<PAGE>
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 For the period ended JUNE 30, 2001

                                       OR

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


                          Commission File No.: 0-27878

                           MCGLEN INTERNET GROUP, INC.
                 (Name of small business issuer in its charter)

                Delaware                                 13-3779546
      (State or other jurisdiction                      (IRS Employer
    of incorporation or organization)                Identification No.)

              16700 Gale Avenue, City of Industry, California 91745
               (Address of principal executive offices)(Zip code)

                    Issuer's telephone number: (626) 923-6000



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

The number of shares outstanding of each of the issuer's classes of publicly
traded common equity, as of August 13, 2001 was 35,850,869 shares of Common
Stock.




<PAGE>


                           MCGLEN INTERNET GROUP, INC.

                               Index to Form 10-Q



PART I - FINANCIAL INFORMATION.................................................3
   ITEM 1   FINANCIAL STATEMENTS...............................................3
   CONDENSED CONSOLIDATED BALANCE SHEETS.......................................3
   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.............................4
   CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT ..................5
   CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS..............................6
   CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................7
   ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS..........................................9
   Business Factors...........................................................12
Part II - OTHER INFORMATION...................................................12
   Item 2.  Changes in Securities and Use of Proceeds.........................12
   Item 6.  Exhibits and Reports on Form 8-K..................................12
   SIGNATURE..................................................................12







<PAGE>

                           MCGLEN INTERNET GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)


                          ASSETS                        JUNE 30,   DECEMBER 31,
                                                          2001         2000
                                                        --------     --------
                                                      (unaudited)

Current Assets:
Cash and cash equivalents                               $   106      $     2
Accounts receivable, net of allowance for doubtful
  accounts and estimated returns of $20 at June 30,
  2001 and $30 at December 31, 2000                         378          341
Inventories                                                 204          192
Prepaid expenses and other current assets                   123          210
Deposits                                                    103          203
                                                        --------     --------
              Total current assets                          914          948
                                                        --------     --------
Equipment, net                                              146          297
Intangible assets                                           221          252
Other assets                                                 19           31
                                                        --------     --------
                                                        $ 1,300      $ 1,528
                                                        ========     ========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
Accounts payable                                        $   942      $ 1,701
Accrued expenses                                            307          211
Line of credit                                               90            -
Advances from Lan Plus                                      696            -
Capital lease obligations - current portion                  91           92
Convertible notes payable                                 1,092        1,092
Net current liabilities of discontinued operations          120          573
                                                        --------     --------
              Total current liabilities                   3,338        3,669
                                                        --------     --------
Capital lease obligations                                    94          141
Shares subject to recession rights                          700            -
Convertible notes payable                                     -          817
                                                        --------     --------

              Total liabilities                           4,132        4,627
                                                        --------     --------

Stockholders' deficit:
Preferred stock, $0.01 par value; 5,000 shares
  authorized, none issued or outstanding                      -            -
Common stock, $0.03 par value; authorized 50,000
  shares, 35,851 in 2001 and 31,895 in 2000 shares
  issued and outstanding                                  1,075          957
Additional paid in capital                                5,954        5,119
Accumulated deficit                                      (9,861)      (9,175)
                                                        --------     --------

              Total stockholders' deficit                (2,832)      (3,099)
                                                        --------     --------
                                                        $ 1,300      $ 1,528
                                                        ========     ========

    See accompanying condensed notes to the consolidated financial statements

                                        3


<PAGE>
<TABLE>
                           MCGLEN INTERNET GROUP, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
<CAPTION>

                                                        FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                           ENDED JUNE 30,          ENDED JUNE 30,
                                                         2001         2000       2001        2000
                                                       ---------   ---------   ---------   ---------
<S>                                                    <C>         <C>         <C>         <C>
Net sales                                              $  4,789    $  8,155    $ 10,593    $ 19,064

Cost of sales                                             4,250       7,521       9,357      17,179
                                                       ---------   ---------   ---------   ---------

