                     115,151         6.38%                 *
1801 California St., Ste. 5100
Denver, CO 80202

Fidelity National Title Insurance             95,959         5.32%                 *
Company of New York
3916 State Street, Suite 28
Santa Barbara, CA 93105

The R S Orphan Fund LP                        95,383         5.29%                 *
C/o RS Investment Mgmt.
388 Market Street Nbr 200
San Francisco, CA 94111

Mercantile Equity Partners III LP           91,161(1)        5.05%                 *
1372 Shermer Road
Northbrook, IL 60062

I. Steven Edelson                           94,999(2)        5.27%                 *
1372 Shermer Road
Northbrook, IL 60062

Executive officers and directors              94,999         5.27%                 *
as a group (11 individuals)
</TABLE>

------------------------
*    Less  than  one  percent  (1%)
**   Based  on  21,840,095  shares of common stock outstanding as of April 30,
     3001, which is derived from (i) 18,685,814 shares of common stock, (ii)
     1,804,105 shares of Series 1-A Preferred Stock converted into common stock
     on a 1:1 basis and (iii) 1,350,176 shares of Series 2-A Preferred Stock
     converted into common stock on a 1:1 basis.
(1)  These shares are also beneficially owned by MEP, LLC, its general partner,
     and Michael A. Reinsdorf, as a managing member of MEP, LLC.
(2)  Solely in his capacity as (i) a managing member of MEP, LLC and a trustee
     of the Edelson Family Trust dated September 17, 1997, which is also a
     managing member of MEP, LLC, and (ii) the trustee of the Mercantile
     Companies Inc. Money Purchase Plan which holds 3,838 shares of Series 1-A
     Preferred Stock.


Series  2-A  Convertible  Preferred  Stock

     The  Series  2-A  Preferred  Stock  votes as a single class with the common
stock,  with  each share entitled to the number of votes equal to that number of
shares  of  common  stock  into which it would then be converted. The Series 2-A
Preferred  Stock  is  currently  convertible  on  a 1:1 basis into common stock.

     The  following  table  sets  forth certain information as of April 30, 2001
regarding  the  beneficial  ownership  of  Series 2-A Preferred Stock by (i) all
individuals  known  to  beneficially own 5% or more of the outstanding shares of
such  class  of  security, (ii) each of the Named Executive Officers (as defined
above  under  Executive Compensation) and directors who own any shares of Series
2-A  Preferred  Stock  and  (iii)  all  of  the Company's executive officers and
directors as a group, in each case to the best of the Company's knowledge. As of
April  30,  2001,  there  were  1,350,176  shares  of Series 2-A Preferred Stock
outstanding.


                                       55
<PAGE>

<TABLE>
<CAPTION>
                                   Number of Shares                Percent of
                                   Beneficially       Percent of   Total
Name of Beneficial Owner           Owned              Class*       Outstanding**
---------------------------------  -----------------  -----------  --------------
<S>                                <C>                <C>          <C>
Mercantile Capital Partners I LP          624,025(1)       46.21%           2.86%
1372 Shermer Road
Northbrook, IL 60062

Stonehill Partners LP                       156,006        11.55%              *
C/o WHX Corporation
110 East 59th Street
New York, NY 10022

Crestview Capital Fund LP                   132,605         9.82%              *
C/o Dillion Capital
3000 Dundee Road, Suite 105
Northbrook, IL 60062

I. Steven Edelson                         624,025(2)       46.21%           2.86%
1372 Shermer Road
Northbrook, IL 60062

Nathaniel C. A. Kramer                    624,025(3)       46.21%           2.86%
641 Lexington Avenue
Suite 1450
New York, NY 10022

Sandford T. Waddell                          19,501         1.44%              *
5740 Ralston St., Suite 110
Ventura, CA 93003

Executive officers and directors            643,526        47.66%           2.95%
 as a group (11 individuals)
</TABLE>