Gross profit                                                539         634       1,236       1,885
                                                       ---------   ---------   ---------   ---------

Selling, general and administrative expenses
  (including $159 and $156, and $200 and $157,
  amortization of deferred compensation for the
  three and six months ended June 30, 2001 and
  2000, respectively)                                       931       2,120       2,371       3,975
                                                       ---------   ---------   ---------   ---------
Loss from operations                                       (392)     (1,486)     (1,135)     (2,090)

Interest expense                                            123          69         190          79
                                                       ---------   ---------   ---------   ---------


Loss before income taxes and extraordinary item            (515)     (1,555)     (1,325)     (2,169)
                                                       ---------   ---------   ---------   ---------

Extraordinary item, gain from retirement of
  debt, net of tax of $0                                     23           -         639           -

Provision for income taxes                                    -           -           -           -
                                                       ---------   ---------   ---------   ---------

Net loss                                               ($   492)   ($ 1,555)   ($   686)   ($ 2,169)
                                                       =========   =========   =========   =========


Basic and diluted net loss per share before
   extraordinary item                                  ($  0.01)   ($  0.05)   ($  0.04)   ($  0.07)
                                                       =========   =========   =========   =========

Basic and diluted net loss per share                   ($  0.01)   ($  0.05)   ($  0.02)   ($  0.07)
                                                       =========   =========   =========   =========


Weighted average shares of common stock outstanding:
              Basic and diluted                          35,851      31,877      34,862      31,877
                                                       =========   =========   =========   =========


          See condensed notes to the consolidated financial statements
</TABLE>


                                        4
<PAGE>
<TABLE>
                                         MCGLEN INTERNET GROUP, INC.
                              CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                                                 (unaudited)
                                               (in thousands)
<CAPTION>

                                                                                                   TOTAL
                                                    COMMON STOCK     ADDITIONAL   ACCUMULATED  STOCKHOLDERS'
                                                                      PAID-IN      EARNINGS       EQUITY
                                               SHARES      AMOUNT     CAPITAL      (DEFICIT)     (DEFICIT)
                                              ---------   ---------   ---------    ---------     ---------
<S>                                             <C>       <C>         <C>          <C>           <C>
Balance at January 1, 2001                      31,895    $    957    $  5,119     $ (9,175)     $ (3,099)
Conversion of notes payable                      3,723         111         540                        651
Cashless stock options exercised                   233           7          (7)                         -
Non-cash compensation and financing charges                                198                        198
Conversion of accounts payable                                             104                        104
Net loss                                                                               (686)         (686)
                                              ---------   ---------   ---------    ---------     ---------
Balance at June 30, 2001                        35,851    $  1,075    $  5,954     $ (9,861)     $ (2,832)
                                              =========   =========   =========    =========     =========

                       See accompanying notes to the consolidated financial statements


</TABLE>


                                                         5

<PAGE>
<TABLE>


                                          MCGLEN INTERNET GROUP, INC.
                                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                   (unaudited)
<CAPTION>

                                                         FOR THE SIX MONTHS ENDED JUNE 30,
                                                            ----------------------------
                                                                2001            2000
                                                            ------------    ------------
<S>                                                         <C>             <C>
Cash flows from operating activities:
      Net loss                                              ($      686)    ($    2,169)
                                                            ------------    ------------
      Adjustments to reconcile net loss to net cash used in operating
      activities:
      Depreciation and amortization                                 179             185
      Non cash charges relating to stock options, warrants
        and stock compensation                                      224             313
      Gain on debt settlements                                     (639)              -
      Decrease in allowance for doubtful accounts                    10               -
      Amortization of beneficial debt conversion feature             51               -

      Changes in operating assets and liabilities:
      Accounts receivable                                           (47)           (184)
      Inventories                                                   (12)            (33)
      Prepaid expenses and other current assets                      37             (64)
      Deposits                                                      100            (320)
      Other assets                                                   12              (7)
      Accounts payable                                             (267)            485
      Accrued expenses                                               86             (75)
      Net current liabilities of discontinued operations           (182)           (511)
                                                            ------------    ------------
      Total adjustments                                            (448)           (211)
                                                            ------------    ------------
Net cash used in operating activities                            (1,134)         (2,380)
                                                            ------------    ------------

Cash flows from investing activities:
      Other assets - note receivable - related party                  -              (2)
      Purchases of equipment                                          -             (41)
                                                            ------------    ------------
Net cash used in investing activities                                 -             (43)
                                                            ------------    ------------

Cash flows from financing activities:
      Borrowings under convertible notes payable                    500           1,609
      Advances from Lan Plus Corporation                            696
      Borrowings under line of credit                                90              90
      Payments on capital lease obligations                         (48)            (44)
                                                            ------------    ------------
      Net cash provided by financing activities                   1,238           1,655
                                                            ------------    ------------
      Net increase (decrease) in cash and cash equivalents          104            (768)
      Beginning of period                                             2             962
                                                            ------------    ------------
      End of period                                         $       106     $       194
                                                            ============    ============

                See condensed notes to the consolidated financial statements
</TABLE>

                                        6

<PAGE>

MCGLEN INTERNET GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION

The consolidated interim financial statements include the accounts of Mcglen
Internet Group, Inc. (a Delaware corporation) and its wholly owned subsidiaries
(the "Company") and have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such regulations. These financial
statements should be read in conjunction with the audited financial statements
and the notes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2000.

In the opinion of management, the accompanying financial statements contain all
adjustments necessary to present fairly the financial position of the Company at
June 30, 2001 and 2000, and the results of operations and cash flows for the
three and six months ended June 30, 2001 and 2000. The results of operations for
the interim periods are not necessarily indicative of the results of operations
for the full year.


2. OVERVIEW AND RECENT DEVELOPMENTS

Mcglen Internet Group, Inc. is an Internet operating company focused on creating
multiple on-line business divisions targeting specific business-to-business and
business-to-consumer markets. The Company offers over 80,000 computer hardware,
software, and peripheral products servicing individuals, small offices/home
offices, and the corporate market through its three web sites; Mcglen.com,
AccessMicro.com, and Techsumer.com.

On October 11, 2000, the Company entered into an agreement and plan of merger
with Lan Plus Corporation (Lan Plus). Lan Plus is a manufacturer of both
private-label and branded turnkey computer solutions and services, with over
nine years of operating history. On March 21, 2001, the Company entered into an
amended and restated merger agreement that, among other things, eliminated
certain conditions to closing contained in the original merger agreement. The
amended merger agreement also extended the deadline for completing the merger to
June 30, 2001. In June 2001, the merger date was extended to September 30, 2001.
At the closing of the merger, Lan Plus shareholders will receive a number of
shares such that the Lan Plus shareholders will own (a) a majority of shares of
the post merger combined entity plus (b) 1.9 million additional shares and
certain other shares based upon the liabilities and assets at the closing date
and certain other adjustments.

The merger is subject to customary closing conditions, including shareholder and
regulatory approval. Management anticipates the merger closing in September
2001.

Andy Teng, founder, Chairman and Chief Executive Officer of Lan Plus, will
become the Chief Executive Officer and Chairman of the Board of the combined
company. Richard Shyu, currently President and Chief Operating Officer of Lan
Plus, will become President of the combined company. Both were added to the
Board of Directors in March 2001. Grant Trexler, currently Mcglen's Chief
Financial Officer, will become Chief Financial Officer of the combined company.
Two of Mcglen's founders, Mike Chen and Alex Chen, will assume management
positions within the new company.