------------------------
*    Less  than  one  percent  (1%)
**   Based  on  21,840,095  shares of common stock outstanding as of April 30,
     3001, which is derived from (i) 18,685,814 shares of common stock, (ii)
     1,804,105 shares of Series 1-A Preferred Stock convertible into common
     stock on a 1:1 basis and (iii) 1,350,176 shares of Series 2-A Preferred
     Stock convertible into common stock on a 1:1 basis.
(1)  These shares are also beneficially owned by (i) MCG, the general partner of
     MCP, (ii) MCM, a manager of MCG, and (iii) Michael A. Reinsdorf, a member
     of MCP and a member of the Investment Committee of MCM.
(2)  Solely in his capacity as a member MCG and a member of the Investment
     Committee of MCM.
(3)  Solely in his capacity as a member of MCG and a member of the Investment
     Committee of MCM.

ITEM  12.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

NetCel360  Acquisition

     On  May  24,  2001,  the Company entered into an Acquisition Agreement with
NetCel360  Holdings  Limited,  a Cayman Islands company ("NetCel360"), providing
for  the  acquisition by the Company of substantially all assets of NetCel360 in
exchange  for  approximately  19.9%  of  the  Company's  common  shares  and the
assumption  by  the  Company of approximately $3.45 million of bridge financing.
The  acquisition  is  expected  to close in June 2001.  Asia Internet Investment
Group  I,  L.P.  owns  approximately  2.8%  of  NetCel360  and  has  provided
approximately  8.5%  of the bridge financing that the Company will assume in the
proposed  transaction.   I. Stephen Edelson, the Acting Chairman of the Board of
the  Company,  and  Nathaniel  Kramer, a director of the Company, are two of the
managers  of  the  general  partner  of  AIIG.

Notes  Receivable


                                       56
<PAGE>
     The Company has unsecured notes receivables from several former and current
officers and directors which totaled $426,798 as of January 31, 2001. Certain of
these  notes, totaling $178,798, were granted in connection with the exercise of
636,100  stock  options  in  May  1999  by  the following executive officers and
directors  of the Company, each of whom resigned from the Company in March 2001:
Robert  McShirley,  the  Company's  former  Chief  Executive  Officer,  Richard
McShirley,  the  Company's  former  Vice  President,  and Samuel Bradt, a former
director  of the Company.  The aggregate outstanding principal balance of Robert
McShirley's  notes  at January 31, 2001, was $68,164;  the aggregate outstanding
principal  balance  of  Richard  McShirley's  notes  at  January  31,  2001, was
$101,259;  and  the aggregate outstanding principal balance of Mr. Bradt's notes
at  January  31,  2001,  was  $9,375.  These notes, as of January 31, 2000, were
unsecured,  due  on  demand  and  bear  interest  at  an  annual  rate  of  6%.

     The  remainder  of  the  notes, in aggregate principal amount of  $248,000,
were  granted in September 2000 in connection with the issuance of 19,501 shares
of  Series  2-A Preferred Stock to each of Sandford Waddell, the Company's Chief
Financial Officer, and Mr. Turner, the Company's former Chief Operating Officer.
The notes are secured by the shares of related stock, bear interest at an annual
rate  of  8% and are due on September 15, 2003.  The total outstanding principal
balance  of  Mr. Waddell's note at January 31, 2001, was $124,000, and the total
outstanding  principal  balance  of  Mr.  Turner's note at January 31, 2001, was
$124,000.  On  March  8,  2001, in connection with Mr. Turner's resignation, the
terms  of  Mr.  Turner's  note  were  revised to provide that (a) the note shall
become  payable  on  demand  90 days from the last day of employment and (b) all
notes  would  be  collateralized  by 19,501 shares of Series 2-A Preferred Stock
held  by  Mr.  Turner  as  the  Company's  sole  recourse.