In December 2000, the Company signed an interim operating agreement with Lan
Plus Corporation whereby the two companies would share certain facilities, staff
and other resources, co-market certain products, and combine other operations
where beneficial to both entities. The Company subsequently moved its
operations, except for its call center, to Lan Plus' facility. Mcglen purchased
approximately $1.8 million and $2.1 million of merchandise from Lan Plus during
the three and six months ended June 30, 2001 and had an accounts payable balance
to Lan Plus of approximately $524,000 at June 30, 2001. In addition, Lan Plus
has advanced Mcglen approximately $696,000 as of June 30, 2001 which will be
converted to stock at the close of merger.

                                        7
<PAGE>

During the three and six months ended June 30, 2001, the Company settled various
accounts payable and notes. The Company recorded extraordinary gains of
approximately $23,000 and $639,000 during the three and six months ended June
30, 2001, in connection with these settlements.

In January and February 2001, debt holders converted $617,000 of debt and
$60,000 of accrued interest into approximately 3,723,000 shares of common stock.

Finally, in January and February 2001, the Company received $500,000 from
convertible notes, less fees of approximately $55,000. These notes, as well as
$200,000 received from these investors in December 2000, were converted into
2,800,000 shares of the Company's common stock. However, since the holders of
these notes have the right to rescind their investment under Sections 15 and 29
of the Securities Act of 1934, the accompanying financial statements do not
reflect the conversion of these notes to equity.

In connection with this funding the Company also paid a placement fee of 140,000
shares of the Company's stock.

3.   GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company had a loss of approximately $0.7 million for the six
months ended June 30, 2001 and had a negative working capital of approximately
$2.4 million as of June 30, 2001. The Company's independent certified public
accountants have expressed substantial doubt about Mcglen's ability to continue
as a going concern.

The Company has taken a number of steps to eliminate unprofitable business. In
July 2000, the Company refocused its efforts on its key customer base and on
SKU's where the Company believes it has a competitive advantage. As a result,
sales have declined and the Company's workforce has decreased by more than 50%.
In December 2000, the Company signed an interim operating agreement with Lan
Plus whereby the two companies would share certain facilities, staff,
cross-market products, as well as other activities.

The Company is dependent upon funding from Lan Plus for its working capital
needs. The Company believes Lan Plus will continue to advance Mcglen funds as
needed; however, there can be no guarantee that Lan Plus will continue to
provide funding. If Lan Plus were to stop funding the Company's working capital
needs, Mcglen would have to curtail its operations and lay off most of its
workforce.

4. Recent Accounting PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, BUSINESS COMBINATIONS (SFAS 141), and No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

The Company's previous business combinations were accounted for using the
purchase method. As of June 30, 2001, the net carrying amount of goodwill is
$221,000. Amortization expense during the six-month period ended June 30, 2001
was $43,000. Currently, the Company is assessing but has not yet determined how
the adoption of SFAS 141 and SFAS 142 will impact its financial position and
results of operations.


                                        8
<PAGE>

ITEM 2 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 unaudited
condensed consolidated financial statements and the notes thereto included
elsewhere herein.

OVERVIEW

Net sales of the Company are primarily derived from the sale of personal
computer hardware, software, peripherals and accessories to system integrators,
distributors, individual consumers, small office- home offices (SOHO), small and
large corporations, and the government through the Internet. Gross profit
consists of net sales less product and shipping costs.

Mcglen has a marketing and promotion program in place that includes web
advertising, hyperlink allegiances, portal alliances, and direct one-to-one
marketing.

The Company purchases a substantial percentage of its products from Lan Plus
Corporation and Ingram Micro. Mcglen has no long-term contracts or arrangements
With its vendors that guarantee the availability of merchandise.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of net
sales represented by certain items reflected in the Company's consolidated
statements of operations. There can be no assurance that the trends in sales
growth or operating results will continue in the future.

<TABLE>
<CAPTION>

                                                                                PERCENTAGE OF NET SALES
                                                         THREE MONTHS ENDED JUNE 30,  SIX MONTHS ENDED JUNE 30,
                                                           2001          2000           2001            2000
                                                        --------     --------         -------          -------
<S>                                                      <C>           <C>              <C>             <C>
     Net sales                                           100.0%        100.0%           100.0%          100.0%
     Cost of sales                                        88.7          92.2             88.3            90.1
                                                        --------     ---------        ---------        --------
     Gross profit                                         11.3           7.8             11.7             9.9
     Operating expenses                                   16.2          24.1             20.5            20.1
     Non cash compensation and financing expenses          3.3           1.9              1.9             0.8
                                                        --------     ---------        ---------        ---------
     Loss from operations                                 (8.2)        (18.2)           (10.7)          (11.0)
     Interest expense                                      2.6           0.9              1.8             0.4
                                                        --------     ---------        ---------        ---------
     Loss before income taxes and extraordinary item     (10.8)        (19.1)           (12.5)          (11.4)
     Provision for income taxes                              -             -                -               -
                                                        --------     ---------        ---------        ---------
     Loss before extraordinary item                      (10.8)        (19.1)           (12.5)          (11.4)
     Extraordinary item - gain on debt settlements         0.5             -              6.0               -
                                                        --------     ---------        ---------        ---------
     Net loss                                            (10.3%)       (19.1%)          (6.5%)          (11.4%)
                                                        ========     =========        =========        =========
</TABLE>

Three Months Ended June 30, 2001 Compared to the Three Months Ended June 30,
2000

Net sales decreased by $3.4 million, or 41.3%, to $4.8 million for the period
ended June 30, 2001, compared to $8.2 million for the period ended June 30,
2000. The decrease in net sales was primarily a result of the Company's decision
in July 2000 to focus its efforts on the business to business sector (B2B), a
return to a focus on products where the Company has a niche in the marketplace
and where the Company believes it has a strategic advantage in product
procurement and distribution, and a shift away from the business to consumer
market (B2C) market.

Gross profit decreased by $95,000 or 15.0% to $539,000 for the period ended June
30, 2001, compared to $634,000 for the period ended June 30, 2000. The decrease
in gross profit was directly related to the decrease in net sales as the Company
focused its operations on the business to business sector (B2B), a return to a
focus on products where the Company has a niche in the marketplace and where the
Company believes it has a strategic advantage in product procurement and
distribution, and a shift away from the B2C market in July 2000. Gross profit as
a percentage of sales actually increased to 11.3% for the period ended June 30,
2001, compared to 7.8% for the period ended June 30, 2000. The increase in the
gross profit margin was directly related to the change in the Company's
operations in July 2000, away from lower margin B2C customers.

                                       9
<PAGE>

On a forward-looking basis, future gross profit margins may decline from recent
levels. The statement concerning future gross profit is a forward looking
statement that involves certain risks and uncertainties which could result in a
fluctuation of gross margins below those achieved for the three months ended
June 30, 2001. Although the Company believes it provides a high level of value
added services, pricing and gross profit could be negatively impacted by the
activities of larger Internet resellers and other sales channels.

Operating expenses decreased by $1.2 million or 56.1%, to $931,000 for the three
months ended June 30, 2001, from $2.1 million for same period in the prior year.
The decrease in operating expenses was attributable to a decrease in personnel
costs associated with the decreased sales volume, a decrease in advertising
costs resulting from decreased spending on the placement of Company's websites
on various shopping comparison search engines, decreased credit card processing
fees with lower sales volume as well as a decrease in the rate charged by the
Company's credit card processor, and decreased rent and telephone charges.
Advertising decreased by approximately $338,000, or 77.2%, as Mcglen decreased
spending, primarily price comparison search engines and product placements on
websites. Payroll and related costs decreased by approximately $237,000, or
38.1%, for the three months ended June 30, 2001 compared to the same quarter of
2000,as Mcglen consolidated positions and reduced head count. Rent decreased by
$15,000 as Mcglen moved out of its facilities in Tustin, California and
transferred its operations to Lan Plus' facility. Finally, as a result of the
Company's decline in sales, credit card processing and phone charges decreased
by approximately $143,000 and $30,000, respectively, or 59.3% and 46.4%,
respectively, for the three months ended June 30, 2001 compared to the same
period in 2000.