     In  October  2000,  Robert  McShirley borrowed $400,000 from the Company in
exchange for a secured ninety-day promissory note which bears interest at a rate
of  8% per annum and was due on January 9, 2001. The note receivable from Robert
C.  McShirley  is  collateralized by 300,000 shares of the Company stock as sole
recourse.  In  late  October  2000, Mr. McShirley repaid the Company $250,000 of
the  original  balance,  leaving a balance of $150,000. On January 30, 2001, the
Company's board of directors approved an extension of this note for 90 days.  On
March  8, 2001, in connection with Mr. McShirley's resignation, the terms of the
notes  were extended to August 27, 2001, and were collectively collateralized by
300,000  shares  of  common  stock  held  by Mr. McShirley as the Company's sole
recourse.

     Also  in  October  2000,  Mr.  Turner  borrowed $50,000 from the Company in
exchange  for a two-year promissory note which bears interest at a rate of 8%per
annum  and is due on October 12, 2002.  On March 8, 2001, in connection with Mr.
Turner's resignation, the terms of the note were revised to provide that (a) the
note shall become payable on demand 60 days from the last day of employment, and
(b)  all  notes would be collateralized by 19,501 shares of Series 2-A Preferred
Stock  held  by  Mr.  Turner  as  the  Company's  sole  recourse.

Convertible  Notes

     The Company has issued convertible demand notes, from time to time, each in
a  private  transaction. In July 1999, Robert McShirley received an aggregate of
245,317  shares  of common stock upon the conversion of notes held by him in the
principal  amount  of $95,600.  Also in July 1999, Richard McShirley received an
aggregate of 188,116 shares of Common Stock upon the conversion of notes held by
him  in  the  principal  amount  of  $33,100.

Other  Transactions

     In  connection with the issuance of Series 1-A Preferred Stock, the Company
issued  to  New World Investment Partners a warrant to purchase 60,000 shares of
the  Company's common stock.  Subsequently to the issuance of the warrant, Ramin
Kamfar,  a  principal  of  New  World  Investment  Partners,  was elected to the
Company's  Board  of Directors.  In December 2000, New World Investment Partners
received  43,957  shares of common stock, pursuant to a cashless exercise of the
warrant.  These  shares  were  subsequently  transferred by New World Investment
Partners  to  a  third  party.


                                       57
<PAGE>
Item  13.     EXHIBITS  AND  REPORTS  ON  FORM  8-K

EXHIBITS

The Company will furnish a copy of any exhibit listed below upon written request
of  any  shareholder  receiving  these  materials  without  charge.

Exhibit  No.     Description
-----------      -----------

(a)     Exhibits:

<TABLE>
<CAPTION>
Exhibit No.   Description
------------  -----------
<S>           <C>
3.1(*)        Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to Registrant's Form 8-K
              for the period ended October 30, 2000 (SEC File No. 000-30326)
3.2(*)        Bylaws incorporated herein by reference to Exhibit 3.2 to Registrant's Form 8-K for the period ended
              October 30, 2000 (SEC File No. 000-30326)
4.1(*)        Certificate of Designation of Series 2-A Convertible Preferred Stock incorporated herein by reference
              to Exhibit 4.1 to Registrant's Form 8-K for the period ended October 30, 2000 (SEC File No. 000-
              30326)
4.2(*)        Certificate of Merger incorporated herein by reference to Exhibit 4.2 to Registrant's Form 8-K for the
              period ended October 30, 2000 (SEC File No. 000-30326)
4.3(*)        Form of Series 3 Convertible Demand Note incorporated herein by reference to Exhibit 3.2 to
              Registrant's Registration Statement on Form 10-SB filed on September 21, 1999 (SEC File No. 000-
              26563)
4.4(*)        Form of Series 2 Convertible Demand Note incorporated herein by reference to Exhibit 3.3 to
              Registrant's Registration Statement on Form 10-SB filed on September 21, 1999 (SEC File No. 000-
              26563)
4.5(*)        Form of Common Stock Purchase Warrant incorporated herein by reference to Registrant's Form 8-K
              filed September 26, 2000 (SEC File No. 000-30326)
4.6(*)        Form of Registration Rights Agreement incorporated herein by reference to Registrant's Form 8-K
              filed September 26, 2000 (SEC File No. 000-30326)
10.1(*)       Ventura Professional Center First Amendment to Lease between Virtual Source, Inc. and Security
              National Properties, LLC, dated October 27, 1998 incorporated herein by reference to Exhibit 10.2 to
              Registrants Form 10-KSB filed May 11, 2000 (SEC File No. 000-30326)
10.2(*)       Lease - Razore Land Company, Landlord and Interactive Buyers Network International, Tenant,
              dated October 11, 1999 incorporated herein by reference to Exhibit 10.3 to Registrants Form 10-KSB
              filed May 11, 2000 (SEC File No. 000-30326)
10.3(*)       Promissory Note by Robert C. McShirley dated October 11, 2000 incorporated herein by reference to
              Exhibit 10.4 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.4(*)       Pledge and Security Agreement with Robert C. McShirley dated October 11, 2000 incorporated
              herein by reference to Exhibit 10.5 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
              No. 000-30326)
10.5(*)       Promissory Note by P. Scott Turner dated October 13, 2000 incorporated herein by reference to
              Exhibit 10.6 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.6(*)       Promissory Note by Sandford T. Waddell dated September 18, 2000 incorporated herein by reference
              to Exhibit 10.7 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.7(*)       Pledge and Security Agreement with Sandford T. Waddell dated September 18, 2000 incorporated
              herein by reference to Exhibit 10.8 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
              No. 000-30326)
10.8(*)       Promissory Note by P. Scott Turner dated September 18, 2000 incorporated herein by reference to
              Exhibit 10.9 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.9(*)       Pledge and Security Agreement with P. Scott Turner dated September 18, 2000 incorporated herein
              by reference to Exhibit 10.10 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No.
              000-30326)
10.10(*)      Agreement and Plan of Merger dated as of December 14, 2000 incorporated herein by reference to
              Exhibit 10.11 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.11(*)      Supplement to merger agreement with Colin Kruger and Michael Shirman dated December 14,
              2000(SEC File No. 000-30326)
10.12(*)      Form of Warrant Holder Agreement with OTT Shareholders (SEC File No. 000-30326)


                                       58
<PAGE>
10.13(*)      Form of Registration Rights Agreement with OTT Shareholders (SEC File No. 000-30326)
10.14(*)      At Will Employment Agreement with Colin P. Kruger (SEC File No. 000-30326)
10.15(*)      At Will Employment Agreement with Michael Shirman (SEC File No. 000-30326)
10.16(*)      Office Lease between L.A.T. Investment Corporation and Online Transaction Technologies, Inc.
              dated March 7, 1999 (SEC File No. 000-30326)
10.17(*)      First Amendment to Lease between L.A.T. Investment Corporation dated February 1, 2000 (SEC File
              No. 000-30326)
10.18(*)      Alliance Agreement between Registrant and IBM dated September 18, 2000 (SEC File No. 000-
              30326)
10.19(*)      IBM PartnerWorld Agreement - International Basic General Terms between OTT and IBM (SEC File
              No. 000-30326)
21.1(*)       Subsidiaries of the Registrant (SEC File No. 000-30326)
99.1(*)       Vsource, Inc. 2000 Stock Option Plan incorporated herein by reference to Exhibit 99.1 to Registrant's
              Form 10-QSB/A filed September 25, 2000 (SEC File No. 000-30326)
</TABLE>

------------------------
*     Previously  filed  with  Securities  and  Exchange  Commission.


REPORTS  ON  FORM  8-K

     1.   The Company's Report on Form 8-K - Change in Registrant's Certifying
          Accountant, filed on February 14, 2000.