Interest expense increased by $54,000 due to increased borrowings in 2001.

Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000

Net sales decreased by $8.5 million, or 44.4%, to $10.6 million for the six
months ended June 30, 2001, compared to $19.1 million for the six months ended
June 30, 2000. The decrease in net sales was primarily a result of the Company's
decision in July 2000 to focus its efforts on the business to business sector
(B2B), a return to a focus on products where the Company has a niche in the
marketplace and where the Company believes it has a strategic advantage in
product procurement and distribution, and a shift away from the business to
consumer market (B2C) market.

Gross profit decreased by $649,000 or 34.4% to $1.2 million for the six months
ended June 30, 2001, compared to $1.9 million for the same period in the prior
year. The decrease in gross profit was directly related to the decrease in net
sales as the Company focused its operations on the business to business sector
(B2B), a return to a focus on products where the Company has a niche in the
marketplace and where the Company believes it has a strategic advantage in
product procurement and distribution, and a shift away from the B2C market in
July 2000. Gross profit as a percentage of sales actually increased to 11.7% for
the six months ended June 30, 2001, compared to 9.9% for the six months ended
June 30, 2000. The increase in the gross profit margin was directly related to
the change in the Company's operations in July 2000, away from lower margin B2C
customers.

Operating expenses decreased by $1.6 million or 40.4%, to $2.4 million for the
six months ended June 30, 2001, from $4.0 million for same period in the prior
year. The decrease in operating expenses was attributable to a decrease in
personnel costs associated with the decreased sales volume, a decrease in
advertising costs resulting from decreased spending on the placement of
Company's websites on various shopping comparison search engines, decreased
credit card processing fees with lower sales volume as well as a decrease in the
rate charged by the Company's credit card processor, and decreased rent and
telephone charges. Advertising decreased by approximately $426,000, or 59.1%, as
Mcglen decreased spending, primarily price comparison search engines and product
placements on websites. Payroll and related costs decreased by approximately
$590,000, or 47.0%, for the six months ended June 30, 2001 compared to the same
quarter of 2000,as Mcglen consolidated positions and reduced head count. Rent
decreased by $25,000 as Mcglen moved out of its facilities in Tustin, California
and transferred its operations to Lan Plus' facility. Finally, as a result of
the Company's decline in sales, credit card processing and phone charges
decreased by approximately $299,000 and $82,000, respectively, or 50.3% and
56.2%, respectively, for the six months ended June 30, 2001 compared to the same
period in 2000.

                                       10
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary capital need has been the funding of operations and
working capital requirements. Historically, the Company's primary sources of
financing have been private placements of stock and borrowings from its
stockholders, private investors, and financial institutions. Cash used by
operations was approximately $1.1 million for the six months ended June 30,
2001. Cash was used to fund the Company's loss from operations.

The Company has incurred a loss from operations during the last twenty four
months and had a working capital deficit and shareholders' deficit at June 30,
2001. For the year ended December 31, 2000, the Company's independent certified
public accountants included a modification to their opinion, which indicated
there is substantial doubt about the Company's ability to continue as a going
concern. The Company is attempting to raise additional capital to meet future
working capital requirements, but may not be able to do so. Should the Company
not be able to raise additional capital, it may have to severely curtail
operations.

The Company is dependent upon funding from Lan Plus for its working capital
needs. The Company believes Lan Plus will continue to advance Mcglen funds as
needed; however, there can be no guarantee that Lan Plus will continue to
provide funding. If Lan Plus were to stop funding the Company's working capital
needs, Mcglen would have to curtail its operations and lay off most of its
workforce.

During the six months ended June 30, 2001, the Company's capital expenditures
were approximately $0, compared to $41,000 in 2000, primarily for computer
software and hardware.

Since computer retailers typically have low product gross margins, Mcglen's
ability to regain profitability is dependent upon its ability to increase net
sales. To the extent that Mcglen's marketing efforts do not result in
significantly higher net sales, Mcglen will be materially adversely affected.
There can be no assurance that sufficient revenues will be generated from the
sale of its products to enable Mcglen to regain profitability on a quarterly or
annual basis. In view of the rapidly evolving nature of Mcglen's business and
its limited operating history, Mcglen believes that period-to-period comparisons
of its operating results, including gross profit and operating expenses as
percentage of net sales are not necessarily meaningful and should not be relied
upon as an indication of future performance.

Mcglen expects to experience significant fluctuations in its future operating
results due to a variety of factors, many of which are outside its control.
Factors that may affect its operating results include the frequency of new
product releases, success of strategic alliances, mix of product sales and
seasonality of sales typically experienced by retailers. Sales in the computer
retail industry are significantly affected by the release of new products.

Infrequent or delayed new product releases can negatively impact the overall
growth in retail sales. Gross profit margins for hardware, software and
peripheral products vary widely, with computer hardware generally having the
lowest gross profit margins. While Mcglen has some ability to affect its product
mix through effective up-selling of high margin products, its sales mix will
vary from period to period and Mcglen's gross margins will fluctuate
accordingly.

The Company incurred a net loss from operations for the three and six months
ended June 30, 2001, and had a working capital deficit of over $2.4 million and
shareholders' deficit of approximately $2.8 million at June 30, 2001. The
Company will require additional equity and/or debt capital in order to meet
future working capital needs and to accomplish its combined short-term and
long-term business objectives.

On December 22, 2000, we entered into a financing agreement with Dillow &
Dillow, Inc. Under the agreement, Dillow & Dillow introduced us to lenders that
loaned us $700,000; of which $500,000 was loaned during the quarter ended March
31, 2001. The promissory notes for the loans were secured by a first priority
security interest on all of our assets, and converted into 2,800,000 shares of
our common stock, at a conversion price of $0.25 per share, on March 21, 2001.
However, since the holders of these notes have the right to rescind their
investment under Sections 15 and 29 of the Securities Act of 1934, the
accompanying financial statements do not reflect the conversion of these notes
to equity.

The Company has taken a number of steps to conserve its available cash and
eliminate unprofitable business. In July 2000, the Company refocused its efforts
on its key customer base and on SKU's where the Company believes it has a
competitive advantage. As a result, sales have declined and the Company laid-off
more than 70% of its workforce.

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<PAGE>

BUSINESS FACTORS

Except for historical information, all of the statements, expectations and
assumptions contained in the foregoing are forward-looking statements. The
realization of any or all of these expectations is subject to a number of risks
and uncertainties and it is possible that the assumptions made by management may
not materialize. In addition, there can be no assurances that momentum in the
Company's sales will be sustained, that the six month trends for sales will
continue in future periods, or that the Company's Internet sales will continue
to grow. In addition to the factors set forth above, other important factors
that could cause actual results to differ materially from our expectations
include competition from companies either currently in the market or entering
the market; competition from other Internet, catalog and retail store resellers
and price pressures related thereto; uncertainties surrounding the supply of and
demand for computer and computer related products; reliance on the Company's
vendors; and risks due to shifts in market demand and/or price erosion of owned
inventory. This list of risk factors is not intended to be exhaustive. Reference
should also be made to the risk factors set forth from time to time in the
Company's SEC reports, including but not limited to those set forth in the
section entitled "Certain Factors Affecting Future Results" in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000.

PART II - OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------

         a.       Exhibits. The exhibit index attached hereto is incorporated
                  herein by reference.

         b.       Reports on Form 8-K - none


                                    SIGNATURE

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

                  Mcglen Internet Group, Inc.


Date: August 14, 2001                 By /s/ Grant Trexler
                                        ---------------------------------
                                      Grant Trexler
                                      Chief Financial Officer

                                      (Duly Authorized Officer of the Registrant
                                      and Principal Financial Officer)


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