     2.   The Company's Report on Form 8-K - Other Events: Sale of Series 2-a
          Convertible Preferred Stock, filed on September 26, 2000.

     3.   The Company's Report on Form 8-K - Other Events: Preliminary Agreement
          to Acquire Online Transaction Technologies, Inc., filed on October 23,
          2000.

     4.   The Company's Report on Form 8-K - Other Events: regarding Nasdaq
          listing and reincorporation in Delaware (SEC File No. 000-30326) filed
          November 14, 2000.

     5.   The Company's Report on Form 8-Changes in management, cost saving
          measures, change in business and product line and LiquidMarketplace
          (TM) product line (SEC File No. 000-30326); K filed March 20, 2001.

     6.   The Company's Report on Form 8-K - Other Events: Acquisition of assets
          with financial statements and exhibits regarding the acquisition of
          its subsidiary, Online Transaction Technologies, Inc. (SEC File No.
          000-30326) filed on April 2, 2001.


                                       59
<PAGE>
SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or 15(d) 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.

                                            Vsource,  Inc.


                                            /s/  Phillip Kelly
 Date:  February 20, 2002                   --------------------------
                                            Phillip Kelly
                                            Chief Executive Officer
                                            (Principal Executive Officer)


     Pursuant  to  the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by  the  following  persons  on  behalf of the
Registrant  and  in  the  capacities  and  dates  indicated.


<TABLE>
<CAPTION>
SIGNATURE                                    TITLE                          DATE
<S>                         <C>                                       <C>

/s/ Phillip Kelly           Chief Executive Officer                   February  , 2002
--------------------------  Co-Chairman
Phillip Kelly               (Principal Executive Officer)


/s/ Dennis Smith            Vice-Chairman, Chief Financial Officer,   February  , 2002
--------------------------  Chief Strategy Officer
Dennis Smith                (Principal Accounting Officer)


/s/ Scott T. Behan          Director                                  February 20, 2002
--------------------------
Scott T. Behan


/s/ I. Steven Edelson       Director                                  February 20, 2002
--------------------------
I. Steven Edelson


/s/ Ramin Kamfar            Director                                  February 20, 2002
--------------------------
Ramin Kamfar


/s/ Nathaniel C. A. Kramer  Director                                  February 20, 2002
--------------------------
Nathaniel C. A. Kramer


/s/ Robert N. Schwartz      Director                                  February 20, 2002
--------------------------
Robert N. Schwartz
</TABLE>



                                       60
<PAGE>
<TABLE>
<CAPTION>
                                  EXHIBIT INDEX


Exhibit No.   Description
-----------   -----------
<S>           <C>

3.1(*)        Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to Registrant's Form 8-K
              for the period ended October 30, 2000 (SEC File No. 000-30326)
3.2(*)        Bylaws incorporated herein by reference to Exhibit 3.2 to Registrant's Form 8-K for the period
              ended October 30, 2000 (SEC File No. 000-30326)
4.1(*)        Certificate of Designation of Series 2-A Convertible Preferred Stock incorporated herein by
              reference to Exhibit 4.1 to Registrant's Form 8-K for the period ended October 30, 2000 (SEC File
              No. 000-30326)
4.2(*)        Certificate of Merger incorporated herein by reference to Exhibit 4.2 to Registrant's Form 8-K for
              the period ended October 30, 2000 (SEC File No. 000-30326)
4.3(*)        Form of Series 3 Convertible Demand Note incorporated herein by reference to Exhibit 3.2 to
              Registrant's Registration Statement on Form 10-SB filed on September 21, 1999 (SEC File No. 000-
              26563)
4.4(*)        Form of Series 2 Convertible Demand Note incorporated herein by reference to Exhibit 3.3 to
              Registrant's Registration Statement on Form 10-SB filed on September 21, 1999 (SEC File No. 000-
              26563)
4.5(*)        Form of Common Stock Purchase Warrant incorporated herein by reference to Registrant's Form 8-
              K filed September 26, 2000 (SEC File No. 000-30326)
4.6(*)        Form of Registration Rights Agreement incorporated herein by reference to Registrant's Form 8-K
              filed September 26, 2000 (SEC File No. 000-30326)
10.1(*)       Ventura Professional Center First Amendment to Lease between Virtual Source, Inc. and Security
              National Properties, LLC, dated October 27, 1998 incorporated herein by reference to Exhibit 10.2
              to Registrants Form 10-KSB filed May 11, 2000 (SEC File No. 000-30326)
10.2(*)       Lease - Razore Land Company, Landlord and Interactive Buyers Network International, Tenant,
              dated October 11, 1999 incorporated herein by reference to Exhibit 10.3 to Registrants Form 10-
              KSB filed May 11, 2000 (SEC File No. 000-30326)
10.3(*)       Promissory Note by Robert C. McShirley dated October 11, 2000 incorporated herein by reference
              to Exhibit 10.4 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.4(*)       Pledge and Security Agreement with Robert C. McShirley dated October 11, 2000 incorporated
              herein by reference to Exhibit 10.5 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
              No. 000-30326)
10.5(*)       Promissory Note by P. Scott Turner dated October 13, 2000 incorporated herein by reference to
              Exhibit 10.6 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.6(*)       Promissory Note by Sandford T. Waddell dated September 18, 2000 incorporated herein by
              reference to Exhibit 10.7 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-
              30326)
10.7(*)       Pledge and Security Agreement with Sandford T. Waddell dated September 18, 2000 incorporated
              herein by reference to Exhibit 10.8 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File
              No. 000-30326)
10.8(*)       Promissory Note by P. Scott Turner dated September 18, 2000 incorporated herein by reference to
              Exhibit 10.9 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.9(*)       Pledge and Security Agreement with P. Scott Turner dated September 18, 2000 incorporated herein
              by reference to Exhibit 10.10 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No.
              000-30326)
10.10(*)      Agreement and Plan of Merger dated as of December 14, 2000 incorporated herein by reference to
              Exhibit 10.11 to Registrant's Form 10-QSB filed December 15, 2000 (SEC File No. 000-30326)
10.11(*)      Supplement to merger agreement with Colin Kruger and Michael Shirman dated December 14,
              2000(SEC File No. 000-30326)
10.12(*)      Form of Warrant Holder Agreement with OTT Shareholders (SEC File No. 000-30326)
10.13(*)      Form of Registration Rights Agreement with OTT Shareholders (SEC File No. 000-30326)
10.14(*)      At Will Employment Agreement with Colin P. Kruger (SEC File No. 000-30326)
10.15(*)      At Will Employment Agreement with Michael Shirman (SEC File No. 000-30326)
10.16(*)      Office Lease between L.A.T. Investment Corporation and Online Transaction Technologies, Inc.
              dated March 7, 1999 (SEC File No. 000-30326)
10.17(*)      First Amendment to Lease between L.A.T. Investment Corporation dated February 1, 2000 (SEC
              File No. 000-30326)


                                       61
<PAGE>
10.18(*)      Alliance Agreement between Registrant and IBM dated September 18, 2000 (SEC File No. 000-
              30326)
10.19(*)      IBM PartnerWorld Agreement - International Basic General Terms between OTT and IBM (SEC
              File No. 000-30326)
21.1(*)       Subsidiaries of the Registrant (SEC File No. 000-30326)
99.1(*)       Vsource, Inc. 2000 Stock Option Plan incorporated herein by reference to Exhibit 99.1 to
              Registrant's Form 10-QSB/A filed September 25, 2000 (SEC File No. 000-30326)
</TABLE>

------------------------
*     Previously  filed  with  Securities  and  Exchange  Commission.


                                       62
<PAGE>